SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997.
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
COMMISSION FILE NUMBER 0-14703
NBT BANCORP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 16-1268674
(State of Incorporation)(IRS Employer Identification No.)
52 SOUTH BROAD STREET, NORWICH, NEW YORK 13815
(Address of principal executive offices)(Zip Code)
Registrant's Telephone Number, Including Area Code: 607-337-6000
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par, $1.00 Stated Value
Preferred Stock, No Par, $1.00 Stated Value
(Title of Class)
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 the 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. _X_.
There are no delinquent filers to the Registrant's knowledge.
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 periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
As of February 28, 1998, there were 9,429,963 shares outstanding, including
380,143 shares held in the treasury, of the Registrant's common stock, No Par,
Stated Value $1.00; of which 8,641,677 common shares having a market value of
$226,325,521 were held by nonaffiliates of the Registrant. There were no shares
of the Registrant's preferred stock, No Par, Stated Value $1.00, outstanding at
that date.
Documents Incorporated by Reference
Portions of the Proxy Statement of NBT BANCORP INC. dated March 17, 1998 for the
Annual Meeting of Stockholders to be held on April 18, 1998 are incorporated by
reference into Part III of this FORM 10-K as detailed therein.
An index to exhibits follows the signature page of this Form 10-K.
II-1
CROSS REFERENCE INDEX
Part I. Item 1 Business
Description of Business II-3,4
Average Balance Sheets II-7
Net Interest Income Analysis - Taxable Equivalent Basis II-7
Net Interest Income and Volume/Rate Variance - Taxable Equivalent Basis II-8
Securities Portfolio II-11
Securities - Maturity/Yield Schedule II-30
Loans II-12
Maturities and Sensitivities of Loans to Changes in Interest Rates II-13
Nonperforming and Risk Assets II-13
Allowance for Loan Losses II-9
Maturity Distribution of Time Deposits II-14
Return on Equity and Assets II-5
Short-Term Borrowings II-32,33
Item 2 Properties II-19
Item 3 Legal Proceedings
In the normal course of business there are various outstanding legal proceedings.
In the opinion of management, the aggregate amount involved in such proceedings is
not material to the financial condition or results of operations of the Company.
Item 4 Submission of Matters to a Vote of Security Holders
There has been no submission of matters to a vote of stockholders during
the quarter ended December 31, 1997.
Part II. Item 5 Market for the Registrant's Common Stock and Related Shareholder Matters II-15,35
Item 6 Selected Financial Data II-5
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation II-5 thru 18
Item 7A Quantitative and Qualitative Disclosure About Market Risk II-15 thru 17
Item 8 Financial Statements and Supplementary Data
Consolidated Balance Sheets at December 31, 1997 and 1996 II-23
Consolidated Statements of Income for each of the years in three-year period ended
December 31, 1997 II-24
Consolidated Statements of Stockholders' Equity for each of the years in the
three-year period ended December 31, 1997 II-25
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 1997 II-26
Notes to Consolidated Financial Statements II-27 thru 42
Independent Auditors' Report II-22
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no changes in or disagreements with accountants on accounting
and financial disclosures.
Part III. Item 10 Directors and Executive Officers of the Registrant*
Item 11 Executive Compensation *
Item 12 Security Ownership of Certain Beneficial Owners and Management *
Item 13 Certain Relationships and Related Transactions *
Part IV. Item 14 Exhibits, Financial Statement Schedules, and Reports on 8-K
(a)(1) Financial Statements (See Item 8 for Reference).
(2) Financial Statement Schedules normally required on Form 10-K are omitted since
they are not applicable.
(3) Exhibits have been filed separately with the Commission and are available upon
written request.
(b) No reports on Form 8-K were filed during the last quarter of the period covered by
this report.
(c) Refer to item 14(a)(3) above.
(d) Refer to item 14(a)(2) above.
* Information called for by Part III (Items 10 through 13) is incorporated by
reference to the Registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders filed with the Securities and Exchange Commission.
II-2
DESCRIPTION OF BUSINESS
REGISTRANT
NBT Bancorp Inc. ("Registrant") is a registered bank holding company
headquartered in Norwich, New York. The Registrant is the parent holding company
of NBT Bank, N.A. ("Bank"), a nationally chartered commercial bank. The
principal asset of the Registrant is all of the outstanding shares of common
stock of the Bank and its principal source of revenue is dividends it receives
from the Bank.
The Bank is a full service bank providing a broad range of financial
products including commercial and retail banking and trust services. The Bank
has thirty-five locations serving an eight county area in central and northern
New York. As of December 31, 1997, the Bank had 455 full-time and 66 part-time
employees. The Bank is not a party to any collective bargaining agreements, and
employee relations are considered to be good.
COMPETITION
The banking business is extremely competitive and the Bank encounters intense
competition from other financial institutions located within its market area.
The Bank competes not only with other commercial banks but also with other
financial institutions such as thrifts, credit unions, money market and mutual
funds, insurance companies, brokerage firms, and a variety of other companies
offering financial services.
SUPERVISION AND REGULATION
The Registrant, as a bank holding company, is regulated under the Bank Holding
Company Act of 1956, as amended ("Act"), and is subject to the supervision of
the Board of Governors of the Federal Reserve System ("FRB"). Generally, the Act
limits the business of bank holding companies to banking, or managing or
controlling banks, performing certain servicing for subsidiaries, and engaging
in such other activities as the FRB may determine to be so closely related to
banking as to be a proper incident thereto. The Registrant is a legal entity
separate and distinct from the Bank. The principal source of the Registrant's
income is the Bank's earnings, and the principal source of its cash flow is
dividends from the Bank. Federal laws impose limitations on the ability of the
Bank to pay dividends as discussed in the Notes to Consolidated Financial
Statements. FRB policy requires bank holding companies to serve as a source of
financial strength to their subsidiary banks by standing ready to use available
resources to provide adequate capital funds to subsidiary banks during periods
of financial stress or adversity.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") substantially revised the depository institution regulatory and
funding provisions of the Federal Deposit Insurance Act and made revisions to
several other federal banking statutes. Among other things, federal banking
regulators are required to take prompt corrective action in respect of
depository institutions that do not meet minimum capital requirements. FDICIA
identifies the following capital categories for financial institutions: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
Rules adopted by the federal banking agencies under FDICIA provide that
an institution is deemed to be well capitalized if the institution has a total
risk-based capital ratio of 10.0% or greater, a Tier I risk-based ratio of 6.0%
or greater, and a leverage ratio of 5.0% or greater and the institution is not
subject to an order, written agreement, capital directive, or prompt corrective
action directive to meet and maintain a specific level for any capital measure.
FDICIA imposes progressively more restrictive constraints on operations,
management and capital distributions, depending on the capital category in which
an institution is classified. At December 31, 1997, the Registrant and the Bank
fell into the well capitalized category based on the ratios and guidelines noted
above.
The appropriate Federal banking agency may, under certain
circumstances, reclassify a well capitalized insured depository institution as
adequately capitalized. The appropriate agency is also permitted to require an
adequately capitalized or undercapitalized institution to comply with the
supervisory provisions as if the institution were in the next lower category,
but not treat a significantly undercapitalized institution as critically
undercapitalized, based on supervisory information other than the capital levels
of the institution. The statute provides that an institution may be reclassified
if the appropriate Federal banking agency determines, after notice and
opportunity for hearing, that the institution is in an unsafe or unsound
condition or deems the institution to be engaging in an unsafe or unsound
practice.
The Act requires prior approval of the FRB of the acquisition by the
Registrant of more than 5 percent of the voting shares of any bank or any other
bank holding company. Subject to certain limits, the Act allows adequately
capitalized and adequately managed bank holding companies to acquire control of
banks in any state. An interstate acquisition may not be approved, however, if
immediately before the acquisition the acquirer controls an FDIC-insured
institution or branch in the state of the institution to be acquired, and if
immediately following the acquisition the acquirer would control 30 percent or
more of the total FDIC-insured deposits in that state; but a state may waive the
30-percent limitation by statute, regulation, or order, or by certain
nondiscriminatory administrative approvals.
II-3
The Bank is subject to primary supervision, regulation, and examination
by the Office of the Comptroller of the Currency ("OCC"), whose regulations are
intended primarily for the protection of the Bank's depositors and customers
rather than holders of the Registrant's securities. The Bank is subject to
extensive federal statutes and regulations that significantly affect its
business and activities. The Bank must file reports with its regulators
concerning its activities and financial condition and obtain regulatory approval
to enter into certain transactions. The Bank is also subject to periodic
examinations by the OCC to ascertain compliance with various regulatory
requirements. Other applicable statutes and regulations relate to insurance of
deposits, allowable investments, loans, acceptance of deposits, trust
activities, mergers, consolidations, payment of dividends, capital requirements,
reserves against deposits, establishment of branches and certain other
facilities, limitations on loans to one borrower and loans to affiliated
persons, and other aspects of the business of banks. Recent federal legislation
has instructed federal agencies to adopt standards or guidelines governing
banks' internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation and benefits, asset quality, earnings and stock valuation, and
other matters. Legislation adopted in 1994 gives the federal banking agencies
greater flexibility in implementing standards on asset quality, earnings, and
stock valuation. Regulatory authorities have broad authority to initiate
proceedings designed to prohibit banks from engaging in unsafe and unsound
banking practices.
FDIC INSURANCE ASSESSMENTS
The deposits of the Bank are insured, up to an applicable limit, by the Bank
Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC").
During 1995, BIF reached its statutory target of 1.25% of total insured deposits
and the BIF assessment rates were reduced from .23% to .04% for the highest
rated banks. For 1996, the highest rated banks were not assessed on the level of
their deposits but rather paid a minimum fee of $2,000 to BIF. During 1997,
BIF-assessable deposits were subject to an assessment schedule providing for an
assessment range of 0% to .27%, with banks in the lowest risk category paying no
assessments. The Bank was in the lowest risk category and paid no FDIC insurance
during 1997. BIF assessment rates are subject to semi-annual adjustment by the
FDIC Board of Directors within a range of up to five basis points without public
comment. The FDIC Board of Directors also possesses authority to impose special
assessments from time to time.
In 1996, Congress enacted the Deposit Insurance Funds Act which
establishes a schedule to merge with BIF and Savings Association Insurance Fund
("SAIF") on January 1, 1999, provided a law is passed by that date merging the
bank and thrift charters. The act also provides for funding Financing Corp
("FICO") bonds. BIF-assessable deposits are subject to assessment for payment on
the FICO bond obligation at one-fifth the rate of SAIF-assessable deposits
through year-end 1999, or until the insurance funds are merged, whichever occurs
first. The FICO assessment is adjusted quarterly based on call report
submissions to reflect changes in the assessment bases of the respective funds.
During 1997, BIF insured banks paid a rate of .013% for purposes of funding FICO
bond obligations, resulting in an assessment of $116,175 for the Bank.
II-4
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
- -----------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
Interest and fee income $ 96,181 $ 84,387 $ 77,400 $ 70,438 $ 66,957
Interest expense 42,522 36,365 34,840 25,742 23,200
Net interest income 53,659 48,022 42,560 44,696 43,757
Provision for loan losses 3,505 3,175 1,553 3,071 2,281
Noninterest income excluding
securities gains (losses) 8,403 7,683 6,957 6,484 8,108
Securities gains (losses) (337) 1,179 145 555 1,573
Noninterest expense 35,170 34,422 33,024 38,674 37,298
Income before income taxes 23,050 19,287 15,085 9,990 13,859
Net income 14,749 12,179 9,329 6,508 8,505
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PER COMMON SHARE*
Basic earnings per share $ 1.65 $ 1.37 $ 1.01 $ 0.70 $ 0.92
Diluted earnings per share $ 1.63 $ 1.36 $ 1.01 $ 0.69 $ 0.91
Cash dividends paid $ 0.618 $ 0.497 $ 0.429 $ 0.388 $ 0.357
Stock dividends distributed 5% 5% 5% 5% 5%
Book value at year end $ 13.68 $ 12.11 $ 11.85 $ 10.59 $ 10.87
Tangible book value $ 12.72 $ 10.97 $ 10.58 $ 9.53 $ 9.46
Average diluted common
shares outstanding 9,072 8,939 9,240 9,386 9,341
- -----------------------------------------------------------------------------------------------------------------
AT DECEMBER 31,
Assets available for sale $ 443,918 $ 373,337 $ 399,625 $ 119,398 $219,690
Securities held to maturity 36,139 42,239 40,311 272,466 108,077
Loans 735,482 654,593 588,385 574,718 559,860
Allowance for loan losses 11,582 10,473 9,120 9,026 8,652
Total assets 1,280,585 1,138,986 1,106,266 1,044,557 953,907
Deposits 1,014,183 916,319 873,032 791,443 807,228
Short-term borrowings 134,527 88,244 115,945 140,587 26,701
Other borrowings 183 20,195 3,012 8,734 14,457
Total stockholders' equity 123,343 106,264 108,044 98,307 101,108
- -----------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 1.20% 1.10% 0.90% 0.64% 0.93%
Return on average equity 12.97% 11.80% 9.18% 6.53% 8.79%
Average equity to average assets 9.25% 9.29% 9.75% 9.88% 10.63%
Net interest margin 4.67% 4.69% 4.43% 4.81% 5.26%
Efficiency 56.09% 60.74% 65.92% 70.22% 71.05%
Cash dividend per share payout 37.91% 36.50% 42.61% 56.13% 39.19%
Tier 1 leverage
(Regulatory guideline 4%) 8.91% 8.70% 8.80% 9.05% 9.24%
Tier 1 risk-based capital
(Regulatory guideline 4%) 14.88% 14.06% 15.21% 16.09% 15.40%
Total risk-based capital
(Regulatory guideline 8%) 16.13% 15.31% 16.46% 17.35% 16.66%
- -----------------------------------------------------------------------------------------------------------------
*All per share data has been restated to give retroactive effect to stock
dividends and the adoption of Statement of Financial Accounting Standards No.
128, "Earnings Per Share".
II-5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The purpose of this discussion and analysis is to provide the reader with a
concise description of the financial condition and results of operations of NBT
Bancorp Inc. (Bancorp) and its wholly owned subsidiary, NBT Bank, N.A. (Bank)
collectively referred to herein as the Company. This discussion will focus on
results of operations, financial position, capital resources, and
asset/liability management.
OVERVIEW
The Company achieved record operating performance during 1997. Net income
increased to $14.7 million, a 21.1% gain over 1996 earnings of $12.2 million.
Leading the improved earnings was an increase of $5.6 million in net interest
income. Other (noninterest) income was $0.8 million less than 1996, while other
(noninterest) operating expenses increased $0.7 million.
The increase in net interest income was a result of the $140.8 million
(13.1%) growth in earning assets, primarily loans and investment securities.
Loan growth was balanced between the commercial, consumer and mortgage
portfolios with increases of $44.5 million, $20.8 million and $15.6 million,
respectively. At December 31, 1997, the investment securities portfolio
amortized cost of $472.8 million was an increase of 14.2% over the previous
year-end.
Deposits of $1,014.2 million at December 31, 1997, were $97.9 million
higher (10.7%) than the year previous. Deposits averaged $973.6 million for the
year, a 6.2% increase over 1996 average deposits. Demand and time deposits
(certificates) accounted for the increase in deposit volume.
In January 1998, the Board of Directors approved a 250,000 share
buyback program. Shares acquired will be used primarily for employee benefits,
stock option programs, and the dividend reinvestment plan.
In December 1997, the Company distributed a 5% stock dividend, the
thirty-eighth consecutive year of stock dividends and/or stock splits.
Throughout this report, amounts per common share and common shares outstanding
have been retroactively adjusted to reflect the stock dividends.
In December 1996, the Company began a review of its computer systems to
identify any potential problems of the "Year 2000" issue. The Company formed a
committee to conduct a comprehensive review of all computer systems, and has
been actively working with software vendors to address the issue. The Company
has received testing procedures from its primary software vendors. Testing of
system applications is expected to be complete by year-end 1998. The Company
believes that modification of existing software and previously planned
application upgrades will prevent any operational problems. The Company does not
expect the amount to be expensed over the next two years to have a material
impact on its financial position or results of operations.
NET INTEREST INCOME
Net interest income is the difference between interest and fees earned on assets
and the interest paid on deposits and borrowings. Net interest income is one of
the major determining factors in a financial institution's performance as it is
the principal source of earnings. Table 1 presents average balance sheets and a
net interest income analysis on a taxable equivalent basis for each of the years
in the three-year period ended December 31, 1997.
As reflected in Table 1, net interest income, on a taxable equivalent
basis, increased $5.5 million or 11.3% from $49.0 million in 1996 to $54.5
million in 1997. Yields on earning assets increased 13 basis points, while the
cost of interest bearing liabilities increased 19 basis points.
In 1997, average earning assets increased $124.0 million or 11.9%
compared to 1996. Average loans increased $78.4 million or 12.7% during the
year, while average investment securities increased $41.7 million or 9.9%.
During 1997, average interest bearing liabilities increased $105.4 million or
11.9%. Growth came primarily in average time deposits (certificates) with an
increase of $63.1 million or 14.7%. As reflected in Table 2, the net increase in
interest expense of $6.2 million from 1996 to 1997 was comprised of an increase
of $5.7 million arising from higher average balances and an increase of $0.5
million due to higher interest rates.
In comparing 1996 to 1995, the increase in taxable equivalent net
interest income and net interest margin is primarily attributed to the 18 basis
point increase in yield on earning assets, while at the same time the cost of
interest bearing liabilities was reduced 19 basis points.
Average total interest bearing liabilities increased $74.2 million or
9.2% from 1995 to 1996, as a result of increases in interest bearing deposits.
The average cost of liabilities declined from 4.3% in 1995 to 4.1% in 1996. The
decrease in the cost of interest bearing liabilities arose as a result of lower
rates paid on certificates of deposits and short-term borrowings.
II-6
TABLE 1
AVERAGE BALANCES AND NET INTEREST INCOME
The following table includes the condensed consolidated average balance sheet,
an analysis of interest income/expense and average yield/rate for each major
category of earning assets and interest-bearing deposits and liabilities on a
taxable equivalent basis. Interest income is adjusted for items exempt from
Federal income taxes and assumes a 35% tax rate.
1997 1996 1995
AVERAGE YIELD/ Average Yield/ Average Yield/
(dollars in thousands) BALANCE INTEREST RATES Balance Interest Rates Balance Interest Rates
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest bearing deposits $ 127 $ 5 4.48% $ 304 $ 16 5.26% $ 472 $ 21 4.45%
Federal funds sold 3,749 194 5.17 323 18 5.57 589 34 5.77
Short-term investments available
for sale 2,536 135 5.31 1,088 57 5.24 1,564 91 5.82
Securities available for sale 423,512 29,063 6.86 374,574 24,355 6.50 147,073 9,137 6.21
Loans available for sale 3,620 298 8.24 4,427 372 8.40 6,099 545 8.94
Securities held to maturity:
Taxable 13,061 914 7.00 11,914 788 6.61 217,201 13,154 6.06
Tax exempt 25,303 1,721 6.80 33,661 2,316 6.88 29,392 2,102 7.15
------ ----- ------- ------ ------- ------
Total securities held to
maturity 38,364 2,635 6.87 45,575 3,104 6.81 246,593 15,256 6.19
Loans:
Commercial 307,101 29,662 9.66 263,193 25,579 9.72 229,481 22,862 9.96
Real estate mortgage 125,263 10,668 8.52 119,993 10,184 8.49 126,280 10,358 8.20
Consumer 263,188 24,376 9.26 233,948 21,668 9.26 219,587 19,886 9.06
------- ------ ------- ------ ------- ------
Total Loans 695,552 64,706 9.30 617,134 57,431 9.31 575,348 53,106 9.23
--------- ------ ------- ------ ------- ------
Total earning assets 1,167,460 97,036 8.31 1,043,425 85,353 8.18 977,738 78,190 8.00
------ ------ ------
Cash and due from banks 30,918 36,171 35,022
Securities available for sale
valuation allowance (1,828) (2,752) (2,736)
Allowance for loan losses (11,138) (9,657) (9,330)
Premises and equipment 17,269 16,465 15,671
Other assets 25,962 27,316 25,833
------- ------- -------
TOTAL ASSETS $1,228,643 $1,110,968 $1,042,198
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Money market deposit accounts $ 90,732 2,648 2.92 $ 101,753 2,977 2.93 $ 108,928 3,173 2.91
NOW accounts 118,761 1,904 1.60 108,806 1,873 1.72 83,807 1,582 1.89
Savings deposits 154,771 4,376 2.83 159,373 4,650 2.92 154,091 4,554 2.96
Certificates of deposit 493,551 26,306 5.33 430,464 22,442 5.21 376,852 20,374 5.41
------- ------ ------- ------ ------- ------
Total interest bearing
deposits 857,815 35,234 4.11 800,396 31,942 3.99 723,678 29,683 4.10
Short-term borrowings 119,259 6,581 5.52 73,192 3,745 5.12 80,596 4,700 5.83
Other borrowings 12,189 707 5.80 10,288 678 6.59 5,424 457 8.43
------ ------- ------- ------ ----- ------
Total interest bearing
liabilities 989,263 42,522 4.30% 883,876 36,365 4.11% 809,698 34,840 4.30%
------ ------ ------
Demand deposits 115,826 116,287 124,611
Other liabilities 9,863 7,565 6,259
Stockholders' equity 113,691 103,240 101,630
------- ------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,228,643 $1,110,968 $1,042,198
---------- ---------- -----------
NET INTEREST INCOME $54,514 $48,988 $43,350
------- ------- -------
NET INTEREST MARGIN 4.67% 4.69% 4.43%
----- ----- -----
Taxable equivalent adjustment $ 855 $ 966 $ 790
------- ------- -------
(1) For purposes of these computations, nonaccrual loans are included in the
average loan balances outstanding.
(2) Securities are shown at average amortized cost.
II-7
TABLE 2
ANALYSIS OF CHANGES IN TAXABLE EQUIVALENT NET INTEREST INCOME
The following table presents changes in interest income and interest expense
attributable to changes in volume (change in average balance multiplied by prior
year rate), changes in rate (change in rate multiplied by prior year volume),
and the net change in net interest income. The net change attributable to the
combined impact of volume and rate has been allocated to each in proportion to
the absolute dollar amounts of change.
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INCREASE (DECREASE) Increase (Decrease)
1997 OVER 1996 1996 over 1995
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(in thousands) VOLUME RATE TOTAL Volume Rate Total
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Interest bearing deposits $ (8) $ (3) $ (11) $ (8) $ 3 $ (5)
Federal funds sold 177 (1) 176 (15) (1) (16)
Short-term securities available for sale 77 1 78 (26) (8) (34)
Securities available for sale 3,308 1,400 4,708 14,773 445 15,218
Loans available for sale (67) (7) (74) (142) (31) (173)
Securities held to maturity:
Taxable 79 47 126 (13,476) 1,110 (12,366)
Tax exempt (569) (26) (595) 296 (82) 214
Loans 7,295 (20) 7,275 3,887 438 4,325
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Total interest income 10,292 1,391 11,683 5,289 1,874 7,163
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Money market deposit accounts (322) (7) (329) (210) 14 (196)
NOW accounts 165 (134) 31 440 (149) 291
Savings accounts (132) (142) (274) 155 (59) 96
Certificates of deposit 3,353 511 3,864 2,816 (748) 2,068
Short-term borrowings 2,522 314 2,836 (409) (546) (955)
Other borrowings 116 (87) 29 338 (117) 221
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Total interest expense 5,702 455 6,157 3,130 (1,605) 1,525
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CHANGE IN FTE NET INTEREST INCOME $ 4,590 $ 936 $ 5,526 $ 2,159 $ 3,479 $ 5,638
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PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is based upon management's judgement as to the
adequacy of the allowance to absorb the future losses. In assessing the adequacy
of the allowance for loan losses, consideration is given to historical loan loss
experience, value and adequacy of collateral, level of nonperforming loans, loan
concentrations, the growth and composition of the portfolio, and the results of
a comprehensive in-house loan review program conducted throughout the year.
Consideration is given to the results of examinations and evaluations of the
overall portfolio by senior credit personnel, internal and external auditors,
and regulatory examiners.
Accompanying tables reflect the five years history of net charge-offs and
the allocation of the allowance by loan category. Net charge-offs, both as
dollar amounts and as percentages of average loans outstanding, have increased
as the Company has experienced a rise in consumer charge-offs. The increase in
consumer charge-offs can be attributed to a rise in personal bankruptcies.
Management considered it prudent to increase the dollar level of the allowance
to various asset categories as depicted in the tables. The allowance has been
allocated based on identified problem credits or categorical trends. The
unallocated portion is available for further unforseen or unexpected losses or
unidentified problem credits. At December 31, 1997, the allowance for loan
losses to loans outstanding was 1.57%, compared to 1.60% at year-end 1996.
Management considers the allowance to be adequate for the reporting periods and
will continue to target and maintain a minimum allowance equal to the allocated
requirement plus an unallocated portion.
II-8
TABLE 3
ALLOWANCE FOR LOAN LOSSES
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(dollars in thousands) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------
Balance at January 1 $10,473 $ 9,120 $9,026 $8,652 $9,245
Loans charged off:
Real estate mortgages 55 204 112 154 43
Commercial and agricultural 1,193 1,274 967 1,409 1,222
Consumer 2,040 1,300 1,182 2,159 2,395
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Total loans charged off 3,288 2,778 2,261 3,722 3,660
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Recoveries:
Real estate mortgages 16 20 - - 2
Commercial and agricultural 197 274 193 291 267
Consumer 679 662 609 734 517
- ----------------------------------------------------------------------------------------------
Total recoveries 892 956 802 1,025 786
- ----------------------------------------------------------------------------------------------
Net loans charged off 2,396 1,822 1,459 2,697 2,874
Provision for loan losses 3,505 3,175 1,553 3,071 2,281
- ----------------------------------------------------------------------------------------------
Balance at December 31 $11,582 $10,473 $9,120 $9,026 $8,652
- ----------------------------------------------------------------------------------------------
Allowance for loan losses to loans
outstanding at end of year 1.57% 1.60% 1.55% 1.57% 1.55%
Allowance for loan losses to
nonaccrual loans 220% 315% 189% 195% 207%
Nonaccrual loans to total loans 0.71% 0.51% 0.82% 0.81% 0.74%
Nonperforming assets to total assets 0.45% 0.40% 0.62% 0.52% 0.48%
Net charge-offs to average loans
outstanding 0.34% 0.29% 0.25% 0.48% 0.52%
- ----------------------------------------------------------------------------------------------
TABLE 4
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
CATEGORY Category Category Category Category
PERCENT Percent Percent Percent Percent
(dollars in thousands)ALLOWANCE OF LOANS Allowance of Loans Allowance of Loans Allowance of Loans Allowance of Loans
- ------------------------------------------------------------------------------------------------------------------------------
Real estate
mortgages $ 244 18.4% $ 360 18.3% $ 412 20.6% $ 630 22.5% $ 206 24.3%
Commercial
and agricultural 5,448 44.4% 4,341 43.1% 4,250 42.0% 3,726 37.5% 3,699 36.9%
Consumer 2,365 37.2% 2,335 38.6% 2,048 37.4% 3,538 40.0% 3,767 38.8%
Unallocated 3,525 - 3,437 - 2,410 - 1,132 - 980 -
- -----------------------------------------------------------------------------------------------------------------------------
Total $11,582 100.0% $10,473 100.0% $9,120 100.0% $9,026 100.0% $8,652 100.0%
- -----------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest income consists primarily of trust and custodian fees, service
charges on deposit accounts, gains or losses on the sales of securities, and
fees and service charges for other banking services. Total noninterest income
for 1997 of $8.1 million decreased $0.8 million or 9.0% compared to 1996. Other
income in 1997 includes a one-time gain of $0.2 million for the sale of the
Hamden branch to The National Bank of Delaware County. Excluding securities
gains and losses, noninterest income increased $0.7 million or 9.4% in 1997
compared to 1996. Total noninterest income for 1996 of $8.9 million increased
$1.8 million over 1995, primarily the result of the $1.2 million in security
gains realized during 1996.
II-9
TABLE 5
NONINTEREST INCOME SUMMARY
- ------------------------------------------------------------------------------------------------------------
1997/1996 1996/1995
(dollars in thousands) 1997 1996 1995 AMOUNT CHANGE Amount Change
- ------------------------------------------------------------------------------------------------------------
Trust income $2,675 $2,642 $2,439 33 1.25% 203 8.32%
Deposit service charges 3,695 3,372 2,995 323 9.58% 377 12.59%
Securities gains (losses) (337) 1,179 145 (1,516) (128.58%) 1,034 713.10%
Other income 2,033 1,669 1,523 364 21.81% 146 9.59%
- ------------------------------------------------------------------------------------------------------------
Total noninterest income $8,066 $8,862 $7,102 (796) (8.98%) 1,760 24.78%
- ------------------------------------------------------------------------------------------------------------
The Trust Department of the Company had $701 million in assets (market value)
under management at December 31, 1997, up from $631 million at year-end 1996.
Trust income stabilized in 1997, as income often lags asset growth as a result
of timing of fee recognition.
Service charges on deposit accounts increased 9.6% over last year. There
were no significant changes in the fee structure or in the volume of transaction
accounts; however, emphasis was placed on collection vs. waiver, particularly
for overdraft charges which accounted for a major part of the increase.
The interest rate environment drives the potential for security gains and
losses. Net losses in 1997 of $0.3 million were realized from sales of U.S.
Treasury and U.S. Government agencies securities classified as available for
sale, as the Company repositioned its portfolio into higher yielding
instruments. This was accomplished with minimal credit or interest rate risk and
with no significant extension of average maturity.
Other income increased by 21.8% as a result of increased loan and ATM fee
income. The increased ATM income can be attributed to greater customer use and
the installation of additional machines throughout our market areas.
NONINTEREST EXPENSE AND OPERATING EFFICIENCY
Table 6 presents noninterest expense and operating efficiency ratios for each of
the three years ending December 31, 1997. Noninterest expense as a percentage of
average assets of 2.9% in 1997 improved from 3.1% in 1996. This positive trend
is a result of the asset growth experienced during 1997, at the same time
maintaining stable expense levels. The 1996 percentage of noninterest expense to
average assets of 3.1% declined from 3.2% in 1995, also resulting from an
increase in assets between the reporting periods.
Salaries and employee benefits experienced a minimal increase between 1997
and 1996. Salaries and employee benefits increased $1.5 million or 9.3% in 1996
compared to 1995. Expense increases in 1996 were primarily due to a $0.6 million
increase in performance based incentives and $0.5 million increase in retirement
benefits.
Expense control efforts have held occupancy and equipment expenses
relatively flat over the past three years. These expenses reflect a small
improvement compared to total average assets.
Included in the FDIC assessment expense is FDIC insurance and the FICO bond
assessment. During 1997, the Company paid no FDIC insurance, down from $2.0
thousand in 1996. The Company has the highest rating for purposes of FDIC
insurance assessment and, accordingly has historically paid the lowest deposit
insurance premium. During 1997, the Company paid $116.2 thousand in FICO bond
assessments.
Other operating expenses increased $0.4 million between 1997 and 1996, at
the same time improving as a percentage of average assets. Other operating
expenses for 1996 increased $0.7 million from 1995 as a result of an increase in
amortization of intangible assets arising from the December 1995 acquisition of
three branches. Also contributing to the 1996 increase in other operating
expense was an increase of $0.4 million in data processing and loan origination
charges, corresponding to increased volumes.
II-10
TABLE 6
NONINTEREST EXPENSE AND OPERATING EFFICIENCY ANALYSIS
Years Ended December 31,
1997 1996 1995 1997/1996 1996/1995
- --------------------------------------------------------------------------------------------------------------------------------
PERCENT Percent Percent
OF of of
AVERAGE Average Average Average Average
(dollars in thousands) AMOUNT ASSETS Amount Assets Amount Assets Amount Change Amount Change
- --------------------------------------------------------------------------------------------------------------------------------
Expenses:
Personnel $17,905 1.46% $17,817 1.60% $16,309 1.56% $ 88 0.49% $1,508 9.25%
Occupancy and equipment 4,298 0.35% 4,156 0.37% 4,055 0.39% 142 3.42% 101 2.49%
FDIC assessments 116 0.01% 2 -% 941 0.09% 114 5700.00% (939) (99.79%)
Other 12,851 1.04% 12,447 1.13% 11,719 1.13% 404 3.25% 728 6.21%
- --------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense $35,170 2.86% $34,422 3.10% $33,024 3.17% $748 2.17% $1,398 4.23%
- --------------------------------------------------------------------------------------------------------------------------------
Expense ratio (1) 2.20% 2.41% 2.51%
Efficiency ratio (2) 56.09% 60.74% 65.92%
Average assets per
employee (in millions) $ 2.5 $ 2.1 $ 1.9
- --------------------------------------------------------------------------------------------------------------------------------
(1) Noninterest expense less noninterest income, not including security gains
and other non-recurring income or expense, as a percentage of average assets.
(2) Noninterest expense, less non-recurring expenses, as a percentage of
tax-effected net interest income plus noninterest income, less security gains.
INCOME TAXES
Income tax expense was $8.3 million for 1997, $7.1 million for 1996, and $5.8
million for 1995. The increases generally correspond to increased income before
income taxes. Effective income tax rates were 36.0% for 1997, 36.9% for 1996,
and 38.2% for 1995. At December 31, 1997, the Company has deferred tax assets of
$6.1 million and deferred tax liabilities of $3.4 million. Management has
determined that a valuation allowance for the deferred tax assets is not needed
at December 31, 1997. Additional information on income taxes is provided in the
notes to financial statements.
SECURITIES
The securities portfolio constituted 39.6% and 40.3% of average earning assets
during 1997 and 1996, respectively. At December 31, 1997, the securities
portfolio consists of 92% U.S. Government agencies guaranteed securities. All
purchases of U.S. Governmental agencies guaranteed securities are classified as
available for sale. Held to maturity securities are obligations of the State of
New York political subdivisions and do not include any direct obligations of the
state of New York.
TABLE 7
SECURITIES PORTFOLIO
As of December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
AMORTIZED FAIR Amortized Fair Amortized Fair
(in thousands) COST VALUE Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------
Securities Available For Sale:
U.S. Treasury $ 2,395 $ 2,406 $ 70,811 $ 70,269 $169,801 $171,908
Federal Agency and mortgage-backed 431,259 435,167 299,202 297,133 217,655 220,305
State & Municipal and other securities 2,967 3,059 1,775 1,800 1,308 1,323
- ------------------------------------------------------------------------------------------------------------------
Total securities available for sale $436,621 $440,632 $371,788 $369,202 $388,764 $393,536
- ------------------------------------------------------------------------------------------------------------------
Securities Held to Maturity:
State & Municipal 23,692 23,692 32,546 32,546 28,521 28,517
Other securities 12,447 12,447 9,693 9,692 11,790 11,789
- ------------------------------------------------------------------------------------------------------------------
Total securities held to maturity $ 36,139 $ 36,139 $ 42,239 $ 42,238 $ 40,311 $ 40,306
- ------------------------------------------------------------------------------------------------------------------
II-11
LOANS
The following Table 8 sets forth the loan portfolio by major categories as of
December 31 for the years indicated.
TABLE 8
COMPOSITION OF LOAN PORTFOLIO
- ------------------------------------------------------------------------------------------------------
December 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
(in thousands)
Real estate mortgages $128,873 $110,288 $107,611 $125,385 $132,941
Commercial real estate mortgages 151,129 135,061 108,902 71,631 88,487
Real estate construction and
development 6,602 9,582 13,361 3,890 3,162
Commercial and agricultural 175,362 146,930 138,391 143,632 118,143
Consumer 203,016 204,641 185,276 201,359 187,179
Home equity 70,500 48,091 34,817 28,704 29,741
Lease financing - - 27 117 207
- ------------------------------------------------------------------------------------------------------
Total loans $735,482 $654,593 $588,385 $574,718 $559,860
- ------------------------------------------------------------------------------------------------------
The loan portfolio is the largest component of earning assets and accounts for
the greatest portion of total interest income. At December 31, 1997, total loans
were $735.5 million, a 12.4% increase from December 31, 1996. In general, loans
are internally generated and lending activity is confined to New York State,
principally the eight-county area served by the Company. The Company does not
engage in highly leveraged transactions or foreign lending activities. There
were no concentration of loans exceeding 10% of total loans other than those
categories reflected in Table 8.
Real estate mortgages consist primarily of loans secured by first or second
deeds of trust on primary residencies. Beginning in 1996, the Company began
retaining most first mortgage loans within the portfolio. For several years
prior to 1996, fixed-rate mortgages were originated for sale in the secondary
market. During 1997, the Company sold $0.9 million in mortgage loans compared to
sales of $0.4 million in 1996. There were no gains or losses recognized related
to sales of mortgages originated in 1997. At December 31, 1997, loans classified
as available for sale consist of higher education loans with estimated fair
market values equal to cost.
Loans in the commercial and agricultural category, as well as commercial
real estate mortgages, consist primarily of short-term and/or floating rate
commercial loans made to small to medium-sized companies. Agricultural loans
totalled $47.8 million at December 31, 1997, and there are no other substantial
loan concentrations to any one industry or to any one borrower.
Consumer loans consist primarily of installment credit to individuals
secured by automobiles and other personal property. Management believes consumer
loan underwriting guidelines to be conservative. The guidelines are based
primarily on satisfactory credit history, down payment, and sufficient income to
service monthly payments.
Shown in Table 9, Maturities and Sensitivities of Loans to Changes in
Interest Rates, are the maturities of the loan portfolio and the sensitivity of
loans to interest rate fluctuations at December 31, 1997. Scheduled repayments
are reported in the maturity category in which the contractual payment is due.
II-12
TABLE 9
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
- ------------------------------------------------------------------------------------
AFTER ONE
YEAR BUT
WITHIN AFTER
REMAINING MATURITY AT WITHIN FIVE FIVE
DECEMBER 31, 1997 ONE YEAR YEARS YEARS TOTAL
- ------------------------------------------------------------------------------------
(in thousands)
Floating/adjustable rate:
Commercial and agricultural $ 89,623 $107,989 $ 45,667 $243,279
Real estate mortgages 2,418 11,417 73,187 87,022
Consumer 55,731 7 13 55,751
- ------------------------------------------------------------------------------------
Total floating rate loans 147,772 119,413 118,867 386,052
- ------------------------------------------------------------------------------------
Fixed Rate:
Commercial and agricultural 23,396 38,999 20,817 83,212
Real estate mortgages 1,983 8,633 37,837 48,453
Consumer 62,071 133,335 22,359 217,765
- ------------------------------------------------------------------------------------
Total fixed rate loans 87,450 180,967 81,013 349,430
- ------------------------------------------------------------------------------------
Total loans $235,222 $300,380 $199,880 $735,482
- ------------------------------------------------------------------------------------
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets and past due loans are reflected in Table 10 below for the
years indicated.
