FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
-------------------------
FORM F-2
ANNUAL REPORT
Under Section 13 of the Securities Exchange Act of 1934
For the Fiscal Year Ended September 30, 1996
FDIC INSURANCE CERTIFICATE NO. 26481
FALMOUTH CO-OPERATIVE BANK
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3337685
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
20 DAVIS STRAITS, FALMOUTH, MASSACHUSETTS 02540
(Address of principal office)
(5O8) 548-3500
(Telephone)
Securities registered pursuant to section 12(b) of the Act:
COMMON STOCK, PAR VALUE $0.10 PER SHARE
(Title of class)
Name of Exchange on which registered:
AMERICAN STOCK EXCHANGE
Indicate by check mark if the Bank, as a "small business issuer" as
defined under 17 CFR 240.12b-2, is providing alternative disclosures as
permitted for small business issuers in this Form F-2
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 10 is not contained herein, and will not be contained, to the best of the
Bank's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form F-2 or any amendment of this Form F-2
Yes [ ] No [ X ]
Indicate by check mark whether the Bank (1) has filed all reports
required to be filed by section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Bank was required
to file such reports),
Yes [ X ] No [ ]
and (2) has been subject to such filing requirements for the past 90 days,
Yes [ X ] No [ ]
As of December 26, 1996, the aggregate market value of the voting stock
held by nonaffiliates of the Registrant was approximately $16,284,975.
As of December 26, 1996, 1,454,750 shares of the Registrant's common
stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's 1996 Annual Report to Stockholders for the
fiscal year ended September 30, 1996 are incorporated by reference in Part II,
Items 5, 6, 7 and 8 and Part IV, Item 11 of this Form F-2. Portions of the
Registrant's Proxy Statement for the 1996 Annual Meeting of Stockholders for the
fiscal year ended September 30, 1996 are incorporated by reference in Part I,
Items 1, 2 and 4, and Part III, Items 9 and Item 10 of this Form F-2.
PART I
ITEM 1. BUSINESS
The following information included in the Falmouth Co-operative Bank
(the "Bank") Proxy Statement for the 1997 Annual Meeting of Stockholders (the
"Proxy Statement") is incorporated herein by reference: "Business of the Bank."
ITEM 2. PROPERTIES
The following information included in the Proxy Statement is
incorporated herein by reference: "Business of the Bank - Properties."
ITEM 3. LEGAL PROCEEDINGS
Although the Bank, from time to time, is involved in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which the Bank, its directors or its officers is a party or to
which any of its property is subject as of the date of this Form F-2 Annual
Report.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information included in the Proxy Statement is
incorporated herein by reference: "General Information - Security Ownership of
Certain Beneficial Owners" and "General Information - Stock Ownership of
Management."
PART II
ITEM 5. MARKET FOR THE BANK'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The following information included in the Falmouth Co-operative Bank
1996 Annual Report to Stockholders (the "Annual Report") is incorporated herein
by reference: "Market for the Bank's Common Stock."
ITEM 6. SELECTED FINANCIAL DATA
The following information included in the Annual Report is incorporated
herein by reference: "Financial Highlights."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information included in the Annual Report is incorporated
herein by reference: "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information included in the Annual Report is incorporated
herein by reference: Financial Statements and Notes thereto, pages 10 through
29.
PART III
ITEM 9. DIRECTORS AND PRINCIPAL OFFICERS OF THE BANK
(a) Directors of the Bank
The following information included in the Proxy Statement is
incorporated herein by reference: "Proposal 1 - Election of Directors."
(b) Principal Officers of the Bank
The following information included in the Proxy Statement is
incorporated herein by reference: "Management of Falmouth,"
ITEM 10. MANAGEMENT COMPENSATION AND TRANSACTIONS
The following information included in the Proxy Statement is
incorporated herein by reference: "Proposal 1 - Election of Directors -
Directors' Compensation, "Summary Compensation Table," " - Certain Employee
Benefit Plans and Employment Agreement" and "Transactions with Certain Related
Persons."
PART IV
ITEM 11. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM F-3
(a) (1) The following financial statements included in the Annual
Report are incorporated herein by reference:
Balance Sheets - At September 30, 1996 and 1995;
Statements of Income - Years Ended September 30, 1996, 1995 and
1994;
Statements of Changes in Stockholders' Equity - Years Ended
September 30, 1996, 1995 and 1994;
Statements of Cash Flows - Years Ended September 30, 1996, 1995
and 1994; and
Notes to Financial Statements - Years Ended September 30, 1996,
1995 and 1994
(2) All Financial Statement schedules are omitted because they are
not required or applicable or the required information is shown in
the financial statements or the notes thereto.
(b) Reports on Form F-3 filed during the last quarter of the period
covered by this report: None
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(c) Exhibits. The following exhibits are either filed as part of this
report or are incorporated herein by reference:
3.1 1997 Stock Option Plan for Outside Directors, Officers and
Employees of Falmouth Co-operative Bank.(1)
3.1 1997 Recognition and Retention Plan for Outside Directors,
Officers and Employees of Falmouth Co-operative Bank.(1)
3.3 Agreement and Plan of Reorganization by and among Falmouth
Cooperative Bank and Falmouth Bancorp, Inc.(1)
3.4 Employment Agreement by and between Falmouth Co-operative Bank
and Santo Pasqualucci.
3.5 Employment Agreement by and between Falmouth Co-operative Bank
and George Young.
3.6 Falmouth Co-operative Bank Employee Stock Ownership Plan,
effective as of March 28, 1996.
3.7 Falmouth Co-operative Bank Employee Stock Ownership Trust,
effective as of March 28, 1996.
6 Annual Report to Stockholders for the Year Ended September 30,
1996.
- ----------------
(1) Incorporated herein by reference to the Falmouth Co-operative Bank Proxy
Statement for the 1997 Annual Meeting of Stockholders.
This Annual Report on Form F-2 contains certain forward looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Bank that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include: changes in general, economic and market
conditions, or the development of an adverse interest rate environment that
adversely affects the interest rate spread or other income anticipated from the
Bank's operations and investments.
4
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities and
Exchange Act of 1934, as amended, the Bank has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized
FALMOUTH CO-OPERATIVE BANK
By: /s/ Santo P. Pasqualucci
------------------------
Santo P. Pasqualucci
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Santo P., Pasqualucci
- ----------------------------- Director, President and December 30, 1996
Santo P. Pasqualucci Chief Executive Officer
(Principal executive officer)
/s/ George E. Young, III
- ------------------------------ Vice President and Treasurer December 30, 1996
George E. Young, III (Principal financial officer)
/s/ John W. Holland, Jr.
- ------------------------------ Director December 30, 1996
John W. Holland, Jr.
/s/ James A. Keefe
- ------------------------------ Director December 30, 1996
James A. Keefe
/s/ Gardner L. Lewis
- ------------------------------ Director December 30, 1996
Gardner L. Lewis
/s/ John J. Lynch, Jr.
- ------------------------------ Director December 30, 1996
John J. Lynch, Jr.
/s/ Ronald L. McLane
- ------------------------------- Director December 30, 1996
Ronald L. McLane
/s/ Eileen C. Miskell
- ------------------------------- Director December 30, 1996
Eileen C. Miskell
/s/ Robert H. Moore
- ------------------------------- Director December 30, 1996
Robert H. Moore
/s/ Walter A. Murphy
- ------------------------------- Director December 30, 1996
Walter A. Murphy
/s/ William E. Newton
- -------------------------------- Director December 30, 1996
William F. Newton
/s/ Armand Ortins
- ------------------------------- Director December 30, 1996
Armand Ortins
3.4 EMPLOYMENT AGREEMENT BY AND BETWEEN FALMOUTH CO-OPERATIVE BANK AND
SANTO PASQUALUCCI.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of March 27, 1996, by and between
FALMOUTH CO-OPERATIVE BANK (the "Bank"), and SANTO P. PASQUALUCCI (the
"Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive
for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Bank on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to
serve as President and Chief Executive Officer of the Bank. During said period,
Executive also agrees to serve, if elected, as a director of the Bank and/or as
an officer and director of any subsidiary or affiliate of the Bank.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of
the date first above written and shall continue for a period of forty-eight (48)
full calendar months thereafter. Commencing on the first anniversary date, and
continuing at each anniversary date thereafter, the Board of Directors of the
Bank (the "Board") may extend the Agreement for an additional year. Prior to the
extension of the Agreement as provided herein, the Board of Directors of the
Bank will conduct a formal performance evaluation of the Executive for purposes
of determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods
of absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Bank; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations which, in
such Board's judgment, will not present any conflict of interest with the Bank,
or materially affect the performance of Executive's duties pursuant
to this Agreement.
3.COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Sections 1 and 2. The
Bank shall pay Executive as compensation a salary of $115,000 per year ("Base
Salary"). Such Base Salary shall be payable weekly. During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by a Committee designated by the
Board. Executive's salary may be increased annually as of the first payroll
period ending in each year during the term of this Agreement by such
additional amount as may be determined by the Board. The salary of the Employee
shall not be decreased at any time during the term of this Agreement from the
amount then in effect, unless the Employee otherwise agrees in writing. The
Employee shall not be entitled to receive fees for serving as a director of the
Bank or any subsidiary of the Bank, or for serving as a member of any committee
of the Board of Directors of the Bank or of any subsidiary of the Bank. In
addition to the Base Salary provided in this Section 3(a), Executive shall be
entitled to participate in an equitable manner with all other executive
officers in discretionary bonuses as may be authorized, declared and paid by the
Board to executive officers during the term of this Agreement. The Bank shall
also provide Executive at no cost to Executive with all such other benefits as
are provided uniformly to permanent full-time employees of the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any material changes in such plans,
arrangements or perquisites which would adversely affect Executive's rights or
benefits thereunder. Without limiting the generality of the foregoing provisions
of this Subsection (b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans including, but not limited to,
retirement plans, supplemental retirement plans, pension plans, profit-sharing
plans, health and accident plan, medical coverage or any other employee benefit
plan or arrangement made available by the Bank in the future to its senior
executives and key management employees, subject to, and on a basis consistent
with, the terms, conditions and overall administration of such plans and
arrangements. Executive will be entitled to incentive compensation and bonuses
as provided in any plan, or pursuant to any arrangement of the Bank, in which
Executive is eligible to participate. Nothing paid to the Executive under any
such plan or arrangement will be deemed to be in lieu of other compensation to
which the Executive is entitled under this Agreement, except as provided under
Section 5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3, the Bank shall pay or reimburse Executive for all reasonable
travel and other obligations under this Agreement and may provide such
additional compensation in such form and such
2
amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank of Executive's full-time employment hereunder for any
reason other than a Change in Control, as defined in Section 5(a) hereof;
disability, as defined in Section 6(a) hereof; death; retirement, as defined in
Section 7 hereof; or for Cause, as defined in Section 8 hereof; (ii) Executive's
resignation from the Bank's employ, upon (A) unless consented to by the
Executive, a material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Sections 1 and 2, above (any such material change shall be
deemed a continuing breach of this Agreement), (B) a relocation of Executive's
principal place of employment by more than 35 miles from its location at the
effective date of this Agreement, or a material reduction in the benefits and
perquisites to the Executive from those being provided as of the effective date
of this Agreement, (C) the liquidation or dissolution of the Bank, or (D) any
breach of this Agreement by the Bank. Upon the occurrence of any event described
in clauses (A), (B), (C), or (D), above, Executive shall have the right to elect
to terminate his employment under this Agreement by resignation upon not less
than sixty (60) days prior written notice given within a reasonable period of
time not to exceed, except in case of a continuing breach, four calendar months
after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the Bank shall pay
Executive or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to the Executive for the
remaining term of the Agreement, including Base Salary, bonuses, and any other
cash or deferred compensation paid or to be paid (including the value of
employer contributions that would have been made on the Executive's behalf over
the remaining term of the agreement to any tax-qualified retirement plan
sponsored by the Bank as of the Date of Termination), to the Executive for the
term of the Agreement provided, however, that if the Bank is not in compliance
with its minimum capital requirements or if such payments would cause the Bank's
capital to be reduced below its, minimum capital requirements, such payments
shall be deferred until such time as the Bank is in capital compliance. All
payments made pursuant to this Section 4(b) shall be paid in substantially equal
monthly installments over the remaining term of this Agreement following the
Executive's termination; provided, however, that if the remaining term of the
Agreement is less than one (1) year (determined as of the Executive's Date of
Termination), such payments and benefits shall be paid to the Executive in a
lump sum within 30 days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the Bank will cause
to be continued life, medical, dental and disability coverage substantially
identical to the coverage
3
maintained by the Bank for Executive prior to his termination. Such coverage
shall cease upon the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall
have occurred a Change in Control of the Bank, as set forth below. For purposes
of this Agreement, a "Change in Control" of the Bank shall mean an event of a
nature that: (i) it would be required to be reported in response to Item 1(a) of
the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) it results in a Change in Control of the Bank within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Agency ("FDIC") or the Massachusetts Division of
Banks, as in effect on the date hereof (provided that in-applying the definition
of change in control as set forth in the rules and regulations of the FDIC, the
Board of the Bank shall substitute its judgment for that of the FDIC); or (iii)
without limitation, such a Change in Control shall be deemed to have occurred at
such time as (a) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the Bank
representing 20% or more of the Bank's outstanding securities except for any
securities purchased by the Bank's employee stock ownership plan and trust; or
(b) individuals who constitute the Board of the Bank on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Bank's stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (b), considered
as though he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or similar transaction in which the Bank is not the resulting
entity occurs. Notwithstanding the foregoing, a "Change of Control" shall not
include the formation by the Bank of a holding company at any time subsequent to
the effective date of this Agreement.
(b) If any of the events described in Section 5(a) hereof constituting
a Change in Control have occurred or the Board of the Bank has determined that a
Change in Control has occurred, Executive shall be entitled to the benefits
provided in paragraphs (c), (d) and (e) of this Section 5 upon his subsequent
termination of employment at any time during the term of this Agreement
(regardless of whether such termination results from his dismissal or his
resignation at any time during the term of this Agreement), unless such
termination is because of his death, retirement as provided in Section 7,
termination for Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank shall pay Executive, or in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, as severance pay or liquidated damages, or both, a sum equal
to 2.99 times the Executive's "base amount," within
4
the meaning of ss.280G(b)(3) of the Internal Revenue Code of 1986. Such payment
shall be made in a lump sum paid within ten (10) days of the Executive's Date of
Termination.
(d) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank will cause to be continued life,
medical, dental and disability coverage substantially identical to the coverage
maintained by the Bank for Executive prior to his severance. In addition,
Executive shall be entitled to receive the value of employer contributions that
would have been made on the Executive's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the Bank as of the
Date of Termination. Such coverage and payments shall cease upon the expiration
of forty-eight (48) months.
(e) Upon the occurrence of a Change in Control, the Executive shall be
entitled to receive benefits due him under, or contributed by the Bank on his
behalf, pursuant to any retirement, incentive, profit sharing, bonus,
performance, disability or other employee benefit plan maintained by the Bank on
the Executive's behalf to the extent that such benefits are not otherwise paid
to the Executive upon a Change in Control.
6. TERMINATION FOR DISABILITY.
(a) If, as a result of Executive's incapacity due to physical or mental
illness, he shall have been absent from his duties with the Bank on a full-time
basis for six (6) consecutive months, and within thirty (30) days after written
notice of potential termination is given, he shall not have returned to the
full-time performance of his duties, the Bank may terminate Executive's
employment for "Disability."
(b) The Bank will pay Executive, as disability pay, a payment equal to
three-quarters (3/4) of Executive's weekly rate of Base Salary on the effective
date of such termination. These disability payments shall commence on the
effective date of Executive's termination and will end on the earlier of (i) the
date Executive returns to the full-time employment of the Bank in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between Executive and the Bank; (ii) Executive's
full-time employment by another employer; (iii) Executive attaining the age of
65; (iv) Executive's death; or (v) the expiration of the term of this Agreement.
The disability pay shall be reduced by the amount, if any, paid to the Executive
under any plan of the Bank providing disability benefits to the Executive.
(c) The Bank will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Bank for Executive prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date Executive returns to the
full-time employment of the Bank, in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between Executive and the Bank; (ii) Executive's full-time employment by another
employer; (iii) Executive's attaining the age of 65; (iv) the Executive's death;
or (v) the expiration of the
5
term of this Agreement
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF THE EXECUTIVE.
Termination by the Bank of the Executive based on "Retirement" shall
mean retirement at age 65 or in accordance with any retirement arrangement
established with Executive's consent with respect to him. Upon termination of
Executive upon Retirement, Executive shall be entitled to all benefits under any
retirement plan of the Bank and other plans to which Executive is a party. Upon
the death of the Executive during the term of this Agreement, the Bank shall pay
to the Executive's estate the compensation due to the Executive through the last
day of the calendar month in which his death occurred.
8. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination upon
intentional failure to perform stated duties, personal dishonesty which results
in loss to the Bank or one of its affiliates, willful violation of any law,
rule, regulation (other than traffic violations or similar offenses), or final
cease and desist order concerning conduct which results in substantial loss to
the Bank or one of its affiliates, or any material breach of this Agreement. For
purposes of this Section, no act, or the failure to act, on Executive's part
shall be "willful" unless done, or omitted to be done, not in good faith and
without reasonable belief that the action or omission was in the best interest
of the Bank or its affiliates. Notwithstanding the foregoing, Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths of the members of the Board at a
meeting of the Board called and held for that purpose (after reasonable notice
to Executive and an opportunity for him, together with counsel, to be heard
before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying termination for Cause and specifying
the reasons thereof. The Executive shall not have the right to receive
compensation or other benefits for any period after termination for Cause. Any
stock options granted to Executive within the twelve months prior to termination
for Cause under any stock option plan or any unvested awards granted under any
other stock benefit plan of the Bank, shall become null and void effective upon
Executive's receipt of Notice of Termination for Cause pursuant to Section 9
hereof, and shall not be exercisable by Executive at any time subsequent to such
Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The Bank may terminate the Executive's employment at any time, but
any termination by the Bank, other than Termination for Cause, shall not
prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to
6
receive compensation or other benefits for any period after Termination for
Cause as defined in Section 8 herein.
(b) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may, in its
discretion, (i) pay the Executive all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in part)
any of its obligations that were suspended,
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the Bank under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement may be terminated: (i) by the
Commissioner of Banks (the "Commissioner") or his or her designee at the time
the Federal Deposit Insurance Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in Section
13(c) of the FDIA and (ii) by the Commissioner, or his or her designee at the
time the Director or such designee approves a supervisory merger to resolve
problems related to operation of the Bank or when the Bank is determined by the
Commissioner or the FDIC to be in an unsafe or unsound condition. Any rights of
the parties that have already vested, however, shall not be affected by such
action.
