-----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, J/soH+k1nU7P7ajRd3JbPLaYwm20OckJyX+gJzdeHwTofSjfG4d3d+CxnqYD289a 9ZPa18nR8QQX2np2RD+aiQ== 0000931763-00-000606.txt : 20000324 0000931763-00-000606.hdr.sgml : 20000324 ACCESSION NUMBER: 0000931763-00-000606 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALABAMA NATIONAL BANCORPORATION CENTRAL INDEX KEY: 0000926966 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 631114426 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25160 FILM NUMBER: 576911 BUSINESS ADDRESS: STREET 1: 1927 FIRST AVENUE NORTH CITY: BIRMINGHAM STATE: AL ZIP: 35209 BUSINESS PHONE: 2055833600 MAIL ADDRESS: STREET 1: 1927 FIRST AVENUE NORTH STREET 2: 1927 FIRST AVENUE NORTH CITY: BIRMINGHAM STATE: AL ZIP: 35209 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO . Commission File Number: 0-25160 ---------------- ALABAMA NATIONAL BANCORPORATION (Exact name of registrant as specified in its charter) Delaware 63-1114426 (State of incorporation (I.R.S. Employer or organization) Identification No.)
1927 First Avenue North, Birmingham, AL 35203-4009 (Address of principal executive offices) (Zip Code) (205) 583-3600 (Registrant's telephone number, including area code) ---------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 par value ---------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of voting stock held by non-affiliates of the registrant at March 10, 2000 was $137,778,894. As of March 10, 2000, the registrant had outstanding 11,065,890 shares of its common stock. DOCUMENTS INCORPORATED BY REFERENCE IN THIS FORM 10-K: (i) The definitive Proxy Statement for the 2000 Annual Meeting of Alabama National BanCorporation's Stockholders is incorporated by reference into Part III of this report. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
Item No. Page No. -------- -------- SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS................... 2 PART I 1. Business.................................................. 3 Executive Officers........................................ 10 2. Properties................................................ 10 3. Legal Proceedings......................................... 10 4. Submission of Matters to a Vote of Security Holders....... 10 PART II 5. Market for Registrant's Common Equity and Related 11 Stockholder Matters...................................... 6. Selected Financial Data................................... 12 7. Management's Discussion and Analysis of Financial 13 Condition and Results of Operations...................... 7A. Quantitative and Qualitative Disclosures about Market 40 Risk..................................................... 8. Financial Statements and Supplementary Data............... 41 9. Changes in and Disagreements with Accountants on 42 Accounting and Financial Disclosure...................... PART III 10. Directors and Executive Officers of the Registrant........ 42* 11. Compensation of Executive Officers and Directors.......... 42* 12. Security Ownership of Certain Beneficial Owners and 42* Management............................................... 13. Certain Relationships and Related Transactions............ 42* PART IV 14. Exhibits, Financial Statement Schedules and Reports on 43 Form 8-K................................................. SIGNATURES.......................................................... 44
- -------- * Portions of the Proxy Statement for the Registrant's Annual Meeting of Stockholders to be held on April 27, 2000 are incorporated by reference in Part III of this Form 10-K. 1 SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS This Annual Report on Form 10-K, other periodic reports filed by Alabama National BanCorporation (the "Company" or "ANB") under the Securities Exchange Act of 1934, as amended, and any other written or oral statements made by or on behalf of ANB may include "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 which reflect ANB's current views with respect to future events and financial performance. Such forward looking statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. These risks, uncertainties and other factors include, but are not limited to: (1) Possible changes in economic and business conditions that may affect the prevailing interest rates, the prevailing rates of inflation, or the amount of growth, stagnation, or recession in the global, U.S., and southeastern U.S. economies, the value of investments, collectibility of loans and the profitability of business entities; (2) Possible changes in monetary and fiscal policies, laws and regulations, and other activities of governments, agencies and similar organizations; (3) The effects of easing of restrictions on participants in the financial services industry, such as banks, securities brokers and dealers, investment companies and finance companies, and changes evolving from the enactment of the Gramm-Leach-Bliley Act of 1999, and attendant changes in patterns and effects of competition in the financial services industry; (4) The cost and other effects of legal and administrative cases and proceedings, claims, settlements and judgments; and (5) The ability of ANB to achieve the expected operating results related to the acquired operations of recently-completed and future acquisitions (if any), which depends on a variety of factors, including (i) the ability of ANB to achieve the anticipated cost savings and revenue enhancements with respect to the acquired operations, (ii) the assimilation of the acquired operations to ANB's corporate culture, including the ability to instill ANB's credit practices and efficient approach to the acquired operations, (iii) the continued growth of the markets in which ANB operates consistent with recent historical experience, (iv) the absence of material contingencies related to the acquired operations, including asset quality and litigation contingencies, and (v) ANB's ability to expand into new markets and to maintain profit margins in the face of pricing pressures. The words "believe," "expect," "anticipate," "project" and similar expressions signify forward looking statements. Readers are cautioned not to place undue reliance on any forward looking statements made by or on behalf of ANB. Any such statement speaks only as of the date the statement was made. ANB undertakes no obligation to update or revise any forward looking statements. 2 PART I ITEM 1. BUSINESS Alabama National BanCorporation (the "Company" or "ANB") is a Delaware bank holding company with its principal place of business in Birmingham, Alabama, and its main office located at 1927 First Avenue North, Birmingham, Alabama 35203 (Telephone Number: (205) 583-3600). ANB is currently the parent of three national banks, National Bank of Commerce of Birmingham ("NBC") (Birmingham, Alabama and the Birmingham metropolitan area), Citizens & Peoples Bank, National Association (Escambia County, Florida), and Community Bank of Naples, National Association (Naples, Florida); three state member banks, Alabama Exchange Bank (Tuskegee, Alabama), Bank of Dadeville (Dadeville, Alabama) and First Gulf Bank (Baldwin County, Alabama); and four state nonmember banks, First American Bank (Decatur, Alabama), Public Bank (St. Cloud, Florida), Georgia State Bank (Mableton, Georgia) and First Citizens Bank, (Talladega, Alabama) (collectively the "Banks"). In addition, ANB is currently the ultimate parent of one securities brokerage firm, NBC Securities, Inc. (Birmingham, Alabama); one receivables factoring company, Corporate Billing, Inc. (Decatur, Alabama); and one insurance agency, Rankin Insurance, Inc. (Decatur, Alabama). Subsidiary Banks ANB operates through ten subsidiary Banks which have a total of 46 banking offices and one insurance office (where no banking is conducted) in the states of Alabama, Georgia and Florida. The Banks focus on traditional consumer, residential mortgage, commercial and real estate construction lending, and equipment leasing to customers in their market areas. The Banks also offer a variety of deposit programs to individuals and small businesses and other organizations at interest rates generally consistent with local market conditions. NBC offers trust services, investment services and securities brokerage services. In addition, the Banks offer individual retirement and KEOGH accounts, safe deposit and night depository facilities and additional services such as the sale of traveler's checks, money orders and cashier's checks. Lending Activities General Through the Banks, ANB offers a range of lending services, including real estate, consumer and commercial loans, to individuals and small businesses and other organizations that are located in or conduct a substantial portion of their business in the Banks' market areas. ANB's total loans, net of unearned interest, at December 31, 1999, were approximately $1.32 billion, or approximately 76.9% of total earning assets. The interest rates charged on loans vary with the degree of risk, maturity and amount of the loan and are further subject to competitive pressures, money market rates, availability of funds and government regulations. ANB has no "foreign loans" or loans for "highly leveraged transactions," as such terms are defined by applicable banking regulations. Loan Portfolio Real Estate Loans. Loans secured by real estate are the primary component of ANB's loan portfolio, constituting approximately $878.9 million, or 66.5% of total loans, net of unearned interest, at December 31, 1999. The Banks often take real estate as an additional source of collateral to secure commercial and industrial loans. Such loans are classified as real estate loans rather than commercial and industrial loans if the real estate collateral is considered significant as a secondary source of repayment for the loan. The Banks' real estate loan portfolio is comprised of commercial and residential mortgages. Residential mortgages held in the Banks' loan portfolio, both fixed and variable, are made based upon amortization schedules of up to 30 years but generally have maturity dates of five years or less. The Banks' commercial mortgages accrue at either variable or fixed rates. The variable rates approximate current market rates. Construction loans are made on a variable rate basis. Origination fees are normally charged for most loans secured by real estate. The Banks' primary type of residential mortgage loan is the single-family first mortgage, typically structured with fixed or adjustable interest rates, based on market conditions. These loans usually have terms of five years, with payments through the date of maturity generally based on a 15 or 30 year amortization schedule. 3 The Banks originate residential loans for sale into the secondary market. Such loans are made in accordance with underwriting standards set by the purchaser of the loan, normally as to loan-to-value ratio, interest rate and documentation. Such loans are generally made under a commitment to purchase from a loan purchaser. The Banks generally collect from the borrower or purchaser a combination of the origination fee, discount points and/or service release fee. During 1999, the Banks sold approximately $265.0 million in loans to such purchasers. The Banks' nonresidential mortgage loans include commercial, industrial and unimproved real estate loans. The Banks generally require nonresidential mortgage loans to have an 80% loan-to-value ratio and usually underwrite their commercial loans on the basis of the borrower's cash flow and ability to service the debt from earnings, rather than on the basis of the value of the collateral. Terms on construction loans are usually less than twelve months, and the Banks typically require real estate mortgages and personal guarantees supported by financial statements and a review of the guarantor's personal finances. Consumer Loans. Consumer lending includes installment lending to individuals in the Banks' market areas and generally consists of loans to purchase automobiles and other consumer durable goods. Consumer loans constituted $73.4 million, or 5.6% of ANB's loan portfolio at December 31, 1999. Consumer loans are underwritten based on the borrower's income, current debt level, past credit history and collateral. Consumer rates are both variable and fixed, with terms negotiable. Terms generally range from one to five years depending on the nature and condition of the collateral. Periodic amortization, generally monthly, is typically required. Commercial and Financial Loans. The Banks make loans for commercial purposes in various lines of business. These loans are typically made on terms up to five years at fixed or variable rates. The loans are secured by various types of collateral including accounts receivable, inventory or, in the case of equipment loans, the financed equipment. The Banks attempt to reduce their credit risk on commercial loans by underwriting the loan based on the borrower's cash flow and its ability to service the debt from earnings, and by limiting the loan to value ratio. Historically, the Banks have typically loaned up to 80% on loans secured by accounts receivable, up to 65% on loans secured by inventory, and up to 80% on loans secured by equipment. The Banks also make some unsecured commercial loans and offer equipment leasing. Commercial and financial loans constituted $257.0 million, or 19.5% of ANB's loan portfolio at December 31, 1999. Interest rates are negotiable based upon the borrower's financial condition, credit history, management stability and collateral. Credit Procedures and Review Loan Approval. Certain credit risks are inherent in making loans. These include prepayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers. In particular, longer maturities increase the risk that economic conditions will change and adversely affect collectibility. ANB attempts to minimize loan losses through various means and uses standardized underwriting criteria. ANB has established a standardized loan policy for all of the Banks that may be modified based on local market conditions. In particular, on larger credits, ANB generally relies on the cash flow of a debtor as the source of repayment and secondarily on the value of the underlying collateral. In addition, ANB attempts to utilize shorter loan terms in order to reduce the risk of a decline in the value of such collateral. ANB addresses repayment risks by adhering to internal credit policies and procedures which all of the Banks have adopted. These policies and procedures include officer and customer lending limits, a multi-layered loan approval process for larger loans, documentation examination and follow-up procedures for any exceptions to credit policies. The point in each Bank's loan approval process at which a loan is approved depends on the size of the borrower's credit relationship with such Bank. Each of the lending officers at each of the Banks has the authority to approve loans up to an approved loan authority amount as approved by each Bank's Board of Directors. Loans in excess of the highest loan authority amount at each Bank must be approved by the ANB Executive Vice President in charge of credit administration. In addition, loans in excess of a particular loan officer's approval authority must be approved by a more senior officer at the particular Bank, the loan committee at such Bank, or both. 4 Loan Review. ANB maintains a continuous loan review system for each of NBC and First American Bank and a scheduled review system for the other Banks. Under this system, each loan officer is directly responsible for monitoring the risk in his portfolio and is required to maintain risk ratings for each credit assigned. The risk rating system incorporates the basic regulatory rating system as set forth in the applicable regulatory asset quality examination procedures. ANB's Loan Review Department ("LRD"), which is wholly independent of the lending function, serves as a validation of each loan officer's risk monitoring and rating system. LRD's primary function is to provide the Board of Directors of each Bank with a thorough understanding of the credit quality of such Bank's loan portfolio. Other review requirements are in place to provide management with early warning systems for problem credits as well as compliance with stated lending policies. LRD's findings are reported, along with an asset quality review, to the ANB Board of Directors at each bi-monthly meeting. Deposits The principal sources of funds for the Banks are core deposits, consisting of demand deposits, interest-bearing transaction accounts, money market accounts, savings deposits and certificates of deposit. Transaction accounts include checking and negotiable order of withdrawal (NOW) accounts which customers use for cash management and which provide the Banks with a source of fee income and cross-marketing opportunities, as well as a low-cost source of funds. Time and savings accounts also provide a relatively stable and low-cost source of funding. The largest source of funds for the Banks are certificates of deposit. Certificates of deposit in excess of $100,000 are held primarily by customers in the Banks' market areas. Deposit rates are reviewed weekly by senior management of each of the Banks. Management believes that the rates the Banks offer are competitive with those offered by other institutions in the Banks' market areas. ANB focuses on customer service to attract and retain deposits. Investment Services NBC operates an investment department devoted primarily to handling correspondent banks' investment needs. Services provided by the investment department include the sale of securities, asset/liability consulting, safekeeping and bond accounting. NBC also has a wholly owned subsidiary, NBC Securities, Inc. ("NBC Securities"), that is licensed as a broker-dealer. Started in mid-1995, NBC Securities provides investment services to individuals and institutions. These services include the sale of stocks, bonds, mutual funds, annuities, margin loans, other insurance products and financial planning. NBC Securities has investment advisers in Birmingham, Decatur and Gulf Shores, Alabama; Naples and Pensacola, Florida; and Mableton, Georgia. Competition The Banks encounter strong competition in making loans, acquiring deposits and attracting customers for investment and trust services. Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans, other credit and service charges relating to loans, the quality and scope of the services rendered, the convenience of banking facilities and, in the case of loans to commercial borrowers, relative lending limits. The Banks compete with other commercial banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries operating in Alabama and elsewhere. Many of these competitors, some of which are affiliated with large bank holding companies, have substantially greater resources and lending limits, and may offer certain services that the Banks do not currently provide. In addition, many of ANB's non-bank competitors are not subject to the same extensive federal regulations that govern bank or thrift holding companies and federally insured banks or thrifts. 5 On November 12, 1999, President Clinton signed into law the Gramm-Leach- Bliley Act which will, effective March 11, 2000, permit bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. See "Supervision and Regulation." Under the Act, securities firms and insurance companies that elect to become financial holding companies may acquire banks and other financial institutions. The Gramm-Leach-Bliley Act, which represents the most sweeping reform of financial services regulation in over sixty years, may significantly change the competitive environment in which ANB and the Banks conduct business. At this time, however, it is not possible to predict the full effect that the Act will have on ANB. One consequence may be increased competition from large financial services companies that will be permitted to provide many types of financial services, including bank products, to their customers. The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "IBBEA") authorized bank holding companies to acquire banks and other bank holding companies without geographic limitations beginning September 30, 1995. The arrival of interstate banking is expected to increase further the competitiveness of the banking industry. In addition, beginning on June 1, 1997, the IBBEA authorized interstate mergers and consolidations of existing banks, provided that neither bank's home state had opted out of interstate branching by May 31, 1997. The States of Alabama, Georgia and Florida have opted in to interstate branching. Interstate branching provides that once a bank has established branches in a state through an interstate merger, the bank may establish and acquire additional branches at any location in the state where any bank involved in the interstate merger could have established or acquired branches under applicable federal or state law. Size gives the larger banks certain advantages in competing for business from large corporations. These advantages include higher lending limits and the ability to offer services in other areas of Alabama and the southeast region. Some of ANB's competitors still maintain substantially greater resources and lending limits than ANB. As a result, ANB has not generally attempted to compete for the banking relationships of large corporations, and generally concentrates its efforts on small to medium-sized businesses and individuals to which ANB believes it can compete effectively by offering quality, personal service. However, management believes it may be able to compete more effectively for the business of some large corporations, given its current growth pattern. Management believes that the Banks' commitment to their respective primary market areas, as well as their commitment to quality and personalized banking services, are factors that contribute to the Banks' competitiveness. Management believes that ANB's decentralized community banking strategy positions the Banks to compete successfully in their market areas. Market Areas and Growth Strategy Through NBC, ANB serves the metropolitan Birmingham market, which includes portions of Jefferson, Shelby and St. Clair Counties. ANB's First American Bank subsidiary serves Morgan, Limestone and Madison Counties in north Alabama. First American's largest market presence is in Decatur, Alabama, which has demonstrated a growing economic base in recent years. Through First Gulf Bank, ANB serves Baldwin County, Alabama. Located between Mobile, Alabama and Pensacola, Florida, Baldwin County has a broad base of economic activity in the retail and service, agriculture, seafood, tourism and manufacturing industries. Baldwin County includes the popular tourism and retirement resort communities of Gulf Shores and Fairhope. Shelby, Baldwin and St. Clair Counties have been named in statistical surveys as three of the fastest growing counties in Alabama. In 1997, ANB expanded outside of Alabama with the opening of Citizens & Peoples Bank, N.A. in Escambia County, Florida. In 1998, ANB further expanded its presence in markets outside of Alabama with two acquisitions in Florida and one in Georgia. Public Bank is located in the fast-growing greater Orlando area, with 6 offices in Altamonte Springs, Kissimmee and St. Cloud, Florida. Community Bank of Naples, N.A., located in Collier County, Florida, and Georgia State Bank, located in Cobb County and Paulding County, Georgia, are located in markets that are among the fastest growing in their respective states. The other Banks, First Citizens, Alabama Exchange Bank and Bank of Dadeville, are located in non-metropolitan areas. Each of these three Banks, while experiencing minimal growth due to market growth that has not been significant, typically operates at a high level of profitability. As a result, these Banks tend to produce capital for growth in many of the high growth markets served by the other Banks. ANB's strategy is to focus on growth in profitability for these non-metropolitan banks, since market growth has not been as significant. Due to continuing consolidation within the banking industry, as well as in the Southeastern United States, ANB may in the future seek to combine with other banks or thrifts (or their holding companies) that may be of smaller, equal or greater size than ANB. ANB currently intends to concentrate on acquisitions of additional banks or thrifts (or their holding companies) which operate in attractive market areas in Alabama, Florida and Georgia. In addition to price and terms, the factors considered by ANB in determining the desirability of a business acquisition or combination are financial condition, asset quality, earnings potential, quality of management, market area and competitive environment. In addition to expansion through combinations with other banks or thrifts, ANB intends to continue to expand where possible through growth of its existing banks in their respective market areas. During 1998, NBC formed a commercial leasing division which currently focuses on machinery and equipment leases to business customers. Also, ANB is exploring expansion into lines of business closely related to banking and will pursue such expansion if it believes such lines could be profitable without causing undue risk to ANB. During 1999, First American Bank acquired Rankin Insurance, Inc., a full service independent property and casualty insurance agency located in Decatur, Alabama. For the seven months of 1999 that it was owned by ANB, Rankin generated approximately $1.1 million in commission revenue and is in the process of expanding this business into several of the markets served by the Bank. While ANB plans to continue its growth as described above, there is no assurance that its efforts will be successful. Employees As of December 31, 1999, ANB and the Banks together had approximately 817 full-time equivalent employees. None of these employees is a party to a collective bargaining agreement. ANB considers its relations with its employees to be good. Supervision and Regulation ANB and the Banks are subject to state and federal banking laws and regulations which impose specific requirements and restrictions on, and provide for general regulatory oversight with respect to, virtually all aspects of operations. These laws and regulations are generally intended to protect depositors, not stockholders. To the extent that the following summary describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in applicable laws or regulations may have a material effect on the business and prospects of ANB. Beginning with the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and following in December 1991 with the Federal Deposit Insurance Corporation Act ("FDICIA"), numerous additional regulatory requirements have been placed on the banking industry in the past ten years, and additional changes have been proposed. The operations of ANB and the Banks may be affected by legislative changes and the policies of various regulatory authorities. ANB is unable to predict the nature or the extent of the effect on its business and earnings that fiscal or monetary policies, economic control, or new federal or state legislation may have in the future. As a bank holding company, ANB is subject to the regulation and supervision of the Federal Reserve. The Banks are subject to supervision and regulation by applicable state and federal banking agencies, including the Federal Reserve, the Office of the Comptroller of the Currency (the "OCC") and the Federal Deposit Insurance Corporation (the "FDIC"). The Banks are also subject to various requirements and restrictions under federal 7 and state law, including requirements to maintain allowances against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Banks. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve as it attempts to control the money supply and credit availability in order to influence the economy. Pursuant to the IBBEA, bank holding companies from any state may now acquire banks located in any other state, subject to certain conditions, including concentration limits. As of June 1, 1997, a bank may establish branches across state lines by merging with a bank in another state (unless applicable state law prohibits such interstate mergers), provided certain conditions are met. A bank may also establish a de novo branch in a state in which the bank does not maintain a branch if that state expressly permits such interstate de novo branching and certain other conditions are met. There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance fund in the event the depository institution becomes in danger of default or is in default. For example, under a policy of the Federal Reserve with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and commit resources to support such institutions in circumstances where it might not do so absent such policy. In addition, the "cross-guarantee" provisions of federal law require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default. The federal banking agencies have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institutions in question are "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" or "critically undercapitalized" as such terms are defined under regulations issued by each of the federal banking agencies. In general, the agencies measure capital adequacy within a framework that makes capital requirements sensitive to the risk profiles of individual banking companies. The guidelines define capital as either Tier 1 (primarily common shareholders' equity) or Tier 2 (certain debt instruments and a portion of the allowance for loan losses). ANB and the Banks are subject to a minimum Tier 1 capital ratio (Tier 1 capital to risk- weighted assets) of 4%, a total capital ratio (Tier 1 plus Tier 2 to risk- weighted assets) of 8% and a Tier 1 leverage ratio (Tier 1 to average quarterly assets) of 3%. To be considered a "well capitalized" institution, the Tier 1 capital ratio, the total capital ratio, and the Tier 1 leverage ratio must equal or exceed 6%, 10% and 5%, respectively. The Banks are subject to the provisions of Section 23A of the Federal Reserve Act, which place limits on the amount of loans or extensions of credit to, investments in or certain other transactions with affiliates, and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. In general, the Banks' "affiliates" are ANB and ANB's non-bank subsidiaries. The Banks are also subject to the provisions of Section 23B of the Federal Reserve Act that, among other things, prohibit a bank from engaging in certain transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions with non-affiliated companies. The Banks are also subject to certain restrictions on extensions of credit to executive officers, directors, certain principal stockholders and their related interests. Such extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features. 8 The Community Reinvestment Act ("CRA") requires that, in connection with examinations of financial institutions within their respective jurisdictions, the Federal Reserve, the FDIC or the OCC shall evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those institutions. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. These factors are considered in evaluating mergers, acquisitions and applications to open a branch or facility. The CRA also requires all institutions to make public disclosure of their CRA ratings. Each of the Banks received outstanding or satisfactory ratings in its most recent evaluation. There are various legal and regulatory limits on the extent to which the Banks may pay dividends or otherwise supply funds to ANB. In addition, federal and state regulatory agencies also have the authority to prevent a bank or bank holding company from paying a dividend or engaging in any other activity that, in the opinion of the agency, would constitute an unsafe or unsound practice. FDIC regulations require that management report on its responsibility for preparing its institution's financial statements and for establishing and maintaining an internal control structure and procedures for financial reporting and compliance with designated laws and regulations concerning safety and soundness. On November 12, 1999, President Clinton signed into law the Gramm-Leach- Bliley Act which will, effective March 11, 2000, permit bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. A bank holding company may become a financial holding company by filing a declaration if each of its subsidiary banks is well capitalized under the FDICIA prompt corrective action provisions, is well managed, and has at least a satisfactory rating under the CRA. No regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve. The Gramm-Leach-Bliley Act broadly defines "financial in nature" to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking; and activities that the Federal Reserve has determined to be closely related to banking. The Act also permits the Federal Reserve, in consultation with the Department of Treasury, to determine that other activities are "financial in nature" and therefore permissible for financial holding companies. A national bank also may engage, subject to limitations on investment, in activities that are financial in nature (other than insurance underwriting, insurance company portfolio investment, merchant banking, real estate development and real estate investment) through a financial subsidiary of the bank, if the bank is well capitalized, well managed and has at least a satisfactory CRA rating. Subsidiary banks of a financial holding company or national banks with financial subsidiaries must continue to be well capitalized and well managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank at issue has a CRA rating of satisfactory or better. The Act preserves the role of the Federal Reserve as the umbrella supervisor for holding companies while at the same time incorporating a system of functional regulation designed to take advantage of the strengths of the various federal and state regulators. In particular, the Act replaces the broad exemption from Securities and Exchange Commission regulation that banks previously enjoyed with more limited exemptions, and it reaffirms that states are the regulators for the insurance activities of all persons, including federally-chartered banks. The Gramm-Leach-Bliley Act also establishes a minimum federal standard of financial privacy. Financial institutions are required to institute written privacy policies that must be disclosed to customers at certain required intervals. NBC Securities is a broker-dealer registered with the Securities and Exchange Commission and is a member of the National Association of Securities Dealers, Inc. 9 Executive Officers of the Registrant The Executive Officers of ANB serve at the pleasure of the Board of Directors. Set forth below are the current Executive Officers of ANB and a brief explanation of their principal employment during the last five (5) years. John H. Holcomb, III--Age 48--Chairman and Chief Executive Officer. Mr. Holcomb has served as Chairman and Chief Executive Officer of ANB since April, 1996. Prior to such date, Mr. Holcomb served as President and Chief Operating Officer of ANB beginning December, 1995. Mr. Holcomb has been President and Chief Executive Officer of NBC since 1990. Victor E. Nichol, Jr.--Age 53--President and Chief Operating Officer. Mr. Nichol has served as President and Chief Operating Officer of ANB since April 1996. Prior to such date, Mr. Nichol served as Executive Vice President of ANB beginning December 1995. Mr. Nichol has been Executive Vice President of NBC since 1994. Dan M. David--Age 54--Vice Chairman. Mr. David has served as Vice Chairman of ANB since November 30, 1997 when FAB merged with and into ANB. Mr. David serves as Chairman of First American Bank, a position he has held since 1995. Mr. David served as Chairman and Chief Executive Officer of FAB from 1995 through 1997, as Vice Chairman and Chief Executive Officer during 1994 and 1995 and as President and Chief Executive Officer from 1986 through 1994. John R. Bragg--Age 38--Executive Vice President. Mr. Bragg has served as Executive Vice President of ANB since April 1998 and Executive Vice President of NBC since 1997. Mr. Bragg served as Senior Vice President of NBC from 1992 until 1997. Richard Murray, IV--Age 37--Executive Vice President. Mr. Murray has served as Executive Vice President of ANB since April 1998 and Executive Vice President of NBC since 1997. Mr. Murray served as Senior Vice President of NBC from 1990 until 1997. William G. Sanders, Jr.--Age 36--Executive Vice President. Mr. Sanders has served as Executive Vice President of ANB since April 1998 and Executive Vice President of NBC since 1997. Mr. Sanders served as Senior Vice President of NBC from 1993 until 1997. William E. Matthews, V--Age 35--Executive Vice President and Chief Financial Officer. Mr. Matthews has served as Executive Vice President and Chief Financial Officer of ANB and NBC since April 1998. Prior to that date, Mr. Matthews served as Senior Vice President of NBC beginning in 1996, and Vice President of NBC from 1992 through 1996. ITEM 2. PROPERTIES ANB, through the Banks, currently operates 46 banking offices and one insurance office. Of these offices, ANB, through the Banks, owns 38 banking offices without encumbrance and leases an additional 8 banking offices and its one insurance office. ANB, through NBC, leases its principal administrative offices, which are located at 1927 First Avenue North, Birmingham, Alabama. See Notes 6 and 9 to the Consolidated Financial Statements of ANB and Subsidiaries included in this Annual Report on Form 10-K beginning on page F-1 for additional information regarding ANB's premises and equipment. ITEM 3. LEGAL PROCEEDINGS ANB, in the normal course of business, is subject to various pending and threatened litigation. Although it is not possible to determine at this point in time, based on consultation with legal counsel, management does not anticipate that the ultimate liability, if any, resulting from such litigation will have a material effect on ANB's financial condition and results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS None. 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS At March 10, 2000 ANB had 1,250 stockholders of record (including shares held in "street" names by nominees who are record holders) and 11,065,890 shares of ANB Common Stock outstanding. ANB Common Stock is traded in the over-the-counter market and prices are quoted on the NASDAQ/NMS under the symbol "ALAB." The reported sales price range for ANB Common Stock and the dividends declared during each calendar quarter of 1998 and 1999 are shown below:
Dividends High Low Declared --------- ------ --------- 1998 First Quarter..................................... $33 3/4 25 3/4 $.15 Second Quarter.................................... 37 5/8 31 1/2 .15 Third Quarter..................................... 39 1/2 24 7/8 .15 Fourth Quarter.................................... 28 24 1/8 .15 1999 First Quarter..................................... $26 29/32 21 3/4 .18 Second Quarter.................................... 25 3/8 22 1/2 .18 Third Quarter..................................... 27 1/2 22 5/8 .18 Fourth Quarter.................................... 24 5/8 17 3/4 .18
The last reported sales price of ANB Common Stock as reported on the NASDAQ/NMS on March 10, 2000 was $16.50. The prices shown do not reflect retail mark-ups and mark-downs. All share prices have been rounded to the nearest 1/64 of one dollar. The market makers for ANB Common Stock as of December 31, 1999, were J.C. Bradford & Co., Raymond James & Associates, Inc., Legg Mason Wood Walker Inc., The Robinson Humphrey Company, LLC, ABN AMRO Securities (USA), Inc., Speer, Leeds & Kellogg, Mayer & Schweitzer, Inc., and Sherwood Securities Corp. 11 ITEM 6. SELECTED FINANCIAL DATA FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA (Amounts in thousands, except ratios and per share data)
Year Ended December 31, ---------------------------------------------------------- 1999 1998(1) 1997(1) 1996(1) 1995(1) ---------- ---------- ---------- ---------- ---------- Income Statement Data: Interest income......... $ 125,668 $ 115,704 $ 104,508 $ 93,178 $ 62,090 Interest expense........ 59,283 56,555 48,379 42,174 30,079 ---------- ---------- ---------- ---------- ---------- Net interest income..... 66,385 59,149 56,129 51,004 32,011 Provision for loan losses................. 1,954 1,796 3,421 1,035 1,171 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses............ 64,431 57,353 52,708 49,969 30,840 Net securities gains (losses)............... 190 174 (2) (84) 21 Noninterest income...... 30,367 29,176 20,296 19,214 10,749 Noninterest expense..... 62,455 61,154 52,788 50,175 32,141 ---------- ---------- ---------- ---------- ---------- Income before income taxes.................. 32,533 25,549 20,214 18,924 9,469 Provision for income taxes.................. 10,237 8,154 6,086 5,279 951 ---------- ---------- ---------- ---------- ---------- Income before minority interest in earnings of consolidated subsidiary ....................... 22,296 17,395 14,128 13,645 8,518 Minority interest in earnings of consolidated subsidiary............. 25 23 12 14 650 ---------- ---------- ---------- ---------- ---------- Net income.............. $ 22,271 $ 17,372 $ 14,116 $ 13,631 $ 7,868 ========== ========== ========== ========== ========== Balance Sheet Data: Total assets............ $1,921,884 $1,672,049 $1,495,814 $1,260,635 $1,142,064 Earning assets.......... 1,716,935 1,493,122 1,313,097 1,149,038 1,035,396 Securities.............. 345,123 324,213 265,102 224,939 227,087 Loans held for sale..... 8,615 19,047 5,291 4,339 2,431 Loans, net of unearned income................. 1,320,160 1,087,027 961,079 863,968 743,530 Allowance for loan losses................. 18,068 16,540 14,844 12,633 11,621 Deposits................ 1,442,155 1,275,175 1,125,479 988,876 945,544 Short-term debt......... 18,389 21,700 29,087 42,205 21,280 Long-term debt.......... 124,005 32,328 16,587 12,939 1,089 Stockholders' equity.... 138,255 130,993 116,888 105,204 88,230 Weighted Average Shares Outstanding-- Diluted(2)............. 11,273 11,173 10,999 10,490 6,429 Per Common Share Data: Net income--diluted(3).. $ 1.98 $ 1.55 $ 1.28 $ 1.30 $ 1.09 Book value (period end)................... 12.36 11.94 11.02 10.43 9.04 Tangible book value (period end)........... 11.40 11.19 10.20 9.66 8.24 Dividends declared...... 0.72 0.60 0.46 0.28 -- Performance Ratios: Return on average assets................. 1.26% 1.10% 1.05% 1.17% 1.02% Return on average equity................. 16.28 13.81 12.73 14.22 14.30 Net interest margin(4).. 4.18 4.24 4.62 4.75 4.44 Net interest margin (taxable equivalent)(4)......... 4.25 4.31 4.71 4.83 4.53 Asset Quality Ratios: Allowance for loan losses to period end loans(5)............... 1.37% 1.52% 1.54% 1.46% 1.56% Allowance for loan losses to period end nonperforming loans(6)............... 394.67 340.61 281.14 377.22 296.61 Net charge-offs to average loans(5)....... 0.04 0.01 0.13 0.00 0.05 Nonperforming assets to period end loans and foreclosed property(5)(6)......... 0.40 0.56 0.73 0.48 0.63 Capital and Liquidity Ratios: Average equity to average assets......... 7.77% 7.95% 8.27% 8.21% 7.11% Leverage (4.00% required minimum)(7)............ 7.18 7.41 7.75 8.64 10.33 Risk-based capital Tier 1 (4.00% required minimum)(7)........... 9.38 10.03 9.89 10.91 10.83 Total (8.00% required minimum)(7)........... 10.62 11.28 11.14 12.16 12.08 Average loans to average deposits............... 88.96 83.02 85.44 84.08 78.81
12 - -------- (1) On December 31, 1998, Community Bank of Naples, N.A. ("Naples") merged with and into a subsidiary of ANB (the "Naples Merger"). Pursuant to the terms of the Naples Merger, each share of Naples common stock was converted into 0.53271 shares of the Company's common stock. On October 2, 1998, Community Financial Corporation ("CFC") merged with and into the Company (the "CFC Merger"). Pursuant to the terms of the CFC Merger, each share of CFC common stock was converted into 0.351807 shares of the Company's common stock. On May 29, 1998, Public Bank Corporation ("PBC") merged with and into the Company (the "PBC Merger"). Pursuant to the terms of the PBC Merger, each share of PBC common stock was converted into 0.2353134 shares of the Company's common stock. On November 30, 1997, First American Bancorporation ("FAB") merged with and into the Company (the "FAB Merger"). Pursuant to the terms of the FAB Merger, each share of FAB common stock was converted into 0.7199 shares of the Company's common stock. On September 30, 1996, FIRSTBANC Holding Company, Inc. ("FIRSTBANC") was merged with and into the Company, with each share of common stock of FIRSTBANC being converted into 7.12917 shares of the Company's common stock. Each of the aforementioned mergers was accounted for as pooling of interests. On December 29, 1995, National Commerce Corporation ("NCC") and Commerce Bankshares, Inc. ("CBS") merged with and into the Company (the "NCC Merger"). Pursuant to the terms of the NCC Merger, each share of NCC common stock was converted into 348.14 shares of the Company's common stock and each share of CBS common stock was converted into 7.0435 shares of the Company's common stock for a total of 3,106,981 shares (or 50.1%) of the then outstanding Company common stock being issued to NCC and CBS shareholders. The NCC Merger was accounted for as a "reverse acquisition," whereby NCC is deemed to have acquired ANB for financial reporting purposes. However, ANB remained as the continuing legal entity and registrant for Securities and Exchange Commission filing purposes. Consistent with the reverse acquisition accounting treatment, the historical income statement information included in the Five-Year Summary of Selected Financial Data of the Company is that of NCC for 1995. The historical Five-Year Summary of Selected Financial Data for all periods have been restated to include the results of operations of Naples, CFC, PBC, FAB, and FIRSTBANC from the earliest period presented, except for dividends per common share. (See Note 2 to the Company's consolidated financial statements included in this Annual Report). (2) The weighted average common share and common equivalent shares outstanding are those of NCC, CBS, Naples, CFC, PBC, FAB, and FIRSTBANC converted into ANB common stock and common stock equivalents at the applicable exchange ratios. (3) Net income per common share--diluted is calculated based upon net income adjusted for cash dividends on preferred stock. (4) Net interest income divided by average earning assets. (5) Does not include loans held for sale. (6) Nonperforming loans and nonperforming assets includes loans past due 90 days or more that are still accruing interest. It is the Company's policy to place all loans on nonaccrual status when over ninety days past due. (7) Based upon fully phased-in requirements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Basis of Presentation The following is a discussion and analysis of the consolidated financial condition of the Company and results of operations as of the dates and for the periods indicated. All significant intercompany accounts and transactions have been eliminated. The accounting and reporting policies of the Company conform with generally accepted accounting principles and with general financial service industry practices. The historical consolidated financial statements of the Company and the "FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA" derived from the historical consolidated financial statements of the Company are set forth elsewhere herein. This discussion should be read in conjunction with those consolidated financial statements and selected consolidated financial data and the other financial information included in this Annual Report. 13 Selected Bank Financial Data The Company's success is dependent upon the financial performance of its subsidiary banks (the "Banks"). The Company, with input from the management of each Bank, establishes operating goals for each Bank. The following tables summarize selected financial information for 1999 and 1998 for each of the Banks. SELECTED BANK FINANCIAL DATA (Amounts in thousands, except ratios) (Unaudited)
December 31, 1999 ------------------------------------------------------------------------------------------------------ National Alabama Citizens & First First First Georgia Community Bank of Exchange Bank of Peoples American Citizens Gulf Public State Bank of Commerce Bank Dadeville Bank, N.A. Bank Bank Bank Bank Bank Naples, N.A. -------- -------- --------- ---------- -------- -------- -------- ------- -------- ------------ Summary of Operations: Interest income....... $ 55,306 $ 4,813 $ 5,039 $ 2,772 $ 22,386 $ 6,389 $ 9,058 $ 4,475 $ 10,823 $ 6,014 Interest expense...... 28,747 1,590 2,155 1,776 9,781 2,891 3,780 1,500 4,760 2,801 Net interest income... 26,559 3,223 2,884 996 12,605 3,498 5,278 2,975 6,063 3,213 Provision for loan losses................ 25 150 117 166 680 27 353 65 15 356 Securities gains (losses).............. -- -- -- 6 -- 7 6 -- 23 -- Noninterest income.... 18,674 683 644 298 4,518 806 1,624 1,082 1,660 590 Noninterest expense... 30,287 1,895 1,615 1,100 10,418 2,052 4,080 2,332 4,507 1,739 Net income............ 10,269 1,249 1,267 40 4,232 1,634 1,636 1,021 2,103 1,061 Balance Sheet Highlights: At Period-End: Total assets......... $893,076 $72,162 $70,702 $44,857 $301,440 $92,442 $131,229 $71,444 $160,135 $106,619 Securities........... 120,638 21,310 16,382 13,892 41,489 39,354 11,988 14,499 40,468 25,006 Loans, net of unearned income...... 639,859 41,643 42,636 24,932 226,161 43,489 103,577 45,218 90,039 69,069 Allowance for loan losses............... 8,517 623 500 359 3,318 580 1,448 547 1,213 963 Deposits............. 583,739 60,794 55,914 36,697 240,606 78,967 109,328 60,563 136,702 84,790 Short-term debt...... 6,199 -- -- -- -- -- 2,000 -- -- -- Long-term debt....... 56,000 5,000 8,700 -- 23,039 6,000 10,000 5,000 5,000 5,000 Stockholders' equity............... 61,855 5,780 5,196 3,598 27,667 6,198 9,088 5,597 10,693 6,703 Performance Ratios: Return on average assets................ 1.29% 1.84% 1.86% 0.09% 1.50% 1.83% 1.33% 1.63% 1.46% 1.16% Return on average equity................ 17.25 19.90 21.26 1.03 16.46 20.66 19.35 18.22 19.88 16.39 Net interest margin... 3.64 5.28 4.64 2.65 4.94 4.29 4.74 5.30 4.65 4.17 Capital and Liquidity Ratios: Average equity to average assets........ 7.45 9.26 8.77 9.26 9.09 8.87 6.86 8.97 7.33 7.09 Leverage (4.00% required minimum)..... 7.26 7.81 8.25 9.37 8.43 7.16 7.19 8.75 7.37 7.29 Risk-based capital Tier 1 (4.00% required minimum).... 8.84 12.18 12.60 13.58 10.51 13.87 9.30 12.66 11.65 10.73 Total (8.00% required minimum)............. 10.01 13.43 13.72 14.77 11.76 15.08 10.55 13.82 12.85 11.98 Average loans to average deposits...... 108.95 62.85 77.01 56.75 90.97 54.38 90.51 67.04 67.92 70.52
14 SELECTED BANK FINANCIAL DATA (continued) (Amounts in thousands, except ratios) (Unaudited)
December 31, 1998 ------------------------------------------------------------------------------------------------------- National Alabama Citizens & First First First Georgia Community Bank of Exchange Bank of Peoples American Citizens Gulf Public State Bank of Commerce Bank Dadeville Bank, N.A. Bank Bank Bank Bank Bank Naples, N.A. -------- -------- --------- ---------- -------- -------- -------- ------- -------- ------------ Summary of Operations: Interest income....... $ 51,527 $ 4,958 $ 5,143 $ 1,621 $ 20,014 $ 6,607 $ 7,945 $ 3,917 $ 9,764 $ 5,415 Interest expense...... 27,550 1,726 2,232 1,110 9,293 3,143 3,397 1,356 4,334 2,657 Net interest income... 23,977 3,232 2,911 511 10,721 3,464 4,548 2,561 5,430 2,758 Provision for loan losses............... -- 283 21 183 509 16 387 44 10 343 Securities gains (losses)............. -- -- 3 -- 28 -- 4 -- -- -- Noninterest income.... 19,374 708 747 132 3,505 777 1,329 841 1,644 244 Noninterest expense... 29,509 1,932 1,706 882 8,685 2,134 3,953 1,919 4,544 2,353 Net income............ 9,428 1,186 1,343 (266) 3,665 1,509 1,053 966 1,651 43 Balance Sheet Highlights: At Period-End: Total assets........ $767,245 $66,779 $67,958 $40,007 $268,460 $88,465 $112,453 $57,713 $131,294 $92,639 Securities.......... 93,863 21,198 18,076 20,714 30,423 34,189 13,035 13,320 46,075 32,952 Loans, net of unearned income.... 528,176 38,488 43,977 13,503 199,302 46,567 87,756 34,457 72,104 40,365 Allowance for loan losses............. 8,271 521 467 203 2,982 647 1,100 498 1,245 606 Deposits............ 482,339 59,938 54,550 35,743 229,682 77,811 98,376 51,860 114,468 73,609 Short-term debt..... 5,000 -- 5,200 -- -- -- -- -- 4,550 -- Long-term debt...... 20,244 -- -- -- 10,084 -- -- -- -- 2,000 Stockholders' equity............. 57,348 6,239 6,055 4,129 23,511 7,711 7,776 5,371 10,062 6,241 Performance Ratios: Return on average assets............... 1.27% 1.76% 2.07% (1.02)% 1.50% 1.69% 1.01% 1.82% 1.33% 0.05% Return on average equity............... 17.44 20.83 22.23 (6.28) 16.64 18.07 14.38 18.71 17.05 0.85 Net interest margin... 3.74 5.27 4.85 2.22 4.87 4.26 4.92 5.23 4.77 3.76 Capital and Liquidity Ratios: Average equity to average assets....... 7.30 8.44 9.31 16.31 9.03 9.37 7.04 9.71 7.82 6.42 Leverage (4.00% required minimum).... 7.33 7.80 9.02 11.37 9.00 8.06 7.20 9.55 7.24 7.44 Risk-based capital Tier 1 (4.00% required minimum).. 9.65 12.47 12.76 20.11 10.59 13.60 8.74 14.92 12.30 13.70 Total (8.00% required minimum).. 10.90 13.72 13.76 21.11 11.84 14.82 9.97 16.17 13.55 14.95 Average loans to average deposits..... 99.15 58.33 80.68 35.83 91.85 61.46 82.08 66.63 63.62 47.20
15 Results of Operations Year ended December 31, 1999, compared with year ended December 31, 1998 The Company's net income increased by $4.9 million, or 28.2%, to $22.3 million in the year ended December 31, 1999, from $17.4 million in the year ended December 31, 1998. Return on average assets during 1999 was 1.26%, compared with 1.10% during 1998, and return on average equity was 16.28% during 1999, compared with 13.81% during 1998. Net interest income increased $7.3 million, or 12.2%, to $66.4 million in 1999 from $59.1 million in 1998, as interest income increased by $10.0 million and interest expense increased $2.7 million. The increase in net interest income is primarily attributable to a $193.3 million increase in average loans to $1.2 billion during 1999, from $1.0 billion in 1998, as a result of management emphasis on loan growth. In general, loans are the Company's highest yielding earning asset. The increased interest expense is primarily attributable to an increase in average time deposits of $71.1 million to $612.3 million in 1999, from $541.1 million in 1998 and an increase in average long-term debt to $58.4 million in 1999, from $30.5 million in 1998, an increase of $27.4 million. The increases are due to the Company's need to fund loan growth and these funding sources generally bear higher interest rates than interest-bearing transaction accounts. The Company's net interest spread and net interest margin were 3.63% and 4.18%, respectively, in 1999, decreasing by 4 and 6 basis points, respectively, from 1998. These slight decreases reflect declining yields on average loans that exceeded the decline in cost of interest-bearing liabilities, attributable to increased competition from banks and other financial institutions. The Company recorded a provision for loan losses of $2.0 million during 1999 compared with $1.8 million one year ago. Management believes that both loan loss experience and asset quality indicate that the allowance for loan losses is maintained at an adequate level. The Company's allowance for loan losses as a percentage of period-end loans (excluding loans held for sale) was 1.37% at December 31, 1999, compared with 1.52% at December 31, 1998, and the allowance for loan losses as a percentage of period-end nonperforming assets was 343.2% at December 31, 1999, compared with 271.6% at December 31, 1998. The Company experienced net charge-offs of $426,000 in 1999 equating to a ratio of net charge-offs to average loans of 0.04% compared with net charge-offs of $100,000 in 1998 equating to a ratio of net charge-offs to average loans of 0.01%. See "Provision and Allowance for Loan Losses." Noninterest income, including net securities gains and losses, increased $1.2 million, or 4.1%, to $30.6 million in 1999, compared with $29.4 million in 1998. The Company experienced revenue decreases in its investment services and mortgage lending divisions of $1.7 million, or 10.9%, to $14.1 million in 1999 from $15.8 million in 1998. Service charges on deposit accounts increased by $220,000, or 3.0%, to $7.5 million in 1999 from $7.3 million in 1998. Earnings on bank owned life insurance policies totaled $1.5 million in 1999 compared with $1.2 million, representing an increase of 28.9%. The Company's newly acquired insurance division recorded revenue of $1.1 million during 1999. During 1999, the Company also recognized a gain of $819,000 on the curtailment of its defined benefit pension plan. Non-recurring sales of assets resulted in gains of $249,000 in 1999 compared to $247,000 in 1998. Noninterest expense increased $1.3 million, or 2.1%, to $62.5 million during 1999, compared with $61.2 million during 1998. See "Noninterest Income and Expense." Income before the provision for income taxes increased $7.0 million, or 27.4%, to $32.5 million in 1999, from $25.5 million in 1998. Net income increased $4.9 million during 1999. Year ended December 31, 1998, compared with year ended December 31, 1997 The Company's net income increased by $3.3 million, or 23.1%, to $17.4 million in the year ended December 31, 1998, from $14.1 million in the year ended December 31, 1997. Return on average assets during 1998 was 1.10%, compared with 1.05% during 1997, and return on average equity was 13.81% during 1998, compared with 12.73% during 1997. Net interest income increased $3.0 million, or 5.4%, to $59.1 million in 1998 from $56.1 million in 1997, as interest income increased by $11.2 million and interest expense increased $8.2 million. The increase in net 16 interest income was primarily attributable to a $103.8 million increase in average loans to $1.0 billion during 1998, from $903.9 million during 1997, as a result of management emphasis on loan growth. The increase in interest expense was primarily attributable to an increase in average interest-bearing deposits of $125.5 million to $1.0 billion in 1998, from $895.9 million in 1997. In general, loans are the Company's highest yielding earning asset. The Company's net interest spread and net interest margin were 3.67% and 4.24%, respectively, in 1998, decreasing by 34 and 38 basis points, respectively, from 1997. These decreases reflected a declining yield on average loans and an increasing cost of interest-bearing liabilities, both attributable to competition from banks and other financial institutions, a flattening yield curve, and rate compression from recent reductions in the prime rate. The Company recorded a provision for loan losses of $1.8 million during 1998 compared with $3.4 million during 1997. $509,000 of the 1998 provision for loan losses and $2.8 million of the 1997 provision for loan losses was recorded at FAB, primarily associated with higher loss experience in FAB's indirect automobile lending and sub-prime mortgage lending portfolios (which lending businesses were discontinued during 1997). The Company's allowance for loan losses as a percentage of period-end loans was 1.52% at December 31, 1998, compared to 1.54% at December 31, 1997, and the allowance for loan losses as a percentage of period-end nonperforming assets was 271.6% at December 31, 1998, compared with 211.0% at December 31, 1997. The Company experienced net charge-offs of $100,000 in 1998 equating to a ratio of net charge-offs to average loans of 0.01% compared with net charge-offs of $1.2 million in 1997 equating to a ratio of net charge-offs to average loans of 0.13%. See "Provision and Allowance for Loan Losses." Noninterest income, including net securities gains and losses, increased $9.1 million, or 44.6%, to $29.4 million in 1998, compared with $20.3 million in 1997. The Company experienced increases in its fee-based divisions (investment services, trust, and mortgage lending) of $6.3 million, or 54.3%, to $17.9 million in 1998 from $11.6 million in 1997. Service charges increased by $660,000, or 10.0%, to $7.3 million in 1998 from $6.6 million in 1997. Earnings on bank owned life insurance policies totaled $1.2 million in 1998 compared with $39,000 in 1997. These policies were purchased in December of 1997 and, accordingly, 1998's earnings on these policies are substantially higher as they reflect a full year's earnings. Non-recurring sales of assets netted $247,000 in 1998 and included a gain of $310,000 resulting from the sale of a certain portion of FAB's loan portfolio. In 1997, non-recurring sales of assets included a charge to provide for the consolidation of FAB's data processing facilities into the existing Company facility and included losses resulting from abandonment of certain leasehold improvements, which totaled $499,000. Noninterest expense increased $8.4 million, or 15.9%, to $61.2 million during 1998, compared with $52.8 million during 1997. See "Noninterest Income and Expense." Income before the provision for income taxes increased $5.3 million, or 26.4%, to $25.5 million in 1998, from $20.2 million in 1997. Net income increased $3.3 million during 1998. Net Interest Income The largest component of the Company's net income is its net interest income--the difference between the income earned on assets and interest paid on deposits and borrowed funds used to support its assets. Net interest income is determined by the yield earned on the Company's earning assets and rates paid on its interest-bearing liabilities, the relative amounts of earning assets and interest-bearing liabilities and the maturity and repricing characteristics of its earning assets and interest-bearing liabilities. Net interest income divided by average earning assets represents the Company's net interest margin. Average Balances, Income, Expenses and Rates The following table depicts, on a taxable equivalent basis for the periods indicated, certain information related to the Company's average balance sheet and its average yields on assets and average costs of liabilities. Such yields or costs are derived by dividing income or expense by the average daily balances of the associated assets or liabilities. 17 AVERAGE BALANCES, INCOME AND EXPENSES AND RATES (Amounts in thousands, except yields and rates)
Year ended December 31, ----------------------------------------------------------------------------------- 1999 1998 1997 --------------------------- --------------------------- --------------------------- Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate ---------- -------- ------ ---------- -------- ------ ---------- -------- ------ ASSETS: ------- Earning assets: Loans(1)(3)............ $1,201,041 $102,549 8.54% $1,007,695 $ 92,343 9.16% $ 903,930 $ 85,549 9.46% Securities: Taxable................ 297,843 18,834 6.32 273,782 17,213 6.29 213,533 13,829 6.48 Tax exempt............. 33,173 2,458 7.41 33,182 2,510 7.56 32,939 2,628 7.98 Cash balances in other banks................. 1,830 110 6.01 2,019 106 5.25 1,042 55 5.28 Funds sold............. 46,647 2,406 5.16 75,039 4,256 5.67 59,683 3,353 5.62 Trading account securities............ 6,669 356 5.34 4,352 264 6.07 3,488 193 5.53 ---------- -------- ---------- -------- ---------- -------- Total earning assets(2)........... 1,587,203 126,713 7.98 1,396,069 116,692 8.36 1,214,615 105,607 8.69 ---------- -------- ---------- -------- ---------- -------- Cash and due from banks.................. 65,474 56,529 49,004 Premises and equipment.. 42,041 37,404 35,142 Other assets............ 84,244 108,715 55,822 Allowance for loan losses................. (17,323) (15,608) (13,329) ---------- ---------- ---------- Total assets......... $1,761,639 $1,583,109 $1,341,254 ========== ========== ========== LIABILITIES: ------------ Interest-bearing liabilities: Interest-bearing transaction accounts.. $ 197,811 4,860 2.46 $ 167,034 4,271 2.56 $ 141,830 3,703 2.61 Savings and money market deposits....... 321,791 10,668 3.32 313,254 11,678 3.73 262,356 9,509 3.62 Time deposits.......... 612,263 32,061 5.24 541,142 30,466 5.63 491,751 27,477 5.59 Funds purchased........ 146,111 7,258 4.97 127,856 6,807 5.32 85,956 4,491 5.22 Other short-term borrowings............ 25,539 1,407 5.51 26,323 1,613 6.13 43,988 2,712 6.17 Long-term debt......... 58,445 3,029 5.18 30,548 1,720 5.63 8,583 487 5.67 ---------- -------- ---------- -------- ---------- -------- Total interest- bearing liabilities......... 1,361,960 59,283 4.35 1,206,157 56,555 4.69 1,034,464 48,379 4.68 ---------- -------- ---------- -------- ---------- -------- Demand deposits........ 218,263 192,427 162,081 Accrued interest and other liabilities..... 44,609 58,696 33,827 Stockholders' equity... 136,807 125,829 110,882 ---------- ---------- ---------- Total liabilities and stockholders' equity.............. $1,761,639 $1,583,109 $1,341,254 ========== ========== ========== Net interest spread..... 3.63% 3.67% 4.01% ==== ==== ==== Net interest income/margin on a taxable equivalent basis.................. 67,430 4.25% 60,137 4.31% 57,228 4.71% ==== ==== ==== Tax equivalent adjustment(2).......... 1,045 988 1,099 -------- -------- -------- Net interest income/margin.......... $ 66,385 4.18% $ 59,149 4.24% $ 56,129 4.62% ======== ==== ======== ==== ======== ====
- -------- (1) Average loans include nonaccrual loans. All loans and deposits are domestic. (2) Tax equivalent adjustments are based on the assumed rate of 34%, and do not give effect to the disallowance for Federal income tax purposes of interest expense related to certain tax-exempt assets. (3) Fees in the amount of $3,268,000, $3,273,000, and $3,244,000 are included in interest and fees on loans for 1999, 1998, and 1997, respectively. 18 During 1999, the Company experienced an increase in net interest income of $7.3 million, or 12.2%, to $66.4 million, compared with $59.1 million in 1998. Net interest income increased despite a decrease in the net interest spread of 4 basis points to 3.63% in 1999 from 3.67% in 1998, and a decrease in the net interest margin of 6 basis points to 4.18% in 1999, compared with 4.24% in 1998. Because the relative yield on loans exceeds that of all other earnings assets, the primary reason for the increased net interest income was a 19.2% increase in average loan volume. The slight decline in net interest spread and net interest margin is due to declining yields on average loans that exceeded the decline in cost of interest-bearing liabilities, attributable to competition from banks and other financial institutions. The Company's average liabilities in 1999 included more interest bearing liabilities than in 1998. During 1999, net average earning assets increased by $191.1 million, or 13.79%, to $1.59 billion from $1.40 billion in 1998. The major components of this increase included average loans which increased $193.3 million, or 19.2%, to $1.20 billion in 1999 from $1.01 billion in 1998, and securities which increased $24.0 million, or 7.8%, to $331.0 million in 1999 from $307.0 million in 1998. Analysis of Changes in Net Interest Income The following table sets forth, on a taxable equivalent basis, the effect which varying levels of earning assets and interest-bearing liabilities and the applicable rates had on changes in net interest income for 1999 and 1998. For the purposes of this table, changes which are not solely attributable to volume or rate are allocated to volume and rate on a pro rata basis. ANALYSIS OF CHANGES IN NET INTEREST INCOME (Amounts in thousands)
December 31, -------------------------------------------------------- 1999 Compared to 1998 1998 Compared to 1997 Variance Due to Variance Due to --------------------------- --------------------------- Volume Yield/Rate Total Volume Yield/Rate Total ------- ---------- ------- ------- ---------- ------- Earning assets: Loans................... $16,782 $(6,576) $10,206 $ 9,573 $(2,779) $ 6,794 Securities: Taxable............... 1,538 83 1,621 3,801 (417) 3,384 Tax exempt............ (1) (51) (52) 19 (137) (118) Cash balances in other banks.................. (10) 14 4 51 -- 51 Funds sold.............. (1,494) (356) (1,850) 873 30 903 Trading account securities............. 127 (35) 92 51 20 71 ------- ------- ------- ------- ------- ------- Total interest income............. 16,942 (6,921) 10,021 14,368 (3,283) 11,085 Interest-bearing liabilities: Interest-bearing transaction accounts... 762 (173) 589 641 (73) 568 Savings and money market deposits............... 309 (1,319) (1,010) 1,875 294 2,169 Time deposits........... 3,808 (2,213) 1,595 2,790 199 2,989 Funds purchased......... 921 (470) 451 2,228 88 2,316 Other short-term borrowings............. (47) (159) (206) (1,081) (18) (1,099) Long-term debt.......... 1,456 (147) 1,309 1,236 (3) 1,233 ------- ------- ------- ------- ------- ------- Total interest expense............ 7,209 (4,481) 2,728 7,689 487 8,176 ------- ------- ------- ------- ------- ------- Net interest income on a taxable equivalent basis... $ 9,733 $(2,440) 7,293 $ 6,679 $(3,770) 2,909 ======= ======= ======= ======= Taxable equivalent adjustment............. (57) 111 ------- ------- Net interest income..... $ 7,236 $ 3,020 ======= =======
19 Interest Sensitivity and Market Risk Interest Sensitivity The Company monitors and manages the pricing and maturity of its assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on net interest income. The principal monitoring technique employed by the Company is simulation analysis, which technique is augmented by "gap" analysis. In sensitivity analysis, the Company reviews each individual asset and liability category and their projected behavior in various different interest rate environments. These projected behaviors are based upon management's past experiences and upon current competitive environments, including the various environments in the different markets in which the Company competes. Using this projected behavior and differing rate scenarios as inputs, the simulation analysis generates as output a projection of net interest income. The Company also periodically verifies the validity of this approach by comparing actual results with those that were projected in previous models. See "Market Risk." Another technique used by the Company in interest rate management is the measurement of the interest sensitivity "gap," which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. Interest rate sensitivity can be managed by repricing assets and liabilities, selling securities available for sale, replacing an asset or liability at maturity or by adjusting the interest rate during the life of an asset or liability. The Company evaluates interest sensitivity risk and then formulates guidelines regarding asset generation and repricing, and sources and prices of off-balance sheet commitments in order to decrease interest sensitivity risk. The Company uses computer simulations to measure the net income effect of various interest rate scenarios. The modeling reflects interest rate changes and the related impact on net income over specified periods of time. 20 The following table illustrates the Company's interest rate sensitivity at December 31, 1999, assuming the relevant assets and liabilities are collected and paid, respectively, based upon historical experience rather than their stated maturities. INTEREST SENSITIVITY ANALYSIS (Amounts in thousands, except ratios)