TABLE 10
NONPERFORMING ASSETS AND RISK ELEMENTS
- ----------------------------------------------------------------------------------------------------------------
December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Impaired commercial and agricultural loans $3,856 $2,441 $3,945 $ - $ -
Other nonaccrual loans:
Real estate mortgages 692 251 332 783 365
Commercial and agricultural - - - 3,552 3,693
Consumer 708 628 540 304 112
- ----------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 5,256 3,320 4,817 4,639 4,170
- ----------------------------------------------------------------------------------------------------------------
Other real estate owned 530 1,242 2,000 840 430
- ----------------------------------------------------------------------------------------------------------------
Total nonperforming assets 5,786 4,562 6,817 5,479 4,600
- ----------------------------------------------------------------------------------------------------------------
Loans 90 days or more past due and still accruing:
Real estate mortgages 244 344 448 287 956
Commercial and agricultural 176 418 559 133 410
Consumer 325 289 325 451 1,819
- ----------------------------------------------------------------------------------------------------------------
Total 745 1,051 1,332 871 3,185
- ----------------------------------------------------------------------------------------------------------------
Restructured loans, in compliance with modified terms: - - 142 - -
- ----------------------------------------------------------------------------------------------------------------
Total assets containing risk elements $6,531 $5,613 $8,291 $6,350 $7,785
- ----------------------------------------------------------------------------------------------------------------
Total nonperforming assets to loans 0.79% 0.70% 1.16% 0.95% 0.82%
Total assets containing risk element to loans 0.89% 0.86% 1.41% 1.10% 1.39%
Total nonperforming assets to assets 0.45% 0.40% 0.62% 0.52% 0.48%
Total assets containing risk elements to assets 0.51% 0.49% 0.75% 0.61% 0.82%
- ----------------------------------------------------------------------------------------------------------------
Total nonperforming assets increased $1.2 million or 26.8% from 1996 to 1997;
total assets containing risk elements increased $0.9 million or 16.4% during the
same period. The changes in nonaccrual and impaired loans is presented in Table
12 below. The effect of nonaccrual and impaired loans on interest income is
presented in the following Table 11.
II-13
TABLE 11
NONACCRUAL AND IMPAIRED LOANS INTEREST INCOME
- ------------------------------------------------------------------------------------------------
December 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------
(in thousands)
Income that would have been accrued at original
contract rates $559 $1,125 $765 $465 $284
Amount recognized as income 148 593 344 216 105
- ------------------------------------------------------------------------------------------------
Interest income not accrued $411 $ 532 $421 $249 $179
- ------------------------------------------------------------------------------------------------
TABLE 12
CHANGES IN NONACCRUAL AND IMPAIRED LOANS
- -------------------------------------------------------
(in thousands) 1997 1996
- -------------------------------------------------------
Balance at January 1 $ 3,320 $ 4,817
Loans placed on nonaccrual 6,695 6,126
Charge-offs (1,989) (1,710)
Payments (2,156) (3,593)
Transfers to OREO (348) (680)
Loans returned to accrual (266) (1,640)
- -------------------------------------------------------
Balance at December 31 $ 5,256 $ 3,320
- -------------------------------------------------------
CHANGES IN OREO
- -------------------------------------------------------
(in thousands) 1997 1996
- -------------------------------------------------------
Balance at January 1 $ 1,242 $ 2,000
Additions 976 758
Sales (1,574) (1,233)
Charge-offs and write-downs (114) (283)
- -------------------------------------------------------
Balance at December 31 $ 530 $ 1,242
- -------------------------------------------------------
DEPOSITS
Deposits are the largest component of the Company's liabilities and account for
the greatest portion of interest expense. At December 31, 1997, total deposits
were $1,014.2 million, an increase of 10.7% from December 31, 1996. Average
deposits during 1997 of $973.6 million were 6.2% higher than the 1996 average.
The preceding Table 1 presents average deposits with accompanying average rates.
TABLE 13
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE
- -------------------------------------------------------------
December 31, 1997 1996
- -------------------------------------------------------------
(in thousands)
Within three months $210,226 $154,328
After three but within six months 32,467 24,820
After six but within twelve months 11,611 5,994
After twelve months 15,633 6,201
- -------------------------------------------------------------
Total $269,937 $191,343
- -------------------------------------------------------------
BORROWED FUNDS
Short-term borrowings include federal funds purchased, securities sold under
agreement to repurchase, and other short-term borrowings which consist primarily
of FHLB advances with an original maturity of one day up to one year. Other
borrowings consist of fixed rate FHLB advances with an original maturity greater
than one year. At December 31, 1997, total borrowings of $134.7 million were up
24.2% compared to the previous year-end total of $108.4 million.
II-14
CAPITAL AND DIVIDENDS
TABLE 14
CAPITAL MEASUREMENTS
- --------------------------------------------------------------------
December 31, 1997 1996
- --------------------------------------------------------------------
(restated to give retroactive effect to stock dividends)
Tier 1 leverage ratio 8.91% 8.70%
Tier 1 capital ratio 14.88% 14.06%
Total risk-based capital ratio 16.13% 15.31%
Cash dividends as a percentage of net income 37.72% 36.10%
Per common share:
Book value $13.68 $12.11
Tangible book value $12.72 $10.97
- --------------------------------------------------------------------
TABLE 15
QUARTERLY COMMON STOCK AND DIVIDEND INFORMATION
- --------------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------
(restated to give retroactive effect to stock dividends)
CASH Cash
DIVIDENDS Dividends
QUARTER ENDING HIGH LOW CLOSE DECLARED High Low Close Declared
- --------------------------------------------------------------------------------------------------------
March 31 $19.05 $16.79 $18.57 $0.143 $15.45 $14.51 $15.42 $0.118
June 30 25.60 18.57 25.60 0.143 15.88 14.86 14.86 0.118
September 30 25.48 21.19 25.12 0.162 15.65 14.29 15.30 0.118
December 31 27.69 22.86 27.00 0.170 18.10 15.30 17.14 0.143
- --------------------------------------------------------------------------------------------------------
For the year $27.69 $16.79 $27.00 $0.618 $18.10 $14.29 $17.14 $0.497
- --------------------------------------------------------------------------------------------------------
On a per share basis, cash dividends declared have been increased in both 1997
and 1996. The dividend increases reflect the Company's earnings and capital
strength. The Company does not have a target dividend payout ratio, rather the
Board of Directors considers the Company's earnings position and earnings
potential when making dividend decisions. Additionally, 1997 was the
thirty-eighth consecutive year that the Company declared a stock dividend.
The accompanying Table 15 sets forth the quarterly high, low and closing
sales price for the common stock as reported on the NASDAQ National Market
System, and cash dividends declared per share of common stock. At December 31,
1997, the total market capitalization of the Company's common stock was
approximately $243.4 million compared with $150.4 million at December 31, 1996.
The change in market capitalization is due to changes in the market price net of
increased shares outstanding. The Company's price to book value ratio was 1.97,
1.42, and 1.34 at December 31, 1997, 1996 and 1995, respectively. The Company's
price was 17, 13, and 16 times diluted earnings at December 31, 1997, 1996 and
1995, respectively.
Capital is an important factor in ensuring the safety of depositors'
accounts. During both 1997 and 1996, the Company earned the highest possible
national safety and soundness rating from two national bank rating services,
Bauer Financial Services and Veribanc, Inc. Their ratings are based on capital
levels, loan portfolio quality, and security portfolio strength.
The Company remains well capitalized as depicted by the capital ratios in
the table. Capital measurements are significantly in excess of both regulatory
minimum guidelines and meet the requirements to be considered well capitalized
for all periods presented. Tier 1 and Total Risk-Based Capital ratios have
regulatory minimum guidelines of 4% and 8%, respectively, with requirements to
be considered well capitalized of 6% and 10%, respectively.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary objectives of asset and liability management are to provide for the
safety of depositor and investor funds, assure adequate liquidity, and maintain
an appropriate balance between interest sensitive earning assets and interest
bearing liabilities. Liquidity management involves the ability to meet the cash
flow requirements of customers who may be depositors wanting to withdraw funds
or borrowers needing assurance that sufficient funds will be available to meet
their credit needs. The Asset/Liability Management Committee ("ALCO") is
responsible for liquidity management and has developed guidelines which cover
all assets and liabilities, as well as off balance sheet items that are
potential sources or uses of liquidity. Liquidity must also provide the
flexibility to implement appropriate strategies and tactical actions.
Requirements change as loans grow, deposits and securities mature, and payments
II-15
on borrowings are made. Interest rate sensitivity management seeks to avoid
widely fluctuating net interest margins and to ensure consistent net interest
income through periods of changing economic conditions.
Given the above, liquidity to the Company is defined as the ability to
raise cash quickly at a reasonable cost without principal loss. The primary
liquidity measurement the Company utilizes is called the Basic Surplus which
captures the adequacy of its access to reliable sources of cash relative to the
stability of its funding mix of average liabilities. This approach recognizes
the importance of balancing levels of cash flow liquidity from short and
long-term securities with the availability of dependable borrowing sources which
can be accessed when necessary. Accordingly, the Company has established
borrowing facilities with other banks (federal funds), the Federal Home Loan
Bank of New York (short and long-term borrowings which are denoted as advances),
and repurchase agreements with investment companies.
This Basic Surplus approach enables the Company to adequately manage
liquidity from both tactical and contingency perspectives. By tempering the need
for cash flow liquidity with reliable borrowing facilities, the Company is able
to operate with a more fully invested and, therefore, higher interest income
generating, securities portfolio. The makeup and term structure of the
securities portfolio is, in part, impacted by the overall interest rate
sensitivity of the balance sheet. Investment decisions and deposit pricing
strategies are impacted by the liquidity position.
At December 31, 1997 and 1996, the Company's Basic Surplus ratios (net
access to cash and secured borrowings as a percentage of total assets) were
approximately 9% and 14%, respectively, compared to the present internal minimum
guideline range of 5% to 7%. The December 31, 1997 Basic Surplus ratio was in
excess of the guidelines. The Company had unused lines of credit available
totalling $224 million to meet its short-term liquidity needs at December 31,
1997 and considered the Basic Surplus adequate to meet liquidity needs.
Interest rate risk is determined by the relative sensitivities of earning
asset yields and interest bearing liability costs to changes in interest rates.
Overnight federal funds on which rates change daily and loans which are tied to
the prime rate differ considerably from long-term investment securities and
fixed rate loans. Similarly, time deposits over $100,000 and money market
deposit accounts are much more interest sensitive than NOW and savings accounts.
The method by which banks evaluate interest rate risk is to look at the
interest sensitivity gap, the difference between interest sensitive assets and
interest sensitive liabilities repricing during the same period, measured at a
specific point in time. The funding matrix depicted in the accompanying table is
utilized as a primary tool in managing interest rate risk. The matrix arrays
repricing opportunities along a time line for both assets and liabilities. The
time line for sources of funds, liabilities and equity, is depicted on the left
hand side of the matrix. The longest term, most fixed rate sources, are
presented in the upper left hand corner while the shorter term, most variable
rate items, are at the lower left. Similarly, uses of funds, assets, are
arranged across the top moving from left to right.
The body of the matrix is derived by allocating the longest fixed rate
funding sources to the longest fixed rate assets (upper left corner) and shorter
term variable sources to shorter term variable uses (lower right corner). The
result is a graphical depiction of the time periods over which the Company is
expected to experience exposure to rising or falling rates. Since the scales of
the liability (left) and asset (top) sides are identical, all numbers in the
matrix would fall within the diagonal lines if the Company was perfectly matched
across all repricing time frames. Numbers outside the diagonal lines represent
two general types of mismatches: i) liability sensitive, where rate sensitive
liabilities exceed the amount of rate sensitive assets repricing within
applicable time frames (items to the left of/below the diagonal lines) and ii)
asset sensitive, where rate sensitive assets exceed the amount of rate sensitive
liabilities repricing within applicable time frames (items to the right of/above
the diagonal lines).
Generally, the lower the amount of this gap, the less sensitive are
earnings to interest rate changes. The matrix indicates that the Company is
liability sensitive in the short term and supports management's contention that
the Company is positioned to benefit from a declining interest rate environment
over the next twelve months. The nature and timing of the benefit will be
initially impacted by the extent to which core deposit and borrowing rates are
lowered as rates decline. The Company becomes asset sensitive after the one-year
time frame and, therefore, would benefit in the long-term from rising interest
rates.
II-16
TABLE 16
SUMMARY STATIC GAP FUNDING MATRIX
- -----------------------------------------------------------------------------------------------------------------------------
(ASSETS) OVER 60 37-60 25-36 13-24 7-12 4-6
-USES- MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS MAR 98 FEB 98 JAN 98 ONE DAY TOTALS
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -SOURCES- TOTALS 305 130 105 145 143 73 24 30 323 3 1,281
- -----------------------------------------------------------------------------------------------------------------------------
OVER 60 532 305 130 97 Long Liabilities 532
MONTHS Short Assets
37-60 14 8 6 14
MONTHS
25-36 18 18 18
MONTHS
13-24 49 49 49
MONTHS
7-12 85 72 13 85
MONTHS
4-6 88 88 88
MONTHS
MAR 98 146 42 73 24 7 146
FEB 98 55 23 32 55
JAN 98 198 Long Assets 198 198
Short Liabilities
ONE DAY 96 93 3 96
- -----------------------------------------------------------------------------------------------------------------------------
TOTALS 1,281 305 130 105 145 143 73 24 30 323 3 1,281
- -----------------------------------------------------------------------------------------------------------------------------
While the static gap evaluation of interest rate sensitivity is useful, it is
not indicative of the impact of fluctuating interest rates on net interest
income. Once the Company determines the extent of gap sensitivity, the next step
is to quantify the potential impact of the interest sensitivity on net interest
income. The Company utilizes a simulation model which measures the effect
certain assumptions will have in net interest income over a short period of
time, usually one or two years. These assumptions include, but are not limited
to prepayments, potential call options of the investment portfolio and various
interest rate environments. The following table presents the impact on net
interest income of a gradual twelve-month increase or decrease in interest rates
compared to a stable interest rate environment. The simulation projects net
interest income over the next year using the December 31, 1997 balance sheet
position.
TABLE 17
INTEREST RATE SENSITIVITY ANALYSIS
Change in interest rates Percent change in
(in basis points) net interest income
- -----------------------------------------------------
+200 (4.04%)
+100 (2.44%)
- -100 1.26%
- -200 1.60%
- -----------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS
On December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No.
128, which supersedes Accounting Principles Board ("APB") Opinion No. 15,
"Earnings Per Share", establishes standards for computing and presenting
earnings per share ("EPS") for entities with publicly held common stock and
common stock equivalents. All prior period EPS amounts included in the
consolidated financial statements and in the Company's 1997 Annual Report have
been restated to conform with the computational provisions of SFAS No. 128.
II-17
In February 1997, the FASB issued SFAS No. 129 Disclosure of
Information about Capital Structure. SFAS No. 129 consolidates existing
disclosure requirements and eliminates the exemption of nonpublic entities from
certain capital disclosure requirements. The new Statement contains no change in
disclosure requirements for companies that were subject to the previously
existing requirements. The adoption of SFAS No. 129 did not have a material
impact on the Company's financial condition or results of operations.
In June 1997, the FASB issued SFAS No. 130 Reporting Comprehensive
Income. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from nonowner sources. The impact of adopting SFAS No. 130, which
is effective for periods beginning after December 15, 1997, will not have an
impact on the Company's financial condition or results of operations.
In June 1997, the FASB issued SFAS No. 131 Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 requires public business
enterprises to report financial and other information about key
revenue-producing segments of the entity for which such information is available
and is utilized by the chief operating decision maker's. Specific information to
be reported for individual segments includes profit or loss, certain revenue and
expense items and total assets. A reconciliation of segment financial
information to amounts reported in the financial statements would be provided.
SFAS No. 131 is effective for periods beginning after December 15, 1997 and the
impact of its adoption has not been determined.
FOURTH QUARTER RESULTS
Selected quarterly results are presented in Table 18, Selected Quarterly
Financial Data. Net income for the fourth quarter 1997 of $3.6 million, $0.39
per diluted share, was up from $3.2 million, $0.36 per diluted share, earned in
the fourth quarter 1996. Average earning assets for the fourth quarter 1997 were
$138.9 million or 13.0% higher than for the fourth quarter 1996. Average loans
increased 13.3% from an average of $643.3 million for the fourth quarter 1996 to
$729.0 million for the fourth quarter of 1997.
The 1997 fourth quarter return on average assets of 1.11% was
comparable to the 1996 ratio of 1.12%. The return on average equity for the
fourth quarter 1997 of 11.71% is down from the fourth quarter 1996 ratio of
12.11%. Expense and efficiency ratios of 2.30% and 57.86%, respectively, for the
fourth quarter 1997, improved over the comparable 1996 ratios of 2.33% and
58.52%.
TABLE 18
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) FIRST SECOND THIRD FOURTH First Second Third Fourth
Interest and fee income $22,283 $23,759 $24,848 $25,291 $20,003 $20,815 $21,678 $21,891
Interest expense 9,659 10,559 11,075 11,229 8,670 9,007 9,367 9,321
Net interest income 12,624 13,200 13,773 14,062 11,333 11,808 12,311 12,570
Provision for loan losses 715 1,000 965 825 600 700 875 1,000
Noninterest income excluding
securities gains 2,003 2,270 2,070 2,060 1,792 1,848 1,932 2,111
Securities gains (losses) 17 1 (90) (265) 792 219 194 (26)
Noninterest expense 8,559 8,266 8,904 9,441 8,586 8,636 8,460 8,740
Net income $ 3,445 $ 4,037 $ 3,702 $ 3,565 $ 2,911 $ 2,737 $ 3,338 $ 3,193
Basic earnings per share $ 0.39 $ 0.45 $ 0.41 $ 0.40 $ 0.32 $ 0.31 $ 0.38 $ 0.36
Diluted earnings per share $ 0.38 $ 0.45 $ 0.41 $ 0.39 $ 0.32 $ 0.30 $ 0.38 $ 0.36
Net interest margin 4.71% 4.65% 4.64% 4.68% 4.66% 4.64% 4.70% 4.77%
Return on average assets 1.19% 1.33% 1.17% 1.11% 1.09% 0.99% 1.18% 1.12%
Return on average equity 12.82% 14.78% 12.74% 11.71% 10.94% 10.90% 13.28% 12.11%
Average diluted common
shares outstanding 8,999 9,053 9,099 9,135 9,119 8,974 8,824 8,843
- ---------------------------------------------------------------------------------------------------------------------------------
II-18
PROPERTIES
The Company operates the following community banking offices:
Date Square
Name of Office Location County Established Footage
Norwich 52 S. Broad St., Norwich, NY Chenango 07-15-1856 77,000
Afton 182 Main St., Afton, NY Chenango 09-01-1962 2,779
Bainbridge 9 N. Main St., Bainbridge, NY Chenango 12-07-1938 4,897
Earlville 2 S. Main St., Earlville, NY Chenango 08-07-1937 1,222
Grand Gorge Rt. 23 & 30, Grand Gorge, NY Delaware 11-01-1957 3,000
Margaretville Main St., Margaretville, NY Delaware 09-03-1963 3,152
New Berlin 2 S. Main St., New Berlin, NY Chenango 12-21-1946 2,195
Sherburne 30 N. Main St., Sherburne, NY Chenango 08-07-1937 3,393
South Otselic Gladding St., S. Otselic, NY Chenango 10-01-1945 1,326
North Plaza Rt. 12 & 320, Norwich, NY Chenango 10-15-1986 1,849
South Plaza Rt. 12 S., Norwich, NY Chenango 08-20-1986 1,200
Deposit 105 Front St., Deposit, NY Broome 02-12-1971 3,550
Newark Valley 2 N. Main St., Newark Valley, NY Tioga 10-01-1973 3,893
Maine 67 Main St., Maine, NY Broome 10-01-1973 1,458
Hobart Maple Ave., Hobart, NY Delaware 06-28-1974 2,308
Sidney 13 Division St., Sidney, NY Delaware 12-31-1978 3,500
Oxford State St., Oxford, NY Chenango 08-01-1984 3,559
Greene 80 S. Chenango St., Greene, NY Chenango 12-15-1986 3,200
Binghamton 1256 Front St., Binghamton, NY Broome 03-29-1993 1,900
Hancock 1 E. Main St., Hancock, NY Delaware 10-01-1989 7,500
Oneonta 733 State Highway 28, Oneonta, NY Otsego 01-14-1998 4,000
Clinton 1 Kirkland Ave., Clinton, NY Oneida 10-01-1989 7,960
Rome Westgate Plaza, Erie Blvd. W., Rome, NY Oneida 10-01-1989 1,950
Utica Business Pk 555 French Road, New Hartford, NY Oneida 10-01-1994 3,396
New Hartford 8549 Seneca Turnpike, New Hartford, NY Oneida 12-16-1995 4,179
Rome Black River 853 Black River Blvd., Rome, NY Oneida 10-01-1997 3,000
Gloversville 199 Second Ave. Ext., Gloversville, NY Fulton 10-01-1989 4,263
Northville 192 N. Main St., Northville, NY Fulton 10-01-1989 3,000
Vail Mills Rt. 30, Vail Mills, NY Fulton 10-01-1989 1,000
Lake Placid 81 Main St., Lake Placid, NY Essex 10-01-1989 8,500
Cold Brook Plaza Saranac Ave., Lake Placid, NY Essex 10-01-1989 1,300
Saranac Lake 2 Lake Flower Ave., Saranac Lake, NY Essex 10-01-1989 2,400
Plattsburgh 30 Brinkerhoff St., Plattsburgh, NY Clinton 05-28-1993 4,396
Plattsburgh North Rt. 9, Plattsburgh, NY Clinton 08-28-1993 3,000
Ellenburg Depot 5084 Rt. 11, Ellenburg Depot, NY Clinton 08-28-1993 2,346
The South Otselic, Binghamton, Vail Mills, Plattsburgh North, Rome, Utica
Business Park and Rome Black River Offices are leased. All other banking
premises are owned by the Company. The Company also has free-standing automated
banking units. In 1997, the Utica Downtown Office closed on March 28 and the
Hamden Office was sold effective June 30.
II-19
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------
(in thousands, except per share data) 1997 1996 % Change
- ----------------------------------------------------------------------------------------
FOR THE YEAR
Interest and fee income $ 96,181 $ 84,387 14.0%
Interest expense 42,522 36,365 16.9%
Net interest income 53,659 48,022 11.7%
Provision for loan losses 3,505 3,175 10.4%
Noninterest income 8,066 8,862 (9.0%)
Noninterest expense 35,170 34,422 2.2%
Net income 14,749 12,179 21.1%
- ----------------------------------------------------------------------------------------
PER COMMON SHARE
Basic earnings per share $ 1.65 $ 1.37 20.4%
Diluted earnings per share 1.63 1.36 19.9%
Cash dividends 0.618 0.497 24.3%
Book value at year end 13.68 12.11 13.0%
Tangible book value at year end 12.72 10.97 16.0%
Market price:
High 27.69 18.10 53.0%
Low 16.79 14.29 17.5%
End of year 27.00 17.14 57.5%
- ----------------------------------------------------------------------------------------
AT YEAR END
Assets $1,280,585 $1,138,986 12.4%
Earning assets $1,214,547 $1,073,705 13.1%
Loans $ 735,482 $ 654,593 12.4%
Allowance for loan losses $ 11,582 $ 10,473 10.6%
Deposits $1,014,183 $ 916,319 10.7%
Stockholders' equity $ 123,343 $ 106,264 16.1%
Common shares outstanding 9,014,092 8,774,837 2.7%
- ----------------------------------------------------------------------------------------
AVERAGE BALANCES
Assets $1,228,643 $1,110,968 10.6%
Earning assets $1,167,460 $1,043,425 11.9%
Loans $ 695,552 $ 617,810 12.6%
Deposits $ 973,641 $ 916,683 6.2%
Stockholders' equity $ 113,691 $ 103,240 10.1%
Common shares outstanding 8,963,120 8,882,747 0.9%
Diluted common shares outstanding 9,071,728 8,938,667 1.5%
- ----------------------------------------------------------------------------------------
ASSET QUALITY
Allowance to loans 1.57% 1.60% (1.9%)
Nonperforming assets to assets 0.45% 0.40% 12.5%
Allowance to nonperforming loans 220% 315% (30.2%)
- ----------------------------------------------------------------------------------------
KEY RATIOS
Return on average assets 1.20% 1.10% 9.1%
Return on average equity 12.97% 11.80% 9.9%
Net interest margin 4.67% 4.69% (0.4%)
Tier 1 leverage 8.91% 8.70% 2.4%
Tier 1 risk-based capital 14.88% 14.06% 5.8%
Total risk-based capital 16.13% 15.31% 5.4%
- ----------------------------------------------------------------------------------------
All per share data has been restated to give retroactive effect to stock
dividends and the adoption of Statement of Financial Accounting Standards
No. 128, "Earnings Per Share".
II-20
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
Responsibility for the integrity, objectivity, consistency, and fair
presentation of the financial information presented in this Annual Report rests
with NBT Bancorp Inc. management. The accompanying financial statements and
related information have been prepared in conformity with generally accepted
accounting principles consistently applied and include, where required, amounts
based on informed judgments and management's best estimates.
Management maintains a system of internal controls and accounting
policies and procedures to provide reasonable assurance of the accountability
and safeguarding of Company assets and of the accuracy of financial information.
These procedures include management evaluations of asset quality and the impact
of economic events, organizational arrangements that provide an appropriate
segregation of responsibilities and a program of internal audits to evaluate
independently the adequacy and application of financial and operating controls
and compliance with Company policies and procedures.
The Board of Directors has appointed an Audit Committee composed
entirely of directors who are not employees of the Company. The Audit Committee
is responsible for recommending to the Board the independent auditors to be
retained for the coming year, subject to stockholder ratification. The Audit
Committee meets periodically, both jointly and privately, with the independent
auditors, with our internal auditors, as well as with representatives of
management, to review accounting, auditing, internal control structure and
financial reporting matters. The Committee reports to the Board on its
activities and findings.
/s/DARYL R. FORSYTHE
Daryl R. Forsythe
President and Chief Executive Officer
/S/JOE C. MINOR
Joe C. Minor
Chief Financial Officer and Treasurer
II-21
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
NBT Bancorp Inc.:
We have audited the accompanying consolidated balance sheets of NBT
Bancorp Inc. and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NBT Bancorp
Inc. and subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Syracuse, New York
January 15, 1998
II-22
NBT BANCORP INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------
December 31, 1997 1996
- -------------------------------------------------------------------------------------------------
(in thousands, except per share data)
ASSETS
Cash and cash equivalents $ 37,446 $ 35,790
Loans available for sale 3,286 4,135
Securities available for sale, at fair value 440,632 369,202
Securities held to maturity (fair value-$36,139 and $42,238) 36,139 42,239
Loans:
Commercial and agricultural 326,491 281,991
Real estate mortgage 135,475 119,870
Consumer 273,516 252,732
- -------------------------------------------------------------------------------------------------
Total loans 735,482 654,593
Less allowance for loan losses 11,582 10,473
- -------------------------------------------------------------------------------------------------
Net loans 723,900 644,120
Premises and equipment, net 18,761 16,307
Intangible assets, net 8,642 9,953
Other assets 11,779 17,240
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,280,585 $1,138,986
- -------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (noninterest bearing) $ 138,985 $ 122,115
Savings, NOW, and money market 358,366 359,141
Time 516,832 435,063
- -------------------------------------------------------------------------------------------------
Total deposits 1,014,183 916,319
Short-term borrowings 134,527 88,244
Other borrowings 183 20,195
Other liabilities 8,349 7,964
- -------------------------------------------------------------------------------------------------
Total liabilities 1,157,242 1,032,722
- -------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par, stated value $1.00; shares
authorized-2,500,000 - -
Common stock, no par, stated value $1.00; shares
authorized-12,500,000; shares issued 9,429,963 and 9,280,359 9,430 8,838
Capital surplus 96,494 82,731
Retained earnings 22,249 24,208
Unrealized gain (loss) on securities available for sale, net of
income tax effect 2,373 (1,529)
Common stock in treasury at cost, 415,871 and 481,449 shares (7,203) (7,984)
- -------------------------------------------------------------------------------------------------
Total stockholders' equity 123,343 106,264
- -------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,280,585 $1,138,986
- -------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
II-23
NBT BANCORP INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------
Year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------
(in thousands, except per share data)
Interest and fee income:
Loans and loans available for sale $64,781 $57,660 $53,602
Securities - taxable 29,887 25,109 22,277
Securities - tax exempt 1,179 1,527 1,375
Other 334 91 146
- ------------------------------------------------------------------------------------------
Total interest and fee income 96,181 84,387 77,400
- ------------------------------------------------------------------------------------------
Interest expense:
Deposits 35,234 31,942 29,683
Short-term borrowings 6,581 3,745 4,700
Other borrowings 707 678 457
- ------------------------------------------------------------------------------------------
Total interest expense 42,522 36,365 34,840
- ------------------------------------------------------------------------------------------
Net interest income 53,659 48,022 42,560
Provision for loan losses 3,505 3,175 1,553
- ------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 50,154 44,847 41,007
- ------------------------------------------------------------------------------------------
Noninterest income:
Trust 2,675 2,642 2,439
Service charges on deposit accounts 3,695 3,372 2,995
Securities gains (losses) (337) 1,179 145
Other 2,033 1,669 1,523
- ------------------------------------------------------------------------------------------
Total noninterest income 8,066 8,862 7,102
- ------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 17,905 17,817 16,309
Occupancy 2,598 2,391 2,361
Equipment 1,700 1,765 1,694
FDIC assessments 116 2 941
Amortization of intangible assets 1,351 1,580 1,271
Other operating 11,500 10,867 10,448
- ------------------------------------------------------------------------------------------
Total noninterest expense 35,170 34,422 33,024
- ------------------------------------------------------------------------------------------
Income before income taxes 23,050 19,287 15,085
Income taxes 8,301 7,108 5,756
- ------------------------------------------------------------------------------------------
Net income $14,749 $12,179 $ 9,329
- ------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 1.65 $ 1.37 $ 1.01
Diluted $ 1.63 $ 1.36 $ 1.01
- ------------------------------------------------------------------------------------------
See notes to consolidated financial statements
II-24
NBT BANCORP INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------
Unrealized
Gain(Loss)
On Securities
Common Capital Retained Available Treasury
Stock Surplus Earnings For Sale Stock Total
- -----------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
BALANCE AT DECEMBER 31, 1994 $8,050 $69,669 $ 25,446 $(4,273) $ (585) $ 98,307
Net income 9,329 9,329
5% stock dividend 392 6,333 (6,725) -
Cash dividends - $0.429 per share (3,962) (3,962)
Payment in lieu of fractional shares (12) (12)
Purchase of 436,293 treasury shares (7,075) (7,075)
Sale of 302,147 treasury shares to
employee benefit plans and other
stock plans (538) 4,900 4,362
Unrealized gain on securities
available for sale, net of deferred taxes
of $4,900 7,095 7,095
- -----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 8,442 75,464 24,076 2,822 (2,760) 108,044
Net income 12,179 12,179
5% stock dividend 396 7,254 (7,650) -
Cash dividends - $0.497 per share (4,384) (4,384)
Payment in lieu of fractional shares (13) (13)
Purchase of 433,848 treasury shares (7,241) (7,241)
Sale of 122,675 treasury shares to
employee benefit plans and other
stock plans 13 2,017 2,030
Unrealized loss on securities
available for sale, net of deferred taxes
of $3,005 (4,351) (4,351)
- -----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 8,838 82,731 24,208 (1,529) (7,984) 106,264
Net income 14,749 14,749
5% stock dividend 428 10,717 (11,145) -
Cash dividends - $0.618 per share (5,544) (5,544)
Payment in lieu of fractional shares (19) (19)
Issuance of 164,030 shares to stock plan 164 2,476 2,640
Purchase of 131,900 treasury shares (2,568) (2,568)
Sale of 197,478 treasury shares to
employee benefit plans and other
stock plans 570 3,349 3,919
Unrealized gain on securities
available for sale, net of deferred taxes
of $2,695 3,902 3,902
- -----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $9,430 $96,494 $ 22,249 $ 2,373 $(7,203) $123,343
- -----------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
II-25
NBT BANCORP INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
(in thousands)
OPERATING ACTIVITIES:
Net income $ 14,749 $ 12,179 $ 9,329
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 3,505 3,175 1,553
Depreciation and amortization of premises and equipment 1,471 1,513 1,478
Amortization of premiums and accretion of discounts
on securities (236) 254 (153)
Amortization of intangible assets 1,351 1,580 1,271
Deferred income tax benefit (435) (660) (288)
Proceeds from sale of loans originated for sale 4,390 4,268 14,704
Loans originated for sale (3,541) (4,089) (11,872)
Realized (gains) losses on sales of securities 337 (1,179) (145)
Decrease in interest receivable 449 1,048 450
Increase in interest payable 809 1 676
Payments of restructuring liabilities - - (1,513)
Sale of branch, net (219) - -
Other, net 2,219 2,973 1,827
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 24,849 21,063 17,317
- -------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from maturities 50,762 43,924 40,206
Proceeds from sales 183,818 217,134 2,808
Purchases (299,225) (244,333) (99,030)
Securities held to maturity:
Proceeds from maturities 24,987 31,811 59,918
Purchases (18,888) (33,741) (44,682)
Net increase in loans (83,285) (66,255) (15,126)
Purchase of premises and equipment, net (3,925) (1,353) (2,020)
Acquisition of branches, net of cash acquired - - (2,960)
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (145,756) (52,813) (60,886)
- -------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase in deposits 97,864 43,287 81,589
Net increase (decrease) in short-term borrowings 46,283 (27,701) (24,642)
Proceeds from issuance of other borrowings - 20,050 -
Repayments of other borrowings (20,012) (2,867) (5,722)
Common stock issued, including treasury shares reissued 6,559 2,030 4,362
Purchase of treasury stock (2,568) (7,241) (7,075)
Cash dividends and payment for fractional shares (5,563) (4,397) (3,974)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 122,563 23,161 44,538
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,656 (8,589) 969
Cash and cash equivalents at beginning of year 35,790 44,379 43,410
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 37,446 $ 35,790 $ 44,379
- -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 41,713 $ 36,364 $ 34,164
Income taxes 6,126 7,569 5,791
Noncash investing activity:
Transfer of loans available for sale to loans held to maturity - 1,775 -
Transfer of securities held to maturity to securities
available for sale - - 220,681
- -------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
II-26
NBT BANCORP INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NBT Bancorp Inc. ("Bancorp") and its subsidiary follow generally accepted
accounting principles ("GAAP") and reporting practices applicable to the banking
industry. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates. The following is a description of significant policies and
practices:
CONSOLIDATION The consolidated financial statements include the accounts of
Bancorp and its wholly owned subsidiary, NBT Bank, N.A. ("Bank") collectively
referred to herein as the Company. All significant intercompany transactions
have been eliminated in consolidation. Certain amounts previously reported in
the financial statements have been reclassified to conform with the current
presentation.
BUSINESS The Company provides loan and deposit services to its customers,
primarily in its eight county service area. Its only business segment is
domestic commercial banking and the Company is subject to competition from other
financial institutions. The Bank and the Company are subject to the regulations
of certain federal agencies and undergo periodic examinations by those
regulatory agencies.
TRUST Assets held by the Company in a fiduciary or agency capacity for its
customers are not included in the accompanying consolidated balance sheets,
since such assets are not assets of the Company. Trust income is recognized on
the accrual method based on contractual rates applied to the balances of trust
accounts.
CASH AND CASH EQUIVALENTS The Company considers cash on hand, amounts due from
correspondent banks, cash items in process of collection, federal funds sold,
and federal mutual funds, to be cash and cash equivalents.
SECURITIES The Company classifies its debt securities at date of purchase as
either available for sale or held to maturity as the Company does not hold any
securities considered to be trading. Held to maturity securities are those that
the Company has the ability and intent to hold until maturity. All other
securities not included as held to maturity are classified as available for
sale.
Available for sale securities are recorded at fair value. Held to
maturity securities are recorded at amortized cost. Unrealized holding gains and
losses, net of the related tax effect, on available for sale securities are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized. Transfers of securities between categories are recorded
at fair value at the date of transfer. A decline in the fair value of any
available for sale or held to maturity security below cost that is deemed other
than temporary is charged to earnings resulting in the establishment of a new
cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the interest method. Dividends
and interest income are recognized when earned. Realized gains and losses on
securities sold are derived using the specific identification method for
determining the cost of securities sold.
LOANS AND LOANS AVAILABLE FOR SALE Loans are recorded at their current unpaid
principal balance, net of unearned income. Loans classified as available for
sale, primarily higher education loans, are carried at the lower of aggregate
cost or estimated fair value. Interest income on loans is primarily accrued
based on the principal amount outstanding.
The Company's classification of a loan as a nonaccrual loan is based in
part on bank regulatory guidelines. Nonaccrual classification does not mean that
the loan principal will not be collected; rather, that timely collection of
interest is doubtful. When in the opinion of management the collection of
principal appears unlikely, the loan balance is charged-off in total or in part.
Loans are transferred to a nonaccrual basis generally when principal or interest
payments become ninety days delinquent, unless the loan is well secured and in
the process of collection, or when management concludes circumstances indicate
that borrowers may be unable to meet contractual principal or interest payments.
Accrual of interest is discontinued if the loan is placed on nonaccrual status.
When a loan is transferred to a nonaccrual status, any unpaid accrued interest
is reversed and charged against income.
Management, considering current information and events regarding the
borrowers' ability to repay the obligations, considers a loan to be impaired
when it is probable that the Company will be unable to collect all amounts due
according to the contractual terms of the loan agreement. When a loan is
considered to be impaired, the amount of the impairment is measured based on the
present value of expected future cash flows discounted at the loan's effective
II-27
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of collateral if the loan is collateral dependent.
Impairment losses are included in the allowance for loan losses through a charge
to the provision for loan losses.
Payments received on nonaccrual and impaired loans are first applied to
principal. Depending on management's assessment of the ultimate collectiblity of
the loan, interest income may be recognized on a cash basis. Nonaccrual loans
are returned to accrual status when management determines that the financial
condition of the borrower has improved significantly to the extent that there
has been a sustained period of repayment performance so that the loan is brought
current and the collectibility of both principal and interest appears assured.
ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is the amount which, in
the opinion of management, is necessary to absorb potential losses in the loan
portfolio when taken as a whole. The allowance is determined by reference to the
market area the Company serves, local economic conditions, the growth and
composition of the loan portfolio with respect to the mix between the various
types of loans and their related risk characteristics, a review of the value of
collateral supporting the loans, and comprehensive reviews of the loan portfolio
by the Loan Review staff and management.
COMPANY PREMISES AND EQUIPMENT Company premises and equipment are stated at
cost, less accumulated depreciation. Depreciation of premises and equipment is
determined using the straight line method over the estimated useful lives of the
respective assets. Expenditures for maintenance, repairs, and minor replacements
are charged to expense as incurred.
OTHER REAL ESTATE OWNED Other real estate owned ("OREO") consists of properties
acquired through foreclosure or by acceptance of a deed in lieu of foreclosure.
These assets are recorded at the lower of outstanding loan balance or fair
market value, less any estimated costs of disposal. Loan losses arising from the
acquisition of such assets are charged to the allowance for loan losses and any
subsequent valuation write-downs are charged to other expense. Operating costs
associated with the properties are charged to expense as incurred. Gains on the
sale of OREO are included in income when title has passed and the sale has met
the minimum down payment requirements prescribed by GAAP.