(f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. ss.1828
(k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
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(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) days period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the occurrence of
a Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence,
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
Executive his full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, Base Salary) and continue him
as a participant in all compensation, benefit and insurance plans in which he
was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
11. CONFIDENTIALITY.
Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank. In the
event of a breach or threatened breach by the Executive of the provisions of
this Section, the Bank will be entitled to an injunction restraining Executive
from disclosing, in whole or in part, the knowledge of the past, present,
planned or considered business activities of the Bank or affiliates thereof, or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Bank from
pursuing any other remedies available to the Bank for such breach or threatened
breach, including the recovery of damages from Executive.
8
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and, the Bank and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
9
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts, unless otherwise specified herein.
19. INDEMNIFICATION.
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been a director or officer of the
Bank (whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements.
20. SUCCESSORS TO THE BANK.
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
21. GENERAL PROVISIONS.
The parties hereto acknowledge that this Agreement was drafted by the
law firm of Thompson & Mitchell which at various times has served a special
counsel to the Bank. Executive acknowledges that he is sophisticated in business
matters (including, but not limited to, employment agreements) and that he has
had the opportunity to seek independent legal advice. Executive specifically
waives any actual or apparent conflict of interest of Thompson & Mitchell in
connection with the preparation and negotiation of this Agreement.
10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and their seal to be affixed hereunto by its duly authorized officers
and directors, and Executive has signed this Agreement, on the 27th day of
March, 1996.
ATTEST: FALMOUTH CO-OPERATIVE BANK
- ----------------------------- By: /s/ George E. Young, III
[SEAL] --------------------------------------
WITNESS:
/s/ John A. DeMello /s/ Santo P. Pasqualucci
- ------------------------------ --------------------------------------------
SANTO P. PASQUALUCCI
11
3.5 Employment Agreement by and between Falmouth Co-operative Bank
and George Young.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of March 27, 1996, by and between
FALMOUTH CO-OPERATIVE BANK (the "Bank"), and GEORGE E. YOUNG, III (the
"Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive
for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Bank
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to
serve as Treasurer of the Bank. During said period, Executive also agrees to
serve, if elected, as a director of the Bank and/or as an officer and director
of any subsidiary or affiliate of the Bank.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of
the date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the first anniversary date, and
continuing at each anniversary date thereafter, the Board of Directors of the
Bank (the "Board") may extend the Agreement for an additional year. Prior to the
extension of the Agreement as provided herein, the Board of Directors of the
Bank will conduct a formal performance evaluation of the Executive for purposes
of determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods
of absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Bank; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations which, in
such Board's judgment, will not present any conflict of interest with the Bank,
or materially affect the performance of Executive's duties pursuant to this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Sections I and 2. The
Bank shall pay Executive as compensation a salary of $57,000 per year ("Base
Salary"). Such Base Salary shall be payable weekly, During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by a Committee designated by the
Board. Executive's salary may be increased annually as of the first payroll
period ending in -- of each year during the term of this Agreement by such
additional amount as may be determined by the Board. The Employee shall not be
entitled to receive fees for serving as a director of the Bank or any subsidiary
of the Bank, or for serving as a member of any committee of the Board of
Directors of the Bank or of any subsidiary of the Bank. In addition to the Base
Salary provided in this Section 3(a), Executive shall be entitled to participate
in an equitable manner with all other executive officers in discretionary
bonuses as may be authorized, declared and paid by the Board to executive
officers during the term of this Agreement. The Bank shall also provide
Executive at no cost to Executive with all such other benefits as are provided
uniformly to permanent full-time employees of the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), Executive will be entitled to participate in or receive benefits
under any employee benefit plans including, but not limited to, retirement
plans, supplemental retirement plans, pension plans, profit-sharing plans,
health and accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the Bank in the future to its senior executives
and key management employees, subject to, and on a basis consistent with, the
terms, conditions and overall administration of such plans and arrangements.
Executive will be entitled to incentive compensation and bonuses as provided in
any plan, or pursuant to any arrangement of the Bank, in which Executive is
eligible to participate. Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement, except as provided under Section
5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3, the Bank shall pay or reimburse Executive for all reasonable
travel and other obligations under this Agreement and may provide such
additional compensation in such form and such amounts as the Board may from time
to time determine.
2
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (1) the
termination by the Bank of Executive's full-time employment hereunder for any
reason other than a Change in Control, as defined in Section 5(a) hereof;
disability, as defined in Section 6(a) hereof; death; retirement, as defined in
Section 7 hereof; or for Cause, as defined in Section 8 hereof, (ii) Executive's
resignation from the Bank's employ, upon (A) unless consented to by the
Executive, a material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Sections 1 and 2, above (any such material change shall be
deemed a continuing breach of this Agreement), (B) a relocation of Executive's
principal place of employment by more than 35 miles from its location at the
effective date of this Agreement, or a material reduction in the benefits and
perquisites to the Executive from those being provided as of the effective date
of this Agreement, (C) the liquidation or dissolution of the Bank, or (D) any
breach of this Agreement by the Bank. Upon the occurrence of any event described
in clauses (A), (B), (C), or (D), above, Executive shall have the right to elect
to terminate his employment under this Agreement by resignation upon not less
than sixty (60) days prior written notice given within a reasonable period of
time not to exceed, except in case of a continuing breach, four calendar months
after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the Bank shall pay
Executive or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to the Executive for the
remaining term of the Agreement, including Base Salary, bonuses, and any other
cash or deferred compensation paid or to be paid (including the value of
employer contributions that would have been made on the Executive's behalf over
the remaining term of the agreement to any tax-qualified retirement plan
sponsored by the Bank as of the Date of Termination), to the Executive for the
term of the Agreement provided, however, that if the Bank is not in compliance
with its minimum capital requirements or if such payments would cause the Bank's
capital to be reduced below its minimum capital requirements, such payments
shall be deferred until such time as the Bank is in capital compliance. All
payments made pursuant to this Section 4(b) shall be paid in substantially equal
monthly installments over the remaining term of this Agreement following the
Executive's termination; provided, however, that if the remaining term of the
Agreement is less than one (1) year (determined as of the Executive's Date of
Termination), such payments and benefits shall be paid to the Executive in a
lump sum within 30 days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the Bank will cause
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank for Executive prior to his
termination. Such coverage shall cease upon the expiration of the remaining term
of this Agreement.
3
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall
have occurred a Change in Control of the Bank, as set forth below. For purposes
of this Agreement, a "Change in Control" of the Bank shall mean an event of a
nature that: (i) it would be required to be reported in response to Item 1(a) of
the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) it results in a Change in Control of the Bank within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Agency ("FDIC") or the Massachusetts Division of
Banks, as in effect on the date hereof (provided that in applying the definition
of change in control as set forth in the rules and regulations of the FDIC, the
Board of the Bank shall substitute its judgment for that of the FDIC); or (iii)
without limitation, such a Change in Control shall be deemed to have occurred at
such time as (a) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the Bank
representing 20% or more of the Bank's outstanding securities except for any
securities purchased by the Bank's employee stock ownership plan and trust; or
(b) individuals who constitute the Board of the Bank on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Bank's stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (b), considered
as though he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or similar transaction in which the Bank is not the resulting
entity occurs. Notwithstanding the foregoing, a "Change of Control" shall not
include the formation by the Bank of a holding company at any time subsequent to
the effective date of this Agreement.
(b) If any of the events described in Section 5(a) hereof constituting
a Change in Control have occurred or the Board of the Bank has determined that a
Change in Control has occurred, Executive shall be entitled to the benefits
provided in paragraphs (c), (d) and (e) of this Section 5 upon his subsequent
termination of employment at any time during the term of this Agreement
(regardless of whether such termination results from his dismissal or his
resignation at any time during the term of this Agreement), unless such
termination is because of his death, retirement as provided in Section 7,
termination for Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank shall pay Executive, or in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, as severance pay or liquidated damages, or both, a sum equal
to two times the Executive's "base amount," within the meaning of ss. 280G(b)(3)
of the Internal Revenue Code of 1986. Such payment shall be made in a lump sum
paid within ten (10) days of the Executive's Date of Termination.
4
(d) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank will cause to be continued life,
medical, dental and disability coverage Substantially identical to the coverage
maintained by the Bank for Executive prior to his severance. In addition,
Executive shall be entitled to receive the value of employer contributions that
would have been made on the Executive's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the Bank as of the
Date of Termination. Such coverage and payments shall cease upon the expiration
of twenty-four (24) months.
(e) Upon the occurrence of a Change in Control, the Executive shall be
entitled to receive benefits due him under, or contributed by the Bank on his
behalf, pursuant to any retirement, incentive, profit sharing, bonus,
performance, disability or other employee benefit plan maintained by the Bank on
the Executive's behalf to the extent that such benefits are not other-wise paid
to the Executive upon a Change in Control.
6. TERMINATION FOR DISABILITY.
(a) If, as a result of Executive's incapacity due to physical or mental
illness, he shall have been absent from his duties with the Bank on a full-time
basis for six (6) consecutive months, and within thirty (30) days after written
notice of potential termination is given, he shall not have returned to the
full-time performance of his duties, the Bank may terminate Executive's
employment for "Disability."
(b) The Bank will pay Executive, as disability pay, a payment equal to
three-quarters (3/4) of Executive's weekly rate of Base Salary on the effective
date of such termination. These disability payments shall commence on the
effective date of Executive's termination and will end on the earlier of (i) the
date Executive returns to the full-time employment of the Bank in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between Executive and the Bank; (ii) Executive's
full-time employment by another employer; (iii) Executive attaining the age of
65; (iv) Executive's death; or (v) the expiration of the term of this Agreement.
The disability pay shall be reduced by the amount, if any, paid to the Executive
under any plan of the Bank providing disability benefits to the Executive.
(c) The Bank will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Bank for Executive prior to HIS TERMINATION for Disability. This coverage and
payments shall cease upon the earlier of (1) the date Executive returns to the
full-time employment of the Bank, in the same capacity as he was employed prior
to his termination for Disability and pursuant to all employment agreement
between Executive and the Bank; (ii) Executive's full-time employment by another
employer; (In) Executive's attaining the age of 65; (iv) the Executive's death;
or (v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
5
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF THE EXECUTIVE.
Termination by the Bank of the Executive based on "Retirement" shall
mean retirement at age 65 or in accordance with any retirement arrangement
established with Executive's consent with respect to him. Upon termination of
Executive upon Retirement, Executive shall be entitled to all benefits under any
retirement plan of the Bank and other plans to which Executive is a party. Upon
the death of the Executive during the term of this Agreement, the Bank shall pay
to the Executive's estate the compensation due to the Executive through the last
day of the calendar month in which his death occurred.
8. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination upon
intentional failure to perform stated duties, personal dishonesty which results
in loss to the Bank or one of its affiliates, willful violation of any law,
rule, regulation (other than traffic violations or similar offenses), or final
cease and desist order concerning conduct which results in substantial loss to
the Bank or one of its affiliates, or any material breach of this Agreement. For
purposes of this Section, no act, or the failure to act, on Executive's part
shall be "willful" unless done, or omitted to be done, not in good faith and
without reasonable belief that the action or omission was in the best interest
of the Bank or its affiliates. Notwithstanding the foregoing, Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths of the members of the Board at a
meeting of the Board called and held for that purpose (after reasonable notice
to Executive and an opportunity for him, together with counsel, to be heard
before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying termination for Cause and specifying
the reasons thereof. The Executive shall not have the right to receive
compensation or other benefits for any period after termination for Cause. Any
stock options granted to Executive within the twelve months prior to termination
for Cause under any stock option plan or any unvested awards granted under any
other stock benefit plan of the Bank, shall become null and void effective upon
Executive's receipt of Notice of Termination for Cause pursuant to Section 9
hereof, and shall not be exercisable by Executive at any time subsequent to such
Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The Bank may terminate the Executive's employment at any time, but
any termination by the Bank, other than Termination for Cause, shall not
prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as defined in Section 8
herein.
6
(b) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may, in its
discretion, (i) pay the Executive all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in part)
any of its obligations that were suspended,
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the Bank under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement may be terminated: (1) by the
Commissioner of Banks (the "Commissioner") or his or her designee at the time
the Federal Deposit Insurance Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in Section
13(c) of the FDIA and (ii) by the Commissioner, or his or her designee at the
time the Director or such designee approves a supervisory merger to resolve
problems related to operation of the Bank or when the Bank is determined by the
Commissioner or the FDIC to be in an unsafe or unsound condition. Any rights of
the parties that have already vested, however, shall not be affected by such
action.
(f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. ss.1828
(k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty
7
(30) days period), and (B) If his employment is terminated for any other reason,
the date specified in the Notice of Termination (which, in the case of a
Termination for Cause, shall not be less than thirty (30) days from the date
such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, tile party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the Occurrence of
a Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent Jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
Executive his full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, Base Salary) and continue him
as a participant in all compensation, benefit and insurance plans in which he
was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
11. CONFIDENTIALITY.
Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank. In tile
event of a breach or threatened breach by the Executive of the provisions of
this Section, the Bank will be entitled to an injunction restraining Executive
from disclosing, in whole or in part, the knowledge of the past, present,
planned or considered business activities of the Bank or affiliates thereof, or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Bank from
pursuing any other remedies available to tile Bank for such breach or threatened
breach, including the recovery of damages from Executive.
8
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and, tile Bank and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
9
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts, unless otherwise specified herein.
19. INDEMNIFICATION.
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been a director or officer of the
Bank (whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements.
20. SUCCESSORS TO THE BANK.
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Batik's obligations under
this Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
21. GENERAL PROVISIONS.
The parties hereto acknowledge that this Agreement was drafted by the
law firm of Thompson & Mitchell which at various times has served a special
counsel to the Bank. Executive acknowledges that he is sophisticated in business
matters (including, but not limited to, employment agreements) and that he has
had the opportunity to seek independent legal advice. Executive specifically
waives any actual or apparent conflict of interest of Thompson & Mitchell in
connection with the preparation and negotiation of this Agreement.
10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and their seal to be affixed hereunto by its duly authorized officers
and directors, and Executive has signed this Agreement, on the 27th day of
March, 1996.
ATTEST: FALMOUTH CO-OPERATIVE BANK
- --------------------------- By: /s/ Santo P. Pasqualucci
[SEAL] ------------------------------------
WITNESS:
/s/ George E. Young, III
- --------------------------- ----------------------------------------
GEORGE E. YOUNG, III
11
3.6 Falmouth Co-operative Bank Employee Stock Ownership Plan, effective as
of March 28, 1996.