December 31, 1999 ----------------------------------------------------------------- After One After Three Within Through Through Greater One Three Twelve Within Than One Month Months Months One Year Year Total -------- --------- ----------- -------- -------- ---------- ASSETS: ------- Earning assets: Loans(1).............. $485,302 $ 99,398 $ 181,673 $766,373 $558,256 $1,324,629 Securities(2)......... 17,999 11,364 45,710 75,073 261,381 336,454 Trading securities.... 2,701 -- -- 2,701 -- 2,701 Interest-bearing deposits in other banks................ 6,768 -- -- 6,768 -- 6,768 Funds sold............ 33,568 -- -- 33,568 -- 33,568 -------- -------- --------- -------- -------- ---------- Total interest- earning assets...... $546,338 $110,762 $ 227,383 $884,483 $819,637 $1,704,120 LIABILITIES: ------------ Interest-bearing liabilities: Interest-bearing deposits: Demand deposits...... $ 69,825 $ -- $ -- $ 69,825 $148,058 $ 217,883 Savings and money market deposits..... 122,195 -- 8,165 130,360 166,363 296,723 Time deposits(3)..... 76,675 161,918 367,559 606,152 111,212 717,364 Funds purchased....... 131,878 -- -- 131,878 -- 131,878 Short-term borrowings(4)........ 24,588 -- -- 24,588 -- 24,588 Long-term debt........ 1 2 15 18 123,721 123,739 -------- -------- --------- -------- -------- ---------- Total interest- bearing liabilities......... $425,162 $161,920 $ 375,739 $962,821 $549,354 $1,512,175 -------- -------- --------- -------- -------- ---------- Period gap.............. $121,176 $(51,158) $(148,356) $(78,338) $270,283 ======== ======== ========= ======== ======== Cumulative gap.......... $121,176 $ 70,018 $ (78,338) $(78,338) $191,945 $ 191,945 ======== ======== ========= ======== ======== ========== Ratio of cumulative gap to total earning assets................. 22.18% 63.21% (34.45)% (34.45)% 23.42%
- -------- (1) Excludes nonaccrual loans of $4,146,000. (2) Excludes investment equity securities with a market value of $8,669,000. (3) Excludes matured certificates which have not been redeemed by the customer and on which no interest is accruing. (4) Includes treasury, tax and loan account of $6,199,000. The Company generally benefits from increasing market rates of interest when it has an asset-sensitive gap and generally benefits from decreasing market interest rates when it is liability sensitive. The Company is liability sensitive throughout one year after three months. The analysis presents only a static view of the timing and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame, but those are viewed by management as significantly less interest sensitive than market-based rates such as those paid on non-core deposits. For this and other reasons, management relies more upon the simulation analysis (as noted above) in managing interest rate risk. Accordingly, management believes that a liability-sensitive gap position is not as indicative of the Company's true interest sensitivity as it would be for an organization which depends to a greater extent on purchased funds to support earning assets. Net interest income may be impacted by other significant factors in a given interest rate environment, including changes in the volume and mix of earning assets and interest-bearing liabilities. 21 Market Risk The Company's earnings are dependent on its net interest income which is the difference between interest income earned on all earning assets, primarily loans and securities, and interest paid on all interest bearing liabilities, primarily deposits. Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises primarily from inherent interest rate risk in its lending, investing and deposit gathering activities. The Company seeks to reduce its exposure to market risk through actively monitoring and managing its interest rate risk. Management relies upon static "gap" analysis to determine the degree of mismatch in the maturity and repricing distribution of interest earning assets and interest bearing liabilities which quantifies, to a large extent, the degree of market risk inherent in the Company's balance sheet. Gap analysis is further augmented by simulation analysis to evaluate the impact of varying levels of prevailing interest rates and the sensitivity of specific earning assets and interest bearing liabilities to changes in those prevailing rates. Simulation analysis consists of evaluating the impact on net interest income given changes from 200 basis points below to 200 basis points above the current prevailing rates. Management makes certain assumptions as to the effect varying levels of interest rates have on certain earning assets and interest bearing liabilities, which assumptions consider both historical experience and consensus estimates of outside sources. With respect to the primary earning assets, loans and securities, certain features of individual types of loans and specific securities introduce uncertainty as to their expected performance at varying levels of interest rates. In some cases, imbedded options exist whereby the borrower may elect to repay the obligation at any time. These imbedded prepayment options make anticipating the performance of those instruments difficult given changes in prevailing rates. At December 31, 1999, mortgage backed securities totaling $207.0 million, or 10.8% of total assets and essentially every underlying loan, net of unearned income, (totaling $1.32 billion, or 68.7% of total assets), carry such imbedded options. Management believes that assumptions used in its simulation analysis about the performance of financial instruments with such imbedded options are appropriate. However, the actual performance of these financial instruments may differ from management's estimates due to several factors, including the diversity and sophistication of the customer base, the general level of prevailing interest rates and the relationship to their historical levels, and general economic conditions. The difference between those assumptions and actual results, if significant, could cause the actual results to differ from those indicated by the simulation analysis. Deposits totaled $1.44 billion, or 75.0% of total assets, at December 31, 1999. Since deposits are the primary funding source for earning assets, the associated market risk is considered by management in its simulation analysis. Generally, it is anticipated that deposits will be sufficient to support funding requirements. However, the rates paid for deposits at varying levels of prevailing interest rates have a significant impact on net interest income and therefore, must be quantified by the Company in its simulation analysis. Specifically, the Company's spread, the difference between the rates earned on earning assets and rates paid on interest bearing liabilities, is generally higher when prevailing rates are higher. As prevailing rates reduce, the spread tends to compress, with severe compression at very low prevailing interest rates. This characteristic is called "spread compression" and adversely effects net interest income in the simulation analysis when anticipated prevailing rates are reduced from current rates. Management relies upon historical experience to estimate the degree of spread compression in its simulation analysis. Management believes that such estimates of possible spread compression are reasonable. However, if the degree of spread compression varies from that expected, the actual results could differ from those indicated by the simulation analysis. 22 The following table illustrates the results of simulation analysis used by the Company to determine the extent to which market risk would have effected the net interest margin if prevailing interest rates differed from actual rates during 1999. Because of the inherent use of estimates and assumptions in the simulation model used to derive this information, the actual results for 1999 and, certainly, the future impact of market risk on the Company's net interest margin, may differ from that found in the table. MARKET RISK (Amounts in thousands)
Year ended December 31, 1999 Year ended December 31, 1998 Change in --------------------------------- --------------------------------- Prevailing Net Interest Change from Net Interest Change from Interest Rates Income Amount Income Amount Income Amount Income Amount - -------------- --------------- -------------- --------------- -------------- +200 basis points....... $ 74,125 1.49 % $ 63,238 6.91 % +100 basis points....... 73,490 0.62 61,194 3.46 0 basis points.......... 73,037 -- 59,149 -- - -100 basis points....... 71,591 (1.98) 57,063 (3.53) - -200 basis points....... 69,424 (4.95) 54,977 (7.05)
Provision and Allowance for Loan Losses The Company has policies and procedures for evaluating the overall credit quality of its loan portfolio including timely identification of potential problem credits. On a monthly basis, management reviews the appropriate level for the allowance for loan losses. This review and analysis is based on the results of the internal monitoring and reporting system, analysis of economic conditions in its markets and a review of historical statistical data, current trends regarding the volume and severity of past due and problem loans and leases, the existence and effect of concentrations of credit, and changes in national and local economic conditions for both the Company and other financial institutions. Management also considers in its evaluation of the adequacy of the allowance for loan losses the results of regulatory examinations conducted for each Bank, including evaluation of the Company's policies and procedures and findings from the Company's independent loan review department. The provision for loan losses increased by $158,000, or 8.8%, to $1.95 million in 1999 from $1.8 million in 1998. This increased provision reflected the Company's large growth in loans during 1999. The growth in loans exceeded the growth in loan loss provision, primarily due to the Company's low charge off experience and low nonperforming asset levels. Management believes the allowance for loan losses, at its current level, adequately covers the Company's exposure to loan losses. Management's periodic evaluation of the adequacy of the allowance for loan losses is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay, estimated value of any underlying collateral, and an analysis of current economic conditions. While management believes that it has established the allowance in accordance with generally accepted accounting principles and has taken into account the views of its regulators and the current economic environment, there can be no assurance that in the future the Company's regulators or its economic environment will not require further increases in the allowance. Additions to the allowance for loan losses, which are expensed as the provision for loan losses on the Company's income statement, are made periodically to maintain the allowance for loan losses at an appropriate level as determined by management. Loan losses and recoveries are charged or credited directly to the allowance for loan losses. 23 The following table presents the information associated with the Company's allowance and provision for loan losses for the dates indicated. ALLOWANCE FOR LOAN LOSSES (Amounts in thousands, except percentages)
Year ended December 31, ---------------------------------------------------- 1999 1998 1997 1996 1995 ---------- ---------- -------- -------- -------- Total loans outstanding at end of period, net of unearned income(1).. $1,320,160 $1,087,027 $961,079 $863,968 $743,530 ========== ========== ======== ======== ======== Average amount of loans outstanding, net of unearned income(1)..... $1,190,111 $1,003,366 $900,644 $794,105 $509,956 ========== ========== ======== ======== ======== Allowance for loan losses at beginning of period................. $ 16,540 $ 14,844 $ 12,633 $ 11,621 $ 7,597 Charge-offs: Commercial, financial and agricultural..... 211 418 516 809 1,247 Real estate-- mortgage............. 392 200 531 160 454 Consumer.............. 674 1,246 1,880 1,027 543 ---------- ---------- -------- -------- -------- Total charge-offs... 1,277 1,864 2,927 1,996 2,244 ---------- ---------- -------- -------- -------- Recoveries: Commercial, financial and agricultural..... 188 1,012 1,068 1,525 1,294 Real estate-- mortgage............. 348 296 200 152 296 Consumer.............. 315 456 449 296 383 ---------- ---------- -------- -------- -------- Total recoveries.... 851 1,764 1,717 1,973 1,973 ---------- ---------- -------- -------- -------- Net charge-offs..... 426 100 1,210 23 271 Provision for loan losses................. 1,954 1,796 3,421 1,035 1,171 Changes incidental to acquisitions........... -- -- -- -- 3,124 ---------- ---------- -------- -------- -------- Allowance for loan losses at period-end... $ 18,068 $ 16,540 $ 14,844 $ 12,633 $ 11,621 ========== ========== ======== ======== ======== Allowance for loan losses to period-end loans(1)............... 1.37% 1.52% 1.54% 1.46% 1.56% Net charge-offs to average loans(1)....... 0.04 0.01 0.13 0.00 0.05
- -------- (1) Does not include loans held for sale. Allocation of Allowance There is no formal allocation of the allowance for loan losses by loan category. 24 Nonperforming Assets The following table presents the Company's nonperforming assets for the dates indicated. NONPERFORMING ASSETS (Amounts in thousands, except percentages)
At December 31, ------------------------------------------- 1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- Nonaccrual loans................. $ 4,146 $ 4,357 $ 4,228 $ 2,735 $ 2,843 Restructured loans............... 432 499 1,052 605 949 Loans past due 90 days or more and still accruing.............. -- -- -- 9 126 ------- ------- ------- ------- ------- Total nonperforming loans...... 4,578 4,856 5,280 3,349 3,918 Other real estate owned.......... 687 1,234 1,756 842 780 ------- ------- ------- ------- ------- Total nonperforming assets..... $ 5,265 $ 6,090 $ 7,036 $ 4,191 $ 4,698 ======= ======= ======= ======= ======= Allowance for loan losses to period-end loans(1)............. 1.37% 1.52% 1.54% 1.46% 1.56% Allowance for loan losses to period-end nonperforming loans.. 394.67 340.61 281.14 377.22 296.61 Allowance for loan losses to period-end nonperforming assets.......................... 343.17 271.59 210.97 301.43 247.36 Net charge-offs to average loans(1)........................ 0.04 0.01 0.13 0.00 0.05 Nonperforming assets to period- end loans and foreclosed property(1)..................... 0.40 0.56 0.73 0.48 0.63 Nonperforming loans to period-end loans(1)........................ 0.35 0.45 0.55 0.39 0.53
- -------- (1) Does not include loans held for sale. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that collection of interest is doubtful. It is the Company's policy to place a delinquent loan on nonaccrual status when it becomes 90 days or more past due. When a loan is placed on nonaccrual status, all interest which is accrued on the loan is reversed and deducted from earnings as a reduction of reported interest. No additional interest is accrued on the loan balance until collection of both principal and interest becomes reasonably certain. When a problem loan is finally resolved, there may ultimately be an actual writedown or charge-off of the principal balance of the loan which would necessitate additional charges to the allowance for loan losses. During the years ending December 31, 1999, 1998 and 1997, approximately $391,000, $384,000, and $371,000, respectively, in additional interest income would have been recognized in earnings if the Company's nonaccrual loans had been current in accordance with their original terms. Total nonperforming assets decreased $825,000 to $5.3 million at December 3l, 1999, from $6.1 million at December 31, 1998. The allowance for loan losses to period-end nonperforming assets was 343.17% at December 31, 1999, compared with 271.59% at December 31, 1998. This ratio will generally fluctuate from period to period depending upon nonperforming asset levels at period end. All categories of nonperforming assets decreased at year end 1999 compared with 1998, with the largest decline being a $547,000 reduction in other real estate owned. Potential Problem Loans A potential problem loan is one that management has concerns as to the borrower's future performance under terms of the loan contract. These loans are current as to principal and interest, and accordingly, they are not included in the nonperforming asset categories. Management monitors these loans closely in order to ensure that the Company's interests are protected. At December 31, 1999, the Company had certain loans considered by management to be potential problem loans totaling $21.2 million. The level of potential problem loans is factored into the determination of the adequacy of the allowance for loan losses. 25 Noninterest Income and Expense Noninterest income The Company relies on five distinct product lines for the production of recurring noninterest income: traditional retail and commercial banking, and operating segments including mortgage banking, trust services, investment services and insurance services. Combined fees associated with these product lines totaled $24.8 million in 1999, compared with $25.2 million in 1998, a decrease of $344,000, or 1.4%. The following table sets forth, for the periods indicated, the principal components of noninterest income. NONINTEREST INCOME (Amounts in thousands)
Year ended December 31, ----------------------- 1999 1998 1997 ------- ------- ------- Service charges on deposit accounts.................... $ 7,479 $ 7,259 $ 6,599 Investment services income............................. 10,097 11,508 8,162 Trust fees............................................. 2,190 2,101 1,799 Origination and sale of mortgage loans................. 3,993 4,303 1,644 Gain on disposal of assets and deposits................ 249 247 (497) Securities gains (losses).............................. 190 174 (2) Bank owned life insurance.............................. 1,504 1,167 39 Insurance commissions.................................. 1,068 -- -- Gain on pension curtailment............................ 819 -- -- Other.................................................. 2,968 2,591 2,550 ------- ------- ------- Total noninterest income............................. $30,557 $29,350 $20,294 ======= ======= =======
Noninterest Expense The following table sets forth, for the periods indicated, the principal components of noninterest expense. NONINTEREST EXPENSE (Amounts in thousands)
Year ended December 31, ----------------------- 1999 1998 1997 ------- ------- ------- Salaries and employee benefits......................... $37,452 $36,021 $29,992 Net occupancy expense.................................. 7,265 6,724 6,623 Amortization of goodwill............................... 387 302 298 Advertising............................................ 1,028 976 1,445 Banking assessments.................................... 482 473 411 Data processing expenses............................... 1,442 2,435 2,151 Legal and professional fees............................ 2,911 3,609 1,947 Non-credit losses (recoveries)......................... 206 129 283 Other.................................................. 11,282 10,485 9,638 ------- ------- ------- Total noninterest expense............................ $62,455 $61,154 $52,788 ======= ======= =======
Salaries and employee benefits increased $1.4 million, or 4.0%, in 1999. This increase reflects the Company's general growth in employment concurrent with its asset and revenue growth as well as salary increases reflecting employee performance, job duties, and competitive employment market conditions. These factors were somewhat offset by reduced commission compensation in the some of the Company's commission based businesses, such as mortgage origination and investment services, where revenue declined. 26 Noninterest expenses increased $1.3 million, or 2.1%, to $62.5 million in 1999, from $61.2 million in 1998. Data processing fees decreased $993,000, or 68.9%, in 1999 to $1.4 million, in part due to costs associated with conversion costs related to completed mergers during 1998 as well as operating efficiencies from consolidating such operations in 1999. Legal and professional fees, $2.9 million in 1999, decreased $698,000, or 27.7%, from $3.6 million in 1998 as a result of costs associated with mergers completed during 1998. The Company completed three mergers during 1998 and one during 1999. Investment Services The following table sets forth, for the periods indicated, the summary of operations for the investment services departments of the Company: INVESTMENT SERVICES DIVISION (Amounts in thousands)
Year ended December 31, ---------------------- 1999 1998 1997 ------- ------- ------ Investment services revenue............................. $10,097 $11,508 $8,162 Other revenue........................................... 2,765 1,409 1,311 ------- ------- ------ Total investment revenue.............................. 12,862 12,917 9,473 Expenses and allocated charges.......................... 11,193 10,500 8,479 ------- ------- ------ Net investment services revenue....................... $ 1,669 $ 2,417 $ 994 ======= ======= ======
National Bank of Commerce of Birmingham ("NBC") operates an investment department devoted primarily to handling correspondent banks' investment needs. NBC has a wholly owned subsidiary, NBC Securities, Inc. ("NBC Securities"), that is licensed as a broker-dealer. Together, NBC's investment department and NBC Securities comprise the Investment Service Division. Investment services revenues consist primarily of commission income from the sale of investment securities. Investment services revenue decreased $1.4 million, or 12.3%, to 10.1 million in 1999 from $11.5 million in 1998. This decrease occurred in the fixed income division of NBC's investment services department, whose customers are primarily correspondent banks. The rising interest rate environment in 1999 combined with strong loan demand in the economy reduced these investors' demand for fixed income securities. In addition, many of these customers elected to retain greater liquidity at year end 1999 in preparation for potential Year 2000 liquidity needs, resulting in further reduced demand in the 1999 fourth quarter. NBC Securities experienced a $1.2 million increase in its investment services revenue due to the addition of additional investment advisors as well as favorable market conditions. The total of these two areas was a net decrease in investment services revenue, which decrease was partially offset by an increase in other revenue of $1.4 million, or 96.2%, to $2.8 million in 1999 compared to $1.4 million in 1998. This other revenue consists primarily of net interest income earned on margin loans at NBC Securities but also includes interest and dividends on trading assets and fee based services including asset/liability consulting, bond accounting and security safekeeping. Investment services revenues increased $3.3 million, or 41.0%, to $11.5 million in 1998 from $8.2 million in 1997, primarily as a result of favorable market conditions. These results include certain income and expense items that are allocated by management to the investment services areas of the Company. These results are not necessarily the same as would be expected if these activities were conducted by a stand-alone entity because certain corporate overhead expenses are not allocated directly to this division. 27 Trust Division The following table sets forth, for the periods indicated, the summary of operations for the trust division of the Company: TRUST DIVISION (Amounts in thousands)
Year ended December 31, -------------------- 1999 1998 1997 ------ ------ ------ Trust division income..................................... $2,190 $2,101 $1,799 Expenses and allocated charges............................ 1,149 1,169 1,105 ------ ------ ------ Net trust division revenue.............................. $1,041 $ 932 $ 694 ====== ====== ======
Trust division income increased $89,000, or 4.2%, to $2.2 million in 1999 from $2.1 million in 1998 due to new customer relationships and growth of existing assets managed. Similar conditions resulted in a 16.8% increase in trust department fees to $2.1 million in 1998 from $1.8 million in 1997. Despite the increase in Trust division income, Trust division expenses and allocated charges decreased $20,000, or 1.7% in 1999 versus 1998, from $1.2 million to $1.1 million due to tight expense control, resulting in an 11.7% increase in net trust division revenue. These results include certain income and expense items that are allocated by management to the trust services area of the Company. These results are not necessarily the same as would be expected if these activities were conducted by a stand-alone entity because certain corporate overhead expenses are not allocated directly to this division. Mortgage Lending Division The following table sets forth, for the periods indicated, the summary of operations for the mortgage lending division of the Company. MORTGAGE LENDING DIVISION (Amounts in thousands)
Year ended December 31, -------------------- 1999 1998 1997 ------ ------ ------ Origination and sale of mortgage loans(1)................. $4,240 $4,405 $1,644 Interest income........................................... 527 649 545 ------ ------ ------ Total revenue........................................... 4,767 5,054 2,189 Expenses and allocated charges............................ 3,391 3,061 1,643 ------ ------ ------ Net mortgage lending division revenue................... $1,376 $1,993 $ 546 ====== ====== ======
- -------- (1) Includes intercompany income allocated to mortgage lending division totaling $247,000 and $102,000 at December 31, 1999 and 1998, respectively. Fees charged in connection with the origination and resale of mortgage loans decreased $165,000, or 3.7%, to $4.2 million in 1999 from $4.4 million in 1998, due primarily to changing market conditions. As interest rates rose in 1999, mortgage origination volume declined. The expenses and allocated charges increased by $330,000 to $3.4 million in 1999 from $3.1 million in 1998. The rise in expenses was largely due to expansion of the mortgage lending business into four new markets and the increased level of expenses associated with such expansion. As the new mortgage lending branches acquire market share, management expects the profit margin in these areas will be comparable to that in existing markets served by the Company. Fees charged in connection with the origination and resale of mortgage loans totaled $4.4 million in 1998 and $1.6 million in 1997, an 28 increase of $2.8 million, or 167.9%, resulting from a favorable interest rate environment, staff additions, and expansion of services into different geographic areas serviced by the Company. Expenses and allocated charges in the mortgage lending division grew 86.3% to $3.1 million in 1998 from $1.6 million in 1997. In spite of this 86.3% increase, these expenses grew at a lower rate than revenues as a result of more efficient operations and leveraging the available fixed cost structure. These results include certain income and expense items that are allocated by management to the mortgage lending area of the Company. These results are not necessarily the same as would be expected if these activities were conducted by a stand-alone entity because certain corporate overhead expenses are not allocated directly to this division. Insurance Services Division The following table sets forth, for the periods indicated, a summary of operations for the insurance services division of the Company. INSURANCE DIVISION (Amounts in thousands)
Year ended December 31, ----------------------- 1999(1) 1998(1) 1997(1) ------- ------- ------- Commission income....................................... $1,068 $-- $-- Other income............................................ 16 -- -- ------ ---- ---- Total revenue......................................... 1,084 -- -- Expenses and allocated charges.......................... 884 -- -- ------ ---- ---- Net insurance division revenue........................ $ 200 $-- $-- ====== ==== ====
- -------- (1) The insurance division was acquired in May 1999. The Company purchased an existing insurance company in May of 1999, thus the operating results indicated above only include activity since the date of acquisition. These results include certain income and expense items that are allocated by management to the insurance services division of the Company. These results are not necessarily the same as would be expected if these activities were conducted by a stand-alone entity because certain corporate overhead expenses are not allocated directly to this division. Earning Assets Loans Loans are the largest category of earning assets and typically provide higher yields than the other types of earning assets. Associated with the higher loan yields are the inherent credit and liquidity risks which management attempts to control and counterbalance. Loans averaged $1.20 billion in 1999 compared to $1.01 billion in 1998, an increase of $193.3 million, or 19.2%. At December 31, 1999, total loans, net of unearned income, were $1.32 billion compared to $1.09 billion at the end of 1998, an increase of $233.1 million, or 21.4%. The growth in the Company's loan portfolio is attributable to the Company's ability to attract new customers while maintaining consistent underwriting standards and general economic conditions that resulted in 29 increased loan demand from existing customers. The following table details the composition of the loan portfolio by category at the dates indicated. COMPOSITION OF LOAN PORTFOLIO (Amounts in thousands, except percentages)
December 31, ------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------------- ------------------- ----------------- ----------------- ----------------- Percent Percent Percent Percent Percent of of of of of Amount Total Amount Total Amount Total Amount Total Amount Total ---------- ------- ---------- ------- -------- ------- -------- ------- -------- ------- Commercial and financial.............. $ 257,047 19.45% $ 257,409 23.65% $208,666 21.66% $203,616 23.45% $177,906 23.76% Real estate: Construction........... 148,228 11.22 74,024 6.80 72,166 7.49 62,628 7.21 47,313 6.32 Mortgage--residential.. 358,400 27.13 291,644 26.80 289,395 30.05 262,320 30.20 210,813 28.15 Mortgage--commercial... 369,158 27.94 291,437 26.78 253,338 26.30 206,393 23.76 195,856 26.15 Mortgage--other........ 3,111 .24 2,215 .20 2,299 .24 3,627 .42 4,407 .59 Consumer................ 73,388 5.55 77,187 7.09 89,971 9.34 94,888 10.93 93,163 12.44 Other................... 111,913 8.47 94,509 8.68 47,346 4.92 35,005 4.03 19,415 2.59 ---------- ------ ---------- ------ -------- ------ -------- ------ -------- ------ Total gross loans...... 1,321,245 100.00% 1,088,425 100.00% 963,181 100.00% 868,477 100.00% 748,873 100.00% ====== ====== ====== ====== ====== Unearned income......... (1,085) (1,398) (2,102) (4,509) (5,343) ---------- ---------- -------- -------- -------- Total loans, net of unearned income(1).... 1,320,160 1,087,027 961,079 863,968 743,530 Allowance for loan losses................. (18,068) (16,540) (14,844) (12,633) (11,621) ---------- ---------- -------- -------- -------- Total net loans(1)..... $1,302,092 $1,070,487 $946,235 $851,335 $731,909 ========== ========== ======== ======== ========
- -------- (1) Does not include loans held for sale. In the context of this discussion, a "real estate mortgage loan" is defined as any loan, other than loans for construction purposes, secured by real estate, regardless of the purpose of the loan. It is common practice for financial institutions in the Company's market areas, and for the Company in particular, to obtain a security interest or lien in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan portfolio component. The principal component of the Company's loan portfolio is real estate mortgage loans. At year-end 1999, this category totaled $878.9 million and represented 66.5% of the total loan portfolio, compared to $659.3 million, or 60.6%, of the total loan portfolio, at year-end 1998. Residential mortgage loans increased $66.8 million, or 22.9%, to $358.4 million at December 31, 1999, compared with $291.6 million at December 31, 1998. Commercial mortgage loans increased $77.7 million, or 26.7%, to $369.2 million at December 31, 1999. Increases in both of these categories of loans are primarily the result of the Company's expertise in and appetite for these commercial and residential real estate loans. In addition, the general economic conditions in its markets, which generate such lending opportunities, are partially responsible for this growth. Real estate construction loans increased $74.2 million, or 100.2%, to $148.2 million at December 31, 1999, compared with $74.0 million at December 31, 1998. The Company's focus on the home construction market and strong construction activity in markets it serves caused this increase. Consumer loans decreased $3.8 million, or 4.9%, during 1999 to $73.4 million from $77.2 million in 1998 as a result of a continuation of a reduced emphasis on certain areas of consumer lending. Other categories of loans increased $17.4 million, or 18.4% to $111.9 million during 1999 in part due to growth in margin lending in the investment services division, which loans are fully secured by marketable 30 securities, and leases from the Company's leasing division, which had its first full year of operations in 1999 as it was formed in late 1998. The Company engages in no foreign lending operations. The repayment of loans is a source of additional liquidity for the Company. The following table sets forth the Company's loans maturing within specific intervals at December 31, 1999. LOAN MATURITY AND SENSITIVITY TO CHANGES IN INTEREST RATES (Amounts in thousands)
December 31, 1999 ---------------------------------------- Over one year Over One year through five five or less years years Total -------- ------------- -------- -------- Commercial, financial and agricultural........................ $146,635 $ 99,054 $ 11,358 $257,047 Real estate--construction............ 85,044 40,041 23,143 148,228 Real estate--residential............. 52,155 103,726 202,519 358,400 Real estate--commercial.............. 64,384 183,295 121,479 369,158 Consumer............................. 28,809 42,926 1,653 73,388
Predetermined Floating Rates Rates ------------- -------- Maturing after one year but within five years........ $359,447 $109,595 Maturing after five years............................ 117,934 242,218 -------- -------- $477,381 $351,813 ======== ========
The information presented in the above table is based upon the contractual maturities of the individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity. Consequently, management believes this treatment presents fairly the maturity and repricing structure of the loan portfolio. Securities Securities, including securities classified as held to maturity (or investment securities) and available for sale, represent a significant portion of the Company's earning assets. Securities averaged $331.0 million during 1999, compared with $307.0 million during 1998, an increase of $24.0 million, or 7.8%. Growth in the securities portfolio is generally a function of growth in funding sources net of lending opportunities. At December 31, 1999, the securities portfolio totaled $345.1 million, including securities held to maturity with an amortized cost of $19.6 million and securities available for sale with a market value of $325.5 million. The following tables set forth the carrying value of securities held by the Company at the dates indicated. INVESTMENT SECURITIES (Amounts in thousands)
December 31, ------------------------------- 1999 1998 --------------- --------------- Cost Market Cost Market ------- ------- ------- ------- U.S. Treasury securities.................... $ -- $ -- $ 2,607 $ 2,623 U.S. Government Agencies.................... 279 279 787 792 State and political subdivisions............ 8,942 9,064 9,673 10,087 Mortgage backed securities.................. 10,395 10,395 21,588 21,712 ------- ------- ------- ------- Total................................... $19,616 $19,738 $34,655 $35,214 ======= ======= ======= =======
31 AVAILABLE FOR SALE SECURITIES (Amounts in thousands)
December 31, ----------------------------------- 1999 1998 ----------------- ----------------- Cost Market Cost Market -------- -------- -------- -------- U.S. Treasury securities................ $ 4,574 $ 4,561 $ 8,624 $ 8,724 U.S. Government Agencies................ 94,593 91,159 86,130 85,986 State and political subdivisions........ 24,909 24,543 25,659 26,377 Mortgage backed securities.............. 202,646 196,575 160,589 161,442 Other................................... 8,675 8,669 7,090 7,029 -------- -------- -------- -------- Total............................... $335,397 $325,507 $288,092 $289,558 ======== ======== ======== ========
The following tables show the scheduled maturity and average yields of securities owned by the Company at December 31, 1999. INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS (Amounts in thousands, except yields)
December 31, 1999 -------------------------------------------------------------------------------- After one but After five but Within five Within ten Within one year years years After ten years Other securities --------------- --------------- --------------- --------------- ---------------- Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1) ------ -------- ------ -------- ------ -------- ------ -------- ------- -------- U.S. Treasury securi- ties................... $-- U.S. Government Agen- cies................... -- $ 279 6.18% $ -- State and political subdivisions........... 570 7.71 5,476 7.83 2,628 8.27 $268 10.39% Mortgage backed securi- ties................... -- -- -- -- $10,395 6.43% ---- ------ ------ ---- ------- Total................. $570 7.71% $5,755 7.75% $2,628 8.27% $268 10.39% $10,395 6.43% ==== ==== ====== ==== ====== ==== ==== ===== ======= ====
- -------- (1) Computed on a tax-equivalent basis utilizing a 34% tax rate, without giving effect to the disallowance for Federal income tax purposes of interest related to certain tax-exempt assets. SECURITIES AVAILABLE FOR SALE MATURITY DISTRIBUTION AND YIELDS (Amounts in thousands, except yields)
December 31, 1999 ----------------------------------------------------------------------------------- After one but Within five After five but Within one year years Within ten years After ten years Other securities --------------- ---------------- ---------------- --------------- ----------------- Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1) ------ -------- ------- -------- ------- -------- ------ -------- -------- -------- U.S. Treasury securities............. $2,958 5.11% $ 1,603 6.07% U.S. Government Agencies............... 3,480 6.77 54,196 5.99 $33,483 6.54% State and political subdivisions........... 2,194 7.11 9,189 7.27 10,218 7.85 $2,942 7.00% Mortgage backed securities............. -- -- -- -- -- $196,575 6.76% Equity securities....... -- -- -- -- 8,669 7.12 ------ ------- ------- ------ -------- Total ................ $8,632 6.29% $64,988 6.17% $43,701 6.85% $2,942 7.00% $205,244 6.78% ====== ==== ======= ==== ======= ==== ====== ==== ======== ====
- -------- (1) Computed on a tax-equivalent basis utilizing a 34% tax rate, without giving effect to the disallowance for Federal income tax purposes of interest related to certain tax-exempt assets. 32 At December 31, 1999, mortgage-backed securities consisting of collateralized mortgage obligations and pass-through mortgage obligations totaled $207.0 million. These mortgage-backed securities include $10.4 million classified as investment securities and $196.6 million classified as securities available for sale. Management expects the annual repayment of the underlying mortgages to vary as a result of monthly repayment of principal and/or interest required under terms of the underlying promissory notes. Further, the actual rate of repayment is subject to changes depending upon both terms of the underlying mortgages and the relative level of mortgage interest rates. When relative interest rates decline to levels below that of the underlying mortgages, acceleration of principal repayment is expected as some borrowers on the underlying mortgages refinance to lower rates. When the underlying rates on mortgage loans are comparable to, or in excess of, market rates, repayment more closely conforms to scheduled amortization in accordance with terms of the promissory note. Accordingly, management generally expects repayment of the collateralized mortgage obligations in three to five years, and repayment of the pass-through mortgage obligations in five to seven years. Other attributes of securities are discussed in "Interest Sensitivity and Market Risk." Short-Term Investments The Company utilizes overnight investment of funds in Federal funds sold and securities purchased under agreements to resell to ensure that adequate liquidity will be maintained, while at the same time minimizing the level of uninvested cash reserves. Short-term investments are also utilized by the Company when the level of funds committed to lending and investment portfolio programs changes or the level of deposit generation changes. During 1999, Federal funds sold and securities purchased under agreements to resell averaged $46.6 million, compared to $75.0 million during 1998, representing a $28.4 million, or 37.8%, decrease as the Company experienced growth in both loans and investment securities. Trading Account Securities An important aspect of investment department operations, but less so to the Company in total, are trading account securities, which represent securities owned by the Company prior to sale and delivery to the Company's customers. Trading account securities averaged $6.7 million in 1999 and were $2.7 million at December 31, 1999, compared with an average of $4.4 million in 1998 and $5.5 million at December 31, 1998. This small dollar amount reflects management's policy of limiting positions in such securities to reduce its exposure to market and interest rate changes. Deposits and Other Interest-Bearing Liabilities Average interest-bearing liabilities increased $155.8 million, or 12.9%, to $1.36 billion in 1999, from $1.21 billion in 1998. Average interest-bearing deposits increased $110.4 million, or 10.8%, to $1.13 billion in 1999, from $1.02 billion in 1998. This increase is attributable to competitive rate and product offerings by the Company and successful marketing efforts. Average Federal funds purchased and securities sold under agreements to repurchase increased $18.2 million, or 14.3%, to $146.1 million in 1999, from $127.9 million in 1998 due, in part, to additional liquidity provided by downstream correspondent banks. Average short-term borrowings decreased by $784,000, or 3.0%, to $25.5 million in 1999, compared to $26.3 million in 1998 as some of the Company's funding shifted from short-term to long-term. Average long-term borrowings increased $27.9 million to $58.4 million in 1999, from $30.5 million in 1998, as the Company utilized more borrowing programs offered to its Federal Home Loan Bank member subsidiaries. Deposits Average total deposits increased $136.3 million, or 11.2%, to $1.35 billion during 1999, from $1.21 billion during 1998. At December 31, 1999, total deposits were $1.44 billion, compared with $1.28 billion at December 31, 1998, an increase of $167.0 million, or 13.1%. 33 The following table sets forth the deposits of the Company by category at the dates indicated. DEPOSITS (Amounts in thousands, except percentages)
December 31, ----------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------------- ------------------- ------------------- ----------------- ----------------- Percent Percent Percent Percent Percent Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total ---------- -------- ---------- -------- ---------- -------- -------- -------- -------- -------- Demand................. $ 210,185 14.57% $ 232,450 18.23% $ 180,341 16.02% $155,695 15.74% $148,816 15.74% NOW ................... 217,883 15.11 187,481 14.70 155,147 13.78 133,762 13.52 156,464 16.55 Savings and money market................ 296,723 20.57 298,817 23.43 294,072 26.13 254,570 25.74 239,031 25.28 Time less than $100,000.............. 492,328 34.14 403,156 31.63 369,363 32.83 332,278 33.59 308,223 32.59 Time greater than $100,000.............. 225,036 15.60 153,271 12.01 126,556 11.24 112,877 11.41 93,010 9.84 ---------- ------ ---------- ------ ---------- ------ -------- ------ -------- ------ Total deposits........ $1,442,155 100.00% $1,275,175 100.00% $1,125,479 100.00% $989,182 100.00% $945,544 100.00% ========== ====== ========== ====== ========== ====== ======== ====== ======== ======
Core deposits, which exclude time deposits of $100,000 or more, provide for a relatively stable funding source that supports earning assets. The Company's core deposits totaled $1.22 billion, or 84.4%, of total deposits at December 31, 1999 and totaled $1.12 billion, or 88.0%, of total deposits at December 31, 1998. Deposits, in particular core deposits, have historically been the Company's primary source of funding and have enabled the Company to meet successfully both short-term and long-term liquidity needs. Management anticipates that such deposits will continue to be the Company's primary source of funding in the future. The Company's loan-to-deposit ratio was 91.5% at December 31, 1999, and 85.2% at the end of 1998, and the ratio averaged 89.0% during 1999 and 83.0% during 1998. These increases in the Company's loan-to-deposit ratio are due to loan growth exceeding deposit growth in 1999. The maturity distribution of the Company's time deposits in excess of $100,000 at December 31, 1999, is shown in the following table. MATURITIES OF CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS OF $100,000 OR MORE (Amounts in thousands)
December 31, 1999 --------------------------------------------------------- After After One Six Through After Three Through After Within One Three Through Six Twelve Twelve Month Months Months Months Months Total ---------- --------- ----------- ------- ------- -------- Certificates of deposit of $100,000 or more.... $18,549 $30,654 $39,916 $46,065 $18,030 $153,214 Other time deposits of $100,000 or more....... 21,685 25,155 20,435 2,350 2,197 71,822 ------- ------- ------- ------- ------- -------- Total................. $40,234 $55,809 $60,351 $48,415 $20,227 $225,036 ======= ======= ======= ======= ======= ========
Approximately 42.7% of the Company's time deposits over $100,000 had scheduled maturities within three months. Large certificate of deposit customers tend to be extremely sensitive to interest rate levels, making these deposits less reliable sources of funding for liquidity planning purposes than core deposits. Many financial institutions partially fund their balance sheets with large certificates of deposit obtained through brokers, and the Company had $47.5 million in brokered deposits outstanding at December 31, 1999, compared to no such deposits at December 31, 1998. 34 Borrowed Funds Borrowed funds include four broad categories; (i) Federal funds purchased and securities sold under agreements to repurchase, (ii) treasury, tax and loan balances, (iii) Federal Home Loan Bank ("FHLB") borrowings, and (iv) borrowings from an third party bank. Because of a relatively high loan-to- deposit ratio, the existence and stability of these funding sources are critical to the Company's maintenance of short-term and long-term liquidity. Federal funds purchased and securities sold under agreements to repurchase represent both an input of excess funds from correspondent bank customers of the Company as well as a cash management tool offered to corporate customers. At December 31, 1999, these funds totaled $131.9 million, compared with $162.6 million at December 31, 1998. At December 31, 1999 treasury, tax and loan balances totaled $6.2 million, compared to $1.5 million at December 31, 1998. The Company collects tax deposits from customers and is permitted to retain these balances until established collateral limits are exceeded or until the U.S. Treasury withdraws its balances. The Company's average borrowing from an third party bank under a $20 million credit facility ("the Credit Facility") was $13.4 million during 1999, compared with $13.5 million during 1998. As of December 31, 1999, the outstanding balance under the Credit Facility was $16.4 million, leaving a remaining availability under the Credit Facility of $3.6 million. The Credit Facility bears interest at a rate that varies with LIBOR and is secured by stock in the Banks. The Credit Facility is typically renewed on an annual basis and has a current maturity date of May 31, 2000. The Company has historically renewed the Credit Facility prior to its due date and anticipates doing so again in 2000. All of the Banks are members of the FHLB. At December 31, 1999, these Banks had available FHLB lines of $222.9 million, under which $125.7 million was outstanding, including advances classified as short-term of $2.0 million and advances classified as long-term of $123.7 million. This compares to borrowings of $42.2 million at December 31, 1998, of which $10.2 million was short-term and $32.0 million was long-term. 35 The following table sets forth, for the periods indicated, the principal components of borrowed funds. BORROWED FUNDS (Amounts in thousands, except percentages)
December 31, ---------------------------- 1999 1998 1997 -------- -------- -------- Federal funds purchased and securities sold un- der agreements to repurchase: Balance at end of period...................... $131,878 $162,633 $141,437 Average balance outstanding................... 146,111 127,856 85,956 Maximum outstanding at any month's end........ 178,166 162,633 141,610 Weighted average interest rate at period-end.. 5.07% 4.70% 6.15% Weighted average interest rate during the pe- riod......................................... 4.97 5.32 5.23 Treasury, tax and loan: Balance at end of period...................... $ 6,199 $ 1,506 $ 5,210 Average balance outstanding................... 2,414 3,626 2,506 Maximum outstanding at any month's end........ 6,199 6,944 5,210 Weighted average interest rate at period-end.. 5.00% 4.45% 5.90% Weighted average interest rate during the pe- riod......................................... 4.18 4.30 4.99 Notes Payable: Balance at end of period...................... $ 16,389 $ 11,500 $ 15,337 Average balance outstanding................... 13,410 13,516 18,037 Maximum outstanding at any month's end........ 16,389 15,250 19,350 Weighted average interest rate at period-end.. 7.21% 6.32% 6.70% Weighted average interest rate during the pe- riod......................................... 6.09 6.44 6.63 Short-term advances from the Federal Home Loan Bank: Balance at end of period...................... $ 2,000 $ 10,200 $ 13,750 Average balance outstanding................... 9,715 9,181 23,445 Maximum outstanding at any month's end........ 32,000 10,200 31,250 Weighted average interest rate at period-end.. 4.55% 5.54% 5.80% Weighted average interest rate during the pe- riod......................................... 5.04 6.40 5.81 Long-term advances from the Federal Home Loan Bank: Balance at end of period...................... $123,700 $ 32,000 $ 16,200 Average balance outstanding................... 58,150 30,192 8,157 Maximum outstanding at any month's end........ 123,700 32,000 28,700 Weighted average interest rate at period-end.. 5.30% 5.09% 5.73% Weighted average interest rate during the pe- riod......................................... 5.18 5.59 5.59 Convertible debentures: Balance at end of period...................... $ -- $ -- $ -- Average balance outstanding................... -- -- 14 Maximum outstanding at any month's end........ -- -- 105 Weighted average interest rate at period-end.. % % % Weighted average interest rate during the pe- riod......................................... 7.14 Capital leases: Balance at end of period...................... $ 266 $ 328 $ 387 Average balance outstanding................... 295 356 412 Maximum outstanding at any month's end........ 324 387 439 Weighted average interest rate at period-end.. 9.20% 9.04% 9.04% Weighted average interest rate during the pe- riod......................................... 9.15 8.98 8.98
36 Capital Resources and Liquidity Management Capital Resources The Company's stockholders' equity increased $7.3 million, or 5.5%, to $138.3 million at December 31, 1999, from $131.0 million at December 31, 1998. This net increase was primarily attributable to net income for 1999 of $22.3 million, less dividends paid of $8.0 million, and a change in net unrealized losses in available-for-sale securities of $7.5 million. Under the capital guidelines of their regulators, the Company and the Banks are currently required to maintain a minimum risk-based total capital ratio of 8%, with at least 4% being Tier I capital. Tier I capital consists of common stockholders' equity, qualifying perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less goodwill. In addition, under the guidelines, the Company and the Banks must maintain a minimum Tier I leverage ratio of Tier I capital to total assets of at least 3%, but this minimum ratio is typically increased by 100 to 200 basis points for other than the highest rated institutions. The Company exceeded its fully phased-in regulatory capital ratios at December 31, 1999, 1998 and 1997, as set forth in the following table. ANALYSIS OF CAPITAL (Amounts in thousands, except percentages)
December 31, ---------------------------------- 1999 1998 1997 ---------- ---------- ---------- Tier 1 Capital............................ $ 134,922 $ 122,732 $ 109,682 Tier 2 Capital............................ 17,985 15,296 13,867 ---------- ---------- ---------- Total qualifying capital (1) (2)........ $ 152,790 $ 138,028 $ 123,549 ========== ========== ========== Risk-adjusted total assets (including off- balance sheet exposures)................. $1,438,689 $1,223,641 $1,109,326 Tier 1 risk-based capital ratio (4.00% required minimum)........................ 9.38% 10.03% 9.89% Total risk-based capital ratio (8.00% required minimum)........................ 10.62 11.28 11.14 Tier 1 leverage ratio (4.00% required minimum)................................. 7.18 7.41 7.75
- -------- (1) Does not include $83,000, $1,244,000 and $977,000 of the Company's allowance for loan losses at December 31, 1999, 1998 and 1997, respectively, in excess of 1.25% of risk-adjusted total assets. (2) Does not include capital of an unconsolidated subsidiary at December 31, 1999. 37 Each of the Banks is required to maintain risk-based and leverage ratios similar to those required for the Company. Each of the Banks exceeded these regulatory capital ratios at December 31, 1999, as set forth in the following table: BANK CAPITAL RATIOS
Tier 1 Risk Total Risk Tier 1 Based Based Leverage ----------- ---------- -------- Alabama National BanCorporation............... 9.38% 10.62% 7.18% National Bank of Commerce of Birmingham....... 8.84 10.01 7.26 Alabama Exchange Bank......................... 12.18 13.43 7.81 Bank of Dadeville............................. 12.60 13.72 8.25 Citizens & Peoples Bank, N.A.................. 13.58 14.77 9.37 Community Bank of Naples, National Association.................................. 10.73 11.98 7.29 First American Bank........................... 10.51 11.76 8.43 First Citizens Bank........................... 13.87 15.08 7.16 First Gulf Bank............................... 9.30 10.55 7.19 Georgia State Bank............................ 11.65 12.85 7.37 Public Bank................................... 12.66 13.82 8.75 Required minimums............................. 4.00 8.00 4.00
Liquidity Management Liquidity management involves monitoring the Company's sources and uses of funds in order to meet its day-to-day cash flow requirements while maximizing profits. Liquidity represents the ability of an entity to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Without proper liquidity management, the Company will not be able to perform the primary function of a financial intermediary and would, therefore, not be able to meet the needs of the communities it serves. Increased liquidity in typical interest rate environments often involves decreasing profits by investing in earning assets with shorter maturities. Liquidity management is made more complex because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of the investment portfolio is very predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to nearly the same degree of control. Assets included in the Company's Consolidated Statements of Condition contribute to liquidity management. Federal funds sold and securities purchased under agreements to resell, the Company's primary source of liquidity, averaged $46.6 million during 1999 and was $33.6 million at December 31, 1999, and averaged $75.0 million during 1998 and was $57.1 million at December 31, 1998. If required in short-term liquidity management, these assets could be converted to cash immediately. Cash received from the repayment of investment securities and loans provide a constant source of cash that contributes to liquidity management. Unpledged securities, with a carrying value of approximately $166.7 million at December 31, 1999, provide the Company an opportunity to generate cash by, 1) providing additional collateral by selling securities under agreements to repurchase, 2) providing collateral to obtain public funds or 3) providing collateral to borrow directly from the Federal Reserve Bank or the Federal Home Loan Bank. See "Earning Assets--Loans" and "Earning Assets--Securities." 38 Liquidity can also be managed using liabilities included in the Company's Consolidated Statement of Condition, such as Federal funds purchased and securities sold under agreements to repurchase and short-term borrowing. Combined Federal funds purchased and securities sold under agreements to repurchase, treasury, tax and loan, and short-term borrowings averaged $171.7 million during 1999 and was $156.5 million at December 31, 1999, and averaged $154.2 million during 1998 and was $185.8 million at December 31, 1998. Overnight borrowing lines with upstream correspondent banks, $162.1 million at December 31, 1999, of which $103.5 million was unused, provide additional sources of liquidity to the Company on an unsecured basis. The Federal Home Loan Bank provides secured and unsecured credit lines to nine of the Company's banks totaling approximately $222.9 million. At December 31, 1999, advances under these lines totaled $125.7 million, including $2 million classified as short-term and $123.7 million classified as long-term. Long-term liquidity needs are met through the Company's deposit base (approximately 84.3% of the Company's deposits at December 31, 1999, are considered core deposits), and the repayment of loans and other investments as they mature. The Company is able to manage its long-term liquidity needs by adjusting the rates it pays on longer-term deposits and the amount and mix of longer-term investments in its portfolio. One of the Banks has pledged approximately $216 million in loans to the Federal Reserve Bank of Atlanta as collateral for a discount window credit facility, which facility management views as a backup liquidity facility. At December 31, 1999, the Company had access to approximately $170 million under this facility, with no outstanding borrowings. The Company, as a stand alone corporation, has more limited access to liquidity sources than its Banks and depends on dividends from its subsidiaries as its primary source of liquidity. The Company's liquidity is diminished by required payments on its outstanding short-term debt. The ability of its subsidiaries to pay dividends is subject to general regulatory restrictions which may, but are not expected to, have a material negative impact on the liquidity available to the Company. (See Note 17 to the Company's Consolidated Financial Statements included in this Annual Report.) If circumstances warrant, the Company's short-term liquidity needs can also be met by additional borrowings of approximately $3.6 million representing the unused portion of the Company's credit facility with an unrelated bank. See "Deposits and Other Interest-Bearing Liabilities--Borrowed Funds." Accounting Rule Changes Derivative Investments and Hedging Activities In June 1998, the FASB issued Statement of Financial Standard No. 133, Accounting for Derivative Instruments and Hedging Activities, ("Statement 133"), effective for all fiscal quarters of all fiscal years beginning after June 30, 1999. Statement 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. If certain conditions are met, an entity may elect to designate a derivative instrument as a hedging instrument. Statement 133 generally provides for matching the timing of gain or loss recognition on the hedging instrument with the recognition of (a) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (b) the earnings effect of the hedged forecasted transaction. Statement 133, as amended by Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS No. 133, is effective for fiscal years beginning after June 15, 2000, and is effective for interim periods in the year of adoption. Management of the Company does not expect the adoption of Statement 133 to have a material impact on its financial statements since the Company does not invest in derivative instruments. Mortgage-Backed Securities In October, 1998, the FASB issued Statement of Financial Accounting Standards No. 134, Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage 39 Banking Enterprise, an amendment of FASB Statement No. 65, ("Statement 134"). Statement 134 amends Statement 65 to require that after the securitization of mortgage loans held for sale, an entity engaged in mortgage banking activities classify the resulting mortgage-backed securities or other retained interests based on its ability and intent to sell or hold those investments. This statement was adopted January 1, 1999. However, since the Company does not historically securitize mortgage loans, there has been no financial statement impact since adopting this statement. Impact of Inflation Unlike most industrial companies, the assets and liabilities of financial institutions such as the Company and its subsidiaries are primarily monetary in nature. Therefore, interest rates have a more significant effect on the Company's performance than do the effects of changes in the general rate of inflation and change in prices. In addition, interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. Management seeks to manage the relationships between interest- sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation. See "Interest Sensitivity and Market Risk." Industry Developments Certain recently enacted and proposed legislation could have an effect on both the costs of doing business and the competitive factors facing the financial institutions industry. The Company is unable at this time to assess the impact of this legislation on its financial condition or results of operations. Year 2000--Technology Considerations The Company did not experience any material problems related to the Year 2000 date change. In addition, management is not aware of any customers that have experienced Year 2000 issues that would have a material impact on the Company, nor have any of the Company's vendors experienced Year 2000 problems that would impair its ability to provide services to the Company. However, it is possible that the full impact of the date change has not been fully recognized. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is contained in Item 7 herein under the heading "Interest Sensitivity and Market Risk." 40 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED FINANCIAL STATEMENTS The Consolidated Financial Statements and Financial Statement Schedules of ANB and subsidiaries listed in ITEM 14(a) have been included in this Annual Report and should be referred to in their entirety. The Supplementary Financial Information required by Item 302 of Regulation S-K is set forth below. SELECTED QUARTERLY FINANCIAL DATA (Amounts in thousands, except per share data) (Unaudited)
1999 Quarters 1998 Quarters ------------------------------------------- ------------------------------------------- First Second Third Fourth First Second Third Fourth ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Summary of Operations: Interest income......... $ 28,811 $ 29,668 $ 32,332 $ 34,857 $ 27,840 $ 29,565 $ 28,426 $ 29,873 Interest expense........ 13,435 13,706 15,300 16,842 13,718 14,734 13,997 14,106 Net interest income..... 15,376 15,962 17,032 18,015 14,122 14,831 14,429 15,767 Provision for loan losses................. 562 368 408 616 345 256 287 905 Securities gains (losses)............... 166 23 -- 1 28 145 1 -- Noninterest income...... 7,741 7,523 6,939 8,164 7,181 7,112 7,084 7,799 Noninterest expense..... 15,383 15,236 15,234 16,627 14,396 14,844 13,924 18,016 Net income.............. 5,019 5,380 5,720 6,152 4,550 4,749 5,052 3,021 Dividends on common stock.................. 1,974 2,002 1,991 1,991 1,287 1,371 1,403 1,565 Per Common Share Data: Book Value.............. $ 12.15 $ 12.03 $ 12.44 $ 12.36 $ 11.33 $ 11.54 $ 11.85 $ 11.94 Tangible book value..... 11.41 11.30 11.46 11.40 10.52 10.76 11.10 11.19 Net income.............. 0.45 0.48 0.51 0.55 0.41 0.43 0.45 0.27 Dividends declared...... 0.18 0.18 0.18 0.18 0.15 0.15 0.15 0.15 Balance Sheet Highlights At Period-End: Total assets........... $1,693,950 $1,776,413 $1,863,368 $1,921,884 $1,535,092 $1,575,768 $1,699,754 $1,672,049 Securities (1).......... 314,731 322,756 348,181 345,123 281,858 304,293 356,542 324,213 Loans held for sale..... 13,784 10,638 8,162 8,615 6,801 11,030 13,117 19,047 Loans, net of unearned income................. 1,116,162 1,196,073 1,252,806 1,320,160 973,978 991,314 1,015,102 1,087,027 Allowance for loan losses................. 17,167 17,335 17,553 18,068 15,054 15,776 16,016 16,540 Deposits................ 1,307,383 1,414,078 1,408,965 1,442,155 1,188,681 1,253,621 1,255,138 1,275,175 Short-term debt......... 31,700 14,339 48,389 18,389 35,785 14,150 22,200 21,700 Long-term debt.......... 32,313 46,079 71,025 124,005 21,576 26,653 17,344 32,328 Stockholders' equity.... 134,007 134,509 137,641 138,255 120,776 124,912 130,714 130,993
- -------- (1) Does not include trading securities. During the fourth quarter of 1998, the Company incurred after-tax merger- related charges totaling $2.3 million, which reduced earnings per share on a diluted basis to $.27 per share. In the absence of these charges, operating earnings per share on a diluted basis would have been $.48 per share. 41 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item regarding Executive Officers is included in Part I of this Form 10-K under the caption "Executive Officers of the Registrant" in accordance with Instruction 3 of the Instructions to Paragraph (b) of Item 401 of Regulation S-K. The information required by this Item regarding directors is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from ANB's definitive Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A on or before March 30, 2000. ITEM 11. COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from ANB's definitive Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A on or before March 30, 2000. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from ANB's definitive Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A on or before March 30, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from ANB's definitive Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A or before March 30, 2000. 42 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) and (2) and (d)--Financial Statements and Financial Statement Schedules. Financial Statements: The Consolidated Financial Statements of ANB and its subsidiaries, included herein (beginning on page F-1), are as follows: Report of Independent Auditors--PricewaterhouseCoopers LLP Consolidated Statements of Condition--December 31, 1999 and 1998 Consolidated Statements of Income--Years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Changes in Stockholders' Equity--Years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows--Years ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements Financial Statement Schedules: All schedules to the consolidated financial statements required by Article 9 of Regulation S-X are inapplicable and therefore have been omitted. (b) Reports on Form 8-K. None. (c) Exhibits. The exhibits listed on the exhibit index beginning on page 46 of this Form 10-K are filed herewith or are incorporated herein by reference. 43 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, on this the 17th day of March, 2000. ALABAMA NATIONAL BANCORPORATION /s/ John H. Holcomb, III By: _________________________________ John H. Holcomb, III, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Title Date ---- ----- ---- /s/ John H. Holcomb, III Chairman and Chief Executive March 17, 2000 ____________________________________ Officer (principal John H. Holcomb, III executive officer)
/s/ Victor E. Nichol, Jr. President and Chief March 22, 2000 ____________________________________ Operating Officer and Victor E. Nichol, Jr. Director /s/ William E. Matthews, V Executive Vice President and March 22, 2000 ____________________________________ Chief Financial Officer William E. Matthews, V /s/ Shelly S. Williams Senior Vice President and March 22, 2000 ____________________________________ Controller (principal Shelly S. Williams accounting officer) /s/ W. Ray Barnes Director March 22, 2000 ____________________________________ W. Ray Barnes /s/ T. Morris Hackney Director March 17, 2000 ____________________________________ T. Morris Hackney /s/ John D. Johns Director March 22, 2000 ____________________________________ John D. Johns /s/ John J. McMahon, Jr. Director March 22, 2000 ____________________________________ John J. McMahon, Jr. /s/ C. Phillip McWane Director March 22, 2000 ____________________________________ C. Phillip McWane /s/ Drayton Nabers, Jr. Director March 22, 2000 ____________________________________ Drayton Nabers, Jr. /s/ G. Ruffner Page, Jr. Director March 22, 2000 ____________________________________ G. Ruffner Page, Jr.