INTANGIBLE ASSETS Certain identified intangible assets, including goodwill and
core deposit intangible assets are carried at appraised fair values, net of
accumulated amortization, and are being amortized by the straight line method in
amounts sufficient to write-off those fair values over their estimated useful
lives; such fair values and useful lives are reviewed annually for events or
changes in circumstances that may indicate that the carrying amount of the
assets are not recoverable. Goodwill, the excess of cost over the fair value of
the net assets acquired, is being amortized over twenty-five years on the
straight line method.
TREASURY STOCK Treasury stock acquisitions are recorded at cost. Subsequent
sales of treasury stock are recorded on an average cost basis. Gains on the sale
of treasury stock are credited to capital surplus. Losses on the sale of
treasury stock are charged to capital surplus to the extent of previous gains,
otherwise charged to retained earnings.
POSTRETIREMENT BENEFITS The Company uses actuarial based accrual accounting for
its postretirement health care plans, electing to recognize the transition
obligation on a delayed basis over the plan participants' future service
periods, estimated to be twenty years.
INCOME TAXES The Company files a consolidated tax return on the accrual basis.
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date.
PER SHARE AMOUNTS Net income per common share is computed on the basis of the
weighted average number of common shares and common share equivalents
outstanding during each period after giving retroactive effect to stock
dividends.
On December 31, 1997, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS
No. 128 supersedes Accounting Principles Board Opinion No. 15 "Earnings Per
Share" and specifies the computation, presentation, and disclosure requirements
for earnings per share ("EPS") for entities with publicly held common stock. All
prior period EPS amounts have been restated to conform with the computational
II-28
provisions of this statement. The following is a reconciliation of basic and
diluted earnings per share for the years presented in the income statement:
- ---------------------------------------------------------------------------------
Year ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------
(in thousands)
Basic EPS:
Weighted average common shares outstanding 8,963 8,883 9,197
Net income available to common shareholders $14,749 $12,179 $9,329
- ---------------------------------------------------------------------------------
Basic EPS $ 1.65 $ 1.37 $ 1.01
- ---------------------------------------------------------------------------------
Diluted EPS:
Weighted average common shares outstanding 8,963 8,883 9,197
Dilutive common stock options 109 56 43
- ---------------------------------------------------------------------------------
Weighted average common shares and common
share equivalents 9,072 8,939 9,240
Net income available to common stockholders $14,749 $12,179 $9,329
- ---------------------------------------------------------------------------------
Diluted EPS $ 1.63 $ 1.36 $ 1.01
- ---------------------------------------------------------------------------------
FEDERAL RESERVE BOARD REQUIREMENT
The Company is required to maintain a reserve balance with the Federal Reserve
Bank of New York. The required average total reserve for the 14 day maintenance
period ending December 31, 1997, was $11.5 million of which $3.7 million was
required to be on deposit with the Federal Reserve Bank and the remaining $7.8
million was represented by cash on hand.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company does not engage in the use of derivative financial instruments and
currently the Company's only financial instruments with off-balance sheet risk
consist of commitments to originate loans and commitments under unused lines of
credit.
SECURITIES
The amortized cost, estimated fair value and unrealized gains and losses of
securities available for sale are as follows:
- ------------------------------------------------------------------
Amortized Unrealized Fair
(in thousands) Cost Gains Losses Value
- ------------------------------------------------------------------
DECEMBER 31, 1997
- ------------------------------------------------------------------
U.S. Treasury $ 2,395 $ 11 $ - $ 2,406
Federal Agency 95,590 279 199 95,670
State & Municipal 1,648 31 2 1,677
Mortgage-backed 335,669 4,034 206 339,497
Other securities 1,319 67 4 1,382
- ------------------------------------------------------------------
Total $436,621 $4,422 $ 411 $440,632
- ------------------------------------------------------------------
- ------------------------------------------------------------------
December 31, 1996
- ------------------------------------------------------------------
U.S. Treasury $ 70,811 $ 61 $ 603 $ 70,269
Federal Agency 94,313 169 922 93,560
State & Municipal 1,450 6 8 1,448
Mortgage-backed 204,889 509 1,825 203,573
Other securities 325 27 - 352
- ------------------------------------------------------------------
Total $371,788 $ 772 $3,358 $369,202
- ------------------------------------------------------------------
Gross realized gains and gross realized losses on the sale of
securities available for sale were $0.4 million and $0.7 million, respectively,
in 1997. Gross realized gains and gross realized losses on the sale of
securities available for sale were $1.6 million and $0.4 million, respectively,
in 1996. Gross realized gains on the sale of securities available for sale were
$0.1 million in 1995.
II-29
At December 31, 1997 and 1996, securities with amortized costs
totalling $382.5 million and $316.4 million, respectively, were pledged to
secure public deposits and for other purposes required or permitted by law.
The amortized cost, estimated fair value, and unrealized gains and
losses of securities held to maturity are as follows:
- ---------------------------------------------------------------------
Amortized Unrealized Fair
(in thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------
DECEMBER 31, 1997
- ---------------------------------------------------------------------
State & Municipal $23,692 $- $- $23,692
Other securities 1,518 - - 1,518
Federal Home Loan Bank Stock 10,929 - - 10,929
- ---------------------------------------------------------------------
Total $36,139 $- $- $36,139
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
December 31, 1996
- ---------------------------------------------------------------------
State & Municipal $32,546 $- $- $32,546
Other securities 1,518 - 1 1,517
Federal Home Loan Bank Stock 8,175 - - 8,175
- ---------------------------------------------------------------------
Total $42,239 $- $1 $42,238
- ---------------------------------------------------------------------
As a member of the Federal Home Loan Bank (FHLB), the Company holds the required
investment in FHLB stock.
At December 31, 1997 and 1996 substantially all of the mortgage-backed
securities held by the Company were issued or backed by Federal agencies.
REMAINING MATURITIES OF SECURITIES AT DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------
After One Year After Five Years
Within But Within But Within After Ten Total
One Year Five Years Ten Years Years Portfolio
(dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- ------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury $ - -% $ 2,395 6.07% $ - -% $ - -% $ 2,395 6.07%
Federal Agency - - - - 42,990 7.01 52,600 7.86 95,590 7.48
State & Municipal 370 5.25 306 8.35 972 9.42 - - 1,648 8.28
Mortgage-backed 63 7.23 157,718 7.06 91,243 7.40 86,645 7.36 335,669 7.23
Other securities - - - - - - 1,319 6.54 1,319 6.54
- ------------------------------------------------------------------------------------------------------------------------
Amortized cost $ 433 5.54% $160,419 7.05% $135,205 7.29% $140,564 7.54% $436,621 7.28%
- ------------------------------------------------------------------------------------------------------------------------
Fair value $ 431 $162,064 $137,195 $140,942 $440,632
- ------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD TO MATURITY:
State & Municipal $19,818 8.28% $ 2,647 10.92% $ 1,150 10.94% $ 77 10.92% $ 23,692 8.73%
Other securities - - 8 - 12,439 6.92 - - 12,447 6.92
- ------------------------------------------------------------------------------------------------------------------------
Amortized cost $19,818 8.28% $ 2,655 10.89% $ 13,589 7.26% $ 77 10.92% $ 36,139 8.09%
- ------------------------------------------------------------------------------------------------------------------------
Fair value $19,818 $ 2,655 $ 13,589 $ 77 $ 36,139
- ------------------------------------------------------------------------------------------------------------------------
In the tables setting forth the maturity distribution and weighted average
taxable equivalent yield of securities at December 31, 1997, yields on amortized
cost have been calculated based on effective yields weighted for the scheduled
maturity of each security using the marginal federal tax rate of 35%.
LOANS AVAILABLE FOR SALE AND LOAN SERVICING
The Company carries loans available for sale at the lower of aggregate cost or
estimated fair value. It is the Company's practice to sell its higher education
loans to the Student Loan Marketing Association at the Company's cost after the
student leaves school. During 1997, $3.5 million of such loans were sold. At
December 31, 1997, the aggregate cost and estimated fair value of loans
available for sale were $3.3 million, while at December 31, 1996 aggregate cost
and estimated market value were $4.1 million.
During 1997, $0.9 million in mortgage loans were sold with servicing
retained. At December 31, 1997, the Company serviced $28.5 million of real
estate mortgages on behalf of other financial intermediaries; such loans are not
reflected in the Company's balance sheet.
II-30
ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the three years ended December 31,
1997, are summarized as follows:
- ------------------------------------------------------------
(in thousands) 1997 1996 1995
- ------------------------------------------------------------
Balance at January 1, $10,473 $ 9,120 $ 9,026
Provision 3,505 3,175 1,553
Recoveries 892 956 802
- ------------------------------------------------------------
14,870 13,251 11,381
Loans charged off 3,288 2,778 2,261
- ------------------------------------------------------------
Balance at December 31, $11,582 $10,473 $ 9,120
- ------------------------------------------------------------
NONPERFORMING ASSETS
The Company's concentrations of credit risk are reflected in the balance sheet.
The concentrations of credit risk with standby letters of credit, committed
lines of credit and commitments to originate new loans generally follow the loan
classifications. A substantial portion of the Company's loans are secured by
real estate located in central and northern New York. Accordingly, the ultimate
collectiblity of a substantial portion of the Company's portfolio is susceptible
to changes in market conditions of those areas. Management is not aware of any
material concentrations of credit to any industry or individual borrowers.
The effect of nonaccrual loans on interest income for the years ended
December 31, 1997, 1996, and 1995 was not material. The Company is not committed
to advance additional funds to these borrowers. Nonaccrual loans were $5.3
million and $3.3 million at December 31, 1997 and 1996, respectively.
At December 31, 1997, the recorded investment in impaired loans was
$4.3 million. Included in this amount is $1.9 million of impaired loans for
which the specifically allocated allowance for loan loss is $0.6 million. In
addition, included in impaired loans is $2.4 million of impaired loans that, as
a result of the adequacy of collateral values and cash flow analysis do not have
a specific reserve. At December 31, 1996, the recorded investment in impaired
loans was $2.6 million, of which $0.4 million had a specific allowance
allocation of $0.1 million and $2.2 million for which there was no specific
reserve. The average recorded investment in impaired loans was $3.1 million,
$4.0 million and $3.6 million in 1997, 1996 and 1995, respectively. During the
years ended December 31, 1997, 1996 and 1995 the Company recognized $0.1
million, $0.5 million and $0.3 million, respectively, of interest income on
impaired loans, all of which was recognized using the cash basis of income
recognition.
RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has made loans at prevailing
rates and terms to directors, officers, and other related parties. Such loans,
in management's opinion, did not present more than the normal risk of
collectiblity or incorporate other unfavorable features. The aggregate amount of
loans outstanding to qualifying related parties and changes during the years are
summarized as follows:
- --------------------------------------------------
1997 1996
- --------------------------------------------------
(in thousands)
Balance at January 1, $ 4,238 $ 3,933
New loans 3,226 3,417
Repayments (3,901) (3,112)
- --------------------------------------------------
Balance at December 31, $ 3,563 $ 4,238
- --------------------------------------------------
PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
- ----------------------------------------------------
December 31, 1997 1996
- ----------------------------------------------------
(in thousands)
Company premises $20,047 $19,394
Equipment 17,277 17,211
Construction in progress 2,601 253
- ----------------------------------------------------
39,925 36,858
Accumulated depreciation 21,164 20,551
- ----------------------------------------------------
Total premises and equipment $18,761 $16,307
- ----------------------------------------------------
Depreciation and amortization of premises and equipment totaled $1.5 million
annually in 1997, 1996 and 1995.
II-31
Rental expense included in operating expense amounted to $0.3 million
annually in 1997, 1996, and 1995. The future minimum rental commitments as of
December 31, 1997, for noncancellable operating leases were as follows:
1998--$0.4 million; 1999--$0.3 million; 2000--$0.2 million; 2001--$0.2 million;
and 2002--and beyond--$0.2 million.
INTANGIBLE ASSETS
The Company, in a cash transaction, acquired deposits totalling $42.6 million
and selected loans totalling $1.1 million, of three branches from Community Bank
Systems Inc. effective December 16, 1995. Also included were related accrued
interest payable and receivable and premises and equipment, the amounts of which
were not material. All assets and liabilities acquired were recorded at
appraised fair values at that date, creating additional core deposit intangible
assets and goodwill. Branch acquisition costs for 1997 and 1996 are adjustments
or reclassification of amounts recorded for the December 1995 transaction.
The table below presents significant balances, amortization and the
respective periods of amortization:
- -------------------------------------------------------------------
December 31, 1997 1996
- -------------------------------------------------------------------
(in thousands)
Goodwill (25 yrs.):
Beginning balance $ 6,022 $ 6,318
Branch acquisition 35 41
Amortization (339) (337)
- -------------------------------------------------------------------
Ending balance 5,718 6,022
- -------------------------------------------------------------------
Core deposit intangible assets (3-12 yrs.):
Beginning balance 3,931 5,233
Branch acquisition 5 (59)
Amortization (1,012) (1,243)
- -------------------------------------------------------------------
Ending balance 2,924 3,931
- -------------------------------------------------------------------
Total intangible assets, net $ 8,642 $ 9,953
- -------------------------------------------------------------------
DEPOSITS
Time deposits of $100,000 or more aggregated $269.9 million, $191.3 million and
$126.1 million at year-end 1997, 1996 and 1995, respectively. Interest expense
on such deposits was approximately $13.3 million, $9.4 million, and $8.6 million
for 1997, 1996, and 1995, respectively.
The following table sets forth the maturity distribution of time
certificates of deposit:
- -----------------------------------------------------------
December 31, 1997 1996
- -----------------------------------------------------------
(in thousands)
Within one year $433,472 $351,816
After one but within two years 50,215 51,478
After two but within three years 18,225 16,579
After three but within four years 9,219 10,414
After four but within five years 5,617 4,679
After five years 84 97
- -----------------------------------------------------------
Total $516,832 $435,063
- -----------------------------------------------------------
SHORT-TERM BORROWINGS
Short-term borrowings consist of Federal funds purchased and securities sold
under repurchase agreements, which generally represent overnight borrowing
transactions, and other short-term borrowings, primarily Federal Home Loan Bank
(FHLB) advances, with original maturities of one year or less. The Company has
unused lines of credit available for short-term financing of $224 million at
December 31, 1997. Securities collateralizing repurchase agreements are held in
safekeeping by a non-affiliated financial institutions.
II-32
Information related to short-term borrowings is summarized as follows:
- ----------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------
(in thousands)
FEDERAL FUNDS PURCHASED
Balance at year end $25,000 $48,000 $78,000
Average during the year 29,501 30,929 30,682
Maximum month end balance 49,000 56,000 78,000
Weighted average rate during the year 5.70% 5.53% 5.99%
Weighted average rate at December 31 6.13% 7.38% 5.73%
- ----------------------------------------------------------------------------------
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Balance at year end $59,721 $40,244 $17,945
Average during the year 51,427 23,893 16,516
Maximum month end balance 95,403 40,244 20,225
Weighted average rate during the year 5.04% 4.32% 5.23%
Weighted average rate at December 31 5.03% 4.43% 4.84%
- ----------------------------------------------------------------------------------
OTHER SHORT-TERM BORROWINGS
Balance at year end $49,806 $ - $20,000
Average during the year 38,331 18,370 33,398
Maximum month end balance 49,806 50,000 50,000
Weighted average rate during the year 6.02% 5.45% 5.98%
Weighted average rate at December 31 5.82% -% 5.88%
- ----------------------------------------------------------------------------------
OTHER BORROWINGS
Other borrowings consists of obligations having an original maturity at issuance
of more than one year. A summary of other borrowings follows:
Maturity Interest Year end outstanding
(dollars in thousands) Date Rate 1997 1996
- ---------------------------------------------------------------------
FHLB advance 1997 5.59 - 20,000
FHLB advance 2008 5.33 137 146
FHLB advance 2008 7.20 46 49
- ---------------------------------------------------------------------
Total $183 $20,195
- ---------------------------------------------------------------------
FHLB advances are collateralized by the FHLB stock owned by the Company, certain
of its real estate mortgage loans and mortgage-backed securities.
INCOME TAXES
Deferred income taxes are recognized for temporary differences between the
financial statement carrying amount and tax basis of assets and liabilities.
Total income taxes were allocated as follows:
- --------------------------------------------------------------------------------
Year ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
(in thousands)
Income before income taxes $ 8,301 $ 7,108 $ 5,756
Stockholders' equity, capital surplus,
for stock options exercised (329) (36) (388)
Stockholders' equity, for unrealized gain
(loss) on securities 2,695 (3,005) 4,900
- --------------------------------------------------------------------------------
Total $10,667 $ 4,067 $10,268
- --------------------------------------------------------------------------------
II-33
The significant components of income taxes attributable to operations are:
- -----------------------------------------------------------
Year ended December 31, 1997 1996 1995
- -----------------------------------------------------------
(in thousands)
Current:
Federal $7,297 $6,331 $4,718
State 1,439 1,437 1,326
- -----------------------------------------------------------
8,736 7,768 6,044
Deferred:
Federal (330) (472) (237)
State (105) (188) (51)
- -----------------------------------------------------------
(435) (660) (288)
- -----------------------------------------------------------
Total $8,301 $7,108 $5,756
- -----------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows:
- ----------------------------------------------------------------------------
December 31, 1997 1996
- ----------------------------------------------------------------------------
(in thousands)
Deferred tax assets:
Allowance for loan losses $4,586 $4,103
Unrealized loss on securities available
for sale - 1,057
Deferred compensation 306 266
Postretirement benefit obligation 751 557
Other 455 375
- ----------------------------------------------------------------------------
Total gross deferred tax assets 6,098 6,358
- ----------------------------------------------------------------------------
Deferred tax liabilities:
Prepaid pension obligation 532 282
Premises and equipment, primarily due to accelerated
depreciation 588 582
Undistributed earnings of Bank subsidiary 136 379
Unrealized gain on securities available for sale 1,638 -
Securities discount accretion 472 54
Other 49 118
- ----------------------------------------------------------------------------
Total gross deferred tax liabilities 3,415 1,415
- ----------------------------------------------------------------------------
Net deferred tax assets $2,683 $4,943
- ----------------------------------------------------------------------------
Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the
carryback period. A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax asset will not be realized. Based on
available evidence, gross deferred tax assets will ultimately be realized and a
valuation allowance was not deemed necessary.
The following is a reconciliation of the provision for income taxes to the
amount computed by applying the applicable Federal statutory rate of 35% to
income before taxes:
- ---------------------------------------------------------------------------
Year ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------
(in thousands)
Federal income tax at statutory rate $8,068 $6,751 $5,280
Benefit of federal tax rates below
statutory rate - (10) (100)
Tax exempt income (613) (627) (496)
Non-deductible expenses 220 241 241
State taxes, net of federal tax benefit 867 812 829
Other, net (241) (59) 2
- ---------------------------------------------------------------------------
Income taxes $8,301 $7,108 $5,756
- ---------------------------------------------------------------------------
II-34
NONINTEREST EXPENSE
Included in the other operating expense category are supplies, communication and
promotional expense of $2.7 million, $2.6 million, and $2.7 million, and
professional fees of $2.2 million, $2.4 million, and $2.4 million, in years
1997, 1996, and 1995, respectively.
Also included in the other operating expense category are data
processing fees of $1.9 million, $1.5 million, and $1.3 million in years 1997,
1996, and 1995, respectively. The future minimum annual commitments for data
processing services as of December 31, 1997 were as follows: 1998--$3.5 million;
1999--$3.5 million; 2000--$3.4 million; 2001--$3.4 million; and 2002--and
beyond--$4.3 million.
COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to financial instruments with off balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. The Company's exposure to credit loss in the event of
nonperformance by the other party to the commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit standards in making commitments
and conditional obligations as it does for on balance sheet instruments. At
December 31, 1997, off balance sheet commitments to extend credit for primarily
variable rate loans, amounted to $127.4 million secured by $70.1 million in
collateral value. The amount of standby letters of credit at December 31, 1997,
amounted to $1.8 million secured by $0.1 million in cash.
At December 31, 1997 and 1996, the Company held no off balance sheet
derivative financial instruments such as interest rate swaps, forward contracts,
futures, options on financial futures, or interest rate caps and floors, and was
not subject to the market risk associated with such derivative financial
instruments.
In the normal course of business there are various outstanding legal
proceedings. In the opinion of management, the aggregate amount involved in such
proceedings is not material to the financial condition or results of operations
of the Company.
STOCKHOLDERS' EQUITY
The Company has a Dividend Reinvestment Plan for stockholders under which no new
shares of common stock were issued in 1997 and 1996. There were 525,762 shares
of common stock reserved for future issuance under the plan at December 31, 1997
(the number of shares available has been adjusted for stock dividends and
splits).
Certain restrictions exist regarding the ability of the Bank to
transfer funds to the Company in the form of cash dividends. The approval of the
Comptroller of the Currency is required to pay dividends in excess of the Bank's
earnings retained in the current year plus retained net profits for the
preceding two years or when the Bank fails to meet certain minimum regulatory
capital standards. At December 31, 1997, the Bank has the ability to pay $16.3
million in dividends to the Company without obtaining prior regulatory approval.
Under the State of Delaware Business Corporation Law, the Company may declare
and pay dividends either out of accumulated net retained earnings or capital
surplus.
The Company currently is authorized to issue 2.5 million shares of
preferred stock, no par value, $1.00 stated value. The Board of Directors is
authorized to fix the particular designations, preferences, rights,
qualifications, and restrictions for each series of preferred stock issued. In
November 1994, the Company adopted a Stockholder Rights Plan (Plan) designed to
ensure that any potential acquiror of the Company negotiate with the Board of
Directors and that all Company stockholders are treated equitably in the event
of a takeover attempt. At that time, the Company paid a dividend of one
Preferred Share Purchase Right (Right) for each outstanding share of common
stock of the Company. Similar Rights are attached to each share of the Company's
common stock issued after November 15, 1994, subject to adjustment. Under the
Plan, the Rights will not be exercisable until a person or group acquires
beneficial ownership of 20 percent or more of the Company's outstanding common
stock, begins a tender or exchange offer for 25 percent or more of the Company's
outstanding common stock, or an adverse person, as declared by the Board of
Directors, acquires 10 percent or more of the Company's outstanding common
stock. Additionally, until the occurrence of such an event, the Rights are not
severable from the Company's common stock and, therefore, the Rights will be
transferred upon the transfer of shares of the Company's common stock. Upon the
occurrence of such events, each Right entitles the holder to purchase one
one-hundredth of a share of Series R Preferred Stock, no par value, and $1.00
stated value per share of the Company at a price of $100.
The Plan also provides that upon the occurrence of certain specified
events, the holders of Rights will be entitled to acquire additional equity
interests, in the Company or in the acquiring entity, such interests having a
market value of two times the Right's exercise price of $100. The Rights, which
expire November 14, 2004, are redeemable in whole, but not in part, at the
Company's option prior to the time they are exercisable, for a price of $0.01
per Right.
II-35
REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the consolidated financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The capital amounts and classification
are also subject to qualitative judgements by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier 1 Capital to risk-weighted
assets, and of Tier 1 capital to average assets. Management believes, as of
December 31, 1997, that the Company and the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1997, the most recent notification from The Office
of the Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized the Bank must maintain minimum total risk-based, Tier 1
risk-based, Tier 1 leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the Bank's category.
The Company and the Bank's actual capital amounts and ratios are
presented in the following table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
ACTUAL Adequacy Purposes: Action Provisions:
- ---------------------------------------------------------------------------------------------------------------
(in thousands) AMOUNT RATIO Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------
As of December 31, 1997:
Total Capital (to Risk Weighted Assets):
Company Consolidated $121,792 16.13% $ 60,403 8.00% $ 75,504 10.00%
Bank $115,279 15.31% $ 60,241 8.00% $ 75,301 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Company Consolidated $112,328 14.88% $ 30,201 4.00% $ 45,302 6.00%
Bank $105,840 14.06% $ 30,120 4.00% $ 45,180 6.00%
Tier 1 Capital (to Average Assets):
Company Consolidated $112,328 8.91% $ 50,438 4.00% $ 63,047 5.00%
Bank $105,840 8.43% $ 50,195 4.00% $ 62,743 5.00%
- ---------------------------------------------------------------------------------------------------------------
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
Company Consolidated $106,559 15.31% $ 55,663 8.00% $ 69,579 10.00%
Bank $104,487 15.03% $ 55,603 8.00% $ 69,504 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Company Consolidated $ 97,840 14.06% $ 27,831 4.00% $ 41,747 6.00%
Bank $ 95,777 13.78% $ 27,802 4.00% $ 41,702 6.00%
Tier 1 Capital (to Average Assets):
Company Consolidated $ 97,840 8.70% $ 44,971 4.00% $ 56,214 5.00%
Bank $ 95,777 8.53% $ 44,910 4.00% $ 56,137 5.00%
- ---------------------------------------------------------------------------------------------------------------
EMPLOYEE BENEFIT PLANS
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Nonpension benefits are accrued over
the employees' active service period, defined as the date of employment up to
the date of the employees' eligibility for such benefits. The Company provides
certain health care benefits for retired employees. The health care plans are
contributory for participating retirees and also requires them to absorb
deductibles and coinsurance with contributions adjusted annually to reflect cost
sharing provisions and benefit limitations. Substantially all of the employees
may become eligible for these benefits if they reach normal retirement age while
working for the Company or its subsidiaries. The benefits are provided by the
II-36
participants choice of health maintenance organizations with community rated
premiums or self-insured plans administered by insurance companies, whose
premiums are based on the claims paid during the year. The Company funds the
cost of post retirement health care as benefits are paid. The Company elected to
recognize the transition obligation in the balance sheets and statements of
income on a delayed basis over the plan participant's future service periods,
estimated to be twenty years.
The Company used a health care trend rate in calculating its postretirement
benefit obligation of 8.0% to 9.0% for 1998, grading down uniformly to 5.5% for
2005 and thereafter. The effect of a one-percentage-point increase in the
assumed health care cost trend rates for each future year on the aggregate of
the service and interest cost components of net periodic postretirement health
care benefit cost and the accumulated postretirement benefit obligation for
health care benefits would increase this amount for 1997 by 23%, to $0.5
million, and by 17%, to $3.4 million, respectively.
The net postretirement health benefits expense and funded status are as
follows:
- -----------------------------------------------------------------------------------
Year ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------
(in thousands)
Service cost $ 182 $ 124 $ 90
Interest cost 255 183 183
Net amortization and deferral 113 85 102
- -----------------------------------------------------------------------------------
Net postretirement benefit cost $ 550 $ 392 $375
- -----------------------------------------------------------------------------------
- ---------------------------------------------------------------------------
December 31, 1997 1996
- ---------------------------------------------------------------------------
(in thousands)
Fair value of plan assets $ - $ -
- ---------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retired participants 1,256 1,114
Fully eligible participants 670 337
Other active participants 2,232 1,257
- ---------------------------------------------------------------------------
Total accumulated postretirement benefit obligation 4,158 2,708
- ---------------------------------------------------------------------------
Excess of projected postretirement
benefit obligation over plan assets 4,158 2,708
Less:
Unrecognized net actuarial loss 1,306 226
Unrecognized transition obligation 1,273 1,358
- ---------------------------------------------------------------------------
Accrued post retirement benefit cost
included in other liabilities $1,579 $1,124
- ---------------------------------------------------------------------------
Weighted average discount rate 7.00% 7.50%
- ---------------------------------------------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN The Company has a qualified Employee Stock
Ownership Plan for employees who meet certain age and service requirements under
which contributions are made by the Company to a separate trust for the benefit
of participating employees. Provisions for contributions to the Plan amounted to
$0.3 million in 1997, $0.6 million in 1996, and $0.5 million in 1995.
RETIREMENT SAVINGS PLAN The Company sponsors a savings plan for employees and
matched employee contributions up to 5% for 1997, 3% for 1996, and 2% for 1995.
Expenses of $0.4 million, $0.2 million, and $0.1 million were recognized for
1997, 1996, and 1995, respectively. Effective January 1, 1997, this plan was
terminated and plan assets and liabilities were merged with the Employee Stock
Ownership Plan.
PENSION PLAN The Company has a qualified, noncontributory pension plan covering
substantially all employees. Benefits paid from the plan are based on age, years
of service, compensation prior to retirement, social security benefits, and are
determined in accordance with defined formulas. The Company's policy is to fund
the pension plan in accordance with ERISA standards.
II-37
The net pension expense and the funded status of the plan are as
follows:
- ---------------------------------------------------------------------------------------
Year ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------
(in thousands)
Service cost $ 508 $ 454 $ 384
Interest cost 1,181 1,119 843
Actual return on plan assets (3,265) (2,072) (3,380)
Net amortization and deferral 1,971 856 2,230
- ---------------------------------------------------------------------------------------
Net pension expense $ 395 $ 357 $ 77
- ---------------------------------------------------------------------------------------
- --------------------------------------------------------------------------
December 31, 1997 1996
- --------------------------------------------------------------------------
(in thousands)
Plan assets, fair value of primarily listed stocks
and fixed income securities $19,432 $15,589
- --------------------------------------------------------------------------
Actuarial present value of benefits for services
rendered to date:
Accumulated benefit obligation, including vested
benefits of $17,371 in 1997 and $14,605 in 1996 17,552 14,670
Additional benefits based on estimated
future salary levels 1,938 1,240
- --------------------------------------------------------------------------
Projected benefit obligation 19,490 15,910
- --------------------------------------------------------------------------
Excess of projected benefit
obligation over plan assets (58) (321)
Unrecognized net actuarial gain (1,399) (2,673)
Unamortized prior service cost 4,191 4,448
Unamortized transition asset (1,304) (1,413)
- --------------------------------------------------------------------------
Prepaid pension expense included in other assets $ 1,430 $ 41
- --------------------------------------------------------------------------
Weighted average discount rate 7.00% 7.50%
Assumed increase in future salary 4.00% 4.00%
Expected rate of return on plan assets 9.00% 9.00%
- --------------------------------------------------------------------------
STOCK OPTION PLANS The Company has two stock option plans (Plans). At December
31, 1997, there were 600,643 shares of the Company's common stock reserved for
issuance under the Plans. Under the terms of the Plans, options were granted to
key employees to purchase shares of the Company's common stock at a price equal
to the fair market value of the common stock on the date of the grant. Under the
Plans, options may be designated as Incentive Stock Options or as Nonqualified
Stock Options. Options granted terminate eight or ten years from the date of the
grant.
In 1995, the Company granted its then Chairman stock options in
connection with the discharge of severance obligations of the Company and the
Bank under his employment agreement. The agreement issued options covering
143,311 and 30,024 shares with exercise prices of $13.99 and $14.60,
respectively, and an expiration date of January 31, 1997 (the number of shares
under option and the option price per share were adjusted for stock dividends).
The Company filed a registration statement relating to these option shares which
were issued January 23, 1997, upon payment of the exercise price, from
authorized, but unissued common stock. These stock options did not reduce the
number available under the previously mentioned Plans.
At December 31, 1997, there were 248,836 additional shares available
for grant under the Plans. The per share weighted-average fair value of stock
options granted during 1997, 1996 and 1995 was $5.14, $3.14 and $2.91,
respectively on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: 1997-expected dividend yield of
2.60%, expected volatility of 22.56%, risk-free interest rates of 6.52% and
6.58%, and an expected life of 7 years; 1996 - expected dividend yield of 3.16%,
expected volatility of 15.35%, risk-free interest rates of 5.52% and 6.41%, and
an expected life of 7 years; 1995 - expected dividend yield of 2.96%, expected
volatility of 15.35%, risk-free interest rates ranging from 7.39% to 7.83%, and
expected lives of 2 and 7 years.
Included in the 1995 grants are options granted in conjunction with a
severance agreement, as previously discussed, with a per share weighted-average
fair value of $2.05 using the Black Scholes option-pricing model with the
following weighted-average assumptions: 1995-expected dividend yield of 2.96%,
expected volatility of 15.35%, risk-free interest rate of 7.54%, and an expected
life of 2 years.
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
II-38
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
1997 1996 1995
- -----------------------------------------------------------------------------
Net income As reported $14,749 $12,179 $9,329
Pro forma 14,404 11,977 8,901
Basic earnings per share As reported $ 1.65 $ 1.37 $ 1.01
Pro forma 1.61 1.35 0.97
Diluted earnings per share As reported $ 1.63 $ 1.36 $ 1.01
Pro forma 1.59 1.34 0.96
- -----------------------------------------------------------------------------
Pro forma net income reflects only options granted in 1997, 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period of 4 years and compensation cost for options granted prior to January 1,
1995 is not considered.
The following is a summary of changes in options outstanding:
Number Weighted Average of
of Exercise Price of
Options Options Under Plan
- -------------------------------------------------------------------
Balance, December 31, 1994 411,728 $10.92
- -------------------------------------------------------------------
Granted 287,476 14.11
Exercised (223,813) 9.88
Lapsed (102,388) 13.86
- -------------------------------------------------------------------
Balance, December 31, 1995 373,003 $13.21
- -------------------------------------------------------------------
Granted 119,621 14.95
Exercised (18,096) 11.75
Lapsed (11,463) 14.65
- -------------------------------------------------------------------
Balance, December 31, 1996 463,065 $13.69
- -------------------------------------------------------------------
Granted 119,070 17.14
Exercised (209,404) 13.50
Lapsed (20,924) 15.20
- -------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 351,807 $14.87
- -------------------------------------------------------------------
The following table summarizes information concerning currently outstanding and
exercisable options:
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (in years) Price Exercisable Price
- ----------------------------------------------------------------------------------------------
$ 8.01 - $11.00 20,746 1.62 $ 9.08 20,746 $ 9.08
$11.01 - $14.00 26,905 4.10 11.53 26,613 11.52
$14.01 - $17.00 189,706 7.52 14.62 97,220 14.55
$17.01 - $20.00 114,450 9.08 17.11 - -
- ----------------------------------------------------------------------------------------------
$ 8.01 - $20.00 351,807 7.42 $14.87 144,579 $13.21
- ----------------------------------------------------------------------------------------------
II-39
PARENT COMPANY FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
- ---------------------------------------------------------------------------
DECEMBER 31, 1997 1996
- ---------------------------------------------------------------------------
(in thousands)
ASSETS
Cash $ 2,750 $ 1,799
Due from subsidiary bank 2 20
Securities available for sale 3,788 352
Loans 19 20
Investment in subsidiary bank 116,811 104,185
Other assets 117 36
- ---------------------------------------------------------------------------
TOTAL ASSETS $123,487 $106,412
- ---------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 144 $ 148
- ---------------------------------------------------------------------------
Total liabilities 144 148
Stockholders' equity 123,343 106,264
- ---------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $123,487 $106,412
- ---------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
- ----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------
(in thousands)
Dividends from subsidiary bank $ 6,000 $ 9,700 $4,250
Interest and dividend income 322 180 343
Gain on sale of securities available for sale - 3 145
- ----------------------------------------------------------------------------------------
6,322 9,883 4,738
Interest expense - 234 369
Operating expense 299 402 304
- ----------------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed income of subsidiary bank 6,023 9,247 4,065
Income tax expense (benefit) 26 (170) (66)
Equity in undistributed income of subsidiary bank 8,752 2,762 5,198
- ----------------------------------------------------------------------------------------
NET INCOME $ 14,749 $ 12,179 $9,329
- ----------------------------------------------------------------------------------------
II-40
CONDENSED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------------
(in thousands)
OPERATING ACTIVITIES:
Net income $14,749 $12,179 $ 9,329
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of premiums and accretion of discounts
on securities (4) (15) (27)
Realized gains on sale of securities available for sale - (3) (145)
(Increase) decrease in other assets (83) 62 23
Increase (decrease) in other liabilities (3) 15 (28)
Undistributed net income of subsidiary bank (8,752) (2,762) (5,198)
Other, net (17) 8 25
- --------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,890 9,484 3,979
- --------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from sales of securities - 4,979 7,953
Purchases (3,384) (977) (5,158)
Other, net (1) - 34
- --------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (3,385) 4,002 2,829
- --------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Repayment of long-term debt - (2,857) (714)
Common stock issued, including treasury shares reissued 6,559 2,030 4,362
Purchase of treasury stock (2,568) (7,241) (7,075)
Cash dividends and payment for fractional shares (5,563) (4,397) (3,974)
- --------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,572) (12,465) (7,401)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 933 1,021 (593)
Cash and cash equivalents at beginning of year 1,819 798 1,391
- --------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,752 $ 1,819 $ 798
- --------------------------------------------------------------------------------------------------
FAIR VALUES OF FINANCIAL INSTRUMENTS A financial instrument is defined as cash,
evidence of an ownership interest in an entity, or a contract that imposes the
obligation to deliver, receive, or exchange cash or other financial instruments
between willing entities on potentially favorable or unfavorable terms. There
are no off balance sheet derivative financial instruments at December 31, 1997
and 1996. The following methods and assumptions were used to estimate the fair
value of each class of financial instruments.
CASH AND CASH EQUIVALENTS For these short-term instruments, carrying value
approximates fair value.
SECURITIES Fair values for securities are based on quoted market prices or
dealer quotes, where available. Where quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments.
LOANS For variable rate loans that reprice frequently and have no significant
credit risk, fair values are based on carrying values. The fair values for fixed
rate loans are estimated through discounted cash flow analyses using interest
rates currently being offered for loans with similar terms and credit quality.
The fair value of loans available for sale on an aggregate basis, are based on
quoted market prices. Nonperforming loans are valued based upon recent loss
history for similar loans.
ACCRUED INTEREST RECEIVABLE AND PAYABLE For these short-term instruments,
carrying value approximates fair value.
DEPOSITS The fair values disclosed for savings, money market, and noninterest
bearing accounts are, by definition, equal to their carrying values at the
reporting date. The fair value of fixed maturity certificates of deposit is
estimated using a discounted cash flow analysis that applies interest rates
currently offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.
SHORT-TERM BORROWINGS For short-term borrowings, carrying value approximates
fair value.
II-41
OTHER BORROWINGS The fair value of other borrowings has been estimated using
discounted cash flow analyses that apply interest rates currently being offered
for notes with similar terms.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT The fair value of
commitments to extend credit and standby letters of credit are estimated using
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present credit worthiness of the
counterparts. Carrying amounts which are comprised of the unamortized fee income
are immaterial.
ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
- -------------------------------------------------------------------------------------------
December 31, 1997 1996
- -------------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
(in thousands) AMOUNT VALUE Amount Value
- -------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and cash equivalents $ 37,446 $ 37,446 $ 35,790 $ 35,790
Loans available for sale 3,286 3,286 4,135 4,135
Securities available for sale 440,632 440,632 369,202 369,202
Securities held to maturity 36,139 36,139 42,239 42,238
Loans:
Commercial and agricultural 326,491 326,472 281,991 280,342
Real estate mortgage 135,475 141,229 119,870 120,346
Consumer 273,516 273,719 252,732 255,108
- -------------------------------------------------------------------------------------------
Total loans 735,482 741,420 654,593 655,796
Less allowance for loan losses 11,582 - 10,473 -
- -------------------------------------------------------------------------------------------
Net loans 723,900 741,420 644,120 655,796
Accrued interest receivable 7,470 7,470 7,919 7,919
- -------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES
Deposits:
Interest bearing:
Savings and money market 358,366 358,366 359,141 359,141
Certificates of deposit 516,832 517,252 435,063 442,933
Noninterest bearing 138,985 138,985 122,115 122,115
- -------------------------------------------------------------------------------------------
Total deposits 1,014,183 1,014,603 916,319 924,189
Short-term borrowings 134,527 134,527 88,244 88,244
Other borrowings 183 183 20,195 20,185
Accrued interest payable $ 3,240 $ 3,240 $ 2,431 $ 2,431
- -------------------------------------------------------------------------------------------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
II-42
DESCRIPTION OF EXHIBITS
Certificate of Incorporation of NBT BANCORP INC., as Amended through
April 22, 1995.