FALMOUTH CO-OPERATIVE BANK
EMPLOYEE STOCK OWNERSHIP PLAN
3/96
TABLE OF CONTENTS
ARTICLE 1................................................................... 1
INTRODUCTION....................................................... 1
1.1 Plan; Purpose ............................................. 1
1.2 Qualified Profit Sharing Plan; ESOP ....................... 1
1.3 Effective Date ............................................ 1
1.4 Administrator; Trustee..................................... 1
1.5 Adopting Employers......................................... 1
1.6 Appendices ................................................ 2
ARTICLE 2 .................................................................. 2
DEFINITIONS AND CONSTRUCTION....................................... 2
2.1 Definitions ............................................... 2
2.2 Gender and Number ......................................... 6
2.3 Headings .................................................. 6
ARTICLE 3 .................................................................. 6
ELIGIBILITY AND PARTICIPATION ..................................... 6
3.1 Eligibility .............................................. 7
3.2 Participation ............................................ 7
3.3 Duration of Participation ................................ 7
3.4 Transfer ................................................. 7
ARTICLE 4 .................................................................. 8
PARTICIPANT CONTRIBUTIONS.......................................... 8
ARTICLE 5 .................................................................. 8
EMPLOYER CONTRIBUTIONS ............................................ 8
5.1 Employer Contributions.................................... 8
5.2 Statutory Limit on Contributions.......................... 8
5.3 Top-Heavy Minimum Benefit................................. 9
5.4 Allocation Among Employers................................ 9
5.5 Transfer to Trust......................................... 9
ARTICLE 6 .................................................................. 10
PLAN ACCOUNTING ................................................... 10
6.1 Participant Plan Accounts ................................. 10
6.2 Balance of Accounts ....................................... 10
6.3 Adjustments to Reflect Distributions ...................... 10
6.4 Adjustment to Reflect Top-Heavy Contributions.............. 10
6.5 Adjustment to Reflect Employer Contribution................ 11
6.6 Adjustments to Reflect Trust Fund Experience............... 11
i
6.7 Adjustments to Reflect Dividends .......................... 11
6.8 Maximum Allocations ....................................... 12
ARTICLE 7 .................................................................. 12
TRUST INVESTMENT FUNDS ............................................ 12
7.1 Trust Investment Funds ..................................... 12
7.2 Investment of Employer Contribution ........................ 13
7.3 Investment of Cash Dividends ............................... 13
7.4 Appointment of Trustee ..................................... 13
ARTICLE 8 .................................................................. 14
TRUST SUSPENSE FUNDS .............................................. 14
8.1 Suspense Funds ............................................. 14
8.2 Release from Suspense Funds ................................ 14
8.3 Allocation of Released Shares .............................. 15
8.4 Fair Market Value .......................................... 15
ARTICLE 9 .................................................................. 16
VESTING .......................................................... 16
ARTICLE 10 ................................................................. 16
INVESTMENT DIVERSIFICATION .........................................16
10.1 Eligibility ................................................. 16
10.2 Diversification ............................................. 16
10.3 Election Procedures ......................................... 17
10.4 Distribution of Company Stock ............................... 17
ARTICLE 11 ................................................................. 17
PAYMENT OF ACCOUNTS ............................................... 17
11.1 Benefit Payments - In General ............................... 17
11.2 Benefits Paid Upon Normal Retirement ........................ 17
11.3 Benefits Paid Upon Disability ............................... 18
11.4 Benefits Paid Upon Death .................................... 18
11.5 Benefits Paid Upon Termination .............................. 18
11.6 Method of Distribution ...................................... 18
11.7 Payment of Small Amounts .................................... 18
11.8 Medium of Payment ........................................... 19
11.9 Required Distributions ...................................... 19
11.10 Earnings on Plan Accounts .................................. 20
11.11 Life Expectancies .......................................... 20
ARTICLE 12 ................................................................. 20
BENEFICIARIES ..................................................... 20
12.1 Designated Beneficiaries .................................... 20
ii
12.2 Spousal Consent Requirements ................................ 21
12.3 Absence of Designated Beneficiary ........................... 21
ARTICLE 13 ................................................................. 21
PARTICIPANT LOANS ................................................. 21
ARTICLE 14 ................................................................. 21
RELATING TO COMPANY STOCK.......................................... 21
14.1 Investment in Company Stock; ESOP ........................... 21
14.2 Conversion to Cash .......................................... 22
14.3 Voting of Company Stock ..................................... 22
14.4 Tender of Company Stock ..................................... 23
14.5 Non-Publicly Traded Shares .................................. 23
14.6 Restriction of Stock Certificates ........................... 26
14.7 Share Acquisition Loan ...................................... 26
ARTICLE 15 ................................................................. 27
FORMER EMPLOYEES/PARTICIPANTS ..................................... 27
15.1 Participation ............................................... 27
15.2 Cessation of Distributions .................................. 27
ARTICLE 16 ................................................................. 27
AMENDMENT AND TERMINATION ......................................... 27
16.1 Amendment ................................................... 27
16.2 Termination ................................................. 28
16.3 Vesting on Termination ...................................... 28
16.4 Termination Distributions ................................... 28
ARTICLE 17 ................................................................. 29
MERGERS, TRANSFERS, AND ROLLOVERS ................................. 29
17.1 Plan Merger, Consolidation or Benefit Transfer .............. 29
17.2 Transfers Between Plans ..................................... 29
17.3 Rollover Contributions ...................................... 30
ARTICLE 18 ................................................................. 30
PLAN ADMINISTRATION ............................................... 30
18.1 Administrative Committee .................................... 30
18.2 Committee Powers ............................................ 30
18.3 Benefit Payments ............................................ 31
18.4 Committee Officers .......................................... 31
18.5 Committee Actions ........................................... 31
18.6 Committee Member Who is Participant ......................... 32
18.7 Resignation or Removal ...................................... 32
18.8 Information Required from Employer .......................... 32
iii
18.9 Information Required from Employees ........................ 33
18.10 Uniform Rules and Administration ........................... 33
ARTICLE 19 ................................................................. 33
CLAIMS PROCEDURE .................................................. 33
19.1 Written Claim for Benefits ................................. 33
19.2 Initial Review of Claim .................................... 33
19.3 Claim Review Procedure ..................................... 34
19.4 Review Decisions Final ..................................... 34
ARTICLE 20 ................................................................. 34
GENERAL PROVISIONS ................................................ 34
20.1 Prohibited Inurement ....................................... 34
20.2 Special Valuation Dates .................................... 35
20.3 No Employment Rights ....................................... 35
20.4 Interests Not Transferable ................................. 35
20.5 Absence of Guarantee ....................................... 35
20.6 Actions by Employer ........................................ 36
20.7 Expenses ................................................... 36
20.8 Facility of Payment ........................................ 36
20.9 Missing Participants ....................................... 36
20.10 Applicable Law ............................................. 36
APPENDIX A ................................................................. A-1
SERVICE CREDITING RULES ........................................... A-1
APPENDIX B ................................................................. B-1
TOP-HEAVY PROVISIONS .............................................. B-1
APPENDIX C ................................................................. C-1
IDENTIFYING HIGHLY COMPENSATED EMPLOYEES .......................... C-1
iv
FALMOUTH CO-OPERATIVE BANK
EMPLOYEE STOCK OWNERSHIP PLAN
ARTICLE I
INTRODUCTION
1.1. Plan; Purpose.
The FALMOUTH CO-OPERATIVE BANK EMPLOYEE STOCK OWNERSHIP PLAN is adopted by
FALMOUTH CO-OPERATIVE BANK for the exclusive benefit of its eligible
employees and the eligible employees of each other corporation that adopts
the Plan. The purpose of the Plan is to provide a method for the
accumulation of a fund to assist eligible employees to attain financial
security in case of retirement or disability, and to assist beneficiaries
in case of an eligible employee's death.
1.2. Qualified Profit Sharing Plan; ESOP
The Plan is a profit sharing plan that is intended to satisfy all
requirements of section 401 (a) of the Internal Revenue Code of 1986, as
amended, and the Employee Retirement Income Security Act of 1974, as
amended.
A portion of the Plan is designed to invest primarily in the common stock
of the Company. This portion is intended to satisfy all requirements of
Code section 4975(e)(7) and therefore constitute an employee stock
ownership plan, as defined therein.
1.3. Effective Date.
The Plan shall be effective as of March 27, 1996.
1.4. Administrator; Trustee.
The Plan shall be administered by a committee appointed by the Board under
Article 18, and all assets of the Plan shall be held in trust by one or
more trustees appointed by the Board under a separate trust agreement
between the Trustee and the Company.
1.5. Adopting Employers.
With the approval of the Company, any corporation within the same
affiliated group (as defined in Code section 1504(a)) that includes the
Company may adopt the Plan for the benefit of its eligible employees. The
eligible employees of each corporation which adopts the Plan shall
participate under the same terms and conditions as the eligible employees
of each other such corporation.
1.6. Appendices.
The Plan may be amplified or modified from time to time by appendices.
Each Appendix forms a part of the Plan and its provisions shall supersede
Plan provisions as necessary to eliminate any inconsistencies.
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
2.1 Definitions.
For purposes of this Plan, the following words and phrases, whether or not
capitalized, have the meanings specified below, unless the context plainly
requires a different meaning:
(a) "Active Participant" means an Employee who has become an Active
Participant under Section 3.2, but is not a Former Participant.
(b) "Adopting Employer" means a corporation that has adopted the Plan
for the benefit of its eligible employees pursuant to Section 1.5.
(c) "Beneficiary" means a person (including an estate or personal
representative) to whom all or a portion of the Participant's
Distributable Benefit is to be paid if he dies before the complete
payment of such benefit.
(d) "Benefit Payment Date" means the date specified in Article 12 or
properly elected by the Participant (or his Beneficiary) on which his
Distributable Benefit is to be paid or commence, determined without
regard to any delay in payment caused for administrative reasons.
(e) "Board" means the Board of Directors of the Company.
(f) "Cash Account" means a cash account maintained on behalf of the
Participant under Section 6.1, including all subaccounts thereunder.
(g) "Code" means the Internal Revenue Code of 1986, as amended, and all
valid regulations thereunder.
(h) "Committee" means the committee appointed by the Board under Article
18 to administer the Plan.
(i) "Company" means FALMOUTH CO-OPERATIVE BANK, a Massachusetts stock
co-operative bank.
2
(j) "Company Stock" means the shares of common stock of the Employer as
described in Section 4975(e)(8) of the Code which are readily
tradeable on an established securities market, or if not readily
tradeable, meet the following criteria:
(1) common stock issued by the Company (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 that
class of common stock having the greatest voting power, and
(2) that class of common stock 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.
(k) "Compensation" means the amount of the regular wages or salary,
including bonuses, cash incentives, overtime and commissions, paid to
an Employee by the Company within a Plan Year beginning from the
Employee's date of participation in the Plan, Company contributions
for pensions, profit sharing or insurance benefits are excluded from
Compensation. Compensation includes the taxable value of automobiles
and expense allowances reported on federal Form W-2. Compensation
also shall include all payments from a cafeteria plan described in
Code Section 125 to the extent such payments are includible in gross
income. Only the first $150,000 (or such other amount as determined
under Code Section 401(a)(17)) of the Participant's annual
compensation shall be treated as Compensation for purposes of the
Plan.
For purposes of Sections 5.1 and 6.5 (relating to Employer
Contributions), each Extended Family Group shall be treated as one
Participant with Compensation equal to the aggregate Compensation of
each member of such Extended Family Group (determined after applying
the Compensation limitation above). For purposes of this Section,
"Extended Family Group" means a group consisting of the following
Employees: (i) a Highly Compensated Employee who is either a five
percent (5%) owner or a member of the group consisting of the top ten
(10) Employees when ranked by Compensation received during the
determination year or the look back year; (ii) the spouse of such
Highly Compensated Employee; (iii) a lineal ascendent or descendant;
or (iv) a spouse of such lineal ascendent or descendant; provided
that, an Employee shall be included in the group only if he is an
Active Participant for the Plan Year.
(1) "Disability" means a physical or mental disability which, in the
opinion of a physician selected by the Plan Administrator, will
prevent a Participant for an
3
indefinite period from performing the duties of his customary
position and which is likely to be of long continued duration.
(m) "Employer Contribution" means a contribution made to the Trust Fund
by the Employer under Section 5.1.
(n) "Distributable Benefit" means the vested and nonforfeitable portion
of the Participant's Plan Account as of his Benefit Payment Date
(determined based upon the vested interest that the Participant has
or would have in his Plan Account at the end of the Plan Year that
includes his Benefit Payment Date), as adjusted to reflect any gain
or loss allocable to his Plan Account for periods after his Benefit
Payment Date and before complete distribution from the Plan.
(o) "Effective Date" means March 27, 1996, the effective date of the
Plan.
(p) "Employee" means any common-law employee or Leased Employee (as
defined in Code section 414(n)) of the Employer, other than a person
who is a nonresident alien who has no earned income (within the
meaning of Section 911(d)(2) of the Code) which constitutes income
from sources within the United States (within the meaning of Section
861(a)(3) of the Code.)
(q) "Employer " means, collectively, the Company and any corporation that
is a member of a controlled group that includes the Company (as
defined in Code section 414(b)); any trade or business under common
control with the Company (as defined in Code section 414(c)); and any
organization that is a member of an affiliated service group that
includes the Company (as defined in Code section 414(m)).
To determine the maximum allocation permitted to a Participant under
Section 6.8, "Employer" also includes any entity required to be
aggregated with the Company under Code section 414(o).
(r) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all valid regulations thereunder.
(s) "Former Participant" means a Participant who has become a Former
Participant under Section 3.3, but who has not received full payment
of his Distributable Benefit or again become an Active Participant.
(t) "General Trust Fund" mean the portion of the Trust Fund invested at
the discretion of the Trustee in assets other than Company Stock.
(u) "Highly Compensated Employee" means an Employee identified as such
under Appendix C.
4
(v) "Hour of Service" means each hour specified as such under Appendix A.
(w) "Late Retirement Date" means the last day of the Plan Year coincident
with or next following a Participant's actual retirement date after
having reached his Normal Retirement Date.
(x) "Normal Retirement Age" means the date on which an individual attains
(or would have attained) age sixty-five (65).
(y) "Normal Retirement Date" means the later of (i) the date upon which
the Participant attains his Normal Retirement Age or (ii) the first
anniversary of the date he became an Active Participant in the Plan
as provided in Section 3.2.
(z) "One-Year Break-in-Service" means a Plan Year during which the
Participant is credited with 500 or fewer Hours of Service.
(aa) "Participant" means an Active Participant or Former Participant.
(ab) "Plan" means the FALMOUTH CO-OPERATIVE BANK Employee Stock Ownership
Plan, as set forth in this document.
(ac) "Plan Account" means the account maintained by the Committee on
behalf of a Participant under Section 6.1 and includes the Cash
Account and the Stock Account thereunder.
(ad) "Plan Year" means the twelve (12) consecutive month period that
begins October 1 of each year and ends the following September 30.
(ae) "Share Purchase Loan" means a loan or other extension of credit, the
proceeds of which are used to acquire Company Stock.
(af) "Stock Account" means a stock account maintained on behalf of the
Participant under Section 6.1.
(ag) "Stock Fund" means the portion of the Trust Fund which is invested
primarily in Company Stock.
(ah) "Suspense Fund" means the portion (or a portion) of the Stock Fund
which reflects the shares of Company Stock not allocated to
Participants' Stock Accounts.
(ai) "Trust Agreement" means the Trust Agreement made and entered into by
the Company with the Trustee pursuant to the Plan, as said Agreement
is amended from time to time.
5
(aj) "Trust Fund" means the assets held in the trust established between
the Company and the Trustee, which shall consist of the General Trust
Fund and the Stock Fund.
(ak) "Trustee" means the person(s) or corporation(s) appointed by the
Board to administer the Trust, and any successor trustee appointed
under the terms of the trust.
(al) "Valuation Date" means the last business day of each Plan Year and
each special valuation date designated by the Committee under Section
20.2.
(am) "Year of Vesting Service" means a Plan Year during which an Employee
completes 1,000 Hours of Service. For purposes of the Plan, all Years
of Vesting Service prior to the date the Participant attained age
eighteen (18) shall be disregarded.
A definition introduced later in the Plan also applies for all Plan
purposes unless the context plainly requires a different meaning.
2.2 Gender and Number,
Pronouns in the Plan stated in the masculine gender include the feminine
gender, words in the singular include the plural, and words in the plural
include the singular.
2.3 Headings.
All headings in the Plan are included solely for ease of reference and do
not bear on the interpretation of the text. As used in the Plan, the terms
"Article," "Section," and "Appendix" mean the text that accompanies the
specified Article, Section, or Appendix of the Plan.
ARTICLE 3
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility.
An Employee who is employed by an Adopting Employer shall be eligible to
participate in the Plan unless (i) he has not attained age twenty-one
(21), (ii) he is a person who is paid by the Adopting Employer as an
independent contractor, or (iii) he is covered under a collective
bargaining agreement, and the agreement does not provide that he is
eligible to participate in the Plan. The Committee shall notify each
Employee of the date he becomes eligible to participate in the Plan and
the necessary actions that may be required on his part to obtain or
participate in all benefits of the Plan.
6
3.2 Participation.
Each Employee shall become an Active Participant on the October 1 or April
1 coincident with or next following the later of the date which is six (6)
months after the date on which he is first employed by the Company or the
date on which he satisfies the eligibility conditions of Section 3. 1.
Each Employee who has satisfied the eligibility conditions of Section 3.1
and the six month requirement of the preceding sentence and who is an
Employee on the Effective Date shall become an Active Participant on the
Effective Date. Notwithstanding the foregoing, an Employee shall not
become or remain an Active Participant if he does not satisfy the
eligibility conditions of Section 3.1 on the entry date specified above,
but may later become an Active Participant in accordance with Article 15.
3.3 Duration of Participation .
An Active Participant shall become a Former Participant on the first to
occur of the following:
(a) The date on which his employment with the Employer terminates or he
otherwise fails to satisfy the eligibility conditions of Section 3.1;
or
(b) The date on which the Plan terminates.
A Former Participant shall remain such until he receives full payment of
his Distributable Benefit or again becomes an Active Participant under
Article 15.
3.4 Transfer.
In the event that a Participant is transferred to employment with a member
of the controlled group (as defined in Code sections 414(b), (c) or (m))
that includes the Company, which has not adopted the Plan or to employment
with the Employer in a status other than as an Employee, or in the event
that a person is transferred from employment with a member of the
controlled group which has not adopted the Plan or from other employment
with the Employer in a status other than Employee to employment with the
Employer under circumstances making such person an Employee, then the
following provisions of this Subsection shall apply:
(a) Transfer to employment (i) with a member of the controlled group
which has not adopted the Plan or (ii) with the Employer not as an
Employee shall not be considered termination of employment with the
Employer, and such transferred person shall continue to be entitled
to the benefits provided in the Plan, as modified by this Subsection.
7
(b) No amounts earned from a member of the controlled group at a time
when it has not adopted the Plan or from the Employer not as an
Employee, shall constitute Compensation hereunder.
(c) Termination of employment with a member of the controlled group which
has not adopted The Plan by a person entitled to benefits under this
Plan (other than to transfer to employment with the Company or
another member of the controlled group) shall be considered as
termination of employment with the Employer.
(d) All other terms and provisions of this Plan shall fully apply to such
person and to any benefits to which he may be entitled hereunder.
ARTICLE 4
PARTICIPANT CONTRIBUTIONS
A Participant is neither required nor allowed to make contributions to the
Trust Fund under this Plan.
ARTICLE 5
EMPLOYER CONTRIBUTIONS
5.1 Employer Contributions.
The Employer shall make a contribution under this Section to the Trust
Fund for each Plan Year of an amount determined by the Board; provided
that, for any Plan Year in which a Share Purchase Loan remains
outstanding, the contribution under this Section shall not be less than
the amount needed to provide the Trustee with cash sufficient to pay any
currently maturing obligations under such loan. Employer Contributions
shall be made in cash or in Company Stock as the Board may from time to
time determine.
The contribution made by the Employer under this Section shall be
allocated among the Plan Accounts of Participants under Section 6.5, and
shall be identified as an "Employer Contribution" for purposes of this
Plan.
5.2 Statutory Limit on Contributions.
Any contrary provision of the Plan notwithstanding, Employer Contributions
for a Plan Year shall be limited as necessary to satisfy the following:
8
(a) Subject to the minimum specified in Section 5. 1, the Employer
Contribution shall not exceed an amount that can be fully credited to
the Participants' Plan Accounts without resulting in an annual
addition to the Plan Account of any Participant in excess of the
maximum permitted under Section 6.8.
(b) Unless this provision is waived by the Company for a Plan Year, the
Employer Contribution shall not exceed an amount that can be fully
deducted by the Employer for federal income tax purposes for the
taxable year of the Employer that ends with or within the Plan Year.
The Committee shall prescribe uniform and nondiscriminatory rules to
implement this limitation.
5.3 Top-Heavy Minimum Benefit.
If the Plan is Top-Heavy for a Plan Year (as determined under Appendix B),
a top-heavy minimum contribution shall be made on behalf of each
Participant who is a non-key employee for the Plan Year and who is an
Employee on the last day of the Plan Year. Such top-heavy minimum
contribution shall equal the lesser of the following:
(a) Three percent (3%) of the Participant's 415 Compensation (as defined
in Appendix B) for the Plan Year; or
(b) A percentage of the Participant's 415 Compensation (as defined in
Appendix B) for the Plan Year equal to the percentage of 415
Compensation received as an Employer Contribution by the key employee
who received the greatest such percentage.
The top-heavy contribution made by the Employer under this Section shall
be reduced by the Employer Contribution otherwise allocated to the Plan
Account of the Participant for the plan year under Section 6.4 and shall
be identified as a "Top-Heavy Contribution" for purposes of the Plan.
5.4 Allocation Among Employers.
An Adopting Employer shall contribute that portion of the Employer and
Top-Heavy Contributions for the Plan Year that is attributable to services
performed while in the employ of the Adopting Employer; provided that, any
Adopting Employer may make all or any part of the contribution for any
other Adopting Employer, if each is a member of the same group which files
a consolidated federal income tax return for the year.
5.5 Transfer to Trust.
The Employer shall transfer the Employer and Top-Heavy Contributions for
each plan year to the trust fund not later than the time prescribed by law
(including extensions) for filing the federal income tax return for its
taxable year that ends with such Plan Year.
9
ARTICLE 6
PLAN ACCOUNTING
6.1 Participant Plan Accounts.
The Committee shall maintain a Plan Account for each Participant and such
number of accounts and subaccounts within the Plan Account as the
Committee deems appropriate to adequately disclose the interest of the
Participant in the Trust. At a minimum, each Plan Account shall consist of
the Cash Account and the Stock Account.
(a) "Cash Account" shall reflect the Participant's interest in the Trust
Fund attributable to net gain (or loss) of Plan, Employer and
Top-Heavy Contributions in other than Company Stock.
(b) "Stock Account" shall reflect the Participant's interest in the Trust
Fund attributable to Company Stock which has been allocated to the
Participant.
6.2 Balance of Accounts,
The balance of a Cash Account or Stock Account as of any date is the
balance of the account after the immediately preceding Valuation Date,
less amounts thereafter properly debited, and plus amounts thereafter
properly credited, to the account under this Article. The balance of each
Cash Account shall be expressed in United States dollars, and the balance
of each Stock Account shall be expressed in a number of shares (whole or
fractional) of Company Stock.
