-----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, PzaLBGpI1OhyWJSnEdbvq9kiBPXPgMYfU86tKEb7KTPnYuZNe69qHs10NIhc09rD nc0EVrVwbyvirZL1M2iTKQ== 0000950144-97-003120.txt : 19970329 0000950144-97-003120.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950144-97-003120 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNITY FINANCIAL GROUP INC CENTRAL INDEX KEY: 0000852677 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 621626938 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: 1934 Act SEC FILE NUMBER: 000-28496 FILM NUMBER: 97566529 BUSINESS ADDRESS: STREET 1: 401 CHURCH ST STREET 2: PO BOX 198986 CITY: NASHVILLE STATE: TN ZIP: 37219 MAIL ADDRESS: STREET 1: PO BOX 198986 CITY: NASHVILLE STATE: TN ZIP: 37219-8986 10KSB40 1 COMMUNITY FINANCIAL GROUP FORM 10KSB40 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act - --- of 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996] For the fiscal year ended December 31, 1996 ------------------------------------------------------ Commission File Number 0-28496 --------------------------------------------------------- Community Financial Group, Inc. - -------------------------------------------------------------------------------- (Name of Small Business Issuer in its charter) Tennessee 62-1626938 - --------------------------------- ------------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 401 Church Street Nashville, Tennessee 37219-2213 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (615) 271-2000 ----------------------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $6 per share - -------------------------------------------------------------------------------- (Title of Class) Warrants, exercise price $12.50 per share - -------------------------------------------------------------------------------- (Title of Class) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ] State issuer's revenues for its most recent fiscal year. $13,826,000. The aggregate market value (price at which the stock sold) of Community Financial Group, Inc., voting common stock held by non-affiliates as of February 28, 1997, was $20,353,461. 2 State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Outstanding at Class March 12, 1997 ----- -------------- Common stock $6 par value 2,203,555 shares Documents Incorporated by Reference: Document from which portions Part of Form 10-KSB to are incorporated by reference which incorporated ----------------------------- ---------------------- 1. Annual Report to Shareholders for year Part II - Items 5,6, ended December 31, 1996 7 and 8 2. Proxy Statement dated March 25, 1997 Part III - Items 9, 10, 11 and 12 -2- 3 ITEM 1 - DESCRIPTION OF BUSINESS On December 13, 1995, Community Financial Group, Inc. ("CFGI"), was incorporated, as a Tennessee Corporation. CFGI, also filed an application with the Board of Governors of the Federal Reserve System for prior approval to become a one bank holding company pursuant to Section 3(a)(1) of the Bank Holding Company Act of 1956, as amended. This application was filed on January 22, 1996, and approval was received on March 29, 1996. As of December 31, 1996, the only subsidiary of CFGI was The Bank of Nashville (The Bank). CFGI and The Bank are collectively referred to herein as "the Company". The Bank was incorporated under the laws of the State of Tennessee, on July 10, 1989. The Bank was approved as a State Bank, is a member of the Federal Reserve System, and is insured by the Federal Deposit Insurance Corporation. The initial business day for the Bank was November 20, 1989. The Company has a total of 52 employees. The present area and scope of the Company's activities include providing a full range of banking and related financial services, including commercial banking, consumer banking, trust services, investment services, and real estate finance. The Company has a Trust Division that provides a full range of fiduciary services, including trusteeships, custodianship, safekeeping, employee benefit plan administration, and investment management. The Trust Division's services are available to individuals, businesses, municipalities, and charitable organizations. BFP Financial Partners, Inc., a subsidiary of Legg Mason Wood Walker, Inc., operates an Investment Center in the Company's primary location which provides bank customers convenient access to a wide array of investment products. The Company's capital position is adequate, in that the total risk-based capital ratio was 20.6%; tier 1 risk-based capital ratio was 19.3% and tier 1 leverage ratio was 13.2% at December 31, 1996. The total risk-based capital ratio of the Bank was 20.4%; tier 1 risk-based capital ratio was 19.1% and tier 1 leverage ratio was 13.1% at December 31, 1996. These capital ratios exceed the current regulatory minimum requirements. The loss of any one of the Company's deposits or loans from, or to, a single person/business (including federal/state/local governments/agencies) would not have a material adverse effect on the business of the Company beyond which has been planned for in the Company's liquidity position. Due to the commercial nature of the Company's target market, liabilities and loans are evaluated relative to industry concentration and volatility. At December 31, 1996, approximately 24% of total deposits were related to the construction and real estate development industries while approximately 4% were related to the health care industry. These areas represent the largest deposit concentrations and are generally reflective of the local economy and the Company's asset mix. These deposits are primarily reflected in the Company's demand deposit and interest bearing money market account totals and are deposits of relationship -3- 4 commercial customers, which by their nature are concentrated in a fewer number of customer relationships than would be the case in consumer deposit funding sources. No significant portion of the Company's business can be considered seasonal. The nature of the Company's business is principally domestic, thereby eliminating risks attendant to foreign sources and applications of funds. The Company is focused on serving small/mid-sized businesses and individuals in the middle Tennessee market, with a primary service area of the Metro Nashville-Davidson County Metropolitan Statistical Area (MSA). Nashville, located in the north central part of the State, is the State's largest MSA. Situated midway between the Mississippi delta to the west, and the Great Smokey Mountains to the east, Metropolitan Nashville covers 533 square miles. Over half of the population of the United States is located within a 600 mile radius of the City, and the central location has contributed to the emergence of Nashville as an important transportation, tourism, and distribution center. Diversity is a key element of the Nashville economy with printing and publishing, healthcare, automobile manufacturing, financial services, education, government, entertainment, tourism, hospitality, manufacturing, warehousing, and various service sectors, all being major contributors to the economic vitality of the area. The activities in which the Company engages are very competitive. Generally, the Company competes with other banks and nonbank financial institutions located primarily in the middle Tennessee market area. The principal methods of competition center around such aspects as interest rates on loans and deposits, decision making relationship management, customer services, and other service oriented fee based products. Most of the Company's competitors are major corporations with substantially more assets and personnel than the Company. The Company actively competes for loans and deposits with other commercial banks, brokerage firms, savings and loan associations and credit unions. Consumer finance companies, department stores, mortgage brokers, and insurance companies are also significant competitors for various types of loans. There is also active competition for various types of fiduciary and trust business from other banks, trust, and investment companies, and others. The Company is headquartered in the downtown central business district of Nashville. The Company occupies space in the lower level, the second floor, and the third floor of the L & C Tower, located at 401 Church Street, a location which serves as the Bank's main office. An exterior Automated Teller Machine (ATM) and commercial depository are located on Fourth Avenue, also at the L & C Tower. A second ATM location was established in 1994 at 201 Broadway, serving local businesses and individuals as well as tourists on historic 2nd Avenue in Nashville, Tennessee. In 1995, two additional ATMs were opened. One was established in Cummins Station, a retail and office complex located at 10th Avenue South. The other ATM combined with a commercial depository is located on Music Valley Drive, in the Opryland area. In 1996, the Company received regulatory approval to establish a mobile branch. The mobile branch brings traditional -4- 5 banking services to the offices of the Company's customers. In December 1996, an ATM was place in the Green Hills Mall. A full service branch office, located in Green Hills, opened January 23, 1997. Management anticipates that additional offices may be established as deemed appropriate, during future years, subject to regulatory approval. During 1996, the Company declared dividends of $.16 per share which resulted in a dividend payout ratio of 13.91%. Other information relating to current banking issues and the regulatory environment are addressed in the 1996 Annual Report to Shareholders. The following schedules are provided in accordance with Guide 3 "Statistical Disclosure by Bank Holding Companies." All schedules, except those noted below, have been omitted since the required information is either not applicable or is incorporated by reference in the Company's 1996 Annual Report. - Schedule III-A - Types of Loans - Schedule III-B - Maturities and Sensitivities of Loans to Changes in Interest Rates - Schedule IV-B - Allocation of the Allowance for Loan Losses III. LOAN PORTFOLIO The following table presents a summary of loan types (net of unearned income) by categories for the last five years. SCHEDULE III-A TYPES OF LOANS
December 31, ---------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Loans (net of unearned income of $256, $203, $202, $196 and $517 respectively) Commercial $ 35,721 $ 40,657 $ 35,108 $ 30,028 $ 37,184 Real estate - mortgage loans 58,763 48,648 41,800 44,743 48,363 Real estate - construction 9,467 5,952 2,227 849 433 Consumer 3,937 3,083 1,950 1,510 2,026 -------- -------- -------- -------- -------- $107,888 $ 98,340 $ 81,085 $ 77,130 $ 88,006 ======== ======== ======== ======== ========
-5- 6 III. LOAN PORTFOLIO - CONTINUED Most of the Company's business activity is with customers located in the Middle Tennessee region. Generally, loans are secured by real estate, inventory, receivables, stocks, time certificates, or other assets. The loans are expected to be repaid from cash flow or proceeds from the sale of selected assets of the borrowers. The Company grants residential, consumer, and commercial loans to customers throughout the Middle Tennessee region. Real estate mortgage and construction loans reflected in the preceding schedule are comprised primarily of loans to commercial borrowers. At December 31, 1996, funded and unfunded loan commitments as classified by standard Industry Classification codes include borrowers in the real estate industry approximating $21.3 million and $3.9 million, respectively, and loans to building contractors approximating $7.8 million and $7.5 million, respectively. At December 31, 1995, funded and unfunded commitments to borrowers in the real estate industry were approximately $18 million and $2 million, respectively, and loans to building contractors were approximately $6.7 million and $5.3 million, respectively. The following table presents the maturity distribution of loan categories at December 31, 1996 (in thousands). SCHEDULE III-B TYPES OF LOANS MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
One After One After Year But Within Five Or Less Five Years Years Total ---------------------------------------------------------------- (Net of Unearned Income) Commercial $27,367 $ 6,662 $ 1,692 $ 35,721 Real estate - mortgage 25,137 23,028 10,598 58,763 Real estate - construction 8,219 995 253 9,467 Consumer 3,067 840 30 3,937 ------- ------- -------- -------- $63,790 $31,525 $ 12,573 $107,888 ======= ======= ======== ======== For maturities over one year: Fixed $33,756 Floating 10,342
-6- 7 Schedule IV-B presents a breakdown of the allocation of the allowance for possible loan losses by major categories of loans at December 31, 1996 and 1995. Allocations estimated for each of the categories below do not indicate that loan charge-offs for these amounts are anticipated or will be required. There is no precise method of predicting specific losses which may occur in segments of the loan portfolio. The allowance for possible loan losses is available to absorb any and all losses and is not limited to specific loan types. Values assigned to loan categories in Schedule IV-B represent management's best estimates based on an evaluation of the loan portfolio and current economic conditions. Factors considered in establishing the level of the allowance for possible loan losses include management's ongoing credit review of the loan portfolio, the state of the national and regional economy, the nature and content of the loan portfolio and the level of nonperforming assets. SCHEDULE IV-B ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES (IN THOUSANDS OF DOLLARS)
Year Ended December 31, ----------------------- Balance Applicable To: 1996 1995 - ---------------------- ---- ---- Commercial $ 775 $ 735 Real estate - mortgage loans 900 730 Real estate - construction loans 140 55 Consumer 58 80 Unallocated 1,005 1,434 -------- -------- $ 2,878 $ 3,034 ======== ======== Percent of Total Allocation: - ---------------------------- Commercial 26.9% 24.2% Real estate - mortgage loans 31.3 24.1 Real estate - construction loans 4.9 1.8 Consumer 2.0 2.6 Unallocated 34.9 47.3 -------- -------- 100.0% 100.0% ======== ========
-7- 8 ITEM 2 - DESCRIPTION OF PROPERTY The Company, located at 401 Church Street, Nashville, Tennessee, occupies a total of 15,296 square feet on three floors of the L&C Tower, a 31-story office building. The facility has a total of 158,907 gross square footage and is located on .391 acres. The Company's space is leased from Metropolitan Life Insurance Company (the "Landlord"). The lease has an initial term of ten years with three five-year renewal options. The Company occupies 4,670 square feet in the Glendale Shopping Center located at 3770 Hillsboro Pike, Nashville, Tennessee. The Company's space is leased from Coleman Partners, a Tennessee Partnership, and has an initial term of five years with three five-year renewal options. ITEM 3 - LEGAL PROCEEDINGS None. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. -8- 9 PART II ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The following portion of the Company's 1996 Annual Report to Shareholders is incorporated herein by reference: Common Stock Information Page 42 ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS The following portions of the 1996 Annual Report are herein incorporated by reference. Management's Discussion and Analysis of Results of Operations and Financial Condition on pages 6 through 21. ITEM 7 - FINANCIAL STATEMENTS The following portions of the 1996 Annual Report are incorporated herein by reference. Financial Statements and Report of Independent Auditors on pages 22 through 39 and page 40. Quarterly Results of Operations on page 41. ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding directors and the information regarding executive officers called for by this item is contained in the sections entitled "Election of Directors" and "Executive Officers" in the Company's proxy statement for its 1997 Annual Meeting of Shareholders, dated March 25 1997, and is incorporated herein by reference. -9- 10 ITEM 10 - EXECUTIVE COMPENSATION The information called for by this item is contained in the section entitled "Compensation of Executive Officers" in the Company's proxy statement for its 1997 Annual Meeting of Shareholders, dated March 25, 1997, and is incorporated herein by reference. ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by this item is contained in the sections entitled "Directors and Nominees" and "Election of Directors" in the Company's proxy statement for its 1997 Annual Meeting of Shareholders dated March 25, 1997, and is incorporated herein by reference. ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by this item is contained in the section entitled "Transactions with Directors and Executive Officers" in the Company's proxy statement for its 1997 Annual Meeting of Shareholders dated March 25, 1997, and is incorporated herein by reference. ITEM 13 - EXHIBITS, LIST AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) Financial Statements The following consolidated financial statements and the Report of KPMG Peat Marwick LLP, Independent Certified Public Accountants, are on pages 22 through 39 and page 40 of the 1996 Annual Report and are incorporated herein by reference. - Consolidated Balance Sheets at December 31, 1996 and 1995 - Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 and 1994 Consolidated - Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 - Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 - Notes to Consolidated Financial Statements -10- 11 (2) Exhibits 1. Not required. 2. Plan of acquisition, reorganization, arrangement, liquidation or succession. None 3. Articles of Incorporation and By-Laws 4. Instruments defining the rights of security holders, including debentures. 4.01 Warrant Agreement 4.02 Form of specimen Certificate of Common Stock 4.03 Form of specimen Certificate of Common Stock Purchase Warrant 5. Not required. 6. Not required. 7. Not required. 8. Not required. 9. Voting Trust Agreement. None. 10. Material Contracts. 10.01 Employment Agreement between The Bank of Nashville and Mack S. Linebaugh, Jr. dated September 2, 1992, as amended. 10.02 Employment Agreement between The Bank of Nashville and Julian C. Cornett dated October 13, 1996. 10.03 Option Agreements between The Bank of Nashville and Mack S. Linebaugh, Jr. dated September 2, 1992 and July 27, 1993, and Option Agreement dated July 16, 1996 between Community Financial Group, Inc., and Mack S. Linebaugh, Jr. 10.04 Option Agreements between The Bank of Nashville and Julian C. Cornett dated October 13, 1992 and October 13, 1993, and Option Agreement dated July 16, 1996 between Community Financial Group, Inc., and Julian C. Cornett. 10.05 Lease Agreement dated July 19, 1989 between The Bank of Nashville and Metropolitan Life Insurance Company. 10.06 Lease Agreement dated August 1, 1996 between The Bank of Nashville and Coleman Partners, a Tennessee Partnership. 10.07 The Bank of Nashville Retirement Savings Plan. 10.08 Community Financial Group, Inc.'s Associates' Stock Purchase Plan. 11. Statement re computation of per share earnings. 12. Statement re computation of ratios. Not applicable. 13. 1996 Annual Report to Shareholders. 14. Not required. 15. Not required. 16. Letter re change in certifying accountant. Not applicable. 17. Not required. 18. Letter re change in accounting principles. Not applicable. 19. Not required. -11- 12 (2) Exhibits - Continued 20. Not required. 21. Subsidiaries of the registrant. 22. Published report regarding matters submitted to vote of security holders. None. 23. Consent of experts and counsel. None. 24. Power of Attorney. None. 25. Not required. 26. Not required. 27. Financial Data Schedule. 28. Information from reports furnished to state insurance regulatory authorities. Not applicable. 99. Additional Exhibits. None. -12- 13 (b) Reports on Form 8-K None -13- 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE BANK OF NASHVILLE By: /s/ Mack S. Linebaugh, Jr. Date: March 25, 1997 ------------------------------- ------------------------------ Mack S. Linebaugh, Jr. Chairman of the Board, President, Chief Executive Officer and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons or behalf of the registrant and in the capacities and on the dates indicated. /s/ Mack S. Linebaugh, Jr. /s/ L. Leon Moore - ---------------------------------- ----------------------------------- Mack S. Linebaugh, Jr. L. Leon Moore Chairman of the Board, Director President, Chief Executive Officer Dated March 25, 1997 and Chief Financial -------------- Officer Dated March 25, 1997 -------------- /s/ J. B. Baker, Jr. /s/ Perry W. Moskovitz - ---------------------------------- ----------------------------------- J. B. Baker, Jr. Perry W. Moskovitz Director Director Dated March 25, 1997 Dated March 25, 1997 -------------- -------------- /s/ Jo D. Federspiel /s/ Norris Nielsen - ---------------------------------- ----------------------------------- Jo D. Federspiel Norris Nielsen Director Director Dated March 25, 1997 Dated March 25, 1997 -------------- -------------- -14- 15 SIGNATURES - Continued /s/ Richard H. Fulton /s/ G. Edgar Thornton - ---------------------------------- ----------------------------------- Richard H. Fulton G. Edgar Thornton Director Director Dated March 25, 1997 Dated March 25, 1997 -------------- -------------- /s/ Louis A. McRedmond - ---------------------------------- Louis A. McRedmond Director Dated March 25, 1997 -------------- -15- EX-3 2 BY-LAWS OF COMMUNITY FINANCIAL GROUP 1 Exhibit 3 BYLAWS OF COMMUNITY FINANCIAL GROUP, INC. ARTICLE I OFFICES 1.01. Registered Office. The registered office of the Corporation shall be at 401 Church Street, Nashville, Tennessee 37219. 1.02. Other Offices. The Corporation may also have offices at other places in or out of the state of Tennessee as the Board of Directors may determine or as the business of the Corporation may require. ARTICLE II SHAREHOLDERS 2.01. Place of Meeting. Meetings of shareholders shall be held at the time and place, in or out of the State of Tennessee, stated in the notice of the meetings or in a waiver of notice. 2.02. Annual Meetings. An annual meeting of the shareholders shall be held each year at the registered office of the Corporation or such other place as the Board of Directors may designate at such time as may be fixed by the Board of Directors and pursuant to the provisions of law. If the day is a legal holiday, then the meeting shall be on the next business day following. At the meeting, shareholders shall elect directors and transact other business as may properly be brought before the meeting. 2.03. Voting List. A complete list of shareholders entitled to vote at a meeting of shareholders shall be maintained in accordance with applicable law. 2.04. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Charter, or by these Bylaws, may be called by Chairman of the Board, the President, the Board of Directors, or the holders of not less than twenty percent (20%) of all the shares entitled to vote at the meeting pursuant to the provisions of the charter. Business transacted at a special meeting shall be confined to the purposes stated in the notice of the meeting. 2.05. Notice. Written or printed notice, stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) days nor more than two (2) months before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, the President, the Secretary, or the officer or person calling the meeting, to each shareholder of record entitled to vote at the meeting. 2.06. Quorum. The holders of a majority of the shares issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be requisite and shall constitute a quorum at meetings of the shareholders for the transaction of business except as otherwise provided by statute, by the Charter or by these Bylaws. If a quorum is not present or represented at a meeting of the shareholders, the shareholders entitled to vote, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented, and any business may be transacted at the reconvened meeting which might have been transacted at the meeting as originally notified. 2.07. Majority Vote. When a quorum is present at a meeting, the vote of the holders of a majority of the shares having voting power, present in person or represented by proxy, shall decide any question brought before the meeting, unless the question is the election of directors or one on which, by express provision of the statutes, the Charter, or these Bylaws, a higher vote is required, in which case the express provision shall govern. There shall be no cumulative voting by the shareholders on any matter. - 1 - 2 2.08. Method of Voting. Each outstanding share shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares are limited or denied by the Charter. At any meeting of the shareholders, every shareholder having the right to vote may vote either in person, or by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. Each proxy shall be revocable unless expressly provided therein to be irrevocable and unless otherwise made irrevocable by law. Each proxy shall be filed with the Secretary of the Corporation prior to or at the time of the meeting. Voting for directors shall be in accordance with Section 3.06 of these Bylaws. Any vote may be taken by voice or by show of hands unless someone entitled to vote objects, in which case written ballots shall be used. 2.09. Record Date; Closing Transfer Books. The Board of Directors may fix in advance a record date for the purpose of determining shareholders entitled to notice of or to vote at a meeting of the shareholders, the record date to be not more than seventy (70) days prior to the meeting; or the Board of Directors may close the stock transfer books for such purpose for a period of not more than seventy (70) days prior to such meeting. In the absence of any action by the Board of Directors, the date upon which the notice of the meeting is mailed shall be the record date. 2.10. Action Without Meeting. Any action required by statute to be taken at a meeting of the shareholders, or any action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote. The affirmative vote of the number of shares that would be necessary to authorize or take such action at a meeting is the act of the shareholders. The consent may be in more than one counterpart so long as each shareholder signs one of the counterparts. The signed consent, or a signed copy shall be placed in the minute book. ARTICLE III DIRECTORS 3.01. Management. The business and affairs of the Corporation shall be managed by the Board of Directors who may exercise all powers of the Corporation and do all such lawful acts and things as are not (by statute or by the Charter or by these Bylaws) directed or required to be exercised or done by the shareholders. 3.02. Number; Qualification; Term. The Board of Directors shall consist of at least five (5) but no more than twenty-five (25) directors. The number of directors serving initially shall be nine (9). At least three-fourths (3/4) of the directors shall be citizens of the United States; at least two-thirds (2/3) shall be residents of Tennessee or reside within 25 miles of the main office of the Corporation, and a majority shall reside within 100 miles of the main office of the Corporation. Each Director elected shall hold office until his successor shall be duly elected and shall qualify. 3.03. Change in Number. The minimum or maximum number of Directors may be increased or decreased from time to time by amendment to these Bylaws (subject to any maximum number of Directors as provided by the Charter) but no decrease shall have the effect of shortening the term of any incumbent Director. 3.04. Removal. The Directors may remove one (1) or more directors for cause as provided in the Charter. 3.05. Vacancies. Any vacancy occurring in the Board of Directors, whether by death, resignation, removal, creation of new directorship, or otherwise, may be filled by an affirmative vote of a majority of the remaining Directors even though the Directors remaining in office constitute fewer than a quorum of the Board of Directors. A Director elected to fill a vacancy shall hold office until the next annual election of Directors and until his successor is duly elected and qualified. 3.06. Election of Directors. Except as otherwise provided in Sections 3.03 and 3.05, Directors shall be elected by a plurality vote at the annual meeting of the shareholders. At each such election of directors, every shareholder entitled to vote at such election shall have the right to vote, in person or by proxy the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote. - 2 - 3 3.07. Place of Meetings. Meetings of the Board of Directors, regular or special, may be held in or out of the state of incorporation. 3.08. Annual Meetings. The annual meeting of a newly elected Board shall be held without further notice immediately following the annual meeting of shareholders, and at the same place, unless the time or place is changed by the Chairman of the Board or the President with the consent of a majority of the Directors then elected and serving. 3.09. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board. 3.10. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President on two (2) days' notice to each Director, either personally or by mail or by telegram. Special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of two (2) Directors. Except as otherwise expressly provided by statute, the Charter or these Bylaws, neither the business to be transacted at, nor the purpose of, any special meeting need be specified in a notice or waiver of notice. 3.11. Quorum; Majority Vote. At meetings of the Board of Directors a majority of the number of Directors then serving shall constitute a quorum for the transaction of business. The act of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, except as otherwise specifically provided by statute, the Charter or these Bylaws. If a quorum is not present at a meeting of the Board of Directors, the Directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.12. Compensation. By resolution of the Board of Directors, the Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as Director, or a combination of salary and attendance fees. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. 3.13. Procedure. The Board of Directors shall keep regular minutes of its proceedings. The minutes shall be placed in the minute book of the Corporation. 3.14. Action Without Meeting. Any action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the members of the Board of Directors. The affirmative vote of the number of directors that would be necessary to authorize or take such action at a meeting is the act of the Board of Directors. The signed consent, or a signed copy, shall be placed in the minute book. The consent may be in more than one counterpart so long as each Director signs one of the counterparts. 3.15. Committees of the Board. There shall be an Audit Committee consisting of at least three (3) members of the Board of Directors appointed by the Board, none of whom are active officers of the Corporation. The committee shall meet once each year, or more often if required by the Chairman of the Board or President and shall examine, or cause to be examined, such books, assets and securities of the Corporation as it deems necessary or proper, or as it may be directed to examine. A record shall be kept of all such examinations, which shall be certified by the committee serving, and presented to the Board of Directors at its next meeting. The Audit Committee shall state whether the Corporation is in a sound and solvent condition, whether adequate internal audit controls and procedures are being maintained, and shall recommend to the Board such changes as shall be deemed advisable. The Audit Committee, upon its own recommendation and with the approval of the Board of Directors, may employ a qualified firm of certified public accountants to make the examination and audit of the Corporation. If such a procedure is followed, the one annual examination and audit by such firm of accountants and the presentation of its report to the Board of Directors, shall be deemed sufficient to comply with the requirements of the Audit Committee. The Board of Directors may appoint, from time-to-time, other committees, for such purposes and with such powers as the Board may determine. Unless otherwise specified by the Board or these Bylaws, a majority of the committee members will constitute a quorum of any Board appointed committee. - 3 - 4 ARTICLE IV NOTICE 4.01. Method. Whenever by statute, the Charter, these Bylaws, or otherwise, notice is required to be given to a Director, Committee Member, or Shareholder, and no provision is made as to how the notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given: (a) in writing, by mail, postage prepaid, addressed to the Director, Committee Member, or Shareholder at the address appearing on the books of the Corporation; or (b) in any other method permitted by law. Any notice required or permitted to be given by mail shall be deemed given at the time when the same is thus deposited in the United States mails. 4.02. Waiver. Whenever, by statute or the Charter or these Bylaws, notice is required to be given to a Shareholder, Committee Member, or Director, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice. Attendance at a meeting shall constitute a waiver of notice of such meeting, except where a person attends for the express purpose of objecting to the transaction of any business of the ground that the meeting is not lawfully called or convened. ARTICLE V OFFICERS AND AGENTS 5.01. Number, Qualification; Election; Term. a. The Corporation shall have: (1) a Chairman of the Board, a President and a Secretary; and (2) such other officers (including additional Vice Presidents) and assistant officers and agents as the Board of Directors may deem appropriate. b. Officers of the Corporation shall not be required to be shareholders of the Corporation. Officers need not be members of the Board of Directors. c. Officers named in Bylaw 5.01(a)(1) shall be elected by the Board of Directors on the expiration of an officer's term or whenever a vacancy exists. Officers and agents named in Bylaw 5.01(a)(2) may be elected by the Board at any meeting, whether regular or special. d. Unless otherwise specified by the Board at the time of his election or appointment, or in an employment contract approved by the Board, each officer's and agent's term shall end at the first meeting of Directors after the next annual meeting of shareholders. He shall serve until the end of his term or, if earlier, his death, resignation, or removal. e. Any two (2) or more offices, other than the offices of President and Secretary, may be held by the same person. 5.02. Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interest of the Corporation will be served thereby. Such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. 5.03. Vacancies. Any vacancy occurring in any office of the Corporation (by death, resignation, removal or otherwise) may be filled by the Board of Directors. 5.04. Authority. Officers and agents shall have such authority and perform such duties in the management of the Corporation as are provided in these Bylaws or as may be determined by resolution of the Board of Directors not inconsistent with these Bylaws. 5.05. Compensation. The compensation of officers and agents shall be fixed from time to time by the Board of Directors. - 4 - 5 5.06. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the shareholders and Directors, and shall be an ex-officio member of all committees, except the audit committee. The Chairman of the Board shall be the Chief Executive officer of the Corporation. 5.07 President. If the Chairman of the Board is absent, the President shall preside at meetings of the shareholders and meetings of the Board of Directors. The President shall have general and active management of the business and affairs of the Corporation subject to the supervision of the Chief Executive Officer; and shall see that all orders and resolutions of the Board are carried into effect. He shall serve as an ex-officio member of the Board of all committees, except the audit committee, and shall perform such other duties and have such other authority and powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe. 5.08. Vice Presidents. Vice Presidents may be designated as "Executive Vice President," "Senior Vice President" or such other designation as the Board of Directors may from time-to-time determine. The Vice Presidents in the order of their seniority, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the Chief Executive Officer, perform the duties and have the authority and exercise the duties and powers of the Chief Executive Officer. They shall perform such other duties and have such other authority and powers as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate. 5.09. Secretary. a. The Secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders and record all votes, actions and the minutes of all proceedings in a book kept for that purpose and shall perform like duties for the executive and other committees when required. b. She shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors. c. She shall be under the supervision of the Chairman of the Board and the President. She shall perform such other duties and have such other authority and powers as the Board of Directors may from time to time prescribe or as the Chairman of the Board or the President may from time to time delegate. 5.10. Assistant Secretary. The assistant Secretaries, if any, in the order of their seniority, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and have the authority and exercise the powers of the Secretary. They shall perform such other duties and have such other powers as the Board of Directors may from time to time or as the President may from time to time delegate. 5.11. Vacancies. If the office of the Chairman of the Board, President, Vice President, Secretary or Assistant Secretary becomes vacant by reason of death, resignation or removal, the Board of Directors shall elect a successor who shall hold office for the unexpired term, and until his successor is elected. ARTICLE VI CERTIFICATES AND SHAREHOLDERS 6.01. Certificates. Certificates in the form determined by the Board of Directors shall be delivered representing all shares to which shareholders are entitled. Certificates shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued. Each certificate shall state on its face the holder's name, the number and class of shares, the par value of shares or a statement that such shares are without par value, and such other matters as may be required by law, and may be sealed with the seal of the Corporation or a facsimile thereof. 6.02. Issuance. Shares (both treasury and authorized but unissued) may be issued for such consideration (not less than par value) and to such persons, as the Board of Directors may determine from time to time. Shares may not be issued until the full amount of the consideration, fixed as provided by law, has been paid. - 5 - 6 6.03. Payment of Shares. a. Kind. The consideration for the issuance of shares shall consist of money paid, labor done (including services actually performed for the corporation) or property (tangible or intangible) actually received. Neither promissory notes nor the promise of future services shall constitute payment for shares. b. Valuation. In the absence of fraud in the transaction, the judgment of the Board of Directors as to the value of consideration received shall be conclusive. c. Effect. When consideration, fixed as provided by law, has been paid, the shares shall be deemed to have been issued and shall be considered fully paid and nonassessable. 6.04. Subscriptions. Unless otherwise provided in the subscription agreement, subscriptions for shares, whether made before or after organization of the Corporation, shall be paid in full at such time or in such installments and at such times as shall be determined by the Board of Directors. Any call made by the Board of Directors for payment on subscriptions shall be uniform as to all shares of the same series. In case of default in the payment on any installment or call when payment is due, the Corporation may proceed to collect the amount due in the same manner as any debt due to the Corporation. 6.05. Lost, Stolen or Destroyed Certificates. The Corporation shall issue a new certificate in place of any certificate for shares previously issued if the registered owner of the certificate: a. Claim. Makes proof in affidavit form that it has been lost, destroyed or wrongfully taken; and b. Timely Request. Requests the issuance of a new certificate before the Corporation has notice that the certificate has been acquired by a purchaser for value in good faith and without notice of an adverse claim; and c. Bond. Gives a bond in such form, and with such surety or sureties, with fixed or open penalty, as the Corporation may direct, to indemnify the Corporation (and its transfer agent and registrar, if any) against any claim that may be made on account of the alleged loss, destruction or theft of the certificate; and d. Other Requirements. Satisfies any other reasonable requirements imposed by the Corporation. When a certificate has been lost, apparently destroyed or wrongfully taken, and the holder of record fails to notify the corporation within a reasonable time after he has notice of it, and the Corporation registers a transfer of the shares represented by the certificate before receiving such notification, the holder of record is precluded from making any claim against the Corporation for the transfer or for a new certificate. 6.06. Registration of Transfer. The Corporation shall register the transfer of a certificate for shares presented to it for transfer if: a. Endorsement. The certificate is properly endorsed by the registered owner or by his duly authorized attorney; and b. Guarantee and Effectiveness of Signature. The signature of such person has been guaranteed by a commercial bank or by the President of the Corporation, or by such other officer of the Corporation as shall have been designated by the Board of Directors, and reasonable assurance is given that such endorsements are effective. 6.07. Registered Owner. Prior to due presentment for registration of transfer of a certificate for shares, the Corporation may treat the registered owner as the person exclusively entitled to vote, to receive notices and otherwise to exercise all rights and powers of a shareholder. - 6 - 7 ARTICLE VII GENERAL PROVISIONS 7.01. Dividends and Reserves. a. Declaration and Payment. Subject to statue and the Charter, dividends may be declared by the Board of Directors at any regular or special meeting and may be paid in cash, in property, or in shares of the Corporation. The declaration and payment shall be at the discretion of the Board of Directors. b. Record Date. The Board of Directors may fix in advance a record date for the purpose of determining shareholders entitled to receive payment of any dividend. In the absence of any action by the Board of Directors, the date upon which the Board of Directors adopts the resolution declaring the dividend shall be the record date. c. Reserves. By resolution the Board of Directors may create such reserve or reserves out of available cash of the Corporation as the Directors from time to time, in their discretion, think proper to provide for contingencies, or to equalize dividends, or to repair or maintain any property of the Corporation, or for any other purpose they think beneficial to the Corporation. The Directors may modify or abolish any such reserve in the manner in which it was created. 7.02. Books and Records. The corporation shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. 7.03. Checks and Notes. Checks, demands for money, and notes of the Corporation shall be signed by the officer(s) or other person(s) designated from time to time by the Board of Directors. 7.04. Fiscal Year. The fiscal year of the Corporation shall be the calendar year. 7.05. Resignation. A Director, officer or agent may resign by giving written notice to the Chairman of the Board, the President or the Secretary. The resignation shall take effect at the time specified in it, or immediately if no time is specified. Unless it specifies otherwise, a resignation takes effect without being accepted. 7.06. Amendment of Bylaws. a. These Bylaws may be altered, amended, or repealed at any meeting of the Board of Directors at which a quorum is present, by the affirmative vote of a majority of the Directors of the Corporation, provided notice of the proposed alteration, amendment or repeal is contained in the notice of the meeting. b. These Bylaws may also be altered, amended or repealed at any meeting of the shareholders at which a quorum is present or represented, by the affirmative vote of the holders of two-thirds (2/3) of the shares of the Corporation entitled to vote thereon, provided notice of the proposed alteration, amendment or repeal is contained in the notice of the meeting. 7.07. Construction. Whenever the context so requires, the masculine shall include the feminine and neuter, and the singular shall include the plural, and conversely. If any portion of these Bylaws shall be invalid or inoperative, then, so far as is reasonable and possible: a. The remainder of these Bylaws shall be considered valid and operative; and b. Effect shall be given to the intent manifested by the portion held invalid or inoperative. 7.08. Table of Contents; Heading. The table of contents and headings are for organization, convenience and clarity. In interpreting these Bylaws, they shall be subordinated in importance to the other written material. 7.09. Relation to Charter. These Bylaws are subject to, and are governed by the Charter. - 7 - 8 ARTICLE VIII INDEMNITY 8.01. Liability of Officers and Directors. No person shall be liable to the Corporation for any loss or damage suffered by it on account of any action taken or omitted to be taken by him as a director or officer of the Corporation in good faith, if such person exercised or used the same degree of care and skill as a prudent man would have exercised or used in the circumstances in the conduct of his own affairs. 8.02. Indemnification of Officers and Directors. The Corporation shall indemnify to the fullest extent permitted by law any and all persons who may serve or who have served at any time as directors or officers, or who at the request of the Board of Directors of the Corporation may serve or at any time have served as directors or officers of another corporation in which the Corporation at such time owned or may own shares of stock or of which it was or may be a creditor, and their respective heirs, administrators, successors, and assigns, against any and all expenses, including amounts paid upon judgments, counsel fees, and amounts paid in settlement (before or after suit is commenced), actually and necessarily incurred by such persons in connection with the defense or settlement of any claim, action, suit, or proceeding in which they, or any of them, are made parties, or a party, or which may be asserted against them or any of them, by reason of being or having been directors or officers or a director or officer of the Corporation, or of such other corporation, except in relation to matters as to which any such director of officer or former director or officer or person shall be adjudged in any action, suit, or proceeding to be liable for his own negligence or misconduct in the performance of his duty. Such indemnification shall be in addition to any other rights to which those indemnified may be entitled under any law, bylaw, agreement, vote of shareholders, or otherwise. ARTICLE IX CONTRACTS, DEPOSITS AND PROXIES 9.01. Execution of Contracts, etc. Except as otherwise required by law or by these Bylaws, all the executive officers of the Corporation shall have power to execute and deliver any deeds, contracts, mortgages, bonds, debentures and other documents for and in the name of the Corporation. The Board may authorize any other officer or officers or agents to execute and deliver any contract or other instrument in the name and on behalf of the Corporation, and this authority may be general or confined to such specific instances as the Board may by resolution determine. 9.02. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation or otherwise as the Board or the Chief Executive Officer shall direct in such banks, trust companies, or other depositories as the Board may select or as may be selected by any executive officer. For the purpose of deposit and for the purpose of collection for the account of the Corporation, checks, drafts and other orders for the payment of money which are payable to the order of the Corporation may be endorsed, assigned, and delivered by any executive officer or other officer or agent of the Corporation. 9.03. Proxies in Respect to Stock or Other Securities of Other Corporations. Unless otherwise provided by resolution adopted by the Board, the Chief Executive Officer, the President, or a Vice President may from time to time appoint an attorney or attorneys or agent or agents of the Corporation to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other securities in any other corporation to vote or consent in respect to such stock or other securities; the Chief Executive Officer, the President, or a Vice President may instruct the person or persons so appointed as to the manner of exercising such powers and rights; and the Chief Executive Officer, the President, or a Vice President may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, all such written proxies, powers of attorney or other instruments as he may deem necessary or proper in order that the Corporation may exercise its powers and rights. - 8 - 9 CERTIFICATE OF ADOPTION The foregoing Bylaws of the Corporation have been duly adopted this 19th day of December , 1995, by action of the Board of Directors of the Corporation pursuant to the laws of this State. IN TESTIMONY THEREOF, witness the hand of the undersigned as Secretary of the Corporation on such date. /s/ Joan B. Marshall ------------------------------- Joan B. Marshall, Secretary - 9 - EX-4.01 3 WARRANT AGREEMENT 1 EXHIBIT 4.01 CERTIFIED CORPORATE RESOLUTION I, Joan B. Marshall, do hereby certify that I am the duly elected and qualified Secretary of The Bank of Nashville, and that the following is a true and correct copy of certain resolutions duly adopted at a meeting of the Board of Directors of The Bank of Nashville, convened and held in accordance with applicable law and the bylaws of The Bank of Nashville on the 15th day of February, 1994, and that such resolutions are now in full force and effect: WHEREAS, warrants for the common stock of The Bank of Nashville ("Warrants") have been duly issued; and WHEREAS, the expiration of the exercise period for the Warrants is December 31, 1995; and WHEREAS, the discrepancy between the exercise price of the Warrants and the current market price of the common stock of The Bank of Nashville makes the exercise of any of the Warrants unlikely prior to the expiration of the current exercise period; and WHEREAS, in order to facilitate The Bank of Nashville's initial objective of adding to its working capital the proceeds which might be received from the exercise of the Warrants, and in order to protect the interests of those persons who currently hold such Warrants, the Board of Directors of The Bank of Nashville has determined the following: NOW, THEREFORE, BE IT RESOLVED, that the expiration of the exercise period for the Warrants shall be and is extended until December 31, 1998; and BE IT RESOLVED FURTHER, that this extension shall be deemed by the Board of Directors of The Bank of Nashville to be fair to The Bank of Nashville; and BE IT RESOLVED FURTHER, that the President of The Bank of Nashville, or his designate, be and hereby is authorized and directed to take from time to time any and all action necessary or desirable to carry out the purposes of the forgoing resolution. Dated this l5th day of February, 1994. /s/ Joan B. Marshall ------------------------------- Joan B. Marshall, Secretary 2 WARRANT AGREEMENT This Agreement dated as of August 1, 1989, between The Bank of Nashville, a Tennessee bank (the "Issuer"), and The Bank of Nashville, Trust Department (the Warrant Agent"). WITNESSETH: WHEREAS, the Issuer has authorized the issuance and sale of its Warrant Certificates (the "Warrant Certificates") evidencing the right to purchase an aggregate of up to 5,094,000 shares of Common Stock, par value $6.00 per share, of the Issuer (herein called "Common Stock") at a price of $12.50 per share, subject to adjustment as hereinafter provided (the "Purchase Price") ( each share of Common Stock purchasable pursuant to the Warrant Certificates being herein called a Share" and all such shares being herein collectively called the "Shares"); and WHEREAS, the Issuer desires the Warrant Agent to act on behalf of the Issuer in connection with the issuance, transfer, exchange, exercise and replacement of the Warrant Certificates, and in this Agreement wishes to set forth, among other things, the form and provisions of the Warrant Certificates and the terms and conditions on which they may be issued, transferred, exchanged, exercised and replaced; NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, the parties hereto agree as follows: ARTICLE I: ISSUANCE, EXECUTION AND DELIVERY OF WARRANT CERTIFICATES SECTION 1.01. Subject to Sections 2.03(b), 4.02, and 5.01 hereof, upon the execution of this Agreement, Warrant Certificates evidencing an aggregate of up to 5,094,000 warrants to purchase Common Stock ("Warrants") shall be executed by the Issuer and delivered to the Warrant Agent for counter-signature, and the Warrant Agent shall, upon written order of the Issuer signed by an authorized officer, thereupon countersign and hold and deliver said Warrant Certificates in accordance with such written order and the provisions of this Agreement. The Warrant Agent is hereby authorized to countersign and deliver Warrant Certificates as required by Sections 2.03(b), 4.02, and 5.01 hereof. 3 SECTION 1.02. The Warrant Certificates (and the form to be printed on the reverse thereof [the Purchase Forms]) shall be substantially of the tenor and purport recited in Exhibit A hereto and may have such letters, numbers or other marks of identification, or designation and such legends, summaries or endorsements printed, lithographed or engraved thereon as the Issuer may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or other organized trading market on which the Warrant Certificates may be listed or traded, or to conform to usage. The Warrant Certificates shall be dated the date of their issue, and shall entitle the registered holders thereof to purchase Shares at a price per Share set forth herein, subject to adjustment from time to time pursuant to the provisions of Article III hereof. The Warrant Certificates shall be executed on behalf of the Issuer by a duly authorized officer of the Issuer, either manually or by facsimile signature printed thereon. The Warrant Certificates shall be manually countersigned by the Warrant Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Issuer who shall have signed any of the Warrant Certificates shall cease to be such officer of the Issuer before countersignature by the Warrant Agent and issue and delivery thereof by the Issuer, such Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent, and issued and delivered with the same force and effect as though the person who signed such Warrant Certificates had not ceased to be such officer of the Issuer. Any Warrant Certificate may be signed on behalf of the Issuer by the person who at the actual date of the signing of such Warrant Certificate shall have been the proper officer of the Issuer, although at the date of issuance of such Warrant Certificate any such person may not be such officer of the Issuer. ARTICLE II WARRANT PRICE, DURATION AND EXERCISE OF WARRANT CERTIFICATES SECTION 2.01. Each Warrant Certificate shall, when countersigned by the Warrant Agent, entitle the registered holder thereof, subject to the provisions of this Agreement, to purchase from the Issuer one Share for each Warrant represented thereby at the Purchase Price. The Purchase Price shall be payable in full at the time of exercise. SECTION 2.02. Warrant Certificates may be exercised during the period commencing on the date hereof and terminating at 5:00 p.m. local time in the City of Nashville, Tennessee on - 2 - 4 December 31, 1995 (the "Termination Time"). Each Warrant Certificate not exercised during said period shall become void, and all rights of the registered holder thereunder and under this Agreement shall cease after the Termination Time. SECTION 2.03. (a) During the period specified in Section 2.02, a Warrant Certificate may be exercised in whole or in part by surrendering it at the principal office of the Warrant Agent with the Purchase Form duly executed and by paying in full, in lawful money of the United States of America, by cash, check or money order, the Purchase Price for each Share as to which the Warrant Certificate is exercised. No adjustment shall be made for any dividends on any Shares issuable on exercise of a Warrant Certificate. (b) As soon as practicable after the exercise of any Warrant Certificate, the Issuer shall cause to be issued or transferred and delivered to or upon the order of the registered owner of such Warrant Certificate, certificates for the number of Shares to which he is entitled, registered in such name or names as may be directed by him, and, if such Warrant Certificate was not exercised in full, a new Warrant Certificate registered in such name or names as may be directed by him for the number of Warrants as to which such Warrant Certificate was not exercised. (c) The Issuer shall pay any taxes which may be payable in respect of the issue or transfer of any Shares deliverable upon exercise of a Warrant Certificate, except that the Issuer shall not be required to pay any tax imposed in connection with any transfer involved in the issuance of a certificate for Shares, or any Warrant Certificate representing unexercised Warrants, in any name other than that of the registered holder of the Warrant Certificate surrendered for exercise; and in such case the Issuer shall not be required to deliver any certificate representing the securities purchased upon exercise, or any Warrant Certificate representing unexercised Warrants, until such tax shall have been paid or it has been established to the Issuer's satisfaction that no tax is due. (d) Each person in whose name any such certificate for Shares is issued shall for all purposes be deemed to have become the owner of the Shares represented thereby on the date on which the Warrant Certificate was surrendered and payment of the Purchase Price and any applicable taxes was made, irrespective of the date of delivery of such certificate. - 3 - 5 ARTICLE III ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SHARES PURCHASABLE The Purchase Price, the number of Shares purchasable and the kind of securities or other property deliverable pursuant to the Warrant Certificates shall be subject to adjustment from time to time as follows: SECTION 3.01. (a) In case the Issuer shall at any time exchange as a whole, by subdivision or combination in any manner or by the making of a stock dividend, the number of. shares of Common Stock then outstanding into a different number of shares, with or without par value, then thereafter the number of Shares which the registered holder of a Warrant Certificate shall be entitled to purchase (calculated immediately prior to such exchange), shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of Common Stock of the Issuer by reason of such exchange, and the Purchase Price of the Shares after such change shall, in case of an increase in the number of shares of Common Stock, be proportionately reduced, and, in case of a decrease in the number of shares of Common Stock, be proportionately increased. (b) In case of any reclassification or change of outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision, combination or stock dividend as provided for in Section 3.01(a)), or in case of any consolidation or merger to which the Issuer is a party or pursuant to which the Issuer's shareholders receive shares of stock, other securities or other property in exchange for their Common Stock, or in case of any sale of all, or substantially all, of the property, assets, business and goodwill of the Issuer as an entirety, the Issuer, or such successor or purchasing corporation, as the case may be, shall provide that the registered holder of a Warrant Certificate shall thereafter be entitled to purchase the kind and amount of shares of stock and other securities and property-receivable upon such reclassification, change, consolidation, merger or sale by a holder of the number of Shares which a Warrant Certificate entitles the registered holder hereof to purchase immediately prior to such reclassification, change, consolidation, merger or sale. Any such successor corporation, which thereafter shall be deemed to be the Issuer for purposes of a Warrant Certificate, shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article III. - 4 - 6 (c) No adjustment in the Purchase Price shall be required by this Article III unless such adjustment would require an increase or decrease of at least one cent in such price; provided, however, that any adjustments which by reason of this sub-section (c) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article III shall be made to the nearest one-tenth of one cent or to the nearest one-hundredth of a Share. SECTION 3.02. If there shall be any adjustment as provided above in Section 3.01 hereof, or if securities or property other than shares of Common Stock of the Issuer shall become purchasable in lieu of Shares of such Common Stock upon exercise of a Warrant Certificate, the Issuer shall forthwith cause written notice thereof to be sent by first class U.S. mail, postage prepaid, to the registered holders of the Warrant Certificates at the addresses of such holders shown on the books of the Issuer, which notice shall be accompanied by a certificate of the Issuer's chief financial officer setting forth in reasonable detail the basis for the holders' becoming entitled to purchase such shares and the number of shares which may be purchased and the Purchase Price thereof, or the facts requiring any such adjustment and the Purchase Price and number of shares purchasable after such adjustment, or the kind and amount of any such securities or property so purchasable upon the exercise of the Warrant Certificates, as the case may be. SECTION 3.03. As used herein the term "Common Stock" shall mean and include the Issuer's presently authorized Common Stock and shall also include any capital stock of any class of the Issuer hereafter authorized which shall not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends and in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Issuer; provided that the Shares purchasable pursuant to the Warrant Certificates shall include only shares designated as Common Stock of the Issuer on the date hereof, or in case of any reorganization, reclassification, consolidation, merger, amalgamation or sale of assets of the character referred to in Section 3.01 hereof, the shares of stock, securities or property provided for in Section 3.01. SECTION 3.04. No fractional Shares shall be issued upon any exercise of Warrant Certificates. As to any fraction of a share which the same holder of one or more Warrant Certificates which are exercised in the same transaction would otherwise be entitled to purchase on such exercise, a cash adjustment shall be paid by the Issuer in lieu of such fractional share, in an amount equal to the same fraction of the market price per share of the Shares (as determined by the Issuer, at the close of business on the business day prior to the exercise date. - 5 - 7 ARTICLE IV OTHER PROVISIONS RELATING TO RIGHTS OF REGISTERED HOLDERS OF WARRANT CERTIFICATES SECTION 4.01. The Warrant Certificates shall be issued in registered form only and no Warrant Certificate shall entitle the registered holder thereof to any of the rights of a holder of shares of Common Stock of the Issuer, including, without limitation, the right to vote, to receive dividends and other distributions, to exercise any pre-emptive right, or to receive any notice of, or to attend, meetings of holders of Common Stock or any other proceedings of the Issuer, except that should the Issuer, during the term of this Agreement, declare a dividend upon the Common Stock payable otherwise than in cash out of earnings or earned surplus (computed in accordance with generally accepted accounting principles) or otherwise than in Common Stock or securities convertible into Common Stock or make any other distribution in respect of the Common Stock, then, thereafter, the registered holders of Warrant Certificates, upon exercise of a Warrant Certificate, shall receive the Shares purchasable upon such exercise and, in addition and without further payment, the cash, stock or other securities and/or other property which the registered holder of a Warrant Certificate would have received by way of dividends (otherwise than in cash out of such earnings or earned surplus or in Common Stock or securities convertible into Common Stock) and/or any other distributions in respect of the Common Stock as if, continuously since the date hereof, such registered holder of a Warrant Certificate (a) had been the record holder of the number of Shares then being purchased, and (b) had retained all such cash, stock and other securities (other than Common Stock or securities convertible into Common Stock) and/or other property payable in respect of such Shares or in respect of any stock or securities paid as dividends and originating directly or indirectly from such Shares. SECTION 4.02. If any Warrant Certificate shall be mutilated, lost, stolen, or destroyed, the Issuer may in its discretion direct the Warrant Agent to countersign and deliver in exchange and substitution for and- upon cancellation of a mutilated Warrant Certificate or in lieu of or in substitution for a lost, stolen or destroyed Warrant Certificate a new Warrant Certificate for the number of Warrants represented by the Warrant Certificate so mutilated, lost, stolen or destroyed but only upon receipt of evidence satisfactory to the Issuer and the Warrant Agent of such loss, theft or destruction of such Warrant Certificate, evidence of the ownership thereof and, indemnity if requested, also satisfactory to them. Applicants for such substitute Warrant Certificates shall also comply with such other reasonable regulations and pay such other reasonable charges as the Issuer or Warrant Agent may prescribe. Any such new Warrant - 6 - 8 Certificate shall constitute an additional contractual obligation of the Issuer, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at any time enforceable by anyone. SECTION 4.03. Notwithstanding any of the provisions of this Agreement, any registered holder of any Warrant Certificate without the consent of the Warrant Agent or the holder of any other Warrant Certificate, may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Issuer shiftable to enforce, or otherwise in respect of, his right to exercise his Warrant Certificate in the manner provided in his warrant Certificate and in this Agreement. SECTION 4.04. There have been reserved, and the Issuer shall at all times keep reserved, out of its authorized and unissued shares and treasury shares, if any, a number of Shares sufficient to permit the exercise in full of all the outstanding Warrant Certificates and the transfer agent for the Shares (the "Transfer Agent") and every subsequent Transfer Agent for the Shares is hereby irrevocably authorized and directed at all times to reserve such number of authorized and unissued Shares as shall be requisite for such purpose. The Issuer will keep a copy of this Agreement on file with the Transfer Agent for the Shares and with every subsequent Transfer Agent. The Warrant Agent is hereby irrevocably authorized to requisition from time to time from such Transfer Agent certificates for Shares required to honor outstanding Warrant Certificates. The Issuer will supply such Transfer Agent with duly executed share certificates for such purpose and will itself provide or otherwise make available any cash which may be payable as provided in Section 3.04 hereof. All Warrant Certificates surrendered upon the exercise or redemption thereof shall be cancelled by the warrant Agent and shall thereafter be delivered to the Issuer and such cancelled Warrant Certificates, with the Purchase Form duly filled in and signed, shall constitute sufficient evidence of the number of Shares which have been issued by the exercise of such Warrant Certificates and the redemption of such Warrant Certificates. Promptly after the expiration of the Warrant Certificates, the Warrant Agent shall certify to the Issuer the total aggregate amount of Warrant Certificates then outstanding and unexercised, and thereafter no Shares shall be subject to reservation in respect of such Warrant Certificates. - 7 - 9 ARTICLE V TRANSFER AND EXCHANGE OF WARRANT CERTIFICATES SECTION 5.01. The Warrant Agent shall cause to be kept at the principal office of the Warrant Agent a register in which, subject to such reasonable regulations as the Issuer may prescribe, provision shall be made for the registration of transfers of Warrant Certificates as herein provided. Warrants may be presented for transfer at such principal office. At the option of the registered holder, Warrant Certificates may be exchanged for other Warrant Certificates for a like aggregate number of Warrants, upon surrender of the Warrant Certificates to be exchanged at the principal office of the Warrant Agent. Whenever any Warrant Certificates are so surrendered for exchange, the Issuer shall execute, and the Warrant Agent shall authenticate and deliver, the Warrant Certificates which the registered owner making the exchange is entitled to receive. All Warrant Certificates issued upon any transfer or exchange of Warrant Certificates shall be the valid obligations of the Issuer, evidencing the same obligations and entitled to the same benefits under this Warrant Agreement, as the Warrant Certificates surrendered for such transfer or exchange. Every Warrant Certificate presented or surrendered for transfer or exchange shall (if so required by the Warrant Agent) be duly endorsed by, or be accompanied by, a written instrument of transfer, in form satisfactory to the Warrant Agent duly executed by the registered owner thereof or his attorney duly authorized in writing and bearing such guarantees of signature as the Warrant Agent may require. No service charge shall be made for any transfer or exchange of Warrant Certificates. The Issuer will require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer of Warrant Certificates. The Issuer and the Warrant Agent may deem and treat the registered holder of any Warrant Certificate as the true and lawful owner thereof for all purposes, and neither the Issuer nor the Warrant Agent shall be affected by any notice to the contrary. SECTION 5.02. Any Warrant Certificate surrendered for exchange or upon the exercise thereof shall be cancelled and shall not be reissued by the Warrant Agent on behalf of the Issuer and, except as provided in Section 4.01 in case of an - 8 - 10 exchange or Section 2.03(b) in case of a partial exercise of a Warrant Certificate, no Warrant Certificate shall be issued hereunder in lieu thereof. ARTICLE VI CONCERNING THE WARRANT AGENT AND OTHER MATTERS SECTION 6.01. The Issuer will from time to time promptly pay to the Warrant Agent, or make provision satisfactory to the Warrant Agent for the payment of, all taxes and charges that may be imposed by the United States or any State upon the Issuer or the Warrant Agent upon the transfer or delivery of Shares upon the exercise of Warrant Certificates, but the Issuer shall not be obligated to pay any tax imposed in connection with any transfer involved in the delivery of a certificate for Shares in any name other than that of the registered holder of the Warrant Certificate surrendered in connection with the purchase thereof. SECTION 6.02. (a) The Warrant Agent may resign its duties and be discharged from all further duties and liabilities hereunder after giving one month's notice in writing to the Issuer, except that such shorter notice may be given as the Issuer shall, in writing, accept as sufficient. If the office of the Warrant Agent becomes vacant by resignation or incapacity to act or otherwise, the Issuer shall appoint in writing a new Warrant Agent. If the Issuer shall fail to make such appointment within a period of thirty days after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or by the registered holder of a Warrant Certificate, then the registered holder of any Warrant Certificate may apply to any court of competent jurisdiction for the appointment of a new Warrant Agent. Any new Warrant Agent, whether appointed by the Issuer or by such a court, shall be a corporation organized and doing business under the laws of the United States or any State, of good standing, which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by Federal or State authority and which has a combined capital and surplus of not less than $20,000,000. The combined capital and surplus of any such new Warrant Agent shall be deemed to be the combined capital and surplus as set forth in the most recent report of its condition published by such Warrant Agent prior to its appointment, provided that such reports are published at least annually pursuant to law or to the requirements of a Federal or State supervising or examining authority. Any new Warrant Agent appointed hereunder shall execute, acknowledge and deliver to the Issuer an instrument accepting such appointment hereunder and thereupon such new Warrant Agent without any further act or deed - 9 - 11 shall become vested with all the rights, powers, duties and responsibilities of the Warrant Agent hereunder with like effect as if it had been named as the Warrant Agent; but if for any reason it becomes necessary or expedient to have the former Warrant Agent execute and deliver any further assurance, conveyance, act or deed, the same shall be done at the expense of the Issuer and shall be legally and validly executed and delivered by the former Warrant Agent. Not later than the effective date of any such appointment, the Issuer shall file notice thereof with the former Warrant Agent. The Issuer shall promptly give notice of any such appointment to the registered holders of the Warrants by mail, first class, postage prepaid, at their addresses as shown on the Warrant Certificate Register of the Issuer. Failure to file or give such notice, or any defect therein, shall not affect the legality or validity of the appointment of the successor Warrant Agent. (b) Any company into which the Warrant Agent or any new Warrant Agent may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which the Warrant Agent or any new Warrant Agent shall be a party, shall be the successor Warrant Agent under this Agreement without any further act, provided that such company would be eligible for appointment as a successor Warrant Agent under the provisions of paragraph (a) of this Section 7.02. Any such successor Warrant Agent may adopt the prior countersignature of any predecessor Warrant Agent and deliver Warrant Certificates countersigned and not delivered by such predecessor Warrant Agent or may countersign Warrant Certificates either in the name of any predecessor Warrant Agent or the name of the successor Warrant Agent. SECTION 6.03. The Issuer agrees (i) that it will pay the Warrant Agent for its services as Warrant Agent according to the fee schedule on Exhibit B attached hereto and incorporated herein and will reimburse the Warrant Agent upon demand for all expenditures that the Warrant Agent may reasonably incur in the execution of its duties hereunder; and (ii) that it will perform, exercise, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Warrant Agent for the carrying out or performing by the Warrant Agent of the provisions of this Agreement. SECTION 6.04. (a) The Warrant Agent may consult with legal counsel (who may be legal counsel for the Issuer), and the opinion of such counsel shall be full and complete authorization and protection to the Warrant Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. -10- 12 (b) Whenever in the performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any matter be proved or established, or that any instructions with respect to the performance of its duties hereunder be given, by the Issuer prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established, or such instructions may be given, by a certificate or instrument signed by an officer of the Issuer and delivered to the Warrant Agent; and such certificate or instrument shall be .~11 warrant to the Warrant Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate or instrument; but in its discretion, the Warrant Agent may in lieu thereof accept other evidence of such matter or may require such further or additional evidence as it may deem reasonable. (c) The Warrant Agent shall be liable hereunder only for its own gross negligence or willful misconduct. The Warrant Agent shall act hereunder solely as agent, and its duties shall be determined solely by the provisions hereof. The Issuer agrees to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and counsel fees, for anything done or omitted by the Warrant Agent in the execution of this Agreement except as a result of the Warrant Agent's gross negligence or willful misconduct. (d) The Warrant Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Warrant Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Issuer only. (e) The Warrant Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof or in respect of the validity or execution of any Warrant Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Issuer of any covenant or condition contained in this Agreement or in any Warrant Certificate; nor shall it be responsible for the making of any adjustment in the Purchase Price, or number of Shares issuable upon exercise of the Warrant Certificates or responsible for the manner, method or amount of any such adjustment or the facts that would require any such adjustment; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Shares or other securities to be issued pursuant to this Agreement or any Warrant Certificate or as to whether any Shares or other securities are or will be validly authorized and issued - 11 - 13 and fully-paid and non-assessable. The Warrant Agent shall have no duty with respect to any supplemental agreement or certificate provided for in Article III except to make available for inspection any such document filed with it to any registered holder of Warrant Certificates during reasonable business hours. SECTION 6.05. The Warrant Agent hereby accepts the agency established by this Agreement and agrees to perform the same upon the terms and conditions herein set forth. SECTION 6.06. The Want Agent may, without the consent or concurrence of the registered holders of the Warrant Certificates, by supplemental agreement or otherwise,. join with the Issuer in making any changes or corrections in this Agreement that they shall have been advised by counsel (i) are required to cure any ambiguity or to correct any defective or inconsistent provision or clerical omission or mistake or manifest error herein contained, or (ii) add to the covenants and agreements of the Issuer in this Agreement such further covenants and agreements thereafter to be observed, or surrender any right or power reserved to or conferred upon the Issuer in this Agreement, provided that such changes or corrections do not or will not adversely affect, alter or change the rights, privileges or immunities of the registered holders of Warrant Certificates including, without limitation, reducing the Purchase Price of the shares purchasable pursuant to the Warrant Certificates or extending the exercise period of the Warrant Certificates. SECTION 6.07. All the covenants and provisions of this Agreement by or for the benefit of the Issuer or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns. SECTION 6.08. Upon any merger or consolidation of the Issuer with or into any other corporation, or the sale or transfer of its property, assets and business substantially as an entirety to a successor, the corporation resulting from such merger or consolidation (if not the Issuer), or such successor, shall expressly assume, by supplemental agreement satisfactory in form to the Warrant Agent and executed and delivered to the Warrant Agent, the due and punctual performance and observance of each and every covenant and condition of this Agreement to be performed and observed by the Issuer. SECTION 6.09. Any notice or demand authorized by this Agreement to be given or made by the warrant Agent or by the registered holder of any Warrant Certificate to or on the Issuer shall be sufficiently given or made if sent by mail, first class or registered, postage prepaid, addressed (until another address - 12 - 14 is filed in writing by the Issuer with the Warrant Agent), as follows: The Bank of Nashville Attn: J. Richard Chambers 222 Third Avenue North Suite 316 Nashville, Tennessee 37201 Any notice or demand authorized by this Agreement to be given or made by the registered holder of any Warrant Certificate or by the Issuer to or on the Warrant Agent shall be sufficiently given or made if sent by mail, first class or registered, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with the Issuer), as follows: The Bank of Nashville, Trust Department Attn: Bruce L. Mitchell 222 Third Avenue North Suite 316 Nashville, Tennessee 37201 SECTION 6.10. The validity, interpretation and performance of this Agreement and each Warrant Certificate issued hereunder and of the respective terms and provisions thereof shall be governed by the laws of the State of Tennessee. SECTION 6.11. Nothing in this Agreement expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the Issuer, the Warrant Agent, and the registered holders of the Warrant Certificates, any right, remedy or claim under or by reason of this Agreement or of any covenant, condition, stipulation, promise or agreement herein; and all covenants, conditions, stipulations, promises and agreements in this Agreement contained shall be for the sole and exclusive benefit of the Issuer, the Warrant Agent, their respective successors, and the registered holders of the Warrant Certificates. SECTION 6.12. The descriptive headings of the several Articles of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. SECTION 6.13. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. - 13 - 15 IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of August 1, 1989, and effective as of the day and year first above written. THE BANK OF NASHVILLE By: J. Richard Chambers ------------------------ J. Richard Chambers Attest: President and CEO /s/ Joan B. Marshall - -------------------- (Secretary) THE BANK OF NASHVILLE, Trust Department By: /s/ Bruce L. Mitchell ------------------------- Bruce L. Mitchell Senior Vice President, Trust Attest: - 14 - 16 THE BANK OF NASHVILLE INCORPORATED UNDER THE LAWS OF THE STATE OF TENNESSEE Warrants Expire December 31, 1995. THIS CERTIFIES THAT IS THE REGISTERED HOLDER OF COMMON STOCK PURCHASE WARRANTS (the "Warrants") expiring December 31, 1995, as provided in the Warrant Agreement, dated August 1, 1989, to purchase common stock, par value $6.00 per share, of The Bank of Nashville, a Tennessee bank (the "Bank"). Each Warrant entitles the holder to purchase from the Bank, on or before 5:00 p.m. local time December 31, 1995, in Nashville, Tennessee one fully paid and nonassessable share of common stock of the Bank at the purchase price (the "Purchase Price") at the time in effect under the Warrant Agreement ($12.50 per share at the time of the issuance of the Warrants), payable in lawful money of the United States of America, upon surrender of this Warrant Certificate and payment of such Purchase Price at the principal corporate trust office of the Warrant Agent in Nashville, Tennessee, but only subject to the conditions set forth of the in the Warrant Agreement; provided, however, that the number of kind of shares (or in certain events other property) purchasable upon exercise of the Warrant an payment of the purchase price may as of the date of this Warrant Certificate have been, or may after such a date be, adjusted as a result of the occurrence of certain events as more fully provided in the Warrant Agreement. A copy of the Warrant Agreement is available for inspection during normal business hours in the office of the Warrant Agent. Payment of the Purchase Price shall be made in cash or by certified or official bank check payable to the order of the Bank. This Warrant Certificate shall not be valid unless countersigned by the Warrant Agent by the manual signature of one of its authorized officers. IN WITNESS WHEREOF, The Bank of Nashville has caused this Warrant Certificate to be duly executed under its facsimile corporate seal and the facsimile signatures of its authorized officers. ATTEST: /s/ Joan B. Marshall /s/J Richard Chambers Secretary President Dated: Countersigned: [SEAL THE BANK OF NASHVILLE] THE BANK OF NASHVILLE NASHVILLE TENNESSEE SEE REVERSE FOR CERTAIN DEFINITIONS Warrant Agent Authorized Signature 17 THE BANK OF NASHVILLE The following abbreviations when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of supervisorship and not as tenants in common UNIF GIFT MIN ACT ..........Custodian.......... (Cust) (Minor) under Uniform Gifts to Minors Act ......................... (State) Additional abbreviations may also be used though not in the above list. The undersigned hereby (1) irrevocably elects to exercise ___________ Warrants, evidenced by the within Warrant Certificate and to purchase thereunder ________ full shares of the common stock issueable upon exercise of said Warrants, (2) makes payment in full of the Purchase Price of such shares and any applicable taxes, (3) requests that certificates for such shares be issued in the name of and delivered to the following: (PLEASE PRINT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER, AND NAME AND ADDRESS) SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER ___________________________ ___________________________ _______________________________________________________________________________ Name _______________________________________________________________________________ Street Address or Post Office Box _______________________________________________________________________________ City, State, Zip Code and (4) if said number of Warrants shall not be all the Warrants evidenced by the within Certificate, requests that a new Warrant Certificate evidencing the Warrants not so exercise be issued in the name of and delivered to the following: _______________________________________________________________________________ Name _______________________________________________________________________________ Street Address or Post Office Box _______________________________________________________________________________ City, State, Zip Code Dated_____________________, 19 ________ Signature:_____________________________________________________________________ NOTICE: The above signature must correspond with the name as written the face of the Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever, or if signed by any other person, the Form of Assignment hereon must be duly executed and if the certificate representing the shares or any Warrant Certificate representing Warrants not exercised is to be registered in a name other than that in which the Warrant Certificate is registered, the signature of the holder hereof must be guaranteed. SIGNATURE GUARANTEE: FORM OF ASSIGNMENT (To Be Executed by the Registered Holder to Assign Warrants Evidenced by the Warrant Certificate) FOR VALUE RECEIVED _____________________________________________________ hereby sells, assigns and transfer unto_______________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Warrants, evidenced by the Warrant Certificates, and does hereby irrevocably constitute and appoint____________ Attorney to transfer the said Warrants evidenced by the Warrant Certificate on the books of the Bank, with full power of substitution. SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER ____________________________ ____________________________ Dated_____________________, 19 _______ Signature:_____________________________________________________________________ NOTICE: The above signature must correspond as written upon the face of the Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. SIGNATURE GUARANTEE: WARRANT 18 EXHIBIT B WARRANT AGENT'S FEE SCHEDULE 19 [CUSIP LETTERHEAD] DATE: 11/14/1989 TYPE: C-BA4768 INVOICE NO: 10368 SUPPLEMENT DATE: 11/10/1989 PAGE NUMBER: 1 STANDARD & POOR'S/McGRAW HILL/25 BROADWAY, NEW YORK, N.Y., 10004 /(212)208-8329 Attn: Steven J. Eisen Baker, Worthington, Crossley, Stansberry & Woolf 1700 Nashville City Center Nashville, TN 37219 CUSIP NO. DATED COUPON MATURITY DESCRIPTION AMOUNT New Issue: BANK NASHVILLE TEN 063787 10 5 COM $74.00 063787 11 3 12/31/1995 WT EXP 063787 20 4 12/31/1995 UNIT 1 COM & WT EXP OK TO PAY /s/ 01-30-90 ( 1 ITEM(S) 474.00 ) TOTAL AMOUNT DUE; $ 74.00 FOR CUSTOMER SERVICE CALL: (212) 208-8339 PLEASE DETACH AND REMIT WITH YOUR PAYMENT DATE: 11/14/1989 TYPE: C-BA4768 INVOICE NO: 10368 SUPPLEMENT DATE: 11/10/1989 Attn: Steven J. Eisen Baker, Worthington, Crossley, Stansberry & Woolf 1700 Nashville City Center Nashville, TN 37219 TOTAL AMOUNT DUE = $ 74.00 PD 12.6.89 CK #839 CUSIP (TM) EX-4.02 4 CERTIFICATE OF COMMON STOCK 1 EXHIBIT 4.02 SHARES COMMUNITY FINANCIAL GROUP, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF TENNESSEE SEE REVERSE FOR CERTAIN DEFINITIONS ------------------- CUSIP 20365M 10 8 ------------------- THIS CERTIFIES THAT IS THE REGISTERED HOLDER OF FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $6.00 EACH OF THE COMMON STOCK OF COMMUNITY FINANCIAL GROUP, INC. , (hereinafter called the "Corporation") transferable only on the books of the Corporation by the holder hereof or by attorney, upon surrender of this Certificate properly endorsed. This Certificate is issued by the Corporation subject to all the terms and conditions pertaining to Common Stock of the Corporation contained in its Charter of Incorporation and Bylaws, each as amended, copies which are on file in the office of the Corporation, to which is hereby made. This Certificate is not valid until countersigned by the transfer agent. IN WITNESS WHEREOF, Community Financial Group, Inc. has caused this certificate to be duly executed under its facsimile signature of its authorized officers. Dated: Countersigned: REGISTRAR AND TRANSFER COMPANY Warrant Agent [SEAL COMMUNITY FINANCIAL GROUP, INC.] /s/ Mack S. Linebaugh /s/ Joan B. Marshall 2 COMMUNITY FINANCIAL GROUP, INC. The following abbreviations when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of supervisorship and not as tenants in common UNIF GIFT MIN ACT ..........Custodian.......... (Cust) (Minor) under Uniform Gifts to Minors Act ......................... (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, ___________ HEREBY SELL, ASSIGN AND TRANSFER UNTO PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _____________________________________________ _____________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________ SHARES OF CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT ____________________________________________________________________ ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAME CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES. DATE:______________________ SIGNATURE: _____________________________________________________ NOTICE THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE. IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. SIGNATURE GUARANTEE: EX-4.03 5 CERTIFICATE OF COMMON STOCK PURCHASE WARRANT 1 EXHIBIT 4.03 WARRANTS COMMUNITY FINANCIAL GROUP, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF TENNESSEE SEE REVERSE FOR CERTAIN DEFINITIONS ------------------- CUSIP 20365M 11 6 ------------------- THIS CERTIFIES THAT IS THE REGISTERED HOLDER OF COMMON STOCK PURCHASE WARRANTS (the :Warrants") expiring December 31, 1995, as provided in the Warrant Agreement, dated August 1, 1989, (which has been extended to December 31, 1998), to purchase common stock, par value $6.00 per share of Community Financial Group, Inc. (the "Corporation"). Each Warrant entitles the holder to purchase from the Corporation, on or before 5:00 pm local time December 31, 1998, in Nashville, Tennessee one fully paid and nonassessable share of common stock of the Corporation at the purchase price (the "Purchase Price") at the time in effect under the Warrant Agreement ($12.50 per share at the time of the issuance of the Warrant), payable in lawful money of the United States of America, upon surrender of this Warrant Certificate and payment of such Purchase Price at the principal office of the Corporation in Nashville, Tennessee, but only subject to the conditions set forth of the in the Warrant Agreement; provided, however, that the number of kind shares (or in certain events other property) purchasable upon exercise of the Warrant Agreement. A copy of the Warrant Agreement is available for inspection during normal business hours in the office of the Corporation. Payment of the Purchase Price shall be made in cash or by certified or official bank check payable to the order of the Corporation. This Warrant Certificate shall not be valid unless countersigned by the Warrant Agent. IN WITNESS WHEREOF, Community Financial Group, Inc. has caused this Warrant Certificate to be dully executed under its facsimile corporate seal and the facsimile signature of this authorized officers. Dated: Countersigned: REGISTRAR AND TRANSFER COMPANY Warrant Agent [SEAL COMMUNITY FINANCIAL GROUP, INC.] /s/ Mack S. Linebaugh /s/ Joan B. Marshall 2 COMMUNITY FINANCIAL GROUP, INC. The following abbreviations when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of supervisorship and not as tenants in common UNIF GIFT MIN ACT ..........Custodian.......... (Cust) (Minor) under Uniform Gifts to Minors Act ......................... (State) Additional abbreviations may also be used though not in the above list. The undersigned hereby (1) irrevocably elects to exercise line Warrants evidenced by the within Warrant Certificate and to purchase thereunder ________ full shares of the common stock issueable upon exercise of said Warrants, (2) makes payment in full of the Purchase Price of such shares and any applicable taxes, (3) requests that certificates for such shares be issued in the name of , and delivered to the following: (PLEASE PRINT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER, AND NAME AND ADDRESS) SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER - --------------------------- - --------------------------- - -------------------------------------------------------------------------------- Name - -------------------------------------------------------------------------------- Street Address or Post Office Box - -------------------------------------------------------------------------------- City, State, Zip Code and (4) if said number of Warrants shall not be all the Warrants evidenced by the within Certificate, requests that a new Warrant Certificate evidencing the Warrants not so exercise be issued in the name of and delivered to the following: - -------------------------------------------------------------------------------- Name - -------------------------------------------------------------------------------- Street Address or Post Office Box - -------------------------------------------------------------------------------- City, State, Zip Code Dated , 19 --------------------- Signature: --------------------------------------------------------------------- NOTICE the above signature must correspond with the name as written the face of the Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever, or if signed by any other person, the Form of Assignment hereon must be dully executed and if the certificate representing the shares or any Warrant Certificate representing Warrants not exercised is to be registered in a name other than that in which the Warrant Certificate is registered, the signature of the holder hereof must be guaranteed SIGNATURE GUARANTEE: FORM OF ASSIGNMENT (TO BE EXECUTED BY THE REGISTERED HOLDER TO ASSIGN WARRANTS EVIDENCED BY THE WARRANT CERTIFICATE) FOR VALUE RECEIVED _____________________________________________________ HEREBY sells, assigns and transfer unto_______________________________________________ - -------------------------------------------------------------------------------- Warrants, evidenced by the Warrant Certificates and does hereby irrevocably constitute and appoint____________ Attorney to transfer the said Warrants evidenced by the Warrant Certificate on the books of the Corporation, with full power of substitution. SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER - --------------------------- - --------------------------- Dated , 19 --------------------- ------ Signature: ---------------------------------------------------------------------- NOTICE: The above signature must correspond as written upon the face of the Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. SIGNATURE GUARANTEE: EX-10.01 6 EMPLOYMENT AGREEMENT MACK S. LINEBAUGH, JR. 1 EXHIBIT 10.01 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (sometimes herein this "Amendment") is made as of the 2nd day of September, 1995, by and between THE BANK OF NASHVILLE, a corporation formed under the laws of the State of Tennessee (the "Employer"), and MACK S. LINEBAUGH, JR. (the "Employee"). WITNESSETH: WHEREAS, Employer and Employee are parties to that certain Employment Agreement dated September 2, 1992, which Employment Agreement had an initial term through September 1, 1993; and WHEREAS, by letter dated August 2, 1993 from Employer to Employee, the term of such Employment Agreement was renewed and extended for the period from September 2, 1993 through September 1, 1994; and WHEREAS, by letter dated August 25, 1994 from Employer to Employee, the term of such Employment Agreement was renewed and extended for the period from September 2, 1994 through September 1, 1995 (such Employment Agreement as extended and renewed pursuant to the August 2, 1993 letter described above and as extended and renewed pursuant to the August 25, 1994 letter described above is hereinafter referred to as the "Employment Agreement"); and WHEREAS, Employer and Employee desire to amend the Employment Agreement to renew and extend the Employment Agreement for the period from September 2, 1995 through September 1, 1996 and to provide for two (2) one-year renewal periods thereafter. NOW, THEREFORE, in consideration of One Dollar ($1.00) and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Employer and Employee hereby agree as follows: 1. Paragraph 2 of the Employment Agreement is hereby amended by deleting the second sentence therefrom in its entirety and inserting in lieu thereof the follows: Employer may renew this contract upon proper notice to Employee for up to five (5) one-year renewal periods provided the compensation will be maintained at least at the initial level and shall be negotiated further as described below. 2. Employer and Employee hereby acknowledge and agree that the Employment Agreement was properly extended and renewed for the period from September 2, 1993 through September 1, 1994 pursuant to that certain letter dated August 2, 1993 from Employer to Employee and that the Employment Agreement was properly extended and renewed for the period from September 2, 1994 through September 1, 1995 pursuant to that certain letter dated August 25, 1994 from Employer to Employee. Employer and Employee hereby irrevocably waive any requirement that notice of either such extension and renewal be given thirty (30) days prior to the then expiration of the Employment Agreement. 