44
Name Title Date ---- ----- ---- /s/ W. Stancil Starnes Director March 22, 2000 ____________________________________ W. Stancil Starnes /s/ William D. Montgomery Director March 22, 2000 ____________________________________ William D. Montgomery /s/ Dan M. David Vice Chairman and Director March 22, 2000 ____________________________________ Dan M. David /s/ C. Lloyd Nix Director March 22, 2000 ____________________________________ C. Lloyd Nix /s/ William E. Sexton Director March 22, 2000 ____________________________________ William E. Sexton
45 EXHIBIT INDEX
Exhibit Number Description Reference ------- ----------- --------- 3.1 Certificate of Incorporation.............................. (1) 3.1A Certificate of Amendment of Certificate of Incorporation.. (2) 3.1B Certificate of Merger filed with the Secretary of State of the State of Delaware on December 29, 1995............... (4) 3.1C Certificate of Amendment of Certificate of Incorporation.. (9) 3.2 Bylaws.................................................... (1) 4.1 Provisions of the Certificate of Incorporation and the Bylaws of Alabama National BanCorporation which Define the Rights of Security holders........................... (1) 10.1 Alabama National BanCorporation 1994 Stock Option Plan.... (1) 10.2 Form of Stock Option Agreement utilized in connection with the 1994 Stock Option Plan............................... (2) 10.3 Agreement dated September 18, 1995, by and among James A. Taylor and Frank W. Whitehead, Alabama National BanCorporation, National Commerce Corporation and Commerce Bankshares, Inc. ............................... (3) 10.3A Amendment to Agreement dated September 18, 1995 executed by James A. Taylor, Alabama National BanCorporation, National Commerce Corporation and Commerce Bankshares, Inc. on November 17, 1995................................ (3) 10.4 Commerce Bankshares, Inc. Long Term Incentive Compensation Plan..................................................... (3) 10.4A Form of Incentive Stock Option Agreement.................. (3) 10.4B Form of Restricted Stock Agreement........................ (3) 10.5 Lease Agreement between Woodward Properties and NBC....... (3) 10.6 NBC Pension Plan (amended and restated effective January 1, 1997)......................................... (15) 10.7 Credit Agreement between Alabama National BanCorporation and AmSouth Bank of Alabama dated as of December 29, 1995 relating to a $23,000,000 Revolving Loan................. (4) 10.7A Promissory Note between Alabama National BanCorporation and AmSouth Bank of Alabama dated as of December 29, 1995 relating to a $23,000,000 Revolving Loan................. (4) 10.7B Pledge Agreement between Alabama National BanCorporation and AmSouth Bank of Alabama dated as of December 29, 1995 relating to a $23,000,000 Revolving Loan................. (4) 10.7C First Amendment to Credit Agreement between Alabama National BanCorporation and AmSouth Bank dated February 10, 1997........................................ (6) 10.7D Second Amendment to Credit Agreement between Alabama National BanCorporation and AmSouth Bank dated January 19, 1998......................................... (8) 10.7E Third Amendment to Credit Agreement between Alabama National BanCorporation and AmSouth Bank dated June 23, 1999..................................................... (14) 10.8 Amendment and Restatement of the Alabama National BanCorporation Performance Share Plan.................... (15) 10.9 Alabama National BanCorporation Deferred Compensation Plan for Directors Who Are Not Employees of the Company....... (5) 10.10 Agreement and Plan of Merger dated as of July 24, 1997 between Alabama National BanCorporation and First American Bancorp......................................... (7)
46
Exhibit Number Description Reference ------- ----------- --------- 10.11 Employment Agreement dated November 30, 1997 between Dan M. David and Alabama National BanCorporation............. (8) 10.12 First American Bancorp Stock Option Plan dated October 20, 1992..................................................... (8) 10.13 First American Bancorp 1994 Stock Option Plan............. (8) 10.14 First American Bancorp Nonqualified Stock Option Agreement with Dan M. David dated March 7, 1997.................... (8) 10.15 Agreement and Plan of Merger dated as of March 5, 1998 between Alabama National BanCorporation and Public Bank Corporation.............................................. (10) 10.16 Agreement and Plan of Merger dated as of June 8, 1998 between Alabama National BanCorporation and Community Financial Corporation.................................... (11) 10.17 Agreement and Plan of Merger dated as of September 21, 1998 between Alabama National BanCorporation, Citizens & Peoples Bank, National Association, and Community Bank of Naples, National Association............................. (12) 10.18 Promissory Note dated April 15, 1999 executed by John R. Bragg in favor of Alabama National BanCorporation in the principal amount of $107,871.00.......................... (13) 10.19 Promissory Note dated April 15, 1999 executed by John R. Bragg in favor of Alabama National BanCorporation in the principal amount of $19,800.00........................... (13) 10.20 Pledge Agreement dated April 15, 1999 between John R. Bragg and Alabama National BanCorporation................ (13) 10.21 Promissory Note dated April 15, 1999 executed by John H. Holcomb, III in favor of Alabama National BanCorporation in the principal amount of $93,747.00.................... (13) 10.22 Promissory Note dated April 15, 1999 executed by John H. Holcomb, III in favor of Alabama National BanCorporation in the principal amount of $83,400.00.................... (13) 10.23 Pledge Agreement dated April 15, 1999 between John H. Holcomb, III and Alabama National BanCorporation......... (13) 10.24 Promissory Note dated April 15, 1999 executed by William E. Matthews, V in favor of Alabama National BanCorporation in the principal amount of $109,570.00.... (13) 10.25 Promissory Note dated April 15, 1999 executed by William E. Matthews, V in favor of Alabama National BanCorporation in the principal amount of $28,000.00..... (13) 10.26 Pledge Agreement dated April 15, 1999 between William E. Matthews, V and Alabama National BanCorporation.......... (13) 10.27 Promissory Note dated April 15, 1999 executed by Richard Murray, IV in favor of Alabama National BanCorporation in the principal amount of $111,739.00...................... (13) 10.28 Promissory Note dated April 15, 1999 executed by Richard Murray, IV in favor of Alabama National BanCorporation in the principal amount of $29,400.00....................... (13) 10.29 Pledge Agreement dated April 15, 1999 between Richard Murray, IV and Alabama National BanCorporation.......... (13) 10.30 Promissory Note dated April 15, 1999 executed by Victor E. Nichol, Jr. in favor of Alabama National BanCorporation in the principal amount of $99,558.00.................... (13)
47
Exhibit Number Description Reference ------- ----------- --------- 10.31 Promissory Note dated April 15, 1999 executed by Victor E. Nichol, Jr. in favor of Alabama National BanCorporation in the principal amount of $23,360.00.................... (13) 10.32 Pledge Agreement dated April 15, 1999 between Victor E. Nichol, Jr. and Alabama National BanCorporation.......... (13) 10.33 Promissory Note dated April 15, 1999 executed by William G. Sanders, Jr. in favor of Alabama National BanCorporation in the principal amount of $109,833.00.... (13) 10.34 Promissory Note dated April 15, 1999 executed by William G. Sanders, Jr. in favor of Alabama National BanCorporation in the principal amount of $18,283.30..... (14) 10.35 Pledge Agreement dated April 15, 1999 between William G. Sanders, Jr. and Alabama National BanCorporation......... (13) 10.36 Alabama National BanCorporation 1999 Long-Term Incentive Plan..................................................... (15) 10.37 Alabama National BanCorporation Employee Capital Accumulation Plan (amended and restated effective January 1, 2000)......................................... (15) 11.1 Statement Regarding Computation of Per Share Earnings..... (15) 21.1 Subsidiaries of Alabama National BanCorporation........... (15) 23.1 Consent of PricewaterhouseCoopers LLP..................... (15) 27.1 Financial Data Schedule................................... (15)
- -------- (1) Filed as an Exhibit to ANB's Annual Report on Registration Statement on Form S-1 (Registration No. 33-83800) and incorporated herein by reference. (2) Filed as an Exhibit to ANB's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. (3) Filed as an Exhibit to ANB's Registration Statement on Form S-4 (Registration No. 33-97152) and incorporated herein by reference. (4) Filed as an Exhibit to ANB's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference. (5) Filed as an Exhibit to ANB's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference. (6) Filed as an Exhibit to ANB's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by reference. (7) Filed as Appendix A to ANB's Registration Statement on Form S-4 (Registration No. 333-36565) and incorporated herein by reference. (8) Filed as an Exhibit to ANB's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference. (9) Filed as an Exhibit to ANB's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference. (10) Filed as Appendix A to ANB's Registration Statement on Form S-4 (Registration No. 333-49771) and incorporated herein by reference. (11) Filed as Appendix A to ANB's Registration Statement on Form S-4 (Registration No. 333-59813) and incorporated herein by reference. (12) Filed as Appendix A to ANB's Registration Statement on Form S-4 (Registration No. 333-66327) and incorporated herein by reference. 48 (13) Filed as an Exhibit to ANB's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference. (14) Filed as an Exhibit to ANB's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference. (15) Filed as an Exhibit to ANB's Annual Report on Form 10-K for the year ended December 31, 1999. 49 Alabama National BanCorporation and Subsidiaries Consolidated Financial Statements December 31, 1999 and 1998 and the three years ended December 31, 1999 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors Alabama National BanCorporation In our opinion, the accompanying consolidated statements of financial condition and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows present fairly, in all material respects, the financial position of Alabama National BanCorporation and its subsidiaries (the Company) at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP January 18, 2000 F-1 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, 1999 and 1998 (in thousands, except share data)
1999 1998 ---------- ---------- ASSETS ------ Cash and due from banks................................ $ 73,125 $ 70,813 Interest-bearing deposits in other banks............... 6,768 225 Investment securities (market value $19,738 and $35,214 for 1999 and 1998, respectively)...................... 19,616 34,655 Securities available for sale.......................... 325,507 289,558 Trading securities..................................... 2,701 5,534 Federal funds sold and securities purchased under agreements to resell.................................. 33,568 57,076 Loans held for sale.................................... 8,615 19,047 Loans.................................................. 1,321,245 1,088,425 Unearned income........................................ (1,085) (1,398) ---------- ---------- Loans, net of unearned income.......................... 1,320,160 1,087,027 Allowance for loan losses.............................. (18,068) (16,540) ---------- ---------- Net loans.......................................... 1,302,092 1,070,487 ---------- ---------- Property, equipment, and leasehold improvements, net... 43,855 38,875 Intangible assets...................................... 10,730 8,226 Cash surrender value of life insurance................. 31,642 29,669 Receivable from investment division customers.......... 24,573 22,776 Other assets........................................... 39,092 25,108 ---------- ---------- $1,921,884 $1,672,049 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities: Deposits: Noninterest bearing.................................. $ 210,185 $ 232,450 Interest bearing..................................... 1,231,970 1,042,725 ---------- ---------- Total deposits..................................... 1,442,155 1,275,175 ---------- ---------- Federal funds purchased and securities sold under agreements to repurchase............................. 131,878 162,633 Treasury, tax and loan accounts....................... 6,199 1,506 Short-term borrowings................................. 18,389 21,700 Accrued expenses and other liabilities................ 61,003 47,714 Long-term debt........................................ 124,005 32,328 ---------- ---------- Total liabilities.................................. 1,783,629 1,541,056 ---------- ---------- Commitments and contingencies (see Notes 9 and 10) Stockholders' equity: Common stock, $1 par; authorized 17,500,000 shares; 11,187,019 and 10,971,686 shares issued at December 31, 1999 and December 31, 1998, respectively........ 11,187 10,972 Additional paid-in capital........................... 81,939 78,570 Retained earnings.................................... 54,897 40,584 Treasury stock at cost, 121,129 shares at December 31, 1999............................................ (3,226) Unearned ESOP shares................................. (75) Accumulated other comprehensive income (loss), net of tax................................................. (6,542) 942 ---------- ---------- Total stockholders' equity......................... 138,255 130,993 ---------- ---------- $1,921,884 $1,672,049 ========== ==========
The accompanying notes are an integral part of these financial statements. F-2 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, 1999, 1998, and 1997 (in thousands, except share data)
1999 1998 1997 -------- ------- ------- Interest income: Interest and fees on loans........................... $102,340 $92,208 $85,342 Interest on securities............................... 20,456 18,870 15,565 Interest on deposits in other banks.................. 110 106 55 Interest on trading securities....................... 356 264 193 Interest on federal funds sold....................... 2,406 4,256 3,353 -------- ------- ------- Total interest income............................... 125,668 115,704 104,508 -------- ------- ------- Interest expense: Interest on deposits................................. 47,589 46,415 40,688 Interest on federal funds purchased.................. 7,258 6,807 4,527 Interest on short- and long-term borrowings.......... 4,436 3,333 3,164 -------- ------- ------- Total interest expense.............................. 59,283 56,555 48,379 -------- ------- ------- Net interest income................................. 66,385 59,149 56,129 Provision for loan losses.............................. 1,954 1,796 3,421 -------- ------- ------- Net interest income after provision for loan losses............................................. 64,431 57,353 52,708 -------- ------- ------- Noninterest income: Securities (losses) gains............................ 190 174 (2) Gain (loss) on disposition of assets and deposits.... 249 247 (497) Service charges on deposit accounts.................. 7,479 7,259 6,599 Investment services commission income................ 10,097 11,508 8,162 Trust department income.............................. 2,190 2,101 1,799 Origination and sale of mortgages.................... 3,993 4,303 1,644 Insurance commissions................................ 1,068 Bank owned life insurance............................ 1,504 1,167 39 Gain on pension curtailment.......................... 819 Other................................................ 2,968 2,591 2,550 -------- ------- ------- Total noninterest income............................ 30,557 29,350 20,294 -------- ------- ------- Noninterest expense: Salaries and employee benefits....................... 37,452 36,021 29,992 Occupancy and equipment expense...................... 7,265 6,724 6,622 Other................................................ 17,738 18,409 16,174 -------- ------- ------- Total noninterest expense........................... 62,455 61,154 52,788 -------- ------- ------- Income before provision for income taxes and minority interest in earnings of consolidated subsidiaries..... 32,533 25,549 20,214 Provision for income taxes............................. 10,237 8,154 6,086 -------- ------- ------- Income before minority interest in earnings of consolidated subsidiaries............................. 22,296 17,395 14,128 Minority interest in earnings of consolidated subsidiaries.......................................... 25 23 12 -------- ------- ------- Net income available for common shares.............. $ 22,271 $17,372 $14,116 ======== ======= ======= Net income per common share (basic).................... 2.01 1.61 1.34 ======== ======= ======= Weighted average common shares outstanding (basic)..... 11,079 10,804 10,552 ======== ======= ======= Net income per common share (diluted).................. 1.98 1.55 1.28 ======== ======= ======= Weighted average common and common equivalent shares outstanding (diluted)................................. 11,273 11,173 10,999 ======== ======= =======
The accompanying notes are an integral part of these financial statements. F-3 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended December 31, 1999, 1998, and 1997 (in thousands, except share data)
1999 1998 1997 -------- ------- ------- Net income........................................... $ 22,271 $17,372 $14,116 Other comprehensive income: Unrealized gains (losses) on securities available for sale arising during the period................ (11,166) 773 1,585 Less: Reclassification adjustment for net gains (losses) included in net income..................... 190 174 (2) -------- ------- ------- Other comprehensive income (loss), before tax........ (11,356) 599 1,587 Provision for (benefit from) income taxes related to items of other comprehensive income (expense)....... (3,872) 202 571 -------- ------- ------- Other comprehensive income (loss), net of tax........ (7,484) 397 1,016 -------- ------- ------- Comprehensive income, net of tax..................... $ 14,787 $17,769 $15,132 ======== ======= =======
The accompanying notes are an integral part of these financial statements. F-4 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the years ended December 31, 1999, 1998, and 1997 (in thousands, except share data)
Accumulated Other Additional Unearned Comprehensive Common Paid-In Retained Restricted Unearned Treasury Income (Loss) Total Shares Stock Capital Earnings Stock ESOP Stock Net of Tax Equity ---------- ------- ---------- -------- ---------- -------- -------- ------------- -------- Balance, December 31, 1996.................... 10,082,968 $10,083 $77,805 $18,073 $(185) $(100) $ (471) $105,205 Net income.............. 14,116 14,116 Stock split of merged bank.................... 414,174 414 (408) (6) -- Distribution for fractional shares....... (399) (11) (3) (14) Conversion of debentures.............. 25,199 25 80 105 Issuance of restricted stock................... 1,493 1 33 34 Common stock dividends declared ($0.46 per share).................. (3,342) (3,342) Exercise of stock options................. 75,168 75 (431) (356) Shares released by ESOP.................... 2 13 15 Amortization of unearned restricted stock........ 93 93 Issuance of shares associated with director deferred compensation plans...... 4,379 5 80 85 Proportional reduction in consolidated subsidiary.............. (69) (69) Change in other comprehensive income, net of taxes............ 1,016 1,016 ---------- ------- ------- ------- ----- ----- ------- ------- -------- Balance, December 31, 1997.................... 10,602,982 10,603 77,081 28,838 (92) (87) 545 116,888 Net income.............. 17,372 17,372 Common stock dividends declared ($0.60 per share).................. (5,626) (5,626) Exercise of stock options................. 368,704 369 1,489 1,858 Shares released by ESOP.................... 12 12 Amortization of unearned restricted stock........ 92 92 Change in other comprehensive income, net of taxes............ 397 397 ---------- ------- ------- ------- ----- ----- ------- ------- -------- Balance, December 31, 1998.................... 10,971,686 10,972 78,570 40,584 -- (75) 942 130,993 Net income.............. 22,271 22,271 Common stock dividends declared ($0.72 per share).................. (7,958) (7,958) Exercise of stock options................. 94,204 94 643 737 Shares released by ESOP.................... 75 75 Issuance of stock in purchase business combination............. 121,129 121 2,726 2,847 Purchase of treasury stock at cost........... $(3,226) (3,226) Change in other comprehensive income (loss), net of taxes.... (7,484) (7,484) ---------- ------- ------- ------- ----- ----- ------- ------- -------- Balance, December 31, 1999.................... 11,187,019 $11,187 $81,939 $54,897 $ -- $ -- $(3,226) $(6,542) $138,255 ========== ======= ======= ======= ===== ===== ======= ======= ========
The accompanying notes are an integral part of these financial statements. F-5 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1999, 1998, and 1997 (in thousands, except share data)
1999 1998 1997 --------- --------- --------- Cash flows from operating activities: Net income.................................. $ 22,271 $ 17,372 $ 14,116 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses................. 1,954 1,796 3,421 Deferred tax benefit...................... (1,570) (595) (1,191) Depreciation and amortization............. 3,794 3,255 2,774 Loss (gain) on disposal of property and equipment................................ 9 (142) 499 Securities (gain) loss.................... (190) (174) 2 Gain on other real estate................. (68) (15) (65) Income earned on bank life insurance...... (1,504) (1,167) Net amortization of securities............ 326 254 57 Net increase (decrease) in trading securi- ties..................................... 2,833 (5,135) 1,537 Minority interest in earnings of consoli- dated subsidiaries....................... 25 23 12 (Increase) decrease in other assets....... (12,649) 22,692 (45,912) Increase (decrease) in other liabilities.. 14,399 (12,809) 46,718 Other..................................... 75 73 107 --------- --------- --------- Net cash provided by operating activi- ties................................... 29,705 25,428 22,075 --------- --------- --------- Cash flows from investing activities: Purchases of investment securities ......... (1,700) Proceeds from calls and maturities of in- vestment securities........................ 14,998 31,214 24,197 Purchases of securities available for sale.. (251,607) (248,716) (113,168) Proceeds from sales of securities available for sale................................... 6,139 1,236 6,835 Proceeds from calls and maturities of secu- rities available for sale.................. 198,070 157,779 44,103 Net decrease (increase) in interest-bearing deposits in other banks.................... (6,543) 2,166 (2,142) Net decrease (increase) in federal funds sold and securities purchased under agreements to resell....... 23,508 21,759 (27,210) Net increase in loans....................... (224,248) (141,575) (95,038) Purchases of property, equipment, and lease- hold improvements.......................... (7,973) (5,172) (6,773) Proceeds from sale of property, equipment, and leasehold improvements............................... 117 299 767 Proceeds from sale of other real estate owned...................................... 1,824 2,523 1,537 Costs capitalized on other real estate owned...................................... (115) (118) (514) Cash paid for bank-owned life insurance..... (1,000) (21,900) Purchase acquisitions, net of cash ac- quired..................................... (114) 14,483 Stock acquired for purchase business combi- nation..................................... (3,226) --------- --------- --------- Net cash used in investing activities..... (249,170) (179,605) (176,523) --------- --------- ---------
The accompanying notes are an integral part of these financial statements. F-6 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued) For the years ended December 31, 1999, 1998, and 1997 (in thousands, except share data) 1999 1998 1997 -------- -------- -------- Cash flows from financing activities: Net increase in deposits....................... 166,980 149,696 114,171 Increase (decrease) in federal funds purchased and securities sold under agreements to repurchase...................... (30,755) 21,196 46,037 Net increase (decrease) in short and long-term borrowings and capital leases........................................ 92,773 4,650 (5,571) Exercise of stock options...................... 737 1,858 (356) Dividends on common stock...................... (7,958) (5,626) (3,342) Distribution for fractional shares............. (14) -------- -------- -------- Net cash provided by financing activities.. 221,777 171,774 150,925 -------- -------- -------- Increase (decrease) in cash and cash equiv- alents.................................... 2,312 17,597 (3,523) Cash and cash equivalents, beginning of year..... 70,813 53,216 56,739 -------- -------- -------- Cash and cash equivalents, end of year........... $ 73,125 $ 70,813 $ 53,216 ======== ======== ======== Supplemental disclosures of cash flow informa- tion: Cash paid for interest......................... $ 58,292 $ 54,886 $ 48,653 ======== ======== ======== Cash paid for income taxes..................... $ 12,988 $ 4,810 $ 7,070 ======== ======== ======== Supplemental schedule of noncash investing activ- ities: Foreclosure of other real estate owned......... $ 1,121 $ 1,771 $ 992 ======== ======== ======== Transfer of property to other real estate owned......................................... $ 97 ======== Reduction in proportional interest in consoli- dated subsidiary.............................. $ 69 ======== (Increase) decrease in unrealized holding (gain) loss on securities available for sale............................ $ 7,484 $ (397) $ (1,016) ======== ======== ======== Unearned restricted stock and performance plan awards........................................ $ 93 $ 178 ======== ======== Conversion of debentures....................... $ 105 ======== Assets acquired and liabilities assumed in merger transactions (Note 2): Assets acquired in business combination...... $ 3,704 $ 6,290 ======== ======== Liabilities assumed in business combination.. $ 721 $ 22,120 ======== ========
The accompanying notes are an integral part of these financial statements. F-7 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Business and Summary of Significant Accounting Policies Alabama National Bancorporation and Subsidiaries (the Company) provides a full range of banking and bank-related services to individual and corporate customers through its ten subsidiary banks located in Alabama, Georgia, and Florida. Basis of Presentation and Principles of Consolidation--The accounting and reporting policies of the Company conform with generally accepted accounting principles and with general financial service industry practices. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates--In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the statement of condition dates and revenues and expenses for the periods shown. Actual results could differ from those estimates. Cash and Cash Equivalents--For purposes of reporting cash flows, cash and cash equivalents include cash on hand and due from banks. Securities--Investment securities are stated at amortized cost as a result of management's ability and intent to hold the securities until maturity. Related premiums are amortized and discounts are accreted on the effective interest method. Securities available for sale are those securities intended to be held for an indefinite period of time. The Company may sell these securities as part of its asset/liability strategy in response to changes in interest rates, changes in prepayment risk, or similar factors. Securities available for sale are recorded at market value. Unrealized holding gains and losses on securities classified as available for sale are carried as a separate component of stockholders' equity. Trading securities, principally obligations of U.S. government agencies, are securities held for sale and are stated at market. Bond purchases and sales are recorded on the trade date. Accounts receivable from and accounts payable to bond customers and dealers are included in other assets and liabilities and represent security transactions entered into for which the securities have not been delivered. Unrealized holding gains and losses on securities classified as trading are reported in earnings. Gains and losses on the sale of securities are computed using the specific identification method. Loans and Allowance for Loan Losses--Interest income with respect to loans is accrued on the principal amount outstanding, except for interest on certain consumer loans which is recognized over the term of the loan using a method which approximates level yields. Certain impaired loans are reported at the present value of expected future cash flows using the loan's effective interest rate, or as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes the collection of principal is unlikely. The allowance is the amount that management believes will be adequate to absorb possible losses on existing loans which may become uncollectible, based on evaluations of the collectibility of loans and prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific loan problems, and current economic conditions which may affect the borrower's ability to pay. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that the collection of interest is doubtful. Payments received on such loans are applied first to principal until the obligation is satisfied. Any remaining payments are then recorded as interest income. F-8 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Property, Equipment, and Leasehold Improvements--Property, equipment, and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is principally computed using the straight-line method over the estimated useful life of each type of asset. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful lives of the improvements or the terms of the related leases. Maintenance and repairs are expensed as incurred; improvements and betterments are capitalized. When items are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the accounts and any resulting gains or losses are credited or charged to income. Estimated useful lives generally are as follows: Buildings..................................................... 5-45 years Leasehold improvements........................................ 10-30 years Furniture, equipment, and vault............................... 3-30 years
Other Real Estate--Other real estate, primarily property acquired by foreclosure, is capitalized at the lower of fair value less estimated selling costs or cost of the property or loan immediately prior to its classification as other real estate. Other real estate is not depreciated and is carried at the lower of cost or fair value less estimated selling costs. Losses, representing the difference between the sales price and the carrying value of the property, are recorded immediately, while gains on sales financed by the Company are deferred until the initial and continuing investment by the borrower equals or exceeds specified equity percentages. Gains on all other sales are recorded immediately. Intangible Assets--Intangible assets consist of the excess of cost over the fair value of net assets of acquired businesses and core deposit assets. The excess of cost over the fair value of net assets of acquired businesses, which totaled $11,095,000 and $8,006,000, and had related accumulated amortization of approximately $2,087,000 and $1,699,000 at December 31, 1999 and 1998, respectively, is being amortized over periods ranging from 15 to 25 years, principally using the straight-line method of amortization. Core deposit intangibles, which totaled approximately $3,625,000 at both December 31, 1999 and 1998, and had related accumulated amortization of approximately $1,903,000 and $1,706,000 at December 31, 1999 and 1998, respectively, are being amortized over 10 years using the straight-line method of amortization. The carrying value of the excess of cost over net assets of subsidiaries acquired is reviewed if facts and circumstances suggest that it may be impaired. If warranted, analysis, including undiscounted income projections, are made to determine if adjustments to the carrying value or amortization periods are necessary. No such adjustments were required or made during the years ended December 31, 1999 or 1998. Software costs--Software costs with a recorded cost of approximately $2,453,000 and $2,079,000 and related accumulated amortization of approximately $1,933,000 and $1,747,000 are included in other assets at December 31, 1999 and 1998, respectively. Amortization expense related to these costs of approximately $202,000, $140,000, and $212,000 was recorded in 1999, 1998, and 1997, respectively. Income Taxes--Deferred income taxes are provided on all temporary differences between the financial reporting basis and the income tax basis of assets and liabilities. Stock-Based Employee Compensation--The Company uses a value-based method of accounting for compensation costs. Compensation cost for stock-based employee compensation arrangements is measured at the grant date based on the value of the award and is recognized over the service period. Advertising Costs--The Company expenses the costs of advertising when those costs are incurred. Collateral Requirements--The Company requires collateral for certain transactions with retail and commercial customers. Specifically, margin loans made for the purpose of borrowing against marketable investment securities generally do not exceed 50% of the total market value of a customer's marginable securities portfolio at the time of the transaction or any time thereafter. Repurchase agreements, limited to commercial F-9 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) customers, generally do not exceed the market value of securities used to secure such transactions at the time of the transaction or thereafter. Federal funds sold are made to correspondent banks on an unsecured basis and generally do not exceed limits established for each bank resulting from evaluation of the bank's financial position. Reclassifications--Certain reclassifications have been made to the prior year financial statements to conform with the 1999 presentation. Recently Issued Accounting Standards--In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133). Statement 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. If certain conditions are met, an entity may elect to designate a derivative instrument as a hedging instrument. Statement 133 generally provides for matching the timing of gain or loss recognition on the hedging instrument with the recognition of (a) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (b) the earnings effect of the hedged forecasted transaction. Statement 133, as amended by Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of SFAS No. 133, is effective for fiscal years beginning after June 15, 2000, and is effective for interim periods in the initial year of adoption. Management of the Company does not expect the adoption of Statement 133 to have a material impact on its financial statements since the Company does not enter into derivative instruments. Effective January 1, 1999, the Company adopted Statement of Financial Accounting Standards No. 134, Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise, an amendment of FASB Statement No. 65 (Statement 134). Statement 134 amends Statement 65 to require that after the securitization of mortgage loans held for sale, an entity engaged in mortgage banking activities classify the resulting mortgage-backed securities or other retained interests based on its ability and intent to sell or hold those investments. Since the Company does not securitize mortgage loans, there has been no financial statement impact since the adoption of this statement. 2. Business Combinations On December 31, 1998, Community Bank of Naples, N.A. (Naples), headquartered in Naples, Florida, was merged (the Naples Merger) into the Company. On October 2, 1998, Community Financial Corporation (CFC), a one bank holding company headquartered in Mableton, Georgia, was merged (the CFC Merger) into the Company. Public Bank Corporation (Public), a one bank holding company headquartered in St. Cloud, Florida, was merged (the Public Merger) into the Company on May 29, 1998. A one bank holding company headquartered in Decatur, Alabama, First American Bancorp (FAB), was merged (the FAB Merger) into the Company on November 30, 1997. Additional information related to these mergers is presented in the following table:
Year-To-Date Shares of Net Interest Year-To-Date Company Total Assets at Income at Date Net Income at Common Stock Date of Merger of Merger Date of Merger Merger Issued (Approximately) (Approximately) (Approximately) - ------ ------------ --------------- --------------- --------------- Naples............ 532,608 $ 92,600,000 $ 2,800,000 $ 43,000 CFC............... 1,076,032 $138,900,000 $ 4,000,000 $1,400,000 Public............ 549,913 $ 53,300,000 $ 1,000,000 $ 374,000 FAB............... 2,107,966 $235,000,000 $10,600,000 $ 754,000
F-10 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The consolidated financial statements of the Company give effect to these mergers, all of which were accounted for as poolings of interests and, accordingly, financial statements for all periods have previously been restated to reflect the results of operations of the companies on a combined basis from the earliest period presented, except for dividends per share. In the third quarter of 1999, the Board of Directors of the Company authorized the repurchase of 121,129 shares of common stock. This repurchase, which was completed during the third quarter at a cost of approximately $3,226,000, was specifically related to the Company's issuance of an identical number of shares to acquire Rankin Insurance Agency during May 1999 in a purchase business combination. The pro forma impact of this purchase business combination on the Company's financial statements for the periods prior to acquisition is not significant and, thus, is not presented herein. 3. Securities The amortized costs and estimated market values of investment securities (carried at amortized cost) and securities available for sale (carried at market value) are as follows (in thousands):
December 31, 1999 ---------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ---------- ---------- -------- Investment securities: U.S. treasury securities and obligations of U.S. government corporations and agencies.......... $ 279 $ 279 Obligations of states and political subdivisions....................... 8,942 $122 9,064 Mortgage backed securities issued or guaranteed by U.S. government agencies........................... 10,395 13 $ 13 10,395 -------- ---- ------ -------- Totals............................ $ 19,616 $135 $ 13 $ 19,738 ======== ==== ====== ======== Securities available for sale: U.S. treasury securities and obligations of U.S. government corporations and agencies.......... $ 99,167 $3,447 $ 95,720 Obligations of states and political subdivisions....................... 24,909 $ 4 370 24,543 Mortgage backed securities issued or guaranteed by U.S. government agencies........................... 202,646 6,071 196,575 Equity securities................... 8,675 6 8,669 -------- ---- ------ -------- Totals............................ $335,397 $ 4 $9,894 $325,507 ======== ==== ====== ========
F-11 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 ---------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ---------- ---------- -------- Investment securities: U.S. treasury securities and obligations of U.S. government corporations and agencies.......... $ 3,394 $ 21 $ 3,415 Obligations of states and political subdivisions....................... 9,673 414 10,087 Mortgage-backed securities issued or guaranteed by U.S. government agencies........................... 21,588 143 $ 19 21,712 -------- ------ ---- -------- Totals............................ $ 34,655 $ 578 $ 19 $ 35,214 ======== ====== ==== ======== Securities available for sale: U.S. treasury securities and obligations of U.S. government corporations and agencies.......... $ 94,754 $ 429 $473 $ 94,710 Obligations of states and political subdivisions....................... 25,659 735 17 26,377 Mortgage-backed securities issued or guaranteed by U.S. government agencies........................... 160,589 1,116 263 161,442 Equity securities................... 7,090 61 7,029 -------- ------ ---- -------- Totals............................ $288,092 $2,280 $814 $289,558 ======== ====== ==== ========
Maturities of securities at December 31, 1999 are summarized as follows (in thousands):
Investment Securities Available for Sale ------------------- ------------------- Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value --------- --------- --------- --------- Due in one year or less............ $ 570 $ 571 $ 8,640 $ 8,632 Due after one year through five years............................. 5,755 5,827 66,788 64,988 Due after five years through ten years............................. 2,628 2,675 45,462 43,701 Due after ten years................ 268 270 3,186 2,942 Mortgage-backed securities......... 10,395 10,395 202,646 196,575 Equity securities.................. 8,675 8,669 ------- ------- -------- -------- Totals........................... $19,616 $19,738 $335,397 $325,507 ======= ======= ======== ========
During 1999, gross gains of $190,000 were realized on the sale of securities and there were no gross realized losses. During 1998, gross gains of $174,000 were realized on the sale of securities and there were no gross realized losses. During 1997, gross gains of $12,000 and gross losses of $14,000 were realized on the sale of securities. Equity securities are comprised primarily of Federal Home Loan Bank and Federal Reserve Bank stock; these holdings are required under regulatory guidelines. F-12 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. Loans and Other Real Estate Major classification of loans at December 31, 1999 and 1998 are summarized as follows (in thousands):
1999 1998 ---------- ---------- Commercial, financial, and agricultural.............. $ 257,047 $ 257,409 Real estate.......................................... 878,897 659,320 Consumer............................................. 73,388 77,187 Other................................................ 111,913 94,509 ---------- ---------- Gross loans.......................................... 1,321,245 1,088,425 Less unearned income................................. (1,085) (1,398) ---------- ---------- Loans, net of unearned income........................ 1,320,160 1,087,027 Less allowance for loan losses....................... (18,068) (16,540) ---------- ---------- Net loans............................................ $1,302,092 $1,070,487 ========== ==========
In the normal course of business, loans are made to directors, officers, and their affiliates. Such loans are made on substantially the same terms as to other customers of the banks. The aggregate of such loans was $50,992,000 and $43,672,000 at December 31, 1999 and 1998, respectively. During 1999 and 1998, new loans of $32,517,000 and $38,163,000 were funded and repayments totaled $25,197,000 and $30,675,000, respectively. Loans on which the accrual of interest has been discontinued or reduced amounted to approximately $4,146,000 and $4,357,000 at December 31, 1999 and 1998, respectively. If the loans of the Company had been current throughout their terms, gross interest income for the years ended December 31, 1999 and 1998, respectively, would have increased by approximately $392,000 and $384,000. Other real estate at December 31, 1999 and 1998 totaled $687,000 and $1,234,000, respectively. At December 31, 1999 and 1998, the recorded investment in loans for which impairment has been recognized totaled $4,573,000 and $4,843,000, respectively, and these loans had a corresponding valuation allowance of $202,000 and $270,000. The Company recognized no interest on impaired loans during the portion of the year that they were impaired. The impaired loans at December 31, 1999 and 1998 were measured for impairment primarily using the fair value of the collateral. The Company grants real estate, commercial, and consumer loans to customers primarily in Alabama, Georgia, and Florida. Although the Company has a diversified loan portfolio, significant concentrations include loans collateralized by improved and undeveloped commercial and residential real estate. 5. Allowance for Loan Losses A summary of the allowance for loan losses for the years ended December 31, 1999, 1998, and 1997 is as follows (in thousands):
1999 1998 1997 ------- ------- ------- Balance, beginning of year........................ $16,540 $14,844 $12,633 Provision charged to operations................... 1,954 1,796 3,421 ------- ------- ------- 18,494 16,640 16,054 ------- ------- ------- Loans charged off................................. (1,277) (1,864) (2,927) Recoveries........................................ 851 1,764 1,717 ------- ------- ------- Net charge-offs................................... (426) (100) (1,210) ------- ------- ------- Balance, end of year.............................. $18,068 $16,540 $14,844 ======= ======= =======
F-13 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 6. Property, Equipment, and Leasehold Improvements Major classifications of property, equipment, and leasehold improvements at December 31, 1999 and 1998 are summarized as follows (in thousands):
1999 1998 ------- ------- Land........................................................ $10,493 $ 8,779 Buildings and improvements.................................. 28,166 23,775 Leasehold improvements...................................... 6,066 4,842 Furniture, equipment, and vault............................. 22,054 18,827 Construction in progress.................................... 2,117 1,803 ------- ------- 68,896 58,026 Less accumulated depreciation and amortization.............. 25,041 19,151 ------- ------- Property, equipment, and leasehold improvements, net........ $43,855 $38,875 ======= =======
7. Deposits Deposits at December 31, 1999 and 1998 are summarized as follows (in thousands):
1999 1998 ---------- ---------- Demand deposit accounts............................... $ 210,185 $ 232,450 NOW accounts.......................................... 217,883 187,481 Savings and money market accounts..................... 296,723 298,817 Time deposits less than $100,000...................... 492,328 403,156 Time deposits of $100,000 or more..................... 225,036 153,271 ---------- ---------- Total deposits........................................ $1,442,155 $1,275,175 ========== ==========
Certain directors of the Company, including their families and affiliated companies, are deposit customers. Total deposits of these persons at December 31, 1999 and 1998 were approximately $26,696,000 and $24,048,000, respectively. 8. Short and Long-Term Borrowings Short-term debt is summarized as follows (in thousands):
1999 1998 ------- ------- Note payable to third-party bank under secured master note agreement; rate varies with LIBOR and was 7.2113% and 6.3191% at December 31, 1999 and 1998, respectively; collateralized by the Company's stock in subsidiary banks..................................................... $16,389 $11,500 FHLB debt due January 31, 1999; interest at fixed rate of 5.24%; collateralized by FHLB stock and certain first mortgage loans............................................ 1,000 FHLB debt due May 24, 1999; rate varies with LIBOR and was 5.2875% at December 31, 1998; collateralized by FHLB stock and certain first mortgage loans.......................... 9,200 FHLB open ended notes payable, rate varies daily based on the FHLB Daily Rate Credit interest price and was 4.55% at December 31, 1999; collateralized by FHLB stock and certain first mortgage loans.............................. 2,000 ------- ------- Total short-term borrowings................................ $18,389 $21,700 ======= =======
F-14 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Long-term debt is summarized as follows (in thousands):
1999 1998 -------- ------- FHLB debt due October 21, 2003; interest at fixed rate of 4.30%; convertible at the option of the FHLB on October 21, 2000 to a three month LIBOR advance; collateralized by FHLB stock and certain first mortgage loans.......... $ 10,000 $10,000 FHLB debt due April 23, 2004; rate varies with LIBOR and was 5.9425% at December 31, 1999; rate changes to 5.02% from April 23, 2001 to April 23, 2004; convertible at the option of the FHLB on April 23, 2001 to a three month LIBOR advance; collateralized by FHLB stock and certain first mortgage loans............................ 13,700 FHLB debt due March 26, 2008; interest at fixed rate of 5.51%; convertible at the option of the FHLB on March 26, 2003 to a three month LIBOR advance; collateralized by FHLB stock and certain first mortgage loans.......... 5,000 5,000 FHLB debt due July 25, 2001; interest at fixed rate of 6.40%; collateralized by FHLB stock and pledged available for sale securities with a carrying value of $2,431,000 and $2,504,000 at December 31, 1999 and 1998, respectively............................................ 2,000 2,000 FHLB debt due June 18, 2003; interest at fixed rate of 5.40%; convertible at the option of the FHLB on June 18, 2000 to a three month LIBOR advance; collateralized by FHLB stock and certain first mortgage loans............. 5,000 5,000 FHLB debt due November 5, 2003; interest at fixed rate of 4.74%; convertible at the option of the FHLB on November 5, 2001 to a three month LIBOR advance; collateralized by FHLB stock and certain first mortgage loans.......... 5,000 5,000 FHLB debt due August 7, 2009; interest at a fixed rate of 4.95%; convertible at the option of the FHLB on February 7, 2000 and any payment date thereafter; collateralized by FHLB stock and certain first mortgage loans.......... 25,000 FHLB debt due July 11, 2002; interest at fixed rate of 5.78%; convertible at the option of the FHLB on July 12, 1999 to a three month LIBOR advance; collateralized by FHLB stock and certain first mortgage loans............. 5,000 FHLB debt due July 30, 2004; interest at a fixed rate of 5.715%; convertible at the option of the FHLB on July 30, 2001 to a three-month LIBOR advance; collateralized by FHLB stock and certain first mortgage loans.......... 5,000 FHLB debt due December 2, 2009; interest at a fixed rate of 5.29%; convertible in whole at the option of the FHLB on June 2, 2000; collateralized by FHLB stock, certain first mortgage loans, and pledged available for sale securities with a carrying value of $3,851,000 at December 31, 1999....................................... 43,000 Capital leases payable................................... 266 328 -------- ------- Total long-term debt..................................... $124,005 $32,328 ======== =======
FHLB debt due October 12, 2001; interest rate varies with LIBOR and reprices monthly; rate at December 31, 1999 was 6.05125%; collateralized by FHLB stock and certain first mortgage loans.................................... 10,000 Various notes payable.................................... 39 F-15 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Aggregate maturities of long-term debt are as follows for fiscal years:
2000............................................................. $ 79 2001............................................................. 12,071 2002............................................................. 54 2003............................................................. 20,054 2004............................................................. 18,738 Thereafter....................................................... 73,009 -------- $124,005 ========
The note payable to a third-party bank at December 31, 1999 is payable in full on May 31, 2000. Maximum borrowing under the secured master note agreement is $20,000,000 and interest is payable quarterly. Total interest expense paid on the note was $817,000 in 1999, $870,000 in 1998, and $1,156,000 in 1997. At December 31, 1999, the Company has $97,248,000 of available credit with the FHLB in addition to the $125,700,000 above, $3,611,000 of available credit with a regional financial institution, and federal funds lines of $162,100,000 with various correspondent banks, of which $103,525,000 remains available. The Company has also pledged approximately $216,000,000 in loans to the Federal Reserve Bank of Atlanta as collateral for a discount window credit facility. At December 31, 1999, the Company had access to approximately $170,000,000 under this facility, and had no outstanding borrowings. The FHLB has a blanket lien on the Company's 1-4 family mortgage loans in the amount of the outstanding debt. Additional details regarding short-term debt are shown below (in thousands):
1999 1998 1997 ------- ------- ------- Average amount outstanding during the year........ $23,125 $22,697 $43,236 Maximum amount outstanding at any month end....... $58,922 $48,147 $50,600 Weighted average interest rate: During year..................................... 5.65% 6.42% 6.16% End of year..................................... 6.92% 5.83% 6.27%
9. Leases One of the Company's subsidiary banks leases its main office building from a partnership, which includes a director and a stockholder of the Company, under a noncancelable operating lease expiring in 2013. Leases classified as capital leases include branch offices with a net book value of approximately $196,000 at December 31, 1999. Additionally, several subsidiary banks lease branch offices and equipment under operating leases. F-16 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Minimum future rental payments for the capital and operating leases are as follows (in thousands):
Capital Operating Leases Leases ------- --------- 2000....................................................... $ 90 $ 1,439 2001....................................................... 75 1,480 2002....................................................... 54 1,475 2003....................................................... 54 1,476 2004....................................................... 41 1,435 Thereafter................................................. 10 10,747 ---- ------- Total minimum payments..................................... 324 $18,052 ======= Less amount representing interest.......................... 59 ---- Net capital lease obligation............................... $265 ====
Rent expense charged to operations under operating lease agreements for the years ended December 31, 1999, 1998, and 1997 were approximately $1,268,000, $1,342,000, and $1,350,000, respectively, of which $958,000, $968,000, and $942,000, respectively, during 1999, 1998, and 1997 relate to leases with related parties. 10. Commitments and Contingencies In the normal course of business, the Company makes commitments to meet the financing needs of its customers. These commitments include commitments to extend credit and standby letters of credit. These instruments include, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statements of condition. The Company's exposure to credit risk is the extent of nonperformance by the counterparty to the financial instrument for commitments to extend credit and standby letters of credit and is represented by the contractual amount of those instruments. The Company uses the same credit policies and procedures in making commitments and conditional obligations as it does for loans. At December 31, 1999 and 1998, unused commitments under lines of credit aggregated approximately $426,779,000 and $276,877,000, of which $20,912,000 and $21,132,000 pertained to related parties, respectively. The Company evaluates each customer's credit worthiness on an individual basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant, and equipment, residential real estate and income-producing commercial properties. The Company had approximately $14,431,000 and $8,814,000 in irrevocable standby letters of credit outstanding at December 31, 1999 and 1998, of which $121,000 and $204,000 at December 31, 1999 and 1998, respectively, pertained to related parties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The collateral varies but may include accounts receivable, inventory, property, plant, and equipment, and residential real estate for those commitments for which collateral is deemed necessary. The Company, in the normal course of business, is subject to various pending and threatened litigation. Based on legal counsel's opinion, management does not anticipate that the ultimate liability, if any, resulting from such litigation will have a material adverse effect on the Company's financial condition or results of operations. 11. Employee Benefit Plans One of the subsidiary banks, National Bank of Commerce (NBC), has a defined benefit pension plan covering substantially all employees of NBC. Effective December 31, 1999, the Company ceased further benefit F-17 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) accruals under the plan, resulting in a curtailment of the plan. The effect of the curtailment was a $1,522,000 reduction in the projected benefit obligation, which was offset by the recognition of a previously unrecognized prior service cost of $13,000 and a portion of the unrecognized net loss of $690,000. The net result of the curtailment was a recorded curtailment gain of $819,000. Benefits are based on years of service and the average monthly earnings for the last sixty months of employment. The Company's policy is to use the "projected unit credit" actuarial method for financial reporting purposes and the "frozen entry age" actuarial method for funding purposes. The components of net pension expense (income) for the years ended December 31, 1999, 1998, and 1997 are as follows (in thousands):
1999 1998 1997 ----- ----- ----- Service cost............................................... $ 659 $ 505 $ 412 Interest cost.............................................. 334 261 210 Expected return on assets.................................. (360) (297) (209) Amortization of transition (asset)/obligation.............. 2 (2) (2) Amortization of prior service cost......................... (2) 2 2 Recognized net actuarial (gain)/loss....................... 54 23 12 ----- ----- ----- Net periodic pension cost.................................. 687 492 425 ----- ----- ----- Gain on curtailment........................................ (819) ----- ----- ----- Pension (income) expense................................... $(132) $ 492 $ 425 ===== ===== =====
The reconciliation of the beginning and ending balances of the projected benefit obligation and plan assets, as well as disclosure of the plan's funded status for the years ended December 31, 1999 and 1998, is as follows (in thousands):
1999 1998 ------- ------- Change in benefit obligation Projected benefit obligation at end of prior year........... $ 4,975 $ 3,774 Service cost.............................................. 659 505 Interest cost............................................. 334 261 Actuarial (gain) loss..................................... (829) 464 Benefits paid............................................. (100) (29) Curtailment............................................... (1,522) ------- ------- Projected benefit obligation at end of year................. $ 3,517 $ 4,975 ======= ======= Change in plan assets Fair value of plan assets at end of prior year.............. $ 3,737 $ 3,041 Actual return on plan assets.............................. (342) 303 Employer contributions.................................... 410 422 Benefits paid............................................. (100) (29) ------- ------- Fair value of plan assets at end of year.................... $ 3,705 $ 3,737 ======= ======= Funded status Plan assets less than (in excess of) projected benefit obligation................................................. $ (188) $ 1,238 Unrecognized net loss....................................... (324) (1,195) Unrecognized prior service cost............................. (15) Unrecognized net asset at date of initial application....... 9 11 ------- ------- Accrued pension liability (asset)........................... $ (503) $ 39 ======= =======
F-18 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Primary assumptions used to actuarially determine net pension expense are as follows:
1999 1998 1997 ---- ---- ---- Settlement (discount rate).................................... 7.50% 7.00% 7.50% Expected long-term rate of return on plan assets.............. 9.00% 9.00% 9.00% Salary increase rate.......................................... 4.25% 4.25% 4.25%
The Company has a qualified employee benefit plan under Section 401(k) of the Internal Revenue Code covering substantially all employees. Employees can contribute up to 10% of their salary to the plan on a pre-tax basis and the Company matches participants' contributions up to the first 2% of each participant's salary. The Company's matching contribution charged to operations related to this plan, as well as other plans of merged banks, was $507,000, $431,000, and $375,000 for the years ended December 31, 1999, 1998, and 1997, respectively. The Company and certain subsidiary banks have deferred compensation plans for the benefit of the Company's former chief executive officer. Payments under the plans commence March 15, 1997 and March 15, 2002, or at his death, if earlier, and continue for a period of 15 years. In connection with the plans, the banks purchased single premium life insurance policies on the life of the officer. At December 31, 1999, the cash surrender value of the policies was $2,285,000. Additionally, the Company and several of its subsidiary banks own life insurance policies to provide for the payment of death benefits related to existing deferred compensation and supplemental income plans maintained for the benefit of certain presidents, employees and directors of such banks. The total cash surrender value of such policies at December 31, 1999 was $2,355,000. The Company sponsors a Performance Share Plan (the PSP) to offer long-term incentives in addition to current compensation to key executives. The criteria for payment of performance share awards is based upon a comparison of the Company's average return on average equity for an award period to that of a comparison group of bank holding companies. If the Company's results are below the median of the comparison group, no portion of the award is earned. If the Company's results are at or above the 90th percentile, the award maximum is earned. The vesting period for awards is four years. Under the plan, 400,000 shares have been reserved for issuances. A base grant of 14,150 shares was made in each of the three years ended December 31, 1999, 1998 and 1997. The market value per share was $26.75, $26.38 and $19.25 at each grant date for the years ended December 31, 1999, 1998 and 1997, respectively. At December 31, 1999 and 1998, outstanding awards of expected and maximum payouts were 87,446 and 94,945 shares, respectively. Expense recorded for the PSP was $466,000, $411,000 and $105,000 in 1999, 1998 and 1997, respectively. During 1997, the Company adopted a separate Performance Share Plan to provide long-term incentives to non-employee directors of a subsidiary bank (the Subsidiary PSP) and granted approximately 20,000 shares, with a market value per share of $25.13, in 1997 to vest over a sixty-three month period. The actual number of shares to be distributed in fiscal 2002 will depend on the subsidiary bank's performance as well as certain conditions to be met by the directors. At December 31, 1999, the expected and maximum payout was 18,261 shares, net of forfeitures. Expense recorded for the Subsidiary PSP was $77,000, $96,000, and $24,000 for the years ended December 31, 1999, 1998 and 1997, respectively. During 1999, the Company adopted the 1999 Long Term Incentive Plan (the Plan) which provides for the award of incentive and non-qualified stock options, stock appreciation rights, restricted stock and performance awards to eligible employees of the Company. The total number of shares of common stock reserved and available for distribution under the Plan shall be 300,000 shares. Any awards under the Plan will be in addition to awards made under the PSP. No awards have been made under the Plan as of December 31, 1999. F-19 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In connection with the 1998 and 1997 business combinations, the Company assumed fixed stock option plans of the merged banks. Additionally, the Company had fixed stock option plans with outstanding options granted prior to 1997. A summary of the status of the Company's fixed stock options as of December 31, 1999, 1998 and 1997 and changes during each of the three years then ended is presented below:
1999 1998 1997 ----------------- ------------------ ------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------- -------- -------- -------- -------- -------- Outstanding, beginning of year................ 330,057 $ 9.43 487,146 $ 7.98 585,777 $ 8.05 Granted................. 3,518 26.78 11,258 23.54 41,771 15.61 Exercised............... (94,204) 7.83 (168,347) 6.19 (140,402) (10.68) ------- ------ -------- ------ -------- ------- Outstanding, end of year................... 239,371 $10.31 330,057 $ 9.43 487,146 $ 8.09 ======= ====== ======== ====== ======== ======= Options exercisable, end of year................ 231,913 258,785 260,509 ======= ======== ========
The following table summarizes information about fixed stock options outstanding at December 31, 1999:
Options Outstanding -------------------------- Remaining Exercise Number Contractual Options Price Outstanding Life Exercisable -------- ----------- -------------- ----------- $ 5.03.............................. 5,631 March 2004 5,631 $ 5.97.............................. 3,518 March 2005 3,518 $ 6.39.............................. 80,848 October 2002 80,848 $ 9.39.............................. 32,790 August 2006 25,332 $10.00.............................. 38,333 November 2004 38,333 $10.10.............................. 14,848 October 2004 14,848 $11.37.............................. 3,518 March 2006 3,518 $13.00.............................. 6,833 November 2005 6,833 $14.64.............................. 4,949 February 2006 4,949 $14.92.............................. 3,518 September 2006 3,518 $15.29.............................. 3,518 March 2007 3,518 $15.56.............................. 26,995 March 2007 26,995 $17.42.............................. 3,518 September 2006 3,518 $20.60.............................. 3,518 March 2008 3,518 $26.78.............................. 3,518 September 2006 3,518 $30.02.............................. 3,518 September 2006 3,518 ------- ------- 239,371 231,913 ======= =======
The per share weighted-average fair value of stock options granted during 1999, 1998 and 1997 was $6.17, $5.91 and $7.92, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: 1999--expected volatility 25.0%, expected dividend yield 3.0%, risk-free interest rate of 6.0%, and an expected life of 7 years; 1998-- expected volatility .05%, expected dividend yield 1.0%, risk-free interest rate of 5.0%, and an expected life of 7 years; and 1997--expected volatility 11.0%, expected dividend yield 0%, risk-free interest rate of 6.3%, and an expected life of 9 years. Total compensation F-20 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) expense recorded for the fixed stock option plans was $53,000, $90,000 and $396,000 for the years ended December 31, 1999, 1998, and 1997, respectively. As of December 31, 1999, the Company had 64,979 restricted shares of stock outstanding pursuant to a Restricted Stock Agreement (RSA) which originated in 1994. As of August 31, 1999, the restrictions on the RSA stock lapsed and the shares became fully transferable. The RSA provided for employees covered by the plan to elect a cash award equal to an amount of personal income tax liability resulting from the award. No dividends were permitted and the sale or transfer of shares was restricted for five years. Shares awarded to participants that left the Company prior to the completion of five years of service following the award were required to be surrendered and were ratably awarded to remaining participants. During the years ended December 31, 1998 and 1997, total expense for the RSA was $92,000 and $93,000, respectively. Additionally, the Company and two of its subsidiary banks maintain deferral of compensation plans for certain directors who are not employees of the Company. Under the plans, a non-employee director may choose to have all or part of the cash and/or stock equivalents he would normally receive as compensation deferred for future payments at such time and in such manner as the director specifies at the time of the election, so long as any annuity payment period does not exceed ten years. The cash portion of the deferral of compensation account earns interest at a rate which approximates the Company's short-term borrowing rate. Dividends earned on stock equivalent portions are credited to the deferral of compensation account in the form of additional stock equivalents. At December 31, 1999 and 1998, the amount payable under the terms of these plans totaled $875,000 and $457,000, respectively. For the years ending December 31, 1999, 1998 and 1997, approximately $418,000, $300,000 and $136,000, respectively, was expensed under these plans. One of the Company's subsidiary banks has a deferred compensation plan whereby directors may elect to have all or a portion of their compensation deferred. Expense recognized under the plan was $18,000, $23,000 and $18,000 in 1999, 1998 and 1997, respectively. At December 31, 1999, amounts payable under the plan totaled $81,000. During 1999, the Company completed the termination of a merged bank's leveraged employee stock ownership plan as a portion of the ESOP's unallocated shares were sold on the open market in order to satisfy the ESOP's debt with the remaining shares allocated to the participants. Compensation expense related to the ESOP was not material to the Company for 1999, 1998 or 1997. 12. Income Taxes The components of the provision for income taxes consist of the following for the years ended December 31, 1999, 1998, and 1997 (in thousands):
1999 1998 1997 ------- ------ ------ Current: Federal.............................................. $10,722 $7,989 $6,482 State................................................ 1,085 760 796 ------- ------ ------ Total current expense.................................. 11,807 8,749 7,278 Deferred: Federal.............................................. (1,485) (655) (681) State................................................ (85) 119 (99) ------- ------ ------ Total deferred benefit................................. (1,570) (536) (780) Change in valuation allowance.......................... -- (59) (412) ------- ------ ------ Total provision for income taxes....................... $10,237 $8,154 $6,086 ======= ====== ======
F-21 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Temporary differences and carryforwards which give rise to a significant portion of the Company's deferred tax assets and liabilities for the years ended December 31, 1999 and 1998 are as follows (in thousands):
1999 1998 ------ ------ Deferred tax assets: Loan loss reserve.............................................. $5,762 $3,422 Other real estate owned basis difference....................... 7 28 Net operating loss............................................. 40 171 Deferred compensation.......................................... 1,630 931 Loan fees...................................................... 527 285 Unrealized loss on securities.................................. 3,424 Other.......................................................... 138 373 ------ ------ Total deferred tax asset......................................... 11,528 5,210 Deferred tax liabilities: Depreciation and basis difference.............................. 2,908 2,381 Unrealized gains on securities................................. 617 Other.......................................................... 251 14 Core deposits.................................................. 193 179 ------ ------ Total deferred tax liabilities................................... 3,352 3,191 ------ ------ Net deferred tax asset........................................... $8,176 $2,019 ====== ======
Total provision for income taxes differs from the amount which would be provided by applying the statutory federal income tax rate to pretax earnings as illustrated below for the years ended December 31, 1999, 1998, and 1997 (in thousands):
1999 1998 1997 ------- ------ ------ Provision for income taxes at statutory federal income tax rate................................. $11,396 $8,687 $6,897 Increase (decrease) resulting from: State income taxes, net of federal income tax benefit....................................... 645 541 446 Change in valuation allowance.................. (59) (412) Tax free interest income....................... (1,283) (677) (689) Nondeductible meals and entertainment.......... 77 92 108 Disallowed interest expense deduction.......... 97 87 85 Goodwill and core deposit amortization......... 134 103 105 General business and other credits............. (830) (706) (614) Net operating losses........................... (55) (61) Other, net..................................... 141 221 ------- ------ ------ Total provision for income taxes................. $10,236 $8,154 $6,086 ======= ====== ======
For Federal income tax purposes, one of the Company's subsidiaries has net operating loss carryforwards totaling $488,000 and $504,000 at December 31, 1999 and 1998, respectively, which will expire beginning in 2006. For state income tax purposes, two of the Company's subsidiaries have net operating loss carryforwards and tax credits totaling $817,000 and $3,815,000 at December 31, 1999 and 1998, respectively. F-22 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 13. Noninterest Expense The following table sets forth, for the years ended December 31, 1999, 1998, and 1997, the principal components of noninterest expense (in thousands):
1999 1998 1997 ------- ------- ------- Salaries and employee benefits...................... $37,452 $36,021 $29,992 Net occupancy expense............................... 7,265 6,724 6,623 Amortization of goodwill............................ 387 302 298 Advertising......................................... 1,028 976 1,445 Banking assessments................................. 482 473 441 Data processing expenses............................ 1,442 2,435 2,151 Legal and professional fees......................... 2,911 3,609 1,947 Noncredit losses (recoveries)....................... 206 129 283 Other............................................... 11,282 10,485 9,638 ------- ------- ------- Total noninterest expense........................... $62,455 $61,154 $52,818 ======= ======= =======
14. Earnings Per Share The following table reflects the reconciliation, after adjusting for stock splits, of the basic EPS computation to the diluted EPS computation (in thousands, except per share data):
Per Share Income Shares Amount ------- ------ --------- 1999 Basic EPS net income................................ $22,271 11,079 $2.01 ===== Effect of dilutive securities options............... 194 ------- ------ Diluted EPS......................................... $22,271 11,273 $1.98 ======= ====== ===== 1998 Basic EPS net income................................ $17,372 10,804 $1.61 ===== Effect of dilutive securities options............... 369 ------- ------ Diluted EPS......................................... $17,372 11,173 $1.55 ======= ====== ===== 1997 Basic EPS net income................................ $14,116 10,552 $1.34 ===== Effect of dilutive securities options............... 447 ------- ------ Diluted EPS......................................... $14,116 10,999 $1.28 ======= ====== =====
15. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Cash, Due From Banks, Interest-Bearing Cash Balances, and Federal Funds Sold--The carrying amount is a reasonable estimate of fair value. Investment, Available for Sale, and Trading Securities--Fair value is based on quoted market prices or dealer quotes. F-23 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 and for the same remaining maturities. Deposits--The fair value of demand deposits, savings accounts, and certain 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 the rates currently offered for deposits of similar remaining maturities. Federal Funds Purchased, Short-Term Borrowings, and Long-Term Debt--The carrying amount is a reasonable estimate of fair value. Commitments to Extend Credit and Standby Letters of Credit--All commitments to extend credit and standby letters of credit have original terms, at their issuance, of one year or less; therefore, the fair value of these instruments does not materially differ from their stated value. The estimated fair values of financial instruments at December 31, 1999 and 1998 are as follows (in thousands):
1999 1998 --------------------- --------------------- Carrying Carrying Amount Fair Value Amount Fair Value ---------- ---------- ---------- ---------- Financial assets: Cash and due from banks.......... $ 73,125 $ 73,125 $ 70,813 $ 70,813 Interest-bearing deposits in other banks..................... 6,768 6,768 225 225 Federal funds sold and securities purchased under agreements to resell.......................... 33,568 33,568 57,076 57,076 Investment securities and securi- ties available for sale......... 345,123 345,245 324,213 324,772 Trading securities............... 2,701 2,701 5,534 5,534 Loans............................ 1,328,775 1,326,628 1,106,074 1,133,460 Financial liabilities: Deposits......................... 1,442,155 1,440,919 1,275,175 1,284,915 Federal funds purchased; securities sold under agreements to resell; and treasury, tax, and loan account................ 138,077 138,077 164,139 164,139 Short-term borrowings............ 18,389 18,389 21,700 21,700 Long-term debt................... 124,005 113,697 32,328 34,088
F-24 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. Parent Company The condensed financial information of the parent company only for the years ended December 31, 1999, 1998, and 1997 is presented as follows (in thousands):
1999 1998 -------- -------- Balance Sheets Assets: Cash..................................................... $ 3,964 $ 2,482 Securities available for sale............................ 81 337 Investments in subsidiaries.............................. 147,994 139,386 Intangibles.............................................. 6,466 6,669 Other assets............................................. 1,251 1,360 -------- -------- Total assets............................................... $159,756 $150,234 ======== ======== Liabilities and stockholders' equity: Accounts payable......................................... $ 4,899 $ 7,601 Accrued interest payable................................. 213 140 Short and long-term debt................................. 16,389 11,500 -------- -------- Total liabilities.......................................... 21,501 19,241 -------- -------- Stockholders' equity: Common stock............................................. 11,187 10,972 Additional paid-in capital............................... 81,939 78,570 Retained earnings........................................ 54,897 40,584 Treasury stock........................................... (3,226) Unearned ESOP............................................ (75) Accumulated other comprehensive (loss) income, net of taxes................................................... (6,542) 942 -------- -------- Total stockholders' equity................................. 138,255 130,993 -------- -------- Total liabilities and stockholders' equity................. $159,756 $150,234 ======== ========
1999 1998 1997 ------- ------- ------- Statements of Income Income: Dividends from subsidiaries......................... $11,909 $ 7,496 $10,421 Securities gains.................................... 148 139 Other............................................... 36 41 34 ------- ------- ------- 12,093 7,676 10,455 ======= ======= ======= Expenses: Interest expense.................................... 816 870 1,165 Other expenses...................................... 2,771 3,797 1,940 ------- ------- ------- Total expenses........................................ 3,587 4,667 3,105 ------- ------- ------- Income before equity in undistributed earnings of subsidiaries......................................... 8,506 3,009 7,350 Equity in undistributed earnings of subsidiaries...... 12,578 13,059 5,816 ------- ------- ------- Income before income taxes............................ 21,084 16,068 13,166 Income tax benefit.................................... 1,187 1,304 950 ------- ------- ------- Net income............................................ $22,271 $17,372 $14,116 ======= ======= =======
F-25 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1999 1998 1997 ------- ------- ------- Statements of Cash Flows Cash flows from operating activities: Net income.......................................... $22,271 $17,372 $14,116 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of investment in consolidated subsidiaries in excess of net assets acquired and core deposits.................................... 338 334 369 Equity in undistributed earnings of subsidiaries.. (12,578) (13,059) (5,816) Deferred tax (benefit) expense.................... (87) (474) 99 Other............................................. 285 222 285 Increase in other assets and liabilities.......... (2,620) 4,147 1,097 ------- ------- ------- Net cash provided by operating activities....... 7,609 8,542 10,150 ------- ------- ------- Cash flows from investing activities: Additional investment in subsidiaries............... (1,500) (3,014) Decrease (increase) in securities available for sale............................................... 256 62 (194) ------- ------- ------- Net cash used in investing activities........... 256 (1,438) (3,208) ------- ------- ------- Cash flows from financing activities: Dividends on common stock........................... (7,958) (5,626) (3,342) Change in other liabilities......................... (303) (438) Exercise of stock options........................... 215 1,858 82 Distribution for fractional shares.................. (14) Net (decrease) increase in borrowings............... 4,889 (3,837) (1,763) Stock acquired for purchase business combination.... (3,226) ------- ------- ------- Net cash used in financing activities........... (6,383) (7,605) (5,475) ------- ------- ------- Net (decrease) increase in cash................. 1,482 (501) 1,467 Cash, beginning of year............................. 2,482 2,983 1,516 ------- ------- ------- Cash, end of year................................... $ 3,964 $ 2,482 $ 2,983 ======= ======= =======
17. Regulatory The subsidiary banks are required by law to maintain reserves in cash or deposits with the Federal Reserve Bank or other banks. At December 31, 1999, the required reserves totaled $17,998,000. At December 31, 1999 and 1998, securities with carrying values of $178,398,000 and $176,794,000, respectively, were pledged to secure U.S. government deposits and other public funds and for purposes as required or permitted by law. The Company has a policy of collecting amounts from its subsidiaries sufficient to cover expenses of the Company and to service Company debt. Such amounts have been received in the form of dividends declared by the subsidiaries. Payment of dividends is subject to the financial condition of the subsidiaries and the Company's judgment as to the desirability of utilizing alternative sources of funds. The payment of dividends by the subsidiary banks is also subject to various regulatory requirements. At December 31, 1999, $40,137,000 of the retained earnings of the subsidiary banks are available for payment of dividends to the Company under the various regulatory requirements, without special approval from the applicable regulators. F-26 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company is 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 maintain minimum amounts and ratios (set forth in the table below) of total qualifying capital 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, as of December 31, 1999, that the Company meets all capital adequacy requirements to which it is subject. As of December 31, 1999, the most recent notification from the Federal Reserve Bank categorized the Company as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Company must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category. The actual capital amounts and ratios of the Company are presented in the table below (in thousands):
To Be Well Capitalized Under Prompt Corrective For Capital Action Actual Adequacy Purposes Provisions -------------- ------------------- -------------- Amount Ratio Amount Ratio Amount Ratio -------- ----- ---------- -------- -------- ----- As of December 31, 1999: Total qualifying capital (to risk-weighted assets).................. $152,790 10.62% $ 115,096 8.00% $143,870 10.00% Tier I capital (to risk- weighted assets)......... $134,922 9.38% $ 57,536 4.00% $ 86,304 6.00% Tier I capital (to average assets).................. $134,922 7.18% $ 75,165 4.00% $ 93,957 5.00% As of December 31, 1998: Total qualifying capital (to risk-weighted assets).................. $138,028 11.28% $ 97,891 8.00% $122,364 10.00% Tier I capital (to risk- weighted assets)......... $122,732 10.03% $ 48,946 4.00% $ 73,418 6.00% Tier I capital (to average assets).................. $122,732 7.41% $ 66,250 4.00% $ 82,813 5.00%
F-27 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The actual capital amounts and ratios of National Bank of Commerce, the Company's most significant subsidiary, are presented in the table below (in thousands):
To Be Well Capitalized Under Prompt For Capital Corrective Adequacy Action Actual Purposes Provisions ------------- ------------- ------------- Amount Ratio Amount Ratio Amount Ratio ------- ----- ------- ----- ------- ----- As of December 31, 1999: Total qualifying capital (to risk-weighted assets)........... $71,854 10.01% $57,426 8.00% $71,782 10.00% Tier I capital (to risk-weighted assets)......................... $63,454 8.84% $28,712 4.00% $43,068 6.00% Tier I capital (to average as- sets)........................... $63,454 7.26% $34,961 4.00% $43,701 5.00% As of December 31, 1998: Total qualifying capital (to risk-weighted assets)........... $64,397 10.90% $47,278 8.00% $59,097 10.00% Tier I capital (to risk-weighted assets)......................... $57,010 9.65% $23,639 4.00% $35,458 6.00% Tier I capital (to average as- sets)........................... $57,010 7.33% $31,092 4.00% $38,866 5.00%
18. Related Party Transactions In addition to the previously disclosed related party transactions, the Company received trust fees of approximately $629,000 in 1999, $700,000 in 1998, and $589,000 in 1997 from related parties. 19. Segment Reporting In addition to traditional commercial and consumer retail banking products, the Company offers trust services, mortgage lending services, investment services and insurance services to its customers. The trust division manages the assets of both corporate and individual customers located primarily in the Birmingham, Alabama market. The mortgage lending division makes home loans to individuals throughout the state of Alabama. The majority of the loans made are sold to corporate investors, who also service the loans. The investment services division sells fixed income and equity securities trading services to both individual and corporate customers. The insurance division offers a full line of insurance products including life, property and casualty insurance to individual and corporate customers primarily in the state of Alabama. These four divisions, along with the commercial and retail banking division, are considered the Company's reportable segments for financial disclosure purposes. The accounting policies of the segments are the same as those described in the summary of significant accounting policies except that certain overhead expenses are not allocated among the segments. Additionally, the fixed assets utilized by the various divisions are not separately identified by management. Accordingly, the results of operations for the trust, mortgage lending, investment banking, and insurance segments are not indicative of the results which would be achieved if each of the segments were a separate company. Intersegment transactions are accounted for at fair market value. F-28 ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company's reportable segments represent the distinct major product lines the Company offers and are viewed separately for strategic planning purposes by management. The following table is a reconciliation of the reportable segment revenues, expenses, and profit to the Company's consolidated totals (in thousands):
Investment Mortgage Retail and Services Trust Lending Insurance Commercial Corporate Elimination Division Division Division(2) Division Banking Overhead(1) Entries Total ---------- -------- ----------- --------- ---------- ----------- ----------- -------- Year ended December 31, 1999: Interest income......... $ 2,531 $ 527 $ 16 $123,426 $ (93) $(739) $125,668 Interest expense........ 955 348 9 $ 57,894 816 (739) 59,283 ------- ------ ----- -------- ------- ----- -------- Net interest income..... 1,576 179 7 65,532 (909) -- 66,385 Provision for loan losses................. 1,954 1,954 Noninterest income...... 10,331 $2,190 4,240 1,068 12,544 184 30,557 Noninterest expense..... 10,238 1,149 3,043 875 44,472 $ 2,678 62,455 ------- ------ ------ ----- -------- ------- ----- -------- Net income before provision for income taxes and minority interest............... $ 1,669 $1,041 $1,376 $ 200 $ 31,650 $(3,403) $ -- $ 32,533 ======= ====== ====== ===== ======== ======= ===== ======== Year ended December 31, 1998: Interest income......... $ 1,564 $ 649 $114,381 $ (94) $(796) $115,704 Interest expense........ 401 395 55,685 870 (796) 58,555 ------- ------ -------- ------- ----- -------- Net interest income..... 1,163 254 58,696 (964) -- 59,149 Provision for loan losses................. 1,796 1,796 Noninterest income...... 11,754 $2,101 4,405 10,911 179 29,350 Noninterest expense..... 10,500 1,169 2,666 43,117 3,702 61,154 ------- ------ ------ -------- ------- ----- -------- Net income before provision for income taxes and minority interest............... $ 2,417 $ 932 $1,993 $ 24,694 $(4,487) $ -- $ 25,549 ======= ====== ====== ======== ======= ===== ======== Year ended December 31, 1997: Interest income......... $ 713 $ 545 $103,615 $ (116) $(249) $104,508 Interest expense........ 110 139 47,223 1,156 (249) 48,379 ------- ------ -------- ------- ----- -------- Net interest income..... 603 405 56,392 (1,272) -- 56,129 Provision for loan losses................. 3,421 3,421 Noninterest income...... 8,760 $1,779 1,644 8,078 13 20,294 Noninterest expense..... 8,369 1,105 1,504 40,004 $ 1,806 52,788 ------- ------ ------ -------- ------- ----- -------- Net income before provision for income taxes and minority interest............... $ 994 $ 694 $ 546 $ 21,045 $(3,065) $ -- $ 20,214 ======= ====== ====== ======== ======= ===== ========
- -------- (1) Corporate overhead is comprised of compensation and benefits for certain members of management, merger related costs, interest expense, and the amortization of intangibles. (2) Mortgage lending includes allocated intercompany income totaling $247,000 and $102,000 at December 31, 1999 and 1998, respectively. F-29 EX-10.6 2 NBC PENSION PLAN Exhibit 10.6 ------------ NATIONAL BANK OF COMMERCE PENSION PLAN TABLE OF CONTENTS ----------------- ARTICLE I: DEFINITIONS.................................................. 1 Section 1.01. Accrued Benefit..................................... 1 Section 1.02. Act or ERISA........................................ 1 Section 1.03. Actuarial Equivalent................................ 1 Section 1.04. Actuary............................................. 2 Section 1.05. Affiliated Employer or Affiliate.................... 3 Section 1.06. Annual Compensation................................. 3 Section 1.07. Average Monthly Earnings............................ 6 Section 1.08. Board of Directors.................................. 7 Section 1.09. Break in Service.................................... 7 Section 1.10. Code................................................ 7 Section 1.11. Claimant............................................ 7 Section 1.12. Continuous Service.................................. 7 Section 1.13. Covered Service..................................... 9 Section 1.14. Deferred Retirement Date............................ 9 Section 1.15. Earliest Retirement Age and Early Retirement Date... 9 Section 1.16. Effective Date...................................... 9 Section 1.17. Employee............................................ 9 Section 1.18. Employer............................................ 9 Section 1.19. First Gulf Plan..................................... 10 Section 1.20. Former Participant.................................. 10 Section 1.21. Highly Compensated Employee, Highly Compensated Former Employee, and Highly Compensated Participant. 10 Section 1.22. Hour of Service..................................... 12 Section 1.23. Investment Manager.................................. 12 Section 1.24. Key Employee........................................ 13 Section 1.25. Leased Employee..................................... 13 Section 1.26. Monthly Earnings.................................... 13 Section 1.27. Monthly Retirement Income........................... 14 Section 1.28. Named Fiduciary..................................... 14 Section 1.29. Non-Highly Compensated Participant.................. 14 Section 1.30. Non-Key Employee.................................... 14 Section 1.31. Normal Retirement Date.............................. 14 Section 1.32. Participant......................................... 14 Section 1.33. PBGC................................................ 14 Section 1.34. Plan................................................ 14 Section 1.35. Plan Administrator.................................. 14 Section 1.36. Plan Year........................................... 15 Section 1.37. Pre-retirement Survivor Annuity..................... 15 Section 1.38. Regulation.......................................... 15 Section 1.39. Required Beginning Date............................. 15 Section 1.40. Retired Participant................................. 15 Section 1.41. Service Year or Year of Service..................... 15 Section 1.42. Terminated Participant.............................. 16 Section 1.43. Top Heavy Plan...................................... 16 Section 1.44. Top Heavy Plan Year................................. 16 Section 1.45. Total and Permanent Disability...................... 16 Section 1.46. Trust Agreement..................................... 17