The balance of a Participant's Plan Account as of any date is the
aggregate balance of all Cash and Stock Accounts within the Plan Account
(expressed in United States dollars and a number of shares (whole and
fractional) of Company Stock, as appropriate) as of such date.
6.3 Adjustments to Reflect Distributions.
The distributions from the Trust Fund which are drawn from a Cash Account
or Stock Account shall be debited to such account as of the distribution
date.
6.4 Adjustment to Reflect Top-Heavy Contributions.
The Top-Heavy Contributions made on behalf of a Participant for a Plan
Year shall be credited to the appropriate Cash Account or Stock Account of
the Participant as of the last Valuation Date of such Plan Year,
irrespective of whether such contributions actually have been paid to the
Trustee by such date.
10
6.5 Adjustment to Reflect Employer Contribution.
The Employer Contribution for each Plan Year shall be allocated among the
Plan Accounts of the Participants specified below, and the portion
allocated to each Participant shall be credited to the Cash Account or the
Stock Account of the Participant as of the last Valuation Date of such
Plan Year, irrespective of whether such contribution actually has been
paid to the Trustee by such date.
The Employer Contribution shall be allocated among the Plan Accounts of
the following Participants:
(a) Those Participants who are Active Participants on the last day of the
Plan Year; and
(b) Those Participants who ceased to be Active Participants during the
Plan Year by reason of death, Disability, or Retirement.
The portion of the Employer Contribution allocated to the Plan Account of
each such Participant shall equal an amount determined by multiplying the
Employer Contribution by a fraction, the numerator of which is the
Participant's Compensation, and the denominator of which is the aggregate
Compensation of all such Participants.
For purposes of this Section, a Participant's Compensation includes all
Compensation he received during that portion of the Plan Year during which
he was an Active Participant.
6.6 Adjustments to Reflect Trust Fund Experience.
The net gain (or loss) of the General Trust Fund for each Plan Year shall
be allocated among all Cash Accounts, and the portion allocated to each
shall be credited (or debited) to such Cash Account as of the Valuation
Date for such Plan Year. The portion of the net gain (or loss) of the
General Trust Fund allocated to each such Cash Account shall be the pro
rata share of the net gain (or loss) based on the change in fair market
value of assets therein since the last adjustment and computed in
accordance with uniform valuation procedures established by the Trustee.
To determine net gain (or loss), all assets of the General Trust Fund
shall be valued at their fair market value as of the Valuation Date.
6.7 Adjustments to Reflect Dividends.
Cash dividends paid on shares of Company Stock allocated to a
Participant's Stock Account as of the dividend record date shall be
credited to the Cash Account of the participant as of such date.
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6.8 Maximum Allocations.
Anything contained herein to the contrary notwithstanding, the
Participant's annual additions (as defined in Code section 415(c)) shall
not exceed the limitations imposed under Code section 415. The provisions
of Code section 415 are hereby incorporated herein by reference.
Notwithstanding the foregoing, the otherwise permissible benefits under
Code section 415 for any Participant may be further reduced to the extent
necessary to prevent disqualification of the Plan under Code section 415.
If a Participant is participating or has participated in a defined benefit
plan maintained by the Employer, and the combined Plan limitation under
Code section 415 is exceeded in any Plan Year, the Committee shall
determine whether the Participant's benefit under the Plan or under such
defined benefit plan shall be limited as necessary to satisfy the combined
limit under Code section 415.
ARTICLE 7
TRUST INVESTMENT FUNDS
7.1 Trust Investment Funds.
All contributions made under the Plan, and all earnings and increments
thereon, shall be held by the Trustee in the Trust Fund, which shall
consist of the following funds:
(a) "General Trust Fund" which shall be invested at the discretion of the
Trustee in accordance with the Trust Agreement.
(b) "Stock Fund" which shall be invested primarily in Company Stock,"
which fund shall be segregated into: (i) one or more "Suspense Funds,
which shall reflect Company Stock purchased with the proceeds of a
Share Purchase Loan and not yet allocated to Participants' Stock
Accounts (a separate Suspense Fund to be maintained with respect to
each Share Purchase Loan), (ii) one or more "Loan Purchase Funds,"
which shall reflect Company Stock purchased with the proceeds of a
Share Purchase Loan and allocated to Participants' Stock Accounts (a
separate Loan Purchase Fund to be maintained with respect to each
Share Purchase Loan), and (iii) a "Cash Purchase Fund," which shall
reflect Company Stock otherwise acquired and allocated to
Participants' Stock Accounts.
The Trustee shall manage and maintain all assets of the Trust Fund in
accordance with the Trust Agreement between the Company and the Trustee,
and no Participant or Beneficiary shall be allowed to direct the Trustee
as to the investment of any assets of the Trust Fund.
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7.2 Investment of Employer Contribution.
Trust Assets under the Plan will be invested primarily in Company Stock,
as provided in the Trust Agreement. Trust assets may be used to purchase
shares of Company Stock from Company shareholders or from the Company. The
Trustee may also invest Trust assets in savings accounts, certificates of
deposit, high-grade short-term securities, equity stocks, bonds, or other
investments, or Trust assets may be held in cash. All investments of Trust
assets shall be made by the Trustee only upon the direction of the
Committee, and all purchases of Company Stock made by the Trustee shall be
made at prices which do not exceed the fair market value of such shares,
as determined in good faith by the Committee. The Committee may direct the
Trustee to invest and hold up to 100% of the Trust assets in Company
Stock.
7.3 Investment of Cash Dividends.
The cash dividends paid to the Trust Fund on Company Stock held therein
shall be applied as follows:
(a) Loan Purchase Fund Shares: At the direction of the Committee, cash
dividends on Company Stock held within a Loan Purchase Fund shall be
invested in the General Trust Fund.
(b) Cash Purchase Fund Shares: At the direction of the Committee, cash
dividends on Company Stock held within the Cash Purchase Fund shall
be invested in the General Trust Fund.
(c) Suspense Fund Shares: Cash dividends on shares of Company Stock held
within a Suspense Fund shall be applied to pay principal and interest
on the corresponding Share Purchase Loan.
All cash dividends applied under this Section to pay principal and
interest on a Share Purchase Loan shall be so applied annually together
with the Employer and Top-Heavy Contributions for the Plan Year. All cash
dividends applied under this Section to acquire Company Stock shall be so
applied at such time as the Trustee may determine.
7.4 Appointment of Trustee.
All contributions to the Plan shall be committed in trust to the Trustees.
The Trustees shall be appointed from time to time by the Board by
appropriate instrument, with such powers in the Trustees as to investment,
reinvestment control and disbursement of the funds as the Board shall
approve and as shall be in accordance with the plan. The Board may remove
any Trustee at any time, upon reasonable notice, and upon such removal or
upon the resignation of any Trustee, the Board shall designate a successor
Trustee.
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ARTICLE 8
TRUST SUSPENSE FUNDS
8.1 Suspense Funds.
The portion of the Stock Fund reflecting shares of Company Stock which
were acquired with the proceeds of a Share Purchase Loan and which have
not been allocated to Participants' Stock Accounts shall be identified as
a Suspense Fund, which holds such Company Stock pending their release and
allocation to the Participants' Stock Accounts under the terms and
conditions of this Article. A separate Suspense Fund shall be maintained
to reflect Company Stock acquired with the proceeds of each separate Share
Purchase Loan.
8.2 Release from Suspense Funds.
Shares of Company Stock shall be released from a Suspense Fund only once
with respect to each Plan Year and upon release shall be allocated among
the Participants' Stock Accounts under Section 8.3.
The number of shares of Company Stock released from a Suspense Fund with
respect to each Plan Year shall equal the number of shares of Company
Stock held in the Suspense Fund immediately before the release multiplied
by a fraction, the numerator of which is the amount of principal and
interest paid on the corresponding Share Purchase Loan for the Plan Year,
and the denominator of which is the sum of (i) the numerator, and (ii) the
amount of principal and interest that will be paid on the corresponding
Share Purchase Loan in all future Plan Years (determined without regard to
any possible renewal or extension of the Share Purchase Loan). For this
purpose, if a variable interest rate applies under a Share Purchase Loan,
the interest that will be paid on the Share Purchase Loan in future Plan
Years shall be computed by using the interest rate in effect at the end of
the then current Plan Year.
Notwithstanding anything contained herein to the contrary, the number of
shares of Company Stock released from a Suspense Fund with respect to each
Plan Year may be determined solely with reference to principal payments if
the following three (3) conditions are satisfied: (i) the Share Purchase
Loan must provide for annual payments of principal and interest at a
cumulative rate that is not less rapid than level payments over ten (10)
years; (ii) the Share Purchase Loan term does not exceed the ten (10)
years; and (iii) the portion of each Share Purchase Loan payment which is
disregarded as interest does not exceed the amount of the payment that
would be treated as interest under standard loan amortization tables.
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8.3 Allocation of Released Shares.
Shares of Company Stock released from a Suspense Fund for the Plan Year
shall be allocated among the Participants' Stock Accounts as follows:
Allocation Based on Employer/Top-Heavy Contribution: The number of
shares of Company Stock released shall be allocated among the Plan
Accounts of those Participants who were allocated a portion of the
Employer Contribution (or received a Top-Heavy Contribution) for the
Plan Year.
The number of shares of Company Stock allocated to the Plan Account of
each such Participant shall equal the number determined by multiplying
the total number of shares of Company Stock to be allocated under this
Subsection by a fraction, the numerator of which is the dollar amount
of the Employer Contribution allocated to the Participant (plus the
dollar amount of the Top-Heavy Contribution received by the
Participant), and the denominator of which is the dollar amount of the
Employer Contribution (plus the aggregate dollar amount of all
Top-Heavy Contributions) for the Plan Year.
For purposes of this Section, the number of shares of Company Stock
released as a result of applying any specified amount to pay principal and
interest on the Share Purchase Loan shall equal the number determined by
multiplying the total number released for the Plan Year by a fraction, the
numerator of which is the specified amount so applied, and the denominator
of which is the total amount applied to pay principal and interest on the
Share Purchase Loan for the year.
8.4 Fair Market Value.
For purposes of the Plan, the "fair market value" of a share of Stock
means, for any particular date, (i) for any period during which the Stock
shall not be listed for trading on a national securities exchange, but when
prices for the Stock shall be reported by the National Market System of the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), the last transaction price per share as quoted by National
Market System of NASDAQ, (ii) for any period during which the Stock shall
not be listed for trading on a national securities exchange or its price
reported by the National Market System of NASDAQ, but when prices for the
Stock shall be reported by NASDAQ, the closing bid price as reported by the
NASDAQ, (iii) for any period during which the Stock shall be listed for
trading on a national securities exchange, the closing price per share of
Stock on such exchange as of the close of such trading day or (iv) the
market price per share of Stock as determined by a nationally recognized
investment banking firm selected by the Board of Directors in the event
neither (i), (ii) or (iii) above shall be applicable. If fair market value
is to be determined as of a day
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when the securities markets are not open, the fair market value on that
day shall be the fair market value on the preceding day when the markets
were open.
ARTICLE 9
VESTING
A Participant (or in case of death, his Beneficiary) shall have a fully
vested and nonforfeitable interest in his entire Plan Account balance at
all times.
ARTICLE 10
INVESTMENT DIVERSIFICATION
10.1 Eligibility
A Participant shall be eligible for the diversification election available
under this Article if he has attained age fifty-five (55) and completed
ten (10) years of participation in the Plan.
10.2 Diversification.
A Participant who is eligible under Section 10.1, shall be permitted, for
each Plan Year within his diversification election period (as defined
below), to diversify his Stock Account the following portion of such
accounts in accordance with Section 10.4:
(a) For the first five (5) Plan Years within his diversification election
period, any whole number of shares of Company Stock up to twenty-five
percent (25%) of the number of shares of Company Stock credited to
his Stock Account as of the last day of the Plan Year, less the
number of shares of Company Stock previously diversified under this
Section.
(b) For the final Plan Year within his diversification election period,
any whole number of shares of Company Stock up to fifty percent (50%)
of the number of shares of Company Stock credited to his Stock
Account as of the last day of the Plan Year, less the number of
shares of Company Stock previously diversified under this Section.
For purposes of this Section, the "diversification election period" is the
six (6) Plan Year period that begins with the Plan Year in which the
Participant satisfies the eligibility requirements of Section 10.1.
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10.3 Election Procedures.
To diversify his Stock Account, a Participant must file a diversification
election with the Committee not later than ninety (90) days after the end
of the Plan Year on a form provided by the Committee for this purpose. If
a Participant fails to file a timely election, the Participant shall be
deemed to have elected not to diversify any portion of his Stock Account
for such year.
10.4 Distribution of Company Stock.
If a Participant files a timely diversification election, the Committee
shall direct the Trustee to distribute the number of shares of Company
Stock properly specified by the Participant. Such distribution shall be
made as soon as practicable, but not later than ninety (90) days, after
the close of the election period specified in Section 10.3.
ARTICLE 11
PAYMENT OF ACCOUNTS
11.1 Benefit Payments - In General.
A Participant (or in case of death, his Beneficiary) shall be paid his
Distributable Benefit under the terms and conditions of this Article after
his employment with the Employer has terminated. To the extent that an
option is available with respect to the time or form of payment, a
Participant (or Beneficiary) may select any such option by filing a
written selection with the Committee on such form and in accordance with
such rules as shall be prescribed by the Committee for this purpose.
Anything contained herein to the contrary, if the benefit payable to a
Participant is greater than $3,500 and the date of distribution is prior
to the Participant's Mandatory Benefit Distribution Date, the Participant
must consent to the distribution. In the event the Participant does not
consent to such distribution prior to his Mandatory Benefit Distribution
Date, distribution shall be made to such Participant and without his
consent on the earlier of (i) a date within ninety (90) days after the
end of the Plan Year which ends on or after the date such Participant
consents in writing to the Committee to such distribution, or (ii) his
Mandatory Benefit Distribution Date. For purposes of this Section 11.1,
"Mandatory Benefit Distribution Date" means the date the Participant
attains age sixty-five (65).
11.2 Benefits Paid Upon Normal Retirement.
A Participant who retires from service with the Employer on or after his
Normal Retirement Date shall have a nonforfeitable interest in his Plan
Account and, subject to Section 11.1, shall be entitled to receive a
distribution of his Plan Account as soon as
17
practicable following the end of the Plan Year coincident with or next
following his date of retirement.
11.3 Benefits Paid Upon Disability.
A Participant who retires from the service of the Employer on account of
his Disability shall have a nonforfeitable interest in his Plan Account
and, subject to Section 11.1, shall be entitled to receive a
distribution of his Plan Account as soon as practicable following the end
of the Plan Year coincident with or next following the determination of
his Disability.
11.4 Benefits Paid Upon Death.
Upon the death of a Participant while in active employment with the
Employer, or upon such Participant's death after the date Participant's
service terminates on account of his Disability or retirement and prior to
the date distribution of his benefit commences, the Participant shall have
a nonforfeitable interest in his Plan Account and his Beneficiary shall be
entitled to receive a distribution of the Plan Account as soon as
practicable following the end of the Plan Year coincident with or next
following his date of death.
11.5 Benefits Paid Upon Termination.
A Participant whose employment with the Employer terminates prior to his
Normal Retirement Date for reasons other than death or Disability, shall
be entitled to receive a distribution of the vested balance of his Plan
Account. Such distribution shall be based on Years of Vesting Service as
of the date of termination and, subject to Section 11.1, shall be paid as
soon as practicable following the end of the Plan Year coincident with or
next following his date of termination.
11.6 Method of Distribution.
A Participant (or in the case of death, his Beneficiary) shall be paid the
vested portion of his Plan Account in a single lump-sum.
A Participant shall accrue earnings (or losses) on the Plan Account until
the date of distribution.
11.7 Payment of Small Amounts.
Any contrary provision of this Article notwithstanding, if a Participant's
Distributable Benefit does not exceed $3,500 (and the balance of his Plan
Account has not exceeded $3,500 immediately prior to any distribution), a
single-sum payment of the full amount of his Distributable Benefit shall
be made to the Participant (or in case of death, his Beneficiary) thirty
(30) days after the date on which his employment with the Employer
18
terminates, or as soon as practicable thereafter, and the Participant
shall not be permitted to elect any option otherwise available under this
Article.
11.8 Medium of Payment.
All payments under this Article shall be in the form of cash and, to the
extent that the Participant's Plan Account consists of Company Stock,
whole shares; provided that, (i) a Participant or Beneficiary who would
otherwise receive Company Stock may instead elect to have such Company
Stock converted to cash and the proceeds thereof distributed, and (ii) a
Participant or Beneficiary who would otherwise receive cash may instead
elect to have such cash converted to Company Stock (whole shares only) and
distributed. Any fractional interest in Company Stock shall be converted
to cash and distributed. A conversion of Company Stock to cash under this
Section shall be made in accordance with Section 14.2.
Notwithstanding the foregoing, if the Company's charter or bylaws restrict
ownership of substantially all shares of Company Stock to Employees and
the Trust Fund, the distribution of a Participant's Plan Account shall be
made pursuant to this Section without granting the Participant the right
to demand distribution in shares of Company Stock.
11.9 Required Distributions.
Any contrary provision of this Section notwithstanding, payments shall be
made with respect to each Participant under the following rules:
(a) A minimum payment shall be made to a Participant for the calendar year
in which he attains age 70-1/2 and each subsequent calendar year. The
minimum payment for the calendar year in which he attains age 70-1/2
shall be made by the Participant's Required Beginning Date, and the
minimum payment for each subsequent calendar year shall be made by the
December 31 of such year.
(b) If a Participant dies before his Required Beginning Date, a minimum
payment will be made to each designated Beneficiary for each calendar
year beginning with the following:
(i) If the Participant's spouse is the Beneficiary, the later of the
calendar year that follows the year of the Participant's death,
or the calendar year in which the participant would have
attained age 70-1/2.
(ii) If the Participant's spouse is not the Beneficiary, the calendar
year that follows the year of the Participant's death.
The minimum payment for each calendar year will be made by the December 31
of such year.
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(c) If a Participant dies before his Required Beginning Date, full
payment of all amounts due to a Beneficiary who is not a designated
Beneficiary shall be made not later than the December 31 of the
calendar year in which occurs the fifth (5th) anniversary of the
Participant's death.
(d) If a Participant dies on or after his Required Beginning Date, all
payments to a Beneficiary after the Participant's death shall be made
at least as rapidly as the payments made to the Participant before
his death.
All payments required under this Section shall be determined under Code
section 401(a)(9), including the minimum distribution incidental benefit
requirements thereunder.
For purposes of this section, "Required Beginning Date" means, except as
provided by law, the April 1 of the calendar year after the calendar year
in which the Participant attains age 70-1/2.
11.10 Earnings on Plan Accounts.
If a Participant's employment with the Employer terminates and he does not
elect to receive immediate payment of his Distributable Benefit, the
Participant's Plan Account shall continue to be credited to reflect
investment return and dividends in accordance with Sections 6.6 and 6.7.