2 3. Employer and Employee hereby agree that the Employment Agreement shall be and is hereby renewed and extended for the period from September 2, 1995 through September 1, 1996, and Employer and Employee hereby irrevocably waive any requirement as otherwise set forth in the Employment Agreement concerning notice of the extension and renewal for such period. 4. The provisions of this Amendment shall in no way alter any stock options which Employer may have heretofore granted to Employee, and the execution of this Amendment shall in no way be construed as an agreement by Employer to grant Employee any additional stock options. 5. Except as hereby modified and amended, the Employment Agreement shall otherwise remain in full force and effect and shall not be affected by this Amendment. IN WITNESS WHEREOF, Employer and Employee have executed this Amendment on the date set forth below opposite each such party's signature, but effective as of September 2, 1995. EMPLOYER: THE BANK OF NASHVILLE Date: August 11, 1995 By:/s/ Joan B. Marshall --------------- --------------------------------- Joan B. Marshall, Vice President and Corporate Secretary EMPLOYEE: Date: August 11, 1995 /s/ Mack S. Linebaugh, Jr. --------------- ---------------------------------- Mack S. Linebaugh, Jr. -2- 3 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (hereinafter referred to as the "Agreement") is dated this 2nd day of September, 1992, and is by and between THE BANK OF NASHVILLE (hereinafter referred to as the "Employer"), a corporation formed under the laws of the State of Tennessee, and MACK S. LINEBAUGH, JR. (hereinafter referred to as the "Employee"). Employer and Employee hereby agree as follows: 1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby accepts employment, upon the terms and conditions hereinafter set forth. 2. TERM. Subject to the provisions hereof, and the faithful performance by Employee of his employment, as herein defined, the term of Employee's employment hereunder shall commence on September 2, 1992, and shall continue thereafter for a period of one year (hereinafter referred to as the "Term" with the end of each Term being referred to as an "Anniversary Date"). Employer may renew this contract upon proper notice to Employee for up to two (2), one-year renewal periods provided the compensation will be maintained at least at the initial level and shall be negotiated further as described below. The Employer, through the Secretary to its Board of Directors, must notify Employee thirty (30) days prior to the expiration hereof of its decision to renew or its reasons for not renewing, if for cause, as defined in Section 11. 4 3. COMPENSATION. (a) Base Salary. As compensation for the services to be rendered by Employee during the period of his employment hereunder, and upon the condition that Employee shall fully and faithfully keep and perform all of the terms and conditions hereof, Employer shall pay Employee a salary of $160,000.00, less income tax and social security withholdings and other deductions for employee benefits applicable to other employees of Employer ("Salary"). Such Salary shall be payable in 24 equal installments paid on the 15th and last day of each month. The Salary shall be subject to periodic review and revision by the Board of Directors of the Employer but shall not be decreased during the term of employment hereunder. (b) Participation in Benefits Plans. Employee shall receive all other benefits generally offered to other employees of the Employer ("Benefits"). (c) Incentive Compensation. In addition to Salary, Employee shall be entitled to receive such bonus or incentive compensation payments as the Board of Directors in its sole discretion may determine from time to time. (d) Stock Options. Employee shall receive as additional compensation stock options to purchase 20,000 shares of common stock of the Employer for a cash purchase price of $6.00 per share which is equal to the market price of the common stock of the Employer on the date of the grant. The date of the grant shall be the date of this Agreement. The right to exercise the stock option 2 5 shall vest as to 10,000 shares immediately, as to 5,000 shares on September I, 1993 and as to the remaining 5,000 shares on September 1, 1994. The vesting of the options is conditioned upon Employee being employed by Employer or its successor on the vesting date. All options may be exercised in increments or in whole at any time until August 31, 2002. (i) Reservation of Stock. The Employer covenants that while the option is exercisable, it will reserve from its authorized and unissued common stock a sufficient number of shares to provide for the delivery of stock pursuant to the exercise of this option. (ii) Protection Against Dilution. In any of the following events, occurring hereafter, appropriate adjustment shall be made in the number of shares deliverable upon the exercise of this option or the price per share to be paid so as to maintain the proportionate interest of the option holder: (a) recapitalization of the Employer through a split-up of the outstanding shares of the common stock or a combination of the outstanding shares into a lesser number; (b) declaration of a dividend on the common stock of the Employer, payable in common stock or securities convertible into common stock; (c) issuance of common stock at less than the price per share payable upon the exercise of this option, or issuance of securities carrying conversion privileges or bearing stock purchase options for common stock at more favorable terms than provided by this option. (iii) Merger. If the Employer, or any successor, shall be consolidated or merged with another corporation, or substantially all of its assets shall be sold to another corporation in exchange for stock with the view to distributing such stock to its shareholders, each share of stock purchasable by this option shall be replaced for the purposes hereof by the securities or property issuable or distributable in respect of one share of common stock of this Employer, or its successors, upon such consolidation, merger, or sale, and adequate provision to that effect shall be made at the time thereof. If all or substantially all of Employer or any successor shall be sold for cash then all invested options shall vest and Employee may immediately exercise such options. (iv) Shareholder's Rights. Until the valid exercise of this option, the holder hereof shall not be entitled to any rights of a shareholder, but immediately upon the exercise of this option and upon payment as provided herein, the holder hereof shall be deemed a record holder of the common stock. 3 6 (e) Incentive Phantom Stock Plan. Employer shall grant employee 60,000 Phantom Stock Appreciation Rights pursuant to Employers Incentive Phantom Stock Appreciation Rights Plan. The Date of Grant shall be January l, 1993. (f) Continuation. This Agreement shall not be deemed abrogated or terminated if the Board~of Directors or shareholders of Employer shall determine to increase the compensation of Employee for any period of time. 4. DUTIES. Employee is engaged as the President and Chief Executive Officer of Employer, to render services in such capacity which are consonant with the position of President and Chief Executive Officer. In addition, Employee shall perform such other duties as are reasonably required of him by Employer in his capacity as an executive employee. The precise services of Employee may be extended or curtailed, from time to time, at the direction of Employer as long as Employee continues to serve as the Chief Executive Officer with such duties as are consistent with those of a Chief Executive Officer. If Employee is elected or appointed an officer and/or director of Employer during the term of this Agreement, Employee shall serve in such capacity or capacities without further compensation. 5. UNAUTHORIZED DISCLOSURE. During the period of his employment hereunder, Employee shall not, without the prior written consent of the Board of Directors, disclose to any person, other than a person to whom disclosure is necessary or appropriate in connection with the performance by Employee of his duties as an 4 7 officer of the Employer, any confidential information obtained by HIM WHILE IN the employ of the Company with respect to any of the Employer's products, improvements, designs or styles, processes, customers, methods of marketing or distribution, systems, procedures, plans, proposals, or policies the disclosure of which he knows, or should have reason to know, could be damaging to the Employer; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Employee) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Employer. Following the termination of employment hereunder, the Employee shall not disclose any confidential information of the type described above except as may be required in the opinion of the Employee's counsel in connection with any judicial or administrative proceeding or inquiry. 6. EXPENSES. Employee is authorized to incur reasonable expenses for promoting the business of Employer. Employer shall reimburse Employee for all such expenses upon the presentation by Employee, from time to time, of an account of such expenditures, setting forth the purposes for which incurred, and the amounts thereof, together with such receipts showing payments as Employee has reasonably been able to obtain. 7. VACATIONS. Employee shall be entitled each year to a reasonable vacation or vacations, consistent with Employer's vacation policy, during which time his compensation shall be paid 5 8 in full. Each such vacation shall be taken during a period mutually satisfactory to both Employer and Employee hereunder. 8. EXTENT OF SERVICES. Employee agrees to perform his services efficiently, to the best of his ability, and to Employer's reasonable satisfaction. Employee agrees that throughout the Term of this Agreement, he will devote Substantially all of his time, care, attention, and efforts to Employer's business. Employee agrees that throughout the Term of this Agreement he will not be engaged or interested in any other business activity which competes with Employer, whether or not such business activity is pursued for gain, profit or other pecuniary advantage. Notwithstanding the foregoing, Employee is permitted to engage in or become interested in the businesses and activities enumerated in Schedule 1 annexed hereto, provided that his interest or involvement therein does not otherwise violate any other term or provisions of this Agreement other than the preceding sentence of this Section 8. Employee agrees that all of his activities as an employee shall be in conformity with all present and future policies, rules, regulations and reasonable directions of Employer. 9. INTELLECTUAL PROPERTY. All right, title and interest of every kind and nature whatsoever in and to any intellectual property, including any inventions, patents, trademarks, copyrights, ideas, creations, and properties furnished to Employer during the Term, and/or used in connection with any of Employer's activities, or written or created by Employee, or with which Employee is connected in the performance of his services hereunder, 6 9 shall as between the parties hereto be, become, and remain the sole and exclusive property of Employer for any and all purposes and uses whatsoever, regardless of whether the same were invented, created, written, developed, furnished, produced, or disclosed by Employee or any other party, and Employee shall have no right, title or interest of any kind or Pasture therein or thereto, or in and to any results and proceeds therefrom. Employee agrees, during and after the Term hereof, to execute any and all documents and agreements which Employer may deem necessary and appropriate to effectuate the provisions of this Section 9. the provisions of this Section 9 shall survive the expiration or termination, for any reason, of this Agreement and of Employee's employment. 10. DEATH DURING EMPLOYMENT. If Employee dies during the Term of his employment, Employer shall pay to the estate of Employee the compensation which would otherwise be payable to Employee up to the end of the month in which his death occurs. 11. TERMINATION OF AGREEMENT. Should any of the following events occur, Employer may, at its election, terminate this Agreement by giving written notice thereof to Employee, which such notice shall be effective immediately: (a) Employee is physically or mentally incapacitated either for a period of sixty (60) consecutive days, or for a total of ninety (90) days in any twelve month period and is unable to perform the essential functions of his job with or without reasonable accommodations. 7 10 (b) Employee conducts himself in a manner substantially detrimental to Employer, and constitutes on the part of the Employee personal dishonesty, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties of the Chief Executive Officer of the Employer, willful violation of any law, governmental rule or regulation (other than traffic violations of similar offenses) or final cease and desist order, or material breach of this Agreement or for any of the reasons set forth in 12 USC section 1818(e) and (g), determined on a reasonable basis. (c) Employee competes, in a manner prohibited by this Agreement, with Employer during the Term hereof. (d) Employee is convicted of a misdemeanor involving dishonesty or breach of trust or is convicted of any felony. (e) Employee engages in the illegal usage of any drug. (f) Any state or federal regulatory agency or court of competent jurisdiction issues an order requiring Employee's removal from any duties or responsibilities for Employer. Termination or any other disciplinary actions for any of the reasons stated in this Section ll shall be deemed to be "for cause." In the event Employer terminates or otherwise reduces the total value of Employee's Salary and Benefits "for cause," Employer shall pay Employee the compensation and benefits which would otherwise be payable to Employee up to the end of the month in which the termination or disciplinary action occurs. However, should Salary and Benefits be reduced for all employees with 8 11 Employee's concurrence as a Board member, the reduction shall not invoke this provision. If the contract is not renewed as provided in Section 2 or Employer reduces Employee's Salary or Benefits for reason other than cause, then the Employer shall pay Employee within 30 days of notice from Employee to the Secretary of the Board of Directors of the Bank a lump sum equal to six (6) months Salary then being paid plus any Salary then due. Such payments will be conditioned, at the Employer's option, upon the Employee's continuation of his employment for 60 days after notice with full Salary and Benefits, which shall be in addition to the lump sum payment made thereafter. Employee will vacate the premises of the Employer the last business day of the month in which such lump sum payment is made. The Employee may terminate his employment hereunder (i) at any time if his health should become impaired to an extent that makes the continued performance of his duties hereunder hazardous to his physical or mental health, or (ii) upon sixty (60) days written notice for any other reason. 12. COMPETITION DURING AND AFTER TERM. Employee agrees that during his employment hereunder, and for a period of six (6) additional months if a payment of the lump sum amount referred to in Section 11 has been made, he will not, either separately, jointly, or in association with others, directly or indirectly, as an agent, employee, owner, partner, stockholder, or otherwise, allow his name to be used by, or establish, engage in, or become interested in any business, trade or occupation in substantial 9 12 competition with the principal business being conducted by employer, in any banking market of Employer where Employee has been principally stationed, and in which Employer's business is presently being conducted, as long as Employer, or any person, firm, or corporation deriving title to the goodwill of, or shares from it, carries on a like business therein. Notwithstanding the preceding sentence, Employee shall be allowed to engage in or be interested in the businesses and activities enumerated in Schedule 1 annexed hereto, provided that his interest or involvement therein does not otherwise violate any other term or provision of this Agreement other than the preceding sentence of this Section 12. Employer and Employee acknowledge that during the Term of Employee's employment, Employee will acquire special knowledge and/or skill that he can effectively utilize in competition with Employer. Employee agrees that the remedy at law for any breach by him of the covenants contained herein will be inadequate, and that in the event of a violation of the covenants contained herein, in addition to any and all legal and equitable remedies which may be available, the said covenants may be enforced by an injunction in a suit in equity, without the necessity of proving actual damage, and that a temporary injunction may be granted immediately upon the commencement of any such suit, and without notice. The parties hereto intend that the covenants contained in this Section 12 shall be deemed to be a series of separate covenants, one for each county of each state where Employer does business and Employee has been 10 13 stationed. If, in any judicial proceeding, a court shall refuse to enforce any or all of the separate covenants deemed included in such ACTION, then such unenforceable covenants shall be deemed eliminated from the provisions hereof for the purposes of such proceeding to the extent necessary to permit the remaining separate covenants to be enforced in such proceeding. Furthermore, if in any judicial proceeding a court shall refuse to enforce any covenant by reason of the duration or extent thereof, such covenant shall be construed to have only the maximum duration or extent permitted by law. 13. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing, and if sent by registered or certified mail, postage prepaid, addressed as follows: If to Employer: The Bank of Nashville 401 Church Street Nashville, Tennessee 37219 ATTN: Corporate Secretary If to Employee: Mack S. Linebaugh, Jr. 400 Wilsonia Drive Nashville, Tennessee 37205 The persons and addresses to which mailings may be made may be changed from time to time by a notice mailed as aforesaid. 14. ACKNOWLEDGMENT OF PECULIAR VALUE OF SERVICES. The Employer and Employee recognize that each party will have no adequate remedy at law for breach by the other of any of the agreements contained herein and, in the event of any such breach, the parties hereby agree and consent that the other shall be 11 14 entitled to a decree of specific performance, mandamus or other appropriate remedy to enforce performance of this Agreement. 15. WAIVER OF BREACH. No provisions of this Agreement may be waived or discharged unless such waiver or discharge is agreed to in writing signed by Employee and the Employer. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 16. ASSIGNMENT. This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided for herein. Without limiting the generality of the foregoing, Employee's right to receive payments hereunder shall not be assignable, transferable or delegable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this paragraph, the Employer shall have no liability to pay any amount so attempted to be assigned, transferred or delegated. 17. ENTIRE AGREEMENT AND MODIFICATION. This instrument contains the entire agreement of the parties hereto, and supersedes any and all prior agreements, arrangements or understandings between the parties hereto relating to the subject matter hereof. 12 15 This Agreement may not be modified, changed, or terminated by the parties hereto, unless such modification, change or termination is expressly agreed in writing by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. 18. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of Tennessee. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the 28th of September, 1992. EMPLOYER: THE BANK OF NASHVILLE By:/s/ Joan B. Marshall ------------------------------- Joan B. Marshall, Corporate Secretary EMPLOYEE: /s/ Mack S. Linebaugh, Jr. --------------------------------- Mack S. Linebaugh, Jr. 13 16 SCHEDULE 1 Hawkins Properties 14 EX-10.02 7 EMPLOYMENT AGREEMENT JULIAN C. CORNETT 1 EXHIBIT 10.02 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (hereinafter referred to as the "Agreement") is dated this 13th day of October, 1996, and is by and between THE BANK OF NASHVILLE (hereinafter referred to as the "Employer"), a corporation formed under the laws of the State of Tennessee, and JULIAN C. CORNETT (hereinafter referred to as the "Employee"). Employer and Employee hereby agree as follows: 1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby accepts employment, upon the terms and conditions hereinafter set forth. 2. Term. Subject to the provisions hereof, and the faithful performance by Employee of this employment, as herein defined, the term of Employee's employment hereunder shall commence on October 13, 1996, and shall continue thereafter for a period of one year. 3. Compensation. (a) Base Salary. As compensation for the services to be rendered by Employee during the period of his employment hereunder, and upon the condition that Employee shall fully and faithfully keep and perform all of the terms and conditions hereof, Employer shall pay Employee a salary of $144,700.00, less income tax and social security withholdings and other deductions for employee benefits applicable to other employees of Employer ("Salary"). Such Salary shall be payable in one initial 2 installment (pro rata) and 23 equal installments paid on the 15th and last day of each month. The Salary shall be subject to periodic review and revision by the Employer but shall not be decreased during the term of employment hereunder. (b) Participation in Benefit Plans. Employee shall receive all other benefits generally offered to other employees of the Employer ("Benefits"). (c) Continuation. This Agreement shall not be deemed abrogated or terminated if the Board of Directors or shareholders of Employer shall determine to increase the compensation of Employee for any period of time. 4. DUTIES. Employee is to be engaged as Executive Vice President and head of Credit Administration to render services in such capacity which are consonant with the position of Executive Vice President - Credit Administration. In addition, Employee shall perform such other duties as are reasonably required of him by Employer in his capacity as an executive employee. The precise services of Employee may be extended or curtailed, from time to time, at the direction of Employer as long as Employee continues to serve as the Executive Vice President in Credit Administration with such duties as are consistent with that position. If Employee is elected or appointed to serve as any other officer and/or director of Employer during the term of this Agreement, Employee shall serve in such capacity or capacities without further compensation. 5. UNAUTHORIZED DISCLOSURE. During the period of his employment hereunder, Employee shall not, without the prior written consent of the Employer, disclose to any person, other than a person to whom disclosure is necessary or appropriate in connection with the performance by Employee of his duties as an officer of the employer, any 2 3 confidential information obtained by him while in the employ of the Company with respect to any of the Employer's products, improvements, designs or styles, processes, customers, methods of marketing or distribution, systems, procedures, plans, proposals, or policies the disclosure of which he knows, or should have reason to know, could be damaging to the Employer; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Employee) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Employer. Following the termination of employment hereunder, the Employee shall not disclose any confidential information of the type described above except as may be required in the opinion of the Employee's counsel in connection with any judicial or administrative proceeding or inquiry. 6. EXPENSES. Employee is authorized to incur reasonable expenses for promoting the business of Employer. Employer shall reimburse Employee for all such expenses upon the presentation by Employee, from time to time, of an account of such expenditures, setting forth the purposes for which incurred, and the amounts thereof, together with such receipts showing payments as Employee has reasonably been able to obtain. 7. VACATIONS. Employee shall be entitled each year to a reasonable vacation or vacations, consistent with Employer's vacation policy, during which time his compensation shall be paid in full. Each such vacation shall be taken during a period mutually satisfactory to both Employer and Employee hereunder. 3 4 8. EXTENT OF SERVICES. Employee agrees to perform his services efficiently, to the best of his ability, and to Employer's reasonable satisfaction. Employee agrees that throughout the Term of this Agreement he will not be engaged or interested in any other business activity which competes with Employer, whether or not such business activity is pursued for gain, profit or other pecuniary advantage. Employee agrees that all of his activities as Employee shall be in conformity with all present and future policies, rules, regulations and reasonable directions of Employer. 9. INTELLECTUAL PROPERTY. All right, title and interest of every kind and nature whatsoever in any to any intellectual property, including any inventions, patents, trademarks, copyrights, ideas, creations, and properties furnished to Employer during the Term, and/or used in connection with any of Employer's activities, or written or created by Employee, or with which Employee is connected in the performance of his services hereunder, shall as between the parties hereto be, become, and remain the sole and exclusive property of Employer for any and all purposes and uses whatsoever, regardless of whether the same were invented, created, written, developed, furnished, produced, or disclosed by Employee or any other party, and Employee shall have no right, title or interest of any kind or nature therein or thereto, or in any to any results and proceeds therefrom. Employee agrees, during and after the Term hereof, to execute any and all documents and agreements which Employer may deem necessary and appropriate to effectuate the provisions of this Section 9. The provisions of this Section 9 shall survive the expiration or terminations, for any reason, of this Agreement and of Employee's employment. 4 5 10. DEATH DURING EMPLOYMENT. If Employee dies during the Term of this employment, Employer shall pay to the estate of Employee the compensation which would otherwise be payable to Employee up to the end of the month in which his death occurs. 11. TERMINATION OF AGREEMENT. Should any of the following events occur, Employer may, at its election, terminate this Agreement by giving written notice thereof to Employee, which such notice shall be effective immediately: (a) Employee is physically or mentally incapacitated either for a period of sixty (60) consecutive days, or for a total of ninety (90) days in any twelve month period and is unable to perform the essential functions of his job with or without reasonable accommodations. (b) Employee conducts himself in a manner substantially detrimental to Employer, and constitutes on the part of the Employee personal dishonesty, willful misconducts, breach of fiduciary duty involving personal profit intentional failure to perform stated duties of the Executive Vice President of the Employer, willful violation of any law, governmental rule or regulation (other than traffic violations or similar offenses) or final cease and desist order, or material breach of this Agreement or for any of the reasons set forth in 12 USC-1818(e) and (g), determined on a reasonable basis. (c) Employee competes, in a manner prohibited by this Agreement, with Employer during the Term hereof. 5 6 (d) Employee is convicted of a misdemeanor involving breach of trust or is convicted of any felony. (e) Employee engages in the illegal usage of any drug. (f) Any state or federal regulatory agency or court of competent jurisdiction issues an order requiring Employee's removal from any duties or responsibilities for Employer. Termination or any other disciplinary actions for any of the reasons stated in this Section 11 shall be deemed to be "for cause." In the event Employer terminates or otherwise reduces the total value of Employee's Salary and Benefits "for cause," Employer shall pay Employee the compensation and benefits which would otherwise be payable to Employee up to the end of the month in which the termination or disciplinary action occurs. If Employer, for reasons other than cause (i) does not, at the end of the term, renew this agreement for a period of at least one year, (ii) or otherwise terminates this agreement, then the Employer shall pay Employee within 30 days of notice from Employee to the President of the Bank a lump sum equal to six (6) months Salary then being paid plus any Salary then due. Such payments will be conditioned, at the employer's option, upon the Employee's continuation of this employment for 60 days after notice with full Salary and Benefits, which shall be in addition to the lump sum payment made thereafter. Employee shall vacate the premises of the Employer the last business day of the month in which such lump sum payment is made. 6 7 The Employee may terminate his employment hereunder (i) at any time if his health should become impaired to an extent that makes the continued performance of his duties hereunder hazardous to his physical or mental health, or (ii) upon sixty (60) days written notice for any other reason. 12. COMPETITION DURING AND AFTER TERM. Employee agrees that during his employment hereunder, and for a period of six (6) additional months if a payment of the lump sum amount referred to in Section 11 has been made, he will not, either separately, or in association with others, directly or indirectly, as an agent, employee, owner, partner, stockholder, or otherwise, allow his name to be used by, or establish, engage in, or become interested in any business, trade or occupation in substantial competition with the principal business being conducted by Employer, in any banking market of Employer where Employee has been principally stationed, and in which Employer's business is presently being conducted, as long as Employer, or any person, firm, or corporation deriving title to the goodwill of, or shares from it, carries on a like business therein. Employer and Employee acknowledge that during the term of the Employee's employment, Employee will acquire special knowledge and/or skill that he can effectively utilize in competition with Employer. Employee agrees that the remedy at law for any breach by him of the covenants contained herein will be inadequate, and that in the event of a violation of the covenants contained herein, in addition to any and all legal and equitable remedies which may be available, the said covenants may be enforced by an injunction in a suit in equity, without the necessity of proving actual damage, and that a temporary injunction may be granted 7 8 immediately upon the commencement of any such suit, and without notice. The parties hereto intent that the covenants contained in this Section 12 shall be deemed to be a series of separate covenants, one for each county of each state where Employer does business and Employee has been stationed. If, in any judicial proceeding, a court shall refuse to enforce any or all of the separate covenants deemed included in such action, then such unenforceable covenants shall be deemed eliminated from the provisions hereof for the purposes of such proceeding to the extent necessary to permit the remaining separate covenants to be enforced in such proceeding. Furthermore, if in any judicial proceeding a court shall refuse to enforce any covenant by reason of the duration or extent thereof, such covenant shall be construed to have only the maximum duration or extent permitted by law. 13. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing, and if sent by registered or certified mail, postage prepaid, addressed as follows: If to Employer: The Bank of Nashville 401 Church Street Nashville, Tennessee 37219 Attention: Corporate Secretary If to Employee: Julian C. Cornett 9311 Chesapeake Drive Brentwood, Tennessee 37027 8 9 The persons and addresses to which mailings may be made may be changed from time to time by a notice mailed as aforesaid. 14. ACKNOWLEDGMENT OF PECULIAR VALUE OF SERVICES. The Employer and Employee recognize that each party will have no adequate remedy at law for breach by the other of any of the agreements contained herein and, in the event of any such breach, the parties hereby agree and consent that the other shall be entitled to a decree of specific performance, mandamus or other appropriate remedy to enforce performance of this Agreement. 15. WAIVER OF BREACH. No provisions of this Agreement may be waived or discharged unless such waiver or discharge is agreed to in writing signed by Employee and the Employer. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 16. ASSIGNMENT. This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided for herein. Without limiting the generality of the foregoing, Employee's right to receive payments hereunder shall not be assignable, transferable or delegable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this 9 EX-10.03 8 OPTION AGREEMENT MACK S. LINEBAUGH, JR. 1 EXHIBIT 10.03 Document executed with 2 originals distributed as follows: Original A to Optionee Original B to The Bank of Nashville ORIGINAL B STOCK OPTION AGREEMENT ENTERED INTO BY THE BANK OF NASHVILLE THIS STOCK OPTION AGREEMENT ("Agreement"), effective the 2nd day of September, 1992, by and between THE BANK OF NASHVILLE, (the "Bank"), and Mack S. Linebaugh, Jr. (the "Optionee") pursuant to the terms of the employment agreement between the Bank and Optionee dated September 2, 1992. 1. Grant of Option. Bank hereby grants to Optionee a stock option (the "Option"), exercisable in whole or in part, to purchase 20,000 shares of the Bank's common stock, $6.00 par value per share (the "Common Stock"), for a price of $6.00 per share. 2. Vesting. The right to exercise this Stock Option vested on September 2, 1992 as to 10,000 shares, shall vest on September l, 1993 as to 5,000 shares, on September l, 1994 as to 5,000 shares, on N/A, 19___ to N/A shares, and shall vest on N/A, l9___ as to the remaining shares. The vesting of the option is conditioned upon Optionee being employed by Bank or its successor on the respective dates of vesting. 3. Expiration of Option. This Option shall expire on August 31, 2002 with respect to any then unexercised portion of this Option. 2 4. Manner of Exercise. This Option shall be exercised by Optionee (or other party entitled to exercise the Option under Section 6 of this Agreement) by delivering written notice to the Bank stating the number of shares of Common Stock purchased, the person or persons in whose name the shares are to be registered, and each person's address and social security number. Such notice shall not be effective unless accompanied by the full purchase price for all shares so purchased. The purchase price shall be payable in cash. Payment in currency or by check, bank draft, cashier's check or postal money order shall be considered payment in cash. 5. Nontransferability of Option. This Option shall not be transferable by the Optionee otherwise than by will or by the laws of descent and distribution, and is exercisable during Optionee's lifetime only by Optionee. The terms of this Option shall be binding on the executors, administrators, heirs and successors of Optionee. 6. Exercise after Death. If the Optionee dies before the expiration of this Option, this Option may be exercised until the expiration pursuant to Section 3 of this Agreement by the executors or administrators of the Optionee's estate or by any person or persons who shall have acquired this Option directly from the Optionee by bequest or inheritance. 7. Restrictions on Purchase and Sale of Shares. If required by applicable securities laws, the Optionee hereby agrees that, as a further condition to the exercise of this 2 3 Option, the Optionee (or his successor under Section 6 hereof) will execute an agreement in form satisfactory to the Bank in which the Optionee represents that he is purchasing the shares for investment purposes, and not with a view to resale or distribution. 8. Reservation of Stock. Bank covenants that while the Option is exercisable, it will reserve from its authorized and unissued common stock a sufficient number of shares to provide for the delivery of stock pursuant to the exercise of this Option. 9. Protection Against Dilution. In any of the following events, occurring hereafter, appropriate adjustment shall be made in the number of shares deliverable upon the exercise of this Option or in the price per share to be paid so as to maintain the proportionate interest of the Optionee: (a) recapitalization of the Bank through a split-up of the outstanding shares into a lesser number; (b) declaration of a dividend on the Common Stock of the Bank, payable in Common Stock or securities convertible into Common Stock; (c) issuance of Common Stock at less than the price per share payable upon the exercise of this Option, or issuance of securities carrying conversion privileges or bearing stock purchase options for Common Stock at more favorable terms than provided by this Option. 10. Merger, Sale or Change of Majority Control. If a merger, sale or change of majority control of the Bank is announced, then any portion of this Option that is not vested 3 4 shall vest upon the closing of such event. If the Bank, or any successor, shall be consolidated or merged with another corporation, or substantially all of its assets shall be sold to another corporation in exchange for stock with the view to distributing such stock to its shareholders, each share of stock purchasable by this Option shall be replaced for the purposes hereof by the securities or property issuable or distributable in respect of one share of Common Stock of this Bank, or its successors, upon such consolidation, merger, or sale, and adequate provision to that effect shall be made at the time thereof. If all or substantially all of Bank or any successor shall be sold for cash, the Optionee may immediately exercise any unexercised portion of this Option. 11. Optionee's Rights. Until the valid exercise of this Option, the Optionee hereby shall not be entitled to any rights of a shareholder, but immediately upon the exercise of this Option and upon payment as provided herein, the Optlonee hereof shall be deemed a record holder of the common stock. 12. Amendment. This Option may be amended only by the written agreement of the parties hereto. Executed this 19th day of May, 1993. THE BANK OF NASHVILLE By:/s/Joan B. Marshall ------------------------------------------ Title:/s/ Vice President - Corporate Secretary --------------------------------------- OPTIONEE /s/ Mack S. Linebaugh --------------------------------------------- 5 Document executed with 2 originals distributed as follows: Original A to Optionee Original B to The Bank of Nashville ORIGINAL B STOCK OPTION AGREEMENT ENTERED INTO BY THE BANK OF NASHVILLE THIS STOCK OPTION AGREEMENT ("Agreement"), effective the 27th day of July, 1993, by and between THE BANK OF NASHVILLE, (the "Bank"), and Mack S. Linebaugh, Jr. (the "Optionee") pursuant to the terms of the employment agreement between the Bank and Optionee dated September 2, 1992 and notice of extension approved by Board of Directors on July 27, 1993. 1. Grant of Option. Bank hereby grants to Optionee a stock option (the "Option"), exercisable in whole or in part, to purchase 20,000 shares of the Bank's common stock, $6.00 par value per share (the "Common Stock"), for a price of $7.125 per share. 2. Vesting. The right to exercise this Stock Option vested on July 27, 1993 as to 4,000 shares, shall vest on July 27, 1994 as to 4,000 shares, on July 27, 1995 as to 4,000 shares, on July 27, 1996 to 4,000 shares, and shall vest on July 27, 1997 as to the remaining shares. The vesting of the option is conditioned upon Optionee being employed by Bank or its successor on the respective dates of vesting. 3. Expiration of Option. This Option shall expire on August 31, 2003 with respect to any then unexercised portion of this Option. 6 4. Manner of Exercise. This Option shall be exercised by Optionee (or other party entitled to exercise the Option under Section 6 of this Agreement) by delivering written notice to the Bank stating the number of shares of Common Stock purchased, the person or persons in whose name the shares are to be registered, and each person's address and social security number. Such notice shall not be effective unless accompanied by the full purchase price for all shares so purchased. The purchase price shall be payable in cash. Payment in currency or by check, bank draft, cashier's check or postal money order shall be considered payment in cash. 5. Nontransferability of Option. This Option shall not be transferable by the Optionee otherwise than by will or by the laws of descent and distribution, and is exercisable during Optionee's lifetime only by Optionee. The terms of this Option shall be binding on the executors, administrators, heirs and successors of Optionee. 6. Exercise after Death. If the Optionee dies before the expiration of this Option, this Option may be exercised until the expiration pursuant to Section 3 of this Agreement by the executors or administrators of the Optionee's estate or by any person or persons who shall have acquired this Option directly from the Optionee by bequest or inheritance. 7. Restrictions on Purchase and Sale of Shares. If required by applicable securities laws, the Optionee hereby agrees that, as a further condition to the exercise of this 2 7 Option, the Optionee (or his successor under Section 6 hereof) will execute an agreement in form satisfactory to the Bank in which the Optionee represents that he is purchasing the shares for investment purposes, and not with a view to resale or distribution. 8. Reservation of Stock. Bank covenants that while the Option is exercisable, it will reserve from its authorized and unissued common stock a sufficient number of shares to provide for the delivery of stock pursuant to the exercise of this Option. 9. Protection Against Dilution. In any of the following events, occurring hereafter, appropriate adjustment shall be made in the number of shares deliverable upon the exercise of this Option or in the price per share to be paid so as to maintain the proportionate interest of the Optionee: (a) recapitalization of the Bank through a split-up of the outstanding shares into a lesser number; (b) declaration of a dividend on the Common Stock of the Bank, payable in Common Stock or securities convertible into Common Stock; (c) issuance of Common Stock at less than the price per share payable upon the exercise of this Option, or issuance of securities carrying conversion privileges or bearing stock purchase options for Common Stock at more favorable terms than provided by this Option. 10. Merger, Sale or Change of Majority Control. If a merger, sale or change of majority control of the Bank is announced, then any portion of this Option that is not vested 3 8 shall vest upon the closing of such event. If the Bank, or any successor, shall be consolidated or merged with another corporation, or substantially all of its assets shall be sold to another corporation in exchange for stock with the view to distributing such stock to its shareholders, each share of stock purchasable by this Option shall be replaced for the purposes hereof by the securities or property issuable or distributable in respect of one share of Common Stock of this Bank, or its successors, upon such consolidation, merger, or sale, and adequate provision to that effect shall be made at the time thereof. If all or substantially all of Bank or any successor shall be sold for cash, the Optionee may immediately exercise any unexercised portion of this Option. 11. Optionee's Rights. Until the valid exercise of this Option, the Optionee hereby shall not be entitled to any rights of a shareholder, but immediately upon the exercise of this Option and upon payment as provided herein, the Optionee hereof shall be deemed a record holder of the common stock. 12. Amendment. This Option may be amended only by the written agreement of the parties hereto. Executed this 4th day of August, 1993. THE BANK OF NASHVILLE By:/s Joan B. Marshall --------------------------------- Title:/s/ Corporate Secretary -------------------------------- OPTIONEE /s/ Mack S. Linebaugh ------------------------------------- 4 9 STOCK OPTION AGREEMENT ENTERED INTO BY COMMUNITY FINANCIAL GROUP, INC. THIS STOCK OPTION AGREEMENT ("Agreement"), effective the 16th day of July, 1996 by and between COMMUNITY FINANCIAL GROUP, INC. (CFGI), and Mack S. Linebaugh, Jr. (the "Optionee") was approved by Board of Directors on July 16, 1996. 1. Grant of Option. Company hereby grants to Optionee a stock option (The "Option"), exercisable in whole or in part, to purchase 10,000 shares of the company's common stock, $6.00 par value per share (the "Common Stock"), for a price of $ 10.125 per share. 2. Vesting. The right to exercise this Stock Option vested on July 16, 1996 as to 2,000 shares, shall vest on July 16, 1997 as to 2,000 shares, on July 16, 1998 as to 2,000 shares, on July 16, 1999 as to 2,000 shares, and shall vest on July 16, 2000 as to the remaining shares. The vesting of the option is conditioned upon Optionee being employed by the company or one of its subsidiaries or its successor on the respective dates of vesting. 3. Expiration of Option. This Option shall expire on the earlier of July 16, 2006 or 90 days after employment is terminated with respect to any then unexercised portion of this Option. 4. Manner of Exercise. This Option shall be exercised by Optionee (or other party entitled to exercise the Option under Section 6 of this Agreement) by delivering 1 10 written notice to the Company stating the number of shares of Common Stock purchased, the person or persons in whose name the shares are to be registered, and each person's address and social security number. Such notice shall not be effective unless accompanied by the full purchase price for all shares so purchased, as well as any applicable employee tax payments. The purchase price shall be payable in cash. Payment in currency or by check, bank draft, cashier's check or postal money order shall be considered payment in cash. 5. Nontransferability of Option. This Option shall not be transferable by the Optionee otherwise than by will or by the laws of descent and distribution, and is exercisable during Optionee's lifetime only by Optionee. The terms of this Option shall be binding on the executors, administrators, heirs and successors of Optionee. 6. Exercise After Death. If the Optionee dies before the expiration of this Option, this Option may be exercised until the expiration pursuant to Section 3 of this Agreement by the executors or administrators of the Optionee's estate, or by any person or persons who shall have acquired this Option directly from the Optionee by bequest or inheritance. 7. Restrictions on Purchase and Sale of Shares. If required by applicable securities laws, the Optionee hereby agrees that, as a further condition to the exercise of this Option, the Optionee (or his successor under Section 6 hereof) will execute an agreement in form satisfactory to the Company in which the Optionee represents that he is purchasing the shares for investment purposes, and not with a view to resale or distribution. 2 11 8. Reservation of Stock. Company convenants that while the Option is exercisable, it will reserve from its authorized and unissued common stock a sufficient number of shares to provide for the delivery of stock pursuant to the exercise of this Option. 9. Protection Against Dilution. In any of the following events, occurring hereafter, appropriate adjustment shall be made in the number of shares deliverable upon the exercise of this Option or in the price per share to be paid so as to maintain the proportionate interest of the Optionee: (a) recapitalization of the Company through a split-up of the outstanding shares into a lesser number; (b) declaration of a dividend on the Common Stock of the Company, payable in Common Stock or securities convertible into Common Stock; (c) issuance of Common Stock at less than the price per share payable upon the exercise of this Option, or issuance of securities carrying conversion privileges or bearing stock purchase options for Common Stock at more favorable terms than provided by this Option. 10. Merger, Sale or Change of Majority Control. If a merger, sale or change of majority control of the Company is announced, then any portion of this Option that is not vested shall vest upon the closing of such event. If the Company, or any successor, shall be consolidated or merged with another corporation in exchange for stock with the view to distributing such stock to its shareholders, each share of stock purchasable by this Option shall be replaced for the purposes hereof by the securities or property issuable or distributable in respect of one share of Common Stock of this Company, or its successors, upon such consolidation, merger, or sale, and adequate provision to that effect shall be 3 12 made at the time thereof. If all or substantially all of Company or any successor shall be sold for cash, the Optionee may immediately exercise any unexercised portion of this Option. 11. Optionee's Rights. Until the valid exercise of this Option, the Optionee hereby shall not be entitled to any rights of a shareholder, but immediately upon the exercise of this Option and upon payment as provided herein, the Optionee hereof shall be deemed a record holder of the common stock. 12. Amendment. This Option may be amended only by the written agreement of the parties hereto. Executed this 1st day of August, 1996 COMMUNITY FINANCIAL GROUP, INC. By: /s/ Joan B. Marshall ---------------------------------- Title: /s/Corporate Secretary ------------------------------- OPTIONEE /s/ Mack S. Linebaugh -------------------------------------- 4 EX-10.04 9 OPTION AGREEMENT JULIAN C. CORNETT 1 EXHIBIT 10.04 Document executed with 2 originals distributed as follows: Original A to Optionee Original B to The Bank of Nashville ORIGINAL B STOCK OPTION AGREEMENT ENTERED INTO BY THE BANK OF NASHVILLE THIS STOCK OPTION AGREEMENT ("Agreement"), effective the 13th day of October , 1992, by and between THIS BANK OF NASHVILLE, (the "Bank"), and Julian C. Cornett (the "Optionee") pursuant to the terms of the employment agreement between the Bank and Optionee dated October 13, l992. 1. Grant of Option. Bank hereby grants to Optionee a stock option (the "option"), exercisable in whole or in part, to purchase 10,000 shares of the Bank's common stock, $6.00 par value per share (the "Common Stock"), for a price of $6.00 per share. 2. Vesting. The right to exercise this Stock Option vested on October 13, 1992 as to 2,000 shares, shall vest on October 15, 1993 as to 2,000 shares, on October 15, 1994 as to 2,000 shares, on October 15, 1995 to 2,000 shares, and shall invest on October 15, l996 as to the remaining shares. The vesting of the option is conditioned upon Optionee being employed by Bank or its successor on the respective dates of vesting. 3. Expiration of Option. This Option shall expire on October 13, 2002 with respect to any then unexercised portion of this Option. 1 2 4. Manner of Exercise. This Option shall be exercised by Optionee (or other party entitled to exercise the Option under Section 6 of this Agreement) by delivering written notice to the Bank stating the number of shares of Common Stock purchased, the person or persons in whose name the shares are to be registered, and each person's address and social security number. Such notice shall not be effective unless accompanied by the full purchase price for all shares so purchased. The purchase price shall be payable in cash. Payment in currency or by check, bank draft, cashier's check or postal money order shall be considered payment in cash. 5. Nontransferability of Option. This Option shall not be transferable by the Optionee otherwise than by will or by the laws of descent and distribution, and is exercisable during Optionee's lifetime only by Optionee. The terms of this Option shall be binding on the executors, administrators, heirs and successors of Optionee. 6. Exercise after Death. If the Optionee dies before the expiration of this Option, this Option may be exercised until the expiration pursuant to Section 3 of this Agreement by the executors or administrators of the Optionee's estate or by any person or persons who shall have acquired this Option directly from the Optionee by bequest or inheritance. 7. Restrictions on Purchase and Sale of Shares. If required by applicable securities laws, the Optionee hereby agrees that, as a further condition to the exercise of this 2 3 Option, the Optionee (or his successor under Section 6 hereof) will execute an agreement in form satisfactory to the Bank in which the Optionee represents that he is purchasing the shares for investment purposes, and not with a view to resale or distribution. 8. Reservation of Stock. Bank covenants that while the Option is exercisable, it will reserve from its authorized and unissued common stock a sufficient number of shares to provide for the delivery of stock pursuant to the exercise of this Option. 9. Protection Against Dilution. In any of the following events, occurring hereafter, appropriate adjustment shall be made in the number of shares deliverable upon the exercise of this Option or in the price per share to be paid so as to maintain the proportionate interest of the Optionee: (a) recapitalization of the Bank through a split-up of the outstanding shares into a lesser number; (b) declaration of a dividend on the Common Stock of the Bank, payable in Common Stock or securities convertible into Common Stock; (c) issuance of Common Stock at less than the price per share payable upon the exercise of this Option, or issuance of securities carrying conversion privileges or bearing stock purchase options for Common Stock at more favorable terms than provided by this Option. 10. Merger, Sale or Change of Majority Control. If a merger, sale or change of majority control of the Bank is announced, then any portion of this Option that is not vested 3 4 shall vest upon the closing of such event. If the Bank, or any successor, shall be consolidated or merged with another corporation, or substantially all of its assets shall be sold to another corporation in exchange for stock with the view to distributing such stock to its shareholders, each share of stock purchasable by this Option shall be replaced for the purposes hereof by the securities or property issuable or distributable in respect of one share of Common Stock of this Bank, or its successors, upon such consolidation, merger, or sale, and adequate provision to that effect shall be made at the time thereof. If all or substantially all of Bank or any successor shall be sold for cash, the Optionee may immediately exercise any unexercised portion of this Option. 11. Optionee's Rights. Until the valid exercise of this Option, the Optionee hereby shall not be entitled to any rights of a shareholder, but immediately upon the exercise of this Option and upon payment as provided herein, the Optionee hereof shall be deemed a recordholder of the common stock. 12. Amendment. This Option may be amended only by the written agreement of the parties hereto. Executed this 19 day of May, 1993. THE BANK OF NASHVILLE By: /s/ Joan B. Marshall ------------------------------------------- Title: /s/ Vice President & Corporate Secretary ---------------------------------------- OPTIONEE /s/ Julian C. Cornett ----------------------------------------------- 5 Document executed with 2 originals distributed as follows: Original A to Optionee Original B to The Bank of Nashville ORIGINAL B STOCK OPTION AGREEMENT ENTERED INTO BY THE BANK OF NASHVILLE THIS STOCK OPTION AGREEMENT ("Agreement"), effective the 13th day of October, 1993 by and between The BANK OF NASHVILLE, (the "Bank"), and Julian C. Cornett (the "Optionee") pursuant to the terms of the employment agreement between the Bank and Optionee dated October 13, 1993 and approved by Board of Directors on November 4, 1993. 1. Grant of Option. Bank hereby grants to Optionee a stock option (the "Option"), exerciseable in whole or in part, to purchase 10,000 shares of the Bank's common stock, $6.00 par value per share (the "Common Stock"), for a price of $7.00 per share. 2. Vesting. The right to exercise this Stock Option vested on October 13, 1993 as to 2,000 shares, shall vest on October 13, 1994 as to 2,000 shares, on October 13, 1995 as to 2,000 shares, on October 13, 1996 to 2,000 shares, and shall vest on October 13, 1997 the remaining shares. The vesting of the option is conditioned upon Optionee being employed by the Bank or its successor on the respective dates of vesting. 3. Expiration of Option. This Option shall expire on October 13, 2003 with respect to any then unexercised portion of this Option. 6 4. Manner of Exercise. This Option shall be exercised by Optionee (or other party entitled to exercise the Option under Section 6 of this Agreement) by delivering written notice to the Bank stating the number of shares of Common Stock purchased, the person or persons in whose name the shares are to be registered, and each person's address and social security number. Such notice shall not be effective unless accompanied by the full purchase price for all shares so purchased. The purchase price shall be payable in cash. Payment in currency or by check, bank draft, cashier's check or postal money order shall be considered payment in cash. 5. Nontransferability of Option. This Option shall not be transferable by the Optionee otherwise than by will or by the laws of descent and distribution, and is exercisable during Optionee's lifetime only by Optionee. The terms of this Option shall be binding on the executors, administrators, heirs and successors of Optionee. 6. Exercise after Death. If the Optionee dies before the expiration of this Option, this Option may be exercised until the expiration pursuant to Section 3 of this Agreement by the executors or administrators of the Optionee's estate or by any person or persons who shall have acquired this Option directly from the Optionee by bequest or inheritance. 7. Restrictions on Purchase and Sale of Shares. If required by applicable securities laws, the Optionee hereby agrees that, as a further condition to the exercise of this 2 7 Option, the Optionee (or his successor under Section 6 hereof) will execute an agreement in form satisfactory to the Bank in which the Optionee represents that he is purchasing the shares for investment purposes, and not with a view to resale or distribution. 8. Reservation of Stock. Bank covenants that while the Option is exercisable, it will reserve from its authorized and unissued common stock a sufficient number of shares to provide for the delivery of stock pursuant to the exercise of this Option. 9. Protection Against Dilution. In any of the following events, occurring hereafter, appropriate adjustment shall be made in the number of shares deliverable upon the exercise of this Option or in the price per share to be paid so as to maintain the proportionate interest of the Optionee: (a) recapitalization of the Bank through a split-up of the outstanding shares into a lesser number; (b) declaration of a dividend on the Common Stock of the Bank, payable in Common Stock or securities convertible into Common Stock; (c) issuance of Common Stock at less than the price per share payable upon the exercise of this Option, or issuance of securities carrying conversion privileges or bearing stock purchase options for Common Stock at more favorable terms than provided by this Option. 10. Merger, Sale or Change of Majority Control. If a merger, sale or change of majority control of the Bank is announced, then any portion of this Option that is not vested 3 8 shall vest upon the closing of such event. If the Bank, or any successor, shall be consolidated or merged with another corporation, or substantially all of its assets shall be sold to another corporation in exchange for stock with the view to distributing such stock to its shareholders, each share of stock purchasable by this Option shall be replaced for the purposes hereof by the securities or property issuable or distributable in respect of one share of Common Stock of this Bank, or its successors, upon such consolidation, merger, or sale, and adequate provision to that effect shall be made at the time thereof. If all or substantially all of Bank or any successor shall be sold for cash, the Optionee may immediately exercise any unexercised portion of this Option. 11. Optionee's Rights. Until the valid exercise of this Option, the Optionee hereby shall not be entitled to any rights of a shareholder, but immediately upon the exercise of this Option and upon payment as provided herein, the Optionee hereof shall be deemed a record holder of the common stock. 12. Amendment. This Option may be amended only by the written agreement of the parties hereto. Executed this 9th day of November, 1993 THE BANK OF NASHVILLE By: /s/ Mack S. Linebaugh ------------------------------- Title: /s/ President ---------------------------- OPTIONEE /s/ Julian C. Cornett ----------------------------------- 9 STOCK OPTION AGREEMENT ENTERED INTO BY COMMUNITY FINANCIAL GROUP, INC. THIS STOCK OPTION AGREEMENT ("Agreement"), effective the 16th day of July, 1996 by and between COMMUNITY FINANCIAL GROUP, INC. (CFGI), and Julian C. Cornett (the "Optionee") was approved by Board of Directors on July 16, 1996. 1. Grant of Option. Company hereby grants to Optionee a stock option (The "Option"), exercisable in whole or in part, to purchase 5,000 shares of the company's common stock, $6.00 par value per share (the "Common Stock"), for a price of $ 10.125 per share. 2. Vesting. The right to exercise this Stock Option vested on July 16, 1996 as to 1,000 shares, shall vest on July 16, 1997 as to 1,000 shares, on July 16, 1998 as to 1,000 shares, on July 16, 1999 as to 1,000 shares, and shall vest on July 16, 2000 as to the remaining shares. The vesting of the option is conditioned upon Optionee being employed by the company or one of its subsidiaries or its successor on the respective dates of vesting. 3. Expiration of Option. This Option shall expire on the earlier of July 16, 2006 or 90 days after employment is terminated with respect to any then unexercised portion of this Option. 4. Manner of Exercise. This Option shall be exercised by Optionee (or other party entitled to exercise the Option under Section 6 of this Agreement) by delivering written notice to the Company stating the number of shares of Common Stock purchased, 1 10 the person or persons in whose name the shares are to be registered, and each person's address and social security number. Such notice shall not be effective unless accompanied by the full purchase price for all shares so purchased, as well as any applicable employee tax payments. The purchase price shall be payable in cash. Payment in currency or by check, bank draft, cashier's check or postal money order shall be considered payment in cash. 5. Nontransferability of Option. This Option shall not be transferable by the Optionee otherwise than by will or by the laws of descent and distribution, and is exercisable during Optionee's lifetime only by Optionee. The terms of this Option shall be binding on the executors, administrators, heirs and successors of Optionee. 6. Exercise After Death. If the Optionee dies before the expiration of this Option, this Option may be exercised until the expiration pursuant to Section 3 of this Agreement by the executors or administrators of the Optionee's estate, or by any person or persons who shall have acquired this Option directly from the Optionee by bequest or inheritance. 7. Restrictions on Purchase and Sale of Shares. If required by applicable securities laws, the Optionee hereby agrees that, as a further condition to the exercise of this Option, the Optionee (or his successor under Section 6 hereof) will execute an agreement in form satisfactory to the Company in which the Optionee represents that he is purchasing the shares for investment purposes, and not with a view to resale or distribution. 2 11 8. Reservation of Stock. Company covenants that while the Option is exercisable, it will reserve from its authorized and unissued common stock a sufficient number of shares to provide for the delivery of stock pursuant to the exercise of this Option. 9. Protection Against Dilution. In any of the following events, occurring hereafter, appropriate adjustment shall be made in the number of shares deliverable upon the exercise of this Option or in the price per share to be paid so as to maintain the proportionate interest of the Optionee: (a) recapitalization of the Company through a split-up of the outstanding shares into a lesser number; (b) declaration of a dividend on the Common Stock of the Company, payable in Common Stock or securities convertible into Common Stock; (c) issuance of Common Stock at less than the price per share payable upon the exercise of this Option, or issuance of securities carrying conversion privileges or bearing stock purchase options for Common Stock at more favorable terms than provided by this Option. 10. Merger, Sale or Change of Majority Control. If a merger, sale or change of majority control of the Company is announced, then any portion of this Option that is not vested shall vest upon the closing of such event. If the Company, or any successor, shall be consolidated or merged with another corporation in exchange for stock with the view to distributing such stock to its shareholders, each share of stock purchasable by this Option shall be replaced for the purposes hereof by the securities or property issuable or distributable in respect of one share of Common Stock of this Company, or its successors, upon such consolidation, merger, or sale, and adequate provision to that effect shall be 3 12 made at the time thereof. If all or substantially all of company or any successor shall be sold for cash, the Optionee may immediately exercise any unexercised portion of this Option. 11. Optionee's Rights. Until the valid exercise of this Option, the Optionee hereby shall not be entitled to any rights of a shareholder, but immediately upon the exercise of this Option and upon payment as provided herein, the Optionee hereof shall be deemed a record holder of the common stock. 12. Amendment. This Option may be amended only by the written agreement of the parties hereto. Executed this 14th day of August, 1996. COMMUNITY FINANCIAL GROUP, INC. By:/s/ Joan B. Marshall ---------------------------------------- Title Corporate Secretary ------------------------------------- OPTIONEE /s/ Julian C. Cornett ------------------------------------------- EX-10.05 10 LEASE AGREEMENT METROPOLITAN LIFE 1 EXHIBIT 10.05 L & C TOWER STANDARD OFFICE BUILDING LEASE THIS LEASE AGREEMENT (sometimes hereinafter referred to as the "Lease") made and entered into this 19th day of July, 1989, by and between Metropolitan Life Insurance Company c/o Centennial Incorporated (hereinafter called "Metropolitan"; Metropolitan and any successor as landlord under this Lease being collectively referred to as "Landlord"), whose address for purposes hereof is 401 Church Street, Nashville, Tennessee and Bank of Nashville, a bank in organization (hereinafter called "Tenant"), whose address for purposes hereof is 401 Church Street, Nashville, Tennessee. WITNESSETH: 1. LEASED PREMISES. Subject to and upon the terms, provisions, covenants and conditions hereinafter set forth, and each in consideration of the duties, covenants and obligations of the other hereunder, Landlord does hereby lease, demise and let to Tenant and Tenant does hereby lease, demise and let from Landlord those certain premises (hereinafter sometimes called the "Premises" or "Leased Premises") in the building known as L & C Tower (hereinafter called the "Building") located at 401 Church Street, Nashville, Tennessee (such Leased Premises being more particularly described as follows: All space on the Lower, Second and Third levels of the Building indicated as being part of the Leased Premises on the Drawings attached hereto as EXHIBIT A, which shall be deemed to contain 2,794 square feet of Net Rentable Areas on the Lower Level, 7,802 square feet on the Second Level, 4,102 square feet on the Third Level and the space on the Lower Level designated as "Space Provided at No Cost". The term "Net Rentable Area", as used herein, shall refer to (i) in the case of a single tenancy floor, all space measured from the inside surface of the outer glass of the Building to the inside surface of the opposite outer wall, excluding only the areas ("Service Areas") within the outside walls used for building stairs, fire towers, elevator shafts, flues, vents, pipe shafts and vertical ducts, but including any such areas which are for the specific use of the particular tenant such as special stairs or elevators, and (ii) in the case of a multi-tenancy floor, all space within the inside surface of the outer glass enclosing the tenant occupied portion of the floor and measured to the midpoint of the walls separating areas leased by or held for lease to other tenants or form areas devoted to corridors, elevator foyers, rest rooms and other similar facilities for the use of all tenants on the particular floor (hereinafter sometimes called "Common Areas"), but including a proportionate part of the Common Areas located on such floor. No deductions from Net Rentable Areas are made for columns necessary to the Building. The Net Rentable Areas in the Leased Premises and in the Building have been calculated on the basis of the foregoing definition and are hereby stipulated above as to the Leased Premises, whether the same should be more or less as a result of minor variations resulting from actual construction and completion of the Leased Premises for occupancy so long as such work is done substantially in accordance with the approved plans. 2. TERM. This Lease shall be for the term of 10 years, commencing on the 1st day of September, 1989, and ending on the 31st day of August, 1999 (hereinafter sometimes referred to as the "Leased Term" or "Term"), unless sooner terminated or extended as provided herein. If the Landlord is unable to give possession of the Leased Premises the date of the commencement of the aforesaid Lease Term by reason of the holding over of any prior tenant or tenants or for any other reasons, an abatement or diminution of the rent to be paid hereunder shall be allowed Tenant under such circumstances until possession is given to Tenant, but nothing herein shall operate to extend the initial Term of the lease beyond the agreed expiration date, and said abatement in rent shall be the full extent of Landlord's liability to Tenant for any loss or damage to Tenant on account of said delay in obtaining possession of the Premises. There shall be no delay in the commencement of 1 2 the Term of this Lease and/or payment of rent where Tenant fails to occupy premises when same are ready for occupancy, or when Landlord shall be delayed in substantially completing such Leased Premises as a result of: (a) Tenant's failure to promptly approve working drawings and plans as required, or (b) Tenant's failure to promptly select materials, finishes, or installation, or (c) Tenant's changes in plans (notwithstanding Landlord's approval of any such changes), or (d) Any other act of omission by Tenant or its agents, or failure to promptly make other decisions, necessary to the preparation of the Leased Premises for occupancy. The commencement of the Term and the payment of rent shall not be affected, delayed or deferred on account of any of the foregoing. For the purposes of this paragraph, the Leased Premises shall be deemed substantially completed and ready for occupancy by Tenant when (i) Landlord's Supervising Architect certifies that the work required of Landlord, if any, has been substantially completed in accordance with said approved plans and specifications and (ii) Tenant may lawfully occupy the Leased Premises in accordance with Sections 11-1-59 et seq. of the Metropolitan Nashville and Davidson County Code. If Landlord does not, for any other reason, deliver possession of (i) the Lower Level portion of the Leased Premises by August 15, 1989, or (ii) the Second and Third Level portions of the Leased Premises by October 2, 1989, then this Lease shall, at the option of Tenant, terminate and be of no further force and effect, except that Tenant shall pay the costs of constructing tenant improvements over and above the cost of building such space to "shell" condition, as defined in APPENDIX B-2. Taking possession of the Leased Premises by Tenant shall be conclusive evidence as against Tenant that the Leased Premises were in good and satisfactory condition when possession was so taken, with the exception of (i) items reflected on a punchlist prepared by Tenant and (ii) latent defects. If Tenant, with Landlord's consent, shall occupy the Leased Premises prior to the beginning of the Leased Term as specified hereinabove, all provisions of this Lease shall be in full force and effect commencing upon such occupancy, and rent for such period shall be paid by Tenant at the same rate herein specified. 3. BASE RENT. Tenant agrees to pay Landlord a total "Base Rental" as set forth in APPENDIX B-1 in lawful (legal tender for public or private debts) money of the United States of America, at the Management Office of the Building or elsewhere as designated from time to time by Landlord's written notice to Tenant. The Base Rental is payable in equal monthly installments as specified in APPENDIX B-1 'on the first day of each month hereafter ensuing, the first of which shall be due and payable on the first day of the first full month of the term of this Lease. If the Term of this Lease commences on any day of a month excepting the first day, Tenant shall pay Landlord rental as provided for herein for such commencement month on a prorata basis (such proration to be based on the actual number of days in the commencement month). Rental for any partial month of occupancy at the end of the Term of this Lease will be prorated, such proration to be based on the actual number of days in the partial month. In addition to Base Rental, Tenant shall and hereby agrees to pay to Landlord each month a sum equal to any sales tax, tax on rentals, and any other charges, taxes and/or impositions now in existence or hereafter imposed based upon the privilege of renting the space leased hereunder or upon the amount of rentals collected therefor. Nothing herein shall, however, be taken to require Tenant to pay any part of any Federal and State Taxes on income imposed upon Landlord. Tenant shall be required to pay Landlord interest on any rental due that remains unpaid for five (5) days after its due date. Said interest will be computed at the maximum legal rate from due date. 4. ADDITIONAL RENT [Intentionally Omitted]. 5. COST OF LIVING INCREASE [Intentionally Omitted]. 2 3 6. TIME OF PAYMENT. Tenant agrees: that Tenant will promptly pay said rent at the times and place stated above; that Tenant will pay charges for work performed on order of Tenant, and any other charges that accrue under this Lease. If any installment of rent shall remain due and unpaid five (5) business days following the delivery of written notice from Landlord to Tenant that such installment is past due (provided that Landlord shall not be required to give such five (5) business day notice more than twice in any twelve (12) consecutive month period), then Landlord may, by delivery of written notice to Tenant, require that Tenant pay all past due rent plus installments of rent for the next twelve (12) succeeding months within seven (7) days of receipt of such notice. If Tenant does pay the past due rent and the next twelve (12) installments of rent within such seven (7) day period, no additional rent shall be due and payable during the ensuing twelve (12) month period. If, however, Tenant does not pay all past due rent and the next twelve (12) installments of rent within such seven (7) day period, Landlord shall have the option (in addition to all other rights and remedies available to it by law and in equity) of declaring the balance of the entire rent for the entire Term of this Lease to be immediately due and payable, and Landlord may then proceed to collect all of the unpaid rent called for by this Lease by distress or otherwise. 7. SECURITY DEPOSIT [Intentionally Omitted]. 8. USE. The Tenant will use and occupy the Lease Premises for the following use or purpose and for no other use or purpose: A commercial banking corporation or bank holding company and their legitimate subsidiaries. The Second Level of the Building shall at all times be used primarily for a commercial banking operation, but the other portions of the Leased Premises may be used for purposes not otherwise permitted by this Section 8 if such other portion is sublet by the Tenant in accordance with the terms and conditions of Section 21 below. 9. QUIET ENJOYMENT. Upon payment by Tenant of the rents herein provided, and upon the observance and performance of all terms, provisions, covenants and conditions on Tenant's part to be observed and performed. Tenant shall, subject to all of the terms, provisions, covenants and conditions of this Lease Agreement, peaceably and quietly hold and enjoy the Leased Premises for the Term hereby demised. 10. INSURANCE PREMIUMS. If the Landlord's insurance premiums exceed the standard premium rates because the nature of Tenant's operation results in extra hazardous exposure, then Tenant shall, upon receipt of appropriate invoices from Landlord reimburse Landlord for such increase in premiums. It is understood and agreed between the parties hereto that any such increase in premiums shall be considered as rent due and shall be included in any lien for rent. 11. RULES AND REGULATIONS. Tenant agrees to comply with all rules and regulations Landlord may adopt from time to time for operation of the Building and parking facilities and protection and welfare of Building and Parking facilities, its tenants, visitors and occupants. The present rules and regulations, which Tenant hereby agrees to comply with, 'entitled "Rules and Regulations" are attached hereto and are by this reference incorporated herein. Any future rules and regulations shall become a part of this Lease and Tenant hereby agrees to comply with the same upon delivery of a copy thereof to Tenant providing the same do not materially deprive Tenant of its rights established under this Lease or the right of Tenant to conduct its business as described in Paragraph 8 above. Landlord covenants that it will use reasonable efforts to enforce the Building rules and regulations against all other tenants of the Building. 12. GOVERNMENTAL REQUIREMENTS. Tenant shall faithfully observe in the use of the Lease Premises all municipal and county ordinances and codes and state and federal statutes now in force or which may hereafter be in force. Nothing contained in this Lease shall obligate the Tenant to cause the Leased Premises to comply with such ordinances, codes and statutes if the non-compliance existed as of the date that the Tenant assumed possession of the Leased Premises. 3 4 13. SERVICES. Landlord will furnish the following services to Tenant: (A) Cleaning services, deemed by Landlord to be normal and usual in a first class office building, on Monday through Friday, except that shampooing and replacement of carpet as required by Tenant shall be Tenant's expense. (B) Automatically operated elevator service,. public stairs, electrical current for lighting, incidentals, and normal office use Including Tenant's computer system described in APPENDIX F ("Tenant's Computer"), and water at those points of supply provided for general use of its Tenants at all times and on all days throughout the year. (C) Heat and air conditioning on Monday through Friday from 7:00 A.M. to 7:00 P.M. except Memorial Day, Fourth of July, Labor Day, Thanksgiving Day, Christmas Day and New Year's Day. Landlord shall also furnish heat and air conditioning at such other times as are not provided for herein, provided Tenant gives written request to Landlord before 2:00 P.M. of the business day preceding the extra usage and if Tenant requires heat and air conditioning during such hours, Tenant shall be billed for such service at the rate then in effect; provided, however, that Landlord shall supply heat and air conditioning service 24 hours per day, 7 days per week, to the room housing Tenant's Computer. No electric current shall be used except that furnished or approved by Landlord, nor shall electric cable or wire be brought into the Leased Premises, except upon the written consent and approval of the Landlord. Tenant shall use only office machines and equipment that operate on the Building's standard electric circuits, but which in on event shall overload the Building's standard electric circuits from which the Tenant obtains electric current. Any consumption of electric current in excess of that considered by Landlord to be used, normal and customary for all Tenants, or which required special circuits or equipment (the installation of which shall be at Tenant expense after approval in writing by the Landlord), shall be paid for by the Tenant as additional rent paid to the Landlord in an amount to be determined by Landlord, based upon Landlord's estimated cost of such excess electric current consumption or based upon the actual cost thereof if such excess electric current consumption is separately metered. Notwithstanding the foregoing, Landlord shall provide, at no additional cost, all electrical power required to operate Tenant's Computer. Such services shall be provided as long as the Tenant is not in default under any of the terms, provisions, covenants and conditions of this Lease, subject to interruption caused by repairs, renewals, improvements, changes to service, alterations, strikes, lockouts, labor controversies, inability to obtain fuel or power, accidents, breakdowns, catastrophies, national or local emergencies, acts of God and conditions and caused beyond the control of Landlord, and upon such happening, no claim for damages or abatement of rent for failure to furnish any such services shall be made by the Tenant or allowed by the Landlord. Nothing herein contained shall prohibit Tenant from providing or obtaining for itself such services as are reasonably necessary to remain open for business at the Leased Premises during normal banking hours, so long as Tenant gives notice to Landlord of the lack or insufficiency of such services, and affords Landlord a reasonable to provide such services to Tenant. Tenant shall be entitled to a credit against Base Rents accruing in subsequent months for all costs incurred in providing or obtaining such services, but no such credit shall be allowed for such costs to the extent that the aggregate amount of such costs for any calendar month exceed the Base Rent payable for such month. 14. TENANT WORK. It is understood and agreed between the parties hereto that any charges against Tenant by Landlord for services or for work done on the Leased Premises by order of Tenant, or otherwise accruing under this Lease, shall be considered as rent due and shall be included in any lien for rent. 15. REPAIR 0P LEASED PREMISES. Tenant will, at Tenant's own expense, keep the Leased Premises in good repair and tenantable condition during the Lease Term and will replace at its own expense any and all broken glass caused by Tenant in and about said Leased Premises. Tenant will make no alterations, additions or improvements in or to the leased Premises without the written consent of Landlord, which shall not be unreasonably withheld, but may be predicated upon but not limited to Tenant's use of contractors who are acceptable to Landlord; and upon the expiration of the Lease, Tenant shall be entitled to remove all additions, fixtures, carpet or improvements which Tenant has installed or 4 5 actually paid for (including the vault, if actually paid for by Tenant), so long as Tenant restores the Leased Premises to the same condition as existed at the commencement of the term, normal wear and tear excepted. Tenant shall be entitled to construct stairwells between any adjacent floors comprising the Leased Premises, at its own expense, and in accordance with plans approved in advance by Landlord; provided that (i) the installation of such stairwell shall not decrease the Net Rentable Area in the Leased Premises and (ii) the construction of the stairwell complies with all applicable codes, ordinances and statutes. Landlord may condition its approval of the plans for such stairwell upon Tenant's agreement to remove the stairwell at the expiration of the term of this Lease and to restore the Leased Premises to the same condition which existed at the commencement of the term, normal wear and tear excepted. It is further agreed that this Lease is made by the Landlord and accepted by the Tenant with the distinct understanding and agreement that the Landlord shall have the right and privilege to make and build additions to the Building of which the Leased Premises are a part, and make such alterations and repairs to said Building as it may deem wise and advisable so long as such work does not materially disturb Tenant's use of the Leased Premises as contemplated by Paragraph 8; provided, however, that noise generated by construction of additions, alterations or repairs to the Building shall not be deemed to be a disturbance of Tenant's use of the Leased Premises. 16. INDEMNIFICATION. Tenant further agrees that Tenant will pay all liens of contractors, subcontractors, mechanics, laborers, materialmen, and other items of like character, and will indemnify Landlord against all expenses, costs, and charges, including bond premiums for release of liens and attorneys' fees and costs reasonably incurred in and about the defense of any suit in discharging the said Premises or any part thereof from any liens, judgments, or encumbrances caused or suffered by Tenant. In the event any such lien shall be made or filed, Tenant shall bond against or discharge the same within ten (10) days after the same has been made or filed. It is understood and agreed between the parties hereto that the expenses, costs and charges above referred to shall be considered as rent due and shall be included in any lien for rent. The Tenant herein shall not have any authority to create any liens for labor or materials on the Landlord's interest in the Leased Premises and all persons contracting with the Tenant for the destruction or removal of any facilities or other improvements or for the erection, installation, alteration, or repair of any facilities or other improvements on or about the Leased Premises, and all materialmen, contractors, subcontractors, mechanics, and laborers are hereby charged with notice that they must look only to the Tenant and to the Tenant's interest in the Leased Premises to secure the payment of any bill for work done or material furnished at the request or instruction of Tenant. 17. PARKING. Pursuant to all of the teems, provisions, covenants and conditions contained herein, for the Term of this Lease, Tenant shall have the option to lease from Landlord 1 per 1000 rsf parking spaces in the Building parking areas at 90% of the posted rate for parking, adjusted on January 1 of each year of the term for said Building Parking areas. Such rate is subject to change annually on thirty (30) days prior notice, written or oral, to Tenant and is payable in advance on the first day of each month throughout the Term of this Lease. Parking space rental due hereunder shall be deemed additional rent, payable in the same manner as rent set forth in Paragraph 3 hereof, and shall be subject to all of the teems, provisions, conditions and covenants of this Lease pertaining to the default in the payment of rental; provided, however, that Landlord may require that parking space rental be paid directly to the manager of the parking garage. In the event of an increase in monthly parking rates, Tenant shall have the right to cancel any or all of its parking spaces herein leased upon thirty (30) days written notice to Landlord. Notwithstanding the foregoing, the notice required pursuant to this paragraph shall be deemed given by the posting of new rates in conspicuous places in the parking garage. 18. ESTOPPEL STATEMENT. Tenant agrees that from time to time, upon not than ten (10) days prior request by Landlord, Tenant will deliver to Landlord a statement in writing certifying (a) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the Lease as modified is in full force and effect and stating the modifications); (b) the dates to which the rent and other charges have been paid; and; (c) that Landlord is not in default under any provisions of this Lease, or, if in default, the nature thereof in detail. 5 6 19. MORTGAGES'S RIGHT TO CURE DEFAULTS. If the Building and/or Leased Premises are at any time subject to a mortgage and/or deed of trust, and Tenant has received written notice from Mortgagee of same, then in any instance in which Tenant gives notice to Landlord alleging default by Landlord hereunder, Tenant will also simultaneously give a copy of such notice to each Landlord's Mortgagee and each Landlord's Mortgagee shall have the right (but not the obligation) to cure or remedy such default during the period that is permitted to Landlord hereunder, plus an additional period of thirty (30) days, and Tenant will accept such curative or remedial action (if any) taken by Landlord's Mortgagee with the same effect as if such action had been taken by the Landlord. 20. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT. This Lease shall at Landlord's option, which option may be exercised at any time during the Lease Term, be subject and subordinate to any first mortgage now or hereafter encumbering the Building; provided, that such first mortgagee executes and delivers to Tenant the Subordination, Non-disturbance and Attornment Agreement attached hereto as EXHIBIT D. 21. ASSIGNMENT. Without the written consent of Landlord first obtained in each case, which consent shall not be unreasonably withheld or delayed, Tenant shall not assign, transfer, mortgage, pledge, or otherwise encumber or dispose of this Lease or underlet the Leased Premises or any part thereof or permit the Leased Premises to be occupied by other persons. In the case of a subletting, Landlord's consent may be predicated, among other things, upon Landlord becoming entitled to collect and retain all rentals payable under such sublease; provided, however, that so long as the Tenant continues to use the Second Level of the Leased Premises primarily for a commercial banking operation, (i) Tenant may sublease any other portion of the Leased Premises upon such terms and conditions as Tenant may determine to be acceptable to it and shall be entitled to collect and retain all rentals from such subtenant and (ii) the Landlord shall not be permitted to withhold its consent to such subletting unless the proposed use by such subtenant is not compatible with a central business district office building. If this Lease be assigned, or if the Leased Premises or any part thereof be underlet or occupied by anybody other than Tenant, the Landlord may, after default by the Tenant, collect or accept rent from the assignee, undertenant, or occupant and apply the net amount collected or accepted to the rent herein reserved, but no such collection or acceptance shall be deemed a waiver of this covenant or the acceptance of the assignee, undertenant, or occupant as Tenant, nor shall it be construed as or implied to be a release of the Tenant from the further observance and performance by the Tenant of the terms, provisions, covenants and conditions herein contained. 22. SUCCESSORS AND ASSIGNS. All terms, provisions, covenants and conditions to be observed and performed by Tenant shall be applicable to and binding upon Tenant's respective heirs, administrators, executors, successors and assigns, subject, however, to the restrictions as to assignment or subletting by Tenant as provided herein. All expressed covenants of this Lease shall be deemed to be covenants running with the land. 23. HOLD HARMLESS OF LANDLORD. In consideration of said Premises being leased to Tenant for the above rental, Tenant agrees: that Tenant, at all times, will indemnify and keep Landlord harmless from all losses, damages, liabilities and expenses, which may arise or be claimed against Landlord and be in favor of any persons, firms or corporations, consequent upon or arising from the use or occupancy of said Premises by Tenant, or consequent upon or arising from any acts, omissions, neglect or fault of Tenant, his agents, servants, employees, licensees, visitors, customers, patrons or invitees, or consequent upon or arising from Tenant's failure to comply with any laws, statutes, ordinances, codes or regulations as herein provided; that Landlord shall not be liable to Tenant for any damages, losses or injuries to the persons or property of Tenant which may be caused by the acts, neglect, omissions or faults of any persons, firms or corporations, except when such injury, loss or damage results from the acts, neglect, omissions or faults of Landlord, his agents or employees, and that Tenant will 6 7 indemnify and keep harmless Landlord from all damages, liabilities, losses, injuries, or expenses which may arise or be claimed against Landlord and be in favor of any person, firm corporations, for any injuries or damages to the person or property of any persons, firms or corporations, where said injuries or damages arose about or upon said Premises, as a result of the negligence of Tenant, his agents, employees, servants, licensees, visitors, customers, patrons, and invitees. All personal property placed or moved into the Leased Premises or Building shall be at the risk of Tenant or the owner thereof, and Landlord shall not be liable to Tenant for any damages to said personal property. Tenant shall maintain at all times during the Term of this Lease a comprehensive general liability policy or policies insuring Tenant and Landlord against all matters set forth in this Section 23, with minimum limits of $500,000 with respect to any one person and S2,000,000 with respect to any one accident or disaster. Such policy or policies shall be in a form acceptable to Landlord, shall name Landlord as additional insured, shall state that the insurance is primary over any other insurance carried by Landlord, shall state that no act or omission of Tenant, its agents, employees or invitees shall provide a defense to such coverage, and shall include the following coverages: (a) Premises operations; (b) Independent contractors; (c) Broad form contractual in support of the indemnities provided by this Section 23; and (d) Personal injury liability with exclusions (a) and (c) removed. Each policy shall include a waiver of subrogation in favor of the Landlord. Evidence of these coverages represented by certificates of insurance issued by the insurance carrier must be furnished to Landlord prior to Tenant moving in. Such certficate of insurance shall state that Landlord will be notified in writing thirty (30) days prior to the cancellation, material change or renewal of insurance. If Tenant fails to comply with the foregoing requirements relating to insurance, Landlord may obtain such insurance and Tenant shall pay to Landlord immediately on demand the premium cost thereof. In case Landlord shall be made a party to any litigation commenced against Tenant, then Tenant shall protect and hold Landlord harmless and shall pay all costs, expenses and reasonable attorneys' fees incurred or paid by Landlord in connection with such litigation and any appeal thereof, unless it shall be determined that Landlord is liable and Tenant is not liable to the plaintiff in such litigation. 23A. HOLD HARMLESS OF TENANT. In consideration of said Premises being leased by Tenant for the above rental, Landlord agrees: that Landlord, at all times, will indemnify and keep Tenant harmless from all losses, damages, liabilities and expenses, which may arise or be claimed against Tenant and be in favor of any persons, firms or corporations, consequent upon or arising from the use common areas of the Building (including elevators), or consequent upon or arising from any acts, omissions, neglect or fault of Landlord, his agents, servants, employees, licensees, visitors, customers, patrons or invitees, or consequent upon or arising from Landlord's failure to comply with any laws, statutes, ordinances, codes or regulations as herein provided; that Tenant shall not be liable to Landlord for any damages, losses or injuries to the persons or property of Landlord which may be caused by the acts, neglect, omissions or faults of any persons, firms or corporations, except when such injury, loss or damage results from the acts, neglect, omissions or faults of Tenant, his agents or employees, and that Landlord will indemnify and keep harmless Tenant from all damages, liabilities, losses, injuries, or expenses which may arise or be claimed against Tenant and be in favor of any person, firm or corporations, for any injuries or damages to the person or property of any persons, firms or corporations, where said injuries or damages arose about or upon said common areas, as a result of the negligence of Landlord, his agents, employees, servants, licensees, visitors, 7 8 customers, patrons, and invitees. Landlord shall maintain at all times during the Term of this Lease a comprehensive general liability policy or policies insuring Landlord and Tenant against all matters set forth in this Section 23A, with minimum limits of $500,000 with respect to any one person and $2,000,000 with respect to any one accident or disaster. Such policy or policies shall be in a form acceptable to Tenant, shall name Tenant as additional insured, shall state that the insurance is primary over any other insurance carried by Tenant, shall state that no act or omission of Landlord, its agents, employees or invitees shall provide a defense to such coverage, and shall include the following coverages: (a) Premises operations; (b) Independent contractors; (c) Broad form contractual in support of the indemnities provided by this Section 23A; and (d) Personal injury liability with exclusions (a) and (c) removed. Each policy shall include a waiver of subrogation in favor of the Tenant. Evidence of these coverages represented by certificates of insurance issued by the insurance carrier must be furnished to Tenant prior to Tenant moving in. Such certficate of insurance shall state that Tenant will be notified in writing thirty (30) days prior to the cancellation, material change or renewal of insurance. If Landlord fails to comply with the foregoing requirements relating to insurance, Tenant may obtain such insurance and shall be entitled to a credit against Base Rent for the premium cost thereof. Notwithstanding the foregoing, Metropolitan (but not any other Landlord) may, at its option, elect to be self-insured against the risks specified in this Section 23A. In case Tenant shall be made a party to any litigation commenced against Landlord, then Landlord shall protect and hold Tenant harmless and shall pay all costs, expenses and reasonable attorrneys' fees incurred or paid by Tenant in connection with such litigation and any appeal thereof, unless it shall be determined that Tenant is liable and Landlord is not liable to the plaintiff in such litigation. 24. ATTORNEYS' FEES. If either party alleges that the other party has defaulted in the performance of any of the terms, provisions, covenants and conditions of this Lease and by reason thereof such party employ the services of an attorney to enforce performance of the covenants, or to perform any service based upon defaults, then in any of said events the prevailing party shall be entitled to reasonable attorneys' fees and all expenses and costs incurred by the prevailing party pertaining thereto (including costs and fees relating to any appeal) and in enforcement of any remedy. 