By-laws of NBT BANCORP INC., as amended and restated through November 15, 1995.
NBT BANCORP INC. 401(k) and Employee Stock Ownership Plan made as of
January 1, 1997.
NBT BANCORP INC. Defined Benefit Pension Plan Amended and restated as of
October 1, 1989, including Amendments adopted through December 31, 1994.
Amendment #1 dated February 21, 1995 to NBT BANCORP INC. Defined Benefit Pension
Plan Amended and restated as of October 1, 1989, including Amendments adopted
through December 31, 1994.
Amendment #2 dated May 23, 1995 to NBT BANCORP INC. Defined Benefit Pension Plan
Amended and restated as of October 1, 1989, including Amendments adopted
through December 31, 1994.
NBT BANCORP INC. Defined Benefit Pension Plan Amendment #3 dated November
13, 1995.
NBT BANCORP INC. Defined Benefit Pension Plan Amendment #4 dated January
22, 1996.
NBT BANCORP INC. Defined Benefit Pension Plan Amendment #5 dated July 22, 1997.
NBT BANCORP INC. Defined Benefit Pension Plan Amendment #6 dated August 1, 1997.
NBT BANCORP INC. Stock Option Plan dated November 26, 1986, as amended through
February 16, 1993.
NBT BANCORP INC. 1993 Stock Option Plan and amendment dated April 24, 1993 to
the NBT BANCORP INC. Stock Option Plan dated November 26, 1986, as amended
through February 16, 1993.
NBT BANCORP INC. 1998 Executive Incentive Compensation Plan.
Lease of Binghamton Office.
Lease and Lease Extension of Vail Mills Office.
Lease extension of Vail Mills Office.
Lease of Plattsburgh North Office.
Lease of Rome Office.
Lease extension of Rome Office.
Lease and Lease Extensions of South Otselic Office.
Lease of Utica Business Park Office.
Lease of Utica Downtown Office.
Lease of Black River Boulevard Plaza Office.
Lease of Plattsburgh Brinkerhoff Office.
Lease of Oneonta Office.
Change in control agreement with Daryl R. Forsythe.
Supplemental Retirement Agreement between NBT Bancorp Inc., NBT Bank, National
Association and Daryl R. Forsythe made as of January 1, 1995.
Death Benefits Agreement between NBT Bancorp Inc., NBT Bank, National
Association and Daryl R. Forsythe made August 22, 1995.
Wage Continuation Plan between NBT Bancorp Inc., NBT Bank, National Association
and Daryl R. Forsythe made as of August 1, 1995.
NBT Bancorp Inc. and Subsidiaries Master Deferred Compensation Plan of
Directors, adopted February 11, 1992.
Wage Continuation Plan between NBT Bancorp Inc., NBT Bank, National Association
and (Key Management Group) made as of January 2, 1997.
Restricted Stock Agreement between NBT Bancorp Inc. and (Director) made January
1, 1997.
Restricted Stock Agreement between NBT Bank, National Association and (Director)
made January 1, 1997.
Restricted Stock Agreement between NBT Bank, National Association and Daryl R.
Forsythe made January 1, 1997.
Supplemental Retirement Income Plan between NBT Bank, National Association and
Certain Management and Highly Compensated Employees made as of January 1, 1996.
A list of the subsidiaries of the registrant. Consent of KPMG Peat Marwick LLP.
Financial Data Schedule.
COPIES OF EXHIBITS ARE AVAILABLE UPON PAYMENT OF REPRODUCTION COSTS. SUBMIT YOUR
WRITTEN REQUEST TO JOE C. MINOR, CHIEF FINANCIAL OFFICER AND TREASURER OF NBT
BANCORP INC.
II-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 on FORM 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, this tenth
day of March, 1998.
NBT BANCORP INC.
(Registrant)
By:
/s/ DARYL R. FORSYTHE
Daryl R. Forsythe, President
and Chief Executive Officer
/s/ JOE C. MINOR
Joe C. Minor
Chief Financial
Officer and Treasurer
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 in
the capacities and on the date indicated.
/s/ DARYL R. FORSYTHE March 10, 1998
Daryl R. Forsythe, Director DATE
/s/ EVERETT A. GILMOUR March 10, 1998
Everett A. Gilmour, Director DATE
/s/ PETER B. GREGORY March 10, 1998
Peter B. Gregory, Director DATE
/s/ ANDREW S. KOWALCZYK, JR. March 10, 1998
Andrew S. Kowalczyk, Jr., Director DATE
/s/ JOHN C. MITCHELL March 10, 1998
John C. Mitchell, Director DATE
/s/ PAUL O. STILLMAN March 10, 1998
Paul O. Stillman, Director DATE
II-44
EXHIBIT INDEX
The following documents are attached as Exhibits to this FORM 10-K or, if
annotated by the symbol *, are incorporated by reference as Exhibits as
indicated by the page number or exhibit cross-reference to the prior filings of
the Registrant with the Commission.
FORM
10-K Exhibit
Exhibit Cross
Number Reference
3.1 Certificate of Incorporation of NBT BANCORP INC., as Amended through *
April 22, 1995.
FORM 10-Q for the quarterly period ended June 30, 1995, filed August
14, 1995 -- Exhibit 3.1.
3.2 By-laws of NBT BANCORP INC., as amended and restated through November *
15, 1995.
FORM 10-K for the year ended December 31, 1994, filed March 31, 1995
-- Exhibit 3.3.
10.1 NBT BANCORP INC. 401(k) and Employee Stock Ownership Plan made as Herein
of January 1, 1997.
Document is attached as Exhibit 10.1.
10.2 NBT BANCORP INC. Defined Benefit Pension Plan Amended and restated as of *
October 1, 1989, including Amendments adopted through December 31, 1994.
FORM 10-K for the year ended December 31, 1994, filed March 31, 1995
-- Exhibit 10.2.
10.3 Amendment #1 dated February 21, 1995 to NBT BANCORP INC. Defined Benefit *
Pension Plan Amended and restated as of October 1, 1989, including
Amendments adopted through December 31, 1994.
FORM 10-Q for the quarterly period ended June 30, 1995, filed August
7, 1995 -- Exhibit 10.1.
10.4 Amendment #2 dated May 23, 1995 to NBT BANCORP INC. Defined Benefit *
Pension Plan Amended and restated as of October 1, 1989, including Amendments
adopted through December 31, 1994.
FORM 10-Q for the quarterly period ended June 30, 1995, filed August
14, 1995 -- Exhibit 10.2.
10.5 NBT BANCORP INC. Defined Benefit Pension Plan Amendment #3 dated *
November 13, 1995.
FORM 10-K for the year ended December 31, 1995, filed March 25, 1996
-- Exhibit 10.6.
10.6 NBT BANCORP INC. Defined Benefit Pension Plan Amendment #4 dated January *
22, 1996.
FORM 10-K for the year ended December 31, 1995, filed March 25, 1996
-- Exhibit 10.7.
10.7 NBT BANCORP INC. Defined Benefit Pension Plan Amendment #5 dated *
July 22, 1997.
FORM 10-Q for the quarterly period ended September 30, 1997, filed
November 13, 1997 -- Exhibit 10.2.
10.8 NBT BANCORP INC. Defined Benefit Pension Plan Amendment #6 dated *
August 1, 1997.
FORM 10-Q for the quarterly period ended September 30, 1997, filed
November 13, 1997 -- Exhibit 10.3.
II-45
EXHIBIT INDEX (continued)
FORM
10-K Exhibit
Exhibit Cross
Number Reference
10.9 NBT BANCORP INC. Stock Option Plan dated November 26, 1986, as amended Herein
through February 16, 1993.
Document is attached as Exhibit 10.9.
10.10 NBT BANCORP INC. 1993 Stock Option Plan and amendment dated
April 24, 1993 to the NBT BANCORP INC. Stock Option Plan Herein dated
November 26, 1986, as amended through February 16, 1993.
Document is attached as Exhibit 10.10.
10.11 NBT BANCORP INC. 1998 Executive Incentive Compensation Plan. Herein
Document is attached as Exhibit 10.11.
10.12 Lease of Binghamton Office. *
FORM 10-K for the year ended December 31, 1993, filed March 30, 1994 --
Exhibit 10.21.
10.13 Lease and Lease Extension of Vail Mills Office. *
FORM 10-K for the year ended December 31, 1993, filed March 30, 1994 --
Exhibit 10.23.
10.14 Lease extension of Vail Mills Office. *
FORM 10-Q for the quarterly period ended June 30, 1997, filed
August 13, 1997 -- Exhibit 10.1.
10.15 Lease of Plattsburgh North Office. *
FORM 10-K for the year ended December 31, 1993, filed March 30, 1994 --
Exhibit 10.24.
10.16 Lease of Rome Office. *
FORM 10-K for the year ended December 31, 1993, filed March 30, 1994 --
Exhibit 10.25.
10.17 Lease extension of Rome Office. *
FORM 10-Q for the quarterly period ended June 30, 1997, filed
August 13, 1997 -- Exhibit 10.2.
10.18 Lease and Lease Extensions of South Otselic Office. *
FORM 10-K for the year ended December 31, 1993, filed March 30, 1994 --
Exhibit 10.26.
10.19 Lease of Utica Business Park Office. *
FORM 10-Q for the quarterly period ended September 30, 1994, filed
November 14, 1994 -- Exhibit 10.01.
10.20 Lease of Utica Downtown Office. *
FORM 10-K for the year ended December 31, 1995, filed March 25, 1996 --
Exhibit 10.26.
10.21 Lease of Black River Boulevard Plaza Office. Herein
Document is attached as Exhibit 10.21.
10.22 Lease of Plattsburgh Brinkerhoff Office. Herein
Document is attached as Exhibit 10.22.
10.23 Lease of Oneonta Office. Herein
Document is attached as Exhibit 10.23.
II-46
EXHIBIT INDEX (continued)
FORM
10-K Exhibit
Exhibit Cross
Number Reference
10.24 Change in control agreement with Daryl R. Forsythe. *
FORM 10-K for the year ended December 31, 1994, filed March 31, 1995 --
Exhibit 10.21.
10.25 Supplemental Retirement Agreement between NBT Bancorp Inc., NBT Bank,
* National Association and Daryl R. Forsythe made as of January 1,
1995.
FORM 10-Q for the quarterly period ended September 30, 1995, filed
November 13, 1995 -- Exhibit 10.1.
10.26 Death Benefits Agreement between NBT Bancorp Inc., NBT Bank, National
* Association and Daryl R. Forsythe made August 22, 1995.
FORM 10-Q for the quarterly period ended September 30, 1995, filed
November 13, 1995 -- Exhibit 10.2.
10.27 Wage Continuation Plan between NBT Bancorp Inc., NBT Bank, National *
Association and Daryl R. Forsythe made as of August 1, 1995.
FORM 10-Q for the quarterly period ended September 30, 1995, filed
November 13, 1995 -- Exhibit 10.4.
10.28 NBT Bancorp Inc. and Subsidiaries Master Deferred Compensation Plan *
of Directors, adopted February 11, 1992.
FORM 10-Q for the quarterly period ended September 30, 1995, filed
November 13, 1995 -- Exhibit 10.3.
10.40 Wage Continuation Plan between NBT Bancorp Inc., NBT Bank, National *
Association and (Key Management Group) made as of January 2, 1997.
FORM 10-K for the year ended December 31, 1996, filed March 14, 1997 --
Exhibit 10.40.
Substantially identical contracts for the following have been omitted:
John R. Bradley, Senior Vice President, Commercial Banking Division
Head; Martin A. Dietrich, Senior Vice President, Retail Division Head;
Joe C. Minor, Senior Vice President, Chief Financial Officer and Treasurer;
and John D. Roberts, Senior Vice President, Trust Division Head.
10.45 Restricted Stock Agreement between NBT Bancorp Inc. and (Director) made *
January 1, 1997.
FORM 10-K for the year ended December 31, 1996, filed March 14, 1997 --
Exhibit 10.45.
Substantially identical contracts for the following directors have been omitted:
Andrew S. Kowalczyk, Jr.; Paul O. Stillman; John C. Mitchell; Evertt A. Gilmour
and Peter B. Gregory.
10.50 Restricted Stock Agreement between NBT Bank, National Association and *
(Director) made January 1, 1997.
FORM 10-K for the year ended December 31, 1996, filed March 14, 1997 --
Exhibit 10.50.
Substantially identical contracts for the following directors have been omitted:
Dan B. Marshman; Kenneth M. Axtell; J. Peter Chaplin; Andrew S. Kowalxzyk, Jr.;
Paul O. Stillman; William L. Owens; C. Vernon Stratton; John C. Mitchell; Janet H.
Ingraham; Everett A. Gilmour; Richard F. Monroe and Peter B. Gregory.
10.55 Restricted Stock Agreement between NBT Bank, National Association and *
Daryl R. Forsythe made January 1, 1997.
FORM 10-K for the year ended December 31, 1996, filed March 14, 1997 --
Exhibit 10.55.
10.60 Supplemental Retirement Income Plan between NBT Bank, National *
Association and Certain Management and Highly Compensated Employees
made as of January 1, 1996.
FORM 10-Q for the quarterly period ended June 30, 1997, filed August
13, 1997 - Exhibit 10.3.
II-47
EXHIBIT INDEX (continued)
FORM
10-K Exhibit
Exhibit Cross
Number Reference
21 A list of the subsidiaries of the registrant is attached as Exhibit 21. Herein
23 Consent of KPMG Peat Marwick LLP. Herein
Document is attached as Exhibit 23.
27 Financial Data Schedule. Herein
Document is attached as Exhibit 27.
II-48
EXHIBIT 10.1
NBT BANCORP, INC. 401(K) AND EMPLOYEE STOCK OWNERSHIP PLAN
NBT BANCORP, INC. 401(K) AND EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
ADMINISTRATION
2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER.......................... 17
2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY.............................. 18
2.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES........................ 18
2.4 POWERS AND DUTIES OF THE ADMINISTRATOR............................... 18
2.5 RECORDS AND REPORTS.................................................. 20
2.6 APPOINTMENT OF ADVISERS.............................................. 20
2.7 PAYMENT OF EXPENSES.................................................. 20
2.8 CLAIMS PROCEDURE..................................................... 20
2.9 CLAIMS REVIEW PROCEDURE.............................................. 21
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY............................................ 21
3.2 EFFECTIVE DATE OF PARTICIPATION...................................... 21
3.3 DETERMINATION OF ELIGIBILITY......................................... 22
3.4 TERMINATION OF ELIGIBILITY........................................... 22
3.5 OMISSION OF ELIGIBLE EMPLOYEE........................................ 22
3.6 INCLUSION OF INELIGIBLE EMPLOYEE..................................... 23
3.7 ELECTION NOT TO PARTICIPATE.......................................... 23
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION........................ 23
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION.............................. 24
4.3 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION............................. 28
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS................. 28
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS..................................... 33
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS....................... 34
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS................................. 36
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS................... 37
4.9 MAXIMUM ANNUAL ADDITIONS............................................. 40
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS............................ 44
4.11 TRANSFERS FROM QUALIFIED PLANS....................................... 45
4.12 DIRECTED INVESTMENT ACCOUNT.......................................... 47
ARTICLE V
FUNDING AND INVESTMENT POLICY
5.1 INVESTMENT POLICY.................................................... 49
5.2 TRANSACTIONS INVOLVING COMPANY STOCK................................. 49
ARTICLE VI
VALUATIONS
6.1 VALUATION OF THE TRUST FUND.......................................... 51
6.2 METHOD OF VALUATION.................................................. 51
ARTICLE VII
DETERMINATION AND DISTRIBUTION OF BENEFITS
7.1 DETERMINATION OF BENEFITS UPON RETIREMENT............................ 51
7.2 DETERMINATION OF BENEFITS UPON DEATH................................. 52
7.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY..................... 53
7.4 DETERMINATION OF BENEFITS UPON TERMINATION........................... 53
7.5 DISTRIBUTION OF BENEFITS............................................. 57
7.6 HOW PLAN BENEFIT WILL BE DISTRIBUTED................................. 61
7.7 DISTRIBUTION FOR MINOR BENEFICIARY................................... 62
7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN....................... 62
7.9 RIGHT OF FIRST REFUSALS.............................................. 63
7.10 STOCK CERTIFICATE LEGEND............................................. 64
7.11 PUT OPTION........................................................... 64
7.12 ADVANCE DISTRIBUTION FOR HARDSHIP.................................... 66
7.13 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION...................... 67
ARTICLE VIII
TRUSTEE
8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE................................ 68
8.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE.......................... 69
8.3 OTHER POWERS OF THE TRUSTEE.......................................... 70
8.4 LOANS TO PARTICIPANTS................................................ 73
8.5 VOTING COMPANY STOCK................................................. 75
8.6 DUTIES OF THE TRUSTEE REGARDING PAYMENTS............................. 75
8.7 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES........................ 76
8.8 ANNUAL REPORT OF THE TRUSTEE......................................... 77
8.9 AUDIT................................................................ 77
8.10 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE....................... 78
8.11 TRANSFER OF INTEREST................................................. 79
8.12 DIRECT ROLLOVER...................................................... 79
ARTICLE IX
AMENDMENT, TERMINATION AND MERGERS
9.1 AMENDMENT............................................................ 80
9.2 TERMINATION.......................................................... 81
9.3 MERGER OR CONSOLIDATION.............................................. 81
ARTICLE X
TOP HEAVY
10.1 TOP HEAVY PLAN REQUIREMENTS.......................................... 82
10.2 DETERMINATION OF TOP HEAVY STATUS.................................... 82
ARTICLE XI
MISCELLANEOUS
11.1 PARTICIPANT'S RIGHTS................................................. 86
11.2 ALIENATION........................................................... 86
11.3 CONSTRUCTION OF PLAN................................................. 87
11.4 GENDER AND NUMBER.................................................... 87
11.5 LEGAL ACTION......................................................... 87
11.6 PROHIBITION AGAINST DIVERSION OF FUNDS............................... 87
11.7 BONDING.............................................................. 88
11.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE........................... 88
11.9 INSURER'S PROTECTIVE CLAUSE.......................................... 89
11.10 RECEIPT AND RELEASE FOR PAYMENTS..................................... 89
11.11 ACTION BY THE EMPLOYER............................................... 89
11.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY................... 89
11.13 HEADINGS............................................................. 90
11.14 APPROVAL BY INTERNAL REVENUE SERVICE................................. 90
11.15 UNIFORMITY........................................................... 91
11.16 SECURITIES AND EXCHANGE COMMISSION APPROVAL.......................... 91
11.17 SPECIAL DISTRIBUTION FORMS........................................... 91
NBT BANCORP, INC. 401(K) AND EMPLOYEE STOCK OWNERSHIP PLAN
THIS AGREEMENT, hereby made and entered into as of the 1st day of January,
1997, by and between NBT Bancorp, Inc. (herein referred to as the "Employer")
and NBT Bank, N.A. (herein referred to as the "Trustee").
W I T N E S S E T H:
WHEREAS, the Employer heretofore established an Employee Stock Ownership
Plan and Trust effective January 1, 1979 (hereinafter called the "Effective
Date"), known as the NBT Bancorp, Inc. Employee Stock Ownership Plan and,
effective April 1, 1994, established a tax deferred savings plan, known as the
NBT Bancorp 401(k) Retirement Plan. Effective January 1, 1997, the NBT Bancorp
401(k) Retirement Plan was merged into the NBT Bancorp, Inc. Employee Stock
Ownership Plan. This Plan is a restatement of the NBT Bancorp, Inc. Employee
Stock Ownership Plan after the merger into it of the NBT Bancorp 401(k)
Retirement Plan, and shall hereinafter be known as the NBT Bancorp, Inc. 401(k)
and Employee Stock Ownership Plan (herein referred to as the "Plan"). The Plan
contains trust provisions which were formerly contained in a separate trust
document. This Plan was established by the Employer in recognition of the
contribution made to its successful operation by its employees and for the
exclusive benefit of its eligible employees; and
WHEREAS, contributions to the Plan will be made by the Employer and such
contributions made to the trust will be invested primarily in the capital stock
of the Employer, and in other investments, where applicable, as directed by the
Employee.
NOW, THEREFORE, effective January 1, 1997, except as otherwise provided,
the Employer and the Trustee in accordance with the provisions of the Plan
pertaining to amendments thereof, hereby amend the Plan in its entirety and
restate the Plan 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
1
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
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 10.2.
1.5 "Anniversary Date" means December 31.
1.6 "Beneficiary" means the person to whom the share of a deceased
Participant's total account is payable, subject to the restrictions of Sections
7.2 and 7.5.
1.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced
from time to time.
1.8 "Company Stock" means common stock issued by the Employer (or by a
corporation which is a member of the controlled group of corporations of which
the Employer is a member) which is readily tradeable on an established
securities market. If there is no common stock which meets the foregoing
requirement, the term "Company Stock" means common stock issued by the Employer
(or by a corporation which is a member of the same controlled group) having a
combination of voting power and dividend rights equal to or in excess of: (A)
that class of common stock of the Employer (or of any other such corporation)
having the greatest voting power, and (B) that class of common stock of the
Employer (or of any other such corporation) having the greatest dividend rights.
Noncallable preferred stock shall be deemed to be "Company Stock" if such stock
is convertible at any time into stock which constitutes "Company Stock"
hereunder and if such conversion is at a conversion price which (as of the date
of the acquisition by the Trust) is reasonable. For purposes of the preceding
sentence, pursuant to Regulations, preferred stock shall be treated as
noncallable if after the call there will be a reasonable opportunity for a
conversion which meets the requirements of the preceding sentence.
1.9 "Company Stock Account" means the account of a Participant which is
credited with the shares of Company Stock purchased and paid for by the Trust
Fund or contributed to the Trust Fund.
A separate accounting shall be maintained with respect to that portion of
the Company Stock Account attributable to Elective Contributions and
Non-Elective Contributions.
1.10 "Compensation" with respect to any Participant means remuneration paid
by the Employer to a Participant in the form of base salary or wages,
commissions, overtime, and cash bonuses, excluding distributions from
non-qualified plans, income from the exercise of stock options, and severance
2
payments. 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:
(a) 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 $150,000 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).
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.
1.11 "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" means the first day of the month (prior to the
Normal Retirement Date) coinciding with or following the date on which a
Participant or Former Participant attains age 55, and has completed at least 10
Years of Service with the Employer (Early Retirement Age). A Participant shall
become fully Vested upon satisfying this requirement if still employed at his
Early Retirement Age.
3
A Former Participant who terminates employment after satisfying the service
requirement for Early Retirement and who thereafter reaches the age requirement
contained herein shall be entitled to receive his benefits under this Plan.
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 4.6(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 except as provided below.
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 who are nonresident aliens (within the meaning of Code Section
7701(b)(1)(B)) and who receive no earned income (within the meaning of Code
Section 911(d)(2)) from the Employer which constitutes income from sources
within the United States (within the meaning of Code Section 861(a)(3)) shall
not be eligible to participate 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, but excludes any person who is an independent contractor.
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.
4
1.16 "Employer" means NBT Bancorp, Inc., including NBT Bank, N.A., 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 New York.
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).
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). 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
purposes of Sections 10.2 and 4.4(h), 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 "ESOP" means an employee stock ownership plan that meets the
requirements of Code Section 4975(e)(7) and Regulation 54.4975-11.
1.21 "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
5
Administrator.
1.22 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on January 1st of each year and ending the following December 31st.
1.23 "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 7.4(f)(2). In addition, the term Forfeiture shall also include amounts
deemed to be Forfeitures pursuant to any other provision of this Plan.
1.24 "Former Participant" means a person who has been a Participant, but
who has ceased to be a Participant for any reason.
1.25 "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)).
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.
Effective January 1, 1998, 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
6
457(b), and Employee contributions described in Code Section 414(h)(2) that are
treated as Employer contributions.
1.26 "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.
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 $150,000 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.
1.27 "Highly Compensated Employee" means 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" of the Employer.
(b) Employees who received "415 Compensation" during the "look-back year"
from the Employer in excess of $80,000.
7
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 determining who is a Highly Compensated Employee, 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."
1.28 "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 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 1.27. 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.
1.29 "Highly Compensated Participant" means any Highly Compensated Employee
who is eligible to participate in the Plan.
1.30 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
8
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.
1.31 "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(d).
9
1.32 "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.
1.33 "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 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
10
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.
1.34 "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.
1.35 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. 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:
(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
11
(b) if Leased Employees do not constitute more than 20% of
the recipient's non-highly compensated work force.
1.36 "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.
1.37 "Non-Highly Compensated Participant" means any Participant who is not
a Highly Compensated Employee.
1.38 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.39 "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.
1.40 "Normal Retirement Date" means the first day of the month coinciding
with or next following the Participant's Normal Retirement Age.
1.41 "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 total Hours of
12
Service required to be credited for a "maternity or paternity leave of absence"
shall not exceed 501.
1.42 "Other Investments Account" means the account of a Participant which
is credited with his share of the net gain (or loss) of the Plan, Forfeitures
and Employer contributions in other than Company Stock and which is debited with
payments made to pay for Company Stock.
A separate accounting shall be maintained with respect to that portion of
the Other Investments Account attributable to Elective Contributions and
Non-Elective Contributions.
1.43 "Participant" means any Eligible Employee who participates in the Plan
and has not for any reason become ineligible to participate further in the Plan.
1.44 "Participant Direction Procedures" means such instructions, guidelines
or policies, the terms of which are incorporated herein, as shall be established
pursuant to Section 4.12 and observed by the Administrator and applied to
Participants who have Participant Directed Accounts.
1.45 "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(c) and any Employer Qualified Non-Elective Contributions.
1.46 "Participant's Combined Account" means the total aggregate amount of
each Participant's Elective Account and Participant's Account.
1.47 "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.
1.48 "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.
13
1.49 "Plan" means this instrument, including all amendments thereto.
1.50 "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.
1.51 "Qualified Non-Elective Contribution" means any Employer contributions
made pursuant to Section 4.6(b) and Section 4.8(h). Such contributions shall be
considered an Elective Contribution for the purposes of the Plan and used to
satisfy the "Actual Deferral Percentage" tests or the "Actual Contribution
Percentage" tests.
1.52 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
1.53 "Retired Participant" means a person who has been a Participant, but
who has become entitled to retirement benefits under the Plan.
1.54 "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, Early or Late Retirement Date
(see Section 7.1).
1.55 "Super Top Heavy Plan" means a plan described in Section 10.2(b).
1.56 "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.
1.57 "Top Heavy Plan" means a plan described in Section 10.2(a).
1.58 "Top Heavy Plan Year" means a Plan Year during which the Plan is a Top
Heavy Plan.
1.59 "Top Paid Group" means the top 20 percent of Employees who performed
services for the Employer during the applicable year, ranked according to the
amount of "415 Compensation" (determined for this purpose in accordance with
Section 1.27) received from the Employer during such year. 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. 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
14
861(a)(3) shall not be treated as Employees. Additionally, for the purpose of
determining the number of active Employees in any year, the following additional
Employees shall also be excluded; however, such Employees shall still be
considered for the purpose of identifying the particular Employees in the Top
Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per week;
(c) Employees who normally work less than six (6) months during
a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer are
covered under agreements the Secretary of Labor finds to be collective
bargaining agreements between Employee representatives and the Employer, and the
Plan covers only Employees who are not covered under such agreements, then
Employees covered by such agreements shall be excluded from both the total
number of active Employees as well as from the identification of particular
Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be applied on a
uniform and consistent basis for all purposes for which the Code Section 414(q)
definition is applicable.
1.60 "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 a) by a licensed
physician chosen by the Administrator or, b) by a Participant becoming entitled
to receive long term disability benefits under a long term disability program
sponsored by the Employer. The determination shall be applied uniformly to all
Participants.
1.61 "Trustee" means the person or entity named as trustee herein or in any
separate trust forming a part of this Plan, and any successors.
1.62 "Trust Fund" means the assets of the Plan and Trust as the same shall
exist from time to time.
1.63 "Valuation Date" means the last day of March, June, September, and
December in each year, 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
15
stock exchange used by such agent are open for business.
1.64 "Vested" means the nonforfeitable portion of any account maintained on
behalf of a Participant.
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 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 any employer who was acquired by the Employer shall
be recognized to the extent so provided in the acquisition agreement, but only
to the extent any such acquired employer maintained a qualified retirement plan.
Years of Service with any Affiliated Employer shall be recognized.
16
ARTICLE I
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
17
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.
(e) The Employer will furnish Plan Fiduciaries and Participants
with notices and information statements when voting rights must be
exercised pursuant to Section 8.5.
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.
2.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the responsibilities
of each Administrator may be specified by the Employer and accepted in writing
by each Administrator. In the event that no such delegation is made by the
Employer, the Administrators may allocate the responsibilities among themselves,
in which event the Administrators shall notify the Employer and the Trustee in
writing of such action and specify the responsibilities of each Administrator.
The Trustee thereafter shall accept and rely upon any documents executed by the
appropriate Administrator until such time as the Employer or the Administrators
file with the Trustee a written revocation of such designation.
2.4 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
18
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 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;
(g) 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;
(h) 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;
(i) to establish and communicate to Participants a procedure,
which includes at least three (3) investment options pursuant to
Regulations, for allowing each Participant to direct the Trustee as to
the investment of his Company Stock Account pursuant to Section 4.12;
19
(j) to establish and communicate to Participants a procedure and
method to insure that each Participant will vote Company Stock
allocated to such Participant's Company Stock Account pursuant to
Section 8.5;
(k) to assist any Participant regarding his rights, benefits, or
elections available under the Plan.
2.5 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall keep
all other books of account, 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.
2.6 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.
2.7 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.
2.8 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
20
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.
2.9 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 2.8
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 review of the denied claim. Such request,
together with a written statement of the reasons why the claimant believes his
claim should be granted, must be filed with the Administrator no later than 60
days after receipt of the written notification of denial provided for in Section
2.8. The claimant may be represented by an attorney or any other representative
of his choosing and shall have an opportunity to submit written evidence and
arguments in support of his claim. 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. A final decision
as to the allowance of the claim shall be made by the Administrator within 60
days of receipt of the request for review (unless there has been an extension of
60 days due to special circumstances, and 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.
ARTICLE I
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. 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.
3.2 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective as of the first
day of the calendar quarter coinciding with or next following the date on which
such Employee met the eligibility requirements of Section 3.1, provided said
21
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).
However, an Eligible Employee who is scheduled to work 1,000 or more hours
in a computation period shall be eligible to make Elective Contributions
pursuant to Section 4.2 on the first day of the calendar quarter coincident with
or next following his date of hire.
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 2.9.
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 but
has not incurred a 1-Year Break in Service, such Employee will
participate immediately upon returning to an eligible class of
Employees. If such Participant incurs a 1-Year Break in Service,
eligibility will be determined under the break in service rules of the
Plan.
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
22
Employee in the 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 thirty (30) 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, which
amount shall be deemed an Employer Non-Elective Contribution. Matching
contributions shall be made in Company Stock or, if made in cash,
shall be converted to Company Stock, and shall be subject to the
diversification requirements of Section 4.12.
Except, however, in applying the matching percentage specified
above, only salary reductions up to 5% of eligible Compensation shall
23
be considered. For an Employee's initial year of participation,
Compensation shall be counted from his date of participation in the
Plan.
(c) A discretionary amount, which amount, if any, shall be deemed
an Employer Non-Elective Contribution.
(d) 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 or in such property as is acceptable to the Trustee.
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer from 1% to 15% of his
Compensation which would 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);
24
(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 7.12.
(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 7.12(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
25
the Employer) for the taxable year of the hardship distribution.
(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.
26
(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) 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.
(i) 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.
(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 Plan Year quarter. 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
27
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
Employer contributions will be paid in cash, Company Stock or other
property as the Employer may from time to time determine. Company Stock and
other property will be valued at their then fair market value. 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, 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 general assets, but
in any event no later than the 15th business day of the month following the
month during which such amounts would otherwise have been payable to the
Participant in cash. The provisions of Department of Labor regulations
2510.3-102 are incorporated herein by reference. 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
no later than 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:
28
(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 Non-Elective Contribution
made pursuant to Section 4.1(c), 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 and are actively employed on the last
day of the Plan Year shall be eligible to share in the
discretionary contribution for the year.
(c) The Company Stock Account of each Participant shall be
credited as of each Anniversary Date with Forfeitures of Company Stock
and his allocable share of Company Stock (including fractional shares)
purchased and paid for by the Plan or contributed in kind by the
Employer. Stock dividends on Company Stock held in his Company Stock
Account shall be credited to his Company Stock Account when paid. Cash
dividends on Company Stock held in his Company Stock Account shall be
credited to his Other Investments Account when paid.
(d) As of each Valuation Date, 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 time weighted average (based on beginning year base)
nonsegregated accounts (other than each Participant's Company Stock
Account) bear to the total of all Participants' and Former
Participants' time weighted average (based on beginning year base)
nonsegregated accounts (other than Participants' Company Stock
Accounts) as of such date. Earnings or losses with respect to a
Participant's Directed Account shall be allocated in accordance with
Section 4.12.
29
Participants' transfers from other qualified plans 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.
(e) 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 7.4(f)(2). The
remaining Forfeitures, if any, shall be allocated to Participants'
Accounts and 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(c) shall be added
to any Employer discretionary contribution for the Plan Year
in which such Forfeitures occur and allocated among the
Participants' Accounts in the same manner as any Employer
discretionary contribution.
Provided, however, that in the event the allocation of
Forfeitures provided herein shall cause the "annual addition" (as
defined in Section 4.9) to any Participant's Account to exceed the
amount allowable by the Code, the excess shall be reallocated in
accordance with Section 4.10.
(f) For any Top Heavy Plan Year, Employees not otherwise eligible
to share in the allocation of contributions and Forfeitures as
provided above, shall receive the minimum allocation provided for in
Section 4.4(h) if eligible pursuant to the provisions of Section
4.4(j).
(g) Notwithstanding the foregoing, Participants who are not
actively employed on the last day of the Plan Year due to Retirement
(Early, Normal or Late), Total and Permanent Disability or death shall
share in the allocation of contributions and Forfeitures for that Plan
Year.
30
(h) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of
the Employer contributions and Forfeitures 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 and Forfeitures 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 and
Forfeitures 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 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.
(i) 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 and Forfeitures allocated on behalf of such Key Employee
divided by the "415 Compensation" for such Key Employee.
(j) 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.
(k) In lieu of the above, in any Plan Year in which an Employee
is a Participant in both this Plan and a defined benefit pension plan
31
included in a Required Aggregation Group which is top heavy, the
Employer shall not be required to provide such Employee with both the
full separate defined benefit plan minimum benefit and the full
separate defined contribution plan minimum allocation.
Therefore, for any Plan Year when the Plan is a Top Heavy Plan,
an Employee who is participating in this Plan and a defined benefit
plan maintained by the Employer shall receive a minimum monthly
accrued benefit in the defined benefit plan equal to the product of
(1) one-twelfth (1/12th) of "415 Compensation" averaged over the five
(5) consecutive "limitation years" (or actual "limitation years," if
less) which produce the highest average and (2) the lesser of (i) two
percent (2%) multiplied by years of service when the plan is top heavy
or (ii) twenty percent (20%).
(l) For the purposes of this Section, "415 Compensation" shall be
limited to $150,000. 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).
(m) 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.
(n) 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.
32
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year, the annual
allocation derived from Employer Elective Contributions to a
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 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 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 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
and to make Employee contributions 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 actual deferral ratio and his
actual contribution ratio reduced pursuant to 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 Highly Compensated Participant's Elective Account for such Plan
Year and to each such Non-Highly Compensated Participant's Elective
Account for the preceding Plan Year, to such Participant's "414(s)
Compensation" for the applicable Plan Year. The actual deferral ratio
for each Participant and the "Actual Deferral Percentage" for each
33
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 for the preceding Plan Year
shall be reduced by Excess Deferred Compensation for the preceding
Plan Year to the extent such excess amounts are made under this Plan
or any other plan maintained by the Employer.
(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.
(d) For purposes of this Section and Code Sections 401(a)(4),
410(b) and 401(k), this Plan may not be combined with any other plan.
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer Elective
Contributions made pursuant to Section 4.4 do not satisfy one of the tests set
forth in Section 4.5(a), 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 greatest actual deferral ratio shall have his actual deferral
ratio reduced until one of the tests set forth in Section 4.5(a) is
satisfied, or until his actual deferral ratio equals the actual
deferral ratio of the Highly Compensated Participant having the second
largest actual deferral ratio. This process shall continue until one
of the tests set forth in Section 4.5(a) is satisfied. Once one of the
tests set forth in Section 4.5(a) is satisfied, the total dollar
amount of Elective Contributions represented by such reduction or
reductions in actual deferral ratio or ratios shall be identified as
the total amount of Excess Contributions to be distributed. These
Excess Contributions will be attributed to and distributed from the
accounts of Highly Compensated Employees as follows. The Elective
Contribution for the Highly Compensated Employee with the largest
Elective Contribution shall be reduced until either a) the total
amount of Excess Contributions is distributed, or b) the Elective
Contribution for the Highly Compensated Employee with the greatest
Elective Contribution is reduced to the level of the Elective
Contribution for the Highly Compensated Employee with the next
greatest Elective Contribution. This process shall continue until the
34
total amount of Excess Contributions is distributed.
(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 and Income 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.
(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 electing salary
reductions pursuant to Section 4.2 in an amount sufficient to satisfy
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 electing salary reductions pursuant to Section
4.2 in the same proportion that each such Non-Highly Compensated
Participant's Deferred Compensation for the year bears to the total
Deferred Compensation of all such Non-Highly Compensated Participants.
(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).
35
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage" 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; or
(2) the lesser of 200 percent of such percentage for the
Non-Highly Compensated Participant group, or such 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 other plan maintained by the Employer
or an Affiliated Employer shall have a combination of his
actual deferral ratio and his actual contribution ratio
reduced pursuant to Regulation 1.401(m)-2. 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
Participant group, the average of the ratios (calculated separately
for each Participant in each group) of:
(1) the sum of Employer matching contributions made pursuant
to Section 4.1(b) on behalf of each such Highly Compensated
participant for such Plan Year and each Non-Highly
Compensated Participant for the preceding Plan Year; to
(2) the Participant's "414(s) Compensation" for the
applicable Plan Year.
(c) For purposes of determining the "Actual Contribution
Percentage" and the amount of Excess Aggregate Contributions pursuant
to Section 4.8(d), 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
36
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), this Plan may not be combined with any other plan.