11.11 Life Expectancies.
When necessary under this Article, the life expectancy of a Participant or
his Beneficiary shall be determined by the use of "the expected return
multiples in Tables V and VI of Treasury Regulation Section 1.72-9. Life
expectancies shall not be recalculated annually for any purpose under this
Article."
ARTICLE 12
BENEFICIARIES
12.1. Designated Beneficiaries.
A Participant may designate one or more persons to whom his Distributable
Benefit shall be paid if he dies before he receives complete payment of
such benefit; provided that, the sole designated Beneficiary of a
Participant who is lawfully married shall be his spouse unless his spouse
properly consents to the designation of an additional or another person or
persons as Beneficiary.
A Beneficiary designation must be made on a form provided by the Committee
for this purpose. It shall be effective on the date the designation form
actually is received by the
20
Committee, shall revoke all prior designations made by the Participant,
and itself may be revoked by the Participant at any time.
A Beneficiary designation form received by the Committee after a
Participant's death shall be null and void, and during a Participant's
life, a Beneficiary designation form may be filed only by the Participant.
12.2 Spousal Consent Requirements.
The spouse of a Participant who designates a person or persons other than
such spouse as a Beneficiary must consent in writing to the specific
person or persons designated. The written consent must acknowledge the
effect of the designation, and must be witnessed by a member of the
Committee or a notary public. The designation of a Beneficiary cannot be
changed without spousal consent to the new designation unless the prior
consent of the spouse expressly permits future designations by the
Participant without further spousal consent.
12.3 Absence of Designated Beneficiary.
If no designated Beneficiary survives the Participant, then his estate
shall be his Beneficiary for purposes of this Plan.
ARTICLE 13
PARTICIPANT LOANS
No loans from the Trust Fund to a Participant are permitted under the
Plan.
ARTICLE 14
RELATING TO COMPANY STOCK
14.1 Investment in Company Stock; ESOP.
The Employer Contribution made to the Trust Fund shall be invested by the
Trustee to provide Participants with whole and fractional interests in
shares of Company Stock, subject to minimum fractional interests
established by the Trustee from time to time. For any period in which such
contributions are not invested in Company Stock they shall, at the
discretion of the Trustee, be held within the Trust in cash or invested in
savings accounts, certificates of deposit, high-grade short-term
securities, equity stocks, bonds or other investments. Subject to
applicable law, the Trustee may acquire Company Stock
21
on the open market, through private purchases, purchases from the Company
(including purchases of treasury shares or authorized but unissued
shares), or otherwise.
The portion of the Plan and Trust Fund which is invested in Company Stock
and is attributable to Employer Contribution is intended to satisfy all
requirements of Code section 4975(e)(7) and therefore constitutes an
employee stock ownership plan, as defined herein.
14.2 Conversion to Cash.
If it is necessary to convert Company Stock held within the Stock Fund to
cash to provide for a distribution to a Participant or Beneficiary, or for
any other reason required under the Plan, the following shall apply:
(a) The Trustee shall purchase such shares with the cash amounts (if any)
then reflected in the Participant's Stock Accounts; provided that, if
a Share Purchase Loan is outstanding, such cash amounts shall be so
applied only if so directed by the Committee.
(b) To the extent that Company Stock cannot be purchased under (a), the
Trustee shall sell such shares on the open market, or to any other
employee benefit plan or program maintained by the Employer, or to
the Company; provided that, any sales to any such employee benefit
plan or program or to the Company must satisfy the prohibited
transaction exemption requirements set forth in ERISA section 408(e).
14.3 Voting of Company Stock.
The Company shall use its reasonable best efforts to cause to be delivered
to each Participant (or in case of death, his Beneficiary) such notices
and informational statements as are furnished to the Company's
stockholders with respect to the exercise of voting rights on Company
Stock, together with forms by which the Participant (or Beneficiary) may
confidentially instruct the Trustee with respect to the voting of Company
Stock allocated to his Account. The Trustee shall vote Company Stock held
within the Trust as follows:
(a) The Trustee shall vote shares of Company Stock credited to a
Participant's Stock Account with respect to which the Trustee has
received timely direction, as directed by the Participant (or
Beneficiary) (or abstain if so directed).
(b) The Trustee shall vote (i) all Company Stock not credited to any
Participant's Stock Account, and (ii) all Company Stock credited to a
Participant's Stock Account with respect to which the Trustee has not
received timely direction, in the same proportion as the Company
Stock specified in (a).
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All voting directions received by the Trustee shall be held in confidence
by the Trustee and shall not be divulged or released to any person,
including an Employee or any officer or director of any corporation that
makes up the Employer, except to the extent that Such Employee, officer or
director is also a Trustee.
14.4 Tender of Company Stock.
Any contrary provision of the Plan notwithstanding, if there is a tender
or exchange offer for, or a request or invitation for the tender or
exchange of, Company Stock, the Trustee promptly shall furnish to each
Participant (or in case of death, his Beneficiary) a notice of such offer,
request, or invitation, and shall request direction from the Participant
(or Beneficiary) as to the tender or exchange of Company Stock allocated
to the Participant's Stock Accounts. The Trustee shall tender or exchange,
or retain, Company Stock held within the Trust as follows:
(a) The Trustee shall tender or exchange, or retain, Company Stock
credited to a Participant's Stock Accounts with respect to which the
Trustee has received timely direction, as directed by the Participant
(or Beneficiary).
(b) The Trustee shall retain Company Stock credited to a Participant's
Stock Accounts with respect to which the Trustee has not received
timely direction.
(c) The Trustee shall tender or exchange, or retain, Company Stock not
credited to any Participant's Stock Accounts, in the same proportion
as the Company Stock specified in (a) and (b) is tendered or
exchanged, or retained.
All tender or exchange directions received by the Trustee shall be held in
confidence by the Trustee and shall not be divulged or released to any
person, including an Employee or any officer or director of any
corporation that makes up the Employer, except to the extent that such
Employee, officer or director is also a Trustee.
14.5 Non-Publicly Traded Shares.
For any period during which Company Stock is not readily tradable on an
established securities market, the following provisions shall apply:
(a) Put Option: When shares of Company Stock are distributed to a
Participant (or in case of death, his Beneficiary), the Company shall
grant the recipient an option to put the shares to the Company;
provided that, the Company may allow the Trustee to assume the
Company's rights and obligations at the time the put is exercised. A
put option shall provide that, for a period of sixty (60) days after
such shares are distributed, the recipient shall have the right to
require the Company to purchase such shares at their fair market
value. If the put is not exercised within such sixty (60) day period,
the put shall be available for an
23
additional period of sixty (60) days beginning with the first day of the
Plan Year following the year of the distribution. A put option can be
exercised by notifying the Company in writing.
The terms of payment for the purchase of shares of Company Stock subject
to a put shall be as set forth in the put, subject to the following:
(i) In the case of Company Stock distributed as part of a total
distribution (as defined below), payment shall be made in
substantially equal periodic payments (not less frequently than
annually over a period that begins not later than thirty (30)
days after the put is exercised, and that does not exceed five
(5) years. If payment is made in installments, adequate security
and a reasonable rate of interest shall be provided to the
recipient.
(ii) In the case of Company Stock that is not distributed as part of
a total distribution, payment shall be made within thirty (30)
days after the put is exercised.
For purposes of this subsection, a "total distribution" means a
distribution within one (1) calendar year of the balance to the credit of
the Participant's Plan Account.
Except as otherwise provided in this subsection, or as otherwise required
by applicable law, no Company Stock held within or distributed from the
Trust shall be subject to a put, call, or other option, or buy-sell or
similar arrangement.
(b) Distribution of Company Stock: Any contrary provision of Article 11
notwithstanding, unless a Participant elects that the special
distribution provisions of this Section 14.5(b) not apply, the
portion of his Distributable Benefit attributable to Company Stock
credited to his Stock Account shall be distributed as follows:
(i) Such portion shall be paid in substantially equal periodic
payments (not less frequently than annually) over a period not
longer than five (5) years, or, if the value of such accounts
exceeds $500,000 (or such greater amount as may be in effect
under Code section 409(o)(1)(C)), five (5) years plus one (1)
additional year (but not more than five (5) additional years)
for each $100,000 (or such greater amount as may be in effect
under Code section 409(o)(1)(C)) or fraction thereof by which
the value of such accounts exceeds $500,000 (or such greater
amount as may be in effect under Code section 409(o)(1)(C)).
(ii) Except as provided below, payments under (i) shall commence not
later than one (1) year after the end of the following:
24
(A) In the case of a Participant whose employment with the
Employer terminates after his Normal Retirement Age, or at
any age by reason of death or Disability, the Plan Year in
which his employment terminates.
(B) In the case of a Participant whose employment with the
Employer terminates under circumstances not described in (A),
the fifth (5th) Plan Year following the year in which his
employment terminates, provided that, this Subsection shall
not apply if the Participant is reemployed with the Employer
before the end of such fifth (5th) Plan Year.
Commencement prior to the date on which a Participant attains
Normal Retirement Age shall be subject to the Participant's
consent, and, if a Participant does not consent, commencement
shall occur soon as practicable after the Participant's Normal
Retirement Age.
Distributions of Company Stock otherwise required under this
Section shall not include any Company Stock acquired with the
proceeds of a Share Purchase Loan until the close of the Plan
Year in which the loan is repaid in full, except where no
other securities are available for such distribution.
(c) Distribution Limitation: Any contrary provision of Article 11
notwithstanding, if Company Stock is subject to a put option under
(a), any Company Stock is acquired with the proceeds of a Share
Purchase Loan which are held within the Trust Fund and credited to a
Participant's Stock Accounts shall not be distributed until such
Share Purchase Loan is fully repaid.
(d) Right of First Refusal: Shares of Company Stock distributed by the
Trustee shall be subject to a "right of first refusal. " The right of
first refusal shall provide that, prior to any subsequent transfer,
such Company Stock must first be offered in writing to the Company,
and then, if refused by the Company, to the Trust, at the then fair
market value. The Company and the Committee (on behalf of the Trust)
shall have a total of fourteen (14) days (from the date the Company
receives the offer) to exercise the right of first refusal on the
same terms offered by a prospective buyer. A Participant (or
beneficiary) entitled to a distribution of Company Stock may be
required to execute an appropriate stock transfer agreement
(evidencing the right of first refusal) prior to receiving a
certificate for such stock.
For purposes of this Section, whether Company Stock is "readily tradable
on an established securities market" shall be determined in accordance
with regulations or interpretations adopted by the Internal Revenue
Service under Code section 409(h).
25
14.6 Restriction of Stock Certificates.
Shares of Company Stock held or distributed by the Trustee may include
such legend restrictions on transferability as a Company may reasonably
require in order to assure compliance with applicable Federal and State
securities law and with the provisions of this paragraph. Except as
otherwise provided in Section 14.5, no shares of Company Stock held or
distributed by the Trustee may be subject to a put, call or other option
or buy-sell similar arrangement. The provisions of Section 14.5 shall
continue to be applicable to shares of such Company Stock, even if the
Plan ceases to be an employee stock ownership plan under Section
4975(e)(7) of the Code.
14.7 Share Acquisition Loan.
The Committee may direct the Trustee to incur a Share Purchase Loan from
time to time to finance the acquisition of Company Stock (Financed Shares)
for the Trust or to repay a prior Share Purchase Loan. An installment
obligation incurred in connection with the purchase of Company Stock shall
constitute a Share Purchase Loan. A Share Purchase Loan shall be for a
specific term, shall bear a reasonable rate of interest and shall not be
payable on demand except in the event of default. A Share Purchase Loan
may be secured by a collateral pledge of the Financed Shares so acquired
and any other collateral permitted under the Treasury Regulations
promulgated under Code section 4975 including contributions that are made
under the Plan to meet its obligations under the Share Purchase Loan. No
other Trust asset may be pledged as collateral for a Share Purchase Loan,
and no lender shall have recourse against any other such Trust assets. Any
pledge of Financed Shares must provide for the release of shares so
pledged on pro-rata basis as principal and interest on the Share Purchase
Loan are repaid by the Trustee and such Financed Shares are allocated to
Participants' Company Stock Accounts. Repayments of principal and interest
on any Share Purchase Loan shall be made by the Trustee (as directed by
the Committee) only from Company contributions paid in cash to enable the
Trustee to repay such Loan, from earnings attributable to such Company
Contributions and from cash dividends received by the Trust. Should the
Company Contributions, earnings attributable to such Company Contributions
and cash dividends received by the Trust on Financed Shares be
insufficient to meet the obligations created by the Share Purchase Loan,
then the Trustee shall so advise the Committee. The Committee may
recommend certain actions including but not limited to, refinancing the
original loan, amendment of the original loan agreement, or the entering
into of an additional Share Purchase Loan to repay a prior Share Purchase
Loan.
26
ARTICLE 15
FORMER EMPLOYEES/PARTICIPANTS
15.1 Participation.
If an individual's employment with the Employer terminates, and later he
is reemployed with the Employer, he shall become (or again become) an
Active Participant after his reemployment in accordance with the following
rules:
(a) If he was not an Active Participant prior to his termination of
employment, he shall become an Active Participant on the first entry
date specified in Section 3.2 that coincides with or next follows the
date on which he satisfies the eligibility conditions of Section 3.1.
(b) If he was an Active Participant prior to his termination of
employment, he again shall become an Active Participant on the first
date on which he again satisfies the eligibility conditions of
Section 3.1.
If an Active Participant becomes a Former Participant by reason of his
failure to satisfy the eligibility conditions of Section 3. 1, but his
employment with the Employer has not terminated, he again shall become an
Active Participant on the date on which he again satisfies the eligibility
conditions of Section 3.1.
15.2 Cessation of Distributions.
Subject to Section 11.9, any distributions from the Trust Fund which have
not been made to a Former Participant shall be cancelled as of the date he
again becomes an Active Participant.
ARTICLE 16
AMENDMENT AND TERMINATION
16.1 Amendment.
The Company reserves the right to amend the Plan from time to time subject
to the following limitations:
(a) No amendment shall substantively change the duties and liabilities of
the Committee unless the Committee consents to the amendment;
27
(b) No amendment shall result in the return to the Employer of any part
of the Trust or the income therefrom, or result in the distribution
of the Trust to or for the benefit of anyone other than a Participant
or Beneficiary;
(c) No amendment shall reduce the amount or the nonforfeitable portion of
a Participant's Plan Account balance as determined as of the later of
the effective date or the adoption date of the amendment; and
(d) No amendment shall eliminate an optional form of distribution with
respect to a Participant's existing Plan Account balance as
determined as of the later of the effective date or the adoption date
of the amendment except as permitted under Code section 411(d)(6).
If the Plan is amended such that Company Stock is not the main investment,
then, the proceeds of a Share Purchase Loan will be used within a
reasonable time after receipt by the Plan either to acquire Company Stock
or to repay the loan or a prior Share Purchase Loan. Even if it ceases as
an ESOP, any Company Stock acquired with the proceeds of a Share Purchase
Loan will be subject to a put option if it is not publicly traded when
distributed, or if subject to a trading limitation when distributed. The
put option must be exercisable at least during a 15-month period which
begins on the date the security subject to the put option is distributed
by the Plan. The price at which the put option will be exercisable will be
the value of the security as of the date of exercise or as of the most
recent Valuation Date. If the transaction takes place between the Plan and
a disqualified person, value will be determined as of the date of the
transaction.
16.2 Termination.
Although each Adopting Employer intends to maintain the Plan indefinitely,
the Plan is entirely voluntary on the part of each Adopting Employer and
the continuation of the Plan and the contributions hereunder should not be
construed as a contractual obligation of any Adopting Employer.
Accordingly, the Company reserves the right to terminate the Plan in its
entirety and to suspend or discontinue (in whole or in part) all
contributions to the Trust under the Plan, and each Adopting Employer
reserves the right to withdraw from participation.
The Plan shall terminate in its entirety on any date specified by the
Company if advance written notice is given to the Committee, the Trustee,
and each Adopting Employer.
16.3 Vesting on Termination.
If the Plan terminates or if contributions made by the Employer are
completely discontinued under the Plan, the Plan Account balance of all
Active Participants and all Former Participants shall remain fully vested
and nonforfeitable. If a partial termination (within the meaning of Code
section 411(d)(3)) of the Plan occurs as to any group of
28
Participants, the Plan Account balance of such Participants shall remain
fully vested and nonforfeitable.
16.4 Termination Distributions.
If the Plan terminates, the Committee shall direct a final accounting and
distribution of all amounts then held in the Trust to the Participants or
Beneficiaries. A distribution shall be made to each Participant or
Beneficiary of the Plan Account balance payable to each such person in a
single-sum payment. Such distribution shall be made as soon as practicable
after the Company receives a favorable determination from the Internal
Revenue Service as to the qualified status of the Plan under Code section
401(a) upon its termination, but not later than one (1) year after the
Plan terminates.
ARTICLE 17
MERGERS, TRANSFERS, AND ROLLOVERS
17.1 Plan Merger, Consolidation or Benefit Transfer.
This Plan shall not merge or consolidate with any other qualified plan,
nor shall assets or liabilities be transferred to any other qualified
plan, unless each Participant would (if the other Plan then terminated)
receive a benefit immediately after the merger, consolidation, or transfer
that is equal to or greater than the benefit that he would have received
immediately before the merger, consolidation, or transfer (if this Plan
then terminated).
This Plan shall not merge or consolidate with any defined benefit pension
plan.
17.2 Transfers Between Plans.
A Participant who is eligible to receive a distribution from this Plan may
direct the Trustee to transfer a specified amount equal to all or any
portion of his distribution which would otherwise be includible in the
Participant's taxable income to the trustee of another eligible retirement
plan. For purposes of distributions made pursuant to Section 8.1,
"eligible retirement plan" shall mean:
(a) an individual retirement account described in Code Section 408(a), or
(b) an individual retirement annuity described in Code Section 408(b)
(other than an endowment contract), or
(c) a qualified trust described in Code Section 401(a) and exempt from
tax under Code Section 501(a); provided, such trust is a defined
contribution plan the terms of which permit the acceptance of
rollover distributions, or
29
(d) an annuity plan described in Code Section 403(a).
For purposes of distributions made to the surviving spouse of a
Participant pursuant to Section 8.2, "eligible retirement plan" shall mean
only items (i) and (ii) described above.
The Participant shall provide such direction to the Trustee in writing on
a form provided by the Committee and shall clearly specify on such form
the eligible retirement plan to which such distribution shall be
transferred. The Committee may rely on the information provided by the
Participant and shall not be subject to penalties or liability due to such
reliance. The Committee shall provide a written explanation of this
distribution option to the Participant in accordance with rules prescribed
by the Internal Revenue Service.
17.3 Rollover Contributions.
The Trustee shall not accept any amounts distributed from any other
qualified plan or conduit individual retirement account for any
Participant.