-i- Section 1.47. Trustee............................................. 17 Section 1.48 Trust Fund.......................................... 17 Section 1.49 USERRA.............................................. 17 Section 1.50. Vested.............................................. 17 ARTICLE II: PLAN ADMINISTRATION......................................... 17 Section 2.01. Named Fiduciary..................................... 17 Section 2.02. Allocation Of Fiduciary Responsibilities; Designation Of A Plan Administrator................. 17 Section 2.03. Powers And Responsibilities Of The Employer......... 18 Section 2.04. Powers And Duties Of The Plan Administrator......... 19 Section 2.05. Powers And Duties Of The Trustee.................... 21 Section 2.06. Powers And Duties Of The Actuary.................... 21 Section 2.07. Claims For Benefits................................. 21 Section 2.08. Completion Of Forms And Submission Of Proof By Participants........................................ 22 Section 2.09. Payment Of Expenses................................. 22 ARTICLE III: BENEFITS.................................................... 22 Section 3.01. Normal Retirement................................... 22 Section 3.02. Deferred Retirement................................. 24 Section 3.03. Early Retirement.................................... 24 Section 3.04. Total And Permanent Disability...................... 24 Section 3.05. Benefit Distribution................................ 25 Section 3.06. Distribution Of Benefits Upon Death................. 28 Section 3.07. Determination Of Accrued Benefits Upon Termination.. 32 Section 3.08. Lump Sum Distributions.............................. 33 Section 3.09. Maximum Benefit Payment Date........................ 36 Section 3.10. Suspension Of Benefits Upon Re-Employment Or Continued Employment................................ 36 Section 3.11. Direct Rollover..................................... 38 Section 3.12. Appointment Of Guardian For Beneficiary............. 38 ARTICLE IV: CONTRIBUTION AND VALUATION.................................. 39 Section 4.01. Deposit Of Funds.................................... 39 Section 4.02. Payment Of Expenses................................. 39 Section 4.03. Periodic Actuarial Valuation........................ 39 Section 4.04. Funding Standard Account............................ 39 Section 4.05. Contributions By Mistake Of Fact.................... 39 Section 4.06. Contributions Conditioned On Deductibility.......... 39 ARTICLE V: TRUST FUND AND TRUST AGREEMENT.............................. 39 Section 5.01. Trust Fund.......................................... 39 Section 5.02. Trust Agreement..................................... 40 ARTICLE VI: MAXIMUM BENEFIT LIMITATIONS................................. 40 Section 6.01. General............................................. 40 Section 6.02. Annual Additions.................................... 42 Section 6.03. Annual Benefit...................................... 42 Section 6.04. Compensation........................................ 42 Section 6.05. Current Accrued Benefit............................. 43 Section 6.06. Defined Benefit Dollar Limitation................... 43
-ii- Section 6.07. Defined Benefit Fraction............................ 43 Section 6.08. Defined Contribution Fraction....................... 44 Section 6.09. Employer............................................ 44 Section 6.10. Highest Average Compensation........................ 44 Section 6.11. Limitation Year..................................... 44 Section 6.12. Maximum Permissible Amount.......................... 45 Section 6.13. Projected Annual Benefit............................ 45 Section 6.14. Social Security Retirement Age...................... 46 Section 6.15. Year of Participation............................... 46 ARTICLE VII: TOP HEAVY PROVISIONS....................................... 46 Section 7.01. General............................................. 46 Section 7.02. Key Employee........................................ 46 Section 7.03. Top Heavy Plan...................................... 47 Section 7.04. Top Heavy Ratio..................................... 47 Section 7.05. Permissive Aggregation Group........................ 48 Section 7.06. Required Aggregation Group.......................... 48 Section 7.07. Determination Date.................................. 48 Section 7.08. Valuation Date...................................... 49 Section 7.09. Present Value....................................... 49 Section 7.10. Minimum Accrued Benefit............................. 49 Section 7.11. Vesting............................................. 49 ARTICLE VIII: AMENDMENT, MERGER, CONSOLIDATION OR TRANSFER OF ASSETS..................................................... 50 Section 8.01. Plan Amendment...................................... 50 Section 8.02. Merger, Consolidation Or Transfer Of Assets......... 51 ARTICLE IX: PLAN TERMINATION........................................... 53 Section 9.01. Termination Of Plan................................. 53 Section 9.02. Limitation Of Benefits On Termination............... 55 ARTICLE X: MISCELLANEOUS PROVISIONS..................................... 57 Section 10.01. Headings And Subheadings Contained In Plan.......... 57 Section 10.02. Illegality Of Plan Provisions....................... 57 Section 10.03. Correction Of Misstatements......................... 57 Section 10.04. Singular And Plural Terms........................... 57 Section 10.05. Governing Law....................................... 57 Section 10.06. Voluntary Continuance Of The Plan By The Employer... 57 Section 10.07. Source Of Payment Of Benefits....................... 57 Section 10.08. Suspension Of Contributions By The Employer......... 57 Section 10.09. No Employment Rights Under Plan..................... 57 Section 10.10. Alienation Of Benefits Disallowed................... 57 Section 10.11. Indemnification By Employer......................... 58 Section 10.12. Bonding Of Fiduciaries.............................. 58
-iii- NATIONAL BANK OF COMMERCE PENSION PLAN WHEREAS, National Bank of Commerce of Birmingham, a national banking association having its principal place of business in Birmingham, Alabama, established the National Bank of Commerce Pension Plan effective January 1, 1982 to provide retirement benefits for eligible employees; and WHEREAS, the National Bank of Commerce Pension Plan was amended and restated effective January 1, 1984 and was again amended and restated, generally effective January 1, 1989; and WHEREAS, there have been four (4) amendments to the National Bank of Commerce Pension Plan since it was amended and restated, generally effective January 1, 1989; and WHEREAS, as a result of changes in applicable tax laws, it is necessary to amend and restate the National Bank of Commerce Pension Plan. NOW, THEREFORE, the National Bank of Commerce Pension Plan is hereby amended and restated effective as of January 1, 1997 with certain provisions effective as of earlier or later dates as expressly set forth herein. ARTICLE I: DEFINITIONS ----------------------- As used in the Plan, the following words and phrases shall have the meanings specified below, unless a different meaning is plainly required by the context: Section 1.01. Accrued Benefit. "Accrued Benefit," as of any date, shall --------------- mean a Participant's benefit earned as of that date. The Participant's Accrued Benefit shall be calculated in accordance with Section 1.27 (Monthly Retirement Income). Effective December 31, 1999, the Plan shall be frozen, and no Participant shall accrue any benefits under the Plan after said date. Section 1.02. Act or ERISA. "Act" or "ERISA" means the Employee ------------ Retirement Income Security Act of 1974, as amended from time to time. Section 1.03. Actuarial Equivalent. "Actuarial Equivalent" shall mean -------------------- equality in the value of the aggregate amounts expected to be received under different forms of payment as set forth below. (a) For Plan Years beginning prior to January 1, 2000, for the lump sum distributions as described in Section 3.08, the Actuarial Equivalent amount payable to the Participant shall be calculated using the PBGC immediate or, if applicable, deferred annuity factors for males as in effect on January 1 of the year in which the lump sum distribution is paid. For Plan Years beginning on or after January 1, 2000, the Actuarial Equivalent for the lump sum distributions as described in Section 3.08 shall be determined as set forth below: (i) Interest Assumption. The applicable interest rate used for the ------------------- purpose of computing a lump sum distribution as described in Section 3.08 and for the purpose of computing the present value of a benefit payable under the Plan is the annual rate of interest on 30-Year Treasury Securities determined as of the second calendar month preceding the first day of the Plan Year during which the payment is made. (ii) Mortality Assumption. The applicable mortality table used for -------------------- the purpose of computing lump sum distributions as described in Section 3.08 and for the purpose of computing the present value of a benefit payable under the Plan is the table prescribed by the Secretary of the Treasury. Such table shall Page 1 of 58 be based on the prevailing commissioner's standard table (described in Code Section 807(d)(5)(A)) used to determine reserves for group annuity contracts issued on the date as of which present value is being determined (without regard to any other subparagraph of Code Section 807(d)(5)). (b) For an annuity which is payable for the life of the Participant with a fifty percent (50%) survivor annuity for the life of the spouse, the Actuarial Equivalent amount payable to the Participant shall be equal to the single life annuity multiplied by eighty-eight percent (88%). Notwithstanding the above, if the birth dates of the Participant and spouse are more than five (5) years apart, the eighty-eight percent (88%) factor shall be (1) decreased, if the Participant is older, or (2) increased, if the spouse is older, as follows: (i) one percent (1%), multiplied by (ii) the survivor annuity percentage (50%), multiplied by (iii) the number of full years, up to a maximum of twenty (20), by which the difference in birth dates exceeds five (5) years. If the assumptions described in this Section 1.03(b) change, the Actuarial Equivalent of the Accrued Benefit on or after the date of such change shall be the greater of the Actuarial Equivalent of the Accrued Benefit as of such date computed using the assumptions in effect immediately before such change or the Actuarial Equivalent of the Accrued Benefit computed using the assumptions in effect after such change. (c) For an annuity which is payable for the life of the Participant with a one hundred percent (100%) survivor annuity for the life of the spouse, the Actuarial Equivalent amount payable to the Participant shall be equal to the single life annuity multiplied by seventy-nine percent (79%). Notwithstanding the above, if the birth dates of the Participant and spouse are more than five (5) years apart, the seventy-nine percent (79%) factor shall be (1) decreased, if the Participant is older, or (2) increased, if the spouse is older, as follows: (i) one percent (1%), multiplied by (ii) the number of full years, up to a maximum of twenty (20), by which the difference in birth dates exceeds five (5) years. If the assumptions described in this Section 1.03(c) change, the Actuarial Equivalent of the Accrued Benefit on or after the date of such change shall be the greater of the Actuarial Equivalent of the Accrued Benefit as of such date computed using the assumptions in effect immediately before such change or the Actuarial Equivalent of the Accrued Benefit computed using the assumptions in effect after such change. (d) For all other purposes, the Actuarial Equivalent amount payable to the Participant shall be calculated using annuities derived from the 1971 Group Annuity Mortality Table for males, with a five-year age set-back for Beneficiaries and six percent (6%) interest per annum. Section 1.04. Actuary. "Actuary" shall mean a Fellow of the Society of ------- Actuaries who has been enrolled by the Joint Board for the Enrollment of Actuaries under ERISA Section 3042 or a firm of actuaries, at least one of Page 2 of 58 whose members is a Fellow of the Society of Actuaries who has been so enrolled. The Actuary shall be designated by the Employer. Section 1.05. Affiliated Employer or Affiliate. An "Affiliated Employer" -------------------------------- or "Affiliate" is any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the following: (a) the Employer; (b) any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; (c) any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and (d) any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o). Section 1.06. Annual Compensation. ------------------- (a) Definition Of Annual Compensation Effective On And After January 1, ------------------------------------------------------------------- 1994. Notwithstanding the immediately following paragraphs (b) and (c), on and - ---- after January 1, 1994 "Annual Compensation" shall mean, with respect to any Participant, wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Annual 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)). (1) Annual Compensation determined according to Section 1.06(a) shall not include (even if includible in gross income) reimbursements or other expense allowances, fringe benefits (cash or noncash), moving expenses, deferred compensation, and welfare benefits. (2) Annual Compensation determined according to Section 1.06(a) shall include amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Section 125, 402(e)(3), 402(h), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. (b) Definition Of Annual Compensation Effective On And After January 1, ------------------------------------------------------------------- 1984 But Prior To January 1, 1994. On and after January 1, 1984 but prior to - --------------------------------- January 1, 1994, "Annual Compensation" shall mean all of a Participant's earnings from the Employer for the Plan Year which are (a) actually paid within such Plan Year, and (b) subject to tax under Code Section 3101(a) without the dollar limitation of Code Section 3121(a), but not including deferred compensation other than contributions, if any, through a salary reduction agreement to a cash or deferred plan under Code Section 401(k) or to a tax- deferred annuity under Code Section 403(b). Only for purposes of the foregoing provisions of this Section 1.06(b), Section 1.07, and Section 1.26, the "Employer" shall be deemed to refer to MetroBank prior to the sale of its stock to National Commerce Corporation. Effective as of January 1, 1991, with respect to the persons retiring after December 31, 1990 or whose employment otherwise terminates after December 31, 1990, Annual Compensation shall be determined without regard to any deemed or imputed compensation from Employer-provided life insurance, moving expenses, mileage or other reimbursements or other imputed income non-cash items which may be counted for purposes of Code Section 3101. Notwithstanding the foregoing, the minimum Accrued Benefit (expressed as a monthly annuity for life beginning at the Normal Retirement Date) of each person who was a Participant in the Plan on December 31, 1990 shall be determined using Continuous Service of such Participant through December 31, 1990 and based upon the Average Monthly Earnings of the Participant determined at December 31, 1990 (that is, without regard to the foregoing change in the definition of Annual Compensation and without regard to any amount of compensation paid on and after January 1, 1991). Page 3 of 58 (c) Definition Of Annual Compensation Effective On And Before December 31, ---------------------------------------------------------------------- 1983. On and before December 31, 1983, "Annual Compensation" shall mean the - ---- total of a Participant's Annual Compensation from the Employer, including salary, overtime, and bonuses. (d) Limitations On Annual Compensation Taken Into Account In Determining -------------------------------------------------------------------- Benefits. For Plan Years after December 31, 1988 and prior to January 1, 1994, - -------- the Annual Compensation (sometimes referred to in this Section 1.06(d) as "compensation") taken into account for determining all benefits provided under this Plan for any Plan Year shall not exceed $200,000, as adjusted. This limitation shall be automatically adjusted to the amounts fixed by the Secretary of the Treasury from time to time under Code Section 415(d) except that the dollar increase in effect on January 1 of any calendar year is effective for Plan Years beginning on July 1 in such calendar year and the first adjustment to the $200,000 limitation is effective on January 1, 1990. In addition to the other applicable limitations set forth in the Plan, and notwithstanding any other 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 Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding twelve (12) months, over which compensation is determined ("determination period") beginning in such calendar year. 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 is determined on a period of time that contains less than twelve (12) calendar months (in the case of a short plan year), then the compensation limit is an amount equal to the compensation limit for the calendar year in which the compensation period begins multiplied by the ratio obtained by dividing the number of full months in the period by twelve (12). 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 applicable annual compensation limit in effect for that prior determination period. For this purpose, in determining benefits in Plan Years beginning on or after January 1, 1989, the annual compensation limit in effect for determination periods beginning before that date is $200,000. In addition, in determining benefits for determination periods beginning on or after January 1, 1994, the annual compensation limit in effect for determination periods beginning before that date is $150,000. For Plan Years beginning prior to January 1, 1997, in determining the compensation of a Participant for purposes of this limitation, the rules of Section 414(q)(6) of the Code shall apply, except in applying such rules, the term "family" shall include only the spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the year. If, as a result of the application of such rules the adjusted annual compensation limitation is exceeded, then (except for purposes of determining the portion of compensation up to the integration level if this Plan provides for permitted disparity) the limitation shall be pro rated among the affected individuals in proportion to each such individual's compensation as determined under the Plan prior to the application of this limitation. Unless otherwise provided under the Plan, each Section 401(a)(17) employee's accrued benefit under this Plan will be the greater of the accrued benefit determined for the employee under (a) or (b) below: (a) the employee's accrued benefit determined with respect to the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the employee's total years of service taken into account under the Plan for the purposes of benefit accruals, or Page 4 of 58 (b) the sum of: (1) the employee's accrued benefit as of the last day of the last Plan Year beginning before January 1, 1994, calculated by applying the 1993 indexed limitation retroactively to all years before 1994, frozen in accordance with Section 1.401(a)(4)-13 of the regulations, and (2) the employee's accrued benefit determined under the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the employee's years of service credited to the employee for Plan Years beginning on or after January 1, 1994, for purposes of benefit accruals. A Section 401(a)(17) employee means an employee whose current accrued benefit as of a date on or after the first day of the first Plan Year beginning on or after January 1, 1994, is based on compensation for a year beginning prior to the first day of the first Plan Year beginning on or after January 1, 1994, that exceeded $150,000. If the Plan satisfies the requirements of Section 1.401(a)(4)-13(d) of the Regulations for a fresh-start as of the last day of the last Plan Year beginning before January 1, 1994, then, notwithstanding any other provisions of the Plan, any Section 401(a)(17) employee's Accrued Benefit, frozen in accordance with Section 1.401(a)(4)-13 of the Regulations as of a fresh-start date, is adjusted to reflect increases in the employee's compensation after the fresh-start date. However, this adjustment may be made only if the adjustment will not cause the Plan to fail to satisfy the consistency requirement of Section 1.401(a)(4)- 13(c), as modified by Section 1.401(a)(17)-1(e) of the proposed Regulations. In determining a Section 401(a)(17) employee's Accrued Benefit in any Plan Year beginning on or after January 1, 1994, the portion of the employee's frozen Accrued Benefit attributable to Plan Years beginning before January 1, 1994, will be determined in accordance with Method A for statutory Section 401(a)(17) employees and Method B for Section 401(a)(17) employees other than statutory Section 401(a)(17) employees. A statutory Section 401(a)(17) employee means an employee whose current Accrued Benefit as of a date on or after the first day of the first Plan Year beginning on or after January 1, 1994, is based on compensation for a year beginning prior to the first day of the first Plan Year beginning on or after January 1, 1989, that exceeded $200,000. A Section 401(a)(17) employee means an employee whose current Accrued Benefit as of a date on or after the first day of the first Plan Year beginning on or after January 1, 1994, is based on compensation for a year beginning prior to the first day of the first Plan Year beginning on or after January 1, 1994, that exceeded $150,000. METHOD A (statutory Section 401(a)(17) employees): STEP 1: Determine each statutory Section 401(a)(17) employee's Accrued Benefit as of the last day of the last Plan Year beginning before January 1, 1989, frozen in accordance with Section 1.401(a)(4)-13 of the Regulations. STEP 2: Adjust the amount in Step 1 up through the last day of the last Plan Year beginning before the first Plan Year beginning on or after January 1, 1994, under the method provided under the Plan for increasing the amount in Step 1 to take into account increases in compensation in Plan Years beginning on or after January 1, 1989. However, if the Plan does not provide for such increases, the amount in Step 2 shall be equal to the amount in Step 1. STEP 3: Determine the statutory Section 401(a)(17) employee's Accrued Benefit as of the last day of the last Plan Year beginning before January 1, 1994, frozen in accordance with Page 5 of 58 Section 1.401(a)(4)-13 of the Regulations. STEP 4: Subtract the amount determined Step 2 from the amount determined in Step 3. STEP 5: Adjust the amount in Step 4 by multiplying it by the following fraction (not less than 1). The numerator of the fraction is the statutory Section 401(a)(17) employee's average compensation determined for the current year (as limited by Section 401(a)(17)), using the same definition and compensation formula in effect as of the last day of the last Plan Year beginning before January 1, 1994. The denominator of the fraction is the employee's average compensation for the last day of the last Plan Year beginning before January 1, 1994, using the definition and compensation formula in effect as of the last day of the last Plan Year beginning before January 1, 1994. STEP 6: Adjust the amount in Step 1 by multiplying it by the following fraction (not less than 1). The numerator of the fraction is the statutory Section 401(a)(17) employee's average compensation for the current year (as limited by Section 401(a)(17)), using the same definition and compensation formula in effect as of the last day of the last Plan Year beginning before January 1, 1989. The denominator of the fraction is the employee's average compensation for the last day of the last Plan Year beginning before January 1, 1989, using the definition and compensation formula in effect as of the last day of the last Plan Year beginning before January 1, 1989. STEP 7: Add the amounts determined in Step 5, and the greater of Steps 6 or 2. METHOD B (Section 401(a)(17) employees other than statutory Section 401(a)(17) employees): STEP 1: Determine the Accrued Benefit of each Section 401(a)(17) employee other than statutory Section 401(a)(17) employees as of the last day of the Plan Year beginning before January 1, 1994, frozen in accordance with Section 1.401(a)(4)-13 of the Regulations. STEP 2: Adjust the amount in Step 1 by multiplying it by the following fraction (not less than 1). The numerator of the fraction is the average compensation of the Section 401(a)(17) employee who is not a statutory Section 401(a)(17) employee determined for the current year (as limited by Section 401(a)(17)), using the same definition and compensation formula in effect as of the last day of the last Plan Year beginning before January 1, 1994. The denominator of the fraction is the employee's average compensation for the last day of the last Plan Year beginning before January 1, 1994, using the definition and compensation formula in effect as of the last day of the last Plan Year beginning before January 1, 1994. Section 1.07. Average Monthly Earnings. "Average Monthly Earnings" shall ------------------------ mean the average of Monthly Earnings (as defined in Section 1.26) for the sixty (60) months immediately preceding a Participant's Normal Retirement Date. (a) If a Participant has fewer than sixty (60) months of continuous employment, "Average Monthly Earnings" shall be the average of Monthly Earnings for all months of continuous employment. (b) If immediately prior to calculation of Average Monthly Earnings an Employee shall have been absent from work for one (1) or more calendar months for which he or she did not receive his or her monthly salary from the Employer, the sixty (60) months used in determining his or her Average Monthly Earnings shall be the last sixty (60) calendar months during which compensation was paid to the Employee by the Employer. Page 6 of 58 Section 1.08. Board of Directors. "Board of Directors" shall mean the ------------------ Board of Directors of the Employer. Section 1.09. Break in Service. "Break in Service" shall mean a Plan Year ---------------- in which a Participant completes 500 or fewer Hours of Service. Section 1.10. Code. "Code" shall mean the Internal Revenue Code of 1986, ---- as amended or replaced from time to time. Section 1.11. Claimant. "Claimant," for the purposes of Section 2.07, -------- shall mean Participants, former Employees claiming to be Participants, surviving spouses, or any other persons claiming a benefit under the Plan. Section 1.12. Continuous Service. Prior to January 1, 1988, the term ------------------ "Continuous Service" meant service with the Employer prior to the attainment of age sixty-five (65) calculated from the later of the Employee's last hiring date or January 1, 1980. Notwithstanding the foregoing, for Participants who are credited with at least one (1) Hour of Service after December 31, 1987, "Continuous Service" shall mean service with the Employer calculated from the later of the Employee's last hiring date or January 1, 1980. The calculation of Continuous Service shall be subject to the following rules and conditions: (a) Length of Continuous Service shall be computed in whole months from the date the Employee has been continuously employed in the service of the Employer as an Employee as defined in Section 1.17, determined by the practices in effect at the date of such employment, or re-employment, after a Break in Continuous Service. Continuous Service shall be broken by the following events: (1) Discharge from the employment of the Employer; (2) Voluntarily quitting the employment of the Employer; (3) Absence due to disability continuing for more than two (2) years, provided that the Employee may accumulate up to six (6) months Continuous Service during any such absence; and further provided, however, that an Employee absent because of compensable injury or sickness under applicable Workers Compensation laws shall accumulate Continuous Service until the termination of the period for which such compensation is payable, if he or she applies for return to work, and does return to work, within fifteen (15) days next following the last payment of such compensation to him or her; or (4) Failure to report for work after a layoff within five (5) regularly scheduled work days of the mailing by the Employer by registered or certified mail to the Employee's latest address appearing on the Employer's records of a notice to return to work or declining the work offered or at the hours stipulated. It is the individual Employee's duty to keep the Employer informed of any changes in the Employee's address. (i) Continuous Service shall not be broken because of absence due to service in the Armed Forces or Merchant Marine Service of the United States, for which the Employee has re- employment rights under the law and complies with the requirements of the law as to re-employment and is re-employed. (ii) Employees whose employment with the Employer and all Affiliates terminated on or after January 1, 1982 and before January 1, 1985 shall lose all prior Continuous Service in accordance with the foregoing rules of Continuous Service in Section 1.12 if rehired by the Employer or any Affiliate, unless, the foregoing provisions of Section 1.12 to the contrary notwithstanding: Page 7 of 58 (A) they were Vested in their Accrued Benefit at the time of termination, or (B) they were not Vested in any portion of their Accrued Benefit at the time of termination and the number of consecutive Breaks in Service is less than the aggregate number of Plan Years in which Continuous Service was earned prior to the Break in Service. In the event Continuous Service is preserved for an Employee under the terms of the foregoing provisions of Section 1.12(a) and consistent with Section 1.12(b), one Accrued Benefit shall be calculated under the terms of the Plan as in effect at the time of such calculation using all years of Continuous Service. (iii) With respect to terminations of employment occurring on or after January 1, 1985, an Employee will be credited on rehire with all years of Continuous Service credited prior to his or her termination unless, with respect to an Employee who does not have any nonforfeitable right to an Accrued Benefit hereunder, the number of consecutive one-year Breaks in Service equals or exceeds the greater of (A) five (5), or (B) the aggregate number of Plan Years in which Continuous Service was earned prior to the first one-year Break in Service. In the event Continuous Service is so preserved, the provisions of the last paragraph of Section 1.12(a)(4)(ii) will be applied. (b) In determining length of service, there shall be deducted all time lost in excess of thirty (30) days, for which monthly salary is not paid by the Employer, due to leave of absence, suspension, or non-compensable disability except to the extent credit for such periods of absence specifically is granted under the terms of the Plan. (c) Anything herein to the contrary notwithstanding, the minimum Continuous Service credit for purposes of calculating the Accrued Benefit of an Employee shall be based upon the number of Hours of Service (determined under Section 1.22 but only while the Employee is an Employee within the meaning of Section 1.17) in a Plan Year on the basis of the following proration: (1) 1000-1149 Hours - 6 months (2) 1150-1299 Hours - 7 months (3) 1300-1449 Hours - 8 months (4) 1450-1599 Hours - 9 months (5) 1600-1749 Hours - 10 months (6) 1750-1899 Hours - 11 months (7) 1900 or more - 12 months (d) Section 1.12(c) and any other provision of the Plan to the contrary notwithstanding, with respect to Participants who were employees of MetroBank prior to the purchase of its stock by National Commerce Corporation, Continuous Service shall only include service for the Employer after the time of such sale and, with respect to the remainder of 1985 after the said sale of stock, Employees not previously covered by the Plan shall accrue Continuous Service on the basis of one month for each calendar month in which they work at least one Hour of Service for the Employer on or after September 1, 1985. (e) Effective December 31, 1999, the Plan shall be frozen, and no Participant shall accrue any additional Page 8 of 58 Continuous Service after said date. Section 1.13. Covered Service. "Covered Service" shall mean service --------------- covered by ERISA Section 203(a)(3)(B). Section 1.14. Deferred Retirement Date. Deferred Retirement Date is a ------------------------ Participant's date of termination of employment or, if earlier, a Participant's date of death, after remaining in service beyond his or her Normal Retirement Date, whether continuing employment through his or her Normal Retirement Date or being reemployed after such date. Section 1.15. Earliest Retirement Age and Early Retirement Date. ------------------------------------------------- "Earliest Retirement Age" shall mean attainment of age sixty (60) and completion of seven (7) years of Continuous Service. "Early Retirement Date" shall mean the first day of the month coincident with or next following the date on which an eligible Participant elects to retire early. Section 1.16. Effective Date. The "Effective Date" of the Plan is January -------------- 1, 1982 which is the original effective date of the Plan. The general effective date of this amendment and restatement is January 1, 1997. Section 1.17. Employee. "Employee" shall mean any person in the -------- employment of the Employer. Employees of Affiliates other than the Employer are not to be considered to be "Employees" for any purpose of the Plan except that (a) Hours of Service for vesting will be credited for employment with other members of an affiliated service group (under Code Section 414(m)), a controlled group of corporations (under Code Section 414(b)), or a group of trades or businesses under common control (under Code Section 414(c)), of which the Employer is a member, and (b) Hours of Service for vesting will also be credited for any individual considered an Employee for purposes of the Plan under Section 1.25 (Leased Employee). Section 1.18. Employer. "Employer" shall mean National Bank of Commerce -------- of Birmingham, National Commerce Corporation of Birmingham and their successors and assigns. The Employer shall not, except as otherwise provided in Section 1.06, be deemed to refer to MetroBank prior to the time of the sale of its stock to National Commerce Corporation. Effective May 15, 1995, "Employer" shall also mean any Affiliated Employer which shall adopt this Plan with the approval of the Board of Directors of National Bank of Commerce of Birmingham. Such adopting Affiliated Employers shall be "Participating Employers" in the Plan. The following rules shall apply with regard to Participating Employers: (a) The Trustee shall commingle, hold and invest as one Trust Fund all contributions made by the Employer and Participating Employers, as well as all increments thereof. The assets of the Plan shall, on an ongoing basis, be available to pay benefits to all Participants and beneficiaries under the Plan without regard to the Employer or Participating Employer who contributed such assets. (b) The transfer of any Participant from or to an Employer participating in this Plan, whether he is an Employee of the Employer or a Participating Employer, shall not affect such Participant's rights under the Plan, and the Participant's Accrued Benefit as well as his accumulated service time with the transferor or predecessor and his length of participation in the Plan, shall continue to his credit. (c) Each Participating Employer shall be deemed to be a party to this Plan; provided, however, that with respect to all of its relations with the Trustee and Administrator for purposes of this Plan, each Participating Employer Page 9 of 58 shall be deemed to have designated irrevocably the Employer as its agent. Unless the context of the Plan clearly indicates the contrary, the word "Employer" shall be deemed to include each Participating Employer as related to its adoption of the Plan. However, with regard to provisions of the Plan under which the "Employer" is authorized to act (such as, by way of example and not limitation, amending or terminating the Plan, removing the Trustee, determining claims, etc.), such action must be taken by the Employer, and the Participating Employers shall have no power or authority to take such actions. Section 1.19. First Gulf Plan. The First Gulf Bancorp Retirement Plan. --------------- See Section 1.41(b)(2) (Service Year or Year of Service). Section 1.20. Former Participant. "Former Participant" shall mean any ------------------ Employee of the Employer who has been a Participant, but who has ceased to be a Participant for any reason. Section 1.21. Highly Compensated Employee, Highly Compensated Former ------------------------------------------------------ Employee, and Highly Compensated Participant. - -------------------------------------------- (a) "Highly Compensated Employee" shall mean, for Plan Years beginning after December 31, 1996, an Employee described in Code Section 414(q) and the Regulations thereunder, and generally means an Employee who performed services for the Employer during the "determination year" and is in one or more of the following groups: (1) Employees who at any time during the "determination year" or "look-back year" were "five percent owners." See Section 7.02. (2) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $80,000. The "determination year" shall be the Plan Year for which testing is being performed, and the "look-back year" shall be the immediately preceding twelve-month period. For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Section 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. Additionally, the dollar threshold amounts specified in (a)(2) above shall be adjusted at such time and in such manner as is provided under Code Section 415(d), accept that the base period shall be the calendar year ending September 30, 1996. In the case of such an adjustment, the dollar limits which shall be applied are those for the calendar year in which the "determination year" or "look-back year" begins. In determining who is a Highly Compensated Employee, Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, all Affiliated Employers shall be taken into account as a single employer and Leased Employees within the meaning of Code Section 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. The exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Employer's retirement plans. Highly Compensated Former Employees shall be treated as Highly Compensated Employees without regard to whether they performed services during the "determination year." (b) "Highly Compensated Former Employee" shall mean a former Employee who had a separation year prior to the "determination year" and was a Highly Compensated Employee in the year of separation from service or in any Page 10 of 58 "determination year" after attaining age 55. Notwithstanding the foregoing, an Employee who separated from service prior to 1987 will be treated as a Highly Compensated Former Employee only if during the separation year (or year preceding the separation year) or any year after the Employee attains age 55 (or the last year ending before the Employee's 55th birthday), the Employee either received "415 Compensation" in excess of $50,000 or was a "five percent owner." For purposes of this Section, "determination year," "415 Compensation" and "five percent owner" shall be determined in accordance with Section 1.21(a). Highly Compensated Former Employees shall be treated as Highly Compensated Employees. The method set forth in this Section for determining who is a "Highly Compensated Former Employee" shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable. (c) "Highly Compensated Participant" means any Highly Compensated Employee who is eligible to participate in the Plan. Page 11 of 58 Section 1.22. Hour of Service. --------------- (a) "Hour of Service" shall mean: (1) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer. Hours of Service will be credited to the Employee for the computation period in which the duties are performed; and (2) Each Hour of Service for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave-of-absence. No more than 501 Hours of Service will be credited under this paragraph for a single continuous period (whether or not the period occurs in a single period). Hours of Service under this paragraph will be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations which is incorporated herein by this reference; and (3) Each Hour of Service 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 the immediately preceding paragraph (1) or the immediately preceding paragraph (2), as the case may be, and under this paragraph (3). These Hours of Service will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement, or payment is made. (b) Hours of Service will be credited for employment with other members of an affiliated service group (under Code Section 414(m)), a controlled group of corporations (under Code Section 414(b)), or a group of trades or businesses under common control (under Code Section 414(c)), of which the Employer is a member, and any other entity required to be aggregated with the Employer pursuant to Code Section 414(o). (c) Hours of Service also will be credited for any individual who is considered to be an employee for purposes of the Plan under Code Sections 414(n) or 414(o). (d) Solely for purposes of determining whether a Break in Service (as defined in Section 1.09 for participation and vesting purposes) has occurred in a computation period, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, eight (8) Hours of Service per day of such absence. An absence from work for maternity or paternity reasons means an absence (i) by reason of the pregnancy of the individual, (ii) by reason of a birth of a child of the individual, (iii) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (iv) for purposes of carrying for such child for a period beginning immediately following such birth or placement. Hours of Service shall be credited (A) in the computation period in which the absence begins if the crediting is necessary to prevent a Break in Service in that period, or (B) in all other cases, in the following computation period. (e) Employees who are exempt from the Fair Labor Standards Act shall be credited, for all purposes hereof, with forty-five (45) Hours of Service for each calendar week in which an Employee worked, or was paid or entitled to payment for, at least one Hour of Service for the Employer. Employees who are not exempt from the Fair Labor Standards Act shall be credited, for all purposes hereof, with Hours of Service in an amount equal to the actual number of hours worked. Section 1.23. Investment Manager. "Investment Manager" shall mean an ------------------ entity appointed by the Employer as provided in Section 2.03(b) who Page 12 of 58 (a) has the power to manage, acquire, or dispose of any Plan asset; (b) acknowledges fiduciary responsibility to the Plan in writing; (c) has been designated as a "Qualified Plan Asset Manager" and/or "Qualified Professional Asset Manager" so that the Investment Manager may successfully pursue and obtain a QPAM exemption; and (d) falls within at least one of the following categories: (1) A registered investment adviser under the Investment Advisers Act of 1940 (15 U.S.C. Section 80a-1 et seq.); (2) A bank (as defined in the Investment Advisers Act of 1940); (3) A savings and loan association whose accounts are insured by the Federal Savings and Loan Insurance Corporation and that has made application for and been granted trust powers to manage, acquire, or dispose of plan assets by a state or federal authority having supervision over savings and loan associations; or (4) An insurance company qualified to perform asset management, acquisition, and disposition services under the laws of more than one state. Section 1.24. Key Employee. See Section 7.02. ------------ Section 1.25. Leased Employee. A "Leased Employee" means, for Plan Years --------------- beginning after December 31, 1996, any person (other than an Employee of the Employer) who pursuant to an agreement between the Employer and any other person ("leasing organization") has performed services for the Employer (or for the Employer 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 performed under primary direction or control by the Employer. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the Employer shall be treated as provided by the Employer. A Leased Employee shall be considered an Employee of the Employer, unless: (a) Such Leased Employee is covered by a money purchase pension plan providing: (1) a non-integrated employer contribution rate of at least 10% of compensation, as defined in Code Section 415(c)(3), but including amounts, if any, which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h), 403(b) or 457, and Employee contributions, if any, described in Code Section 414(h)(2) that are treated as Employer contributions; (2) immediate participation; and (3) full and immediate vesting; and (b) Leased Employees do not constitute more than 20% of the Employer's non-highly compensated work force. Section 1.26. Monthly Earnings. "Monthly Earnings" shall mean the total ---------------- of a Participant's Annual Compensation, as defined in Section 1.06, from the Employer, as averaged on a monthly basis. Page 13 of 58 Section 1.27. Monthly Retirement Income. A Participant's "Monthly ------------------------- Retirement Income" commencing at his or her Normal Retirement Date shall be calculated pursuant to Section 3.01 on the basis of the following assumptions: (a) That the Participant's Average Monthly Earnings at date of calculation would have been his or her Average Monthly Earnings at his or her Normal Retirement Date, and (b) That his or her Continuous Service would have continued uninterrupted until his or her Normal Retirement Date. The amount determined in accordance with this Section 1.27 shall be multiplied by a fraction, the numerator of which shall be the Participant's Continuous Service as of the calculation date and the denominator of which shall be the Continuous Service the Participant would have accumulated had he or she continued until his or her Normal Retirement Date without interruption of his or her service. Section 1.28. Named Fiduciary. See Section 2.01. --------------- Section 1.29. Non-Highly Compensated Participant. "Non-Highly Compensated ---------------------------------- Participant" shall mean any Participant who is not a Highly Compensated Employee and, for Plan Years beginning prior to January 1, 1997, is not a "family member" under Code Section 414(q)(6)(B). Section 1.30. Non-Key Employee. A "Non-Key Employee" shall mean any ---------------- Employee or former Employee (and his or her beneficiaries) who is not a Key Employee. Section 1.31. Normal Retirement Date. ---------------------- (a) "Normal Retirement Date" shall mean the first day of the month coincident with or immediately preceding a Participant's sixty-fifth (65th) birthday. (b) With respect to persons whose first Hour of Service with the Employer is on or after January 1, 1989, Normal Retirement Date shall mean, if later than attainment of age sixty-five (65), the first day of the month coinciding with or next following the completion of five (5) years of Continuous Service (or, if earlier, five (5) Service Years). Section 1.32. Participant. ----------- (a) "Participant" shall mean any Employee of the Employer who was employed by the Employer on January 1, 1982 (provided that at such time the Employee was under the age of 65) or is thereafter hired by the Employer. Provided, however, that any Employee who had been a Participant and is rehired shall be a Participant as of his or her date of rehire. Any employee of MetroBank at the time of the sale of its stock to National Commerce Corporation shall become a Participant if employed by the Employer on or after such time, but no benefits shall be accrued under the Plan with respect to any service prior to such time. (b) Leased Employees shall not be eligible to participate in the Plan. Section 1.33. PBGC. "PBGC" shall mean the Pension Benefit Guaranty ---- Corporation. Section 1.34. Plan. "Plan" refers to the National Bank of Commerce ---- Pension Plan. Section 1.35. Plan Administrator. The Employer shall be the "Plan ------------------ Administrator" within the Page 14 of 58 meaning of ERISA, unless the Employer, pursuant to Section 2.02(b), designates another person or entity to administer the Plan on behalf of the Employer. Section 1.36. Plan Year. "Plan Year" shall mean each twelve (12) month --------- period which begins on January 1. Plan Years will be the vesting computation and accrual computation periods for purposes of the Plan. Section 1.37. Pre-retirement Survivor Annuity. "Pre-retirement Survivor ------------------------------- Annuity" shall mean an immediate annuity form of payment for the life of the surviving spouse of a Participant who dies prior to his or her annuity starting date. Section 1.38. Regulation. "Regulation" shall mean Income Tax Regulations ---------- as promulgated by the Secretary of the Treasury or his or her delegate, and as amended from time to time and/or Department of Labor Regulations under the Act promulgated by the Department of Labor, as amended from time to time. Section 1.39. Required Beginning Date. The Required Beginning Date for an ----------------------- active and inactive Participant is April 1 following the calendar year in which he or she reaches age 70 1/2. However, the Required Beginning Date for an active Participant who reached age 70 1/2 before 1988, and who was not a 5- percent owner, is his or her actual retirement date. A Participant will be treated as a 5-percent owner if he or she owns or owned at least 5 percent of any Employer at any time during the Plan Year ending within the calendar year in which he or she reaches age 66 1/2 or any subsequent Plan Year. See also Sections 3.05, 3.06 and 3.09. Section 1.40. Retired Participant. A "Retired Participant" is a person ------------------- who has been a Participant, but who has become entitled to retirement benefits under the Plan. Section 1.41. Service Year or Year of Service. "Service Year" or "Year of ------------------------------- Service," for vesting purposes only, shall mean (a) With respect to calendar years 1980 and 1981, the number of full years (and monthly fractions) of Continuous Service determined pursuant to Section 1.12, and (b) With respect to Plan Years after 1981, a Plan Year during which an Employee has completed 1,000 or more Hours of Service. Provided, however, that for any Plan Year in which an Employee is not entitled to credit for a Service Year, he or she shall receive as a Service Year the number of months of Continuous Service determined for such Plan Year under Section 1.12. (1) The calculations under the immediately preceding paragraph (b) shall include periods of time before and after any absences or Breaks in Service, except as follows: (i) Service Years of an Employee who does not have any Vested interest pursuant to the provisions of the Plan at the time of his or her termination prior to January 1, 1985 will be eliminated if he or she incurs a number of consecutive Breaks in Service equal to or exceeding his or her aggregate number of Service Years at the time of his or her return to employment prior to January 1, 1985. (ii) With respect to resumptions of employment occurring on or after January 1, 1985, an Employee will be credited or rehire with all Service Years credited prior to his or her termination unless, with respect to an Employee who does not have any nonforfeitable right to an Accrued Benefit hereunder, the number of consecutive Breaks in Service equals or exceeds the greater of (A) five (5), or (B) the aggregate number of Service Years prior to the first Break in Service. Page 15 of 58 (iii) If any Service Years of an Employee are not required to be taken into account by reason of the provisions of the immediately preceding subparagraphs (i) and (ii), then those Service Years referred to in (i) and (ii) are not required to be taken into account if there is a subsequent separation from service and rehire of the Employee. Provided, however, that application of the immediately foregoing provision shall not cause the elimination of any Service Years for Employees who were active on January 1, 1982. (2) Participants who, prior to becoming Participants in the Plan, were participants in the First Gulf Plan or employees eligible to participate thereunder shall have that number of "Service Years" through 1985 counted for the purposes of vesting in the Plan to which they were entitled through December 31, 1985 under the provisions of the First Gulf Plan in effect upon the date of sale of MetroBank stock to National Commerce Corporation, as if employed by MetroBank through December 31, 1985. The Plan Administrator shall obtain and preserve in the Plan's records the determination of vesting credit under the First Gulf Plan. (3) Effective April 15, 1994, those employees of First American Bank of Pelham ("FAB") who became employees of the Employer effective as of April 15, 1994 shall have their number of "Service Years" with FAB through April 15, 1994 counted according to the provisions of Section 1.41 for purposes of vesting in the Plan. Service with FAB shall not be counted for purposes of determining Continuous Service. The Plan Administrator shall examine those records of FAB needed to determine, under Section 1.41, the vesting credit of each of the aforementioned employees due to employment by FAB, and the Plan Administrator shall preserve in the Plan's records his or her determination of said vesting credit. (4) Former employees of St. Clair Federal Savings Bank, effectively employees of National Bank of Commerce of Birmingham as of October 17, 1996, shall receive service credit for purposes of vesting hereunder for the ten and one-half (10 1/2) months that both St. Clair Federal Savings Bank and National Bank of Commerce reported to Alabama National BanCorporation. Section 1.42. Terminated Participant. A "Terminated Participant" is a ---------------------- person who has been a Participant, but whose employment has been terminated other than by death, Total and Permanent Disability, or retirement. Section 1.43. Top Heavy Plan. See Section 7.03. -------------- Section 1.44. Top Heavy Plan Year. "Top Heavy Plan Year" means a Plan ------------------- Year during which the Plan is a Top Heavy Plan. Section 1.45. Total and Permanent Disability. "Total and Permanent ------------------------------ Disability" shall mean disability resulting from bodily injury or disease so as to prevent an Employee from engaging in any occupation or employment with the Employer for remuneration or profit, provided that said disability shall have continued for a period of six (6) consecutive months and, in the opinion of a qualified physician chosen by the Employer, will be permanent and continuous during the remainder of the Employee's life, but shall exclude a disability: (a) Contracted, suffered or incurred while the Employee was engaged in, or resulted from his or her having engaged in, a criminal enterprise; (b) The result of his or her habitual drunkenness or addiction to or use of narcotics; (c) The result of a self-inflicted injury; or (d) The result of future service in the Armed Forces of the United States which prevents him or her from returning to the employment of the Company, and for which he or she receives a military pension. Page 16 of 58 Section 1.46. Trust Agreement. "Trust Agreement" shall mean the Trust --------------- Agreement entered into by the Employer with the Trustee to hold the funds necessary to provide the benefits as set forth in the Plan. Section 1.47. Trustee. "Trustee" shall mean the bank from time to time ------- designated by the Employer to serve in such capacity with respect to the Plan. The Trustee shall at all times be a banking corporation organized and doing business under the laws of the United States of America or any state therein, authorized under such laws to execute corporate trust powers and subject to supervision or examination by Federal or State authority. Section 1.48 Trust Fund. "Trust Fund" shall mean all cash, securities, ---------- real estate, or any other property held by the Trustee pursuant to the terms of the Trust Agreement, together with income therefrom. As used herein "Trust Fund" shall only refer to the allocable interest of the Plan as shown on the records in and to a portion of the total assets and income administered by the Trustee under the Trust Agreement with contributions furnished by the corporation separately for purposes of each Plan whose assets are so commingled. Section 1.49 USERRA. "USERRA" means the Uniformed Services Employment ------ and Reemployment Rights Act of 1994. Notwithstanding any provision of this Plan to the contrary, effective December 12, 1994, contributions, benefits and service credit with respect to qualified military service will be provided in accordance Code Section 414(u). Section 1.50. Vested. "Vested" shall mean the portion of a Participant's ------ benefits under the Plan which is not forfeitable. ARTICLE II: PLAN ADMINISTRATION -------------------------------- Section 2.01. Named Fiduciary. --------------- (a) The Employer shall be the Named Fiduciary of the Plan within the meaning of ERISA Section 402 and shall have authority to control and manage the operation and administration of the Plan, unless the Board of Directors shall appoint in writing and communicate to Participants another person, firm or corporation to serve as Named Fiduciary. (b) The following shall also be Named Fiduciaries of the Plan: (1) The Board of Directors; (2) The Trustee; (3) Any entity designated as an Investment Manager or Named Fiduciary pursuant to a resolution of the Board of Directors of the Employer for the purpose of directing the Trustee in the investment or reinvestment of all or a part of the assets of the Trust, which resolution shall specify the portion, class or classes or dollar amount of the assets of the Trust with respect to which the Investment Manager or Named Fiduciary shall have investment discretion at the time of such appointment; (4) Plan Administrator(s), if any, designated by the Employer pursuant to Section 2.02; and (5) Any Affiliate whose employees are Participants in the Plan. Section 2.02. Allocation Of Fiduciary Responsibilities; Designation Of A ---------------------------------------------------------- Plan Administrator. - ------------------- (a) The Employer shall have the power to delegate and allocate specific fiduciary responsibilities (other than Page 17 of 58 those of the Trustee with respect to the control of the assets of the Plan), including without limitation, to a Plan Administrator. Delegations of specific fiduciary responsibilities may be to officers or employees of the Employer or to other individuals, persons, firms or corporations, all of whom shall serve at the pleasure of the Employer and, if full-time employees of the Employer, without additional compensation by virtue of such duties. Vacancies created by resignation, death or other cause may be filled by the Employer or the assigned responsibilities may be reabsorbed or redelegated by the Employer. No person shall be appointed by the Employer in violation of Section 411 of the Act. (b) The Employer may designate a Plan Administrator to exercise the powers, fulfill the responsibilities, and perform the duties enumerated in Section 2.04. Any Plan Administrator so appointed shall signify acceptance of such appointment by filing a written acceptance with the Employer. (1) In the event the Employer does not exercise its power to designate a Plan Administrator, then the Employer, in addition to its responsibilities and duties under the Plan as Employer, shall serve in the capacity of Plan Administrator and shall exercise the powers, fulfill the responsibilities and perform the duties set forth in Section 2.04. (2) If more than one Plan Administrator is appointed by the Employer, the responsibilities of each Plan Administrator may be specified by the Employer and accepted in writing by each Plan Administrator. In the event that no such specification of responsibilities is made by the Employer, the Plan Administrators may allocate the responsibilities among themselves, in which event the Plan Administrators shall notify the Employer and the Trustee in writing of such action and specify the responsibilities of each Plan Administrator. The Trustee thereafter shall accept and rely upon any documents executed by the appropriate Plan Administrator until such time as the Employer or the Plan Administrators file with the Trustee a written revocation of such designation. In the event there is more than one Plan Administrator and there has been no allocation and delegation of administrative authority among the Plan Administrators, then the Plan Administrators shall act by a majority of their number, but may authorize one or more of them to sign all papers on their behalf. (3) A Plan Administrator may resign by delivering a written resignation to the Employer or be removed by the Employer by delivery of a written notice of removal, to take effect at a date specified therein or upon delivery to the Plan Administrator if no date is specified. The Employer, upon the resignation or removal of a Plan Administrator, shall promptly designate in writing a successor. If the Employer does not appoint a Plan Administrator, the Employer shall function as the Plan Administrator. (c) The Employer and those persons to whom the Employer has delegated fiduciary duties shall keep a record of all of their proceedings and actions and shall maintain all such books of account, records and other data as shall be necessary for the proper administration of the Plan and to meet the disclosure and reporting requirements of the Act. Section 2.03. Powers And Responsibilities Of The Employer. ------------------------------------------- (a) The Employer shall be empowered to appoint and remove the Trustee and appoint and remove the Plan Administrator as the Employer deems necessary for the proper administration of the Plan to assure that the Plan is being operated for the exclusive benefit of the Participants and their beneficiaries in accordance with the terms of the Plan, the Code, and the Act. (b) The Employer shall select, employ, and compensate from time to time such pension consultants, actuaries, accountants, attorneys, advisers, specialists and other agents and employees as the Employer may deem necessary or advisable in the proper and efficient operation of the Plan. Any agent or employee so selected by the Employer may be a person or firm then, theretofore, or thereafter serving the Employer in any capacity. The Employer may, in its discretion, appoint one or more Investment Managers to manage all or a designated portion of the assets of the Plan. In such event, the Trustee, as provided in Section 2.05(a), shall follow the directives of the Investment Manger(s) in investing the assets of the Plan managed by the Investment Manager(s). (c) The Employer shall establish a "funding policy and method" (i.e., it shall determine whether the Plan Page 18 of 58 has a short run need for liquidity (e.g., to pay benefits) or whether liquidity is a long run goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so. The Employer or its delegate shall communicate such needs and goals to the Trustee, who shall coordinate such Plan needs with its investment policy. The communication of such a "funding policy and method" shall not, however, constitute a directive to the Trustee as to the investment of the Trust Fund. Such "funding policy and method" shall be consistent with the objectives of the Plan and the requirements of Title I of the Act. (d) The Employer shall periodically review the performance of any fiduciary or other person to whom duties have been delegated or allocated by the Employer under the provisions of the Plan or pursuant to procedures established by the Plan. This requirement may be satisfied by formal periodic review by the Employer or a qualified person specifically designated by the Employer, through day-to-day contact and evaluation, or through other appropriate means. (e) To enable the Plan Administrator to perform his or her functions, the Employer shall supply full and timely information to the Plan Administrator on all matters relating to the compensation of all Participants, their Hours of Service, their Service Years, their Continuous Service, their retirement, death, disability, or termination of employment, and such other pertinent facts as the Plan Administrator may require. (f) Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by the Board of Directors. Section 2.04. Powers And Duties Of The Plan Administrator. ------------------------------------------- (a) The primary responsibility of the Plan Administrator is to administer the Plan for the exclusive benefit of the Participants and their beneficiaries, subject to the specific terms of the Plan. (b) The Plan Administrator shall administer the Plan in accordance with its terms and shall have (1) full and exclusive authority to determine all questions of coverage and eligibility arising under the Plan, and (2) full power to construe the provisions of the Plan. The Plan Administrator shall have final, conclusive, discretionary authority to construe all of the terms, provisions, conditions, and limitations of the Plan. The Plan Administrator shall have final, conclusive, discretionary authority to make determinations regarding the eligibility of Members for benefits under the Plan. The aforementioned determinations and decisions of the Plan Administrator shall be conclusive and binding upon all persons. (c) The Plan Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure, discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan under the terms of Code Section 401(a), and shall comply with the terms of the Act and all regulations issued pursuant thereto. The Plan Administrator shall have all powers necessary or appropriate to accomplish the Plan Administrator's duties under the Plan. (d) The Plan Administrator shall be charged with the general administration of the Plan, including, but not limited to, the following: (1) Determining all questions relating to the eligibility of Employees to become Participants, to remain Page 19 of 58 Participants in the Plan, and to receive benefits under the Plan. See Section 2.04(b). (2) Interpreting the provisions of the Plan and making and publishing rules and regulations for the administration of the Plan that are consistent with the terms and provisions of the Plan and the Trust Agreement. See Section 2.04(b). (3) Selecting, employing and compensating from time to time such pension consultants, actuaries, accountants, attorneys, advisers, specialists and other agents and employees as the Plan Administrator may deem necessary or advisable in the proper and efficient administration of the Plan, subject to prior approval by the Employer. Any agent or employee so selected by the Plan Administrator may be a person or firm then, theretofore, or thereafter serving the Employer in any capacity. (4) Selecting from time to time the issuing company or companies from which annuity contracts may be purchased as provided herein, and determining the form, type and kind of such contracts. (5) Making all determinations and computations concerning the benefits, credits, and debits to which any Participant or beneficiary may be entitled under the Plan. See Section 2.04(b). (6) Authorizing and directing the Trustee to pay from the Trust Fund as an administrative expense all costs and expenses incurred by the Plan Administrator in the administration of the Plan not paid directly by the Employer. (7) Computing, certifying, and directing the Trustee with respect to the amount and the kind of benefits to which a Participant shall be entitled under the Plan. (8) Authorizing and directing the Trustee with regard to all nondiscretionary or otherwise directed disbursements from the Trust. (9) Keeping a record of all actions taken and to keeping all other books of account, records, and other data as may be necessary for the proper administration of the Plan and being responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, beneficiaries and others as required by law. (10) Computing and certifying to the Employer and to the Trustee from time to time the sums of money necessary or desirable to be contributed to the Plan. (11) Consulting with the Employer and the Trustee regarding the short and the long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion in a manner designed to accomplish specific objectives. (12) Preparing and distributing any required notices and distribution forms, including but not limited to, notices concerning annuity distributions, as required by the Act and the Regulations thereunder. (13) Assisting any Participant regarding his or her rights, benefits, or elections available under the Plan. (14) Determining whether a Participant is disabled for the purposes of Section 3.04. (e) The Plan Administrator may rely upon the information furnished to the Plan Administrator by the Employer under Section 2.03(e) and shall have no duty or responsibility to verify such information. The Plan Administrator shall advise the Trustee of such information provided by the Employer as may be pertinent to the Trustee's duties under the Plan. Page 20 of 58 Section 2.05. Powers And Duties Of The Trustee. -------------------------------- (a) The Trustee shall have such powers to hold, invest, reinvest, control, and disburse funds as at that time shall be set forth in the Trust Agreement. The Trustee shall exercise the aforementioned powers consistent with the "funding method" and "funding standards" referred to in Article IV and subject to the direction of one or more Investment Managers as to all or a portion of the assets of the Plan, if the Employer should appoint such Investment Manager(s) as provided in Section 2.03(b). (b) The Employer may remove the Trustee at any time upon notice required by the terms of the Trust Agreement, and upon such removal or upon the resignation of the Trustee, the Board of Directors shall designate and appoint a successor Trustee. Section 2.06. Powers And Duties Of The Actuary. -------------------------------- (a) The Actuary employed by the Employer shall make all actuarial calculations and perform all duties required of the Actuary and/or necessary in the administration of the Plan. Neither the Employer nor the Trustee shall be liable for the actuarial correctness of any determination made by the Actuary. (b) In making an actuarial valuation of the Plan and Trust from time to time, the Actuary may rely upon the written statement of the Trustee concerning the assets in the Trust and shall not be required to make any independent calculations with respect thereto. The Actuary shall certify to the Employer in writing the results of the calculations required of the Actuary and the Employer, Plan Administrator, and the Trustee may rely thereon. In making all calculations hereunder, the Actuary shall use such actuarial tables as the Actuary deems appropriate, but the Actuary shall use the same tables in making calculations during a specified period; provided, however, the Actuary, with the consent of the Employer, may from time to time change the actuarial tables and other assumptions used by him or her hereunder. (c) The Employer, Plan Administrator, and the Trustee shall furnish the Actuary such information concerning Employees, payrolls, and other related data as the Actuary may require from time to time. The Actuary may rely upon any information furnished to the Actuary by the Employer, Plan Administrator, or the Trustee. Section 2.07. Claims For Benefits. ------------------- (a) A Claimant must make a claim in writing to the Plan Administrator for any benefit under the provisions of the Plan. (b) The Plan Administrator shall, within ninety (90) days of receipt of such claim, provide to the Claimant written notice of the disposition of the claim. If the Plan Administrator denies in whole or in part a claim for benefits, write a letter to the Claimant setting forth the reasons for denial in language calculated to be understood by the Claimant, with specific reference to applicable Plan provisions and an explanation of the necessary steps to be taken by the Claimant to perfect the claim. The Claimant shall also be furnished an explanation of the Plan's review procedure. Even if the Claimant does not receive such notice within such period, he or she shall have the right to proceed under paragraph (c), below, as in the case of receipt of a denial on the 90th day after filing. (c) Any Claimant for a benefit (or, as applicable, his or her estate or other representative or beneficiary) who has been denied a benefit by decision of the Plan Administrator pursuant to the immediately preceding paragraph (b) may, within sixty (60) days after receipt of the letter, referred to in the immediately preceding paragraph (b), appeal to the Plan Administrator and request a review of the denial of benefits with the opportunity to appear in person or, at the Claimant's option, to submit his or her position in writing. In the event a hearing is held, the Claimant may be represented by an attorney or other representative of his or her choosing and shall have the opportunity to submit written or oral evidence and arguments in support of his or her claim. At the hearing (or prior thereto upon five (5) Page 21 of 58 business days written notice to the Plan Administrator) the Claimant or his or her representative shall have an opportunity to review all documents in the possession of the Plan Administrator that are pertinent to the claim at issue and to disallowance of the claim. Either the Claimant or the Plan Administrator may cause a court reporter to attend the hearing and record the proceedings, and in such event a complete written transcript of the proceedings shall be furnished to both parties by the court reporter. The full expense of any such court reporter and such transcripts shall be borne by the party causing the court reporter to attend the hearing. The Plan Administrator, not later than sixty (60) days after receipt of the request for review (or one hundred and twenty (120)) days, if a hearing is held) after the request for review referred to in the foregoing provision of this paragraph (c) is received, shall render a written decision written in a manner calculated to be understood by the Claimant and mail the decision to the Claimant at the Claimant's last address known to the Employer specifying by reference to the Plan the reasons for the denial of such part or all of the claimed benefits. (d) The Plan Administrator shall cause to be paid promptly any part or all of a benefit determined on review to be proper and otherwise due to be paid or, if the claim related to a matter of record rather than payment, cause such records to be properly changed. (e) For purposes hereof, any calculation of Service Years, Continuous Service, Vested interest or Accrued Benefits which is required or permitted to be disclosed to any person with respect to the Plan shall be considered to have been a "benefit claimed" if written challenge thereto or disagreement therewith is filed by the recipient thereof with the Plan Administrator, and, in such event, the foregoing provisions of this Section 2.07 shall apply. Section 2.08. Completion Of Forms And Submission Of Proof By Participants. ----------------------------------------------------------- Each Participant entitled to receive benefits under the Plan shall complete such forms and furnish such proofs as shall be required by the Plan Administrator. Section 2.09. Payment Of Expenses. All expenses of administration may be ------------------- paid out of the Trust Fund unless paid by the Employer. Such expenses shall include any expenses incident to the functioning of the Plan Administrator, including, but not limited to, fees of pension consultants, actuaries, accountants, attorneys, advisers, and other specialists and their agents, and other costs of administering the Plan, including, to the extent provided in the Trust Agreement, expenses incurred by the Trustee in performing its duties. Until paid, the expenses shall constitute a liability of the Trust Fund. ARTICLE III: BENEFITS ---------------------- Section 3.01. Normal Retirement. ----------------- (a) When a Participant continues his or her employment with the Employer to his or her Normal Retirement Date, he or she shall have a nonforfeitable (Vested) right to a Monthly Retirement Income for life, in an amount calculated by the Actuary and certified to the Trustee by the Employer. Upon termination of services for the Employer on a Participant's Normal Retirement Date, the Participant shall be entitled to receive payment of a Monthly Retirement Income. (b) The amount of a Participant's Monthly Retirement Income payable on his or her Normal Retirement Date shall be One and Three-Tenths percent (1.3%) of the Participant's Average Monthly Earnings multiplied by his or her years of Continuous Service. (c) In no event shall a Participant receive a Monthly Retirement Income at his or her Normal Retirement Date which is in excess of Fifty Percent (50%) of his or her Monthly Earnings averaged during the twelve (12) months immediately prior to his or her Normal Retirement Date, nor one which is less than the largest periodic benefit that would have been payable to the Participant upon separation from service at or prior to the Normal Retirement Page 22 of 58 Date under the Plan. (d) For purposes of comparing periodic benefits in the same form, commencing prior to and at Normal Retirement Date, the greater benefit is determined by converting the benefit payable prior to the Participant's Normal Retirement Date into the same form of annuity benefit payable at the Normal Retirement Date and comparing the amount of such annuity payments. (e) No Retired Participant shall receive less than Fifty Dollars ($50.00) per month; however, this Section 3.01(e) shall not apply to any Participant who first performs an Hour of Service after December 31, 1988, or to any Participant to whom Sections 3.01 or 3.02 do not apply. Page 23 of 58 Section 3.02. Deferred Retirement. ------------------- (a) A Participant whose employment terminates, for any reason other than death, on the Deferred Retirement Date and before his or her Required Beginning Date shall be entitled to receive a retirement benefit equal to his or her Accrued Benefit as of his or her Deferred Retirement Date. (b) A Participant who continues employment after his or her Normal Retirement Date shall receive a Suspension of Benefits Notice pursuant to Section 3.02(e) below. (c) A Participant who continues employment after his or her Required Beginning Date shall be entitled to receive a retirement benefit as described in Article III. (d) The annuity commencement date of any Participant who is to receive his or her benefit pursuant to Section 3.02(a) shall be the first day of the month coinciding with or next following his or her Deferred Retirement Date. (e) Upon the reemployment, or continued employment, of a Participant after his or her Normal Retirement Date, retirement benefits in pay status shall be suspended only in accordance with the applicable provisions of Section 3.10. Section 3.03. Early Retirement. A Participant whose employment with the ---------------- Employer is terminated except by death or Total and Permanent Disability may retire from the employ of the Employer upon attainment of age sixty (60), and the completion of at least seven (7) years of Continuous Service. The amount of the pension shall be computed in the same manner as a pension payable under Section 3.01 except that it shall be based on Continuous Service and/or Average Monthly Earnings to date of early retirement. If a retiring or terminating Participant has complied with the applicable requirements for early retirement at the time his or her employment ceases, he or she may elect one of the following benefits, subject to the provisions of Article III pertaining to the distribution of benefits: (a) A deferred pension at the age of sixty-five (65) in the full amount as set forth in the Plan, but based on Continuous Service and/or Average Monthly Earnings to date of early retirement; or (b) An immediate pension, for Participants who are not receiving early retirement benefits as of January 1, 1989, commencing at early retirement equal to the Vested Accrued Benefit at the time of termination of active employment but reduced by one-half percent (0.5%) for each month from Normal Retirement Date to Early Retirement Date (subject to the receipt of all necessary consents pursuant to Article III). Section 3.04. Total And Permanent Disability. ------------------------------ (a) If and when the Plan Administrator in his or her sole discretion and based upon proper medical authority certified to by a physician of its choosing and other information shall find a Participant with at least seven (7) years of Continuous Service to be, at the time of the Participant's separation from service, Totally and Permanently Disabled (see Section 1.45) and shall certify such fact to the Trustee, then such disabled Participant shall be entitled to receive the greater of the amount of Monthly Retirement Income the Participant would have received under Section 3.01, or $100.00 per month. (b) If the disabled Participant recovers prior to Normal Retirement Date, the Plan Administrator shall immediately direct the Trustee to discontinue the disability payments. (c) If the disabled Participant recovers prior to Normal Retirement Date and returns to the employ of the Employer within a period of time after recovery which the Plan Administrator deems reasonable, he or she shall on Page 24 of 58 actual return to employment again become an active Participant in the Plan and shall be entitled to the benefits provided hereunder as if he or she had never been Totally and Permanently Disabled; provided, however, that the benefits to which he or she may become entitled hereunder shall be reduced by the Actuarial Equivalent of the disability payments received, as certified to the Plan Administrator by the Actuary. (d) The Plan Administrator shall have the right from time to time to have a medical examination or examinations made by a duly licensed physician or physicians to determine whether total disability is continuing, and to ascertain from the disabled Participant by warranties or otherwise the extent to which he or she has had his or her earning ability restored, and upon such findings to discontinue payments accordingly. If the disabled Participant refuses to submit to such medical examinations, or to submit any other information requested, the Plan Administrator shall have the power to suspend or withhold the payment of any benefit until the Participant does so submit. Should a Participant falsify any such statement, his or her benefit shall immediately terminate. Based upon such examination and statement of the Participant, the Plan Administrator shall determine whether the Participant is totally disabled, the extent of recovery attained, or whether such disability has fully ceased. In the event a Participant receives any benefit payments under the Plan because of a misrepresentation regarding his or her recovery, or failure to disclose recovery, the Plan Administrator will seek to obtain recovery of all such payments, by offsetting subsequent retirement payments or by any other reasonable means, to the extent that the Plan Administrator determines that the amount involved warrants recovery efforts. Section 3.05. Benefit Distribution. -------------------- (a) General Application. Subject to the provisions of the ------------------- Section 3.05(b)-(k) and Section 3.06 and notwithstanding any other provision of the Plan, the form of an early, normal, or deferred retirement benefit or disability retirement benefit (only if disabled Employee met the requirements of Section 3.03 as well) under the Plan to a married Participant shall be a joint and survivor annuity under which such Retired Participant will receive the Actuarial Equivalent of his or her retirement benefit otherwise calculated pursuant to the terms of the Plan during his or her lifetime following actual retirement, and after his or her death one-half of such monthly income payable to him or her shall be payable to his or her spouse for the lifetime of his or her spouse. (1) The provisions of Section 3.05(b)-(k) shall apply to any Participant who is credited with at least one Hour of Service with the Employer on or after August 23, 1984. (2) On and after January 1, 1985, the provisions of Section 3.05(b)- (k) shall take precedence over any conflicting provision in the Plan, but shall not be construed so as to grant a benefit to any person, unless and only to the extent that by Plan provisions other than Section 3.05(b)-(k), the subject Participant or Former Participant would have, if living on the date of his or her death, a nonforfeitable right to any portion of his or her Accrued Benefit. (b) Qualified Joint And Survivor Annuity; Immediate Life Annuity. Unless ------------------------------------------------------------ otherwise elected by a Participant pursuant to a qualified election, as provided below, a married Participant's Vested Accrued Benefit shall be paid in the form of a qualified joint and survivor annuity. An unmarried Participant's Vested Accrued Benefit shall be paid in the form of an immediate life annuity. (1) A qualified joint and survivor annuity is an annuity payable during the joint lives of the Participant and the Participant's spouse that commences immediately and which shall be the Actuarial Equivalent of an immediate life annuity, or, if greater, any optional form of benefit. Such joint and survivor benefits following the Participant's death shall continue to the spouse during the spouse's lifetime at a rate equal to fifty percent (50%) of the rate at which such benefits were payable to the Participant. This joint and 50% survivor annuity shall be considered the designated qualified joint and survivor annuity and automatic form of payment for the purposes of the Plan. However, the Participant may elect to receive a smaller annuity Page 25 of 58 benefit with continuation of payments to the Participant's spouse at the rate of one hundred percent (100%) of the rate payable to a Participant during his or her lifetime, which alternative joint and survivor annuity shall be the Actuarial Equivalent of the automatic joint and 50% survivor annuity. (2) The joint and survivor annuity and the immediate life annuity forms of distribution shall be the Actuarial Equivalent of the benefits due the Participant. (3) A Participant may elect to have the annuity applicable to him or her under Section 3.05(b) distributed upon attainment of the Earliest Retirement Age under the Plan. (c) Spouse. "Spouse," for the purposes of this Section 3.05, shall mean ------ the spouse of a Participant; provided, however, that a former spouse will be treated as the Participant's spouse (and a current spouse will not be treated as the Participant's spouse) to the extent provided under a qualified domestic relations order as described in Code Section 414(p). (1) Notwithstanding the provisions of this Section 3.05 or other Plan provisions, a person will not be treated as the spouse of a Participant or Former Participant unless the Participant and such person had been married through the one-year period ending on the earlier of (i) the Participant's annuity starting date, or (ii) the date of the Participant's death. (2) For the purposes of this Section 3.05, if (i) a Participant marries within one year before the annuity starting date, and (ii) the Participant and his or her spouse in such marriage have been married for at least a one-year period ending on or before the date of his or her death, the Participant and such spouse shall be treated as having been married throughout the one-year period ending on his or her annuity starting date. (d) Annuity Starting Date. The annuity starting date is the first day of --------------------- the first period for which an amount is paid as an annuity, or, in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitle the Participant to such benefit. (1) The annuity starting date for disability benefits shall be the date such benefits commence, if the disability benefit is not an auxiliary benefit. (2) An auxiliary benefit is a disability benefit which does not reduce the benefit payable at the Normal Retirement Date. (e) Qualified Election. A qualified election is a waiver of a qualified ------------------ joint and survivor annuity or the immediate life annuity. (1) Any election to waive the joint and survivor annuity must be made by the Participant in writing during the election period and be consented to by the Participant's spouse. If the spouse is legally incompetent to give consent, the spouse's legal guardian, even if such guardian is the Participant, may give consent. Such election shall designate a (1) beneficiary (including any class of beneficiaries or any Page 26 of 58 contingent beneficiaries) that may not be changed without spousal consent (unless the consent of the spouse expressly permits designations by the Participant without the requirement of further consent by the spouse) and (2) a form of benefits, that may not be changed without spousal consent (unless the consent of the spouse expressly permits designations by the Participant without the requirement of further consent by the spouse). Such spouse's consent shall be irrevocable and must acknowledge the effect of such election and be witnessed by a Plan representative or a notary public. Such consent shall not be required if it is established to the satisfaction of the Plan Administrator that the required consent cannot be obtained because there is no spouse, the spouse cannot be located, or other circumstances that may be prescribed by the Regulations. The election made by the Participant and consented to by his or her spouse may be revoked by the Participant in writing without the consent of the spouse at any time during the election period. The number of revocations shall not be limited. Any new election must comply with the requirements of this paragraph (e). A former spouse's waiver shall not be binding on a new spouse. (2) An unmarried Participant may elect in writing to waive the immediate life annuity. The election must comply with the provisions of this Section 3.05(e) as if it were an election to waive the joint and survivor annuity by a married Participant, but without the spousal consent requirement. (f) Election Period. The election period to waive the joint and survivor --------------- annuity shall be the ninety-day period ending on the "annuity starting date." (g) Notice To Be Provided To Participants. With regard to the qualified ------------------------------------- election, the Plan Administrator shall provide to the Participant, no less than thirty (30) days and no more than ninety (90) days before the annuity starting date, a written explanation of the following: (1) The terms and conditions of the joint and survivor annuity, and (2) The Participant's right to make, and the effect of, an election to waive the joint and survivor annuity, and (3) The right of the Participant's spouse to consent to any election to waive the joint and survivor annuity, and (4) The right of the Participant to revoke such election, and the effect of such revocation, and (5) The relative values of the various optional forms of benefit under the Plan. (i) Notwithstanding the other requirements of Section 3.05, the respective notices prescribed by Section 3.05(g) need not be given to a Participant if (A) the Plan "fully subsidizes" the costs of a qualified joint and survivor annuity, and (B) the Plan does not allow the Participant to waive the qualified joint and survivor annuity and does not allow a married Participant to designate a non-spouse beneficiary. (ii) For purposes of this Section 3.05(g), the Plan fully subsidizes the costs of a benefit if under the Plan no increase in cost or decrease in benefits to the Participant may result from the Participant's failure to elect another benefit. (h) Lump Sum Distribution Option. In the event a married Participant duly ---------------------------- elects pursuant to the immediately preceding paragraph (e) not to receive benefits in the form of a joint and survivor annuity, or if such Page 27 of 58 Participant is not married, in the form of an immediate life annuity, the Plan Administrator, pursuant to the election of the Participant, shall direct that the Participant's benefits be distributed in accordance with the provisions of Section 3.08. (i) Distribution Limitations. Notwithstanding any provision in the Plan ------------------------ to the contrary, the distribution of a Participant's benefits made on or after January 1, 1985 shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder (including Regulation 1.401(a)(9)-2), the provisions of which are incorporated herein by reference: (1) A Participant's benefits shall be distributed to him or her not later than April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2 or (ii) the calendar year in which the Participant retires, provided, however, that this clause (ii) shall not apply in the case of a Participant who is a "five (5) percent owner" at any time during the five (5) Plan Year period ending in the calendar year in which he or she attains age 70 1/2 or, in the case of a Participant who becomes a "five (5) percent owner" during any subsequent Plan Year, clause (ii) shall no longer apply and the required beginning date shall be the April 1st of the calendar year following the calendar year in which such subsequent Plan Year ends. Alternatively, distributions to a Participant must begin no later than the applicable April 1st as determined under the preceding sentence and must be made over the life of the Participant (or the lives of the Participant and the Participant's designated beneficiary) or the life expectancy of the Participant (or the life expectancies of the Participant and his or her designated beneficiary) in accordance with Regulations. Notwithstanding the foregoing, clause (ii) above shall not