(e) For purposes of Sections 4.7(a) and 4.8, a Highly Compensated
Participant and Non-Highly Compensated Participant shall include any
Employee eligible to have Employer matching contributions pursuant to
Section 4.1(b) (whether or not a deferral election was made or
suspended pursuant to Section 4.2(e)) allocated to his account for the
Plan Year.
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that the "Actual Contribution Percentage" for
the Highly Compensated Participant group exceeds the "Actual
Contribution Percentage" for the Non-Highly Compensated Participant
group pursuant to Section 4.7(a), the Highly Compensated Participant
having the greatest actual contribution ratio shall have his actual
contribution ratio reduced until one of the tests set forth in Section
4.7(a) is satisfied, or until his actual contribution ratio equals the
actual contribution ratio of the Highly Compensated Participant having
the second largest actual contribution ratio. This process shall
continue until one of the tests set forth in Section 4.7(a) is
satisfied. Once one of the tests set forth in Section 4.7(a) is
satisfied, the total dollar amount of aggregate contributions
represented by such reduction or reductions in actual contribution
ratio or ratios shall be identified as the total amount of Excess
Aggregate Contributions to be distributed and/or forfeited. These
Excess Aggregate Contributions will be attributed to and distributed
(with income), if vested, or forfeited (with income), if not vested
from the accounts of Highly Compensated Employees as follows. The
matching contribution for the Highly Compensated Employee with the
largest matching contribution shall be reduced until either a) the
total amount of Excess Aggregate Contributions is distributed, or b)
37
the matching contributions for the Highly Compensated Employee with
the greatest matching contributions is reduced to the level of the
matching contributions for the Highly Compensated Employee with the
next greatest matching contributions. This process shall continue
until all Excess Aggregate Contributions are eliminated. Excess
Aggregate Contributions shall be distributed to or forfeited by Highly
Compensated Participants 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.
To the extent necessary to affect correction, distributions and
forfeitures shall occur proportionately from the vested portion of a
Highly Compensated Employee's aggregate contributions (and Income
allocable to such contributions) and, if forfeitable, from the
non-Vested Excess Aggregate Contributions attributable to Employer
matching contributions (and Income allocable to such forfeitures). 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 7.5(k).
(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.
38
(d) For each Highly Compensated Participant, the amount of Excess
Aggregate Contributions is equal to 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 the Highly Compensated
Participant (determined prior to the application of this paragraph)
minus the amount determined by multiplying the Highly Compensated
Participant's actual contribution ratio (determined after application
of this paragraph) by his "414(s) Compensation." The actual
contribution ratio must be rounded to the nearest one-hundredth of one
percent. In no case shall the amount of Excess Aggregate Contribution
with respect to any Highly Compensated Participant exceed the amount
of 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 such Highly
Compensated Participant for such Plan Year.
(e) 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.
(f) 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).
(g) 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 one of the tests set
forth in Section 4.7(a). Such contribution shall be allocated to the
Participant's 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
39
Non-Highly Compensated Participants. A separate accounting of any
special Qualified Non-Elective Contribution shall be maintained in the
Participant's Account.
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)
40
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.
(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
41
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 beginning before 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"
prior to January 1, 2000 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
42
requirements of Code Section 415 for all "limitation years" beginning
before January 1, 1987.
(k) For Plan Years beginning prior to January 1, 2000, 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 prior to January 1, 2000, 100
43
percent shall be substituted for 125 percent in Sections 4.9(j) and
4.9(k).
(m) For Plan Years 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 adjust the numerator of the
defined benefit 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 the allocation of Forfeitures, 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 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
44
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
45
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 7.5, including, but not limited to, all notice and consent
requirements of Code Section 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 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.
46
(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) This Plan shall not accept any direct or indirect transfers
(as that term is defined and interpreted under Code Section 401(a)(11)
and the Regulations thereunder) from a defined benefit plan, money
purchase plan (including a target benefit plan), stock bonus or profit
sharing plan which would otherwise have provided for a life annuity
form of payment to the Participant.
(i) 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 9.1.
4.12 DIRECTED INVESTMENT ACCOUNT
(a) Participants may, subject to Section 4.12(c) and a procedure
established by the Administrator (the Participant Direction
Procedures) and applied in a uniform nondiscriminatory manner, direct
the Trustee to invest all or a portion of their Participant's Elective
Account (and such other account balances as specified in the
Procedures) 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
47
such pooled investment.
(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.
(c) Each "Qualified Participant" may elect within ninety (90)
days after the close of each Plan Year during the "Qualified Election
Period" to direct the Trustee in writing as to the investment of 25
percent of the total number of shares of Company Stock acquired by or
contributed to the Plan that have ever been allocated to such
"Qualified Participant's" Company Stock Account (reduced by the number
of shares of Company Stock previously invested pursuant to a prior
election). In the case of the election year in which the Participant
can make his last election, the preceding sentence shall be applied by
substituting "50 percent" for "25 percent." If the "Qualified
Participant" elects to direct the Trustee as to the investment of his
Company Stock Account, such direction shall be effective no later than
180 days after the close of the Plan Year to which such direction
applies. In lieu of directing the Trustee as to the investment of his
Company Stock Account, the "Qualified Participant" may elect a
distribution in cash or Company Stock of the portion of his Company
Stock Account covered by the election within ninety (90) days after
the last day of the period during which the election can be made. Any
such distribution of Company Stock shall be subject to Section 7.11.
Furthermore, the Participant must be given a choice of at least three
distinct investment options.
Notwithstanding the above, if the fair market value (determined
pursuant to Section 6.1 at the Plan Valuation Date immediately
preceding the first day on which a "Qualified Participant" is eligible
to make an election) of Company Stock acquired by or contributed to
the Plan and allocated to a "Qualified Participant's" Company Stock
Account is $500 or less, then such Company Stock shall not be subject
to this paragraph. For purposes of determining whether the fair market
value exceeds $500, Company Stock held in accounts of all employee
stock ownership plans (as defined in Code Section 4975(e)(7)) and tax
credit employee stock ownership plans (as defined in Code Section
409(a)) maintained by the Employer or any Affiliated Employer shall be
considered as held by the Plan.
48
(d) For the purposes of this Section the following definitions
shall apply:
(1) "Qualified Participant" means any Participant or Former
Participant who has completed ten (10) years as a Participant and
has attained age 55.
(2) "Qualified Election Period" means the six (6) Plan Year
period beginning with the later of (i) the first Plan Year in
which the Participant first became a "Qualified Participant," or
(ii) the first Plan Year beginning after December 31, 1986.
ARTICLE I
FUNDING AND INVESTMENT POLICY
5.1 INVESTMENT POLICY
(a) The Plan is designed to invest primarily in Company Stock.
(b) With due regard to subparagraph (a) above, the Administrator
may also direct the Trustee to invest funds under the Plan in other
property described in the Trust, or the Trustee may hold such funds in
cash or cash equivalents.
(c) The Plan may not obligate itself to acquire Company Stock
from a particular holder thereof at an indefinite time determined upon
the happening of an event such as the death of the holder.
(d) The Plan may not obligate itself to acquire Company Stock
under a put option binding upon the Plan. However, at the time a put
option is exercised, the Plan may be given an option to assume the
rights and obligations of the Employer under a put option binding upon
the Employer.
(e) All purchases of Company Stock shall be made at a price
which, in the judgment of the Administrator, does not exceed the fair
market value thereof. All sales of Company Stock shall be made at a
price which, in the judgment of the Administrator, is not less than
the fair market value thereof. The valuation rules set forth in
Article VI shall be applicable.
5.2 TRANSACTIONS INVOLVING COMPANY STOCK
(a) No portion of the Trust Fund attributable to (or allocable in
lieu of) Company Stock acquired by the Plan in a sale to which Code
Section 1042 applies may accrue or be allocated directly or indirectly
49
under any plan maintained by the Employer meeting the requirements of
Code Section 401(a):
(1) during the "Nonallocation Period," for the benefit of
(i) any taxpayer who makes an election under Code Section
1042(a) with respect to Company Stock,
(ii) any individual who is related to the taxpayer (within
the meaning of Code Section 267(b)), or
(2) for the benefit of any other person who owns (after
application of Code Section 318(a) applied without regard to the
employee trust exception in Code Section 318(a)(2)(B)(i)) more
than 25 percent of
(i) any class of outstanding stock of the Employer or
Affiliated Employer which issued such Company Stock, or
(ii) the total value of any class of outstanding stock of
the Employer or Affiliated Employer.
(b) Except, however, subparagraph (a)(1)(ii) above shall not
apply to lineal descendants of the taxpayer, provided that the
aggregate amount allocated to the benefit of all such lineal
descendants during the "Nonallocation Period" does not exceed more
than five (5) percent of the Company Stock (or amounts allocated in
lieu thereof) held by the Plan which are attributable to a sale to the
Plan by any person related to such descendants (within the meaning of
Code Section 267(c)(4)) in a transaction to which Code Section 1042 is
applied.
(c) A person shall be treated as failing to meet the stock
ownership limitation under paragraph (a)(2) above if such person fails
such limitation:
(1) at any time during the one (1) year period ending on the date
of sale of Company Stock to the Plan, or
(2) on the date as of which Company Stock is allocated to
Participants in the Plan.
(d) For purposes of this Section, "Nonallocation Period" means
the period beginning on the date of the sale of the Company Stock and
50
ending on the date which is ten (10) years after the date of sale.
ARTICLE I
VALUATIONS
6.1 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.
6.2 METHOD OF VALUATION
Valuations must be made in good faith and based on all relevant factors for
determining the fair market value of securities. In the case of a transaction
between a Plan and a disqualified person, value must be determined as of the
date of the transaction. For Plan distribution purposes, value will be
determined as of the date of the transaction. For all other Plan purposes, value
will be determined as of the most recent valuation date under the Plan. An
independent appraisal will not in itself be a good faith determination of value
in the case of a transaction between the Plan and a disqualified person.
However, in other cases, a determination of fair market value based on at least
an annual appraisal independently arrived at by a person who customarily makes
such appraisals and who is independent of any party to the transaction will be
deemed to be a good faith determination of value. Company Stock not readily
tradeable on an established securities market shall be valued by an independent
appraiser meeting requirements similar to the requirements of the Regulations
prescribed under Code Section 170(a)(1).
ARTICLE I
DETERMINATION AND DISTRIBUTION OF BENEFITS
7.1 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 or Early 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 as soon thereafter as is practicable, the Trustee shall, at the
51
election of the Participant, distribute all amounts credited to such
Participant's Combined Account in accordance with Sections 7.5 and 7.6.
7.2 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. If elected,
distribution of the Participant's Combined Account shall commence not
later than one (1) year after the close of the Plan Year in which such
Participant's death occurs. The Administrator shall direct the
Trustee, in accordance with the provisions of Sections 7.5 and 7.6, 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 7.5 and 7.6, 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 death benefit.
(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) 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
52
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a
Beneficiary 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. 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 estate.
(f) 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.
7.3 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 7.5 and 7.6, shall distribute to such Participant all
amounts credited to such Participant's Combined Account as though he had
retired. If such Participant elects, distribution shall commence not later than
one (1) year after the close of the Plan Year in which Total and Permanent
Disability occurs.
7.4 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 7.4.
If a portion of a Participant's Account is forfeited, Company
Stock allocated to the Participant's Company Stock Account must be
forfeited only after the Participant's Other Investments Account has
been depleted. If interest in more than one class of Company Stock has
53
been allocated to a Participant's Account, the Participant must be
treated as forfeiting the same proportion of each such class.
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, Early 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 on or after the
Valuation Date next following termination of employment. Any
distribution under this paragraph shall be made in a manner which is
consistent with and satisfies the provisions of Sections 7.5 and 7.6,
including, but not limited to, all notice and consent requirements of
Code Section 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 $3,500
($5,000 beginning in 1998) and has never exceeded $3,500 ($5,000
beginning in 1998) 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
less than 1 0 %
1 20 %
2 40 %
3 60 %
4 80 %
5 or more 100 %
(c) Notwithstanding the vesting schedule 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.
54
(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
55
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(c),
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 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 who has not had his Years of
Service before a 1-Year Break in Service disregarded
pursuant to (ii) above completes a Year of Service for
eligibility purposes following his reemployment with the
Employer, he shall participate in the Plan retroactively
56
from his date of reemployment;
(v) If a Former Participant who has not had his Years of
Service before a 1-Year Break in Service disregarded
pursuant to (ii) above completes a Year of Service (a 1-Year
Break in Service previously occurred, but employment had not
terminated), he shall participate in the Plan retroactively
from the first day on which he is credited with an Hour of
Service after the first eligibility computation period in
which he incurs a 1-Year Break in Service.
(g) In determining Years of Service for purposes of vesting under
the Plan, Years of Service prior to the vesting computation period in
which an Employee attained his eighteenth birthday shall be excluded.
7.5 DISTRIBUTION OF BENEFITS
(a) The Administrator, pursuant to the election of the
Participant (or if no election has been made prior to the
Participant's death, by his Beneficiary), shall direct the Trustee to
distribute to a Participant or his Beneficiary any amount to which he
is entitled under the Plan in one lump-sum payment, subject to the
provisions of Section 11.17.
(b) Any distribution to a Participant who has a benefit which
exceeds, or has ever exceeded, $3,500 ($5,000 beginning in 1998) at
the time of any prior distribution shall require such Participant's
consent if such distribution occurs prior to the later of his Normal
Retirement Age or age 62. With regard to this required consent:
(1) 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 distribution of any
benefit. However, any election to defer the receipt of benefits
shall not apply with respect to distributions which are required
under Section 7.5(e).
(2) Notice of the rights specified under this paragraph shall be
provided no less than 30 days and no more than 90 days before the
date the distribution commences.
(3) Written consent of the Participant to the distribution must
not be made before the Participant receives the notice and must
57
not be made more than 90 days before the date the distribution
commences.
(4) 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 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.
(c) Notwithstanding anything herein to the contrary, the
Administrator, in his sole discretion, may direct that cash dividends
on shares of Company Stock allocable to Participants' or Former
Participants' Company Stock Accounts be distributed to such
Participants or Former Participants within 90 days after the close of
the Plan Year in which the dividends are paid.
(d) Any part of a Participant's benefit which is retained in the
Plan after the Anniversary Date or other valuation date on which his
participation ends will continue to be treated as a Company Stock
Account or as an Other Investments Account (subject to Section 7.4(a))
as provided in Article IV. However, neither account will be credited
with any further Employer contributions or Forfeitures.
(e) Notwithstanding any provision in the Plan to the contrary,
the distribution of a Participant's benefits 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)
58
percent owner" at any time during the five (5) Plan Year period
ending in the calendar year in which he 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. Such distributions shall be equal to
or greater than any required distribution.
(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.
(f) 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 7.5 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, the 5-year distribution requirement of the 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 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 spouse (determined as of the date of the
Participant's death) is his 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
59
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.
(g) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse shall not be redetermined in
accordance with Code Section 401(a)(9)(D). 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.
(h) Except as limited by Sections 7.5 and 7.6, whenever the
Trustee is to make a distribution, the distribution may be made 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 occur not later than the 60th day after the close of
the Plan Year in which the latest of the following events occurs:
(1) the date on which the Participant attains the earlier of age
65 or the Normal Retirement Age specified herein;
(2) the 10th anniversary of the year in which the Participant
commenced participation in the Plan; or
(3) the date the Participant terminates his service with the
Employer.
(i) 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 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. Any
such written designation made by a Participant shall be binding upon
the Plan Administrator notwithstanding any contrary provision of
Section 7.5.
(j) 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
60
to have his 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.
(k) 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
(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.
7.6 HOW PLAN BENEFIT WILL BE DISTRIBUTED
(a) Distribution of a Participant's benefit may be made in cash
or Company Stock or both, provided, however, that if a Participant or
Beneficiary so demands, such benefit (other than Company Stock
reinvested pursuant to Section 4.12(c)) shall be distributed only in
the form of Company Stock. Prior to making a distribution of benefits,
the Administrator shall advise the Participant or his Beneficiary, in
writing, of the right to demand that benefits be distributed solely in
Company Stock.
(b) If a Participant or Beneficiary demands that benefits be
distributed solely in Company Stock, distribution of a Participant's
benefit will be made entirely in whole shares or other units of
Company Stock. Any balance in a Participant's Other Investments
Account will be applied to acquire for distribution the maximum number
of whole shares or other units of Company Stock at the then fair
market value. Any fractional unit value unexpended will be distributed
in cash. If Company Stock is not available for purchase by the
Trustee, then the Trustee shall hold such balance until Company Stock
61
is acquired and then make such distribution, subject to Sections
7.5(h) and 7.5(e).
(c) The Trustee will make distribution from the Trust only on
instructions from the Administrator.
(d) Notwithstanding anything contained herein to the contrary, if
the Employer charter or by-laws restrict ownership of substantially
all shares of Company Stock to Employees and the Trust Fund, as
described in Code Section 409(h)(2), the Administrator shall
distribute a Participant's Combined Account entirely in cash without
granting the Participant the right to demand distribution in shares of
Company Stock.
(e) Except as otherwise provided herein, Company Stock
distributed by the Trustee may be restricted as to sale or transfer by
the by-laws or articles of incorporation of the Employer, provided
restrictions are applicable to all Company Stock of the same class. If
a Participant is required to offer the sale of his Company Stock to
the Employer before offering to sell his Company Stock to a third
party, in no event may the Employer pay a price less than that offered
to the distributee by another potential buyer making a bona fide offer
and in no event shall the Trustee pay a price less than the fair
market value of the Company Stock.
7.7 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 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.
7.8 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
62
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.
7.9 RIGHT OF FIRST REFUSALS
(a) If any Participant, his Beneficiary or any other person to
whom shares of Company Stock are distributed from the Plan (the
"Selling Participant") shall, at any time, desire to sell some or all
of such shares (the "Offered Shares") to a third party (the "Third
Party"), the Selling Participant shall give written notice of such
desire to the Employer and the Administrator, which notice shall
contain the number of shares offered for sale, the proposed terms of
the sale and the names and addresses of both the Selling Participant
and Third Party. Both the Trust Fund and the Employer shall each have
the right of first refusal for a period of fourteen (14) days from the
date the Selling Participant gives such written notice to the Employer
and the Administrator (such fourteen (14) day period to run
concurrently against the Trust Fund and the Employer) to acquire the
Offered Shares. As between the Trust Fund and the Employer, the Trust
Fund shall have priority to acquire the shares pursuant to the right
of first refusal. The selling price and terms shall be the same as
offered by the Third Party.
(b) If the Trust Fund and the Employer do not exercise their
right of first refusal within the required fourteen (14) day period
provided above, the Selling Participant shall have the right, at any
time following the expiration of such fourteen (14) day period, to
dispose of the Offered Shares to the Third Party; provided, however,
that (i) no disposition shall be made to the Third Party on terms more
favorable to the Third Party than those set forth in the written
notice delivered by the Selling Participant above, and (ii) if such
disposition shall not be made to a third party on the terms offered to
the Employer and the Trust Fund, the offered Shares shall again be
subject to the right of first refusal set forth above.
(c) The closing pursuant to the exercise of the right of first
refusal under Section 7.9(a) above shall take place at such place
agreed upon between the Administrator and the Selling Participant, but
not later than ten (10) days after the Employer or the Trust Fund
shall have notified the Selling Participant of the exercise of the
right of first refusal. At such closing, the Selling Participant shall
deliver certificates representing the Offered Shares duly endorsed in
blank for transfer, or with stock powers attached duly executed in
63
blank with all required transfer tax stamps attached or provided for,
and the Employer or the Trust Fund shall deliver the purchase price,
or an appropriate portion thereof, to the Selling Participant.
7.10 STOCK CERTIFICATE LEGEND
Certificates for shares distributed pursuant to the Plan shall contain the
following legend:
"The shares represented by this certificate are transferable only upon
compliance with the terms of NBT BANCORP, INC. 401(K) AND EMPLOYEE STOCK
OWNERSHIP PLAN effective as of January 1, 1997, which grants to NBT Bancorp,
Inc. and the trust for the Plan a right of first refusal, a copy of said Plan
being on file in the office of NBT Bancorp, Inc."
7.11 PUT OPTION
(a) If Company Stock is distributed to a Participant and such
Company Stock is not readily tradeable on an established securities
market, a Participant has a right to require the Employer to
repurchase the Company Stock distributed to such Participant under a
fair valuation formula. Such Stock shall be subject to the provisions
of Section 7.11(b).
(b) The put option must be exercisable only by a Participant, by
the Participant's donees, or by a person (including an estate or its
distributee) to whom the Company Stock passes by reason of a
Participant's death. (Under this paragraph Participant or Former
Participant means a Participant or Former Participant and the
beneficiaries of the Participant or Former Participant under the
Plan.) The put option must permit a Participant to put the Company
Stock to the Employer. Under no circumstances may the put option bind
the Plan. However, it shall grant the Plan an option to assume the
rights and obligations of the Employer at the time that the put option
is exercised. If it is known at the time a loan is made that Federal
or State law will be violated by the Employer honoring such put
option, the put option must permit the Company Stock to be put, in a
manner consistent with such law, to a third party (e.g., an affiliate
of the Employer or a shareholder other than the Plan) that has
substantial net worth at the time the loan is made and whose net worth
is reasonably expected to remain substantial.
The put option shall commence as of the day following the date
the Company Stock is distributed to the Former Participant and end 60
days thereafter and if not exercised within such 60-day period, an
64
additional 60-day option shall commence on the first day of the fifth
month of the Plan Year next following the date the stock was
distributed to the Former Participant (or such other 60-day period as
provided in Regulations). However, in the case of Company Stock that
is publicly traded without restrictions when distributed but ceases to
be so traded within either of the 60-day periods described herein
after distribution, the Employer must notify each holder of such
Company Stock in writing on or before the tenth day after the date the
Company Stock ceases to be so traded that for the remainder of the
applicable 60-day period the Company Stock is subject to the put
option. The number of days between the tenth day and the date on which
notice is actually given, if later than the tenth day, must be added
to the duration of the put option. The notice must inform distributees
of the term of the put options that they are to hold. The terms must
satisfy the requirements of this paragraph.
The put option is exercised by the holder notifying the Employer
in writing that the put option is being exercised; the notice shall
state the name and address of the holder and the number of shares to
be sold. The period during which a put option is exercisable does not
include any time when a distributee is unable to exercise it because
the party bound by the put option is prohibited from honoring it by
applicable Federal or State law. The price at which a put option must
be exercisable is the value of the Company Stock determined in
accordance with Section 6.2. Payment under the put option involving a
"Total Distribution" shall be paid in substantially equal monthly,
quarterly, semiannual or annual installments over a period certain
beginning not later than thirty (30) days after the exercise of the
put option and not extending beyond (5) years. The deferral of payment
is reasonable if adequate security and a reasonable interest rate on
the unpaid amounts are provided. The amount to be paid under the put
option involving installment distributions must be paid not later than
thirty (30) days after the exercise of the put option. Payment under a
put option must not be restricted by the provisions of a loan or any
other arrangement, including the terms of the Employer articles of
incorporation, unless so required by applicable state law.
For purposes of this Section, "Total Distribution" means a
distribution to a Participant or his Beneficiary within one taxable
year of the entire Vested Participant's Combined Account.
65
(a) An arrangement involving the Plan that creates a put option
must not provide for the issuance of put options other than as
provided under this Section. The Plan (and the Trust Fund) must not
otherwise obligate itself to acquire Company Stock from a particular
holder thereof at an indefinite time determined upon the happening of
an event such as the death of the holder.
7.12 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 transaction date or the amount necessary to satisfy
the immediate and heavy financial need of the Participant. The
Participant's Elective Account shall be reduced by the amount of such
hardship distribution accordingly. Withdrawal under this Section shall
be authorized only if the distribution is on account of:
(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.
(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
66
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 and voluntary Employee
contributions 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.
(d) Any distribution made pursuant to this Section shall be made
in a manner which is consistent with and satisfies the provisions of
Sections 7.5 and 7.6, including, but not limited to, all notice and
consent requirements of Code Section 411(a)(11) and the Regulations
thereunder.
7.13 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
67
"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 I
TRUSTEE
8.1 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;
(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 8.8.
(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.
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(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.
8.2 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 an Employee Stock Ownership
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.
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(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, 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.
(d) In the event the Trustee invests any part of the Trust Fund,
pursuant to the directions of the Administrator, in any shares of
stock issued by the Employer, and the Administrator thereafter directs
the Trustee to dispose of such investment, or any part thereof, under
circumstances which, in the opinion of counsel for the Trustee,
require registration of the securities under the Securities Act of
1933 and/or qualification of the securities under the Blue Sky laws of
any state or states, then the Employer at its own expense, will take
or cause to be taken any and all such action as may be necessary or
appropriate to effect such registration and/or qualification.
8.3 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
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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
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the Plan in all suits and legal and administrative proceedings;
(j) To employ suitable agents and counsel and to pay their
reasonable expenses and compensation, and such agent or counsel may or
may not be agent or counsel for the Employer;
(k) To invest funds of the Trust in time deposits or savings
accounts bearing a reasonable rate of interest;
(l) To invest in Treasury Bills and other forms of United States
government obligations;
(m) To invest in shares of investment companies registered under
the Investment Company Act of 1940;
(n) To deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations;
(o) To vote Company Stock as provided in Section 8.5;
(p) To consent to or otherwise participate in reorganizations,
recapitalizations, consolidations, mergers and similar transactions
with respect to Company Stock or any other securities and to pay any
assessments or charges in connection therewith;
(q) To deposit such Company Stock (but only if such deposit does
not violate the provisions of Section 8.5 hereof) or other securities
in any voting trust, or with any protective or like committee, or with
a trustee or with depositories designated thereby;
(r) To sell or exercise any options, subscription rights and
conversion privileges and to make any payments incidental thereto;
(s) To exercise any of the powers of an owner, with respect to
such Company Stock and other securities or other property comprising
the Trust Fund. The Administrator, with the Trustee's approval, may
authorize the Trustee to act on any administrative matter or class of
matters with respect to which direction or instruction to the Trustee
by the Administrator is called for hereunder without specific
direction or other instruction from the Administrator;
(t) 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
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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;
(u) 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;
(v) 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.
8.4 LOANS TO PARTICIPANTS
(a) 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; (5) loans shall provide for repayment over a
reasonable period of time; and (6) loans shall not be made from a
Participant's Company Stock Account attributable to Employer
Non-Elective Contributions pursuant to Sections 4.1(b) and 4.1(c) nor
may such Company Stock Account be used as security for any loan.
(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:
(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 ( excluding the
Participant's Company Stock Account).
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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.
(d) Any loans granted or renewed on or after the last day of the
first Plan Year beginning after December 31, 1988 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.
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8.5 VOTING COMPANY STOCK
The Trustee, as directed by the Administrator, shall vote all Company Stock
held by it as part of the Plan assets. Provided, however, that if any agreement
entered into by the Trust provides for voting of any shares of Company Stock
pledged as security for any obligation of the Plan, then such shares of Company
Stock shall be voted in accordance with such agreement. If the Trustee does not
timely receive voting directions from a Participant or Beneficiary with respect
to any Company Stock allocated to that Participant's or Beneficiary's Company
Stock Account, the Trustee shall vote such Company Stock, as directed by the
Administrator.
Notwithstanding the foregoing, if the Employer has a registration-type
class of securities, each Participant or Beneficiary shall be entitled to direct
the Trustee as to the manner in which the Company Stock which is entitled to
vote and which is allocated to the Company Stock Account of such Participant or
Beneficiary is to be voted. If the Employer does not have a registration-type
class of securities, each Participant or Beneficiary in the Plan shall be
entitled to direct the Trustee as to the manner in which voting rights on shares
of Company Stock which are allocated to the Company Stock Account of such
Participant or Beneficiary are to be exercised with respect to any corporate
matter which involves the voting of such shares with respect to the approval or
disapproval of any corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially all assets of
a trade or business, or such similar transaction as prescribed in Regulations.
For purposes of this Section the term "registration-type class of securities"
means: (A) a class of securities required to be registered under Section 12 of
the Securities Exchange Act of 1934; and (B) a class of securities which would
be required to be so registered except for the exemption from registration
provided in subsection (g)(2)(H) of such Section 12.
If the Employer does not have a registration-type class of securities and
the by-laws of the Employer require the Plan to vote an issue in a manner that
reflects a one-man, one-vote philosophy, each Participant or Beneficiary shall
be entitled to cast one vote on an issue and the Trustee shall vote the shares
held by the Plan in proportion to the results of the votes cast on the issue by
the Participants and Beneficiaries.
8.6 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
(a) The Trustee shall make distributions from the Trust Fund at
such times and in such numbers of shares or other units of Company
Stock and amounts of cash to or for the benefit of the person entitled
thereto under the Plan as the Administrator directs in writing. Any
undistributed part of a Participant's interest in his accounts shall
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be retained in the Trust Fund until the Administrator directs its
distribution. Where distribution is directed in Company Stock, the
Trustee shall cause an appropriate certificate to be issued to the
person entitled thereto and mailed to the address furnished it by the
Administrator. Any portion of a Participant's Combined Account to be
distributed in cash shall be paid by the Trustee mailing its check to
the same person at the same address. If a dispute arises as to who is
entitled to or should receive any benefit or payment, the Trustee may
withhold or cause to be withheld such payment until the dispute has
been resolved.
(b) As directed by the Administrator, the Trustee shall make
payments out of the Trust Fund. Such directions or instructions need
not specify the purpose of the payments so directed and the Trustee
shall not be responsible in any way respecting the purpose or
propriety of such payments except as mandated by the Act.
(c) In the event that any distribution or payment directed by the
Administrator shall be mailed by the Trustee to the person specified
in such direction at the latest address of such person filed with the
Administrator, and shall be returned to the Trustee because such
person cannot be located at such address, the Trustee shall promptly
notify the Administrator of such return. Upon the expiration of sixty
(60) days after such notification, such direction shall become void
and unless and until a further direction by the Administrator is
received by the Trustee with respect to such distribution or payment,
the Trustee shall thereafter continue to administer the Trust as if
such direction had not been made by the Administrator. The Trustee
shall not be obligated to search for or ascertain the whereabouts of
any such person.
8.7 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
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.
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8.8 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.
8.9 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
77
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.
8.10 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the
Employer, at least thirty (30) days 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
78
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 8.8 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 8.8 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 8.8 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 8.8 and this subparagraph.
8.11 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.
8.12 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:
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any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period
of ten years or more; any distribution to the extent such
distribution is required under 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); 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.
ARTICLE I
AMENDMENT, TERMINATION AND MERGERS
9.1 AMENDMENT
(a) The Employer shall have the right at any time to amend the
Plan, subject to the limitations of this Section.
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(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 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.
9.2 TERMINATION
(a) The Employer shall have the right at any time to terminate
the Plan. Upon any full or partial termination, all amounts credited
to the affected Participants' Combined Accounts shall become 100%
Vested as provided in Section 7.4 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 Sections 7.5 and 7.6. 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 9.1(c).
9.3 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
81
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 9.1(c).
ARTICLE I
TOP HEAVY
10.1 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 7.4 of the Plan and the
special minimum allocation requirements of Code Section 416(c) pursuant to
Section 4.4 of the Plan.
10.2 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 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
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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 made prior to January
1, 1984, and 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
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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. However, rollovers or plan-to-plan transfers
accepted prior to January 1, 1984 shall be considered 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 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
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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:
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(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.
ARTICLE I
MISCELLANEOUS
11.1 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.
11.2 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
86
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 2.8 and 2.9.
(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.
11.3 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the Act
and the laws of the State of New York to the extent not preempted by the Act.
11.4 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.
11.5 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.
11.6 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,
87
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.
11.7 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.
11.8 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.
88
11.9 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.
11.10 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.
11.11 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.
11.12 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 at Article II of the
89
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 and apply the Plan and Trust, including the power to resolve questions
of law and/or fact and to resolve ambiguities, inconsistencies and omissions,
which findings shall be binding, final and conclusive.
11.13 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.
11.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary,
contributions to this Plan are conditioned upon the qualification of
the Plan under Code Section 401. If the Plan receives an adverse
determination with respect to its 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(d), any contribution by the Employer to the
Trust Fund is conditioned upon the deductibility of the contribution
90
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.
11.15 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.
11.16 SECURITIES AND EXCHANGE COMMISSION APPROVAL
The Employer may request an interpretative letter from the Securities and
Exchange Commission stating that the transfers of Company Stock contemplated
hereunder do not involve transactions requiring a registration of such Company
Stock under the Securities Act of 1933. In the event that a favorable
interpretative letter is not obtained, the Employer reserves the right to amend
the Plan and Trust retroactively to their Effective Dates in order to obtain a
favorable interpretative letter or to terminate the Plan.
11.17 SPECIAL DISTRIBUTION FORMS
Notwithstanding any language contained in the Plan to the contrary, with
respect to Employer contributions made to the Plan on and before December 31,
1994, the following provisions shall apply:
(a) Upon the death of a Participant before his Retirement Date or
other termination of his employment, all amounts credited to such
Participant's Company Stock Account shall become fully Vested.
(b) Upon the death of a Former Participant, the Administrator
shall direct the Trustee, 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 Annuity.
91
(d) The Administrator may require such proper proof of death and
such evidence of the right of any person to receive payment of the
Company Stock Account attributable to Employer contributions made on
or before December 31, 1994 on behalf 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) Unless otherwise elected, the Beneficiary of the death
benefit shall be the Participant's spouse, who shall receive such
benefit in the form of a Pre-Retirement Survivor Annuity, which is an
immediate annuity form of payment for the life of the surviving spouse
of a Participant who dies prior to his annuity starting date, which 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. Except, however, the Participant may
designate a Beneficiary other than his spouse if:
(1) the Participant and his spouse have validly waived the
Pre-Retirement Survivor Annuity, and the spouse has waived his or
her 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.
In such event, the designation of a Beneficiary 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. 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 estate.
92
(f)(1) Unless otherwise elected as provided below, a Participant
who is married on the Annuity Starting Date and who does not die
before the Annuity Starting Date shall receive the value of his
Company Stock Account derived from Employer contributions made or
before December 31, 1994 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 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
Participant. This joint and 50% survivor annuity shall be considered
the designated qualified joint and survivor annuity and automatic form
of payment of Employer contributions made to a Participant's Company
Stock Account on or before December 31, 1994. An unmarried Participant
shall receive the value of his Company Stock Account derived from
Employer contributions made on or before December 31, 1994 in the form
of a life annuity. Such unmarried 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 Participant, but without the
spousal consent requirement. The 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
Participant could elect to receive retirement benefits.
(2) 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 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
93
election made by the 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 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 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 Participant's right to make, and the effect of, an
election to waive the joint and survivor annuity,
(iii) the right of the Participant's spouse to consent to
any election to waive the joint and survivor annuity, and
(iv) the right of the Participant to revoke such election,
and the effect of such revocation.
(5) Any distribution provided for in this Section may commence
less than 30 days after the notice required by Code Section
417(a)(3) is given, provided that:
(i) the Administrator clearly informs the 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 consent to a form of distribution
other than a joint and survivor annuity,
(ii) the 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
94
Participant,
(iii) the Annuity Starting Date is after the date that the
explanation of the joint and survivor annuity is provided to
the Participant. However, the Annuity Starting Date may be
before the date that any affirmative distribution election
is made by the Participant and before the date that the
distribution is permitted to commence under (iv) below, and
(iv) distribution in accordance with the affirmative
election does not commence before 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.
(g) In the event a married Participant duly elects not to receive
his benefit in the form of a joint and survivor annuity, or if such
Participant is not married, in the form of a life annuity, the
Administrator, pursuant to the election of the 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 or more of
the following methods:
(1) One lump-sum payment in cash.
(2) Payments over a period certain in monthly, quarterly,
semi-annual, or annual cash installments.
(h) The present value of a 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, $3,500 ($5,000 beginning in 1998) at the time of any prior
distribution. Further, the spouse of a Participant must consent in
writing to any immediate distribution. Any written consent must be
obtained not more than 90 days before commencement of the
distribution.
If the value of the Participant's benefit derived from Employer
and Employee contributions does not exceed $3,500 ($5,000 beginning in
1998) and has never exceeded $3,500 ($5,000 beginning in 1998) at the
time of any prior distribution, the Administrator may immediately
distribute such benefit without such Participant's consent. No
distribution may be made under the preceding sentence after the
95
Annuity Starting Date unless the Participant and his spouse consent in
writing to such distribution.
(i) Any distribution to a Participant who has a benefit which
exceeds, or has ever exceeded, $3,500 ($5,000 beginning in 1998) 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) 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 of any benefit.
(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.
Any such distribution may commence less than 30 days 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.
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IN WITNESS WHEREOF, this Plan has been executed the 6 day of
December, 1997, effective January 1, 1997 forward.
NBT Bancorp, Inc.
By/s/John D. Roberts
-------------------
EMPLOYER
NBT Bank, N.A.
By/s/Todd Griffin
-------------------
TRUSTEE
ATTEST/s/Warren Nash
---------------
97
EXHIBIT 10.9
NBT Bancorp Inc. 1986 Stock Option Plan as Amended
NBT BANCORP INC.
STOCK OPTION PLAN
AS AMENDED
(A) January 26, 1987
(B) January 12, 1988
(C) November 17, 1992
(D) February 16, 1993
NBT BANCORP INC.
STOCK OPTION PLAN
Table of Contents
PAGE
I. DEFINITIONS 1
II. PURPOSES OF PLAN 4
2.1 Purposes...........................................................4
2.2 Administration.....................................................5
2.3 Participation......................................................6
2.4 Number of Shares Subject to the Plan...............................6
III. NON-QUALIFIED STOCK OPTIONS..............................................7
3.1 Option Price.......................................................7
3.2 Payment of Option Price............................................7
3.3 Expiration.........................................................8
3.4 Exercise of Options................................................8
3.5 Issuance of Stock Certificate......................................9
IV. INCENTIVE STOCK OPTIONS..................................................9
4.1 Incentive Stock Options............................................9
V. TERMINATION OF EMPLOYMENT...............................................10
5.1 Termination of Employment.........................................10
VI. STOCK APPRECIATION RIGHTS...............................................11
6.1 Grant.............................................................11
6.2 Appreciation Benefit..............................................12
6.3 Exercise..........................................................12
6.4 Expiration or Termination of Stock
Appreciation Rights...............................................13
VII. OTHER PROVISIONS........................................................14
7.1 Adjustments Upon Changes in
Capitalization...................................................14
7.2 Dissolution, Liquidations,
Mergers or Reorganization........................................15
7.3 Provisions of Financial Assistance--
Direct Loan or Guarantee.........................................16
7.4 Rights of Participant's and
Beneficiaries....................................................17
7.5 Assignment or Transfer...........................................17
7.6 Compliance with Law and Regulations..............................18
7.7 Withholding......................................................18
7.8 Amendment and Termination........................................19
7.9 Time of Grant and Exercise.......................................19
7.10 No Rights as Shareholder.........................................20
7.11 Securities Act of 1933...........................................21
7.12 Effective Date of the Plan.......................................22
NBT BANCORP INC.
STOCK OPTION PLAN
I. DEFINITIONS:
1.1 DEFINITIONS.
Unless otherwise required by the context:
(a) "Anniversary date" shall mean the same day of the same month of a
succeeding year.
(b) "Board" shall mean the Board of Directors of the Company or a
Subsidiary thereof.