25. DAMAGE OR DESTRUCTION. In the event the Leased Premises shall be destroyed or so damaged or injured by fire or other casualty, during the Term of this Lease, whereby the same shall be rendered untenantable and the cost of repairing and rebuilding shall not exceed 50.0% of the Base Rentals remaining to be paid during the term of this Lease (including any renewal term for which Tenant has exercised its option, then Landlord shall have the obligation, to render such Leased Premises tenantable by repairs within 180 days therefrom, unless such repairs may reasonably be expected to be completed in a shorter period of time, in which case, Landlord shall be obligated to complete such repairs in such shorter time period. If the cost of repairing and rebuilding the Leased Premises equals or exceeds 50.0% of the Base Rentals remaining to be paid during the term of this Lease, then Landlord shall have the right, but not the obligation, to render such Premises tenantable by repairs within 180 days therefrom (or within such shorter period of time as is reasonable). Landlord agrees that, within 30 days following such damage or destruction, it shall notify Tenant with respect to whether or not Landlord intends to restore the Premises. If said Premises are not rendered tenantable within the aforesaid 180 days (or such shorter period of time as is reasonable) it shall be optional with either party hereto to cancel this Lease, and in the event of such cancellation the rent shall be paid only to the 8 9 date of such fire of casualty. The cancellation herein mentioned shall be evidenced in writing. During any time that the Leased Premises are untenantable due to causes set forth in this paragraph, the rent or a just and fair proportion thereof shall be abated. Notwithstanding the foregoing, should damage, destruction or injury occur by reason of Tenant's negligence, Landlord shall have the right, but not the obligation, to render the Leased Premises tenantable within 180 days of the date of damage, destruction or injury (or within such shorter period of time as is reasonable) and no abatement of rent shall occur. 26. EMINENT DOMAIN. If there shall be taken during the Term of this Lease any part of the Leased Premises, parking facility or Building, other than a part not interfering with maintenance, operation or use of the Leased Premises, Landlord may elect to terminate this Lease or to continue same in effect. If Landlord elects to continue the Lease, the rental shall be reduced in proportion to the area of the Leased Premises so taken and Landlord shall repair any damage to the Leased Premises, parking facilities, or Building resulting from such taking If any part of the Leased Premises is taken by condemnation or Eminent Domain which renders the Premises unsuitable for its intended use, the Tenant may elect to terminate this Lease, or if any part of the Leased Premises is so taken which does not render the Premises unsuitable for its intended use, this Lease shall continue in effect and the rental shall be reduced in proportion to the area of the Leased Premises so taken and Landlord shall repair any damage to the Leased Premises resulting from such taking. If all of the Leased Premises is taken by condemnation or Eminent Domain, this Lease shall terminate on the date of the taking. All sums awarded (or agreed upon between Landlord and the condemning authority) for the taking of the interest of Landlord and/or Tenant, whether as damages or as compensation, and whether for partial or total condemnation, will be the property of Landlord, except for such sums attributable to leasehold improvements made by Tenant at Tenant's cost, which shall be the sole property of Tenant. If this Lease should be terminated under any provisions of this paragraph, rental shall be payable up to the date that possession is taken by the authority, and Landlord will refund to Tenant any prepaid unaccrued rent less any sum or amount then owing by Tenant to Landlord. 27. ABANDONMENT. If, during the Term of this Lease, Tenant shall abandon, vacate or remove from the Leased Premises the major portion of the goods, wares, equipment or furnishings usually kept on said Leased Premises, or shall cease doing business in said Leased Premises, or shall suffer the rent to be in arrears, Landlord may, at its option, cancel this Lease in the manner stated in Paragraph 28 hereof, or Landlord may enter said Leased Premises as the agent of Tenant by force or otherwise, without being liable in any way therefor and relet the Leased Premises with or without any furniture that may be therein, as the agent of Tenant, at such price and upon such terms and for such duration of time as Landlord may determine, and receive the rent therefor, applying the same to the payment of the rent due by these presents, and if the full rental herein provided shall not be realized by Landlord over above the expenses to Landlord of such reletting, Tenant shall pay any deficiency. 28. INSOLVENCY. It is agreed between the parties hereto that: if Tenant shall be adjudicated a bankrupt or an insolvent or take the benefit of any federal reorganization or composition proceeding or make a general assignment or take the benefit of any insolvency law; or if Tenant's leasehold interest under this Lease shall be sold under any execution or process of law; or if a trustee in bankruptcy or a receiver be appointed or elected or had for Tenant (whether under Federal or State laws); or if said Premises shall be abandoned or deserted; or if Tenant shall fail to perform any of the terms, provisions, convenants or conditions of this Lease on Tenant's part to be performed; or if this Lease or the Term thereof be transferred or pass to or devolve upon any persons, firms, officers or corporations other than Tenant by death of the Tenant, operation of law or otherwise then and in any such events, at the option of Landlord, the total remaining unpaid Base Rental for the Term of this Lease shall become due and payable or this Lease and the Term of this Lease shall expire and end five (5) days after Landlord has given Tenant written notice (in the manner hereinafter provided) of such act, condition or default and Tenant hereby agrees immediately then to pay said Base Rental or quit and surrender said Lease Premises to Landlord; but this shall not impair or affect Landlord's right to maintain summary proceedings for the recovery of the possession of the Leased Premises in all cases provided for by law. If the Term of this Lease shall be so terminated, Landlord may immediately, or at any time thereafter, re-enter or repossess the Leased Premises and remove all persons and property therefrom without being liable for trespass or damages. 9 10 29. LIEN FOR PAYMENT OF RENT. [Intentionally Omitted]. 30. WAIVER OF DEFAULT. Failure of Landlord to declare any default immediately upon occurrence thereof, or delay in taking any action in connection therewith, shall not waive such default, but Landlord shall have the right to declare any such default at any time and take such action as might be lawful or authorized hereunder, in law and/or in equity. No waiver by Landlord of a default by Tenant shall be implied, and no express waiver by Landlord shall affect any default other than the default specified in such waiver and that only for the time and extension therein stated. No waiver of any term, provision, condition or covenant of this Lease by Landlord shall be deemed to imply or constitute, a further waiver by Landlord of any other term, provision, conditions or covenants of this Lease. In addition to any rights and remedies specifically granted Landlord herein, Landlord shall be entitled to all rights and remedies available at law and in equity in the event that Tenant shall fail to perform any of the terms, provisions, covenant or conditions of this Lease on Tenant's part to be performed or fails to pay Base Rental, Additional Rental or any other sums due Landlord hereunder when due. All rights and remedies specifically granted to Landlord herein, by law and in equity shall be cumulative and not mutually exclusive. 31. RIGHT OF ENTRY. Landlord, or any of his agents, shall have the right to enter the Leased Premises during all reasonable hours to examine the same or to make such repairs, additions or alterations as may be deemed necessary for the safety, comfort, or preservation thereof, or to said Building, or to exhibit said Leased Premises at any time within one hundred eighty (180) days before the expiration of this Lease. Said right of entry shall likewise exist for the purpose of removing placards, signs, fixtures, alterations, or additions which do not conform to this Lease. In no event, however, shall Landlord have right of entry to the secure areas of the Leased Premises, which shall include the lower level space being provided to Tenant at no cost, the vault or the room in which Tenant maintains Tenant's Computer, unless (i) Landlord, or its agents is accompanied by Tenant, or its agents and (ii) Tenant is given at least 24 hours advance notice of Landlord's desire to enter such secure areas. 32. NOTICE. Any notice given Landlord as provided for in this Lease shall be sent to Landlord by registered mail addressed to Landlord at Landlord's Management Office in the Building. Any notice to be given Tenant under the terms of this Lease, unless otherwise stated herein, shall be in writing and shall be sent by registered mail to the office of Tenant in the Building. Either party, from time to time, by such notice, may specify another address to which subsequent notice shall be sent. 33. LANDLORD CONTROLLED AREAS. All automobile parking areas, driveways, entrances and exits thereto, Common Areas, and other facilities furnished by Landlord, including all parking areas, truck way or ways, loading areas, pedestrian walkways and ramps, landscaped areas, stairways, corridors, and other areas and improvements provided by Landlord for, the general use, in common, of tenants, their officers, agents employees, servants, invitees, licensees, visitors, patrons and customers, shall be at all times subject to the exclusive control and management of Landlord, and Landlord shall have the right from time to time to establish, modify and enforce rules and regulations with respect to all facilities and areas and improvements; to police same; from time to time to change the area, level and location and arrangement of parking areas and other facilities hereinabove referred to; the restrict parking by and enforce parking changes (by operation of meters or otherwise) to tenants, their officers, agents, invitees, employees, servants, licensees, visitors, patrons and customers; to close all or any portion of said areas or facilities to such extent as may in the opinion of Landlord's counsel be legally sufficient to prevent a dedication thereof or the accrual of any rights to any person or the public therein; to close temporarily all or any portion of the public areas, Common Areas or facilities; to discourage non-tenant parking; to charge a fee for visitors and/or customer parking; and to do and perform such other acts in and to said areas and improvements as, in the sole judgment of Landlord, the Landlord shall determine to be advisable with a view to the improvements as, in the sole judgment of Landlord, the Landlord shall determine to be advisable with a view to the improvement of the convenience and use thereof by tenants, their officers, agents, employees, servants, invitees, visitors, patrons, licensees and customers. Landlord will operate and maintain 10 11 the Common Areas and other facilities referred to in such reasonable manner as Landlord shall determine from time to time. Without limiting the scope of such discretion, Landlord shall have the full authority to make and enforce rules and regulations regarding the use of the same or to employ all personnel and to make and enforce all rules and regulations pertaining to and necessary for the proper operation and maintenance of the parking areas and/or Common Areas and other facilities. Reference in this paragraph to parking areas and/or facilities shall in no way be construed as giving Tenant hereunder any rights and or privileges in connection with such parking areas and/or facilities unless such rights and/or privileges are expressly set forth in paragraph 17 hereof. Notwithstanding the foregoing, Tenant shall have sole and exclusive control over the loading dock area of the Building and the alleyway leading thereto from Fourth Avenue North, but only at such times that armored cars are delivering or picking up cash from the Tenant. 34. CONDITION OF PREMISES ON TERMINATION LEASE AND HOLDING OVER. Tenant agrees to surrender to Landlord, at the end of the Term of this Lease and/or upon any cancellation of this Lease, said Leased Premises in as good condition as said Leased Premises were at the beginning of the Term of this Lease, ordinary wear and tear, and damage by fire or other casualty not caused by Tenant's negligence excepted. Tenant agrees that if Tenant does not surrender said Leased Premises to Landlord at the end of the Term of this Lease then Tenant will pay to Landlord double the amount of the current rental for each month or portion thereof that Tenant holds over plus all damages that Landlord may suffer on account of Tenant's failure to so surrender to Landlord possession of said Leased Premises, and will indemnify and save Landlord harmless from and against all claims made by any succeeding Tenant of said Leased Premises against Landlord on account of delay of Landlord in delivering possession of said Leased Premises to said successing Tenant so far as such delay is occasioned by failure of Tenant to so surrender said Leased Premises in accordance herewith or otherwise. No receipt of money by Landlord from Tenant after termination of this Lease or the service of any notice of commencement of any suit or final judgment for possession shall reinstate, continue or extend the Term of this Lease or affect any such notice, demand, suite or judgment. No act or thing done by Landlord or its agents during the Term hereby granted shall be deemed an acceptance of a surrender of the Leased Premises, and no agreement to accept a surrender of the Leased Premises shall be valid unless it be made in writing and subscribed by a duly authorized officer or agent of Landlord. 35. OCCUPANCY TAX. Tenant shall be responsible for and shall pay before delinquency all municipal, county or state taxes assessed during the Term of this Lease against any occupancy interest or personal property of any kind, owned by or placed in, upon or about the Leased Premises by the Tenant. 36. SIGNS. Landlord shall have the right to install signs on the or exterior of the Building and Leased Premises and or change the Building's name or street address. No sign may be installed by Landlord or other tenants of the Building which would significantly obstruct the public's view of the Tenant's signs which are to be mounted over the Church Street entrance to the Leased Premises and the Fourth Avenue side of the Buidling. 37. TRIAL BY JURY. It is mutually agreed by and between Landlord and Tenant that the respective parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, and Tenant's use or matter arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, and Tenant's use or occupancy of the Premises. Tenant further agrees that it shall not interpose any counterclaim or counterclaims in a summary proceeding or in any action based upon non-payment of rent or any other payment required of Tenant hereunder. 11 12 38. TEMPORARY RELOCATION OF TENANT. In the event that the Second and Third Levels of the Leased Premises are not ready for occupancy by the Tenant on September 5, 1989, then Landlord shall provide alternative space in the Building which is reasonably sufficient to permit Tenant to open for business on September 5, 1989, such space to be provided at no cost to Tenant until the Second and Third Levels of the Leased Premises are ready for occupancy. Once Tenant is situated in such temporary space, Landlord may not relocate Tenant, except to move Tenant into the Leased Premises. Landlord shall not be required to construct any leasehold improvements to such temporary space. This Section 38 shall not permit Landlord to delay Tenant's occupancy of the Second and Third Levels of the Leased Premises beyond October 2, 1989. 39. CROSS DEFAULT. If the term of any lease, other than this Lease, made by Tenant for any other space in the Building shall be terminated or terminable after the making of this Lease because of any default by Tenant under such other lease, such default shall, ipso facto constitute a default hereunder and empower Landlord at Landlord's sole option, to terminate this Lease as herein provided in the event of default. 40. INVALIDITY OF PROVISION. If any term, provision, covenant or condition of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease or the application of such term, provision, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby and each term, provision, covenant or condition of this Lease shall be valid and be enforceable to the fullest extent permitted by law. This Lease shall be construed in accordance with the laws of the State of Florida. 41. TIME OF ESSENCE. It is understood and agreed between the parties hereto that time is of the essence of all the terms, provisions, covenants and conditions of this Lease. 42. MISCELLANEOUS. The terms Landlord and Tenant as herein contained shall include singular and/or plural, masculine, feminine and/or neuter, heirs, successors, executors, administrators, personal representatives and/or assigns wherever the context so requires or admits. The terms, provisions, covenants and conditions of this Lease are expressed in the total language of this Lease Agreement and the paragraph headings are solely for the convenience of the reader an are not intended to be all inclusive. Any formally executed addendum to or modification of this Lease shall be expressly deemed incorporated by reference herein unless a contrary intention is clearly stated therein. 43.EFFECTIVE DATE. Submission of this instrument for examination does not constitute an offer, right of first refusal, reservation of or option for the Lease Premises or arty other space or premises in, on or about the Building. This instrument becomes effective as a Lease upon execution and delivery by both Landlord and Tenant. 44. ENTIRE AGREEMENT. This lease contains the entire agreement between the parties hereto and all previous negotiations leading thereto, and it may be modified only by an agreement in writing signed by Landlord and Tenant. No surrender of the Leased Premises, or of the remainder of the terms of this Lease, shall be valid unless accepted by Landlord in writing. Tenant acknowledges and agrees that Tenant has not relied upon any statement, representation, prior written or contemporaneous oral promises, agreements or warranties except such as are expressed herein. 45. BROKERAGE. Tenant represents and warrants that is has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, other than Fulton, Vaughan, Armstrong and Angle and Cushman and Wakefield and Tenant agrees to indemnify and hold Landlord harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with Tenant with regard to this leasing transaction. Landlord has reached an agreement to compensate Fulton, Vaughan, Armstrong and Angle and Cushman and Wakefield for their services rendered in connection with this transaction. The provision of this paragraph shall survive the termination of this Lease. 46. FORCE MAJEURE. Neither Landlord nor Tenant shall be required to perform any term, condition, or covenant in this Lease so long as such performance is delayed or prevented by force majeure, which shall mean acts of God, labor disputes (whether lawful 12 13 or not), material or labor shortages, restrictions by any governmental authority, civil riots, floods, and any other cause not reasonably within the control of Landlord or Tenant and which by the exercise of due diligence Landlord or Tenant is unable, wholly or in part, to prevent or overcome. Lack of money shall not be deemed force majeure. Nothing herein contained shall prohibit Tenant from providing or obtaining for itself such services as are reasonably necessary to remain open for business at the Leased Premises during normal banking hours, so long as Tenant gives notice to Landlord of the lack or insufficiency of such services, and affords Landlord a reasonable to provide such services to Tenant. Tenant shall be entitled to a credit against Base Rents accruing in subsequent months for all costs incurred in providing or obtaining such services, but no such credit shall be allowed for such costs to the extent that the aggregate amount of such costs for any calendar month exceed the Base Rent payable for such month. 47. HAZARDOUS MATERIALS. Tenant shall not store or use or permit the storage or use within the Premises of any hazardous or toxic waste, contaminants, oil, radioactive or other materials the removal of which is required or the maintenance of which is prohibited, regulated or penalized by any local, state or federal agency, authority or governmental unit. 48. ENVIRONMENTAL HAZARDS. Landlord has delivered to Tenant a copy of an environmental audit report prepared with respect to the Leased Premises by Soil & Material Engineer Intech Group, Atlanta, Georgia, dated May 18, 1989. Such report constitutes the only written document obtained by Landlord regarding hazardous materials (including asbestos and polychlorinated biphenyls) in the Leased Premises. Landlord will undertake such abatement procedures with respect to hazardous materials disclosed to be present in the Leased Premises by such audit report as Tenant deems reasonably necessary to protect the health of its employees. Landlord makes no other warranties, express or implied, regarding hazardous materials in the Building. 49. BANK CLOSURE. Notwithstanding any other provisions contained in this Lease, in the event the Tenant is closed or taken over by the banking authority of the State of Tennessee, or other bank supervisory authority, the Landlord may terminate the Lease only with the concurrence of such banking authority or other bank supervisory authority, and any such authority shall in any event have the election either to continue or to terminate the Lease; provided, that in the event this Lease is terminated, the maximum claim of Landlord for damages or indemnity for injury resulting from the rejection or abandonment of the unexpired term of the Lease shall in no event be in an amount exceeding the rent reserved by the Lease, without acceleration, for the year next succeeding the date of the surrender of the Leased Premises to the Landlord, or the date of re-entry of the Landlord, whichever first occurs, whether before or after the closing of the bank owned by the Tenant, plus an amount equal to the unpaid rent accrued, without acceleration up to such date. 13 14 IN WITLESS WHEREOF, the parties hereto, have signed, sealed and delivered this Lease in quadruplicate at Davidson County, Tennessee, on the date and year first above written. LANDLORD: METROPOLITAN LIFE INSURANCE COMPANY (Executed in Atlanta, Georgia) WITNESSES: /s/ Helen L. Dixon By:/s/ Victor W. Turner ------------------------------- -------------------------------- VICE PRESIDENT /s/ Patricia A. Monahan Attest:/s/ Nancy J. Hammer ------------------------------- ------------------------------ Assistant Secretary TENANT: BANK OF NASHVILLE, in organization WITNESSES: /s/ David Broadhurst By:/s/ J. Richard Chambers ------------------------------- -------------------------------- /s/ Darwin Pankey Attest:/s/ Richard L. Fulton ------------------------------- --------------------------- 14 15 APPENDIX A The Premises Second Floor of the L & C Tower 7802 square feet 3% common area factor included Third Floor of the L & C Tower 4184 square feet 12.5% common area factor included; to be reduced to 3.0% upon Tenant leasing the entire third floor Basement Level (Lower Level) 2794 rentable square feet 3.0% common area factor included Basement Level (Lower Level) That space designated as "Space Provided at No Cost" on the attached floor plans 15 16 APPENDIX B-l Rate Schedule 11,986/rsf Second (2) and Third (3) floor space Year Rate/RSF Annual Monthly 1 $ 14.00 $ 167,804.00 $ 13,983.67 2 14.28 171,160.08 14,263.34 3 14.56 174,583.28 14,548.61 4 14.86 178,111.96 14,842.66 5 15.15 181,551.94 15,129.33 6 15.46 185,303.56 15,441.96 7 15.77 189,019.22 15,751.60 8 16.08 192,734.88 16,061.24 9 16.40 196,570.40 16,380.87 10 16.73 200,521.37 16,710.11 2,794/rsf Basement level (Lower level) Year Rate/RSF Annual Monthly 1-10 $7.00/rsf $19,558.00 $1,629.83 16 17 APPENDIX B-2 RATE FOR OPTION SPACE The rate for option space (first right of refusal space) will be computed by compounding annually using 4% against a base of $14.00 per rentable square foot beginning September 1, 1989. The rate will be adjusted effective September 1, of each successive year. A 12.5% common area factor shall be included for any partial floor and a 3.0% factor shall be included for any full floor. The rate for lower level option (basement) space shall be $7.00 per square foot for the entire term of the Lease (including extensions), with a 3.0% common area factor included. Landlord shall provide a build-out allowance of $12.00 per square foot of Net Rentable Area, which allowance shall escalate at the rate of 4.0% per annum from the date of this Lease through the end of the fifth (5th) year and then shall diminish at the rate of 20% per year, beginning on the sixth (6th) anniversary of the date of this Lease. The allowance shall not include the cost of finishing the space to "shell" condition, which shall include (i) demolishing existing tenant improvements, (ii) installing drop ceilings, HVAC ductwork and vents and building standard lighting and (iii) painting exterior walls. No build-out allowance shall be provided for the lower level option space, but the Landlord shall deliver such space in shell condition. 17 18 APPENDIX C OPTIONS Option to Extend So long as Tenant shall not be in default hereunder on the date notice is given or at the expiration of the initial term hereof if this lease shall be in full force and effect, Tenant shall have the option to extend the term of the original term for an additional term of five (5) years (the "first option term") to commence on September 1, 1999 and end August 31, 2004, five years thereafter. Provided Tenant is not in default hereunder on the date notice is given as provided above, and further provided Tenant has exercised the first option to extend, Tenant shall have an additional option (the "second option to extend") to extend the term hereof on the last day of the first extension term for an additional term of five (5) years to commence September 1, 2004 and end August 31, 2009 five (5) years thereafter. Provided Tenant is not in default hereunder on the date notice is given as provided above, and further provided Tenant has exercised the second option to extend, Tenant shall have an additional option (the "third option to extend") to extend the term hereof on the last day of the second extension term for an additional term of five (5) years to commence September 1, 2009 and end August 31, 2014 five (5) years thereafter. Any option to extend granted above shall be exercised by Tenant giving Landlord notice six (6) months prior to the end of the term or any extension thereof. In the event tenant exercises an option to extend as set forth above, all terms and conditions shall remain in full force and effect with the exception of Paragraph 3 Base Rent, which upon the first option to extend shall assume one base rate for all Leased Premises, except those Leased Premises located in the Lower Level. The new Base Rent will be the greater of the existing rent (or that amount which would be the existing rent) for the Leased Premises on the Fourth Level or ninety (90) percent of the current market rate (without giving consideration to tenant concessions) agreed upon twelve months prior to the exercising of option. Such Base Rent shall increase by 4% annually during any year of an extension of the term. This same computation process will occur as each option to extend is exercised. Option to Expand Tenant shall have the right to expand into the contiguous space remaining on the Third Level as identified on EXHIBIT "A" attached hereto under the same terms and conditions currently in effect for the Leased Premises on the Second and Third Levels. All improvements to this space shall be at tenant's expense, except that Landlord shall deliver such space in "shell' condition as defined in APPENDIX B-2 and shall install carpet. Tenant shall be entitled to the use of such space for occasional functions (but not as office space) prior to exercising its option to expand into such space and shall not be obligated to pay Base Rent for such space until such expansion occurs. Right of First Refusal Upon written notification from Landlord (which notification shall attach a copy of a bona fide offer by a third party to lease such space; unless the Landlord is Metropolitan, in which case Metropolitan may certify to Tenant that it has a bona fide offer from a third party to lease such space), Tenant shall have the right of first refusal on the space located on the 4th floor of the L & C Tower. Said space shall be accepted in increments of approximately one thousand (1,000) square feet under the same terms and conditions in effect with the exception of Paragraph 3, Base Rent, which shall be according to the schedule set forth in APPENDIX "B-2" attached hereto and which shall be subject to a 4% increase compounded annually throughout the term of this lease and any extensions thereof. Written notice to accept or reject an offer shall be given to Landlord within ten (10) days of Tenant's receipt of notification. Failure to remit such acceptance or rejection within said time period shall be construed as Tenant's forfeiture or rejection of said option. Landlord shall provide a build-out allowance for such space as provided in APPENDIX B-2. 18 19 Basement Vault and Anteroom Upon written notification (which notification shall include a copy of a bona fide offer from a third party to lease such vault and anteroom; unless the Landlord is Metropolitan, in which case Metropolitan may certify to Tenant that it has a bona fide offer from a third party to lease such space) from Landlord, Tenant shall have the right of first refusal on the vault and anteroom located in the basement of the L & C Tower and shown on the floor plans attached to APPENDIX A. Written notice to accept or reject this offer shall be given to Landlord within ten (10) days of Tenant's receipt of notification. Failure to remit such acceptance or rejection within said time period shall be construed as Tenant's forfeiture or rejection of said option. If Tenant should exercise its right of first refusal as to the vault and anteroom, the rent for such space shall be $7.00 per square foot of Net Rentable Area (without escalation), and shall include a 3.0% common area factor. 19 20 APPENDIX D CONFIDENTIALITY Landlord and Tenant agree that all negotiations, terms, conditions, inducements and any facts relating to this Lease shall be confidential. The only exceptions shall be required disclosure to governing and regulatory agencies. 20 21 APPENDIX E Anytime Teller Machine and Night Depository Tenant may place an anytime teller machine and night depository ("ATM") in the lobby of the Building. There will be no rental cost. Construction will be at Tenant's expense and shall not materially disturb Landlord or the other tenants of the Building (except that noise caused by such construction shall not be deemed to be a disturbance). The location of the ATM shall be as shown in the drawings attached hereto as EXHIBIT A. The ATM shall remain the sole property of the Tenant and shall be removed by Tenant at the expiration of the term of this Lease, with the lobby being restored to its condition existing prior to the installation of the ATM, normal wear and tear excepted. Customers of the Tenant shall be permitted to have access to the ATM 24 hours per day, 7 days per week; provided that Landlord's lobby attendants may, during hours that the Building is closed to the general public, take short breaks from the security station located in the lobby and may lock the lobby during such breaks. 21 22 APPENDIX F TENANT'S COMPUTER IBM AS400 System with IBM 3694 proof equipment, associated printers and access equipment. 22 23 APPENDIX G BASEMENT STORAGE Landlord will be provide, at no cost to Tenant, space in the basement for storing paper as required by regulation. That space is designated in EXHIBIT "A". 23 24 APPENDIX H DAMAGES Should the Tenant fail to gain approval to operate as a bank by both the Tennessee Commissioner of Financial Institutions and the Board of Governors of the Federal Reserve System and be in operation by June 1, 1990, the Landlord will be reimbursed for all expenses incurred in construction of tenant improvements to the Leased Premises, other than the cost of building such space to "shell condition". At the time of such disapproval or failure to gain approval by June 1, 1990, the balance of this Lease will be voidable, at the option of either party; provided, however, that Tenant shall be obligated to pay Base Rent until the termination of the Lease pursuant to this APPENDIX H. 24 25 APPENDIX I LOADING DOCK SECURITY Landlord agrees to construct gates or doors to enclose the loading dock as required by the drawings attached hereto as EXHIBIT A. 25 26 APPENDIX J Landlord agrees to provide up to $10,000.00 to Tenant to assists in design of space. Payment to be against tenant's invoice. In the event the Lease is terminated pursuant to APPENDIX H above, all such sums shall be refunded by the Tenant to the Landlord. 26 27 APPENDIX K POTENTIAL CONTRACTORS [INTENTIONALLY DELETED] 27 28 APPENDIX L [Intentionally Omitted] 28 29 EXHIBIT A DRAWINGS Floor Plans attached. 30 [FLOOR PLAN] 31 [FLOOR PLAN] 32 [FLOOR PLAN] 33 EXHIBIT B TO LEASE DATED JULY ______, 1989 BETWEEN METROPOLITAN LIFE INSURANCE COMPANY (Landlord) and BANK OF NASHVILLE (Tenant) To Induce Tenant to enter into the Lease (to which this EXHIBIT B is attached) and in consideration of the mutual covenants hereinafter contained, Landlord and Tenant agree as follows: 1. (a) Landlord shall prepare the Premises (the "Work") in accordance with (i) the Plans (attached as EXHIBIT C to the Lease) and (ii) the Meeting Notes - Bank of Nashville prepared by Hastings Architecture Associates, dated May 18, 1989 and May 19, 1989, copies of which are attached to this EXHIBIT B. Except as set forth in the Meeting Notes, and noted on EXHIBIT C, the Work shall be at Landlord's sole cost and expense. Landlord shall prepare working drawings and specifications adequate in detail to perform the Work. Upon completion of said working drawings and specifications to Tenant for Tenant's approval. Tenant's failure to approve or disapprove the drawings and specifications within ten (10) days of submission shall be deemed an approval. Tenant shall not unreasonably withhold its approval of the drawings and specifications or any part thereof. Any programming or interior design services or unreasonable or excessive revisions to the drawings and specifications required by Tenant shall be at Tenant's sole cost and expense, subject to the allowance for design services provided in Appendix J. Upon approval or deemed approval of the drawings and specifications by Tenant, the drawings and specifications shall become the "Plans" for all purposes of this Lease (b) Except as set forth in Section (a), Landlord has on other agreement with Tenant and has no other obligation to do any other work with respect to the Premises. 2. If Landlord further agrees to do, at Tenant's request and upon submission by Tenant (at Tenant's sole cost and expense) of all necessary drawings, plans and specifications, any other work in addition to the Work described in Section 1 hereof, such other work shall be done at Tenant's sole cost and expense as a Tenant's extra. Prior to commencing any such other work requested by Tenant, Landlord shall submit to Tenant written estimates of the cost of such other work. If Tenant shall fail to approve said estimates within fourteen(14)days from the receipt thereof, the same shall be deemed disapproved in all respects by Tenant and Landlord promptly upon being billed therefore, at any time and from time to time, the cost of all such other work. 3. Landlord, at Landlord's discretion, may permit Tenant and Tenant's agents to enter the Premises prior to the Commencement Date in order that Tenant may do such other work as may be required by Tenant to make the Premises ready for Tenant's use and occupancy. If Landlord permits such entry prior to the Commencement Date, such permission is conditioned upon Tenant and its agents, contractors, employees and invitees working in harmony and not interfering with Landlord and its agents, contractors and employees in doing Landlord's work in the Premises or for other tenants and occupants of the Building. If at any time such entry shall cause or threaten to cause disharmony or interference, Landlord shall have the right to withdraw such permission upon 24 hours notice to Tenant. Tenant agrees that any such entry into and occupation of the Premises shall be deemed to be under all of the terms, covenants, conditions and provisions of the Lease except as to the covenant to pay the Rent, and further agrees Landlord shall not be liable in any way for any injury, loss or damage which may occur to any of Tenant's work and installations made in the Premises or to properties placed therein prior to the commencement of the Term, the same being at Tenant's sole risk. 34 4. If the substantial completion of the Premises by Landlord is delayed due to any act or omission of Tenant or Tenant's Representatives, including any delays by Tenant in the submission of plans, drawings, specifications or other information or in approving any drawings or estimates or in giving any authorization or approval, the Premises shall be deemed substantially completed on the date when they would have been ready but for such delay. 35 This Instrument Prepared By: KENNETH P. EZELL, JR. BAKER, WORTHINGTON, CROSSLEY, STANSBERRY & WOOLF 1700 Nashville City Center 511 Union Street Post Office Box 2866 Nashville, Tennessee 37219 MEMORANDUM OF LEASE THIS MEMORANDUM OF LEASE made this 5th day of September, 1989, by and between METROPOLITAN LIFE INSURANCE COMPANY ("Landlord") and THE BANK OF NASHVILLE ("Tenant"). WITNESSETH: WHEREAS, Landlord and Tenant have executed a certain "Standard Office Building Lease" (the "Lease") dated as of July 19, 1989, relating to office space located in the L & C Tower, 401 Church Street, Nashville, Tennessee (the "Building"); and WHEREAS, Landlord and Tenant wish to record a summary of certain provisions of the Lease so as to cause all persons to be on notice thereof. NOW, THEREFORE, Landlord and Tenant do hereby publish the following summary of the Lease: 1. DEMISED PREMISE: All space on the Lower, Second and Third Levels of the Building indicated as being part of the Leased Premises on the Drawings attached hereto as EXHIBIT A, containing 2,794 square feet of Net Rentable Area on the Lower Level, 7,802 square feet on the Second Level, 4,102 square feet on the Third Level on the space on the Lower Level designated as "Space Provided at No Cost." 2. TERM: The Term of the Lease extends from September 1, 1989, through August 31, 1999. 3. RENEWALS: Tenant has the option to extend the Lease for three (3) successive five (5) year terms, upon terms and conditions specified in the Lease. 4. OPTION TO EXPAND. Tenant has the right to expand into the remaining space on the Third Level of the Building upon the terms and conditions specified in the Lease. 1 36 5. RIGHT OF FIRST REFUSAL: Tenant has the right of first refusal to lease space on the fourth (4th) floor of the Building upon the terms and conditions specified in the Lease. IN WITNESS WHEREOF, the parties have executed this Memorandum of Lease as of the day and year first above written. LANDLORD: METROPOLITAN LIFE INSURANCE COMPANY By:/s/ Victor W. Turner ------------------------ Title: Vice President --------------------- TENANT: THE BANK OF NASHVILLE By:/s/ J. Richard Chambers ------------------------ Title: President --------------------- 2 37 STATE OF GEORGIA ) -------- ) COUNTY OF DEKALB ) -------- Personally appeared before me, /s/Sandra R. Nauman, a Notary Public for the state and county aforesaid, Victor W. Turner, with whom I am personally acquainted, and who acknowledged that he executed the within instrument for the purposes therein contained, and who further acknowledged that he is the Vice President of METROPOLITAN LIFE INSURANCE COMPANY, the maker, and is authorized by the maker to execute this instrument on behalf of the maker. WITNESS my hand and seal at office this 23rd day of October, 1989. /s/ Sandra R. Nauman -------------------- NOTARY PUBLIC My Commission Expires: STATE OF TENNESSEE ) ) COUNTY OF DAVIDSON ) Personally appeared before me, /s/ Patricia H. Rudd, a Notary Public for the state and county aforesaid, J. Richard Chambers, with whom I am personally acquainted, and who acknowledged that he executed the within instrument for the purposes therein contained, and who further acknowledged that he is the President of THE BANK OF NASHVILLE, the maker, and is authorized by the maker to execute this instrument on behalf of the maker. WITNESS my hand and seal at office this 5th day of September, 1989. /s/Patricia H. Rudd -------------------- NOTARY PUBLIC My Commission Expires: 11-24-90 (Notary Public Seal) 3 38 EXHIBIT A [FLOOR PLAN] 39 EXHIBIT A [FLOOR PLAN] 40 EXHIBIT A [FLOOR PLAN] 41 [PARTIAL PLAN - Location of ATM/Night Depository in Main Lobby] 42 EXHIBIT C CONSTRUCTION PLANS Construction Plans Attached 43 (CUSHMAN & WAKEFIELD LETTERHEAD) CLARIFICATION TO EXHIBIT B CONSTRUCTION COSTS As an interim description of the plans and specs for the construction work to be performed for the Bank of Nashville, the following items are included for clarification purposes until such time as the final drawings are available. 1. Meeting notes prepared by Hastings & Associates dated May 18, 1989. 2. Meeting notes prepared by Hastings & Associates dated May 19, 1989. 3. Conceptual drawings prepared by Hastings & Associates dated 3/27/89 and revised 7/17/89 covering the basement, 2nd floor and 3rd floor of the L & C Tower. In addition, the following items are added for clarification purposes. 1. Casework to include $10,000 budget for five teller counters and $2,500 for a check writing stand. 2. There has been $4,700 budgeted for a Receptionist desk. 3. There has been $2,880 budgeted for drawers and counter behind the teller counters. 4. Exterior improvements to include new entry canopy, roofing and fascia and glass entry doors with a budget of $26,700. As a further description of the work, complete drawings and specs will be substituted for these above items as prepared by Hastings & Associates. No warranty or representation, express or implied, is made as to the accuracy of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions, imposed by our principals. 44 EXHTBIT D SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS AGREEMENT, made and entered into as of this _________day of _________, 198__, by and among___________________________(hereinafter referred to as "Landlord"), and _____________________________, (hereinafter referred to as "Tenant"), and _________________________________ (hereinafter referred to as "Mortgagee"), which terms "Landlord," "Tenant" and "Mortgagee" shall include the successors and assigns of the respective parties. WITNESSETH: WHEREAS, by lease dated ______________________, 1989, a true and complete copy of which is attached hereto as EXHIBIT "A" and made a part hereof by this reference (hereinafter referred to as the "Lease"), Landlord, in consideration of the rents reserved therein, and of the terms, covenants, conditions and agreements therein set forth, has demised and let to Tenant and Tenant has taken and hired from Landlord, certain real property located in Nashville, Tennessee, for an original term extending until ___________________; and WHEREAS, Mortgagee expects to become the owner and holder of a Promissory Note secured by a Deed of Trust (hereinafter referred to as the "Security Instrument") constituting a first lien on and security title in and to the real property described in EXHIBIT "B", attached hereto and made a part hereof, including the premises leased to Tenant; and WHEREAS, Tenant desires that Mortgage recognize Tenant's rights under the Lease in the event of a foreclosure of the Mortgagee's lien, and Tenant is willing to agree to attorn to the purchaser at such foreclosure if Mortgagee will recognize Tenant's rights under said Lease. NOW, THEREFORE, for and in consideration of the premises, any mutual promises and covenants of the parties hereunder, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Subordination. The Lease and the lien thereon shall at all times be subject to and subordinate in all respects to the Security Instrument and to all renewals, modifications and extensions thereof, subject to the terms and conditions herein after set forth in this Agreement. 2. Non-Disturbance. Subject to the condition precedent set forth below, so long as Tenant is not in default (beyond any period given Tenant to cure such default) in the payment of rent or additional rent, or the performance of any other terms, covenants, or conditions of the Lease on Tenant's part to be performed, Tenant's possession under the Lease and Tenant's rights and privileges thereunder, or under any extensions or renewals thereof that may be affected in accordance with any option contained in the Lease, shall not be diminished or interfered with by Mortgagee, and Tenant's occupancy shall not be disturbed by Mortgagee during the term of the Lease or any such extensions or renewals thereof. As a condition precedent to Mortgagee's obligations pursuant to this paragraph 2, Tenant shall deliver, upon request by Mortgagee, an estoppel certificate in the form prescribed by Section 18 of the Lease. 3. Attornment. If the interest of the Landlord shall be acquired by Mortgagee (the term "Mortgagee" as used in this paragraph 3 and in paragraph 4 shall include any purchaser at a foreclosure sale ocurring as a result of the Security Instrument by a foreclosure of the Security Instrument or other proceeding brought to enforce the rights of the holder thereof, and the Mortgagee succeeds to the interest of the Landlord under the Lease, the Lease and all the rights of the Tenant thereunder shall continued in full force and effect and shall not be terminated or disturbed except in accordance with the terms of the Lease, and Tenant shall be bound to Mortgagee under all of the terms, covenants and conditions of the Lease for the balance of the term thereof remaining, and any extensions or renewals thereof that may be affected in accordance with any option 45 contained in the Lease, with the same force and effect as if the Mortgagee were the lessor or landlord under the Lease and the Tenant the lessee under the Lease, the Tenant does hereby attorn to the Mortgagee as its Lessor, said attornment to be effective and self-operative with the execution of any instrument pertaining thereto on the part of either party hereto or immediately upon Mortgagee's succeeding to the interest of the Landlord under the Lease and, Tenant shall thereafter pay rent to Mortgagee from and after such time as Tenant receives written notice from Mortgagee that it has succeeded to the interest of Landlord under the Lease, or that Mortgagee is exercising its rights pursuant to the assignment of Landlord's interest in leases which Landlord has given as further security of the Security Instrument. The respective rights and obligations of Tenant and Mortgagee upon such attornment, to the extent of the then remaining balance of the term of the Lease and any extension or renewals, shall be and are the same as now set forth in the Lease, it being the intention of the parties hereto to incorporate the Lease into this Agreement by reference with the same force and effect as if set forth fully verbatim herein. 4. Terms to Which Parties Bound. If Mortgagee shall succeed to the interest of Landlord under the Lease, Mortgagee shall be bound to Tenant under all of the terms, covenants and conditions of the Lease, and Tenant shall, from and after Mortgagee's succession to the interest of the Landlord under the Lease, be bound to Mortgagee under all of the terms, covenants and conditions of the Lease, and the parties shall have between themselves the same remedies and rights as Landlord and Tenant now possess with respect to the Lease; provided, however, that Mortgagee shall not be: (a) liable for any act or omission of any prior landlord (including Landlord) except for any act or omission that shall continue beyond the time Mortgagee shall succeed to the interest of Landlord; or (b) subject to any offsets or defenses that Tenant might have against any prior landlord (including Landlord); or (c) bound by any rent or additional rent that Tenant might have paid for more than the then current month to any prior landlord (including Landlord); or (d) bound by any material amendment, alteration, or modification of the Lease made without Mortgagee's prior written consent, including, without limiting the generality of the foregoing, any amendment, alteration or modification that results in: (i) a reduction of the term of the Lease or the amount of rent or other charges payable by Tenant thereunder, (ii) the assignment of the Lease or subletting of all or any portion of the Tenant's premises, except as expressly permitted pursuant to the Lease, (iii) the imposition of or increase in any obligation of Landlord under the Lease, or (iv) any impairment of Mortgagee's security therein; and Tenant and Landlord agree to provide Mortgagee with a copy of any amendment, alternation or modification of the Lease that does not require Mortgagee's prior written consent pursuant to this Section 4(d) promptly upon execution thereof; or (e) liable for any security or tenant deposits held or obtained by any prior landlord (including Landlord). 5. Miscellaneous. 5.1 Amendments. This Agreement may not be altered, modified or amended except in writing signed by all of the parties hereto. 5.2 Governing Law. Inasmuch as this Agreement pertains to real property located in Nashville, Tennessee, the laws of the State of Tennessee shall be controlling with respect to enforcement or interpretation of this Agreement. 5.3 Time of Essence. With regard to the performance to any acts, notices, or payments of money which is required by this Agreement, or any instrument referred to herein, time is of the essence. 46 STATE OF TENNESSEE ) ) COUNTY OF DAVIDSON ) Personally appeared before me, _________________________, a Notary Public for the state and county aforesaid, _______________________, with whom I am personally acquainted, and who acknowledged that he executed the within instrument for the purposes therein contained, and who further acknowledged that he is the_________ of ________________, the maker, and is authorized by the maker to execute this instrument on behalf of the maker. WITNESS my hand and seal at office this ____ day of __________ , 1989. ______________________________ NOTARY PUBLIC My Commission Expires: _________________________ 47 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of date first above written. LANDLORD: By: ------------------------------- Title: ---------------------------- TENANT: ---------------------------------- MORTGAGEE: By: ------------------------------- Its: ------------------------------ Attest: --------------------------- Its: ------------------------------ [CORPORATE SEAL] STATE OF TENNESSEE ) ) COUNTY OF DAVIDSON ) Personally appeared before me, _______________________, a Notary Public for the state and county aforesaid, _____________________, with whom I am personally acquainted, and who acknowledged that he executed the within instrument for the purposes therein contained, and who further acknowledged that he is the of ______________________, the maker, and is authorized by the maker to execute this instrument on behalf of the maker. WITNESS my hand and seal at office this _______ day of _____________, 1989. 48 [Hastings Logo] HASTINGS ARCHITECTURE ASSOCIATES L & C TOWER - 31st FLOOR 401 CHURCH STREET NASHVILLE, TENNESSEE 37219 615-242-2113 May 18, 1989 MEETING NOTES - BANK OF NASHVILLE PARTICIPANTS: Darwin Pankey, Centennial; Lynn Crew, Bacar; Richard Coles, Amprite Electric Company; Bill Lee, The Lee Company Mechanical Contractors and Engineers; Jim Hastings and Alan Stephenson, Hastings Architecture Associates (HAA) The purpose of the meeting was to clarify items related to Build-out costs for the Bank of Nashville space based on conceptual drawings prepared by HAA and dated 5/11/89 (Revised Date). The following items were discussed: BASEMENT LEVEL The Owner is to provide "shell space" for tenant. The following items are included and are to be priced by Bacar: a. New painted drywall finish in Operations area, Lounge, and Toilets. b. Lee's "Faculty III" Carpet in Operations area, Computer Room and Lounge with vinyl base. c. Vinyl tile in toilets. d. New 2 x 4 lay-in ceiling in Operations, Lounge, Toilets, and Supplies. (Existing ceiling will be removed.) e. Sealed concrete floor at Supplies Room. 2. The tenant is to provide the following items (Basement only): a. New partitions and doors through new partitions such as at the Computer Room. b. All millwork. c. All plumbing work except for the demolition of existing plumbing not to be reused. d. Halon system for Computer Room fire suppression. e. New pass-through window. 3. Miscellaneous items related to Basement level: a. Existing dumbwaiter equipment and walls will be removed and floor penetrations will be sealed (all 3 levels) by Owner. b. New air distribution will be provided by Owner. 49 MEETING NOTES - BANK OF NASHVILLE MAY 18, 1989 PAGE 2 c. Any emergency lighting upgrade required by Codes will be provided by Owner. d. Standard domestic power will be provided by Owner. Special power requirements such as may be required for computer system will be provided by tenant. e. A new dumbwaiter will not be required and no work will be provided at the existing service elevator or Elevator Equipment Room. f. The existing Telephone Equipment and Janitors' Closets in the leased area will be cleaned but no new finishes will be provided. g. The door to the Janitor's Closet will be relocated as shown on the plans. h. The Elevator Lobby and Basement corridors will be cleaned but no new finishes will be provided. i. The Owner will provide two doors and partitions to secure the corridor at the entrance to the Operations Area. j. The space designated on the plan to be provided at no cost to the Owner will be cleared of equipment and cleaned, but no demolition or new finishes will be provided. MAIN BANKING FLOOR & EXECUTIVE AREAS The following work is to be included in build-out costs provided by the Owner: a. 30 oz. carpet by Pacific Crest is to be installed throughout Main Banking Space and the Executive Areas. b. At the Entry Vestibule and in a 4' wide area along Tellers' Row, ceramic tile by Crossville Ceramics will be provided. c. The plan will be revised to allow a 4'-0" area between the existing elevator shaft and Ann Cheatham's office to provide future access to the existing freight elevator. d. Wallcovering in the Main Banking Space will be "Tec-Wall" by Design Tex. 50 MEETING NOTES - BANK OR NASHVILLE MAY 18, 1989 PAGE 3 e. Wallcovering in the Executive Offices and the Executive Area Conference Rooms will be Maharam linen wall covering ($30 per lineal yard). f. Chair rail and wood base will be provided at Executive Offices and Executive Conference Rooms. g. A water line will be run to a Coffee Bar in the Executive Area. h. Though the ceiling in the Main Banking Space has not been designed, Bacar is to assume 50% drywall ceiling and 50% 2x2 lay-in ceiling for pricing purposes. i. The curved wall at the Conference Room and the wall behind the Reception Area are to be full height glass block. j. All glass doors (Falconer or equal) are to be provided between the existing Elevator Lobby and the Main Banking Space. k. All other doors are to be 3'-0" x 8'-0" x 1-3/4" stain grade solid core wood doors. l. The entry canopy will be enlarged and the existing fascia that wraps the second level on both 4th and Church will be replaced. New glass entry doors will be provided. m. All 4 Restrooms will be provided with ceramic tile floor and base and vinyl wall covering. n. Millwork to be provided includes Tellers' Row, Reception Desk, Checkwriting Counter, and writing counters at booths and restroom vanities. THIRD LEVEL The following work is to be included in the build-out costs provided by the Owner: a. New ceiling, carpet and light fixtures are to be provided in the Board Room. Existing wood paneling and doors will be cleaned. b. 8'-0" x 3'-0" x 1-3/4" stain grade wood doors with metal frames will be provided where shown on plans. 51 MEETING NOTES - BANK OF NASHVILLE MAY 18, 1989 PAGE 4 c. Stair connecting Executive Area at Level 2 with Level 3 will be opened, cleaned and painted. A rated door will be provided at Level 3. d. Conference Rooms will be provided with drywall to deck above and sound attenuation blankets in all walls. e. Walls indicated on plans with double lines (Bruce Mitchell's office and 2 other offices) are to be open office systems partitions with doors and are not to be provided by Owner. f. New carpet, 2 x 4 lay-in ceiling and painted finish are to be provided by Owner throughout the third floor including the area not to be leased. g. Existing kitchen equipment will be removed. h. Existing dumbwaiter walls will be removed and the floor and wall repaired. i. Toilets will be cleaned. If any of the above items are incorrect, please contact us. RespectfullY submitted, HASTINGS ARCHITECTURE ASSOCIATES /s/ Alan Stephenson C. Alan Stephenson, AIA CAS/slm Distribution: Participants, Van Barron 52 May 19, 1989 MEETING NOTES - BANK OF NASHVILLE PARTICIPANTS: Darwin Pankey, Centennial; David Broadhurst, Cushman & Wakefield; Richard Chambers, Richard Fulton, & Ann Cheatam, Bank of Nashville; Ray Nathurst, Paul Biggers, & Ken Murdock, McQuiddy's; Alan Stephenson, Hastings Architecture Associates The purpose of the meeting was to identify to all parties the items included in the tenant buildout. The meeting notes prepared by HAA and dated May 18, 1989 were used as an outline for the discussion. The following items are additions or revision to those notes. 1. The millwork behind Tellers' Row, the Coffee Bar currently shown in the Executive Area, and the millwork shown in the Kitchen on the third floor were not specifically mentioned in the Meeting Notes of May 18 but are to be provided by the Owner. The millwork behind Tellers' Row is to include base cabinet with drawers for the full length of the available wall space. 2. The lowest estimate submitted for the bank security system was $12,000 which the Owner will provide. This price includes 6 cameras with control monitor in the basement, access control at doors, and hold-up alarms. The price does not include conduit to serve the system which is to be included in the electrical subcontractors work. 3. The Owner has no plan to replace the glass or window on the 3rd level and which overlooks the alley. 4. Sound attenuation blankets will be provided by Owner and installed at all Conference Rooms. 5. At the secured Storage Space in the Trust Department at Level 3, the Owner will provide a smoke detector and high-temperature sprinkler heads. 6. The paneling in the existing Conference Room and Elevator Lobby at Level 3 will be restored to a quality appearance by the Owner either through a wood treatment or refinishing if required. 7. At level 3, the Owner will provide Pacific Crest carpet as recommended by McQuiddy's in the Trust Department and Board Room. In the Expansion Area, Lee's "Faculty III" will be provided. 53 Meeting Notes - Bank of Nashville May 19, 1989 Page 2 8. The area in the 3rd floor Elevator Lobby where an existing planter has been removed will be repaired by the Owner. 9. The Restrooms at Level 3 will be cleaned and all plumbing fixtures restored to good working order by the Owner. 10. Ann Cheatham requested that the building Owners include the renovation and additional opening for the service elevator in the total L&C elevator renovation package. If the Bank chooses to proceed with the work at that time, the portion of the total cost related to service elevator would be paid by the Bank. If any of the above items are incorrect, please contact us. Respectfully submitted, HASTINGS ARCHITECTURE ASSOCIATES /s/Alan Stephenson C. Alan Stephenson, AIA CAS/slm Distribution: Participants, Van Barron, Jim Hastings EX-10.06 11 LEASE AGREEMENT COLEMAN PARTNERS 1 EXHIBIT 10.06 LEASE AGREEMENT BY AND BETWEEN COLEMAN PARTNERS (LESSOR) AND THE BANK OF NASHVILLE (LESSEE) THE GLENDALE SHOPPING CENTER 3770 HILLSBORO ROAD NASHVILLE, TENNESSEE 37215 AUGUST 1, 1996 2 TABLE OF CONTENTS Article 1. Demised Premises, Etc..............................................1 Article 2. Base Rent and Common Area Charge...................................1 Article 3. Use and Occupancy..................................................2 Article 4. Signs..............................................................3 Article 5. Sales Tax on Rents.................................................3 Article 6. Utilities..........................................................3 Article 7. Repairs by Lessor..................................................3 Article 8. Repairs by Lessee..................................................4 Article 9. Lessee Improvements, Advertising, Decor and Signs..................4 Article 10. Compliance with Laws and Regulations.............................. 4 Article 11. Taxes..............................................................4 Article 12. Insurance..........................................................4 Article 13. Description of Lessee's Public Liability Insurance.................5 Article 14. Waiver of Subrogation..............................................5 Article 15. Damage or Destruction to the Premises..............................5 Article 16. Assignment and Subletting..........................................5 Article 17. Eminent Domain.....................................................6 Article 18. Lessor Services....................................................6 Article 19. Sidewalks, Parking Area and Common Areas...........................6 Article 20. Estoppel Certificate...............................................7 Article 21. Default. ..........................................................7 Article 22. Further Rights of Lessor Upon Default. ............................8 Article 23. Exculpation of Lessor from Personal Liability Under Lease ...........................................8 Article 24. Surrender of Possession............................................9 Article 25. Covenant of Peaceful Possession................................... 9 Article 26. No Liens...........................................................9 Article 27. Notices. ..........................................................9 Article 28. Subordination and Attornment. .....................................9 Article 29. Memorandum of Lease. .............................................10 Article 30. Applicable Law....................................................10 Article 31. Captions..........................................................10 Article 32. Construction of Terms.............................................10 Article 33. Cross Easement....................................................10 Article 34. Miscellaneous.....................................................10 Article 35. Force Majeure.....................................................12 Article 36. Options to Renew..................................................13 SIGNATURES ...................................................................13
ii 3 LEASE AGREEMENT THIS LEASE AGREEMENT, made and entered into this 1st day of August, 1996, by and between Coleman Partners, a Tennessee Partnership (herein called "Lessor"), and The Bank of Nashville, a Tennessee banking corporation (herein called "Lessee"). WITNESSETH: Article 1. Demised Premises, Etc. Article 1.1 Demised Premises. In consideration of the Premises and the mutual covenants, conditions and agreements herein contained and the rent hereinafter agreed to be paid, Lessor does hereby lease to Lessee, and Lessee does hereby accept from Lessor, certain Premises in Nashville, Davidson County, Tennessee, consisting of approximately 41,600 gross square feet (computed from measurements to the exterior of outside walls of the building and to the center of demising walls), which space is outlined in red on Exhibit "C" (said space herein called the "Premises"), and located in the Shopping Center more particularly described on Exhibit "A ". For purposes of calculating percentages as hereinafter provided, the portion of the Shopping Center which is the subject of this Lease shall consist of 4,670 square feet. Lessor owns the Shopping Center and/or otherwise has good right to lease the same and to bind the owner(s) thereof. To the best of the Lessor's knowledge, and based solely on letters and agreements with architects, engineers, and the attached letters from the Metropolitan Government of Nashville, Davidson County, Tennessee, dated October 28, 1994 and January 30, 1991, (A) the Shopping Center and the Premises are in material compliance with all local, state, and federal requirements, including the Americans With Disabilities Act, etc., (B)(1) the Premises have been constructed, in all material respects, in accordance with applicable codes, laws, rules, and regulations, and (2) the Premises are zoned to permit the conduct of the permitted uses herein specified. The following Exhibits are attached hereto and incorporated into this Lease by reference as if fully copied herein: Exhibit A: Legal Description of the Shopping Center (2.322 acres+) Exhibit B: Site or Plot Plan of the Shopping Center Exhibit C: Lessee Space Exhibit Exhibit D. Locations of Signs and ATMs Exhibit E: Signage Criteria Exhibit Exhibit F: Rules and Regulations Article 1.2 Construction of Premises. Article 1.2.1. Lessor has erected on the Shopping Center a building suitable for multi-lessee use. TO HAVE AND TO HOLD the said Premises with all the rights and privileges thereto appertaining unto the Lessee for the term hereof (subject, as herein provided, to all existing or future mortgages, deeds of trust, ground leases, parking agreements, utility and other rights and privileges previously granted and/or which may be now or in the future recorded in the Register's Office for Davidson County, Tennessee), upon the following covenants, conditions and agreements: Article 1.3 Initial Term. The initial term of this Lease shall be for 60 calendar months commencing August 1, 1996 and ending August 1, 2001. Article 2. Base Rent and Common Area Charge. Lessee agrees to pay as base rent (herein "Base Rent") and common area charge (herein "Common Area Charge") for the Premises the following sum, due and payable in advance on the first day of each and every month: First sixty months Base Rent Per Month: $ 9,845.91 Estimated Common Area Charge Per Month: $ 1,342.40 Total Per Month: $11,188.32
Said Common Area Charge represents an estimate of Lessee's proportionate share of the real property taxes, liability and hazard insurance premiums, a market rate management fee to Lessor, landscaping maintenance, parking lot and sidewalk maintenance and cleaning, signage, lighting, electricity, maintenance fees and utility services. Therefore, said Common Area Charge ("C.A.M.") is subject to adjustment at the end of each calendar year when the actual cost of the above-referenced items is known. As additional minimal guaranteed rental due hereunder, Lessee shall pay to the Lessor Lessee's pro rata share (as defined in the later paragraphs dealing with taxes and insurance) of any of Lessor's hazard, 4 casualty or liability insurance premiums which fall due after the earlier of: Lessee's occupancy or the completion of the improvements to be constructed upon the Premises by Lessor for Lessee's occupancy. This shall be payable to Lessor within thirty (30) days after Lessor sends Lessee a statement for such pro rata share. Lessor agrees to provide reasonable documentation establishing the amount of C.A.M. charges. Lessor advises Lessee that Lessee's proportionate share of the Shopping Center based on the above-stated square footage is Eleven and 41/100s percent (11.41%). In addition, Lessee agrees to pay the other amounts required to discharge its obligations under the succeeding conditions and provisions of this Lease. Automated Teller Machines ("ATMs"). The Lessor consents to the placement of an ATM at the sites indicated on Exhibit "D" at Lessee's cost. However, the Lessee acknowledges that such consent is specifically limited by the rights of the existing tenant known as Pier One to restrict the placement of ATMs in the main (upper level) parking area of the Shopping Center. The Lessor agrees to cooperate and support the Lessee's efforts to obtain the consent of Pier One and the Metropolitan Government of Nashville Davidson County, Tennessee for such the establishment of the said ATMs as indicated on said Exhibit "D". The dimensions of the ATMs acceptable to the Lessor are indicated on said Exhibit "D". Free-Standing or Other Drive-Through Teller Windows. The Lessor will support the Lessee's efforts to locate a free-standing or other drive-through teller position(s) in the Shopping Center at Lessee's cost. However, the Lessee acknowledges that such consent is specifically limited by the rights of the existing tenant known as Pier One to restrict the placement of such drive-throughs in the main (upper level) parking area of the Shopping Center. The Lessor agrees to cooperate and support the Lessee's efforts to obtain the consent of Pier One and the Metropolitan Government of Nashville Davidson County, Tennessee for such the establishment of the said position(s) as reasonably requested from time to time. Any such construction or positions shall be subject to Lessor's prior approval as to location, size, design, and so forth, all of which shall be reasonable and consistent with the general design and appearance of the Shopping Center. Such drive-through space shall be the basis for additional rent at a market rate and other charges (consistent with this Agreement). Alarms, Etc. The Lessee is hereby granted permission to install such alarm systems as are typical in the banking industry and/or as are required by law, rule or regulation. Vaults, Etc. The Lessee is hereby granted permission to install such vaults as are typical for this type of branch in the banking industry and/or as are required by law, rule or regulation. Lessor has received a copy of the specifications of the vaults to be used by the Lessee. Lessee is to determine that the same may safely be used in the space. Wiring, Etc. The Lessee is hereby granted permission to install such wiring and plumbing as may be required to prepare and maintain the space for the permitted uses. Article 3. Use and Occupancy. Lessee will maintain regular business hours, as follows: No set hours. It is a condition hereto that the Lessee be granted a use and occupancy (and any comparable) permit without undue expense. Lessee will use the Premises for the sole purpose of: Banking and financial services and for no other purpose unless written consent of Lessor is first obtained. Lessor may withhold such consent in its reasonable discretion. Further, Lessee shall not conduct within the Premises any fire, auction or bankruptcy sales or operate within the Premises a "wholesale" or "factory outlet" store, a cooperative store, a "second hand" store, a "surplus" store, or a store commonly referred to as a "discount house." Lessee shall not permit any objectionable or unpleasant odors to emanate from the Premises, nor place or permit any signage, radio, television, loud-speaker or amplifier on the roof or outside the Premises or where the same can be seen or heard from outside the building or in the Common Area, nor place an antenna, awning or other projection on the exterior of the Premises (except a small satellite dish placed on the roof of the Shopping Center so that it is unobtrusive); nor solicit business or distribute leaflets or other advertising material in the Common Area; nor take any other action which in the exclusive judgment of Lessor would constitute a nuisance or would disturb or endanger other tenants of the Shopping Center or unreasonably interfere with their use of their respective Premises, in or do anything whicl1 would tend to injure the reputation of the Shopping Center. Lessee at all times shall keep said Premises in a neat and orderly condition and keep the entry ways and sidewalks and delivery areas adjoining the demised Premises clean and free from rubbish and dirt. (The Lessor shall take reasonable steps to remove snow and ice). Lessee shall take reasonable steps to keep the Premises clean and free of rodents, bugs and vermin and at the request of Lessor participate and cooperate in carrying out any reasonable program of 2 5 extermination that Lessor may direct, and Lessee shall bear the cost thereof. Lessee shall not use or permit the use of any portion of said Premises as sleeping or living quarters or as lodging rooms or keep or harbor therein any live animals, fish, or birds, or use the same for any illegal purpose. Lessee shall not permit, allow or cause the sinks, toilets, or urinals in the Premises to be used for any purpose except that for which they were designed and installed. The expense of repairing any breakage, or damage or removal of any stoppage thereof, as a result of improper use shall be paid for by Lessee. Lessee agrees to permit no waste of the property but on the contrary take good care of same. Article 4. Signs. Lessee shall have the right to have signage over Lessee's storefront at locations, sizes and designs that are reasonably approved in writing by Lessor. Lessee shall pay for such signage. (See Exhibit "E" "Signage Criteria"). Periodic promotionals that include sidewalk and parking lot displays and obstructions shall require written approval in its reasonable discretion. Lessee agrees at all times thereafter during the term hereof, to promptly repair and at all times maintain in good condition such signs as are approved in writing by lessor. The Lessor consents to signs on all locations (three sides of the building and the "tombstone" sign at the entrance) designated on the attached Exhibit "D" as well as reasonable window and door signs hung inside the Premises. The Lessee's exterior signs shall be consistent with the current appearance of the existing "Cook's Nook" signs and no larger than such existing signs. In addition, it shall be the Lessee's obligation to obtain appropriate municipal approval of the signs. The Lessor will provide reasonable assistance and support in obtaining such approvals so long as the Lessee bears all expense therefor. Article 5. Sales Tax on Rents. In the event any sales, use or other nonincome tax be levied upon the Base Rent paid by Lessee reserved in this Lease by the State of Tennessee, the City of Nashville or Davidson County, or any other governmental entity having jurisdiction, all such taxes attributable thereto shall be paid by Lessee in addition to its obligations hereunder. Article 6. Utilities. Lessee shall pay for utilities rendered or furnished to the Premises during the term of this Lease, including gas, electricity, telephone service and water and sewer services. All utilities, except water and sewer services, shall be separately metered. In the case of water and sewer services, Lessee shall pay his pro rata share of water and sewer services as a part of C.A.M. charges in accordance with Article 2 herein. Lessor shall not be liable for any interruption whatsoever in utility services not furnished by Lessor, nor for interruptions in utility services furnished by Lessor which are due to fire, accident, strike, acts of God, or other causes beyond the control of Lessor or in order to make alterations, repairs or improvements unless such interruption is due to the negligence or willful misconduct of Lessor, its employees, agents or contractors. In the event that a tenant other than the Lessee uses substantially more water on a consistent basis than the Lessee, the charges to the Lessee shall be reasonably adjusted downward in the reasonable discretion of the Lessor. Article 7. Repairs by Lessor. Lessor agrees to maintain in good condition the roof, exterior walls, gutters, sprinkler system (if any), parking areas and hallways and sidewalks which make up the "common areas" outlined in blue in Exhibit "B". The term "exterior walls" shall not include glass windows, entrance doors, service doors or other glass inserts or panels (or window and door frames, openers and closers). In the event said glass windows, entrance doors, service doors or other glass inserts or panels (or window and door frames, openers and closers) are broken, destroyed or must be replaced for any reason except for the negligence or the willful misconduct of the Lessor, its employees, agents or contractors in which case the expense shall be borne by Lessor. The same shall be done at Lessee's expense and in like kind (or as nearly like kind as can reasonably be obtained by either Lessor or Lessee) as existed before. Lessor gives to Lessee exclusive control of the Premises and shall be under no obligation to inspect the Premises. Lessee shall at once report in writing to Lessor any defective condition actually known to Lessee which Lessor is required to repair, and failure to so report such defect shall make Lessee responsible to Lessor for any liability incurred by Lessor by reason of such defect to the extent that Lessee's delay caused such liability. Lessee agrees to give Lessor immediate written notice if known to Lessee of any fire or other casualty in the Premises, or the building of part. Notwithstanding the foregoing, Lessor shall not be liable for any damage caused by the sprinkler system or any water leakage, including, but not limited to, damage to Lessee's merchandise, unless due to the negligence or willful misconduct of Lessee, its employees, agents or contractors or if such damage occurs after written notice to Lessor raising specific concerns about such sprinkler(s), water pipe(s), and/or any other such matters. Any funds spent by Lessor on maintenance will be charged back on a pro rata basis to Lessee on its common area maintenance. Lessor shall not be liable for any latent defect in the demised Premises or in the building of which they form a part except for a period of one (1) year from the date Lessee takes possession of the demised Premises. All property of Lessee kept or stored on the demised Premises shall be so kept or stored at the risk of Lessee only and Lessee shall hold Lessor harmless from any and all claims arising out of damage to same, including subrogation claims by Lessee's insurance carriers unless due to the negligence or willful misconduct of Lessee, its employees, agents, or contractors. 3 6 Article 8. Repairs bY Lessee. Lessee shall make all repairs and carry out all maintenance, other than that set forth in Article 7 above, upon the Premises during the term of this Lease, at Lessee's expense, but subject only to Lessor's prior written approval. This obligation shall include maintenance, repair and/or replacement of all glass windows, entrance doors, service doors and other glass paneling or inserts in the walls of said building; maintenance, which approval shall not be unreasonably withheld. Lessee is responsible for repair and replacement of heating and cooling systems, plumbing, wiring and their components. Lessor agrees to transfer to Lessee on the date of the commencement of this Lease any manufacturer's warranties which Lessor may have relating to Premises. Article 9. Lessee Improvements, Advertising, Decor and Signs. Lessee may make such alterations and improvements to the interior of the Premises, as may be proper and necessary for the conduct of Lessee's business and for the full beneficial use of the Premises; provided, however, Lessee shall obtain Lessor's prior written consent and approval, and provided Lessee shall pay all costs and expenses thereof and make such alterations, changes and Improvements in a good and workmanlike manner. Without limiting the foregoing, Lessor's right of approval shall specifically include the right to approve Lessee's decor, window dressing(s) and signs, either permanent or temporary, for which Lessee hereby completely and fully indemnifies Lessor against any mechanic's lien or other lien or claims in connection with the making of any alterations, changes and improvements. Lessor does not consent to any such lien. Lessee shall indemnify and hold Lessor harmless for all loss or damages growing out, or as a result, of any Lessee improvements, including installation of fixtures and the vault. Except as otherwise provided, all signs, furnishings, trade fixtures and other removable equipment installed in the Premises by Lessee and paid for by Lessee, shall remain the property of Lessee and shall be removed by Lessee upon termination of this Lease, provided that (a) any of such as are affixed to the Premises and require severance may be removed only if Lessee shall repair any damage caused by such removal, and (b) Lessee shall have fully performed all of the covenants and agreements required to be performed by Lessee under the provisions of this Lease in all material respects. Lessor's cost of removal, and/or storage plus 10 percent, shall be immediately payable by Lessee. Article 1O. Compliance with Laws and Regulations. Lessee shall comply with all existing and future laws and regulations affecting the Lessee's use of the Premises which have been or which may be adopted, passed or issued by any government or governmental authority, such compliance to be at Lessee's expense. However, Lessee shall have the right, at its expense to contest the validity or applicability of any such order or regulation. Lessee shall provide Lessor with a cash or other bond reasonably satisfactory to Lessor during the period of such contest, and for a reasonable period thereafter. Further, if such changed or new laws, rules and regulations materially impair the ability of the Lessee to use the space without, in Lessee's good faith judgment, undue expense or cost, then the Lessee may terminate this Lease on six months' prior written notice and upon the payment of rent, C.A.M. and other applicable charges for six months accompanied by the prompt evacuation of the space by Lessee. Article 11. Taxes. Lessee shall pay any taxes or charges assessed against the Leased Premises and its contents and/or Lessee's proportionate share ("Lessee's Share") of all taxes, assessments or levies of every kind or character, general or special, whicl1 may be assessed or imposed upon the Shopping Center by any taxing authority or governmental authority with power to tax. Lessee's share shall be the percentage created by the leased square footage of the Premises as shown on page one hereof to the total leasable square footage of the Shopping Center. Said amount is included in the Common Area Charge and is payable in accordance with the provisions of, and subject to adjustment as provided in, Article 2 hereof. All income taxes payable primarily by Lessor, direct and indirect, are excluded from this provision and shall be the sole obligation of the Lessor or other responsible taxpayer. Article 12. Insurance. Lessor shall keep the replacement cost of buildings and other improvements located upon Lessor's portion of the Shopping Center insured against loss or damage by fire and extended coverage. Lessee shall pay Lessee's share of any and all premiums or other charges made for such insurance. Lessee's share shall be the percentage created by the leased square footage of the Premises as shown on page one hereof to the total leasable square footage of the Shopping Center. Said amount is included in the Common Area Charge and is payable in accordance with the provisions of, and subject to adjustment as provided in, Article 2 hereof. Lessee shall not keep anything within the Premises for any purpose which increases the insurance premium cost or invalidates any insuring Center or the Premises. Lessee shall pay, in addition to its other obligations hereunder, upon demand of Lessor, any such increased premium cost due to Lessee's use or occupation of the Premises. Lessor agrees that 4 7 Lessee's stated use of the Premises as set forth on page 1 hereof will not, in and of itself, be the basis for any such increased premium costs. Lessee agrees to maintain insurance upon all of Lessee's improvements including fixtures and furnishings as well as Lessee's inventory and merchandise in an amount to be determined by Lessee. Article 13. Description of Lessee's Public LiabilitY Insurance. Lessee shall indemnify Lessor and save it harmless from and against any and all claims, actions, damages, liability and expense (including court cost and attorneys fees) in connection with loss of life, personal injury and/or damage to property arising from or out of any occurrence inside the demised Premises, or the occupancy or use by Lessee of the demised or any part thereof, or occasioned wholly or in part by any act or omission of Lessee, its agents, contractors, employees, servants, Lessees or concessionaires. In the case Lessor shall be made a party to any litigation commenced by or against Lessee, then Lessee shall protect and hold Lessor harmless and shall pay all costs, expenses and reasonable attorneys' fees incurred or paid by Lessor in connection with such litigation. Lessee shall also pay all costs, expenses and reasonable attorneys' fees that may be incurred or paid by Lessor in enforcing the covenants and agreements in this Lease against Lessee if Lessor is the party in any such action. For these purposes, Lessee shall, at its expense, procure liability insurance issued by a company or companies reasonably acceptable to Lessor, giving comprehensive coverage of the Premises for all hazards as are normally insurable for which the Lessor might be held liable, such insurance to have a limit of ONE MILLION ($1,000,000.00) DOLLARS for each occurrence for public liability and at least TWENTY-FIVE THOUSAND ($25,000.00) DOLLARS for property damage for each occurrence. The policy or policies shall be written so as to indemnify and protect both the Lessor and the Lessee, as their respective interests may appear, and shall provide that they may not be canceled except upon not less than ten (10) days' prior written notice to Lessor and Lessee. Lessee will furnish Lessor, at all times, with an exact copy of all policies purchased in compliance with this Article. The amounts of insurance specified herein shall be adjusted upward, if required at the date hereof by the terms of the existing deed of trust in favor of the existing mortgagee of record in the Register's Office of Davidson County, Tennessee ("RODC"), at Book 9990, page 29 (the "Deed of Trust"). Article 14. Waiver of Subrogation. Lessor and Lessee agree, provided such agreement does not invalidate or prejudice any policy of insurance, or materially increase the cost thereof, that, in the event the Premises or the fixtures or merchandise therein are damaged or destroyed by fire or other casualty that is covered by insurance of Lessor or Lessee, the rights, if any, of any party against the other, or against the employees, agents or licensees of any party, with respect to any loss resulting therefrom, including public liability and property liability damage and/or the interruption of the business of any of the parties, are hereby waived of the extent of the coverage of such insurance. Lessor and Lessee agree, further, that all policies of fire, extended coverage, business interruption and other insurance covering the Premises or the contents, fixtures and improvements therein, shall, if obtainable, contain a clause or endorsement providing in substance that the insurance shall not be prejudiced if the assureds have waived right of recovery from any person or persons prior to the date and time of loss or damage, if any. Article 15. Damage or Destruction to the Premises. In the event that the Premises are totally destroyed or so damaged by fire or other casualty that the same cannot be repaired or restored, in the opinion of Lessor, within three (3) months from the date of such occurrence, this Lease shall absolutely cease and terminate, and all rent and other charges shall abate as of the date of such damage or destruction for the balance of the term. If the damage caused as above be only partial and/or such that the Premises can be restored, in Lessor's opinion, to its then condition within three (3) months, then the Lessor shall restore the Premises with reasonable promptness, having the right to enter upon the premises for that purpose whenever necessary, even though the effect of such entry may be to render the Premises untenantable. During the period after any destruction or damage, rent shall be apportioned, if Lessee, in its option is able to operate its business, or suspended during the time which Lessee in its option is unable to operate its business at all at this Premises. Notwithstanding anything contained in this Article, Lessor shall not be required to restore the Premises if the cost of such restoration exceeds the extent of insurance proceeds available, and in this event, Lessor may at its option, terminate this Lease, upon thirty (30) days' notice to Lessee. Pursuant to this Article, Lessor shall have (30) days after any destruction or damage in which to notify Lessee of its intent. Article 16. Assignment and Subletting. Lessee shall have no right to assign this Lease nor to sublet the Premises, without the prior consent in writing of Lessor, nor shall this Lease nor the Leasehold interest described herein ever be assignable or transferable by operation of any applicable state or federal law, or by reason of assignment or subletting of all or part of the Leased Premises shall automatically result in a termination of the Lessee's interest in this Lease as of the day immediately preceding such assignment or subletting, at the option of Lessor. However, the Lessee is hereby authorized to sublet or 5 8 license space to a "Bean Central" or "Joe's Coffee" venture led by Joe Dougherty and to one or more financial services providers such as securities brokers and others deemed closely related to banking by banking regulators. A corporate merger or reorganization shall not constitute an assignment or subletting. In the event of the transfer and assignment by Lessor of its interest in this Lease and in the building containing the Premises to a person expressly assuming Lessor's obligations under this Lease, and provided that such a conveyance does not operate as a fraudulent conveyance as to the Lessee (and Lessee being granted standing to contest the same as a fraudulent conveyance in accordance with law), Lessor shall thereby be released from any further obligations hereunder, and Lessee agrees to look solely to such successor in interest of the Lessor for performance of such obligations. Article 17. Eminent Domain. In the event of the taking of at least twenty (20%) percent of the total land area of the Shopping Center or any portion of the Premises by eminent domain or as the result of any law, order, regulation or ordinance or any government or governmental agency, neither party shall be liable to the other in any respect on account thereof, and such taking shall not constitute an eviction. In the event of any such taking, with rent abatement as of this date of such taking, Lessor may terminate this Lease, at its option, by notice in writing duly given within thirty (30) days following the effective date of the taking. If Lessor elects to so terminate this Lease, Lessor shall be entitled to receive and retain the entire proceeds paid in the taking, including any amounts paid for the land and Premises taken, as well as any amounts paid on account of the diminution in value of the leasehold estate. Lessee shall be entitled to receive and retain only such amounts as may be paid on account of its moving expenses of its movable fixtures to a location within fifteen (15) miles of the Shopping Center. If, on the other hand, Lessor does not elect to terminate this Lease on account of such taking, then Lessor shall apply so much of the condemnation award as may be necessary in order to restore the Shopping Center to a condition comparable to its condition immediately prior to taking and the Premises to a condition as originally delivered to Lessee. Further, in the event Lessor does not elect to terminate this Lease, the rent and all other charges shall be reduced in proportion to the reduction in the square footage of the Premises and all common areas. If by reason of any taking, Lessee in its opinion is unable to reasonably conduct its business, this Lease shall terminate. Article 18. Lessor Services. Lessor agrees to provide, as Lessor deems necessary, (a) reasonable sweeping and janitor service for the common areas, (b) trash and garbage service (c) proper lighting for the parking and mall area of the Shopping Center, (d) maintenance of the landscaping, and (e) the keeping of sidewalks and parking area reasonably clear of ice and snow. All charges for the foregoing services (including a reasonable supervisory and/or management fee to Lessor or to a management company) will be prorated between the various tenants, including Lessee, of the Shopping Center and paid in accordance with and subject to adjustment as provided in Article 2 hereof. If Lessor should determine, in its reasonable discretion that Lessee, or any of Lessee's contractors, agents, employees or invitees, is responsible for more than Lessee's share of the said cost, then Lessor may charge Lessee an reasonable extra charge for the additional cost allocable to Lessee's responsibility. Article 19. Sidewalks, Parking Area and Common Areas. Lessee shall neither encumber nor obstruct the sidewalks, parking area or other common areas adjoining the Premises, nor allow the same to be obstructed or encumbered in any manner by its employees, agents or contractors, Lessee shall not place, or cause to be placed, any merchandise, vending machine or anything on the sidewalk, parking area or ether common areas. The parking area shall be reserved for the exclusive use of the customers of Lessee and the customers of other tenants of the Shopping Center. Lessee shall direct its employees to park in the parking garage during the hours prior to sunset. At all other times when the Shopping Center is open, Lessee's employees shall park in the middle of the parking areas shown on Exhibit A in hours after sunset. Anything herein to the contrary notwithstanding, Lessee shall be permitted to park up to two (2) delivery vehicles on a temporary, short-term basis in front of the Premises during business hours. After business hours, such delivery vehicles may be parked in front of the Premises. "Temporary" shall mean temporary parking of up to no more than thirty (30) minutes per delivery or loading. The Lessor at his sole cost and expense shall grade and pave the parking area, together with the sidewalks, driveways and service area, and shall provide and maintain proper and adequate water drainage and provide and maintain an adequate and suitable lighting system for said parking lot. 6 9 Parking, Etc. The parking area shall not be disturbed without Lessee's consent. Lessor agrees not to use or permit the use of the common area for any purpose other than parking and passage of vehicles and the movement of pedestrian traffic, lighting, landscaping, directional and traffic control signals. The Lessor will not construct, locate or allow construction or location of any fence, barricade, structure, buildings or other construction which would interfere with the visibility and/or with the intended uses thereof. The Lessee agrees to pay, within thirty (30) days of receipt of notice from the Lessor, Lessee's share (as defined above) of costs incurred by the Lessor in maintenance, and repair and replacement of the parking and other common areas of the Shopping Center. Said fees shall encompass, without limitation, all costs of maintaining lighting, cleaning, snow removal, landscaping, the repair of sidewalks, pavement and curbs, and providing adequate drainage, as may be necessary to maintain the Premises in adequate condition and good repair. Patching and repaving the parking lot, repairing the curbing, and restriping the parking lot in the ordinary course of maintaining the Shopping Center shall be considered a part of the C.A.M. Lessee is not and shall not become responsible for Lessor's remodeling, construction, reconstruction or other comparable building in the Shopping Center unless Lessee requests or approves the same in writing. Article 20. Estoppel Certificate. Lessee, upon Lessor's reasonable request, shall certify in writing that Lessor is not in default under the terms of this Lease, and that the same is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as so modified) or if there has been a default by Lessor, specifying the default. The exact date of commencement, current rent, current term and other lease particulars shall also be certified by Lessee. Article 21. Default. Upon the happening of any one or more of the events of default set out below in paragraphs (a) through (c) inclusive, Lessor shall have the right, at Lessor's option, to terminate this Lease, provided that Lessor shall give to the Lessee fifteen (15) days' written notice in the case of default as set out in paragraph (d) below (no notice being required in case of default as set out in paragraphs (a), (b), (c) below), such notice to be sent, in either event, by certified mail, return receipt requested, to the Lessee (it being stipulated that the failure of Lessor to give notice after default shall not constitute a waiver of Lessor's right upon any subsequent default); and at any time after the expiration of such notice period, or immediately upon the occurrence of a default as set out in paragraphs (a), (b), and (c) below, to reenter and relet the Premises or parts or parcels thereof, and such reentry and/or reletting shall not discharge Lessee from any liability or obligation hereunder, except that net rents collected from others as a result of such reletting shall be a credit on the Lessee's liability for rents payable under the terms of this Lease as provided hereinabove and Lessor shall be required to mitigate its damages. (a) If Lessee should fail to pay any installment within fifteen (15) days of the due date thereof; (b) If Lessee or any guarantor is adjudged a bankrupt or a Receiver or Trustee be appointed for the Lessee's or any guarantor's property, or any other execution or legal process is levied upon all or substantially all of the property and effects of the Lessee or any other guarantor located upon the Premises, which adjudication, appointment or execution be not set aside or discharged of record, as the case may be, within forty-five (45) days; subject only to the rights of the Federal Deposit Insurance Corporation (its successors and assigns) to affirm and to reject leases in accordance with federal law); (c) In the event the Lessee or any guarantor makes a general assignment for the benefit of its creditors or files a petition for a reorganization, or an arrangement, under the appropriate provisions of the National Bankruptcy Act, or any other act substantially similar thereto; (d) In the event the Lessor delivers possession of the premises to the Lessee to open for business and/or fixturing, and if Lessee fails to open for business on a regular basis within sixty (60) days from the date Lessor delivers the unencumbered possession of the Premises to Lessee; or (e) If Lessee would assign or sublet its interest herein without Lessor's written consent, as prohibited in Article 16, hereof; or if Lessee should cease doing business (as specifically authorized hereunder) upon the Premises for a period in excess of thirty (30) continuous days; or (f) In the event Lessee violates any of the terms, covenants and conditions of this Lease other than those mentioned in (a) through (c) above, in any material respect and such default is not cured by the Lessee within fifteen (15) days after the giving of written notice thereof to the Lessee by certified mail, return receipt requested, at the Leased Premises, or if the Lessee fails to proceed promptly, after such notice, to procure the curing of such default with all due diligence (it being agreed that, in connection with 7 10 a default not reasonably susceptible of being cured within fifteen (15) days, the time of the Lessee within which to cure the same shall be extended for such additional period as may be reasonably necessary to complete the same); then, in any of such cases, the Lessor may give to the Lessee notice of election to end the term hereof, which notice shall likewise be given by certified mail, return receipt requested, at the Leased Premises, and the term of this Lease shall expire upon the mailing of such notice. Nothing herein, however, shall be construed to require the Lessor to reenter and relet in any such event or events, nor shall anything herein be construed to postpone the right of Lessor to sue for rent, whether past due or whether matured by acceleration or otherwise; provided, however, that the Lessee shall have the right, within the period of any notice above provided, to cure any default or defaults, and if such default is cured by Lessee within such period, dating from the mailing of said certified letter, the Lessor shall not have the right to proceed with forfeiture or reentry. Failure to give any of the notices above provided shall not constitute a waiver of any right as to any different or subsequent breach. Time is of the essence of Lessee's obligations hereunder. All of the above Events of Default are bargained for and go to the consideration given for the granting of this Lease by the Lessor. While some or all of such material Events of Default may result in a forfeiture or a so-called unconscionable loss to the Lessee as a result of any such default, the parties expressly agree that such material Events of Default may result in a forfeiture and/or unconscionable loss to the Lessee thereunder. If Lessee should not pay its rent or any additional rents or other charges due the Lessor hereunder, when the same are due, and if such non-payment should continue for ten (10) days thereafter, then Lessee shall pay Lessor, as additional rent, a sum equal to 5% of the unpaid rent (or additional rents or the charges), computed from the due date thereof, regardless of whether Lessee is entitled to written notice of any defaults hereunder. Further, if this Lease grants Lessee any option to extend the term hereof, such option may be extended only and is expressly conditioned upon Lessee not being in payment or other material default hereunder and/or Lessee not paying any rent, additional rent or other charges later than within the time allowed for payment thereof. Article 22. Further Rights of Lessor Upon Default. If this Lease shall be for any reason terminated for a violation of its terms by Lessee, as above provided, then the Lessor shall have the right forthwith to reenter the Premises, by legal process or otherwise (without any liability for trespass or damage to the Premises), and to remove all their effects not previously removed by them, to alter all locks and other security devices at the Premises, and to hold said Premises as if this Lease had not been made, in addition to the other rights secured by this Lease to Lessor, or secured to Lessor by the law applicable hereto. Lessee hereby expressly waives any service of notice to proceed hereunder, except as expressly provided in Article 21, and waives notice of the proposed institution of legal proceedings to secure the rights of Lessor hereunder. In the event of termination of this Lease by reason of violation of its terms by the Lessee, in addition to any other remedies Lessor may have, Lessor shall be entitled to prove, claim for and obtain judgment against Lessee for the balance of the rent agreed to be paid for the term herein provided, plus all expenses of Lessor in regaining possession of the Premises (including removal of all improvements and trade fixtures and, under appropriate supervision for removal thereof, inventory) and the reletting, remodeling, and improving for a new lessee, including reasonable attorneys' fees and court costs, crediting against such claim, however, any amount obtained by reason of any such reletting, remodeling, and improving for a new lessee. Anything contained in this Lease to the contrary notwithstanding, Lessor may, at its option, exhaust any one or more of the rights and remedies granted hereunder in addition to all rights and remedies that Lessor may have at law or equity, either concurrently or independently, and in such order as it may determine, and no act of Lessor shall be construed as an election to proceed under any one provision contained herein to the exclusion of any others or as an election of remedies to the bar of any other remedy allowed at law or in equity. Lessee's banking and financial services records that are covered by the Tennessee Bank Privacy Act may be removed by the Lessee at any time, however, even after default, termination, or other such condition. No term of this Lease is intended or designed as an authorization to violate any of the Lessee's software licenses. Further, Lessee may remove at any time any collateral pledged by customer of the Bank, the contents of any safe deposit boxes, and any property beneficially held for one or more of the Bank's customers. Article 23. Exculpation of Lessor from Personal Liability Under Lease. Lessee shall look solely to the then interest of Lessor in the premises, or of any successor in interest to Lessor, as owner of said premises, for the satisfaction of any remedy of Lessee for failure to perform any of Lessor's obligations under this Lease, express or implied, or under any law or for any condition of the Premises or the Shopping Center. Neither Lessor nor any disclosed or undisclosed principal of Lessor (or officer, director, stockholder, partner or agent of Lessor or of any such principal), 8 11 nor any successor of any of them, shall have any personal liability for any such failure under this Lease or otherwise. The provisions of this article shall not apply to any sum which shall be paid or payable to or on behalf of Lessor or any party claiming through Lessor if such payment shall be based on an event (which had previously occurred) whicl1 shall give rise to a duty on Lessor's part to repair, restore or replace any part of the demised premises, including any structures thereon. The provisions of this article shall apply only to Lessor and the parties above-described. They shall not be for the benefit of any insurance company nor any third party. Article 24. Surrender of Possession. Lessee agrees to surrender peaceable and quiet possession of the Premises to the Lessor upon the expiration or termination of this Lease for any reason, and at any time, in good order and condition, ordinary wear and tear excepted. If Lessee holds over, Lessee shall be a Lessee at will of Lessor, and such holdover shall not create a new term. Article 25. Covenant of Peaceful Possession. Lessor agrees, under the terms of this Lease, to keep Lessee in quiet and peaceable, uninterrupted possession of the Premises, subject and subordinate to Lessee's material compliance with all of the terms, covenants and conditions of this Lease. Article 26. No Liens. In its use of the Premises and in the performance of its duties to maintain and finish the same, if applicable, Lessee will not, under any circumstances, suffer or permit any lien to attach to the Premises, or any portion thereof. Anything herein to the contrary notwithstanding, Lessor does not consent to any work or materials for improvements to be performed on the Premises without Lessor's prior written consent and approval. If a lien attributable to the Lessee is filed, the Lessee shall have five days to post a bond to remove the same. Article 27. Notices. Unless otherwise provided elsewhere in this Lease, any notice required or permitted to be made by either party under the terms of this Lease shall be given in writing and shall be forwarded by certified mail, first-class postage prepaid or by FedEx (shipping charges prepaid). Notices to the Lessor shall, unless the Lessor otherwise advises the Lessee in writing strictly under the Notice provision hereof, be addressed to Lessor at the address shown on the signature page. Initially, the Lessee requests that notices be sent to the Lessee at 401 Church Street, Nashville, Tennessee 37219, attention: President. Notices to the Lessee shall, unless the Lessee otherwise advises the Lessor in writing strictly under the Notice provision hereof, be addressed to Lessee at the Leased Premises. In the event this Lease contains an option to extend, it must be exercised in writing at least 120 days prior to the termination of the then-existing term. Notices shall be deemed to have been given when said certified mail is deposited in any United States Post Office which accepts certified mail first-class postage prepaid. Article 28. Subordination and Attornment. This Article is subject to paragraph 15 of the Deed of Trust. At such time as Lessor and any first mortgagee or proposed first mortgagee of the Premises in writing request the same, the Lessee agrees to subject and subordinate its interest herein to the lien of any deed of trust (which term shall include all security instruments) of the demised Premises made by the Lessor, or the Shopping Center made by Lessor, subject to the following: so long as Lessee shall faithfully discharge the obligations on its part to be kept, this Lease shall not be affected by any default under such deed of trust, and in the event of foreclosure or enforcement by any such deed of trust, the rights to mortgagee, Lessee shall attorn to such mortgagee, its successors and assigns, and this Lease shall in all respects continue in full force and effect, provided, however, that Lessee fully performs all of its obligations hereunder, and provided further that Lessee shall not have prepaid any rent, except as the same become due under the terms of this Lease. Lessor will use its best efforts to cause its first mortgagee and any other mortgagee whose interest is superior to that of this Lease to enter into appropriate subordination and attornment agreements with the Lessee to protect this Lease in the event of a default by the Lessor under such mortgagee(s). Except as otherwise provided herein, Lessee agrees that except in an emergency it will not exercise any right herein arising out of Lessor's breach of any agreement herein contained or institute any judicial or other proceedings as a consequence thereof, except after giving notice to any first mortgagee of the demised Premises the name and address of which has been furnished in writing to Lessee and affording such mortgagee reasonable opportunity to cure such breach. Lessee agrees that Lessee will not terminate the Lease, or make any expenditures hereunder as a result of Lessor's failure to perform obligations imposed upon him by the Lease until Lessee has given Lessor's mortgagee, or the assigns or successors in interest of such mortgagee: (1) notice of Lessor's failure to perform; and (2) a reasonable 9 12 time, without allowance for events beyond mortgagee's control, to undertake performance of such obligations by mortgagee. Provided that, however, all such obligations that can be performed within sixty (60) days, shall be performed within sixty (60) days after notice is given to said mortgagee or mortgagee's assigns or successors in interest, and after such sixty (60) day period if such obligations have not been performed, then Lessee may avail itself of remedies provided for elsewhere in this Lease. Article 29. Memorandum of Lease. A Memorandum of Lease describing the Premises, giving the term of this Lease and referring to this Lease, may be prepared and recorded upon request of either party. Article 30. Applicable Law. The laws of the State of Tennessee shall govern the validity, performance and enforcement of this Lease and any provision of this Lease which is contrary to a law which the parties cannot legally waive or contract against, is and shall be void and not binding on any party hereby; provided, however, that the invalidity or unenforceability of any provision of this Lease shall not affect or impair any other provisions. Article 31. Captions. The headings of the Articles contained herein are for the convenience only of the parties and do not define, limit or construe the contents of such Articles. Article 32. Construction of Terms. The words "Lessor" and "Lessee" as used herein shall include the Lessor and the Lessee and their respective heirs, executors, administrators, legal representatives, and successors, together with any permitted assigns of the parties hereto, and all those holding under either of them. The pronouns used herein shall include, when appropriate, either gender and both singular and plural. Unless the context clearly denotes to the contrary, the word "rent" or "rental" as used in this Lease not only includes cash rental, but also all other payments and obligations to pay assumed by Lessee, whether such obligations to pay run to the Lessor or other parties. Article 33. Cross Easement. Lessee agrees that it will abide by and not violate any existing Cross Easement Agreements and Maintenance Agreements reflected on Exhibit "B" (including that recorded at Book 9990, page 5, RODC (the "Recorded Cross Easement"), as to which Lessee is hereby granted the right to enforce the Lessor's rights in the same if the Lessor declines to enforce the same within a reasonable time after written notice) and agrees to abide by and not violate the same. Lessor agrees that all such amendments shall be reasonable and not adversely and materially affect the rights of the Lessee hereunder. In accordance with paragraph 8 of the Recorded Cross Easement, the Lessor (as owner of the Shopping Center) grants to the Lessee (as a tenant) and its subtenants the privileges and benefits of the easements, rights and privileges of the Recorded Cross Easement for the duration of the Lessee's tenancy (including renewals covered by this Lease). The Lessor will not consent to any cross easements or other encumbrances, or to any changes in existing cross-easements, that do, or are likely, to adversely and materially affect the Lessee. Article 34. Miscellaneous. (1) Any amendment to this Lease must be in writing and signed by Lessor and Lessee. (2) Time is of the essence of this Agreement. (3) No act or thing done by Lessor or his agent during the term hereby granted shall be deemed an acceptance of a surrender of the demised Premises, and no agreement to accept a surrender of said demised Premises shall be valid unless the same be made in writing and subscribed by Lessor. The provisions in this Lease of any particular remedy shall not preclude Lessor from any other remedy Lessor might have, either in law or in equity, nor shall the waiver of or redress for any violation of any covenant or condition in this Lease contained prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of any original violation. In case it should be necessary or proper for Lessor to bring any action under this Lease or to place said Lease, for any amount payable by Lessee thereunder, with an attorney concerning or for the enforcement of any of Lessor's rights hereunder, then Lessee agrees in each and any such case to pay to Lessor a reasonable attorney's fee. All past due rent shall bear interest at the rate of ten percent (10%) per annum from the eleventh day after the due date until paid. The receipt by Lessor of rent with knowledge of the default of any covenant in this Lease contained, shall not be deemed a waiver of such default as to future defaults. The failure of the Lessor to enforce any of the rules and regulations set forth herein, against the Lessee and/or any other Lessee in the building shall not be deemed a waiver of such rules and regulations as to future breaches. The receipt by Lessor of rent from any assignee, underlessee or occupant of said Premises shall not be 10 13 deemed a waiver of the covenants in this Lease contained, against assignment, and sub-letting or an acceptance of the assignee, sub-lessee or occupant as Lessee or a release of Lessee from the further observance or performance by Lessee of the covenants in this Lease contained, on the part of the Lessee to be observed and performed. No provision of this Lease shall be deemed to have been waived by Lessor or Lessee unless such waiver is in writing signed by the parties hereto. (4) Inspection of and Access to Premises. Lessee agrees to permit the Lessor, his agents and employees, at all reasonable times to enter the demised Premises or any part thereof for the purpose of inspection, repairs, maintenance or repairs to Lessor's adjoining property, and, during the last four (4) months of this Lease or any renewals thereof, to allow Lessor to post upon the exterior of the Premises the usual notices advertising the Premises "for Lease." However, Lessor acknowledges that there may be reasonable limitations placed upon any inspection or repair due to security concerns related to the fact that the Lessee is a commercial bank which, among other items, has a stock of cash and other instruments that must be safeguarded at all times. Lessor may post upon the exterior of the Premises and/or in the common areas usual notices advertising the Premises "For Sale" at any time so long as such signs do not adversely affect the Premises or the Lessee's business. Such signs shall not be overly obtrusive or impact the Lessee in any materially adverse fashion. Lessee further agrees to permit Lessor to install and maintain in the demised Premises all pipes for water, drainage, gas heating, fixtures and electric wiring and all other appliances and mechanical equipment and systems necessary for the operation of the demised Premises, and Lessor shall have access to the Premises at any time in case of any emergency for the purpose of examining same and for making such repairs or changes in the equipment and systems referred to above as Lessor may deem necessary. However, Lessor acknowledges that there may be reasonable limitations placed upon any inspection or repair due to security concerns related to the fact that the Lessee is a commercial bank that, among other items, has a stock of cash and other instruments that must be safeguarded at all times. Severability. Invalidation of any one of the covenants or restrictions by judgment or court order shall in no way affect any other provisions whicl1 shall remain in full force and effect. If any provision of the Lease, or any section, sentence, clause, phrase, work, or the application thereof in any circumstance, is held invalid, the validity of the remainder of this Lease and of the application of any other circumstances shall not be affected thereby and the remainder of this Lease shall be construed as if such invalid part was never included therein. Past-Due Rent, Etc. The past due rent in the amount of $20,657.69 of the Cook's Nook, Inc. must be paid at the execution hereof and acceptance of such rent shall constitute the Lessor's agreement (and consideration for such agreement) to terminate such lease. However, such existing tenant must consent to this Lease by agreeing in a written instrument that it consents hereto and to the termination of the current lease. In addition, such existing tenant will be authorized to erect at his expense on the exterior wall of his area of the Shopping Center (facing the main parking lot adjacent to Hillsboro Road) a reasonable sign with the name of such business. Lessee must receive regulatory approval before this Lease is binding on the Lessee. Lessee agrees to use its reasonable best efforts to obtain this consent and represents that it has filed its branch application and given public notice in order to obtain such approval. The Lessor may terminate this Lease if such approval is not obtained by the Lessee prior to September 30, 1996. It is a condition to the Lessee's obligations hereunder that the Premises are properly zoned for Lessee's intended use as a full-service commercial banking branch office. 11 14 Exclusion of Certain CAM Charges - Tenant's proportionate share of CAM charges shall not include: - - Separate outparcels; - - Office buildings; - - Undeveloped land or future phases; and/or - - Additional parking or land arising out of destruction of The Glendale Shopping Center buildings or condemnation of same. Future Expansion. The Lessee shall have the right of first refusal to expand or to move into additional contiguous space within the Shopping Center as space becomes available, whicl1 right of first refusal shall be a continuing one. Exclusive. Lessor agrees not to lease any space in The Glendale Shopping Center to any other tenant which is engaged in the sale or provision of financial services, or permit any of their electronic banking or other remote facilities (including, without limitation, ATMs other than those of The Bank of Nashville). As used in this paragraph, "financial services" means, whether done directly or indirectly, any lending or loan origination business, any trust business, any check cashing or pawn broking business, and/or any business engaged as a primary part of its business in making loans and/or taking deposits including, without limitation, any bank, savings bank, savings association, thrift, and/or credit union. In addition to the foregoing, the Lessor agrees not to lease any space in the Shopping Center to any insurance agency or insurance brokerage business or to any business that provides investment services or investment advice without the prior written consent of the Lessee, which consent the Lessee shall not withhold unreasonably. The Lessee will he given the name of reasonable repair and maintenance services to contact for repairs and maintenance, particularly for use after hours and in emergencies. In the event that an item for which the Lessor is responsible must be repaired repeatedly in such a fashion that it must reasonably be concluded that it should be replaced or subjected to a major overhaul, then the Lessor will upon written request by Lessee replace the same or perform such major overhaul. Lessee Signage. The Lessor agrees to allow a reasonable "The Bank of Nashville Coming Soon" sign on this site. Lessee acknowledges that it must obtain appropriate local governmental approvals for all signage as a condition to placing such signage into use. Any permissions herein which relate to signage or the like are subject to conditions in the cross easement of Pier One and municipal approvals, and any limitations included expressly in the Recorded Cross Easement. Article 35. Force Majeure. Lessor shall not be held responsible for and is expressly relieved from all liability by reason of any injury, loss or damage to any person or property in or about the demised Premises or the Shopping Center, however caused, whether the loss, injury or damage be to the personal property of the Lessee or any other person, except damage caused by the failure of the Lessor to perform hereunder within a reasonable time after written notice of default received from Lessee. This provision shall apply especially (but not exclusively) to damage caused by water, snow, frost, steam, sewage, illuminating glass, sewer gas, or odors, or by the bursting or leaking of pipes of plumbing or neglect or willful misconduct of other Lessees, occupants or janitors of Lessor, or of any other person, or by act of God, casualty, or earthquake, or earth settlement and/or subsidence, or foundation collapse, or whether such damage be caused or occasioned by anything above-mentioned or referred to, or by any other thing or circumstances, whether of a like nature, or of a wholly different nature. If any such damage shall be caused by the acts of neglect or willful misconduct of the Lessee, Lessor may, at his option, repair such damage, whether caused to the surrounding structures or the Lessee thereof, of such damage both to the building and to the Lessees thereof, of such damage both to the building and to the tenants thereof, the Lessee further agrees that all personal property upon the demised premises shall be a the risk of the Lessee only and that the Lessor shall not be liable for any damage thereto or theft thereof. Nor shall the Lessor be liable for delays in delivery of or interruptions of possession, or for the stoppage or interruption of water, light, heat, air conditioning, janitor service, caused by riot, strike, accident, the making of repairs, the failure to make repairs, or any cause over which the Lessor has no control. Any failure, delay or default shall not be construed or considered as an actual or constructive eviction or the Lessee nor shall it in any way operate to release the Lessee from the performance of each and all of the other covenants herein contained by the Lessee to be performed. Notwithstanding anything else to the contrary, Lessor shall be liable for the negligence or willful misconduct of Lessor and its employees, agents and contractors. 12 15 However, interruption of any material service that the Lessor agrees herein to provide in any material respect for a period of thirty (30) consecutive days after written notice from the Lessee, and where Lessor has not commenced corrective action, shall entitle the Lessee either to obtain (at Lessor's expense) such service elsewhere or (2) to terminate this Lease upon ten (10) days notice. Article 36. Options to Renew. Upon giving 120 days notice to Lessor as to each option period, the Lessee retains three (3) options to renew for three (3) additional periods of sixty (60) months with all terms and conditions of this lease remaining the same with the exception of rent. The new base rent for the first option period will be $10,830.50 per month plus CAM pass-throughs as outlined in this lease. The second option period base rent will be $11,913.55 per month plus CAM pass-througl1s as outlined in this lease. The base rent for the third option period will be a market rate for the Premises as reasonably determined by the parties through negotiation plus CAM pass-throughs as outlined in this lease. A 120 day notice will be required for the each of the second and third renewal periods. SIGNATURES IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS LEASE AGREEMENT ON AUGUST 15, 1996, TO BE EFFECTIVE AUGUST 1, 1996. LESSOR: COLEMAN PARTNERS By: /s/ Stephen H. Horrell ----------------------------------------- Stephen H. Horrell, for the Joint Venture By: ----------------------------------------- LESSEE: THE BANK OF NASHVILLE By: /s/Mack S. Linebaugh, Jr. ----------------------------------------- Mack S. Linebaugh, Jr., President and CEO NOTARIES STATE OF TENNESSEE ) COUNTY OF DAVIDSON ) Before me, the undersigned, a Notary Public in and for said County and State, personally appeared STEPHEN H. HORRELL, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence) and who, upon oath, acknowledged himself to be a JOINT VENTURER IN THE JOINT VENTURE KNOWN AS COLEMAN PARTNERS, the within named bargainor, a Tennessee joint venture, and that he as such Joint Venturer, being authorized 13 16 to do so, executed the foregoing instrument for the purpose therein contained, by signing the name of the Joint Venture by himself as such Joint Venturer. Witness my hand and seal, at office in Nashville, Tennessee, this 14th day of August, 1996. /s/Carolyn P. Curry ------------------------------ Notary Public My Commission Expires: June 23, 1998. STATE OF TENNESSEE ) COUNTY OF DAVIDSON ) Before me, Mary J. Karnes of the state and county aforesaid, personally appeared MACK S. LINEBAUGH, JR., with who I am personally acquainted, or proved to me on the basis of satisfactory evidence and who, upon oath, acknowledged himself to be President (or other officer authorized to execute the instrument) of THE BANK OF NASHVILLE, the within name bargainor, a Tennessee Banking Corporation and that he as such PRESIDENT executed the foregoing instrument for the purpose therein contained, by signing the name of the corporation by himself as PRESIDENT. Witness my hand and seal, at office in Nashville, Tennessee, this 15th day of August, 1996. /s/ Mary J. Karnes ------------------------------ Notary Public My Commision Expires: My Commission Expires May 24, 1997 ---------------------------------- 14 17 CASHIERS CHECK 20265 REMITTER The Bank of Nashville Aug. 15, 1996 87-388/640 ___________________________ _____________ PAY TO THE Coleman Partners** $ 11,188.32** ORDER OF________________________________________________________________________ -THE BANK- OF NASHVILLE 11,188dol's 32 cts ________________________________________________________________________DOLLARS [THE BANK OF NASHVILLE LOGO] 401 Church Street Nashville, Tennesee 37219 /s/ Anne J. Cheatham 615-271-2000 ________________________________ 00020265 :064003881: 0000019 CASHIERS CHECK 20266 REMITTER The Bank of Nashville Aug. 15, 1996 87-388/640 ___________________________ ____________ PAY TO THE Coleman Partners** $20,657.69** ORDER OF________________________________________________________________________ -THE BANK- OF NASHVILLE 20,657 dol'S 69 cts ________________________________________________________________________DOLLARS [THE BANK OF NASHVILLE LOGO] 401 Church Street Nashville, Tennessee 37219 615-271-2000 /s/ Anne J. Cheatham ________________________________ 00020266 :064003881: 0000019 18 SUBLEASE OF COMMERCIAL SPACE BY AND BETWEEN THE BANK OF NASHVILLE (AS SUBLESSOR) AND JOE'S COFFEE, LLC (AS SUBLESSEE) EFFECTIVE AUGUST 1, 1996 THROUGH JULY 31, 2001 THE GLENDALE SHOPPING CENTER 3770 HILLSBORO ROAD NASHVILLE, TENNESSEE 37215 19
TABLE OF CONTENTS Article 1 The Lease............................................................. 1 Article 2 Demised Premises, Etc. ............................................... 1 Article 2.1 Demised Premises............................................ 1 Article 2.2 Initial Term ............................................... 1 Article 2.3 Options to Renew............................................ 1 Article 2.4 Relocations. ............................................... 2 Article 2.5 Termination ................................................ 2 Article 3 Base Rent, Secured Indebtedness, and Security Interest, Etc........... 2 Article 4 Other Primary Lease Obligations; Indemnity to Sublessor............... 2 Article 5 Primacy of Primary Lease ............................................. 3 Article 6 Attempted Holdovers, Etc ............................................. 3 Article 7 Services and Utilities, Etc .......................................... 3 Article 8 Prior Lease, Termination Payment, Etc................................. 3 Article 9 Permitted Use, Prohibited Use, Etc.................................... 3 Article 10 Certain Regulations, Etc ............................................ 3 Article 11 ..................................................................... 4 Article 12 Buildout Expenses.................................................... 4 Article 13 Background of this Sublease, Etc .................................... 4 Article 14 No Waste, Nuisance, or Illegal Use, Etc.............................. 4 Article 15 Alterations, Additions, and Improvements, Etc........................ 4 Article 16 Liens, Etc .......................................................... 4 Article 17 Signs, Etc .......................................................... 5 Article 18 Access for Inspection and Repairs; Security, Etc .................... 5 Article 19 Sublessee Repairs and Maintenance ................................... 5 Article 20 Public Liability Insurance. ......................................... 5 Article 21 Damage or Destruction, Etc. ......................................... 5 Article 22 Eminent Domain Proceedings (Condemnation)............................ 5 Article 23 Waiver of One Breach Not Waiver of Others. .......................... 6 Article 24 Default by Sublessee................................................. 6 Article 24.2 Time to Cure . ............................................ 8 Article 24.3 Remedies .................................................. 8
ii 20
TABLE OF CONTENTS (Cont'd) Article 24.4 Responsibility of the Sublessor for Property or Collateral in Possession ............................... 8 Article 24.5 Application of Proceeds from Sale of Collateral............ 9 Article 24.6 Power of Attorney ......................................... 9 Article 25 Default by Lessor or Sublessor. ..................................... 9 Article 26 Termination and Reentry, Etc......................................... 9 Article 27 "For Rent," "For Lease," or "For Sale" Signs. ....................... 9 Article 28 Surrender of Premises and Keys at Termination........................ 10 Article 29 Disposition of Assets, Etc. ......................................... 10 Article 30 Notices.............................................................. 10 Article 31 Binding Effect, Conditions Precedent, Etc............................ 10 Article 32 No Assignment or other Sublease...................................... 10 Article 33 General Terms and Provisions......................................... 10 Article 33.1 Notices .......................... ........................ 10 Article 33.2 Deviation from Agreements or Covenants; Amendments; Course of Dealing; Waivers .................... 11 Article 33.3 Survival of Agreements, Invalidity, Etc ................... 11 Article 33.5 Renewal, Extension, or Rearrangement ...................... 11 Article 33.6 Cumulative Rights and Remedies . . ........................ 11 Article 33.7 Construction .............................................. 11 Article 33.8 Time of Essence ........................................... 11 Article 33.9 Nature of Commitment . .................................... 11 Article 33.10 Disclosures .............................................. 12 Article 33.11 Indemnification .......................................... 12 Article 33.12 Titles of Articles, Sections and Subsections.............. 12 Article 33.13 Counterparts ............................................. 12 Article 33.14 Exhibits and Appendices .................................. 12 Article 33.15 Computations ............................................. 12 Article 33.16 Sublessor's Discretion or Judgment........................ 12 Article 33.17 Jurisdiction and Venue.................................... 13 Article 33.18 No Third Party Beneficiary................................ 13 Article 33.19 Mutual Release............................................ 13 Article 33.20 Costs, Expenses and Taxes................................. 13 Article 33.21 Representations and Warranties of Sublease................ 13 Article 33.22 Access, Gates Etc......................................... 13
iii 21 This Instrument Prepared By: Daniel W. Small Attorney at Law Suite 250, 3100 West End Avenue Nashville, Tennessee 37203 SUBLEASE OF COMMERCIAL SPACE THIS SUBLEASE OF COMMERCIAL SPACE ("Sublease") is entered into by and between THE BANK OF NASHVILLE, a Tennessee banking corporation, whose business address is 401 Church Street, City of Nashville, State of Tennessee (the "Sublessor"), and JOE'S COFFEE, LLC, a Tennessee limited liability company whose business address is 2817 West End Avenue, Suite 109, City of Nashville, State of Tennessee 37203 (the "Sublessee"). WITNESSETH: Article 1 The Lease. Sublessor represents that it entered into a lease with Coleman Partners (the "Lessor") dated August 15, 1996, providing for an initial term of sixty (60) calendar months commencing August 1, 1996 and ending August 1, 2001 (as amended or otherwise changed, supplemented and/or replaced, the "Primary Lease"), a copy of certain portions of which is attached hereto as EXHIBIT "A" and incorporated herein by reference. As used herein, the "Commencement Date" is five (5) days after the date that the Sublessee obtains possession of the space (the "Leased Space") pursuant to the Primary Lease. The Leased Space is located in the Glendale Shopping Center, 3770 Hillsboro Road, Nashville, Tennessee (the "Shopping Center") where The Cook's Nook, Inc. is currently located (the "Cook's Nook Space"). As evidenced by its signature below, the Cook's Nook, Inc. consents to the Primary Lease and to this Sublease. Article 2 Demised Premises, Etc. Article 2.1 Demised Premises. Sublessor leases to Sublessee and Sublessee leases from Sublessor, for the purpose of operating a coffee shop, approximately seven hundred fifty (750) square feet of space, which space is outlined in red on EXHIBIT "B" (said space hereinafter referred to as the "Premises"), located in the Shopping Center more particularly described on EXHIBIT "C". Common areas shall be available to Sublessee during the Sublessee's regular business hours as established from time to time. Article 2.2 Initial Term. The initial term of this Sublease shall be for the period commencing August 1, 1996 and ending July 31, 2001. However, the Sublease shall terminate immediately upon the termination, expiration, or surrender of the Primary Lease. The Sublessee shall be entitled to take possession of the Premises only after the Sublessor has taken possession of its space in the Shopping Center (as defined herein). Article 2.3 Options to Renew. Subject to the other provisions hereof, the Sublessee shall have three (3) options to renew. Each option shall be for five (5) years and subject to the terms and provisions of the Primary Lease, as amended from time to time, and of this Sublease, as amended from time to time. The Sublessee may not exercise any option to renew unless: (a) There is no default under this Sublease; (b) The Sublessee gives at least 90 days prior written notice to the Sublessor prior to the end of the then current term stating that the Sublessee intends to exercise its option to renew the Sublease. No such notice shall be effective if given more than 180 days prior to the end of such then current term; (c) There is mutual agreement on rentals and other payments. It is expressly agreed that neither party shall be required to agree to any rental, C.A.M., or other charge that is not satisfactory to it; and (d) The Sublessor determines to exercise its option to renew, and actually does renew and extend, the Primary Lease. 22 Article 2.4 Relocations. The Sublessor may relocate and/or expand within the Shopping Center or be relocated within the Shopping Center on one or more occasions. In such event(s), the Sublessee hereby agrees to have its Premises relocated by the Sublessor. Such new area shall then become the "Premises." The Sublessor shall pay the reasonable costs of such relocation and for the buildout of the new "Premises." The Sublessor shall not be liable for loss of business related to such relocation. The Sublessee shall continue to be responsible for the costs of the Initial Buildout covered elsewhere in this Sublease. Article 2.5 Termination. At the option of the Sublessor, the initial term shall expire, among other reasons, if there is a foreclosure of the real property on which the Premises are located or for any other termination of the Primary Lease by the Lessor. Article 3 Base Rent, Secured Indebtedness, and Security Interest, Etc. The Sublessee shall pay a rental (herein "Base Rent") of Ninety-Three Thousand Seven Hundred Fifty Dollars ($93,750.00) in sixty (60) equal monthly installments. This equals approximately Twenty-Five Dollars ($25.00) per square foot per year for the space. Each installment of the Base Rent for the Premises shall be paid on or before the first calendar day of each month during the term hereof (pro rated for any partial months based on the actual number of days in such month). The rentals and all other amounts due hereunder are sometimes referred to herein as the "Secured Indebtedness". All amount due hereunder, if not sooner paid, shall be due and payable at the same time as the last monthly rental payment. This includes the costs of the Initial Buildout, utilities, and all other charges in addition to rentals. The Sublessee grants to the Sublessor a first lien on and a first priority security interest in all of the Collateral to secure the payment of the rentals and all other Secured Indebtedness. As used herein, the "Collateral" is all of Sublessee's inventory, equipment, accounts, accounts receivable, chattel paper, leasehold interests, fixtures, leases (including this Sublease), contracts, contract rights, copyrights and trademarks (and all other intellectual property), general intangibles and all other intangibles related to the operation of Sublessee at the Premises. Such collateral shall not be removed unless sold, replaced, or discarded in the ordinary course of business and shall not be permitted to be transferred to another location to avoid this security interest. Joe Dougherty ("Guarantor") shall guaranty the payment and performance of the Sublessee hereunder, including all rentals, buildouts, and all other costs. However, his liability for rentals is subject to reduction as follows: For each month during the term hereof that the Sublessee timely and fully pays and performs its monthly rental installment and all other amounts and duties due under this Sublease, the Guarantor's liability for rental installments shall decrease by that month plus one additional month. Accordingly, by way of example only, if the Sublessee timely and fully pays the first ten months of rental installments, then the Guarantor's liability for rental installments shall be deemed to have decreased by twenty rental installments (out of the 60 installments scheduled hereunder). Again, by way of example only, if the Sublessee timely and fully pays the first thirty months of rental installments, then the Guarantor's liability for rental installments shall be deemed to have decreased by sixty rental installments (out of the 60 installments scheduled hereunder) and, as to that term, the Guarantor shall have no further liability for rental installments as a result of this guaranty. (On the other hand, there shall be no reduction related to any month(s) when amounts and duties owed hereunder are not fully and timely paid and performed.) This process shall be reinstated as to any option terms. The Guarantor shall be fully liable for all rentals related to any holdover periods. Article 4 Other Primary Lease Obligations; Indemnity to Sublessor. Sublessee agrees to perform and observe the covenants, conditions, and terms of the Primary Lease on the part of the Sublessor (and any other lessee thereunder) to be performed and observed, except the covenant for the payment of rent (and all other charges including, without limitation, C.A.M. charges) reserved in the Primary Lease, and to indemnify Sublessor on demand from and against all claims, damages, and expenses arising out of nonperformance or nonobservance of such covenants, conditions, and terms. Such compliance is enforceable by both the Sublessor and the Primary Lessor (Coleman Partners, its successor and permitted assigns). 2 23 Article 5 Primacy of Primary Lease. Sublessee agrees that the terms of the Primary Lease govern over and supersede any conflicting terms, and supplement any other terms, of this Sublease (other than as to rentals). The Sublessee agrees that it shall neither have nor claim any rights superior to those of the Sublessor contained in the Primary Lease and that this Sublease is subject and subordinate to the Primary Lease in all respects. Article 6 Attempted Holdovers, Etc. Sublessee shall NOT holdover in the Premises after the termination or expiration of this Sublease or after the expiration, termination, or surrender of the Primary Lease. Any holdover at the expiration or termination of this Sublease with Sublessor's prior written consent shall be on a week-to-week basis, which tenancy may then be terminated as provided by the laws of the State of Tennessee. During any such expressly permitted holdover tenancy, Sublessee agrees to pay monthly to Sublessor an amount equal to 150% of the last monthly installment of the Base Rent (and all other charges) as in effect at the time of such termination or expiration and agrees to be bound by the terms of this Sublease insofar as they are applicable. Article 7 Services and Utilitie, Etc. At no additional expense to Sublessee other than amounts actually charged to or paid by the Sublessor that are specifically attributable to the Sublessee's coffee shop business, the Sublessee shall receive as a part of the rental consideration the water, electrical, and gas services and utilities as set forth in the Primary Lease, with the exception of the following utility services which Sublessee shall provide at its own expense: telephone, maintenance, janitorial, pest control, and related types of services, and insurance. Sublessee shall keep the bathrooms spotless clean and shall assure the attractiveness and cleanliness of the other common areas as they are affected by Sublessee's business. (Said another way, Sublessee shall keep the bathrooms spotless and clean up its own messes.) Sublessee shall pay twenty-five percent (25%) of the cost of pest control. Article 8 Prior Lease, Termination Payment, Etc. The Sublessee hereby agrees that effective August 1, 1996, the Sublessor shall be entitled to lease from the Lessor the space in the Shopping Center currently known as the Cook's Nook's Space. The execution of this instrument shall be deemed to be the termination of the Sublessee's interest in the Cook's Nook Space. The Cook's Nook, Inc. executes this Sublease to reflect its consent to such termination and to evidence a reaffirmation of its agreement to pay all amounts due and payable under its lease with Coleman Partners and to pay all amounts owed to The Bank of Nashville. The Cook's Nook is not insolvent and will not be rendered insolvent by virtue of the termination of its lease in the shopping center or the other transactions provided for herein. Article 9 Permitted Use, Prohibited Use, Etc. The subleased Premises are to be used solely for the "Permitted Use" described herein, and for no other use, and for no other purpose without first obtaining the written consent of the Sublessor (which consent can be withheld by the Sublessor in its sole and exclusive discretion). As used herein, the term "Permitted Use" shall mean the operation at retail of a coffee shop combined with a cyber cafe. In no event shall the Sublessee do, permit, or suffer as a part of its business or operations anything that casts or portrays the Sublessor in a negative manner, that knowingly advances the operations of a competitor financial institution (or corporate affiliate thereof), or that brings scandal or condemnation on the Sublessee, the Sublessor, the Lessor, the Premises, or any affiliated person. Article 10 Certain Regulations, Etc. The following apply to the Sublessee's operations in the Premises: The following apply to the Sublessee's operations in the Premises: Sublessee shall immediately clean up the Premises and assure that it remains at all times clean and attractive for the use of its customers and the customers of the Sublessor. The Sublessee shall direct its employees to promptly remedy any problems specified by the Sublessor's employees or agents. The Sublessee shall operate within rules and regulations reasonably promulgated by the Sublessor including, without limitation, those attached hereto. 3 24 Throughout the term of the Sublease, Sublessee shall continuously conduct in the Premises, with a full stock of inventory and full staff of personnel, the Permitted Use during reasonable business hours. Article 11 Right to Construct Wall; Termination by Sublessee. Sublessor reserves the right to erect at any time during the term hereof a wall or other barrier between the spaces occupied by the Sublessee and Sublessor, including the common areas other than the bathroom(s). Sublessee waives any rights it may have for loss of business or other damages resulting from such construction. However, on or before 180 days after the date that construction of any such wall is completed the Sublessee may give notice of termination of this Sublease and may cease making payments for any unpaid amounts of the rentals and buildouts on the 61st day after sending such notice. Sublessor shall not be responsible for any damages or costs incurred by Sublessee as a result of such construction by Sublessor or termination by Sublessee. If the Sublessee terminates the Sublease because of such wall, the Sublessor shall retain all fixtures, equipment and inventory in the Premises for its own uses. Article 12 Buildout Expenses. The Sublessor will initially fund all mutually agreed buildout cost(s) in connection with this Sublease of the Premises (the "Initial Buildout"). The Sublessor will control and perform the Initial Buildout. The Initial Buildout will be constructed as reasonably requested by Sublessee, but the costs for the Initial Buildouts to be funded by the Sublessor shall not exceed $25,000 in the aggregate. The Sublessee will be responsible for reimbursing the Sublessor for the cost(s) of the Initial Buildout funded by the Sublessor, by paying in equal monthly installments, in addition to the rent, an amount sufficient to repay the buildout cost(s) over the five (5) year term of this Sublease. Article 13 Background of this Sublease, Etc. The subleased Premises are presently used by The Cook's Nook, Inc., which has negotiated with the Sublessor to have the Sublessor take over its space and, thus, free The Cook's Nook, Inc. from its obligations under the said lease. The Sublessor has paid The Cook's Nook, Inc. a substantial sum for the right to lease such space and for its termination. By their signatures below, Joe Dougherty and Joe's Coffee, LLC acknowledge and agree that they are not being required by The Bank of Nashville to sublet any portion of the space but have negotiated at arm's length with The Bank of Nashville and The Cook's Nook, Inc. to obtain such rights. Article 14 No Waste, Nuisance, or Illegal Use, Etc. Sublessee shall not commit waste on the Premises demised, nor maintain, commit, or permit the maintenance or commission of a nuisance on the Premises, or use such Premises for an unlawful purpose. Sublessee shall conform to all applicable laws and ordinances respecting the use and occupancy of the space sublet here relating to matters not covered elsewhere in this instrument, provided that it shall not be required to make alterations, additions, or improvements to such Premises in order to conform with such laws and ordinances. Article 15 Alterations, Additions, and Improvements, Etc. Sublessee shall not make alterations, additions, or improvements on the Premises without first obtaining the written consent of Sublessor. All alterations, additions, and improvements that shall be made shall be at Sublessee's expense, shall become Sublessor's property, and shall remain on and be surrendered with the Premises as a part of the Premises at the termination of this Sublease without disturbance, molestation, or injury. Nothing contained in this paragraph shall prevent Sublessee from removing all office machines and equipment and trade fixtures customarily used in its business. The Sublessor shall have the right to conduct, oversee, and direct all alterations, improvements, fixturing, and changes to the Premises at all times. Article 16 Liens, Etc. Sublessee shall keep the leased Premises free and clear of liens arising out of any work performed, materials furnished, or obligations incurred by Sublessee, including mechanics' liens. 4 25 Article 17 Signs. Etc. Sublessor agrees to use its diligent best efforts to reasonably accommodate the signage needs of the Sublessee on the exterior area of the Premises facing the parking lot but without impairing or limiting the Sublessor's signage design and plans in such area. Sublessor shall not be required to bring suit against any other tenant or against the Lessor to accommodate the the Sublessee nor shall Sublessor be required to downsize its own sign plans in this regard. Any expense in accommodating the Sublessee's requests shall be at Sublessee's cost and subject to the guarantee by Joe Dougherty. The Sublessor hereby consents to a sign comparable to, and of substantially the same size and shape as, the "Total Image Salon" sign currently in the Shopping Center on the face of the building. Said sign shall commence on the corner adjacent to and to the left of the existing "Cooks Nook" sign, shall be at a level below the "Cooks Nook" sign but above the level of the arch, shall be subject to Codes, and shall be at the end of the wall. Sublessee covenants and agrees that no signs or symbols shall be placed in the windows or doors of the Premises, or on any exterior part of the building without the Sublessor's prior written approval, which approval may be withheld by the Sublessor in the exercise of its discretion and/or if so directed or requested by the Lessor. Any sign or symbol placed on the exterior of the building or in the windows or doors of the building so as to be visible from the street that is not satisfactory to Sublessor, shall be removed promptly upon request by an employee of the Sublessor. Article 18 Access for Inspection and Repairs; Security, Etc. Sublessee shall allow Lessor and Sublessor, and their agents, free access at all reasonable times to the Premises sublet for the purpose of inspecting or of making repairs, additions, or alterations to the Premises or any property owned by or under the control of Lessor or Sublessor. Sublessee acknowledges and agrees that because the Sublessor is a commercial bank, the issue of security is paramount. Consequently, the Sublessee shall permit the Sublessor to take all steps deemed necessary, convenient and/or appropriate to protect its space and/or the Premises and the Sublessee shall comply with such rules and regulations as the Lessor and the Sublessor shall establish from time to time. Certain rules and regulations are attached hereto as EXHIBIT "D" and shall be complied with by the Sublessee at all times in all material respects. Article 19 Sublessee Repairs and Maintenance. Subject to the Lessor's obligations under the Primary Lease, Sublessee shall maintain the subleased Premises in good repair and tenantable condition during the continuance of this Sublease, except in case of damage arising from the wilful misconduct of Sublessor or its agents. Article 20 Public Liability Insurance. Sublessee agrees to carry liability insurance insuring Sublessee, Sublessor, and Lessor against all claims for personal injury or property damage caused by conditions or activities on the subleased Premises in amounts to be approved by Sublessor, but not less than One Million Dollars ($1,000,000.00) or such greater amount as may be required by the Primary Lease and/or as may reasonably be required by the Sublessor and/or requested by the Lessor. Article 21 Damage or Destruction, Etc. In the event that the Premises are rendered untenantable in whole or in substantial part as result of destruction or damage by fire, acts of war, or acts of God this Lease shall cease, provided, nevertheless, that the Sublessee shall have the option of rebuilding or repairing the Premises if Sublessee elects so to do and gives written notice of such election to rebuild or repair to the Sublessor within sixty (60) days after such damage or destruction. If Sublessee elects to rebuild or repair the Premises and does so without unnecessary delay, Sublessor shall be bound by the terms of this Sublease, except that during the period of repair or rebuilding, the rent under this Sublease shall be abated in the same proportion as the portion of the Premises rendered unfit for occupancy by Sublessee shall bear to the whole of the subleased Premises. Sublessor shall have the right to declare this Sublease terminated when more than ninety (90) days after the destruction or damaging of the Premises as shall have elapsed without the Sublessee having elected to repair or rebuild. Further, if Sublessor gives notice that it intends to repair or rebuild after such destruction or damage, then this Sublease shall, at the option of the Sublessor, continue in full force and effect subject only to the rent abatement specified in this Article. If the damage or destruction is not caused by the Sublessee (or any of 5 26 its employees, agents, owners, or representatives), and if the damage or destruction materially and adversely affect the Sublessee's business for a period of not less than sixty (60) days, then the Sublessee may terminate the Sublease without obligation for future rentals or for any unpaid costs of buildout. Such termination releases the Sublessor from the Sublease and Sublessor shall not be responsible to Sublessee for loss of business or the costs of relocation. Article 22 Eminent Domain Proceedings (Condemnation). If the Premises or any part are condemned for public or semi-public use by eminent domain proceedings, or if by reason of law, ordinance, regulation or court judgment, Sublessee's use of the subleased Premises for any of the specific purposes referred to in this instrument shall be prohibited, Sublessee shall have the right to terminate this Lease on written notice to Sublessor, and rental shall be paid only to the time when Sublessee surrenders possession of the Premises. In the event of condemnation of only part of the subleased Premises, Sublessee may elect to continue in possession of that part of the Premises not so appropriated or condemned under the same terms and conditions of this Sublease, except that in such cases Sublessee shall be entitled to an equitable reduction of the rental payment. Any rental paid in advance beyond such time shall be returned by Sublessor to Sublessee on demand. Sublessee does not waive any right it may have to recover from the condemnation authority for such damage as it may suffer by reason of such condemnation. If the condemnation materially and adversely affects the Sublessee's business for a period of not less than sixty (60) days, then the Sublessee may terminate the Sublease without obligation for future rentals or for any unpaid costs of buildout. Such termination releases the Sublessor from the Sublease and Sublessor shall not be responsible to Sublessee for loss of business or the costs of relocation. Sublessor is not responsible for damages related to any exercise or the powers of eminent domain or other condemnation of all or any part of the Premises or the Shopping Center. Article 23 Waiver of One Breach Not Waiver of Others. Waiver of one breach of a term, condition, or covenant of this Sublease by either party to this Sublease shall be limited to the particular instance and shall not be construed as a waiver of past or future breaches of the same or other terms, conditions, or covenants. Waivers must be in writing and signed by both the Sublessee and the Sublessor to be binding on either party. Article 24 Default by Sublessee. Article 24.1 Defaults. The following are defaults ("Defaults) under this Sublease: Nonpayment. Failure to pay each and every rental installment when due; or Other Payments. The Sublessee fails for any reason to make payment within five (5) calendar days of the due date of any installment or bill for any other amounts due hereunder; or Representations and Warranties. Any representation or warranty made by the Sublessee in this Sublease and/or in any financial statement presented to the Sublessor by the Sublessee, Joe Dougherty, and/or The Cook's Nook, Inc., proves to have been incorrect in any material respect as of the date thereof; or any representation, statement (including any financial statements), certificate or data furnished or made by any of such persons (or any accountant, agent or attorney thereof) in connection herewith proves to have been untrue in any material respect, as of the date as of which the facts therein set forth were stated or certified; or Covenants; Agreements. Unless subject to another Default provision, the Sublessee fails to comply with any of the covenants or agreements contained in this Sublease and such failure or violation continues unremedied or is not waived for a period of twenty (20) days after the earlier of (i) notice thereof has been given by the Sublessor to the Sublessee, or (ii) such failure or violation otherwise has become known to any Person who is a Sublessee; or Dissolution; Merger. The Sublessee is liquidated or dissolved, or otherwise terminated, or merges with or into any person or entity; or 6 27 Unauthorized Transfer, Etc. The Sublessee transfers, or seeks or attempts to transfer, or suffers a transfer, voluntarily or otherwise, any of the Sublessee's interest in the Premises, this Sublease, or any of its material assets; or Unauthorized Lien, Etc. Any lien or encumbrance on all or any part of the Premises or any of the other Collateral, which lien or encumbrance is not removed or fully bonded within twenty (20) days after attachment, except for taxes due but not in default, or for taxes which are being contested in good faith and for which the Sublessee provides sufficient assurance to the Sublessor on demand and from time to time that such reserves are adequate; or Loss of Privilege, Etc. The Sublessee forfeits or in any manner loses any right to do business in any locality or jurisdiction that has or could have any impact on the Premises, the construction of the buildout, the construction, opening, operating, or maintaining the Sublessor's intended coffee shop business, or any other Materially Adverse Effect; or Bankruptcy or Receivership Proceedings. A receiver, custodian, liquidator or trustee of the Sublessee or of any Property of the Sublessee is appointed by the order or decree of any court or agency or supervisory authority having jurisdiction, and such decree or order remains in effect for more than sixty (60) days; or the Sublessee files, threatens to file, or authorizes the filing of a petition in bankruptcy or for purposes of reorganization or insolvency; or the Sublessee is adjudicated bankrupt or insolvent; or any of the Property of the Sublessee is sequestered by court order and such order remains in effect for more than sixty (60) days; or a petition is filed against the Sublessee under any state or federal (or other applicable) bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution, liquidation or receivership law of any jurisdiction, whether now or hereafter in effect, and is not dismissed within sixty (60) days after such filing; or Assignments for Benefit of Creditors, Etc. The Sublessee makes an assignment for the benefit of such Sublessee's creditors, or admits in writing Sublessee's inability to pay Sublessee's debts generally as they become due, or consents to the appointment of a receiver, trustee, or liquidator of the Sublessee of all or any part of the Premises; or Discontinuance of Business, Etc. The Sublessee discontinues such Sublessee's coffee shop business or fails to operate the said business continuously during reasonable business hours during each week during the term hereof; or fails to operate the business in a clean and reasonable manner under the circumstances; but the requirement that said business be conducted continuously shall NOT be satisfied by being "open" on the internet or some other "virtual" location but must be physically open and staffed in the Premises; or Default on Other Debt or Security. Sublessee fails to make any payment due on any indebtedness or any event shall occur or any condition shall exist in respect of any indebtedness of the Sublessee or under any agreement securing or relating to such indebtedness, the effect of which is to cause or to permit any holder of such indebtedness or other security or a trustee to cause (whether or not such holder or trustee elects to cause) such indebtedness, or a portion thereof, to become due prior to its stated maturity or prior to its regularly scheduled dates of payment and the default exceeds, when aggregated with all other such defaults, Twenty-Five Thousand Dollars ($25,000.00); or Undischarged Judgments; Criminal Prosecutions, Etc. If any one or more judgments (in the aggregate at any one time outstanding) for the payment of money in excess of Twenty-Five Thousand Dollars ($25,000.00) are rendered by any court or other governmental body against the Sublessee which is not fully covered by valid collectible insurance and the Sublessee does not discharge the same or provide for its discharge in accordance with its terms, or procure a stay of execution thereof within the applicable appeal period and within said appeal period following the date of entry thereof or such longer period during which execution of such judgment shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal while providing such reserves therefor as may be required under GAAP; or the Sublessee (or any Directors or executive officer thereof), is indicted for or convicted of any felony or imprisoned for any reason for more than five (5) days; or 7 28 Materially Adverse Effect. The occurrence of any amendment, termination, default under, violation of, of any other impairment of any one or more contracts, materially and adversely affecting the Premises or the Sublessee's right or ability to engage in its business or owning and operating the coffee shop as intended at the date hereof; or Substantial Change in Equity Ownership. Any material adverse change (ten percent (10%) or more) in the equity ownership accounts of the Sublessee as of the date hereof; or Change in Control. The occurrence of a change in the Members, or in the control of the Sublessee, or in the Sublessor's executive management from the identity of the ownership and management as in existence at the time of closing; provided, that this provision shall not be violated or triggered so long as Joe Dougherty (and, so long as he is married to his present spouse), his wife, own and control not less than 51% of the voting equity interests in the Sublessee and control the governing body thereof, subject to no limitation or derogation (such as, for example, by charter, bylaw, management contract, or operating agreement) of his (or, with such spouse, their) authority to run the Sublessee and to make operative and binding decisions for the Sublessee; or Article 24.2 Time to Cure. Upon the happening of any Default specified in this Sublease, and except for payment Defaults, and except where a specific time frame is specified above, the Sublessee shall have thirty (30) days to cure a default under this Sublease from the date that Sublessor sends notice thereof to Sublessee. Article 24.3 Remedies. Upon the happening of any Default specified in this Sublease, (i) the Sublessor may declare the entire principal amount (or any part(s) or installment(s) thereof) of all Secured Indebtedness then outstanding including interest accrued thereon to be immediately due and payable without presentment, demand, protest, notice of protest or dishonor or other notice of default of any kind, all of which are hereby expressly waived by the Sublessee, and/or (ii) terminate this Sublease or (in its discretion, without terminating this Sublease, change the locks, lock the Sublessee out of the Premises, and on behalf of the Sublessee for the sole purpose of reletting the Premises, enter into and secure the Premises, show and relet the same upon terms and conditions deemed appropriate to the Sublessor without consulting with or obtaining the permission of the Sublessee. The Sublessee agrees that the occurrence of any Default shall permit the Sublessor, without any notice to the Sublessee or to any other Person, to accelerate the due date(s) of installments of rental and all other parts of the Secured Indebtedness. The Sublessee agrees that no action or failure to act, and no pursuit of any particular remedy or remedies, shall constitute a waiver, novation or election of remedies by the Sublessor. Article 24.4 Responsibility of the Sublessor for Property or Collateral in Possession. Should all or any part of the Premises and/or the Collateral come into the possession of the Sublessor, whether before or after a Default, the Sublessor may use or operate such Premises and other Collateral for the purpose of preserving it or its value, or pursuant to the order of a court of appropriate jurisdiction, or in accordance with any other rights held by the Sublessor in respect of the same. The risk of accidental loss or damage (or of malicious or other loss or damage not caused intentionally and wilfully by the Sublessor) to the Premises and/or Collateral is and shall be on the Sublessee and the Sublessor shall have no liability whatever for failure to obtain or maintain insurance, nor to determine whether any insurance ever in force is adequate as to amounts, coverage or as to the risks insured, nor to take any active steps to protect or to maintain the Collateral, the Premises, or any other property claimed by the Sublessee or any one else. Article 24.5 Application of Proceeds from Sale of Collateral. The Sublessor shall be entitled to apply the proceeds of any sale of all or any part of the Collateral in the following order: first, to the payment of all of Sublessor's expenses, including (without limitation) attorneys, receivers, trustees and other fees and other legal expenses incurred in retaking, holding and preparing all or any part of the Collateral for sale, in arranging for such sale, and in actually selling the same; second, toward payment of the balance of the rentals and/or any other portion of the Secured Indebtedness in such order and manner as the Sublessor, in its sole discretion, may deem advisable and beneficial to the Sublessor for the repayment and performance of the Obligations. If the proceeds from any sale, applied in the manner set forth in this Article, are 8 29 insufficient to pay the Secured Indebtedness in full, the Sublessee shall be liable for any deficiency and shall pay such deficiency to the Sublessor as soon as the Sublessor notifies the Sublessee of the amount of such deficiency. Article 24.6 Power of Attorney. The Sublessee hereby irrevocably appoints the Sublessor, and its designees, to do and to perform all acts that the Sublessee itself could do and/or perform, to sign all things that the Sublessee could have signed or caused to be signed, and to have power and dominion over, all of the property of the Sublessee in order to do and to discharge all of the Sublessee's Secured Indebtedness obligations and all other Obligations to the Sublessor set forth in this Sublease. This appointment is intended to be, and shall be understood to be, a power coupled with an interest. However, the Sublessor shall not be required to use this power for any reason and the Sublessor may at any time in writing reject this power. This power of attorney shall terminate automatically when the Secured Indebtedness have been fully and finally paid and performed by the Sublessee. The Sublessor is specifically authorized to execute on Sublessee's behalf (as "Debtor"), at Sublessee's cost, one or more financing statements in each State or jurisdiction in which the Sublessee has an office or address and to charge Sublessee's accounts with the Sublessor to pay amounts due in connection with any Obligations (including the Secured Indebtedness). Article 25 Default by Lessor or Sublessor. If Lessor fails and neglects to perform the Lease for a period of thirty (30) consecutive days, or if Sublessor fails to perform the Lease or this Sublease for such a period, Sublessee may, on reasonable notice in writing of not less than ninety (90) days or such longer time as may be permitted in the Primary Lease, terminate this Sublease unless either the Lessor or the Sublessor has commenced curing the problem(s). The Sublessor is not responsible for defaults caused entirely or in material part by the Lessor. Article 26 Termination and Reentry, Etc. If Sublessee abandons or vacates the Premises or is dispossessed for cause by Sublessor before the termination of this Sublease, or any renewal of this Sublease, Sublessor may, on giving five (5) days' written notice to Sublessee, declare this Sublease forfeited and may then make reasonable efforts to relet the Premises. Sublessee shall be liable to Sublessor for all damages suffered by reason of such forfeiture. Such damages shall include, but shall not be limited to, the following: (1) all actual damages suffered by Sublessor until the property is relet, including reasonable expenses incurred in attempting to relet; (2) the difference between the rent received when the property is relet and the rent reserved under this Sublease; and (3) all other costs, damages, injuries, and related matters that flow or result from the Sublessee's Default and/or the Sublessor's exercise of any one or more of its remedies. Until the Premises have been relet, Sublessee agrees to pay to Sublessor, on the same days as the rental payments are due under this Sublease, the actual damages suffered by Sublessor since the last payment, either rent or damages, was made. After the Premises have been relet, Sublessee agrees to pay to Sublessor, on the last day of each rental period, the difference between the rent received for the period from reletting and the rent reserved under or applicable to this Sublease for that period. Article 27 "For Rent," "For Lease," or "For Sale" Signs. If Sublessee has not obtained the consent of the Sublessor to renew the Sublease or to holdover in the space, Sublessor shall have the right to place and maintain on the subleased Premises "For Rent," "For Lease," or "For Sale" signs during the last six (6) months of the term of this Sublease. Article 28 Surrender of Premises and Keys at Termination. Sublessee agrees that at the expiration of this Sublease, Sublessee will quit and surrender the subleased Premises without notice, and will deliver to Sublessor all keys belonging to the Premises. Article 29 Disposition of Assets. Etc. All alterations, additions, and improvements made by Sublessee and/or affixed to the Premises, shall become Sublessor's property as provided in that Article, and shall be surrendered with the Premises as a part of the Premises as provided in that Article. Sublessee may remove all personal property, trade fixtures, and office equipment, whether attached to the Premises or not, provided that such may be removed without serious damage to the building or Premises. All holes or damage to the building or Premises caused by 9 30 removal of such items shall be repaired and restored by Sublessee promptly after removal of the property. The Sublessee shall be entitled to remove any electrical service connections installed by it which were designed specifically for the operation of electronic computing equipment. Article 30 Notices. Except where otherwise required by statute, all notices given pursuant to the provisions of this Sublease shall be in writing, addressed to the party to whom the notice is given, and sent by registered or certified mail to the last known mailing address of the party. However, notices to Sublessee may be sent to the address of the subleased Premises. Article 31 Binding Effect, Conditions Precedent, Etc. The terms, conditions, and covenants of this Sublease shall inure to and be binding on the heirs, successors, administrators, executors, and assigns of the parties to this Sublease, except as otherwise provided. However, this Sublease shall not be effective for any purpose (except termination of The Cook's Nook, Inc. lease) unless and until all conditions for the effectiveness of the Primary Lease are fulfilled and the Sublessor actually becomes the Lessee under the Primary Lease. Final approval of the Sublessor's branch application for the space in the Shopping Center, as well as approval of the Primary Lease and this Sublease by the Tennessee Department of Financial Institutions is expressly made a condition precedent to the effectiveness of this Sublease but not of the termination of The Cook's Nook, Inc. lease of space in the Shopping Center. Article 32 No Assignment or other Sublease. Sublessee shall not sell or assign this Sublease or any part of this Sublease, or re-sublet the subleased Premises in whole or in part without first obtaining the written consent of Sublessor. This Sublease shall not be assigned by operation of law. If Sublessor and Lessor once give consent to assignment of this Sublease or of any interest, they shall not be barred from afterwards refusing to consent to any further assignment. Any attempt to sell, assign, or re-Sublease without written consent of Sublessor and Lessor shall be deemed sufficient grounds for dispossession and shall entitle Sublessor to proceed pursuant to the terms of this Sublease if Sublessor so elects as in the case of a Default. Article 33 General Terms and Provisions. Article 33.1 Notices. All communications under or in connection with this Sublease, the rentals, and any other part of the Secured Indebtedness, shall be in writing and shall be mailed by first class mail, postage prepaid, or otherwise sent by telex, telegram, telecopy or other similar form of rapid transmission confirmed by mailing (in the manner stated above) written confirmation at substantially the same time as such rapid transmission, or personally delivered to the receiving party or to a representative thereof. All such communications shall be mailed, sent or delivered to the parties at their respective addresses set forth on the signature page(s) hereof. Notices to the Sublessee will be sent to the attention of the Sublessee at such address; and notices to the Sublessor shall be sent to the Sublessor's President. Any party may send notice in accordance with this Article of a new address to be used to contact such Person. Any communication so addressed and mailed by registered or certified mail shall be deemed to be given three (3) Business Days after being so mailed. Article 33.2 Deviation from Agreements or Covenants; Amendments; Course of Dealing; Waivers. In order to amend or deviate from the terms of any of this Sublease, the Sublessee must first obtain the prior written consent of the Sublessor, which consent may be withheld or granted in the Sublessor's sole discretion. No amendment(s), modification(s), deviations from agreements or covenants, or waiver(s) of any provision of this Sublease shall in any event be effective unless the same shall be in writing and signed by appropriate officers of the Sublessor and by the Sublessee. No action or course of dealing on the part of the Sublessor, its officers, employees, consultants or agents, nor any failure or delay by the Sublessor with respect to exercising any right, power or privilege of the Sublessor under this Sublease or any other operative document or instrument shall operate as a waiver thereof, except as expressly provided in writing in accordance with this Article. 10 31 Article 33.3 Survival of Agreements, Invalidity, Etc. All representations and warranties of the Sublessee herein, and all covenants and agreements herein not fully performed before the Closing Date of this Sublease, shall survive such date. In the event that any one or more of the provisions contained in the Note, this Sublease shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Sublease. Article 33.4 Successors and Assigns, Etc. All covenants and agreements contained by or on behalf of the Sublessee in this Sublease and any other operative document or instrument shall bind such Sublessee's successors and assigns and shall inure to the benefit of the Sublessor and its successors and assigns. The Sublessee shall not assign or seek to assign, or delegate or seek to delegate, any of the Sublessee's rights or obligations under this Sublease. Any assignment not approved by the Sublessor in advance in writing shall be of no force or effect, and the fact that the Sublessor may receive (knowingly or otherwise) any payments from any Person other than the Sublessee shall not constitute a novation, a waiver of this provision, or be treated as the Sublessor's consent to any attempted assignment. Article 33.5 Renewal, Extension, or Rearrangement. All provisions of this Sublease relating to the terms hereof and to the Secured Indebtedness shall apply with equal force and effect to each and every succeeding sublease and/or obligation of the Sublessee to the Sublessor, and any matter that may represent a renewal, extension for any period, increase or rearrangement of any part of the Secured Indebtedness originally created by this Sublease or of any part of such Secured Indebtedness. No renewal Sublease or act of renewal shall in any event release or constitute a novation in respect of this Sublease unless the Sublessor executes a document specifically stating that the Sublessor intends there to be a novation and in fact uses the word "novation." The parties expressly agree that they do not intend, now or in the future, to cause or permit any implicit or non-express novation or release. Article 33.6 Cumulative Rights and Remedies. Rights and remedies of the Sublessor under this Sublease shall be cumulative, and the exercise or partial exercise of any such right or remedy shall not preclude the exercise of that or any other right or remedy. All remedies provided for in this Sublease for the Sublessor shall be in addition to all other remedies available to the Sublessor under the principles of law and equity, and pursuant to any other body of law, statutory or otherwise. Article 33.7 Construction. This Sublease constitutes a contract made under and shall be construed in accordance with and governed by the laws of the State of Tennessee. Article 33.8 Time of Essence. Time is of the essence with regard to each and every provision of this Sublease. Article 33.9 Nature of Commitment. With respect to the Sublease and the amounts owed by the Sublessee to the Sublessor, the Sublessor's obligations under the Sublease shall be deemed to be pursuant to a contract to make a loan or extend debt financing or financial accommodations to or for the benefit of the Sublessee within the meaning of the Bankruptcy Act of the United States, 11 U.S.C. section 101 et seq. Article 33.10 Disclosures. Every reference in this Sublease to disclosures of the Sublessee to the Sublessor in writing (except the Financial Statements), to the extent that such references refer or are intended to refer to disclosures at or prior to the execution of this Sublease, shall be deemed strictly to refer only to written disclosures delivered to the Sublessor concurrently with the execution hereof. It is the intention of the parties that such disclosures are to be limited to those presented in an orderly manner at the time of entering into this Sublease and are not to be deemed to include expressly or impliedly any disclosures which may previously have been delivered from time to time to the Sublessor, except to the extent that such previous disclosures are again presented to the Sublessor in writing concurrently with the execution hereof. 11 32 Article 33.11 Indemnification. In consideration of the execution and delivery of this Sublease by the Sublessor, the Sublessee hereby indemnifies, exonerates the Sublessor and each of the Sublessor's respective officers, directors, employees, attorneys, and agents (collectively the "Sublessor Parties" and, individually, a "Sublessor Party") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities, damages, and expenses actually incurred in connection therewith (irrespective of whether such Sublessor Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys fees and disbursements (the "Indemnified Liabilities"), incurred by the Sublessor Parties or any of them as a result of, or arising out of, or relating to, or as a direct or indirect result of any violation of this Sublease and/or any damage related to the Premises related to the Sublessee's use and/or occupancy thereof, except for any such Indemnified Liabilities arising for the account of a particular Sublessor Party solely by reason of such Sublessor Party's willful misconduct or breach by such Sublessor Party of its obligations under this Sublease, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, Sublessee hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. Article 33.12 Titles of Articles, Sections and Subsections. All titles or headings to articles, sections, subsections or other divisions of this Sublease, any appendix or appendices, or any exhibit(s) hereto are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other content of such articles, sections, subsections or other divisions, such other content being controlling as to the agreement between the parties hereto. Article 33.13 Counterparts. This Sublease may be executed in two or more counterparts, and it shall not be necessary that the signatures of all parties hereto be contained on any one counterpart hereof; each counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. Article 33.14 Exhibits and Appendices. All Exhibits referred to in this Sublease shall be timely, accurately, and completely furnished to the Sublessor as provided in the appropriate Article or, if not so provided, within ten (10) calendar days of its creation, filing, or dissemination. The exhibits and appendices attached to this Sublease are incorporated herein and shall be considered a part of this Sublease. Article 33.15 Computations. Where the character or amount of any asset or liability or item of income or expense is required to be determined, or any consolidation or other accounting computation is required to be made, for the purpose of this Sublease, such determination or calculation shall, to the extent applicable and except as otherwise specified in this Sublease, be made in accordance with generally accepted accounting principles applied on a consolidated basis consistent with those at the time in effect as at the date of this Sublease. Article 33.16 Sublessor's Discretion or Judgment. Where this Sublease requires or permits the Sublessor to exercise its discretion or judgment, the parties agree that the Sublessor is authorized, permitted and expected to exercise such discretion or judgment with a view toward protecting its rights in the Premises, in the Collateral, in this Sublease, and in the Lease, as well as in obtaining full and timely repayment and performance of all Secured Indebtedness. Article 33.17 Jurisdiction and Venue. This Sublease was executed by the Sublessor in Nashville, Davidson County, Tennessee, and all payments are due at the Sublessor's address. Any dispute arising hereunder shall be litigated in a forum located in such County and State. Article 33.18 No Third Party Beneficiary. This Sublease is for the sole benefit of the Sublessor and the Sublessee and it is not for the benefit of any other Person or third party except as provided herein for enforcement of certain provisions by the Lessor. Article 33.19 Mutual Release. With the exception of the indemnity provision contained in this Sublease, upon full and final payment and satisfaction of the rentals and other parts of the Secured Indebtedness, the parties shall thereupon automatically each be fully, finally and forever released and discharged from any further claim, liability or obligation in connection with this 12 33 Sublease, except that the Sublessee shall remain fully and completely liable for any amounts that must be returned, surrendered, or otherwise disgorged (as a preference or otherwise) pursuant to any bankruptcy or insolvency provision. Article 33.20 Costs, Expenses and Taxes. The Sublessee agrees to pay on demand all out-of-pocket costs and expenses of the Sublessor (including the reasonable fees and out-of-pocket expenses of counsel for the Sublessor in connection with the monitoring, administration, enforcement, and/or protection of this Sublease, all Collateral, the Premises, and/or the Leased Space). All obligations provided for in this Article shall survive any termination of this Sublease. Article 33.21 Representations and Warranties of Sublessee. The Sublessee represents and warrants to the Sublessor, as an inducement to the Sublessor to enter into this Sublease, that the Sublessee is a duly formed Tennessee limited liability company, that Joe Dougherty has been authorized to sign the same, and that the Sublessor is not insolvent and will not be rendered insolvent by the execution or performance hereof. Article 33.22 Access, Gates Etc. The Sublessee acknowledges and agrees that the Sublessor is authorized to install and enforce such space restrictions, doors, gates and access restrictions as it deems reasonable and prudent to safeguard its commercial banking operations, customers, employees, and others. BY THEIR SIGNATURES BELOW, ALL OF THE PARTIES HERETO, AFTER CONSULTATION WITH COUNSEL, HEREBY KNOWINGLY WAIVE THEIR RIGHTS TO A TRIAL BY JURY AND CONSENT TO A TRIAL TO THE COURT SITTING WITHOUT A JURY, SUCH MUTUAL WAIVER HAVING BEEN BARGAINED FOR BY THE PARTIES AND A MUTUAL INDUCEMENT TO THE PARTIES TO ENTER INTO THIS SUBLEASE. DATED TO BE EFFECTIVE, UPON SATISFACTION OF ALL TERMS AND CONDITIONS, THE 1ST DAY OF AUGUST, 1996. JOE'S COFFEE, LLC, SUBLESSEE /s/ Joe Dougherty ------------------------------------- Joe Dougherty, as President of Joe's Coffee, LLC, AND Individually THE BANK OF NASHVILLE, SUBLESSOR /s/ Mack S. Linebaugh, Jr. ------------------------------------- Mack S. Linebaugh, Jr. Chairman and CEO 13 34 CONSENT AND AGREEMENT OF THE COOK'S NOOK, INC. AND JOE DOUGHERTY The Cook's Nook, Inc. and Joe Dougherty hereby agree and consent to the termination of the Cook's Nook, Inc.'s lease at the Glendale Shopping Center and agree to pay all amounts due under the said Lease and/or owed to The Bank of Nashville. The Bank of Nashville agrees to pay, upon execution hereof, the amounts specified in the letter of intent dated August 1, 1996 between The Bank of Nashville and Joe's Coffee, LLC and The Cook's Nook, Inc. The Cook's Nook, Inc. and Joe Dougherty hereby agree that The Bank of Nashville may lease the space subject to the current Cook's Nook, Inc. lease being terminated hereby and consent thereto. This 5th day of September, 1996. /s/ Joe Dougherty ----------------------------- Joe Dougherty, President, for The Cook's Nook, Inc., AND For Himself Personally AGREEMENT OF JOE DOUGHERTY Joe Dougherty, as owner of The Cook's Nook, Inc. and of Joe's Coffee, LLC, consents hereto and, further, hereby unconditionally and irrevocably guarantees payment and performance of the Secured Indebtedness and all other obligations set forth in the Sublease. /s/ Joe Dougherty ----------------------------- Joe Dougherty, Individually [NOTARIES FOLLOW ON SUCCEEDING PAGE(S)] ACKNOWLEDGMENTS STATE OF TENNESSEE ) COUNTY OF DAVIDSON ) Before me, the undersigned Notary Public of the state and county aforesaid, personally appeared JOE DOUGHERTY, with whom I am personally acquainted, or proved to me on the basis of satisfactory evidence and who, upon oath, acknowledged himself to be Chief Manager (or other officer authorized to execute the instrument) of JOE'S COFFEE, LLC, the within name bargainer, a Tennessee limited liability company, and that he as such Chief Manager executed the foregoing instrument for the purpose therein contained, by signing the name of the corporation by himself as Chief Manager. Witness my hand and seal, at office in Nashville, this the 5th day of September, 1996. /s/ Daniel W. Small ----------------------------- Notary Public My Commission Expires: 1-20-99 STATE OF TENNESSEE ) COUNTY OF DAVIDSON ) Before me, the undersigned Notary Public of the state and county aforesaid, personally appeared JOE DOUGHERTY with whom I am personally acquainted, or proved to me on the basis of satisfactory evidence and who, upon oath, acknowledged himself to be President (or other 14 35 officer authorized to execute the instrument) of THE COOK'S NOOK, INC., the within name bargainer, a Tennessee business corporation, and that he as such President executed the foregoing instrument for the purpose therein contained, by signing the name of the corporation by himself as President. Witness my hand and seal, at office in Nashville, Tennessee, this the 5th day of September, 1996. /s/ Daniel W. Small ----------------------------- Notary Public My Commission Expires: 1-20-99 STATE OF TENNESSEE ) COUNTY OF DAVIDSON ) Before me, the undersigned Notary Public of the state and county aforesaid, personally appeared MACK S. LINEBAUGH, JR., with whom I am personally acquainted, or proved to me on the basis of satisfactory evidence and who, upon oath, acknowledged himself to be Chairman (or other officer authorized to execute the instrument) of THE BANK OF NASHVILLE, the within name bargainor, a Tennessee Banking Corporation, and that he as such Chairman executed the foregoing instrument for the purpose therein contained, by signing the name of the corporation by himself as Chairman. Witness my hand and seal, at office in Nashville, Tennessee, this the 5th day of September, 1996. /s/ Daniel W. Small ----------------------------- Notary Public My Commission Expires: 1-20-99 STATE OF TENNESSEE ) COUNTY OF DAVIDSON ) Before me, the undersigned Notary Public of the state and county aforesaid, personally appeared JOE DOUGHERTY, with whom I am personally acquainted, or proved to me on the basis of satisfactory evidence and who acknowledged that he executed the within instrument for the purposes herein contained. Witness my hand and seal, at office in Nashville, Tennessee, this the 5th day of September, 1996. /s/ Daniel W. Small ----------------------------- Notary Public My Commission Expires: 1-20-99 15 36 EXHIBIT "D" RULES AND REGULATIONS The following Rules and Regulations apply to the Sublease of Commercial Space between The Bank of Nashville and Joe's Coffee, LLC, in respect of the Glendale Shopping Center, 3770 Hillsboro Road, Nashville, Tennessee. Terms used in such Sublease shall be understood to apply herein and, unless other defined herein, capitalized terms shall be understood to have the same meanings as are ascribed to them in the Sublease. RULE 1. No sign, picture, advertisement, or notice shall be displayed, inscribed, painted, or affixed, on any part of the outside or inside of the building in which the Premises are located ("Building"), or on or about the Premises, except as expressly permitted in the Sublease between The Bank of Nashville, as Sublessor, and JOE'S COFFEE, LLC, as Sublessee, and then only of such color, size, style and materials as shall be first specified by the Lessor or the Sublessor in a writing attached or appended to this Sublease. No "For Rent" signs shall be displayed by Sublessee and no showcases, or obstructions, signs, flags, barber poles, statuary, or any advertising device of any kind whatever shall be placed in front of Building or in the passageways, halls, lobbies, or corridors thereof by Sublessee; and Sublessor reserves the right to remove all such showcases, obstructions, signs, flags, barber poles, statuary or advertising devices and all signs other than those provided for, without notice to Sublessee and at its expense. RULE 2. Sublessee shall not without Sublessor's written consent put up or operate any steam engine, boiler, machinery, stove or other devise upon the Premises, or carry on any mechanical business thereof, or do any cooking thereon, or use or allow to be used upon the Premises oil, burning fluids, camphene, kerosene for heating, warming or lighting, or anything (except gas or incandescent electric lights, and those only of such company or companies as may be supplying the Building) for illuminating the Premises. No article deemed unreasonably hazardous by the Sublessor or the Lessor (including, without limitation, explosives and triggering devices) shall be brought into or near the Premises. The Sublessor will not withhold unreasonably its consent to appliances for the proposed coffee shop. RULE 3. No additional locks shall be placed upon any doors of the Premises. Upon the termination of the Lease, the Sublessee shall surrender to Sublessor all keys to the Premises. RULE 4. The Sublessor's executive officers, engineers, maintenance and planning personnel, attorneys, auditors and examiners shall have access to, and they are authorized to enter upon and to inspect, the Premises at all times. RULE 5. Safes, furniture, boxes or other bulky articles shall be carried up into the Premises only with written consent of Sublessor first obtained, and then only by means of the elevators, by the stairways or through the windows of Building as Sublessor may in writing direct, and at such times and in such manner and by such persons as Sublessor may direct. Safes and other heavy articles shall be placed by Sublessee in such places only as may be first specified in writing by Sublessor, and any damage done to Building or to Sublessee or to other persons taking a safe or other heavy article in or out of the Premises, from overloading a floor, or in any other manner, shall be paid for by Sublessee causing such damage. RULE 6. Sublessor will furnish janitor service in the Premises only to the extent generally furnished by Sublessor in the Building in which the Premises are located. Any person employed by Sublessee to do janitor work, shall, while in said Building and outside of said Premises, be subject to and under the control and direction of the space director of the Sublessor as designated from time to time (but not as agent or servant of said Sublessor or of the Lessor). Both the Lessor and Sublessor may retain a pass key to the Premises and be allowed admittance thereto at all times to enable its representatives to examine the Premises from time to time. 16 37 RULE 7. Sublessor reserves all vending rights not directly associated with the Sublessee's coffee shop business. There shall be no vending machines of any nature attached to or placed on or near the Premises by the Sublessee. RULE 8. Sublessee shall have the nonexclusive right, along with other Sublessees of the Building, to use the parking area located on the land upon which the Building is located, except for portions of the parking area necessary for entrances, exits, driveways, walkways, loading, and unloading areas. Reference is here made to the rules and limitations contained in the Primary Lease and Sublessee agrees to comply with such limitations and rules in all respects and at all times. Sublessor shall have the authority at any time to designate portions of the parking area for exclusive use by certain tenants in the Building, or to regulate the use of the parking areas in general. RULE 9. If Sublessee desires telegraphic, telephonic, or other telecommunication connections, or the installation of any other electrical wiring, Sublessor will, upon receiving and consenting to Sublessee's written request, direct the electricians as to where and how the wires are to be introduced and run, and without such directions, no boring, cutting, or installations of wires will be permitted. Such work shall be at the Sublessee's sole cost and expense. RULE 10. Sublessee shall not allow anything to be placed against or near the glass in the partitions between the Premises and the halls or corridors of Building, which shall diminish the light in, or prove unsightly from the halls or corridors or from outside. The Sublessee shall at all times maintain all of the Premises and shared common areas clean, safe and attractive and shall not permit any of its customers (or their families or guests) to interfere with the Sublessor's business, employees, customers, visitors or guests. RULE 11. No electric current, intended for light or power purposes, shall be used by Sublessee, excepting that furnished or approved by Sublessor; nor shall electric or other wires be brought into the Premises, except upon the written consent and approval of Sublessor. RULE 12. Sublessee, when closing his office for business, at any time, shall see that all awnings are pulled up and the windows closed, thus avoiding possible damage from fire, storm, rain, freezing, or other hazards or damages attributable to the elements. RULE 13. Sublessee shall not allow anything to be placed on the outside window ledges of the Premises, nor shall anything be thrown by Sublessee, or its employees, out of the windows of Building; nor shall Sublessee or its employees undertake to regulate the thermostats. if any, which control the heat or air conditioning. RULE 14. No Sublessee shall have, allow, or authorize admittance into the Building at any times other than operating hours, without the prior written approval of the Building manager. RULE 15. Key holders (including all types of "keying" devices such as "security key cards" must obtain written approval from the Sublessor before allowing any other persons to use their keys or similar devices. If any key or other type of security card key holder violates this rule, the Sublessor may immediately repossess that person's key or similar device, and may also void it from the system and/or change the locks at the Sublessee's expense. RULE 16 Food Preparation and Service. Sublessee shall be permitted to serve a menu limited to baked and prepared foods and beverages excluding alcoholic beverages. RULE 17 Employee Dress and Conduct. Sublessee's employees shall at all times be required to present a clean and well groomed appearance. RULE 18 Complaints. All complaints against the Sublessee received by the Sublessor shall be immediately and properly adjusted in a business like manner. 