apply to any Participant unless the Participant had attained age 70 1/2 before January 1, 1988 and was not a "five (5) percent owner" at any time during the Plan Year ending with or within the calendar year in which the Participant attained age 66 1/2 or any subsequent Plan Year. (2) Distributions to a Participant and his or her Beneficiaries shall only be made in accordance with the incidental death benefit requirements of Code Section 401(a)(9)(G) and the Regulations thereunder. Additionally, for calendar years beginning before 1989, distributions may also be made under an alternative method which provides that the then present value of the payments to be made over the period of the Participant's life expectancy exceeds fifty percent (50%) of the then present value of the total payments to be made to the Participant and his or her Beneficiaries. (j) Calculation Of Life Expectancy. Life expectancy and joint and last ------------------------------ survivor expectancy shall be computed using the return multiples in Tables V and VI of Regulation 1.72-9. For purposes of this Section 3.05, the life expectancy of a Participant and a Participant's spouse (other than in the case of a life annuity) shall not be subject to recalculation. (k) Transitional Rule. Subject to the spouse's right of consent afforded ----------------- under the Plan, the restrictions imposed by this Section 3.05 shall not apply if a Participant has, prior to January 1, 1984, made a written designation to have his or her retirement benefit paid in an alternative method acceptable under Code Section 401(a) as in effect prior to the enactment of the Tax Equity and Fiscal Responsibility Act of 1982. Section 3.06. Distribution Of Benefits Upon Death. ----------------------------------- (a) General Application. The provisions of Section 3.06 shall apply to ------------------- any Participant who is credited with at least one Hour of Service with the Employer on or after August 23, 1984. Under the provisions of Section 3.06, a married Participant in active employment may elect to provide for the payment of monthly benefits to his or her surviving spouse in the event of his or her death while he or she is actively employed. On and after January 1, 1985, the provisions of Section 3.06 shall take precedence over any conflicting provision in the Plan, but shall not be construed so as to grant a benefit to any person, unless and only to the extent that by Plan provisions other than Section 3.06, the subject Participant or Former Participant would have, if living on the date of his or her death, a Page 28 of 58 nonforfeitable right to any portion of his or her Accrued Benefit. (1) After January 1, 1985, certain Former Participants of the Plan, as provided in Article III, may elect to provide for the payment of monthly benefits to a surviving spouse in the event of the Participant's death while the Participant is actively employed. (2) Prior to December 31, 1984, regardless of a Participant's election or failure to elect to provide for the payment of monthly benefits to the Participant's surviving spouse in the event of the Participant's death while the Participant was actively employed and regardless of the Participant's designation of a beneficiary, if a Participant remained employed past the Participant's Normal Retirement Date and died prior to termination of service with the Employer, the Participant's surviving spouse was entitled to receive a fifty percent (50%) survivor annuity as if the deceased Participant had retired on the day prior to the Participant's date of death and had been entitled under Section 3.05 to a qualified annuity with a fifty percent (50%) survivor benefit, which qualified annuity was the Actuarial Equivalent of the then value of the Participant's deferred payment account, provided that the Participant's surviving spouse had been married to the Participant throughout the one-year period ending on the Participant's date of death. Otherwise, if a Participant died after the Participant's Normal Retirement Date while still in the employ of the Employer under the Deferred Retirement provisions of the Plan, the Participant's surviving spouse, or if none, the Participant's beneficiary designated in a writing filed with the Employer (otherwise, the Participant's estate), was entitled to receive as a death benefit one-half of the value of the Participant's deferred payment account. The payment of the death benefit was made by the Trustee from the Trust Fund at such time, and in such form, as directed by the Employer. As used in the foregoing provisions of this Section 3.06(a)(2), "deferred payment account" refers to the single sum actuarial value of the Participant's Monthly Retirement Income as of the Participant's Normal Retirement Date, as calculated by the Actuary and certified to the Employer by the Actuary. In calculating the assets and the liabilities of the Plan, the Actuary carried the Participant's deferred payment account as a liability of the Plan. (b) Qualified Pre-retirement Survivor Annuity. ----------------------------------------- (1) Unless an optional form of benefit is selected within the election period pursuant to a qualified election, (i) if a Participant dies after the Earliest Retirement Age, and (ii) thus would have been, if living, Vested in a benefit, the Participant's surviving spouse (if any) will receive the same benefit that would be payable if the Participant had retired with an immediate qualified joint and survivor annuity, unless an optional form of benefit is selected within the election period pursuant to a qualified election. The surviving spouse may direct that payment under the annuity commence within a reasonable period after the Participant's death. If the surviving spouse does not so direct, payment of such benefit will commence at the time the Participant would have attained the later of his or her Normal Retirement Date or age 62. However, the surviving spouse may elect a later commencement date, subject to the rules specified in Section 3.06(i). The actuarial value of benefits which commence later than the date on which payments would have been made to the surviving spouse under a qualified joint and survivor annuity in accordance with this provision shall be adjusted to reflect the delayed payment. (2) Unless an optional form of benefit is selected within the election period pursuant to a qualified election, if a Participant whose Accrued Benefits are Vested under the terms of the Plan dies on or before Page 29 of 58 the Earliest Retirement Age, the Participant's surviving spouse (if any) will receive the same benefit that would be payable if the Participant had: (i) separated from service on the earlier of the actual time of separation or the date of his or her death, (ii) survived to the Earliest Retirement Age, (iii) retired with an immediate joint and survivor annuity at the Earliest Retirement Age based on his or her Vested Accrued Benefit on his or her date of death, and (iv) died on the day after the day on which said Participant would have attained the Earliest Retirement Age. (c) Surviving Spouse. "Surviving spouse," as used in this Section 3.06, ---------------- shall mean the surviving spouse of a Participant; provided, however, that a former spouse will be treated as the Participant's surviving spouse (and a current spouse will not be treated as the Participant's surviving spouse) to the extent provided under a qualified domestic relations order as described in Code Section 414(p). (1) Notwithstanding the provisions of this Section 3.06 or other Plan provisions, a person will not be treated as the surviving spouse of a Participant or Former Participant unless the Participant and such person had been married through the one-year period ending on the earlier of (i) the Participant's annuity starting date, or (ii) the date of the Participant's death. (2) For the purposes of this Section 3.06, if (i) a Participant marries within one year before the annuity starting date, and (ii) the Participant and his or her spouse in such marriage have been married for at least a one-year period ending on or before the date of his or her death, the Participant and such spouse shall be treated as having been married throughout the one-year period ending on his or her annuity starting date. (d) Annuity Starting Date. Annuity starting date shall have the meaning --------------------- set forth in Section 3.05(d). (e) Qualified Election. A qualified election is a waiver of the Pre- ------------------ retirement Survivor Annuity. Any election to waive the Pre-Retirement Survivor Annuity before the Participant's death must be made by the Participant in writing during the election period and shall require the spouse's irrevocable consent in the same manner provided for in Section 3.05(e)(1). Further, the spouse's consent must acknowledge the specific nonspouse beneficiary. Notwithstanding the foregoing, the nonspouse beneficiary need not be acknowledged, provided the consent of the spouse acknowledges that the spouse has the right to limit consent only to a specific beneficiary and that the spouse voluntarily elects to relinquish such right. (f) Election Period. The election period to waive the Pre-Retirement --------------- Survivor Annuity shall begin on the first day of the Plan Year in which the Participant attains age 35 and end on the date of the Participant's death. An earlier waiver (with spousal consent) may be made provided (1) a written explanation of the Pre-Retirement Survivor Annuity, which contains comparable information to that required by Section 3.05(g), is given to the Participant and Page 30 of 58 (2) such waiver becomes invalid at the beginning of the Plan Year in which the Participant turns age 35, with any subsequent waiver being subject to the full requirements of this Section 3.06. In the event a Vested Participant separates from service prior to the beginning of the election period, the election period shall begin on the date of such separation from service. (g) Notice To Be Provided To Participants. With regard to the qualified ------------------------------------- election, the Plan Administrator shall provide each Participant within the applicable period, with respect to such Participant (and consistent with Regulations), a written explanation of the Pre-Retirement Survivor Annuity containing comparable information to that required pursuant to Section 3.05(g). For the purposes of this Section 3.06(g), the term "applicable period" means, with respect to a Participant, whichever of the following periods ends last: (1) The period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35; (2) A reasonable period after the individual becomes a Participant; (3) A reasonable period ending after the Plan no longer fully subsidizes the cost of the Pre-Retirement Survivor Annuity with respect to the Participant; (4) A reasonable period ending after Code Section 401(a)(11) applies to the Participant; or (5) A reasonable period after separation from service in the case of a Participant who separates before attaining age 35. For this purpose, the Plan Administrator must provide the explanation beginning one year before the separation from service and ending one year after such separation. If such a Participant thereafter returns to employment with the Employer, the applicable period for such Participant shall be redetermined. For purposes of applying this Section 3.06(g), a reasonable period ending after the enumerated events described in the immediately preceding paragraphs (2), (3) and (4) is the end of the two year period beginning one year prior to the date the applicable event occurs, and ending one year after that date. (i) Notwithstanding the other requirements of Section 3.06, the respective notices prescribed by Section 3.06 need not be given to a Participant if (A) the Plan "fully subsidizes" the costs of a qualified Pre-retirement Survivor Annuity, and (B) the Plan does not allow the Participant to waive the qualified Pre-retirement Survivor Annuity and does not allow a married Participant to designate a non-spouse beneficiary. (ii) For purposes of this Section 3.06, the Plan fully subsidizes the costs of a benefit if under the Plan no increase in cost or decrease in benefits to the Participant may result from the Participant's failure to elect another benefit. (h) Lump Sum Distribution Option. In the event the death benefit is not ---------------------------- distributed in the form of a Pre-Retirement Survivor Annuity, it shall be distributed in accordance with the provisions of Section 3.08. (i) Distribution Limitations. Notwithstanding any provision in the Plan ------------------------ to the contrary, distributions upon the death of a Participant made on or after January 1, 1985 shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder. Distributions to the Participant's surviving spouse must commence on or before the later of: (1) December 31st of the calendar year immediately following the calendar year in which the Participant died; or (2) December 31st of the calendar year in Page 31 of 58 which the Participant would have attained age 70 1/2. If it is determined pursuant to Regulations that the distribution of a Participant's interest has begun and the Participant dies before his or her entire interest has been distributed to him or her, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution selected pursuant to Section 3.05 as of his or her date of death. However, the 5-year distribution requirement of the immediately preceding paragraph shall not apply to any portion of the deceased Participant's interest which is payable to or for the benefit of a designated beneficiary. In such event, such portion may, at the election of the Participant (or the Participant's designated beneficiary), be distributed over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such designated beneficiary) provided such distribution begins not later than December 31st of the calendar year immediately following the calendar year in which the Participant died. However, in the event the Participant's surviving spouse is his or her beneficiary, the requirement that distributions commence within one year of a Participant's death shall not apply. In lieu thereof, distributions must commence on or before the later of: (1) December 31st of the calendar year immediately following the calendar year in which the Participant died; or (2) December 31st of the calendar year in which the Participant would have attained age 70 1/2. If the surviving spouse dies before distributions to such spouse begin, then the 5-year distribution requirement of this Section shall apply as if the spouse was the Participant. For purposes of Section 3.05(i), the election by a designated beneficiary to be excepted from the 5-year distribution requirement must be made no later than December 31st of the calendar year following the calendar year of the Participant's death. Except, however, with respect to a designated beneficiary who is the Participant's surviving spouse, the election must be made by the earlier of: (1) December 31st of the calendar year immediately following the calendar year in which the Participant died or, if later, the calendar year in which the Participant would have attained age 70 1/2; or (2) December 31st of the calendar year which contains the fifth anniversary of the date of the Participant's death. An election by a designated beneficiary must be in writing and shall be irrevocable as of the last day of the election period stated herein. In the absence of an election by the Participant or a designated beneficiary, the 5-year distribution requirement shall apply. (j) Calculation Of Life Expectancy. Life expectancy and joint and last ------------------------------ survivor expectancy shall be computed using the return multiples in Tables V and VI of Regulation 1.72-9. For purposes of this Section 3.06, the life expectancy of a Participant and a Participant's spouse (other than in the case of a life annuity) shall not be subject to recalculation. (k) Transitional Rule. Subject to the spouse's right of consent afforded ----------------- under the Plan, the restrictions imposed by this Section shall not apply if a Participant has, prior to January 1, 1984, made a written designation to have his or her death benefits paid in an alternative method acceptable under Code Section 401(a) as in effect prior to the enactment of the Tax Equity and Fiscal Responsibility Act of 1982. Section 3.07. Determination Of Accrued Benefits Upon Termination. --------------------------------------------------- (a) When the employment of a Participant by the Employer shall be terminated for any reason other than death or retirement (including disability retirement, early retirement, or deferred retirement), such Participant shall cease to be an active Participant in the Plan, and the Accrued Benefit of such Participant shall be determined as follows: (1) With respect to Employees who have at least one Hour of Service on or after January 1, 1989: If at the time of termination as an Employee (or if employed thereafter by the Employer in any capacity or by an Affiliate, at the time of termination of service for the Employer and all Affiliates) the Employee is a Participant with either seven (7) years of Continuous Service or five (5) Service Years, the Accrued Benefit under the Plan shall be Vested and payable at Normal Retirement Age in accordance with the benefit distribution provisions contained in Article III (and nonforfeitable except in the event of death prior to Page 32 of 58 Normal Retirement Date without a surviving spouse); or (2) With respect to Employees who do not have at least one Hour of Service on or after January 1, 1989: If at the time of termination as an Employee (or if employed thereafter by the Employer in any capacity or by an Affiliate, at the time of termination of service for the Employer and all Affiliates) he or she was credited with at least ten (10) Service Years or at least seven (7) years of Continuous Service, such Employee shall be entitled to receive at his or her Normal Retirement Date a Monthly Retirement Income equal to his or her Accrued Benefit at date of termination as an Employee covered hereby. (b) In lieu of the benefits provided by the immediately preceding Section 3.07(a), a Participant with at least ten (10) Service Years or at least seven (7) years of Continuous Service who is no longer employed by any Employer or Affiliate may at any time after attainment of age sixty (60) apply for an immediate Monthly Retirement Income for life (subject to the benefit distribution provisions of Article III) equal to the Actuarial Equivalent of the benefit due at Normal Retirement Date under 3.07(a) above. If such a person dies prior to the commencement of benefits, no death benefit shall be payable under the Plan. Section 3.08. Lump Sum Distributions. ----------------------- (a) Cash-Out Of Vested Accrued Benefits. ----------------------------------- (1) Notwithstanding the other provisions of the Plan, if after December 31, 1984 (i) the Actuarial Value of a terminated or retiring Participant's Vested Accrued Benefit as calculated at his or her date of severance is $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) or less, determined not pursuant to the immediately following paragraph (A), but in accordance with the applicable PBGC annuity factor for males in effect at the beginning of the Plan Year, or (ii) the Participant agrees in writing regardless of the amount of such Actuarial Value, but subject to the benefit distribution provisions of Article III, including but not limited to Section 3.07(a), the Employer may, but need not, direct that the Actuarial Value of his or her Vested Accrued Benefits as calculated at his or her date of severance be paid in a lump sum to such Terminated Participant, with interest at the rate specified in the immediately following paragraph (A), from the date as of which the said value was calculated to the date as of which it was paid. (A) For the purposes of the immediately preceding paragraph (1), "Actuarial Value" means equality in the value of the aggregate amounts to be received under different forms of payment based upon the 1971 Group Annuity Mortality Table for males, with a five (5) year age setback for beneficiaries and interest at six percent (6%) per annum, compounded annually for other than lump sum payments, and for lump sum payments, interest at the rate used by the PBGC to value immediate annuities compounded annually, but not less than six percent (6%) per annum. In the event the assumptions stated in the immediately preceding sentence change, the Actuarial Value of the Accrued Benefit on or after the date of the change is the greater of the Actuarial Value of the Accrued Benefit as of the date of the change computed on the old basis or the Actuarial Value of the Accrued Benefit computed on the new basis. (B) In the event benefits are paid as provided in the immediately preceding paragraph (a), no other benefits of any type shall be payable to a Former Participant, or to his or her beneficiaries, receiving benefits as provided in the immediately preceding paragraph (a). (2) Notwithstanding the immediately preceding paragraph (1) or any other Plan provision, including Page 33 of 58 without limitation the provisions of Article III pertaining to benefit distribution, the Plan Administrator (i) shall direct distributions in lump sum of the Actuarial Equivalent of any Plan benefit due after January 1, 1989 which is $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) or less, and (ii) shall not permit distributions in such form, even with the written request of Participant and spouse, if the Actuarial Equivalent is in excess of $25,000. The lump sum distributions shall discharge all obligations of the Plan with respect to the benefits so paid. If the Actuarial Equivalent of a Participant's Vested Accrued Benefit is zero, the Participant is deemed to have received a distribution of the Vested Accrued Benefit. (b) Repayment Of Distribution Upon Re-employment. -------------------------------------------- (1) If a terminated or retiring Participant is subsequently re- employed and again becomes a Participant in the Plan, his or her Continuous Service shall not include (for purposes of accrual of benefits only but not for vesting) any periods of employment prior to his or her re-employment date, unless prior to his or her having five (5) consecutive one-year Breaks in Service the amount of such payment is repaid to the Trust Fund, plus interest at five percent (5%) per annum between the date of payment and the date of re-payment. (i) Such five percent (5%) rate shall automatically be adjusted to reflect any Regulation issued by the Secretary of Treasury changing such interest rate for mandatory Employee contributions. (ii) If such amount (plus interest) is repaid, the Participant's Continuous Service shall be based on all periods of employment. (iii) The provisions of the foregoing paragraph (b) have no effect on Service Years for vesting purposes. (2) Effective on and after January 1, 1987, only in the event that a partial vesting rule is applicable, a Former Participant who had received a lump sum pursuant to the Plan of a partially Vested interest shall have the right to restore his or her Employer-derived Accrued Benefit (including all optional forms of benefits and subsidies relating to such benefits) to the extent forfeited upon the repayment to the Plan of the full amount of the distribution plus interest, compounded annually from the date of distribution at the rate of five percent (5%). (i) The repayment to the Plan must be made before the earlier of five (5) years after the first date on which the Participant is subsequently reemployed by the Employer, or the date the Participant incurs five (5) consecutive one-year Breaks in Service following the date of distribution. (ii) If a Terminated Participant or Retired Participant is subsequently employed and becomes a Participant in the Plan and does not repay the full amount of the prior distribution, plus interest, within the time specified above, no Continuous Service shall be restored. (iii) For purposes of this Section, if the present value of a Participant's Vested Accrued Benefit is zero, the Participant shall be deemed to have received a distribution of such Vested Accrued Benefit. (iv) If a Former Participant is deemed to receive a distribution pursuant to this Section and the Participant resumes employment covered under the Plan before the date the Participant incurs five (5) Page 34 of 58 consecutive one-year Breaks in Service, upon reemployment of such Participant, the Employer-derived Accrued Benefit will be restored to the amount of such Accrued Benefit on the date of the deemed distribution. (c) Qualified Joint And Survivor Annuity. Notwithstanding the foregoing ------------------------------------ provisions of this Section 3.08 and any other Plan provisions, the present value of a Participant's joint and survivor annuity may not be paid without his or her written consent if the present value exceeds, or has ever exceeded, $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) at the time of any prior distribution. Further, the spouse of a Participant must consent in writing to any immediate distribution. If the present value of the Participant's benefit does not exceed $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) and has never exceeded $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) at the time of any prior distribution, the Plan Administrator may immediately distribute such benefit without such Participant's consent. No distribution may be made under the immediately preceding sentence after the "annuity starting date," unless the Participant and his or her spouse consent in writing to such distribution. Any written consent required under this paragraph must be obtained not more than 90 days before commencement of the distribution and shall be made in a manner consistent with Section 3.05(e). Any distribution to a Participant who has a benefit which exceeds, or has ever exceeded, $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) at the time of any prior distribution shall require such Participant's consent if such distribution commences prior to the later of his or her Normal Retirement Date or age 62. With regard to this required consent: (1) No consent shall be valid unless the Participant has received a general description of the material features and an explanation of the relative values of the optional forms of benefit available under the Plan that would satisfy the notice requirements of Code Section 417. (2) The Participant must be informed of his or her right to defer receipt of the distribution. If a Participant fails to consent, it shall be deemed an election to defer the commencement of payment of any benefit. However, any election to defer the receipt of benefits shall not apply with respect to distributions which are required under Section 3.05(i). (3) Notice of the rights specified under this paragraph shall be provided no less than 30 days and no more than 90 days before the "annuity starting date." (4) Written consent of the Participant to the distribution must not be made before the Participant receives the notice and must not be made more than 90 days before the "annuity starting date." (5) No consent shall be valid if a significant detriment is imposed under the Plan on any Participant who does not consent to the distribution. (d) Qualified Pre-retirement Survivor Annuity. Notwithstanding the ----------------------------------------- foregoing provisions of this Section 3.08 and any other Plan provisions, if the present value of the Pre-retirement Survivor Annuity does not exceed $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) and has never exceeded $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) at the time of any prior distribution, the Plan Administrator shall direct the immediate distribution of such amount to the Participant's spouse. No distribution may be made under the preceding sentence after the annuity starting date unless the spouse consents in writing. If the value exceeds, or has ever exceeded, $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) at the time of any prior distribution, an immediate distribution of the entire amount may be made to the surviving spouse, provided such surviving spouse consents in writing to such distribution. Any written consent required under this Paragraph must be obtained not more than 90 days before commencement of the distribution and shall be made in a manner consistent with Section 3.05(e). Page 35 of 58 (e) Annuity Option For Lump Sum Distributions In Excess Of $5,000 ($3,500 --------------------------------------------------------------------- for Plan Years Beginning Prior to January 1, 2000). If an immediate lump sum - -------------------------------------------------- distribution in excess of $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) is to be made pursuant to the foregoing provisions of this Section 3.08, then the recipient of such a distribution may instead elect to receive the distribution in the form of an immediate life annuity, and notice of the option to elect payment through the form of an immediate life annuity shall be given by the Plan Administrator as required under the Code and applicable Regulations. Section 3.09. Maximum Benefit Payment Date. ---------------------------- (a) Unless a Participant otherwise elects in a writing filed with the Employer stating the amount of payments and the date they are to begin, the payment of benefits, if any, due under the terms of the Plan to a Participant shall begin not later than the 60th day after the latest of the close of the Plan Year in which: (1) occurs the 65th birthday of the Participant, (2) occurs the 10th anniversary of the time the Participant commenced participation in the Plan, or (3) the Participant terminates his or her service with the Employer and all Affiliates. (b) Notwithstanding the foregoing, in no event may benefits commence later than the first day of April following the calendar year in which attainment of age seventy and one-half (70 1/2) occurs. (c) Notwithstanding the foregoing, the Accrued Benefit of a five percent (5%) owner (as described in Code Section 416(i) determined with respect to the Plan Year ending in the calendar year in which such individual attains age seventy and one-half (70 1/2)) must be distributed, or commence to be distributed, no later than the first day of April following the calendar year in which such individual attains age seventy and one-half (70 1/2). Section 3.10. Suspension Of Benefits Upon Re-Employment Or Continued ------------------------------------------------------ Employment. - ---------- (a) No Suspension Of Benefits On And After January 1, 1994. ------------------------------------------------------ Notwithstanding the immediately following paragraph (b), on and after January 1, 1994 retirement benefits in pay status (1) shall not be suspended due to a Participant's continued employment after his or her Normal Retirement Date and (2) shall not be suspended as of a Retired Participant's date of rehire if the Retired Participant is re-employed. However, the aforementioned Participant's Accrued Benefit or Retired Participant's Accrued Benefit, calculated at the time of the subsequent termination of employment by the said Participant or Retired Participant, shall be actuarially reduced to reflect prior benefit payments, including, but not limited to, the prior payment of benefits in the form of a lump sum. (b) Suspension Of Benefits On And Before December 31, 1993. On and before ------------------------------------------------------ December 31, 1993 and in accordance with the immediately following provisions of this Section 3.10, the benefits of a Retired Participant will be suspended as of the Retired Participant's date of rehire if the Retired Participant is re- employed. (1) Suspension of Benefits. Retirement benefits in pay status shall ---------------------- cease as of the date of rehire if the Retired Participant is re-employed and will be suspended for each calendar month during which the Employee completes at least forty (40) Hours of Service with the Employer in Covered Service. The Actuarial Value of benefits which commence later than a Participant's Normal Retirement Date will be computed without regard to amounts which would have been suspended under the preceding sentence as if the Employee had been receiving benefits since his or her Normal Retirement Date. (2) Resumption of Payment. If benefit payments have been suspended, --------------------- payments shall resume no later than the first day of the third calendar month after the calendar month in which the Employee ceases to be Page 36 of 58 employed in Covered Service. The initial payment upon resumption shall include the payment scheduled to occur in the calendar month when payments resume, and any amounts withheld during the period between the cessation of Covered Service and the resumption of payments. (3) Notification. The Plan Administrator will notify the Employee by ------------ personal delivery or first class mail during the first calendar month or payroll period in which the Plan withholds payments that his or her benefits are suspended. Such notifications shall contain a description of the specific reasons why benefit payments are being suspended, a description of the Plan provisions relating to the suspension of payments, a copy of such provisions, and a statement to the effect that applicable Department of Labor regulations may be found in Section 2530.203-3 of the Code of Federal Regulations. In the event the Plan Administrator fails to timely provide this notice to any Employee, his or her retirement benefit will include an amount equal to the greater of an Actuarial Equivalent increase for the period between the date when the notice was due and the date when it is delivered, or continued accruals for that period. (i) The notification shall inform the Employee of the Plan's procedures for affording a review of the suspension of benefits. (ii) Requests for reviews may be considered in accordance with the claims procedure (see Section 2.07) adopted by the Plan pursuant to Section 503 of ERISA and applicable regulations. (4) Amount suspended. ---------------- (i) Life Annuity. In the case of benefits payable periodically ------------ on a monthly basis for as long as a life (or lives) continues, such as a straight life annuity or a qualified joint and survivor annuity, an amount equal to the portion of a monthly benefit payment derived from Employer contributions. (ii) Other Benefit Forms. In the case of a benefit payable in a ------------------- form other than the form described in the immediately preceding paragraph (1), above, an amount of the Employer-derived portion of benefit payments for a calendar month in which the Employee is employed in Covered Service, equal to the lesser of (A) The amount of benefits which would have been payable to the Employee if he or she had been receiving monthly benefits under the Plan since actual retirement based on a single life annuity commencing at actual retirement age; or (B) The actual amount paid or scheduled to be paid to the Employee for such month (payments which are scheduled to be paid less frequently than monthly may be converted to monthly payments). (5) Effective January 1, 1987, only those foregoing provisions of Section 3.10(b)(1)-(4) that are inconsistent with the following provisions of this Section 3.10(b)(5) shall be superseded by the following provisions of this Section 3.10(b)(5): Upon the continued employment or reemployment of a Participant after his or her Normal Retirement Date, the Plan Administrator shall provide such Participant with a written notice of suspension of benefit payment by personal delivery or certified mail in the month following his or her Normal Retirement Date. Such notice will (i) state that the suspension of benefit payments is due to employment after Normal Retirement Date, (ii) include a copy of amended Article III of the Plan and a statement that applicable Department of Labor Regulations may be found at Section 2530.203-3 of the Code of Federal Page 37 of 58 Regulations, and (iii) state that the Participant may request a review of the suspension of his or her Plan benefit payments under the claim provisions of Section 2.07. Section 3.11. Direct Rollover. ---------------- (a) This Section 3.11 applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section 3.11, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. (b) For the purposes of this Section 3.11, the following definitions shall apply: (1) An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: (i) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; (ii) any distribution to the extent such distribution is required under Code Section 401(a)(9); (iii) 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, if any); and (iv) any other distribution(s) that is reasonably expected to total less than $200 during a year. (2) An eligible retirement plan is (i) an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b); (ii) an annuity plan described in Code Section 403(a); or (iii) a qualified plan described in Code Section 401(a), that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (3) A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse. (4) A direct rollover is a payment by the plan to the eligible retirement plan specified by the distributee. Section 3.12. Appointment Of Guardian For Beneficiary. In making any --------------------------------------- distribution to or for the benefit of any minor or incompetent beneficiary, the Plan Administrator, in his or her sole, absolute and uncontrolled Page 38 of 58 discretion may, but need not, order the Trustee to make such distribution to a legal or natural guardian or other relative of such minor or court appointed committee of incompetent temporarily or permanently resides, and any such guardian, committee, relative or other person shall have full authority and discretion to expend such distribution for the use and benefit of such minor or incompetent, and the receipt of such guardian, committee, relative or other person shall be a complete discharge to the Trustee, without any responsibility on its part or on the part of the Employer or Plan Administrator to see to the application thereof. ARTICLE IV: CONTRIBUTION AND VALUATION --------------------------------------- Section 4.01. Deposit Of Funds. The Employer shall deposit with the ---------------- Trustee from time to time the funds actuarially necessary to provide the benefits under the Plan for Participants and Beneficiaries in a manner consistent with the funding standards mandated by ERISA and the applicable regulations issued thereunder. Section 4.02. Payment Of Expenses. The Employer will pay, or cause to be ------------------- paid from the Trust Fund, all expenses of administering the Plan and the Trust as may be mutually agreed upon by the Employer, Plan Administrator and Trustee from time to time that may arise in connection with the Plan and Trust. Section 4.03. Periodic Actuarial Valuation. The Actuary shall perform ---------------------------- periodically an actuarial valuation of the Plan and Trust Fund and shall certify to the Employer in writing the results of the valuation. The Actuary in his or her actuarial valuation shall apply all gains arising in the operation of the Plan, including but not limited to gains resulting from terminations of employment of Participants prior to qualifying for benefits hereunder, to reduce the contributions of the Employer pursuant to the funding method and actuarial tables then in use. Section 4.04. Funding Standard Account. A funding standard account shall ------------------------ be established and maintained so that it may be determined whether or not the Employer has complied with minimum funding standards. Section 4.05. Contributions By Mistake Of Fact. Notwithstanding Section -------------------------------- 5.01(b), in the case of contributions made by the Employer by reason of a mistake of fact, such contributions (or the portion thereof made in mistake) may be returned to the Employer within one year after its payment into the Plan. Any such amount returned may not include any income, earnings or gains attributable to such nondeductible amount but shall be reduced by the proportionate part of any loss of the Trust Fund between the time of its deposit in trust and the time of its withdrawal. Section 4.06. Contributions Conditioned On Deductibility. Any ------------------------------------------ contribution by the Employer is conditioned upon its deductibility under Sections 404 or 162 of the Code, as amended, and to the extent that any such deduction may hereafter be disallowed, there shall be returned to the Employer the portion of the contribution which is disallowed within one year of the disallowance of the said deduction. Any such amount returned may not include any income, earnings or gains attributable to such nondeductible amount but shall be reduced by the proportionate part of any loss of the Trust Fund between the time of its deposit in trust and the time of its withdrawal. ARTICLE V: TRUST FUND AND TRUST AGREEMENT ------------------------------------------ Section 5.01. Trust Fund. ---------- (a) The assets of the Plan shall be received, held in Trust, and disbursed by the Trustee in accordance with the provisions of the Trust Agreement and the provisions of the Plan. See Section 2.05. (b) No part of the Trust Fund shall be used for or diverted to purposes other than for the exclusive benefit of Participants, Retired Participants, Disabled Participants, or their beneficiaries or spouses under the Plan prior to the satisfaction of all liabilities hereunder with respect to them. The assets of the Plan shall be held for the exclusive purposes of providing benefits to Participants of the Plan (and to their beneficiaries) and of defraying reasonable Page 39 of 58 expenses of administering the Plan (including, without limitation, fees and charges of the Trustee and Actuary) except that because of errors made in the actuarial calculations of the liabilities of the Trust Fund, after all liabilities and contingent liabilities to the Participants and their beneficiaries as provided for herein have been fully satisfied, any remaining balance may be returned to the Employer. (c) No person shall have any interest in or right to the Trust Fund or any part thereof, except as specifically provided for in the Plan and/or the Trust Agreement. Section 5.02. Trust Agreement. The Trust Agreement shall be deemed to --------------- form a part of the Plan and all rights of Participants or others under the Plan shall be subject to the provisions of the Trust Agreement. ARTICLE VI: MAXIMUM BENEFIT LIMITATIONS ---------------------------------------- Section 6.01. General. ------- (a) This Section 6.01(a), except for (2) below, applies regardless of whether any Participant is or has ever been a participant in another qualified plan maintained by the Employer. If any Participant is or has ever been a participant in another qualified plan maintained by the Employer, or a welfare benefit fund, as defined in Code Section 419(e), maintained by the Employer, or an individual medical account, as defined in Code Section 415(l)(2), maintained by the employer, or a simplified employee pension plan, as defined in Code Section 408(k), maintained by the Employer, that provides an annual addition as defined in Section 6.02, Section 6.01(b) is also applicable to that Participant's benefits. (1) The annual benefit otherwise payable to a Participant at any time will not exceed the maximum permissible amount. If the benefit the Participant would otherwise accrue in a limitation year would produce an annual benefit in excess of the maximum permissible amount, the rate of accrual will be reduced so that the annual benefit will equal the maximum permissible amount. (2) The limitation in the immediately preceding paragraph (1) is deemed satisfied if the annual benefit payable to a Participant is not more than $1,000 multiplied by the Participant's number of years of service or parts thereof (not to exceed 10) with the Employer, and the Employer has not at any time maintained a defined contribution plan, a welfare benefit plan as defined in Code Section 419(e), or an individual medical account as defined in Code Section 415(l)(2) in which such Participant participated. (b) This Section 6.01(b) applies if any Participant is covered, or has ever been covered, by another plan maintained by the Employer, including a qualified plan, or a welfare benefit fund, as defined in Code Section 419(e), or an individual medical account, as defined in Code Section 415(l)(2), which provides an annual addition as described in Section 6.02. (1) If a Participant is, or has ever been, covered under more than one defined benefit plan maintained by the Employer, the sum of the Participant's annual benefits from all such plans may not exceed the maximum permissible amount. (2) For limitation years beginning prior to the first day of the first limitation year beginning after December 31, 1999, if the Employer maintains, or at any time maintained, one or more qualified defined contribution plans covering any Participant in this Plan, a welfare benefit fund, as defined in Code Section 419(e), an individual medical account as defined in Code Section 415(l)(2), or a simplified employee pension the sum of the Participant's defined contribution fraction and defined benefit fraction (as each fraction is defined below) will not exceed 1.0 in any limitation year and the annual benefit otherwise payable to the Participant under this Plan will be reduced so that such limitation is not exceeded. Such limitation shall be in lieu of any adjustment to annual additions under the Employer's defined contribution plan, if any, required Page 40 of 58 by the provisions of Code Section 415 and the Regulations thereunder. (3) In the case of an individual who was a Participant in one or more defined benefit plans of the Employer as of the first day of the first limitation year beginning after December 31, 1986, the application of the limitations of this Section 6.01 shall not cause the maximum permissible amount for such individual under all such defined benefit plans to be less than the individual's current Accrued Benefit. The preceding sentence applies only if such defined benefit plans met the requirements of Code Section 415 for all limitation years beginning before January 1, 1987. Page 41 of 58 Section 6.02. Annual Additions. ---------------- (a) Annual additions are the sum of the following amounts credited to a Participant's account for the limitation year: (1) Employer contributions; (2) Employee contributions; (3) Forfeitures; and (4) Amounts allocated after March 31, 1984 to an individual medical account as defined in Code Section 415(l)(2) which is part of a pension or annuity plan maintained by the Employer are treated as annual additions to a defined contribution plan. Also, amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, that are attributable to post-retirement medical benefits allocated to the separate account of a Key Employee, as defined in Code Section 419A(d)(3), under a welfare benefit fund, as defined in Code Section 419(e), are treated as annual additions to a defined contribution plan; and (5) Allocations under a simplified employee pension. Section 6.03. Annual Benefit. Annual benefit shall mean a retirement -------------- benefit under the Plan which is payable annually in the form of a straight life annuity. Except as provided below, a benefit payable in a form other than a straight life annuity must be adjusted to an actuarially equivalent straight life annuity before applying the limitations of this Section. The interest rate assumption used to determine actuarial equivalence will be the greater of the interest rate specified in Section 1.03 of this Plan or 5 percent. The annual benefit does not include any benefits attributable to Employee contributions or rollover contributions, or the assets transferred from a qualified plan that was not maintained by the Employer. No actuarial adjustment to the benefit is required for (a) the value of a qualified joint and survivor annuity, (b) the value of benefits that are not directly related to retirement benefits (such as the qualified disability benefit, pre-retirement death benefits, and post-retirement medical benefits), and (c) the value of post-retirement cost-of-living increases made in accordance with Code Section 415(d) and Section 1.415-3(c)(2)(iii) of the Regulations. Section 6.04. Compensation. ------------ (a) Compensation shall refer to wages, salaries, and fees for professional services, and other amounts received (without regard to whether an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer (to the extent that the amounts are includable in gross income) including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements, or other expense allowances under a nonaccountable plan (as described in 1.62- 2(c)). (b) Compensation shall not include the following: (1) Employer contributions to a deferred compensation plan which are not included in the Employee's gross income for the taxable year in which contributed or Employer contributions under a simplified employee pension plan to the extent such contributions are deductible by the Participant, or any distributions Page 42 of 58 from a plan of deferred compensation plan; (2) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Participant 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 described in Code Section 403(b) (whether or not the amounts are actually excludable from the gross income of the Participant). (c) Compensation for a limitation year is the compensation actually paid or made available during such limitation year. Section 6.05. Current Accrued Benefit. Current accrued benefit shall mean ----------------------- a Participant's Accrued Benefit under the Plan, determined as if the Participant had separated from service as of the close of the last limitation year beginning before January 1, 1987, when expressed as an annual benefit within the meaning of Code Section 415(b)(2). In determining the amount of a Participant's current Accrued Benefit, the following shall be disregarded: (a) Any change in the terms and conditions of the Plan after May 5, 1986; and (b) Any cost of living adjustments occurring after May 5, 1986. Section 6.06. Defined Benefit Dollar Limitation. The defined benefit ---------------------------------- dollar limitation shall be $90,000. Effective on January 1, 1988, and each January thereafter, the $90,000 limitation above will be automatically adjusted by multiplying such limit by the cost of living adjustment factor prescribed by the Secretary of the Treasury under Code Section 415(d) in such manner as the Secretary shall prescribe. The new limitation will apply to limitation years ending within the calendar year of the date of the adjustment. Section 6.07. Defined Benefit Fraction. ------------------------ (a) The defined benefit fraction is a fraction, (1) 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 (2) 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) and in accordance with Section 6.12(a) below or 140 percent of the highest average compensation, including any adjustments under Code Section 415(b). (b) Notwithstanding the immediately preceding paragraph (a), if the Participant was a Participant as of the first day of the first limitation year beginning after December 31, 1986, in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, the denominator of the defined benefit fraction will not be less than 125 percent of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last limitation year beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plans after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Code Section 415 for all limitation years beginning before January 1, 1987. Page 43 of 58 Section 6.08. Defined Contribution Fraction. ----------------------------- (a) The defined contribution fraction is a fraction, (1) 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 this and all other defined benefit plans (whether or not terminated) maintained by the Employer, and the annual additions attributable to all welfare benefit funds, as defined in Code Section 419(e), or individual medical accounts, as defined in Code Section 415(l)(2), and simplified employee pensions maintained by the Employer), and (2) the denominator of which is the sum of the maximum aggregate amounts for the current and all prior limitation years of service with the Employer (regardless of whether a defined contribution plan was maintained by the Employer). The maximum aggregate amount in any limitation year is the lesser of 125 percent of the dollar limitation determined under 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. (b) If the Employee was a participant as of the first day of the first limitation year beginning after December 31, 1986, in one or more defined contribution plans maintained by the Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the defined benefit fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (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 January 1, 1987, disregarding any changes in the terms and conditions of the Plan after May 5, 1986, but using the Code Section 415 limitation applicable to the first limitation year beginning on or after January 1, 1987. The annual addition for any limitation year beginning before January 1, 1987, shall not be recomputed to treat all Employee contributions as annual additions. Section 6.09. Employer. Employer, for the purposes of Section 6.01, shall -------- mean the Employer 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 Employer is a part, and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o). Section 6.10. Highest Average Compensation. Highest average compensation ---------------------------- shall mean the average Compensation for the three (3) consecutive years of service with the Employer that produces the highest average. A year of service with the Employer is the twelve (12) consecutive month period corresponding to a calendar year. Section 6.11. Limitation Year. Limitation year shall mean a calendar --------------- year. All qualified plans maintained by the Employer use the same limitation year. If the limitation year is amended to a different twelve (12) consecutive month period, the new limitation year must begin on a date within the limitation year in which the amendment is made. Page 44 of 58 Section 6.12. Maximum Permissible Amount. Maximum permissible amount -------------------------- shall mean the lesser of the defined benefit dollar limitation or 100 percent of the Participant's highest average compensation. (a) If the Participant has less than 10 years of participation with the Employer, the defined benefit dollar limitation is reduced by one-tenth for each year of Participation (or part thereof) less than ten. To the extent provided in Regulations or in other guidance issued by the Internal Revenue Service, the preceding sentence shall be applied separately with respect to each change in the benefit structure of the Plan. (1) If the Participant has less than 10 years of service with the Employer, the compensation limitation is reduced by one-tenth for each year of service (or part thereof) less than ten (10). (2) The adjustments of under this Section 6.12 (a) shall be applied in the denominator of the defined benefit fraction based upon years of service. Years of service shall include future years occurring before the Participant's normal retirement age. Such future years shall include the year which contains the date the Participant reaches normal retirement age, only if it can be reasonably anticipated that the Participant will receive a year of service for such year. (b) If the annual benefit of the Participant commences before the Participant's social security retirement age, but on or after age sixty-two (62), the defined benefit dollar limitation as reduced above, if necessary, shall be determined as follows: (1) If a Participant's social security retirement age is sixty (65), the dollar limitation for benefits commencing on or after age sixty-two (62) is determined by reducing the defined benefit dollar limitation by five-ninths (5/9) of one percent for each month by which benefits commence before the month in which the Participant attains age sixty-five (65). (2) If a Participant's social security retirement age is greater than sixty-five (65), the dollar limitation for benefits commencing on or after age sixty-two (62) is determined by reducing the defined benefit dollar limitation by five-ninths (5/9) of one percent for each of the first thirty-six (36) months and five-twelfths (5/12) of one percent for each of the additional months (up to twenty-four (24) months) by which benefits commence before the month of the Participant's social security retirement age. (c) If the annual benefit of a Participant commences prior to age sixty- two (62), the defined benefit dollar limitation shall be the actuarial equivalent of an annual benefit beginning at age sixty-two (62), as determined above, reduced for each month by which benefits commence before the month in which the Participant attains age sixty-two (62). To determine actuarial equivalence, the interest rate assumption is the greater of the rate specified in Section 1.03 or 5 percent. Any decrease in the defined benefit dollar limitation determined in accordance with this paragraph (c) shall not reflect the mortality decrement to the extent that benefits will not be forfeited upon the death of the Participant. (d) If the annual benefit of a Participant commences after the Participant's social security retirement age, the defined benefit dollar limitation as reduced in the immediately preceding paragraph (a), if necessary, shall be adjusted so that it is the actuarial equivalent of an annual benefit of such dollar limitation beginning at the Participant's social security retirement age. To determine actuarial equivalence, the interest rate assumption is the lesser of the rate specified in Section 1.03 or 5 percent. Section 6.13. Projected Annual Benefit. Projected annual benefit shall ------------------------ mean the annual benefit as defined in Section 6.03, to which the Participant would be entitled under the terms of the Plan assuming the following: Page 45 of 58 (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. Section 6.14. Social Security Retirement Age. Social Security Retirement ------------------------------ Age means the age used as the retirement age under Section 216(l) of the Social Security Act, except that such section shall be applied without regard to the age increase factor and as if the early retirement age under Section 216(l)(2) of such Act were 62. Section 6.15. Year of Participation. --------------------- (a) A year of participation (computed to fractional parts of a year) shall be credited to Participants for each accrual computation period for which the following conditions are met: (1) The Participant is credited with at least the number of hours of service for benefit accrual purposes required under the terms of the Plan in order to accrue a benefit for the accrual computation period, and (2) The Participant is included as a Participant under the eligibility provisions of the Plan for at least one day of the accrual computation period. (b) If the conditions set forth in the immediately preceding paragraphs (1) and (2) are met, the portion of a year of participation credited to the Participant shall equal the amount of benefit accrual service credited to the Participant for such accrual computation period. (c) A Participant who is permanently and totally disabled within the meaning of Code Section 415(c)(3)(C)(i) for an accrual computation period shall receive a year of participation with respect to that period. (d) For a Participant to receive a year of participation (or part thereof) for an accrual computation period, the Plan must be established no later than the last day of such accrual computation period. (e) In no event will more than one year of participation be credited for any 12-month period. ARTICLE VII: TOP HEAVY PROVISIONS ---------------------------------- Section 7.01. General. If the Plan is or becomes top heavy in any Plan ------- Year the provisions below will supersede any conflicting provisions in the Plan for such Plan Year and each Plan Year thereafter. Section 7.02. Key Employee. A Key Employee is 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 fifty percent (50%) of the dollar limitation under Section 415(b)(1)(A) of the Code, an owner (or considered an owner under Section 318 of the Code) of one of the ten largest interests in the Employer if such individual's compensation exceeds 100 percent of the dollar limitation under Code Section 415(c)(1)(A), a five percent (5%) owner of the Employer, or a 1- percent owner of the Employer who has an annual compensation of more than $150,000. (a) Annual compensation means 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 Code Sections 125, 402(e)(3), 402(h) or 403(b). Page 46 of 58 (b) The determination period is the Plan Year containing the determination date and the 4 preceding Plan Years. The determination of who is a Key Employee will be made in accordance with Section 416(i)(1) of the Code and the Regulations thereunder. Section 7.03. Top Heavy Plan. For any Plan Year beginning after December -------------- 31, 1983, this Plan is top heavy if any of the following conditions exist: (a) If the top heavy ratio for this Plan exceeds sixty percent (60%) and this Plan is not part of any required aggregation group or permissive aggregation group of plans, (b) If this Plan is a part of a required aggregation group of plans (but which is not part of a permissive aggregation group) and the top heavy ratio for the group of plans exceeds sixty percent (60%) percent, or (c) If this Plan is a part of a required aggregation group of plans and part of a permissive aggregation group and the top heavy ratio for the permissive aggregation group exceeds sixty percent (60%) percent. Section 7.04. Top Heavy Ratio. --------------- (a) If the Employer maintains one or more defined benefit plans and the Employer has not maintained any defined contribution plans (including any simplified employee pension plan) which during the five-year period ending on the determination date(s) has or has had account balances, 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 Present Values of Accrued Benefits of all Key Employees as of the determination date(s) (including any part of any Accrued Benefit distributed in the five-year period ending on the determination date(s)), and (2) the denominator of which is the sum of all Accrued Benefits (including any part of any Accrued Benefit distributed in the five-year period ending on the Determination Date(s)), determined in accordance with Code Section 416 and the Regulations thereunder. (b) If the Employer maintains one or more defined benefit plans and the Employer maintains or has maintained one or more defined contribution plans (including any simplified employee pension plan) which during the five-year period ending on the Determination Date(s) has or has had any account balances, the top heavy ratio for any required or permissive aggregation group as appropriate is a fraction, (1) the numerator of which is the sum of the present value of accrued benefits under the aggregate defined benefit plan or plans for all Key Employees, determined in accordance with (a) above, and (2) the sum of account balances under the aggregated defined contribution plan or plans for all Key Employees as of the determination date(s), and the denominator of which is the sum of the present values of accrued benefits under the aggregated defined benefit plan or plans, determined in accordance with (a) above, for all Participants and the sum of the account balances under the aggregated defined contribution 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 account balances under a defined contribution plan in both the numerator and denominator of the top-heavy ratio are increased for any distribution of an account balance made in the 5-year period ending on the determination date. (c) For purposes of (a) and (b) above, Page 47 of 58 (1) 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. (2) The account balances are Accrued Benefits of a Participant (i) who is not a Key Employee but who was a Key Employee in a prior year, or (ii) who has not been credited with at least one Hour of Service with the Employer maintaining the Plan at any time during the 5-year period ending on the determination date will be disregarded. (3) The calculation of the top heavy ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Code Section 416 and the Regulations thereunder. Deductible Employee contributions will not be taken into account for purposes of computing the top-heavy ratio. When aggregating plans, the value of account balances and Accrued Benefits will be calculated with reference to the determination dates that fall within the same calendar year. (4) The Accrued Benefit of a Participant, other than a Key Employee, shall be determined under (i) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer, or (ii) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Code Section 411(b)(1)(C). Section 7.05. Permissive Aggregation Group. The required aggregation ---------------------------- group of plans plus any other plan or plans of the Employer which, when considered as a group with the required aggregation group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code. Section 7.06. Required Aggregation Group. The required aggregation group -------------------------- shall consist 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. Section 7.07. 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. Page 48 of 58 Section 7.08. Valuation Date. The valuation date shall be January 1. -------------- Section 7.09. Present Value. Present Value shall be based only on the ------------- interest and mortality rates specified in Section 1.03(d). Section 7.10. Minimum Accrued Benefit. ----------------------- (a) Notwithstanding any other provision in this Plan, except for the immediately following paragraphs (e) and (f) below, for any Plan Year in which this Plan is top heavy, each Participant who is not a Key Employee and has completed 1,000 Hours of Service will accrue a benefit (to be provided solely by Employer contributions and expressed as a life annuity commencing at Normal Retirement Date) of two percent (2%) of his or her highest average compensation for the five (5) consecutive years for which the Participant had the highest compensation. The aggregate compensation for the years during the five-year period in which the Participant was credited with a Year of Service will be divided by the number of such years in order to determine average annual compensation. (b) The minimum accrual is determined without regard to any Social Security contribution. (c) The minimum accrual applies even though under other Plan provisions the Participant would not otherwise be entitled to receive an accrual, or would have received a lesser accrual for the year because (1) the Non-Key Employee fails to make mandatory contributions to the Plan, (2) the Non-Key Employee's compensation is less than a stated amount, (3) the Non-Key Employee is not employed on the last day of the accrual computation period, or (4) the Plan is integrated with Social Security. (d) For purposes of computing the minimum accrued benefit, compensation will include W-2 wages for the calendar year ending with or within the Plan Year, as limited by Code Section 401(a)(17). (e) No additional benefit accruals shall be provided pursuant to the immediately preceding paragraph (a) to the extent that the total accruals on behalf of the Participant attributable to Employer contributions will provide a benefit expressed as a life annuity commencing at Normal Retirement Date that equals or exceeds twenty percent (20%) of the Participant's highest average compensation for the five (5) consecutive years for which the Participant had the highest compensation. (f) All accruals of Employer derived benefit, whether or not attributable to years for which the Plan is top heavy, may be used in computing whether the minimum accrual requirement of the immediately preceding paragraph (e) is satisfied. (1) If the form of benefit is other than a single life annuity, the Employee must receive an amount that is the Actuarial Equivalent of the minimum single life annuity benefit. If the benefit commences at a date other than at Normal Retirement Date, the Employee must receive at least an amount that is the Actuarial Equivalent of the minimum single life annuity benefit commencing at Normal Retirement Date. (2) The minimum accrued benefit required (to the extent required to be nonforfeitable under Code Section 416(b)) may not be suspended or forfeited under Sections 411(a)(3)(B) or 411(a)(3)(D). Section 7.11. Vesting. ------- Page 49 of 58 (a) The vesting schedule for Plan Years in which this Plan is not top heavy is located in Section 3.07(a)(1). However, for any Plan Year in which this Plan is top heavy, the nonforfeitable interest of each Participant in his or her Accrued Benefits shall be: Service Years % Vested ------------- -------- 2 20% 3 40% 4 60% 5 80% 6 or more 100% (b) The minimum vesting schedule applies to all benefits within the meaning of Code Section 411(a)(7), except those attributable to Employee contributions, including benefits accrued before the effective date of Section 416 and benefits accrued before the Plan became top-heavy. (1) No reduction in Vested benefits may occur in the event the Plan's status at top heavy changes for any Plan Year. (2) This Section 7.11 does not apply to the Accrued Benefits of any Employee who does not have an Hour of Service after the Plan has initially become top heavy and such Employee's Accrued Benefits attributable to Employer contributions will be determined without regard to this Section 7.11. ARTICLE VIII: AMENDMENT, MERGER, CONSOLIDATION OR TRANSFER OF ASSETS ----------------------------------- Section 8.01. Plan Amendment. -------------- (a) The Employer shall have the right, subject to the limitations of this Section 8.01, to act at any time and from time to time, without consent of Participants, active or retired, beneficiaries, or any person or persons claiming through them, to modify or amend, in whole or in part, any or all of the provisions of the Plan, including specifically the right to make any such amendments effective retroactively, if necessary, to bring the Plan into conformity with governmental regulations which must be complied with in order to maintain qualification of the Plan, provided that no such modification or amendment shall make it possible for any part of the assets of the Plan to be used for or diverted to purposes other than for the exclusive benefit of Participants and Retired Participants, and their beneficiaries under the Plan, prior to the satisfaction of all liabilities with respect to such Participants and Retired Participants and their beneficiaries under the Plan as provided by Section 5.01(b). Furthermore, no amendment shall deprive Participants of any optional form of benefit to the extent protected by law or as a condition to qualification of the Plan under the Code provisions in effect at the applicable time. (b) No amendment to the Plan (including a change in the actuarial basis for determining optional or early retirement benefits) 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 Accrued Benefit may be reduced to the extent permitted under Code Section 412(c)(8). (1) For the purposes of this Section 8.01(b), a Plan amendment which has the effect of (i) eliminating or reducing an early retirement benefit or a retirement-type subsidy, or (ii) eliminating an optional form of benefit, with respect to benefits attributable to Page 50 of 58 service before the amendment shall be treated as reducing Accrued Benefits. (2) In the case of a retirement-type subsidy, the immediately preceding paragraph (1) shall apply only with respect to a Participant who satisfies (either before or after the amendment) the preamendment conditions for the subsidy. In general, a retirement-type subsidy is a subsidy that continues after retirement, but does not include a qualified disability benefit, a medical benefit, a social security supplement, or a death benefit (including life insurance). (3) If the vesting schedule of the Plan is amended, in the case of a Participant who is a Participant as of the later of the date such amendment is adopted or the date it becomes effective, the nonforfeitable percentage (determined as of such date) of such Participant's Employer-derived Accrued Benefit will not be less than the percentage computed under the Plan without regard to such amendment. (c) If the Plan's vesting schedule is amended or the Plan is amended in any way that directly or indirectly affects the computation of a Participant's nonforfeitable percentage, or if the Plan is deemed amended by an automatic change to or from a top heavy vesting schedule, each Participant with at least three (3) years of service with the Employer may elect within a reasonable period after the adoption of the amendment or change, to have his or her nonforfeitable percentage computed under the Plan without regard to such amendment or change. For Participants who do not have at least one Hour of Service in any Plan Year beginning after December 31, 1988, the preceding sentence shall be applied by substituting "five years of service" for "three years of service" where such language appears. (d) The period during which the election referred to in the immediately preceding paragraph (c) may be made shall commence with the date the amendment is adopted or deemed to be made and shall end on the latest of: (1) 60 days after the amendment is adopted: (2) 60 days after the amendment becomes effective; or (3) 60 days after the Participant is issued written notice of the amendment by the Employer or Plan Administrator. (e) If the Plan is amended and an effect of such amendment is to increase current liability (as defined in Code Section 401(a)(29)(E)) under the Plan for a Plan Year, and the funded current liability percentage of the Plan for the Plan Year in which the amendment takes effect is less than sixty percent (60%), including the amount of the unfunded current liability under the Plan attributable to the amendment, the amendment shall not take effect until the Employer (or any member of a controlled group which includes the Employer) provides security to the Plan. The form and amount of such security shall satisfy the requirements of Code Section 401(a)(29)(B) and (C). Such security may be released provided the requirements of Code Section 401(a)(29)(D) are satisfied. (f) Pursuant to the Employer's right to amend the Plan, the Board of Directors will determine whether an amendment is appropriate and will direct that the amendment be drafted. A quorum of the Board of Directors must approve the amendment. As soon as practicable after the Board of Directors' approval, the Employer's President, or an officer designated by the President, will sign the amendment, thereby adopting the amendment. Section 8.02. Merger, Consolidation Or Transfer Of Assets. ------------------------------------------- (a) In the event of a merger or consolidation of the Employer or transfer of all or substantially all of Page 51 of 58 its assets to any other corporation, partnership or association, provision may be made by such successor corporation, partnership or association at its election for the continuance of the Plan as to such successor entity. Such successor shall, upon its election to continue the Plan, be substituted in place of the Employer by an instrument duly authorizing such substitution and duly executed by the Employer and its successor. Upon notice of such substitution accompanied by a certified copy of the resolutions of the Board of Directors and its successor authorizing such substitution and delivered to the Trustee, the Trustee and all Participants hereunder shall be authorized to recognize such successor in the place of the Employer. (b) In the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each Participant in the Plan would (if the new plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he or she would have been entitled to receive immediately before the merger, consolidation or transfer (if the Plan had then terminated). (c) Before the Plan can be merged or consolidated with any other qualified plan or its assets or liabilities transferred to any other qualified plan, the Plan Administrator must secure (and file with the Secretary of the Treasury at least 30 days beforehand) a certification from a government-enrolled actuary that the benefits that would be received by a Participant of the Plan in the event of a termination of the Plan immediately after such transfer, merger or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation, and such transfer, merger or consolidation does not otherwise result in the elimination or reduction of any of the protected benefits described in Section 8.01(b). Page 52 of 58 ARTICLE IX: PLAN TERMINATION ----------------------------- Section 9.01. Termination Of Plan. ------------------- (a) The Employer shall have the right to terminate the Plan. The Board of Directors will determine whether plan termination is appropriate. A quorum of the Board of Directors must approve the termination. As soon as practicable after the Board of Directors' approval of the termination, the Board of Directors will direct that a written notice of such termination be drafted and delivered to the Trustee and the Plan Administrator. However, any termination (other than a partial termination or an involuntary termination pursuant to Act Section 4042) must satisfy the requirements and follow the procedures outlined herein and in ERISA Section 4041 for a Standard Termination or a Distress Termination. Upon any termination (full or partial), all amounts shall be allocated in accordance with the provisions hereof and the Accrued Benefit, to the extent funded as of such date, of each affected Participant shall become fully Vested and shall not thereafter be subject to forfeiture. (b) Standard Termination Procedure. ------------------------------ (1) The Plan Administrator shall first notify all "affected parties" (as defined in Act Section 4001(a)(21)) of the Employer's intention to terminate the Plan and the proposed date of termination. Such termination notice must be provided at least sixty (60) days prior to the proposed termination date. However, in the case of a standard termination, it shall not be necessary to provide such notice to the PBGC. As soon as practicable after the termination notice is given, the Plan Administrator shall provide a follow-up notice to the PBGC setting forth the following: (i) a certification of an enrolled actuary of the projected amount of the assets of the Plan as of the proposed date of final distribution of assets, the actuarial present value of the "benefit liabilities" (as defined in Act Section 4001(a)(16)) under the Plan as of the proposed termination date, and confirmation that the Plan is projected to be sufficient for such "benefit liabilities" as of the proposed date of final distribution; (ii) a certification by the Plan Administrator that the information provided to the PBGC and upon which the enrolled actuary based his or her certification is accurate and complete; and (iii) such other information as the PBGC may prescribe by regulation. The certification of the enrolled actuary and of the Plan Administrator shall not be applicable in the case of a plan funded exclusively by individual insurance contracts. (2) No later than the date on which the follow-up notice is sent to the PBGC, the Plan Administrator shall provide all Participants and beneficiaries under the Plan with an explanatory statement specifying each such person's "benefit liabilities," the benefit form on the basis of which such amount is determined, and any additional information used in determining "benefit liabilities" that may be required pursuant to regulations promulgated by PBGC. (3) A standard termination may only take place if at the time the final distribution of assets occurs, the Plan is sufficient to meet all "benefit liabilities" determined as of the termination date. (c) Distress Termination Procedure. ------------------------------ (1) The Plan Administrator shall first notify all "affected parties" of the Employer's intention to terminate the Plan and the proposed date of termination. Such termination notice must be provided at least Page 53 of 58 60 days prior to the proposed termination date. As soon as practicable after the termination notice is given, the Plan Administrator shall also provide a follow-up notice to the PBGC setting forth the following: (i) a certification of an enrolled actuary of the amount, as of the proposed termination date, of the current value of the assets of the Plan, the actuarial present value (as of such date) of the "benefit liabilities" under the Plan, whether the Plan is sufficient for "benefit liabilities" as of such date, the actuarial present value (as of such date) of benefits under the Plan guaranteed under Act Section 4022, and whether the Plan is sufficient for guaranteed benefits as of such date; (ii) in any case in which the Plan is not sufficient for "benefit liabilities" as of such date, the name and address of each Participant and beneficiary under the Plan as of such date; (iii) a certification by the Plan Administrator that the information provided to the PBGC and upon which the enrolled actuary based his or her certification is accurate and complete; and (iv) such other information as the PBGC may prescribed by regulation. This certification of the enrolled actuary and of the Plan Administrator shall not be applicable in the case of a plan funded exclusively by individual insurance contracts. (2) A distress termination may only take place if: (i) the Employer demonstrates to the PBGC that such termination is necessary to enable the Employer to pay its debts while staying in business, or to avoid unreasonably burdensome pension costs caused by a decline in the employer' work force; (ii) the Employer is the subject of a petition seeking liquidation in a bankruptcy or insolvency proceeding which has not been dismissed as of the proposed termination date; or (iii) the Employer is the subject of a petition seeking reorganization in a bankruptcy or insolvency proceeding which has not been dismissed as of the proposed termination date, and the bankruptcy court (or such other appropriate court) approves the termination and determines that the Employer will be unable to continue in business outside a Chapter 11 reorganization process and that such termination is necessary to enable the Employer to pay its debts pursuant to a plan of reorganization. (d) Priority And Payment Of Benefits. In the case of a distress -------------------------------- termination, upon approval by the PBGC that the Plan is sufficient for "benefit liabilities" or for "guaranteed benefits," or in the case of a standard termination, a letter of non- compliance has not been issued within the sixty (60) day period (as extended) following the receipt by the PBGC of the follow-up notice, the Plan Administrator shall allocate the assets of the Plan among Participants and beneficiaries pursuant to ERISA Section 4044(a). (1) If the Employer terminates the Plan, the Employer shall direct the Trustee to compute the value of the Trust Fund held for the benefit of Participants, Retired Participants, qualified Terminated Participants, Disabled Participants, spouses, and beneficiaries otherwise eligible to receive benefits hereunder. The Plan Administrator, based upon the certification of the Actuary, shall apportion the amount so valued to all such Participants, Retired Participants, qualified Terminated Participants, Disabled Participants, spouses and beneficiaries in shares as determined in accordance with ERISA Section 4044(a), but subject to the provisions of Section 9.01(g). Page 54 of 58 (2) The value of that portion of the Trust Fund remaining after providing for the expenses of administration of the Plan and Trust shall be allocated for purposes of paying Monthly Retirement Income, Disability Payments and Death Benefits in the order of precedence indicated and in the amounts indicated in ERISA Section 4044. (3) The allocation of the Trust Fund in accordance with ERISA Section 4044(a) shall be based on the method of payments of Monthly Retirement Income, Disability Payments or Death Benefits specified in the Plan. In the event that the Trust Fund assets on or after the date of termination are insufficient to fund all benefits within any class of benefits, see ERISA Section 4044(a), the benefits of all higher order of precedence shall be funded, the benefits of all lower order of precedence shall be unfunded, and the assets remaining shall be allocated among Participants of that class on the basis of their respective actuarial reserves, subject to the provisions of Section 4044 of ERISA. (e) In the event of failure of the Employer upon termination of this Plan to pay or reimburse the Trustee or the Actuary for the then outstanding charges or expenses incurred hereunder, the Trustee is empowered to satisfy such claims by lien upon the Trust Fund, prior to making any allocation in accordance with Section 9.01(d). (f) The application of the Trust Fund on the foregoing basis shall be calculated by the Actuary and certified to the Trustee by the Employer as of the date on which the Plan terminated. Subject to the restrictions of ERISA, as it may be amended, when the calculations shall be completed, the interest of each Participant, qualified Terminated Participant, Retired Participant, Disabled Participant, spouse and beneficiary shall continue to be held in the Trust Fund pursuant to the terms of Section 9.01(d) hereof, or at the direction of the Employer, the Trust Fund shall be liquidated and each of their interests distributed to them in a form of annuity contracts, annuity payments, installments or in a lump sum subject to the provisions of Article III; provided, however, that any funds remaining after the satisfaction of all liabilities to Participants, qualified Terminated Participants, Retired Participants, Disabled Participants, spouses and beneficiaries under this Plan due to erroneous actuarial computations, shall be returned to the Employer. (g) If the Plan is terminated within ten (10) years after the Effective Date, the amount in excess of a Participant's restricted benefits under Section 9.02 shall become part of the general fund for purposes of allocation in accordance with Section 9.01(d). (h) Notwithstanding any other provision herein contained (except the provisions of Section 9.02), should the Plan terminate or partially terminate, the rights of all affected Participants to benefits accrued to the date of such termination or partial termination or the amounts credited to the Participant's accounts, are nonforfeitable. Although the rights of Participants hereunder shall become nonforfeitable upon termination of the Plan, no Participant shall have any recourse toward satisfaction of his or her nonforfeitable benefits other than from the Plan assets or the PBGC. (i) A partial termination shall be deemed to have occurred in accordance with a determination to that effect by the Federal regulatory agency (the Treasury Department, the Labor Department or the PBGC) having jurisdiction to so determine under ERISA. (j) The termination of the Plan shall comply with such other requirements and rules as may be promulgated by the PBGC under authority of Title IV of the ERISA, including any rules relating to time periods or deadlines for providing notice or for making a necessary filing. Section 9.02. Limitation Of Benefits On Termination. ------------------------------------- (a) In the event of Plan termination, the benefit of any Highly Compensated Participant or any Highly Compensated Former Employee shall be limited to a benefit that is nondiscriminatory under Code Section 401(a)(4). Page 55 of 58 (b) Benefits distributed to any of the twenty-five (25) most highly compensated active and Highly Compensated Former Employees with the greatest compensation in the current or prior year are restricted such that the monthly payments are no greater than an amount equal to the monthly payment that would be made on behalf of such individual under a straight life annuity that is the Actuarial Equivalent of the sum of the individual's Accrued Benefit, the individual's other benefits under the Plan (other than a social security supplement within the meaning of Regulations 1.411(a)-7(c)(4)(ii)), and the amount the individual is entitled to receive under a social security supplement. However, the limitation of this Section 9.02 shall not apply if: (1) after payment of the benefit to an individual described above, the value of Plan assets equals or exceeds 110 percent of the value of current liabilities, as defined in Code Section 412(l)(7); (2) the value of the benefits for an individual described above is less than 1 percent of the value of current liabilities before distribution; or (3) the value of the benefits payable under the Plan to an individual described above does not exceed $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000). (c) For purposes of this Section, benefit includes any periodic income, any withdrawal values payable to a living Participant, and any death benefits not provided for by insurance on the individual's life. (d) An individual's otherwise restricted benefit may be distributed in full to the affected individual if, prior to receipt of the restricted amount, the individual enters into a written agreement with the Plan Administrator to secure repayment to the Plan of the restricted amount. The restricted amount is the excess of the amounts distributed to the individual (accumulated with reasonable interest) over the amounts that could have been distributed to the individual under the straight life annuity described above (accumulated with reasonable interest). The individual may secure repayment of the restricted amount upon distribution by: (1) entering into an agreement for promptly depositing in escrow with an acceptable depositary, property having a fair market value equal to at least 125 percent of the restricted amount; (2) providing a bank letter of credit in an amount equal to at least 100 percent of the restricted amount; or (3) posting a bond equal to at least 100 percent of the restricted amount. The bond must be furnished by an insurance company, bonding company or other surety for federal bonds. (e) The escrow agreement may permit an individual to withdraw from escrow amounts in excess of 125 percent of the restricted amount. If the market value of the property in an escrow account falls below 110 percent of the remaining restricted amount, the individual must deposit additional property to bring the value of the property held by the depositary up to 125 percent of the restricted amount. The escrow arrangement may provide that the individual has the right to receive any income from the property placed in escrow, subject to the individual's obligation to deposit additional property, as set forth in the preceding sentence. (f) A surety or bank may release any liability on a bond or letter of credit in excess of 100 percent of the restricted amount. (g) If the Plan Administrator certifies to the depositary, surety or bank that the individual (or the individual's estate) is no longer obligated to repay any restricted amount, a depositary may deliver to the individual any property held under an escrow arrangement, and a surety or bank may release any liability on an individual's bond or letter of credit. Page 56 of 58 ARTICLE X: MISCELLANEOUS PROVISIONS ------------------------------------ Section 10.01. Headings And Subheadings Contained In Plan. Any headings ------------------------------------------ or subheadings in the Plan are inserted for convenience of reference only and are to be ignored in the construction of any provisions hereof. Section 10.02. Illegality Of Plan Provisions. In case any provision of ----------------------------- the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining parts of the Plan and the Plan shall be construed and enforced as if such illegal and invalid provisions had never been inserted herein. Section 10.03. Correction Of Misstatements. A misstatement in the age, --------------------------- sex, length of Continuous Service, date of employment or birth, or Average Monthly Earnings of a Participant, shall be corrected when it becomes known that any such misstatement of facts has occurred. Section 10.04. Singular And Plural Terms. Words used in the singular ------------------------- shall be read and construed as though used in the plural in all cases where they would so apply. Section 10.05. Governing Law. The Plan shall be construed in accordance ------------- with the laws of the State of Alabama except where such laws are superseded by ERISA, in which case ERISA shall control. Section 10.06. Voluntary Continuance Of The Plan By The Employer. ------------------------------------------------- Although it is the intention of the Employer that the Plan shall be continued and contributions by the Employer made regularly each year, the Plan is entirely voluntary on the part of the Employer and the continuance of the Plan and the payments thereunder are not assumed as a contractual obligation of the Employer or the Trustee. Section 10.07. Source Of Payment Of Benefits. Each Participant, Retired ----------------------------- Participant, Totally and Permanently Disabled Participant, beneficiary, or spouse or any other person who shall claim the right to any payment or benefit under the Plan, shall be entitled only to look to the Trust Fund for such payment or benefit and shall not have any right, claim or demand therefor against the Employer or Trustee except as otherwise provided by law. Section 10.08. Suspension Of Contributions By The Employer. The Employer ------------------------------------------- specifically reserves the right, in its sole discretion, to modify or suspend, in whole or in part, at any time or from time to time, the contributions specified in Article IV of the Plan. Section 10.09. No Employment Rights Under Plan. The Plan shall not be ------------------------------- deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in the Plan shall be deemed to give any Participant or other Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time, regardless of the effect which such discharge shall have upon him or her as a Participant in the Plan. Section 10.10. Alienation Of Benefits Disallowed. No benefit or interest --------------------------------- available hereunder will be subject in any manner to assignment, alienation, anticipation, sale, transfer, pledge, encumbrance, or charge, and any attempt to assign, alienate, anticipate, sell, transfer, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Employer, Trustee or Plan Administrator, except as may be required by law. The foregoing provisions of this paragraph Section 10.10 shall not apply to a "qualified domestic relations order" defined in Code Section 414(p). The Plan Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Finally, to the extent provided under a "qualified domestic relations order," a former spouse of a Participant shall be Page 57 of 58 treated as the spouse or surviving spouse for all purposes under the Plan. Section 10.11. Indemnification By Employer. The Employer shall and does --------------------------- hereby indemnify all persons in its employ to whom it has delegated or from time to time hereafter does delegate any fiduciary duties against any and all claims, losses, damages, expenses and liability arising from or in connection with their responsibilities in connection with the Plan unless the same is determined to be due to their own gross negligence or willful misconduct. The Employer may obtain insurance in support of such indemnification but may only charge the cost of such insurance to the Trust to the extent individuals remain personally liable for breach of their fiduciary responsibilities. Section 10.12. Bonding Of Fiduciaries. Every fiduciary, except a bank or ---------------------- an insurance company, unless exempted by the Act and Regulations thereunder, shall be bonded in an amount not less than ten percent (10%) of the amount of the funds such fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of funds handled shall be determined at the beginning of the Plan Year by the amount of funds handled by such person, group, or class to be covered and their predecessors, if any, during the preceding Plan Year, or if there is no preceding Plan Year, then by the amount of the funds to be handled during the then current year. The bond shall provide protection to the Plan against any loss by reason of acts of fraud or dishonesty by the fiduciary alone or in connivance with others. The surety shall be a corporate surety company (as such term is used in ERISA Section 412(a)(2)), and the bond shall be in a form approved by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the cost of such bonds shall be an expense of and may, at the election of the Plan Administrator, be paid from the Trust Fund or by the Employer. IN WITNESS WHEREOF, National Bank of Commerce of Birmingham has caused this Plan, amended and restated, generally effective as of January 1, 1997, to be executed, as of the 16th day of December, 1999. NATIONAL BANK OF COMMERCE OF BIRMINGHAM By: /s/ John H. Holcomb, III ------------------------------------------ John H. Holcomb, III Its: President Attest: By: /s/ Kimberly Moore --------------------------- Kimberly Moore Its: Corporate Secretary Page 58 of 58 EX-10.8 3 AMEND. OF ANB PERFORMANCE SHARE PLAN Exhibit 10.8 ------------ AMENDMENT AND RESTATEMENT OF THE ALABAMA NATIONAL BANCORPORATION PERFORMANCE SHARE PLAN 1. Purpose. The purpose of the Alabama National BanCorporation Performance Share Plan (the "Plan") is to further the long-term growth in profitability of Alabama National BanCorporation (the "Company") by offering long- term incentives in addition to current compensation to those key executives who will be largely responsible for such growth. 