(c) "Cause" shall mean the discharge by the Company of any Participant
for (i) refusal to perform duties assigned in accordance with the
Participant's employment agreement with the Company (ii) overt and
willful disobedience of orders or directives issued to the Participant
by the Company within the scope of Participant's duties and
responsibilities (iii) conviction of illegal act or (iv) violation of
the Company's rules and regulations concerning conflicts of interest.
(d) "Committee" shall mean the NBT Bancorp, Inc. Board of Directors or
such one or more subordinate committees as designated by the Chief
Executive Officer and approved by the Board to serve for purposes of
this
(B) Plan. THE BOARD OF DIRECTORS MAY SUBSTITUTE, ADD OR REMOVE MEMBERS
******
(B) Added by amendment January 12, 1988; copy of amendment attached.
-1-
OF THE COMMITTEE(S) IN ITS DISCRETION SO LONG AS ALL COMMITTEE MEMBERS
ARE "DISINTERESTED PERSONS" AS THAT TERM IS DEFINED BY RULE 16B-3 (D)
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934.
(e) "Common Stock" shall mean the Common Stock of the Company.
(f) "Company" shall mean NBT Bancorp Inc., its subsidiaries and
successors.
(g)"Eligible Employee" means a person who at the end of the applicable
fiscal year is a regular full-time salaried employee, and is
President, Chief Executive Officer, Department Head, Branch Manager,
or a Division Manager of the Company as such terms are defined from
time to time by the Company, and further who earns a designated
minimum annual salary determined from time to time by the Committee. A
Director of the Company is not an Eligible Employee unless he is also
a regular full-time salaried employee of the Company. A "full time"
employee means any employee who is customarily employed for more than
twenty hours per week and at least six months per year.
(D) (h) "FAIR MARKET VALUE" AS USED IN THIS PLAN, SHALL MEAN THE AVERAGE
BETWEEN THE HIGHEST AND LOWEST QUOTED SELLING PRICES OF THE COMMON
STOCK ON THE NATIONAL MARKET SYSTEM OF NASDAQ ON THE DATE OF GRANT
WITH RESPECT TO INCENTIVE STOCK OPTIONS AND ON THE FIVE PRECEDING
TRADING DAYS PRIOR TO DATE OF GRANT WITH RESPECT TO NONQUALIFIED
OPTIONS. IF THERE IS NO SALE REPORTED ON THE NATIONAL MARKET SYSTEM OF
******
(D) Changed by amendment February 16, 1993; copy of amendment attached.
-2-
NASDAQ ON THE APPROPRIATE DATE, THE FAIR MARKET VALUE SHALL BE
DETERMINED BY TAKING THE AVERAGE BETWEEN THE HIGHEST AND LOWEST SALES
ON THE NEAREST DATE BEFORE THE APPROPRIATE VALUATION DATE WITH RESPECT
TO INCENTIVE STOCK OPTIONS AND SUCH AVERAGE FOR THE FIVE MOST RECENT
PRECEDING TRADING DAYS WITH RESPECT TO NONQUALIFIED OPTIONS.
(i) "Incentive Stock Option" shall mean an option issued in accordance
(B) with the provisions of Section 422A of the Internal Revenue Code of
1986 as amended.
(j) "Optionee" shall mean an eligible employee to whom has been
granted an option under this Plan.
(k) "Option Price" shall mean the purchase price for stock under an
Option as determined at Article III hereof.
(l) "Option" shall mean a right to purchase stock granted pursuant to
this Plan.
(m) "Total Disability" means complete and permanent inability by
reason of illness or accident to perform his or her duties on behalf
of the Company as of the date such disability first occurred. All
determinations as to the date and extent of disability of any
Participant shall be made by the Committee, upon the basis of such
evidence, including independent medical reports and data, as the
Committee deems necessary or desirable. The Committee's determination
shall be final.
******
(B) Changed by amendment January 12, 1988; copy of amendment attached.
-3-
(n) "Plan" shall mean this Stock Option Plan.
(o) "Retirement" shall mean a participant's normal or early retirement
as of the date established as the normal or early retirement date in
accordance with (1) the terms of such participant's employment
agreement with the Company, or (2) if no such agreement, the date or
dates established in any qualified retirement program sponsored by the
Company or (3) any such other date as the Committee in its absolute
discretion shall determine.
(D) (p) "Stock" shall mean the Common Stock of the Company, NO par value.
(q) "Stock Appreciation Right" shall mean a right to receive cash or
stock granted pursuant to Article VI hereof.
(r) "Subsidiary" shall mean any corporation of which a majority or
more of its outstanding voting stock or voting power is beneficially
owned directly or indirectly by the Company.
(s) "Termination of Employment" shall mean a cessation of employment
with the Company as determined by the Committee.
II. PURPOSES OF PLAN.
2.1 PURPOSES.
The Purposes of this Plan are as follows:
(a) To provide financial incentives in the form of current or deferred
compensation to key employees.
******
(D) Changed by amendment February 16, 1993; copy of amendment attached.
-4-
(b) To further the growth, development, and financial success of the
Company by recognizing and rewarding those key employees responsible
therefor.
(c) To provide the ability for key employees to share in the Company
growth and financial success by assisting them in acquiring common
stock of the Company.
(d) To provide incentive compensation programs which will attract
highly skilled employees necessary for the continued growth and
financial success of the Company.
2.2 ADMINISTRATION
This Plan shall be administered by the Committee. The Committee shall
act by majority vote of all members taken at a meeting of the Committee or
by the written affirmation of a majority of its members without a meeting.
Subject to the express provisions of the Plan, the Committee shall
have the power to:
(a) determine and designate from time to time those employees of the
Company eligible for participation under the Plan and to whom Options
(either nonqualified or incentive) and/or Stock Appreciation Rights
are to be granted. Director's of the Company who are not employees of
the Company shall not be eligible to receive Options under the Plan.
All participants shall be "Disinterested Persons" as defined under
Rule 16b-3 of the Securities Exchange Act of 1934.
(b) authorize the granting of Options and Stock Appreciation Rights to
participants, and determine which options are to be Incentive Stock
Options and which are to be Non-Qualified Stocks Options, and
-5-
(c) determine the number of shares subject to each Option or the
number of Stock Appreciation Rights to be granted to each participant.
(d) determine what terms and conditions, if any, shall be placed on
the exercise of any such grants.
The Committee shall have the authority to construe and interpret the plan,
define the terms used therein, prescribe, amend and/or rescind rules and
regulations necessary and/or appropriate for the administration of the Plan and
make such other determinations or take such other actions as it shall in its
sole and absolute discretion deem necessary or advisable to fulfill the purposes
of the Plan.
The interpretation and construction of any provisions of the Plan by the
Committee shall be final unless otherwise determined by the Board. No member of
the Board or the Committee shall be liable for any action or determination made
by him in good faith.
2.3 PARTICIPATION.
Eligible employees who are not members of the Committee and have not
served as a member of the Committee for a period of one year prior to the
grant shall be eligible for selection to participate in the Plan. Directors
who are not officers or employees of the Company are not eligible to
participate in the Plan. An individual who has been granted an Option may,
if otherwise eligible, be granted an additional Option or Options if the
Committee shall so determine.
2.4 NUMBER OF SHARES SUBJECT TO THE PLAN.
Subject to the adjustments as provided in Section 2 hereof, Options may be
-6-
granted to participants under the Plan to purchase in the aggregate 300,000
shares of the Company's Common Stock ($.001 par value). The shares to be
issued upon exercise of Options granted under the Plan may be authorized
but unissued shares of shares held by the Company in its treasury. A
sufficient number of shares will be reserved by the Company for Options
granted under the Plan. If any Option granted hereunder shall expire, be
forfeited or terminate for any reason without having been fully exercised,
the unpurchased forfeited shares shall again be available for the purposes
of this Plan.
III. NON-QUALIFIED STOCK OPTIONS.
3.1 OPTION PRICE.
The Option price for shares issued upon exercise of non-qualified
Stock Options per share shall be determined by the Committee at the time
any such Options are granted but in no event shall such price be less than
100% of the fair market value of such stock as of the date of granting such
Options.
3.2 PAYMENT OF OPTION PRICE.
The Option price of any shares purchased shall be paid in full, in
cash at the time of such purchase, provided, however, that subject to the
discretion of the Committee and provided that all required regulatory
approvals, if any, have been obtained, the Optionee may deliver
certificates of the Common Stock of the Company in part or full payment of
the purchase price in which event such certificates shall be valued at
their fair market value as of the date of the exercise of the Option.
-7-
3.3 EXPIRATION.
Each Option agreement shall specify the period for which the Option is
granted but in no event shall such period exceed eight (8) years from the
date of the grant of the Option (herein after called the option period).
The Option shall expire as of the end of such period.
3.4 EXERCISE OF OPTIONS.
(a) Each Option shall be exercisable (and the total number of shares
subject thereto shall be available for purchase) in such amount or
amounts, which may or may not be equal, over the period of the Option
as the Committee shall determine. To the extent an Option is not fully
exercised as of the date on which such Option may be exercisable, the
Option holder may exercise such Option for the purchase of such shares
not previously purchased until the expiration or sooner termination of
such Holders' Option. The Committee may, at any time after grant of
the Option and from time to time, increase the number of shares
purchasable in any installment, limited to the total number of shares
subject to the Option. No Option or installment thereof shall be
exercisable except in respect of whole shares. Fractional shares shall
be disregarded except that they may be accumulated until a whole share
is realized.
(b) To the extent an Optionee may hold two or more options granted at
different times, the Committee shall be authorized to determine the
sequential order, if any, that such options must be exercised.
-8-
(c) Anything herein to the contrary, all options must be fully
exercised by the Optionee no later than his normal retirement date.
Any options unexercised as of said date shall lapse and be null and
void.
(D) (d) UPON EXERCISE OF A STOCK OPTION, THE NUMBER OF STOCK APPRECIATION
RIGHTS SUBJECT TO EXERCISE, SHALL BE AUTOMATICALLY REDUCED BY ONE-HALF
OF THE NUMBER OF OPTIONS EXERCISED.
3.5 ISSUANCE OF STOCK CERTIFICATE
Upon exercise of an Option, the person exercising such Option shall be
entitled to one stock certificate evidencing the shares acquired upon
exercise; provided, however, that any person who tenders Common Stock of
the Company when exercising the Option shall be entitled to receive two
certificates, one representing the number of shares equal to the number of
shares exchanged for the stock acquired upon exercise, and another
representing the additional shares, if any, acquired upon exercise of the
Option.
IV. INCENTIVE STOCK OPTION.
4.1 INCENTIVE STOCK OPTIONS.
In addition to the requirements set forth in Article III above, an
Incentive Option must comply with the following conditions: (a) The
aggregate fair market value (determined at the time the option is granted)
of the stock with respect to which an Incentive Stock Option is exercisable
(for the first time) by the Optionee during any calendar year
******
D) Added by amendment February 1993; Copy of amendment attached.
-9-
(under all such plans of the Company) shall not exceed $100,000.
(b) Notwithstanding the provisions of Section 3.3 above, Incentive
Stock Options granted to ten (10) percent stockholders shall be
exercisable only within five years after the date of grant, or within
such shorter period as may be determined by the Board.
(c) The option price for each share of stock subject to an Incentive
Stock Option granted to ten percent (10%) or higher stockholder shall
be 110 percent of the fair market value of such share as of the date
on which the option is granted, or such greater amount as may be
determined by the Board.
(d) All provisions of the Plan shall be administered so as to preserve
the status of any option granted under this Article IV as an
(B) "Incentive Stock Option" within the meaning of the Internal Revenue
Code of 1986 as amended or restated.
V. TERMINATION OF EMPLOYMENT.
5.1 TERMINATION OF EMPLOYMENT.
(a) Retirement or Permanent Disability. If the Optionee's employment
with the Company is terminated by reason of retirement or permanent
disability, the optionee for a period of three months thereafter (but
in no event later than the expiration date set forth at Article 3
hereof) may exercise the option(s) granted and outstanding in whole or
in part including any installment option granted but not yet
******
(B) Changed by amendment January 12, 1988; copy of amendment attached.
-10-
exercisable.
(b) Other Terminations. If the optionee's employment with the company
is terminated for reasons other than death, retirement or disability
whether voluntary or involuntary, the optionee may exercise any
options hereunder to the extent he was entitled to do so as of the day
of his or her termination at any time or from time to time within 30
days of his or her termination of employment but in no event later
than the expiration date set forth in Article 3 hereof.
(c) Death. In the event of the death of the optionee while an employee
of the company, and at a time when one or more of his options remains
outstanding, then unless the terms of the Option provide otherwise,
each Option (i) shall remain outstanding until six (6) months after
the date of his death, and (ii) shall be exercisable by Participant's
Beneficiary, Executor or Administrator of his Estate.
VI. STOCK APPRECIATION RIGHTS.
6.1 GRANT.
The Company, upon recommendation of the Committee, may grant Stock
Appreciation Rights to participants concurrently with the grant of Options
under the Plan. Stock Appreciation Rights shall be evidenced by an
agreement or agreements containing terms and conditions consistent with
those set forth in this Plan. Each Stock Appreciation Right shall relate to
a specific Option granted under the Plan and may be granted either
concurrently with an Option or at such later time as the Committee shall
-11-
determine.
6.2 APPRECIATION BENEFIT
Subject to agreement by and conditions imposed by the Committee,
participant upon exercise of a Stock Appreciation Right, may elect to
receive either in cash or shares of the Common Stock of the Company or both
an amount equal in value to the excess of the fair market value of a share
of Common Stock of the Company as of the exercise date over the Option
price of the share of the Common Stock of the Company to which the Stock
Appreciation Right relates. Notwithstanding the above, no fractional shares
shall be issued upon the exercise of Stock Appreciation Rights.
6.3 EXERCISE.
(a) A Stock Appreciation Right shall not be exercised prior to the
time, and only to the extent that, a related Option is exercised. A
Stock Appreciation Right shall be exercisable only by the person
entitled to exercise the related Option. Except as otherwise provided
herein, a Stock Appreciation Right is further subject to all the
provisions of the Option Agreement with respect to which the Stock
Appreciation Right relates.
(b) Upon exercise of Stock Appreciation Rights, whether settlement is
made in shares of Common Stock or in cash, the number of shares
subject to exercise under the related Option, if any, shall be
automatically reduced by the number of Stock Appreciation Rights
exercised. Such shares will be available for further grants under this
Plan.
-12-
(c) An election to receive cash upon the exercise of a Stock
Appreciation Right cannot be made until at least six months after the
day the Stock Appreciation Right is granted and then only during the
period beginning on the third business day following the date the
Company releases for publication its regular quarterly or annual
summary statement of revenues and income (assuming such financial data
appears on a wire service, in a financial news service, or in a
newspaper of general circulation, or is otherwise made publicly
available) and ending on the twelfth business day following such date.
(d) The Committee may impose such additional conditions or limitations
on the exercise of Stock Appreciation Rights as it may deem
appropriate.
(e) Notwithstanding anything herein to the contrary, the Committee
may, in the agreement evidencing the Stock Appreciation Right,
determine the maximum amount of cash or Common Stock which the Company
may be required to be delivered upon exercise of a Stock Appreciation
Right.
(f)The Committee, in its discretion, may defer payment with respect to
an exercise of a Stock Appreciation Right to some later time, but in
no event later than twelve months after the exercise of the Stock
Appreciation Right.
6.4 EXPIRATION OR TERMINATION OF STOCK APPRECIATION RIGHTS
Each Stock Appreciation Right will expire upon the expiration of the
Related Option and as set forth in the agreement evidencing such Stock
Appreciation Rights.
-13-
VII. ADJUSTMENTS.
7.1 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
If the outstanding shares of the stock of the Company are increased,
decreased, or changed into, or exchanged for a different number or kind of
shares or securities through reorganization, merger, recapitalization,
(C) reclassification, stock split-up, stock dividend, stock consolidation or
OTHER LIKE TRANSACTION, an appropriate and proportionate adjustment shall
be made in the number and kind of shares to which Options or Stock
Appreciation Rights may be granted. A corresponding adjustment changing the
number or kind of shares and the exercise price per share allocated to
unexercised Options or Stock Appreciation Rights or portions thereof, which
shall have been granted prior to any such change, shall likewise be made.
Any such adjustment shall not change the aggregate price applicable to all
unexercised Options.
(C) NOTWITHSTANDING THE FOREGOING, ANY INCREASE IN THE OUTSTANDING SHARES OF
THE COMMON STOCK OF THE COMPANY RESULTING FROM THE SALE BY THE COMPANY OF
ITS COMMON STOCK IN THE OPEN MARKET IN AN SEC-REGISTERED OFFERING OR IN A
PRIVATELY-PLACED EXEMPT OFFERING (HEREINAFTER, EITHER OF THE AFOREMENTIONED
OFFERINGS BEING AN "EQUITY OFFERING") OR THE ISSUANCE OF SHARES PURSUANT TO
THE PURCHASE PLAN (THE "DRIP") OR
******
(C) CHANGED AND ADDED BY AMENDMENT NOVEMBER 17, 1992; COPY OF AMENDMENT
ATTACHED.
-14-
THE EMPLOYEES' STOCK OWNERSHIP PLAN (THE "ESOP") SHALL NOT TRIGGER THE
ADJUSTMENT PROVISIONS OF THIS SECTION 7.1 (A); IT BEING THE COMPANY'S
INTENT UNDER THIS SECTION 7.1 (A) THAT, WITH RESPECT TO INCREASES IN THE
OUTSTANDING SHARES OF THE SHARES IN EQUITY OFFERINGS OR THE ISSUANCE OF
SHARES OUTSTANDING OPTIONS OR STOCK APPRECIATION RIGHTS WILL NOT BE
ADJUSTED TO CHANGE THE NUMBER OR KIND OF SHARES AND/OR THE EXERCISE PRICE
PER SHARE ALLOCATED TO UNEXERCISED OPTIONS OR STOCK APPRECIATION RIGHTS
WILL NOT BE ADJUSTED TO CHANGE THE NUMBER OR KIND OF SHARES AND/OR THE
EXERCISE PRICE PER SHARE ALLOCATED TO UNEXERCISED OPTIONS OR STOCK
APPRECIATION RIGHTS.
7.2 DISSOLUTION, LIQUIDATIONS, MERGERS OR REORGANIZATION
Upon: (i) the dissolution or liquidation of the Company; (ii) a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving
cooperative, or (iii) a sale of substantially all the assets of the Company
to another corporation, the Board of Directors shall cause written notice
of the proposed transaction to be given to the optionee not less than 40
days prior to the anticipated effective date of the proposed transaction,
and the stock option shall be accelerated and, prior to a date specified in
such notice, which shall be not more than ten days prior to the anticipated
effective date of the proposed transaction, the optionee shall have the
right to exercise the stock option to purchase any or all shares then
subject to the option, including those, if any, which have not become
available for purchase under other provisions of the
-15-
plan. The optionee, by so notifying the company in writing, may, in
exercising the stock option, condition such exercise upon, and provide that
such exercise shall become effective at the time of but immediately prior
to, the consummation of the transaction, in which event the optionee need
not make payment for the shares of common stock to be purchased upon
exercise of the stock option until five days after written notice by the
company to the optionee that the transaction is consummated. Each stock
option, to the extent not previously exercised prior to the date specified
in the foregoing notice, shall terminate on the effective date of such
consummation. If the proposed transaction is abandoned, any shares of
common stock not purchased upon exercise of the stock option shall continue
to be available for exercise in accordance with the other provisions of the
plan, and the shares of common stock, if any, purchased upon exercise of a
stock option pursuant to this subsection shall be deemed to have been
purchased in the order in which they first become available for purchase
under other provisions of the plan.
7.3 PROVISION OF FINANCIAL ASSISTANCE -- DIRECT LOAN OR GUARANTEE
The Board of Directors or the Committee may cause the company to
provide or arrange for financial assistance (including without limitation
(A) direct loans, secured OR UNSECURED, or guarantees of the third-party loans)
to an optionee for the purpose of providing funds for the purchase of stock
pursuant to the exercise of an option granted under the plan, when in the
******
(A) Deleted by Amendment January 13, 1987; copy of amended attached
-16-
judgement of the Board of Directors or the Committee such assistance shall:
(a) Be deemed to be in the best interests of the company, not be in
violation of the certificate of incorporation, or by-laws of the
Company nor any state, federal or local law or regulation and;
(b) Permit the stock to be fully paid and non-assessable when issued.
7.4 RIGHTS OF PARTICIPANTS AND BENEFICIARIES.
(a) Nothing contained in the Plan (or in any Option or Stock
Appreciation Right granted pursuant to the Plan) shall confer upon any
employee any right of continued employment with the Company;
constitute any contract or agreement of employment; interfere in any
way with the right of the company to reduce such person's compensation
from the rate in existence at the time of granting an Option or to
terminate such person's employment. Nothing contained herein shall
affect any contractual rights of an employee pursuant to any other
contract between the employee and the Company.
7.5 ASSIGNMENT OR TRANSFER
The Option and Stock Appreciation Rights subject to grant hereunder
shall be exercisable only by the Optionee of such Stock Appreciation Rights
as the case may be (or a duly appointed guardian or legal representative)
during the Optionee's or Holder's lifetime and shall not be sold,
transferred, assigned, pledged, hypothecated or otherwise disposed of in
any other way (whether by operation of law or otherwise) except by will or
the laws of descent and distribution. Option(s) and Stock Appreciation
-17-
Rights shall not be subject to execution, attachment, garnishment or
similar process. Upon any attempt to sell, transfer, assign, pledge,
hypothecate or otherwise dispose of an Option, Stock Appreciation Rights or
of any other right or privilege conferred under this Plan such Option,
Stock Appreciation Rights and any other rights or privileges conferred
hereunder shall be deemed forfeited, and immediately terminated and
rendered null and void.
7.6 COMPLIANCE WITH LAW AND REGULATIONS.
This Plan, the grant and exercise of Options or Stock Appreciation
Rights anticipated pursuant to this Plan and the obligation of the Company
to sell and deliver shares of its Common Stock hereunder or to make
payments upon exercise of Stock Appreciation Rights shall be subject to all
applicable federal, state and local laws, rules and regulations. The
Company's obligation hereunder shall be further subject to receipt of and
compliance with all approvals issued by any government or regulatory agency
as the Company shall deem appropriate.
7.7 WITHHOLDING.
The Company shall have the right to deduct any sums that federal,
state or local tax laws require to be withheld with respect to the exercise
of any Option or Stock Appreciation Right, or as otherwise may be required
by such laws. The Company may require as a condition to issuing shares,
that upon exercise of the Option or Stock Appreciation Right the
Participant or other person exercising the Option or Stock Appreciation
Rights pay any sums to the Company for deposit with the deposit with
appropriate governmental authority that federal, state or local tax law
-18-
requires to be withheld with respect to such exercise or payment. There
is no obligation hereunder that any Participant be advised of the existence
of the tax or the amount which the Company may be required to withhold.
7.8 AMENDMENT AND TERMINATION.
The Board or the Committee may at anytime suspend, amend or terminate
this Plan and may, with the consent of the holder of an Option or Stock
Appreciation Rights, make such modifications of the terms and conditions of
such Holder's Option or Stock Appreciation Rights as it shall deem
advisable. No Option or Stock Appreciation Rights may be granted during any
suspension of the Plan or after its termination. The amendment, suspension
or termination of the Plan shall not, without the consent of the Holder of
an Option or Stock Appreciation Right, alter or impair any rights or
obligations under any Option or Stock Appreciation Rights theretofore
granted under the Plan.
7.9 TIME OF GRANT AND EXERCISE.
(a) The granting of an Option or Stock Appreciation Right, pursuant to
the Plan shall take place at the time of the Committee's action, as
described in Article II, Section 2.2 hereof; provided, however, that
if the appropriate resolutions of the Committee indicate that an
Option or Stock Appreciation Right is to be granted as of and at some
future date, the date of grant shall be such future date. In the event
action by the Committee is taken by written consent of its members,
the action of the Committee shall be deemed to be at the time the last
member signs the consent.
-19-
(D) (b) AN OPTION SHALL BE EXERCISED BY WRITTEN NOTICE OF INTENT TO
EXERCISE THE OPTION OF SAR WITH RESPECT TO A SPECIFIED NUMBER OF
SHARES DELIVERED TO THE COMPANY'S SECRETARY OR TREASURER AT ITS
PRINCIPAL OFFICE IN NORWICH, NEW YORK, AND, MOREOVER WITH RESPECT TO
OPTIONS, PAYMENT IN FULL TO THE COMPANY AT SUCH OFFICE OF THE AMOUNT
OF THE OPTION PRICE FOR THE NUMBER OF SHARES OF COMMON STOCK WITH
RESPECT TO WHICH THE OPTION IS EXERCISED. IN ADDITION TO AND AT THE
TIME OF PAYMENT OF THE OPTION PRICE AND AT THE TIME OF THE EXERCISE OF
AN SAR, THE OPTIONEE SHALL PAY TO THE COMPANY IN CASH THE FULL AMOUNT
OF THE FEDERAL AND STATE WITHHOLDING OR OTHER TAXES APPLICABLE TO THE
TAXABLE INCOME OF SUCH OPTIONEE RESULTING FROM SUCH EXERCISE.
7.10 NO RIGHTS AS SHAREHOLDER.
The granting of an Option or Stock Appreciation Rights hereunder shall
not confer to the Optionee or Holder any rights as a shareholder with
respect to shares of the Company's Common Stock until the date of the
issuance of a stock certificate or stock certificates upon exercise of the
Option or Stock Appreciation Rights. No adjustment will be made for
dividends or other rights if the record date pertaining to such shares
preceded the date of issuance of such shares.
******
(D) Changed by amendment February 16,1993; copy of amendment attached.
-20-
7.11 SECURITIES ACT OF 1933.
Optionee shall represent and agrees that if the Optionee exercises an
Option or Stock Appreciation Right at a time when:
(a.) There is not in effect a registration statement filed under the
Securities Act of 1933 as amended (the "Act"), relating to the shares
issuable upon exercise of such Option or Stock Appreciation Rights,
and
(b.) A prospectus available for distribution to the Optionee meeting
the requirements of the Act and the Optionee shall represent to the
Company on the notice of exercise that the shares to be issued are
being purchased for investment and not with a view to their resale or
distribution. Any person or persons entitled to exercise an Option or
a Stock Appreciation Right under this Agreement shall be obligated to
provide in writing to the Company the representation contained in this
paragraph. Holder or Optionee acknowledges and agrees that the Company
shall not be required to issue shares upon the exercise of the Option
or Stock Appreciation Rights unless and until all applicable
requirements of the Securities and Exchange Commission, any other
regulatory agency having jurisdiction over the Company, and any
security exchanges with which the Company stock may be listed have
been fully complied with.
-21-
7.12 EFFECTIVE DATE OF THE PLAN.
This Plan shall be effective as of the 25TH DAY of NOVEMBER, 1986.
This Plan is hereby executed this 25TH day of NOVEMBER, 1986, on
behalf of the Company by the undersigned duly authorized officer.
NBT BANCORP INC.
/S/ DONALD E. STONE
------------------------
Attest; /S/ JAMES A. HOY
----------------
Secretary
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NBT BANCORP INC. Board of Directors
Special Meeting held January 13, 1987
"Upon the recommendation of management and the Bank's SEC attorneys, the Board
voted for a Resolution to amend the recently approved Stock Option Plan. The
amendment includes the elimination of the provision for recipients to borrow
from the Bank on an unsecured basis the funds needed to pay for the participants
options being exercised."
I hereby certify the above Resolution is a true and accurate copy of the NBT
Bancorp Inc. Board of Directors Minutes for the Special Meeting held January 13,
1987.
/S/ JAMES A. HOY
-----------------
James A. Hoy
Vice President and Secretary
Dated: 26 January 1987
NBT BANCORP INC. Board of Directors
Meeting held January 12, 1988
"Upon the recommendation of management and the Bank's SEC attorneys, the Board
voted for a Resolution amending the NBT BANCORP INC. Stock Option Plan as
follows:
1. The following sentence is added to Article I. (d):
"The Board of Directors may substitute, add or remove members of
the Committee(s) in its discretion so long as all Committee
members are "disinterested persons" as that term is defined by
Rule 16b-3(d) promulgated under the Securities Exchange Act of
1934."
2. ...the Internal Revenue Code of 1986 as amended..." shall
replace"...the Internal Revenue Code of 1954 as amended..." in
Articles I. (i) and IV.4.1(d)."
I hereby certify the above Resolution is a true and accurate copy of the NBT
BANCORP INC. Board of Directors Minutes for the meeting held January 12, 1988.
/S/ JOHN D. ROBERTS
-----------------------
John D. Roberts
Vice President and Secretary
Dated: January 12, 1988
PROPOSAL TO AMEND THE CORPORATION'S STOCK OPTION PLAN TO DEFINE
MORE CLEARLY THE ANTI-DILUTIVE PROVISIONS
RESOLVED, that, in accordance with Section 7.7 of the Corporation's Stock
Option Plan (the "Plan"), the President of the Corporation, or such other
officer(s) as he so designates, is hereby authorized and directed to take all
requisite action to amend the Plan as follows:
Section 7.1(a) of the Plan is hereby amended as follows:
A. The first clause of the first sentence is amended by deleting the
word "otherwise" and inserting the phrase "other like transaction".
Thus the first clause shall read as follow:
If the outstanding shares of the stock of the Company are increased,
decreased, or changed into, or exchanged for a different number or
kind of shares or securities through reorganization, merger,
recapitalization, reclassification, stock split-up, stock dividend,
stock consolidation or other like transaction,...
B. The following language should be inserted after the last sentence
of the section:
Notwithstanding the foregoing, any increase in the outstanding shares
of the common stock of the Company resulting from the sale by the
Company of its common stock in the open market in an SEC-registered
offering or in a privately-placed exempt offering (hereinafter, either
of the aforementioned offerings being an "equity offering") or the
issuance of shares pursuant to the Purchase Plan (the "DRIP") or the
Employees' Stock Ownership Plan (the "ESOP") shall not trigger the
adjustment provisions of this Section 7.1(a); it being the Company's
intention under this Section 7.1(a) that, with respect to increases in
the outstanding Options or Stocks Appreciation Rights will not be
adjusted to change the number or kind of shares and/or the exercise
price per share allocated to unexercised Options or Stock Appreciation
Rights.
Approved by Bancorp Board 11/17/92
RESOLUTIONS TO AMEND CERTAIN SECTIONS OF
NBT STOCK OPTION PLAN
AND THE
AUTOMATIC DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
1. Proposal to amend the Corporation's Stock Option Plan to redefine "Fair
Value" and to provide more definitive procedures for exercising options.
RESOLVED, that in accordance with Section 7.7 of the Corporation's Stock Option
Plan (the "Plan"), the President of the Corporation, or such other officer(s) as
he so designates, is hereby authorized and directed to take all requisite action
to amend the Plan as follows:
A. Section 1.(h) of the Plan is hereby amended to read as follows:
(h) "Fair Market Value" as used in this Plan, shall mean the average
between the highest and lowest quoted selling prices of the Common
Stock on the National Market System of NASDAQ on the date of grant with
respect to incentive stock options on the five preceding trading days
prior to date of grant with respect to nonqualified options. If there
is no sale reported on the National Market System of NASDAQ on the
appropriate date, the Fair Market Value shall be determined by taking
the average between the highest and lowest sales on the nearest date
before the appropriate valuation date with respect to incentive stock
options and such average for the five most recent preceding trading
days with respect to non-qualified options.
B. Section 1.(p) of the Plan is hereby amended to read as follows:
(p) "Stock" shall mean the Common Stock of the Company, no par value.
C. Section 7.9(b) of the Plan is hereby amended to read as follows:
(b) An option shall be exercised by written notice of intent to
exercise the option or SAR with respect to a specified number of shares
delivered to the Company's secretary or treasurer at its principal
officer in Norwich, New York, and, moreover with respect to Options,
payment in full to the Company at such office of the amount of the
option price for the number of shares of Common Stock with respect to
which the Option is then being exercised. In addition to and at the
time of payment of the option price and at the time of the exercise of
an SAR, the optionee shall pay to the Company in cash the full amount
of all federal and state withholding or other taxes applicable to the
taxable income of such optionee resulting from such exercise.
D. Section 3.4 of the Plan is hereby amended to read as follows:
(d) Upon exercise of a Stock Option, the number of Stock Appreciation
Rights subject to exercise, shall be automatically reduced by one-half
of the number of Options exercised.
2. Proposal to amend the Corporation's Automatic Dividend Reinvestment and
Stock Purchase Plan to describe the method of determining the purchase
price of shares acquired from the treasury or from authorized, unissued
shares.
RESOLVED that in accordance with Section 20(b) of the Corporation's Automatic
Dividend Reinvestment and Stock Purchase Plan, the President of the Corporation,
or such other officer(s) as he so designates, is hereby authorized and directed
to take all requisite action to amend the Plan as follows:
Section 11 is hereby amended to read...
..., such shares will be purchased by the Plan Administrator at the
direction of the Agent within thirty (30) days after thE Dividend
Payment Dates or monthly purchase dates at a price per share equal to
the five day average of the highest and lowest quoted selling price of
the Common Stock on the National Market System of NASDAQ prior to the
applicable investment date on which the National Market System of
NASDAQ quoted a trade in the Stock of the Company.
Approved by Bancorp Board 2/16/93
EXHIBIT 10.10
NBT Bancorp Inc. 1993 Stock Option Plan
ANNEX A
NBT BANCORP INC.
1993 STOCK OPTION PLAN
1. Purposes. The purposes of the 1993 Stock Option Plan (the "Plan") are
(a) to attract and retain outstanding key management employees, (b) to further
the growth, development, and financial success of NBT Bancorp Inc. (the
"Company") by recognizing and rewarding those key employees responsible
therefore, (c) to provide an incentive to, and encourage stock ownership in the
Company, by those employees responsible for the policies and operations of the
Company or its subsidiaries, and (d) to revise and amend the Company's stock
option plan dated November 25, 1986, as amended January 12, 1988 (referred to
herein as the "1986 Plan"), in the manner set forth in Section 22, below.
2. Administration. (a) This Plan shall be administered by the Board of
Directors of the Company, the Compensation and Benefits Committee of the Board
of Directors of the Company (or successor committee) or a subcommittee thereof
(the "Committee"). The Committee shall consist of not fewer than three members
of the Board of Directors who have not during their incumbency as members of the
Committee and have not at any time for one year prior to their appointment to
the Committee been granted or awarded an option under this Plan or stock,
options, or stock appreciation rights under another plan of the Company or its
subsidiaries (except as otherwise provided by Rule 16b 3, or successor rule,
under the Securities Exchange Act of 1934).
(b) The Committee shall have full authority and discretion to determine,
consistent with the provisions of this Plan, the employees to be granted
options; whether the options granted will be "incentive stock options" within
the meaning of the Internal Revenue Code or options which are not incentive
stock options ("nonqualified options"); the times at which options will be
granted; the option price of the shares subject to each option (subject to
Section 6); the number of options to be granted to each employee; the period
during which each option becomes exercisable (subject to Section 9); and the
terms to be set forth in each option agreement. The Committee shall also have
full authority and discretion to adopt and revise such rules and procedures as
it shall deem necessary for the administration of this Plan. The Committee shall
act by majority vote of all members taken at a meeting of the Committee or by
the written affirmation of a majority of its members without a meeting.
(c) The Committee's interpretation and construction of any provisions of
this Plan or any option granted hereunder shall be final, conclusive, and
binding.
3. Eligibility. The Committee shall from time to time determine the key
management employees of the Company and its subsidiaries who shall be granted
options under this Plan. For purposes of this Plan, key management employees
shall be deemed to be those employees who are responsible for the policies and
operation of the Company and its subsidiaries, including its president, chief
executive officer, other executive officers, department heads, branch managers,
and division managers of the Company or its subsidiaries. A person who has been
granted an option may be granted additional options under this Plan if the
Committee shall so determine. The granting of an option under this Plan shall
not affect any outstanding stock option previously granted to an optionee under
this Plan or any other plan of the Company.
4. Shares of stock subject to this plan. The number of shares which may be
issued pursuant to options granted under this Plan shall not exceed 500,000
shares of the no par value, stated value $1.00 per share, common stock of the
Company (the "Common Stock"). Such shares may be authorized and unissued shares
or shares previously acquired or to be acquired by the Company and held in
treasury. The Company shall reserve a sufficient number of shares for options
granted under the Plan. Any shares subject to an option which expires for any
reason or is terminated unexercised as to such shares may again be subject to an
option under this Plan.
5. Issuance and terms of option certif rates. Each optionee shall be
entitled to receive an appropriate certificate evidencing his option and
referring to the terms and conditions of this Plan.
6. Granting price of options. (a) The grant of each option shall state the
number of shares to which it pertains and shall state the exercise price, which
shall not be less than 100% of the fair market value of the Common Stock. "Fair
Market Value," as used in this Plan, shall mean the average between the highest
and lowest quoted selling prices of the Common Stock on the National Market
System of NASDAQ on the date of grant with respect to incentive stock options
and on the date of grant and the five preceding trading days prior to the date
of grant with respect to nonqualified options. If there is no sale reported on
the National Market System of NASDAQ on the appropriate date, the Fair Market
Value shall be determined by taking the average between the highest and lowest
sales on the nearest date before the appropriate valuation date with respect to
incentive stock options and such average for the five most recent preceding
trading days with respect to nonqualified options.
(b) The option price shall be payable in United States dollars and be paid
in full upon the exercise of the option and may be paid in cash or by check,
provided, however, that subject to the discretion of the Committee and provided
that all required regulatory approvals, if any, have been obtained, the optionee
may deliver certificates of the Common Stock of the Company in part or in full
payment of the purchase price (including the payment of all applicable federal
and state taxes due upon exercise) in which event such certificates shall be
valued at their Fair Market Value upon exercise of the option.
7. Use of proceeds. The proceeds from the sale of the Common Stock upon
exercise of options shall be added to the general funds of the Company and used
for its corporate purposes.
8. Special rules regarding incentive stock options. The granting of
incentive stock options shall be pursuant to a written agreement and shall also
be subject to the following requirements, in addition to those required by law:
(a) At the time the option is granted, the employee shall not own stock
representing more than 10% of the voting power of the Company; the foregoing
limitation shall not apply if, at the time the option is granted, the option
price is at least 110% of the Fair Market Value of the stock subject to the
option, and the option by its terms is not exercisable more than five years
after the date of grant;
(b) The aggregate fair market value, determined at the date of grant, of
the stock for which the incentive stock options are exercisable for the first
time by the optionee shall not exceed $100,000 during the calendar year, under
all plans of the Company;
(c) In order to receive capital gains tax treatment upon sale of an
incentive stock option under current tax law, the option agreement shall provide
that the optionee cannot dispose of the underlying stock (i) within two years
after the option is granted and (ii) within one year after the option is
exercised; and
(d) The Company shall administer the Plan so as to preserve the status of
any option granted as an incentive stock option within the meaning of the
Internal Revenue Code of 1986, as amended.