17 38 RULE 19 Permits. Licenses and Approvals. Sublessee shall, and its sole expense, obtain and conspicuously display any and all permits, licenses, or approvals required by any applicable governmental authority for the operation of its business. RULE 20 Serviceware. Sublessee shall not use serviceware (cups, plates, trays, paper goods and similar items) which are offensive, or which in any manner detract from or compete with the Sublessor. Upon request, and for reasonably limited periods of time, Sublessee agrees to use serviceware provided by Sublessor bearing the name of, or advertising for, the Sublessor's business, so long as it reasonably follows the design of Sublessee's business. RULE 21 Trash. Sublessee shall store its garbage, trash, and other refuse in rat-proof, insect-proof, and odorless containers inside the Premises, and remove the same frequently and regularly and, if directed by the Sublessor, by such means and methods and at such times and intervals as are designated by Sublessor, at all Sublessee's sole cost and expense. RULE 22 Hours of Operation. Throughout the term of the Sublease, Sublessee shall continuously conduct in the Premises, with appropriate inventory and staff~ the Permitted Use during Sublessee's posted business hours which shall in any case include the hours of operation of Sublessee's Business. [These rules and regulations supplement the rules of the Lessor in effect on the date hereof. All of the Sublessor's and Lessor's rules and regulations are subject to change from time to time in the discretion of each such person.] 18 EX-10.07 12 RETIREMENT SAVINGS PLAN 1 EXHIBIT 10.07 RESOLUTION OF BOARD OF DIRECTORS OF THE BANK OF NASHVILLE I hereby certify that the following is a true copy of resolutions duly adopted by the Board of Directors of the Employer at a meeting held on August 17, 1993 at which a quorum was present and acting throughout. WHEREAS, The Employer has previously adopted The Bank of Nashville Retirement Plan (hereinafter called the "Former Plan and Trust") originally effective as of October 1, 1990, and amended March 15, 1993; WHEREAS, The Employer desires to amend and restate the Former Plan and Trust in total for the purposes of complying with final TRA'86 regulations and new federal legislation; WHEREAS, The proper officers or representatives of the Employer have previously executed an Adoption Agreement setting forth the terms and conditions of the Employer's amended and restated Plan. NOW THEREFORE, Be it resolved, that the Employer hereby amends and restates the former plan under the terms of The Bank of Nashville Prototype Plan and Trust, effective as of the date defined in the Prototype Plan and Trust; RESOLVED, That the Employer is hereby authorized and directed to pay to the Trustee(s) or Custodian under the Employer's Plan, such sum or sums in accordance with the terms of said Plan from year to year until otherwise directed by this Board. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of said Employer on this 17th day of August,1993. THE BANK OF NASHVILLE (Name of Employer) /s/ Joan B. Marshall ------------------------------------ Secretary's Signature [CORPORATE SEAL] ~ By: Joan B. Marshall, Corporate Secretary -------------------------------------- Secretary's Name 2 RESOLUTION OF THE BOARD OF DIRECTORS OF COMMUNITY FINANCIAL GROUP, INC. ADOPTING THE BANK OF NASHVILLE RETIREMENT SAVINGS PLAN WHEREAS, The Bank of Nashville (the "Bank") adopted The Bank of Nashville Retirement Savings Plan (the "401-K Plan") as a plan for the benefit of employees of the Bank, effective January 1, 1990 and the 401-K Plan was amended March 15, 1993 (the "401-K Plan, as amended"); and WHEREAS, effective as of the close of business on April 30, 1996, Community Financial Group, Inc. ("CFGI") became the holding company for the Bank pursuant to a Plan of Exchange whereby all the outstanding common stock and warrants of the Bank were exchanged for and converted to shares and warrants of CFGI; and WHEREAS, this Board desires to adopt the 401-K Plan, as amended, as a plan for the benefit of the employees of CFGI. NOW, THEREFORE, BE IT RESOLVED, that the 401-K Plan, as amended, is hereby adopted effective as of the close of business on April 30, 1996, as a plan for the benefit of employees of CFGI, and Mack S. Linebaugh, Jr., as Chairman, President and Chief Executive Officer of CFGI is hereby authorized to execute an Adoption Agreement on behalf of CFGI effecting the adoption of said Plan; and BE IT FURTHER RESOLVED, that the officers of this Corporation are hereby authorized and directed to execute such documents and papers and do such acts and things as they shall deem necessary and appropriate to carry out the intent and purposes of these resolutions. CERTIFICATE The undersigned, as Secretary of Community Financial Group, Inc., hereby certifies that the foregoing resolutions were duly adopted by the Board of Directors of the Corporation at a meeting duly called and held on September 24th, 1996, and that said resolutions are in full force and effect and have not been altered, amended or rescinded. This the 30th day of September, 1996. /s/ Joan B. Marshall ----------------- SECRETARY 3 Prototype Cash or Deferred Profit- Sharing Plan #002 NONSTANDARDIZED ADOPTION AGREEMENT PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN AND TRUST/CUSTODIAL ACCOUNT SPONSORED BY THE BANK OF NASHVILLE The Employer named below hereby establishes a Cash or Deferred Profit-Sharing Plan for eligible Employees as provided in this Adoption Agreement and the accompanying Basic Prototype Plan and Trust/Custodial Account Basic Plan Document #04. 1. EMPLOYER INFORMATION NOTE: If multiple Employers are adopting the Plan, complete this section based on the lead Employer. Additional Employers may adopt this Plan by attaching executed signature pages to the back of the Employer's Adoption Agreement. (a) NAME AND ADDRESS: The Bank of Nashville --------------------- 401 Church Street --------------------- Nashville, TN 37219 --------------------- (b) TELEPHONE NUMBER: (615) 271-2000 -------------- (c) TAX ID NUMBER: 62-1379444 ---------- (d) FORM OF BUSINESS: [ ] (i) Sole Proprietor [ ] (ii) Partnership [X] (iii) Corporation [ ] (iv) "S" Corporation (formerly known as Subchapter S) [ ] (v) Other: ------------------------------------------ 1 4 Prototype Cash or Deferred Profit- Sharing Plan #002 (e) NAME OF INDIVIDUAL AUTHORIZED TO ISSUE INSTRUCTIONS TO THE TRUSTEE/CUSTODIAN: Plan Administrative Committee ----------------------------- ----------------------------- (f) NAME OF PLAN: The Bank of Nashville Retirement Savings Plan --------------------------------------------- (g) THREE DIGIT PLAN NUMBER FOR ANNUAL RETURN/REPORT: 001 --- 2. EFFECTIVE DATE (a) This is a new Plan having an effective date of ---------- (b) This is an amended Plan. The effective date of the original Plan was 01-01-90 The effective date of the amended Plan is 03-15-93 with the exception of Sections 7(f), 7(g) and 12 herein which shall be effective as of the first day of the 1989 Plan Year. (c) If different from above, the Effective Date for the Plan's Elective Deferral provisions shall be . ------------- 3. DEFINITIONS (a) "Collective or Commingled Funds" (Applicable to institutional Trustees only.) Investment in collective or commingled funds as permitted at paragraph 13.3(b) of the Basic Plan Document #04 shall only be made to the following specifically named fund(s): ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- Funds made available after the execution of this Adoption Agreement will be listed on schedules attached to the end of this Adoption Agreement. 5 Prototype Cash or Deferred Profit- Sharing Plan #002 (b) "Compensation" Compensation shall be determined on the basis of the: [ ] (i) Plan Year. [ ] (ii) Employer's Taxable Year. [X] (iii) Calendar Year. Compensation [X] shall [ ] shall not include Employer contributions made pursuant to a Salary Savings Agreement which are not includable in the gross income of the Employee for the reasons indicated in the definition of Compensation at 1.12 of the Basic Plan Document #04. For purposes of the Plan, Compensation shall be limited to $ N/A , the maximum amount which will be considered for Plan purposes. [If an amount is specified, it will limit the amount of contributions allowed on behalf of higher compensated Employees. Completion of this section is not intended to coordinate with the $200,000 of Code Section 415(d), thus the amount should be less than $200,000 as adjusted for cost-of-living increases.] (c) Entry Date [ ] (i) The first day of the Plan Year nearest the date on which an Employee meets the eligibility requirements. [ ] (ii) The earlier of the first day of the Plan Year or the first day of the seventh month of the Plan Year coinciding with or following the date on which an Employee meets the eligibility requirements. [ ] (iii) The first day of the Plan Year following the date on which the Employee meets the eligibility requirements. If this election is made, the Service requirement at 4(a)(ii) may not exceed l/2 year and the age requirement at 4(b)(ii) may not exceed 20-1/2. [X] (iv) The first day of the month coinciding with or following the date on which an Employee meets the eligibility requirements. [ ] (v) The first day of the Plan Year, or the first day of the fourth month, or the first day of the seventh month or the f rst day of the tenth month, of the Plan Year coinciding with or 3 6 Prototype Cash or Deferred Profit- Sharing Plan #002 following the date on which an Employee meets the eligibility requirements. (d) "Hours of Service" Shall be determined on the basis of the method selected below. Only one method may be selected. The method selected shall be applied to all Employees covered under the Plan as follows: [X] (i) On the basis of actual hours for which an Employee is paid or entitled to payment. [ ] (ii) On the basis of days worked. An Employee shall be credited with ten (10) Hours of Service if under paragraph 1.42 of the Basic Plan Document #04 such Employee would be credited with at least one (1) Hour of Service during the day. [ ] (iii) On the basis of weeks worked. An Employee shall be credited with forty-five (45) Hours of Service if under paragraph 1.42 of the Basic Plan Document #04 such Employee would be credited with at least one (1) Hour of Service during the week. [ ] (iv) On the basis of semi-monthly payroll periods. An Employee shall be credited with ninety five (95) Hours of Service if under paragraph 1.42 of the Basic Plan Document #04 such Employee would be credited with at least one (1) Hour of Service during the semi-monthly payroll period. [ ] (v) On the basis of months worked. An Employee shall be credited with one hundred-ninety (190) Hours of Service if under paragraph 1.42 of the Basic Plan Document #04 such Employee would be credited with at least one (1) Hour of Service during the month. (e) "Limitation Year" The 12-consecutive month period commencing on January 1 and ending on December 31. (f) "Net Profit" [X] (i) Not applicable (profits will not be required for any contributions to the Plan). [ ] (ii) As defined in paragraph 1.49 of the Basic Plan Document #04. 4 7 Prototype Cash or Deferred Profit- Sharing Plan #002 [ ] (iii) Shall be defined as: _________________________ _________________________ (Only use if definition in paragraph 1.49 of the Basic Plan Document #04 is to be superseded.) (g) "Plan Year" The 12-consecutive month period commencing on January 1 and ending on December 31. If applicable, the first Plan Year will be a short Plan Year commencing on______and ending on __________. Thereafter, the Plan Year shall be as above. (h) "Qualified Early Retirement Age" For purposes of making distributions under the provisions of a Qualified Domestic Relations Order, the Plan's Qualified Early Retirement Age with regard to the Participant against whom the order is entered [X] shall [ ] shall not be the date the order is determined to be qualified. If "shall" is elected, this will only allow payout to the alternate payee(s). (i) "Qualified Joint and Survivor Annuity" The safe-harbor provisions of paragraph 8.7 of the Basic Plan Document #04 [X} are [ ] are not applicable. If not applicable, the survivor annuity shall be______% (50%, 66-2/3%, 75% or 100%) of the annuity payable during the lives of the Participant and Spouse. If no answer is specified, 50% will be used. (j) "Taxable Wage Base" [X] (i) Not Applicable - Plan is not integrated with Social Security. [ ] (ii) The maximum earnings considered wages for such Plan Year under Code Section 3121(a). [ ] (iii) ___% (not more than 100%) of the amount considered wages for such Plan Year under Code Section 3121(a). [ ] (iv) $____, provided that such amount is not in excess of the amount determined under paragraph 3(j)(ii) above. [ ] (v) For the 1989 Plan Year S10,000. For all subsequent Plan Years, 20% of the maximum 5 8 Prototype Cash or Deferred Profit- Sharing Plan #002 earnings considered wages for such Plan Year under Code Section 3121(a). NOTE: Using less than the maximum at (ii) may result in a change in the allocation formula in Section 7. (k) "Valuation Date(s)" Allocations to Participant Accounts will be done in accordance with Article V of the Basic Plan Document #04: [ ] (i) Daily [ ] (ii) Weekly [ ] (iii) Monthly [ ] (iv) Bi-Monthly [X] (v) Quarterly [ ] (vi) Semi-Annually [ ] (vii) Annually (l) "Year of Service" (i) For Eligibility Purposes: The 12-consecutive month period during which an Employee is credited with N/A (not more than 1,000) Hours of Service. (ii) For Allocation Accrual Purposes: The 12 consecutive month period during which an Employee is credited with 501 (not more than 1,000) Hours of Service. (iii) For Vesting Purposes: The 12-consecutive month period - during which an Employee is credited with 1000 (not more than 1,000) Hours of Service. 4. ELIGIBILITY REQUIREMENTS (a) Service: [X] (i) The Plan shall have no service requirement. [ ] (ii) The Plan shall cover only Employees having completed at least_____[not more than 6 9 Prototype Cash or Deferred Profit- Sharing Plan #002 three (3)] Years of Service. If more than one (1) is specified, for Plan Years beginning in 1989 and later, the answer will be deemed to be one (1). NOTE: If the eligibility period selected is less than one year, an Employee will not be required to complete any specified number of Hours of Service to receive credit for such period. (b) Age: [X] (i) The Plan shall have no minimum age requirement. [ ] (ii) The Plan shall cover only Employees having attained age _____ (not more than age 21). (c) Classification: The Plan shall cover all Employees who have met the age and service requirements with the following exceptions: [ ] (i) No exceptions. [X] (ii) The Plan shall exclude Employees included in a unit of Employees covered by a collective bargaining agreement between the Employer and Employee Representatives, if retirement benefits were the subject of good faith bar gaining. For this purpose, the term "Employee Representative" does not include any organization more than half of whose members are Employees who are owners, officers, or executives of the Employer. [ ] (iii) The Plan shall exclude Employees who are nonresident aliens and who receive no earned income from the Employer which constitutes income from sources within the United States. [X] (iv) The Plan shall exclude from participation any nondiscriminatory classification of Employees determined as follows: Part-time and temporary employees who have worked, or are scheduled to work, less than 1,000 hours during a calendar year. 7 10 Prototype Cash or Deferred Profit- Sharing Plan #002 (d) Employees on Effective Date: [ ] (i) Employees employed on the Plan's Effective Date do not have to satisfy the Service requirements specified above. [ ] (ii) Employees employed on the Plan's Effective Date do not have to satisfy the age requirements specified above. 5. RETIREMENT AGES (a) Normal Retirement Age: If the Employer imposes a requirement that Employees retire upon reaching a specified age, the Normal Retirement Age selected below may not exceed the Employer imposed mandatory retirement age. [X] (i) Normal Retirement Age shall be 65 (not to exceed age 65). [ ] (ii) Normal Retirement Age shall be the later of attaining age _______ (not to exceed age 65) or the ______ (not to exceed the 5th) anniversary of the first day of the first Plan Year in which the Participant commenced participation in the Plan. (b) Early Retirement Age: [X] (i) Not Applicable. [ ] (ii) The Plan shall have an Early Retirement Age of ____ (not less than 55) and completion of _____ Years of Service. 6. EMPLOYEE CONTRIBUTIONS [X] (a) Participants shall be permitted to make Elective Deferrals in any amount from 0% up to 10% of their Compensation. If (a) is applicable, Participants shall be permitted to amend their Salary Savings Agreements to change the contribution percentage as provided below: [ ] (i) On the Anniversary Date of the Plan, 8 11 Prototype Cash or Deferred Profit- Sharing Plan #002 [ ] (ii) On the Anniversary Date of the Plan and on the first day of the seventh month of the Plan Year, [X] (iii) On the Anniversary Date of the Plan and on the first day following any Valuation Date, or [ ] (iv) Upon 30 days notice to the Employer. [ ] (b) Participants shall be permitted to make after tax Voluntary Contributions. [ ] (c) Participants shall be required to make after tax Voluntary Contributions as follows (Thrift Savings Plan): [ ] (i) % of Compensation. --- [ ] (ii) A percentage determined by the Employee on his or her enrollment form. [X] (d) If necessary to pass the Average Deferral Percentage Test, Participants [ ] may [X] may not have Elective Deferrals recharacterized as Voluntary Contributions. NOTE: The Average Deferral Percentage Test will apply to contributions under (a) above. The Average Contribution Percentage Test will apply to contributions under (b) and (c) above, and may apply to (a). 7. EMPLOYER CONTRIBUTIONS AND ALLOCATION THEREOF NOTE: The Employer shall make contributions to the Plan in accordance with the formula or formulas selected below. The Employer's contribution shall be subject to the limitations contained in Articles III and X. For this purpose, a contribution for a Plan Year shall be limited for the Limitation Year which ends with or within such Plan Year. Also, the integrated allocation formulas below are for Plan Years beginning in 1989 and later. The Employer's allocation for earlier years shall be as specified in its Plan prior to amendment for the Tax Reform Act of 1986. (a) Profits Requirement: (i) Current or Accumulated Net Profits are required for: [ ] (A) Matching Contributions. [ ] (B) Qualified Non-Elective Contributions. 9 12 Prototype Cash or Deferred Profit- Sharing Plan #002 [ ] (C) discretionary contributions. (ii) No Net Profits are required for: [X] (A) Matching Contributions. [X] (B) Qualified Non-Elective Contributions. [X] (C) discretionary contributions. NOTE: Elective Deferrals can always be contributed regardless of profits. [X] (b) Salary Savings Agreement: The Employer shall contribute and allocate to each Participant's account an amount equal to the amount withheld from the Compensation of such Participant pursuant to his or her Salary Savings Agreement. If applicable, the maximum percentage is specified in Section 6 above. An Employee who has terminated his or her election under the Salary Savings Agreement other than for hardship reasons may not make another Elective Deferral: [ ] (i) until the first day of the next Plan Year. [ ] (ii) until the first day of the next valuation period. [X] (iii) for a period of 6 month(s) (not to exceed 12 months). [X] (c) Matching Employer Contribution [See paragraphs (h) and (i)]: [ ] (i) Percentage Match: The Employer shall contribute and allocate to each eligible Participant's account an amount equal to ___% of the amount contributed and allocated in accordance with paragraph 7(b) above and (if checked)___% of [ ] the amount of Voluntary Contributions made in accordance with paragraph 4.l of the Basic Plan Document #04. The Employer shall not match Participant Elective Deferrals as provided above in excess of $___or in excess of % of the Participant's Compensation or if applicable, Voluntary Contributions in excess of $____ or in excess of ____% of the Participant's 10 13 Prototype Cash or Deferred Profit- Sharing Plan #002 Compensation. In no event will the match on both Elective Deferrals and Voluntary Contributions exceed a combined amount of $___ or ___%. [X] (ii) Discretionary Match: The Employer shall contribute and allocate to each eligible Participant's account a percentage of the Participant's Elective Deferral contributed and allocated in accordance with paragraph 7(b) above. The Employer shall set such percentage prior to the end of the Plan Year. The Employer shall not match Participant Elective Deferrals in excess of $N/A or in excess of N/A% of the Participant's Compensation. [X] (iii) Tiered Match: The Employer shall contribute and allocate to each Participant's account an amount equal to 100% of the first 2% of the Participant's contribution, 50% of the next 4% of the Participant's contribution, N/A % Of the next N/A % of the Participant's contribution. NOTE: Percentages specified in (iii) above may not increase as the percentage of Participant's contribution increases. [ ] (iv) Flat Dollar Match: The Employer shall contribute and allocate to each Participant's account $_____ if the Participant defers at least 1% of Compensation. [ ] (v) Percentage of Compensation Match: The Employer shall contribute and allocate to each Participant's account ______% of Compensation if the Participant defers at least 1% of Compensation. [ ] (vi) Proportionate Compensation Match: The Employer shall contribute and allocate to each Participant who defers at least 1% of Compensation, an amount determined by multiplying such Employer Matching Contribution by a fraction the numerator of which is the Participant's Compensation and the denominator of which is the Compensation of 11 14 Prototype Cash or Deferred Profit- Sharing Plan #002 all Participants eligible to receive such an allocation. [ ] (vii) Qualified Match: Employer Matching Contributions will be treated as Qualified Matching Contributions to the extent specified below: [ ] (A) All Matching Contributions. [ ] (B) None. [ ] (C) ___% of the Employer's Matching Contribution. [ ] (D) Up to ___% of each Participant's Compensation. [ ] (E) The amount necessary to meet the [ ] Average Deferral Percentage (ADP) Test, [ ] Average Contribution Percentage (ACP) Test, [ ] Both the ADP and ACP Tests. (viii) Eligibility for Match: Employer Matching Contributions, whether or not Qualified, will only be made on Employee Contributions not withdrawn prior to the end of the [ ] valuation period [ ] Plan Year. [XX] (d) Qualified Non-Elective Employer Contribution - [See paragraphs (h) and (i)] These contributions are fully vested when contributed. The Employer shall have the right to make an additional discretionary contribution which shall be allocated to each eligible Employee in proportion to his or her Compensation as a percentage of the Compensation of all eligible Employees. This part of the Employer's contribution and the allocation thereof shall be unrelated to any Employee contributions made hereunder. The amount of Qualified non-Elective Contributions taken into account for purposes of meeting the ADP or ACP test requirements is: [ ] (i) All such Qualified non-Elective Contributions. [X] (ii) The amount necessary to meet [ ] the ADP test, [ ] the ACP test, [X] Both the ADP and ACP tests. 12 15 Prototype Cash or Deferred Profit- Sharing Plan #002 Qualified non-Elective Contributions will be made to: [X] (iii) All Employees eligible to participate. [ ] (iv) Only non-Highly Compensated Employees eligible to participate. [X] (e) Additional Employer Contribution Other Than Qualified Non-Elective Contributions - Non-Integrated [See paragraphs (h) and (i)] The Employer shall have the right to make an additional discretionary contribution which shall be allocated to each eligible Employee in proportion to his or her Compensation as a percentage of the Compensation of all eligible Employees. This part of the Employer's contribution and the allocation thereof shall be unrelated to any Employee contributions made hereunder. [ ] (f) Additional Employer Contribution - Integrated Allocation Formula [See paragraphs (h) and (i)] The Employer shall have the right to make an additional discretionary contribution. The Employer's contribution for the Plan Year plus any forfeitures shall be allocated to the accounts of eligible Participants as follows: (i) First, to the extent contributions and forfeitures are sufficient, all Participants will receive an allocation equal to 3% of their Compensation. (ii) Next, any remaining Employer Contributions and forfeitures will be allocated to Participants who have Compensation in excess of the Taxable Wage Base (excess Compensation). Each such Participant will receive an allocation in the ratio that his or her excess compensation bears to the excess Compensation of all Participants. Participants may only receive an allocation of 3 % of excess Compensation. (iii) Next, any remaining Employer contributions and forfeitures will be allocated to all Participants in the ratio that their Compensation plus excess Compensation bears to the total Compensation plus excess Compensation of all Participants. Participants may only receive an allocation of up to 2.7% of their Compensation plus excess Compensation, under this allocation method. If the Taxable Wage Base defined at Section 3(j) is less than or equal to the greater of S10,000 or 20% of the maximum, the 2.7% need not be reduced. If the 13 16 Prototype Cash or Deferred Profit- Sharing Plan #002 amount specified is greater than the greater of $10,000 or 20% of the maximum Taxable Wage Base, but not more than 80%, 2.7% must be reduced to 1.3 %. If the amount specified is greater than 80% but less than 100% of the maximum Taxable Wage Base, the 2.7% must be reduced to 2.4%. NOTE: If the Plan is not Top-Heavy or if the Top-Heavy minimum contribution or benefit is provided under another Plan [see Section 11 (c) (ii)] covering the same Employees, sub-paragraphs (i) and (ii) above may be disregarded and 5.7%, 4.3% or 5.4% may be substituted for 2.7%, 1.3% or 2.4% where it appears in (iii) above. (iv) Next, any remaining Employer contributions and forfeitures will be allocated to all Participants (whether or not they received an allocation under the preceding paragraphs) in the ratio that each Participant's Compensation bears to all Participants' Compensation. [ ] (g) Additional Employer Contribution-Alternative Integrated Allocation Formula. [See paragraph (h) and (i)] The Employer shall have the right to make an additional discre- tionary contribution. To the extent that such contributions are sufficient, they shall be allocated as follows: ____% of each eligible Participant's Compensation plus ____% of Compensation in excess of the Taxable Wage Base defined at Section 3(j) hereof. The percentage on excess compensation may not exceed the lesser of (i) the amount first specified in this paragraph or (ii) the greater of 5.7% or the percentage rate of tax under Code Section 311l(a) as in effect on the first day of the Plan Year attributable to the Old Age (OA) portion of the OASDI provisions of the Social Security Act. If the Employer specifies a Taxable Wage Base in Section 3(j) which is lower than the Taxable Wage Base for Social Security purposes (SSTWB) in effect as of the first day of the Plan Year, the percentage contributed with respect to excess Compensation must be adjusted. If the Plan's Taxable Wage Base is greater than the larger of $10,000 or 20% of the SSTWB but not more than 80% of the SSTWB, the excess percentage is 4.3%. If the Plan's Taxable Wage Base is greater than 80% of the SSTWB but less than 100% of the SSTWB, the excess percentage is 5.4%. NOTE: Only one plan maintained by the Employer may be integrated with Social Security. 14 17 Prototype Cash or Deferred Profit- Sharing Plan #002 (h) Allocation of Excess Amounts (Annual Additions) In the event that the allocation formula above results in an Excess Amount, such excess shall be: [X] (i) placed in a suspense account accruing no gains or losses for the benefit of the Participant. [ ] (ii) reallocated as additional Employer contributions to all other Participants to the extent that they do not have any Excess Amount. (i) Minimum Employer Contribution Under Top-Heavy Plans: For any Plan Year during which the Plan is Top-Heavy, the sum of the contributions and forfeitures as allocated to eligible Employees under paragraphs 7(d), 7(e), 7(f), 7(g) and 9 of this Adoption Agreement shall not be less than the amount required under paragraph 14.2 of the Basic Plan document #04. Top-Heavy minimums will be allocated to: [ ] (i) all eligible Participants. [X] (ii) only eligible non-Key Employees who are Participants. (j) Return of Excess Contributions and/or Excess Aggregate Contributions: In the event that one or more Highly Compensated Employees is subject to both the ADP and ACP tests and the sum of such tests exceeds the Aggregate Limit, the limit will be satisfied by reducing the: [X] (i) the ADP of the affected Highly Compensated Employees. [ ] (ii) the ACP of the affected Highly Compensated Employees. [ ] (iii) a combination of the ADP and ACP of the affected Highly Compensated Employees. 8. ALLOCATIONS TO TERMINATED EMPLOYEES [ ] (a) The Employer will not allocate Employer related contributions to Employees who terminate during a Plan Year, unless required to satisfy the requirements of Code 15 18 Prototype Cash or Deferred Profit- Sharing Plan #002 Section 401(a)(26) and 410(b). (These requirements are effective for 1989 and subsequent Plan Years.) [X] (b) The Employer will allocate Employer matching and other related contributions as indicated below to Employees who terminate during the Plan Year as a result of: Matching Other [X] [X] (i) Retirement. [X] [X] (ii) Disability. [X] [X] (iii) death. [X] [X] (iv) Other termination of employment provided that the Participant has completed a Year of Service as defined for Allocation Accrual Purposes. [ ] [ ] (v) Other termination of employment even though the Participant has not completed a Year of Service. 9. ALLOCATION OF FORFEITURES NOTE: Subsections (a), (b) and (c) below apply to forfeitures of amounts other than Excess Aggregate Contributions. (a) Allocation Alternatives: [X] (i) Forfeitures shall be allocated to Participants in the same manner as the Employer's contribution. If allocation to other Participants is selected, the allocation shall be as follows: [1] Amount attributable to Employer discretionary contributions and Top-Heavy minimums will be allocated to: [ ] all eligible Participants under the Plan. 16 19 Prototype Cash or Deferred Profit- Sharing Plan #002 [X] only those Participants eligible for an allocation of Employer contributions in the current year. [ ] only those Participants eligible for an allocation of matching contributions in the current year. [2] Amounts attributable to Employer Matching contributions will be allocated to: [ ] all eligible Participants. [X] only those Participants eligible for allocations of matching contributions in the current year. [ ] (ii) Forfeitures shall be applied to reduce the Employer's contribution for such Plan Year. [ ] (iii) Forfeitures shall be applied to offset administrative expenses of the Plan. If forfeitures exceed these expenses, (ii) above shall apply. (b) Date for Reallocation: NOTE: If no distribution has been made to a former Participant, subsection (i) below will apply to such Participant even if the Employer elects (ii) or (iii) below as its normal administrative policy. [ ] (i) Forfeitures shall be reallocated at the end of the Plan Year during which the former Participant incurs his or her fifth consecutive one year Break In Service. [ ] (ii) Forfeitures will be reallocated immediately (as of the next Valuation Date). 17 20 Prototype Cash or Deferred Profit- Sharing Plan #002 [X] (iii) Forfeitures shall be reallocated at the end of the Plan Year during which the former Employee incurs his or her 1st (1st, 2nd, 3rd, or 4th) consecutive one year Break In Service. (c) Restoration of Forfeitures: If amounts are forfeited prior to five consecutive 1-year Breaks in Service, the Funds for restoration of account balances will be obtained from the following resources in the order indicated (fill in the appropriate number): [1] (i) Current year's forfeitures. [3] (ii) Additional Employer contribution. [2] (iii) Income or gain to the Plan. (d) Forfeitures of Excess Aggregate Contributions shall be: [X] (i) Applied to reduce Employer contributions. [ ] (ii) Allocated, after all other forfeitures under the Plan, to the Matching Contribution account of each non-highly compensated Participant who made Elective Deferrals or Voluntary Contributions in the ratio which each such Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for such Plan Year. Such forfeitures cannot be allocated to the account of any Highly Compensated Employee. Forfeitures of Excess Aggregate Contributions will be so applied at the end of the Plan Year in which they occur. 10. CASH OPTION [X] (a) The Employer may permit a Participant to elect to defer to the Plan, an amount not to exceed 100% of any Employer paid cash bonus made for such Participant for any year. A Participant must file an election to defer such contribution at least fifteen (15) days prior to the end of the Plan Year. If the Employee fails to make such an election, the entire Employer paid cash bonus to which the Participant would be entitled shall be paid as cash and not to the Plan. Amounts deferred under this section shall be treated for all purposes as Elective Deferrals. Nothwithstanding the above, the election to defer must be made before the bonus is made available to the Participant. 18 21 Prototype Cash or Deferred Profit- Sharing Plan #002 [ ] (b) Not Applicable. 11. LIMITATIONS ON ALLOCATIONS [X] This is the only Plan the Employer maintains or ever maintained, therefore, this section is not applicable. [ ] The Employer does maintain or has maintained another Plan (including a Welfare Benefit Fund or an individual medical account (as defined in Code Section 415(1)(2)), under which amounts are treated as Annual Additions) and has completed the proper sections below. Complete (a), (b) and (c) only if the Employer maintains or ever maintained another qualified plan, including a Welfare Benefit Fund or an individual medical account [as defined in Code Section 415(1)(2)] in which any Participant in this Plan is (or was) a participant or could possibly become a participant. (a) If the Participant is covered under another qualified Defined Contribution Plan maintained by the Employer, other than a Master or Prototype Plan: [ ] (i) the provisions of Article X of the Basic Plan Document #04 will apply, as if the other plan were a Master or Prototype Plan. [ ] (ii) Attach provisions stating the method under which the plans will limit total Annual Additions to the Maximum Permissible Amount, and will properly reduce any Excess Amounts, in a manner that precludes Employer discretion. (b) If a Participant is or ever has been a participant in a Defined Benefit Plan maintained by the Employer: Attach provisions which will satisfy the 1.0 limitation of Code Section 415(e). Such language must preclude Employer discretion. The Employer must also specify the interest and mortality assumptions used in determining Present Value in the Defined Benefit Plan. (c) The minimum contribution or benefit required under Code Section 416 relating to Top-Heavy Plans shall be satisfied by: [ ] (i) this Plan. 19 22 Prototype Cash or Deferred Profit- Sharing Plan #002 [ ] (ii) ______________________________________ ______________________________________ (Name of other qualified plan of the Employer). [ ] (iii) Attach provisions stating the method under which the minimum contribution and benefit provisions of Code Section 416 will be satisfied. If a Defined Benefit Plan is or was maintained, an attachment must be provided showing interest and mortality assumptions used in the Top-Heavy Ratio. 12. VESTING Employees shall have a fully vested and nonforfeitable interest in any Employer contribution and the investment earnings thereon made in accordance with paragraphs (select one or more options) [ ] 7(c), [ ] 7(e), [ ] 7(f), [ ] 7(g) and [ ] 7(i) hereof. Contributions under paragraph 7(b), 7(c)(vii) and 7(d) are always fully vested. If one or more of the foregoing options are not selected, such Employer contributions shall be subject to the vesting table selected by the Employer. Each Participant shall acquire a vested and nonforfeitable percentage in his or her account balance attributable to Employer contributions and the earnings thereon under the procedures selected below except with respect to any Plan Year during which the Plan is Top-Heavy, in which case the Two-twenty vesting schedule [Option (b)(iv)] shall automatically apply unless the Employer has already elected a faster vesting schedule. If the Plan is switched to option (b)(iv), because of its Top-Heavy status, that vesting schedule will remain in effect even if the Plan later becomes non-Top-Heavy until the Employer executes an amendment of this Adoption Agreement indicating otherwise. (a) Computation Period: The computation period for purposes of determining Years of Service and Breaks in Service for purposes of computing a Participant's nonforfeitable right to his or her account balance derived from Employer contributions: [ ] (i) shall not be applicable since Participants are always fully vested, [ ] (ii) shall commence on the date on which an Employee first performs an Hour of Service for the Employer and each subsequent 12 consecutive month period shall commence on the anniversary thereof, or 20 23 Prototype Cash or Deferred Profit- Sharing Plan #002 [X] (iii) shall commence on the first day of the Plan Year during which an Employee first performs an Hour of Service for the Employer and each subsequent 12-consecutive month period shall commence on the anniversary thereof. A Participant shall receive credit for a Year of Service if he or she completes at least 1,000 Hours of Service [or if lesser, the number of hours specified at 3(1)(iii) of this Adoption Agreement] at any time during the 12-consecutive month computation period. Consequently, a Year of Service may be earned prior to the end of the 12-consecutive month computation period and the Participant need not be employed at the end of the 12-consecutive month computation period to receive credit for a Year of Service. (b) Vesting Schedules: NOTE: The vesting schedules below only apply to a Participant who has at least one Hour of Service during or after the 1989 Plan Year. If applicable, Participants who separated from Service prior to the 1989 Plan Year will remain under the vesting schedule as in effect in the Plan prior to amendment for the Tax Reform Act of 1986. (i) Full and immediate Vesting. Years of Service
1 2 3 4 5 6 7 -- -- -- -- -- -- -- (ii) _% 100% (iii) 0 0% 100% (iv) _% 20% 40% 60% 80% 100% (v) _% _% 20% 40% 60% 80% 100% (vi) 10% 20% 30% 40% 60% 80% 100% (vii) _% _% _% _% 100% (viii) _% _% _% _% _% _% 100%
NOTE: The percentages selected for schedule (viii) may not be less for any year than the percentages shown at schedule (v). [X] All contributions other than those which are fully vested when contributed will vest under schedule (iii) above. [ ] Contributions other than those which are fully vested when contributed will vest as provided below: 21 24 Prototype Cash or Deferred Profit- Sharing Plan #002
Vesting Option Selected Type Of Employer Contribution --------------- ----------------------------- _______________ 7(c) Employer Match on Salary Savings _______________ 7(c) Employer Match on Employee Voluntary _______________ 7(e) Employer Discretionary _______________ 7(f) & (g) Employer Discretionary - Integrated
(c) Service disregarded for Vesting: [ ] (i) Service prior to the Effective Date of this Plan or a predecessor plan shall be disregarded when computing a Participant's vested and nonforfeitable interest. [ ] (ii) Service prior to a Participant having attained age 18 shall be disregarded when computing a Participant's vested and nonforfeitable interest. 13. SERVICE WITH PREDECESSOR ORGANIZATION For purposes of satisfying the Service requirements for eligibility, Hours of Service shall include Service with the following predecessor organization(s): (These hours will also be used for vesting purposes.) N/A __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ 14. ROLLOVER/TRANSFER CONTRIBUTIONS (a) Rollover Contributions, as described at paragraph 4.3 of the Basic Plan Document #04,[X] shall [ ] shall not be permitted. If permitted, Employees [X] may [ ] may not make Rollover Contributions prior to meeting the eligibility requirements for participation in the Plan. (b) Transfer Contributions, as described at paragraph 4.4 of the Basic Plan Document #04 [ ] shall [X} shall not be permitted. If permitted, Employees [ ] may [ ] may not make Transfer Contributions prior to meeting the eligibility requirements for participation in the Plan. 22 25 Prototype Cash or Deferred Profit- Sharing Plan #002 NOTE: Even if available, the Employer may refuse to accept such contributions if its Plan meets the safe-harbor rules of paragraph 8.7 of the Basic Plan Document #04. 15. HARDSHIP WITHDRAWALS Hardship withdrawals, as provided for in paragraph 6.9 of the Basic Plan Document #04, [X] are [ ] are not permitted. 16. PARTICIPANT LOANS Participant loans, as provided for in paragraph 13.5 of the Basic Plan Document #04, [ ] are [X] are not permitted. If permitted, repayments of principal and interest shall be repaid to [ ] the Participant's segregated account or [ ] the general Fund. 17. INSURANCE POLICIES The insurance provisions of paragraph 13.6 of the Basic Plan Document #04 [ ] shall [X] shall not be applicable. 18. EMPLOYER INVESTMENT DIRECTION The Employer investment direction provisions, as set forth in paragraph 13.7 of the Basic Plan Document #04, [XX] Shall [ ] shall not be applicable. 19. EMPLOYEE INVESTMENT DIRECTION (a) The Employee investment direction provisions, as set forth in paragraph 13.8 of the Basic Plan Document #04, [X] shall [ ] shall not be applicable. If applicable, Participants may direct their investments among funds offered by the Trustee. (b) Participants may direct the following kinds of contributions and the earnings thereon (check all applicable): [ ] (i) All Contributions [X] (ii) Elective Deferrals [ ] (iii) Employee Voluntary Contributions (after-tax)
23 26 Prototype Cash or Deferred Profit- Sharing Plan #002 [ ] (iv) Employee Mandatory Contributions (after tax) [ ] (v) Employer Qualified Matching Contributions [ ] (vi) Other Employer Matching Contributions [ ] (vii) Employer Qualified Non-Elective Contributions [ ] (viii) Employer Discretionary Contributions [X] (ix) Rollover Contributions [ ] (x) Transfer Contributions [ ] (xi) All of above which are checked, but only to the extent that the Participant is vested in those contributions.
NOTE: To the extent that Employee investment direction was previously allowed, it shall continue to be allowed on those amounts and the earnings thereon. 20. EARLY PAYMENT OPTION (a) A Participant who separates from Service prior to retirement, death or Disability [X] may [ ] may not make application to the Employer requesting an early payment of his or her vested account balance. (b) A Participant who has attained age 59-1/2 and who has not separated from Service [ ] may [X] may not obtain a distribution of his or her vested Employer contributions. Distribution can only be made if the Participant is 100% vested. (c) A Participant who has attained the Plan's Normal Retirement Age and who has not separated from Service [ ] may [X] may not receive a distribution of his or her vested account balance. NOTE: If the Participant has had the right to withdraw his or her account balance in the past, this right may not be taken away. Notwithstanding the above, to the contrary, required minimum distributions will be paid. For timing of distributions, see item 21(a) below. 21. DISTRIBUTION OPTIONS (a) Timing of Distributions: In cases of termination for other than death, Disability or retirement, benefits shall be paid: 24 27 Prototype Cash or Deferred Profit- Sharing Plan #002 [ ] (i) As soon as administratively feasible following the close of the Plan Year during which a distribution is requested or is otherwise payable. [X] (ii) As soon as administratively feasible, following the date on which a distribution is requested or is otherwise payable. [ ] (iii) As soon as administratively feasible, after the close of the Plan Year during which the Participant incurs ______ consecutive one-year Breaks in Service. [ ] (iv) Only after the Participant has achieved the Plan's Normal Retirement Age, or Early Retirement Age, if applicable.
In cases of death, Disability or retirement, benefits shall be paid: [ ] (v) As soon as administratively feasible following the close of the Plan Year during which a distribution is requested or is otherwise payable. [X] (vi) As soon as administratively feasible, following the date on which a distribution is requested or is otherwise payable. [ ] (vii) As soon as administratively feasible, after the close of the Plan Year during which the Participant incurs ______ consecutive one-year Breaks in Service. [ ] (viii) Only after the Participant has achieved the Plan's Normal Retirement Age, or Early Retirement Age, if applicable.
(b) Optional Forms of Payment: [X] (i) Lump Sum. [X] (ii) Installment Payments. [ ] (iii) Life Annuity*. [ ] (iv) Life Annuity Term Certain*. Life Annuity with payments guaranteed for _________ period (not to exceed 20 years, specify all applicable).
25 28 Prototype Cash or Deferred Profit- Sharing Plan #002 [ ] (v) Joint and [ ] 50%, [ ] 66-2/3%, [ ] 75% or [ ] 100% survivor annuity* (specify all applicable). [ ] (vi) Other form(s) specified: _____________________
*Not available in Plan meeting provisions of paragraph 8.7 of Basic Plan Document #04. (c) Recalculation of Life Expectancy: In determining required distributions under the Plan, Participants and/or their Spouse (Surviving Spouse) [ ] shall [X] shall not have the right to have their life expectancy recalculated annually. If "shall", [ ] only the Participant shall be recalculated. [ ] both the Participant and Spouse shall be recalculated. [ ] who is recalculated shall be determined by the Participant.
22. SPONSOR CONTACT Employers should direct questions concerning the language contained in and qualification of the Prototype to: Barbara P. Warren (Job Title) Trust Officer (Phone Number) (615)271-2054 In the event that the Sponsor amends, discontinues or abandons this Prototype Plan, notification will be provided to the Employer's address provided on the first page of this Agreement. 26 29 Prototype Cash or Deferred Profit- Sharing Plan #002 23. SIGNATURES: DUE TO THE SIGNIFICANT TAX RAMIFICATIONS, THE SPONSOR RECOMMENDS THAT BEFORE YOU EXECUTE THIS ADOPTION AGREEMENT, YOU CONTACT YOUR ATTORNEY OR TAX ADVISOR, IF ANY. (a) EMPLOYER: Name and address of Employer if different than specified in Section 1 above. ___________________________________________________________ ___________________________________________________________ ___________________________________________________________ This agreement and the corresponding provisions of the Plan and Trust/Custodial Account Basic Plan Document #04 were adopted by the Employer the 15th day of March, 1993. Signed for the Employer by: Mack S. Linebaugh, Jr. ----------------------------- Title: President - CEO ----------------------------- Signature: /s/ Mack S. Linebaugh Jr. ----------------------------- ----------------------------- THE EMPLOYER UNDERSTANDS THAT ITS FAILURE TO PROPERLY COMPLETE THE ADOPTION AGREEMENT MAY RESULT IN DISQUALIFICATION OF ITS PLAN. Employer's Reliance: The adopting Employer may not rely on an opinion letter issued by the National Office of the Internal Revenue Service as evidence that the Plan is qualified under Code Section 401. In order to obtain reliance with respect to Plan qualification, the Employer must apply to the appropriate Key District Office for a determination letter. This Adoption Agreement may only be used in conjunction with Basic Plan Document #04. 27 30 Prototype Cash or Deferred Profit- Sharing Plan #002 [X] (b) TRUSTEE: Name of Trustee: The Bank of Nashville - Trust Division __________________________________________________________ __________________________________________________________ The assets of the Fund shall be invested in accordance with paragraph 13.3 of the Basic Plan Document #04 as a Trust. As such, the Employer's Plan as, contained herein was accepted by the Trustee the herein was accepted by the Custodian the 15th day of March, 1993. Signed for the Trustee by: Barbara P. Warren --------------------- --------------------- Trust Officer Title: --------------------- --------------------- /s/ Barbara P. Warren Signature: --------------------- ---------------------
[ ] (c) CUSTODIAN: Name of Custodian: __________________________________________________________ __________________________________________________________ The assets of the Fund shall be invested in accordance with paragraph 13.4 of the Basic Plan Document #04 as a Custodial Account. As such, the Employer's Plan as contained herein was accepted by the Custodian the _____ day of _________________, 19___. Signed for the Custodian by: --------------------- --------------------- Title: --------------------- --------------------- Signature: --------------------- ---------------------
(d) SPONSOR: The Employer's agreement and the corresponding provisions of the Plan and Trust/Custodial Account basic Plan Document #04 were accepted by the Sponsor the 15th day of March, 1993. Signed for the Sponsor by: Barbara P. Warren --------------------- Title: Trust Officer --------------------- Signature: /s/ Barbara P. Warren --------------------- 28 31 -M-E-M-O- DATE SEPTEMBER 8, 1993 TO: ALL ASSOCIATES FROM: BARBARA P. WARREN RE: SUMMARY MODIFICATION TO THE BANK OF NASHVILLE RETIREMENT SAVINGS PLAN (401k) With the passage of the Unemployment Compensation Act of 1992, the Plan Administrative Committee has reviewed our procedure as it relates to distribution of TBON stock from the 401(k) Plan. The Unemployment Compensation Act provides that mandatory 20% withholding will generally be applicable to all distributions from qualified plans unless the distribution is directly rolled over into another qualified plan or an IRA. Our Plan currently provides that all distributions of TBON stock will be made in-kind. This does not allow much flexibility in making a Direct Rollover as generally only brokerage firm IRA's can except stock. As a result, effective immediately, the Plan Administrative Committee has decided to allow distributions of Employer stock account balances from the 401(k) Plan to be made in either cash or in-kind stock (with fractional shares being converted to cash). The method of distribution is to be determined by the participant at the appropriate time. Should a participant choose to receive his/her Employer stock account balance in the form of cash, the value of the account will be based on the Valuation Date (December 31, March 31, June 30, or September 30) preceding date of payment. Please place this Summary Modification with your Summary Plan Description booklet for your future reference. If you should have any questions pertaining to the above, please do not hesitate to give me a call. 32 PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN AND TRUST/CUSTODIAL ACCOUNT Sponsored By BANK OF NASHVILLE Nashville, Tennessee BASIC PLAN DOCUMENT #04 FEBRUARY 1993 COPYRIGHT 1993 THE McKAY HOCHMAN COMPANY, INC. 33 THIS DOCUMENT IS COPYRIGHTED UNDER THE LAWS OF THE UNITED STATES. USE, DUPLICATION OR REPRODUCTION, INCLUDING THE USE OF ELECTRONIC MEANS, IS PROHIBITED BY LAW WITHOUT THE EXPRES CONSENT OF THE AUTHOR TABLE OF CONTENTS
PARAGRAPH PAGE - --------- ---- ARTICLE I ----------- DEFINITIONS ----------- 1.1 Actual Deferral Percentage 1 1.2 Adoption Agreement 1 1.3 Aggregate Limit 2 1.4 Annual Additions 2 1.5 Annuity Starting Date 2 1.6 Applicable Calendar Year 2 1.7 Applicable Life Expectancy 3 1.8 Average Contribution Percentage (ACP) 3 1.9 Average Deferral Percentage (ADP) 3 1.10 Break In Service 3 1.11 Code 3 1.12 Compensation 3 1.13 Contribution Percentage 5 1.14 Custodian 6 1.15 Defined Benefit Plan 6 1.16 Defined Benefit (Plan) Fraction 6 1.17 Defined Contribution Dollar Limitation 6 1.18 Defined Contribution Plan 7 1.19 Defined Contribution (Plan) Fraction 7 1.20 Designated Beneficiary 7 1.21 Disability 7 1.22 Distribution Calendar Year 7 1.23 Early Retirement Age 7 1.24 Earned Income 8 1.25 Effective Date 8 1.26 Election Period 8 1.27 Elective Deferral 8 1.28 Eligible Participant 8 1.29 Employee 8 1.30 Employer 9 1.31 Entry Date 9 1.32 Excess Aggregate Contributions 9 1.33 Excess Amount 9 1.34 Excess Contribution 9 1.35 Excess Elective Deferrals 9 1.36 Family Member 9 1.37 First Distribution Calendar Year 10 1.38 Fund 10 1.39 Hardship 10 1.40 Highest Average Compensation 10 1.41 Highly Compensated Employee 10 1.42 Hour Of Service 10 1.43 Key Employee 12
34 1.44 Leased Employee 12 1.45 Limitation Year 12 1.46 Master Or Prototype Plan 12 1.47 Matching Contribution 12 1.48 Maximum Permissible Amount 12 1.49 Net Profit 13 1.50 Normal Retirement Age 13 1.51 Owner-Employee 13 1.52 Paired Plans 13 1.53 Participant 13 1.55 Permissive Aggregation Group 13 1.56 Plan 13 1.57 Plan Administrator 13 1.58 Plan Year 13 1.59 Present Value 13 1.60 Projected Annual Benefit 14 1.61 Qualified Deferred Compensation Plan 14 1.62 Qualified Domestic Relations Order 14 1.63 Qualified Early Retirement Age 14 1.64 Qualified Joint And Survivor Annuity 14 1.65 Qualified Matching Contribution 15 1.66 Qualified Non-Elective Contributions 15 1.67 Qualified Voluntary Contribution 15 1.68 Required Aggregation Group 15 1.69 Required Beginning Date 15 1.70 Rollover Contribution 15 1.71 Salary Savings Agreement 16 1.72 Self-Employed.Individual 16 1.73 Service 16 1.74 Shareholder Employee 16 1.75 Simplified Employee Pension Plan 16 1.76 Sponsor 16 1.77 Spouse (Surviving Spouse) 16 1.78 Super Top-Heavy Plan 16 1.79 Taxable Wage Base 16 1.80 Top-Heavy Determination Date 16 1.81 Top-Heavy Plan 16 1.82 Top-Heavy Ratio 17 1.83 Top-Paid Group 18 1.84 Transfer Contribution 18 1.85 Trustee 18 1.86 Valuation Date 19 1.87 Vested Account Balance 19 1.88 Voluntary Contribution 19 1.89 Welfare Benefit Fund 19 1.90 Year Of Service 19
ARTICLE II ELIGIBLITY REQUIREMENTS 2.1 Participation 20 2.2 Change In Classification Of Employment 20 2.3 Computation Period 20 2.4 Employment Rights 20 2.5 Service With Controlled Groups 20
35 2.6 Owner-Employees 20 2.7 Leased Employees 21 2.8 Thrift Plans 22
ARTICLE III EMPLOYER CONTRIBUTIONS 3.1 Amount 23 3.2 Expenses And Fees 23 3.3 Responsibility For Contributions 23 3.4 Return Of Contributions 23
ARTICLE IV EMPLOYEE CONTRIBUTIONS 4.1 Voluntary Contributions 24 4.2 Qualified Voluntary Contributions 24 4.3 Rollover Contribution 24 4.4 Transfer Contribution 25 4.5 Employer Approval Of Transfer Contributions 25 4.6 Elective Deferrals 26 4.7 Required Voluntary Contributions 26 4.8 Direct Rollover Of Benefits 27
ARTICLE V PARTICIPANT ACCOUNTS 5.1 Separate Accounts 28 5.2 Adjustments To Participant Accounts 28 5.3 Allocating Employer Contributions 29 5.4 Allocating Investment Earnings And Losses 29 5.5 Participant Statements 30
ARTICLE VI RETIREMENT BENEFITS AND DISTRIBUTIONS 6.1 Normal Retirement Benefits 31 6.2 Early Retirement Benefits 31 6.3 Benefits On Termination Of Employment 31 6.4 Restrictions On Immediate Distributions 33 6.5 Normal Form Of Payment 33 6.6 Commencement Of Benefits 34 6.7 Claims Procedures 34 6.8 In-Service Withdrawals 35 6.9 Hardship Withdrawal 36
36 ARTICLE VII DISTRIBUTION REQUIREMENTS 7.1 Joint And Survivor Annuity Requirements 38 7.2 Minimum Distribution Requirements 38 7.3 Limits On Distribution Periods 38 7.4 Required Distributions On Or After The Required Beginning Date 38 7.5 Required Beginning Date 39 7.6 Transitional Rule 40 7.7 Designation Of Beneficiary For Death Benefit 42 7.8 Nonexistence Of Beneficiary 42 7.9 Distribution Beginning-Defore Death 42 7.10 Distribution Beginning After Death 42 7.11 Distribution Of Excess Elective Deferrals 43 7.12 Distributions Of Excess Contributions 44 7.13 Distribution Of Excess Aggregate Contributions 44
ARTICLE VIII JOINT AND SURVIVOR ANNUITY REQUIREMENTS 8.1 Applicability Of Provisions 46 8.2 Payment Of Qualified Joint And Survivor Annuity 46 8.3 Payment Of Qualified Pre-Retirement Survivor Annuity 46 8.4 Qualified Election 46 8.5 Notice Requirements For Qualified Joint And Survivor Annuity 46 8.6 Notice Requirements For Qualified Pre Retirement Survivor Annuity 47 8.7 Special Safe-Harbor Exception For Certain Profit-Sharing Plans 48 8.8 Transitional Joint And Survivor Annuity Rules 49 8.9 Automatic Joint And Survivor Annuity And Early Survivor Annuity 49 8.10 Annuity Contracts 50
ARTICLE IX VESTING 9.1 Employee Contributions 51 9.2 Employer Contributions 51 9.3 Computation Period 51 9.4 Requalification Prior To Five Consecutive One-Year Breaks In Service 51 9.5 Requalification After Five Consecutive One-Year Breaks In Service 51 9.6 Calculating Vested Interest 51 9.7 Forfeitures 52 9.8 Amendment Of Vesting Schedule 52 9.9 Service With Controlled Groups 52
37 ARTICLE X LIMITATIONS ON ALLOCATIONS AND ANTIDiSCRIMINATION TESTING 10.1 Participation In This Plan Only 53 10.2 Disposition Of Excess Annual Additions 53 10.3 Participation In This Plan And Another Prototype Defined Contribution Plan, Welfare Benefit Fund, Or Other Medical Account Maintained By The Employer 54 10.4 Disposition Of Excess Annual Additions Under Two Plans 55 10.5 Participation In This Plan And Another Defined Contribution Plan Which Is Not A Master Or Prototype Plan 55 10.6 Participation In This Plan And A Defined Benefit Plan 55 10.7 Average Deferral Percentage (ADP) Test 56 10.8 Special Rules Relating To Application 56 Of ADP Test 10.9 Recharacterization 57 10.10 Average Contribution Percentage (ACP) Test 58 10.11 Special Rules Relating To Application 58 Of ACP Test
ARTICLE XI ADMINISTRATION 11.1 Plan Administrator 61 11.2 Trustee/Custodian 61 11.3 Administrative Fees And Expenses 62 11.4 Division Of Duties And Indemnification 62
ARTICLE XII TRUST FUND/CUSTODIAL ACCOUNT 12.1 The Fund 64 12.2 Control Of Plan Assets 64 12.3 Exclusive Benefit Rules 64 12.4 Assignment And Alienation Of Benefits 64 12.5 Determination Of Qualified Domestic Relations Order (QDRO). 64
ARTICLE XIII INVESTMENTS 13.1 Fiduciary Standards 66 13.2 Funding Arrangement 66 13.3 Investment Alternatives Of The Trusee 66 13.4 Investment Alternatives Of The Custdian 67 13.5 Participant Loans 67
38 13.6 Insurance Policies 69 13.7 Employer Investment Direction 71 13.8 Employee Investment Direction 71
ARTICLE XIV TOP-HEAVY PROVISIONS 14.1 Applicability Of Rules 73 14.2 Minimum Contribution 73 14.3 Minimum Vesting 73 14.4 Limitations On Allocations 74
ARTICLE XV AMENDMENT AND TERMINATION 15.1 Amendment By Sponsor 75 15.2 Amendment By Employer 75 15.3 Termination 75 15.4 Qualification Of Employer's Plan 75 15.5 Mergers And Consolidations 76 15.6 Resignation And Removal 76 15.7 Qualification Of Prototype 76
ARTICLE XVI GOVERNING LAW 77 39 PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN AND TRUST/CUSTODIAL ACCOUNT Sponsored By BANK OF NASHVILLE The Sponsor hereby establishes the following Prototype Retirement Plan and Trust/Custodial Account for use by those of its customers who qualify and wish to adopt a qualified retirement program. Any Plan and Trust/Custodial Account established hereunder shall be administered for the exclusive benefit of Participants and their beneficiaries under the following terms and conditions: ARTICLE I DEFINITIONS 1.1 Actual Deferral Percentage The ratio (expressed as a percentage and calculated separately for each Participant) of: (a) the amount of Employer contributions [as defined at (c) and (d)] actually paid over to the Fund on behalf of such Participant for the Plan Year to (b) the Participant's Compensation for such Plan Year. Compensation will only include amounts for the period during which the Employee was eligible to participate. Employer contributions on behalf of any Participant shall include: (c) any Elective Deferrals made pursuant to the Participant's deferral election, including Excess Elective Deferrals, but excluding Elective Deferrals that are either taken into account in the Contribution Percentage test (provided the ADP test is satisfied both with and without exclusion of these Elective Deferrals) or are returned as excess Annual Additions; and (d) at the election of the Employer, Qualified Non-Elective Contributions and Qualified Matching Contributions. For purposes of computing Actual Deferral Percentages, an Employee who would be a Participant but for the failure to make Elective Deferrals shall be treated as a Participant on whose behalf no Elective Deferrals are made. 1.2 Adoption Agreement The document attached to this Plan by which an Employer elects to establish a qualified retirement plan and trust/custodial account under the terms of this Prototype Plan and Trust/Custodial Account. 1 40 1.3 Aggregate Limit The sum of: (a) 125 percent of the greater of the ADP of the non-Highly Compensated Employees for the Plan Year or the ACP of non-Highly Compensated Employees under the Plan subject to Code Section 401(k) for the Plan Year beginning with or within the Plan Year of the cash or deferred arrangement as described in Code Section 401(k) or Code Section 402(h)(1)(B), and (b) the lesser of 200% or two percent plus the lesser of such ADP or ACP. Alternatively, the aggregate limit can be determined by substituting "the lesser of 200% or 2 percent plus" for "125% of" iN (a) above, and substituting "125% of" for "the lesser of 200% or 2 percent plus" in (b) above. 1.4 Annual Additions The sum of the following amounts credited to a Participant's account for the Limitation Year: (a) Employer Contributions, (b) Employee Contributions (under Article IV), (c) forfeitures, (d) amounts allocated after March 31, 1984 to an individual medical account, as defined in Code Section 415(1)(2), which is part of a pension or annuity plan maintained by the Employer (these amounts are treated as Annual Additions to a Defined Contribution Plan though they arise under a Defined Benefit Plan), and (e) amounts derived from contributions paid or accrued after 1985, in taxable years ending after 1985, which are either attributable to post-retirement medical benefits allocated to the account of a Key Employee, or to a Welfare Benefit Fund maintained by the Employer, are also treated as Annual Additions to a Defined Contribution Plan. For purposes of this paragraph, an Employee is a Key Employee if he or she meets the requirements of paragraph 1.43 at any time during the Plan Year or any preceding Plan Year. Welfare Benefit Fund is defined at paragraph 1.89. Excess amounts applied in a Limitation Year to reduce Employer contributions will be considered Annual Additions for such Limitation Year, pursuant to the provisions of Article X. 1.5 Annuity Starting Date The first day of the first period for which an amount is paid as an annuity or in any other form. 1.6 Applicable Calendar Year The First Distribution Calendar Year, and in the event of the recalculation of life expectancy, such succeeding calendar year. If payments commence in accordance with paragraph 7.4(e) before the Required Beginning Date, the Applicable Calendar Year is the year such payments commence. If distribution is in the form of an immediate annuity purchased after the Participant's death with the participants remaining interest, the Applicable Calendar Year is the year of purchase. 2 41 1.7 Applicable Life Expectancy Used in determining the required minimum distribution. the life expectancy (or joint and last survivor expectancy) calculated using the attained age of the Participant (or Designated Beneficiary) as of the Participant's (or Designated Beneficiary's) birthday in the Applicable Calendar Year reduced by one for each calendar year which has elapsed since the date life expectancy was first calculated. If life expectancy is being recalculated, the Applicable Life Expectancy shall be the life expectancy as so recalculated. The life expectancy of a non-Spouse Beneficiary may not be recalculated. 1.8 Average Contribution Percentage (ACP) The average of the Contribution Percentages for each Highly Compensated Employee and for each non-Highly Compensated Employee. 1.9 Average Deferral Percentage (ADP) The average of the Actual Deferral Percentages for each' Highly Compensated Employee and for each non-Highly Compensated Employee. 1.10 Break In Service A 12-consecutive month period during which an Employee fails to complete more than 500 Hours of Service. 1.11 Code The Internal Revenue Code of 1986, including any amendments. 1.12 Compensation The Employer may select one of the following three safe harbor definitions of Compensation in the Adoption Agreement. Compensation shall only include amounts earned while a Participant if Plan Year is chosen as the applicable computation period. (a) CODE SECTION 3401(a) WAGES. Compensation is defined as wages within the meaning of Code Section 3401(a) for the purposes of Federal income tax withholding at the source but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed [such as the exception for agricultural labor in Code Section 3401(a)(2)]. (b) CODE SECTION 6041 AND 6051 Wages. Compensation is defined as wages as defined in Code Section 3401(a) and all other payments of compensation to an Employee by the Employer (in the course of the Employer's trade or, business) for which the Employer is required to furnish, the employee a written statement under Code Section 6041 (d) and 6051 (a)(3). Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed [such as the exception for agricultural labor in Code Section 3401 (a)(2). 3 42 (c) CODE SECTION 415 COMPENSATION. For purposes of applying the limitations of Article X and Top-Heavy Minimums, the definition of Compensation shall be Code Section 415 Compensation defined as follows: a Participant's Earned Income, wages, salaries, and fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer maintaining the Plan to the extent that the amounts are includible in gross income [including, but not limited to, commissions paid salesmen, Compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits and reimbursements or other expense allowances under a nonaccountable plan (as described in Regulation 1.62-2(c)], and excluding the following: 1. Employer contributions to a plan of deferred compensation which are not includible in the Employee's gross income for the taxable year in which contributed, or Employer contributions under a Simplified Employee Pension Plan or any distributions from a plan of deferred compensation, 2. Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture, 3. Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and 4. other amounts which received special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in Code Section 403(b) (whether or not the contributions are actually excludible from the gross income of the Employee). For purposes of applying the limitations of Article X and Top-Heavy Minimums, the definition of Compensation' shall be Code Section 415 Compensation described in this paragraph 1.12(c). Also, for purposes of applying the limitations of Article X, Compensation for a Limitation Year is the Compensation actually paid or made available during such Limitation Year. Notwithstanding the preceding sentence, Compensation for a Participant in a defined contribution plan who is permanently and totally disabled [as defined in Code Section 22(e)(3)] is the Compensation such Participant would have received for the Limitation Year if the participant had been paid at the rate oF Compensation paid immediately before becoming permanently and totally disabled. Such imputed Compensation for the disabled Participant may be taken into account only if the participant is not a highly compensated Employee [AS defined in Code Section 414(q)] and contributions made on behalf of such Participant are nonforfeitable when made. 4 43 If the Employer fails to pick the applicable period in the Adoption Agreement, the Plan Year shall be used. Unless otherwise specified by the Employer in the Adoption Agreement, Compensation shall be determined as provided in Code Section 3401(a) [as defined in this paragraph 1.12(a)]. In nonstandardized Adoption Agreement 002, the Employer may choose to eliminate or exclude categories of Compensation which do not violate the provisions of Code Sections 401(a)(4), 414(s) the regulations thereunder and Revenue Procedure 89-65. Beginning with 1989 Plan Years, the annual Compensation of each Participant which may be taken into account for determining all benefits provided under the Plan (including benefits under Article XIV) for any year shall not exceed $200,000, as adjusted under Code Section 415(d). In determining the Compensation of a Participant for purposes of this limitation, the rules of Code Section 414(q)(6) shall apply, except in applying such rules, the term "family" shall include only the Spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the end of the Plan year. If, as a result of the application of such rules the adjusted $200,000 limitation is exceeded, then (except for purposes of determining the portion of Compensation up to the integration level if this Plan provides for permitted disparity), the limitation shall be prorated among the affected individuals in proportion to each such individual's Compensation as determined under this section prior to the application of this limitation. If a Plan has a Plan Year that contains fewer than 12 calendar months, then the annual Compensation limit for that period is an amount equal to the S200,000 as adjusted for the calendar year in which the Compensation period begins, multiplied by a fraction the numerator of which is the number of full months in the Short Plan Year and the denominator of which is 12. If Compensation for any prior Plan Year is taken into account in determining an Employee's contributions or benefits for the current year, the Compensation for such prior year is subject to the applicable annual Compensation limit in effect for that prior year. For this purpose, for years beginning before January 1, 1990, the applicable annual Compensation limit is $200,000. Compensation shall not include deferred Compensation other than contributions through a salary reduction agreement to a cash or deferred plan under Code Section 401(k), a Simplified Employee Pension Plan under Code Section 402(h)(1)(B), a cafeteria plan under Code Section 125 or a tax-deferred annuity under Code Section 403(b). Unless elected otherwise by the Employer in the Adoption Agreement, these deferred amounts will be considered as Compensation for Plan purposes. These deferred amounts are not counted as Compensation for purposes of Articles X and XIV. When applicable to a Self-Employed Individual, Compensation shall mean Earned Income. 1.13 Contribution Percentage The ratio (expressed as a percentage and calculated separately for each Participant) of: (a) the Participant's Contribution Percentage Amounts [as defined at (c)-(f)] for the Plan Year, to (b) the Participant's Compensation for the Plan Year. Compensation will only include amounts for the period during which the Employee was eligible to participate. 5 44 Contribution Percentage Amounts on behalf of any Participant shall include: (c) the amount of Employee Voluntary Contributions, Matching Contributions, and Qualified Matching Contributions (to the extent not taken into account for purposes of the ADP test) made under the Plan on behalf of the Participant for the Plan Year, (d) forfeitures of Excess Aggregate Contributions or Matching Contributions allocated to the Participant's account which shall be taken into account in the year in which such forfeiture is allocated, (e) at the election of the Employer, Qualified Non-Elective Contributions, and (f) the Employer also may elect to use Elective Deferrals in the Contribution Percentage Amounts so long as the ADP test is met before the Elective Deferrals are used in the ACP test and continues to be met following the exclusion of those Elective Deferrals that are used to meet the ACP test. Contribution Percentage Amounts shall not include Matching Contributions, whether or not Qualified, that are forfeited either to correct Excess Aggregate Contributions, or because the contributions to which they relate are Excess Deferrals, Excess Contributions, or Excess Aggregate Contributions. 1.14 Custodian The Sponsor of this Prototype, or, if applicable, an affiliate or successor, shall serve as Custodian if a Custodian is appointed in the Adoption Agreement. 1.15 Defined Benefit Plan A Plan under which a Participant's benefit is determined by a formula contained in the Plan and no individual accounts are maintained for Participants. 1.16 Defined Benefit (Plan) Fraction: A fraction, the numerator of which is the sum of the Participant's Projected Annual Benefits under all the Defined Benefit Plans (whether or not terminated) maintained by the Employer, and the denominator of which is the lesser of 125 percent of the dollar limitation determined for the Limitation Year under Code Sections 415(b) and (d) or 140 percent of the Highest Average Compensation, including any adjustments under Code Section 415(b). Notwithstanding the above, if the Participant was a Participant as of the first day of the first Limitation Year beginning after 1986, in one or more Defined Benefit Plans maintained by the Employer which were in existence on May 6, 1986, the denominator of this fraction will not be less than 125 percent of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last Limitation Year beginning before 1987, disregarding any changes in the terms and conditions of the plan after May 5, 1986. The preceding sentence applies only if the Defined Benefit Plans individually and in the aggregate satisfied the requirements of Section 415 for all Limitation Years beginning before 1987. 1.17 Defined Contribution Dollar Limitation Thirty thousand dollars ($30,000) or if greater, one-fourth of the defined benefit dollar limitation set forth in Code Section 415(b)(1) as in effect for the Limitation Year. 6 45 1.18 Defined Contribution Plan A Plan under which INDIVIDUAL ACCOUNTS ARE maintained for each Participant to which all contributions, forfeitures, investment income and gains or losses, and expenses are credited or deducted. A Participant's benefit under such Plan is based solely on the fair market value of his or her account balance. 1.19 Defined Contribution (Plan) Fraction A Fraction, the numerator of which is the sum of the Annual Additions to the Participant's account under all the Defined Contribution Plans (whether or not terminated) maintained by the Employer for the current and all prior Limitation Years (including the Annual Additions attributable to the Participant's nondeductible Employee contributions to all Defined Benefit Plans, whether or not terminated, maintained by the Employer, and the Annual Additions attributable to all Welfare Benefit Funds, as defined in paragraph 1.89 and individual medical accounts, as defined in Code Section 415(1)(2), maintained by the Employer), and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior Limitation Years of service with the Employer (regardless of whether a Defined Contribution Plan was maintained by the Employer). The maximum aggregate amount in the Limitation Year is the lesser of 125 percent of the dollar limitation determined under Code Sections 415(b) and (d) in effect under Code Section 415(c)(1)(A) or 35 percent of the Participant's Compensation for such year. If the Employee was a Participant as of the end of the first day of the first Limitation Year beginning after 1986, in one or more Defined Contribution Plans maintained by the Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (1) the excess of the sum of the fractions over 1.0 times (2) the denominator of this fraction will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last Limitation Year beginning before 1987, and disregarding any changes in the terms and conditions of the Plan made after May 6, 1986, but using the Section 415 limitation applicable to the first Limitation Year beginning on or after January 1, 1987. The Annual Addition for any Limitation Year beginning before 1987, shall not be re-computed to treat all Employee Contributions as Annual Additions. 1.20 Designated Beneficiary The individual who is designated as the beneficiary under the Plan in accordance with Code Section 401(a)(9) and the regulations thereunder. 1.21 Disability An illness or injury of a potentially permanent nature, expected to last for a continuous period of not less than 12 months, certified by a physician selected by or satisfactory to the Employer, which prevents the Employee from engaging in any occupation for wage or profit for which the Employee is reasonably fitted by training, education or experience. 1.22 Distribution Calendar Year A calendar year for which a minimum distribution is required. 1.23 Early Retirement Age The age set by the Employer in the Adoption Agreement (but not less than 55), which is the earliest age at which a Participant may retire and receive his or her benefits under the Plan. 7 46 1.24 Earned Income Net earnings from self-employment in the trade or business with respect to which the Plan is established, determined without regard to items not included in gross income and the deductions allocable to such items, provided that personal services of the individual are a material income-producing factor. Earned income shall be reduced by contributions made by an Employer to a qualified plan to the extent deductible under Code Section 404. For tax years beginning after 1989, net earnings shall be determined taking into account the deduction for one-half of self-employment taxes allowed to the Employer under Code Section 164(f) to the extent deductible. 1.25 Effective Date The date on which the Employer's retirement plan or amendment to such plan becomes effective. For amendments reflecting statutory and regulatory changes post Tax Reform Act of 1986, the Effective Date will be the earlier of the date upon which such amendment is first administratively applied or the first day of the Plan Year following the date of adoption of such amendment. 1.26 Election Period The period which begins on the first day of the Plan Year in which the Participant attains age 35 and ends on the date of the Participant's death. If a Participant separates from service prior to the first day of the Plan Year in which age 35 is attained, the Election Period shall begin on the date of separation, with respect to the account balance as of the date of separation. 1.27 Elective Deferral Employer contributions made to the Plan at the election of the Participant, in lieu of cash Compensation. Elective Deferrals shall also include contributions made pursuant to a Salary Savings Agreement or other deferral mechanism, such as a cash option contribution. With respect to any taxable year, a Participant's Elective Deferral is the sum of all Employer contributions made on behalf of such Participant pursuant to an election to defer under any qualified cash or deferred arrangement as described in Code Section 401(k), any simplified employee pension cash or deferred arrangement as described in Code Section 402(h)(1)(B), any eligible deferred compensation plan under Code Section 457, any plan as described under Code Section 501(c)(18), and any Employer contributions made on the behalf of a Participant for the purchase of an annuity contract under Code Section 403(b) pursuant to a Salary Savings Agreement. Elective Deferrals shall not include any deferrals properly distributed as Excess Annual Additions. 1.28 Eligible Participant Any Employee who is eligible to make a Voluntary Contribution, or an Elective Deferral (if the Employer takes such contributions into account in the calculation of the Contribution Percentage), or to receive a Matching Contribution (including forfeitures) or a Qualified Matching Contribution. If a Voluntary Contribution or Elective Deferral is required as a condition of participation in the Plan, any Employee who would be a Participant in the Plan if such Employee made such a contribution shall be treated as an Eligible Participant even though no Voluntary Contributions or Elective Deferrals are made. 1.29 Employee Any person employed by the Employer (including Self-Employed Individuals and partners), all Employees of a member of an affiliated service group [as defined in Code Section 414(m)], Employees of a controlled group of corporations [as defined in Code Section 414(b)], all Employees of any incorporated or unincorporated trade or business which is under common control [as defined in Code Section 414(c)], Leased Employees [as defined in Code Section 414(n)] and any Employee required to be aggregated by Code Section 414(o). All such Employees shall be treated as employed by a single Employer. 8 47 1.30 Employer The Self-Employed Individual, partnership, corporation or other organization which adopts this Plan including any firm that succeeds the Employer and adopts this Plan. For purposes of Article X, Limitations on Allocations, Employer shall mean the Employer that adopts this Plan, and all members of a controlled group of corporations [as defined in Code Section 414(b) as modified by Code Section 415(h)], all commonly controlled trades or businesses [as defined in Code Section 414(c) as modified by Code Section 415(h)] or affiliated service groups [as defined in Code SECTION 414(m)] of which the adopting Employer is a part, and any other entity required to be aggregated with the Employer pursuant to regulations under Code Section 414(o). 1.31 Entry Date The date on which an Employee commences participation in the Plan as determined by the Employer in the Adoption Agreement. 1.32 Excess Aggregate Contributions The excess, with respect to any Plan Year, of: (a) The aggregate Contribution Percentage Amounts taken into account in computing the numerator of the Contribution Percentage actually made on behalf of Highly Compensated Employees for such Plan Year, over (b) The maximum Contribution Percentage Amounts permitted by the ACP test (determined by reducing contributions made on behalf of Highly Compensated Employees in order of their Contribution Percentages beginning with the highest of such percentages). Such determination shall be made after first determining Excess Elective Deferrals pursuant to paragraph 1.35 and then determining Excess Contributions pursuant to paragraph 1.34. 1.33 Excess Amount The excess of the Participant's Annual Additions for the Limitation Year over the Maximum Permissible Amount. 1.34 Excess Contribution With respect to any Plan Year, the excess of: (a) The aggregate amount of Employer contributions actually taken into account in computing the ADP of Highly Compensated Employees for such Plan Year, over (b) The maximum amount of such contributions permitted by the ADP test (determined by reducing contributions made on behalf of Highly Compensated Employees in order of the ADPs, beginning with the highest of such percentages). 1.35 Excess Elective Deferrals Those Elective Deferrals that are includible in a Participant's gross income under Code Section 402(g) to the extent such Participant's Elective Deferrals for a taxable year exceed the dollar limitation under such Code Section. Excess Elective Deferrals shall be treated as Annual Additions under the plan, unless such amounts are distributed no later than the first April 15th following the close of the Participant's taxable year. 1.36 Family Member Employee's Spouse, any lineal descendants and ascendants and the Spouse of such lineal descendants and ascendants. 9 48 1.37 First Distribution Calendar Year For distributions beginning before the Participant's death, the First Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant's Required Beginning Date. For distributions beginning after the Participant's death, the First Distribution Calendar Year is the calendar year in which distributions are required to begin pursuant to paragraph 7.10. 1.38 Fund All contributions received by the Trustee/Custodian under this Plan and Trust/Custodial Account, investments thereof and earnings and appreciation thereon. 1.39 Hardship An immediate and heavy financial need of the Employee where such Employee lacks other available resources. 1.40 Highest Average Compensation The average Compensation for the three consecutive Years of Service with the Employer that produces the highest average. A Year of Service with the Employer is the 12-consecutive month period defined in the Adoption Agreement. 1.41 Highly Compensated Employee Any Employee who performs service for the Employer during the determination year and who, during the immediate prior year: (a) received Compensation from the Employer in excess of $75,000 [as adjusted pursuant to Code Section 415(d)]; or (b) received Compensation from the Employer in excess of S50,000 [as adjusted pursuant to Code Section 415(d)] and was a member of the Top-Paid Group for such year; or (c) was an officer of the Employer and received Compensation during such year that is greater than 50 percent of the dollar limitation in effect under Code Section 415(b)(1)(A). Notwithstanding (a), (b) and (c), an Employee who was not Highly Compensated during the preceding Plan Year shall not be treated as a Highly Compensated Employee with respect to the current Plan Year unless such Employee is a member of the 100 Employees paid the greatest Compensation during the year for which such determination is being made. (d) Employees who are five percent (5%) Owners at any time during the immediate prior year or determination year. Highly Compensated Employee includes Highly Compensated active Employees and Highly Compensated former Employees. 1.42 Hour Of Service (a) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer. These hours shall be credited to the Employee for the computation period in which the duties are performed; and 10 49 (b) Each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, in capacity (including disability), layoff, jury duty, military duty or leave of absence. No more than 501 Hours of Service shall be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). Hours under this paragraph shall be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations which are incorporated herein by this reference; and (c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same Hours of Service shall not be credited both under paragraph (a) or paragraph (b), as the case may be, and under this paragraph (c). These hours shall be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. (d) Hours of Service shall be credited for employment with the Employer and with other members of an affiliated service group [as defined in Code Section 414(m)], a controlled group of corporations [as defined in Code Section 414(b)], or a group of trades or businesses under common control [as defined in Code Section 414(c)] of which the adopting Employer is a member, and any other entity required to be aggregated with the Employer pursuant to Code Section 414(o) and the regulations thereunder. Hours of Service shall also be credited for any individual considered an Employee for purposes of this Plan under Code Section 414(n) or Code Section 414(o) and the regulations thereunder. (e) Solely for purposes of determining whether a Break in Service, as defined in paragraph 1.10, for participation and vesting purposes has occurred in a computation period, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, 8 Hours of Service per day of such absence. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence by reason of the pregnancy of the individual, by reason of a birth of a child of the individual, by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or for purposes of caring for such child for a period beginning immediately following such birth or placement. The Hours of Service credited under this paragraph shall be credited in the computation period in which the absence begins if the crediting is necessary to prevent a break in Service in that period, or in all other cases, in the following computation period. No more than 501 hours will be credited under this paragraph. (f) Hours of Service shall be determined on the basis of the method selected in the Adoption Agreement. 11 50 1.43 Key Employee Any Employee or former Employee (and the beneficiaries of such employee) who at any time during the determination period was an officer of the Employer if such individual's annual compensation exceeds 50% of the dollar limitation under Code Section 415(b)(1)(A) (the defined benefit maximum annual benefit), an owner (or considered an owner under Code Section 318) of one of the ten largest interests in the employer if such individual's compensation exceeds 100% of the dollar limitation under Code Section 415(c)(1)(A), a 5% owner of the Employer, or a 1% owner of the Employer who has an annual compensation of more than S150,000. For purposes of determining who is a Key Employee, annual compensation shall mean Compensation as defined for Article X, but including amounts deferred through a salary reduction agreement to a cash or deferred plan under Code Section 401(k), a Simplified Employee Pension Plan under Code Section 408(k), a cafeteria plan under Code Section 125 or a tax-deferred annuity under Code Section 403(b). The determination period is the Plan Year containing the Determination Date and the four preceding Plan Years. The determination of who is a Key Employee will be made in accordance with Code Section 416(i)(1) and the regulations thereunder. 1.44 Leased Employee Any person (other than an Employee of the recipient) who, pursuant to an agreement between the recipient and any other person ("leasing organization"), has performed services for the recipient [or for the recipient and related persons determined in accordance with Code Section 414(n)(6)] on a substantially full-time basis for a period of at least one year, and such services are of a type historically performed by Employees in the business field of the recipient Employer. 1.45 Limitation Year The calendar year or such other 12-consecutive month period designated by the Employer in the Adoption Agreement for purposes of determining the maximum Annual Addition to a Participant's account. All qualified plans maintained by the Employer must use the same Limitation Year. If the Limitation Year is amended to a different 12-consecutive month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made. 1.46 Master Or Prototype Plan A plan, the form of which is the subject of a favorable opinion letter from the Internal Revenue Service. 1.47 Matching Contribution An Employer contribution made to this or any other defined contribution plan on behalf of a Participant on account of an Employee Voluntary Contribution made by such Participant, or on account of a Participant's Elective Deferral, under a Plan maintained by the Employer. 1.48 Maximum Permissible Amount The maximum Annual Addition that may be contributed or allocated to a Participant's account under the plan for any Limitation Year shall not exceed the lesser of: (a) the Defined Contribution Dollar Limitation, or (b) 25% of the Participant's Compensation for the Limitation Year. The compensation limitation referred to in (b) shall not apply to any contribution for medical benefits [within the meaning of Code Section 401(h) or Code Section 419A(f)(2)] which is otherwise treated as an Annual Addition under Code Section 415(1)(1) or 419(d)(2). If a short Limitation Year is created because of an amendment changing the Limitation Year to a different 12-consecutive month period, the Maximum Permissible Amount will not exceed the Defined Contribution Dollar Limitation multiplied by the following fraction: Number of months in the short Limitation Year divided by 12. 12 51 1.49 Net Profit The current and accumulated operating earnings of the Employer before Federal and State income taxes, excluding nonrecurring or unusual items of income, and before contributions to this and any other qualified plan of the Employer. Alternatively, the Employer may fix another definition in the Adoption Agreement. 1.50 Normal Retirement Age The age, set by the Employer in the Adoption Agreement, at which a Participant may retire and receive his or her benefits under the Plan. 1.51 Owner-Employee A sole proprietor, or a partner owning more than 10% of either the capital or profits interest of the partnership. 1.52 Paired Plans Two or more Plans maintained by the Sponsor designed so that a single or any combination of Plans adopted by an Employer will meet the anti-discrimination rules, the contribution and benefit limitations, and the Top-Heavy provisions of the Code. 1.53 Participant Any Employee who has met the eligibility requirements and is participating in the Plan. 1.54 Participant's Benefit The account balance as of the last Valuation Date in the calendar year immediately preceding the Distribution Calendar Year (valuation calendar year) increased by the amount of any contributions or forfeitures allocated to the account balance as of the dates in the valuation calendar year after the Valuation Date and decreased by distributions made in the valuation calendar year after the Valuation Date. A special exception exists for the second distribution Calendar Year. For purposes of this paragraph, if any portion of the minimum distribution for the First Distribution Calendar Year is made in the second Distribution Calendar Year on or before the Required Beginning Date, the amount of the minimum distribution made in the second distribution calendar year shall be treated as if it had been made in the immediately preceding Distribution Calendar Year. 1.55 Permissive Aggregation Group Used for Top-Heavy testing purposes, it is the Required Aggregation Group of plans plus any other plan or plans of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Code Sections 401(a)(4) and 410. 1.56 Plan The Employer's retirement plan as embodied herein and in the Adoption Agreement. 1.57 Plan Administrator The Employer. 1.58 Plan Year The 12-consecutive month period designated by the Employer in the Adoption Agreement. 1.59 Present Value Used for Top-Heavy test and determination purposes, when determining the Present Value of accrued benefits, with respect to any defined benefit Plan maintained by the Employer, interest and mortality rates shall be determined in accordance with the provisions of the respective plan. If applicable, interest and mortality assumptions will be specified in Section 11 of the Adoption Agreement. 13 52 1.60 Projected Annual Benefit Used to test the maximum benefit which may be obtained from a combination of retirement plans, it is the annual retirement benefit (adjusted to an actuarial equivalent straight life annuity if such benefit is expressed in a form other than a straight life annuity or Qualified Joint and Survivor Annuity) to which the Participant would be entitled under the terms of a Defined Benefit Plan or plans, assuming: (a) the Participant will continue employment until Normal Retirement Age under the plan (or current age, if later), and (b) the Participant's Compensation for the current Limitation Year and all other relevant factors used to determine benefits under the plan will remain constant for all future Limitation Years. 1.61 Qualified Deferred Compensation Plan Any pension, profit-sharing, stock bonus, or other plan which meets the requirements of Code Section 401 and includes a trust exempt from tax under Code Section 501(a) or any annuity plan described in Code Section 403(a). An Eligible Retirement Plan is an individual retirement account (IRA) as described in Code Section 408(a), an individual retirement annuity (IRA) as described in Code Section 408(b), an annuity plan as described in Code Section 403(a), or a qualified trust as described in Code Section 401(a), which accepts Eligible Rollover Distributions. However in the case of an Eligible Rollover Distribution to a Surviving Spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. 1.62 Qualified Domestic Relations Order A QDRO is a signed Domestic Relations Order issued by a State Court which creates, recognizes or assigns to an alternate payee(s) the right to receive all or part of a Participant's Plan benefit and which meets the requirements of Code Section 414(p). An alternate payee is a Spouse, former Spouse, child, or other dependent who is treated as a beneficiary under the Plan as a result of the QDRO. 1.63 Qualified Early Retirement Age For purposes of paragraph 8.9, Qualified Early Retirement Age is the latest of: (a) the earliest date, under the Plan, on which the Participant may elect to receive retirement benefits, or (b) the first day of the 120th month beginning before the Participant reaches Normal Retirement Age, or (c) the date the Participant begins participation. 1.64 Qualified Joint And Survivor Annuity An immediate annuity for the life of the Participant with a survivor annuity for the life of the Participant's Spouse which is at least one-half of but not more than the amount of the annuity payable during the joint lives of the Participant and the Participant's Spouse. The exact amount of the Survivor Annuity is to be specified by the Employer in the Adoption Agreement. If not designated by the Employer, the Survivor Annuity will be 1/2 of the amount paid to the Participant during his or her lifetime. The Qualified Joint and Survivor Annuity will be the amount of benefit which can be provided by the Participant's Vested Account Balance. 14 53 1.65 Qualified Matching Contribution Matching Contributions which when made are subject to the distribution and nonforfeitability requirements under Code Section 401(k). 1.66 Qualified Non-Elective Contributions Contributions (other than Matching Contributions or Qualified Matching Contributions) made by the Employer and allocated to Participants' accounts that the Participants may not elect to receive in cash until distributed from the Plan; that are nonforfeitable when made; and that are distributable only in accordance with the distribution provisions that are applicable to Elective Deferrals and Qualified Matching Contributions. 1.67 Qualified Voluntary Contribution A tax-deductible voluntary Employee contribution. These contributions may no longer be made to the Plan. 1.68 Required Aggregation Group Used for Top-Heavy testing purposes, it consists of: (a) each qualified plan of the Employer in which at least one Key Employee participates or participated at any time during the determination period (regardless of whether the plan has terminated), and (b) any other qualified plan of the Employer which enables a plan described in (a) to meet the requirements of Code Sections 401(a)(4) or 410. 