2. Certain Definitions. (a) "Award" means the award of Performance Shares to a Participant pursuant to the terms of the Plan. (b) "Award Period" means the period of calendar years (but no more than five years) fixed by the Committee with respect to all Awards with the same Date of Grant, commencing with each Date of Grant, except that (i) the Award Period for an Employee whose normal retirement date (as determined under the Company's corporate policy covering retirement of salaried employees) is less than the period otherwise fixed by the Committee from the applicable Date of Grant shall be the period beginning with such Date of Grant and ending on the December 31st immediately preceding such normal retirement date and (ii) the Award Period for a recently hired Employee may be for such lesser period as determined by the Committee. (c) "Committee" means the committee of the Board of Directors of the Company which shall administer the Plan in accordance with Section 3. (d) "Common Stock" means the common stock, par value $1.00 per share, of the Company. (e) "Company" means Alabama National BanCorporation, a Delaware corporation. (f) "Date of Grant" means as of January 1 of any year in which an Award is made. (g) "Employee" means any person (including any officer) employed by the Company or any subsidiary of the Company on a full-time salaried basis. (h) "Fair Market Value" of the Common Stock means the average of the daily closing prices for a share of the Common Stock for the twenty (20) trading days ending on the fifth business day prior to the date of payment of Performance Shares for an Award Period or an Interim Period, as the case may be, on the Composite Tape for New York Stock Exchange - Listed Stocks, or, if the Common Stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on which the Common Stock is listed, or, if the Common Stock is not listed on any such Exchange, the average of the daily closing bid quotations with respect to a share of the Common Stock for such twenty (20) trading days on the National Association of Securities Dealers, Inc., Automated Quotations System or any system then in use. (i) "Interim Period" means a period of calendar years chosen by the Committee commencing with any Date of Grant, which period is less than the Award Period commencing on the Date of Grant. (j) "Net Income Per Share" for the Company, or any other corporation, means net income for the year divided by average common shares outstanding during the year, computed in accordance with generally accepted accounting principles as reported in the Company's Annual Report to Stockholders or its equivalent. (k) "Participant" means an Employee who is selected by the Committee to receive an Award under the Plan. 1 (l) "Performance Share" means the equivalent of one share of Common Stock. (m) "Return on Average Equity" for the Company, or any other corporation, for a period is obtained by dividing (i) Net Income Per Share of Common Stock for the year, by (ii) average Stockholders' Equity Per Share at the beginning of the year and at the end of the year, computed in accordance with generally accepted accounting principles as reported in the Company's Annual Report to Stockholders or its equivalent. (n) "Section 162(m)" means Section 162(m) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. (o) "Stockholders' Equity Per Share" for the Company, or any other corporation, for a particular point in time is obtained by dividing (i) stockholders' equity by (ii) outstanding common shares, computed in accordance with generally accepted accounting principles as reported in the Company's Annual Report to Stockholders or its equivalent. 3. Administration of the Plan. The Plan shall be administered by a Committee designated by the Board of Directors, which shall be composed of not less than three members of the Board of Directors. No member of the Committee shall be eligible to participate in the Plan while serving as a member of the Committee. Initially, the Committee shall be the Compensation Committee. Subject to the provisions of the Plan, the Committee shall have the authority to select the Employees who are to participate in the Plan, to determine the Award to be made to each Employee selected to participate in the Plan, and to determine the conditions subject to which Awards will become payable under the Plan. The Committee shall have full power to administer and interpret the Plan and to adopt such rules and regulations consistent with the terms of the Plan as the Committee deems necessary or advisable in order to carry out the provisions of the Plan. Except as otherwise provided in the Plan, the Committee's interpretation and construction of the Plan and its determination of any conditions applicable to Performance Share Awards or the reasons for any terminations of Participants shall be conclusive and binding on all Participants. In connection with its determination as to the payment of Performance Shares, the Committee has full discretion to adjust Net Income Per Share or Stockholders' Equity Per Share to recognize special or nonrecurring situations or circumstances for the Company, or any other corporation, for any year. The Plan shall be unfunded. Benefits under the Plan shall be paid from the general assets of the Company. 4. Participation. Participants in the Plan shall be selected by the Committee from those Employees who, in the estimation of the Committee, have a substantial opportunity to influence the long-term profitability of the Company. 5. Performance Share Awards. (a) After appropriate approval of the Plan, and thereafter from time to time, the Committee shall select Employees to receive Awards in any year as of the Date of Grant. Any Employee may be granted more than one Award under the Plan, but no Employee may be granted, in the aggregate, more than 25% of the Performance Shares which are the subject of this Plan. Awards of Performance Shares hereunder shall not be made unless any such Award is in compliance with all applicable laws. (b) No Participant shall be entitled to receive any dividends or dividend equivalents on Performance Shares; with respect to any Performance Shares, no Participant shall have any voting or any other rights of a Company stockholder; and no Participant shall have any interest in or right to receive any shares of Common Stock prior to the time when the Committee determines the form of payment of Performance Shares pursuant to Section 6. (c) Payment of the Award to any Participant shall be made in accordance with Section 6 and shall be subject to such conditions for payment as the Committee may prescribe at the time the Award is made. The 2 Committee may prescribe different conditions for different Participants. Such conditions may be expressed in terms of: (i) the growth in Net Income Per Share during the Award Period, or (ii) average Return on Average Equity in comparison with other banks and bank holding companies, or (iii) other reasonable bases; provided that, to the extent the Committee determines that it is necessary to qualify compensation under Section 162(m), the performance criteria shall be based on one or more of the criteria listed in (i) or (ii) above. The Committee may prescribe conditions such that payment of an Award may be made with respect to a number of shares of Common Stock that is greater than the number of Performance Shares awarded. However, the Committee may not provide for payment of greater than 125% of the number of Performance Shares awarded. (d) Each Award shall be made in writing and shall set forth the terms and conditions set by the Committee for payment of such Award including, without limitation, the length of the Award Period and whether there will be an Interim Period with respect to the Award and if so, the length of the Interim Period. 6. Payment of Performance Share Awards. (a) Subject to the right of certain management or highly compensated employees to defer payment of an Award as discussed in this Section 6(b) below, payment of Performance Share Awards shall be as follows: Each Participant granted an Award shall be entitled to payment of the Award as of the close of the Award Period applicable to such Award, but only if and after the Committee has determined that the conditions for payment of the Award set by the Committee have been satisfied. At the time of grant of each Award, the Committee shall decide whether there will be an Interim Period. If the Committee determines that there shall be an Interim Period for the Award to any Participant, each such Participant granted an Award with an Interim Period shall be entitled to partial payment on account thereof as of the close of the Interim Period, but only if and after the Committee has determined that the conditions for partial payment of the Award set by the Committee have been satisfied. Performance Shares paid to a Participant for an Interim Period may be retained by the Participant and shall not be repaid to the Company, notwithstanding that based on the conditions set for payment at the end of the Award Period such Participant would not have been entitled to payment of some or any of his Award. Any Performance Shares paid to a Participant for the Interim Period during an Award Period shall be deducted from the Performance Shares to which such Participant is entitled at the end of the Award Period. Unless otherwise directed by the Committee, payment of Awards shall be made as promptly as possible by the Company after the determination by the Committee that payment has been earned. Unless otherwise directed by the Committee, all payments of Awards to Participants shall be made partly in shares of Common Stock and partly in cash, with the cash portion being approximately equal to the amount of federal, state and local taxes which the Participant's employer is required to withhold on account of said payment. The Committee, in its discretion, may provide for payment of cash and distribution of shares of Common Stock in such other proportions as the Committee deems appropriate, except and provided that the Committee must pay in cash an amount equal to the federal, state and local taxes which the Participant's employer is required to withhold on account of said payment. There shall be deducted from the cash portion of all Awards all taxes to be withheld with respect to such Awards. For payment of each Award, the number of shares of Common Stock to be distributed to Participants shall equal the Fair Market Value of the total Performance Shares determined by the Committee to have been earned by the Participant, less the portion of the Award that was paid in cash, divided by the Fair Market Value of a Performance Share. To the extent that shares of Common Stock are available in the treasury of the Company on the date payment is to be made, such shares may be issued in payment of Awards. (b) Each Participant who is a management or highly compensated employee and who is entitled to participate in the Alabama National BanCorporation Deferral of Compensation Plan for Key Employees may elect to defer payment of any Award in accordance with said plan. 3 7. Death or Disability. If, prior to the close of an Award Period, a Participant's employment terminates by reason of his death or by his total and permanent disability (as determined under the Company's Pension Plan), payment of his outstanding Award or Awards shall be made as promptly as possible after death or the date of the determination of total and permanent disability, and the number of Performance Shares to be paid shall be computed as follows: First, determine (based on the conditions set by the Committee for payment of Awards for the subject Award Period) the number of Performance Shares that would have been paid if each subject Award Period had ended on the December 31st immediately preceding the date of death or the date of determination of total and permanent disability. Then, multiply each above-determined number by a fraction, the numerator of which is the number of months during the subject Award Period that the Participant was an active Employee, and the denominator of which is the number of months in the Award Period. This product shall be reduced by any Performance Shares for which payment has been made with respect to any Interim Period during each Award Period. In this instance, the Fair Market Value of the Common Stock shall be based on the twenty (20) days immediately preceding the date of death or the date of the determination of total and permanent disability. 8. Retirement Prior to Close of an Award Period. If, prior to the close of an Award Period, a Participant's employment terminates by reason of his retirement on or after his normal retirement date (as determined under the Company's Pension Plan) or prior to his normal retirement date if such retirement was at the request of his employer, payment of the Participant's outstanding Award or Awards will be made as promptly as possible after such retirement and such payment shall be computed in the same manner as in Section 7, using the effective date of retirement in place of the date of death or determination of total and permanent disability. 9. Termination Under Certain Circumstances. If, prior to the close of an Award Period, a Participant's employment terminates by reason of (i) his retirement prior to his normal retirement date (as determined under the Company's Pension Plan) and such retirement was at the request of the Participant and approved in writing by his employer, (ii) the divestiture by the Company of one or more of its business segments or a significant portion of the assets of a business segment, or (iii) a significant reduction by the Company in its salaried work force, the determination of whether such Participant shall receive payment of his outstanding Award or Awards shall be within the exclusive discretion of the Committee. Payment, if any, of his Award or Awards to such Participant shall be made as of the close of each such Award Period by multiplying the amount of payment otherwise due under the Award at that date had the Participant remained employed through such date by a fraction, the numerator of which is the number of months during the subject Award Period that the Participant was an active Employee and the denominator of which is the number of months in the Award Period. 10. Voluntary Termination or Discharge. If, prior to the close of an Award Period, a Participant's status as an Employee terminates and there is no payment due under the terms of Sections 7, 8, 9, or 20, all of such Participant's outstanding Performance Shares shall forthwith and automatically be cancelled and all rights of the former holder of such cancelled Performance Shares in respect to such cancelled Performance Shares shall forthwith terminate. 11. Limitation on Awards and Payments. The maximum number of Performance Shares which may be awarded under the Plan shall not exceed an aggregate of 400,000 (except as adjusted in accordance with Section 18); provided, however, that since January 1, 1996 for the term of the Plan, payments of Awards shall involve no more than 400,000 shares of Common Stock (similarly adjusted in accordance with Section 18). If any Performance Shares awarded under the Plan are not paid because of death, total and permanent disability, retirement, voluntary termination, discharge or cancellation or because they lapse when conditions to their payment are not met, they shall thereupon become available again for award under the Plan. 12. Term of Plan. This Plan was originally effective January 1, 1996 as it was approved by the stockholders of the Company at the Annual Meeting of Stockholders held on June 6, 1996. This Restated Plan shall be effective April 16, 1998, as it was approved by the Board of Directors of the Company at a meeting held on April 16, 1998. The Board of Directors of the Company may terminate the Plan at any time. If not sooner terminated, the Plan will expire on the date on which all of the Performance Shares subject to award under the Plan have been paid, but no grant of Awards may be made after December 31, 2005. Termination or expiration shall not adversely affect any right or obligation with respect to an Award theretofore made. 4 13. Cancellation of Performance Shares. With the written consent of a Participant holding Performance Shares granted to him under the Plan, the Committee may cancel such Performance Shares. In the event of any such cancellation, all rights of the former holder of such cancelled Performance Shares in respect to such cancelled Performance Shares shall forthwith terminate; and in no such event may such Participant be granted another Award within twelve months thereafter. 14. No Assignment of Interest. The interest of any Participant in the Plan shall not be assignable, either by voluntary assignment or by operation of law, and any assignment of such interest, whether voluntary or by operation of law, shall render the Award void, except that cash or shares of Common Stock payable under the Plan shall be transferable by testamentary will or by the laws of descent and distribution. All shares of Common Stock paid pursuant to this Plan are to be taken subject to an investment representation by the Participant or other recipient that any such shares are acquired for investment and not with a view to distribution and that such shares shall not be transferred or sold until registered in compliance with the Securities Act of 1933 or unless an exemption therefrom is available in the opinion of the counsel for the Company. 15. Designation of Beneficiary. Each Participant may designate a beneficiary or beneficiaries (which beneficiary may be an entity other than a natural person) to receive any payments which may be made following the Participant's death. Such designation may be changed or cancelled at any time without the consent of any such beneficiary. Any such designation, change or cancellation must be made in a form approved by the Compensation Committee and shall not be effective until received by the Compensation Committee. If no beneficiary has been named, or the designated beneficiary or beneficiaries shall have predeceased the Participant, the beneficiary shall be the Participant's spouse or, if no spouse survives the Participant, the Participant's estate. If a Participant designates more than one beneficiary, the rights of such beneficiaries shall be payable in equal shares, unless the Participant has designated otherwise. 16. Employment Rights. An Award made under the Plan shall not confer any right on the Participant to continue in the employ of the Company or any subsidiary or limit in any way the right of his employer to terminate his employment at any time. 17. Expenses. The expenses of administering the Plan shall be borne by the Company. 18. Dilution, Recapitalization and Other Adjustments. In case the Company shall at any time issue any shares of Common Stock (i) in a stock split or other increase of outstanding shares of Common Stock, by reclassification or otherwise, whereby the par value of shares is reduced, or (ii) in payment of a stock dividend, the number of Performance Shares which have been awarded but not paid, the maximum number of Performance Shares which may be awarded under the Plan, and the maximum number of shares of Common Stock which may be issued in payment of the Awards (see Section 11) shall be increased proportionately; and in like manner, in case of any combination of shares of Common Stock, by a reverse stock split, reclassification or otherwise, the number of Performance Shares which have been awarded but not paid, the maximum number of Performance Shares which may be awarded under the Plan, and the maximum number of shares of Common Stock which may be issued in payment of the Awards shall be reduced proportionately. 19. Amendment and Termination of the Plan. The Board of Directors of the Company may amend, suspend or terminate the Plan at any time; provided, however, that no amendment may, without stockholder approval, increase the total number of Performance Shares which may be awarded or paid under the Plan or change the definition of Performance Share. 20. Plan Termination. The Board of Directors may terminate the Plan at any time in their discretion and in such event no Awards shall be made after the date of such Plan Termination. Plan Termination shall occur automatically and without requirement of any action by the Board of Directors upon a "Change in Control". "Change in Control" means (i) acquisition by any person (within the meaning of Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of 20% or more of the Common Stock then outstanding; or (ii) the 5 consummation of (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Common Stock are converted into cash, securities or other property, other than a merger of the Company in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger as they had in Common Stock immediately prior to the merger, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, including, without limitation, any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all, of the assets of the Company. Payment of all Awards outstanding at the date of Plan Termination shall be made as promptly as possible after such date and payment of each such Award shall be computed in the same manner as in Section 7 using the effective date of Plan Termination in place of the date of death or the date of the determination of total and permanent disability, except that the Common Stock will be priced at Fair Market Value based on the twenty (20) trading days immediately preceding the date of Plan Termination. 21. Construction. The use of the masculine gender herein shall be deemed to refer to the feminine as well. All headings are included for convenience of reference and shall not be deemed a part of this Plan. 22. Interpretation. Notwithstanding anything else contained in this Plan to the contrary, if any Award of Performance Shares is intended, at the time of grant, to be other performance based compensation within the meaning of Section 162(m)(4)(C) of the Code, to the extent required to so qualify any award hereunder, the Committee shall not be entitled to exercise any discretion otherwise authorized under this Plan with respect to such Award if the ability to exercise such discretion (as opposed to the exercise of such discretion) would cause such Award to fail to qualify as other performance based compensation. 6 EX-10.36 4 ANB 1999 LONG-TERM INCENTIVE PLAN Exhibit 10.36 ------------- ALABAMA NATIONAL BANCORPORATION 1999 LONG TERM INCENTIVE PLAN SECTION 1. PURPOSE The name of this plan is the Alabama National BanCorporation 1999 Long Term Incentive Plan (the "Plan"). The purpose of the Plan is to enable Alabama National BanCorporation (the "Company") and its Subsidiaries to retain employees who contribute to the Company's success by their ability, ingenuity and industry, to attract employees who the Company's management believes can make such contributions, and to enable such employees to participate in the long term success and growth of the Company through equity ownership in the Company. SECTION 2. DEFINITIONS For purposes of the Plan, the following terms shall be defined as set forth below: "Board" means the Board of Directors of the Company. "Cause" means a felony conviction of a participant or the failure of a participant to contest prosecution for a felony, or a participant's willful misconduct or dishonesty which is harmful to the business or reputation of the Company or any Subsidiary, as determined by the Committee in its sole discretion. "Code" means the Internal Revenue Code of 1986, as amended, or any successor thereto. "Committee" means a committee of the Board appointed for the purpose of administering the Plan. "Commission" means the Securities and Exchange Commission. "Company" means Alabama National BanCorporation, a corporation organized under the laws of the State of Delaware (or any successor corporation). "Disability" means total and permanent disability as determined in accordance with the Company's long term disability programs or policies in effect at the time of determination. "Early Retirement" means retirement from active employment with the Company or any Subsidiary on or after the date on which a participant reaches the age of fifty-five (55) but before the date on which the participant reaches the age of sixty-five (65). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and any successor thereto. "Fair Market Value" means, as of any given date, the closing price of the Stock on such date (or if no transactions were reported on such date on the next preceding date on which transactions were so reported) on the NASDAQ Stock Market or if the Stock is not on such date listed on the NASDAQ Stock Market, in the principal market in which such Stock is traded on such date. "Incentive Stock Option" means any Stock Option intended to be and designated as an "incentive stock option" within the meaning of Section 422 of the Code. "Non-Qualified Stock Option" means any Stock Option that is not an Incentive Stock Option. 1 "Normal Retirement" means retirement from active employment with the Company and any Subsidiary on or after the date on which a participant reaches the age of sixty-five (65). "Performance Award" means an award of shares of Stock or cash to a participant pursuant to Section 9 contingent upon achieving certain performance goals. "Plan" means this 1999 Long Term Incentive Plan. "Restricted Stock" means an award of shares of Stock granted pursuant to Section 8 hereof. "Retirement" means Normal or Early Retirement. "Stock" means the Common Stock of the Company. "Stock Appreciation Right" means a right granted pursuant to Section 7, which entitles the holder to receive a cash payment or an award of Stock in an amount equal to the difference between (i) the Fair Market Value of the Stock covered by such right at the date the right is granted, unless otherwise determined by the Committee pursuant to Section 6, and (ii) the Fair Market Value of the Stock covered by such right at the date the right is exercised, multiplied by the number of shares covered by the right. "Stock Option" means any option to purchase shares of Stock granted to employees pursuant to Section 6. "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. "Ten Percent Shareholder" means a person who owns (after taking into account the attribution rules of Section 424(b) of the Code) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company. SECTION 3. ADMINISTRATION The Plan shall be administered by the Committee, which shall have the power and authority to grant to eligible employees, pursuant to the terms of the Plan: (i) Stock Options; (ii) Stock Appreciation Rights; (iii) Restricted Stock; or (iv) Performance Awards. In particular, the Committee shall have the authority: (i) to select the employees of the Company and its Subsidiaries to whom Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Awards or a combination of the foregoing from time to time will be granted hereunder; (ii) to determine whether and to what extent Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Awards or a combination of the foregoing, are to be granted hereunder; (iii) to determine the number of shares of Stock to be covered by each such award granted hereunder; (iv) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder including, but not limited to, any restriction on any Stock Option or other award and/or the shares of Stock relating thereto based on performance and/or such other factors as the Committee may determine, in its sole 2 discretion, and any vesting features based on the passage of time, performance and/or such other factors as the Committee may determine, in its sole discretion; (v) to determine whether, to what extent and under what circumstances Stock and other amounts payable with respect to an award under this Plan shall be deferred either automatically or at the election of a participant, including providing for and determining the amount (if any) of deemed earnings on any deferred amount during any deferral period. Subject to Section 11, the Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any award issued under the Plan (and any agreements relating thereto); and to otherwise supervise the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any award hereunder shall be within the sole discretion of the Committee, may be made at any time, and shall be final, conclusive and binding upon all persons, including the Company, any employee, any holder or beneficiary of any award granted hereunder and any shareholder. SECTION 4. STOCK SUBJECT TO PLAN The total number of shares of Stock reserved and available for distribution under the Plan shall be 300,000 (subject to appropriate adjustments to reflect changes in the capitalization of the Company). Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares. The maximum number of shares subject to awards which may be granted under the Plan to any individual in any one year is 75,000 (subject to appropriate adjustments to reflect changes in the capitalization of the Company). If any shares of Stock that have been subject to Stock Options cease to be subject to Stock Options, or if any shares subject to any Restricted Stock award granted hereunder are forfeited or such award is otherwise terminated, such shares shall again be available for distribution in connection with future awards under the Plan. In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the Stock, a substitution or adjustment shall be made in the aggregate number of shares reserved for issuance under the Plan, in the number and option price of shares subject to outstanding Stock Options granted under the Plan and in the number of shares subject to Restricted Stock awards granted under the Plan as may be determined to be appropriate by the Committee, in its sole discretion, provided that the number of shares subject to any award shall always be a whole number. Such adjusted option price shall also be used to determine the amount payable by the Company upon the exercise of any Stock Appreciation Right associated with any Stock Option. SECTION 5. ELIGIBILITY Employees of the Company or its Subsidiaries (but excluding members of the Committee and any person who serves only as a director) who are responsible for or contribute to the management, growth and/or profitability of the business of the Company or its Subsidiaries are eligible to be granted Stock Options, Stock Appreciation Rights, Restricted Stock or Performance Awards. The optionees and participants under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among those eligible, and the Committee shall determine, in its sole discretion, the number of shares covered by each award or grant. 3 SECTION 6. STOCK OPTIONS Stock Options may be granted either alone or in addition to other awards granted under the Plan. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve, and the provisions of Stock Option awards need not be the same with respect to each optionee. The Stock Options granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options. The Committee shall have the authority to grant any optionee Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock Options (in each case with or without Stock Appreciation Rights). To the extent that any Stock Option does not qualify as an Incentive Stock Option, it shall constitute a separate Non-Qualified Stock Option. Except as provided in Section 6(j) hereof, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify either the Plan or any Incentive Stock Option under Section 422 of the Code. Notwithstanding the foregoing, in the event an optionee voluntarily disqualifies a Stock Option as an Incentive Stock Option within the meaning of Section 422 of the Code, the Committee may, but shall not be obligated to, make such additional grants, awards or bonuses as the Committee shall deem appropriate, to reflect the tax savings to the Company which results from such disqualification. Stock Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable: (a) Option Price. The option price per share of Stock purchasable under a ------------ Stock Option shall be determined by the Committee at the time of grant but shall not be less than 100% of the Fair Market Value of the Stock on the date of the grant of the Stock Option; provided, however, if the Stock Option is an Incentive Stock Option granted to a Ten Percent Shareholder, the option price for each share of Stock subject to such Incentive Stock Option shall be no less than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the date such Incentive Stock Option is granted. (b) Option Term. The term of each Stock Option shall be fixed by the ----------- Committee, provided that no Stock Option which is granted to a Ten Percent Shareholder shall be exercisable more than five (5) years after the date such Stock Option is granted and that no Stock Option which is granted to an optionee that is not a Ten Percent Shareholder shall be exercisable more than ten (10) years after the date such Stock Option is granted. (c) Exercisability. Subject to Section 6(j) with respect to Incentive -------------- Stock Options, Stock Options shall be exercisable at such time or times and subject to such terms and conditions, including, without limitation, vesting conditions tied to Stock price or other criteria, as shall be determined by the Committee at grant. If the Committee provides, in its discretion, that any Stock Option is exercisable only in installments, the Committee may waive such installment exercise provision at any time in whole or in part based on performance and/or such other factors as the Committee may determine in its sole discretion. (d) Method of Exercise. Stock Options may be exercised in whole or in ------------------ part at any time during the option period, by giving written notice of exercise to the Company specifying the number of shares to be purchased, accompanied by payment in full of the purchase price, in cash, by check or such other instrument as may be acceptable to the Committee. As determined by the Committee, in its sole discretion, at or after grant, payment in full or in part may also be made in the form of unrestricted Stock owned by the optionee or, in the case of the exercise of a Non-Qualified Stock Option, Restricted Stock subject to an award hereunder may be used for payment (based, in each case, on the Fair Market Value of the Stock on the date the option is exercised, as determined by the Committee). If payment of the option exercise price of a Non-Qualified Stock Option is made in whole or in part with shares of Restricted Stock the shares received upon the exercise of such Stock Option shall be restricted or deferred, as the case 4 may be, in accordance with the original term of the Restricted Stock award in question, except that the Committee may direct that such restrictions or deferral provisions shall apply only to the number of such shares equal to the number of shares of Restricted Stock surrendered upon the exercise of such option. No shares of unrestricted Stock shall be issued until full payment therefor has been made. An optionee shall have the rights to dividends or other rights of a stockholder with respect to shares subject to the Stock Option when the optionee has given written notice of exercise and has paid in full for such shares. (e) Transferability of Options. Except as otherwise set forth in this -------------------------- Section 6(e), no Stock Option shall be transferable by the Optionee otherwise than by will or by the laws of descent and distribution. All Stock Options shall be exercisable, during the optionee's lifetime, only by the optionee. The Committee shall have the discretionary authority, however, to grant Non-Qualified Stock Options which would be transferable to members of an optionee's immediate family (which shall include, for purposes of this section, spouses and children and grandchildren, whether natural or adopted), and to trusts for the benefit of such family members and partnerships or limited liability companies in which such family members are the only partners or members. For purposes of paragraphs (f), (g), (h) and (i) of this Section 6, a transferred Stock Option may be exercised by the transferee only to the extent that the optionee would have been entitled had the Stock Option not been transferred. (f) Termination of Employment by Reason of Death. Unless otherwise -------------------------------------------- determined by the Committee, if any optionee's employment with the Company or any Subsidiary terminates by reason of death, the Stock Option may thereafter be immediately exercised, to the extent then exercisable (or on such accelerated basis as the Committee shall determine at or after grant), by the legal representative of the estate or by the legatee of the optionee under the will of the optionee, for a period of three (3) years from the date of death (or such shorter period as may be determined by the Committee at the time of grant) or until the expiration of the stated term of such Stock Option, whichever period is the shorter. (g) Termination of Employment by Reason of Disability. Unless otherwise ------------------------------------------------- determined by the Committee, if any optionee's employment with the Company and any Subsidiary terminates by reason of Disability, any Stock Option held by such optionee may thereafter be exercised, to the extent it was exercisable at the time of termination due to Disability (or on such accelerated basis as the Committee shall determine at or after grant), for a period of three (3) years (or such shorter period as may be determined by the Committee at the time of grant) from the date of such termination of employment or the expiration of the stated term of such Stock Option, whichever period is the shorter; and if the optionee dies within such period, any unexercised Stock Option held by such optionee shall thereafter be exercisable to the extent to which it was exercisable at the time of death, for the remainder of such period. In the event of termination of employment by reason of Disability, if an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock Option. (h) Termination of Employment by Reason of Retirement. Unless otherwise ------------------------------------------------- determined by the Committee, if any optionee's employment with the Company or any Subsidiary terminates by reason of Retirement (with Committee consent) under a formal plan or policy of the Company, any Stock Option held by such optionee may thereafter be exercised, to the extent it was exercisable at the time of such Retirement (or on such accelerated basis as the Committee shall determine at or after grant), for a period of three (3) years (or such shorter period as may be determined by the Committee at the time of grant) from the date of such termination of employment or the expiration of the stated term of such Stock Option, whichever period is the shorter; and if the optionee dies within such period, any unexercised Stock Option held by such optionee shall thereafter be exercisable, to the extent to which it was exercisable at the time of death, for the remainder of such period. In the event of termination of employment by reason of Retirement, if an Incentive Stock Option is exercised after the exercise periods that apply for purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock Option. (i) Other Termination of Employment. Unless otherwise determined by the ------------------------------- Committee, if an optionee's employment with the Company or any Subsidiary terminates for any reason other than death, Disability or Retirement, the Stock Option shall thereupon terminate, except that such Stock Option may be exercised, to the extent it was exercisable at the time of termination, for the lesser of three (3) months from the date of termination or the balance 5 of such Stock Option's term, if the optionee's employment with the Company and any Subsidiary is involuntarily terminated by the optionee's employer without Cause. (j) Limit on Value of Incentive Stock Option First Exercisable Annually. ------------------------------------------------------------------- The aggregate Fair Market Value (determined at the time of grant) of the Stock for which Incentive Stock Options are exercisable for the first time by an optionee during any calendar year under the Plan (and/or any other stock option plans of the Company and any Subsidiary) shall not exceed $100,000. SECTION 7. STOCK APPRECIATION RIGHTS (a) Grant and Exercise When Granted in Conjunction With Stock Options. ----------------------------------------------------------------- Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option granted under the Plan and may contain terms and conditions different from those of the related Stock Option, except as otherwise provided below. In the case of a Non-Qualified Stock Option, such rights may be granted either at or after the time of the grant of such Non-Qualified Stock Option. In the case of an Incentive Stock Option, such rights may be granted only at the time of the grant of such Incentive Stock Option. A Stock Appreciation Right or applicable portion thereof granted with respect to a given Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the related Stock Option, except that, unless otherwise provided by the Committee at the time of grant, a Stock Appreciation Right granted with respect to less than the full number of shares covered by a related Stock Option shall only be reduced if and to the extent that the number of shares covered by the exercise or termination of the related Stock Option exceeds the number of shares not covered by the Stock Appreciation Right. A Stock Appreciation Right may be exercised by an optionee, in accordance with Section 7(c), by surrendering the applicable portion of the related Stock Option. Upon such exercise and surrender, the optionee shall be entitled to receive an amount determined in the manner prescribed in Section 7(c). Stock Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the related Stock Appreciation Rights have been exercised. (b) Grant and Exercise When Granted Alone. Stock Appreciation Rights ------------------------------------- may be granted at the discretion of the Committee in a manner not related to an award of a Stock Option. The Stock Appreciation Right, granted under Section 7(b), shall be exercisable in accordance with Section 7(c) over a period not to exceed ten years. Any Stock Appreciation Right which is outstanding on the last day of the exercisable period shall be automatically exercised on such date for cash or Common Stock, as determined by the Committee, without any action by the holder. (c) Terms and Conditions. Stock Appreciation Rights shall be subject to -------------------- such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, including the following: (i) Stock Appreciation Rights granted pursuant to Section 7(a) shall be exercisable only at such time or times and to the extent that the Stock Options to which the Stock Appreciation Rights relate shall be exercisable in accordance with the provisions of Section 6 and this Section 7 of the Plan. (ii) Upon the exercise of a Stock Appreciation Right granted pursuant to Section 7(a), an optionee shall be entitled to receive an amount in cash or shares of Stock equal in value to the excess of the Fair Market Value of one share of Stock over the option price per share specified in the related Stock Option multiplied by the number of shares in respect of which the Stock Appreciation Right shall have been exercised, with the Committee having the right to determine the form of payment. Upon the exercise of a Stock Appreciation Right granted pursuant to Section 7(b), the holder shall be entitled to receive an amount in cash or shares of Stock equal in value to the excess of the Fair Market Value of one share of Stock over the Fair Market Value of one share of Stock 6 at the date the Stock Appreciation Right was granted multiplied by the number of shares in respect of which the Stock Appreciation Right shall have been exercised, with the Committee having the right to determine the form of payment. (iii) Stock Appreciation Rights shall be transferable only when and to the extent that any underlying Stock Option would be transferable under Section 6(e) of the Plan. Otherwise, Stock Appreciation Rights shall not be transferable by the holder other than by will or the laws of descent and distribution. Except as set forth above, all Stock Appreciation Rights shall be exercisable, during the holder's lifetime, only by the holder. (iv) Upon the exercise of a Stock Appreciation Right granted pursuant to Section 7(a), the Stock Option, or part thereof to which such Stock Appreciation Right is related, shall be deemed to have been exercised for the purpose of the limitation set forth in Section 4 of the Plan on the number of shares of Stock to be issued under the Plan. (v) A Stock Appreciation Right granted in connection with an Incentive Stock Option pursuant to Section 7(a) may be exercised only if and when the market price of the Stock subject to the Incentive Stock Option exceeds the exercise price of such Stock Option. SECTION 8. RESTRICTED STOCK (a) Administration. Shares of Restricted Stock may be issued either alone -------------- or in addition to other awards granted under the Plan. The Committee shall determine the employees of the Company and its Subsidiaries to whom, and the time or times at which, grants of Restricted Stock will be made, the number of shares to be awarded, the price, if any, to be paid by the recipient of Restricted Stock (subject to Section 8(b) hereof), the time or times within which such awards may be subject to forfeiture, and all other conditions of the awards. However, in no event shall any restriction, including risk of forfeiture, attach to the Restricted Stock for a term to exceed ten years from the date such Stock was granted. The Committee may also condition the grant of Restricted Stock upon the attainment of specified performance goals, or such other criteria as the Committee may determine, in its sole discretion. The provisions of Restricted Stock awards need not be the same with respect to each recipient. (b) Awards and Certificates. The prospective recipient of an award of ----------------------- shares of Restricted Stock shall not have any rights with respect to such award, unless and until such recipient has executed an agreement evidencing the award (a "Restricted Stock Award Agreement") and has delivered a fully executed copy thereof to the Company, and has otherwise complied with the then applicable terms and conditions. (i) Awards of Restricted Stock must be accepted within a period of 60 days (or such shorter period as the Committee may specify) after the award date by executing a Restricted Stock Award Agreement and paying whatever price, if any, is required. (ii) Each participant who is awarded Restricted Stock shall be issued a stock certificate in respect of such shares of Restricted Stock. Such certificate shall be registered in the name of the participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such award, substantially in the following: The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Alabama National BanCorporation 1999 Long Term Incentive Plan and a Restricted Stock Agreement entered into between the registered owner and Alabama National BanCorporation. Copies of such Plan and Agreement are on file in the offices of Alabama National BanCorporation, 1927 First Avenue North, Birmingham, Alabama 35203. 7 (iii) The Committee shall require that the stock certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any Restricted Stock award, the participant shall have delivered a stock power, endorsed in blank, relating to the Stock covered by such award. (c) Restrictions and Conditions. The shares of Restricted Stock awarded --------------------------- pursuant to this Section 8 shall be subject to the following restrictions and conditions: (i) Subject to the provisions of this Plan and Restricted Stock Award Agreements, during the period established by the Committee in which the Restricted Stock is subject to forfeiture (the "Restriction Period"), the participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Stock awarded under the Plan. Within these limits, the Committee may, in its sole discretion, provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part based on performance and/or such other factors as the Committee may determine, in its sole discretion. (ii) Except as provided in Section 8(c)(i), the participant shall have, with respect to the shares of Restricted Stock, all of the rights of a stockholder of the Company, including the right to receive any dividends. Dividends paid in cash with respect to shares of Restricted Stock shall not be subject to any restrictions or subject to forfeiture. Dividends paid in stock of the Company or stock received in connection with a stock split with respect to Restricted Stock shall be subject to the same restrictions as on such Restricted Stock. Certificates for shares of unrestricted Stock shall be delivered to the participant promptly after, and only after, the period of forfeiture shall expire without forfeiture in respect of such shares of Restricted Stock. (iii) Subject to the provisions of the Restricted Stock Award Agreement and this Section 8, upon termination of employment for any reason during the Restriction Period, all shares still subject to restriction shall be forfeited by the participant, and the participant shall only receive the amount, if any, paid by the participant for such forfeited Restricted Stock. (iv) In the event of special hardship circumstances of a participant whose employment is involuntarily terminated (other than for Cause), the Committee may, in its sole discretion, waive in whole or in part any or all remaining restrictions with respect to such participant's shares of Restricted Stock. SECTION 9. PERFORMANCE AWARDS Performance Awards shall be evidenced by performance award agreements in such form not inconsistent with the Plan as the Committee shall approve from time to time. Such agreements shall contain in substance the following terms and conditions: (a) Performance Period. The performance period for a Performance Award ------------------ shall be established by the Committee and shall be not more than ten (10) years. (b) Valuation of Awards. A value for each Performance Award shall be ------------------- established by the Committee, together with principal and minimum performance targets to be achieved with respect to the Performance Award during the performance period. The participant shall be entitled to receive one hundred percent (100%) of the value of the Performance Award if the principal target is achieved during the performance period, but shall be entitled to received nothing for such Performance Award if the minimum target is not achieved during the performance period. The participant shall be entitled to receive a stated portion of the value of the Performance Award for performance during the performance period which meets or exceeds the minimum target but fails to meet the principal target. (c) Performance Targets. The performance targets established under the ------------------- Plan shall relate to the performance of the Company or any segment thereof (collectively referred to in this Section 9 as "Company's 8 performance") over the performance period, and may be established in terms of growth in earnings or equity, ratio of earnings to stockholders' equity or to total capital, total return to the Company's stockholders, or any other performance standards as may be determined by the Committee. Multiple targets may be used and may have the same or different weighting, and they may relate to the Company's absolute performance or the Company's performance as measured against that of other companies, or any other standards as may be determined by the Committee. (d) Adjustments. At any time prior to payment of the Performance Awards, ----------- the Committee may adjust previously established performance targets and other terms and conditions, to reflect major unforeseen events such as changes in laws, regulations or accounting policies or procedures, mergers, acquisitions or divestitures or extraordinary, unusual or nonrecurring items or events. (e) Payments of Performance Awards. Following the conclusion of each ------------------------------ performance period, the Committee shall determine the extent to which performance targets have been attained for such period as well as the other terms and conditions established by the Committee. The Committee shall determine what, if any, payment is due on the Performance Awards and whether such payment shall be made in cash, in Stock, or partially in cash and partially in Stock. Any payments made in Stock shall be made as promptly as practicable following the end of the performance period unless deferred subject to such terms and conditions as may be prescribed by the Committee. (f) Termination by Death, Disability or Retirement. Any employee granted a ---------------------------------------------- Performance Award pursuant to this Section 9, who, by reason of death, Disability or Retirement, terminates employment before the end of the performance period, may be entitled to receive a portion of any earned Performance Award. The Committee, in its discretion, will determine the amount, if any, of the Performance Award earned and the time at which payment will be made. (g) Other Termination. An employee who voluntarily terminates employment ----------------- or whose employment is terminated involuntarily for Cause will forfeit all rights under the Performance Awards. (h) Section 162(m) Provisions. Unless otherwise determined by the ------------------------- Committee, achievement objectives established for the top five most highly compensated officers of the Company shall be pre-established objective performance goals within the meaning of Section 162(m) of the Code and treasury regulations promulgated thereunder. Furthermore, unless otherwise determined by the Committee, once the Committee has established one or more performance targets with respect to a Performance Award granted to one of the top five most highly compensated officers of the Company which were, when granted, intended to be pre-established objective performance goals within the meaning of Section 162(m) of the Code and the treasury regulations thereunder, the Committee shall not waive or alter the targets after the earlier of (i) the expiration of twenty-five percent (25%) of the performance period or (ii) the date on which the outcome under the targets is substantially certain. Unless otherwise determined by the Committee, if any provision of the Plan or any Performance Award granted to an individual who is one of the top five most highly compensated officers of the Company hereunder would disqualify the Performance Award with respect to such individual, or would otherwise not comply with Section 162(m) of the Code, such provision or Performance Award shall be construed or deemed amended to conform to Section 162(m) of the Code. SECTION 10. LOAN PROVISIONS With the consent of the Committee, the Company may make, or arrange for, a loan or loans to an employee with respect to the exercise of any Stock Option granted under the Plan and/or with respect to the payment of the purchase price, if any, of any Restricted Stock awarded hereunder. The Committee shall have full authority to decide whether to make a loan or loans hereunder and to determine the amount, term and provisions of any such loan or loans, including the interest rate to be charged in respect of any such loan or loans, whether the loan or loans are to be with or without recourse against the borrower, the terms on which the loan is to be repaid and the conditions, if any, under which the loan or loans may be forgiven. 9 SECTION 11. AMENDMENTS AND TERMINATION The Board may amend, alter, or discontinue the Plan as it shall deem advisable or to conform to any change in any applicable law or regulation applicable thereto (including, without limitation, applicable federal securities laws and regulations and applicable federal income tax laws and regulations); provided, however, that no amendment, alteration, or discontinuation shall be made which would impair the right of an optionee or participant under a Stock Option, Stock Appreciation Right, Restricted Stock, or Performance Award theretofore granted, without the optionee's or participant's consent, or which without the approval of the stockholders would: (a) except as expressly provided in this Plan, increase the total number of shares reserved for issuance under the Plan; (b) decrease the option price of any Stock Option to less than 100% of the Fair Market Value on the date of the granting of the option; (c) change the participants or class of participants eligible to participate in the Plan; or (d) extend the maximum option period under Section 6(b) of the Plan. The Committee may amend the terms of any award or option theretofore granted, prospectively or retroactively, but no such amendment shall impair the rights of any holder without his or her consent. The Committee may also substitute new Stock Options for previously granted Stock Options including options granted under other plans applicable to the participant and previously granted Stock Options having higher option prices. SECTION 12. UNFUNDED STATUS OF PLAN The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a participant or optionee by the Company nothing set forth herein shall give any such participant or optionee any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or payment in lieu of or with respect to awards hereunder; provided, however, that the existence of such trusts or other arrangements shall be consistent with the unfunded status of the Plan. SECTION 13. CHANGE IN CONTROL In the case of a merger or consolidation in which the Company is not the surviving corporation, or a sale or other transfer of all or substantially all of the business or property of the Company (including, but not limited to, the sale or other transfer of one or more of the Company's principal Subsidiary banks if such sale or transfer could constitute a substantial majority of the Company's business or property), or liquidation or dissolution of the Company, or in the event of a tender offer or any other change involving a threatened change in control of the Company which, in the opinion of the Committee, could deprive the holders of the benefits intended to be conferred by awards hereunder, the Committee may, in anticipation of any such transaction event, either at the time of grant or thereafter, make such adjustments in the terms and conditions of outstanding awards, as the Committee in its sole discretion determines are equitably warranted under the circumstances, including, without limitation, (i) acceleration of exercise terms or (ii) acceleration of the lapse of restrictions and/or performance objectives or other terms. 10 SECTION 14. GENERAL PROVISIONS (a) All certificates for shares of Stock delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Commission, any stock exchange upon which the Stock is then listed, and any applicable Federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (b) Nothing set forth in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan shall not confer upon any employee of the Company or any Subsidiary, any right to continued employment with the Company or a Subsidiary, as the case may be, nor shall it interfere in any way with the right of the Company or a Subsidiary to terminate the employment of any of its employees at any time. (c) No employee shall have any rights as a shareholder of the Company as a result of the grant of a Stock Option to him or her under this Plan or his or her exercise of such Stock Option pending the actual issuance of Stock subject to such Stock Option to such employee. (d) Each participant shall, no later than the date as of which the value of an award first becomes includable in the gross income of the participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld with respect to the award. The obligations of the Company under the Plan shall be conditioned on such payment or arrangements, and the Company (and, where applicable, its Subsidiaries), shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the participant. Subject to applicable laws and regulations regarding transactions in Stock by persons who are deemed insiders, a participant may elect to have the withholding tax obligations or, in the case of all awards hereunder except Stock Options which have related Stock Appreciation Rights, if the Committee so determines, any additional tax obligation with respect to any awards hereunder satisfied by (a) having the Company withhold shares of Stock otherwise deliverable to the participant with respect to the award or (b) delivering to the Company shares of unrestricted Stock. (e) At the time of grant or purchase, the Committee may provide, in connection with any grant or purchase made under this Plan, that the shares of Stock received as a result of such grant or purchase shall be subject to a right of first refusal, pursuant to which the participant shall be required to offer the Company any shares that the participant wishes to sell, with the price being the then Fair Market Value of the Stock, subject to such terms and conditions as the Committee may specify at the time of grant. (f) No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. (g) If any provision of the Plan or any agreement representing an award granted hereunder is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any person or award, or would disqualify the Plan or any award granted hereunder under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the award, such provision shall be stricken as to such jurisdiction, person or award and the remainder of the Plan and any such award shall remain in full force and effect. 11 (h) Each award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (a) the listing, registration or qualification of the shares of Stock subject or related thereto upon any securities exchange or under any state or federal law, or (b) the consent or approval of any government regulatory authority, or (c) an agreement by the recipient of an award with respect to the disposition of shares of Stock, is necessary or desirable as a condition of, or in connection with, the granting of such award or the issue or purchase of shares of Stock thereunder, such award may not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. A participant shall agree, as a condition of receiving any award under the Plan, to execute any documents, make any representations, agree to restrictions on stock transferability and take any actions which in the opinion of legal counsel to the Company is required by any applicable law, ruling or regulation. (i) Nothing in the Plan shall affect the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Stock or the rights thereof or which are convertible into or exchangeable for Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. (j) Headings are given to the sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. SECTION 15. EFFECTIVE DATE OF PLAN The effective date of this Plan shall be the date it is adopted by the Board; provided that the shareholders of the Company shall approve the Plan within twelve (12) months after the date of adoption; and, provided further, that any awards granted under this Plan before the date of such shareholder approval shall be granted subject to such approval. SECTION 16. TERM OF PLAN No Stock Option, Stock Appreciation Right, Restricted Stock or Performance Award shall be granted pursuant to the Plan on or after the tenth anniversary of the date of stockholder approval, but awards theretofore granted may extend beyond that date. 12 EX-10.37 5 ANB EMPLOYEE CAP. ACCUM. PLAN Exhibit 10.37 ------------- ALABAMA NATIONAL BANCORPORATION EMPLOYEE CAPITAL ACCUMULATION PLAN TABLE OF CONTENTS ARTICLE I DEFINITIONS...................................................... 1 ARTICLE II ADMINISTRATION................................................... 11 2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER........... 11 2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY............... 11 2.3 POWERS AND DUTIES OF THE ADMINISTRATOR................ 12 2.4 RECORDS AND REPORTS................................... 12 2.5 APPOINTMENT OF ADVISERS............................... 13 2.6 PAYMENT OF EXPENSES................................... 13 2.7 CLAIMS PROCEDURE...................................... 13 2.8 CLAIMS REVIEW PROCEDURE............................... 13 ARTICLE III ELIGIBILITY...................................................... 14 3.1 CONDITIONS OF ELIGIBILITY............................. 14 3.2 EFFECTIVE DATE OF PARTICIPATION....................... 14 3.3 DETERMINATION OF ELIGIBILITY.......................... 14 3.4 TERMINATION OF ELIGIBILITY............................ 14 3.5 OMISSION OF ELIGIBLE EMPLOYEE......................... 14 3.6 INCLUSION OF INELIGIBLE EMPLOYEE...................... 15 3.7 ELECTION NOT TO PARTICIPATE........................... 15 ARTICLE IV CONTRIBUTION AND ALLOCATION...................................... 15 4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION......... 15 4.2 PARTICIPANT'S SALARY REDUCTION ELECTION............... 15 4.3 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION.............. 18 4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS.. 18 4.5 ACTUAL DEFERRAL PERCENTAGE TESTS...................... 21 4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS........ 23 4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS.................. 24 4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS.... 27 4.9 MAXIMUM ANNUAL ADDITIONS.............................. 28 4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS............. 30 4.11 TRANSFERS FROM QUALIFIED PLANS........................ 31 4.12 VOLUNTARY CONTRIBUTIONS............................... 32 4.13 DIRECTED INVESTMENT ACCOUNT........................... 32 ARTICLE V VALUATIONS....................................................... 33 5.1 VALUATION OF THE TRUST FUND........................... 33 5.2 METHOD OF VALUATION................................... 33 ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS....................... 33 6.1 DETERMINATION OF BENEFITS UPON RETIREMENT............. 33 6.2 DETERMINATION OF BENEFITS UPON DEATH.................. 33 6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY...... 35
-i- 6.4 DETERMINATION OF BENEFITS UPON TERMINATION............ 35 6.5 DISTRIBUTION OF BENEFITS.............................. 37 6.6 DISTRIBUTION OF BENEFITS UPON DEATH................... 42 6.7 TIME OF SEGREGATION OR DISTRIBUTION................... 44 6.8 DISTRIBUTION FOR MINOR BENEFICIARY.................... 44 6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN........ 45 6.10 PRE-RETIREMENT DISTRIBUTION........................... 45 6.11 ADVANCE DISTRIBUTION FOR HARDSHIP..................... 45 6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION....... 46 ARTICLE VII TRUSTEE.......................................................... 46 7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE................. 46 7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE........... 47 7.3 OTHER POWERS OF THE TRUSTEE........................... 48 7.4 LOANS TO PARTICIPANTS (PRIOR TO JANUARY 1, 2000)...... 49 7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS.............. 50 7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES......... 50 7.7 ANNUAL REPORT OF THE TRUSTEE.......................... 51 7.8 AUDIT................................................. 51 7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE........ 51 7.10 TRANSFER OF INTEREST.................................. 52 7.11 DIRECT ROLLOVER....................................... 52 7.12 EMPLOYER SECURITIES AND REAL PROPERTY................. 53 ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS............................... 53 8.1 AMENDMENT............................................. 53 8.2 TERMINATION........................................... 54 8.3 MERGER OR CONSOLIDATION............................... 54 ARTICLE IX TOP HEAVY........................................................ 54 9.1 TOP HEAVY PLAN REQUIREMENTS........................... 54 9.2 DETERMINATION OF TOP HEAVY STATUS..................... 54 ARTICLE X MISCELLANEOUS.................................................... 57 10.1 PARTICIPANT'S RIGHTS.................................. 57 10.2 ALIENATION............................................ 57 10.3 CONSTRUCTION OF PLAN.................................. 59 10.4 GENDER AND NUMBER..................................... 59 10.5 LEGAL ACTION.......................................... 59 10.6 PROHIBITION AGAINST DIVERSION OF FUNDS................ 59 10.7 BONDING............................................... 59 10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE............ 59 10.9 INSURER'S PROTECTIVE CLAUSE........................... 60 10.10 RECEIPT AND RELEASE FOR PAYMENTS...................... 60 10.11 ACTION BY THE EMPLOYER................................ 60 10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY.... 60 10.13 HEADINGS.............................................. 60 10.14 APPROVAL BY INTERNAL REVENUE SERVICE.................. 60 10.15 UNIFORMITY............................................ 61
-ii- ARTICLE XI PARTICIPATING EMPLOYERS.......................................... 62 11.1 ADOPTION BY OTHER EMPLOYERS........................... 62 11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS............... 62 11.3 DESIGNATION OF AGENT.................................. 62 11.4 EMPLOYEE TRANSFERS.................................... 62 11.5 PARTICIPATING EMPLOYER CONTRIBUTION................... 63 11.6 AMENDMENT............................................. 63 11.7 DISCONTINUANCE OF PARTICIPATION....................... 63 11.8 ADMINISTRATOR'S AUTHORITY............................. 64
-iii- ALABAMA NATIONAL BANCORPORATION EMPLOYEE CAPITAL ACCUMULATION PLAN THIS AGREEMENT, hereby made and entered into this 31/st/ day of December, 1999 by and between Alabama National BanCorporation (herein referred to as the "Employer") and National Bank of Commerce of Birmingham (herein referred to as the "Trustee"). RECITALS WHEREAS, the Employer heretofore established a profit sharing plan and trust, effective October 1, 1982 (hereinafter called the "Effective Date"), which was initially known as the Alabama National BanCorporation 401(k) Profit Sharing Plan and Trust and which was later named the Alabama National BanCorporation Employee Capital Accumulation Plan (herein referred to as the "Plan") in recognition of the contribution made to its successful operation by its employees and for the exclusive benefit of its eligible employees; and WHEREAS, Community Bank of Naples, N.A. ( "Community Bank") heretofore established a profit sharing plan and trust originally effective January 1, 1996 know as the Community Bank of Naples, N.A. 401(k) Profit Sharing Plan ("Community Bank Plan") in recognition of the contribution made to its successful operation by its employees and for the exclusive benefit of its eligible employees; WHEREAS, First American Bank ("FAB") heretofore established a profit sharing plan and trust originally effective December 1, 1985 known as the First American Bank 401(k) Savings Plan ("FAB Plan") in recognition of the contribution made to its successful operation by its employees and for the exclusive benefit of its eligible employees; WHEREAS, Georgia State Bank ("GSB") heretofore established a profit sharing plan and trust originally effective November 1, 1994 known as the Georgia State Bank 401(k) Savings Plan ("GSB Plan") in recognition of the contribution made to its successful operation by its employees and for the exclusive benefit of its eligible employees; and WHEREAS, under the terms of the above-referenced plans, the Employer, Community Bank, FAB and GSB have the ability to amend said plans, provided the Trustee joins in such amendment if the provisions of the Plan affecting the Trustee are amended; NOW, THEREFORE, effective January 1, 2000, except as otherwise provided, the Employer, Community Bank, FAB, GSB and the Trustee in accordance with the provisions of the plans pertaining to amendments thereof, hereby merge the Community Bank Plan, FAB Plan and the GSB Plan into the Plan and amend and restate said plans in their entirety to provide as follows: ARTICLE I DEFINITIONS 1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.2 "Administrator" means the Employer unless another person or entity has been designated by the Employer pursuant to Section 2.2 to administer the Plan on behalf of the Employer. 1.3 "Affiliated Employer" means any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer Page 1 of 64 pursuant to Regulations under Code Section 414(o). 1.4 "Aggregate Account" means, with respect to each Participant, the value of all accounts maintained on behalf of a Participant, whether attributable to Employer or Employee contributions, subject to the provisions of Section 9.2. 1.5 "Anniversary Date" means December 31st. 1.6 "Annuity Starting Date" means, with respect to GSB and FAB Participants (see Section 6.5), the first day of the first period for which an amount is paid as an annuity or any other form. 1.7 "Beneficiary" means the person to whom the share of a deceased Participant's total account is payable, subject to the restrictions of Sections 6.2 and 6.6. 1.8 "Code" means the Internal Revenue Code of 1986, as amended or replaced from time to time. 1.9 "Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. 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)). For purposes of this Section, the determination of Compensation shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. For a Participant's initial year of participation, Compensation shall be recognized as of such Employee's effective date of participation pursuant to Section 3.2. Compensation in excess of the limit imposed by Code Section 401(a)(17) ($170,000 for the 2000 calendar year) shall be disregarded. Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401(a)(17), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year. For any short Plan Year the Compensation limit shall be an amount equal to the Compensation limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). For purposes of this Section, if the Plan is a plan described in Code Section 413(c) or 414(f) (a plan maintained by more than one Employer), the limitation applies separately with respect to the Compensation of any Participant from each Employer maintaining the Plan. If, in connection with the adoption of this amendment and restatement, the definition of Compensation has been modified, then, for Plan Years prior to the Plan Year which includes the adoption date of this amendment and restatement, Compensation means compensation determined pursuant to the Plan then in effect. 1.10 "Contract" or "Policy" means any life insurance policy, retirement income or annuity policy or annuity contract (group or individual) issued pursuant to the terms of the Plan. 1.11 "Deferred Compensation" with respect to any Participant means the amount of the Participant's total Compensation which has been contributed to the Plan in accordance with the Participant's deferral election pursuant to Section 4.2 excluding any such amounts distributed as excess "annual additions" pursuant to Section 4.10(a). 1.12 "Early Retirement Date." This Plan does not provide for a retirement date prior to Normal Page 2 of 64 Retirement Date. 1.13 "Elective Contribution" means the Employer contributions to the Plan of Deferred Compensation excluding any such amounts distributed as excess "annual additions" pursuant to Section 4.10(a). In addition, any Employer Qualified Non-Elective Contribution made pursuant to Section 4.1(c) and Section 4.6(b) which is used to satisfy the "Actual Deferral Percentage" tests shall be considered an Elective Contribution for purposes of the Plan. Any contributions deemed to be Elective Contributions (whether or not used to satisfy the "Actual Deferral Percentage" tests) shall be subject to the requirements of Sections 4.2(b) and 4.2(c) and shall further be required to satisfy the nondiscrimination requirements of Regulation 1.401(k)-1(b)(5), the provisions of which are specifically incorporated herein by reference. 1.14 "Eligible Employee" means any Employee. Employees who are Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall not be eligible to participate in this Plan. Employees whose employment is governed by the terms of a collective bargaining agreement between Employee representatives (within the meaning of Code Section 7701(a)(46)) and the Employer under which retirement benefits were the subject of good faith bargaining between the parties will not be eligible to participate in this Plan unless such agreement expressly provides for coverage in this Plan. Employees of Affiliated Employers shall not be eligible to participate in this Plan unless such Affiliated Employers have specifically adopted this Plan in writing. 1.15 "Employee" means any person who is employed by the Employer or Affiliated Employer. Employee shall include Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and such Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force. 1.16 "Employer" means Alabama National BanCorporation and any successor which shall maintain this Plan; and any predecessor which has maintained this Plan. The Employer is a corporation, with principal offices in the State of Alabama. In addition, where appropriate, the term Employer shall include any Participating Employer (as defined in Section 11.1) which shall adopt this Plan. 1.17 "Excess Aggregate Contributions" means, with respect to any Plan Year, the excess of the aggregate amount of the Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) on behalf of Highly Compensated Participants for such Plan Year, over the maximum amount of such contributions permitted under the limitations of Section 4.7(a) (determined by reducing contributions made on behalf of Highly Compensated Participants in order of the actual contribution ratios beginning with the highest of such ratios). 1.18 "Excess Contributions" means, with respect to a Plan Year, the excess of Elective Contributions used to satisfy the "Actual Deferral Percentage" tests made on behalf of Highly Compensated Participants for the Plan Year over the maximum amount of such contributions permitted under Section 4.5(a) (determined by reducing contributions made on behalf of Highly Compensated Participants in order of the actual deferral ratios beginning with the highest of such ratios). Excess Contributions shall be treated as an "annual addition" pursuant to Section 4.9(b). 1.19 "Excess Deferred Compensation" means, with respect to any taxable year of a Participant, the excess of the aggregate amount of such Participant's Deferred Compensation and the elective deferrals pursuant to Section 4.2(f) actually made on behalf of such Participant for such taxable year, over the dollar limitation provided for in Code Section 402(g), which is incorporated herein by reference. Excess Deferred Compensation shall be treated as an "annual addition" pursuant to Section 4.9(b) when contributed to the Plan unless distributed to the affected Participant not later than the first April 15th following the close of the Participant's taxable year. Additionally, for Page 3 of 64 purposes of Sections 9.2 and 4.4(f), Excess Deferred Compensation shall continue to be treated as Employer contributions even if distributed pursuant to Section 4.2(f). However, Excess Deferred Compensation of Non-Highly Compensated Participants is not taken into account for purposes of Section 4.5(a) to the extent such Excess Deferred Compensation occurs pursuant to Section 4.2(d). 1.20 "Fiduciary" means any person who (a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so, or (c) has any discretionary authority or discretionary responsibility in the administration of the Plan, including, but not limited to, the Trustee, the Employer and its representative body, and the Administrator. 1.21 "Fiscal Year" means the Employer's accounting year of 12 months commencing on January 1st of each year and ending the following December 31st. 1.22 "Forfeiture" means that portion of a Participant's Account that is not Vested, and occurs on the earlier of: (a) the distribution of the entire Vested portion of a Terminated Participant's Account, or (b) the last day of the Plan Year in which the Participant incurs five (5) consecutive 1-Year Breaks in Service. Furthermore, for purposes of paragraph (a) above, in the case of a Terminated Participant whose Vested benefit is zero, such Terminated Participant shall be deemed to have received a distribution of his Vested benefit upon his termination of employment. Restoration of such amounts shall occur pursuant to Section 6.4(f)(2). In addition, the term Forfeiture shall also include amounts deemed to be Forfeitures pursuant to any other provision of this Plan. 1.23 "Former Participant" means a person who has been a Participant, but who has ceased to be a Participant for any reason. 1.24 "415 Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. "415 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)). For Plan Years beginning after December 31, 1997, for purposes of this Section, the determination of "415 Compensation" shall include any elective deferral (as defined in Code Section 402(g)(3)), and any amount which is contributed or deferred by the Employer at the election of the Participant and which is not includible in the gross income of the Participant by reason of Code Sections 125 or 457. If, in connection with the adoption of this amendment and restatement, the definition of "415 Compensation" has been modified, then, for Plan Years prior to the Plan Year which includes the adoption date of this amendment and restatement, "415 Compensation" means compensation determined pursuant to the Plan then in effect. 1.25 "414(s) Compensation" with respect to any Participant means such Participant's "415 Compensation" paid during a Plan Year. The amount of "414(s) Compensation" with respect to any Participant shall include "414(s) Compensation" for the entire twelve (12) month period ending on the last day of such Plan Year, except that "414(s) Compensation" shall only be recognized for that portion of the Plan Year during which an Employee was a Participant in the Plan. Page 4 of 64 For purposes of this Section, the determination of "414(s) Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. "414(s) Compensation" in excess of the limit imposed by Code Section 401(a)(17) ($170,000 for the 2000 calendar year) shall be disregarded. Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401(a)(17), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year. For any short Plan Year the "414(s) Compensation" limit shall be an amount equal to the "414(s) Compensation" limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). If, in connection with the adoption of this amendment and restatement, the definition of "414(s) Compensation" has been modified, then, for Plan Years prior to the Plan Year which includes the adoption date of this amendment and restatement, "414(s) Compensation" means compensation determined pursuant to the Plan then in effect. 1.26 "Highly Compensated Employee" means, for Plan Years beginning after December 31, 1996, an Employee described in Code Section 414(q) and the Regulations thereunder, and generally means an Employee who performed services for the Employer during the "determination year" and is in one or more of the following groups: (a) Employees who at any time during the "determination year" or "look-back year" were "five percent owners" as defined in Section 1.32(c). (b) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $80,000. The "determination year" shall be the Plan Year for which testing is being performed, and the "look-back year" shall be the immediately preceding twelve-month period. For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. Additionally, the dollar threshold amount specified in (b) above shall be adjusted at such time and in the same manner as under Code Section 415(d), except that the base period shall be the calendar quarter ending September 30, 1996. In the case of such an adjustment, the dollar limit which shall be applied is the limit for the calendar year in which the "look-back year" begins. In determining who is a Highly Compensated Employee, Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, all Affiliated Employers shall be taken into account as a single employer and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. The exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Employer's retirement plans. Highly Compensated Former Employees shall be treated as Highly Compensated Employees without regard to whether they performed services during the "determination year." 1.27 "Highly Compensated Former Employee" means a former Employee who had a separation year prior to the "determination year" and was a Highly Compensated Employee in the year of separation from service or in any "determination year" after attaining age 55. Notwithstanding the foregoing, an Employee who separated from service prior to 1987 will be treated as a Highly Compensated Former Employee only if during the separation year (or year Page 5 of 64 preceding the separation year) or any year after the Employee attains age 55 (or the last year ending before the Employee's 55th birthday), the Employee either received "415 Compensation" in excess of $50,000 or was a "five percent owner." For purposes of this Section, "determination year," "415 Compensation" and "five percent owner" shall be determined in accordance with Section 1.26. Highly Compensated Former Employees shall be treated as Highly Compensated Employees. The method set forth in this Section for determining who is a "Highly Compensated Former Employee" shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable. 1.28 "Highly Compensated Participant" means any Highly Compensated Employee who is eligible to participate in the Plan. 1.29 "Hour of Service" means (1) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties (these hours will be credited to the Employee for the computation period in which the duties are performed); (2) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, jury duty, disability, lay-off, military duty or leave of absence) during the applicable computation period (these hours will be calculated and credited pursuant to Department of Labor regulation 2530.200b- 2 which is incorporated herein by reference); (3) each hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of damages (these hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made). The same Hours of Service shall not be credited both under (1) or (2), as the case may be, and under (3). Notwithstanding the above, (i) no more than 501 Hours of Service are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, or unemployment compensation or disability insurance laws; and (iii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee. For purposes of this Section, a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer, or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate. For purposes of this Section, Hours of Service will be credited for employment with other Affiliated Employers. The provisions of Department of Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference. 1.30 "Income" means the income or losses allocable to Excess Deferred Compensation, Excess Contributions or Excess Aggregate Contributions which amount shall be allocated in the same manner as income or losses are allocated pursuant to Section 4.4(e). 1.31 "Investment Manager" means an entity that (a) has the power to manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility to the Plan in writing. Such entity must be a person, firm, or corporation registered as an investment adviser under the Investment Advisers Act of 1940, a bank, or an insurance company. 1.32 "Key Employee" means an Employee as defined in Code Section 416(i) and the Regulations thereunder. Generally, any Employee or former Employee (as well as each of his Beneficiaries) is considered a Key Page 6 of 64 Employee if he, at any time during the Plan Year that contains the "Determination Date" or any of the preceding four (4) Plan Years, has been included in one of the following categories: (a) an officer of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) having annual "415 Compensation" greater than 50 percent of the amount in effect under Code Section 415(b)(1)(A) for any such Plan Year. (b) one of the ten employees having annual "415 Compensation" from the Employer for a Plan Year greater than the dollar limitation in effect under Code Section 415(c)(1)(A) for the calendar year in which such Plan Year ends and owning (or considered as owning within the meaning of Code Section 318) both more than one-half percent interest and the largest interests in the Employer. (c) a "five percent owner" of the Employer. "Five percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. (d) a "one percent owner" of the Employer having an annual "415 Compensation" from the Employer of more than $150,000. "One percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than one percent (1%) of the outstanding stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than one percent (1%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. However, in determining whether an individual has "415 Compensation" of more than $150,000, "415 Compensation" from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account. For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. 1.33 "Late Retirement Date" means the first day of the month coinciding with or next following a Participant's actual Retirement Date after having reached his Normal Retirement Date. 1.34 "Leased Employee" means, for Plan Years beginning after December 31, 1996, 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 performed under primary direction or control by the recipient employer. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the recipient employer shall be treated as provided by the recipient employer. A Leased Employee shall not be considered an Employee of the recipient: Page 7 of 64 (a) if such employee is covered by a money purchase pension plan providing: (1) a non-integrated employer contribution rate of at least 10% of compensation, as defined in Code Section 415(c)(3), but including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. (2) immediate participation; and (3) full and immediate vesting; and (b) if Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force. 1.35 "Non-Elective Contribution" means the Employer contributions to the Plan excluding, however, contributions made pursuant to the Participant's deferral election provided for in Section 4.2 and any Qualified Non-Elective Contribution used in the "Actual Deferral Percentage" tests. 1.36 "Non-Highly Compensated Participant" means any Participant who is not a Highly Compensated Employee. However, for the Plan Year prior to the first Plan Year of this amendment and restatement, for the purposes of Section 4.5(a) and Section 4.6, if the prior year testing method is used, a Non-Highly Compensated Participant shall be determined using the definition of highly compensated employee in effect for the preceding Plan Year. 1.37 "Non-Key Employee" means any Employee or former Employee (and his Beneficiaries) who is not a Key Employee. 