ARTICLE 18
PLAN ADMINISTRATION
18.1 Administrative Committee.
The plan shall be administered by a committee of at least two (2) members
appointed by the Board for this purpose. Each member of such committee is
a "named fiduciary" within the meaning of Section 402(e) of the ERISA with
respect to the administration of the Plan.
18.2 Committee Powers.
The Committee shall have such powers as are not specifically reserved to
the Company, the Trustee or the Participants which are appropriate to
administer the Plan, including, but not limited to, the following, all of
which powers shall be exercised in the absolute discretion of the
Committee:
(a) To determine all questions arising under the Plan, including the
power to determine the rights or eligibility of Employees or
Participants and their Beneficiaries, and the amount of any benefits
due such persons under the Plan;
(b) To construe the terms of the Plan and to remedy ambiguities,
inconsistencies or omissions;
(c) To adopt such rules of procedure as it considers appropriate for the
proper administration of the Plan and are consistent with the Plan;
30
(d) To enforce the Plan provisions and the rules of procedure which it
adopts;
(e) To direct payments or distributions from the Trust Fund under the
provisions of the Plan;
(f) To furnish the Employer with such information relating to the Plan as
may be required by it for tax or other purposes;
(g) To employ agents, attorneys, accountants, actuaries or other persons,
and to allocate or delegate to them such powers, rights and duties as
it considers appropriate for the proper administration of the Plan;
(h) To initiate such amendments to the Plan as may be in substance
authorized by the Board of Directors of the Company;
(i) To make equitable adjustments for any mistakes or errors made in the
administration of the Plan;
(j) To request an audit of the Trust Fund to be made at reasonable times
(but at least annually) by a certified public accountant, subject to
the approval of the Company.
The Committee shall have such further powers and duties as may be
elsewhere specified in the Plan or trust agreement between the Company and
the Trustee, and shall have total discretion in the exercise of the powers
granted hereunder.
18.3 Benefit Payments.
The Committee shall determine the manner in which the funds of the Plan
shall be disbursed in accordance with the Plan and provisions of the Trust
Agreement, including the form of voucher or warrant to be used in making
distributions and the qualifications of persons authorized to approve and
sign the same and any other matters incident to the disbursements of such
funds.
18.4 Committee Officers.
The Committee shall appoint a Chairman from among its members, and shall
select a Secretary who may be, but need not be, a member of the Committee.
18.5 Committee Actions.
The Committee shall act by a majority of its members, subject to the
following:
31
(a) The Committee may delegate authority to a specific member(s) of the
Committee to carry out such duties as the Committee may assign;
(b) A member of the Committee may by writing delegate any or all his
rights, powers, duties and discretions to any other member of the
Committee, with the consent of the latter;
(c) The Committee may retain counsel, employ agents, and provide for such
clerical and accounting services as it may require to administer the
Plan; and
(d) When there is an even division of opinion among the members of the
Committee as to a matter, the Board shall decide the matter.
A majority of the members of the Committee at the time in once shall
constitute a quorum for the transaction of business. All resolutions or
other actions taken by the Committee shall be by vote of a majority of
those present at a meeting, but not less than two, or in writing by all
the members at the time in office, if they act without a meeting.
18.6 Committee Member Who Is Participant.
If a member of the Committee is a Participant, he may not decide any
matter relating to his participation or Plan Account or how his Plan
Account or any portion thereof is to be paid to him that he would not have
the right to decide were he not a member of the Committee, and he shall
not receive any compensation for his services in the administration of the
Plan.
18.7 Resignation or Removal.
A member of the Committee may resign at any time by giving advance,
written notice to the Board and to the Secretary of the Committee. The
Company may remove a member of the Committee with or without cause by
giving advance written notice to such member and each other member of the
Committee.
A member of the Committee who is an Employee shall cease to be a member of
the Committee as of the date his employment with the Employer terminates
for any reason unless the Board acts to continue him as a member.
18.8 Information Required from Employer.
The Employer shall furnish the Committee with such data and information as
the Committee deems appropriate to administer the Plan. The records of the
Employer as to an Employee's period(s) of employment and Compensation
shall be conclusive on all persons unless determined by the Committee to
be clearly incorrect.
32
18.9 Information Required from Employees.
Each person entitled to benefits under the Plan must furnish the Committee
from time to time in writing such person's post office address, each
change of post office address, and such other data and information as the
Committee deems appropriate to administer the Plan. Any communication,
statement or notice addressed to any person at the last post office
address filed with the Committee shall be binding upon such person for all
purposes of the Plan.
18.10 Uniform Rules and Administration.
The Committee shall administer the Plan on a reasonable and
nondiscriminatory basis and shall apply uniform rules to all persons
similarly situated.
ARTICLE 19
CLAIMS PROCEDURE
19.1 Written Claim for Benefits.
A Participant, Beneficiary or any other person who believes that he is
entitled to, but has been improperly denied, a distribution or benefit
under the Plan may file a claim for such distribution or benefit with the
Committee. Such claim must be filed on such form and with such
documentation as the Committee shall prescribe.
19.2 Initial Review of Claim.
The Committee shall consider all properly filed claims for distribution or
benefit and shall notify the claimant in writing within sixty (60) days of
receipt of the claim as to whether the claim is allowed or denied. If the
Committee denies a claim, the written notice informing the claimant of the
denial shall include the following:
(a) The specific reason(s) for the denial of the claim;
(b) The pertinent Plan provision(s) on which the denial is based;
(c) A description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
(d) An explanation of the claim review procedure available to the
claimant.
33
The Committee may deny a claim in whole or in part and shall notify the
claimant of the extent of denial.
19.3 Claim Review Procedure.
A claimant who receives notice that his claim for distribution or benefit
is denied in whole or in part may, within sixty (60) days after the
receipt of the notice, apply to the Committee for a review of the
decision. Such application must be made on a form provided by the
Committee for this purpose.
A claimant who files a claim for review with the Committee shall have the
following rights:
(a) Upon reasonable notice to the Committee, the claimant may examine
documents in the possession of the Committee that are pertinent to
the decision under review; and
(b) The claimant may submit written comments and issues to the Committee
relating to the decision under review.
The Committee shall notify the claimant in writing within sixty (60) days
of the later of the receipt of the application for review or the receipt
of written comments and issues from the claimant as to whether the claim
is allowed or denied. If the application is denied, the written notice
informing the claimant of the denial shall include the information
specified in Section 19.2.
19.4 Review Decisions Final.
A decision by the Committee on an application for review shall be final
and binding on all parties.
ARTICLE 20
GENERAL PROVISIONS
20.1 Prohibited Inurement.
The principal or income of the Trust Fund shall not be paid or revert to
the Employer or be used for any purpose other than the exclusive benefit
of the Participants and Beneficiaries and the payment of the reasonable
and necessary expenses of the Trust Fund.
This Section shall not prohibit the return, upon demand of the Employer,
of a contribution made by the Employer to the Trust Fund if:
34
(a) The contribution is made as a result of a mistake of fact and the
return is within one year of the payment of the contribution; or
(b) The deduction for the contribution is disallowed under Code section
404 and the return (to the extent that a deduction is disallowed) is
within one year of the disallowance; or
(c) The Plan receives an adverse determination with respect to its
initial qualification and the return is within one year after such
determination.
Any contribution returned to the Employer under this Section shall be
reduced by any portion of such contribution that previously was
distributed and by any losses of the Trust Fund allocable to such
contribution.
In no event shall the return of any contribution cause any Participant's
Plan Account balance to be less than the amount of such balance had the
contribution not been made.
20.2 Special Valuation Dates.
The Committee may designate a special valuation date to avoid prejudice
either to Active Participants or to a Former Participant whose employment
with the Employer has terminated. Such special Valuation Date shall be
treated as a regular Valuation Date only for purposes of Section 6.6.
20.3 No Employment Rights
The Plan is not a contract of employment, and participation in the Plan
shall not confer upon any Employee the right to be retained in the employ
of the Employer.
20.4 Interests Not Transferable.
Subject to Code section 401(a)(13)(B), and except as may be required by
application of the withholding provisions of the Code or of any state's
tax laws, no benefit or interest under the Plan shall be subject to
assignment or alienation, either voluntary or involuntary.
20.5 Absence of Guarantee.
Benefits under the Plan shall be paid only out of the Trust Fund and the
Employer has no legal obligation or liability to make any direct payment
of benefits due under the Plan. Neither the Committee nor the Employer in
any way guarantees the Trust Fund from loss or depreciation, nor in any
way guarantees any payment to any person except as may be required under
law.
35
20.6 Actions by Employer.
Any action taken by any corporation that makes up the Employer with
respect to the Plan shall be by resolution of its Board of Directors or by
a person or persons authorized by resolution of its Board of Directors to
take such action.
20.7 Expenses.
All costs of Plan administration shall be paid either by the Company or by
the Trustee out of Trust Fund assets and if paid from Trust Fund assets,
shall be allocated among all Plan Accounts in an equitable manner
determined by the Committee.
20.8 Facility of Payment.
If any person entitled to receive any benefit payment under the Plan is,
in the sole judgment of the Committee, under a legal disability or is
incapacitated in such a way as to be unable to handle his financial
affairs, the Committee may cause all payments due to such person to be
made for the benefit of such person to any other person designated by the
Committee. Any such payment shall operate as a complete discharge to the
Employer, the Committee, and the Trustee.
20.9 Missing Participants.
The Committee need not search for or locate any Participant or
Beneficiary. If the Committee notifies a Participant or Beneficiary that
he is entitled to a benefit, and such person fails to file a claim for
benefit or otherwise make his whereabouts known to the Committee within a
reasonable period of time after the notification, the payment to which he
is entitled shall be disposed of in an equitable manner as permitted by
law. Notification by the Committee mailed to the last post office address
filed with the Committee shall be sufficient notice of benefit entitlement
for this purpose.
20.10 Applicable Law.
The Plan shall be governed by the internal laws of the state of
Massachusetts the extent that federal law does not preempt such laws.
36
IN WITNESS WHEREOF, FALMOUTH CO-OPERATIVE BANK has caused this instrument
to be executed by its duly authorized officer, this 27th day of March, 1996.
FALMOUTH CO-OPERATIVE BANK
By /s/ Santo P. Pasqualucci
------------------------------------
Its President___________________________
37
APPENDIX A
SERVICE CREDITING RULES
A.1. Introduction.
This Appendix applies to determine the Hours of Service of an Employee for
purposes of the Plan.
To the extent that this Appendix does not contain all rules in section
2530.200b-2 of the Code of Federal Regulations that apply for this
purpose, such rules are incorporated herein by reference and shall
supplement this Appendix.
A.2. Hours of Service.
An Employee shall be credited with an Hour of Service for each of the
following:
(a) Each hour for which he is paid, or entitled to a payment, by the
Employer for a period during which he performs services for the
Employer;
(b) Each hour for which he is paid, or entitled to a payment, by the
Employer for a period during which he does not perform services for
the Employer (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity, layoff,
jury duty, military duty, or leave of absence; and
(c) Each hour for which he is awarded back pay or for which the Employer
agrees to back pay (irrespective of the mitigation of damages) unless
an hour has been credited for the same period under (a) or (b) above.
Hours credited under (c) shall be credited for the period to which the
award or agreement pertains rather than the period in which the award,
agreement or payment is made.
A.3. Special Rule for Periods When No Services Rendered.
In crediting hours to an Employee for a period during which he does not
perform services for the Employer, no credit shall be given for the
following:
(a) Hours in excess of 501 on account of any single continuous period
during which the Employee does not perform services for the Employer;
(b) Hours for which the Employee is paid, directly or indirectly, if such
payment is made or due under a plan maintained solely for the purpose
of complying with applicable workmen's compensation, unemployment
compensation, or disability insurance law; and
A-1
(c) For a payment which is solely to reimburse the Employee for medical
or medically related expenses.
An hour shall not be credited for accrued but unused vacation time, if
any, for which the Employee is paid upon his termination of employment.
A.4. Special Rule for Maternity/Paternity Absences.
Solely to determine whether an Employee has a One-Year Break - in-
Service, if he is absent from service by reason of a "maternity or
paternity absence," he shall be credited with an Hour of Service for each
hour he would have worked but for the absence (or for eight (8) hours for
each day of the absence if the number of hours he normally worked cannot
be determined); provided that no more than 501 Hours of Service shall be
credited under this Section.
Hours of Service credited under this Section shall be credited to the
following periods:
(a) Hours of Service shall be credited to the year in which the
Employee's maternity or paternity absence begins if the credit would
prevent him from incurring a One-Year Break-in-Service for such year.
(b) Hours of Service shall be credited to the year following the year in
which the Employee's maternity or paternity absence begins in all
cases not described in (a).
For purposes of this Section, a "maternity or paternity absence" is an
absence caused by reason of the pregnancy of the Employee, the birth of a
child of the Employee, the placement of a child with the Employee in
connection with the adoption of the child, or an absence for purposes of
caring for such child for a period immediately following such birth or
placement.
A-2
APPENDIX B
TOP-HEAVY PROVISIONS
B.1. Introduction.
This Appendix applies to determine whether the Plan is a Top-Heavy Plan
for a Plan Year.
To the extent that this Appendix does not contain all rules in Code
section 416 (and the regulations thereunder) that apply for this purpose,
such rules are incorporated herein by reference and shall supplement this
Appendix.
B.2. Top-Heavy Plan.
For purposes of Sections 6.4 and 9.4 and this Appendix, the Plan is
Top-Heavy for a Plan Year if, as of the determination date, the adjusted
accrued benefit of key-employees under all qualified plans within the
aggregation group is more than sixty percent (60%) of the adjusted accrued
benefit of all non-key employees under all qualified plans within the
aggregation group.
B.3. Key-Employees; Non-Key Employees.
A "key-employee" is any Employee who at any time during the Plan Year or
any of the four (4) preceding Plan Years was:
(a) An officer of any corporation that makes up the Employer with 415
Compensation of more than $45,000 (or such amount as equals fifty
percent (50%) of the amount in effect under Code section 415(b)(1)(A)
for such Plan Year); provided that, no more than fifty (50) Employees
(or, if lesser, the greater of three (3) Employees or ten percent
(10%) of all Employees) shall be treated as officers;
(b) One of the ten (10) Employees with 415 Compensation of more than
$90,000 (or such amount in effect under Code section 415(c)(1)(A)
for the Plan Year) who owns the largest interest in the Employer;
provided that, an Employee who owns not more than a one-half percent
(1/2%) interest in value shall not be counted, and if two (2)
Employees have the same interest, the Employee with the greater 415
Compensation for the Plan Year shall be treated as owning a larger
interest;
(c) A five percent (5%) owner of any corporation that makes up the
Employer; and
B-1
(d) A one percent (1 %) owner of any corporation that makes up the
Employer with 415 Compensation for the Plan Year of more than
$150,000.
A "non-key employee" is any Employee who is not a key-employee.
For purposes of this Appendix, 415 Compensation means compensation as
defined in Code section 415(c)(3).
B.4. Determination Date.
The "determination date" is the last day of the immediately preceding Plan
Year, or for the first Plan Year, the last day of such Plan Year.
B.5. Adjusted Accrued Benefit.
The "adjusted accrued benefit" of an Employee is the sum of the Employee's
adjusted account balance under this Plan plus his adjusted accrued benefit
under any other qualified plan within the aggregation group in which the
Employee participates or has participated.
An Employee's "adjusted account balance" under this Plan is his Account
balance as of the determination date, adjusted as follows:
(a) The Employee's Account is increased by the total amount of all
distributions made from the Account during the five (5) year period
ending on the determination date;
(b) The Employee's Account is disregarded if he has not performed
services for the Employer at any time during the five (5) year period
ending on the determination date;
(c) The Employee's Account is disregarded if he was a key-employee for a
prior Plan Year but is not a key-employee for the current Plan Year;
(d) The Employee's Account does not include the amount of any
contribution actually paid to the Trust after the determination date
(except with respect to the first Plan Year); and
(e) The Employee's Account is increased or decreased by the amount of any
rollover or transfer in which the Plan is the recipient or
distributor as provided in Code section 416(g)(4)(A).
An Employee's adjusted accrued benefit under each other qualified plan
within the aggregation group shall be determined under such plan and Code
section 416.
B-2
B.6. Aggregation Group.
The "aggregation group, includes the following qualified plans:
(a) Each qualified plan of the Employer in which a key-employee
participated in the Plan Year containing the determination date or
any of the four (4) preceding Plan Years;
(b) Each qualified plan of the Employer which enabled a plan described in
(a) to satisfy the requirements of Code section 401(a)(4) or 410; and
(c) At the election of the Employer, any qualified plan of the Employer
that is not described in (a) or (b) but that satisfies the
requirements of Code sections 401(a)(4) or 410 when considered
together with such plans.
The plans described in (a) and (b) together constitute the "required
aggregation group." The plans described in (a), (b) and (c) together
constitute the "permissive aggregation group."
B.7. Adjustment to Benefit Limitations.
If the Plan is Top-Heavy for a Plan Year and, as of the determination
date, the adjusted accrued benefit of key-employees under all qualified
plans within the aggregation group is more than ninety percent (90%) of
the adjusted accrued benefit of all non-key-employees under all qualified
plans within the aggregation group then a factor of 1.0 shall be used in
the denominator of the defined benefit fraction and defined contribution
fraction used to determine the combined plan limit under Code section 415
instead of a factor of 1.25.
B-3
APPENDIX C
IDENTIFYING HIGHLY COMPENSATED EMPLOYEES
C.1. Introduction.
This Appendix applies to determine the identity of Highly Compensated
Employees for a Plan Year.
To the extent that this Appendix does not contain all rules in Code
section 414(q) (and the regulations thereunder) that apply for this
purpose, such rules are incorporated herein by reference and shall
supplement this Appendix.
C.2. Highly Compensated Employee.
An Employee is a "Highly Compensated Employee" for a Plan Year if he
performs services for the Employer during the Plan Year and any of the
following conditions is satisfied:
(a) The Employee is a 5-percent owner of any corporation that makes up
the Employer at any time during the prior Plan Year or current Plan
Year;
(b) The Employee received 415 Compensation of more than $50,000 (or such
greater amount in effect under Code section 414(q)(1)(C)) for the
prior Plan Year and was a member of the group consisting of the top
20-percent of the Employees when ranked by 415 Compensation;
(c) The Employee received 415 Compensation of more than $75,000 (or such
greater amount in effect under Code section 414(q)(1)(B)) for the
prior Plan Year;
(d) The Employee received 415 Compensation of more than $45,000 (or such
greater amount as equals 50-percent of the amount in effect under
Code section 415(b)(1)(A)) for the prior Plan Year and was an officer
of the Employer at any time during such year.
An Employee also is a Highly Compensated Employee for the current Plan
Year if he is one of the top 100 Employees when ranked by Compensation
received for the current Plan Year and is described in (b), (c) or (d)
when such paragraphs are applied based on the current Plan Year
(determined based on the applicable dollar limitations above that are in
effect for the current Plan Year).