1.69 Required Beginning Date The date on which a Participant is required to take his or her first minimum distribution under the Plan. The rules are set forth at paragraph 7.5. 1.70 Rollover Contribution A contribution made by a Participant of an amount distributed to such Participant from another Qualified Deferred Compensation Plan in accordance with Code Sections 402(a)(5), (6), and (7). An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Participant except that an Eligible Rollover Distribution does not include: (a) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Participant or the joint lives (or joint life expectancies) of the Participant and the Participant's Designated Beneficiary, or for a specified period of ten years or more; (b) any distribution to the extent such distribution is required under Code Section 401(a)(9); and (c) the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities). A Direct Rollover is a payment by the plan to the Eligible Retirement Plan specified by the Participant. 15 54 1.71 Salary Savings Agreement An agreement between the Employer and a participating Employee where the Employee authorizes the Employer to withhold a specified percentage of his or her Compensation for deposit to the Plan on behalf of such Employee. 1.72 Self-Employed Individual An individual who has Earned Income for the taxable year from the trade or business for which the Plan is established including an individual who would have had Earned Income but for the fact that the trade or business had no Net Profit for the taxable year. 1.73 Service The period of current or prior employment with the Employer. If the Employer maintains a plan of a predecessor employer, Service for such predecessor shall be treated as Service for the Employer. 1.74 Shareholder Employee An Employee or Officer who owns [or is considered as owning within the meaning of Code Section 31 8(a)(1)], on any day during the taxable year of an electing small business corporation (S Corporation), more than 5% of such corporation's outstanding stock. 1.75 Simplified Employee Pension Plan An individual retirement account which meets the requirements of Code Section 408(k), and to which the Employer makes contributions pursuant to a written formula. These plans are considered for contribution limitation and Top-Heavy testing purposes. 1.76 Sponsor Bank Of Nashville, or any successor(s) or assign(s). 1.77 Spouse (Surviving Spouse) The Spouse or Surviving Spouse of the Participant, provided that a former Spouse will be treated as the Spouse or Surviving Spouse and a current Spouse will not be treated as the Spouse or Surviving Spouse to the extent provided under a Qualified Domestic Relations Order as described in Code Section 414(p). 1.78 Super Top-Heavy Plan A Plan described at paragraph 1.81 under which the Top-Heavy Ratio [as defined at paragraph 1.82] exceeds 90%. 1.79 Taxable Wage Base For plans with an allocation formula which takes into account the Employer's contribution under the Federal Insurance Contributions Act (FICA), the maximum amount of earnings which may be considered wages for such Plan Year under the Social Security Act [Code Section 3121(a)(1)], or the amount elected by the Employer in the Adoption Agreement. 1.80 Top-Heavy Determination Date For any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, the last day of that year. 1.81 Top-Heavy Plan For any Plan Year beginning after 1983, the Employer's Plan is top-heavy if any of the following conditions exist: (a) If the Top-Heavy Ratio for the Employer's Plan exceeds 60% and this Plan is not part of any required Aggregation Group or Permissive Aggregation Group of Plans. (b) If the Employer's plan is a part of a Required Aggregation Group of plans but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the group of plans exceeds 60%. 16 55 (c) If the Employer's plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group of plans and the Top Heavy Ratio for the Permissive Aggregation Group exceeds 60%. 1.82 Top-Heavy Ratio (a) If the Employer maintains one or more Defined Contribution plans (including any Simplified Employee Pension Plan) and the Employer has not maintained any Defined Benefit Plan which during the 5-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-Heavy Ratio for this Plan alone, or for the Required or Permissive Aggregation Group as appropriate, is a fraction, (1) the numerator of which is the sum of the account balances of all Key Employees as of the Determination Date(s) [including any part of any account balance distributed in the 5-year period ending on the Determination Date(s)], and (2) the denominator of which is the sum of all account balances [including any part of any account balance distributed in the 5-year period ending on the Determination Date(s)], both computed in accordance with Code Section 416 and the regulations thereunder. Both the numerator and denominator of the Top-Heavy Ratio are increased to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under Code Section 416 and the regulations thereunder. (b) If the Employer maintains one or more Defined Contribution Plans (including any Simplified Employee Pension Plan) and the Employer maintains or has maintained one or more Defined Benefit Plans which during the 5-year period ending on the Determination Date(s) has or has. had any accrued benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of account balances under the aggregated Defined Contribution Plan or Plans for all Key Employees, determined in accordance with (a) above, and the Present Value of accrued benefits under the aggregated Defined Benefit Plan or Plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated Defined Contribution Plan or Plans for all Participants, determined in accordance with (a) above, and the Present Value of accrued benefits under the Defined Benefit Plan or Plans for all Participants as of the Determination Date(s), all determined in accordance with Code Section 416 and the regulations thereunder. The accrued benefits under a Defined Benefit Plan in both the numerator and denominator of the Top-Heavy Ratio are increased for any distribution of an accrued benefit made in the 5-year period ending on the Determination Date. 17 56 (c) For purposes of (a) and (b) above, the value of account balances and the Present Value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in Code Section 416 and the regulations thereunder for the first and second plan years of a Defined Benefit Plan. The account balances and accrued benefits of a participant (1) who is not a Key Employee but who was a Key Employee in a prior year, or (2) who has not been credited with at least one hour of service with any Employer maintaining the Plan at any time during the 5-year period ending on the Determination Date, will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Code Section 416 and the regulations thereunder. Qualified Voluntary Employee Contributions will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. The accrued benefit of a Participant other than a Key Employee shall be determined under (1) the method, if any, that uniformly applies for accrual purposes under all Defined Benefit Plans maintained by the Employer, or (2) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Code Section 411(b)(1)(C). 1.83 Top-Paid Group The group consisting of the top 20% of Employees when ranked on the basis of Compensation paid during such year. For purposes of determining the number of Employees in the group (but not who is in it), the following Employees shall be excluded: (a) Employees who have not completed 6 months of Service. (b) Employees who normally work less than 17-1/2 hours per week. (c) Employees who normally do not world more than 6 months during any year. (d) Employees who have not attained age 21. (e) Employees included in a collective bargaining unit, covered by an agreement between employee representatives and the Employer, where retirement benefits were the subject of good faith bargaining and provided that 90% or more of the Employer's Employees are covered by the agreement. (f) Employees who are nonresident aliens and who receive no earned income which constitutes income from sources within the United States. 1.84 Transfer Contribution A non-taxable transfer of a Participant's benefit directly from a Qualified Deferred Compensation Plan to this Plan. 1.85 Trustee The Sponsor of this Prototype Plan shall serve as Trustee. 18 57 1.86 Valuation Date The last day of the Plan Year or such other date as agreed to by the Employer and the Trustee/Custodian on which Participant accounts are revalued in accordance with Article V hereof. For Top-Heavy purposes, the date selected by the Employer as of which the Top-Heavy Ratio is calculated. 1.87 Vested Account Balance The aggregate value of the Participant's Vested Account Balances derived from Employer and Employee contributions (including Rollovers), whether vested before or upon death, including the proceeds of insurance contracts, if any, on the Participant's life. The provisions of Article VIII shall apply to a Participant who is vested in amounts attributable to Employer contributions, Employee contributions (or both) at the time of death or distribution. 1.88 Voluntary Contribution An Employee contribution made to the Plan by or on behalf of a Participant that is included in the Participant's gross income in the year in which made and that is maintained under a separate account to which earnings and losses are allocated. 1.89 Welfare Benefit Fund Any fund that is part of a plan of the Employer, or has the effect of a plan, through which the Employer provides welfare benefits to Employees or their beneficiaries. For these purposes, Welfare Benefits means any benefit other than those with respect to which Code Section 83(h) (relating to transfers of property in connection with the performance of services), Code Section 404 (relating to deductions for contributions to an Employee's trust or annuity and Compensation under a deferred payment plan), Code Section 404A (relating to certain foreign deferred compensation plans) apply. A "Fund" is any social club, voluntary employee benefit association, supplemental unemployment benefit trust or qualified group legal service organization described in Code Section 501(c)(7), (9), (17) or (20); any trust, corporation, or other organization not exempt from income tax, or to the extent provided in regulations, any account held for an Employer by any person. 1.90 Year Of Service A 12-consecutive month period during which an Employee is credited with not less than 1,000 (or such lesser number as specified by the Employer in the Adoption Agreement) Hours of Service. 19 58 ARTICLE II ELIGIBILITY REQUIREMENTS 2.1 PARTICIPATION Employees who meet the eligibility requirements in the Adoption Agreement on the Effective Date of the Plan shall become Participants as of the Effective Date of the Plan. If so elected in the Adoption Agreement, all Employees employed on the Effective Date of the Plan may participate, even if they have not satisfied the Plan's specified eligibility requirements. Other Employees shall become Participants on the Entry Date coinciding with or immediately following the date on which they meet the eligibility requirements. The Employee must satisfy the eligibility requirements specified in the Adoption Agreement and be employed on the Entry Date to become a Participant in the Plan. In the event an Employee who is not a member of the eligible class of Employees becomes a member of the eligible class, such Employee shall participate immediately if such Employee has satisfied the minimum age and service requirements and would have previously become a Participant had he or she been in the eligible class. A former Participant shall again become a Participant upon returning to the employ of the Employer at the next Entry Date or if earlier, the next Valuation Date. For this purpose, Participant's Compensation and Service shall be considered from date of rehire. 2.2 CHANGE IN CLASSIFICATION OF EMPLOYMENT In the event a Participant becomes ineligible to participate because he or she is no longer a member of an eligible class of Employees, such Employee shall participate upon his or her return to an eligible class of Employees. 2.3 COMPUTATION PERIOD To determine Years of Service and Breaks in Service for purposes of eligibility, the 12-consecutive month period shall commence on the date on which an Employee first performs an Hour of Service for the Employer and each anniversary thereof, such that the succeeding 12-consecutive month period commences with the employee's first anniversary of employment and so on. If, however, the period so specified is one year or less, the succeeding 12-consecutive month period shall commence on the first day of the Plan Year prior to the anniversary of the date they first performed an Hour of Service regardless of whether the Employee is entitled to be credited with 1,000 (or such lesser number as specified by the Employer in the Adoption Agreement) Hours of Service during their first employment year. 2.4 EMPLOYMENT RIGHTS Participation in the Plan shall not confer upon a Participant any employment rights, nor shall it interfere with the Employer's right to terminate the employment of any Employee at any time. 2.5 SERVICE WITH CONTROLLED GROUPS All Years of Service with other members of a controlled group of corporations [as defined in Code Section 414(b)], trades or businesses under common control [as defined in Code Section 414(c)], or members of an affiliated service group [as defined in Code Section 414(m)] shall be credited for purposes of determining an Employee's eligibility to participate. 2.6 OWNER-EMPLOYEES If this Plan provides contributions or benefits for one or more Owner-Employees who control both the business for which this Plan is established and one or more other trades or businesses, this Plan and the Plan established for other trades or businesses must, when looked at as a single Plan, satisfy Code Sections 401(a) and (d) for the Employees of this and all other trades or businesses. 20 59 If the Plan provides contributions or benefits for one or more Owner-Employees who control one or more other trades or businesses, the Employees of the other trades or businesses must be included in a Plan which satisfies Code Sections 40l(a) and (d) and which provides contributions and benefits not less favorable than provided for Owner-Employees under this Plan. If an individual is covered as an Owner-Employee under the plans of two or more trades or businesses which are not controlled, and the individual controls a trade or business, then the contributions or benefits of the Employees under the plan of the trades or businesses which are controlled must be as favorable as those provided for him or her under the most favorable plan of the trade or business which is not controlled. For purposes of the preceding sentences, an Owner-Employee, or two or more Owner-Employees, will be considered to control a trade or business if the Owner-Employee, or two or more Owner-Employees together: (a) own the entire interest in an unincorporated trade or business, or (b) in the case of a partnership, own more than 50% of either the capital interest or the profits interest in the partnership. For purposes of the preceding sentence, an Owner-Employee, or two or more Owner-Employees shall be treated as owning any interest in a partnership which is owned, directly or indirectly, by a partnership which such Owner-Employee, or such two or more Owner-Employees, are considered to control within the meaning of the preceding sentence. 2.7 LEASED EMPLOYEES Any Leased Employee shall be treated as an Employee of the recipient Employer; however, contributions or benefits provided by the leasing organization which are attributable to services performed for the recipient Employer shall be treated as provided by the recipient Employer. A Leased Employee shall not be considered an Employee of the recipient if such Employee is covered by a money purchase pension plan providing: (a) a non-integrated Employer contribution rate of at least 10% of Compensation, [as defined in Code Section 415(c)(3) but including amounts contributed by the Employer pursuant to a salary reduction agreement, which are excludable from the Employee's gross income under a cafeteria plan covered by Code Section 125, a cash or Deferred profit-sharing plan under Section 401(k) of the Code, a Simplified Employee Pension Plan under Code Section 402(h)(1)(B ) and a tax-sheltered annuity under Code Section 403(b)], (b) immediate participation, and (c) full and immediate vesting. This exclusion is only available if Leased Employees do not constitute more than twenty percent (20%) of the recipient's non-highly compensated work force. 21 60 2.8 THRIFT PLANS If the Employer makes an election in the Adoption Agreement to require Voluntary Contributions to participate in this Plan, the Employer shall notify each eligible Employee in writing of his or her eligibility for participation at least 30 days prior to the appropriate Entry Date. The Employee shall indicate his or her intention to join the Plan by authorizing the Employer to withhold a percentage of his or her Compensation as provided in the Plan. Such authorization shall be returned to the Employer at least 10 days prior to the Employee's Entry Date. The Employee may decline participation by so indicating on the enrollment form or by failure to return the enrollment form to the Employer prior to the Employee's Entry Date. If the Employee declines to participate, such Employee shall be given the opportunity to join the Plan on the next Entry Date. The taking of a Hardship Withdrawal under the provisions of paragraph 6.9 will impact the Participant's ability to make these contributions. 22 61 ARTICLE III EMPLOYER CONTRIBUTIONS 3.1 AMOUNT The Employer intends to make periodic contributions to the Plan in accordance with the formula or formulas selected in the Adoption Agreement. However, the Employer's contribution for any Plan Year shall be subject to the limitations on allocations contained in Article X. 3.2 EXPENSES AND FEES The Employer shall also be authorized to reimburse the Fund for all expenses and fees incurred in the administration of the Plan or Trust/Custodial Account and paid out of the assets of the Fund. Such expenses shall include, but shall not be limited to, fees for professional services, printing and postage. Brokerage commissions may not be reimbursed. 3.3 RESPONSIBILITY For Contributions Neither the Trustee/Custodian nor the Sponsor shall be required to determine if the Employer has made a contribution or if the amount contributed is in accordance with the Adoption Agreement or the Code. The Employer shall have sole responsibility in this regard. The Trustee/Custodian shall be accountable solely for contributions actually received by it, within the limits of Article XI. 3.4 RETURN OF CONTRIBUTIONS Contributions made to the Fund by the Employer shall be irrevocable except as provided below: (a) Any contribution forwarded to the Trustee/Custodian because of a mistake of fact, provided that the contribution is returned to the Employer within one year of the contribution. (b) In the event that the Commissioner of Internal Revenue determines that the Plan is not initially qualified under the Internal Revenue Code, any contribution made incident to that initial qualification by the Employer must be returned to the Employer within one year after the date the initial qualification is denied, but only if the application for the qualification is made by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe. (c) Contributions forwarded to the Trustee/Custodian are presumed to be deductible and are conditioned on their deductibility. Contributions which are determined to not be deductible will be returned to the Employer. 23 62 ARTICLE IV EMPLOYEE CONTRIBUTIONS 4.1 VOLUNTARY CONTRIBUTIONS An Employee may make Voluntary Contributions to the Plan established hereunder if so authorized by the Employer in a uniform and nondiscriminatory manner. Such contributions are subject to the limitations on Annual Additions and are subject to antidiscrimination testing. 4.2 QUALIFIED VOLUNTARY CONTRIBUTIONS A Participant may no longer make Qualified Voluntary Contributions to the Plan. Amounts already contributed may remain in the Trust Fund/Custodial Account until distributed to the Participant. Such amounts will be maintained in a separate account which will be nonforfeitable at all times. The account will share in the gains and losses of the Trust in the same manner as described at paragraph 5.4 of the Plan. No part of the Qualified Voluntary Contribution account will be used to purchase life insurance. Subject to Article VIII, Joint and Survivor Annuity Requirements (if applicable), the Participant may withdraw any part of the Qualified Voluntary Contribution account by making a written application to the Plan Administrator. 4.3 ROLLOVER CONTRIBUTION Unless provided otherwise in the Adoption Agreement, a Participant may make a Rollover Contribution to any Defined Contribution Plan established hereunder of all or any part of an amount distributed or distributable to him or her from a Qualified Deferred Compensation Plan provided: (a) the amount distributed to the Participant is deposited to the Plan no later than the sixtieth day after such distribution was received by the Participant, (b) the amount distributed is not one of a series of substantially equal periodic payments made for the life (or life expectancy) of the Participant or the joint lives (or joint life expectancies) of the Participant and the Participant's Designated Beneficiary, or for a specified period of ten years or more; (c) the amount distributed is not required under Code Section 401(a)(9); (d) if the amount distributed included property such property is rolled over, or if sold the proceeds of such property may be rolled over, (e) the amount distributed is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). In addition, if the Adoption Agreement allows Rollover Contributions, the Plan will also accept any Eligible Rollover Distribution (as defined at paragraph 1.70) directly to the Plan. Rollover Contributions, which relate to distributions prior to January 1, 1993, must be made in accordance with paragraphs (a) through (e) and additionally meet the requirements of paragraph (f): 24 63 (f) The distribution from the Qualified Deferred Compensation Plan constituted the Participant's entire interest in such Plan and was distributed within one taxable year to the Participant: (1) on account of separation from Service, a Plan termination, or in the case of a profit-sharing or stock bonus plan, a complete discontinuance of contributions under such plan within the meaning of Code Section 402(a)(6)(A), or (2) in one or more distributions which constitute a qualified lump sum distribution within the meaning of Code Section 402(e)(44(A), determined without reference to subparagraphs (B) and (H). Such Rollover Contribution may also be made through an individual retirement account qualified under Code Section 408 where the IRA was used as a conduit from the Qualified Deferred Compensation Plan, the Rollover Contribution is made in accordance with the rules provided under paragraphs (a) through (e) and the Rollover Contribution does not include any regular IRA contributions, or earnings thereon, which the Participant may have made to the IRA. Rollover Contributions, which relate to distributions prior to January 1, 1993, may be made through an IRA in accordance with paragraphs (a) through (f) and additional requirements. as provided in the previous sentence. The Trustee/Custodian shall not be held responsible for determining the tax-free status of any Rollover Contribution made under this Plan. 4.4 Transfer Contribution Unless provided otherwise in the Adoption Agreement a Participant may, subject to the provisions of paragraph 4.5, also arrange for the direct transfer of his or her benefit from a Qualified Deferred Compensation Plan to this Plan. For accounting and record keeping purposes, Transfer Contributions shall be treated in the same manner as Rollover Contributions. In the event the Employer accepts a Transfer Contribution from a Plan in which the Employee was directing the investments of his or her account, the Employer may continue to permit the Employee to direct his or her investments in accordance with paragraph 13.7 with respect only to such Transfer Contribution. Notwithstanding the above, the Employer may refuse to accept such Transfer Contributions. 4.5 Employer Approval Of Transfer Contributions The Employer maintaining a Safe-Harbor Profit-Sharing Plan in accordance with the provisions of paragraph 8.7, acting in a nondiscriminatory manner, may in its sole discretion refuse to allow Transfer Contributions to its profit-sharing plan, if such contributions are directly or indirectly being transferred from a defined benefit plan, a money purchase pension plan (including a target benefit plan), a stock bonus plan, or another profit-sharing plan which would otherwise provide for a life annuity form of payment to the Participant. 25 64 4.6 ELECTIVE DEFERRALS A Participant may enter into a Salary Savings Agreement with the Employer authorizing the Employer to withhold a portion of such Participant's Compensation not to exceed $7,000 per calendar year as adjusted under Code Section 415(d) or, if lesser, the percentage of Compensation specified in the Adoption Agreement and to deposit such amount to the Plan. No Participant shall be permitted to have Elective Deferrals made under this Plan or any other qualified plan maintained by the Employer, during any taxable year, in excess of the dollar limitation contained in Code Section 402(g) in effect at the beginning of such taxable year. Thus, the $7,000 limit may be reduced if a Participant contributes pre-tax contributions to qualified plans of this or other Employers. Any such contribution shall be credited to the Employee's Salary Savings Account. Unless otherwise specified in the Adoption Agreement, a Participant may amend his or her Salary Savings Agreement to increase, decrease or terminate the percentage upon 30 days written notice to the Employer. If a Participant terminates his or her agreement, such Participant shall not be permitted to put a new Salary Savings Agreement into effect until the first pay period in the next Plan Year, unless otherwise stated in the Adoption Agreement. The Employer may also amend or terminate said agreement on written notice to the Participant. If a Participant has not authorized the Employer to withhold at the maximum rate and desires to increase the total withheld for a Plan Year, such Participant may authorize the Employer upon 30 days notice to withhold a supplemental amount up to 100% of his or her Compensation for one or more pay periods. In no event may the sum of the amounts withheld under the Salary Savings Agreement plus the supplemental withholding exceed 25% of a Participant's Compensation for a Plan Year. The Employer may also recharacterize as after-tax Voluntary Contributions all or any portion of amounts previously withheld under any Salary Savings Agreement within the Plan Year as provided for at paragraph 10.9. This may be done to insure that the Plan will meet one of the antidiscrimination tests under Code Section 401(k). Elective Deferrals shall be deposited in the Trust within 30 days after being withheld from the Participant's pay. 4.7 REQUIRED VOLUNTARY CONTRIBUTIONS If the Employer makes a thrift election in the Adoption Agreement, each eligible Participant shall be required to make Voluntary Contributions to the Plan for credit to his or her account as provided in the Adoption Agreement. Such Voluntary Contributions shall be withheld from the Employee's Compensation and shall be transmitted by the Employer to the Trustee/Custodian as agreed between the Employer and Trustee/Custodian. A Participant may discontinue participation or change his or her Voluntary Contribution percentage by so advising the Employer at least 10 days prior to the date on which such discontinuance or change is to be effective. If a Participant discontinues his or her Voluntary Contributions, such Participant may not again authorize Voluntary Contributions for a period of one year from the date of discontinuance. A Participant may voluntarily change his or her Voluntary Contribution percentage once during any Plan Year and may also agree to have a reduction in his or her contribution, if required to satisfy the requirements of the ACP test. 26 65 4.8 DIRECT ROLLOVER OF BENEFITS Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Participant's election under this paragraph, for distributions made on or after January 1, 1993, a Participant may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Participant in a Direct Rollover. Any portion of a distribution which is not paid directly to an Eligible Retirement Plan shall be distributed to the Participant. For purposes of this paragraph, a Surviving Spouse or a Spouse or former Spouse who is an alternate payee under a Qualified Domestic Relations Order as defined in Code Section 414(p), will be permitted to elect to have any Eligible Rollover Distribution paid directly to an individual retirement account (IRA) or an individual retirement annuity (IRA). The plan provisions otherwise applicable to distributions continue to apply to Rollover and Transfer Contributions. 27 66 ARTICLE V PARTICIPANT ACCOUNTS 5.1 SEPARATE ACCOUNTS The Employer shall establish a separate bookkeeping account for each Participant showing the total value of his or her interest in the Fund. Each Participant's account shall be separated for bookkeeping purposes into the following sub-accounts: (a) Employer contributions. (1) Matching Contributions. (2) Qualified Matching Contributions. (3) Qualified Non-Elective Contributions. (4) Discretionary Contributions. (5) Elective Deferrals. (b) Voluntary Contributions (and additional amounts including required contributions and, if applicable, either repayments of loans previously defaulted on and treated as "deemed distributions" on which a tax report has been issued, and amounts paid out upon a separation from service which have been included in income and which are repaid after being re-hired by the Employer). (c) Qualified Voluntary Contributions (if the Plan previously accepted these). (d) Rollover Contributions and Transfer Contributions. 5.2 ADJUSTMENTS TO PARTICIPANT ACCOUNTS As of each Valuation Date of the Plan, the Employer shall add to each. account: (a) the Participant's share of the Employer's contribution and forfeitures as determined in the Adoption Agreement, (b) any Elective Deferrals, Voluntary, Rollover or Transfer Contributions made by the Participant, (c) any repayment of amounts previously paid out to a Participant upon a separation from Service and repaid by the Participant since the last Valuation Date, and (d) the Participant's proportionate share of any investment earnings and increase in the fair market value of the Fund since the last Valuation Date, as determined at paragraph 5.4. 28 67 The Employer shall deduct from each account: (e) any withdrawals or payments made from the Participant's account since the last Valuation Date, and (f) the Participant's proportionate share of any decrease in the fair market value of the Fund since the last Valuation Date, as determined at paragraph 5.4. 5.3 ALLOCATING EMPLOYER CONTRIBUTIONS The Employer's contribution shall be allocated to Participants in accordance with the allocation formula selected by the Employer in the Adoption Agreement, and the minimum contribution and allocation requirements for Top-Heavy Plans. Beginning with the 1990 Plan Year and thereafter, for plans on Standardized Adoption Agreement 001, Participants who are credited with more than 500 Hours of Service or are employed on the last day of the Plan Year must receive a full allocation of Employer contributions. In Nonstandardized Adoption Agreement 002, Employer contributions shall be allocated to the accounts of Participants employed by the Employer on the last day of the Plan Year unless indicated otherwise in the Adoption Agreement. In the case of a non-Top-Heavy, Nonstandardized Plan, Participants must also have completed a Year of Service unless otherwise specified in the Adoption Agreement. For Nonstandardized Adoption Agreement 002, the Employer may only apply the last day of the Plan Year and Year of Service requirements if the Plan satisfies the requirements of Code Sections 401(a)(26) and 410(b) and the regulations thereunder including the exception for 401(k) plans. If, when applying the last day and Year of Service requirements, the Plan fails to satisfy the aforementioned requirements, additional Participants will be eligible to receive an allocation of Employer Contributions until the requirements are satisfied. Participants who are credited with a Year of Service, but not employed at Plan Year end, are the first category of additional Participants eligible to receive an allocation. If the requirements are still not satisfied, Participants credited with more than 500 Hours of Service and employed at Plan Year end are the next category of Participants eligible to receive an allocation. Finally, if necessary to satisfy the said requirements, any Participant credited with more than 500 Hours of Service will be eligible for an allocation of Employer Contributions. The Service requirement is not applicable with respect to any Plan Year during which the Employer's Plan is Top-Heavy. 5.4 ALLOCATING INVESTMENT EARNINGS AND LOSSES A Participant's share of investment earnings and any increase or decrease in the fair market value of the Fund shall be based on the proportionate value of all active accounts (other than accounts with segregated investments) as of the last Valuation Date less withdrawals since the last Valuation Date. If Employer and/or Employee contributions are made monthly, quarterly, or on some other systematic basis, the adjusted value of such accounts for allocation of investment income and gains or losses shall include one-half the contributions for such period. If Employer and/or Employee contributions are not made on a systematic basis, it is assumed that they are made at the end of the valuation period and therefore will not receive an allocation of investment earnings and gains or losses for such period. Account balances not yet forfeited shall receive an allocation of earnings and/or losses. Accounts with segregated investments shall receive only the income or loss on such segregated investments. 29 68 5.5 PARTICIPANT STATEMENTS Upon completing the allocations described above for the Valuation Date coinciding with the end of the Plan Year, the Employer shall prepare a statement for each Participant showing the additions to and subtractions from his or her account since the last such statement and the fair market value of his or her account as of the current Valuation Date. Employers so choosing may prepare Participant statements for each Valuation Date. 30 69 ARTICLE VI RETIREMENT BENEFITS AND DISTRIBUTIONS 6.1 NORMAL RETIREMENT BENEFITS A Participant shall be entitled to receive the balance held in his or her account from Employer contributions upon attaining Normal Retirement Age or at such earlier dates as the provisions of this Article VI may allow. If the Participant elects to continue working past his or her Normal Retirement Age, he or she will continue as an active Plan Participant and no distribution shall be made to such Participant until his or her actual retirement date unless the employer elects otherwise in the adoption Agreement, or a minimum distribution is required by law. Settlement shall be made in the normal form, or if elected, in one of the optional forms of payment provided below. 6.2 EARLY RETIREMENT BENEFITS If the Employer so provides in the Adoption Agreement, an Early Retirement Benefit will be available to individuals who meet the age and Service requirements. An individual who meets the Early Retirement Age requirements and separates from Service, will become fully vested, regardless of any vesting schedule which otherwise might apply. If a Participant separates from Service before satisfying the age requirements, but after having satisfied the Service requirement, the Participant will be entitled to elect an Early Retirement benefit upon satisfaction of the age requirement. 6.3 BENEFITS ON TERMINATION OF EMPLOYMENT (a) If a Participant terminates employment prior to Normal Retirement Age, such Participant shall be entitled to receive the vested balance held in his or her account payable at Normal Retirement Age in the normal form, or if elected, in one of the optional forms of payment provided hereunder. If applicable, the Early Retirement Benefit provisions may be elected. Notwithstanding the preceding sentence, a former Participant may, if allowed in the Adoption Agreement, make application to the Employer requesting early payment of any deferred vested and nonforfeitable benefit due. (b) If a Participant terminates employment, and the value of that Participant's Vested Account Balance derived from Employer and Employee - contributions is not greater than S3,500, the Participant may receive a lump sum distribution of the value of the entire vested portion of such account balance and the non-vested portion will be treated as a forfeiture. The Employer shall continue to follow their consistent policy, as may be established, regarding immediate cash-outs of Vested Account Balances of $3,500 or less. For purposes of this Article, if the value of a Participant's Vested Account Balance is zero, the Participant shall be deemed to have received a distribution of such Vested Account Balance immediately following termination. Likewise, if the Participant is reemployed prior to incurring 5 consecutive 1-year Breaks in Service they will be deemed to have immediately repaid such distribution. For Plan Years beginning prior to 1989, a Participant's Vested Account Balance shall not include Qualified 31 70 Voluntary Contributions. Notwithstanding the above, if the Employer maintains or has maintained a policy of not distributing any amounts until the Participant's Normal Retirement Age, the Employer can continue to uniformly apply such policy. (c) If a Participant terminates employment with a Vested Account Balance derived from Employer and Employee contributions in excess of $3,500, and elects (with his or her Spouse's consent, if required) to receive 100% of the value of his or her Vested Account Balance in a lump sum, the non-vested portion will be treated as a forfeiture. The Participant (and his or her Spouse, if required) must consent to any, distribution, when the Vested Account Balance described above exceeds $3,500 or if at the time of any prior distribution it exceeded S3,500. For purposes of this paragraph, for Plan Years beginning prior to 1989, a Participant's Vested Account Balance shall not include Qualified Voluntary Contributions. (d) Distribution of less than 100% of the Participant's Vested Account Balance shall only be permitted if the Participant is fully vested upon termination of employment. (e) If a Participant who is not 100% vested receives or is deemed to receive a distribution pursuant to this paragraph and resumes employment covered under this Plan, the Participant shall have the right to repay to the Plan the full amount of the distribution attributable to Employer contributions on or before the earlier of the date that the Participant incurs 5 consecutive 1-year Breaks in Service following the date of distribution or five years after the first date on which the Participant is subsequently reemployed. In such event, the Participant's account shall be restored to the value thereof at the time the distribution was made and may further be increased by the Plan's income and investment gains and/or losses on the undistributed amount from the date of distribution to the date of repayment. (f) A Participant shall also have the option, to postpone payment of his or her Plan benefits until the first day of April following the calendar year in which he or she attains age 70-1/2. Any balance of a Participant's account resulting from his or her Employee contributions not previously withdrawn, if any, may be withdrawn by the Participant immediately following separation from Service. (g) If a Participant ceases to be an active Employee as a result of a Disability as defined at paragraph 1.21, such Participant shall be able to make an application for a disability retirement benefit payment. The Participant's account balance will be deemed "immediately distributable" as set forth in paragraph 6.4, and will be fully vested pursuant to paragraph 9.2. 32 71 6.4 RESTRICTIONS ON IMMEDIATE DISTRIBUTIONS (a) An account balance is immediately distributable if any part of the account balance could be distributed to the Participant (or Surviving Spouse) before the Participant attains (or would have attained if not deceased) the later of the Normal Retirement Age or age 62. (b) If the value of a Participant's Vested Account Balance derived from Employer and Employee Contributions exceeds (or at the time of any prior distribution exceeded) $3,500, and the account balance is immediately distributable, the Participant and his or her Spouse (or where either the Participant or the Spouse has died, the survivor) must consent to any distribution of such account balance. The consent of the Participant and the Spouse shall be obtained in writing within the 90-day period ending on the annuity starting date, which is the first day of the first period for which an amount is paid as an annuity or any other form. The Plan Administrator shall notify the Participant and the Participant's Spouse of the right to defer any distribution until the Participant's account balance is no longer immediately distributable. Such notification shall include a general description of the material features, and an explanation of the relative values of, the optional forms of benefit available under the plan in a manner that would satisfy the notice requirements of Code Section 417(a)(3), and shall be provided no less than 30 days and no more than 90 days prior to the annuity starting date. (c) Notwithstanding the foregoing, only the Participant need consent to the commencement of a distribution in the form of a qualified Joint and Survivor Annuity while the account balance is immediately distributable. Furthermore, if payment in the form of a Qualified Joint and Survivor Annuity is not required with respect to the Participant pursuant to paragraph 8.7 of the Plan, only the Participant need consent to the distribution of an account balance that is immediately distributable. Neither the consent of the Participant nor the Participant's Spouse shall be required to the extent that a distribution is required to satisfy Code Section 401(a)(9) or Code Section 415. In addition, upon termination of this Plan if the Plan does not offer an annuity option (purchased from a commercial provider), the Participant's account balance may, without the Participant's consent, be distributed to the Participant or transferred to another Defined Contribution Plan [other than an employee stock ownership plan as defined in Code Section 4975(e)(7)] within the same controlled group. (d) For purposes of determining the applicability of the foregoing consent requirements to distributions made before the first day of the first Plan Year beginning after 1988; the Participant's Vested Account Balance shall not include amounts attributable to Qualified Voluntary Contributions. 6.5 NORMAL FORM OF PAYMENT The normal form of payment for a profit sharing plan satisfying the requirements of paragraph 8.7 hereof shall be a lump sum with no option for annuity payments. For all other plans, the normal form of payment hereunder shall be a Qualified Joint and Survivor Annuity as provided 33 72 under Article VIII. A Participant whose Vested Account Balance derived from Employer and Employee contributions exceeds S3,500, or if at the time of any prior distribution it exceeded $3,500, shall (with the consent of his or her Spouse) have the right to receive his or her benefit in a lump sum or in monthly, quarterly, semiannual or annual payments from the Fund over any period not extending beyond the life expectancy of the Participant and his or her Beneficiary. For purposes of this paragraph, for Plan Years prior to 1989, a Participant's Vested Account Balance shall not include Qualified Voluntary Contributions. The normal form of payment shall be automatic, unless the Participant files a written request with the Employer prior to the date on which the benefit is automatically payable, electing a lump sum or installment payment option. No amendment to the Plan may eliminate one of the optional distribution forms listed above. 6.6 COMMENCEMENT OF BENEFITS (a) Unless the Participant elects otherwise, distribution of benefits will begin no later than the 60th day after the close of the Plan Year in which the latest of the following events occurs: (1) the Participant attains age 65 (or normal retirement age if earlier), (2) the 10th anniversary of the year in which the Participant commenced participation in the Plan, or (3) the Participant terminates Service with the Employer. (b) Notwithstanding the foregoing, the failure of a Participant and Spouse (if necessary) to consent to a distribution while a benefit is immediately distributable, within the meaning of paragraph 6.4 hereof, shall be deemed an election to defer commencement of payment of any benefit sufficient to satisfy this paragraph. 6.7 CLAIMS PROCEDURES Upon retirement, death, or other severance of employment, the Participant or his or her representative may make application to the Employer requesting payment of benefits due and the manner of payment. If no application for benefits is made, the Employer shall automatically pay any vested benefit due hereunder in the normal form at the time prescribed at paragraph 6.4. If an application for benefits is made, the Employer shall accept, reject, or modify such request and shall notify the Participant in writing setting forth the response of the Employer and in the case of a denial or modification the Employer shall: (a) state the specific reason or reasons for the denial, (b) provide specific reference to pertinent Plan provisions on which the denial is based, (c) provide a description of any additional material or information necessary for the Participant or his representative to perfect the claim and an explanation of why such material or information is necessary, and (d) explain the Plan's claim review procedure as contained in this Plan. 34 73 In the event the request is rejected or modified, the Participant or his or her representative may within 60 days following receipt by the Participant or representative of such rejection or modification, submit a written request for review by the Employer of its initial decision. Within 60 days following such request for review, the Employer shall render its final decision in writing to the Participant or representative stating specific reasons for such decision. If the Participant or representative is not satisfied with the Employer's final decision, the Participant or representative can institute an action in a federal court of competent jurisdiction; for this purpose, process would be served on the Employer. 6.8 IN-SERVICE WITHDRAWALS An Employee may withdraw all or any part of the fair market value of his or her Mandatory Contributions, Voluntary Contributions, Qualified Voluntary Contributions or Rollover Contributions, upon written request to the Employer. Transfer Contributions, which originate from a Plan meeting the safe-harbor provisions of paragraph 8.7, may also be withdrawn by an Employee upon written request to the Employer. Transfer Contributions not meeting the safe-harbor provisions may only be withdrawn upon retirement, death, Disability, termination or termination of the Plan, and will be subject to Spousal consent requirements contained in Code Sections 411(a)(11) and 417. No such withdrawals are permitted from a money purchase plan until the participant reaches Normal Retirement Age. Such request shall include the Participant's address, social security number, birthdate, and amount of the withdrawal. If at the time a distribution of Qualified Voluntary Contributions is received the Participant has not attained age 591/2 and is not disabled, as defined at Code Section 22(e)(3), the Participant will be subject to a federal income tax penalty, unless the distribution is rolled over to a qualified plan or individual retirement plan within 60 days of the date of distribution. A Participant may withdraw all or any part of the fair market value of his or her pre-1987 Voluntary Contributions with or without withdrawing the earnings attributable thereto. Post-1986 Voluntary Contributions may only be withdrawn along with a portion of the earnings thereon. The amount of the earnings to be withdrawn is determined by using the formula: DA[1-(V + V + E)], where DA is the distribution amount, V is the amount of Voluntary Contributions and V + E is the amount of Voluntary Contributions plus the earnings attributable thereto. A Participant withdrawing his or her other contributions prior to attaining age 59-1/2, will be subject to a federal tax penalty to the extent that the withdrawn amounts are includible in income. Unless the Employer provides otherwise in the Adoption Agreement, any Participant in a profit-sharing plan who is 100% fully vested in his or her Employer contributions may withdraw all or any part of the fair market value of any of such contributions that have been in the account at least two years, plus the investment earnings thereon, after attaining age 59-1/2 without separation from Service Such distributions shall not be eligible for redeposit to the Fund. A withdrawal under this paragraph shall not prohibit such Participant from sharing in any future Employer Contribution he or she would otherwise be eligible to share in. A request to withdraw amounts pursuant to this paragraph must if applicable, be consented to by the Participant's Spouse. The consent shall comply with the requirements of paragraph 6.4 relating to immediate distributions. Elective Deferrals, Qualified Non-elective Contributions, and Qualified Matching Contributions, and income allocable to each are not distributable to a Participant or his or her Beneficiary or Beneficiaries, in accordance with such Participant's or Beneficiary's or Beneficiaries' election, earlier than upon separation from Service, death, or Disability. Such amounts may also be distributed upon: (a) Termination of the Plan without the establishment of another Defined Contribution Plan. 35 74 (b) The disposition by a corporation to an unrelated corporation of substantially all of the assets [within the meaning of Code Section 409(d)(2)] used in a trade or business of such corporation if such corporation continues to maintain this Plan after the disposition, but only with respect to Employees who continue employment with the corporation acquiring such assets. (c) The disposition by a corporation to an unrelated entity of such corporation's interest in a subsidiary [within the meaning of Code Section 409(d)(3)] if such corporation continues to maintain this plan, but only with respect to Employees who continue employment with such subsidiary. (d) The attainment of age 59-1/2. (e) The Hardship of the Participant as described in paragraph 6.9. All distributions that may be made pursuant to one or more of the foregoing distributable events are subject to the Spousal and Participant consent requirements, if applicable, contained in Code Sections 401(a)(11) and 417. 6.9 HARDSHIP WITHDRAWAL If permitted by the Trustee/Custodian and the Employer in the Adoption Agreement, a Participant may request a Hardship withdrawal prior to attaining age 59-1/2. If the Participant has not attained age 59-1/2, the Participant may be subject to a federal income tax penalty. Such request shall be in writing to the Employer who shall have sole authority to authorize a Hardship withdrawal, pursuant to the rules below. Hardship withdrawals may include Elective Deferrals regardless of when contributed and any earnings accrued and credited thereon as of the last day of the Plan Year ending before July 1, 1989 and Employer related contributions, including but not limited to Employer Matching Contributions, plus the investment earnings thereon to the extent vested. Qualified Matching Contributions, Qualified Non-Elective Contributions and Elective Deferrals reclassified as Voluntary Contributions plus the investment earnings thereon are only available for Hardship withdrawal prior to age 59-1/2 to the extent that they were credited to the Participant's Account as of the last day of the Plan Year ending prior to July 1, 1989. The Plan Administrator may limit withdrawals to Elective Deferrals and the earnings thereon as stipulated above. Hardship withdrawals are subject to the Spousal consent requirements contained in Code Sections 401(a)(11) and 417. Only the following reasons are valid to obtain Hardship withdrawal: (a) medical expenses [within the meaning of Code Section 213(d)], incurred or necessary for the medical care of the Participant, his or her Spouse, children and other dependents, (b) the purchase (excluding mortgage payments) of the principal residence for the Participant, (c) payment of tuition and related educational expenses for the next twelve (12) months of post-secondary education for the Participant, his or her Spouse, children or other dependents, or (d) the need to prevent eviction of the Employee from or a foreclosure on the mortgage of, the Employee's principal residence. Furthermore, authorized: the following conditions must be met in order for a withdrawal to be authorized: 36 75 (e) the Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans under all plans maintained by the Employer, (f) all plans maintained by the Employer, other than flexible benefit plans under Code Section 125 providing for current benefits, provide that the Employee's Elective Deferrals and Voluntary Contributions will be suspended for twelve months after the receipt of the Hardship distribution, (g) the distribution is not in excess of the amount of the immediate and heavy financial need [(a) through (d) above, including amounts necessary to pay any federal, state or local income tax or penalties reasonably anticipated to result from the distribution, and (h) all plans maintained by the Employer provide that an Employee may not make Elective Deferrals for the Employee's taxable year immediately following the taxable year of the Hardship distribution in excess of the applicable limit under Code Section 402(g) for such taxable year, less the amount of such Employee's pre-tax contributions for the taxable year of the Hardship distribution. If a distribution is made at a time when a Participant has a nonforfeitable right to less than 100% of the account balance derived from Employer contributions and the Participant may increase the nonforfeitable percentage in the account: (a) A separate account will be established for the Participant's interest in the Plan as of the time of the distribution, and (b) At any relevant time the Participant's nonforfeitable portion of the separate account will be equal to an amount ("X") determined by the formula: X = P [AB + (R X D)] - (R X D) For purposes of applying the formula: "P" is the nonforfeitable percentage at the relevant time, "AB" is the account balance at the relevant time, "D" is the amount of the distribution and "R" is the ratio of the account balance at the relevant time to the account balance after distribution. If a distribution is made at a time when a Participant has a nonforfeitable right to less than 100% of the account balance derived from Employer contributions and the Participant may increase the nonforfeitable percentage in the account: (a) A separate account will be established for the Participant's interest in the Plan as of the time of the distribution, and (b) At any relevant time the Participant's nonforfeitable percentage portion of the separate account will be equal to an amount ("X") determined by the formula: X = P [AB + (R X D )] - (R X D) For purposes of applying the formula: "P" is the nonforfeitable percentage at the relevant time, "AB" is the account balance at the relevant time, "D" is the amount of the distribution and "R" is the ratio of the account balance at the relevant time to the account balance after distribution. 37 76 ARTICLE VII DISTRIBUTION REQUIREMENTS 7.1 JOINT AND SURVIVOR ANNUITY REQUIREMENTS All distributions made under the terms of this Plan must comply with the provisions of Article VIII including, if applicable, the safe harbor provisions thereunder. 7.2 MINIMUM DISTRIBUTION REQUIREMENTS All distributions required under this Article shall be determined and made in accordance with the minimum distribution requirements of Code Section 401(a)(9) and the regulations thereunder, including the minimum distribution incidental benefit rules found at Regulations Section 1.401(a)(9)-2. The entire interest of a Participant must be distributed or begin to be distributed no later than the Participant's Required Beginning Date. Life expectancy and joint and last survivor life expectancy are computed by using the expected return multiples found in Tables V and VI of Regulations Section 1.72-9. 7.3 Limits On Distribution Periods As of the First Distribution Calendar Year, distributions if not made in a single-sum, may only be made over one of the following periods (or a combination thereof): (a) the life of the Participant, (b) the life of the Participant and a Designated Beneficiary, (c) a period certain not extending beyond the life expectancy of the participant, or (d) a period certain not extending beyond the joint and last survivor expectancy of the Participant and a designated beneficiary. 7.4 Required Distributions On Or After The Required Beginning Date (a) If a participant's benefit is to be distributed over (1) a period not extending beyond the life expectancy of the Participant or the joint life and last survivor expectancy of the Participant and the Participant's Designated Beneficiary or (2) a period not extending beyond the life expectancy of the Designated Beneficiary, the amount required to be distributed for each calendar year, beginning with distributions for the First Distribution Calendar Year, must at least equal the quotient obtained by dividing the Participant's benefit by the Applicable Life Expectancy. (b) For calendar years beginning before 1989, if the Participant's Spouse is not the Designated Beneficiary, the method of distribution selected must have assured that at least 50% of the Present Value of the amount available for distribution was to be paid within the life expectancy of the Participant. 38 77 (c) For calendar years beginning after 1988, the amount to be distributed each year, beginning with distributions for the First Distribution Calendar Year shall not be less than the quotient obtained by dividing the Participant's benefit by the lesser of (1) the Applicable Life Expectancy or (2) if the Participant's Spouse is not the Designated Beneficiary, the applicable divisor determined from the table set forth in Q&A-4 of Regulations Section 1.401(a)(9)-2. Distributions after the death of the Participant shall be distributed using the Applicable Life Expectancy as the relevant divisor without regard to Regulations Section 1.401(a)(9)-2. (d) The minimum distribution required for the Participant's First Distribution Calendar Year must be made on or before the Participant's Required Beginning Date. The minimum distribution for other calendar years, including the minimum distribution for the Distribution Calendar Year in which the Participant's Required Beginning Date occurs, must be made on or before December 31 of that Distribution Calendar Year. (e) If the Participant's benefit is distributed in the form of an annuity purchased from an insurance company, distributions thereunder shall be made in accordance with the requirements of Code Section 401 (a)(9) and the Regulations thereunder. (f) For purposes of determining the amount of the required distribution for each Distribution Calendar Year, the account balance to be used is the account balance determined as of the last valuation preceding the Distribution Calendar Year. This balance will be increased by the amount of any contributions or forfeitures allocated to the account balance after the valuation date in such preceding calendar year. Such balance will also be decreased by distributions made after the Valuation Date in such preceding Calendar Year. (g) For purposes of subparagraph 7.4(f), if any portion of the minimum distribution for the First Distribution Calendar Year is made in the second Distribution Calendar Year on or before the Required Beginning Date, the amount of the minimum distribution made in the second Distribution Calendar Year shall be treated as if it had been made in the immediately preceding Distribution Calendar Year. 7.5 Required Beginning Date (a) General Rule. The Required Beginning Date of a Participant is the first day of April of the calendar year following the calendar year in which the Participant attains age 70-1/2. (b) Transitional Rules. The Required Beginning Date of a Participant who attains age 70-1/2 before 1988, shall be determined in accordance with (1) or (2) below: 39 78 (1) Non-5-percent owners. The Required Beginning Date of a Participant who is not a 5-percent owner is the first day of April of the calendar year following the calendar year in which the later of retirement or attainment of age 70-1/2 occurs. In the case of a Participant who is not a 5-percent owner who attains age 70-1/2 during 1988 and who has not retired as of January 1, 1989, the Required Beginning Date is April 1, 1990. (2) 5-percent owners. The Required Beginning Date of a Participant who is a 5-percent owner during any year beginning after 1979, is the first day of April following the later of: (i) the calendar year in which the Participant attains age 70-1/2, or (ii) the earlier of the calendar year with or within which ends the plan year in which the Participant becomes a 5-percent owner, or the calendar year in which the Participant retires. (c) A Participant is treated as a 5-percent owner for purposes of this Paragraph if such Participant is a 5-percent owner as defined in Code Section 416(i) (determined in accordance with Code Section 416 but without regard to whether the Plan is Top-Heavy) at any time during the Plan Year ending with or within the calendar year in which such Owner attains age 66-1/2 or any subsequent Plan Year. (d) Once distributions have begun to a 5-percent owner under this paragraph, they must continue to be distributed, even if the Participant ceases to be a 5-percent owner in a subsequent year. 7.6 TRANSITIONAL RULE (a) Notwithstanding the other requirements of this Article and subject to the requirements of Article VIII, Joint and Survivor Annuity Requirements, distribution on behalf of any Employee, including a 5-percent owner, may be made in accordance with all of the following requirements (regardless of when such distribution commences): (1) The distribution by the Trust is one which would not have disqualified such Trust under Code Section 401 (a)(9) as in effect prior to amendment by the Deficit Reduction Act of 1984. (2) The distribution is in accordance with a method of distribution designated by the Employee whose interest in the Trust is being distributed or, if the Employee is deceased, by a beneficiary of such Employee. 40 79 (3) Such designation was in writing, was signed by the Employee or the beneficiary, and was made before 1984. (4) The Employee had accrued a benefit under the Plan as of December 31, 1983. (5) The method of distribution designated by the Employee or the beneficiary specifies the time at which distribution will commence, the period over which distributions will be made, and in the case of any distribution upon the Employee's death, the beneficiaries of the Employee listed in order of priority. (b) A distribution upon death will not be covered by this transitional rule unless the information in the designation contains the required information described above with respect to the distributions to be made upon the death of the Employee. (c) For any distribution which commences before 1984, but continues after 1983, the Employee or the beneficiary, to whom such distribution is being made, will be presumed to have designated the method of distribution under which the distribution is being made if the method of distribution was specified in writing and the distribution satisfies the requirements in subparagraphs (a)(l) and (5) above. (d) If a designation is revoked, any subsequent distribution must satisfy the requirements of Code Section 401(a)(9) and the regulations thereunder. If a designation is revoked subsequent to the date distributions are required to begin, the Trust must distribute by the end of the calendar year following the calendar year in which the revocation occurs the total amount not yet distributed which would have been required to have been distributed to satisfy Code Section 401(a)(9) and the regulations thereunder, but for the section 242(b)(2) election of the Tax Equity and Fiscal Responsibility Act of 1982. For calendar years beginning after 1988, such distributions must meet the minimum distribution incidental benefit requirements in section 1.401(a)(9)-2 of the Income Tax Regulations. Any changes in the designation will be considered to be a revocation of the designation. However, the mere substitution or addition of another beneficiary (one not named in the designation) under the designation will not be considered to be a revocation of the designation, so long as such substitution or addition does not alter the period over which distributions are to be made under the designation, directly or indirectly (for example, by altering the relevant measuring life). In the case in which an amount is transferred or rolled over from one plan to another plan, the rules in Q&A J-2 and Q&A J-3 of the regulations shall apply. 41 80 7.7 DESIGNATION OF BENEFICIARY FOR DEATH BENEFIT Each Participant shall file a written designation of beneficiary with the Employer upon qualifying for participation in this Plan. Such designation shall remain in force until revoked by the Participant by filing a new beneficiary form with the Employer. The Participant may elect to have a portion of his or her account balance invested in an insurance contract. If an insurance contract is purchased under the Plan, the Trustee must be named as Beneficiary under the terms of the contract. However, the Participant shall designate a Beneficiary to receive the proceeds of the contract after settlement is received by the Trustee. Under a profit-sharing plan satisfying the requirements of paragraph 8.7, the Designated Beneficiary shall be the Participant's Surviving Spouse, if any, unless such Spouse properly consents otherwise. 7.8 NONEXISTENCE OF BENEFICIARY Any portion of the amount payable hereunder which is not disposed of because of the Participant's or former Participant's failure to designate a beneficiary, or because all of the Designated Beneficiaries predeceased the Participant, shall be paid to his or her Spouse. If the Participant had no Spouse at the time of death, payment shall be made to the personal representative of his or her estate in a lump sum. 7.9 DISTRIBUTION BEGINNING BEFORE DEATH If the Participant dies after distribution of his or her interest has begun, the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Participant's death. 7.10 DISTRIBUTION BEGINNING AFTER DEATH If the Participant dies before distribution of his or her interest begins, distribution of the Participant's entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death except to the extent that an election is made to receive distributions in accordance with (a) or (b) below: (a) If any portion of the Participant's interest is payable to a Designated Beneficiary, distributions may be made over the life or over a period certain not greater than the life expectancy of the Designated Beneficiary commencing on or before December 31 of the calendar year immediately following the calendar year in which the Participant died; (b) If the Designated Beneficiary is the Participant's surviving Spouse, the date distributions are required to begin in accordance with (a) above shall not be earlier than the later of (1) December 3l of the calendar year immediately following the calendar year in which the participant died or (2) December 31 of the calendar year in which the Participant would have attained age 70-1/2. If the Participant has not made an election pursuant to this paragraph 7.10 by the time of his or her death, the Participants Designated Beneficiary must elect the method of distribution no later than the earlier of (1) December 31 of the calendar year in which distributions would be required to begin under this section, or (2) December 31 of the calendar year which contains the fifth anniversary of the date of death of the participant. If the Participant has no Designated Beneficiary, or if the Designated Beneficiary does not elect a method of distribution, then distribution of the Participant's entire interest must be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. 42 81 For purposes of this paragraph if the Surviving Spouse dies after the Participant, but before payments to such Spouse begin, the provisions of this paragraph with the exception of paragraph (b) therein, shall be applied as if the Surviving Spouse were the Participant. For the purposes of this paragraph and paragraph 7.9, distribution of a Participant's interest is considered to begin on the Participant's Required Beginning Date (or, if the preceding sentence is applicable, the date distribution is required to begin to the Surviving Spouse). If distribution in the form of an annuity described in paragraph 7.4(e) irrevocably commences to the Participant before the Required Beginning Date, the date distribution is considered to begin is the date distribution actually commences. For purposes of paragraph 7.9 and this paragraph, if an amount is payable to either a minor or an individual who has been declared incompetent, the benefits shall be paid to the legally appointed guardian for the benefit of said minor or incompetent individual, unless the court which appointed the guardian has ordered otherwise. 7.11 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS (a) Notwithstanding any other provision of the Plan, Excess Elective Deferrals plus any income and minus any loss allocable thereto, shall be distributed no later than April 15, 1988, and each April 15 thereafter, to Participants to whose accounts Excess Elective Deferrals were allocated for the preceding taxable year, and who claim Excess Elective Deferrals for such taxable year. Excess Elective Deferrals shall be treated as Annual Additions under the Plan, unless such amounts are distributed no later than the first April 15th following the close of the Participant's taxable year. A Participant is deemed to notify the Plan Administrator of any Excess Elective Deferrals that arise by talking into account only those Elective Deferrals made to this Plan and any other plans of this Employer. (b) Furthermore, a Participant who participates in another plan allowing Elective Deferrals may assign to this Plan any Excess Elective Deferrals made during a taxable year of the Participant, by notifying the Plan Administrator of the amount of the Excess Elective Deferrals to be assigned. The Participant's claim shall be in writing; shall be submitted to the Plan Administrator not later than March 1 of each year; shall specify the amount of the Participant's Excess Elective Deferrals for the preceding taxable year; and shall be accompanied by the Participant's written statement that if such amounts are not distributed, such Excess Elective Deferrals, when added to amounts deferred under other plans or arrangements described in Code Sections 401(k), 408(k) [Simplified Employee Pensions], or 403(b) [annuity programs for public schools and charitable organizations] will exceed the $7,000 limit as adjusted under Code Section 415(d) imposed on the Participant - by Code Section 402(g) for the year in which the deferral occurred. (c) Excess Elective Deferrals shall be adjusted for any income or loss up to the end of the taxable year, during which such excess was deferred. Income or loss will be calculated under the method used to calculate investment earnings and losses elsewhere in the Plan. 43 82 (d) If the Participant receives a return of his or her Elective Deferrals, the amount of such contributions which are returned must be brought into the Employee's taxable income. 7.12 DISTRIBUTION OF EXCESS CONTRIBUTIONS (a) Notwithstanding any other provision of this Plan, Excess Contributions, plus any income and minus any loss allocable thereto, shall be distributed no later than the last day of each Plan Year to Participants to whose accounts such Excess Contributions were allocated for the preceding Plan Year. If such excess amounts are distributed more than 2-1/2 months after the last day of the Plan Year in which such excess amounts arose, a ten (10) percent excise tax will be imposed on the Employer maintaining the Plan with respect to such amounts. Such distributions shall be made to Highly Compensated Employees on the basis of the respective portions of the Excess Contributions attributable to each of such Employees. Excess Contributions of Participants who are subject to the Family Member aggregation rules of Code Section 414(q)(6) shall be allocated among the Family Members in proportion to the Elective Deferrals (and amounts treated as Elective Deferrals) of each Family Member that is combined to determine the Average Deferral Percentage. (b) Excess Contributions (including the amounts recharacterized) shall be treated as Annual Additions under the Plan. (c) Excess Contributions shall be adjusted for any income or loss up to the end of the Plan Year. Income or loss will be calculated under the method used to calculate investment earnings and losses elsewhere in the Plan. (d) Excess Contributions shall be distributed from the Participant's Elective Deferral account and Qualified Matching Contribution account (if applicable) in proportion to the Participant's Elective Deferrals and Qualified Matching Contributions (to the extent used in the ADP test) for the Plan Year. Excess Contributions shall be distributed from the Participant's Qualified Non-Elective Contribution account only to the extent that such Excess Contributions exceed the balance in the Participant's Elective Deferral account and Qualified Matching Contribution account. 7.13 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS (a) Notwithstanding any other provision of this Plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited, if forfeitable, or if not forfeitable, distributed no later than the last day of each Plan Year to Participants to whose accounts such Excess Aggregate Contributions were allocated for the preceding Plan Year. Excess Aggregate Contributions shall be allocated to Participants who are subject to the Family Member aggregation rules of Code Section 414(q)(6) in the manner prescribed by the regulations. 44 83 If such Excess Aggregate Contributions are distributed more than 2-1/2 months after the last day of the Plan Year in which such excess amounts arose, a ten (10) percent excise tax will be imposed on the Employer maintaining the Plan with respect to those amounts. Excess Aggregate Contributions shall be treated as Annual Additions under the plan. (b) Excess Aggregate Contributions shall be adjusted for any income or loss up to the end of the Plan Year. The income or loss allocable to Excess Aggregate Contributions is the sum of income or loss for the Plan Year allocable to the Participant's Voluntary Contribution account, Matching Contribution account (if any, and if all amounts therein are not used in the ADP test) and, if applicable, Qualified Non-Elective Contribution account and Elective Deferral account. Income or loss will be calculated under the method used to calculate investment earnings and losses elsewhere in the Plan. (c) Forfeitures of Excess Aggregate Contributions may either be reallocated to the accounts of non-Highly Compensated Employees or applied to reduce Employer contributions, as elected by the employer in the Adoption Agreement. (d) Excess Aggregate Contributions shall be forfeited if such amount is not vested. If vested, such excess shall be distributed on a prorata basis from the Participant's Voluntary Contribution account (and, if applicable, the Participant's Qualified Non-Elective Contribution account, Matching Contribution account, Qualified Matching Contribution account, or Elective Deferral account, or both). 45 84 ARTICLE VIII JOINT AND SURVIVOR ANNUITY REQUIREMENTS 8.1 APPLICABILITY OF PROVISIONS The provisions of this Article shall apply to any Participant who is credited with at least one Hour of Service with the Employer on or after August 23, 1984 and such other Participants as provided in paragraph 8.8. 8.2 PAYMENT OF QUALIFIED JOINT AND SURVIVOR ANNUITY Unless an optional form of benefit is selected pursuant to a Qualified Election within the 90-day period ending on the Annuity Starting Date, a married Participant's Vested Account Balance will be paid in the form of a Qualified Joint and Survivor Annuity and an unmarried Participant's Vested Account Balance will be paid in the form of a life annuity. The Participant may elect to have such annuity distributed upon attainment of the Early Retirement Age under the Plan. 8.3 PAYMENT OF QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY Unless an optional form of benefit has been selected within the Election Period pursuant to a Qualified Election, if a Participant dies before benefits have commenced then the Participant's Vested Account Balance shall be paid in the form of an annuity for the life of the Surviving Spouse. The Surviving Spouse may elect to have such annuity distributed within a reasonable period after the Participant's death. A Participant who does not meet the age 35 requirement set forth in the Election Period as of the end of any current Plan Year may make a special qualified election to waive the qualified Pre-retirement Survivor Annuity for the period beginning on the date of such election and ending on the first day of the Plan Year in which the Participant will attain age 35. Such election shall not be valid unless the Participant receives a written explanation of the Qualified Pre-retirement Survivor Annuity in such terms as are comparable to the explanation required under paragraph 8.5. Qualified Pre-retirement Survivor Annuity coverage will be automatically reinstated as of the first day of the Plan Year in which the Participant attains age 35. Any new waiver on or after such date shall be subject to the full requirements of this Article. 8.4 QUALIFIED ELECTION A Qualified Election is an election to either waive a Qualified Joint and Survivor Annuity OF a qualified Pre-retirement survivor annuity. Any such election shall not be effective unless: (a) the Participant's Spouse consents in writing to the election; (b) the election designates a specific beneficiary, including any class of beneficiaries or any contingent beneficiaries, which may not be changed without spousal consent (or the Spouse expressly permits designations by the Participant without any further spousal consent); (c) the Spouse's consent acknowledges the effect of the election; and (d) the Spouse's consent is witnessed by a Plan representative or notary public. 46 85 Additionally, a Participant's waiver of the Qualified Joint and Survivor Annuity shall not be effective unless the election designates a form of benefit payment which may not be changed without spousal consent (or the Spouse expressly permits designations by the Participant without any further spousal consent). If it is established to the satisfaction of the Plan Administrator that there is no Spouse or that the Spouse cannot be located, a waiver will be deemed a Qualified Election. Any consent by a Spouse obtained under this provision (or establishment that the consent of a Spouse may not be obtained) shall be effective only with respect to such Spouse. A consent that permits designations by the Participant without any requirement of further consent by such Spouse must acknowledge that the Spouse has the right to limit consent to a specific beneficiary, and a specific form of benefit where applicable, and that the Spouse voluntarily elects to relinquish either or both of such rights. A revocation of a prior waiver may be made by a Participant without the consent of the Spouse at any time before the commencement of benefits. The number of revocations shall not be limited. No consent obtained under this provision shall be valid unless the Participant has received notice as provided in paragraphs 8.5 and 8.6 below. 8.5 NOTICE REQUIREMENTS FOR QUALIFIED JOINT AND SURVIVOR ANNUITY In the case of a Qualified Joint and Survivor Annuity, the Plan Administrator shall, no less than 30 days and no more than 90 days prior to the Annuity Starting date, provide each Participant a written explanation of: (a) the terms and conditions of a Qualified Joint and Survivor Annuity; (b) the Participant's right to make and the effect of an election to waive the Qualified Joint and Survivor Annuity form of benefit; (c) the rights of a Participant's Spouse; and (d) the right to make, and the effect of, a revocation of a previous election to waive the Qualified Joint and Survivor Annuity. 8.6 NOTICE REQUIREMENTS FOR QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY In the case of a qualified pre-retirement survivor annuity as described in paragraph 8.3, the Plan Administrator shall provide each Participant within the applicable period for such Participant a written explanation of the qualified pre-retirement survivor annuity in such terms and in such manner as would be comparable to the explanation provided for meeting the requirements of paragraph 8.5 applicable to a Qualified Joint and Survivor Annuity. The applicable period for a Participant is whichever of the following periods ends last: (a) the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35; (b) a reasonable period ending after the individual becomes a Participant (c) a reasonable period ending after this Article first applies to the Participant. Notwithstanding the foregoing, notice must be provided within a reasonable period ending after separation from Service in the case of a Participant who separates from Service before attaining age 35. 47 86 For purposes of applying the preceding paragraph, a reasonable period ending after the events described in (b) and (c) is the end of the two-year period beginning one year prior to the date the applicable event occurs, and ending one-year after that date. In the case of a Participant who separates from Service before the Plan Year in which age 35 is attained, notice shall be provided within the two-year period beginning one year prior to separation and ending one year after separation. If such a Participant subsequently returns to employment with the Employer, the applicable period for such Participant shall be re-determined. 8.7 SPECIAL SAFE-HARBOR EXCEPTION FOR CERTAIN PROFIT-SHARING PLANS (a) This paragraph shall apply to a Participant in a profit-sharing plan, and to any distribution, made on or after the first day of the first plan year beginning after 1988, from or under a separate account attributable solely to Qualified Voluntary contributions, as maintained on behalf of a Participant in a money purchase pension plan, (including a target benefit plan) if the following conditions are satisfied: (1) the Participant does not or cannot elect payments in the form of a life annuity; and (2) on the death of a Participant, the Participant's Vested Account Balance will be paid to the Participant's Surviving Spouse, but if there is no Surviving Spouse, or if the Surviving Spouse has consented in a manner conforming to a Qualified Election, then to the Participant's Designated Beneficiary. The Surviving Spouse may elect to have distribution of the Vested Account Balance commence within the 90-day period following the date of the Participant's death. The account balance shall be adjusted for gains or losses occurring after the Participant's death in accordance with the provisions of the Plan governing the adjustment of account balances for other types of distributions. These safe-harbor rules shall not be operative with respect to a Participant in a profit-sharing plan if that plan is a direct or indirect transferee of a Defined Benefit Plan, money purchase plan, a target benefit plan, stock bonus plan, or profit-sharing plan which is subject to the survivor annuity requirements of Code Section 401(a)(11) and Code Section 417, and would therefore have a Qualified Joint and Survivor Annuity as its normal form of benefit. (b) The Participant may waive the spousal death benefit described in this paragraph at any time provided that no such waiver shall be effective unless it satisfies the conditions (described in paragraph 8.4) that would apply to the Participant's waiver of the Qualified Pre-Retirement Survivor Annuity. (c) If this paragraph 8.7 is operative, then all other provisions of this Article other than paragraph 8.8 are inoperative. 48 87 8.8 Transitional Joint And Survivor Annuity Rules Special transition rules apply to Participants who were not receiving benefits on August 23, 1984. (a) Any living Participant not receiving benefits on August 23, 1984, who would otherwise not receive the benefits prescribed by the previous paragraphs of this Article, must be given the opportunity to elect to have the prior paragraphs of this Article apply if such Participant is credited with at least one Hour of Service under this Plan or a predecessor Plan in a Plan Year beginning on or after January 1, 1976 and such Participant had at least 10 Years of Service for vesting purposes when he or she separated from Service. (b) Any living Participant not receiving benefits on August 23, 1984, who was credited with at least one Hour of Service under this Plan or a predecessor Plan on or after September 2, 1974, and who is not otherwise credited with any Service in a Plan Year beginning on or after January 1, 1976, must be given the opportunity to have his or her benefits paid in accordance with paragraph 8.9. (c) The respective opportunities to elect [as described in (a) and (b) above] must be afforded to the appropriate Participants during the period commencing on August 23, 1984 and ending on the date benefits would otherwise commence to said Participants. 8.9 AUTOMATIC JOINT AND SURVIVOR ANNUITY AND EARLY SURVIVOR ANNUITY Any Participant who has elected pursuant to paragraph 8.8(b) and any Participant who does not elect under paragraph 8.8(a) or who meets the requirements of paragraph 8.8(a), except that such Participant does not have at least 10 years of vesting Service when he or she separates from Service, shall have his or her benefits distributed in accordance with all of the following requirements if benefits would have been payable in the form of a life annuity. (a) Automatic Joint and Survivor Annuity. If benefits in the form of a life annuity become payable to a married Participant who: (1) begins to receive payments under the Plan on or after Normal Retirement Age, or (2) dies on or after Normal Retirement Age while still working for the Employer, or (3) begins to receive payments on or after the Qualified Early Retirement Age, or (4) separates from Service on or after attaining Normal Retirement (or the Qualified Early Retirement Age) and after satisfying the eligibility requirements for the payment of benefits under the Plan and thereafter dies before beginning to receive such benefits, then such benefits will be received under this 49 88 Plan in the form of a Qualified Joint and Survivor Annuity, unless the Participant has elected otherwise during the Election Period. The Election Period must begin at least 6 months before the Participant attains Qualified Early Retirement Age and end not more than 90 days before the commencement of benefits. Any election will be in writing and may be changed by the Participant at any time. (b) Election of Early Survivor Annuity. A Participant who is employed after attaining the Qualified Early Retirement Age will be given the opportunity to elect, during the Election Period, to have a survivor annuity payable on death. If the Participant elects the survivor annuity, payments under such annuity must not be less than the payments which would have been made to the Spouse under the Qualified Joint and Survivor Annuity if the Participant had retired on the day before his or her death. Any election under this provision will be in writing and may be changed by the Participant at any time. The Election Period begins on the later of: (1) the 90th day before the Participant attains the Qualified Early Retirement Age, or (2) the date on which participation begins, and ends on the date the Participant terminates employment. 8.10 ANNUITY CONTRACTS Any annuity contract distributed under this Plan must be nontransferable. The terms of any annuity contract purchased and distributed by the Plan to a Participant or Spouse shall comply with the requirements of this Plan. 50 89 ARTICLE IX VESTING 9.1 EMPLOYEE CONTRIBUTIONS A Participant shall always have a 100% vested and nonforfeitable interest in his or her Elective Deferrals, Voluntary Contributions, Qualified Voluntary Contributions, Rollover Contributions, and Transfer Contributions plus the earnings thereon. No forfeiture of Employer related contributions (including any minimum contributions made under paragraph 14.2) will occur solely as a result of an Employee's withdrawal of any Employee contributions. 9.2 EMPLOYER CONTRIBUTIONS A Participant shall acquire a vested and nonforfeitable interest in his or her account attributable to Employer contributions in accordance with the table selected in the Adoption Agreement, provided that if a Participant is not already fully vested, he or she shall become so upon attaining Normal Retirement Age, Early Retirement Age, on death prior to normal retirement, on retirement due to Disability, or on termination of the Plan. 9.3 COMPUTATION PERIOD The computation period for purposes of determining Years of Service and Breaks in Service for purposes of computing a Participant's nonforfeitable right to his or her account balance derived from Employer contributions shall be determined by the Employer in the Adoption Agreement. In the event a former Participant with no vested interest in his or her Employer contribution account requalifies for participation in the Plan after incurring a Break in Service, such Participant shall be credited for vesting with all pre-break and post-break Service. 9.4 REQUALIFICATION PRIOR TO FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE The account balance of such Participant shall consist of any undistributed amount in his or her account as of the date of re-employment plus any future contributions added to such account plus the investment earnings on the account. The Vested Account Balance of such Participant shall be determined by multiplying the Participant's account balance (adjusted to include any distribution or redeposit made under paragraph 6.3) by such Participant's vested percentage. All Service of the Participant, both prior to and following the break, shall be counted when computing the Participant's vested percentage. 9.5 REQUALIFICATION AFTER FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE If such Participant is not fully vested upon re-employment, a new account shall be established for such Participant to separate his or her deferred vested and nonforfeitable account, if any, from the account to which new allocations will be made. The Participant's deferred account to the extent remaining shall be fully vested and shall continue to share in earnings and losses of the Fund. When computing the Participant's vested portion of the new account, all pre-break and postbreak Service shall be counted. However, notwithstanding this provision, no such former Participant who has had five consecutive one-year Breaks in Service shall acquire a larger vested and nonforfeitable interest in his or her prior account balance as a result of requalification hereunder. 9.6 CALCULATING VESTED INTEREST A PARTICIPANT'S vested and nonforfeitable interest shall be calculated by multiplying the fair market value of his or her account attributable to Employer contributions on the Valuation Date preceding distribution by the decimal equivalent of the vested percentage as of his or her termination date. The amount attributable to Employer contributions for purposes of the calculation includes amounts previously paid out pursuant to paragraph 6.3 and 51 90 not repaid. The Participant's vested and nonforfeitable interest, once calculated above, shall be reduced to reflect those amounts previously paid out to the Participant and not repaid by the Participant. The Participant's vested and nonforfeitable interest so determined shall continue to share in the investment earnings and any increase or decrease in the fair market value of the Fund up to the Valuation Date preceding or coinciding with payment. 9.7 FORFEITURES Any balance in the account of a Participant who has separated from Service to which he or she is not entitled under the foregoing provisions, shall be forfeited and applied as provided in the Adoption Agreement. A forfeiture may only occur if the Participant has received a distribution from the Plan or if the Participant has incurred five consecutive 1-year Breaks in Service. Furthermore, a Highly Compensated Employee's Matching Contributions may be forfeited, even if vested, if the contributions to which they relate are Excess Deferrals, Excess Contributions or Excess Aggregate Contributions. 9.8 AMENDMENT OF VESTING SCHEDULE No amendment to the Plan shall have the effect of decreasing a Participant's vested interest determined without regard to such amendment as of the later of the date such amendment is adopted or the date it becomes effective. Further, if the vesting schedule of the Plan is amended, or the Plan is amended in any way that directly or indirectly affects the computation of any Participant's nonforfeitable percentage or if the Plan is deemed amended by an automatic change to or from a Top-Heavy vesting schedule, each Participant with at least three Years of Service with the Employer may elect, within a reasonable period after the adoption of the amendment, to have his or her nonforfeitable percentage computed under the Plan without regard to such amendment. For Participants who do not have at least one Hour of Service in any Plan Year beginning after 1988, the preceding sentence shall be applied by substituting "Five Years of Service" for "Three Years of Service" where such language appears. The period during which the election may be made shall commence with the date the amendment is adopted and shall end on the later of: (a) 60 days after the amendment is adopted; (b) 60 days after the amendment becomes effective; or (c) 60 days after the Participant is issued written notice of the amendment by the Employer or the Trustee/Custodian. If the Trustee/Custodian is asked to so notify, the Fund will be charged for the costs thereof. No amendment to the Plan shall be effective to the extent that it has the effect of decreasing a Participant's accrued benefit. Notwithstanding the preceding sentence, a Participant's account balance may be reduced to the extent permitted under section 412(c)(8) of the Code (relating to financial hardships). For purposes of this paragraph, a Plan amendment which has the effect of decreasing a Participant's account balance or eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment, shall be treated as reducing an accrued benefit. 9.9 SERVICE WITH CONTROLLED GROUPS ALL YEARS OF SERVICE with other members of a controlled group of corporations [as defined in Code Section 414(b)], trades or businesses under common control [as defined in Code Section 414(c)], or members of an affiliated service group [as defined in Code Section 414(m)] shall be considered for purposes of determining a Participant's nonforfeitable percentage. 52 91 ARTICLE X LIMITATIONS ON ALLOCATIONS AND ANTIDISCRIMIINATION TESTING 10.1 PARTICIPATION IN THIS PLAN Only If the Participant does not participate in and has never participated in another qualified plan, a Welfare Benefit Fund (as defined in paragraph 1.89) or an individual medical account, as defined in Code Section 415(1)(2), maintained by the adopting Employer, which provides an Annual Addition as defined in paragraph 1.4, the amount of Annual Additions which may be credited to the Participant's account for any Limitation Year will not exceed the lesser of the Maximum Permissible Amount or any other limitation contained in this Plan. If the Employer contribution that would otherwise be contributed or allocated to the Participant's account would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the Maximum Permissible Amount. Prior to determining the Participant's actual Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount for a Participant on the basis of a reasonable estimate of the Participant's Compensation for the Limitation Year, uniformly determined for all Participants similarly situated. As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant's actual Compensation for the Limitation Year. 10.2 DISPOSITION OF EXCESS ANNUAL ADDITIONS If, pursuant to paragraph 10.1 or as a result of the allocation of forfeitures, there is an Excess Amount, the excess will be disposed of under one of the following methods as determined in the Adoption Agreement. If no election is made in the Adoption Agreement then method "(a)" below shall apply. (a) Suspense Account Method (1) Any nondeductible Employee Voluntary, Required Voluntary Contributions and unmatched Elective Deferrals to the extent they would reduce the Excess Amount will be returned to the Participant. To the extent necessary to reduce the Excess Amount, non-Highly Compensated Employees will have all Elective Deferrals returned whether or not there was a corresponding match. (2) If after the application of paragraph (1) an Excess Amount still exists, and the Participant is covered by the Plan at the end of the Limitation Year, the Excess Amount in the Participant's account will be used to reduce Employer contributions (including any allocation of forfeitures) for such Participant in the next Limitation Year, and each succeeding Limitation Year if necessary. (3) If after the application of paragraph (1) an Excess Amount still exists, and the Participant is not covered by the Plan at the end of the Limitation Year, the Excess Amount will be held unallocated in a suspense account. The suspense account will be 53 92 applied to reduce future Employer contributions (including allocation of any forfeitures) for all remaining Participants in the next Limitation Year, and each succeeding Limitation Year if necessary. (4) If a suspense account is in existence at any time during the Limitation Year pursuant to this paragraph, it will not participate in the allocation of investment gains and losses. If a suspense account is in existence at any time during a particular Limitation Year, all amounts in the suspense account must be allocated and reallocated to Participants' accounts before any Employer contributions or any Employee Contributions may be made to the Plan for that Limitation Year. Excess amounts may not be distributed to Participants or former Participants. (b) Spillover Method (1) Any nondeductible Employee Voluntary, Required Voluntary Contributions and unmatched Elective Deferrals to the extent they would reduce the Excess Amount will be returned to the Participant. To the extent necessary to reduce the Excess Amount, non-Highly Compensated Employees will have all Elective Deferrals returned whether or not there was a corresponding match. (2) Any Excess Amount which would be allocated to the account of an individual Participant under the Plan's allocation formula will be reallocated to other Participants in the same manner as other Employer contributions. No such reallocation shall be made to the extent that it will result in an Excess Amount being created in such Participant's own account. (3) To the extent that amounts cannot be reallocated under (1) above, the suspense account provisions of (a) above will apply. 