1.38 "Normal Retirement Age" means the Participant's 65th birthday. A Participant shall become fully Vested in his Participant's Account upon attaining his Normal Retirement Age. 1.39 "Normal Retirement Date" means the first day of the month coinciding with or next following the Participant's Normal Retirement Age. 1.40 "1-Year Break in Service" means the applicable computation period during which an Employee has not completed more than 500 Hours of Service with the Employer. Further, solely for the purpose of determining whether a Participant has incurred a 1-Year Break in Service, Hours of Service shall be recognized for "authorized leaves of absence" and "maternity and paternity leaves of absence." Years of Service and 1-Year Breaks in Service shall be measured on the same computation period. "Authorized leave of absence" means an unpaid, temporary cessation from active employment with the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service, or any other reason. A "maternity or paternity leave of absence" means, for Plan Years beginning after December 31, 1984, an absence from work for any period by reason of the Employee's pregnancy, birth of the Employee's child, placement of a child with the Employee in connection with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. For this purpose, Hours of Service shall be credited for the computation period in which the absence from work begins, only if credit therefore is necessary to prevent the Employee from incurring a 1-Year Break in Service, or, in any other case, in the immediately following computation period. The Hours of Service credited for a "maternity or paternity leave of absence" shall be those which would normally have been credited but for such absence, or, in any case in which the Administrator is unable to determine such hours normally credited, eight (8) Hours of Service per day. The Page 8 of 64 total Hours of Service required to be credited for a "maternity or paternity leave of absence" shall not exceed 501. 1.41 "Participant" means any Eligible Employee who participates in the Plan and has not for any reason become ineligible to participate further in the Plan. 1.42 "Participant Direction Procedures" means such instructions, guidelines or policies, the terms of which are incorporated herein, as shall be established pursuant to Section 4.13 and observed by the Administrator and applied to Participants who have Participant Directed Accounts. 1.43 "Participant's Account" means the account established and maintained by the Administrator for each Participant with respect to his total interest in the Plan and Trust resulting from the Employer Non-Elective Contributions. A separate accounting shall be maintained with respect to that portion of the Participant's Account attributable to Employer matching contributions made pursuant to Section 4.1(b), Employer discretionary contributions made pursuant to Section 4.1(d) and any Employer Qualified Non-Elective Contributions. 1.44 "Participant's Combined Account" means the total aggregate amount of each Participant's Elective Account and Participant's Account. 1.45 "Participant's Directed Account" means that portion of a Participant's interest in the Plan with respect to which the Participant has directed the investment in accordance with the Participant Direction Procedure. 1.46 "Participant's Elective Account" means the account established and maintained by the Administrator for each Participant with respect to his total interest in the Plan and Trust resulting from the Employer Elective Contributions used to satisfy the "Actual Deferral Percentage" tests. A separate accounting shall be maintained with respect to that portion of the Participant's Elective Account attributable to such Elective Contributions pursuant to Section 4.2 and any Employer Qualified Non-Elective Contributions. 1.47 "Plan" means this instrument, including all amendments thereto. 1.48 "Plan Year" means the Plan's accounting year of twelve (12) months commencing on January 1st of each year and ending the following December 31st. 1.49 "Pre-Retirement Survivor Annuity" means a death benefit which is an immediate annuity for the life of a GSB/FAB Participant's spouse (see Section 6.5) the payments under which must be equal to the amount of benefit which can be purchased with 50% of the accounts of a GSB/FAB Participant, as applicable. A proportionate share of each of the Participant's accounts shall be used to provide any Pre-Retirement Survivor Annuity. 1.50 "Qualified Non-Elective Contribution" means any Employer contributions made pursuant to Section 4.1(c) and Section 4.6(b) and Section 4.8(f). Such contributions shall be considered an Elective Contribution for the purposes of the Plan and may be used to satisfy the "Actual Deferral Percentage" tests or the "Actual Contribution Percentage" tests. 1.51 "Regulation" means the Income Tax Regulations as promulgated by the Secretary of the Treasury or his delegate, and as amended from time to time. 1.52 "Retired Participant" means a person who has been a Participant, but who has become entitled to retirement benefits under the Plan. 1.53 "Retirement Date" means the date as of which a Participant retires for reasons other than Total and Permanent Disability, whether such retirement occurs on a Participant's Normal Retirement Date or Late Retirement Date (see Section 6.1). Page 9 of 64 1.54 "Super Top Heavy Plan" means a plan described in Section 9.2(b). 1.55 "Terminated Participant" means a person who has been a Participant, but whose employment has been terminated other than by death, Total and Permanent Disability or retirement. 1.56 "Top Heavy Plan" means a plan described in Section 9.2(a). 1.57 "Top Heavy Plan Year" means a Plan Year during which the Plan is a Top Heavy Plan. 1.58 "Total and Permanent Disability" means a physical or mental condition of a Participant resulting from bodily injury, disease, or mental disorder which renders him incapable of continuing his usual and customary employment with the Employer. The disability of a Participant shall be determined by a licensed physician chosen by the Administrator. However, a Participant eligible for Social Security disability benefits shall automatically satisfy the requirements for determining disability. The determination shall be applied uniformly to all Participants. 1.59 "Trustee" means the person or entity named as trustee herein or in any separate trust forming a part of this Plan, and any successors. 1.60 "Trust Fund" means the assets of the Plan and Trust as the same shall exist from time to time. 1.61 "USERRA" means the Uniformed Services Employment and Reemployment Rights Act of 1994. Notwithstanding any provision of this Plan to the contrary, effective December 12, 1994, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u). 1.62 "Valuation Date" means the Anniversary Date and such other date or dates deemed necessary by the Administrator. The Valuation Date may include any day during the Plan Year that the Trustee, any transfer agent appointed by the Trustee or the Employer and any stock exchange used by such agent are open for business. 1.63 "Vested" means the nonforfeitable portion of any account maintained on behalf of a Participant. 1.64 "Voluntary Contribution Account" means the account established and maintained by the Administrator for each applicable Participant with respect to his total interest in the Plan resulting from such Participant's nondeductible voluntary contributions made pursuant to Section 4.12. 1.65 "Year of Service" means the computation period of twelve (12) consecutive months, herein set forth, during which an Employee has at least 1000 Hours of Service. For purposes of eligibility for participation, the initial computation period shall begin with the date on which the Employee first performs an Hour of Service. The participation computation period beginning after a 1-Year Break in Service shall be measured from the date on which an Employee again performs an Hour of Service. The participation computation period shall shift to the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service. An Employee who is credited with the required Hours of Service in both the initial computation period (or the computation period beginning after a 1-Year Break in Service) and the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service, shall be credited with two (2) Years of Service for purposes of eligibility to participate. For vesting purposes, the computation periods shall be the Plan Year, including periods prior to the Effective Date of the Plan. The computation period shall be the Plan Year if not otherwise set forth herein. Notwithstanding the foregoing, for any short Plan Year, the determination of whether an Employee has completed a Year of Service shall be made in accordance with Department of Labor regulation 2530.203-2(c). However, in determining whether an Employee has completed a Year of Service for benefit accrual purposes in the Page 10 of 64 short Plan Year, the number of the Hours of Service required shall be proportionately reduced based on the number of full months in the short Plan Year. Years of Service with Your Insurance Man, Inc., St. Clair Federal Savings Bank, First Gulf Bank, Alabama Exchange Bank, Citizens Bank of Talladega, Bank of Dadeville, First National Bank of Ashland, National Bank of Commerce of Birmingham, NBC Securities, Inc., Metro Bank, First Western Bank, First American Bank of Pelham, Ashland Insurance, Inc., Tuskegee Loan Company, Clay County Finance Company, Future Finance Company, Bank of the South East and First Bank of Baldwin County shall be recognized. Years of Service with any Affiliated Employer shall be recognized. ARTICLE II ADMINISTRATION 2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER (a) In addition to the general powers and responsibilities otherwise provided for in this Plan, the Employer shall be empowered to appoint and remove the Trustee and the Administrator from time to time as it deems necessary for the proper administration of the Plan to ensure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act. The Employer may appoint counsel, specialists, advisers, agents (including any nonfiduciary agent) and other persons as the Employer deems necessary or desirable in connection with the exercise of its fiduciary duties under this Plan. The Employer may compensate such agents or advisers from the assets of the Plan as fiduciary expenses (but not including any business (settlor) expenses of the Employer), to the extent not paid by the Employer. (b) The Employer may, by written agreement or designation, appoint at its option an Investment Manager (qualified under the Investment Company Act of 1940 as amended), investment adviser, or other agent to provide direction to the Trustee with respect to any or all of the Plan assets. Such appointment shall be given by the Employer in writing in a form acceptable to the Trustee and shall specifically identify the Plan assets with respect to which the Investment Manager or other agent shall have authority to direct the investment. (c) The Employer shall establish a "funding policy and method," i.e., it shall determine whether the Plan has a short run need for liquidity (e.g., to pay benefits) or whether liquidity is a long run goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so. The Employer or its delegate shall communicate such needs and goals to the Trustee, who shall coordinate such Plan needs with its investment policy. The communication of such a "funding policy and method" shall not, however, constitute a directive to the Trustee as to investment of the Trust Funds. Such "funding policy and method" shall be consistent with the objectives of this Plan and with the requirements of Title I of the Act. (d) The Employer shall periodically review the performance of any Fiduciary or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder. This requirement may be satisfied by formal periodic review by the Employer or by a qualified person specifically designated by the Employer, through day-to-day conduct and evaluation, or through other appropriate ways. 2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY The Employer shall be the Administrator. The Employer may appoint any person, including, but not limited to, the Employees of the Employer, to perform the duties of the Administrator. Any person so appointed shall signify his acceptance by filing written acceptance with the Employer. Upon the resignation or removal of any individual performing the duties of the Administrator, the Employer may designate a successor. Page 11 of 64 2.3 POWERS AND DUTIES OF THE ADMINISTRATOR The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan. The Administrator shall administer the Plan in accordance with its terms and shall have the power and discretion to construe the terms of the Plan and to determine all questions arising in connection with the administration, interpretation, and application of the Plan. Any such determination by the Administrator shall be conclusive and binding upon all persons. The Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure, discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan under the terms of Code Section 401(a), and shall comply with the terms of the Act and all regulations issued pursuant thereto. The Administrator shall have all powers necessary or appropriate to accomplish his duties under this Plan. The Administrator shall be charged with the duties of the general administration of the Plan, including, but not limited to, the following: (a) the discretion to determine all questions relating to the eligibility of Employees to participate or remain a Participant hereunder and to receive benefits under the Plan; (b) to compute, certify, and direct the Trustee with respect to the amount and the kind of benefits to which any Participant shall be entitled hereunder; (c) to authorize and direct the Trustee with respect to all nondiscretionary or otherwise directed disbursements from the Trust; (d) to maintain all necessary records for the administration of the Plan; (e) to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan as are consistent with the terms hereof; (f) to determine the size and type of any Contract to be purchased from any insurer, and to designate the insurer from which such Contract shall be purchased; (g) to compute and certify to the Employer and to the Trustee from time to time the sums of money necessary or desirable to be contributed to the Plan; (h) to consult with the Employer and the Trustee regarding the short and long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion in a manner designed to accomplish specific objectives; (i) to prepare and distribute to Employees a procedure for notifying GSB/FAB Participants and Beneficiaries (see Section 6.5) of their rights to elect joint and survivor annuities and Pre-Retirement Survivor Annuities as required by the Act and regulations thereunder; (j) to prepare and implement a procedure to notify Eligible Employees that they may elect to have a portion of their Compensation deferred or paid to them in cash; (k) to assist any Participant regarding his rights, benefits, or elections available under the Plan. 2.4 RECORDS AND REPORTS The Administrator shall keep a record of all actions taken and shall keep all other books of account, Page 12 of 64 records, policies, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, Beneficiaries and others as required by law. 2.5 APPOINTMENT OF ADVISERS The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel, specialists, advisers, agents (including nonfiduciary agents) and other persons as the Administrator or the Trustee deems necessary or desirable in connection with the administration of this Plan, including but not limited to agents and advisers to assist with the administration and management of the Plan, and thereby to provide, among such other duties as the Administrator may appoint, assistance with maintaining Plan records and the providing of investment information to the Plan's investment fiduciaries and to Plan Participants. 2.6 PAYMENT OF EXPENSES All expenses of administration may be paid out of the Trust Fund unless paid by the Employer. Such expenses shall include any expenses incident to the functioning of the Administrator, or any person or persons retained or appointed by any Named Fiduciary incident to the exercise of their duties under the Plan, including, but not limited to, fees of accountants, counsel, Investment Managers, agents (including nonfiduciary agents) appointed for the purpose of assisting the Administrator or the Trustee in carrying out the instructions of Participants as to the directed investment of their accounts and other specialists and their agents, and other costs of administering the Plan. Until paid, the expenses shall constitute a liability of the Trust Fund. 2.7 CLAIMS PROCEDURE Claims for benefits under the Plan may be filed in writing with the Administrator. Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the application is filed. In the event the claim is denied, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan shall be cited, and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. In addition, the claimant shall be furnished with an explanation of the Plan's claims review procedure. 2.8 CLAIMS REVIEW PROCEDURE Any Employee, former Employee, or Beneficiary of either, who has been denied a benefit by a decision of the Administrator pursuant to Section 2.7 shall be entitled to request the Administrator to give further consideration to his claim by filing with the Administrator (on a form which may be obtained from the Administrator) a request for a hearing. Such request, together with a written statement of the reasons why the claimant believes his claim should be allowed, shall be filed with the Administrator no later than 60 days after receipt of the written notification provided for in Section 2.7. The Administrator shall then conduct a hearing within the next 60 days, at which the claimant may be represented by an attorney or any other representative of his choosing and at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of his claim. At the hearing (or prior thereto upon 5 business days written notice to the Administrator) the claimant or his representative shall have an opportunity to review all documents in the possession of the Administrator which are pertinent to the claim at issue and its disallowance. Either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings. In such event, a complete written transcript of the proceedings shall be furnished to both parties by the court reporter. The full expense of any such court reporter and such transcripts shall be borne by the party causing the court reporter to attend the hearing. A final decision as to the allowance of the claim shall be made by the Administrator within 60 days of receipt of the appeal (unless there has been an extension of 60 days due to special circumstances, provided the delay and the special circumstances occasioning it are communicated to the claimant within the 60 day period). Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. Page 13 of 64 ARTICLE III ELIGIBILITY 3.1 CONDITIONS OF ELIGIBILITY Any Eligible Employee who has completed one (1) Year of Service and has attained age 21 shall be eligible to participate hereunder as of the date he has satisfied such requirements. However, any Employee who was a Participant in the Plan prior to the effective date of this amendment and restatement shall continue to participate in the Plan. Notwithstanding the foregoing, the following special eligibility rules shall apply: (a) With respect to employees who were employed with Community Bank on October 15, 1996, such employees were eligible to participate regardless of the foregoing eligibility requirements. (b) With respect to employees of the Employer who were age 20 and employed on July 1, 1996 by the Employer, such employees were eligible to participate regardless of the foregoing eligibility requirements. 3.2 EFFECTIVE DATE OF PARTICIPATION An Eligible Employee shall become a Participant effective as of the first day of the calendar quarter following the date such Employee met the eligibility requirements of Section 3.1, provided said Employee was still employed as of such date (or if not employed on such date, as of the date of rehire if a 1-Year Break in Service has not occurred). In the event an Employee who is not a member of an eligible class of Employees becomes a member of an eligible class, such Employee will participate immediately if such Employee has satisfied the minimum age and service requirements and would have otherwise previously become a Participant. 3.3 DETERMINATION OF ELIGIBILITY The Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information furnished by the Employer. Such determination shall be conclusive and binding upon all persons, as long as the same is made pursuant to the Plan and the Act. Such determination shall be subject to review per Section 2.8. 3.4 TERMINATION OF ELIGIBILITY (a) In the event a Participant shall go from a classification of an Eligible Employee to an ineligible Employee, such Former Participant shall continue to vest in his interest in the Plan for each Year of Service completed while a noneligible Employee, until such time as his Participant's Account shall be forfeited or distributed pursuant to the terms of the Plan. Additionally, his interest in the Plan shall continue to share in the earnings of the Trust Fund. (b) In the event a Participant is no longer a member of an eligible class of Employees and becomes ineligible to participate, such Employee will participate immediately upon returning to an eligible class of Employees. 3.5 OMISSION OF ELIGIBLE EMPLOYEE If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Employee in the Page 14 of 64 amount which the said Employer would have contributed with respect to him had he not been omitted. Such contribution shall be made regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code. 3.6 INCLUSION OF INELIGIBLE EMPLOYEE If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible person shall constitute a Forfeiture (except for Deferred Compensation which shall be distributed to the ineligible person) for the Plan Year in which the discovery is made. 3.7 ELECTION NOT TO PARTICIPATE An Employee may, subject to the approval of the Employer, elect voluntarily not to participate in the Plan. The election not to participate must be communicated to the Employer, in writing, at least fifteen (15) days before the beginning of a Plan Year. ARTICLE IV CONTRIBUTION AND ALLOCATION 4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION For each Plan Year, the Employer shall contribute to the Plan: (a) The amount of the total salary reduction elections of all Participants made pursuant to Section 4.2(a), which amount shall be deemed an Employer Elective Contribution. (b) On behalf of each Participant who is eligible to share in matching contributions for the Plan Year, a matching contribution equal to 100% of each such Participant's Deferred Compensation plus a uniform discretionary percentage of each such Participant's Deferred Compensation, the exact percentage, if any, to be determined each year by the Employer, which amount, if any, shall be deemed an Employer Non-Elective Contribution. Except, however, in applying the matching percentage specified above, only salary reductions up to 5% of annual Compensation shall be considered. Matching contributions shall be allocated as soon as administratively feasible following each payroll. (c) On behalf of each Non-Highly Compensated Participant who is eligible to share in the Qualified Non-Elective Contribution for the Plan Year, a discretionary Qualified Non-Elective Contribution equal to a uniform percentage of each eligible individual's Compensation, the exact percentage, if any, to be determined each year by the Employer. Any Employer Qualified Non-Elective Contribution shall be deemed an Employer Elective Contribution. (d) A discretionary amount, which amount, if any, shall be deemed an Employer Non-Elective Contribution. (e) Additionally, to the extent necessary, the Employer shall contribute to the Plan the amount necessary to provide the top heavy minimum contribution. All contributions by the Employer shall be made in cash. 4.2 PARTICIPANT'S SALARY REDUCTION ELECTION (a) Each Participant may elect to defer from 1% to 15% of his Compensation which would Page 15 of 64 have been received in the Plan Year, but for the deferral election. A deferral election (or modification of an earlier election) may not be made with respect to Compensation which is currently available on or before the date the Participant executed such election. For purposes of this Section, Compensation shall be determined prior to any reductions made pursuant to Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. The amount by which Compensation is reduced shall be that Participant's Deferred Compensation and be treated as an Employer Elective Contribution and allocated to that Participant's Elective Account. (b) The balance in each Participant's Elective Account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason. (c) Notwithstanding anything in the Plan to the contrary, amounts held in the Participant's Elective Account may not be distributable (including any offset of loans) earlier than: (1) a Participant's separation from service, Total and Permanent Disability, or death; (2) a Participant's attainment of age 59 1/2; (3) the termination of the Plan without the establishment or existence of a "successor plan," as that term is described in Regulation 1.401(k)-1(d)(3); (4) the date of disposition by the Employer to an entity that is not an Affiliated Employer 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 with respect to a Participant who continues employment with the corporation acquiring such assets; (5) the date of disposition by the Employer or an Affiliated Employer who maintains the Plan of its interest in a subsidiary (within the meaning of Code Section 409(d)(3)) to an entity which is not an Affiliated Employer but only with respect to a Participant who continues employment with such subsidiary; or (6) the proven financial hardship of a Participant, subject to the limitations of Section 6.11. (d) For each Plan Year, a Participant's Deferred Compensation made under this Plan and all other plans, contracts or arrangements of the Employer maintaining this Plan shall not exceed, during any taxable year of the Participant, the limitation imposed by Code Section 402(g), as in effect at the beginning of such taxable year. If such dollar limitation is exceeded, a Participant will be deemed to have notified the Administrator of such excess amount which shall be distributed in a manner consistent with Section 4.2(f). The dollar limitation shall be adjusted annually pursuant to the method provided in Code Section 415(d) in accordance with Regulations. (e) In the event a Participant has received a hardship distribution from his Participant's Elective Account pursuant to Section 6.11(b) or pursuant to Regulation 1.401(k)-1(d)(2)(iv)(B) from any other plan maintained by the Employer, then such Participant shall not be permitted to elect to have Deferred Compensation contributed to the Plan on his behalf for a period of twelve (12) months following the receipt of the distribution. Furthermore, the dollar limitation under Code Section 402(g) shall be reduced, with respect to the Participant's taxable year following the taxable year in which the hardship distribution was made, by the amount of such Participant's Deferred Compensation, if any, pursuant to this Plan (and any other plan maintained by the Employer) for the taxable year of the hardship distribution. Page 16 of 64 (f) If a Participant's Deferred Compensation under this Plan together with any elective deferrals (as defined in Regulation 1.402(g)-1(b)) under another qualified cash or deferred arrangement (as defined in Code Section 401(k)), a simplified employee pension (as defined in Code Section 408(k)), a salary reduction arrangement (within the meaning of Code Section 3121(a)(5)(D)), a deferred compensation plan under Code Section 457(b), or a trust described in Code Section 501(c)(18) cumulatively exceed the limitation imposed by Code Section 402(g) (as adjusted annually in accordance with the method provided in Code Section 415(d) pursuant to Regulations) for such Participant's taxable year, the Participant may, not later than March 1 following the close of the Participant's taxable year, notify the Administrator in writing of such excess and request that his Deferred Compensation under this Plan be reduced by an amount specified by the Participant. In such event, the Administrator may direct the Trustee to distribute such excess amount (and any Income allocable to such excess amount) to the Participant not later than the first April 15th following the close of the Participant's taxable year. Any distribution of less than the entire amount of Excess Deferred Compensation and Income shall be treated as a pro rata distribution of Excess Deferred Compensation and Income. The amount distributed shall not exceed the Participant's Deferred Compensation under the Plan for the taxable year (and any Income allocable to such excess amount). Any distribution on or before the last day of the Participant's taxable year must satisfy each of the following conditions: (1) the distribution must be made after the date on which the Plan received the Excess Deferred Compensation; (2) the Participant shall designate the distribution as Excess Deferred Compensation; and (3) the Plan must designate the distribution as a distribution of Excess Deferred Compensation. Any distribution made pursuant to this Section 4.2(f) shall be made first from unmatched Deferred Compensation and, thereafter, from Deferred Compensation which is matched. Matching contributions which relate to such Deferred Compensation shall be forfeited. (g) Notwithstanding Section 4.2(f) above, a Participant's Excess Deferred Compensation shall be reduced, but not below zero, by any distribution of Excess Contributions pursuant to Section 4.6(a) for the Plan Year beginning with or within the taxable year of the Participant. (h) At Normal Retirement Date, or such other date when the Participant shall be entitled to receive benefits, the fair market value of the Participant's Elective Account shall be used to provide additional benefits to the Participant or his Beneficiary. (i) Employer Elective Contributions made pursuant to this Section may be segregated into a separate account for each Participant in a federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short-term debt security acceptable to the Trustee until such time as the allocations pursuant to Section 4.4 have been made. (j) The Employer and the Administrator shall implement the salary reduction elections provided for herein in accordance with the following: (1) A Participant must make his initial salary deferral election within a reasonable time, not to exceed thirty (30) days, after entering the Plan pursuant to Section 3.2. If the Participant fails to make an initial salary deferral election within such time, then such Participant may thereafter make an election in accordance with the rules governing modifications. The Participant shall make such an election by entering into a written salary reduction agreement with the Employer and filing such agreement with the Administrator. Such election shall initially be effective beginning with the pay period following the acceptance of the salary reduction agreement by the Administrator, shall not have retroactive effect and shall remain in force until revoked. Page 17 of 64 (2) A Participant may modify a prior election during the Plan Year and concurrently make a new election by filing a written notice with the Administrator within a reasonable time before the pay period for which such modification is to be effective. However, modifications to a salary deferral election shall only be permitted quarterly, during election periods established by the Administrator prior to the first day of each calendar quarter (January 1, April 1, July 1, October 1). Any modification shall not have retroactive effect and shall remain in force until revoked. (3) A Participant may elect to prospectively revoke his salary reduction agreement in its entirety at any time during the Plan Year by providing the Administrator with thirty (30) days written notice of such revocation (or upon such shorter notice period as may be acceptable to the Administrator). Such revocation shall become effective as of the beginning of the first pay period coincident with or next following the expiration of the notice period. Furthermore, the termination of the Participant's employment, or the cessation of participation for any reason, shall be deemed to revoke any salary reduction agreement then in effect, effective immediately following the close of the pay period within which such termination or cessation occurs. 4.3 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION The Employer shall generally pay to the Trustee its contribution to the Plan for each Plan Year within the time prescribed by law, including extensions of time, for the filing of the Employer federal income tax return for the Fiscal Year. However, subject to the 10-day extension provided for in Department of Labor regulations 2510.3-102 (which are incorporated herein by reference), Employer Elective Contributions accumulated through payroll deductions shall be paid to the Trustee as of the earliest date on which such contributions can reasonably be segregated from the Employer's general assets, but in no event be paid to the Trustee later than the 15th business day of the month following the month in which such amounts would otherwise have been payable to the Participant in cash. Furthermore, any additional Employer contributions which are allocable to the Participant's Elective Account for a Plan Year shall be paid to the Plan no later than the twelve-month period immediately following the close of such Plan Year. 4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS (a) The Administrator shall establish and maintain an account in the name of each Participant to which the Administrator shall credit as of each Anniversary Date all amounts allocated to each such Participant as set forth herein. (b) The Employer shall provide the Administrator with all information required by the Administrator to make a proper allocation of the Employer contributions for each Plan Year. Within a reasonable period of time after the date of receipt by the Administrator of such information, the Administrator shall allocate such contribution as follows: (1) With respect to the Employer Elective Contribution made pursuant to Section 4.1(a), to each Participant's Elective Account in an amount equal to each such Participant's Deferred Compensation for the year. (2) With respect to the Employer Non-Elective Contribution made pursuant to Section 4.1(b), to each Participant's Account in accordance with Section 4.1(b). Any Participant actively employed during the Plan Year shall be eligible to share in the matching contribution for the Plan Year. (3) With respect to the Employer Qualified Non-Elective Contribution made pursuant to Section 4.1(c), to each Participant's Elective Account when used to satisfy the "Actual Page 18 of 64 Deferral Percentage" tests or Participant's Account in accordance with Section 4.1(c). Only Non-Highly Compensated Participants who have completed a Year of Service during the Plan Year shall be eligible to share in the Qualified Non-Elective Contribution for the year. (4) With respect to the Employer Non-Elective Contribution made pursuant to Section 4.1(d), to each Participant's Account in the same proportion that each such Participant's Compensation for the year bears to the total Compensation of all Participants for such year. Only Participants who have completed a Year of Service during the Plan Year shall be eligible to share in the discretionary contribution for the year. (c) As of each Anniversary Date any amounts which became Forfeitures since the last Anniversary Date shall first be made available to reinstate previously forfeited account balances of Former Participants, if any, in accordance with Section 6.4(f)(2). The remaining Forfeitures, if any, shall be used to reduce the contribution of the Employer hereunder for the Plan Year in which such Forfeitures occur in the following manner: (1) Forfeitures attributable to Employer matching contributions made pursuant to Section 4.1(b) shall be used to reduce the Employer contribution for the Plan Year in which such Forfeitures occur. (2) Forfeitures attributable to Employer discretionary contributions made pursuant to Section 4.1(d) shall be used to reduce the Employer contribution for the Plan Year in which such Forfeitures occur. (d) For any Top Heavy Plan Year, Employees not otherwise eligible to share in the allocation of contributions as provided above, shall receive the minimum allocation provided for in Section 4.4(f) if eligible pursuant to the provisions of Section 4.4(h). (e) As of each Valuation Date, before allocation of one-half of the Employer contributions for the entire Plan Year, any earnings or losses (net appreciation or net depreciation) of the Trust Fund shall be allocated in the same proportion that each Participant's and Former Participant's nonsegregated accounts bear to the total of all Participants' and Former Participants' nonsegregated accounts as of such date. Earnings or losses with respect to a Participant's Directed Account shall be allocated in accordance with Section 4.13. Participants' transfers from other qualified plans and voluntary contributions deposited in the general Trust Fund shall share in any earnings and losses (net appreciation or net depreciation) of the Trust Fund in the same manner provided above. Each segregated account maintained on behalf of a Participant shall be credited or charged with its separate earnings and losses. (f) Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the Employer contributions allocated to the Participant's Combined Account of each Employee shall be equal to at least three percent (3%) of such Employee's "415 Compensation" (reduced by contributions and forfeitures, if any, allocated to each Employee in any defined contribution plan included with this plan in a Required Aggregation Group). However, if (1) the sum of the Employer contributions allocated to the Participant's Combined Account of each Key Employee for such Top Heavy Plan Year is less than three percent (3%) of each Key Employee's "415 Compensation" and (2) this Plan is not required to be included in an Aggregation Group to enable a defined benefit plan to meet the requirements of Code Section 401(a)(4) or 410, the sum of the Employer contributions allocated to the Participant's Combined Account of each Employee shall be equal to the largest percentage allocated to the Participant's Combined Account of any Key Employee. However, in determining whether a Non-Key Page 19 of 64 Employee has received the required minimum allocation, such Non-Key Employee's Deferred Compensation and matching contributions needed to satisfy the "Actual Contribution Percentage" tests pursuant to Section 4.7(a) shall not be taken into account. However, no such minimum allocation shall be required in this Plan for any Employee who participates in another defined contribution plan subject to Code Section 412 included with this Plan in a Required Aggregation Group. (g) For purposes of the minimum allocations set forth above, the percentage allocated to the Participant's Combined Account of any Key Employee shall be equal to the ratio of the sum of the Employer contributions allocated on behalf of such Key Employee divided by the "415 Compensation" for such Key Employee. (h) For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Participant's Combined Account of all Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Employees who have (1) failed to complete a Year of Service; and (2) declined to make mandatory contributions (if required) or, in the case of a cash or deferred arrangement, elective contributions to the Plan. (i) In lieu of the above, if an Employee participates in this Plan and a defined benefit pension plan included in a Required Aggregation Group which is top heavy, a minimum allocation of five percent (5%) of "415 Compensation" shall be provided under this Plan. (j) For the purposes of this Section, "415 Compensation" shall be limited to the amount established by Code Section 401(a)(17) ($170,000 for the 2000 calendar year). Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401(a)(17), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year. For any short Plan Year the "415 Compensation" limit shall be an amount equal to the "415 Compensation" limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). (k) Notwithstanding anything herein to the contrary, Participants who terminated employment for any reason during the Plan Year shall share in the salary reduction contributions made by the Employer for the year of termination without regard to the Hours of Service credited. (l) If a Former Participant is reemployed after five (5) consecutive 1-Year Breaks in Service, then separate accounts shall be maintained as follows: (1) one account for nonforfeitable benefits attributable to pre- break service; and (2) one account representing his status in the Plan attributable to post-break service. Page 20 of 64 4.5 ACTUAL DEFERRAL PERCENTAGE TESTS (a) Maximum Annual Allocation: For each Plan Year beginning after December 31, 1996, the annual allocation derived from Employer Elective Contributions to a Highly Compensated Participant's Elective Account shall satisfy one of the following tests: (1) The "Actual Deferral Percentage" for the Highly Compensated Participant group shall not be more than the "Actual Deferral Percentage" of the Non-Highly Compensated Participant group (for the preceding Plan Year if the prior year testing method is used to calculate the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group) multiplied by 1.25, or (2) The excess of the "Actual Deferral Percentage" for the Highly Compensated Participant group over the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group (for the preceding Plan Year if the prior year testing method is used to calculate the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group) shall not be more than two percentage points. Additionally, the "Actual Deferral Percentage" for the Highly Compensated Participant group shall not exceed the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group (for the preceding Plan Year if the prior year testing method is used to calculate the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group) multiplied by 2. The provisions of Code Section 401(k)(3) and Regulation 1.401(k)-1(b) are incorporated herein by reference. However, in order to prevent the multiple use of the alternative method described in (2) above and in Code Section 401(m)(9)(A), any Highly Compensated Participant eligible to make elective deferrals pursuant to Section 4.2 or to receive matching contributions under this Plan or under any other plan maintained by the Employer or an Affiliated Employer shall have a combination of his Elective Contributions and Employer matching contributions reduced pursuant to Section 4.6(a) and Regulation 1.401(m)-2, the provisions of which are incorporated herein by reference. (b) For the purposes of this Section "Actual Deferral Percentage" means, with respect to the Highly Compensated Participant group and Non- Highly Compensated Participant group for a Plan Year, the average of the ratios, calculated separately for each Participant in such group, of the amount of Employer Elective Contributions allocated to each Participant's Elective Account for such Plan Year, to such Participant's "414(s) Compensation" for such Plan Year. The actual deferral ratio for each Participant and the "Actual Deferral Percentage" for each group shall be calculated to the nearest one-hundredth of one percent. Employer Elective Contributions allocated to each Non-Highly Compensated Participant's Elective Account shall be reduced by Excess Deferred Compensation to the extent such excess amounts are made under this Plan or any other plan maintained by the Employer. Notwithstanding the above, if the prior year test method is used to calculate the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group for the first Plan Year of this amendment and restatement, the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group for the preceding Plan Year shall be calculated pursuant to the provisions of the Plan then in effect. (c) For the purposes of Sections 4.5(a) and 4.6, a Highly Compensated Participant and a Non-Highly Compensated Participant shall include any Employee eligible to make a deferral election pursuant to Section 4.2, whether or not such deferral election was made or suspended pursuant to Section 4.2. Notwithstanding the above, if the prior year testing method is used to calculate the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group for the first Plan Year of this amendment and restatement, for purposes of Section 4.5(a) and 4.6, a Non-Highly Compensated Participant Page 21 of 64 shall include any such Employee eligible to make a deferral election, whether or not such deferral election was made or suspended, pursuant to the provisions of the Plan in effect for the preceding Plan Year. (d) If the Plan uses the prior year testing method, the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group is determined without regard to changes in the group of Non-Highly Compensated Participants who are eligible under the Plan in the testing year. However, if the Plan results from, or is otherwise affected by, a "Plan Coverage Change" that becomes effective during the testing year, then the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group for the prior year is the "Weighted Average Of The Actual Deferral Percentages For The Prior Year Subgroups." Notwithstanding the above, if ninety (90) percent or more of the total number of Non-Highly Compensated Participants from all "Prior Year Subgroups" are from a single "Prior Year Subgroup," then in determining the "Actual Deferral Percentage" for the Non-Highly Compensated Participants for the prior year, the Employer may elect to use the "Actual Deferral Percentage" for Non-Highly Compensated Participants for the prior year under which that single "Prior Year Subgroup" was eligible, in lieu of using the weighted averages. For purposes of this Section the following definitions shall apply: (1) "Plan Coverage Change" means a change in the group or groups of eligible Participants on account of (i) the establishment or amendment of a plan, (ii) a plan merger, consolidation, or spinoff under Code Section 414(l), (iii) a change in the way plans within the meaning of Code Section 414(l) are combined or separated for purposes of Regulation 1.401(k)-1(g)(11), or (iv) a combination of any of the foregoing. (2) "Prior Year Subgroup" means all Non-Highly Compensated Participants for the prior year who, in the prior year, were eligible Participants under a specific Code Section 401(k) plan maintained by the Employer and who would have been eligible Participants in the prior year under the plan tested if the plan coverage change had first been effective as of the first day of the prior year instead of first being effective during the testing year. (3) "Weighted Average Of The Actual Deferral Percentages For The Prior Year Subgroups" means the sum, for all prior year subgroups, of the "Adjusted Actual Deferral Percentages." (4) "Adjusted Actual Deferral Percentage" with respect to a prior year subgroup means the Actual Deferral Percentage for Non-Highly Compensated Participants for the prior year of the specific plan under which the members of the prior year subgroup were eligible Participants, multiplied by a fraction, the numerator of which is the number of Non-Highly Compensated Participants in the prior year subgroup and the denominator of which is the total number of Non-Highly Compensated Participants in all prior year subgroups. (e) For the purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k), if two or more plans which include cash or deferred arrangements are considered one plan for the purposes of Code Section 401(a)(4) or 410(b) (other than Code Section 410(b)(2)(A)(ii)), the cash or deferred arrangements included in such plans shall be treated as one arrangement. In addition, two or more cash or deferred arrangements may be considered as a single arrangement for purposes of determining whether or not such arrangements satisfy Code Sections 401(a)(4), 410(b) and 401(k). In such a case, the cash or deferred arrangements included in such plans and the plans including such arrangements shall be treated as one arrangement and as one plan for purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k). Any adjustment to the Non-Highly Compensated Participant actual deferral ratio for the prior year shall be made in accordance with Internal Revenue Service Notice 98-1 and any superseding guidance. Plans may be aggregated under this paragraph (e) only if they have the same plan year. Notwithstanding the above, for Plan Years beginning after December 31, 1996, if two or more plans which include cash or deferred arrangements are permissively aggregated under Regulation 1.410(b)-7(d), all plans permissively aggregated must use either the current year testing method or the prior year testing method for the testing year. Page 22 of 64 Notwithstanding the above, an employee stock ownership plan described in Code Section 4975(e)(7) or 409 may not be combined with this Plan for purposes of determining whether the employee stock ownership plan or this Plan satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(k). (f) For the purposes of this Section, if a Highly Compensated Participant is a Participant under two or more cash or deferred arrangements (other than a cash or deferred arrangement which is part of an employee stock ownership plan as defined in Code Section 4975(e)(7) or 409) of the Employer or an Affiliated Employer, all such cash or deferred arrangements shall be treated as one cash or deferred arrangement for the purpose of determining the actual deferral ratio with respect to such Highly Compensated Participant. However, if the cash or deferred arrangements have different plan years, this paragraph shall be applied by treating all cash or deferred arrangements ending with or within the same calendar year as a single arrangement. (g) For the purpose of this Section, when calculating the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group, the current year testing method shall be used. Any change from the current year testing method to the prior year testing method shall be made pursuant to Internal Revenue Service Notice 98-1, Section VII (or superseding guidance), the provisions of which are incorporated herein by reference. 4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS In the event (or if it is anticipated) that the initial allocations of the Employer Elective Contributions made pursuant to Section 4.4 do (or might) not satisfy one of the tests set forth in Section 4.5(a) for Plan Years beginning after December 31, 1996, the Administrator shall adjust Excess Contributions pursuant to the options set forth below: (a) On or before the fifteenth day of the third month following the end of each Plan Year, the Highly Compensated Participant having the largest amount of Elective Contributions shall have a portion of his Elective Contributions distributed to him until the total amount of Excess Contributions has been distributed, or until the amount of his Elective Contributions equals the Elective Contributions of the Highly Compensated Participant having the second largest amount of Elective Contributions. This process shall continue until the total amount of Excess Contributions has been distributed. In determining the amount of Excess Contributions to be distributed with respect to an affected Highly Compensated Participant as determined herein, such amount shall be reduced pursuant to Section 4.2(f) by any Excess Deferred Compensation previously distributed to such affected Highly Compensated Participant for his taxable year ending with or within such Plan Year. (1) With respect to the distribution of Excess Contributions pursuant to (a) above, such distribution: (i) may be postponed but not later than the close of the Plan Year following the Plan Year to which they are allocable; (ii) shall be adjusted for Income; and (iii) shall be designated by the Employer as a distribution of Excess Contributions (and Income). (2) Any distribution of less than the entire amount of Excess Contributions shall be treated as a pro rata distribution of Excess Contributions and Income. (3) Matching contributions which relate to Excess Contributions shall be forfeited unless the related matching contribution is distributed as an Excess Aggregate Contribution pursuant to Section 4.8. Page 23 of 64 (b) Within twelve (12) months after the end of the Plan Year, the Employer may make a special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 4.5(a). Such contribution shall be allocated to the Participant's Elective Account of each Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Compensation for the year bears to the total Compensation of all Non-Highly Compensated Participants. However, if the prior year testing method is used, the special Qualified Non-Elective Contribution shall be allocated in the prior Plan Year to the Participant's Elective Account on behalf of each Non-Highly Compensated Participant who was employed by the Employer on the last day of the prior Plan Year in the same proportion that each such Non-Highly Compensated Participant's Compensation for the prior Plan Year bears to the total Compensation of all such Non-Highly Compensated Participants for the prior Plan Year. Such contribution shall be made by the Employer prior to the end of the current Plan Year. Notwithstanding the above, for Plan Years beginning after December 31, 1998, if the testing method changes from the current year testing method to the prior year testing method, then for purposes of preventing the double counting of Qualified Non-Elective Contributions for the first testing year for which the change is effective, any special Qualified Non- Elective Contribution on behalf of Non-Highly Compensated Participants used to satisfy the "Actual Deferral Percentage" or "Actual Contribution Percentage" test under the current year testing method for the prior year testing year shall be disregarded. (c) If during a Plan Year the projected aggregate amount of Elective Contributions to be allocated to all Highly Compensated Participants under this Plan would, by virtue of the tests set forth in Section 4.5(a), cause the Plan to fail such tests, then the Administrator may automatically reduce proportionately or in the order provided in Section 4.6(a) each affected Highly Compensated Participant's deferral election made pursuant to Section 4.2 by an amount necessary to satisfy one of the tests set forth in Section 4.5(a). 4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS (a) The "Actual Contribution Percentage" for Plan Years beginning after December 31, 1996 for the Highly Compensated Participant group shall not exceed the greater of: (1) 125 percent of such percentage for the Non-Highly Compensated Participant group (for the preceding Plan Year if the prior year testing method is used to calculate the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group); or (2) the lesser of 200 percent of such percentage for the Non- Highly Compensated Participant group (for the preceding Plan Year if the prior year testing method is used to calculate the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group), or such percentage for the Non-Highly Compensated Participant group (for the preceding Plan Year if the prior year testing method is used to calculate the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group) plus 2 percentage points. However, to prevent the multiple use of the alternative method described in this paragraph and Code Section 401(m)(9)(A), any Highly Compensated Participant eligible to make elective deferrals pursuant to Section 4.2 or any other cash or deferred arrangement maintained by the Employer or an Affiliated Employer and to make Employee contributions or to receive matching contributions under this Plan or under any plan maintained by the Employer or an Affiliated Employer shall have a combination of his Elective Contributions and Employer matching contributions reduced pursuant to Regulation 1.401(m)-2 and Section 4.8(a). The provisions of Code Section 401(m) and Regulations 1.401(m)-1(b) and 1.401(m)-2 are incorporated herein by reference. (b) For the purposes of this Section and Section 4.8, "Actual Contribution Percentage" for a Plan Year means, with respect to the Highly Compensated Participant group and Non-Highly Compensated Page 24 of 64 Participant group (for the preceding Plan Year if the prior year testing method is used to calculate the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group), the average of the ratios (calculated separately for each Participant in each group rounded to the nearest one-hundredth of one percent) of: (1) the sum of Employer matching contributions made pursuant to Section 4.1(b) on behalf of each such Participant for such Plan Year (2) the Participant's "414(s) Compensation" for such Plan Year. Notwithstanding the above, if the prior year testing method is used to calculate the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group for the first Plan Year of this amendment and restatement, for purposes of Section 4.7(a), the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group for the preceding Plan Year shall be determined pursuant to the provisions of the Plan then in effect. (c) For purposes of determining the "Actual Contribution Percentage", only Employer matching contributions contributed to the Plan prior to the end of the succeeding Plan Year shall be considered. In addition, the Administrator may elect to take into account, with respect to Employees eligible to have Employer matching contributions pursuant to Section 4.1(b) allocated to their accounts, elective deferrals (as defined in Regulation 1.402(g)-1(b)) and qualified non-elective contributions (as defined in Code Section 401(m)(4)(C)) contributed to any plan maintained by the Employer. Such elective deferrals and qualified non-elective contributions shall be treated as Employer matching contributions subject to Regulation 1.401(m)- 1(b)(5) which is incorporated herein by reference. However, the Plan Year must be the same as the plan year of the plan to which the elective deferrals and the qualified non-elective contributions are made. (d) For purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(m), if two or more plans of the Employer to which matching contributions, Employee contributions, or both, are made are treated as one plan for purposes of Code Sections 401(a)(4) or 410(b) (other than the average benefits test under Code Section 410(b)(2)(A)(ii)), such plans shall be treated as one plan. In addition, two or more plans of the Employer to which matching contributions, Employee contributions, or both, are made may be considered as a single plan for purposes of determining whether or not such plans satisfy Code Sections 401(a)(4), 410(b) and 401(m). In such a case, the aggregated plans must satisfy this Section and Code Sections 401(a)(4), 410(b) and 401(m) as though such aggregated plans were a single plan. Any adjustment to the Non-Highly Compensated Participant actual contribution ratio for the prior year shall be made in accordance with Internal Revenue Service Notice 98-1 and any superseding guidance. Plans may be aggregated under this paragraph (e) only if they have the same plan year. Notwithstanding the above, for Plan Years beginning after December 31, 1996, if two or more plans which include cash or deferred arrangements are permissively aggregated under Regulation 1.410(b)-7(d), all plans permissively aggregated must use either the current year testing method or the prior year testing method for the testing year. Notwithstanding the above, an employee stock ownership plan described in Code Section 4975(e)(7) or 409 may not be aggregated with this Plan for purposes of determining whether the employee stock ownership plan or this Plan satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(m). (e) If a Highly Compensated Participant is a Participant under two or more plans (other than an employee stock ownership plan as defined in Code Section 4975(e)(7) or 409) which are maintained by the Employer or an Affiliated Employer to which matching contributions, Employee contributions, or both, are made, all such contributions on behalf of such Highly Compensated Participant shall be aggregated for purposes of determining such Highly Compensated Participant's actual contribution ratio. However, if the plans have different plan years, this paragraph shall be applied by treating all plans ending with or within the same calendar year as a single plan. (f) For purposes of Sections 4.7(a) and 4.8, a Highly Compensated Participant and Page 25 of 64 Non-Highly Compensated Participant shall include any Employee eligible to have Employer matching contributions (whether or not a deferral election was made or suspended) or voluntary employee contributions (whether or not voluntary employee contributions are made) allocated to his account for the Plan Year. Notwithstanding the above, if the prior year testing method is used to calculate the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group for the first Plan Year of this amendment and restatement, for the purposes of Section 4.7(a), a Non-Highly Compensated Participant shall include any such Employee eligible to have Employer matching contributions (whether or not a deferral election was made or suspended) or voluntary employee contributions (whether or not voluntary employee contributions are made) allocated to his account for the preceding Plan Year pursuant to the provisions of the Plan then in effect. (g) If the Plan uses the prior year testing method, the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group is determined without regard to changes in the group of Non-Highly Compensated Participants who are eligible under the Plan in the testing year. However, if the Plan results from, or is otherwise affected by, a "Plan Coverage Change" that becomes effective during the testing year, then the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group for the prior year is the "Weighted Average Of The Actual Contribution Percentages For The Prior Year Subgroups." Notwithstanding the above, if ninety (90) percent or more of the total number of Non-Highly Compensated Participants from all "Prior Year Subgroups" are from a single "Prior Year Subgroup," then in determining the "Actual Contribution Percentage" for the Non-Highly Compensated Participants for the prior year, the Employer may elect to use the "Actual Contribution Percentage" for Non- Highly Compensated Participants for the prior year under which that single "Prior Year Subgroup" was eligible, in lieu of using the weighted averages. For purposes of this Section the following definitions shall apply: (1) "Plan Coverage Change" means a change in the group or groups of eligible Participants on account of (i) the establishment or amendment of a plan, (ii) a plan merger, consolidation, or spinoff under Code Section 414(l), (iii) a change in the way plans within the meaning of Code Section 414(l) are combined or separated for purposes of Regulation 1.401(k)-1(g)(11), or (iv) a combination of any of the foregoing. (2) "Prior Year Subgroup" means all Non-Highly Compensated Participants for the prior year who, in the prior year, were eligible Participants under a specific Code Section 401(m) plan maintained by the Employer and who would have been eligible Participants in the prior year under the plan tested if the plan coverage change had first been effective as of the first day of the prior year instead of first being effective during the testing year. (3) "Weighted Average Of The Actual Contribution Percentages For The Prior Year Subgroups" means the sum, for all prior year subgroups, of the "Adjusted Actual Contribution Percentages." (4) "Adjusted Actual Contribution Percentage" with respect to a prior year subgroup means the Actual Contribution Percentage for Non-Highly Compensated Participants for the prior year of the specific plan under which the members of the prior year subgroup were eligible Participants, multiplied by a fraction, the numerator of which is the number of Non-Highly Compensated Participants in the prior year subgroup and the denominator of which is the total number of Non-Highly Compensated Participants in all prior year subgroups. (h) For the purpose of this Section, when calculating the "Actual Contribution Percentage" for the Non-highly Compensated Participant group, the current year testing method shall be used. Any change from the current year testing method to the prior year testing method shall be made pursuant to Internal Revenue Service Notice 98-1, Section vii (or superseding guidance), the provisions of which are incorporated herein by reference. Page 26 of 64 4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS (a) In the event (or if it is anticipated) that, for Plan Years beginning after December 31, 1996, the "Actual Contribution Percentage" for the Highly Compensated Participant group exceeds (or might exceed) the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group pursuant to Section 4.7(a), the Administrator (on or before the fifteenth day of the third month following the end of the Plan Year, but in no event later than the close of the following Plan Year) shall direct the Trustee to distribute to the Highly Compensated Participant having the largest amount of contributions determined pursuant to Section 4.7(b)(2), his Vested portion of such contributions (and Income allocable to such contributions) and, if forfeitable, forfeit such non-Vested Excess Aggregate Contributions attributable to Employer matching contributions (and Income allocable to such forfeitures) until the total amount of Excess Aggregate Contributions has been distributed, or until his remaining amount equals the amount of contributions determined pursuant to Section 4.7(b)(2) of the Highly Compensated Participant having the second largest amount of contributions. This process shall continue until the total amount of Excess Aggregate Contributions has been distributed. If the correction of Excess Aggregate Contributions attributable to Employer matching contributions is not in proportion to the Vested and non-Vested portion of such contributions, then the Vested portion of the Participant's Account attributable to Employer matching contributions after the correction shall be subject to Section 6.5(h). (b) Any distribution and/or forfeiture of less than the entire amount of Excess Aggregate Contributions (and Income) shall be treated as a pro rata distribution and/or forfeiture of Excess Aggregate Contributions and Income. Distribution of Excess Aggregate Contributions shall be designated by the Employer as a distribution of Excess Aggregate Contributions (and Income). Forfeitures of Excess Aggregate Contributions shall be treated in accordance with Section 4.4. (c) Excess Aggregate Contributions, including forfeited matching contributions, shall be treated as Employer contributions for purposes of Code Sections 404 and 415 even if distributed from the Plan. Forfeited matching contributions that are reallocated to Participants' Accounts for the Plan Year in which the forfeiture occurs shall be treated as an "annual addition" pursuant to Section 4.9(b) for the Participants to whose Accounts they are reallocated and for the Participants from whose Accounts they are forfeited. (d) The determination of the amount of Excess Aggregate Contributions with respect to any Plan Year shall be made after first determining the Excess Contributions, if any, to be treated as voluntary Employee contributions due to recharacterization for the plan year of any other qualified cash or deferred arrangement (as defined in Code Section 401(k)) maintained by the Employer that ends with or within the Plan Year. (e) If during a Plan Year the projected aggregate amount of Employer matching contributions to be allocated to all Highly Compensated Participants under this Plan would, by virtue of the tests set forth in Section 4.7(a), cause the Plan to fail such tests, then the Administrator may automatically reduce proportionately or in the order provided in Section 4.8(a) each affected Highly Compensated Participant's projected share of such contributions by an amount necessary to satisfy one of the tests set forth in Section 4.7(a). (f) Notwithstanding the above, within twelve (12) months after the end of the Plan Year, the Employer may make a special Qualified Non- Elective Contribution on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 4.7(a). Such contribution shall be allocated to the Participant's Account of Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Page 27 of 64 Compensation for the Plan Year bears to the total Compensation of all Non- Highly Compensated Participants for the Plan Year. A separate accounting of any special Qualified Non-Elective Contribution shall be maintained in the Participant's Account. However, if the prior year testing method is used, the special Qualified Non-Elective Contribution shall be allocated in the prior Plan Year to the Participant's Account on behalf of each Non-Highly Compensated Participant who was employed by the Employer on the last day of the prior Plan Year in the same proportion that each such Non-Highly Compensated Participant's Compensation for the prior Plan Year bears to the total Compensation of all such Non-Highly Compensated Participants for the prior Plan Year. Such contribution shall be made by the Employer prior to the end of the current Plan Year. A separate accounting of any special Qualified Non-Elective Contributions shall be maintained in the Participant's Account. Notwithstanding the above, for Plan Years beginning after December 31, 1998, if the testing method changes from the current year testing method to the prior year testing method, then for purposes of preventing the double counting of Qualified Non-Elective Contributions for the first testing year for which the change is effective, any special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated Participants used to satisfy the "Actual Deferral Percentage" or "Actual Contribution Percentage" test under the current year testing method for the prior year testing year shall be disregarded. 4.9 MAXIMUM ANNUAL ADDITIONS (a) Notwithstanding the foregoing, the maximum "annual additions" credited to a Participant's accounts for any "limitation year" shall equal the lesser of: (1) $30,000 adjusted annually as provided in Code Section 415(d) pursuant to the Regulations, or (2) twenty-five percent (25%) of the Participant's "415 Compensation" for such "limitation year." For any short "limitation year," the dollar limitation in (1) above shall be reduced by a fraction, the numerator of which is the number of full months in the short "limitation year" and the denominator of which is twelve (12). (b) For purposes of applying the limitations of Code Section 415, "annual additions" means the sum credited to a Participant's accounts for any "limitation year" of (1) Employer contributions, (2) Employee contributions, (3) forfeitures, (4) amounts allocated, after March 31, 1984, to an individual medical account, as defined in Code Section 415(l)(2) which is part of a pension or annuity plan maintained by the Employer and (5) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code Section 419A(d)(3)) under a welfare benefit plan (as defined in Code Section 419(e)) maintained by the Employer. Except, however, the "415 Compensation" percentage limitation referred to in paragraph (a)(2) above shall not apply to: (1) any contribution for medical benefits (within the meaning of Code Section 419A(f)(2)) after separation from service which is otherwise treated as an "annual addition," or (2) any amount otherwise treated as an "annual addition" under Code Section 415(l)(1). (c) For purposes of applying the limitations of Code Section 415, the transfer of funds from one qualified plan to another is not an "annual addition." In addition, the following are not Employee contributions for the purposes of Section 4.9(b)(2): (1) rollover contributions (as defined in Code Sections 402(e)(6), 403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of loans made to a Participant from the Plan; (3) repayments of distributions received by an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (4) repayments of distributions received by an Employee pursuant to Code Section 411(a)(3)(D) (mandatory contributions); and (5) Employee contributions to a simplified employee pension excludable from gross income under Code Section 408(k)(6). (d) For purposes of applying the limitations of Code Section 415, the "limitation year" shall be the Plan Year. Page 28 of 64 (e) For the purpose of this Section, all qualified defined benefit plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined benefit plan, and all qualified defined contribution plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined contribution plan. (f) For the purpose of this Section, if the Employer is a member of a controlled group of corporations, trades or businesses under common control (as defined by Code Section 1563(a) or Code Section 414(b) and (c) as modified by Code Section 415(h)), is a member of an affiliated service group (as defined by Code Section 414(m)), or is a member of a group of entities required to be aggregated pursuant to Regulations under Code Section 414(o), all Employees of such Employers shall be considered to be employed by a single Employer. (g) For the purpose of this Section, if this Plan is a Code Section 413(c) plan, each Employer who maintains this Plan will be considered to be a separate Employer. (h)(1) If a Participant participates in more than one defined contribution plan maintained by the Employer which have different Anniversary Dates, the maximum "annual additions" under this Plan shall equal the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited to such Participant's accounts during the "limitation year." (2) If a Participant participates in both a defined contribution plan subject to Code Section 412 and a defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, "annual additions" will be credited to the Participant's accounts under the defined contribution plan subject to Code Section 412 prior to crediting "annual additions" to the Participant's accounts under the defined contribution plan not subject to Code Section 412. (3) If a Participant participates in more than one defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, the maximum "annual additions" under this Plan shall equal the product of (A) the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited under subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the numerator of which is the "annual additions" which would be credited to such Participant's accounts under this Plan without regard to the limitations of Code Section 415 and (ii) the denominator of which is such "annual additions" for all plans described in this subparagraph. (i) For Plan Years commencing prior to January 1, 2000, if an Employee is (or has been) a Participant in one or more defined benefit plans and one or more defined contribution plans maintained by the Employer, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any "limitation year" may not exceed 1.0. (j) The defined benefit plan fraction for any "limitation year" is 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 December 31, 1986, in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, the denominator of this fraction will not be less than 125 percent of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last "limitation year" beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plan after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Code Section 415 for all "limitation years" Page 29 of 64 beginning before January 1, 1987. (k) The defined contribution plan fraction for any "limitation year" is 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 Code Section 419(e), and individual medical accounts, as defined in Code Section 415(l)(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 any "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 December 31, 1986, in one or more defined contribution plans maintained by the Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the defined benefit fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (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 January 1, 1987, and disregarding any changes in the terms and conditions of the Plan made after May 5, 1986, but using the Code Section 415 limitation applicable to the first "limitation year" beginning on or after January 1, 1987. The annual addition for any "limitation year" beginning before January 1, 1987 shall not be recomputed to treat all Employee contributions as annual additions. (l) Notwithstanding the foregoing, for any "limitation year" in which the Plan is a Top Heavy Plan, 100 percent shall be substituted for 125 percent in Sections 4.9(j) and 4.9(k). (m) For Plan Years commencing prior to January 1, 2000, if the sum of the defined benefit plan fraction and the defined contribution plan fraction shall exceed 1.0 in any "limitation year" for any Participant in this Plan, the Administrator shall limit, to the extent necessary, the "annual additions" to such Participant's accounts for such "limitation year." If, after limiting the "annual additions" to such Participant's accounts for the "limitation year," the sum of the defined benefit plan fraction and the defined contribution plan fraction still exceed 1.0, the Administrator shall then adjust the numerator of the defined contribution plan fraction so that the sum of both fractions shall not exceed 1.0 in any "limitation year" for such Participant. (n) Notwithstanding anything contained in this Section to the contrary, the limitations, adjustments and other requirements prescribed in this Section shall at all times comply with the provisions of Code Section 415 and the Regulations thereunder, the terms of which are specifically incorporated herein by reference. 4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS (a) If, as a result of a reasonable error in estimating a Participant's Compensation, a reasonable error in determining the amount of elective deferrals (within the meaning of Code Section 402(g)(3)) that may be made with respect to any Participant under the limits of Section 4.9 or other facts and circumstances to which Regulation 1.415-6(b)(6) shall be applicable, the "annual additions" under this Plan would cause the maximum "annual additions" to be exceeded for any Participant, the Administrator shall (1) distribute any elective deferrals (within the meaning of Code Section 402(g)(3)) or return any Employee contributions (whether voluntary or mandatory), and for the distribution of gains attributable to those elective deferrals and Employee contributions, to the extent that the distribution or return would reduce the "excess amount" in the Participant's accounts (2) hold any "excess amount" remaining after the return of any elective deferrals Page 30 of 64 or voluntary Employee contributions in a "Section 415 suspense account" (3) use the "Section 415 suspense account" in the next "limitation year" (and succeeding "limitation years" if necessary) to reduce Employer contributions for that Participant if that Participant is covered by the Plan as of the end of the "limitation year," or if the Participant is not so covered, allocate and reallocate the "Section 415 suspense account" in the next "limitation year" (and succeeding "limitation years" if necessary) to all Participants in the Plan before any Employer or Employee contributions which would constitute "annual additions" are made to the Plan for such "limitation year" (4) reduce Employer contributions to the Plan for such "limitation year" by the amount of the "Section 415 suspense account" allocated and reallocated during such "limitation year." (b) For purposes of this Article, "excess amount" for any Participant for a "limitation year" shall mean the excess, if any, of (1) the "annual additions" which would be credited to his account under the terms of the Plan without regard to the limitations of Code Section 415 over (2) the maximum "annual additions" determined pursuant to Section 4.9. (c) For purposes of this Section, "Section 415 suspense account" shall mean an unallocated account equal to the sum of "excess amounts" for all Participants in the Plan during the "limitation year." The "Section 415 suspense account" shall not share in any earnings or losses of the Trust Fund. 4.11 TRANSFERS FROM QUALIFIED PLANS (a) With the consent of the Administrator, amounts may be transferred from other qualified plans by Eligible Employees, provided that the trust from which such funds are transferred permits the transfer to be made and the transfer will not jeopardize the tax exempt status of the Plan or Trust or create adverse tax consequences for the Employer. The amounts transferred shall be set up in a separate account herein referred to as a "Participant's Rollover Account." Such account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason. (b) Amounts in a Participant's Rollover Account shall be held by the Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or distributed to the Participant, in whole or in part, except as provided in paragraphs (c) and (d) of this Section. (c) Except as permitted by Regulations (including Regulation 1.411(d)-4), amounts attributable to elective contributions (as defined in Regulation 1.401(k)-1(g)(3)), including amounts treated as elective contributions, which are transferred from another qualified plan in a plan- to-plan transfer shall be subject to the distribution limitations provided for in Regulation 1.401(k)-1(d). (d) The Administrator, at the election of the Participant, shall direct the Trustee to distribute all or a portion of the amount credited to the Participant's Rollover Account. Any distributions of amounts held in a Participant's Rollover Account shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Sections 417 and 411(a)(11) and the Regulations thereunder. Furthermore, such amounts shall be considered as part of a Participant's benefit in determining whether an involuntary cash-out of benefits without Participant consent may be made. (e) The Administrator may direct that employee transfers made after a Valuation Date be segregated into a separate account for each Participant in a federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short term debt security acceptable to the Trustee until such time as the allocations pursuant to this Plan have been made, at which time they may remain segregated or be invested as part of the general Trust Fund, to be determined by the Administrator. (f) For purposes of this Section, the term "qualified plan" shall mean any tax qualified plan under Code Section 401(a). The term "amounts transferred from other qualified plans" shall mean: (i) amounts transferred to this Plan directly from another qualified plan; (ii) distributions from another qualified plan which are eligible rollover distributions and which are either transferred by the Employee to Page 31 of 64 this Plan within sixty (60) days following his receipt thereof or are transferred pursuant to a direct rollover; (iii) amounts transferred to this Plan from a conduit individual retirement account provided that the conduit individual retirement account has no assets other than assets which (A) were previously distributed to the Employee by another qualified plan as a lump-sum distribution (B) were eligible for tax-free rollover to a qualified plan and (C) were deposited in such conduit individual retirement account within sixty (60) days of receipt thereof and other than earnings on said assets; and (iv) amounts distributed to the Employee from a conduit individual retirement account meeting the requirements of clause (iii) above, and transferred by the Employee to this Plan within sixty (60) days of his receipt thereof from such conduit individual retirement account. (g) Prior to accepting any transfers to which this Section applies, the Administrator may require the Employee to establish that the amounts to be transferred to this Plan meet the requirements of this Section and may also require the Employee to provide an opinion of counsel satisfactory to the Employer that the amounts to be transferred meet the requirements of this Section. (h) Notwithstanding anything herein to the contrary, a transfer directly to this Plan from another qualified plan (or a transaction having the effect of such a transfer) shall only be permitted if it will not result in the elimination or reduction of any "Section 411(d)(6) protected benefit" as described in Section 8.1. 4.12 VOLUNTARY CONTRIBUTIONS (a) Prior to January 1, 2000, a Participant in the FAB Plan (see recitals section of this Plan) was allowed to voluntarily contribute a portion of his compensation earned while a Participant under the FAB Plan. However, on and after January 1, 2000, no further voluntary contributions will be allowed. The balance in each Participant's Voluntary Contribution Account is fully Vested at all times and shall not be subject to Forfeiture for any reason. (b) A Participant may elect to withdraw his voluntary contributions from his Voluntary Contribution Account and the actual earnings thereon in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Sections 417 and 411(a)(11) and the Regulations thereunder. If the Administrator maintains sub-accounts with respect to voluntary contributions (and earnings thereon) which were made on or before a specified date, a Participant shall be permitted to designate which sub- account shall be the source for his withdrawal. (c) At Normal Retirement Date, or such other date when the Participant or his Beneficiary shall be entitled to receive benefits, the fair market value of the Voluntary Contribution Account shall be used to provide additional benefits to the Participant or his Beneficiary. 4.13 DIRECTED INVESTMENT ACCOUNT (a) Participants may, subject to a procedure established by the Administrator (the Participant Direction Procedures) and applied in a uniform nondiscriminatory manner, direct the Trustee to invest all of their accounts in specific assets, specific funds or other investments permitted under the Plan and the Participant Direction Procedures. That portion of the interest of any Participant so directing will thereupon be considered a Participant's Directed Account. (b) As of each Valuation Date, all Participant Directed Accounts shall be charged or credited with the net earnings, gains, losses and expenses as well as any appreciation or depreciation in the market value using publicly listed fair market values when available or appropriate. (1) To the extent that the assets in a Participant's Directed Account are accounted for as pooled assets or investments, the allocation of earnings, gains and losses of each Participant's Directed Account shall be based upon the total amount of funds so invested, in a manner proportionate to the Participant's share of such pooled investment. Page 32 of 64 (2) To the extent that the assets in the Participant's Directed Account are accounted for as segregated assets, the allocation of earnings, gains and losses from such assets shall be made on a separate and distinct basis. ARTICLE V VALUATIONS 5.1 VALUATION OF THE TRUST FUND The Administrator shall direct the Trustee, as of each Valuation Date, to determine the net worth of the assets comprising the Trust Fund as it exists on the Valuation Date. In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value as of the Valuation Date and shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the Employer or the Trust Fund. The Trustee may update the value of any shares held in the Participant Directed Account by reference to the number of shares held by that Participant, priced at the market value as of the Valuation Date. 5.2 METHOD OF VALUATION In determining the fair market value of securities held in the Trust Fund which are listed on a registered stock exchange, the Administrator shall direct the Trustee to value the same at the prices they were last traded on such exchange preceding the close of business on the Valuation Date. If such securities were not traded on the Valuation Date, or if the exchange on which they are traded was not open for business on the Valuation Date, then the securities shall be valued at the prices at which they were last traded prior to the Valuation Date. Any unlisted security held in the Trust Fund shall be valued at its bid price next preceding the close of business on the Valuation Date, which bid price shall be obtained from a registered broker or an investment banker. In determining the fair market value of assets other than securities for which trading or bid prices can be obtained, the Trustee may appraise such assets itself, or in its discretion, employ one or more appraisers for that purpose and rely on the values established by such appraiser or appraisers. ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS 6.1 DETERMINATION OF BENEFITS UPON RETIREMENT Every Participant may terminate his employment with the Employer and retire for the purposes hereof on his Normal Retirement Date. However, a Participant may postpone the termination of his employment with the Employer to a later date, in which event the participation of such Participant in the Plan, including the right to receive allocations pursuant to Section 4.4, shall continue until his Late Retirement Date. Upon a Participant's Retirement Date or attainment of his Normal Retirement Date without termination of employment with the Employer, or as soon thereafter as is practicable, the Trustee shall distribute, at the election of the Participant, all amounts credited to such Participant's Combined Account in accordance with Section 6.5. 6.2 DETERMINATION OF BENEFITS UPON DEATH (a) Upon the death of a Participant before his Retirement Date or other termination of his employment, all amounts credited to such Participant's Combined Account shall become fully Vested. The Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute the value of the deceased Participant's accounts to the Participant's Beneficiary. (b) Upon the death of a Former Participant, the Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute any remaining Vested amounts credited to the accounts of a deceased Former Participant to such Former Participant's Beneficiary. (c) Any security interest held by the Plan by reason of an outstanding loan to the Participant or Former Participant shall be taken into account in determining the amount of the Pre-Retirement Survivor Page 33 of 64 Annuity for GSB/FAB Participants (see Section 6.5) and the death benefit for all other Participants. (d) The Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the account of a deceased Participant or Former Participant as the Administrator may deem desirable. The Administrator's determination of death and of the right of any person to receive payment shall be conclusive. (e) Participants other than GSB and FAB Participants. For all Participants other than GSB/FAB Participants (see Section 6.5), the Beneficiary of the death benefit payable pursuant to this Section shall be the Participant's spouse. Except, however, the Participant may designate a Beneficiary other than his spouse if: (1) the spouse has waived the right to be the Participant's Beneficiary, or (2) the Participant is legally separated or has been abandoned (within the meaning of local law) and the Participant has a court order to such effect (and there is no "qualified domestic relations order" as defined in Code Section 414(p) which provides otherwise), or (3) the Participant has no spouse, or (4) the spouse cannot be located. Any consent by the Participant's spouse to waive any rights to the death benefit must be in writing, must acknowledge the effect of such waiver, and be witnessed by a Plan representative or a notary public. Further, the spouse's consent must be irrevocable and must acknowledge the specific nonspouse Beneficiary. GSB/FAB Participants. Unless otherwise elected in the manner prescribed in Section 6.6, a GSB/FAB Participant's spouse (see Section 6.5) shall receive a death benefit equal to the Pre-Retirement Survivor Annuity. The GSB/FAB Participant may designate a Beneficiary other than his spouse to receive that portion of his death benefit which is not payable as a Pre- Retirement Survivor Annuity. The GSB/FAB Participant may also designate a Beneficiary other than his spouse to receive the Pre-Retirement Survivor Annuity but only if: (1) the GSB/FAB Participant and his spouse have validly waived the Pre-Retirement Survivor Annuity in the manner prescribed in Section 6.6, and the spouse has waived his or her right to be the Participant's Beneficiary, or (2) the GSB/FAB Participant is legally separated or has been abandoned (within the meaning of local law) and the Participant has a court order to such effect (and there is no "qualified domestic relations order" as defined in Code Section 414(p) which provides otherwise), or (3) the GSB/FAB Participant has no spouse, or (4) the spouse cannot be located. With respect to all Participants, in the event of a designation of Beneficiary, the designation shall be made on a form satisfactory to the Administrator. A Participant may at any time revoke his designation of a Beneficiary or change his Beneficiary by filing written notice of such revocation or change with the Administrator. However, the Participant's spouse must again consent in writing to any change in Beneficiary unless the original consent acknowledged that the spouse had the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elected to relinquish such right. With respect to GSB/FAB Participants, the consent only applies to that portion of the death benefit that would otherwise be Page 34 of 64 paid as a Pre-Retirement Survivor Annuity. GSB/FAB Participants may, at any time, designate a Beneficiary to receive death benefits that are in excess of the Pre-Retirement Survivor Annuity. In the event no valid designation of Beneficiary exists at the time of the Participant's death, the death benefit shall be payable to his spouse. 6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY In the event of a Participant's Total and Permanent Disability prior to his Retirement Date or other termination of his employment, all amounts credited to such Participant's Combined Account shall become fully Vested. In the event of a Participant's Total and Permanent Disability, the Trustee, in accordance with the provisions of Sections 6.5 and 6.7, shall distribute to such Participant all amounts credited to such Participant's Combined Account as though he had retired. 