C-1
C.3. Employee Percentages.
To determine the number of Employees for purposes of C.2(b) and C.5(a),
all Employees who perform services for the Employer during a Plan Year
shall be counted as Employees except the following:
(a) An Employee who has not completed six (6) months of service by the
end of the Plan Year (including service completed in the immediately
preceding Plan Year);
(b) An Employee who normally works less than seventeen and one-half
(17 1/2) hours per week;
(c) An Employee who normally works less than six (6) months during any
Plan Year;
(d) An Employee who has not attained age twenty-one (21) by the end of
the Plan Year.
The Employer can modify the exclusions under (a), (b), (c) or (d) above by
substituting any shorter period of service or lower age than that
specified; provided that such modification must be made on a uniform and
consistent basis for all employee benefit plans maintained by the
Employer.
C.4. Special Rules for Officers.
To determine whether an Employee is a Highly Compensated Employee by
reason of his position as an officer of a corporation that makes up the
Employer, the following rules apply:
(a) No more than fifty (50) Employees (or, if lesser, the greater of
three (3) Employees or ten percent (10%) of all Employees) shall be
treated as officers; and
(b) If for any year no officer is described in C.2(d) above, then the
highest paid officer shall be treated as a Highly Compensated
Employee.
If the number of Employees who are treated as officers is limited under
(a) above, then the officers with the greatest 415 Compensation for the
year shall be treated as Highly Compensated Employees.
C.5. Tie-Breaking Elections.
To determine the identity of Highly Compensated Employees, the Employer
shall adopt rounding and tie-breaking rules that are reasonable,
nondiscriminatory, and uniformly and consistently applied.
C-2
3.7 Falmouth Co-operative Bank Employee Stock Ownership Trust, effective
as of March 28, 1996.
FALMOUTH CO-OPERATIVE BANK
EMPLOYEE STOCK OWNERSHIP TRUST
TABLE OF CONTENTS
ARTICLE I ................................................................. 1
TRUST; TRUST FUND ................................................. 1
1.1 Name of Trust ............................................... 1
1.2 Trust Fund .................................................. 2
1.3 Qualification under Internal Revenue Code ................... 2
1.4 Entire Understanding ........................................ 2
1.5 Administration of Plan ...................................... 2
1.6 Named Fiduciary ............................................. 2
ARTICLE II ................................................................ 2
CONTRIBUTIONS TO TRUST FUND ...................................... 2
ARTICLE III ............................................................... 2
PAYMENTS FROM TRUST FUND .......................................... 2
3.1 Instructions from Committee ................................ 2
3.2 Trustee Expenses ........................................... 3
3.3 Trustee Compensation ....................................... 3
ARTICLE IV ................................................................ 3
INVESTMENT OF TRUST FUND .......................................... 3
4.1 Investment Powers - In General ............................. 3
4.2 Investment of ESOP Contributions ........................... 3
4.3 Investment of non-ESOP Contributions - Powers of Trustee.... 3
4.4 Investment of non-ESOP Contributions - Powers of Committee.. 5
4.5 Voting of Company Stock .................................... 5
4.6 Tender of Company Stock .................................... 6
ARTICLE V ................................................................. 7
INVESTMENT MANAGERS ............................................... 7
5.1 Appointment by Company ..................................... 7
5.2 Relationship to Trustee .................................... 7
5.3 Fiduciary Responsibility ................................... 8
5.4 Investment Authority ....................................... 8
ARTICLE VI ................................................................ 9
RECORDKEEPING...................................................... 9
6.1 Recordkeeping ............................................. 9
6.2 Fiscal Year ............................................... 9
6.3 Reports ................................................... 9
i
ARTICLE VII ............................................................... 9
AMENDMENT AND TERMINATION ......................................... 9
7.1 Amendment ................................................ 9
7.2 Termination .............................................. 9
ARTICLE VIII .............................................................. 10
SUCCESSION OF TRUSTEES ............................................ 10
8.1 Removal by Company ....................................... 10
8.2 Resignation of Trustee ................................... 10
8.3 Appointment of Successor Trustee ......................... 10
8.4 Transfer of Assets to Successor Trustee .................. 10
8.5 Reorganization of Trustee ................................ 10
ARTICLE IX ................................................................ 10
GENERAL ADMINISTRATIVE POWERS ..................................... 11
9.1 Plan Administration ..................................... 11
9.2 Reliance upon Committee .................................. 11
9.3 Reliance upon Company .................................... 11
9.4 Reliance upon Counsel .................................... 11
9.5 No Implied Powers or Obligations ......................... 11
9.6 Parties to Court Proceedings ............................. 11
9.7 Notices .................................................. 12
ARTICLE X
MISCELLANEOUS ..................................................... 13
10.1 Third Parties ............................................ 13
10.2 Reorganization of Company ................................ 13
10.3 Prohibition Against Assignment ........................... 13
10.4 Governing Law ............................................ 14
10.5 Severability of Provisions ............................... 14
10.6 Headings ................................................. 14
10.7 Co-Trustees .............................................. 14
10.8 Exclusive Benefit Rule ................................... 15
10.9 Unclaimed Benefits ....................................... 15
ii
FALMOUTH CO-OPERATIVE BANK
EMPLOYEE STOCK OWNERSHIP TRUST
This agreement ("Agreement") is entered into this 13th day of March, 1996,
effective as of March 27, 1996, by and between FALMOUTH CO-OPERATIVE BANK (the
"Company"), and John J. Lynch, Jr., Gardner L. Lewis, and Armand Ortins (the
"Trustee").
RECITALS
1. The Company maintains the FALMOUTH CO-OPERATIVE BANK Employee Stock
Ownership Plan (the "Plan") for the exclusive benefit of its eligible
employees and the eligible employees of its affiliated corporations, if any
(the "Employer"), which plan is effective December 1, 1992.
2. The Plan is intended to satisfy all requirements of section 401(a) of the
Internal Revenue Code of 1986, as amended ("Code"), and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
3. A portion of the Plan is designed to invest primarily in common or
convertible preferred stock of the Company ("Company Stock"), which
portion is intended to satisfy all requirements of Code section 4975(e)(7)
and therefore constitute an employee stock ownership plan ("ESOP").
4. The Plan provides for a trustee to receive and hold contributions made
under the Plan in trust, which trust is intended to be tax-exempt under
Code sections 401(a) and 501(a).
NOW, THEREFORE, IT IS AGREED:
ARTICLE I
TRUST; TRUST FUND
1.1 NAME OF TRUST. The Company hereby establishes with the Trustee a trust
to carry out the purposes of the Plan, which trust shall be known as the
"FALMOUTH CO-OPERATIVE BANK Employee Stock Ownership Trust" (the "Trust").
1.2 TRUST FUND. The "Trust Fund" as of any date means all property then
held in trust under this Agreement.
1.3 QUALIFICATION UNDER INTERNAL REVENUE CODE. Unless otherwise advised to
the contrary, the Trustee shall assume that the Trust is entitled to tax
exemption under Code section 501(a) as part of an employee benefit plan which
is qualified under Code section 401(a).
1.4 ENTIRE UNDERSTANDING. The rights, powers, titles, duties, discretions,
and immunities of the Trustee shall be governed solely by this Agreement, the
Plan, and applicable law.
1.5 ADMINISTRATION OF PLAN. The Plan shall be administered by a committee
appointed by the Company (the "Committee"), which shall have such authority and
responsibility as is provided in the Plan and this Agreement.
1.6 NAMED FIDUCIARY. The Trustee shall be a "named fiduciary" within the
meaning of Section 402(e) of ERISA with respect to the investment, management,
custody, and control of the Trust Fund, except to the extent that the Company
has appointed an investment manager pursuant to Article V, and except to the
extent that the Committee directs the Trustee with respect to the investment of
Trust Fund assets pursuant to Section 4.4, or a participant (or beneficiary)
directs the Trustee with respect to the voting or tendering of Company stock
pursuant to Sections 4.5 or 4.6.
ARTICLE II
CONTRIBUTIONS TO TRUST FUND
The Trustee shall receive and hold contributions made under the Plan by the
Employer and participants, together with the income and increments thereon, in
trust for the exclusive benefit of participants and their beneficiaries, and
without distinction between principal and income. The Trustee shall not be
required nor have any duty to take any action to collect or enforce payment of
any contribution under the Plan required to be made by the Employer or a
participant.
ARTICLE III
PAYMENTS FROM TRUST FUND
3.1 INSTRUCTIONS FROM COMMITTEE. The Trustee shall make such distributions
and payments from the Trust Fund to such persons, in such manner, at such times,
and in such amounts, as the Committee from time to time shall direct. The
Trustee shall not be responsible for ascertaining whether any distribution or
payment directed by the Committee complies with
2
the terms of the Plan, or see to its application, and, accordingly, shall be
fully protected in making payments in accordance with such directions.
3.2 TRUSTEE EXPENSES. The expenses incurred by the Trustee in the
performance of its duties under this Agreement, including (but not limited to)
reasonable fees for legal, accounting, administrative, or actuarial services
rendered to the Trustee, and expenses incident thereto, shall be paid by the
Employer or out of the Trust Fund. All proper charges upon or in respect of the
Trust Fund, including (but not limited to) real and personal property taxes,
income taxes, transfer taxes, and other taxes of any kind, levied or assessed
under current or future law shall be paid by the Trustee out of the Trust Fund.
3.3 TRUSTEE COMPENSATION. The Employer shall pay the Trustee such
compensation as may be agreed upon in writing from time to time between the
Company and the Trustee.
ARTICLE IV
INVESTMENT OF TRUST FUND
4.1 INVESTMENT POWERS - IN GENERAL. Except as otherwise provided in this
Agreement, the Trustee shall have exclusive authority and discretion to hold,
manage, care for, and protect the Trust Fund.
4.2 INVESTMENT OF ESOP CONTRIBUTIONS. The purpose of that portion of the
Plan that is an ESOP is to invest primarily in and hold Company Stock, and,
accordingly, the Trustee shall invest and reinvest contributions made under the
ESOP portion of the Plan in Company Stock, subject to minimum fractional
interests established by the Trustee from time to time, and (subject to the Code
and ERISA) is authorized to borrow from any lender (including a
"party-in-interest" as defined in ERISA section 3(14)) to finance the
acquisition of Company Stock. For any period in which contributions under the
ESOP portion of the Plan are not invested in Company Stock, they shall, at the
discretion of the Trustee, be held within the Trust Fund in cash or invested in
short-term investments pursuant to Section 4.3. Subject to applicable law, the
Trustee may acquire Company Stock on the open market, through private purchases,
purchases from the Company (including purchases of treasury shares or authorized
by unissued shares), or otherwise.
4.3 INVESTMENT OF NON-ESOP CONTRIBUTIONS - POWERS OF TRUSTEE. Except for
any portion of the Trust Fund which has been invested at the direction of the
Committee (or a participant or beneficiary) pursuant to Section 4.4, or at the
direction of an investment manager pursuant to Article V, the Trustee shall have
the following rights, powers, and duties with respect to the investment of
contributions made under the non-ESOP portion of the Plan, in addition to those
provided elsewhere in this Agreement, the Plan, or by law:
3
(a) To retain, without liability for depreciation or loss, any and all stocks,
bonds, notes, or other securities, including those issued by the Employer,
and those issued by a foreign corporation, or any variety of real or
personal property, including that which it may receive as a contribution
from the Employer.
(b) To sell, lease, pledge, mortgage, transfer, exchange, convert, or otherwise
dispose of, or grant options with respect to, any and all property at any
time that forms part of the Trust Fund, in such manner, at such time or
times, for such purposes, for such prices, and upon such terms and
conditions as it may decide. Any sale may be made by private contract or by
public auction and no person who deals 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.
(c) To borrow money for any purpose connected with the protection,
preservation, or improvement of any assets of the Trust Fund, whenever, in
its judgment, it appears advisable and, as security, to mortgage or pledge
any real estate or personal property of the Trust Fund, upon such terms and
conditions as it may deem advisable.
(d) Subject to Section 4.5, to vote, in person or by general or limited proxy,
any shares of stock or other securities held by it; to consent, directly or
through an agent, to the reorganization, consolidation, merger,
dissolution, or liquidation of any corporation in which the Trustee may
have any interest, or to the sale, pledge, lease, or mortgage of any
property by or to any such corporation; and to make any payments and to
take any steps which it may deem necessary or proper to enable it to obtain
the benefit of any such transaction.
(e) To acquire, dispose of, or exercise all options, rights, and privileges to
convert stocks, bonds, notes, mortgages, or other property into other
stocks, bonds, mortgages, or other property; to subscribe for addition or
other stocks, bonds, notes, mortgages, or other property; to make such
conversions and subscriptions and to make payments therefor; and to hold
such stocks, bonds, notes, mortgages, or other property so acquired as
investments of the Trust Fund.
(f) To keep any of the securities or other property belonging to the Trust Fund
registered or recorded in the name of the Trust Fund or in the name of the
Trustee as nominee, without disclosing said Trust Fund.
(g) To pay, compromise, compound, adjust, submit to arbitration, settle, or
release any claims or demands of the Trust as it may deem advisable,
including the acceptance of deeds of real property in satisfaction of bonds
and mortgages, and to make any payments in connection therewith which it
may deem advisable.
4
(h) To reduce the interest rate at any time and from time to time on any note
or mortgage constituting a portion of the Trust Fund and to extend or renew
notes and mortgages upon or after maturity, with or without reference to
the value of the mortgage security at the time of such extension or
renewal.
(i) To employ agents, attorneys, and other persons whose services may
reasonably be required in connection with the administration of the Trust
Fund from time to time, and to pay reasonable compensation therefore.
(j) To deposit in its banking department any or all cash held in the Trust
Fund; provided that, if this power is exercised, its banking department
shall not be obligated to pay to the Trust Fund or to any beneficiary
thereof, any interest, earnings, or profit whatsoever accruing to or
deriving to it from such money on deposit with it, except for such rate of
interest as under its current practices it may be obligated to pay upon
demand deposit of individuals.
(k) To execute and deliver any and all instruments in writing which it may deem
advisable to carry out any of the foregoing powers. No party to any such
instrument in writing, signed by the Trustee, shall be obliged to inquire
into its validity or be bound to see to the application of any money or
other property paid or delivered to the Trustee pursuant to the terms of
such instrument.
Any provision of this Agreement to the contrary notwithstanding, the
Trustee shall not acquire or dispose of any asset or engage in any transaction
if such acquisition, disposition, or transaction would cause a tax to be imposed
upon any person under Code section 4975.
4.4 INVESTMENT OF NON-ESOP CONTRIBUTIONS - POWERS OF COMMITTEE. The
Committee may direct the Trustee as to the investment of any or all assets of
the Trust Fund, or may direct the Trustee to maintain or make available within
the Trust Fund a diversified group of at least two (2) investment funds in which
the assets of the Trust Fund may be invested at the direction of participants or
beneficiaries. An "investment fund" may be any common or collective trust fund
or pooled investment fund maintained by the Trustee or an affiliate of the
Trustee. All directions of the Committee, or a participant or beneficiary, to
the Trustee in this regard shall be in writing, and the Trustee shall be under
no duty to question any such direction or to review any securities or other
property in connection with such direction. The Trustee shall not be liable or
responsible in any way for any losses or unfavorable results that arise from its
compliance with such directions.
4.5 VOTING OF COMPANY STOCK. The Company shall use its reasonable best
efforts to cause to be delivered to each participant (or in case of death, his
beneficiary) such notices and informational statements as are furnished to the
Company's stockholders with respect to the exercise of voting rights on Company
Stock, together with a form by which the participant (or beneficiary) may
confidentially instruct the Trustee with respect to the voting of Company Stock
5
allocated to his account under the Plan. The Trustee shall vote Company Stock
held within the Trust Fund as follows:
(a) The Trustee shall vote Company Stock credited to a participant's
account under the Plan with respect to which the Trustee has received
timely direction, as directed by the participant (or beneficiary) (or
abstain if so directed).
(b) The Trustee shall vote (i) all Company Stock not credited to any
participant's account under the Plan, and (ii) all Company Stock
credited to a participant's account under the Plan with respect to
which the Trustee has not received timely direction, in the same
proportion as the Company Stock specified in (a) (disregarding any
shares specified in (a) with respect to which the Trustee has received
a direction to abstain).
All voting direction received by the Trustee shall be held in confidence by
the Trustee and shall not be divulged or released to any person, including an
employee or any officer or director of the Company.
4.6 TENDER OF COMPANY STOCK. If there is a tender or exchange offer for, or
a request or invitation for the tender or exchange of, Company Stock, the
Trustee promptly shall furnish to each participant (or in case of death, his
beneficiary) a notice of such offer, request, or invitation, and shall request
direction from the participant (or beneficiary) as to the tender or exchange of
Company Stock allocated to the participant's account under the Plan. The Trustee
shall tender or exchange, or retain, Company Stock held within the Trust as
follows:
(a) The Trustee shall tender or exchange, or retain, Company Stock
credited to a participant's account under the Plan with respect to
which the Trustee has received timely direction, as directed by the
participant (or beneficiary).
(b) The Trustee shall retain Company Stock credited to a participant's
account under the Plan which respect to which the Trustee has not
received timely direction.
(c) The Trustee shall tender or exchange, or retain, Company Stock not
credited to any participant's account under the Plan, in the same
proportion as the Company Stock specified in (a) and (b) are tendered
or exchanged, or retained.
All tender or exchange directions received by the Trustee shall be held in
confidence by the Trustee and shall not be divulged or released to any person,
including an employee or any officer or director of the Company.
6
ARTICLE V
INVESTMENT MANAGERS
5.1 APPOINTMENT BY COMPANY. The Company may transfer to one or more
"investment managers" (as defined below) the authority and responsibility to
direct the investment and management, and/or to have custody and control, of all
or part of the Trust Fund by advance written notice to the Trustee. Any such
notice shall include the name and a specimen signature of each such investment
manager. Any such transfer of the Trustee's authority to an investment manager
may be revoked in whole or in part by the Company by delivery to the investment
manager and to the Trustee of reasonable advance written notice to that effect,
whereupon such authority shall be restored to the Trustee unless a successor
investment manager is appointed by the Company. For purposes of this Agreement,
an "investment manager" is a fiduciary that has fully complied with the
provisions of section 3(38) of ERISA and has provided the Trustee with a written
acknowledgment that it has done so and that it is a fiduciary with respect to
the Trust Fund.
5.2 RELATIONSHIP TO TRUSTEE. During such period of time as an investment
manager is authorized to direct the investment and management of all or part of
the Trust Fund which remains in the custody of the Trustee, the following shall
apply:
(a) NO LIABILITY FOR LOSSES. The Trustee shall not be liable or in any way
responsible for any losses or other unfavorable results arising from
the Trustee's compliance with investment or management directions
received by the Trustee from the investment manager.