10.3 PARTICIPATION IN THIS PLAN AND ANOTHER MASTER AND PROTOTYPE DEFINED CONTRIBUTION PLAN, WELFARE BENEFIT FUND OR INDIVIDUAL MEDICAL ACCOUNT MAINTAINED BY THE EMPLOYER The Annual Additions which may be credited to a Participant's account under this Plan for any Limitation Year will not exceed the Maximum Permissible Amount reduced by the Annual Additions credited to a Participant's account under the other Master or Prototype Defined Contribution Plans, Welfare Benefit Funds, and individual medical accounts as defined in Code Section 415(1)(2), maintained by the Employer, which provide an Annual Addition as defined in paragraph 1.4 for the same Limitation Year. If the Annual Additions, with respect to the Participant under other Defined Contribution Plans and Welfare Benefit Funds maintained by the Employer, are less than the Maximum Permissible Amount and the Employer contribution that would otherwise be contributed or allocated to the Participant's account under this Plan would cause the Annual Additions for the Limitation Year to exceed this limitation, the amount contributed or allocated will be reduced so that the Annual Additions under all such plans and funds for the Limitation Year will equal the Maximum Permissible Amount. If the Annual 54 93 Additions with respect to the Participant under such other Defined Contribution Plans and Welfare Benefit Funds in the aggregate are equal to or greater than the Maximum Permissible Amount, no amount will be contributed or allocated to the Participant's account under this Plan for the Limitation Year. Prior to determining the Participant's actual Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount for a Participant in the manner described in paragraph 10.1. As soon as administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant's actual Compensation for the Limitation Year. 10.4 DISPOSITION OF EXCESS ANNUAL ADDITIONS UNDER TWO PLANS If, pursuant to paragraph 10.3 or as a result of forfeitures, a Participant's Annual Additions under this Plan and such other plans would result in an Excess Amount for a Limitation Year, the Excess Amount will be deemed to consist of the Annual Additions last allocated except that Annual Additions attributable to a Welfare Benefit Fund or Individual Medical Account as defined in Code Section 415(1)(2) will be deemed to have been allocated first regardless of the actual allocation date. If an Excess Amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another plan, the Excess Amount attributed to this Plan will be the product of: (a) the total Excess Amount allocated as of such date, times (b) the ratio of: (1) the Annual Additions allocated to the Participant for the Limitation Year as of such date under the Plan, to (2) the total Annual Additions allocated to the Participant for the Limitation Year as of such date under this and all the other qualified Master or Prototype Defined Contribution Plans. Any Excess Amount attributed to this Plan will be disposed of in the manner described in paragraph 10.2. 10.5 PARTICIPATION IN THIS PLAN AND ANOTHER DEFINED CONTRIBUTION PLAN WHICH IS NOT A MASTER OR PROTOTYPE PLAN If the Participant is covered under another qualified Defined Contribution Plan maintained by the Employer which is not a Master or Prototype Plan, Annual Additions which may be credited to the Participant's account under this Plan for any Limitation Year will be limited in accordance with paragraphs 10.3 and 10.4 as though the other plan were a Master or Prototype Plan, unless the Employer provides other limitations in the Adoption Agreement. 10.6 PARTICIPATION IN THIS PLAN AND A DEFINED BENEFIT PLAN IF THE EMPLOYER MAINTAINS, OR AT ANY TIME MAINTAINED, A QUALIFIED DEFINED Benefit Plan covering any Participant in this Plan, the sum of the Participant's Defined Benefit Plan Fraction and Defined Contribution Plan Fraction will not exceed 1.0 in any Limitation Year. For any Plan Year during which the Plan is Top-Heavy, the Defined Benefit and Defined Contribution Plan Fractions shall be calculated in accordance with Code Section 416(h). The Annual Additions which may be credited to the Participant's account under this Plan for any Limitation Year will be limited in accordance with the provisions set forth in the Adoption Agreement. 55 94 10.7 AVERAGE DEFERRAL PERCENTAGE (ADP) TEST With respect to any Plan Year, the Average Deferral Percentage for Participants who are Highly Compensated Employees and the Average Deferral Percentage for Participants who are non-Highly Compensated Employees must satisfy one of the following tests: (a) BASIC TEST - The Average Deferral Percentage for Participants who are Highly Compensated Employees for the Plan Year is not more than 1.25 times the Average Deferral Percentage for Participants who are non-Highly Compensated Employees for the same Plan Year, or (b) ALTERNATIVE TEST - The Average Deferral Percentage for Participants who are Highly Compensated Employees for the Plan Year does not exceed the Average Deferral Percentage for Participants who are non-Highly Compensated Employees for the same Plan Year by more than 2 percentage points provided that the Average Deferral Percentage for Participants who are Highly Compensated Employees is not more than 2.0 times the Average Deferral Percentage for Participants who are non-Highly Compensated Employees. 10.8 SPECIAL RULES RELATING TO APPLICATION OF ADP TEST (a) The Actual Deferral Percentage for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferrals (and Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, if treated as Elective Deferrals for purposes of the ADP test) allocated to his or her accounts under two or more arrangements described in Code Section 401(k), that are maintained by the Employer, shall be determined as if such Elective Deferrals (and, if applicable, such Qualified Non-Elective Contributions or Qualified Matching Contributions, or both) were made under a single arrangement. If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different Plan Years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. (b) In the event that this Plan satisfies the requirements of Code Sections 401(k), 401(a)(4), or 410(b), only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Code Sections only if aggregated with this Plan, then this Section shall be applied by determining the Actual Deferral Percentage of Employees as if all such plans were a single plan. For Plan Years beginning after 1989, plans may be aggregated in order to satisfy Code Section 401(k) only if they have the same Plan Year. 56 95 (c) For purposes of determining the Actual Deferral Percentage of a Participant who is a 5-percent owner or one of the ten most highly-paid Highly Compensated Employees, the Elective Deferrals (and Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, if treated as Elective Deferrals for purposes of the ADP test) and Compensation of such Participant shall include the Elective Deferrals (and, if applicable, Qualified Non-Elective Contributions and Qualified Matching Contributions, or both) for the Plan Year of Family Members as defined in paragraph 1.36 of this Plan. Family Members, with respect to such Highly Compensated Employees, shall be disregarded as separate Employees in determining the ADP both for Participants who are non-Highly Compensated Employees and for Participants who are Highly Compensated Employees. In the event of repeal of the family aggregation rules under Code Section 414(q)(6), all applications of such rules under this Plan will cease as of the effective date of such repeal. (d) For purposes of determining the ADP test, Elective Deferrals, Qualified Non-Elective Contributions and Qualified Matching Contributions must be made before the last day of the twelve-month period immediately following the Plan Year to which contributions relate. (e) The Employer shall maintain records sufficient to demonstrate satisfaction of the ADP test and the amount of Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, used in such test. (f) The determination and treatment of the Actual Deferral Percentage amounts of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. 10.9 RECHARACTERIZATION If the Employer allows for Voluntary Contributions in the Adoption Agreement, a Participant may treat his or her Excess Contributions as an amount distributed to the Participant and then contributed by the Participant to the Plan. Recharacterized amounts will remain nonforfeitable and subject to the same distribution requirements as Elective Deferrals. Amounts may not be recharacterized by a Highly Compensated Employee to the extent that such amount in combination with other Employee Contributions made by that Employee would exceed any stated limit under the Plan on Voluntary Contributions. Recharacterization must occur no later than two and one-half months after the last day of the Plan Year in which such Excess Contributions arose and is deemed to occur no earlier than the date the last Highly Compensated Employee is informed in writing of the amount recharacterized and the consequences thereof. Recharacterized amounts will be taxable to the Participant for the Participant's tax year in which the Participant would have received them in cash. 57 96 10.10 AVERAGE CONTRIBUTION PERCENTAGE (ACP) TEST If the Employer makes Matching Contributions or if the Plan allows Employees to make Voluntary Contributions the Plan must meet additional nondiscrimination requirements provided under Code Section 401(m). If Employee Contributions (including any Elective Deferrals recharacterized as Voluntary Contributions) are made pursuant to this Plan, then in addition to the ADP test referenced in paragraph 10.7, the Average Contribution Percentage test is also applicable. The Average Contribution Percentage for Participants who are Highly Compensated Employees for each Plan Year and the Average Contribution Percentage for Participants who are Non-Highly Compensated Employees for the same Plan Year must satisfy one of the following tests: (a) BASIC TEST - The Average, Contribution Percentage for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Average Contribution Percentage for Participants who are non-Highly Compensated Employees for the same Plan Year multiplied by 1.25; or (b) ALTERNATIVE TEST - The ACP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Average Contribution Percentage for Participants who are non-Highly Compensated Employees for the same Plan Year multiplied by two (2), provided that the Average Contribution Percentage for Participants who are Highly Compensated Employees does not exceed the Average Contribution Percentage for Participants who are non-Highly Compensated Employees by more than two (2) percentage points. 10.11 SPECIAL RULES RELATING TO APPLICATION OF ACP TEST (a) If one or more Highly Compensated Employees participate in both a cash or deferred arrangement and a plan subject to the ACP test maintained by the Employer and the sum of the ADP and ACP of those Highly Compensated Employees subject to either or both tests exceeds the Aggregate Limit, then the ADP or ACP of those Highly Compensated Employees who also participate in a cash or deferred arrangement will be reduced (beginning with such Highly Compensated Employee whose ADP or ACP is the highest) as set forth in the Adoption Agreement so that the limit is not exceeded. The amount by which each Highly Compensated Employee's Contribution Percentage Amounts is reduced shall be treated as an Excess Aggregate Contribution. The ADP and ACP of the Highly Compensated Employees are determined after any corrections required to meet the ADP and ACP tests. Multiple use does not occur if both the ADP and ACP of the Highly Compensated Employees does not exceed 1.25 multiplied by the ADP and ACP of the non-Highly Compensated Employees. 58 97 (b) For purposes of this Article, the Contribution Percentage for any Participant who is a Highly Compensated Employee and who is eligible to have Contribution Percentage Amounts allocated to his or her account under two or more plans described in Code Section 401(a), or arrangements described in Code Section 401(k) that are maintained by the Employer, shall be determined as if the total of such Contribution Percentage Amounts was made under each Plan. If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. (c) In the event that this Plan satisfies the requirements of Code Sections 401(a)(4), 401(m), or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Code Sections only if aggregated with this Plan, then this Section shall be applied by determining the Contribution Percentage of Employees as if all such plans were a single plan. For plan years beginning after 1989, plans may be aggregated in order to satisfy Code Section 401(m) only if the aggregated plans have the same Plan Year. (d) For purposes of determining the Contribution percentage of a Participant who is a five-percent owner or one of the ten most highly-paid, Highly Compensated Employees, the Contribution Percentage Amounts and Compensation of such Participant shall include the Contribution Percentage Amounts and Compensation for the Plan Year of Family Members as defined in Paragraph 1.36 of this Plan. Family Members, with respect to Highly Compensated Employees, shall be disregarded as separate Employees in determining the Contribution Percentage both for Participants who are non-Highly Compensated Employees and for Participants who are Highly Compensated Employees. In the event of repeal of the family aggregation rules under Code Section 414(q)(6), all applications of such rules under this Plan will cease as of the effective date of such repeal. (e) For purposes of determining the Contribution Percentage test, Employee Contributions are considered to have been made in the Plan Year in which contributed to the trust. Matching Contributions and Qualified Non-Elective Contributions will be considered made for a Plan Year if made no later than the end of the twelve-month period beginning on the day after the close of the Plan Year. (f) The Employer shall maintain records sufficient to demonstrate satisfaction of the ACP test and the amount of Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, used in such test. 59 98 (g) The determination and treatment of the Contribution Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (h) Qualified Matching Contributions and Qualified Non-Elective Contributions used to satisfy the ADP test may not be used to satisfy the ACP test. 60 99 ARTICLE XI ADMINISTRATION 11.1 Plan Administrator The Employer shal1 be the named fiduciary and Plan Administrator. These duties shall include: (a) appointing the Plan's attorney, accountant, actuary, or any other party needed to administer the Plan, (b) directing the Trustee/Custodian with respect to payments from the Fund, (c) communicating with Employees regarding their participation and benefits under the Plan, including the administration of all claims procedures, (d) filing any returns and reports with the Internal Revenue Service, Department of Labor, or any other governmental agency, (e) reviewing and approving any financial reports, investment reviews, or other reports prepared by any party appointed by the Employer under paragraph (a), (f) establishing a funding policy and investment objectives consistent with the purposes of the Plan and the Employee Retirement Income Security Act of 1974, and (g) construing and resolving any question of Plan interpretation. The Plan Administrator's interpretation of Plan provisions including eligibility and benefits under the Plan is final, and unless it can be shown to be arbitrary and capricious will not be subject to "de nova review. 11.2 Trustee/Custodian The Trustee/Custodian shall be responsible for the administration of investments held in the Fund. These duties shall include: (a) receiving contributions under the terms of the Plan, (b) making distributions from the Fund in accordance with written instructions received from an authorized representative of the Employer, (c) keeping accurate records reflecting its administration of the Fund and making such records available to the Employer for review and audit. Within 90 days after each Plan Year, and within 90 days after its removal or resignation, the Trustee/Custodian shall file with the Employer an accounting of its administration of the Fund during such year or from the end of the preceding Plan Year to the date of removal or resignation. Such accounting shall include a statement of cash receipts and disbursements since the date of its last accounting and shall contain an asset list showing the fair market value of investments held in the Fund as of the end of the Plan Year. The value of marketable investments shall be determined using the most recent price quoted on a na- 61 100 tional securities exchange or over the counter market. The value of non-marketable investments shall be determined in the sole judgment of the Trustee/Custodian which determination shall be binding and conclusive. The value of investments in securities or obligations of the Employer in which there is no market shall be determined in the sole judgment of the Employer and the Trustee/Custodian shall have no responsibility with respect to the valuation of such assets. The Employer shall review the Trustee/Custodian's accounting and notify the Trustee/Custodian in the event of its disapproval of the report within 90 days, providing the Trustee/Custodian with a written description of the items in question. The Trustee/Custodian shall have 60 days to provide the Employer with a written explanation of the items in question. If the Employer again disapproves, the Trustee/Custodian shall file its accounting in a court of competent jurisdiction for audit and adjudication, and (d) employing such agents, attorneys or other professionals as the Trustee may deem necessary or advisable in the performance of its duties. The Trustee's/Custodian's duties shall be limited to those described above. The Employer shall be responsible for any other administrative duties required under the Plan or by applicable law. 11.3 ADMINISTRATIVE FEES AND EXPENSES All reasonable costs, charges and expenses incurred by the Trustee/Custodian in connection with the administration of the Fund and all reasonable costs, charges and expenses incurred by the Plan Administrator in connection with the administration of the Plan (including fees for legal services rendered to the Trustee/Custodian or Plan Administrator) may be paid by the Employer, but if not paid by the Employer when due, shall be paid from the Fund. Such reasonable compensation to the Trustee/Custodian as may be agreed upon from time to time between the Employer and the Trustee/Custodian and such reasonable compensation to the Plan Administrator as may be agreed upon from time to time between the Employer and Plan Administrator may be paid by the Employer, but if not paid by the Employer when due shall be paid by the Fund. The Trustee shall have the right to liquidate trust assets to cover its fees. Notwithstanding the foregoing, no compensation other than reimbursement for expenses shall be paid to a Plan Administrator who is the Employer or a full-time Employee of the Employer. In the event any part of the Trust/Custodial Account becomes subject to tax, all taxes incurred will be paid from the Fund unless the Plan Administrator advises the Trustee/Custodian not to pay such tax. 11.4 DIVISION OF DUTIES AND INDEMNIFICATION (a) The Trustee/Custodian shall have the authority and discretion to manage and govern the Fund to the extent provided in this instrument, but does not guarantee the Fund in any manner against investment loss or depreciation in asset value, or guarantee the adequacy of the Fund to meet and discharge all or any liabilities of the Plan. (b) The Trustee/Custodian shall not be liable for the making, retention or sale of any investment or reinvestment made by it, as herein provided, or for any loss to, or diminution of the Fund, or for any other loss or damage which may result from the discharge of its duties hereunder except to the extent it is 62 101 judicially determined that the Trustee/Custodian has failed to exercise the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character with like aims. (c) The Employer warrants that all directions issued to the Trustee/Custodian by it or the Plan Administrator will be in accordance with the terms of the Plan and not contrary to the provisions of the Employee Retirement Income Security Act of 1974 and regulations issued thereunder. (d) The Trustee/Custodian shall not be answerable for any action taken pursuant to any direction, consent, certificate, or other paper or document on the belief that the same is genuine and signed by the proper person. All directions by the Employer, Participant or the Plan Administrator shall be in writing. The Employer shall deliver to the Trustee/Custodian certificates evidencing the individual or individuals authorized to act as set forth in the Adoption Agreement or as the Employer may subsequently inform the Trustee/Custodian in writing and shall deliver to the Trustee/Custodian specimens of their signatures. (e) The duties and obligations of the Trustee/Custodian shall be limited to those expressly imposed upon it by this instrument or subsequently agreed upon by the parties. Responsibility for administrative duties required under the Plan or applicable law not expressly imposed upon or agreed to by the Trustee/Custodian, shall rest solely with the Employer. (f) The Trustee shall be indemnified and saved harmless by the Employer from and against any and all liability to which the Trustee/Custodian may be subjected, including all expenses reasonably incurred in its defense, for any action or failure to act resulting from compliance with the instructions of the Employer, the employees or agents of the Employer, the Plan Administrator, or any other fiduciary to the Plan, and for any liability arising from the actions or non-actions of any predecessor Trustee/Custodian or fiduciary or other fiduciaries of the Plan. (g) The Trustee/Custodian shall not be responsible in any way for the application of any payments it is directed to make or for the adequacy of the Fund to meet and discharge any and all liabilities under the Plan. 63 102 ARTICLE XII TRUST FUND/CUSTODIAL ACCOUNT 12.1 THE FUND The Fund shall consist of all contributions made under Article III and Article IV of the Plan and the investment thereof and earnings thereon. All contributions and the earnings thereon less payments made under the terms of the Plan, shall constitute the Fund. The Fund shall be administered as provided in this document. 12.2 CONTROL OF PLAN ASSETS The assets of the Fund or evidence of ownership shall be held by the Trustee/Custodian under the terms of the Plan and Trust/Custodial Account. If the assets represent amounts transferred from another trustee/custodian under a former plan, the Trustee/Custodian named hereunder shall not be responsible for the propriety of any investment under the former plan. 12.3 EXCLUSIVE BENEFIT RULES No part of the Fund shall be used for, or diverted to, purposes other than for the exclusive benefit of Participants, former Participants with a vested interest, and the beneficiary or beneficiaries of deceased Participants having a vested interest in the Fund at death. 12.4 ASSIGNMENT AND ALIENATION OF BENEFITS No right or claim to, or interest in, any part of the Fund, or any payment from the Fund, shall be assignable, transferable, or subject to sale, mortgage, pledge, hypothecation, commutation, anticipation, garnishment, attachment, execution, or levy of any kind. The Trustee/Custodian shall not recognize any attempt to assign, transfer, sell, mortgage, pledge, hypothecate, commute, or anticipate the same, except to the extent required by law. The preceding sentences shall also apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a Participant pursuant to a domestic relations order, unless such order is determined to be a qualified domestic relations order, as defined in Code Section 414(p), or any domestic relations order entered before January 1, 1985 which the Plan attorney and Plan Administrator deem to be qualified. 12.5 DETERMINATION OF QUALIFIED DOMESTIC RELATIONS ORDER (QDRO) A Domestic Relations Order shall specifically state all of the following in order to be deemed a Qualified Domestic Relations Order ("QDRO"): (a) The name and last known mailing address (if any) of the Participant and of each alternate payee covered by the QDRO. However, if the QDRO does not specify the current mailing address of the alternate payee, but the Plan Administrator has independent knowledge of that address, the QDRO will still be valid. (b) The dollar amount or percentage of the Participant's benefit to be paid by the Plan to each alternate payee, or the manner in which the amount or percentage will be determined. (c) The number of payments or period for which the order applies. (d) The specific plan (by name) to which the Domestic Relations Order applies. 64 103 The Domestic Relations Order shall not be deemed a QDRO if it requires the Plan to provide: (e) any type or form of benefit, or any option not already provided for in the Plan; (f) increased benefits, or benefits in excess of the Participant's vested rights; (g) payment of a benefit earlier than allowed by the Plan's earliest retirement provisions or in the case of a profit-sharing plan, prior to the allowability of in-service withdrawals, or (h) payment of benefits to an alternate payee which are required to be paid to another alternate payee under another QDRO. Promptly, upon receipt of a Domestic Relations Order ("Order") which may or may not be "Qualified", the Plan Administrator shall notify the Participant and any alternate payee(s) named in the Order of such receipt, and include a copy of this paragraph 12.5. The Plan Administrator shall then forward the Order to the Plan's legal counsel for an opinion as to whether or not the Order is in fact "Qualified" as defined in Code Section 414(p). Within a reasonable time after receipt of the Order, not to exceed 60 days, the Plan's legal counsel shall make a determination as to its "Qualified" status and the Participant and any alternate payee(s) shall be promptly notified in writing of the determination. If the "Qualified" status of the Order is in question, there will be a delay in any payout to any payee including the Participant, until the status is resolved. In such event, the Plan Administrator shall segregate the amount that would have been payable- to the alternate payee(s) if the Order had been deemed a QDRO. If the Order is not Qualified, or the status is not resolved (for example, it has been sent back to the Court for clarification or modification) within 18 months beginning with the date the first payment would have to be made under the Order, the Plan Administrator shall pay the segregated amounts plus interest to the person(s) who would have been entitled to the benefits had there been no Order. If a determination as to the Qualified status of the Order is made after the 18- month period described above, then the Order shall only be applied on a prospective basis. If the Order is determined to be a QDRO, the Participant and alternate payee(s) shall again be notified promptly after such determination. Once an Order is deemed a QDRO, the Plan Administrator shall pay to the alternate payee(s) all the amounts due under the QDRO, including segregated amounts plus interest which may have accrued during a dispute as to the Order's qualification. Unless specified otherwise in the Adoption Agreement, the earliest retirement age with regard to the Participant against whom the order is entered shall be the date the order is determined to be qualified. This will only allow payouts to alternate payee(s) and not the Participant. 65 104 ARTICLE XIII INVESTMENTS 13.1 FIDUCIARY STANDARDS The Trustee/Custodian shall invest and reinvest principal and income in the same Fund in accordance with the investment objectives established by the Employer, provided that: (a) such investments are prudent under the Employee Retirement Income Security Act of 1974 and the regulations thereunder, (b) such investments are sufficiently diversified or otherwise insured or guaranteed to minimize the risk of large losses, and (c) such investments are similar to those which would be purchased by another professional money manager for a like plan with similar investment objectives. 13.2 FUNDING ARRANGEMENT The Employer shall, in the Adoption Agreement, appoint the Sponsor to serve as either Trustee or Custodian of the Fund. If the Sponsor is appointed Trustee, the Fund shall be invested in any of the alternatives available to the Trustee under paragraph 13.3 herein. If the Sponsor is appointed Custodian, the Fund shall be invested only in the alternatives available to the Custodian under paragraph 13.4 herein. 13.3 INVESTMENT ALTERNATIVES OF THE TRUSTEE AS TRUSTEE, the Sponsor shall implement an investment program based on the Employer's investment objectives and the Employee Retirement Income Security Act of 1974. In addition to powers given by law, the Trustee may: (a) invest the Fund in any form of property, including common and preferred stocks, exchange traded put and call options, bonds, money market instruments, mutual funds (including funds for which the Trustee or its affiliates serve as investment advisor), savings accounts, certificates of deposit, Treasury bills, insurance policies and contracts, or in any other property, real or personal, having a ready market. The Trustee may invest in time deposits (including, if applicable, its own or those of affiliates) which bear a reasonable interest rate. No portion of any Qualified Voluntary Contribution, or the earnings thereon, may be invested in life insurance contracts or, as with any Participant-directed investment, in tangible personal property characterized by the IRS as a collectible, (b) transfer any assets of the Fund to a group or collective trust established to permit the pooling of funds of separate pension and profit-sharing trusts, provided the Internal Revenue Service has ruled such group or collective trust to be qualified under Code Section 401(a) and exempt under Code Section 501(a) (or the applicable corresponding provision of any other Revenue Act) or to any other common, collective, or commingled trust fund which has been or may hereafter be established and maintained 66 105 by the Trustee and/or affiliates of the Trustee. Such commingling of assets of the Fund with assets of other qualified trusts is specifically authorized, and to the extent of the investment of the Fund in such a group or collective trust, the terms of the instrument establishing the group or collective trust shall be a part hereof as though set forth herein, (c) invest up to 100% of the Fund in the common stock, debt obligations, or any other security issued by the Employer or by an affiliate of the Employer within the limitations provided under Sections 406, 407, and 408 of the Employee Retirement Income Security Act of 1974 and further provided that such investment does not constitute a prohibited transaction under Code Section 4975. Any such investment in Employer securities shall only be made upon written direction of the Employer who shall be solely responsible for propriety of such investment, (d) hold cash uninvested and deposit same with any banking or savings institution, including its own banking department, (e) join in or oppose the reorganization, recapitalization, consolidation, sale or merger of corporations or properties, including those in which it is interested as Trustee, upon such terms as it deems wise, (f) hold investments in nominee or bearer form, (g) vote proxies and, if appropriate, pass them on to any investment manager which may have directed the investment in the equity giving rise to the proxy, (h) exercise all ownership rights with respect to assets held in the Fund. 13.4 INVESTMENTS ALTERNATIVES OF THE CUSTODIAN AS CUSTODIAN, the Sponsor shall be depository of the Fund and shall, at the direction of the Employer, invest all contributions exclusively in savings or time accounts, savings certificates of deposit, or other savings or time instruments offered by the Custodian and, if offered, by an affiliate of the Custodian. 13.5 PARTICIPANT LOANS If agreed upon by the Trustee and permitted by the Employer in the Adoption Agreement, a Plan Participant may make application to the Employer requesting a loan from the Fund. The Employer shall have the sole right to approve or disapprove a Participant's application provided that loans shall be made available to all Participants on a reasonably equivalent basis. Loans shall not be made available to Highly Compensated Employees [as defined in Code Section 414(q)] in an amount greater than the amount made available to other Employees. Any loan granted under the Plan shall be made subject to the following rules: (a) No loan, when aggregated with any outstanding Participant loan(s), shall exceed the lesser of (i) S50,000 reduced by the excess, if any, of the highest outstanding balance of loans during the one year period ending on the day before the loan is made, over the outstanding balance of loans from the Plan on the date the loan is made or (ii) one-half of the fair market value of a Participant's Vested Account Balance built up from Employer Contributions, Voluntary Contributions, and Rollover 67 106 Contributions. If the Participant's Vested Account Balance is $20,000 or less, the maximum loan shall not exceed the lesser of S10,000 or 100% of the Participant's Vested Account Balance. For the purpose of the above limitation, all loans from all plans of the Employer and other members of a group of employers described in Code Sections 414(b), 414(c), and 414(m) are aggregated. An assignment or pledge of any portion of the Participant's interest in the Plan and a loan, pledge, or assignment with respect to any insurance contract purchased under the Plan, will be treated as a loan under this paragraph. (b) All applications must be made on forms provided by the Employer and must be signed by the Participant. (c) Any loan shall bear interest at a rate reasonable at the time of application, considering the purpose of the loan and the rate being charged by representative commercial banks in the local area for a similar loan unless the Employer sets forth a different method for determining loan interest rates in its loan procedures. The loan agreement shall also provide that the payment of principal and interest be amortized in level payments not less than quarterly. (d) The term of such loan shall not exceed five years except in the case of a loan for the purpose of acquiring any house, apartment, condominium, or mobile home (not used on a transient basis) which is used or is to be used within a reasonable time as the principal residence of the Participant. The term of such loan shall be determined by the Employer considering the maturity dates quoted by representative commercial banks in the local area for a similar loan. (e) The principal and interest paid by a Participant on his or her loan shall be credited to the Fund in the same manner as for any other Plan investment. If elected in the Adoption Agreement, loans may be treated as segregated investments of the individual Participants. This provision is not available if its election will result in discrimination in operation of the Plan. (f) If a Participant's loan application is approved by the Employer, such Participant shall be required to sign a note, loan agreement, and assignment of 50% of his or her interest in the Fund as collateral for the loan. The Participant, except in the case of a profit-sharing plan satisfying the requirements of paragraph 8.7 must obtain the consent of his or her Spouse, if any, within the 90 day period before the time his or her account balance is used as security for the loan. A new consent is required if the account balance is used for any renegotiation, extension, renewal or other revision of the loan, including an increase in the amount thereof. The consent must be written, must acknowledge the effect of the loan, and must be witnessed by a plan representative or notary public. Such consent shall subsequently be binding with respect to the consenting Spouse or any subsequent Spouse. 68 107 (g) If a valid Spousal consent has been obtained, then, notwithstanding any other provision of this Plan, the portion of the Participant's Vested Account Balance used as a security interest held by the Plan by reason of a loan outstanding to the Participant shall be taken into account for purposes of determining the amount of the account balance payable at the time of death or distribution, but only if the reduction is used as repayment of the loan. If less than 100% of the Participant's Vested Account Balance (determined without regard to the preceding sentence) is payable to the Surviving Spouse, then the account balance shall be adjusted by first reducing the Vested Account Balance by the amount of the security used as repayment of the loan, and then determining the benefit payable to the Surviving Spouse. (h) The Employer may also require additional collateral in order to adequately secure the loan. (i) A Participant's loan shall immediately become due and payable if such Participant terminates employment for any reason or fails to make a principal and/or interest payment as provided in the loan agreement. If such Participant terminates employment, the Employer shall immediately request payment of principal and interest on the loan. If the Participant refuses payment following termination, the Employer shall reduce the Participant's Vested Account Balance by the remaining principal and interest on his or her loan. If the Participant's Vested Account Balance is less than the amount due, the Employer shall take whatever steps are necessary to collect the balance due directly from the Participant. However, no foreclosure on the Participant's note or attachment of the Participant's account balance will occur until a distributable event occurs in the Plan. (j) No loans will be made to Owner-Employees (as defined in paragraph 1.51) or Shareholder-Employees (as defined in paragraph 1.74), unless the Employer obtains a prohibited transaction exemption from the Department of Labor. 13.6 INSURANCE POLICIES If agreed upon by the Trustee and permitted by the Employer in the Adoption Agreement, Employees may elect the purchase of life insurance policies under the Plan. If elected, the maximum annual premium for a whole life policy shall not exceed 50% of the aggregate Employer contributions allocated to the account of a Participant. For profit-sharing plans the 50% test need only be applied against Employer contributions allocated in the last two years. Whole life policies are policies with both nondecreasing death benefits and nonincreasing premiums. The maximum annual premium for term contracts or universal life policies and all other policies which are not whole life shall not exceed 25% of aggregate Employer contributions allocated to the account of a Participant. The two year rule for profit-sharing plans again applies. The maximum annual premiums for a Participant with both a whole life and a term contract or universal life policies shall be limited to one-half of the whole life premium plus the term premium, but shall not exceed 25% of the aggregate Employer contributions allocated to the account of a Participant, subject to the two year rule for profit-sharing plans. Any policies purchased under this Plan shall be held subject to the following rules: 69 108 (a) The Trustee shall be applicant and owner of any policies issued. (b) All policies or contracts purchased hereunder, shall be endorsed as nontransferable, and must provide that proceeds will be payable to the Trustee; however, the Trustee shall be required to pay over all proceeds of the contracts to the Participant's Designated Beneficiary in accordance with the distribution provisions of this Plan. Under no circumstances shall the Trust retain any part of the proceeds. (c) Each Participant shall be entitled to designate a beneficiary under the terms of any contract issued; however, such designation will be given to the Trustee which must be the named beneficiary on any policy. Such designation shall remain in force, until revoked by the Participant, by filing a new beneficiary form with the Trustee. A Participant's Spouse will be the Designated Beneficiary of the proceeds in all circumstances unless a Qualified Election has been made in accordance with paragraph 8.4. The beneficiary of a deceased Participant shall receive, in addition to the proceeds of the Participant's policy or policies, the amount credited to such Participant's investment account. (d) A Participant who is uninsurable or insurable at substandard rates, may elect to receive a reduced amount of insurance, if available, or may waive the purchase of any insurance. (e) All dividends or other returns received on any policy purchased shall be applied to reduce the next premium due on such policy, or if no further premium is due, such amount shall be credited to the Fund as part of the account of the Participant for whom the policy is held. (f) If Employer contributions are inadequate to pay all premiums on all insurance policies, the Trustee may, at the option of the Employer, utilize other amounts remaining in each Participant's account to pay the premiums on his or her respective policy or policies, allow the policies to lapse, reduce the policies to a level at which they may be maintained, or borrow against the policies on a prorated basis, provided that the borrowing does not discriminate in favor of the policies on the lives of Officers, Shareholders, and highly compensated Employees. (g) On retirement or termination of employment of a Participant, the Employer shall direct the Trustee to cash surrender the Participant's policy and credit the proceeds to his or her account for distribution under the terms of the Plan. However, before so doing, the Trustee shall first offer to transfer ownership of the policy to the Participant in exchange for payment by the Participant of the cash value of the policy at the time of transfer. Such payment shall be credited to the Participant's account for distribution under the terms of the Plan. All distributions resulting from the application of this paragraph shall be subject to the Joint and Survivor Annuity Rules of Article VIII, if applicable. 70 109 (h) The Employer shall be solely responsible to see that these insurance provisions are administered properly and that if there is any conflict between the provisions of this Plan and any insurance contracts issued that the terms of this Plan will control. 13.7 EMPLOYER INVESTMENT DIRECTION If agreed upon by the Trustee and approved by the Employer in the Adoption Agreement, the Employer shall have the right to direct the Trustee with respect to investments of the Fund, may appoint an investment manager (registered as an investment advisor under the Investment Advisors Act of 1940) to direct investments, or may give the Trustee sole investment management responsibility. The Employer may purchase and sell interests in a registered investment company (i.e., mutual funds) for which the Sponsor, its parent, affiliates, or successors, may serve as investment advisor and receive compensation from the registered investment company for its services as investment advisor. The Employer shall advise the Trustee in writing regarding the retention of investment powers, the appointment of an investment manager, or the delegation of investment powers to the Trustee. Any investment directive under this Plan shall be made in writing by the Employer or investment manager, as the case may be. In the absence of such written directive, the Trustee shall automatically invest the available cash in its discretion in an appropriate interim investment until specific investment directions are received. Such instructions regarding the delegation of investment responsibility shall remain in force until revoked or amended in writing. The Trustee shall not be responsible for the propriety of any directed investment made and shall not be required to consult with or advise the Employer regarding the investment quality of any directed investment held hereunder. If the Employer fails to designate an investment manager, the Trustee shall have full investment authority. If the Employer does not issue investment directions, the Trustee shall have authority to invest the Fund in its sole discretion. While the Employer may direct the Trustee with respect to Plan investments, the Employer may not: (a) borrow from the Fund or pledge any of the assets of the Fund as security for a loan, (b) buy property or assets from or sell property or assets to the Fund, (c) charge any fee for services rendered to the Fund, or (d) receive any services from the Fund on a preferential basis. 13.8 EMPLOYEE INVESTMENT DIRECTION If agreed to by the Trustee and approved by the Employer in the Adoption Agreement, Participants shall be given the option to direct the investment of their personal contributions and their share of the Employer's contribution among alternative investment funds established as part of the overall Fund. Unless otherwise specified by the Employer in the Adoption Agreement, such investment funds shall be under the full control of the management of the Trustee. If investments outside the Trustee's control are allowed, Participants may not direct that investments be made in collectibles, other than U.S. Government or State issued gold and silver coins. In this connection, a Participant's right to direct the investment of any contribution shall apply only to selection of the desired fund. The following rules shall apply to the administration of such funds. (a) At the time an Employee becomes eligible for the Plan, he or she shall complete an investment designation form stating the percentage of his or her contributions to be invested in the available funds. 71 110 (b) A Participant may change his or her election with respect to future contributions by filing a new investment designation form with the Employer in accordance with the procedures established by the Plan Administrators. (c) A Participant may elect to transfer all or part of his or her balance from one investment fund to another by filing an investment designation form with the Employer in accordance with the procedures established by the Plan Administrators. (d) The Employer shall be responsible when transmitting Employee and Employer contributions to show the dollar amount to be credited to each investment fund for each Employee. (e) Except as otherwise provided in the Plan, neither the Trustee, nor the Employer, nor any fiduciary of the Plan shall be liable to the Participant or any of his or her beneficiaries for any loss resulting from action taken at the direction of the Participant. 72 111 ARTICLE XIV TOP-HEAVY PROVISIONS 14.1 APPLICABILITY OF RULES If the Plan is or becomes Top-Heavy in any Plan Year beginning after 1983, the provisions of this Article will supersede any conflicting provisions in the Plan or Adoption Agreement. 14.2 MINIMUM CONTRIBUTION Notwithstanding any other provision in the Employer's Plan, for any Plan Year in which the Plan is Top-Heavy or Super Top-Heavy, the aggregate Employer contributions and forfeitures allocated on behalf of any Participant (without regard to any Social Security contribution) under this Plan and any other Defined Contribution Plan of the Employer shall be lesser of 3% of such Participant's Compensation or the largest percentage of Employer contributions and forfeitures, as a percentage of the first $200,000, as adjusted under Code Section 415(d), of the Key Employee's Compensation, allocated on behalf of any Key Employee for that year. Each Participant who is employed by the Employer on the last day of the Plan Year shall be entitled to receive an allocation of the Employer's minimum contribution for such Plan Year. The minimum allocation applies even though under other Plan provisions the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the year because the Participant fails to make Mandatory Contributions to the Plan, the Participant's Compensation is less than a stated amount, or the Participant fails to complete 1,000 Hours of Service (or such lesser number designated by the Employer in the Adoption Agreement) during the Plan Year. A Paired profit-sharing plan designated to provide the minimum Top Heavy contribution must do so regardless of profits. An Employer may make the minimum Top-Heavy contribution available to all Participants or just non-Key Employees. For purposes of computing the minimum allocation, Compensation shall mean Compensation as defined in the second paragraph of paragraph 1.12 of the Plan. The Top-Heavy minimum contribution does not apply to any Participant to the extent the Participant is covered under any other plan(s) of the Employer and the Employer has provided in Section 11 of the Adoption Agreement that the minimum allocation or benefit requirements applicable to Top-Heavy Plans will be met in the other plan(s). If a Key Employee makes an Elective Deferral or has an allocation of Matching Contributions made to his or her account, a Top-Heavy minimum will be required for non-Key Employees who are Participants, however, neither Elective Deferrals by nor Matching Contributions to non-Key Employees may be taken into account for purposes of satisfying the top-heavy Minimum Contribution requirement. 14.3 MINIMUM VESTING For any Plan Year in which this Plan is Top-Heavy, the minimum vesting schedule elected by the Employer in the Adoption Agreement will automatically apply to the Plan. If the vesting schedule selected by the Employer in the Adoption Agreement is less liberal than the allowable schedule, the schedule will automatically be modified. If the vesting schedule under the Employer's Plan shifts in or out of the Top-Heavy schedule for any Plan Year, such shift is an amendment to the vesting schedule and the election in paragraph 9.8 of the Plan applies. The minimum vesting schedule applies to all accrued benefits within the meaning of Code Section 411(a)(7) except those attributable to Employee contributions, including benefits accrued before the effective date of Code Section 416 and benefits accrued 73 112 before the Plan became Top-Heavy. Further, no reduction in vested benefits may occur in the event the Plan's status as Top-Heavy changes for any Plan Year. However, this paragraph does not apply to the account balances of any Employee who does not have an Hour of Service after the Plan initially becomes Top-Heavy and such Employee's account balance attributable to Employer contributions and forfeitures will be determined without regard to this paragraph. 14.4 LIMITATIONS ON ALLOCATIONS In any Plan Year in which the Top-Heavy Ratio exceeds 90% (i.e., the Plan becomes Super Top-Heavy), the denominators of the Defined Benefit Fraction (as defined in paragraph 1.16) and Defined Contribution Fraction (as defined in paragraph 1.19) shall be computed using 100% of the dollar limitation instead of 125%. 74 113 ARTICLE XV AMENDMENT AND TERMINATION 15.1 AMENDMENT BY SPONSOR The Sponsor may amend any or all provisions of this Plan and Trust/Custodial Account at any time without obtaining the approval or consent of any Employer which has adopted this Plan and Trust/Custodial Account provided that no amendment shall authorize or permit any part of the corpus or income of the Fund to be used for or diverted to purposes other than for the exclusive benefit of Participants and their beneficiaries, or eliminate an optional form of distribution. In the case of a mass-submitted plan, the mass-submitter shall amend the Plan on behalf of the Sponsor. 15.2 AMENDMENT BY EMPLOYER The Employer may amend any option in the Adoption Agreement, and may include language as permitted in the Adoption Agreement, (a) to satisfy Code Section 415, or (b) to avoid duplication of minimums under Code Section 416 because of the required aggregation of multiple plans. The Employer may add certain model amendments published by the Internal Revenue Service which specifically provide that their adoption will not cause the Plan to be treated as an individually designed plan for which the Employer must obtain a separate determination letter. If the Employer amends the Plan and Trust/Custodial Account other than as provided above, the Employer's Plan shall no longer participate in this Prototype Plan and will be considered an individually designed plan. 15.3 TERMINATION Employers shall have the right to terminate their Plans upon 60 days notice in writing to the Trustee/Custodian. If the Plan is terminated, partially terminated, or if there is a complete discontinuance of contributions under a profit-sharing plan maintained by the Employer, all amounts credited to the accounts of Participants shall vest and become nonforfeitable. In the event of a partial termination, only those who are affected by such partial termination shall be fully vested. In the event of termination, the Employer shall direct the Trustee/Custodian with respect to the distribution of accounts to or for the exclusive benefit of Participants or their beneficiaries. The Trustee/Custodian shall dispose of the Fund in accordance with the written directions of the Plan Administrator, provided that no liquidation of assets and payment of benefits, (or provision therefor), shall actually be made by the Trustee/Custodian until after it is established by the Employer in a manner satisfactory to the Trustee/Custodian, that the applicable requirements, if any, of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code governing the termination of employee benefit plans, have been or are being, complied with, or that appropriate authorizations, waivers, exemptions, or variances have been, or are being obtained. 15.4 QUALIFICATION OF EMPLOYER'S PLAN If the adopting Employer fails to attain or retain Internal Revenue Service qualification, such Employer's Plan shall no longer participate in this Prototype Plan and will be considered an individually designed plan. 75 114 15.5 MERGERS AND CONSOLIDATIONS (a) In the case of any merger or consolidation of the Employer's Plan with, or transfer of assets or liabilities of the Employer's Plan to, any other plan, Participants in the Employer's Plan shall be entitled to receive benefits immediately after the merger, consolidation, or transfer which are equal to or greater than the benefits they would have been entitled to receive immediately before the merger, consolidation, or transfer if the Plan had then terminated. (b) Any corporation into which the Trustee/Custodian or any successor trustee/custodian may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Trustee/Custodian or any successor trustee/custodian may be a party, or any corporation to which all or substantially all the trust business of the Trustee/Custodian or any successor trustee/custodian may be transferred, shall be the successor of such Trustee/Custodian without the filing of any instrument or performance of any further act, before any court. 15.6 RESIGNATION AND REMOVAL The Trustee/Custodian may resign by written notice to the Employer which shall be effective 60 days after delivery. The Employer may discontinue its participation in this Prototype Plan and Trust/Custodial Account effective upon 60 days written notice to the Sponsor. In such event the Employer shall, prior to the effective date thereof, amend the Plan to eliminate any reference to this Prototype Plan and Trust/Custodial Account and appoint a successor trustee or custodian or arrange for another funding agent. The Trustee/Custodian shall deliver the Fund to its successor on the effective date of the resignation or removal, or as soon thereafter as practicable, provided that this shall not waive any lien the Trustee/Custodian may have upon the Fund for its compensation or expenses. If the Employer fails to amend the Plan and appoint a successor trustee, custodian, or other funding agent within the said 60 days, or such longer period as the Trustee/Custodian may specify in writing, the Plan shall be deemed individually designed and the Employer shall be deemed the successor trustee/custodian. The Employer must then obtain its own determination letter. 15.7 QUALIFICATION OF PROTOTYPE The Sponsor intends that this Prototype Plan will meet the requirements of the Code as a qualified Prototype Retirement Plan and Trust/Custodial Account. Should the Commissioner of Internal Revenue or any delegate of the Commissioner at any time determine that the Plan and Trust/Custodial Account fails to meet the requirements of the Code, the Sponsor will amend the Plan and Trust/Custodial Account to maintain its qualified status. 76 115 ARTICLE XVI GOVERNING LAW Construction, validity and administration of the Prototype Plan and Trust/Custodial Account, and any Employer Plan and Trust/Custodial Account as embodied in the Prototype document and accompanying Adoption Agreement, shall be governed by Federal law to the extent applicable and to the extent not applicable by the laws of the State/Commonwealth in which the principal office of the Sponsor is located. 77 116 PART I - SECTION 401(a) (17) LIMITATION [MAY BE ADOPTED BY DEFINED CONTRIBUTION AND DEFINED BENEFIT PLANS] In addition to other applicable limitations set forth in the Plan, and notwithstanding any over provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual Compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision. If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in erect for that prior determination period. For this purpose, for determination periods beginning before the first day of the fist Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. 117 MODEL AMENDMENT Revenue Procedure 93-47 (This model amendment allows Participants removing distribution from safe-harbored profit sharing plan to waive the 30-day period required under the Unemployment Compensation Act of 1992. Non-safe harbored plans must still provide notice not less than 30 days and not more than 90 days prior to the distribution.) If a distribution is one to which Section 401(a)(11) and 417 of the Internal Revenue Code do not apply, such distribution may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, prodded that: (1) the plan administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution. EX-10.08 13 STOCK PURCHASE PLAN 1 EXHIBIT 10.08 COMMUNITY FINANCIAL GROUP, INC. ASSOCIATES' STOCK PURCHASE PLAN (Amended and Restated Effective May 1, 1996) 2 TABLE OF CONTENTS ARTICLE 1. PURPOSE ........................................................ 1 ARTICLE 2. DEFINITIONS .................................................... 1 ARTICLE 3. ELIGIBLE ASSOCIATES ............................................ 4 ARTICLE 4. STOCK SUBJECT TO THE PLAN ...................................... 4 ARTICLE 5. GRANT OF OPTION AND PURCHASE OF STOCK .......................... 4 ARTICLE 6. INTENTION TO PURCHASE .......................................... 5 ARTICLE 7. AUTHORIZATION FOR ENTERING PLAN ................................ 6 ARTICLE 8. AMOUNT OF PAYROLL DEDUCTIONS ................................... 6 ARTICLE 9. CHANGE IN PAYROLL DEDUCTIONS ................................... 6 ARTICLE 10. HARDSHIP WITHDRAWAL ............................................ 7 ARTICLE 11. JOINT TENANTS WITH RIGHTS OF SURVIVORSHIP; FRACTIONAL SHARES.... 7 ARTICLE 12. NO TRANSFER OR ASSIGNMENT OF ASSOCIATE'S RIGHTS ................ 8 ARTICLE 13. TERMINATION OF ASSOCIATE'S RIGHTS .............................. 8 ARTICLE 14. SUSPENSION, TERMINATION AND AMENDMENTS TO THE PLAN ............. 8 ARTICLE 15. LIMITATIONS ON SALE OF STOCK PURCHASED UNDER THE PLAN .......... 9 ARTICLE 16. COMPANY'S PAYMENT OF EXPENSES RELATED TO THE PLAN .............. 9 ARTICLE 17. ADMINISTRATION OF THE PLAN ..................................... 9 ARTICLE 18. STOCKHOLDERS ...................................................10 ARTICLE 19. APPLICATION OF FUNDS............................................10 ARTICLE 20. CHANGES IN CAPITAL .............................................10 ARTICLE 21. APPROVAL OF SHAREHOLDERS .......................................10 ARTICLE 22. ADOPTION BY SUBSIDIARIES AND AFFILIATES ........................11
3 ARTICLE 1 PURPOSE The Community financial Group, Inc. Associates' Stock Purchase Plan (the "Plan") is intended as an incentive to encourage Associates of Community Financial Group, Inc. and its subsidiaries and affiliates which adopt the Plan (the "Company") to identify with the fortunes of the Company through stock ownership. Participation by all eligible Associates in this Plan consequently shall be mandatory. ARTICLE 2 DEFINITIONS Unless otherwise explicitly specified, the following words and phrases as used herein shall have the meanings set forth below and shall be interpreted as stated in this ARTICLE. 2.01 "Account" shall mean the Account established and maintained in the name of each participating Associate for the purpose of holding the amounts deducted from the Associate's Compensation pursuant to ARTICLE 7 and shares of Common Stock purchased with such amounts pursuant to ARTICLE 5. 2.02 "Administrator" shall mean, with respect to the Plan, The Bank of Nashville. 2.03 "Associate" shall mean any employee of Community Financial Group, Inc., The Bank or any other subsidiary or affiliate of The Bank or Community Financial Group, Inc. which shall adopt the Plan. 2.04 "Authorization" or "Authorization Form" shall mean an Associate's written participation form wherein the Associate agrees to accept a deduction in Compensation from the Company for the purpose of purchasing shares of the Company's Common Stock hereunder. As provided in ARTICLES 7 and 10, if an eligible Associate does not properly complete an Authorization Form, or does not complete such form in time before any deadline, he shall be deemed to authorize payroll deductions at the lowest level permitted in ARTICLE 8. 2.05 "Average Market Price" shall mean the average of the bona fide bid and ask prices of Common Stock of the Company in the market on any relevant date. 2.06 "The Bank" shall mean The Bank of Nashville. 2.07 "Board" shall mean the Board of Directors of Community Financial Group, Inc. 4 2.08 "Business Day" shall mean a day on which there is trading in The Bank's Common Stock. 2.09 "Code" shall mean the Internal Revenue Code of 1986, as amended. 2.10 "Committee" shall mean the Committee to which the Company may delegate its administrative duties and responsibilities in the day-to-day operations of the Plan in accordance with ARTICLE 17. The Committee shall be appointed by the Board. 2.11 "Common Stock" shall mean voting Common Stock of Community Financial Group, Inc. 2.11.1 "Company" shall mean Community Financial Group, Inc.When the context requires "Company" shall include The Bank of Nashville and any other subsidiary or affiliate of Community Financial Group, Inc. or The Bank of Nashville which has adopted the Plan. 2.12 "Compensation" shall mean compensation paid as wages or a salary by the Company to an Associate for services rendered during the Plan Year under consideration, but excluding bonuses, short- or long-term disability payments, special non-recurring payments such as performance or recognition awards, payments for or in the nature of reimbursements, and incentive awards (including incentive phantom stock appreciation rights awards), and all contributions by the Company to the Plan and to any other employee benefit plan maintained by the Company. 2.13 "Effective Date" shall mean January 1, 1990. 2.14 "Par Value" shall mean the par value of Common Stock as established by Community Financial Group, Inc. On the Effective Date of the Plan, Par Value is $6.00 per share. 2.15 "Payment Period" shall mean each of the twelve (12) calendar month periods of a Plan Year during which payroll deductions will be accumulated under the Plan and shall include only regular paydays falling within each such Payment Period. 2.16 "Plan" shall mean the Community Financial Group, Inc. Associates' Stock Purchase Plan, as contained herein and as amended from time to time. 2.17 "Plan Year" shall mean the 12 consecutive-month period of January 1 through December 31. 2.18 "Purchase Price" shall be, for each Payment Period, the lesser of: 2 5 (a) The Market Price at which the Trustee is able to acquire the Company's Common Stock on the open market at the Open Market Purchase Date as defined in ARTICLE 2.18.4 below; or (b) The Gross Purchase Price (as defined in ARTICLE 2.18.1 below), less the Purchase Price Discount (as defined in ARTICLE 2.18.2 below), rounded up to avoid fractions other than one-quarter (1/4), one-half (1/2) and three-quarters (3/4); provided, however, that in no event shall the Purchase Price be less than Par Value (as defined in ARTICLE 2.14 above). 2.18.1 "Gross Purchase Price" shall be the lesser of the: (a) Average Market Price of the Company's Common Stock on the first Business Day of the Payment Period; or (b) Average Market Price of the Company's Common Stock on the last Business Day of the Payment Period. 2.18.2 "Purchase Price Discount" shall be fifteen percent (15%) of the Gross Purchase Price until September 30, 1996, and thereafter the Purchase Price Discount shall be sixteen percent (16%) or such other percentage as may be established from time to time by the Board. Nevertheless, in those Payment Periods when the Purchase Price shall equal less than the Par Value of the Company's Common Stock, then the Purchase Price Discount shall be decreased by the smallest amount necessary to avoid violation of ARTICLE 5 of this Stock Purchase Plan; provided, however, in no event shall the Purchase Price Discount be reduced below zero percent (0%). 2.18.3 "Market Price" shall be the net purchase price of the Company's Common Stock at which the Trustee may acquire the Company's Common Stock upon the open market. 2.18.4 "Open Market Purchase Date" shall be the first Business Day following the Business Day the computation of the "Purchase Price" is completed pursuant to ARTICLE 2.18 above. 2.19 "Termination of Employment" shall mean the cessation of active work by an Associate for the Company. However, should an Associate cease active work due to sickness, injury, leave of absence, or temporary layoff, employment shall be deemed to be continued according to the policies of the Company. 2.20 "Trustee" shall mean The Bank of Nashville. When appropriate, words used in this Plan in the singular may be read in the plural, or the plural may include the singular, or the masculine may include the feminine. 3 6 ARTICLE 3 ELIGIBLE ASSOCIATES All full-time Associates of the Company or permanent part-time Associates of the Company who work at least twenty (20) hours per week and five (5) months each calendar year shall purchase shares of the Company's Common Stock under the terms of this Plan; provided, however, that in no event may an Associate who would own stock representing 5% or more of the total combined voting power or value of all classes of stock of the Company after an option is granted hereunder be or continue to be considered to be an eligible Associate for purposes of this Plan while exceeding such stock ownership level. For purposes of determining stock ownership under this ARTICLE, the rules of Section 425(d) of the Code shall apply and stock which the Associate may purchase under outstanding options shall be treated as stock owned by the Associate. In no event may individuals other than Associates be granted options to purchase stock under this Plan. ARTICLE 4 STOCK SUBJECT TO THE PLAN The total number of shares of Common Stock of the Company that shall be purchased under the Plan is 100,000 shares, which may consist, in whole or in part, of unissued shares or treasury shares. ARTICLE 5 GRANT OF OPTION AND PURCHASE OF STOCK Twelve times each Plan Year, as of the first day of each Payment Period, the Company will grant to each eligible Associate an option to purchase Common Stock of the Company as of the last day of such Payment Period at the Purchase Price of Common Stock for that Payment Period not to exceed ten percent (10%) of the eligible Associate's Compensation. As a condition of employment, each Associate shall authorize, or shall be deemed to authorize under ARTICLES 7 and 10, payroll deductions to pay for the Common Stock for which the option has been granted. All payroll deductions of an Associate shall be credited to the Associate's Account prior to the actual purchase of stock at the end of a Payment Period. Deductions after the last day of a Payment Period shall be included in the subsequent Payment Period. 4 7 As of the end of each Payment Period, the Company shall purchase for each eligible Associate who is then a participant in the Plan as of the last day of such Payment Period, at the Purchase Price, shares of the Common Stock of the Company to the extent of his accumulated payroll deductions as of the last day of a Payment Period. Notwithstanding the foregoing, if the Purchase Price of the Common Stock on the relevant Business Day is less than the Par Value of Common Stock on that day as established by the Company, the Company shall not be permitted hereunder to purchase Common Stock from the Company, and the provisions of the preceding sentence shall be suspended. In the event Common Stock cannot be purchased with respect to a Payment Period, payroll deductions shall continue under this Plan, however, and the accumulated payroll deductions in Accounts other than for the then current Payment Period shall be used to purchase Common Stock on the first date such Common Stock may be purchased from the Company at a Purchase Price which is equal to or above Par Value. If the Purchase Price shall be the Market Price calculated pursuant to ARTICLE 2.18(a), then the Trustee shall proceed to acquire the Company's Common Stock in the open market on the Open Market Purchase Date. Any cash dividends paid on Common Stock held in an Associate's Account shall be used to purchase additional shares of Common Stock at the Purchase Price as soon as possible on or after the dividend date. Stock dividends paid on Common Stock held in an Associate's Account shall be held in that Account and shall be treated as Common Stock purchased under this Plan. No Associate shall be permitted to purchase Common Stock under the Plan and any similar plans of the Company or any parent or subsidiary corporations which exceeds $25,000 of fair market value of such stock (determined at the time such purchase is made) for each calendar year in which such purchase is made. The purpose of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code. ARTICLE 6 INTENTION TO PURCHASE Each eligible Associate who continues to be a participant in the Plan on the last day of a Payment Period shall be deemed to have irrevocably stated his intention to exercise his option and purchase from the Company the number of such whole or fractional shares of Common Stock reserved for the purpose of the Plan as his accumulated payroll deductions during such Payment Period will pay for at such Purchase Price. If a participant is not an Associate on the last day of a Payment Period, he shall not be entitled to exercise his option and purchase such shares. 5 8 ARTICLE 7 AUTHORIZATION FOR ENTERING PLAN An Associate may enter the Plan by filling out, signing and delivering to the Company an Authorization in the form and manner satisfactory to the Company: (a) stating the percentage or fixed dollar amount of Compensation to be deducted regularly from his pay; and (b) authorizing the purchase of stock for him in each Payment Period in accordance with the terms of the Plan. Such Authorization must be received by the Company no less than ten (10) days before the beginning of a Payment Period in order to be effective for such Payment Period and shall be effective until changed in accordance with ARTICLE 9. If an eligible Associate does not properly complete an Authorization Form, or does not complete such Form in time before any deadline, he shall be deemed to authorize payroll deductions at the lowest level permitted in ARTICLE 8. The Company will accumulate and hold in the Associate's Account the amounts deducted from his pay until such amounts are used to purchase Common Stock. ARTICLE 8 AMOUNT OF PAYROLL DEDUCTIONS An Associate may authorize payroll deductions in an amount not less than $5.00 per pay period, but not more than 10% of his Compensation received during the Payment Period. ARTICLE 9 CHANGE IN PAYROLL DEDUCTIONS Deductions may be increased or decreased only at the beginning of a Payment Period. A new Authorization must be received by the Committee no less than ten (10) days before the beginning of a Payment Period in order to be effective for such Payment Period. 6 9 ARTICLE 10 HARDSHIP WITHDRAWAL An Associate may request a withdrawal from participation in the Plan in the event of hardship. For purposes of this Section, hardship is defined as an immediate and heavy financial need as provided in the Code Section 401(k) plan maintained by the Company. As Associate's request for hardship withdrawal shall be made by delivering an Authorization to the Committee indicating such Associate's intent to withdraw. If the Committee approves such hardship withdrawal, the Company will promptly refund the entire balance of the Associate's deductions accumulated during the current Payment Period and the number of paid-up shares of Common Stock held in the Associate's Account, but such withdrawal shall not be in excess of the amount of the immediate and heavy financial need. An Associate who makes a hardship withdrawal from the Plan shall be suspended from participation in the Plan for six (6) months. To re-enter, the Associate must file a new Authorization no less than ten (10) days before the beginning of a Payment Period in order to be effective for such Payment Period. If the again eligible Associate does not properly and timely complete an Authorization Form, he shall be deemed to authorize payroll deductions at the lowest level permitted in ARTICLE 8. ARTICLE 11 JOINT TENANTS WITH RIGHTS OF SURVIVORSHIP; FRACTIONAL SHARES Stock purchased under the Plan will be held in an Account in the name of the Associate or, if his Authorization so specifies, in the name of the Associate and another person of legal age as joint tenants with rights of survivorship. While an Associate, the Associate may request, and the Plan shall issue, Common Stock from his Account. Certificates will be issued to the Associate, however, only in multiples of one hundred (100) shares. As soon as possible after the Associate ceases to be an Associate as described under ARTICLE 13, all Common Stock remaining in his Account shall be issued, and all payroll deductions not yet used to purchase Common Stock shall be refunded, in accordance with ARTICLE 13. The value of fractional shares of Common Stock in his Account at that time will be issued in cash. The distribution shall be made in a single payment (to the extent possible) to the former Associate, or in the event of the Associate's death, to his designated beneficiary (or estate, if 7 10 no designation is made), unless there is a joint tenant with rights of survivorship. A Participant's designation of a beneficiary will be ineffective to the extent it purports to supersede the rights of a joint tenant with rights of survivorship. ARTICLE 12 NO TRANSFER OR ASSIGNMENT OF ASSOCIATE'S RIGHTS An Associate's rights under the Plan are his alone and may not be transferred, assigned to or availed of by any other person. ARTICLE 13 TERMINATION OF ASSOCIATE'S RIGHTS An Associate's participation in, and his option rights under, the Plan will terminate when he ceases to be an Associate because of retirement, resignation, discharge, death, change of status, or due to his Termination of Employment. A withdrawal authorization will be considered as having been received from the Associate on the day he ceases to be an Associate, and as soon as possible thereafter his Account shall be distributed in accordance with ARTICLE 11. If an Associate's payroll deductions are interrupted by any legal process, a withdrawal authorization will be considered as having been received from him on the day the interruption occurs to the extent that the legal process attaches and levies upon Common Stock held in his Account and the distribution shall be made in the name of the Associate, and for his benefit, to the court which issued the legal process. ARTICLE 14 SUSPENSION TERMINATION AND AMENDMENTS TO THE PLAN The Plan may be suspended or terminated at any time by the Board of Directors of the Company. It will terminate in any case when all or substantially all of the shares of Common Stock available from the Company for the purposes of the Plan have been purchased. If at any time shares of Common Stock reserved for the purpose of the Plan remain available for purchase but not in sufficient number to satisfy all then unfilled purchase requirements, the available shares shall be apportioned among 8 11 participants in proportion to their options and the Plan shall terminate. Upon such termination or any other termination of the Plan, all payroll deductions not used to purchase stock will be refunded. The Board of Directors of the Company also reserves the right to amend the Plan from time to time in any respect. ARTICLE 15 LIMITATIONS ON SALE OF STOCK PURCHASED UNDER THE PLAN The Plan is intended to provide Common Stock to Associates for investment and not for resale. The Company does not, however, intend to restrict or influence any Associate in the conduct of his own affairs. Since the Common Stock of the Company is registered under Federal and State law, an Associate may, therefore, sell stock purchased under the Plan at any time he chooses after the issuance of such stock. ARTICLE 16 COMPANY'S PAYMENT OF EXPENSES RELATED TO THE PLAN The Company will bear all costs of administering and carrying out the Plan. ARTICLE 17 ADMINISTRATION OF THE PLAN The Bank of Nashville shall be the Plan Administrator but the day-to-day operation of the Plan shall be performed by the Committee, which shall be appointed by the Board. Acts by a majority of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. The interpretation and construction by the Board, or by the Committee acting for the Board, of any provisions of the Plan shall be final. The Board, or the Committee acting for the Board, may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it. 9 12 ARTICLE 18 STOCKHOLDERS The purchase of shares of Common Stock by an Associate constitutes ownership of the shares by such Associate. ARTICLE 19 APPLICATION OF FUNDS The proceeds received by the Company from the sale of Common Stock under the Plan will be used for general corporate purposes. ARTICLE 20 CHANGES IN CAPITAL If the Common Stock of the Company subject to the Plan shall at any time be changed or exchanged by declaration of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation or other corporate reorganization in which the Company is the surviving corporation, the number and kind of shares subject to this Plan and the purchase prices shall be appropriately and equitably adjusted so as to maintain the purchases prices thereof. In the event of a dissolution or liquidation of the Company or a merger, consolidation, sale of all or substantially all of its assets, or other corporate reorganization in which the Company is not the surviving corporation, but the holders of its Common Stock receive securities of another corporation, any outstanding options hereunder shall terminate. The existence of the Plan shall not in any way prevent any transaction described herein and no holder of an option shall have the right to prevent such transaction. Notwithstanding the foregoing, the effectuation of the Agreement and Plan of Exchange whereby the outstanding shares of The Bank were exchanged for shares of Community Financial Group, Inc. shall not have the effect of terminating any options outstanding under the Plan, and any and all such outstanding options shall be automatically converted to options to purchase shares of Community Financial Group, Inc. ARTICLE 21 APPROVAL OF SHAREHOLDERS This Plan was initially adopted by the Board of Directors of The Bank and was approved by the shareholders of The Bank within twelve (12) months of such adoption date. 10 13 ARTICLE 22 ADOPTION BY SUBSIDIARIES AND AFFILIATES The Plan may be adopted by Community Financial Group, Inc. and any subsidiary or affiliate of The Bank or of Community Financial Group, Inc. by action of their respective Boards of Directors. IN WITNESS WHEREOF, the Company and the Trustee hereby adopt this Amended and Restated Plan effective as of the close of business on April 30, 1996. THE BANK OF NASHVILLE ATTEST: By: /s/ Mack S. Linebaugh, Jr., President /s/ Joan B. Marshall -------------------------------------- - ---------------------------- Mack S. Linebaugh, Jr., President Joan B. Marshall, Secretary and Chief Executive Officer THE BANK OF NASHVILLE, TRUSTEE ATTEST: By: /s/ Wirt C. McKnight /s/ Joan B. Marshall -------------------------------------- - ---------------------------- Wirt C. McKnight Joan B. Marshall, Secretary Senior Vice President IN WITNESS WHEREOF, Community Financial Group, Inc. hereby adopts this Amended and Restated Plan effective as of the close on April 30, 1996. COMMUNITY FINANCIAL GROUP, INC. ATTEST: By: /s/ Mack S. Linebaugh, Jr., /s/ Joan B. Marshall -------------------------------------- - --------------------------- Mack S. Linebaugh, Jr., Chairman Joan B. Marshall, Secretary President and Chief Executive Officer EX-11 14 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS COMMUNITY FINANCIAL GROUP, INC.
Year Ended December 31, -------------------------------------- 1996 1995 1994 ---- ---- ---- Income Per Common Share(1) - -------------------------- Net income (in thousands) $ 2,547 $ 2,514 $ 2,010 ========== ========== ========== Net income per share $ 1.15 $ 1.14 $ .92 ========== ========== ========== Weighted average common shares outstanding 2,219,834 2,204,254 2,181,909 ========== ========== ========== Income Per Common Share, - ------------------------ Assuming Full Dilution (1) -------------------------- Net income (in thousands) $ 2,547 $ 2,514 $ 2,010 ========== ========== ========== Net income per share $ 1.15 $ 1.14 $ .92 ========== ========== ==========
(1) Net income per share has been computed using the weighted average number of common shares and common share equivalents outstanding during each year presented. Common stock equivalents include stock options. Warrants have not been included in the Company's computation of earnings per share because the market price of the Company's common stock has been less than the exercise price of the warrants since issue. See Note B to the Company's consolidated financial statements included in the Annual Report to Shareholders for the year ended December 31, 1996 incorporated herein by reference. EX-13 15 1996 ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Overview Community Financial Group, Inc. (CFGI), is a bank holding company which was formed on April 30, 1996 and is the parent company of its wholly-owned subsidiary, The Bank of Nashville (The Bank), collectively referred to as the Company. The Bank is a state chartered bank incorporated in 1989 under the laws of the State of Tennessee. On April 30, 1996, following regulatory and shareholder approval, CFGI executed a plan of exchange with The Bank, whereby CFGI became the parent bank holding company of The Bank. Under the agreement, each share of the common stock of The Bank was exchanged for one share of CFGI, and each outstanding warrant and each outstanding option to purchase common shares of The Bank automatically became warrants and options to purchase shares of CFGI. The balances and activity for the periods prior to April 30, 1996, are those of The Bank only. The accompanying consolidated financial statements and notes are considered to be an integral part of this analysis and should be read in conjunction with the narrative. The purpose of this discussion is to focus on significant changes in the financial condition and results of operations of the Company during the past two years. This discussion and analysis is intended to supplement and highlight information contained in the accompanying consolidated financial statements and the selected financial data presented elsewhere in this report. During the past two years, management has focused on maintaining overall asset quality, providing superior personalized customer service and beginning the implementation of a clearly defined strategic expansion of its delivery systems and locations. Additionally, attention to developing and maintaining a strong sales culture within the Company continues to result in the expansion and diversification of the Company's customer base. New products and services have been introduced to select segments of the customer base while additional enhancements have been added to existing products and services. During 1996, the Company began offering on-line cash management services through "Bank On-Line" to its commercial customers and providing debit card services through "MasterMoney" to its consumer base. During 1995, the Company expanded its delivery system by establishing ATM's and commercial depositories at Cummins Station and on Music Valley Drive bringing the total number of such locations at year end 1995 to four. These systems were further expanded during 1996 as a cash dispenser was installed in Green Hills Mall. During 1996, the Company established a mobile branching service, "Bank-on-Call", which provides the convenience of "at-your-door" banking service. Also, during 1996, the Company received approval to open its first branch location in Green Hills at the Glendale Center. The Green Hills office opened on January 23, 1997. The establishment of "Bank-on-Call" services and the opening of the Company's first branch location are key strategies and very important to long-term growth plans. During 1996, the Company continued its commitment to providing bank customers access to their accounts through competitors' ATM's at no charge within the State of Tennessee by implementing a program of rebating any surcharges imposed by ATM providers within the State of Tennessee when accessed by a Bank of Nashville ATM or MasterMoney card. The Company's assets were $166.7 million at December 31, 1996, compared to $152.8 million at December 31, 1995. Shareholders' equity was $22.1 million at year end 1996 compared to $20.0 million at year end 1995. The Company paid dividends of $.16 per share in 1996 by declaring four quarterly dividends of $.04 per share each. There were no dividends paid during 1995. The Company reported earnings of $2.5 million or $1.15 per share for 1996. Earnings for 1995 were $2.5 million or $1.14 per share, but benefited from a $520,000 negative provision for possible loan losses, while no provision was reported in 1996. Additionally, earnings were impacted in 1996 as the Company recorded a $168,000 provision for income taxes compared to only $32,000 recorded in 1995 as a result of utilizing all of the Federal net operating loss carryforwards in 1996. Return on average shareholders' equity (exclusive of SFAS 115 adjustments) was 12.18% in 1996 compared to 13.54% in 1995 while return on average assets for 1996 and 1995 was 1.61% and 1.69%, respectively. The maintenance of asset quality and management's assessment of the level of the allowance for possible loan losses were reflected in no provision for possible loan losses being recorded in 1996, a period in which net charge-offs were $156,000. During 1995, the Company experienced net recoveries of $713,000 which resulted in management's decision to reduce its allowance for possible loan losses by recording a net negative provision for possible loan losses of $520,000. During 1996, net nonperforming assets increased 28.4% to 6 2 $579,000 from $451,000 at year end 1995 while total loans increased 9.7% from $98.3 million at December 31, 1995 to $107.9 million at December 31, 1996. The results of the Company's focus on maintaining asset quality continues to be reflected in these statistics. A more detailed analysis of nonperforming assets and the provision for possible loan losses is presented under the captions, "Provisions for Possible Loan Losses" and "Nonperforming Assets and Risk Elements." Deposits increased $2.8 million, or 2.1%, from $130.5 million at year end 1995 to $133.3 million at year end 1996. The net loan to deposit ratio increased from 73.0% at year end 1995 to 78.8% at year end 1996, resulting primarily from a significant increase in net loans, $9.7 million, which, among other things, reflects the Company's business development efforts during 1996. Income taxes of $168,000 were recorded during 1996 which compares to only $32,000 recorded during 1995 as the Company benefited from the use of net operating loss carryforwards during 1995 and 1996. As a result of management's evaluation of the likelihood of receiving a tax benefit from the net operating loss carryforward utilizing the more likely than not standard, the Company maintained a valuation allowance to offset the net deferred tax assets in 1995. All federal NOL's were utilized in 1996. Net Interest Income Net interest income is the principal component of the Company's income stream and represents the difference or spread between interest income generated from earning assets and the interest expense paid on liabilities. Fluctuations in interest rates, as well as volume and mix changes in earning assets and interest bearing liabilities, can materially impact net interest income. Net interest income for 1996 increased 15.1% from 1995. This increase resulted primarily from a 6.3% increase in average earning assets which was partially offset by a 4.8% increase in average interest bearing liabilities. Additionally, net interest income was impacted by a decline of 7 basis points in the average rate earned on earning assets which was more than offset by a 41 basis point decline in the average rate paid on interest bearing liabilities. The following two schedules present an analysis of net interest income and the detail of changes in interest income, interest expense and the resulting net interest income due to the fluctuations in volume and rates. 7 3 AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
1996 1995 --------------------------------- -------------------------------- Interest Average Interest Average Average Income/ Yields/ Average Income/ Yields/ Balance Expense Rates Balance Expense Rates - ------------------------------------------------------------------------------------------------------------ (DOLLARS IN THOUSANDS) - ------------------------------------------------------------------------------------------------------------ ASSETS Loans (net of unearned income): Commercial $ 39,858 $ 3,762 9.44% $ 37,511 $ 3,764 10.03% Real Estate - mortgage 52,895 4,836 9.14 46,505 4,270 9.18 Real Estate - construction 8,144 770 9.45 3,702 363 9.81 Consumer 1,998 201 10.06 1,804 229 12.68 - ------------------------------------------------------------------------------------------------------------ Total loans (net of unearned income) 102,895 9,569 9.30 89,522 8,626 9.64 - ------------------------------------------------------------------------------------------------------------ Securities 45,163 3,016 6.68 49,444 3,259 6.59 Federal funds sold 6,445 314 4.88 6,411 362 5.65 - ------------------------------------------------------------------------------------------------------------ Total earning assets $154,503 $12,899 8.35% $145,377 $12,247 8.42% Allowance for possible loan losses (3,124) (2,888) Cash and due from banks 4,971 4,263 Premises and equipment, net 624 663 Accrued interest and other assets 1,641 1,593 - ------------------------------------------------------------------------------------------------------------ $158,615 $149,008 ============================================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY NOW accounts $ 5,610 $ 140 2.50% $ 5,120 $ 145 2.83% Money market accounts 59,169 2,813 4.75 48,495 2,538 5.23 Time certificates less than $100,000 29,982 1,782 5.94 34,749 2,109 6.07 Time certificates $100,000 and greater 27,431 1,563 5.70 30,905 1,850 5.99 Federal Home Loan Bank and other borrowings 2,745 148 5.37 -- -- -- - ------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities $124,937 $ 6,446 5.16% $119,269 $ 6,642 5.57% Non-interest bearing demand deposits 10,661 9,566 Accounts payable and accrued liabilities 2,053 1,836 - ------------------------------------------------------------------------------------------------------------ Total liabilities 137,651 130,671 - ------------------------------------------------------------------------------------------------------------ Shareholders' equity 20,964 18,337 - ------------------------------------------------------------------------------------------------------------ $158,615 $149,008 ============================================================================================================ Interest income/earning assets 8.35% 8.42% Interest expense/earning assets 4.17 4.57 - ------------------------------------------------------------------------------------------------------------ Net interest margin 4.18% 3.85% ============================================================================================================
Nonaccrual and 90 days or more past due loans are included in average loans and average earning assets. Consequently, yields on these items are lower than they would have been if all loans had earned at their contractual rate of interest. Had nonaccrual and 90 days or more past due loans earned income at the contractual rate, interest income of $74,000 and $78,000 would have been recognized during 1996 and 1995, respectively. 8 4 ANALYSIS OF CHANGES IN NET INTEREST INCOME
1996 Compared to 1995 1995 Compared to 1994 Increase (Decrease) Due to Increase (Decrease) Due to - ------------------------------------------------------------------------------------------ (IN THOUSANDS) (1) RATE VOLUME NET RATE VOLUME NET - ------------------------------------------------------------------------------------------ INTEREST INCOME: Loans $ (310) $ 1,253 $ 943 $ 746 $ 1,469 $ 2,215 Securities 43 (286) (243) 564 160 724 Federal funds sold (50) 2 (48) 117 (184) (67) - ------------------------------------------------------------------------------------------ Total Interest Income (317) 969 652 1,427 1,445 2,872 - ------------------------------------------------------------------------------------------ INTEREST EXPENSE: NOW Accounts (18) 13 (5) 19 (13) 6 Money Market Accounts (248) 523 275 661 274 935 Time certificates under $100,000 (43) (284) (327) 368 (9) 359 Time certificates $100,000 and over (87) (200) (287) 448 141 589 Federal Home Loan Bank and other borrowings -- 148 148 -- -- -- - ------------------------------------------------------------------------------------------ Total Interest Expense (396) 200 (196) 1,496 393 1,889 - ------------------------------------------------------------------------------------------ NET INTEREST INCOME $ 79 $ 769 $ 848 $ (69) $ 1,052 $ 983 ==========================================================================================
(1) Changes in net interest income are attributed to either changes in average balances (volume change) or changes in average rates (rate change) for earning assets and sources of funds on which interest is received or paid. Volume change is calculated as change in volume multipled by the old rate while rate change is change in rate multipled by the old volume. The rate/volume change is allocated between volume change and rate change at the ratio each component bears to the absolute value of their total. Nonaccrual and 90 days or more past due loans are included in average loans for which changes due to rates and volume are computed. Interest income increased $.7 million, or 5.3%, in 1996 compared to 1995. This increase resulted from a 6.3% increase in the volume of average earning assets, the effect of which was slightly diminished by a 7 basis point decline in the average rate earned on these assets. Average loans increased 14.9%, average investments declined 8.7%, while average Fed Funds sold remained level. Interest income on loans increased 10.9%, from 1995 to 1996, as a result of the increased volume of loans outstanding which was partially offset by a decline in the average interest rate earned on those loans of 34 basis points. Interest income on investment securities decreased 7.5% from 1995 to 1996, as a result of a 8.7% decline in the volume of securities that was partially offset by a 9 basis point increase in the average rate earned on investment securities. Interest income on Federal Funds sold declined 13.3% in 1996 compared to 1995 as a result of a 78 basis point decline in the average rate earned on these funds. Generally, total earning assets reflected an increase in interest income which resulted primarily from growth in loans and a shift in asset mix from investments to higher yielding loans. Total interest expense decreased 3.0% in 1996 due to a 41 basis point decrease in the average rate paid on interest bearing liabilities which was partially offset by an increase of 4.8% in the average volume of these liabilities. The increase in average volume of interest bearing liabilities was the result of a 22.0% increase in average Money Market Investment Account balances and a 9.6% increase in average NOW Account balances as well as $2.7 million in average borrowed funds in 1996 compared to no borrowed funds during 1995. These increases were partially offset by volume declines of 13.7% in average balances for certificates of deposit less than $100,000 and 11.2% in certificates of deposit $100,000 or greater. The decrease in rates paid on interest bearing liabilities was reflected in all areas with the largest declines in rates paid on Money Market Investment Accounts. Trends in net interest income are commonly evaluated in terms of average rates, using the net interest margin and the interest rate spread. The net interest margin, or the net yield on earning assets, is computed by dividing net interest income by average earning assets. This ratio represents the difference between the average yield on average earning assets and the average rate paid for all funds used to support those earning 9 5 assets, including both interest bearing and non-interest bearing sources of funds. The Company's net interest margin increased 33 basis points to 4.18% in 1996, primarily as the result of a decline in deposit rates, a higher loan to deposit ratio and the impact of shifts in the mix of earning assets to higher yielding loans. Changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread between an asset and its supporting liability can vary significantly while the timing for repricing of both the asset and the liability remain the same, both impact net interest income. It should be noted, therefore, that a matched interest sensitivity position, by itself, will not ensure maximum net interest income. Management continually evaluates the condition of the economy, the pattern of market interest rates and other economic data to determine the types of investments that should be made and at what maturity. Using this analysis, management from time to time assumes calculated interest sensitivity gap positions to maximize net interest income based upon anticipated movement in the general level of interest rates. During the fourth quarter of 1996, net interest income benefited from a leveraging strategy implemented late in the third quarter which consisted of matching Federal Home Loan Bank borrowings to fund the purchase of additional investment securities. While this strategy contributed to increasing net interest income, it also has the effect of lowering the net interest margin. See "Liquidity and Asset/Liability" section. The interest rate spread measures the difference between the average yield on earning assets and the average rate paid on interest bearing sources of funds. The interest rate spread eliminates the impact of non-interest bearing funds and gives a direct perspective on the effect of market interest rate movement. During 1996, the interest rate spread improved compared with 1995. The following table presents an analysis of the Company's interest rate spread and net yield on earning assets.