9. Term and exercise of options. (a) Each option granted under this Plan
shall be exercisable on the dates, for the number of shares and on such other
terms as shall be provided in the agreement evidencing the option granted by the
Committee. An option granted under the Plan shall become exercisable in
installments as follows: to the extent to forty percent (40%) of the number of
shares originally covered thereby with respect to each particular grant of
options, at any time after the expiration of one year from the date of grant,
and to the extent of an additional twenty percent (20~o) of such number of
shares upon the expiration of each succeeding year, so that upon the expiration
of four years from the date of grant one hundred percent (100%) of such number
of shares will be eligible for exercise by the optionee; and such installments
shall be cumulative.
(b) An option may be exercised at any time or from time to time during the
term of the option as to any or all full shares which have become purchasable
under the provisions of the option and this Plan. However, no option shall be
exercisable until after one year from the date of grant, nor after the
expiration of ten years from the date of grant.
(c) An option shall be exercised by written notice of intent to exercise
the option with respect to a specified number of shares delivered to the
Company's secretary or treasurer at its principal office in Norwich, New York
and payment in full to the Company at such office of the amount of the option
price for the number of shares of Common Stock with respect to which the option
is then being exercised. In addition to and at the time of payment of the option
price, the optionee shall pay to the Company in cash or in Common Stock of the
Company the full amount of all federal and state withholding or other taxes
applicable to the taxable income of such optionee resulting from such exercise.
10. Nontransferability. All options granted under this Plan shall be
nontransferable by the optionee, otherwise than by will or the laws of descent
and distribution, and shall be exercisable during his lifetime, only by him, nor
may any option be assigned, pledged, hypothecated, or otherwise disposed of in
any other way. Upon any attempt to sell, transfer, assign, pledge, hypothecate
or otherwise dispose of an option or any other right or privilege conferred
under this Plan, such option and any other rights or privileges conferred
hereunder shall be deemed forfeited, immediately terminated, and rendered null
and void.
11. Requirements of law. The granting of options and the issuance of shares
of Common Stock upon the exercise of an option shall be subject to all
applicable laws, rules, and regulations and shares shall not be issued except
upon approval of proper government agencies or stock exchanges as may be
required.
12. Termination of employment. Except as otherwise provided in Section 13,
if an optionee's employment with the Company or its subsidiaries shall terminate
for any reason, he may, but only within a period of 30 days beginning the day
following the date of such termination of employment, exercise his option, to
the extent that he was entitled to exercise it at the date of such termination.
13. Retirement, disability, or death of optionee. (a) In the event that the
optionee shall retire, the option shall continue in full force and effect as if
the optionee were still employed by the Company or its subsidiaries and shall be
exercisable in accordance with its terms.
(b) In the event that the optionee shall become permanently and totally
disabled, as determined by the Committee in accordance with applicable Company
personnel policies, such option shall become exercisable in full on the date of
such disability, and such option shall remain exercisable for six months after
the date of such disability.
(c) In the event of the death of an optionee while in the employ of the
Company or its subsidiaries, the option theretofore granted to him shall be
exercisable only by the proper personal representative of the optionee's estate
within a period of six months after the date of death and such option shall
become exercisable in full on the date of such death.
14. Adjustments. In the event of any change in the outstanding shares of
Common Stock by reason of any stock dividend or split, recapitalization,
reclassification, merger, consolidation, combination or exchange of shares, or
other similar corporate change, then if the Committee shall determine, in its
sole discretion, that such change necessarily or equitably requires an
adjustment in the number of shares subject to each outstanding option and the
option prices or in the maximum number of shares subject to this Plan, such
adjustments shall be made by the Committee and shall be conclusive and binding
for all purposes of this Plan. No adjustment shall be made in connection with
the sale by the Company of its Common Stock in the open market in an SEC
registered offering or in a privately placed exempt offering or the issuance by
the Company of Common Stock pursuant to the Company's Automatic Dividend
Reinvestment and Stock Purchase Plan or the Employees' Stock Ownership Plan or
of any warrants, rights, or options to acquire additional shares of Common Stock
or of securities convertible into Common Stock.
15. Extraordinary transactions. Upon (i) the dissolution or liquidation of
the Company, (ii) a reorganization, merger or consolidation of the Company with
one or more corporations or other entity as a result of which the Company is not
the surviving corporation, or (iii) a sale of substantially all the assets of
the Company to another corporation or other entity, the Board of Directors shall
cause written notice of the proposed transaction to be given to the optionee or
grantee not less than 40 days prior to the anticipated
effective date of the proposed transaction, and the option shall be accelerated
and, prior to a date specified in such notice, which shall be not more than ten
days prior to the anticipated effective date of the proposed transaction, the
optionee shall have the right to exercise the stock option to purchase any or
all shares then subject to the option, including those, if any, which have not
become available for purchase under other provisions of the Plan. The optionee,
by so notifying the Company in writing, may, in exercising the stock options,
condition such exercise upon, and provide that such exercise shall become
effective at the time of but immediately prior to, the consummation of the
transaction, in which event the optionee need not make payment for the shares of
Common Stock to be purchased upon exercise of the option until five days after
written notice by the Company to the optionee that the transaction is
consummated. Each option, to the extent not previously exercised prior to the
date specified in the foregoing notice, shall terminate on the effective date of
such consummation. If the proposed transaction is abandoned, any shares of
Common Stock not purchased upon exercise of the option shall continue to be
available for exercise in accordance with the other provisions of the Plan, and
the shares of Common Stock, if any, purchased upon exercise of an option
pursuant to this subsection shall be deemed to have been purchased in the order
in which they first become available for purchase under other provisions of the
plan.
16. Claim to stock option, ownership, or employment rights. No employee or
other person shall have any claim or right to be granted options under this
Plan. No optionee, prior to issuance of the stock, shall be entitled to voting
rights, dividends, or other rights of stockholders except as otherwise provided
in this Plan. Neither this Plan nor any other action taken hereunder shall be
construed as giving any employee any right to be retained in the employ of the
Company or a subsidiary.
17. Unsecured obligation. Optionees under this Plan shall not have any
interest in any fund or specific asset of the Company by reason of this Plan. No
trust fund shall be created in connection with this Plan or any award
thereunder, and there shall be no required funding of amounts which may become
payable to any optionee.
18. Expenses of plan. The expenses of administering the Plan shall be borne
by the Company.
19. Reliance on reports. Each member of the Committee and each member of
the Board of Directors shall be fully justified in relying or acting in good
faith upon any report made by the independent public accountants of the Company
and its subsidiaries and upon any other information furnished in connection with
the Plan by any person or persons other than himself. In no event shall any
person who is or shall have been a member of the Committee or of the Board of
Directors be liable for any determination made or other action taken or any
omission to act in reliance upon any such report or information or for any
action, including the furnishing of information, taken or failure to act, if in
good faith.
20. Indemnification. Each person who is or shall have been a member of the
Committee or of the Board of Directors shall be indemnified and held harmless by
the Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be a party or in which he
may be involved by reason of any action taken or failure to act, in good faith,
under the Plan and against and from any and all amounts paid by him in
settlement thereof, with the Company's approval, or paid by him in satisfaction
of judgment in any such action, suit, or proceeding against him, provided he
shall give the Company an opportunity, at its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such person may be entitled under the Company's
Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power than the Company may have to indemnify them or hold them harmless.
21. Amendment and termination. Unless this Plan shall theretofore have been
terminated as hereinafter provided, no options may be granted after April 24,
2003. The Board of Directors may terminate this Plan or modify or amend this
Plan in such respect as it shall deem advisable, provided, however, that the
Board of Directors may not without further approval by the Company's
shareholders, (a) increase the aggregate number of shares of Common Stock as to
which options may be granted under the Plan except as provided in Section 14,
(b) change the class of persons eligible to receive options, (c) change the
provisions of the Plan regarding the option price, (d) extend the period during
which options may be granted, (e) extend the maximum period after the date of
grant during which options may be exercised or (f) change the provision in the
Plan as to the qualification for membership on the Committee. No termination or
amendment of the Plan may, without the consent of a person to whom an option
shall theretofore have been granted, adversely affect the rights of such person
under such option.
22. Revision and amendment of 1986 Plan. (a) Upon the adoption of the Plan,
the Board of Directors and the Committee shall have no authority to grant
additional options or SARs pursuant to the 1986 Plan, except as otherwise
provided in this Section.
(b) Article Vl of the 1986 Plan is hereby amended to authorize the Board of
Directors or the Committee to (i) dissolve the in tandem feature of previously
granted options and SARs and (ii) cancel previouslygranted SARs and grant
replacement options on the basis of seven tenths (.7) options for each SAR and
such replacement options having terms similar to those of the cancelled SARs,
the Board of Directors having determined that this was the amount necessary to
induce holders of SARs to surrender such SARs.
23. Gender. Any masculine terminology used in this Plan shall also include
the feminine gender.
24. Effective date of plan. The Plan was approved by a majority of the
shareholders of the Company at its annual meeting on April 24, 1993 (or
adjournment thereof) and shall become effective as of April 24, 1993.
25. Plan binding on successors. The Plan shall be binding upon the
successors and assigns of the Company.
26. Ratification of actions. By accepting any option or other benefit under
the Plan, each participant in the Plan and each person claiming under or through
such participant shall be conclusively deemed to have indicated such person's
acceptance and ratification of, and consent to, any action taken under the Plan
by the Company, the Board, or the Committee.
27. Invalidity or unenforceability. If any term or provision of the Plan is
held by a court of competent jurisdiction to be invalid, void, or unenforceable,
the remainder of the terms and provisions will remain in full force and effect
and will in no way be affected, impaired, or invalidated.
NBT BANCORP INC.
Joseph J. Butare, Jr.
Chairman, President, and
Chief Executive Officer
Shirley M. Walsh
Assistant Secretary
EXHIBIT 10.11
NBT Bancorp Inc. 1998 Executive Incentive Compensation Plan
January 27, 1998
NBT BANCORP INC.
Norwich, New York
1998 EXECUTIVE INCENTIVE COMPENSATION PLAN
NBT BANCORP INC.
Norwich, New York
1998 EXECUTIVE INCENTIVE COMPENSATION PLAN
Table of Contents
PAGE
Introduction.................................................................1-2
INCENTIVE PLAN
Section I - Definitions........................................................3
Section II - Participation.....................................................4
Section III - Activating the Plan..............................................4
Section IV - Calculation of Awards.............................................4
Section V - President's Special Recommendations................................4
Section VI - Distribution of Awards............................................5
Section VII - Plan Administration..............................................6
Section VIII - Amendment, Modification, Suspension or Termination..............6
Section IX - Effective Date....................................................6
Section X - Employer Relations with Participants...............................6
Section XI - Governing Law.....................................................6
Incentive Plan Participants...........................................Appendix A
Distribution of Awards................................................Appendix B
NBT BANCORP INC.
Norwich, New York
INTRODUCTION
It is important to examine the benefits which accrue to the organization through
the operation of the Executive Incentive Compensation Plan. The Plan impacts
directly on senior and middle management - those critical to the organization's
success - and its purpose can be summarized as follows:
* PROVIDES MOTIVATION: The opportunity for incentive awards provides
executives with the impetus to "stretch" for challenging, yet
attainable, goals.
* PROVIDES RETENTION: by enhancing the organization's competitive
compensation posture.
* PROVIDES MANAGEMENT TEAM BUILDING: by making the incentive award
dependent on the attainment of organization goals, a "team
orientation" is fostered among the participant group.
* PROVIDES INDIVIDUAL MOTIVATION: by making a portion of the incentive
award dependent on the attainment of individual goals, a participant
is encouraged to make significant personal contribution to the
corporate effort.
* PROVIDES COMPETITIVE COMPENSATION STRATEGY: The implementation of
incentive arrangements is competitive with current practice in the
banking industry.
-1-
Highlights of the 1997 Executive Incentive Compensation Plan included in the
following pages are as follows:
1. The Plan is competitive compared with similar sized banking organizations
and the banking industry in general.
2. The Compensation Committee of the Board of Directors controls all aspects
of the Plan.
3. Management employees are eligible for participation.
4. The financial criteria necessary for Plan operation consist of Return on
Average Assets (25% Weight) and Return of Equity (50% Weight) and Profit
Improvement (25% Weight).
5. Incentive distributions will be made during the first quarter of the year
following the Plan Year.
6. Incentive awards will be based on attainment of corporate goals. Total
Incentive Awards contain both Corporate and Individual components; the
corporate component awarded by virtue of corporate performance related to
corporate goals and the individual component awarded by virtue of
individual performance related to individual goals. Component percentages
are shown in Appendix B.
7. Incentive distributions will be based on the matrix in Appendix B.
-2-
NBT BANCORP INC.
Norwich, New York
The Board of Director of NBT Bancorp Inc. has established this 1998 Executive
Incentive Compensation Plan. The purpose of the Plan is to meet and exceed
financial goals and to promote a superior level of performance relative to the
bank's competition in its market area. Through payment of incentive compensation
beyond base salaries, the Plan provides reward for meeting and exceeding the
bank's financial goals.
SECTION I - DEFINITIONS
Various terms used in the Plan are defined as follows:
BASE SALARY: the base salary at the end of the Plan year, excluding any
bonuses, contributions to employee benefit programs, or other
compensation not designated as salary.
BOARD OF DIRECTORS: The Board of Directors of NBT Bancorp Inc.
PRESIDENT & CEO: President and CEO of NBT Bancorp Inc.
CORPORATE GOALS: Those pre-set objectives and goals which are required to
activate distribution of awards under the Plan.
INDIVIDUAL GOALS: Key objectives mutually agreed upon between participants
and superior, and approved by the CEO.
COMPENSATION COMMITTEE: The Compensation Committee of the Board of
Directors of the Bank.
PLAN PARTICIPANT: An eligible employee of the bank designated by the
President & CEO and approved by the Compensation Committee for
participation for the Plan Year.
PLAN YEAR: The 1998 calendar year.
-3-
SECTION II - ELIGIBILITY TO PARTICIPATE
To be eligible for an award under the Plan, a Plan participant must be an
officer in the full-time service of the bank at the start and close of the
calendar year and at the time of the award unless the CEO by special exception
recommends to the Compensation Committee a special arrangement for a newly hired
executive who may be designated by the CEO and approved by the Compensation
Committee as eligible for an award as determined in the employment agreement. A
Plan participant must be in the same or equivalent position, at year end as they
were when named a participant or have been promoted during the course of the
year, to be eligible for an award. If a Plan participant voluntarily leaves the
employ of the bank prior to the payment of the award, he/she is not eligible to
receive an award. However, if the active full-time service of a participant in
the Plan is terminated by death, disability, retirement, or if the participant
is on an approved leave of absence, the President should recommend an award to
such a participant based on the proportion of the Plan year that he/she was in
active service with the bank.
SECTION III - ACTIVATING THE PLAN
The operation of the Plan is predicated on attaining and exceeding management
performance goals. The goals will consist of return on average assets, return on
shareholders' equity, and profit improvement. The Corporation must achieve a
minimum net income set forth in Appendix B to trigger an award pursuant to the
terms of this plan.
SECTION IV - CALCULATION OF AWARDS
The Compensation Committee designates the incentive formula as shown in Appendix
B. The actual rate of distribution is based upon Company performance. The
Compensation Committee will make final decisions with respect to all incentive
awards and will have final approval over all incentive awards. The individual
participant data regarding maximum award and formulas used in calculation has
been customized and appears as Appendix A.
SECTION V - PRESIDENT'S SPECIAL RECOMMENDATIONS
The President & CEO will recommend to the Compensation Committee the amounts to
be awarded to individual participants in the incentive Plan. The President & CEO
may recommend a change beyond the formula to a bonus award (increase or
decrease) to an individual participant by a specified percentage based on
assessment of special individual performance beyond the individual goals. The
Compensation Committee may amend the President & CEO's bonus award. The amount
of the adjustment is from 0%-20% of the actual award. No award will be granted
to an officer whose performance is unacceptable.
-4-
SECTION VI - DISTRIBUTION OF AWARDS
Unless a participant elects the deferred option outlined in the following
paragraph, distribution of awards will be made during the first quarter of the
year following the Plan year. Distribution of the bonus award must be approved
by the Compensation Committee.
A participant may elect by written notice to the Committee at any time during
the month of December of the Plan Year preceding the year to which the award
relates to have all or a portion of his award deferred (Deferred Award). Any
such election shall be irrevocable except unforeseeable financial emergency.
Any portion of participant's award that is deferred shall bear interest
commencing on the Award Date based on the lowest balance in the participant's
account during the month, as if invested at an annual rate equal to the highest
annual rate offered at NBT on any customer deposit account in effect on the last
day of the preceding calendar year. Interest shall be computed monthly, and
credited to the participant's account as of the last day of each calendar month.
The Deferred Award shall be paid in five (5) annual installments upon the
participant's ceasing to be actively employed by the Company for any reason.
Payment shall begin on the 31st day of January following the year in which the
participant ceases to be actively employed with the Company. However, a
participant with the consent of the Committee, prior to termination of
employment, may elect in writing to have the aggregate amount in his or her
Deferred Award Account paid to him or her in a lump sum on a designated date.
Nothing contained in this Plan and no action taken pursuant to the provisions of
this Plan shall create or be constructed to create a trust of any kind, or a
fiduciary relationship between NBT and the participant, his or her designated
beneficiary or any other person, nor shall the participant or any designated
beneficiary have any preferred claim on, any title to, or any beneficial
interest in, the assets of NBT or the payments deferred hereunder prior to the
time such payments are actually paid to the participant pursuant to the terms
herein. To the extent that the participant, his or her designated beneficiary or
any person acquires a right to receive payments from NBT under this Plan, such
right shall be no greater than the right of any unsecured general creditor of
NBT.
The intent of this Section of the Plan is to create a voluntary, non-qualified,
unfunded, deferred executive incentive compensation Plan which will defer the
deduction of such incentive compensation for tax purposes by NBT and which will
correspondingly defer the recognition of such compensation by the participant
until such compensation is actually paid. It is therefore intended, and this
Plan shall be construed and where necessary modified, so that the participants
shall not be deemed to have constructively received such deferred compensation.
In the event of death, any approved award earned under the provisions of this
plan will become payable to the beneficiary designated under this Plan; or if no
such designation, to the designated beneficiary of the participant as recorded
under the bank's group life insurance program; or in the absence of a valid
designation, to the participant's estate.
-5-
SECTION VII - PLAN ADMINISTRATION
The Compensation Committee shall, with respect to the Plan have full power and
authority to construe, interpret and manage, control and administer this Plan,
and to pass and decide upon cases in conformity with the objectives of the Plan
under such rules as the Board of Directors of the bank may establish.
Any decision made or action taken by the Bank, the Board of Directors, or the
Compensation Committee arising out of, or in connection with, the
administration, interpretation, and effect of the Plan shall be at their
absolute discretion and will be conclusive and binding on all parties. No member
of the Board of Directors, Compensation Committee, or employee of the bank shall
be liable for any act or action hereunder, whether of omission or commission, by
a Plan participant or employee or by any agent to whom duties in connection with
the administration of the Plan have been delegated in accordance with the
provision of the Plan.
SECTION VIII - AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION
The bank reserves the right, by and through its Board of Directors to amend,
modify, suspend, reinstate or terminate all or part of the Plan at any time. The
Compensation Committee will give prompt written notice to each participant of
any amendment, suspension or termination or any material modification of the
Plan. In the event of a merger or acquisition, the Plan and related financial
formulas will be reviewed and, if necessary, revised to take into account the
financial status of any merged institution.
SECTION IX - EFFECTIVE DATE OF THE PLAN
The effective date of the Plan shall be January 1, 1998.
SECTION X - EMPLOYER RELATION WITH PARTICIPANTS
Neither establishment nor the maintenance of the Plan shall be construed as
conferring any legal rights upon any participant or any person for a
continuation of employment, nor shall it interfere with the right of an employer
to discharge any participant or otherwise deal with him/her without regard to
the existence of the Plan.
SECTION XI - GOVERNING LAW
Except to the extent pre-empted under federal law, the provisions of the Plan
shall be construed, administered and enforced in accordance with the domestic
internal law of the State of New York. In the event of relevant changes in the
Internal Revenue Code, related rulings and regulations, changes imposed by other
regulatory agencies affecting the continued appropriateness of the Plan and
awards made thereunder, the Board may, at its sole discretion, accelerate or
change the manner of payments of any unpaid awards or amend the provisions of
the Plan.
-6-
DEFERRED COMPENSATION PLAN
FOR OFFICERS OF NBT BANCORP & SUBSIDIARIES
ELECTION AGREEMENT
I, _____________________________, hereby elect |_| to |_| not to participate in
the Deferred Compensation Plan for Officers of NBT with respect to Executive
Incentive Compensation (EICP) awards which I may receive for the calendar year
of __________. I hereby elect to defer the payment of _________ (________%) of
the EICP award which I would otherwise be entitled to receive.
|_| Please defer payment of the percentage of my EICP award specified
above until the earlier of the following dates:
|_| Until ___________________(Specify date which may not be later than the
date on which I will retire).
|_| Until the date of my death.
|_| Begin annual payments of deferred balance on __________________ in the
amount of 1/5th the balance each year until the balance has been paid
in full (5 year payout).
|_| Because terms of the plan have changed since my election to defer EICP
awards, please discontinue my deferral election and:
|_| Roll my deferred account proceeds into the following account at the
institution indicated:
---------------------------------------------------------------
---------------------------------------------------------------
|_| Please pay me out in cash, the balance of my account, at this time.
|_| I hereby designate the following person or persons as beneficiary
hereunder in the event of my death:
Primary Beneficiary _____________________________________________________
Secondary Beneficiary ___________________________________________________
I hereby revoke any prior election that may be inconsistent with the above.
I acknowledge that I have reviewed the plan and understand that my participation
will be subject to the terms and conditions contained in the plan. Words and
phrases used in this Election Agreement shall have the meanings assigned by the
plan.
Dated this ________ day of _________, 199_.
__________________________________________
EXHIBIT 10.21
Lease of Black River Boulevard Plaza Office
LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into by and between THE WEDGEWOOD, a
New York General Partnership, d/b/a BLACK RIVER BOULEVARD PLAZA, 1300 Floyd
Avenue, Rome, New York 13440, hereinafter referred to as `LANDLORD,' and NBT
BANK, N.A., a National Banking Corporation maintaining an office for the
transaction of business at 52 South Broad Street, Norwich, New York 13815,
hereinafter referred to as `TENANT.'
WITNESSETH:
Landlord hereby leases to Tenant, and Tenant hereby takes from Landlord the
following described premises situated within the County of Oneida, City of Rome,
State of New York, and being a store located in the shopping center known as
Black River Boulevard Plaza of approximate size of Thirty (30) feet in width and
One hundred (100) feet in depth, said store being located at 855 Black River
Boulevard, together with all rights, privileges, easements and appurtenances
belonging to or in any way pertaining to the said premises, hereinafter referred
to as the `Demised Premises,' and in addition to the Demised Premises, the
Landlord shall, during the term and all renewals, reserve for the exclusive use
of the Tenant, a strip of land bounded on the east by the building line of the
present shopping center buildings; on the south by the northerly line of the
building line of the present shopping center buildings; on the west by the
1
westerly line of the present shopping center buildings extended; on the north by
the northerly property line of the Landlord's premises at the shopping center.
The Tenant agrees that the use of the property so reserved is limited for
drive-in access to the Demised Premises, TO HAVE AND TO HOLD the same for the
term of Five (5) years beginning on Commencement Date as defined in paragraph
`2' hereof, upon the following terms, conditions and covenants.
1. RENTALS: Tenant agrees to pay at such place as may be designated by
Landlord, rent for said premises at a rental of $45,045.00 annually, to be paid
in monthly installments of $3,753.75 in United States currency. Installments to
be paid on the first day of each month, in advance.
2. TERM: The term of this Lease shall commence on the 1st day of October
1997 and expire on the 30th day of September 2002.
3. USE OF PREMISES: The Demised Premises shall be used and occupied for the
purpose of a Bank. At no time shall the premises be used for any other purpose
without the consent of Landlord or its Agents, which consent shall not be
unreasonably withheld.
4. COMPLIANCE WITH LAW: Tenant shall comply with all governmental laws,
ordinances, and regulations applicable to the use of the Demised Premises, and
shall promptly comply with all government orders and directives for the
correction, prevention, and abatement of nuisance in or upon or connected with
the Demised Premises, all at the Tenant's sole expense.
5. REAL ESTATE TAXES & INSURANCE:
(a) Landlord agrees to pay, before they become delinquent, all real
2
estate taxes and special assessments lawfully levied or assessed against
the above described premises; however, Landlord may, at its expense,
contest and dispute the same and in such case, the disputed item need not
be paid until finally adjudged valid.
(b) Tenant hereby covenants and agrees that for each tax year during
the term of the Lease or any renewal period which the total annual real
estate taxes which shall be imposed or assessed upon the land and buildings
comprising the Shopping Center shall exceed the Tax and Insurance Base (as
hereinafter defined in paragraph 5 (c)), Tenant shall pay to Landlord,
within thirty (30) days after receipt of an itemized statement thereof,
including copies of the tax bills and insurance bills, as additional rent,
a sum equal to six percent (6%) of the total excess. Said percentage is the
same percentage of such excess as the building floor area of the Demised
Premises bears to the total floor area of the buildings comprising the
Shopping Center. Any such percentage of such excess for less than a year
shall be pro-rated and apportioned.
(c) The tax and insurance base shall be the annual fire and liability
insurance premiums and real estate taxes imposed or assessed upon the
Shopping Center for the 1997 tax year with respect to which the Shopping
Center shall be assessed as completed for the entire tax year. A tax year
shall be the twelve (12) month period ending on the latest available date
for the payment of such taxes without interest or penalty.
3
6. INSURANCE:
(a) Landlord agrees to carry adequate fire and extended coverage
insurance on the building of which the Demised Premises are a part.
(b) If Tenant should change its operations in the Demised Premises
subsequent to its initial use and occupancy, and thereby causes an increase
in the premium for the fire and extended coverage insurance policy carried
by Landlord (the premium for said policy having been based on such initial
use and occupancy of Tenant), the amount of such increase in net annual
premium shall be paid to Landlord by Tenant as additional rental annually
upon demand and presentation of written evidence by Landlord, whether
Landlord has consented to such change of operations or not.
(c) Tenant shall not permit any operation to be conducted in the
Demised Premises that would cause suspension or cancellation of the fire
and extended coverage insurance policy carried by Landlord.
(d) Any insurance which may be carried by Landlord or Tenant against
loss or damage to the building and other improvements situated on the
Demised Premises, shall be for the sole benefit of the party carrying such
insurance under its sole control.
(e) Tenant shall maintain and keep in force public liability insurance
in the amounts of $250,000.00 per person or $500,000.00 per occurrence and
$25,000.00 for property damage. Tenant shall furnish landlord a Certificate
of Insurance.
4
7. MAINTENANCE AND REPAIRS:
(a) Landlord shall be responsible for the maintenance and repair of
the roof and structural portion of the walls forming a porting of the
Demised Premises, as well as all necessary repairs to the exterior of the
Demised Premises, including sidewalks and parking lot.
(b) Tenant shall be responsible for the maintenance and repair of all
interior walls, floors, ceilings, lights, air conditioning, plumbing, glass
doors and windows, heating systems, and plumbing and electrical wiring
within the Demised Premises.
(c) Tenant shall, throughout the Lease term, take good care of the
Demised Premises and other improvements and keep them free from waste or
nuisance, and shall deliver up the premises broom-clean at the termination
of this Lease or any renewal hereof in good repair and condition
(reasonable wear and tear and damage by fire, tornado or other casualty
excepted).
(d) In the event Tenant should neglect to reasonably maintain the
Demised Premises, Landlord shall have the right (but not the obligation) to
cause repairs or corrections to be made, and any reasonable costs thereof
shall be payable by Tenant to Landlord as additional rental on the next
rental installment date.
(e) Tenant shall be responsible to keep the sidewalk in front of the
Demised Premises free and clear of debris and foreign matter, and will not
store any material, displays, waste or other matters upon the Shopping
Center premises outside of the Demised Premises at any time. In the event
Tenant neglects reasonably to keep said area maintained, Landlord shall
5
have the right (but not the obligation) to perform such maintenance, and
the cost thereof shall be payable by Tenant to Landlord as additional rent
on the next rental installment date.
8. COMMON AREA CHARGES:
(a) Tenant agrees to pay to Landlord each Lease year during the term
hereof, as additional rent, Tenant's pro-rata share of the following costs
incurred in the maintenance of the Common Area: striping, lighting,
policing, cleaning, maintaining and repairing the parking area and walks
and ways; removal of snow and ice, rubbish and obstruction from the Common
Area; and maintaining planted and landscaped areas. Notwithstanding any
herein contained to the contrary, Tenant shall not pay Landlord for the
cost of any capital improvement or expenditure, including any equipment
properly chargeable to a capital account, management of the Shopping
Center, Landlord's home office overhead and/or for the Landlord's
administrative costs in operating the Shopping Center. Statements of actual
costs incurred by Landlord for Common Area maintenance shall be rendered by
Landlord once a year, together with copies of invoices identifying with
particularity, the work or service performed. Tenant agrees to pay its
pro-rata shares of such Common Area maintenance charges, promptly on
receipt of such statement. Tenant shall have the right once per year to
examine Landlord's books and records with respect to the aforesaid Common
Area maintenance charges at a reasonable time and upon ten (10) days
written notice.
6
(b) For the purpose of this paragraph, Tenant's pro-rata share of
common area maintenance charges shall be six percent (6%) of the total
costs set forth in paragraph 8 (a) hereof. Said percentage has been
computed as follows: The product of total Common Area maintenance charges
payable for the entire Shopping Center divided by the total number of
square feet of building floor area comprising the Shopping Center
(including office and storage as well as retail floor area), times the
number of square feet of building floor area comprising the Demised
premises.
(c) During any part of the term hereof which shall be less than a full
year, Tenant's share of the Common Area maintenance charges shall be
pro-rated on a daily basis between the parties and, to that end, Tenant
shall only pay the Common Area maintenance charges attributable to the
fractional part of the year occurring within the term of this Lease or any
renewal hereof.
9. ALTERATIONS, ADDITONS AND IMPROVEMENTS:
(a) Tenant shall not create any openings in the roof or exterior
walls, nor make any structural alterations, additions or improvements to
the Demised Premises without prior written consent of Landlord, which
consent shall not be unreasonably withheld. Tenant shall have the right at
all times to erect or install shelves, bins, machinery and trade fixtures,
provided that Tenant complies with all applicable governmental laws,
ordinances and regulations. Tenant shall have the right to remove at the
termination of the Lease such items so installed; however, Tenant shall,
prior to the termination of this Lease, repair any damage caused by such
removal.
7
(b) All alterations, additions or improvements made by Tenant that are
permanently attached to the real estate shall become the property of the
Landlord at the termination of the lease; however, Tenant shall promptly
remove, if Landlord so elects, all alterations, additions and improvements
and any other property place in the premises by Tenant, and Tenant shall
repair any damage caused by such removal. Tenant has the right to make
minor alterations of a non-structural nature such as wallpaper, ceilings,
non-structural walls and partitions, flooring and floor covering, without
Landlord's consent, and the Tenant shall not be required to remove such
items upon the termination of this Lease or any renewal hereof.
10. SIGNS: Tenant shall have the right to erect a sign on the canopy of the
Shopping Center, securely attached to and parallel to said walls, subject to
applicable laws and deed restrictions. Tenant shall not erect any signs other
than customary trade signs identifying its business. Tenant shall remove all
signs at the termination of this Lease, and shall repair any damage and close
any holes caused by such removal. Tenant may erect signs on Demised Premises
only.
11. WAIVER OF SUBROGATION: Each party hereto waives any and every claim
which arises or may arise in its favor and against the other party hereto during
the term of this Lease or any renewal or extension thereof, for any and all loss
of , or damage to, any of its property located within or upon, or constituting a
part of, the premises leased to Tenant hereunder, which loss or damage is
8
covered by valid and collectable fire and extended coverage insurance policies,
to the extent that such loss or damage is recoverable under said insurance
policies. Said mutual waivers shall be in addition to, and not in limitation or
derogation of, any other waiver or release contained in this Lease with respect
to any loss of, or damage to, property of the parties hereto. Inasmuch as the
above mutual waivers preclude the assignment of any aforesaid claim by way of
subrogation (or otherwise) to an insurance company (or any other person). Each
party hereto hereby agrees immediately to give each insurance company which has
issued to it policies of fire and extended coverage insurance, written notice of
the terms of said mutual waivers, and to have said insurance policies properly
endorsed, if necessary, to prevent the invalidation of said insurance coverages
by reason of said waivers.
12. LANDLORD'S RIGHT OF ENTRY:
(a) Landlord and its authorized agents shall have the right to enter
the Demised Premises during normal working hours for the following
purposes:
(1) inspecting the general condition and state of repair of
premises;
(2) the making of repairs required of Landlord; and
(3) the showing of the premises to any prospective purchaser.
(b) If Tenant shall not have renewed or extended this Lease prior to
the final thirty (30) day period of the Lease Term, Landlord and its
9
authorized agents shall have the right to erect on or about the Demised
Premises a customary sign advertising the property for lease or for sale.
During said thirty (30) day period, Landlord and its authorized agents
shall have the right to enter the Demised Premises during normal working
hours for the showing of the premises to prospective tenants or purchasers.
13. UTILITY SERVICES: Landlord shall provide at the beginning date of this
Lease, the normal and customary utility service connections in the Demised
Premises. Tenant shall pay all charges for gas and electricity used on the
Demised premises and for all electric light lamps or tubes after the initial
installation. Tenant shall also pay all water and sewer charges.
14. FIRE AND CASUALTY DAMAGE:
(a) If the building or other improvements on the Demised Premises
shall be damaged or destroyed by fire, tornado or other casualty, Tenant
shall give immediate written notice thereof to Landlord.
(b) Total Destruction: If the building situated on the Demised
Premises should be so damaged that rebuilding or repairs cannot reasonably
be completed within one hundred twenty (120) working days from the date of
written notification by Tenant to landlord of the happening of the damage,
this Lease shall terminate, and rent shall be abated for the unexpired
portion of this Lease, effective as of the date of said written
notification.
(c) Partial Damage: If the building or other improvements situated on
the Demised Premises should be damaged by fire, tornado or other casualty,
10
but not to such an extent that rebuilding or repairs cannot reasonably be
completed within one hundred twenty (120) working days from the date of
written notification by Tenant to landlord of the happening of the damage,
this Lease shall not terminate, but Landlord shall, if the casualty has
occurred prior to final eighteen (18) months of the Lease term, at its sole
cost and risk, proceed forthwith to rebuild or repair such building and
other improvements substantially to the condition in which they existed
prior to such damage. If the casualty occurs during the final eighteen (18)
months of the Lease term, Landlord shall not be required to rebuild or
repair such damage unless Tenant shall exercise its renewal option (if any
is contained herein), whereupon Landlord shall, at its sole cost and risk,
proceed forthwith to rebuild or repair such damage. If Tenant does not
elect to exercise its renewal option (if any is contained herein) within
thirty (30) days from the date of written notification by Tenant to
Landlord of the happening of the damage, this Lease shall terminate and
rent shall be abated for the unexpired portion of this Lease, effective as
of the date of said written notification. If the building and other
improvements are to be rebuilt or repaired and are untenantable in whole or
in part following such damage, the rent payable hereunder during the period
in which they are untenantable shall be adjusted equitably. In the event
that Landlord should fail to complete such rebuilding or repairs within on
hundred eighty (180) working days from the date of written notification by
Tenant to Landlord of the happening of the damage, Tenant may, at its
11
option, terminate this Lease by written notification at such time to
Landlord, whereupon all rights and obligations hereunder shall cease, and
rent shall be abated for the unexpired term of this Lease, effective as of
the date of said written notification.
15. HOLD HARMLESS: Landlord shall not be liable to Tenant or Tenant's
employees, agents or invitees or to any other persons whomsoever, for any injury
to person or damage to property on or about the Demised Premises caused by
negligence or misconduct of Tenant, its employees or agents. Tenant agrees to
indemnify Landlord and hold it harmless from any loss, expense or claims arising
out of any damage or injury, unless such damage or injury result from Landlord's
act or neglect or the act or neglect of the Landlord's agents or employees.
16. CONDEMNATION:
(a) If, during the term of this Lease or any extension or renewal
thereof, all or a substantial part of the Demised Premises should be taken
for any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain, or should be sold to the
condemning authority under threat of condemnation, this Lease shall
terminate and the rent shall be abated during the unexpired portion of this
Lease, effective as of the date of the taking of said premises by the
condemning authority.
(b) If less than a substantial part of the Demised Premises shall be
taken for any public or quasi-public use under any governmental law,
12
ordinance or regulation, or by right of eminent domain, or should be sold
to the condemning authority under threat of condemnation, this Lease shall
not terminate, but Landlord shall forthwith at its sole expense, restore
and reconstruct the buildings and other improvements situated on the
Demised Premises, provided such restoration and reconstruction shall make
the same reasonably tenantable and suitable for the uses for which the
premises are leased as defined in paragraph `3' above. The rent payable
hereunder during the unexired portion of this Lease shall be adjusted
equitably.
(c) Any such award as a result of condemnation shall be the sole
property of the Landlord, and no portion of any award shall be due or
payable to the tenant.
17. HOLDING OVER: Should Tenant, or any of its successors in interest, hold
over the Demised Premises, or any part thereof, after expiration of the term of
this Lease, unless otherwise agreed in writing, such holding over shall
constitute and be construed as tenancy from month-to-month, at a monthly rental
equal to the rent paid for the last month of the term of this Lease.
18. DEFAULT BY TENANT:
(a) The following event shall be deemed to be events of default by
Tenant under this Lease: (1) Tenant shall fail to pay any installment of
the rent on the date that same is due and such failure shall continue for a
period of thirty (30) days after written notice from Landlord.
13
(2) Tenant shall fail to comply with any term, condition or covenant
of this Lease, other than the payment of rent, and shall not cure such
failure within thirty (30) days, after written notice thereof to
Tenant, or, if such default cannot reasonably be cured within the said
thirty (30) days and Tenant shall not have commenced to cure such
failure within thirty (30) days after written notice thereof to
Tenant.
(3) Tenant shall become insolvent, or shall make a transfer in fraud
of creditors, or shall make an assignment for the benefit of
creditors.
(4) Tenant shall file a Petition under any section or chapter of the
National Bankruptcy Act as amended, or under any similar law or
statute of the United States or any State thereof; or Tenant shall be
adjudged bankrupt or insolvent in proceedings filed against Tenant
thereunder.
(5) A Receiver Or Trustee shall be appointed for all or substantially
all of the assets of Tenant.
(b) Upon the occurrence of any of such events of default, Landlord
shall have the option to pursue any one or more of the following remedies
without any notice or demand whatsoever:
(1) Terminate this Lease, in which event Tenant shall immediately
surrender the premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have
for possession or arrearages in rent, enter upon and take possession
of the Demised Premises and expel or remove Tenant and any other
person who may be occupying said premises thereof, by force if
14
necessary, without being liable for prosecution or any claim for
damages therefor; and Tenant agrees to pay to Landlord on demand the
amount of all loss and damage which landlord may suffer by reason of
such termination, whether through inability to re-let the premises on
satisfactory terms or otherwise.