6.4 DETERMINATION OF BENEFITS UPON TERMINATION (a) If a Participant's employment with the Employer is terminated for any reason other than death, Total and Permanent Disability or retirement, such Participant shall be entitled to such benefits as are provided hereinafter pursuant to this Section 6.4. Distribution of the funds due to a Terminated Participant shall be made on the occurrence of an event which would result in the distribution had the Terminated Participant remained in the employ of the Employer (upon the Participant's death, Total and Permanent Disability or Normal Retirement). However, at the election of the Participant, the Administrator shall direct the Trustee to cause the entire Vested portion of the Terminated Participant's Combined Account to be payable to such Terminated Participant as soon as administratively feasible. Any distribution under this paragraph shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Sections 417 and 411(a)(11) and the Regulations thereunder. If the value of a Terminated Participant's Vested benefit derived from Employer and Employee contributions does not exceed $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) and has never exceeded $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) at the time of any prior distribution, the Administrator shall direct the Trustee to cause the entire Vested benefit to be paid to such Participant in a single lump sum. (b) The Vested portion of any Participant's Account shall be a percentage of the total amount credited to his Participant's Account determined on the basis of the Participant's number of Years of Service according to the following schedule: Vesting Schedule Years of Service Percentage 1 20 % 2 40 % 3 60 % 4 80 % 5 100 % (c) With regard to Participants who were participating in the Community Bank Plan prior to said plan's merger into this Plan (see recitals to this Plan) on January 1, 2000, in lieu of the foregoing vesting schedule, the following vesting schedule shall apply: Vesting Schedule Years of Service Percentage Page 35 of 64 1 25% 2 50% 3 75% 4 100% Further, notwithstanding the vesting schedules above, the Vested percentage of a Participant's Account shall not be less than the Vested percentage attained as of the later of the effective date or adoption date of this amendment and restatement. (d) Notwithstanding the vesting schedule above, upon the complete discontinuance of the Employer contributions to the Plan or upon any full or partial termination of the Plan, all amounts credited to the account of any affected Participant shall become 100% Vested and shall not thereafter be subject to Forfeiture. (e) The computation of a Participant's nonforfeitable percentage of his interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Plan. For this purpose, the Plan shall be treated as having been amended if the Plan provides for an automatic change in vesting due to a change in top heavy status. In the event that the Plan is amended to change or modify any vesting schedule, a Participant with at least three (3) Years of Service as of the expiration date of the election period may elect to have his nonforfeitable percentage computed under the Plan without regard to such amendment. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant's election period shall commence on the adoption date of the amendment and shall end 60 days after the latest of: (1) the adoption date of the amendment, (2) the effective date of the amendment, or (3) the date the Participant receives written notice of the amendment from the Employer or Administrator. (f) (1) If any Former Participant shall be reemployed by the Employer before a 1-Year Break in Service occurs, he shall continue to participate in the Plan in the same manner as if such termination had not occurred. (2) If any Former Participant shall be reemployed by the Employer before five (5) consecutive 1-Year Breaks in Service, and such Former Participant had received a distribution of his entire Vested interest prior to his reemployment, his forfeited account shall be reinstated only if he repays the full amount distributed to him before the earlier of five (5) years after the first date on which the Participant is subsequently reemployed by the Employer or the close of the first period of five (5) consecutive 1-Year Breaks in Service commencing after the distribution. In the event the Former Participant does repay the full amount distributed to him, the undistributed portion of the Participant's Account must be restored in full, unadjusted by any gains or losses occurring subsequent to the Valuation Date coinciding with or preceding his termination. The source for such reinstatement shall first be any Forfeitures occurring during the year. If such source is insufficient, then the Employer shall contribute an amount which is sufficient to restore any such forfeited Accounts provided, however, that if a discretionary contribution is made for such year pursuant to Section 4.1(d), such contribution shall first be applied to restore any such Accounts and the remainder shall be allocated in accordance with Section 4.4. (3) If any Former Participant is reemployed after a 1-Year Break in Service has Page 36 of 64 occurred, Years of Service shall include Years of Service prior to his 1-Year Break in Service subject to the following rules: (i) If a Former Participant has a 1-Year Break in Service, his pre-break and post-break service shall be used for computing Years of Service for eligibility and for vesting purposes only after he has been employed for one (1) Year of Service following the date of his reemployment with the Employer; (ii) Any Former Participant who under the Plan does not have a nonforfeitable right to any interest in the Plan resulting from Employer contributions shall lose credits otherwise allowable under (i) above if his consecutive 1- Year Breaks in Service equal or exceed the greater of (A) five (5) or (B) the aggregate number of his pre-break Years of Service; (iii) After five (5) consecutive 1-Year Breaks in Service, a Former Participant's Vested Account balance attributable to pre-break service shall not be increased as a result of post-break service; (iv) If a Former Participant is reemployed by the Employer, he shall participate in the Plan immediately on his date of reemployment; (v) If a Former Participant (a 1-Year Break in Service previously occurred, but employment had not terminated) is credited with an Hour of Service after the first eligibility computation period in which he incurs a 1-Year Break in Service, he shall participate in the Plan immediately. 6.5 DISTRIBUTION OF BENEFITS (a)(1) Participants other than GSB and FAB Plan Participants. With respect to all Participants other than GSB Plan and FAB Plan Participants (see recitals of this Plan) and with respect to any Employee hired on or after January 1, 2000, the Administrator, pursuant to the election of such Participant, shall direct the Trustee to distribute to such Participant or Beneficiary any amount to which he is entitled under the Plan in one lump- sum payment in cash. GSB Plan Participants. With respect to Participants who were Participants in the GSB Plan prior to January 1, 2000 (see recitals of this Plan)("GSB Participants"), unless otherwise elected as provided below, if such Participant is married on the Annuity Starting Date and does not die before the Annuity Starting Date, he shall receive the value of all of his benefits in the form of a joint and survivor annuity. The joint and survivor annuity is an annuity that commences immediately and shall be equal in value to a single life annuity. Such joint and survivor benefits following the GSB Participant's death shall continue to the spouse during the spouse's lifetime at a rate equal to 50% of the rate at which such benefits were payable to the GSB Participant. This joint and 50% survivor annuity shall be considered the designated qualified joint and survivor annuity and automatic form of payment for the purposes of this Plan. However, the GSB Participant may elect to receive a smaller annuity benefit with continuation of payments to the spouse at a rate of seventy-five percent (75%) of the rate payable to the GSB Participant during his lifetime, which alternative joint and survivor annuity shall be equal in value to the automatic joint and 50% survivor annuity. An unmarried GSB Participant shall receive the value of his benefit in the form of a life annuity. Such unmarried GSB Participant, however, may elect in writing to waive the life annuity. The election must comply with the provisions of this Section as if it were an election to waive the joint and survivor annuity by a married GSB Participant, but without the spousal consent requirement. The GSB Participant may elect to have any annuity provided for in this Section distributed upon the attainment of the "earliest retirement age" under the Plan. The "earliest retirement age" is the earliest date on which, under the Plan, the GSB Participant could elect to receive retirement benefits. FAB Plan Participants. With respect to Participants who were Participants in the FAB Page 37 of 64 Plan prior to January 1, 2000 (see recitals of this Plan)("FAB Participants"), unless otherwise elected as provided below, if such FAB Participant is married on the Annuity Starting Date and does not die before the Annuity Starting Date, he shall receive the value of all of his benefits in the form of a joint and survivor annuity. The joint and survivor annuity is an annuity that commences immediately and shall be equal in value to a single life annuity. Such joint and survivor benefits following the FAB Participant's death shall continue to the spouse during the spouse's lifetime at a rate equal to 50% of the rate at which such benefits were payable to the FAB Participant. This joint and 50% survivor annuity shall be considered the designated qualified joint and survivor annuity and automatic form of payment for the purposes of this Plan. However, the FAB Participant may elect to receive a smaller annuity benefit with continuation of payments to the spouse at a rate of one-hundred percent (100%) of the rate payable to the FAB Participant during his lifetime, which alternative joint and survivor annuity shall be equal in value to the automatic joint and 50% survivor annuity. An unmarried FAB Participant shall receive the value of his benefit in the form of a life annuity. Such unmarried FAB Participant, however, may elect in writing to waive the life annuity. The election must comply with the provisions of this Section as if it were an election to waive the joint and survivor annuity by a married FAB Participant, but without the spousal consent requirement. The FAB Participant may elect to have any annuity provided for in this Section distributed upon the attainment of the "earliest retirement age" under the Plan. The "earliest retirement age" is the earliest date on which, under the Plan, the FAB Participant could elect to receive retirement benefits. (2) Any election to waive the joint and survivor annuity must be made by the GSB/FAB Participant in writing during the election period and be consented to by the GSB/FAB Participant's spouse. If the spouse is legally incompetent to give consent, the spouse's legal guardian, even if such guardian is the GSB/FAB Participant, may give consent. Such election shall designate a Beneficiary (or a form of benefits) that may not be changed without spousal consent (unless the consent of the spouse expressly permits designations by the Participant without the requirement of further consent by the spouse). Such spouse's consent shall be irrevocable and must acknowledge the effect of such election and be witnessed by a Plan representative or a notary public. Such consent shall not be required if it is established to the satisfaction of the Administrator that the required consent cannot be obtained because there is no spouse, the spouse cannot be located, or other circumstances that may be prescribed by Regulations. The election made by the GSB/FAB Participant and consented to by his spouse may be revoked by the Participant in writing without the consent of the spouse at any time during the election period. The number of revocations shall not be limited. Any new election must comply with the requirements of this paragraph. A former spouse's waiver shall not be binding on a new spouse. (3) The election period for GSB/FAB Participants to waive the joint and survivor annuity shall be the 90 day period ending on the Annuity Starting Date. (4) With regard to the election, the Administrator shall provide to the GSB/FAB Participant no less than 30 days and no more than 90 days before the Annuity Starting Date a written explanation of: (i) the terms and conditions of the joint and survivor annuity, (ii) the GSB/FAB Participant's right to make, and the effect of, an election to waive the joint and survivor annuity, (iii) the right of the GSB/FAB Participant's spouse to consent to any election to waive the joint and survivor annuity, and (iv) the right of the GSB/FAB Participant to revoke such election, and the effect of such revocation. Page 38 of 64 (5) The Annuity Starting Date for a distribution in a form other than a qualified joint and survivor annuity may be less than 30 days after receipt of the written explanation described above, provided that: (i) the Administrator clearly informs the GSB/FAB Participant that the Participant has a right to a period of 30 days after receiving the notice to consider whether to waive the joint and survivor annuity and elect (with spousal consent) to a form of distribution other than a joint and survivor annuity, (ii) the GSB/FAB Participant is permitted to revoke an affirmative distribution election at least until the Annuity Starting Date, or, if later, at any time prior to the expiration of the 7-day period that begins the day after the explanation of the joint and survivor annuity is provided to the Participant, and (iii) the Annuity Starting Date is a date after the date that the written explanation was provided to the GSB/FAB Participant. Notwithstanding the above, the Annuity Starting Date may be a date prior to the date the written explanation is provided to the GSB/FAB Participant if the distribution does not commence until at least 30 days after such written explanation is provided, subject to the waiver of the 30-day period as provided for above. (b) Optional Forms of Benefit for GSB Participants. In the event a married GSB Participant duly elects pursuant to paragraph (a)(2) above not to receive his benefit in the form of a joint and survivor annuity, or if such GSB Participant is not married, in the form of a life annuity, the Administrator, pursuant to the election of the GSB Participant, shall direct the Trustee to distribute to a Participant or his Beneficiary any amount to which he is entitled under the Plan in one of the following forms of distribution, as elected by the GSB Participant (or Beneficiary, if applicable): (i) one lump-sum payment in cash; (ii) payments over a period certain in monthly, quarterly, semiannual, or annual cash installments. In order to provide such installment payments, the Administrator may (A) segregate the aggregate amount thereof in a separate, federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate or other liquid short-term security or (B) purchase a nontransferable annuity contract for a term certain (with no life contingencies). Optional Forms of Benefit for FAB Participants. In the event a married FAB Participant duly elects pursuant to paragraph (a)(2) above not to receive his benefit in the form of a joint and survivor annuity, or if such FAB Participant is not married, in the form of a life annuity, the Administrator, pursuant to the election of the FAB Participant, shall direct the Trustee to distribute to a Participant or his Beneficiary any amount to which he is entitled under the Plan in one of the following forms of distribution, as elected by the FAB Participant (or Beneficiary, if applicable): (i) one lump-sum payment in cash; (ii) payments over a period certain in monthly, quarterly, semiannual, or annual cash installments. In order to provide such installment payments, the Administrator may (A) segregate the aggregate amount thereof in a separate, federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate or other liquid short-term security or (B) purchase a nontransferable annuity contract for a term certain (with no life contingencies). Page 39 of 64 (iii) straight life annuity; (iv) single life annuity with periods certain of five (5), ten (10) or fifteen (15) years; (v) single life annuity with installment referral; (vi) fixed period annuity for period of months less than sixty (60). (c) The present value of a GSB/FAB Participant's joint and survivor annuity derived from Employer and Employee contributions may not be paid without his written consent if the value exceeds, or has ever exceeded, $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) at the time of any prior distribution. Further, the spouse of a GSB/FAB Participant must consent in writing to any immediate distribution. Any written consent required by this Section 6.5(c) must be obtained not more than 90 days before commencement of the distribution and shall be made in a manner consistent with Section 6.5(a)(2). If the value of the Participant's benefit derived from Employer and Employee contributions does not exceed $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) and has never exceeded $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) at the time of any prior distribution, the Administrator may immediately distribute such benefit without such Participant's consent. With respect to GSB/FAB Participants, no distribution may be made under the preceding sentence after the Annuity Starting Date unless the Participant and his spouse consent in writing to such distribution. (d) Any distribution to a Participant who has a benefit which exceeds, or has ever exceeded, $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) at the time of any prior distribution shall require such Participant's consent if such distribution commences prior to the later of his Normal Retirement Age or age 62. With regard to this required consent: (1) With respect to GSB/FAB Participants, no consent shall be valid unless the Participant has received a general description of the material features and an explanation of the relative values of the optional forms of benefit available under the Plan that would satisfy the notice requirements of Code Section 417. (2) The Participant must be informed of his right to defer receipt of the distribution. If a Participant fails to consent, it shall be deemed an election to defer the commencement of payment (or distribution, as applicable) of any benefit. However, any election to defer the receipt of benefits shall not apply with respect to distributions which are required under Section 6.5(e). (3) Notice of the rights specified under this paragraph shall be provided no less than 30 days and no more than 90 days before the Annuity Starting Date (or the date distribution commences, as applicable). Notwithstanding the above, the Annuity Starting Date may be a date prior to the date the explanation is provided to the GSB/FAB Participant if the distribution does not commence until at least 30 days after such explanation is provided, subject to the waiver of the 30-day period as provided for in Section 6.5(a)(5). (4) Consent of the Participant to the distribution must not be made before the Participant receives the notice and must not be made more than 90 days before the Annuity Starting Date (or the date distribution commences, as applicable). (5) No consent shall be valid if a significant detriment is imposed under the Plan on any Participant who does not consent to the distribution. Any such distribution may commence less than 30 days, (with respect to GSB/FAB Participants, Page 40 of 64 subject to Section 6.5(a)(5)), after the notice required under Regulation 1.411(a)-11(c) is given, provided that: (1) the 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. (e) Notwithstanding any provision in the Plan to the contrary, for Plan Years beginning after December 31, 1996, the distribution of a Participant's benefits, whether under the Plan or through the purchase of an annuity contract, shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder (including Regulation 1.401(a)(9)-2), the provisions of which are incorporated herein by reference: (1) A Participant's benefits shall be distributed or must begin to be distributed to him not later than April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2 or (ii) the calendar year in which the Participant retires, provided, however, that this clause (ii) shall not apply in the case of a Participant who is a "five (5) percent owner" at any time during the Plan Year ending with or within the calendar year in which such owner attains age 70 1/2. Such distributions shall be equal to or greater than any required distribution. Alternatively, if the distribution is to be in the form of a joint and survivor annuity or single life annuity as provided in paragraph (a)(1) above, then distributions must begin no later than the applicable April 1st as determined under the preceding paragraph and must be made over the life of the Participant (or the lives of the Participant and the Participant's designated Beneficiary) in accordance with Regulations. (2) Distributions to a Participant and his Beneficiaries shall only be made in accordance with the incidental death benefit requirements of Code Section 401(a)(9)(G) and the Regulations thereunder. (3) With respect to Participants who were Participants in the FAB Plan prior to said plan's merger into this Plan (see recitals to this Plan) on January 1, 2000, such Participants shall be allowed choose to receive minimum distributions on the April 1 of the calendar year following the calendar year in which said Participant attained age 70 1/2. However, the foregoing election is only applicable to those Participants in the FAB Plan who were entitled to minimum distributions in the 1998 and 1999 Plan Years. (f) For purposes of this Section, the life expectancy of a Participant and a Participant's spouse (other than in the case of a life annuity) may, at the election of the Participant or the Participant's spouse, be redetermined in accordance with Regulations. The election, once made, shall be irrevocable. If no election is made by the time distributions must commence, then the life expectancy of the Participant and the Participant's spouse shall not be subject to recalculation. Life expectancy and joint and last survivor expectancy shall be computed using the return multiples in Tables V and VI of Regulation 1.72-9. (g) All annuity Contracts under this Plan shall be non-transferable when distributed. Furthermore, the terms of any annuity Contract purchased and distributed to a Participant or spouse shall comply with all of the requirements of the Plan. (h) If a distribution is made at a time when a Participant is not fully Vested in his Participant's Account and the Participant may increase the Vested percentage in such account: (1) a separate account shall be established for the Participant's interest in the Plan as of the time of the distribution; and Page 41 of 64 (2) at any relevant time, the Participant's Vested portion of the separate account shall be equal to an amount ("X") determined by the formula: X equals P(AB plus R x D)) - R x D) For purposes of applying the formula: P is the Vested percentage at the relevant time, AB is the account balance at the relevant time, D is the amount of distribution, and R is the ratio of the account balance at the relevant time to the account balance after distribution. 6.6 DISTRIBUTION OF BENEFITS UPON DEATH (a) Participants other than GSB/FAB Participants. The death benefit payable pursuant to Section 6.2 shall be paid to the Participant's Beneficiary in one lump-sum payment in cash subject to the rules of Section 6.5. GSB/FAB Participants. Unless otherwise elected as provided below, a Vested GSB/FAB Participant (see Section 6.5) who dies before the Annuity Starting Date and who has a surviving spouse shall have the Pre- Retirement Survivor Annuity paid to his surviving spouse. The GSB/FAB Participant's spouse may direct that payment of the Pre-Retirement Survivor Annuity commence within a reasonable period after the Participant's death. If the spouse does not so direct, payment of such benefit will commence at the time the Participant would have attained the later of his Normal Retirement Age or age 62. However, the spouse may elect a later commencement date. Any distribution to the Participant's spouse shall be subject to the rules specified in Section 6.6(g). (b) Any election by an GSB/FAB Participant to waive the Pre- Retirement Survivor Annuity before the Participant's death must be made by the Participant in writing during the election period and shall require the spouse's irrevocable consent in the same manner provided for in Section 6.5(a)(2). Further, the spouse's consent must acknowledge the specific nonspouse Beneficiary. Notwithstanding the foregoing, the nonspouse Beneficiary need not be acknowledged, provided the consent of the spouse acknowledges that the spouse has the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elects to relinquish such right. (c) The election period for a GSB/FAB Participant to waive the Pre- Retirement Survivor Annuity shall begin on the first day of the Plan Year in which the GSB/FAB Participant attains age 35 and end on the date of the Participant's death. An earlier waiver (with spousal consent) may be made provided a written explanation of the Pre-Retirement Survivor Annuity is given to the GSB/FAB Participant and such waiver becomes invalid at the beginning of the Plan Year in which the Participant turns age 35. In the event a Vested GSB/FAB Participant separates from service prior to the beginning of the election period, the election period shall begin on the date of such separation from service. (d) With regard to the election to waive the Pre-Retirement Survivor Annuity by GSB/FAB Participants, the Administrator shall provide each Participant within the applicable period, with respect to such Participant (and consistent with Regulations), a written explanation of the Pre- Retirement Survivor Annuity containing comparable information to that required pursuant to Section 6.5(a)(4). For the purposes of this paragraph, the term "applicable period" means, with respect to a Participant, whichever of the following periods ends last: (1) The period beginning with the first day of the Plan Year in which the GSB/FAB Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35; (2) A reasonable period after the individual becomes a GSB/FAB Participant; (3) A reasonable period ending after the Plan no longer fully subsidizes the cost of the Pre-Retirement Survivor Annuity with respect to the GSB/FAB Participant; Page 42 of 64 (4) A reasonable period ending after Code Section 401(a)(11) applies to the GSB/FAB Participant; or (5) A reasonable period after separation from service in the case of a GSB/FAB Participant who separates before attaining age 35. For this purpose, the Administrator must provide the explanation beginning one year before the separation from service and ending one year after such separation. If such a Participant thereafter returns to employment with the Employer, the applicable period for such Participant shall be redetermined. For purposes of applying this Section 6.6(d), a reasonable period ending after the enumerated events described in paragraphs (2), (3) and (4) is the end of the two year period beginning one year prior to the date the applicable event occurs, and ending one year after that date. (e) If the aggregate value of the Participant's account balance derived from Employer and Employee contributions does not exceed $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) and has never exceeded $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) at the time of any prior distribution, the Administrator shall direct the immediate distribution of the present value of the Pre-Retirement Survivor Annuity to the Participant's spouse. No distribution may be made under the preceding sentence after the Annuity Starting Date unless the spouse consents in writing. If the value exceeds, or has ever exceeded, $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) at the time of any prior distribution, an immediate distribution of the entire amount of the Pre-Retirement Survivor Annuity may be made to the surviving spouse, provided such surviving spouse consents in writing to such distribution. Any written consent required under this paragraph must be obtained not more than 90 days before commencement of the distribution and shall be made in a manner consistent with Section 6.5(a)(2). (f) (1) Participants other than GSB/FAB Participants. With respect to Participants other than GSB/FAB Participants, the death benefit is to be paid to the Participant's Beneficiary in one lump sum payment in cash. GSB Participants. To the extent the death benefit is not paid in the form of a Pre-Retirement Survivor Annuity, it shall be paid to the GSB Participant's Beneficiary by any of the following methods, as elected by the Participant (or if no election has been made prior to the Participant's death, by his Beneficiary), subject to the rules specified in Section 6.5: (i) One lump-sum payment in cash; (ii) Payment in monthly, quarterly, semi-annual, or annual cash installments over a period to be determined by the GSB Participant or his Beneficiary. After periodic installments commence, the Beneficiary shall have the right to direct the Trustee to reduce the period over which such periodic installments shall be made, and the Trustee shall adjust the cash amount of such periodic installments accordingly. FAB Participants. To the extent the death benefit is not paid in the form of a Pre-Retirement Survivor Annuity, it shall be paid to the FAB Participant's Beneficiary by any of the following methods, as elected by the Participant (or if no election has been made prior to the Participant's death, by his Beneficiary), subject to the rules specified in Section 6.5: (i) One lump-sum payment in cash; Page 43 of 64 (ii) Payment in monthly, quarterly, semi-annual, or annual cash installments over a period to be determined by the FAB Participant or his Beneficiary. After periodic installments commence, the Beneficiary shall have the right to direct the Trustee to reduce the period over which such periodic installments shall be made, and the Trustee shall adjust the cash amount of such periodic installments accordingly. (iii) straight life annuity; (iv) single life annuity with periods certain of five (5), ten (10) or fifteen (15) years; (v) single life annuity with installment referral; (vi) fixed period annuity for period of months less than sixty (60). (2) In the event the death benefit payable pursuant to Section 6.2 is payable in installments, then, upon the death of the Participant, the Administrator may direct the Trustee to segregate the death benefit into a separate account, and the Trustee shall invest such segregated account separately, and the funds accumulated in such account shall be used for the payment of the installments. (g) Notwithstanding any provision in the Plan to the contrary, distributions upon the death of a Participant shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder. If it is determined pursuant to Regulations that the distribution of a Participant's interest has begun and the Participant dies before his entire interest has been distributed to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution selected pursuant to Section 6.5 as of his date of death. If a Participant dies before he has begun to receive any distributions of his interest under the Plan or before distributions are deemed to have begun pursuant to Regulations, then his death benefit shall be distributed to his Beneficiaries by December 31st of the calendar year in which the fifth anniversary of his date of death occurs. However, in the event that the Participant's spouse (determined as of the date of the Participant's death) is his Beneficiary, then in lieu of the preceding rules, distributions must be made over the life of the spouse (or over a period not extending beyond the life expectancy of the spouse) and must commence on or before the later of: (1) December 31st of the calendar year immediately following the calendar year in which the Participant died; or (2) December 31st of the calendar year in which the Participant would have attained age 70 1/2. If the surviving spouse dies before distributions to such spouse begin, then the 5-year distribution requirement of this Section shall apply as if the spouse was the Participant. 6.7 TIME OF SEGREGATION OR DISTRIBUTION Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to make a distribution or to commence a series of payments the distribution may be made or begun as soon as is practicable. However, unless a Former Participant elects in writing to defer the receipt of benefits (such election may not result in a death benefit that is more than incidental), the payment of benefits shall begin not later than the 60th day after the close of the Plan Year in which the latest of the following events occurs: (a) the date on which the Participant attains the earlier of age 65 or the Normal Retirement Age specified herein; (b) the 10th anniversary of the year in which the Participant commenced participation in the Plan; or (c) the date the Participant terminates his service with the Employer. 6.8 DISTRIBUTION FOR MINOR BENEFICIARY In the event a distribution is to be made to a minor, then the Administrator may direct that such distribution be paid to the legal guardian, or if none, to a parent of such Beneficiary or a responsible adult with whom the Beneficiary maintains his residence, or to the custodian for such Beneficiary under the Uniform Gift to Minors Page 44 of 64 Act or Gift to Minors Act, if such is permitted by the laws of the state in which said Beneficiary resides. Such a payment to the legal guardian, custodian or parent of a minor Beneficiary shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof. 6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN In the event that all, or any portion, of the distribution payable to a Participant or his Beneficiary hereunder shall, at the later of the Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or his Beneficiary, the amount so distributable shall be treated as a Forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is located subsequent to his benefit being reallocated, such benefit shall be restored unadjusted for earnings or losses. 6.10 PRE-RETIREMENT DISTRIBUTION At such time as a Participant shall have attained the age of 59 1/2 years, the Administrator, at the election of the Participant, shall direct the Trustee to distribute all or a portion of the Vested amount then credited to the accounts maintained on behalf of the Participant. Notwithstanding the above, Participants who were Participants in the GSB Plan (see recitals to this Plan) prior to said plans's merger into this Plan on January 1, 2000, shall have the right to withdraw all or a portion of the Vested amount then credited to the accounts maintained on behalf of said Participants which are attributable to Employer Non-Elective Contributions (including earnings thereon) regardless of the age of the Participant so long as the Participant is one-hundred percent (100%) Vested and such contributions have been in the Participant's account for at least two (2) years. In the event that the Administrator makes a distribution pursuant to this Section 6.10, the Participant shall continue to be eligible to participate in the Plan on the same basis as any other Employee. Any distribution made pursuant to this Section shall be made in a manner consistent with Section 6.5, including, but not limited to, all notice and consent requirements of Code Sections 417 and 411(a)(11) and the Regulations thereunder. 6.11 ADVANCE DISTRIBUTION FOR HARDSHIP (a) The Administrator, at the election of the Participant, shall direct the Trustee to distribute to any Participant in any one Plan Year up to the lesser of 100% of his Participant's Elective Account valued as of the last Valuation Date or the amount necessary to satisfy the immediate and heavy financial need of the Participant. Any distribution made pursuant to this Section shall be deemed to be made as of the first day of the Plan Year or, if later, the Valuation Date immediately preceding the date of distribution, and the Participant's Elective Account shall be reduced accordingly. Withdrawal under this Section is deemed to be on account of an immediate and heavy financial need of the Participant if the withdrawal is for: (1) Expenses for medical care described in Code Section 213(d) previously incurred by the Participant, his spouse, or any of his dependents (as defined in Code Section 152) or necessary for these persons to obtain medical care; (2) The costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments); (3) Payment of tuition, related educational fees, and room and board expenses for the next twelve (12) months of post-secondary education for the Participant, his spouse, children, or dependents; or (4) Payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. Page 45 of 64 (b) No distribution shall be made pursuant to this Section unless the Administrator, based upon the Participant's representation and such other facts as are known to the Administrator, determines that all of the following conditions are satisfied: (1) The distribution is not in excess of the amount of the immediate and heavy financial need of the Participant. The amount of the immediate and heavy financial need may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution; (2) The Participant has obtained all distributions, other than hardship distributions, and all nontaxable (at the time of the loan) loans currently available under all plans maintained by the Employer; (3) The Plan, and all other plans maintained by the Employer, provide that the Participant's elective deferrals and voluntary Employee contributions will be suspended for at least twelve (12) months after receipt of the hardship distribution or, the Participant, pursuant to a legally enforceable agreement, will suspend his elective deferrals to the Plan and all other plans maintained by the Employer for at least twelve (12) months after receipt of the hardship distribution; and (4) The Plan, and all other plans maintained by the Employer, provide that the Participant may not make elective deferrals for the Participant'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 next taxable year less the amount of such Participant's elective deferrals for the taxable year of the hardship distribution. (c) Notwithstanding the above, distributions from the Participant's Elective Account pursuant to this Section shall be limited, as of the date of distribution, to the Participant's Elective Account as of the end of the last Plan Year ending before July 1, 1989, plus the total Participant's Deferred Compensation after such date, reduced by the amount of any previous distributions pursuant to this Section and Section 6.10. (d) Any distribution made pursuant to this Section shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Sections 417 and 411(a)(11) and the Regulations thereunder. 6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION All rights and benefits, including elections, provided to a Participant in this Plan shall be subject to the rights afforded to any "alternate payee" under a "qualified domestic relations order." Furthermore, a distribution to an "alternate payee" shall be permitted if such distribution is authorized by a "qualified domestic relations order," even if the affected Participant has not separated from service and has not reached the "earliest retirement age" under the Plan. For the purposes of this Section, "alternate payee," "qualified domestic relations order" and "earliest retirement age" shall have the meaning set forth under Code Section 414(p). ARTICLE VII TRUSTEE 7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE (a) The Trustee shall have the following categories of responsibilities: (1) Consistent with the "funding policy and method" determined by the Employer, to invest, manage, and control the Plan assets subject, however, to the direction of a Participant with respect to his Participant Directed Accounts, the Employer or an Investment Manager appointed by the Employer or any agent of the Employer; Page 46 of 64 (2) At the direction of the Administrator, to pay benefits required under the Plan to be paid to Participants, or, in the event of their death, to their Beneficiaries; and (3) To maintain records of receipts and disbursements and furnish to the Employer and/or Administrator for each Plan Year a written annual report per Section 7.7. (b) In the event that the Trustee shall be directed by a Participant (pursuant to the Participant Direction Procedures), or the Employer, or an Investment Manager or other agent appointed by the Employer with respect to the investment of any or all Plan assets, the Trustee shall have no liability with respect to the investment of such assets, but shall be responsible only to execute such investment instructions as so directed. (1) The Trustee shall be entitled to rely fully on the written instructions of a Participant (pursuant to the Participant Direction Procedures), or the Employer, or any Fiduciary or nonfiduciary agent of the Employer, in the discharge of such duties, and shall not be liable for any loss or other liability, resulting from such direction (or lack of direction) of the investment of any part of the Plan assets. (2) The Trustee may delegate the duty to execute such instructions to any nonfiduciary agent, which may be an affiliate of the Trustee or any Plan representative. (3) The Trustee may refuse to comply with any direction from the Participant in the event the Trustee, in its sole and absolute discretion, deems such directions improper by virtue of applicable law. The Trustee shall not be responsible or liable for any loss or expense which may result from the Trustee's refusal or failure to comply with any directions from the Participant. (4) Any costs and expenses related to compliance with the Participant's directions shall be borne by the Participant's Directed Account, unless paid by the Employer. (c) If there shall be more than one Trustee, they shall act by a majority of their number, but may authorize one or more of them to sign papers on their behalf. 7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE (a) The Trustee shall invest and reinvest the Trust Fund to keep the Trust Fund invested without distinction between principal and income and in such securities or property, real or personal, wherever situated, as the Trustee shall deem advisable, including, but not limited to, stocks, common or preferred, bonds and other evidences of indebtedness or ownership, and real estate or any interest therein. The Trustee shall at all times in making investments of the Trust Fund consider, among other factors, the short and long-term financial needs of the Plan on the basis of information furnished by the Employer. In making such investments, the Trustee shall not be restricted to securities or other property of the character expressly authorized by the applicable law for trust investments; however, the Trustee shall give due regard to any limitations imposed by the Code or the Act so that at all times the Plan may qualify as a qualified Profit Sharing Plan and Trust. (b) The Trustee may employ a bank or trust company pursuant to the terms of its usual and customary bank agency agreement, under which the duties of such bank or trust company shall be of a custodial, clerical and record-keeping nature. (c) The Trustee may from time to time transfer to a common, collective, pooled trust fund or money market fund maintained by any corporate Trustee or affiliate thereof hereunder, all or such part of the Trust Fund as the Trustee may deem advisable, and such part or all of the Trust Fund so transferred shall be subject to all the terms and provisions of the common, collective, pooled trust fund or money market fund which contemplate the commingling for investment purposes of such trust assets with trust assets of other trusts. The Trustee may transfer any part of the Trust Fund intended for temporary investment of cash Page 47 of 64 balances to a money market fund maintained by National Bank of Commerce of Birmingham or its affiliates. The Trustee may, from time to time, withdraw from such common, collective, pooled trust fund or money market fund all or such part of the Trust Fund as the Trustee may deem advisable. 7.3 OTHER POWERS OF THE TRUSTEE The Trustee, in addition to all powers and authorities under common law, statutory authority, including the Act, and other provisions of the Plan, shall have the following powers and authorities, to be exercised in the Trustee's sole discretion: (a) To purchase, or subscribe for, any securities or other property and to retain the same. In conjunction with the purchase of securities, margin accounts may be opened and maintained; (b) To sell, exchange, convey, transfer, grant options to purchase, or otherwise dispose of any securities or other property held by the Trustee, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition, with or without advertisement; (c) To vote upon any stocks, bonds, or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options, and to make any payments incidental thereto; to oppose, or to consent to, or otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities, or other property. However, the Trustee shall not vote proxies relating to securities for which it has not been assigned full investment management responsibilities. In those cases where another party has such investment authority or discretion, the Trustee will deliver all proxies to said party who will then have full responsibility for voting those proxies; (d) To cause any securities or other property to be registered in the Trustee's own name or in the name of one or more of the Trustee's nominees, and to hold any investments in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund; (e) To borrow or raise money for the purposes of the Plan in such amount, and upon such terms and conditions, as the Trustee shall deem advisable; and for any sum so borrowed, to issue a promissory note as Trustee, and to secure the repayment thereof by pledging all, or any part, of the Trust Fund; and no person lending money to the Trustee shall be bound to see to the application of the money lent or to inquire into the validity, expediency, or propriety of any borrowing; (f) To keep such portion of the Trust Fund in cash or cash balances as the Trustee may, from time to time, deem to be in the best interests of the Plan, without liability for interest thereon; (g) To accept and retain for such time as the Trustee may deem advisable any securities or other property received or acquired as Trustee hereunder, whether or not such securities or other property would normally be purchased as investments hereunder; (h) To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted; (i) To settle, compromise, or submit to arbitration any claims, debts, or damages due or owing to or from the Plan, to commence or defend suits or legal or administrative proceedings, and to represent the Plan in all suits and legal and administrative proceedings; (j) To employ suitable agents and counsel and to pay their reasonable expenses and Page 48 of 64 compensation, and such agent or counsel may or may not be agent or counsel for the Employer; (k) To apply for and procure from responsible insurance companies, to be selected by the Administrator, as an investment of the Trust Fund such annuity, or other Contracts (on the life of any Participant) as the Administrator shall deem proper; to exercise, at any time or from time to time, whatever rights and privileges may be granted under such annuity, or other Contracts; to collect, receive, and settle for the proceeds of all such annuity or other Contracts as and when entitled to do so under the provisions thereof; (l) To invest funds of the Trust in time deposits or savings accounts bearing a reasonable rate of interest in the Trustee's bank; (m) To invest in Treasury Bills and other forms of United States government obligations; (n) To invest in shares of investment companies registered under the Investment Company Act of 1940, including any money market fund advised by or offered through National Bank of Commerce of Birmingham; (o) To sell, purchase and acquire put or call options if the options are traded on and purchased through a national securities exchange registered under the Securities Exchange Act of 1934, as amended, or, if the options are not traded on a national securities exchange, are guaranteed by a member firm of the New York Stock Exchange; (p) To deposit monies in federally insured savings accounts or certificates of deposit in banks or savings and loan associations; (q) To pool all or any of the Trust Fund, from time to time, with assets belonging to any other qualified employee pension benefit trust created by the Employer or an affiliated company of the Employer, and to commingle such assets and make joint or common investments and carry joint accounts on behalf of this Plan and such other trust or trusts, allocating undivided shares or interests in such investments or accounts or any pooled assets of the two or more trusts in accordance with their respective interests; (r) To appoint a nonfiduciary agent or agents to assist the Trustee in carrying out any investment instructions of Participants and of any Investment Manager or Fiduciary, and to compensate such agent(s) from the assets of the Plan, to the extent not paid by the Employer; (s) To do all such acts and exercise all such rights and privileges, although not specifically mentioned herein, as the Trustee may deem necessary to carry out the purposes of the Plan. 7.4 LOANS TO PARTICIPANTS (PRIOR TO JANUARY 1, 2000) (a) Prior to January 1, 2000, loans were allowed to be made to Participants in the FAB Plan (see recitals of this Plan). However, on and after January 1, 2000, no further loans will be allowed to any Participant. The following provisions apply to the loans made prior to January 1, 2000. The Trustee may, in the Trustee's discretion, make loans to Participants and Beneficiaries under the following circumstances: (1) loans shall be made available to all Participants and Beneficiaries on a reasonably equivalent basis; (2) loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Participants and Beneficiaries; (3) loans shall bear a reasonable rate of interest; (4) loans shall be adequately secured; and (5) shall provide for repayment over a reasonable period of time. (b) Loans made pursuant to this Section (when added to the outstanding balance of all other loans made by the Plan to the Participant) shall be limited to the lesser of: Page 49 of 64 (1) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans from the Plan to the Participant during the one year period ending on the day before the date on which such loan is made, over the outstanding balance of loans from the Plan to the Participant on the date on which such loan was made, or (2) one-half (1/2) of the present value of the non-forfeitable accrued benefit of the Participant under the Plan. For purposes of this limit, all plans of the Employer shall be considered one plan. (c) Loans shall provide for level amortization with payments to be made not less frequently than quarterly over a period not to exceed five (5) years. However, loans used to acquire any dwelling unit which, within a reasonable time, is to be used (determined at the time the loan is made) as a principal residence of the Participant shall provide for periodic repayment over a reasonable period of time that may exceed five (5) years. For this purpose, a principal residence has the same meaning as a principal residence under Code Section 1034. Loan repayments will be suspended under this Plan as permitted under Code Section 414(u)(4). (d) Any loan made pursuant to this Section where the Vested interest of the Participant is used to secure such loan shall require the written consent of the Participant's spouse in a manner consistent with Section 6.5(a)(1). Such written consent must be obtained within the 90-day period prior to the date the loan is made. However, no spousal consent shall be required under this paragraph if the total accrued benefit subject to the security is not in excess of $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000). (e) Any loans granted or renewed shall be made pursuant to a Participant loan program. Such loan program shall be established in writing and must include, but need not be limited to, the following: (1) the identity of the person or positions authorized to administer the Participant loan program; (2) a procedure for applying for loans; (3) the basis on which loans will be approved or denied; (4) limitations, if any, on the types and amounts of loans offered; (5) the procedure under the program for determining a reasonable rate of interest; (6) the types of collateral which may secure a Participant loan; and (7) the events constituting default and the steps that will be taken to preserve Plan assets. Such Participant loan program shall be contained in a separate written document which, when properly executed, is hereby incorporated by reference and made a part of the Plan. Furthermore, such Participant loan program may be modified or amended in writing from time to time without the necessity of amending this Section. 7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS At the direction of the Administrator, the Trustee shall, from time to time, in accordance with the terms of the Plan, make payments out of the Trust Fund. The Trustee shall not be responsible in any way for the application of such payments. 7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES Page 50 of 64 The Trustee shall be paid such reasonable compensation as shall from time to time be agreed upon in writing by the Employer and the Trustee. An individual serving as Trustee who already receives full-time pay from the Employer shall not receive compensation from the Plan. In addition, the Trustee shall be reimbursed for any reasonable expenses, including reasonable counsel fees incurred by it as Trustee. Such compensation and expenses shall be paid from the Trust Fund unless paid or advanced by the Employer. All taxes of any kind and all kinds whatsoever that may be levied or assessed under existing or future laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid from the Trust Fund. 7.7 ANNUAL REPORT OF THE TRUSTEE Within a reasonable period of time after the later of the Anniversary Date or receipt of the Employer contribution for each Plan Year, the Trustee shall furnish to the Employer and Administrator a written statement of account with respect to the Plan Year for which such contribution was made setting forth: (a) the net income, or loss, of the Trust Fund; (b) the gains, or losses, realized by the Trust Fund upon sales or other disposition of the assets; (c) the increase, or decrease, in the value of the Trust Fund; (d) all payments and distributions made from the Trust Fund; and (e) such further information as the Trustee and/or Administrator deems appropriate. The Employer, forthwith upon its receipt of each such statement of account, shall acknowledge receipt thereof in writing and advise the Trustee and/or Administrator of its approval or disapproval thereof. Failure by the Employer to disapprove any such statement of account within thirty (30) days after its receipt thereof shall be deemed an approval thereof. The approval by the Employer of any statement of account shall be binding as to all matters embraced therein as between the Employer and the Trustee to the same extent as if the account of the Trustee had been settled by judgment or decree in an action for a judicial settlement of its account in a court of competent jurisdiction in which the Trustee, the Employer and all persons having or claiming an interest in the Plan were parties; provided, however, that nothing herein contained shall deprive the Trustee of its right to have its accounts judicially settled if the Trustee so desires. 7.8 AUDIT (a) If an audit of the Plan's records shall be required by the Act and the regulations thereunder for any Plan Year, the Administrator shall direct the Trustee to engage on behalf of all Participants an independent qualified public accountant for that purpose. Such accountant shall, after an audit of the books and records of the Plan in accordance with generally accepted auditing standards, within a reasonable period after the close of the Plan Year, furnish to the Administrator and the Trustee a report of his audit setting forth his opinion as to whether any statements, schedules or lists that are required by Act Section 103 or the Secretary of Labor to be filed with the Plan's annual report, are presented fairly in conformity with generally accepted accounting principles applied consistently. All auditing and accounting fees shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund. (b) If some or all of the information necessary to enable the Administrator to comply with Act Section 103 is maintained by a bank, insurance company, or similar institution, regulated and supervised and subject to periodic examination by a state or federal agency, it shall transmit and certify the accuracy of that information to the Administrator as provided in Act Section 103(b) within one hundred twenty (120) days after the end of the Plan Year or by such other date as may be prescribed under regulations of the Secretary of Labor. 7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE (a) The Trustee may resign at any time by delivering to the Employer, at least thirty (30) days Page 51 of 64 before its effective date, a written notice of his resignation. (b) The Employer may remove the Trustee by mailing by registered or certified mail, addressed to such Trustee at his last known address, at least thirty (30) days before its effective date, a written notice of his removal. (c) Upon the death, resignation, incapacity, or removal of any Trustee, a successor may be appointed by the Employer; and such successor, upon accepting such appointment in writing and delivering same to the Employer, shall, without further act, become vested with all the estate, rights, powers, discretions, and duties of his predecessor with like respect as if he were originally named as a Trustee herein. Until such a successor is appointed, the remaining Trustee or Trustees shall have full authority to act under the terms of the Plan. (d) The Employer may designate one or more successors prior to the death, resignation, incapacity, or removal of a Trustee. In the event a successor is so designated by the Employer and accepts such designation, the successor shall, without further act, become vested with all the estate, rights, powers, discretions, and duties of his predecessor with the like effect as if he were originally named as Trustee herein immediately upon the death, resignation, incapacity, or removal of his predecessor. (e) Whenever any Trustee hereunder ceases to serve as such, he shall furnish to the Employer and Administrator a written statement of account with respect to the portion of the Plan Year during which he served as Trustee. This statement shall be either (i) included as part of the annual statement of account for the Plan Year required under Section 7.7 or (ii) set forth in a special statement. Any such special statement of account should be rendered to the Employer no later than the due date of the annual statement of account for the Plan Year. The procedures set forth in Section 7.7 for the approval by the Employer of annual statements of account shall apply to any special statement of account rendered hereunder and approval by the Employer of any such special statement in the manner provided in Section 7.7 shall have the same effect upon the statement as the Employer's approval of an annual statement of account. No successor to the Trustee shall have any duty or responsibility to investigate the acts or transactions of any predecessor who has rendered all statements of account required by Section 7.7 and this subparagraph. 7.10 TRANSFER OF INTEREST Notwithstanding any other provision contained in this Plan, the Trustee at the direction of the Administrator shall transfer the Vested interest, if any, of such Participant in his account to another trust forming part of a pension, profit sharing or stock bonus plan maintained by such Participant's new employer and represented by said employer in writing as meeting the requirements of Code Section 401(a), provided that the trust to which such transfers are made permits the transfer to be made. 7.11 DIRECT ROLLOVER (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an eligible rollover distribution that is equal to at least $500 paid directly to an eligible retirement plan specified by the distributee in a direct rollover. (b) For purposes of this Section the following definitions shall apply: (1) An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to Page 52 of 64 the extent such distribution is required under Code Section 401(a)(9); the portion of any other distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); any hardship distribution described in Code Section 401(k)(2)(B)(i)(IV); and any other distribution that is reasonably expected to total less than $200 during a year. (2) An eligible retirement plan is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a), that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (3) A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse. (4) A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. 7.12 EMPLOYER SECURITIES AND REAL PROPERTY The Trustee shall be empowered to acquire and hold "qualifying Employer securities" and "qualifying Employer real property," as those terms are defined in the Act, provided, however, that the Trustee shall not be permitted to acquire any qualifying Employer securities or qualifying Employer real property if, immediately after the acquisition of such securities or property, the fair market value of all qualifying Employer securities and qualifying Employer real property held by the Trustee hereunder should amount to more than 100% of the fair market value of all the assets in the Trust Fund. ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS 8.1 AMENDMENT (a) The Employer shall have the right at any time to amend the Plan, subject to the limitations of this Section. However, any amendment which affects the rights, duties or responsibilities of the Trustee and Administrator, other than an amendment to remove the Trustee or Administrator, may only be made with the Trustee's and Administrator's written consent. Any such amendment shall become effective as provided therein upon its execution. The Trustee shall not be required to execute any such amendment unless the Trust provisions contained herein are a part of the Plan and the amendment affects the duties of the Trustee hereunder. (b) No amendment to the Plan shall be effective if it authorizes or permits any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to any purpose other than for the exclusive benefit of the Participants or their Beneficiaries or estates; or causes any reduction in the amount credited to the account of any Participant; or causes or permits any portion of the Trust Fund to revert to or become property of the Employer. (c) Except as permitted by Regulations, no Plan amendment or transaction having the effect of a Plan amendment (such as a merger, plan transfer or similar transaction) shall be effective to the extent it eliminates or reduces any "Section 411(d)(6) protected benefit" or adds or modifies conditions relating to "Section 411(d)(6) protected benefits" the result of which is a further restriction on such benefit unless such Page 53 of 64 protected benefits are preserved with respect to benefits accrued as of the later of the adoption date or effective date of the amendment. "Section 411(d)(6) protected benefits" are benefits described in Code Section 411(d)(6)(A), early retirement benefits and retirement-type subsidies, and optional forms of benefit. 8.2 TERMINATION (a) The Employer shall have the right at any time to terminate the Plan by delivering to the Trustee and Administrator written notice of such termination. Upon any full or partial termination, all amounts credited to the affected Participants' Combined Accounts shall become 100% Vested as provided in Section 6.4 and shall not thereafter be subject to forfeiture, and all unallocated amounts shall be allocated to the accounts of all Participants in accordance with the provisions hereof. (b) Upon the full termination of the Plan, the Employer shall direct the distribution of the assets of the Trust Fund to Participants in a manner which is consistent with and satisfies the provisions of Section 6.5. Distributions to a Participant shall be made in cash or through the purchase of irrevocable nontransferable deferred commitments from an insurer. Except as permitted by Regulations, the termination of the Plan shall not result in the reduction of "Section 411(d)(6) protected benefits" in accordance with Section 8.1(c). 8.3 MERGER OR CONSOLIDATION This Plan and Trust may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other plan and trust only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the plan immediately after such transfer, merger or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation, and such transfer, merger or consolidation does not otherwise result in the elimination or reduction of any "Section 411(d)(6) protected benefits" in accordance with Section 8.1(c). ARTICLE IX TOP HEAVY 9.1 TOP HEAVY PLAN REQUIREMENTS For any Top Heavy Plan Year, the Plan shall provide the special vesting requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the special minimum allocation requirements of Code Section 416(c) pursuant to Section 4.4 of the Plan. 9.2 DETERMINATION OF TOP HEAVY STATUS (a) This Plan shall be a Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group. If any Participant is a Non-Key Employee for any Plan Year, but such Participant was a Key Employee for any prior Plan Year, such Participant's Present Value of Accrued Benefit and/or Aggregate Account balance shall not be taken into account for purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top Heavy Group). In addition, if a Participant or Former Participant has not performed any services for any Employer maintaining the Plan at any time during the five year period ending on the Determination Date, any accrued benefit for such Participant or Former Participant shall not be taken into account for the purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan. (b) This Plan shall be a Super Top Heavy Plan for any Plan Year in which, as of the Page 54 of 64 Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds ninety percent (90%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group. (c) Aggregate Account: A Participant's Aggregate Account as of the Determination Date is the sum of: (1) his Participant's Combined Account balance as of the most recent valuation occurring within a twelve (12) month period ending on the Determination Date; (2) an adjustment for any contributions due as of the Determination Date. Such adjustment shall be the amount of any contributions actually made after the Valuation Date but due on or before the Determination Date, except for the first Plan Year when such adjustment shall also reflect the amount of any contributions made after the Determination Date that are allocated as of a date in that first Plan Year. (3) any Plan distributions made within the Plan Year that includes the Determination Date or within the four (4) preceding Plan Years. However, in the case of distributions made after the Valuation Date and prior to the Determination Date, such distributions are not included as distributions for top heavy purposes to the extent that such distributions are already included in the Participant's Aggregate Account balance as of the Valuation Date. Notwithstanding anything herein to the contrary, all distributions, including distributions under a terminated plan which if it had not been terminated would have been required to be included in an Aggregation Group, will be counted. Further, distributions from the Plan (including the cash value of life insurance policies) of a Participant's account balance because of death shall be treated as a distribution for the purposes of this paragraph. (4) any Employee contributions, whether voluntary or mandatory. However, amounts attributable to tax deductible qualified voluntary employee contributions shall not be considered to be a part of the Participant's Aggregate Account balance. (5) with respect to unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another employer), if this Plan provides the rollovers or plan- to-plan transfers, it shall always consider such rollovers or plan-to-plan transfers as a distribution for the purposes of this Section. If this Plan is the plan accepting such rollovers or plan-to-plan transfers, it shall not consider such rollovers or plan-to-plan transfers as part of the Participant's Aggregate Account balance. (6) with respect to related rollovers and plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), if this Plan provides the rollover or plan-to-plan transfer, it shall not be counted as a distribution for purposes of this Section. If this Plan is the plan accepting such rollover or plan-to-plan transfer, it shall consider such rollover or plan-to-plan transfer as part of the Participant's Aggregate Account balance, irrespective of the date on which such rollover or plan-to-plan transfer is accepted. (7) For the purposes of determining whether two employers are to be treated as the same employer in (5) and (6) above, all employers aggregated under Code Section 414(b), (c), (m) and (o) are treated as the same employer. (d) "Aggregation Group" means either a Required Aggregation Group or a Permissive Page 55 of 64 Aggregation Group as hereinafter determined. (1) Required Aggregation Group: In determining a Required Aggregation Group hereunder, each plan of the Employer in which a Key Employee is a participant in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Sections 401(a)(4) or 410, will be required to be aggregated. Such group shall be known as a Required Aggregation Group. In the case of a Required Aggregation Group, each plan in the group will be considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy Group. No plan in the Required Aggregation Group will be considered a Top Heavy Plan if the Required Aggregation Group is not a Top Heavy Group. (2) Permissive Aggregation Group: The Employer may also include any other plan not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy the provisions of Code Sections 401(a)(4) and 410. Such group shall be known as a Permissive Aggregation Group. In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is a Top Heavy Group. No plan in the Permissive Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is not a Top Heavy Group. (3) Only those plans of the Employer in which the Determination Dates fall within the same calendar year shall be aggregated in order to determine whether such plans are Top Heavy Plans. (4) An Aggregation Group shall include any terminated plan of the Employer if it was maintained within the last five (5) years ending on the Determination Date. (e) "Determination Date" means (a) the last day of the preceding Plan Year, or (b) in the case of the first Plan Year, the last day of such Plan Year. (f) Present Value of Accrued Benefit: In the case of a defined benefit plan, the Present Value of Accrued Benefit for a Participant other than a Key Employee, shall be as determined using the single accrual method used for all plans of the Employer and Affiliated Employers, or if no such single method exists, using a method which results in benefits accruing not more rapidly than the slowest accrual rate permitted under Code Section 411(b)(1)(C). The determination of the Present Value of Accrued Benefit shall 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. (g) "Top Heavy Group" means an Aggregation Group in which, as of the Determination Date, the sum of: (1) the Present Value of Accrued Benefits of Key Employees under all defined benefit plans included in the group, and (2) the Aggregate Accounts of Key Employees under all defined contribution plans included in the group, exceeds sixty percent (60%) of a similar sum determined for all Participants. Page 56 of 64 ARTICLE X MISCELLANEOUS 10.1 PARTICIPANT'S RIGHTS This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon him as a Participant of this Plan. 10.2 ALIENATION (a) Subject to the exceptions provided below, no benefit which shall be payable out of the Trust Fund to any person (including a Participant or his Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Trustee, except to such extent as may be required by law. (b) This provision shall not apply to the extent a Participant or Beneficiary is indebted to the Plan, as a result of a loan from the Plan. At the time a distribution is to be made to or for a Participant's or Beneficiary's benefit, such proportion of the amount distributed as shall equal such loan indebtedness shall be paid by the Trustee to the Trustee or the Administrator, at the direction of the Administrator, to apply against or discharge such loan indebtedness. Prior to making a payment, however, the Participant or Beneficiary must be given written notice by the Administrator that such loan indebtedness is to be so paid in whole or part from his Participant's Combined Account. If the Participant or Beneficiary does not agree that the loan indebtedness is a valid claim against his Vested Participant's Combined Account, he shall be entitled to a review of the validity of the claim in accordance with procedures provided in Sections 2.7 and 2.8. (c) This provision shall not apply to a "qualified domestic relations order" defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Administrator under the provisions of the Retirement Equity Act of 1984. The Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent provided under a "qualified domestic relations order," a former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan. (d) This provision shall not apply to an offset to a Participant's accrued benefit against an amount that the Participant is ordered or required to pay the Plan with respect to a judgment, order, or decree issued, or a settlement entered into, on or after January 1, 2000, in accordance with Code Sections 401(a)(13)(C) and (D). In a case in which the survivor annuity requirements of Code Section 401(a)(11) apply with respect to distributions from the Plan to the Participant, if the Participant has a spouse at the time at which the offset is to be made: (1) either such spouse has consented in writing to such offset and such consent is witnessed by a notary public or representative of the Plan (or it is established to the satisfaction of a Plan representative that such consent may not be obtained by reason of circumstances described in Code Section 417(a)(2)(B)), or an election to waive the right of the spouse to either a qualified joint and survivor annuity or a qualified pre- retirement survivor annuity is in effect in accordance with the requirements of Code Section 417(a), (2) such spouse is ordered or required in such judgment, order, decree or settlement to pay an amount to the Plan in connection with a violation of fiduciary duties, or Page 57 of 64 (3) in such judgment, order, decree or settlement, such spouse retains the right to receive the survivor annuity under a qualified joint and survivor annuity provided pursuant to Code Section 401(a)(11)(A)(i) and under a qualified pre-retirement survivor annuity provided pursuant to Code Section 401(a)(11)(A)(ii). Page 58 of 64 10.3 CONSTRUCTION OF PLAN This Plan and Trust shall be construed and enforced according to the Act and the laws of the State of Alabama, other than its laws respecting choice of law, to the extent not preempted by the Act. 10.4 GENDER AND NUMBER Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply. 10.5 LEGAL ACTION In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which the Trustee, the Employer or the Administrator may be a party, and such claim, suit, or proceeding is resolved in favor of the Trustee, the Employer or the Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney's fees, and other expenses pertaining thereto incurred by them for which they shall have become liable. 10.6 PROHIBITION AGAINST DIVERSION OF FUNDS (a) Except as provided below and otherwise specifically permitted by law, it shall be impossible by operation of the Plan or of the Trust, by termination of either, by power of revocation or amendment, by the happening of any contingency, by collateral arrangement or by any other means, for any part of the corpus or income of any trust fund maintained pursuant to the Plan or any funds contributed thereto to be used for, or diverted to, purposes other than the exclusive benefit of Participants, Retired Participants, or their Beneficiaries. (b) In the event the Employer shall make an excessive contribution under a mistake of fact pursuant to Act Section 403(c)(2)(A), the Employer may demand repayment of such excessive contribution at any time within one (1) year following the time of payment and the Trustees shall return such amount to the Employer within the one (1) year period. Earnings of the Plan attributable to the excess contributions may not be returned to the Employer but any losses attributable thereto must reduce the amount so returned. 10.7 BONDING Every Fiduciary, except a bank or an insurance company, unless exempted by the Act and regulations thereunder, shall be bonded in an amount not less than 10% of the amount of the funds such Fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of funds handled shall be determined at the beginning of each Plan Year by the amount of funds handled by such person, group, or class to be covered and their predecessors, if any, during the preceding Plan Year, or if there is no preceding Plan Year, then by the amount of the funds to be handled during the then current year. The bond shall provide protection to the Plan against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in connivance with others. The surety shall be a corporate surety company (as such term is used in Act Section 412(a)(2)), and the bond shall be in a form approved by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the cost of such bonds shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund or by the Employer. 10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE Neither the Employer, the Administrator, nor the Trustee, nor their successors shall be responsible for the validity of any Contract issued hereunder or for the failure on the part of the insurer to make payments provided by any such Contract, or for the action of any person which may delay payment or render a Contract null and void or unenforceable in whole or in part. Page 59 of 64 10.9 INSURER'S PROTECTIVE CLAUSE Any insurer who shall issue Contracts hereunder shall not have any responsibility for the validity of this Plan or for the tax or legal aspects of this Plan. The insurer shall be protected and held harmless in acting in accordance with any written direction of the Trustee, and shall have no duty to see to the application of any funds paid to the Trustee, nor be required to question any actions directed by the Trustee. Regardless of any provision of this Plan, the insurer shall not be required to take or permit any action or allow any benefit or privilege contrary to the terms of any Contract which it issues hereunder, or the rules of the insurer. 10.10 RECEIPT AND RELEASE FOR PAYMENTS Any payment to any Participant, his legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of the Plan, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer, either of whom may require such Participant, legal representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer. 10.11 ACTION BY THE EMPLOYER Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority. 10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY The "named Fiduciaries" of this Plan are (1) the Employer, (2) the Administrator and (3) the Trustee. The named Fiduciaries shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under the Plan or as accepted by or assigned to them pursuant to any procedure provided under the Plan, including but not limited to any agreement allocating or delegating their responsibilities, the terms of which are incorporated herein by reference. In general, unless otherwise indicated herein or pursuant to such agreements, the Employer shall have the duties specified in Article II hereof, as the same may be allocated or delegated thereunder, including but not limited to the responsibility for making the contributions provided for under Section 4.1; and shall have the authority to appoint and remove the Trustee and the Administrator; to formulate the Plan's "funding policy and method"; and to amend or terminate, in whole or in part, the Plan. The Administrator shall have the responsibility for the administration of the Plan, including but not limited to the items specified in Article II of the Plan, as the same may be allocated or delegated thereunder. The Trustee shall have the responsibility of management and control of the assets held under the Trust, except to the extent directed pursuant to Article II or with respect to those assets, the management of which has been assigned to an Investment Manager, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in the Plan and any agreement with the Trustee. Each named Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan, authorizing or providing for such direction, information or action. Furthermore, each named Fiduciary may rely upon any such direction, information or action of another named Fiduciary as being proper under the Plan, and is not required under the Plan to inquire into the propriety of any such direction, information or action. It is intended under the Plan that each named Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan as specified or allocated herein. No named Fiduciary shall guarantee the Trust Fund in any manner against investment loss or depreciation in asset value. Any person or group may serve in more than one Fiduciary capacity. In the furtherance of their responsibilities hereunder, the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and to resolve ambiguities, inconsistencies and omissions, which findings shall be binding, final and conclusive. 10.13 HEADINGS The headings and subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof. 10.14 APPROVAL BY INTERNAL REVENUE SERVICE Page 60 of 64 (a) Notwithstanding anything herein to the contrary, contributions to this Plan are conditioned upon the initial qualification of the Plan under Code Section 401. If the Plan receives an adverse determination with respect to its initial qualification, then the Plan may return such contributions to the Employer within one year after such determination, provided the application for the determination is made by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan was adopted, or such later date as the Secretary of the Treasury may prescribe. (b) Notwithstanding any provisions to the contrary, except Sections 3.5, 3.6, and 4.1(e), any contribution by the Employer to the Trust Fund is conditioned upon the deductibility of the contribution by the Employer under the Code and, to the extent any such deduction is disallowed, the Employer may, within one (1) year following the disallowance of the deduction, demand repayment of such disallowed contribution and the Trustee shall return such contribution within one (1) year following the disallowance. Earnings of the Plan attributable to the excess contribution may not be returned to the Employer, but any losses attributable thereto must reduce the amount so returned. 10.15 UNIFORMITY All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. In the event of any conflict between the terms of this Plan and any Contract purchased hereunder, the Plan provisions shall control. Page 61 of 64 ARTICLE XI PARTICIPATING EMPLOYERS 11.1 ADOPTION BY OTHER EMPLOYERS Notwithstanding anything herein to the contrary, with the consent of the Employer and Trustee, any other corporation or entity, whether an affiliate or subsidiary or not, may adopt this Plan and all of the provisions hereof, and participate herein and be known as a Participating Employer, by a properly executed document evidencing said intent and will of such Participating Employer. 11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS (a) Each such Participating Employer shall be required to use the same Trustee as provided in this Plan. (b) The Trustee may, but shall not be required to, commingle, hold and invest as one Trust Fund all contributions made by Participating Employers, as well as all increments thereof. However, the assets of the Plan shall, on an ongoing basis, be available to pay benefits to all Participants and Beneficiaries under the Plan without regard to the Employer or Participating Employer who contributed such assets. (c) The transfer of any Participant from or to an Employer participating in this Plan, whether he be an Employee of the Employer or a Participating Employer, shall not affect such Participant's rights under the Plan, and all amounts credited to such Participant's Combined Account as well as his accumulated service time with the transferor or predecessor, and his length of participation in the Plan, shall continue to his credit. (d) All rights and values forfeited by termination of employment shall inure only to the benefit of the Participants of the Employer or Participating Employer by which the forfeiting Participant was employed, except if the Forfeiture is for an Employee whose Employer is an Affiliated Employer, then said Forfeiture shall inure to the benefit of the Participants of those Employers who are Affiliated Employers. Should an Employee of one ("First") Employer be transferred to an associated ("Second") Employer which is an Affiliated Employer, such transfer shall not cause his account balance (generated while an Employee of "First" Employer) in any manner, or by any amount to be forfeited. Such Employee's Participant Combined Account balance for all purposes of the Plan, including length of service, shall be considered as though he had always been employed by the "Second" Employer and as such had received contributions, forfeitures, earnings or losses, and appreciation or depreciation in value of assets totaling the amount so transferred. (e) Any expenses of the Trust which are to be paid by the Employer or borne by the Trust Fund shall be paid by each Participating Employer in the same proportion that the total amount standing to the credit of all Participants employed by such Employer bears to the total standing to the credit of all Participants. 11.3 DESIGNATION OF AGENT Each Participating Employer shall be deemed to be a party to this Plan; provided, however, that with respect to all of its relations with the Trustee and Administrator for the purpose of this Plan, each Participating Employer shall be deemed to have designated irrevocably the Employer as its agent. Unless the context of the Plan clearly indicates the contrary, the word "Employer" shall be deemed to include each Participating Employer as related to its adoption of the Plan. 11.4 EMPLOYEE TRANSFERS It is anticipated that an Employee may be transferred between Participating Employers, and in the event of any such transfer, the Employee involved shall carry with him his accumulated service and eligibility. No Page 62 of 64 such transfer shall effect a termination of employment hereunder, and the Participating Employer to which the Employee is transferred shall thereupon become obligated hereunder with respect to such Employee in the same manner as was the Participating Employer from whom the Employee was transferred. 11.5 PARTICIPATING EMPLOYER CONTRIBUTION Any contribution subject to allocation during each Plan Year shall be allocated only among those Participants of the Employer or Participating Employer making the contribution, except if the contribution is made by an Affiliated Employer, in which event such contribution shall be allocated among all Participants of all Participating Employers who are Affiliated Employers in accordance with the provisions of this Plan. On the basis of the information furnished by the Administrator, the Trustee shall keep separate books and records concerning the affairs of each Participating Employer hereunder and as to the accounts and credits of the Employees of each Participating Employer. The Trustee may, but need not, register Contracts so as to evidence that a particular Participating Employer is the interested Employer hereunder, but in the event of an Employee transfer from one Participating Employer to another, the employing Employer shall immediately notify the Trustee thereof. 11.6 AMENDMENT Amendment of this Plan by the Employer at any time when there shall be a Participating Employer hereunder shall only be by the written action of each and every Participating Employer and with the consent of the Trustee where such consent is necessary in accordance with the terms of this Plan. 11.7 DISCONTINUANCE OF PARTICIPATION Any Participating Employer shall be permitted to discontinue or revoke its participation in the Plan. At the time of any such discontinuance or revocation, satisfactory evidence thereof and of any applicable conditions imposed shall be delivered to the Trustee. The Trustee shall thereafter transfer, deliver and assign Contracts and other Trust Fund assets allocable to the Participants of such Participating Employer to such new Trustee as shall have been designated by such Participating Employer, in the event that it has established a separate pension plan for its Employees, provided however, that no such transfer shall be made if the result is the elimination or reduction of any "Section 411(d)(6) protected benefits" in accordance with Section 8.1(c). If no successor is designated, the Trustee shall retain such assets for the Employees of said Participating Employer pursuant to the provisions of Article VII hereof. In no such event shall any part of the corpus or income of the Trust as it relates to such Participating Employer be used for or diverted to purposes other than for the exclusive benefit of the Employees of such Participating Employer. Page 63 of 64 11.8 ADMINISTRATOR'S AUTHORITY The Administrator shall have authority to make any and all necessary rules or regulations, binding upon all Participating Employers and all Participants, to effectuate the purpose of this Article. IN WITNESS WHEREOF, this Plan has been executed the day and year first above written. EMPLOYER Alabama National BanCorporation By /s/ John H. Holcomb, III --------------------------------------- Its Chairman ----------------------------- ATTEST /s/ Kimberly Moore, Secretary ---------------------------------- TRUSTEE National Bank of Commerce of Birmingham By /s/ Fred Murphy --------------------------------------- Its Vice President and Assistant ----------------------------- Trust Manager ----------------------------- ATTEST /s/ Kimberly Moore, Secretary ---------------------------------- Page 64 of 64 EX-11.1 6 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 Alabama National BanCorporation Computation of Earnings Per Share (In thousands, except per share amounts)
Per Share Income Shares Amount -------- -------- ---------- Year ended December 31, 1999 Basic EPS net income.............................................................................. $22,271 11,079 $2.01 ===== Effect of dilutive securities options............................................................. 194 ------- ------ Diluted EPS....................................................................................... $22,271 11,273 $1.98 ======= ====== ===== Year ended December 31, 1998 Basic EPS net income.............................................................................. $17,372 10,804 $1.61 ===== Effect of dilutive securities options............................................................. 369 -------- ------- Diluted EPS....................................................................................... $17,372 11,173 $1.55 ======== ======= ====== Year ended December 31, 1997 Basic EPS net income.............................................................................. $14,116 10,552 $1.34 ===== Effect of dilutive securities options............................................................. 447 ------- ------ Diluted EPS....................................................................................... $14,116 10,999 $1.28 ======= ====== =====
EX-21.1 7 SUBSIDIARIES OF ANB Exhibit 21.1 ------------ SUBSIDIARIES OF ANB Name of Subsidiary State of Organization National Bank of Commerce of Birmingham.................... National Bank NBC Securities, Inc............................... Alabama NBC Investments, Inc.............................. Nevada NBC Joint Ventures, Inc........................... Alabama Bank of Dadeville.......................................... Alabama Ashland Insurance, Inc............................ Alabama Alabama Exchange Bank...................................... Alabama Tuskegee Loan Company, Inc........................ Alabama First Gulf Bank . . . ..................................... Alabama First Citizens Bank........................................ Alabama Clay County Finance Company, Inc.................. Alabama FCB Investments, Inc.............................. Nevada First American Bank........................................ Alabama Corporate Billing, Inc............................ Alabama FAB Investments, Inc.............................. Nevada Rankin Insurance, Inc............................. Alabama Citizens & Peoples Bank, National Association.............. National Bank Public Bank................................................ Florida Georgia State Bank......................................... Georgia Community Bank of Naples, National Association............. National Bank CBN Investments, Inc.............................. Nevada EX-23.1 8 CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.1 ------------ CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Alabama National BanCorporation (ANB) on Form S-8 (File No. 333-07951), Form S-8 (File No. 333-27285), Form S-8 (File No. 333-70205), Form S-8 (File No. 333-70207), Form S-8 (File No. 333-70209), Form S-8 (File No. 333-76301), Form S-8 (File No. 333-76305), Form S-8 (File No. 333-76307), Form S-8 (File No. 333- 76309), Form S-8 (File No. 333-76311), Form S-8 (File No. 333-76303), Form S-8 (File No. 333-76313), Form S-8 (File No. 333-76315) and Form S-8 (File No. 333- 76317), of our report dated January 18, 2000, on our audits of ANB as of December 31, 1999 and 1998 and for the three years in the period ended December 31, 1999, which report is included in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP Birmingham, Alabama March 22, 2000 EX-27 9 ARTICLE 9 FDS
9 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 73,125 6,768 33,568 2,701 325,507 19,616 19,738 1,320,160 18,068 1,921,884 1,442,155 18,389 61,003 124,005 0 0 11,187 127,068 1,921,884 102,340 20,456 2,872 125,668 47,589 11,694 66,385 1,954 190 62,455 32,533 32,533 0 0 22,271 2.01 1.98 7.98 4,146 0 432 21,200 16,540 1,277 851 18,068 18,068 0 18,068
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