Years Ended December 31 ------------------------------------------------------------------- 1996 1995 ------------------------------------------------------------------- Rate earned on interest earning assets 8.35% 8.42% Rate paid on interest bearing liabilities 5.16% 5.57% Interest rate spread 3.19% 2.85% Net yield on earning assets 4.18% 3.85%
Total interest income in 1996 compared to 1995 increased $652,000. The increased level of earning assets combined with the shift and mix of earning assets and interest bearing liabilities resulted in a higher level of net interest income. Total interest expense decreased in 1996 compared to 1995 by $196,000. Average interest bearing liabilities increased only 4.8% while average earning assets increased 6.3%. The average rate paid on interest bearing liabilities decreased 41 basis points in 1996 compared to 1995 while the average rate earned on earning assets decreased only 7 basis points. The average rate paid on all interest bearing liabilities in 1996 was 5.2% compared with 5.6% in 1995. Provision for Possible Loan Losses The Company maintains an allowance for possible loan losses at a level that, in management's evaluation, is adequate to cover estimated losses on loans based on available information at the end of each reporting period. Considerations in establishing the allowance include historical net charge-offs, changes in the credit risk, mix, and volume of the loan portfolio, and other relevant factors, such as the risk of loss on particular loans, the level of nonperforming assets, and economic conditions. A more detailed discussion of nonperforming assets is presented under the caption, "Nonperforming Assets and Risk Elements." In 1996, the Company recorded no provision for possible loan losses, compared with a net negative provision of $520,000 in 1995. The 1995 negative provision resulted primarily from the Company having recorded recoveries of previously charged-off loans in excess of current year charge-offs in the amount of $713,000. In 1996, the Company recorded net charge-offs of $156,000. The allowance for possible loan losses was 2.7% of loans at December 31, 1996, compared to 3.1% of loans at the same date in 1995. The decision to record no provision for possible loan losses in 1996 as well as the recording of a negative provision in 1995 reflect management's evaluation of the adequacy of the allowance for possible loan losses considering various factors, including the level of loans outstanding, economic conditions, and an assessment of portfolio quality and risk characteristics. The decision in 1995 to record negative provisions was primarily due to continued improvement in the overall quality of the Company's loan portfolio, including continued performance of those loans previously categorized as substandard or special mention by the Company's internal loan rating 10 6 system, and increases in the level of the allowance for possible loan losses as a result of significant net recoveries. Management will continue to evaluate the level of the allowance for possible loan losses and will determine what additional adjustments, if any, are necessary. Continued growth in the loan portfolio will be a factor in this evaluation, as well as the quality of this portfolio and other external and internal factors. The level of the allowance and the amount of the provision are determined on a quarter by quarter basis and, given the inherent uncertainties involved in the estimation process, no assurance can be given as to the amount of the allowance at any future date. It is anticipated that there will be a provision expense in 1997; however, the specific amount cannot be determined at this time. Changes in circumstances affecting the various factors considered by the Company in establishing the level of the allowance could significantly affect whether a provision is warranted in 1997, and the amount thereof. The following table represents a recap of activity in the allowance for possible loan losses during the past two years. SUMMARY OF LOAN LOSS EXPERIENCE
- ------------------------------------------------------------------------------- (IN THOUSANDS) 1996 1995 - ------------------------------------------------------------------------------- ALLOWANCE FOR POSSIBLE LOAN LOSSES, JANUARY 1 $ 3,034 $ 2,841 LOANS CHARGED OFF: Commercial (450) (344) Real estate (243) _ Consumer (4) (1) - ------------------------------------------------------------------------------- Total charge-offs (697) (345) - ------------------------------------------------------------------------------- RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF: Commercial 494 929 Real estate 46 129 Consumer 1 _ - ------------------------------------------------------------------------------- Total recoveries 541 1,058 - ------------------------------------------------------------------------------- NET (CHARGE-OFFS) RECOVERIES (156) 713 - ------------------------------------------------------------------------------- PROVISION CREDITED TO OPERATIONS _ (520) - ------------------------------------------------------------------------------- ALLOWANCE FOR POSSIBLE LOAN LOSSES, DECEMBER 31 $ 2,878 $ 3,034 =============================================================================== Loans, net of unearned income Year-end $ 107,888 $ 98,340 Average during year $ 102,895 $ 89,522 Allowance for possible loan losses to year-end loans, net of unearned income 2.7% 3.1% Provision credited for possible loan losses to average loans, net of unearned income -- (.6%) Net charge-offs (recoveries) to average loans, net of unearned income .2% (.8%)
Net charge-offs in 1996 were $156,000 compared to net recoveries in 1995 of $713,000. Gross recoveries in 1996 were $541,000 compared to $1,058,000 in 1995. These recoveries reflect the Company's efforts to aggressively pursue the collection of loans charged-off in prior periods. 11 7 Non-Interest Income Total non-interest income of $927,000 in 1996 reflects an increase of 28.4% in comparison with $722,000 reported in 1995. Non-interest income, less nonrecurring income (gains/losses on sale of securities and other real estate), increased 35.0%, or $238,000 from 1995. Trust income increased $80,000, or 25.1%, in 1996 compared to 1995 as a result of an increase in assets under management, an increase in the number of fee based services provided and fee increases. The Company's arrangement with BFP Financial Partners, Inc. to offer certain investment services resulted in an increase of $22,000, or 44%, in income in 1996 compared to 1995. Income from foreclosed assets no longer carried on the Company's books increased $93,000, or 251.4% in 1996 compared to 1995. These increases in non-interest income were partially offset by a decrease of $16,000, or 7.7%, in service fee income during 1996 compared to 1995. The Company recorded a net loss on sale of securities available for sale of $2,000 in 1996 compared with a net loss of $11,000 in 1995. These transactions are a result of a balance sheet management strategy to reposition the estimated average maturity of the Company's securities portfolio. Gains on sale of foreclosed assets of $11,000 were reported in 1996 compared to $53,000 in 1995. Non-Interest Expense Strategic decisions made to expand the Company's locations and delivery system during 1996 by establishing "Bank-on-Call", a mobile branching service, and to establish a branch location in Green Hills at the Glendale Center, as well as the installation of a cash dispenser in Green Hills Mall, and the upgrading of existing ATM and commercial depository locations caused increased expenses. However, these are key strategies and very important to the Company's long-term growth plan. Total non-interest expense increased 8.5% to $4.7 million in 1996 from $4.3 million in 1995. Non-interest expense represented 2.94% of average total assets in 1996 compared to 2.89% in 1995. The non-interest expense to assets ratio is an industry measure of a bank's ability to control its overhead. Control of non-interest expense is essential to profit maximization; therefore, all non-interest expense categories have been and will continue to be closely monitored by management through budgetary planning and regular measurement. During 1996, salaries and employee benefits increased $257,000, or 11.8%, to $2.4 million from $2.2 million in 1995. This increase resulted primarily from an increased number of employees which included the staffing of the mobile branch service and the employment of staff for the Green Hills location during the fourth quarter of 1996. Other staff additions were made in the loan and bank operations areas. Occupancy expense increased $73,000, or 14.9%, primarily as a result of expenses related to the establishment of the Green Hills office. Data processing expense increased $30,000, or 16.8%, as a result of the Company's expansion of its ATM program. Legal expense increased $27,000 or 81.8%, to $60,000 in 1996 compared to $33,000 in 1995. This increase related primarily to the formation of the bank holding company, CFGI. These increases in non-interest expense items were partially offset by a decrease in FDIC insurance expense of $157,000 in 1996 compared to 1995. This decrease was the result of premium decreases announced by the FDIC in 1995 as well as a reduction in the Company's assessment rate during 1995 resulting from an improved overall condition. The premium paid during 1996 reflected full benefit of these adjustments which were implemented during 1995. Other operating expenses during 1996 increased 10.5% reflecting the overall growth of the Company. At December 31, 1996, the Company had 52 employees (one employee per $3.2 million in assets) compared with 42 employees (one employee per $3.6 million in assets) at December 31, 1995. Non-personnel related expenses for 1996 were $2.2 million compared to $2.1 million for 1995. Management currently anticipates minimal growth in most non-interest expense categories during 1997 other than expenses related to the expansion of the Company's delivery systems and service locations. However, economic and other factors in the market which the Company operates could adversely affect noninterest expense in 1997. Income Taxes During 1996, the Company fully utilized the Federal tax loss carryforwards which had benefited income in prior years and continued to do so for a portion of 1996. Reported earnings in 1996 and 1995 reflect the use of these net operating loss carryforwards. As a result of having exhausted the Federal tax loss carryforwards, the Company recorded a $168,000 provision for income taxes in 1996 compared to only $32,000 in 1995. As a result of management's evaluation of the likelihood of receiving a tax benefit from the net operating loss carryforwards utilizing the more likely than not standard, the Company maintained a valuation allowance to 12 8 offset the net deferred tax assets during both 1996 and 1995. Having fully utilized the Federal net operating loss caryforwards, it is anticipated that the 1997 effective tax rate will more closely approximate the applicable statutory income tax rates. Reference should be made to Note G of the financial statements. Earning Assets Average earning assets in 1996 increased 6.3% from 1995. This increase was the result of a 14.9% increase in average loans, the effect of which was partially offset by a 8.7% decline in average investment securities. The average earning asset mix continued to change during 1996 with loans at 66.6%, securities at 29.2%, and Federal Funds sold at 4.2% compared to a mix in 1995 which reflected loans at 61.6%, securities at 34.0%, and Federal Funds sold at 4.4% of the total average earning assets. This shift in the mix of earning assets during 1996 contributed to the higher net interest income as the percentage of loans to total earning assets increased. This growth in loans began in the third quarter of 1994 and continued throughout 1995 and 1996. The mix of earning assets is monitored on a continuous basis with adjustments made in other areas based on the availability of quality loan demand. The 14.9% increase in average total loans in 1996 was primarily the result of a 21.6% increase in average real estate mortgage and real estate construction loans. The loan portfolio table below shows the classification of loans by major categories at December 31, 1996 and 1995. Real estate mortgage and construction loans are primarily commercial as opposed to 1-4 family residential. LOAN PORTFOLIO
December 31 Change from Prior Year - -------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 1996 % TOTAL 1995 % TOTAL AMOUNT % - -------------------------------------------------------------------------------------- LOAN CATEGORIES Commercial $ 35,721 33.1 $40,657 41.4 $(4,936) (12.1) Real Estate/ Mortgage loans 58,763 54.5 48,648 49.5 10,115 20.8 Real Estate/ Construction loans 9,467 8.8 5,952 6.0 3,515 59.1 Consumer 3,937 3.6 3,083 3.1 854 27.7 - -------------------------------------------------------------------------------------- Total Loans $107,888 100.0 $98,340 100.0 $ 9,548 9.7 ======================================================================================
The loan portfolio mix continues to reflect the Company's efforts to serve its target market of small and mid-sized businesses in its community. The condition of the economy is further reflected in the loan portfolio mix with commercial loans continuing during 1996, the growth which began in the latter half of 1994 and continued throughout 1995. As economic conditions and loan demand remained strong, the growth of commercial loans continued during 1996. Throughout 1995 and 1996, the local economy demonstrated more strength than was reflected by the national economy. In an attempt to encourage economic activity, the Federal Reserve Bank adjusted interest rates during 1995 and early 1996; however, no further adjustments occurred after February 1996. At year end 1996, loan demand appeared to be weakening slightly; however, it would still be considered strong. Concerns about the future of interest rates and the level of the Federal deficit continue to be reflected in a cautious approach to expansion by many small businesses. The Company has not invested in loans that would be considered highly leveraged transactions ("HLT") as defined by the Federal Reserve Board and other regulatory agencies. Loans made by companies for recapitalization or acquisition (including acquisitions by management or employees) which result in a material change in the borrower's financial structure to a highly leveraged condition are considered HLT loans. The Company has no foreign loans. The Company's securities held as available for sale provide for liquidity needs while contributing to profitability. During 1996, the Company began the implementation of a leveraging strategy which was comprised of Federal Home Loan Bank secured borrowings used to fund matched investments of U. S. Government and municipal securities. Such strategies require careful monitoring and measurement of interest rate risk but have the potential for providing significant contributions to net interest income. See the "Liquidity and Asset/Liability Management" section. The composition of the securities portfolio reflects an investment strategy of maximizing portfolio yields commensurate with risk and liquidity considerations. The primary objectives of the Company's investment strategies are to maintain an appropriate level of 13 9 liquidity and to provide a tool to assist in controlling the Company's interest rate position while, at the same time, producing adequate levels of interest income. There were no classification changes of the Company's securities during 1996; however, during the fourth quarter of 1995, the Company transferred securities previously classified as held to maturity to the available for sale category during a one time window of opportunity provided by the Financial Accounting Standards Board under SFAS No. 115 to make such adjustments in the classification of a financial institutions investments. Securities held as available for sale pursuant to SFAS No. 115, are carried on the Company's balance sheet at estimated fair value. As a result, the Company recognized an increase in equity of $64,000 for unrealized gains on securities held as available for sale, net of tax at December 31, 1996, which compares with an increase of $279,000 at year end 1995. During 1996, gross securities sales were $6.0 million and paydowns, including prepayments, were $9.6 million, representing 13.3% and 21.3%, respectively, of the average total portfolio for the year. Net losses associated with the sale of securities available for sale during 1996 were $2,000 compared with net losses in 1995 of $11,000. Total average securities decreased 8.7% during 1996 compared to 1995, while total securities at year end 1996 were 3.1% less than year end 1995. The average yield on investment securities was 6.7% and 6.6% in 1996 and 1995, respectively. The following table contains the carrying amount of the securities portfolio at the end of each of the last two years. SECURITIES AVAILABLE FOR SALE
December 31 - -------------------------------------------------------------------------------- (IN THOUSANDS) 1996 1995 - -------------------------------------------------------------------------------- U.S. Treasury Securities and Obligations of U.S. Government Agencies $22,714 $28,381 Securities of states and political subdivisions 368 -- Collateralized Mortgage Obligations 21,694 18,745 Other 1,661 798 - -------------------------------------------------------------------------------- Total $46,437 $47,924 ================================================================================
The maturities and average weighted yields of the Company's investment portfolio at the end of 1996 are presented in the following table using primarily the estimated expected life. While the average stated maturity of the mortgage backed securities was 4.8 years, the estimated life is 3.4 years. At year end 1996, all securities were held as available for sale. DEBT SECURITIES AVAILABLE FOR SALE MATURITY SCHEDULE
December 31, 1996 ------------------------------------------------------ Within After 1 But After 5 But 1 Year Within 5 Yrs Within 10 Yrs - ------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD - ------------------------------------------------------------------------------------- U.S. Treasury Securities and Obligations of U.S. Government Agencies $ 6,723 6.5% $15,990 7.16% $ -- -- Securities of states political subdivisions -- -- -- -- 368 7.6% - ------------------------------------------------------------------------------------- Total $ 6,723 6.5% $15,990 7.16% $368 7.6% =====================================================================================
The above table excludes collateralized mortgage obligations at an estimated fair value of $21.7 million and investments in Federal Reserve Bank stock and Federal Home Loan Bank stock with an estimated fair value of $1.7 million. Maturities of collateralized mortgage obligations can be expected to differ from scheduled maturities due to the prepayment or early call privileges of the issuer. Federal Reserve Bank stock and Federal Home Loan Bank stock are equity securities with no stated maturity. Average Federal Funds sold remained relatively level during 1996 compared to 1995. At December 31, 1996, Federal Funds sold were $6.8 million reflecting an increase of $5.8 million, or 582.5%, from December 31, 1995. Federal Funds sold represent a short-term investment used primarily for liquidity purposes in the Company's asset/liability management strategies. 14 10 Deposits The Company's volume and mix of liabilities in 1996 reflected business development efforts, asset/liability management strategies, general economic conditions and the interest rate environment, as well as changes in the Company's asset level and the competitive environment. During 1996, the portion of average liabilities and stockholders' equity represented by deposits, the primary source of funding for the Company, stood at 83.8%, a decrease from 86.5% in 1995. Year end deposit balances increased 2.1%, or $2.7 million in 1996 compared to the same period in 1995. The increase in year end deposits was a result of a 26.6% increase in Money Market Accounts and a 38.3% increase in non-interest bearing deposits. These increases were partially offset by a decline of 23.5% in certificates of deposit less than $100,000, 16.4% in certificates of deposit $100,000 and greater, and 20.4% in NOW Accounts. Average Money Market Account and NOW Account deposits increased 22.0% and 9.6%, respectively, in 1996 compared to 1995 while average certificates of deposit declined 12.6% in 1996 compared to 1995. The average rate paid on interest bearing liabilities decreased 41 basis points in 1996 compared to 1995. This decrease in rate further reflected the shift in mix of the Company's deposit account types as funds shifted from higher yielding certificates of deposit to lower rate Money Market and NOW Accounts. The deposit mix at December 31, 1996 reflected the changes that occurred during the year with non-interest bearing deposits at 9.6%, NOW Accounts at 3.7%, Money Market Accounts at 48.1%, time deposits under $100,000 at 19.8%, and time deposits $100,000 or greater at 18.8%. This compares to a mix at year end 1995 which reflected non-interest bearing deposits at 7.0%, NOW Accounts at 4.7%, Money Market Accounts at 38.8%, time deposits under $100,000 at 26.5%, and time deposits $100,000 or greater at 23.0%. This shift in the mix of the Company's deposit base reflects continuing efforts to expand the customer base in transaction accounts, as well as the competitive interest rate environment. Maturities of certificates of deposit of $100,000 or more issued by the Company at December 31, 1996, are summarized in the following table: MATURITIES OF CERTIFICATES OF DEPOSIT OF $100,000 AND OVER
-------------------------------------------------- (IN THOUSANDS) -------------------------------------------------- Three months or less $ 7,112 Over three through six months 8,356 Over six through twelve months 2,291 Over twelve months 7,362 -------------------------------------------------- Total $25,121 ==================================================
At year end 1996, the Company had Federal Home Loan Bank borrowings of $9.5 million compared to no borrowed funds at year end 1995. The average rate paid on average total interest bearing liabilities was 5.2% in 1996 compared with 5.6% in 1995. This decrease in the average rate paid on interest bearing liabilities reflected the shift in the mix of deposits and included borrowed funds. The decrease in the average rate on interest bearing deposits reflected lower rates and shorter maturities of certificates of deposit which originated or renewed in 1996. In 1996 compared to 1995, the average rate paid on NOW Accounts decreased 33 basis points, the average rate on Money Market Accounts decreased 48 basis points, the average rate on certificates of deposit less than $100,000 decreased 13 basis points and the average rate on certificates of deposit $100,000 or greater decreased 29 basis points. These rates are reflective not only of rates being offered, but also of the maturity schedule of certificates of deposit which were originated in prior periods. The ratio of average loans, net of unearned income and allowance for possible loan losses to average total deposits was 75.1% in 1996, compared to 67.2% in 1995. This higher loan to deposit ratio reflected the increase in net loans outstanding which continued in 1996. The net loan to deposit ratio at December 31, 1996 was 78.8%, compared to 73.0% at year end 1995. 15 11 Liquidity and Asset/Liability Management The Company's asset/liability management process actively involved the Board of Directors and members of senior management. The Asset/Liability Committee of the Board of Directors meets monthly to review strategies and the volume and mix of assets as well as funding sources. Decisions relative to different types of securities are based upon the assessment of various economic and financial factors, including, but not limited to, interest rate risk, liquidity, and capital adequacy. Interest rate sensitivity is a function of the repricing characteristics of the Company's portfolio of assets and liabilities. These repricing characteristics are the timeframes within which interest bearing assets and liabilities are subject to change in interest rate either by replacement, repricing or maturity of the instrument. Interest rate sensitivity management focuses on the maturity structure of assets and liabilities and their repricing characteristics during periods of change in market interest rates. Effective interest rate risk management seeks to ensure that both assets and liabilities respond to changes in interest rate movement similarly to minimize the effect on net interest income. Management utilizes computer interest rate simulation models and analysis to determine the Company's interest rate sensitivity. Management also evaluates the condition of the economy, the pattern of market interest rates, and other economic data to determine the appropriate mix and repricing characteristics of assets and liabilities. In addition to ongoing monitoring of interest rate sensitivity, the Company may enter into various interest rate contracts to augment the management of the Company's interest sensitivity. These contracts are used to supplement the Company's objectives relating to its interest sensitivity position. The interest rate risk factor in these contracts is considered in the overall interest management strategy of the Company. The Company also utilizes certain leveraging strategies within risk tolerance guidelines established by its Board of Directors for the purpose of increasing net income. Such strategies involve the utilization of borrowings to fund investment securities with similar maturities or repricing characteristics which result in an acceptable interest rate spread. During 1996, management and the Board of Directors reviewed the risks and advantages of utilizing a leveraging strategy for the purpose of increasing net interest income. Several scenarios were carefully analyzed by the Company's investment advisor, designated representatives of the Board of Directors and management with final recommendation presented to the full Board of Directors for approval. Parameters were established for matching investment purchases with Federal Home Loan Bank borrowings. The Board established a maximum level of borrowings/investments of $25 million to be assumed over a period of 18 months and implemented in increments not to exceed $5 million in each phase. Pro formas were reviewed resulting in the establishment of guidelines on interest rate risk as well as the types and quality of investments to be considered for purchase. Proformas include evaluating the impact of interest rate changes from 25 to 300 basis points. Monitoring by the Board of Director's on a monthly basis and reporting guidelines were established to measure the results of each phase over time. On a monthly basis a matched investment income report is reviewed by the Board of Director's in an effort to manage risk. The Asset Liability Committee of the Company's Board of Directors reviews these results each month. The Board of Directors, after assessing risks and results, must preapprove each additional phase of this strategy prior to implementation. During the fourth quarter of 1996, net interest income benefited from the implementation of a portion of this approved strategy of matching Federal Home Loan Bank borrowings to fund the purchase of additional investment securities. While this strategy contributes to an increase in net interest income, it also has the effect of lowering the net interest margin and increasing the Company's exposure to interest rate risk. Managing and regularly monitoring the interest rate risk associated with the leveraging strategy are the responsibility of both management and the Company's Board of Directors. Liquidity and asset/liability strategies include the utilization of borrowings from the Federal Home Loan Bank or drawing on correspondent bank lines of credit to satisfy liquidity or funding needs. At December 31, 1996, the Company had borrowings totaling $9.5 million from the Federal Home Loan Bank. Approximately $5 million of these borrowings were used to fund investment securities. There were no borrowings at December 31, 1995. At December 31, 1996 and 1995, the Company had interest rate floor contracts with a combined notional value of $8 million which expire in 1997 and 1998. These contracts were purchased to protect against declining interest rates. These contracts were purchased during 1992 and 1993, and have resulted in interest income when evaluated on a life to date basis. The Company recorded net interest expense on these contracts of approximately $21,000 in both 1996 and 1995. The following interest rate gap table reflects the Company's rate sensitive position at December 31, 1996. The carrying amount of interest rate sensitive assets and liabilities are presented in the periods in which they next reprice to market rates or mature and are summed to show the interest rate sensitivity gap. To reflect anticipated prepayments, certain investments are included in the table based on estimated rather than contractual maturity dates. 16 12
Expected Repricing or Maturity Date --------------------------------------------------------------- Within One to Two to After Five One Year Two Years Five Years Years Total ------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 1996 ------------------------------------------------------------------------------------------------- Assets Debt and equity securities $ 16,615 $ 14,461 $ 13,332 $ 2,029 $ 46,437 Average rate 6.48% 6.84% 7.22% 6.81% 6.8% Net interest-earning loans 63,790 2,387 29,138 12,573 107,888 Average rate 8.96% 9.43% 9.04% 8.55% 8.95% Other 6,825 -- -- -- 6,825 Average rate 5.25% --% --% --% 5.25% ------------------------------------------------------------------------------------------------- Total interest-bearing assets 87,230 16,848 42,470 14,602 161,150 Liabilities Deposits 100,143 13,846 6,513 46 120,548 Average rate 4.83% 6.05% 6.34% 7.03% 5.07% Federal Home Loan Bank Borrowings 9,500 -- -- -- 9,500 Average rate 5.34% -- -- -- 5.34% ------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 109,643 13,846 6,513 46 130,048 ------------------------------------------------------------------------------------------------- Interest rate sensitivity gap $ (22,413) $ 3,002 $ 35,957 $ 14,556 ================================================================================================= Cumulative interest rate sensitivity gap $ (22,413) $ (19,411) $ 16,546 $ 31,102 =================================================================================================
Liquidity is the ability of a financial institution to meet the needs of its customers and creditors. High levels of liquidity reduce earnings, as liquidity is normally obtained at a net interest cost as a result of generally lower yields on short-term, interest earning assets and the higher interest expense usually associated with the extension of deposit maturities. The Asset/Liability Committee of the Company determined it to be appropriate during 1996 to maintain a slightly lower level of liquidity in short-term instruments compared to 1995 since asset quality continued to remain strong, the percentage of nonperforming loans to total loans remained relatively level, and profitability increased. Management continually assesses the Company's liquidity position and makes necessary adjustments to maintain a higher or lower level of liquidity based on internal projections, external economic conditions, and the Company's strategic plan. Liquidity is strengthened and reinforced by maintaining a relatively stable funding base which is achieved by providing relationship banking, extending contractual maturities of liabilities and reducing reliance on volatile short-term purchased funds. Maintaining acceptable levels of liquidity has been an ongoing consideration of the Company's' Asset/Liability Committee and is regularly monitored and adjusted, as appropriate. It is recognized that maintaining an acceptable level of liquidity becomes even more important during periods of economic uncertainty and volatile financial markets. Due to the commercial nature of the Company's target market, liabilities and loans are evaluated relative to industry concentration and volatility. At December 31, 1996, approximately 24% of deposits were related to the construction and real estate development industries, while 4% were related to both the health care and the real estate property management industries. These areas are the Company's largest deposit concentrations and represent significant industries within the Nashville area. These deposits are primarily reflected in the Company's demand deposit and interest bearing Money Market Account totals and are deposits of relationship commercial customers, which by their nature are concentrated in a fewer number of customer relationships than would be the case for consumer deposit funding sources. At December 31, 1996 all investment securities were classified as available for sale. The Company utilized a one time window of opportunity in late 1995 to adjust its investment portfolio classifications by transferring securities from the held to maturity classification to the available for sale classification. These classifications are defined in SFAS No. 115 and require the Company to segregate its securities portfolio and account for any market value fluctuations in securities classified as available for sale through the equity section of the balance sheet. Footnote C of the notes to the consolidated financial statements shows the components of the securities portfolio and maturities. 17 13 Nonperforming Assets and Risk Elements Nonperforming assets, which include nonaccrual loan, restructured loans, and other real estate owned, were $579,000 at December 31, 1996, compared with $451,000 at December 31, 1995. The following table presents the composition of nonperforming assets at December 31, 1996 and 1995. NONPERFORMING ASSETS
December 31 ----------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 1996 1995 ----------------------------------------------------------------------- NONPERFORMING ASSETS: Nonaccrual loans $579 $451 Restructured loans -- -- Other real estate owned -- -- ----------------------------------------------------------------------- 579 451 Less allowance for other real estate owned -- -- ----------------------------------------------------------------------- Total $579 $451 ======================================================================= Nonperforming assets as a percent of total loans plus other real estate owned 0.5% 0.5% =======================================================================
There were no loans 90 days or more past due at December 31, 1996 and 1995 that were not included in the nonaccrual category. During 1996, $1,968,000 of loans were transferred from earning status to nonaccrual status, and there were no advances on nonaccrual loans. This compares to $1,458,000 of loans transferred from earning status to nonaccrual status in 1995. In 1996 and 1995 there were no loans removed from nonaccrual status and placed in other real estate owned. During 1996 loans totaling $697,000 were charged-off with recoveries reported of $541,000 resulting in net charge-offs for the year of $156,000 compared to loans charged-off in 1995 of $345,000 and recoveries of $1,058,000 resulting in net recoveries of $713,000. The Company evaluates the credit risk of each customer on an individual and ongoing basis and, where deemed appropriate, obtains collateral. Collateral values are monitored to ensure that they are maintained at an appropriate level. The largest component of the Company's credit risk relates to the loan portfolio. During 1996, the Company continued its emphasis on underwriting standards and loan review procedures. These processes, coupled with aggressive collection efforts, continue to be reflected in the level of nonperforming assets and the level of recoveries of previously charged-off loans. In 1996 and 1995, levels of charged-off loans and nonperforming assets reflected, among other things, the effectiveness of the Company's credit administration area. As discussed in the section, "Provision for Possible Loan Losses", asset quality and loan charge-off and recovery experience impact the level of the allowance for possible loan losses maintained. At December 31, 1996 and 1995, other potential problem loans totaled $84,000 and $386,000, respectively. Other potential problem loans consist of loans that are currently not considered nonperforming, but where information about possible credit problems has caused the Company to have serious doubts as the ability of the borrower to fully comply with present repayment terms. Depending on economic changes and future events, these loans and others, which may not be presently identified, could become future nonperforming assets. With respect to nonperforming assets at December 31, 1996, the following should be noted: the allowance for possible loan loss represented 497% of nonperforming loans. This compares with the allowance for possible loan losses at 673% of nonperforming loans at December 31, 1995. The composition of net nonperforming assets at December 31, 1996 and 1995 was 100% in nonaccrual loans. The largest nonperforming loan at December 31, 1996 was $250,000. Improvements made in asset quality during the past three years has allowed management to focus more on expanding delivery systems and locations while developing new products and services and aggressively soliciting new relationships in our local market. At December 31, 1996, the Company's allowance for possible loan losses was $2.9 million, or 2.7%, of total loans compared with $3.0 million, or 3.1%, at December 31, 1995. The level of the allowance for possible loan losses and the amount of the provision are determined on a quarter by quarter basis and, given the inherent uncertainties involved in the estimation process, no assurance can be given as to the amount of the allowance at any future date. 18 14 Capital Strength Total shareholders' equity (excluding the SFAS No. 115 adjustment) at December 31, 1996, was $22.0 million, or 13.2%, of total assets, which compares with $19.7 million, or 12.9%, at December 31, 1995. This calculation, when made after considering the effect of the Company's adoption of SFAS No. 115, was $22.1 million, or 13.3%, at December 31, 1996, which compares with $20.0 million, or 13.1%, of total assets at December 31, 1995. The adoption of SFAS No. 115 issued by the Financial Accounting Standards Board is reflected in the Company's shareholders' equity at December 31, 1996 and 1995, net of applicable income taxes, and identified as unrealized gain (loss) on securities available for sale, net of taxes. The increase in total equity is primarily a result of 1996 earnings net of dividends paid and is partially offset by a reduction in the unrealized gain on securities available for sale of $215,000 at year end 1996 compared with $279,000 at year end 1995. The Company's capital position continues to be strong. Certain capital statistics are shown in the following chart: PRIMARY AND TOTAL CAPITAL
December 31 ----------------------------------------------------------------------------- (Dollars In Thousands) 1996 1995 ----------------------------------------------------------------------------- Total assets $ 166,679 $ 152,800 ============================================================================= Total shareholders' equity 22,085 20,012 ============================================================================= Total shareholders' equity to total assets 13.2% 13.1% =============================================================================
The Federal Reserve Board adopted a regulation which defines capital measures and the thresholds for each of the five capital categories defined in the Federal Deposit Insurance Corporation Improvement Act of 1991. The regulation applies to the both the Company and its wholly-owned subsidiary, which is a state chartered bank and a member of the Federal Reserve System. The regulation requires minimum levels of capital within five capital categories which are determined by applying various risk ratings to categories of assets and certain off balance sheet items. This regulation classifies capital in two tiers, referred as Tier 1 and Tier 2. Under risk based capital requirements, total capital consists of Tier 1 capital (essentially, common equity less certain intangibles) and Tier 2 capital (essentially, a portion of the allowance for possible loan losses and certain qualifying debt). This regulation requires state chartered member banks to maintain certain minimum capital ratios as shown in the following chart: CAPITAL RATIOS
CFGI The Bank December 31 December 31 ------------------------------------------------------------------------------------------------------- (Dollars In Thousands) 1996 1995 1996 1995 ------------------------------------------------------------------------------------------------------- CAPITAL COMPONENTS TIER 1 CAPITAL: Shareholders' equity $ 22,085 $ -- $ 22,005 $ 20,012 Disallowed portion of deffered tax assets -- -- -- (143) Unrealized (gain) on securities AFS (64) -- (64) (279) ------------------------------------------------------------------------------------------------------- Total Tier 1 capital 22,021 -- 21,941 19,590 TIER 2 CAPITAL: Allowable allowance for possible loan losses 1,443 -- 1,453 1,270 ------------------------------------------------------------------------------------------------------- Total capital $ 23,464 -- $ 23,394 $ 20,860 ======================================================================================================= Risk-adjusted assets $113,971 -- $114,854 $ 99,802 Quarterly average assets $167,111 -- $167,052 $152,907
FDICIA Minimum December 31 December 31 Ratios 1996 1995 1996 1995 ------ ---- ---- ---- ---- CAPITAL RATIOS Total risk-based capital ratio 6-10% 20.6% -- 20.4% 20.9% Tier 1 risk-based capital ratio 3- 6% 19.3% -- 19.1% 19.6% Tier 1 leverage ratio 2- 5% 13.2% -- 13.1% 12.8%
19 15 The Company's capital ratios have continually exceeded all regulatory requirements for all capital ratios as demonstrated in the chart above. The Company reported dividend payments in 1996 of $352,000 while no dividend had been recorded in prior years. The Board of Directors of The Bank and its shareholders approved a plan of exchange with CFGI whereby CFGI became the parent holding company of The Bank. This exchange was effective April 30, 1996. Each share of common stock of The Bank was exchanged for one share of common stock of CFGI, and each outstanding warrant and each outstanding option to purchase common shares of The Bank automatically became warrants and options to purchase shares of CFGI. This exchange of shares consummated the formation of the holding company and received the approval of The Bank's shareholders, the Board of Governors of the Federal Reserve System and the Tennessee Department of Financial Institutions. Management's Discussion and Analysis 1995 vs. 1994 The narrative which follows is management's discussion and analysis of 1995 results of operations of the Company compared to 1994. Net income for 1995 was $2.5 million or $1.14 per share compared with net income for 1994 of $2.0 million or $.92 per share. Return on average assets for 1995 and 1994 was 1.69% and 1.48%, respectively. Return on average shareholders' equity (excluding the SFAS No. 115 adjustment) improved to 13.54% in 1995 compared to 12.8% in 1994. Total assets increased 4.6% to $152.8 million at December 31, 1995, compared with the same period in 1994. During 1995, loans, net of unearned income, increased $17.3 million, or 21.3%, to $98.3 million at December 31, 1995, compared with $81.1 million at year end 1994. Deposits increased $2.2 million, or 1.7%, from $128.3 million at year end 1994 to $130.5 million at year end 1995. The net loan to deposit ratio increased from 61.0% at year end 1994 to 73.0% at year end 1995 resulting primarily from a significant increase in loans, $17.3 million, which, among other things, reflected the Company's business development efforts during 1995. Reported earnings reflected the use of net operating loss carryforwards and, as such, no significant income taxes were recorded in either 1995 or 1994. As a result of management's evaluation of the likelihood of receiving a tax benefit from the net operating loss carryforward utilizing the more than likely than not standard, the Company maintained a valuation allowance to offset the net deferred tax assets. Net Interest Income Net interest income for 1995 increased 21.3% from 1994. This increase resulted primarily from an 11.4% increase in average earning assets which was partially offset by a 7.9% increase in average interest bearing liabilities. Additionally, net interest income was impacted by an increase of 124 basis points in the average rate earned on earning assets while the average rate paid on interest bearing liabilities increased 127 basis points. Interest income increased $2.9 million, or 30.6%, in 1995 compared to 1994. This increase resulted from an 11.4% increase in the volume of the average earning assets, the effect of which was enhanced by the increase in average interest rate earned on these assets. Average loans increased 21.4%, average investment securities increased 6.0%, while average Fed Funds sold declined 36.6%. Interest income on loans increased 34.6% from 1994 to 1995, as a result of increased volume of loans outstanding and an increase in the average interest rate earned on loans of 95 basis points. Interest income on investment securities increased 28.6% from 1994 to 1995, as a result of the 6% increase in the volume of securities and a 115 basis point increase in the average rate earned on investment securities. These increases were partially offset by a 15.6% decline in interest income on Federal Funds sold during a year in which the average rate earned on Federal Funds sold increased 141 basis points offset by a 37% decrease in average volume in 1995 compared to 1994. Generally, earning assets reflected the increase in interest income due to growth in loans and a shift in the mix from Federal Funds sold to higher yielding loans and investments coupled with a higher average interest rate environment. Total interest expense increased 39.7% in 1995 due to a higher level of interest bearing liabilities and a 127 basis point increase in the average rate paid on interest bearing liabilities. The increase in the average volume of interest bearing liabilities was the result of a 15.4% increase in average Money Market Investment Account balances and a 10.4% increase in average balances for certificates of deposit $100,000 or greater. These increases were partially offset by volume decline of 9.2% and .5% in NOW Accounts and certificates of deposit less than $100,000, respectively. The increase in rates paid on interest bearing liabilities was 20 16 reflected in all areas with the largest increase in certificates of deposit $100,000 or greater and Money Market Investment Accounts. The Company's net interest margin increased 31 basis points to 3.85% in 1995, primarily as a result of a higher loan to deposit ratio and the impact of shifts in the mix of earning assets to higher yielding loans and investments. During 1995, the interest rate spread remained relatively level compared with 1994. Total interest income increased in 1995 compared to 1994. The increased level of earning assets combined with an increase in yield on earning assets resulted in a higher level of total interest income. Total interest expense also increased in 1995 compared to 1994. Total interest bearing liabilities increased only 7.9% while earning assets increased 11.4%; however, the average rate paid on interest bearing liabilities increased 127 basis points in 1995 compared to 1994 while the average rate earned on earning assets increased 124 basis points. The average rate paid on all interest bearing liabilities in 1995 was 5.57% compared with 4.30% in 1994. Provision For Possible Loan Losses In 1995, the Company reported a net negative provision for possible loan losses of $520,000, compared with $960,000 in 1994. In 1995 the Company recorded recoveries of previously charged-off loans in excess of current year charge-offs in the amount of $713,000, compared with net recoveries of $626,000 in 1994. The allowance for possible loan losses was 3.1% of loans at December 31, 1995, compared to 3.5% of loans at the same date in 1994. Non-Interest Income Total non-interest income of $685,000 in 1995 reflected a decrease of 18.5% when compared with $840,000 reported in 1994. Non-interest income, less nonrecurring income (gains/losses on sale of securities and other real estate), decreased 14.0%, or $105,000 from 1994. Trust income declined $92,000, or 22.4%, in 1995 compared to 1994 as a result of a decrease in assets under management. Service fee income increased 4.5%, or $9,000 in 1995 from 1994 , reflecting the increase in average deposits during 1995, as well as the increased number of deposit accounts. The Company entered into an agreement in the fourth quarter of 1994 with BFP Financial Partners, Inc. to offer certain investment services which resulted in $50,000 in income in 1995 compared to $8,000 during 1994. The Company recorded net losses on sale of securities available for sale of $11,000 in 1995 compared with a net gain on sale of securities available for sale of $30,000 recorded in 1994. Gains on sale of foreclosed assets of $53,000 were reported in 1995 compared to $62,000 in 1994. Non-Interest Expense Total non-interest expense declined 3.4% to $4.3 million in 1995 from $4.4 million in 1994. During 1995, net foreclosed asset expense decreased $63,000 from $26,000 in 1994 to a net credit of $37,000 in 1995. This credit resulted from income received on previously foreclosed assets. FDIC insurance expense decreased 51.2% in 1995 while salaries and employee benefits declined $19,000 in 1995 from the 1994 levels. Occupancy expense declined $23,000 during 1995 compared to 1994. Data processing expense increased $66,000 during 1995 compared to 1994 as a result of the Company having implemented image processing and having outsourced its proof and statement rendering functions. This increase in data processing expense was partially offset by reduced personnel expenses and decreases in stationery, supplies and postage related to these functions. At both December 31, 1995 and 1994, the Company had 42 employees. Non-personnel related expenses for 1995 were $2.1 million compared to $2.2 million for 1994. Income Taxes Reported earnings reflected the use of net operating loss carryforwards and, as such, no significant income taxes were recorded in either 1995 or 1994. 21 17 Consolidated Balance Sheets
December 31 -------------------------------------------------------------------------------------------------------- (In Thousands) 1996 1995 -------------------------------------------------------------------------------------------------------- Assets Cash and due from banks - Note L $ 6,128 $ 6,279 Federal funds sold 6,825 1,000 Securities - Notes C and H: Available for sale (amortized cost of $46,334 and $47,645, respectively) 46,437 47,924 Loans (net of unearned income of $256 and $203, respectively) - Notes D and K: Commercial 35,721 40,657 Real estate - mortgage loans 58,763 48,648 Real estate - construction loans 9,467 5,952 Consumer 3,937 3,083 -------------------------------------------------------------------------------------------------------- Loans, net of unearned income 107,888 98,340 Less allowance for possible loan losses (2,878) (3,034) -------------------------------------------------------------------------------------------------------- Total net loans 105,010 95,306 -------------------------------------------------------------------------------------------------------- Premises and equipment, net - Note E 784 692 Accrued interest and other assets 1,495 1,599 -------------------------------------------------------------------------------------------------------- Total Assets $ 166,679 $ 152,800 ======================================================================================================== Liabilities Non-interest bearing demand deposits $ 12,721 $ 9,198 Interest-bearing deposits - Note C: NOW accounts 4,865 6,110 Money market accounts 64,140 50,651 Time certificates less than $100,000 26,423 34,530 Time certificates of $100,000 and greater 25,121 30,045 -------------------------------------------------------------------------------------------------------- Total Deposits 133,270 130,534 -------------------------------------------------------------------------------------------------------- Federal Home Loan Bank borrowings (Notes C and H) 9,500 -- Accounts payable and accrued liabilities 1,824 2,254 -------------------------------------------------------------------------------------------------------- Total Liabilities 144,594 132,788 -------------------------------------------------------------------------------------------------------- Commitments and contingencies - Notes I, J, and K Shareholders' Equity: - Notes B, C, M and N Common stock, $6 par value; authorized 50,000,000 shares; issued and outstanding 2,202,473 in 1996 and 2,191,500 in 1995 13,215 13,149 Additional paid-in capital 6,676 8,500 Retained earnings (deficit) 2,130 (1,916) Unrealized gain on securities available for sale, net of taxes 64 279 -------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 22,085 20,012 -------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 166,679 $ 152,800 ========================================================================================================
See accompanying notes to consolidated financial statements. 22 18 Consolidated Statements of Income
Year Ended December 31 -------------------------------------------------------------------------------------------------------------- (In Thousands, Except Per Share Data) 1996 1995 1994 -------------------------------------------------------------------------------------------------------------- Interest Income: Interest and fees on loans $ 9,569 $ 8,626 $ 6,411 Interest on federal funds sold 314 362 429 Interest on securities: U.S. Treasury securities 365 653 1,000 Other U.S. government agency obligations 2,583 2,567 1,496 States and political subdivisions 5 -- -- Other securities 63 39 39 -------------------------------------------------------------------------------------------------------------- Total interest income 12,899 12,247 9,375 -------------------------------------------------------------------------------------------------------------- Interest Expense: Interest bearing demand deposits 2,953 2,683 1,742 Time deposits less than $100,000 1,782 2,109 1,750 Time deposits $100,000 and over 1,563 1,850 1,261 Federal funds purchased 8 -- -- Federal Home Loan Bank borrowings 140 -- -- -------------------------------------------------------------------------------------------------------------- Total interest expense 6,446 6,642 4,753 -------------------------------------------------------------------------------------------------------------- Net Interest Income 6,453 5,605 4,622 Provision for possible loan losses - Note D -- 520 960 -------------------------------------------------------------------------------------------------------------- Net interest income after provision for possible loan losses 6,453 6,125 5,582 Non-interest Income: Service fee income 193 209 200 Trust income 399 319 411 Investment Center income 72 50 8 Gain (loss) on sale of securities, net - Note C (2) (11) 30 Income (expense) from foreclosed assets 130 37 (26) Gain on sale of other real estate owned 11 53 62 Other 124 65 129 -------------------------------------------------------------------------------------------------------------- Total non-interest income 927 722 814 -------------------------------------------------------------------------------------------------------------- Non-interest Expense: Salaries and employee benefits 2,437 2,180 2,199 Occupancy expense 562 489 512 Legal expense 60 33 19 FDIC insurance 6 163 334 Audit, tax and accounting 205 184 189 Data processing expense 209 179 113 Other operating expenses 1,186 1,073 1,020 -------------------------------------------------------------------------------------------------------------- Total non-interest expense 4,665 4,301 4,386 -------------------------------------------------------------------------------------------------------------- Income before income taxes 2,715 2,546 2,010 Income tax expense - Note G 168 32 -- -------------------------------------------------------------------------------------------------------------- Net Income $ 2,547 $ 2,514 $ 2,010 ============================================================================================================== Net income per share - Note B $ 1.15 $ 1.14 $ .92 ============================================================================================================== Weighted average common shares outstanding - Note B 2,219,834 2,204,254 2,181,909 ==============================================================================================================
See accompanying notes to consolidated financial statements. 23 19 Consolidated Statements of Sharholders' Equity
Unrealized Gain (Loss) Additional Retained on Securities Common Paid-In Earnings Available Stock Capital (Deficit) For Sale Total ----------------------------------------------------------------------------------------------------------- (In Thousands) ----------------------------------------------------------------------------------------------------------- Balance, January 1, 1994 $ 13,082 $ 8,490 $ (6,440) $ 294 $ 15,426 Issuance of Common Stock (3,437 shares) 21 1 -- -- 22 Net Income -- -- 2,010 -- 2,010 Change in unrealized gain (loss) on securities available for sale, net of taxes - Note C -- -- -- (1,187) (1,187) ----------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 13,103 8,491 (4,430) (893) 16,271 Issuance of Common Stock (7,712 shares) 46 9 -- -- 55 Net Income -- -- 2,514 -- 2,514 Change in unrealized gain (loss) on securities available for sale, net of taxes - Note C -- -- -- 1,172 1,172 ----------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 13,149 8,500 (1,916) 279 20,012 Issuance of Common Stock (10,973 shares) 66 27 -- -- 93 Net Income -- -- 2,547 -- 2,547 Transfers to comply with state statute, net - Note N -- (1,851) 1,851 -- -- Cash dividends - $.16 per share -- -- (352) -- (352) Change in unrealized gain on securities available for sale, net of taxes - Note C -- -- -- (215) (215) ----------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 $ 13,215 $ 6,676 $ 2,130 $ 64 $ 22,085 ===========================================================================================================
See accompanying notes to consolidated financial statements. 24 20 Consolidated Statements of Cash Flows
Year Ended December 31 --------------------------------------------------------------------------------------------------------------- (In Thousands) 1996 1995 1994 --------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Interest received $ 13,055 $ 11,879 $ 9,066 Fees received 929 909 914 Interest paid (6,934) (6,144) (4,918) Cash paid to suppliers and associates (4,623) (4,012) (2,753) --------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 2,427 2,632 2,309 --------------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Proceeds from sales of securities: Available for sale 6,012 4,089 21,530 Maturities of securities: Held to maturity -- 1,557 2,376 Available for sale 9,632 4,266 3,889 Purchases of securities: Held to maturity -- -- (11,762) Available for sale (14,360) (9,065) (25,547) Loans (originated) repaid to customers, net (9,704) (16,542) (3,243) Capital expenditures (310) (390) (105) --------------------------------------------------------------------------------------------------------------- Net cash provided (used) by investing activities (8,730) (16,085) (12,862) --------------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Net increase (decrease) in demand, NOW, and money market savings 15,767 (2,038) 17,873 Net increase (decrease) in time certificates (13,031) 4,229 (6,479) Advances from Federal Home Loan Bank 9,500 -- -- Proceeds from issuance of common stock 93 55 23 Dividends paid (352) -- -- --------------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities: 11,977 2,246 11,417 --------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 5,674 (11,207) 864 Cash and cash equivalents at beginning of year 7,279 18,486 17,622 --------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 12,953 $ 7,279 $ 18,486 =============================================================================================================== Reconciliation of net income to net cash provided by operating activities: Net income $ 2,547 $ 2,514 $ 2,010 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 209 211 183 Provision for possible loan losses -- (520) (960) Provision for deferred income taxes 82 -- -- (Gain) loss on sale of securities 2 (11) (30) Loss on disposal of equipment 14 -- -- Gain on sale of other real estate owned (11) (53) (62) Provision for loss on other real estate owned -- -- 51 Changes in assets and liabilities: Decrease in other real estate -- 128 1,224 (Increase) decrease in accrued interest and other assets 6 (418) (355) Increase (decrease) in accounts payable and accrued liabilities (422) 759 248 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 2,427 $ 2,632 $ 2,309 =============================================================================================================== Supplemental disclosures of noncash investing and financing activities: Change in unrealized gain (loss) on securities available for sale, net of taxes $ (215) $ 1,172 $ (1,187) Transfer of securities to available for sale -- 20,772 -- Transfer of securities from available for sale to held to maturity -- -- 7,780 Loans made to finance sale of other real estate owned -- -- 1,061
See accompanying notes to consolidated financial statements. 25 21 Notes to Consolidated Financial Statements A. Summary of Significant Accounting Policies On April 16, 1996 the shareholders of The Bank of Nashville (The Bank) approved the formation of a holding company. On April 30, 1996 The Bank became a wholly-owned subsidiary of the holding company, Community Financial Group, Inc., (CFGI), a Tennessee Corporation. Each outstanding share of The Bank's common stock was exchanged for an outstanding share of CFGI and each outstanding warrant and each option to purchase shares of The Bank became warrants and options to purchase shares of CFGI. The consolidated financial statements include the accounts of CFGI and The Bank (collectively the Company) after elimination of material intercompany accounts and transactions. The accounting and reporting policies of the Company conform to generally accepted accounting principles and to general practices within the banking industry. Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. Following is a summary of the more significant accounting policies of the Company. SECURITIES Securities are designated as held to maturity or available for sale at the time of acquisition. The Company does not have securities designated as trading securities. Held to maturity securities are carried at amortized cost and adjusted for amortization of premiums and accretion of discounts using a method that approximates the level-yield method. As of December 31, 1996 and 1995, CFGI has classified its entire securities portfolio as available for sale. Available for sale securities are reported at fair value. If a decline in value is considered to be other than temporary, the securities are written down to fair value and the amount of the writedown is included in earnings. Unrealized gains and losses on securities available for sale are reflected in a separate shareholders' equity account net of applicable income taxes in accordance with SFAS No. 115 (See Note C). The adjusted cost of a specific security sold is used to compute the gain or loss on the sale of that security. Gains and losses on the sale of securities available for sale are included in non-interest income. LOANS Loans are carried at the principal amount outstanding net of unearned income. Interest income on loans and amortization of unearned income is computed by methods which result in level rates of return on principal amounts outstanding. Effective January 1, 1995, the Company adopted SFAS No. 114, Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures. Management, considering current information and events regarding the borrowers ability to repay their obligations, considers a loan to be impaired when it is probable that the Company will be unable to collect all amounts due according to contractual terms of the loan agreement. When a loan is considered impaired, the amount of the impairment is based on the present value of the expected future cash flows at the loan's effective interest rate, at the loan's market price or fair value of collateral if the loan is collateral-dependent. Impairment losses are included in the allowance for possible loan losses through a charge to provision for loan losses. Prior periods have not been restated. Interest income is accrued on loans except when doubt as to collectability exists, in which case the respective loans are placed on nonaccrual status. The decision to place a loan on nonaccrual status is based on an evaluation of the borrower's financial condition, collateral liquidation value, and other factors that affect the borrower's ability to pay. At the time a loan is placed on nonaccrual status, the accrued but unpaid interest is charged against current income. Thereafter, interest on nonaccrual loans is recognized as interest income only as received, unless the collectability of outstanding principal is doubtful, in which case such interest received is applied as a reduction of principal. Cash receipts on nonaccrual loans are applied to reduce the principal amount of such loans until the principal has been recovered and are recognized as interest income, thereafter. Loan origination, commitment fees and certain direct origination costs are deferred and amortized over the contractual life of the related loans, adjusted for prepayments as a yield adjustment. ALLOWANCE FOR POSSIBLE LOAN LOSSES The allowance for possible loan losses reflects an amount which, in management's judgment, is adequate to provide for estimated loan losses. Management's evaluation of the loan portfolio consists of evaluating 26 22 current delinquencies, the adequacy of underlying collateral, current economic conditions, risk characteristics, and management's internal credit review process. Accounts are charged off as soon as the probability of loss is established. Management believes that the allowance for possible loan losses is appropriate. While management uses available information to recognize losses on loans, future adjustments in the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as part of their examinations, periodically review the Company's allowance for possible loan losses. Such agencies may require the Company to adjust the allowance based on their judgment and information available to them at the time of their examinations. OTHER REAL ESTATE OWNED (OREO) Other real estate owned includes property acquired in situations in which the Company has physical possession of a debtor's assets (collateral). Such assets are carried at the lower of cost or fair value less estimated cost to sell. Cost includes loan principal, accrued interest, foreclosure expense and expenditures for subsequent improvements. Losses arising from the acquisition of such property are charged against the allowance for possible loan losses. Declines in value subsequent to foreclosure are recorded as a valuation allowance. Provisions for subsequent declines or losses from disposition of such property are recognized in non-interest expense. PREMISES AND EQUIPMENT Premises and equipment is stated at cost less accumulated depreciation and amortization. For financial reporting purposes, depreciation and amortization are computed using the straight-line method over the estimated lives of those assets. Leasehold improvements are amortized over the lease terms or the estimated lives, whichever is less. The estimated lives are as follows: Years Leasehold improvements 3 - 20 Furniture and equipment 3 - 10 INCOME TAXES The Company accounts for income taxes in accordance with the asset and liability method of accounting. Under such method deferred tax as sets and liabilities are recognized for the estimated future tax effects attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. TRUST ASSETS Assets of the trust department, other than cash on deposit at The Bank, are not included in these consolidated financial statements because they are not assets of the Company. STATEMENT OF CASH FLOWS For purposes of reporting cash flow, the Company has defined cash and cash equivalents as cash and due from banks and daily federal funds sold. EARNINGS PER COMMON SHARE Net income per share has been computed using the weighted average number of common shares and common share equivalents outstanding during each year presented. Common stock equivalents include stock options. See Note B. FINANCIAL INSTRUMENTS The Company enters into interest rate floor agreements for its asset/liability management program. Fees paid upon inception of these agreements are deferred and amortized over the life of the agreements. Income or expense derived from these agreements is recognized in interest income during the period earned. RECLASSIFICATIONS Certain reclassifications have been made in the consolidated financial statements for prior years to conform with the 1996 presentation. 27 23 B. Shareholders' Equity The Company can issue common stock pursuant to various plans such as employee stock purchase, contributions to the 401(K) plan, and payment of directors' fees. Under these plans, 5,973, 7,712, and 3,437 shares were issued during 1996, 1995 and 1994, respectively. The Company had outstanding stock options totaling 75,000 and 65,000 shares at December 31, 1996 and 1995, respectively. Options totaling 15,000 shares were issued and options totaling 5,000 shares were exercised during 1996 (See Note M). At December 31, 1996 and 1995, warrants to purchase 4,744,927 shares of CFGI's common stock were outstanding. The exercise price of the warrants is $12.50, and they expire on December 31, 1998. These warrants are common stock equivalents. Management has used the treasury stock method to compute earnings per share since the Company was incorporated. The Company's options and warrants are common stock equivalents. The above mentioned warrants have not been included in the Company's computation of earnings per share because the market price of the Company's common stock has been less than the exercise price of the warrants since issuance. If the market price of the common stock exceeds the warrants' exercise price for substantially all of any three-month reporting period, the Company will reflect the impact of the warrants in all future earnings per share computations using the modified treasury stock method. The modified treasury stock method assumes the exercise of all outstanding warrants, the repurchase of up to 20% of the Company's stock, the retirement of any long-term and short-term borrowings and the investment of the remaining proceeds, with appropriate recognition of any income tax effects. If the Company's stock price had been in excess of $12.50 per share for substantially all of any three-month reporting period in the years ending December 31, 1996 and 1995, earnings per share using the modified treasury stock method for the years ended December 31, 1996 and 1995 would have been $.62 and $.74, respectively. C. Securities The Company has classified all securities as available for sale in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities since December 31, 1995. The Company recorded increases in shareholders' equity of $64,000 and $279,000 at December 31, 1996 and 1995, respectively, for the unrealized gain on securities available for sale. Proceeds from sales of debt securities during 1996, 1995, and 1994 were $6.0 million, $4.1 million and $21.5 million, respectively. Gross gains of $5 thousand and gross losses of $7 thousand were realized on those sales in 1996, gross gains of $10 thousand and gross losses of $21 thousand were realized on those sales in 1994 and gross gains of $131 thousand and gross losses of $101 thousand were realized on those sales in 1994. The amortized cost, gross unrealized gains and losses, and estimated fair values of securities at December 31, 1996 and 1995 were as follows:
Available for Sale Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------------------------------------------------------------------------------------------------- (In Thousands) 1996 ----------------------------------------------------------------------------------------------------- U.S. Treasury Securities and Obligations of U.S. Government Agencies $ 22,420 $ 324 $ 32 $ 22,714 Collateralized Mortgage Obligations 21,893 57 254 21,694 Securities of states and political subdivisions 360 8 -- 368 Other - Equity Securities 1,661 -- -- 1,661 ----------------------------------------------------------------------------------------------------- $ 46,334 $ 389 $ 286 $ 46,437 =====================================================================================================
28 24
Available for Sale Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------------------------------------------------------------------------------------------------- (In Thousands) 1996 ----------------------------------------------------------------------------------------------------- U.S. Treasury Securities and Obligations of U.S. Government Agencies $ 28,102 $ 319 $ 40 $ 28,381 Collateralized Mortgage Obligations 18,745 177 177 18,745 Other - Equity Securities 798 -- -- 798 $ 47,645 $ 496 $ 217 $ 47,924 ====================================================================================================
At December 31, 1996 and 1995, The Company did not have any securities which it classified as held to maturity or trading. In November 1995, the Financial Accounting Standards Board (FASB) issued a Special Report, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities." The FASB permitted a one-time opportunity to reassess the appropriateness of the designation of all securities held upon the initial application of the Special Report. The Company reviewed its current designation of all securities in conjunction with liquidity needs and management of interest rate risk and transferred $20.7 million of securities from held to maturity to available for sale. At the time of transfer, such securities had an unrealized loss of $30,000. The amortized cost and fair value of debt securities by contractual maturity at December 31, 1996, are shown in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Collateralized mortgage obligations are disclosed as a separate line item due to staggered maturity dates. Investments in Federal Reserve Bank stock and Federal Home Loan Bank stock are excluded as they have no stated maturity date.
Available for Sale ------------------------ Estimated Amortized Fair Cost Value ----------------------------------------------------------------------------------------------------- (In Thousands) 1996 ----------------------------------------------------------------------------------------------------- Due in one year or less $ 3,006 $ 3,010 Due after one year through five years 3,724 3,727 Due after five years through ten years 1,016 1,047 Due after ten years 15,034 15,298 ----------------------------------------------------------------------------------------------------- 22,780 23,082 Collateralized Mortgage Obligations 21,893 21,694 ----------------------------------------------------------------------------------------------------- $ 44,673 $ 44,776 =====================================================================================================
Securities with an aggregate amortized cost of approximately $25.6 million and $18.3 million were pledged to secure public deposits, Federal Home Loan Bank borrowings and for other purposes as required by law at December 31, 1996 and 1995, respectively. 29 25 D. Loans and Allowance for Possible Loan Losses An analysis of the changes in the allowance for possible loan losses is as follows:
Year Ended December 31 ---------------------------------------------------------------------------------------------------------- (In Thousands) 1996 1995 1994 ---------------------------------------------------------------------------------------------------------- Balance, January 1 $ 3,034 $ 2,841 $ 3,175 Provision charged (credited) to operations -- (520) (960) Loans charged off, net of recoveries of $541, $1,058 and $1,170 in 1996, 1995 and 1994, respectively (156) 713 626 ---------------------------------------------------------------------------------------------------------- Balance, December 31 $ 2,878 $ 3,034 $ 2,841 ==========================================================================================================
At December 31, 1996 and 1995, loans on nonaccrual status amounted to $579,000 and $451,000, respectively. The effect of nonaccrual loans was to reduce interest income by approximately $74,000 in 1996, $78,000 in 1995, and $27,000 in 1994. There were no material commitments to lend additional funds to customers whose loans were classified as nonaccrual at December 31, 1996 and 1995. Renegotiated loans, which are performing in accordance with their new terms and, therefore, not included in nonaccrual loans. The Company had no renegotiated loans at December 31, 1996 and 1995. The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures," as of January 1, 1995. These statements require that certain impaired loans be measured based on the present value of expected future cash flows discounted at the loan's original effective interest rate. As a practical expedient, impairment may be measured based on the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. When the measure of the impaired loan is less that the recorded investment in the loan, the impairment is recorded through a valuation allowance. The adoption of these statements did not have a material impact on the Company's financial statements. At December 31, 1996, the Company's recorded investment in impaired loans and the related valuation allowance calculated under the statements are $359,000 and $184,000, respectively. At December 31, 1995 the Company's recorded investment in impaired loans and the related valuation allowance were $324,000 and $162,000, respectively. The valuation allowance is included in the allowance for loan losses on the consolidated balance sheets. At December 31, 1996 and 1995 there were no impaired loans without an accompanying valuation reserve. The average recorded investment in impaired loans for the year ended December 31, 1996 and 1995 was $382,000 and $360,000, respectively. Interest payments received on impaired loans are recorded as reductions in principal outstanding or recoveries of principal previously charged off. Once the entire principal has been collected any additional payments received are recognized as interest income. No interest income was recognized on impaired loans in 1996 or 1995. In the ordinary course of business, the Company makes loans to directors, executive officers, and principal shareholders, including related interests. In management's opinion, these loans are made on substantially the same terms, including interest and collateral, as those prevailing at the time for comparable transactions with other borrowers and they did not involve more than the normal risk of collectability or present other unfavorable features at the time such loans were made. During 1996, $2.5 million of new loans were made and repayments and other reductions totaled $3.6 million. Outstanding loans to executive officers and directors, including their associates and affiliated companies, were $2.9 million and $4.0 million at December 31, 1996 and 1995, respectively. Unfunded lines to executive officers and directors were $4.2 million and $4.9 million at December 31, 1996 and 1995, respectively. 30 26 E. Premises and Equipment Premises and equipment is summarized as follows:
December 31 ------------------------------------------------------------------------------------------------------------- (In Thousands) 1996 1995 ------------------------------------------------------------------------------------------------------------- Leasehold improvements $ 232 $ 155 Furniture and equipment 1,823 1,618 ------------------------------------------------------------------------------------------------------------- 2,055 1,773 Less accumulated depreciation and amortization (1,271) (1,081) ------------------------------------------------------------------------------------------------------------- $ 784 $ 692 =============================================================================================================
F. Other Real Estate Owned An analysis of the changes in the valuation allowance for other real estate owned is as follows:
Year Ended December 31 ------------------------------------------------------------------------------------------------------------- (In Thousands) 1996 1995 1994 ------------------------------------------------------------------------------------------------------------- Balance, January 1 $ -- $ 25 $ 947 Provision Charged Against Income -- -- 51 Recoveries -- (25) (973) ------------------------------------------------------------------------------------------------------------- Balance, December 31 $ -- $ -- $ 25 =============================================================================================================
G. Income Taxes As discussed in Note A, the Company accounts for income taxes in accordance with SFAS No. 109. Actual income tax expense for the years ended December 31, 1996, 1995 and 1994 differed from an "expected" tax expense (computed by applying the U.S. Federal corporate tax rate of 34% to income before income taxes as follows:
December 31 ------------------------------------------------------------------------------------------------------------- (In Thousands) 1996 1995 1994 ------------------------------------------------------------------------------------------------------------- Computed "expected" tax expense $ 923 $ 866 $ 683 Benefit of net operating loss carryforward (755) (834) (683) ------------------------------------------------------------------------------------------------------------- Total Income Tax Expense $ 168 $ 32 $ -- =============================================================================================================
The components of income tax expense (benefit) were as follows:
December 31 ------------------------------------------------------------------------------------------------------------- (In Thousands) 1996 1995 1994 ------------------------------------------------------------------------------------------------------------- Current income tax expense: Federal $ 86 $ 32 $ -- State -- -- -- ------------------------------------------------------------------------------------------------------------- 86 32 -- ------------------------------------------------------------------------------------------------------------- Deferred income tax expense: Federal 82 -- -- State -- -- -- ------------------------------------------------------------------------------------------------------------- 82 -- -- ------------------------------------------------------------------------------------------------------------- Total Income Tax Expense $ 168 $ 32 $ -- =============================================================================================================
31 27 Significant temporary differences and carryforwards that give rise to the deferred tax assets and liabilities are as follows:
December 31 ------------------------------------------------------------------------------------------------------------- (In Thousands) 1996 1995 ------------------------------------------------------------------------------------------------------------- Deferred tax assets: Deferred fees, principally due to timing differences in the recognition of income $ 134 $ 119 Net operating loss carryforwards 73 960 Alternative minimum tax credit carryforwards 30 73 Other 67 41 ------------------------------------------------------------------------------------------------------------- Total gross deferred tax assets 304 1,193 ------------------------------------------------------------------------------------------------------------- Less valuation allowance -- (760) ------------------------------------------------------------------------------------------------------------- Net deferred tax assets 304 433 ------------------------------------------------------------------------------------------------------------- Deferred tax liabilities: Unrealized gain securities available for sale (39) (106) Discount on securities deferred for tax purposes (97) (53) Loans, principally due to provision for possible loan losses (213) (213) Premises and equipment, principally due to differences in depreciation methods (66) (61) Other (10) -- ------------------------------------------------------------------------------------------------------------- Total gross deferred tax liabilities (425) (433) ------------------------------------------------------------------------------------------------------------- Net $ 121 $ -- =============================================================================================================
The net decrease during 1996 and 1995 in the valuation allowance for deferred tax assets was $760,000 and $1,466,000, respectively. At December 31, 1996, the Company had a net operating loss carryforward of $1.9 million for state income tax purposes. This state net operating loss carryforward expires in the year 2007. H. Long Term Debt and Lines of Credit The Bank maintains an arrangement with the Federal Home LoanBank of Cincinnati to provide for certain borrowing needs of The Bank. The arrangement requires The Bank to hold stock in the Federal Home Loan Bank and requires The Bank to pledge investment securities, to be held by the Federal Home Loan Bank, as collateral. During 1996, $9,500,000 was advanced under this arrangement. At December 31, 1996 indebtedness under the arrangement totaled $9,500,000. These advances mature in September, 2001 and are eligible for prepayment at The Bank's option beginning in September, 1998. The interest rate on these advances is tied to the one-month LIBOR rate minus 5 basis points and adjusts monthly. Interest is payable monthly. The maximum advance outstanding was $9,500,000, the average balance outstanding was $2,745,000 and the weighted average interest rate on the advances was 5.37% for the year ended 1996. The Bank has pledged investment securities with an amortized cost of approximately $11.3 million at December 31, 1996 as collateral under terms of the loan agreement. On December 31, 1996 and 1995, the Company had available for its use $15.0 million and $13.5 million, respectively, of unsecured short-term bank lines of credit. Such short-term lines serve as backup for loan and investment needs. There are no compensating balance requirements. These lines facilitate federal funds borrowings and bear a rate equal to the current lending rate for federal funds purchased. No amounts were outstanding under these lines of credit at December 31, 1996 and 1995. I. Lease Commitments The Company occupies space under noncancelable operating leases. The leases provide annual escalating rents for periods through 2000 with options for renewals. Rent expense is recognized in equal monthly amounts over the lease term. Rent expense was $284,000, $209,000 and $238,000 for 1996, 1995 and 1994, respectively. 32 28 Future lease payments under noncancelable operating leases are payable as follows:
-------------------------------------------------- (In Thousands) -------------------------------------------------- 1997 $ 396 1998 378 1999 301 2000 142 2001 123 -------------------------------------------------- $ 1,340 ==================================================
J. Financial Instruments with Off-Balance Sheet Risk The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheets. The contract amounts of those instruments reflect the extent of involvement and the related credit risk the Company has in particular classes of financial instruments. The Company, through regular reviews of these arrangements, does not anticipate any material losses as a result of these transactions. At December 31, 1996 and 1995 unused lines of credit were approximately $30.5 million and $23.5 million, respectively, with the majority generally having terms at origination of one year. Additionally, the Company had standby letters of credit of $1,612,000 and $1,902,000 at December 31, 1996 and 1995, respectively. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amounts of collateral obtained, if deemed necessary by the Company, upon extension of credit is based on management's credit evaluation of the customer. Standby letters of credit are commitments issued by The Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most guarantees extend from one to two years. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company has entered into interest rate floor agreements for its asset/liability management program to reduce interest rate risk. These interest rate floors represent obligations by third parties whereby the Company receives payment when the underlying rate index falls below an agreed upon level. The Company paid a fee, which is amortized as an adjustment of yield. The unamortized portion of this fee was $31,000 and $51,000 at December 31, 1996 and 1995, respectively. At December 31, 1996, the Company held interest rate floor contracts with notional amounts totaling $8.0 million which expire in 1997 and 1998, and were entered into to protect the Company from falling interest rates. K. Significant Concentrations of Credit Risk Most of the Company's business activity is with customers located in the Middle Tennessee region. Generally, loans are secured by stocks, real estate, time certificates, or other assets. The loans are expected to be repaid from cash flow or proceeds from the sale of selected assets of the borrowers. The Company grants residential, consumer, and commercial loans to customers throughout the Middle Tennessee region. Real estate mortgage and construction loans reflected in the accompanying consolidated balance sheets are comprised primarily of loans to commercial borrowers. 33 29 At December 31, 1996 funded and unfunded loan commitments as classified by Standard Industry Classification codes include borrowers in the real estate industry approximating $21.3 million and $3.9 million, respectively, and loans to building contractors approximating $7.8 million and $7.5 million, respectively. At December 31, 1995, funded and unfunded commitments to borrowers in the real estate industry were approximately $18 million and $2 million, respectively, and to building contractors approximately $6.7 million and $5.3 million, respectively. L. Cash Restrictions The Company is required to maintain average balances with the Federal Reserve Bank. The average amounts of these balances maintained during the years ended December 31, 1996 and 1995, were $652,000 and $780,000, respectively. The required balance at December 31, 1996 was $704,000. M. Employee Benefits Effective January 1, 1990, the Board of Directors approved the creation of an Incentive Phantom Stock Appreciation Rights Plan, an Associates Stock Purchase Plan, and a Retirement Savings Plan 401(K). Stock Appreciation Rights (SARs) were granted to selected officers. Payment of the SARs was made in cash based on the increase in the book value of the Company's common stock at the conclusion of the plan (December 31, 1994), compared to the book value at the grant date. Under the Plan, the Board of Directors has authorized 400,000 SARs of which 234,500 SARs were outstanding to various officers at December 31, 1994. During 1994, $100,000 of compensation expense was recorded relating to SARs outstanding. Subsequent to the year ended December 31, 1994, the Company paid $122,000 of previously accrued expenses in order to terminate the SAR plan. The Retirement Savings Plan 401(K) provides for the maximum deferral of employee compensation allowable by the IRS under provisions of Section 401(A) and 401(K). The Plan is available to all associates who meet the plan eligibility requirements. The Company provides various levels of employer matching of contributions up to 4% of the associate's compensation. Employer contributions are invested exclusively in the Company's common stock. Associates fully vest in the employer's contributions after three years of service as defined in the Plan. Total plan expense for 1996, 1995 and 1994 was approximately $61,000, $63,000 and $55,000, respectively. The Associates Stock Purchase Plan (ASPP), under which 100,000 shares of the Company's common stock may be issued, allows associates to purchase the Company's common stock through payroll deductions at 84% of the existing market value, not to fall below par value. Incidental expenses regarding the administration of the plan are absorbed by the Company. Prior to January 1, 1996, the Company accounted for its stock option plan and ASPP in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense related to stock options would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996 The Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entitles to continue to apply the provisions of APB No. 25 and provide proforma net income and proforma earnings per share disclosures for employee stock option grants and purchases under the ASPP made in 1995 and future years as if the fair-value-based method detailed in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB No. 25. The provisions of SFAS No. 123 need not be applied to immaterial items. As such, proforma disclosures are not provided. As of December 31, 1996, the Company's Board of Directors had approved the issuance of stock options to purchase 75,000 shares of the Company's common stock. Compensation expense was not recorded in connection with the issuance of these options as the option price was equal to or exceeded the market price of the Company's common stock at the date of grant. The following table presents information on stock options: 34 30
Total Exercisable Option Option Shares Options Price Range --------------------------------------------------------------------------------------------------------------- Options outstanding at January 1, 1994 60,000 25,000 $ 6.00-7.125 Granted 5,000 -- $ 7.00-7.125 Options that became exercisable -- 18,000 $ 6.00-7.125 --------------------------------------------------------------------------------------------------------------- Options outstanding at December 31, 1994 65,000 43,000 $ 6.00-7.125 Granted -- -- -- Options that became exercisable -- 8,000 $ 6.00-7.125 --------------------------------------------------------------------------------------------------------------- Options outstanding at December 31, 1995 65,000 51,000 $ 6.00-7.125 Granted 15,000 3,000 $ 10.125 Options that became exercisable -- 8,000 $ 6.00-7.125 Options exercised (5,000) (5,000) $ 7.125 --------------------------------------------------------------------------------------------------------------- Options outstanding at December 31, 1996 75,000 57,000 $ 6.00-10.125 ===============================================================================================================
The stock options are exercisable ratably through 1997 and become exercisable in full in the event of a merger, sale or change in majority control of the Company. The options expire in the years 2002, 2003, 2004 and 2006. N. Restrictions on Retained Earnings, Regulatory Matters and Litigation In order to fund dividends in 1996, and in accordance with state statute, The Bank transferred $1,925,000 from additional paid-in capital to retained earnings and $74,000 from retained earnings to additional paid-in capital, resulting in a net reduction of $1,851,000 in additional paid-in capital at March 31, 1996. Subsequent to its acquisition by CFGI, The Bank transferred $187,000 from retained earnings to additional paid-in capital. In order to declare dividends in the future The Bank must transfer a minimum of ten percent of current net income from retained earnings to additional paid-in capital until additional paid-in capital equals common stock. At December 31, 1996, approximately $1.9 million of The Bank's retained earnings were available for dividend declaration and payment to its shareholder CFGI (parent company), without regulatory approval. Also, there are from time to time other legal proceedings pending against the Company. In the opinion of management, liabilities, if any, arising from such proceedings presently pending would not have a material adverse effect on the consolidated financial statements of the Company. CFGI and The Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes the Company meets all capital adequacy requirements to which it is subject as of December 31, 1996. As of December 31, 1996, the most recent notification from the Federal Deposit Insurance Corporation categorized The Bank as adequately capitalized under the regulatory framework for prompt corrective action. To be categorized as adequately capitalized the Company must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the Company's category. 35 31 CFGI and The Bank's actual capital amounts and ratios are also presented in the table. CAPITAL RATIOS
CFGI The Bank December 31 December 31 ------------------------------------------------------------------------------------------------------------------- (Dollars In Thousands) 1996 1995 1996 1995 ------------------------------------------------------------------------------------------------------------------- CAPITAL COMPONENTS TIER 1 CAPITAL: Shareholders' equity $ 22,085 $ -- $ 22,005 $ 20,012 Disallowed portion of deffered tax assets -- -- -- (143) Unrealized (gain) on securities AFS (64) -- (64) (279) ------------------------------------------------------------------------------------------------------------------- Total Tier 1 capital 22,021 -- 21,941 19,590 TIER 2 CAPITAL: Allowable allowance for possible loan losses 1,443 -- 1,453 1,270 ------------------------------------------------------------------------------------------------------------------- Total capital $ 23,464 -- $ 23,394 $ 20,860 =================================================================================================================== Risk-adjusted assets $113,971 -- $114,854 $ 99,802 Quarterly average assets $167,111 -- $167,052 $152,907
FDICIA Minimum December 31 December 31 Ratios 1996 1995 1996 1995 ------ ---- ---- ---- ---- CAPITAL RATIOS Total risk-based capital ratio 6-10% 20.6% -- 20.4% 20.9% Tier 1 risk-based capital ratio 3- 6% 19.3% -- 19.1% 19.6% Tier 1 leverage ratio 2- 5% 13.2% -- 13.1% 12.8%
O. Fair Value of Financial Instruments SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments for both on and off-balance sheet assets and liabilities for which it is practicable to estimate fair value. The techniques used for this valuation are significantly affected by the assumptions used, including the amount and timing of future cash flows and the discount rate. Such estimates involve uncertainties and matters of judgment and therefore cannot be determined with precision. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets. Accordingly, the aggregate fair value amounts presented are not meant to represent the underlying value of the Company. The following table presents the carrying amounts and the estimated fair value of the Company's financial instruments at December 31:
Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ------------------------------------------------------------------------------------------------------------------- (In Thousands) 1996 1996 1995 1995 ------------------------------------------------------------------------------------------------------------------- Financial assets: Cash, due from banks, and federal funds sold $ 12,953 $ 12,953 $ 7,279 $ 7,279 Investment securities 46,437 46,437 47,924 47,924 Loans, net of unearned income 107,888 107,974 98,340 98,255 Financial liabilities: Deposits 133,270 133,633 130,534 131,210 Federal Home Loan Bank borrowings 9,500 9,500 -- -- -------------------------------------------------------------------------------------------------------------------
36 32
Contractual Contractual or or Notional Estimated Notional Estimated Amounts Fair Value Amounts Fair Value ------------------------------------------------------------------------------------------------------------------- (In Thousands) 1996 1996 1995 1995 ------------------------------------------------------------------------------------------------------------------- Off-balance items: Interest rate floors $ 8,000 $ * $ 8,000 $ * Commitments to extend credit 30,521 * 23,510 * Standby letters of credit 1,612 * 1,902 * ------------------------------------------------------------------------------------------------------------------- * The estimated fair value of these items was not significant at December 31, 1996 or 1995. ===================================================================================================================
The following summary presents the methodologies and assumptions used to estimate the fair value of the Company's financial instruments presented above. CASH DUE FROM BANKS AND FEDERAL FUNDS SOLD For cash due from banks and federal funds sold, the carrying amount is a reasonable estimate of fair value. These instruments expose the Company to limited credit risk and carry interest rates which approximate market. INVESTMENT SECURITIES In estimating fair values, management makes use of prices or dealer quotes for U.S. Treasury securities, other U.S. government agency securities, and mortgage-backed certificates. As required by SFAS 115, securities available for sale are recorded at fair value. LOANS The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities adjusted for differences in loan characteristics. The risk of default is measured as an adjustment to the discount rate, and no future interest income is assumed for nonaccrual loans. The fair value of loans does not include the value of the customer relationship or the right to fees generated by the account. DEPOSIT LIABILITIES The fair value of deposits with no stated maturities (which includes demand deposits, NOW accounts, and money market deposits) is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using a discounted cash flow model based on the rates currently offered for deposits of similar maturities. SFAS No. 107 requires deposit liabilities with no stated maturity to be reported at the amount payable on demand without regard for the inherent funding value of these instruments. The Company believes that significant value exists in this funding source. FEDERAL HOME LOAN BANK BORROWINGS The fair value of Federal Home Loan Bank borrowings is estimated using discounted cash flows, based on current incremental borrowing rates for similar types of borrowing arrangements. INTEREST RATE FLOORS The fair value of interest rate floors is established by the issuer based on the market price to purchase a like instrument with comparable terms. 37 33 P. Parent Company Financial Information Condensed financial information for Community Financial Group, Inc. (Parent Company only), as of December 31, 1996 and the period from May 1, 1996 to December 31, 1996 was as follows: CONDENSED BALANCE SHEET
December 31 -------------------------------------------------------------------------------------------------------------- (In Thousands) 1996 -------------------------------------------------------------------------------------------------------------- Assets Cash $ 37 Investment in bank subsidiary, at cost adjusted for equity in earnings 22,005 Other assets 61 -------------------------------------------------------------------------------------------------------------- Total Assets $ 22,103 Liabilities and Shareholders' Equity Other liabilities $ 18 -------------------------------------------------------------------------------------------------------------- Total Liabilities 18 Total Shareholders' Equity 22,085 -------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 22,103 =============================================================================================================
CONDENSED INCOME STATEMENT
Eight Month Period Ended December 31 -------------------------------------------------------------------------------------------------------------- (In Thousands) 1996 -------------------------------------------------------------------------------------------------------------- Income Dividends from bank subsidiary $ 231 -------------------------------------------------------------------------------------------------------------- Total income 231 Expenses Interest expense on short-term borrowings 1 Other expenses 50 -------------------------------------------------------------------------------------------------------------- Total expenses 51 -------------------------------------------------------------------------------------------------------------- Income before income taxes 180 Reduction to consolidated income taxes arising from parent company taxable loss 19 Equity in undistributed earnings of subsidiary bank 2,348 -------------------------------------------------------------------------------------------------------------- Net Income $ 2,547 ==============================================================================================================
38 34 STATEMENT OF CASH FLOWS
Eight Month Period Ended December 31 -------------------------------------------------------------------------------------------------------------- (In Thousands) 1996 -------------------------------------------------------------------------------------------------------------- Operating activities Net income $ 2,547 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of subsidiaries (2,348) (Increase) in other assets (43) Increase in other liabilities 18 -------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 174 -------------------------------------------------------------------------------------------------------------- Cash provided by investing activities -- -------------------------------------------------------------------------------------------------------------- Financing activities Repayment of short-term borrowing (20) Proceeds from issuance of common stock 56 Cash dividends paid (176) -------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (140) -------------------------------------------------------------------------------------------------------------- Increase in cash and due from banks 34 Cash and due from banks, beginning of period 3 -------------------------------------------------------------------------------------------------------------- Cash and due from banks, end of year $ 37 ==============================================================================================================
39 35 REPORT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The management of Community Financial Group, Inc. and subsidiary (the Company) is responsible for preparing the accompanying consolidated financial statements in accordance with generally accepted accounting principles. The amounts therein are based on management's best estimates and judgments. Management has also prepared other information in the annual report and is responsible for its accuracy and consistency with the consolidated financial statements. The Company maintains a system of internal accounting control which it believes, taken as a whole, is sufficient to provide reasonable assurance that assets are properly safeguarded and that transactions are executed in accordance with proper authorization and are recorded and reported properly. In establishing and maintaining any system of internal accounting control, estimates and judgments are required to assess the relative costs and expected benefits. The Company also maintains a program that independently assesses the effectiveness of their internal controls. The Company's consolidated financial statements have been audited by independent certified public accountants. Their Independent Auditors' Report, which follows, is based on an audit made in accordance with generally accepted auditing standards and expresses an opinion as to the fair presentation of the Company's consolidated financial statements. In performing their audit, the Company's independent certified public accountants consider the Company's internal control structure to the extent they deem necessary in order to issue their opinion on the consolidated financial statements. The Board of Directors pursues its oversight role for the consolidated financial statements through the Audit Committee, which consists solely of outside directors. The Audit Committee meets periodically with both management and the independent auditors to assure that each is carrying out its responsibilities. /s/ Mark S. Linebaugh, Jr. -------------------------- Mack S. Linebaugh, Jr. Chairman of the Board President and CEO INDEPENDENT AUDITORS' REPORT THE BOARD OF DIRECTORS AND SHAREHOLDERS COMMUNITY FINANCIAL GROUP, INC.: We have audited the accompanying consolidated balance sheets of Community Financial Group, Inc. and subsidiary (the Company) as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Community Financial Group, Inc. and subsidiary as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ Nashville, Tennessee January 22, 1997 40 36 COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY (UNAUDITED) CONSOLIDATED QUARTERLY FINANCIAL DATA
1996 Three Months Ended ---------------------------------------------------------------------------------------------------------------- (In Thousands, except per share data) December 31 September 30 June 30 March 31 ---------------------------------------------------------------------------------------------------------------- Interest income $ 3,431 $ 3,186 $ 3,174 $ 3,108 Interest expense 1,691 1,598 1,558 1,599 ---------------------------------------------------------------------------------------------------------------- Net interest income 1,740 1,588 1,616 1,509 Provision for possible loan losses -- -- -- -- Non-interest income 215 217 229 266 Non-interest expense 1,282 1,173 1,180 1,030 ---------------------------------------------------------------------------------------------------------------- Income before income taxes 673 632 665 745 Provision for income taxes 76 62 15 15 ---------------------------------------------------------------------------------------------------------------- Net income $ 597 $ 570 $ 650 $ 730 ================================================================================================================ Income per share: Net income $ .27 $ .26 $ .29 $ .33 ================================================================================================================ Weighted Average Common Shares Outstanding 2,225,525 2,219,082 2,215,507 2,213,284 ================================================================================================================
1995 Three Months Ended ---------------------------------------------------------------------------------------------------------------- (In Thousands, except per share data) December 31 September 30 June 30 March 31 ---------------------------------------------------------------------------------------------------------------- Interest income $ 3,256 $ 3,075 $ 3,075 $ 2,841 Interest expense 1,672 1,691 1,767 1,512 ---------------------------------------------------------------------------------------------------------------- Net interest income 1,584 1,384 1,308 1,329 Provision for possible loan losses -- -- -- (520) Non-interest income 145 207 196 174 Non-interest expense 1,173 993 1,045 1,090 ---------------------------------------------------------------------------------------------------------------- Income before income taxes 556 598 459 933 Provision for income taxes 32 -- -- -- ---------------------------------------------------------------------------------------------------------------- Net income $ 524 $ 598 $ 459 $ 933 ================================================================================================================ Income per share: Net income $ .24 $ .27 $ .21 $ .42 ================================================================================================================ Weighted Average Common Shares Outstanding 2,209,855 2,206,085 2,199,802 2,195,748 ================================================================================================================
41 37 COMMON STOCK INFORMATION The common stock of Community Financial Group, Inc., is traded over-the-counter on the National Association of Securities Dealers, Inc. (NASDAQ) under the symbol CFGI. The trading symbol for the detachable warrants is CFGIW. The quotes appear weekly in the Wall Street Journal under the heading, "NASDAQ Weekly Bid & Asked Quotations" and daily in The New York Times under the heading "NASDAQ Supplemental List". As of December 31, 1996, there were 532 shareholders of record of CFGI common stock. The following table sets forth the Company's high and low prices during each quarter for the past two years.
Market Price --------------------------------------------------- 1996 High Low --------------------------------------------------- First quarter $ 11.00 $ 10.00 Second quarter 11.00 9.75 Third quarter 10.75 9.75 Fourth quarter 11.75 10.50
Market Price --------------------------------------------------- 1995 High Low --------------------------------------------------- First quarter $ 8.50 $ 6.75 Second quarter 8.75 7.75 Third quarter 10.25 8.00 Fourth quarter 10.75 9.75
Quarterly stock price quotations were provided by the National Association of Securities Dealers, Inc., and reflect prices without retail markup, markdown or commissions and may not reflect actual transactions. 42 EX-21 16 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
State of Name Under Which Subsidiary Incorporation Does Business ---------- ------------- ------------- The Bank of Nashville Tennessee The Bank of Nashville
EX-27 17 FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 6,128 0 6,825 0 46,437 0 0 107,888 2,878 166,679 133,270 0 1,824 9,500 0 0 13,215 8,870 22,085 9,569 3,016 314 12,899 6,298 6,446 6,453 0 (2) 4,665 2,715 2,715 0 0 2,547 1.15 1.15 4.18 579 0 0 84 3,034 697 541 2,878 1,873 0 1,005
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