(2) Enter upon and take possession of the Demised Premises and expel
or remove Tenant and any person who may be occupying said premises or
any part thereof, by force if necessary, without being liable for
prosecution or any claim for damages therefor, and re-let the premises
and receive the rent therefor; and Tenant agrees to pay to Landlord on
demand any deficiency that may arise by reason of such re-letting.
(3) Enter upon the Demised Premises by force if necessary, without
being liable for prosecution or any claim for damages therefor, and do
whatever Tenant is obligated to do under the terms of this Lease, and
Tenant agrees to reimburse Landlord on demand for expenses which
Landlord may incur in this effecting compliance with Tenant's
obligation under this Lease, and Tenant further agrees that Landlord
shall not be liable for any damages resulting to the Tenant from such
action, whether caused by negligence of Landlord or otherwise.
(c) Pursuit of any of the foregoing shall not preclude pursuit of any
of the other remedies herein provided or any other remedies provided by
law, nor shall pursuit of any remedy herein provided constitute a
forfeiture or waiver of any rent due to Landlord hereunder or of any
15
damages accruing to Landlord by reason of the violation of any of the
terms, conditions and covenants herein contained.
19. QUIET ENJOYMENT: Landlord warrants that it has full right and power to
execute and perform this Lease and to grant the estate demised herein and that
Tenant, on payment of the rent and performing the covenants herein contained,
shall peacably and quietly have, hold and enjoy the Demised Premises during the
full term of this Lease and any extension or renewal hereof, provided, however,
that Tenant accepts the Lease subject and subordinate to any recorded mortgage,
deed of trust, or other lien presently existing upon the Demised Premises;
Landlord is hereby vested with full power and authority to subordinate Tenant's
interest hereunder to any mortgage, deed of trust, or other lien hereafter
placed on the Demised Premises, and Tenant agrees upon demand to execute such
further instruments, subordinating the Lease as Landlord may request, provided
such further subordination shall be upon the express condition that this Lease
shall be recognized by the mortgagee, and that the rights of Tenant shall remain
in full force and effect during the term of this Lease so long as Tenant shall
continue to perform all of the covenants of this Lease.
20. WAIVER OF DEFAULT: No waiver by the parties hereto of any default or
breach of any term, condition or covenant of this Lease shall be deemed to be a
waiver of any subsequent default or breach of the same, or any other term,
condition or covenant contained herein.
16
21. FORCE MAJEURE: Landlord or Tenant shall not be required to perform any
term, condition or covenant in this Lease so long as such performance is delayed
or prevented by force majeure, which shall mean acts of God, strikes, lockouts,
material or labor restrictions by any governmental authority, civil riot,
floods, and any other cause not reasonably within the control of Landlord or
Tenant and which by the exercise of due diligence Landlord or Tenant is unable,
wholly or in part, to prevent or overcome.
22. EXHIBITS: All exhibits, attachments, annexed instruments and addenda
referred to herein shall be considered a part hereof ro all purposes with the
same force and effect as if copied at full length herein.
23. USE OF LANGUAGE: Words of any gender used in this Lease shall be held
and construed to include any other gender, and words in the singular shall be
held to include the plural, unless the context otherwise requires.
24. CAPTIONS: The captions or headings of paragraphs in this Lease are
inserted for convenience only, and shall not be considered in construing the
provisions hereof if any question of intent should arise.
25. ACCESS: The Landlord shall, at any reasonable time, have access to the
Demised Premises for the purpose of examining the same, making necessary
repairs, or for the purpose of showing the Demised Premises to prospective
purchasers.
26. MAINTENANCE OF BUSINESS: The Tenant will, during the entire term of
this Lease and any renewal periods, operate and maintain the business for which
17
the Demised Premises are leased, except that the Tenant may sub-lease the
Demised Premises, only with the consent of the Landlord, to a third party who
will then operate a business in the Demised Premises. The Landlord's consent to
such sub-leasing shall not be unreasonably withheld.
27. RENEWAL: In the event the Tenant has well and truly complied with each
and every term, condition and covenant of this Lease, the Landlord grants to the
Tenant the right to renew the term of this Lease for one additional five (5)
year term, upon the following terms and conditions:
(1) The Tenant shall give the Landlord not less than six (6) months'
written notice of its election to exercise the option to renew;
(2) The rental during the renewal term shall be the amount obtained by
the following formula: (A) For the purpose of this formula:
(i) `index' shall mean the U.S. Department of Labor, All Urban
Consumers (CPI-UN) U.S. City Average 1982-84 =100) now published by
the U.S. Department of Labor or any replacement thereof comprising the
same component factors and applicable to the City of Rome, New York,
or, if none is specifically applicable thereto, most closely
applicable to the region in which the City of Rome, New York is
located. If the `index' is not published, landlord and Tenant shall
agree upon a substitute index, and if no such agreement is made, then
a Justice of the Supreme Court of the State of New York, upon
18
application of either Landlord or Tenant, shall designate a substitute
index, which designation shall be non-appealable and final with costs
of litigation to be divided equally between Landlord and Tenant;
(ii) `Base index' shall refer to the index applicable during the
calendar month immediately preceding the month in which the original
term of this Lease commences;
(iii) `Adjustment date' shall refer to the first day of the renewal
term;
(iv) `Current index' shall refer to the index applicable during the
calendar month immediately preceding the adjustment date.
(B) If upon the adjustment date, current index shall be greater than
base index, then:
(i) Current index shall be divided by base index, producing quotient;
(ii) Quotient shall be multiplied by Forty-five Thousand Forty-five
dollars ($45,045.00); and the amount so obtained shall be the annual
minimum rent during the renewal term. However, in no event shall
annual rental payments during the renewal term be more than
twenty-five percent (25%) greater than annual rental payments during
the assigned term hereunder.
(C) If upon the adjustment date, current index shall be less than base
index, then annual rental payments during the renewal term shall be
$45,045.00.
28. SUCCESSORS: The terms, conditions and covenants conained in this Lease
shall apply to, inure to the benefit of, and be binding upon the parties hereto
19
and their respective successors in interest and legal representatives, except as
otherwise herein expressly provided. All rights, powers, privileges, immunities
and duties of Landlord under this Lease, including, but not limited to, any
notices required or permitted to be delivered by Landlord to Tenant hereunder,
may at Landlord's option, be exercised or performed by Landlord's agent or
Attorney.
29. NOTICE: Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered, whether actually received or not,
when deposited in the United States mail, postage prepaid, registered or
certified mail, return receipt requested, addressed to the parties hereto at the
respective addresses set forth below, or at notice delivered in accordance
herewith.
IN WITNESS WHEREOF, the parties hereto have executed and sealed this Lease
as of the date set opposite their respective signature.
NBT BANK, N.A. (Tenant)
52 South Broad Street
Norwich, New York 13815
Dated: March 19, 1997 By /s/DARYL R. FORSYTHE
--------------- --------------------
Daryl R. Forsythe
President
EXHIBIT 10.22
Lease of Plattsburgh Brinkerhoff Office
L E A S E
THIS LEASE AGREEMENT made this ; day of October, 1997, between ROBERT
GARRAND, residing in Plattsburgh, County of Clinton and State of New York,
hereinafter "Landlord", and NBT BANK, N.A. with offices at 52 So. Broad St.,
Norwich, New York 13815, hereinafter "Tenant".
W I T N E S S E T H :
For and in consideration of the promises and agreements herein contained
Tenant hereby leases from Landlord certain real property hereinafter described
on the following terms and conditions:
1. PREMISES. The leased premises are located in the building known as the
former Beaver Restaurant at 83 Margaret Street, Plattsburgh, County of Clinton,
State of New York, and consist of approximately two thousand one hundred (2,100)
sq. ft. +/ on the first floor, consisting of unfinished space and use of entire
basement below the leased premises.
The Tenant shall also be allowed and permitted to park five (5) automobiles
in the adjoining lot located in the rear of the subject leased premises which is
located at the corner of Marion Avenue and Protection Avenue in the City of
Plattsburgh, New York.
The Tenant shall have the option to lease not less than five (5) additional
parking spaces in the lot hereinafter mentioned a. the then market rental of the
such spaces.
2. TERM & RENTAL: Tenant shall pay Landlord rent for leased premises as
follows:
a) TERM: The term of this lease shall be five (5) years commencing December
1, 1997 and ending November 30, 2002, subject to termination as provided herein.
OPTION TO RENEW: The Tenant has the right to elect to renew the lease for
five (S) five (5) year terms upon the same terms and conditions except the rent
shall be adjusted as follows:
(i) For the first renewal term, the fixed minimum base rent shall be
increased to Twelve and S0\100 Dollars ($12.50) per square foot; (to wit: Twenty
Six Thousand Two Hundred Fifty and 00\100 Dollars [$26,250.00] annual rent)
payable in monthly installments of Two Thousand One Hundred Eighty Seven and
S0\100 Dollars ($2,187.50) on the first day of each and every month of said
renewal term.
(ii)For the second and each renewal term thereafter the fixed minimum base
rent shall be determined by the sum of the changes in the Consumer Price Index
for the previous five (5) year period but not to exceed twenty five percent
(25%) and multiply the same to the previous annual rent for the last twelve (12)
month term.
1
b) RENT: The Tenant's rent for the first year shall be the following:
At the commencement of the term and for the first thirty six (36) months,
the fixed minimum base rent shall be Eight and 00\100 Dollars ($8.00) per square
foot; (to wit: Sixteen Thousand Eight Hundred and 00\100 Dollars [$16,800.00]
annual rent) payable in monthly installments on the 1st day of each month of the
term in the amount of One Thousand Four Hundred and 00\100 Dollars ($1,400.00).
Beginning the thirty seventh (37th) month of the term, the fixed minimum
base rent shall increase to Nine and 00\100 ($9.00) per square foot; to wit:
Eighteen Thousand Nine Hundred and 00\100 ($18,900.00), and shall be payable in
monthly installments of One Hundred Five Hundred Seventy Five $1,575.00 for each
and every month thereafter until and including the month of November, 2002.
Such additional rent as may be due and owing as provided herein. Tenant
agrees to pay additional rent within Fifteen (15) days of receipt of written
notice by Landlord of such additional rent.
The rent shall be paid on the first of each and every month of the lease
term.
3. SECURITY/DEPOSITS: NONE
4. U.S. FUNDS: All sums of money herein described shall be in U.S. funds.
5. LATE PAYMENT: Tenant acknowledges that prompt payment of the sums herein
provided for is necessary for the smooth and efficient conduct of Landlord's
business, and Tenant therefore agrees that if any such payment is not made
within Ten (10) days of the date it is due, then Tenant shall pay to Landlord an
additional sum equal to Five Percent (5%) of such overdue payment.
TAX ADJUSTMENT: The Tenant covenants and agrees to pay its proportionate
share of any and all increase taxes assessed and levied against the premises for
the leased term and any renewal term hereof. The Landlord,will be responsible
for the base taxes which shall be the 1997 laid tax bill and the 1997 1998
school tax bill and the Tenant shall be responsible for its proportionate share
of any increase, which proportionate share shal' be calculated as that which the
leased square footage (that square footage which is leased by the Tenant hereby
as leased premises) relates to the leasable square footage of the building. Said
adjustment shall be paid within thirty (30) days of the tenant's receipt of a
copy of the paid tax receipt for the applicable period.
2
7. COMMON CHARGE: The Tenant agree to pay a monthly maintenance and common
charge of Fifty and 00\100 Dollars ($50.00), for the Tenant's share of snow
removal and general cleaning of the common area and in consideration of the
Landlord paying for the water and sewer fees and not separately metering the
leased premises. Such common charge shall be deemed additional rent which will
be determined as one third (1/3) of the costs for such work as described
hereinabove. The common charge is determined to be one third (1/3) of the
monthly costs for snow removal of sidewalks, general cleaning of sidewalks
(washdown) and commercial store fronts. Said costs are now One Hundred Fifty and
00\100 Dollars ($150.00) of which this Tenant's share is Fifty and 00\100
Dollars ($50.00). The common charge shall be adjusted at the commencement of
each renewal term to a reasonable charge.
8. UTILITY: Tenant shall pay for all electricity and other utility charges
consumed and/or used on the leased premises, for heat or other purpose based
upon a metered reading exclusive of said premises, except as provided in the
common charge hereinabove provided.
9. TAXES: The Landlord shall be responsible for all real property taxes
except as provided herein above.
10. BUILDING MAINTENANCE: Tenant shall maintain the leased premises and
shall repair and maintain all equipment, appliances, lighting fixtures, glass,
including storefront windows, and all other systems within the building
including the heating, plumbing, and air conditioning system. Tenant shall
promptly repair any equipment, systems or facility the malfunction and the
maintenance and repair of which is the Tenant's obligation. Tenant shall be
responsible for cleaning the leased premises and for replacing broken or
otherwise malfunctioning light bulbs and tubes. Tenant shall be responsible for
trash removal and hauling. The Landlord shall be responsible for the structural
portion of the building intended to include the roof and walls of the structure
and further the plumbing and electrical wiring up to the point of entrance into
the leased premises. Landlord shall be responsible for snow removal for the
sidewalk on Margaret Street and the rear alley from the back door to Protection
Avenue subject to the Tenant's obligation to the payment of common charges (see
paragraph 7 hereof).
MODIFICATIONS BY TENANT: Tenant shall not structurally alter or modify the
leased premises without written consent of Landlord; said consent shall not be
unreasonably withheld by the Landlord. Any alterations, modifications or
installed items which, upon installation, become fixtures, except trade fixtures
shall become the property of the Landlord and may not be removed without the
Landlord's prior written consent. It is hereby agreed between the parties hereto
that the Tenant shall be responsible for the interior improvements including all
modifications to electrical and telephone so to adapt premises to Tenant's use.
3
12. COMMUNICATIONS SYSTEMS: Tenant will install any phone or Other
communications systems it desires at its own expense. It shall be the sole
responsibility of the Tenant to install their own telephone lines and computer
requirements.
13. USE OF PREMISES AND CONDITIONS: Tenant warrants and represents that the
leased premises will be used for banking and associated activities, services and
uses. The Tenant has inspected the leased premises and accepts the building,
system fixtures, and improvement, "as is".
14. CODE COMPLIANCE: Tenant shall ensure that his operations, use, and any
equipment or other facilities it installs or any renovations, it shall comply
with all applicable State, Federal, and local rules, regulations and ordinances.
Landlord represents that the leased premises complies with local zoning laws and
regulation as to the intended use as stated herein at paragraph 13 hereinabove.
So long as the Tenant is in compliance with the terms and the provisions of
this lease, then the Tenant shall be entitled to the unrestricted use and
enjoyment of the leased Premises.
15. INSURANCE (HAZARD): Landlord shall insure the premises however the
Tenant releases the Landlord from any and all claims for loss or damage to its
personal property and records and any property of any third party that is
located in the leased premises during the Tenant's term. Tenant shall be
responsible for insuring its personal property that is stored, installed or used
on the leased premises. The Tenant shall not permit any use of the leased
premises which will make voidable any insurance on the property of which the
leased premises are a part. Tenant shall provide proof of insurance for all
personal property and Tenant's contents upon demand.
16. TENANT'S SIGNS: Tenant will provide its own signs which will conform to
local zoning ordinances with respect to the same.
17. DAMAGE PREVENTION: The Tenant shall take all reasonable precautions to
ensure that its use of the leased premises does not damage them in any way. At
the expiration of the lease term, the Tenant shall deliver up possession of the
leased premises in the same condition as they were at the beginning of the lease
term, normal wear and tear excepted, broom clean.
18. LANDLORD'S ACCESS: Landlord may enter the premises during the normal
banking hours, for the purpose of inspecting, maintaining, or repairing the
leased premises. If repairs of an emergency nature are required, Landlord may
enter the leased premises to effectuate such repairs at any time.
4
19. PUBLIC LIABILITY INSURANCE: Tenant shall obtain and keep in full force
and effect a policy of insurance in the face amount of One Million and 00\100
Dollars ($1,000,000.00) insuring against liability for injuries to the persons
or property of third parties occurring on or in connection with the leased
premises, and Landlord shall be listed as an additional insured. Proof of
compliance of the provisions shall be given to the Landlord within ten (10) days
of the demand thereof.
20. LIENS: Tenant shall promptly discharge all liens which attains to the
leased premises through its acts or omissions, including, without limitation,
mechanics liens, judgments and lis pendis.
21. INDEMNIFICATIONS: Tenant shall indemnify Landlord and hold Landlord
harmless from all injuries or property damage occurring on or in connection with
the leased premises, except that which arises through the actions and negligence
of Landlord.
22. TOTAL DESTRUCTION: In the event the building is totally destroyed, this
lease shall terminate and the parties shall be liable only for obligations and
rights which arose prior to the time of termination.
23. PARTIAL DESTRUCTION: In the event of a partial destruction of the
leased premises or other improvements, or of the interior of the premises, which
renders the use of such portion totally unusable at their option, Landlord may
terminate this lease, or may elect to rebuild the building or repair and shall
be given a reasonable time not to exceed the period of One Hundred Twenty (120)
days to do so. Landlord must advise Tenant of their intentions, in writing,
within fifteen (15) days of the event. From the occurrence of the partial
destruction to the time when the rebuilding is completed, the rent due hereunder
shall be reduced to proportion of the original rent equal to the proportion of
the leased premises available suitable for use by the Tenant.
24. CONDEMNATION: If all of the leased premises, or so large a portion as
to leave the remainder unusable by the Tenant, is taken by eminent domain, then
this Lease shall terminate, and no further rights or obligations shall arise
hereunder. If a portion of the premises is taken, and the remainder is still
usable by the Tenant, then this lease shall remain in effect.
25. INTERRUPTIONS OF SERVICE: Landlord shall not be responsible for
interruptions of service herein to be furnished by him which caused conditions
beyond their control, and such interruptions shall not constitute a failure of
performance under this lease by Landlord.
26. FAILURE OF PERFORMANCE BY TENANT: If Tenant fails to make payments,
incur all costs, and perform all other obligations herein agreed by it, Landlord
5
may, at their option, take all reasonable actions to ensure that Tenant's
obligations or any of them, are fulfilled, and Tenant shall reimburse Landlord
upon demand, then Landlord may add such costs and expenses to the rent, and they
shall be paid as part of the rental installment next due, and Landlord shall
have all other remedies provided by law.
27. SUBORDINATION: This lease shall be subject and subordinate to any and
all mortgages, deeds of trust and other instruments in the nature of a mortgage
now or at any time hereafter, a lien or liens on the property of which the
leased premises are a part and the Tenant shall, when requested promptly execute
and deliver such written instruments as shall be necessary to show the
subordination of this lease to said mortgages, deeds of trust or other such
instruments in the nature of a mortgage.
28. DEFAULT: A default by Tenant hereunder shall include without limitation
(1) Non payment of a rental installment due; (2) Non compliance with any other
term of the lease which is not promptly cured as hereinafter provided; (3)
Abandonment by Tenant of the leased premises; (4) Tenant's seeking relief in
Bankruptcy Court and/or adjudication as a bankrupt; (5) Appointment of a
receiver or trustee over Tenant; (6) Assignment for the benefit of Tenant's
creditors; (7) Taking of Tenant's leasehold interest of estate by execution,
judgment enforcement or other process against Tenant. Upon Tenant's default,
Landlord may do any or all of the following: (1) Take possession of the premises
without terminating the lease, in which case Tenant shall remain liable for any
deficiency between the new rental and the rental hereunder provided for and for
all reasonable costs of reletting; (2) Declare the balance provided for
immediately due and payable in full. If default is a failure to perform any
obligation hereunder, other than the payment of rent, Landlord shall inform
Tenant of such default at the address above, and Tenant shall promptly cure such
default. Tenant's failure to so promptly cure the default shall entitle Landlord
to take any of the actions hereinabove listed. Upon Tenant's default hereunder,
Landlord may take all reasonable actions to mitigate damages.
LANDLORD'S DEFAULT: If Landlord fails to perform the obligation hereunder
taken by him, Tenant may take reasonable actions to have such obligations
fulfilled and deduct the reasonable costs thereof from the repayments then next
due hereunder.
30. REMOVAL OF TENANT'S PROPERTY: Upon expiration of earlier termination of
the lease term, Tenant shall promptly remove his property, the lease premises,
excluding all property which is owned, at the time of expiration or termination,
by the Landlord. In the event of the Tenant's failure to remove any of Tenant's
property from the leased premises, Landlord is hereby authorized without
liability to Tenant for loss or damage there and at the sole risk of Tenant, to
6
remove and store any of the property at Tenant's expense, or to dispose of it
without liability to the Landlord. The Tenant hereby waives any right, claim or
action for any loss sustained by reason of Landlord's disposition of the
property pursuant to the terms of this agreement.
31. LEASEHOLD AS SECURITY: Tenant shall not mortgage or pledge its
leasehold in any manner.
32. LANDLORD'S FAILURE TO PURSUE: Landlord's failure to pursue a remedy
shall not constitute a waiver of such remedy, nor shall it constitute a waiver
of any future default whether of the same or of a different nature.
33. TENANT'S EXPENSES: Except for those items of maintenance, service and
expenses specifically herein undertaken by Landlord, Tenant shall pay all of the
costs of operating its business on the leased premises.
34. ASSIGNMENT, SUBLEASE: This lease may not be assigned without the
express written consent of the Landlord. Such consent will be exercised in the
sole discretion of the Landlord. Tenant may sublease the premises only for a
similar use, notwithstanding such sublease the Tenant shall remain liable for
obligations of this lease.
35. VENUE JURISDICTION: This lease is made in the State of New York and
shall be construed under New York State Law. For the purpose of any lawsuits,
actions or proceedings brought in connection with this lease Tenant hereby
submits in person to the jurisdiction of the courts of the State of New York, in
Clinton County.
36. NOTICE: Any notice from the Landlord to the Tenant relative to the
leased premises or to the occupancy thereof, shall be deemed duly served, if
sent registered or certified mail, return receipt requested, postage prepaid,
addressed to the Tenant. Any notice from the Tenant to the Landlord relating to
the leased premises or to the occupancy thereof, shall be deemed duly served,
only if mailed to the Landlord by registered or certified mail, return receipt
requested, postage prepaid, addressed to the Landlord at such address as the
Landlord may from time to time advise in writing. All rent and notices shall be
paid and sent to the Landlord.
37. CONTINGENCIES:
(i) This lease shall be contingent upon the purchase and acquisition by the
Tenant from the Landlord of the Key Bank facility located on the corner of Route
3 and LaBarre Street in the Town of Plattsburgh.
7
(ii) This lease shall further be contingent upon Tenant receiving
regulatory approval to relocate its downtown office from its current location to
the leased premises. If said regulatory approval is not forthcoming the Landlord
agrees to lease to Tenant the said Brinkerhoff Street property for a period of
time not less than a five (5) year term upon terms to be negotiated between the
parties.
The parties hereto sign this agreement the day and year first above
written.
LANDLORD
/s/ R.W. Garrand
----------------
ROBERT GARRAND
TENANT
NBT BANK, N.A
By: Daryl R. Forsythe Pres & CEO
-----------------------------
, Title
8
EXHIBIT 10.23
Lease of Oneonta Office
LEASE
dated September 17, 1997
between
Bettiol Enterprises Ltd, Inc.
as Lessor
and
NBT Bank, N.A.
as Lessee
Affecting premises commonly known as Route 28, in Town of Oneonta, New York.
TABLE OF CONTENTS
1 -- Demised Premises and Lease Term
2 -- Rent
3 -- No Counterclaim or Abatement
4 -- Use of Demised Premises
5 -- Condition of Demised Premises
6 -- Lessor's Site Work
7 -- Construction of Bank Building
8 -- Remodeling and Expansion Rights
9 -- Maintenance and Repair
10 -- Common Area Maintenance
11 -- Alterations and Additions
12 -- Compliance With Requirements
13 -- Liens
14 -- Permitted Contests
15 -- Utility Services
16 -- Insurance
17 -- Indemnification By Lessee
18 -- Damage or Destruction
19 -- Taking of the Demised Premises
20 -- Quiet Enjoyment
21 -- Right to Cure Lessee's Default
22 -- Events of Default and Termination
23 -- Repossession
24 -- Re-letting
25 -- Mitigation of Damages
26 -- Assignment of Subrents
27 -- Lessee's Equipment
28 -- Security Deposit
29 -- Survival of Obligations; Damages
30 -- Injunction
31 -- Waivers
32 -- Lessor's Remedies Cumulative
33 -- Estoppel Certificates
34 -- Assignment and Subletting
35 -- Subordination and Attornment
36 -- Entry by Lessor
37 -- Conveyance by Lessor
38 -- No Merger of Title
39 -- Acceptance of Surrender
TABLE OF CONTENTS - continued
40 -- End of Lease Term
41 -- No Renewal
42 -- Liability Only for Negligence
43 -- Brokerage
44 -- Mediation
45 -- Arbitration
46 -- Definitions
47 -- Notices
48 -- Miscellaneous
49 -- Environmental Responsibility
50 -- Conduct of Business
51 -- Contingencies
52 -- Restrictive Covenant
Exhibit A -- Description of Land/Site Plan
Exhibit B -- Permitted Encumbrances
Exhibit C -- Lessor's Site Work
Exhibit D -- The Bank Building
Exhibit E -- Agreements and Restrictions
LEASE
LEASE, dated September 17, 1997, between Bettiol Enterprises Ltd, Inc., a
New York corporation, having an address at Route 23 Southside, Oneonta, NY
13820-0848 ("Lessor"), and NBT Bank, N.A., a national banking association,
having an address at 52 South Broad St, Norwich, New York 13815 ("Lessee").
1. THE DEMISED PREMISES AND LEASE TERM
In consideration of the Rent hereinafter reserved and the terms, covenants
and conditions set forth in this Lease to be observed and performed by Lessee,
Lessor hereby demises and leases to Lessee, and Lessee hereby rents and takes
from Lessor, the following property (collectively hereinafter referred to as the
"Demised Premises"): (a) all the land (the "Land") outlined in Exhibit A hereto
attached, being a portion of the Lessor's existing Shopping Center and proposed
expansion, all as set forth within Exhibit B hereto and (b) all rights of way or
of use, easements, access to public highways, servitudes, licenses, tenements,
appurtenances and easements now or hereafter belonging or pertaining to the Land
(Exhibit B); and the Demised Premises. TO HAVE AND TO HOLD the Demised Premises
unto Lessee, and the permitted successors and assigns of Lessee, upon and
subject to all of the terms, covenants and conditions herein contained.
1.1 TERM:
The term of this Lease shall commence on the 17th day of September, 1997,
and expire on the 17th day of September, 2002, unless the Lease Term shall
sooner terminate pursuant to any of the conditional limitations or other
provisions of this Lease.
1.2 OPTION TO RENEW:
In the event Lessee has well and truly complied with each and every term,
condition and covenant of this Lease, the Lessor grants to the Lessee the right
to renew the term of this Lease for seven (7) additional terms of five (5)
years. The Lessee shall give the Lessor not less than six months written notice
of its election to exercise each option to renew.
2. RENT
Lessee covenants to pay to Lessor as a net minimum rent (the "Fixed Rent")
during the Lease Term $30,000.00 per annum for the first five years through
September 17, 2002; $35,250.00 per annum for the next five years through
September 17, 2007; $42,300.00 per annum for the next five years through
September 17, 2012; and $51,800.00 per annum for the next five years through
September 17, 2017; and $62,200.00 per annum for the next five years through
September 17, 2022; and $74,600.00 per annum for the next five years through
September 17, 2027; and $89,500.00 per annum for the next five years through
September 17, 2032 and $107,400.00 for the last five years for the remainder of
the Lease Term through September 17, 2037.
The Fixed Rent shall be payable in advance in equal annual installments at
the beginning of each year during the Lease Term. Each date on which Fixed Rent
is payable hereunder is hereinafter referred to as a "Rent Payment Date".
Lessee also covenants to pay, from time to time as provided in this Lease,
as Additional Rent: all other amounts and obligations which Lessee assumes or
agrees to pay under this Lease; a late payment charge equal to 3% percent of the
amount of any installment of Fixed Rent not paid within ten days after the date
when due. If Lessee fails to pay any such Additional Rent, Lessor shall have all
the rights, powers and remedies provided for in this Lease or at law or in
equity or otherwise in the case of nonpayment of rent.
All Fixed Rent and Additional Rent (collectively hereinafter referred to as
"Rent") shall be paid in such coin or currency (or, subject to collection, by
good check payable in such coin or currency) of the United States of America as
at the time shall be legal tender for the payment of public and private debts,
at the office of Lessor as set forth above, or at such place and to such person
as Lessor from time to time may designate.
All Rent shall be absolutely net to Lessor so that this Lease shall yield
to Lessor the full amount of the installments thereof throughout the Lease Term
and except as otherwise provided herein. All Rent shall be paid to Lessor
without notice, demand, counterclaim, setoff, deduction or defense, and nothing
shall suspend, defer, diminish, abate or reduce any Rent, except as otherwise
specifically provided in this Lease.
The fixed rent shall commence on the date that is six months subsequent to
Lessor's and Lessee's execution of this Lease or the date that the Lessee opens
its doors for regular business, whichever date is sooner. If such date shall be
a day other than the first day of the month, then a period equal to the number
of days between the commencement date and the first day of the month next
following shall be added to the base term of the Lease.
3. NO COUNTERCLAIM OR ABATEMENT
The obligations and liabilities of Lessee hereunder in no way shall be
released, discharged or otherwise affected (except as expressly provided herein)
by reason of: any damage to or destruction of or any Taking of the Demised
Premises or any part thereof; any substantial restriction or prevention of the
use use of the Demised Premises or any part thereof; any title defect or
encumbrance or any eviction from the Demised Premises or any part thereof by
title paramount or otherwise; any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceeding
relating to Lessor, or any action taken with respect to this Lease by any
trustee or receiver of Lessor, or by any court, in any such proceeding; any
claim which Lessee has or might have against Lessor; whether similar or
dissimilar to the foregoing, whether or not Lessee shall have notice or
knowledge of any of the foregoing. Except as expressly provided herein, Lessee
waives all rights now or hereafter conferred by statute or otherwise to quit,
terminate or surrender this Lease or the Demised Premises or any part thereof,
or to receive any abatement, suspension, deferment, diminution or reduction of
any Rent payable by Lessee hereunder.
4. USE OF DEMISED PREMISES
4.1 USE:
(a) PERMITTED USES. Lessee may use the demised premises for any lawful use,
except Lessee shall not use the Demised Premises for any use or purpose
expressly prohibited by the provisions of this Lease.
(b) PROHIBITED USES. Lessor and Lessee each agrees that no part or parts of
the Demised Premises shall be used at any time for manufacturing industrial
purposes or for any purpose which is noxious or unreasonably offensive because
of the emission of noise, dust or odors or for any purpose which is offensive or
illegal, and Lessor and Lessee agree not to permit any act or thing to be done
within the Demised Premises which shall constitute a nuisance. Lessee further
agrees that it will not sub-lease, use or permit to be used, any portion of the
Demised Premises for the operation of a movie theater, bowling alley or drive-up
photography kiosk nor will it lease, use or permit the Demised Premises to be
used for purposes of gambling or for the sale, distribution or display of (i)
any drug paraphernalia commonly used in the use or ingestion of illicit drugs,
or (ii) any x-rated, pornographic, lewd or so-called "adult" newspaper, book,
magazine, film, picture, video tape, video disc or other similar representation
or merchandise of any kind, or for any use which requires overnight parking and
(iii) it will not use or permit to be used the Demised Premises or any part
thereof for a so-called "penny arcade", "video game room", or "amusement center"
featuring electronic video games, pinball machines, slot machines or other
similar coin-operated devices.
Lessee covenants and agrees that Lessee will not directly or indirectly use
or permit the Demised Premises for any of the additional following purposes:
(a) the operation of a supermarket, warehouse supermarket or combination
store;
(b) for the sale (for consumption away from the premises on which they are
sold) of groceries, fresh vegetables, fresh fruits, dairy products, frozen
foods, fish, fowl or meat, or for the sale of any combination of the foregoing;
(c) as a food store, grocery store or convenience store;
(d) the operation or a bakery or delicatessen; or
(e) any combination of the foregoing.
The Lessee covenants and agrees that it will not directly or indirectly
lease, use or permit the Demised Premises or any part thereof to be used for the
operation of a drug store, a pharmacy or a store primarily engaged in the sale
of health and beauty aids. For the purposes hereof, a "pharmacy" shall mean any
store or department or counter within a store, which sells prescription
medicines or drugs or any items requiring the presence of a registered
pharmacist.
The Lessee further agrees that it will not directly or indirectly lease,
use or permit the Demised Premises or any part thereof to be used for any
business purpose which would be in competition with any of the stores then
existing in the Shopping Center at the time of the proposed use.
Lessee shall not do or permit any act or thing which is contrary to any
Legal Requirements or Insurance Requirements, or which might impair the value or
usefulness of the Demised Premises or any part thereof. Lessee shall not use, or
allow the Demised Premises or any part thereof or any Improvements now or
hereafter erected thereon or any appurtenances thereto to be used or occupied,
for any unlawful purpose or in violation of any certificate of occupancy, and
shall not suffer any act to be done or any condition to exist within the Demised
Premises or any part thereof, or in any Improvements now or hereafter erected
thereon, or on any appurtenance to the Demised Premises, or permit any article
to be brought therein, which may be dangerous, unless safeguarded as required by
law, or which may constitute a nuisance, public or private, or which may make
void or voidable any insurance in force with respect thereto.
Lessee shall not do or suffer any waste, damage, disfigurement or injury to
the Demised Premises.
Lessee shall not permit the spilling, discharge release, deposit or
placement on the Demised Premises or any part thereof, whether in containers or
other impoundments, of any substance which is a hazardous or toxic substance
within the meaning of any applicable environmental law.
4.2 AUTOMATED TELLER MACHINE:
Lessee may install, maintain, and operate one or more automated teller
machines (each, an "ATM" and collectively, "ATMs"), together with related
equipment, accessories, and identifying signage (the "ATM Equipment") in the
location or locations within the Premises shown on Exhibit A, subject to all of
the terms, conditions, and provisions of this Clause:
(a) PERMITS AND APPROVALS. Lessee shall obtain all necessary federal,
state, or local permits, licenses, and approvals and pay all costs connected
therewith;
(b) COMPLIANCE WITH LAWS. Lessee shall comply with all Laws applicable to
the installation, use, and operation of the ATM and ATM Equipment, including,
without limitation, any provisions of the Americans with Disabilities Act of
1990;
(c) INDEMNIFICATION OF LESSOR. Lessee shall protect, defend, indemnify and
hold harmless Lessor, its heirs, successors and assigns from any and all claims,
demands, causes of action, judgment, costs, expenses, liabilities and damages
(including consequential and punitive damages) arising from the installation,
operation or use of the ATM or ATM Equipment or relating to any act or
occurrence happening in or about the ATM, however the same may be caused,
including without limitation, if caused in whole or in part by the act, omission
or active or passive negligence of Lessor or by criminal activity of any kind;
(d) NO LESSOR RESPONSIBILITY. Lessor shall have no responsibility for the
ATM or ATM Equipment and shall not be liable for any damage or disruption to
same however caused, including without limitation, due to a disruption in
electrical or telecommunication service.
5. CONDITION OF DEMISED PREMISES
Lessee represents that Lessee has examined and is fully familiar with the
physical condition of the Demised Premises. Lessee accepts the same in an "as
is" condition, without recourse to Lessor, in the condition and state in which
they now are, except for the work to be done by Lessor pursuant to the Exhibit C
hereto, and agrees that the Demised Premises complies in all respects with all
requirements of this Lease. Lessor makes no representation or warranty, express
or implied in fact or by law of its fitness or availability for any particular
use, or the income from or expenses of operation of the Demised Premises. Lessor
shall not be liable for any latent or patent defect therein. Lessor acknowledges
that the Demised Premises need some fill and grading in order to comply with the
site plan and the Town of Oneonta approval, and Lessor agrees to fill and grade
the Demised Premises in accordance with the requirements of the Town of Oneonta
in obtaining approval of the Lessor's Final Site Plan of the Demised Premises
and the Shopping Center.
6. LESSOR'S SITE WORK
(a) Description of Site Work: Lessor agrees to complete the following site
work (the "Lessor's Site Work") at its own cost and expense:
1. Lessor, at its sole cost and expense, shall fill and grade the Demised
Premises in accordance with the requirements of the Town of Oneonta, and shall
obtain approval from the Town of Oneonta for the Final Site Plan of the Demised
Premises and the Shopping Center.
2. Lessor warrants and represents that the Demised Premises have direct
access to electric, natural gas, telephone and sewer lines. Lessor shall bring
the electric, natural gas telephone and sewer lines to within five (5) feet of
the Demised Premises.
3. Lessor shall construct at its own cost and expense the Access Road Area,
drives and curbing within the Access Road Area, and curb cuts to Lessor's
existing Shopping Center. In addition the Lessor will designate twelve (12)
additional employee parking spaces upon Lessor's Common Area, prior to the
commencement date of this Lease.
4. Lessor shall perform the Lessor's Site Work in a good and workmanlike
manner, at its own cost and expense in accordance with all applicable building
codes, laws, ordinances, regulations and other requirements of the governmental
authorities having jurisdiction.
5. Lessor shall grant Lessee any easements necessary to connect its Bank
Building to said utilities.
7. CONSTRUCTION OF BANK BUILDING
Promptly after the execution of the Lease and subject to the contingencies
within this Article 7, Lessee shall construct, develop and complete on the
Demised Premises a new building (the "Bank Building") as provided in Exhibit D,
the height of which shall not exceed fifteen (15) feet, including the parking
lot, paving, parking lot lighting and landscaping on the Demised Premises. The
Bank Building shall be constructed in accordance with plans and specifications
furnished to Lessor and shall be completed within one year from the date of the
execution of this lease, in accordance with Exhibit D and the plans and
specifications, provided that if any requirements of Lessor shall conflict with
requirements of governmental authorities having jurisdiction, the requirements
of such governmental authorities shall take precedence over the requirements of
Lessor. Such construction shall be effected with due diligence and in a good and
workmanlike manner and in compliance with all Legal Requirements and Insurance
Requirements, and shall be under the supervision of an architect and engineer.
Lessee shall obtain at its own expense, all permits, licenses, the final
certificate of occupancy and any other approvals required for the lawful use and
occupancy of the Demised Premises and the construction of the Improvements
thereon.
Subject to the provisions of Article 18, that shall prevail in the event of
damage or destruction of the Demised Premises, title to the Bank Building and to
all additions, repairs and replacements to any improvements shall be and remain
in Lessee during the Lease Term, provided that the terms of this Lease shall
govern the use and operation of the improvements, including the Bank Building,
and the exercise of Lessee's rights with respect thereto, and provided further
that upon the expiration or termination of the Lease Term, title to and
ownership of the Improvements, including the Bank Building, shall automatically
vest in Lessor free and clear of all liens, claims and encumbrances, without the
execution of any further instrument and without any payment therefor by Lessor.
In such event, Lessee shall execute any further assurances of title and
ownership to the Improvements, including the Bank Building, as Lessor may
request.
(a) TESTING. Upon execution of this lease, Lessee and its agents, servants
and authorized independent contractors shall be entitled to enter upon the
Lessor's Property and the Demised Premises for purposes of making a physical
inspection of the Lessor's Property and the Demised Premises and making