(b) COMMUNICATIONS TO TRUSTEE. All directions concerning investments made
by an investment manager shall be signed by such person or persons,
acting on behalf of the investment manager, as may be duly authorized
in writing; provided that, the transmission to the Trustee of such
directions by photostatic teletransmission with duplicate or facsimile
signature or signatures shall be considered a delivery in writing of
the aforesaid directions until the Trustee is notified in writing that
the use of such devices with duplicate or facsimile signatures is no
longer authorized.
(c) COMPLIANCE WITH INSTRUCTIONS. The Trustee shall comply with any
written directions given by an investment manager as promptly as
possible, and shall be entitled to presume that any directions so
given are fully authorized.
(d) ABSENCE OF INSTRUCTIONS. The Trustee shall not be liable for its
failure to invest any or all of the Trust Fund in the absence of
written directions from the investment manager.
(e) RIGHTS WITH RESPECT TO SECURITIES. The Trustee shall have no
obligation to determine the existence of any conversion, redemption,
exchange, subscription, or
7
other right relating to any securities purchases, of which notice was
given prior to the purchase of such securities, unless the Trustee is
informed of the existence of the right and is instructed to exercise
such right, in writing, by the investment manager, within a reasonable
time prior to the expiration of such right.
(f) COMMON TRUST FUND OF INVESTMENT MANAGERS. The investment manager is,
permitted to instruct the Trustee to invest that portion of the Trust
Fund subject to the investment manager's control in any common or
collective trust fund or pooled investment fund maintained by the
investment manager or any affiliate of the investment manager. The
investment manager also may transfer, and temporarily hold for less
than two (2) days, assets under his control. The Company and
investment manager shall hold the Trustee harmless with respect to any
group trust investment directed by the investment manager.
5.3 FIDUCIARY RESPONSIBILITY. The Company intends by this Article to
allocate to an investment manager all fiduciary responsibility with respect to
the assets of the Trust Fund that are invested, managed, and controlled by, and
under the custody of the investment manager. Unless the Trustee, by action or
failure to act, participates in or undertakes to conceal an act or omission of
an investment manager, the Trustee shall incur no liability for any loss of any
kind which may result solely (i) by reason of any action taken by it in
accordance with any direction of such investment manager, or (ii) by reason of
any act or omission of an investment manager, and, except where the Trustee has
failed fully to perform and discharge all of its duties and obligations under
this Agreement, the Company shall indemnify and hold harmless the Trustee for
any legal liability judicially imposed by a court of competent jurisdiction on
the Trustee solely as a result of complying with the instructions of an
investment manager appointed by the Company or solely as a result of any act or
omission of the investment manager. The Trustee shall not be deemed to be a
party to or to have any obligations under any agreement with any investment
manager, except as otherwise provided for herein. On receipt of directions from
an investment manager, the trustee promptly shall 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 such
directions. The Trustee shall not be deemed to have participated in any act or
omission of the investment manager solely by reason of acting or failing to act
in accordance with the direction of the investment manager.
5.4 INVESTMENT AUTHORITY. An investment manager shall have the investment
powers and duties otherwise granted to or imposed upon the Trustee, except as
otherwise limited by agreement or by investment objectives provided by the
Company or Committee.
8
ARTICLE VI
RECORDKEEPING
6.1 RECORDKEEPING. The Trustee shall keep accurate and detailed accounts of
all its, investments, receipts, disbursements, and other transactions involving
the Trust Fund, and all accounts, books, and records relating thereto shall be
open to inspection and audit by any person designated by the Company at all
reasonable times during business hours.
6.2 FISCAL YEAR. The fiscal year of the Trust shall be the twelve month
period beginning October 1 and ending the following September 30.
6.3 REPORTS. Within seventy-five (75) days following the close of each
fiscal year of the Trust, and as soon as practicable, but not later than sixty
(60) days, after the removal or resignation of the Trustee, the Trustee shall
file with the Company a written report that sets forth all investments,
receipts, disbursements, and other transactions effected by it during such
fiscal year, or portion thereof. Such report shall contain a description of all
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or received being shown separately), and showing
the investments held at the end of the period for which the report is submitted.
Neither the Company, nor any participant in the Plan, nor any other person shall
have the right to demand or be entitled to any further or different accounting
by the Trustee. The foregoing provisions, however, shall not preclude the
Trustee from having its accounts judicially settled if it so desires.
ARTICLE VII
AMENDMENT AND TERMINATION
7.1 AMENDMENT. The Company shall have the right at any time and from time
to time to amend this Agreement, in whole or in part, on a prospective or
retroactive basis; provided that, no amendment shall be effective if it causes
any part of the Trust Fund to be used for, or diverted to, purposes other than
the exclusive benefit of employees and their beneficiaries, and no amendment
shall be effective without the Trustee's consent if it materially changes the
rights, duties, and responsibilities of the Trustee. An amendment shall become
effective upon the date therein so stated.
7.2 TERMINATION. If the Plan is terminated, this Agreement nevertheless
shall continue in effect until all assets have been distributed from the Trust
Fund, at which time the Trust and this Agreement shall terminate. The Committee
shall notify the Trustee of the termination of the Plan, and the Trustee shall
dispose of Trust Fund assets in accordance with the directions of the Committee,
subject to the receipt of such determination from the Internal Revenue Service
as to the qualified status of the Plan and Trust under Code sections 401(a) and
501(a) as may reasonably be required by the Trustee.
9
ARTICLE VIII
SUCCESSION OF TRUSTEES
8.1 REMOVAL BY COMPANY. The Company may remove the Trustee at any time upon
written notice to the Trustee. Such removal shall be effective immediately upon
the Trustee's receipt of such notice or at such later date as the parties may
agree.
8.2 RESIGNATION OF TRUSTEE. The Trustee may resign as trustee at any time
upon written notice to the Company. Such resignation shall be effective as of
the date the Company appoints a successor trustee; provided that, if no
successor trustee is appointed within sixty (60) days after the Company's
receipt of the Trustee's notice of resignation, the Trustee may apply to a court
of competent jurisdiction for appointment of a successor trustee and such
resignation shall be effective as of the date the court appoints a successor
trustee.
8.3 APPOINTMENT OF SUCCESSOR TRUSTEE. To appoint a successor trustee, the
Company shall deliver to the Trustee and to the successor trustee an instrument,
executed by the Company, appointing such successor trustee, and deliver to the
Trustee a written acceptance executed by the successor trustee so appointed.
Unless and until superseded by a subsequent trust agreement, all of the
provisions of this Agreement shall apply to any successor trustee with the same
force and effect as if such successor trustee originally had been named herein
as the Trustee.
8.4 TRANSFER OF ASSETS TO SUCCESSOR TRUSTEE. Upon the appointment of a
successor trustee, the Trustee shall, without requiring any release or agreement
from any party other than the Company, render a final accounting in writing to
the Company and transfer and deliver the assets of the Trust Fund to such
successor trustee after reserving such reasonable amount as it shall deem
necessary to provide for any fees, expenses, or taxes then chargeable against
the Trust Fund. The receipt of assets by a successor trustee and the approval of
the Company to the final accounting of the Trustee shall be a full and complete
acquittal and discharge of the Trustee except as otherwise provided under ERISA.
A successor trustee shall have no liability whatsoever for the acts or omissions
of the Trustee. If the Company fails to object to such accounting by delivery to
the Trustee within one hundred and twenty (120) days from the date of receipt by
the Company of such final accounting, such accounting shall be deemed to be
approved by the Company.
8.5 REORGANIZATION OF TRUSTEE. If, at any time, the Trustee merges or
consolidates with another entity, or sells or transfers substantially all of its
assets and business to another entity, the entity resulting from such merger or
consolidation, or the entity into which it is converted, or to which such sale
or transfer is made, shall thereupon become and be the Trustee under this
Agreement, with the same effect as though originally so named.
10
ARTICLE IX
GENERAL ADMINISTRATIVE POWERS
9.1 PLAN ADMINISTRATION. The Plan shall be administered by the Committee,
the individual members of which have been duly appointed under the Plan. The
Committee shall have all administrative authority and responsibility with
respect to the Plan as is provided in the Plan, and the Trustee shall have no
obligations with respect to the administration.
9.2 RELIANCE UPON COMMITTEE. The Trustee shall be fully protected in
relying upon any instruction, direction, or approval of the Committee furnished
to the Trustee if such instruction, direction, or approval is (i) signed by a
majority of the members of the Committee, or (ii) signed by one or more of its
members as may be authorized by the Committee in accordance with the Plan to
execute such instructions, directions, or approvals. The Trustee may rely upon a
certification by any Company officer as to the identity of the members of the
Committee until advised to the contrary. The Company agrees to indemnify and
hold the Trustee harmless against any liabilities it may incur in acting in
accordance with any such written instruction, direction, or approval delivered
by the Committee.
9.3 RELIANCE UPON COMPANY. The Trustee shall be fully protected in acting
upon any instrument, certificate, or paper signed on behalf of the Company,
provided that the Trustee reasonably believes that such instrument, certificate,
or paper is genuine and signed by the proper person. The Trustee shall be under
no duty to make any investigation or inquiry as to any statement of fact
contained in such writing, but may accept the same as conclusive evidence of the
truth and accuracy thereof, including any statement that any amendment or
modification of this Agreement under the provisions of Article VII complies with
the requirements and restrictions set forth therein. The Company agrees to
indemnify and hold the Trustee harmless against any liabilities it may incur in
acting in accordance with any such written instructions delivered by the
Company.
9.4 RELIANCE UPON COUNSEL. The Trustee may consult with counsel, who may or
may not be counsel for the Company, in respect of any of its duties or
obligations hereunder and shall be fully protected in acting or refraining from
acting in accordance with the written advice of such counsel.
9.5 NO IMPLIED POWERS OR OBLIGATIONS. Nothing shall be deemed to impose any
powers, duties, or responsibilities on the Trustee other than those expressly
set forth in the Plan, this Agreement, or under ERISA.
9.6 PARTIES TO COURT PROCEEDINGS. Except as otherwise required by ERISA,
only the Company, the Committee, and the Trustee shall be necessary parties to
any court proceeding involving the Trustee or the Trust, and no employee, former
employee, or beneficiary shall be entitled to any notice or process. Any final
judgment entered in any such proceeding shall be
11
conclusive upon the Company, the Committee, the Trustee, employees, former
employees, and beneficiaries of employees or former employees.
9.7 NOTICES. All notices, orders, authorizations, directions, or other
communications hereunder shall be in writing and shall be deemed to have been
given if delivered personally or mailed to the following address, marked for
attention as indicated, or such other address or marked for such other attention
as may from time to time be furnished in writing to the other party to this
Agreement by any such addressee:
If to the Company or Committee:
FALMOUTH CO-OPERATIVE BANK
20 Davis Straits
Falmouth, MA 02541
Attention: President
If to the Trustee:
- -----------------
- -----------------
- -----------------
Attention:
ARTICLE X
MISCELLANEOUS
10.1 THIRD PARTIES. No person dealing with the Trustee shall be obligated
to see to the application of any money paid or property delivered to the
Trustee; nor shall any such person be required to take cognizance of the
provisions of this Agreement or the Plan, or to question the authority of the
Trustee to do any act as respects the Trust or the authority of the Trustee to
receive any money becoming due and payable, nor be obligated to inquire as to
whether the Trustee has secured the direction, consent, or approval of the
Company, the Committee or of any participant or beneficiary to any proposed
action. In general, each person dealing with the Trustee may act upon any
advice, request, or representation in writing by the Trustee or the Trustee's
duly authorized agent and shall not be liable to any person in so doing.
10.2 REORGANIZATION OF COMPANY. If the Company consolidates or merges with
or into any other corporation, or sells substantially all of its property, the
successor corporation formed
12
and resulting from any such consolidation, merger, or purchase of assets
automatically shall become a party to this Agreement.
10.3 PROHIBITION AGAINST ASSIGNMENT. Except as may be required or permitted
under ERISA and the Code, no interest in any payments under the Trust Fund shall
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge, and any attempt so to anticipate,
alienate, sell, transfer, assign, pledge, encumber, or charge shall be void.
Neither shall the Trust nor the Trustee be in any manner liable for or subject
to any debts, contracts, liabilities, engagements, or torts of any person
entitled to any payment or distribution from the Trust Fund.
10.4 GOVERNING LAW. This Agreement shall be governed by the internal laws
of the state of Massachusetts to the extent that federal law does not preempt
such laws.
10.5 SEVERABILITY OF PROVISIONS. If any provision of this Agreement is held
illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining provisions of this Agreement, but shall be fully severable,
and this Agreement shall be construed and enforced as if the illegal or invalid
provision had never been included herein.
10.6 HEADINGS. All headings in this Agreement are included solely for ease
of reference and do not bear on the interpretation of the text.
10.7 CO-TRUSTEES. With the consent of the Trustee, the Company may appoint
one or more co-trustees. During any period of time when two or more persons
(whether individuals, corporations, or otherwise) make up the Trustee, the
following provisions shall apply:
(a) JOINT MANAGEMENT. Except as otherwise provided in this Agreement, (i)
each such person shall use reasonable care to prevent a co-trustee
from committing a breach, and (ii) each such person shall jointly
manage and control the assets of the Trust Fund; provided that, this
provision shall not preclude any agreement (and the co-trustees are
hereby authorized to agree in a written document executed by all
co-trustees) to allocate specific responsibilities, obligations, or
duties among themselves, in which case a co-trustee to whom certain
responsibilities, obligations, or duties have not been allocated shall
not be liable by reason of this provision, either individually or as a
trustee, for any loss resulting to the Trust Fund arising from acts or
omission on the part of another co-trustee to whom such
responsibilities, obligation, or duties have been allocated.
(b) FIDUCIARY STATUS. Nothing in this Section shall limit any liability
that any fiduciary may have under ERISA.
(c) MAJORITY ACTION. The Trustee shall act by a majority of such persons
at the time in office, and such action may be taken either by vote at
a meeting or in writing without a meeting.
13
(d) SIGNATURES. Persons serving as co-trustees may unanimously designate
any one or more co-trustee(s) to execute any instrument or document on
behalf of all, including but not limited to the signing or endorsement
of any check and the signing of any application or insurance
contract, and the action of such designated co-trustee shall have the
same force and effect as if taken by all the co-trustees. In the event
of such authorization, all the co-trustees shall in writing notify
the Committee, the Company, and any insurer, and such parties shall be
entitled to rely upon such notification until one or more co-trustees
gives written notification to the contrary.
10.8 EXCLUSIVE BENEFIT RULE. The assets of the Trust Fund shall never inure
to the benefit of the Company and shall be held for the exclusive purpose of
providing benefits under the Plan and defraying reasonable expenses of
administration. The Company shall not be entitled to receive or recover any part
of its contributions to the Trust or the earnings thereon except as follows:
(a) CONTRIBUTIONS CONDITIONED ON DEDUCTIBILITY. All Company contributions
to the Trust Fund are conditioned upon deductibility under Code
section 404, unless otherwise expressly stated by the Company.
Accordingly, if and to the extent that such a deduction is disallowed
within the meaning of section 403(c)(2) of ERISA, the contribution in
question shall be repaid to the Company upon demand (but subject to
paragraph (c) below and only to the extent disallowed) within one (1)
year after such disallowance. If the Company contribution for any
taxable year exceeds the amount deductible for the taxable year under
the Code, but is not repaid pursuant to the foregoing sentence, the
portion not so deductible shall in like amount reduce the contribution
required in respect of the subsequent taxable year during which the
disallowance or other determination of nondeductibility is made and,
to the extent not thereby consumed, any subsequent taxable year or
years.
(b) CONTRIBUTIONS MADE BY MISTAKE. If and to the extent that a
contribution to the Trust Fund is made as a result of a good faith
mistake of facts or circumstances, the same shall be repaid to the
Company upon demand of the Committee (but subject to paragraph (c)
below and only to the extent of such mistake) within one (1) year
after the contribution was made.
(c) REPAYMENTS. Any repayment of a contribution under paragraphs (a) or
(b), above, shall be subject to the condition that (i) such repayment
shall not include any earnings attributable to that portion of the
contribution that qualifies for repayment under paragraph (a) or (b)
above, unless the repayment is being made to avoid a detrimental tax
effect under Code section 401(k), 401(m), or 402(g), (ii) there shall
be deducted from the amount of such repayment any losses attributable
to that portion of the contribution which qualifies for repayment
under paragraph (a) or (b) above, and (iii) in no event shall such
repayment result in any participant's account being reduced to a
balance which is less than the balance which would have been
14
in his account had the amount contributed not been contributed, and
the amount of the repayment shall be adjusted accordingly.
10.9 UNCLAIMED BENEFITS. If any benefit is unclaimed for a period of seven
years following termination of the Plan, it shall escheat in accordance with
applicable law to the extent permissible under ERISA.
15
IN WITNESS WHEREOF, the Company and the Trustee have caused this Agreement
to be duly executed as of the day and year first above written.
FALMOUTH CO-OPERATIVE BANK
By /s/ Santo P. Pasqualucci /s/ Armand Ortins
------------------------ -----------------
Its President Trustee
/s/ John J. Lynch, Jr.
----------------------
Trustee
/s/ Gardner L. Lewis
--------------------
Trustee
16
6 Annual Report to Stockholders for the Year Ended September 30, 1996.
FALMOUTH
CO-OPERATIVE BANK
Chartered 1925
ANNUAL REPORT
1996
TABLE OF CONTENTS
Bank Profile........................................................... 1
President's Message.................................................... 2
Financial Highlights................................................... 3
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 5
Market for the Bank's Common Stock.................................... 9
Independent Auditors' Reports......................................... 10
Balance Sheets........................................................ 12
Statements of Income.................................................. 13
Statements of Changes in Stockholders' Equity......................... 14
Statements of Cash Flows.............................................. 15
Notes to Financial Statements......................................... 17
Directors and Corporate Information.................... Inside Back Cover
This Annual Report to Stockholders contains certain forward looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Bank that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include: changes in general, economic and market
conditions, or the development of an adverse interest rate environment that
adversely effects the interest rate spread or other income anticipated from the
Bank's operations and investments.
BANK PROFILE
Falmouth Co-operative Bank (The "Bank"), a Massachusetts-chartered stock
co-operative bank, had total assets of $90.5 million as of September 30, 1996.
The Bank's office is located in Falmouth, Massachusetts, where it was originally
founded in 1925 as a Massachusetts chartered mutual co-operative Bank. The
Bank's deposits are currently insured up to applicable limits by the Bank
Insurance Fund of the Federal Deposit Insurance Corporation and the Share
Insurance Fund of the Co-operative Central Bank of Massachusetts.
The Bank, which is currently in its first year as a publicly-owned entity,
converted to stock form on March 28, 1996, and issued 1,454,750 shares of common
stock at $10.00 per share. The Bank considers its primary market area to be the
communities of Falmouth and Mashpee in Barnstable County, Massachusetts. In
February, 1997, the Bank expects to open a new branch located in East Falmouth,
Massachusetts.
The Bank's business strategy is to operate as a well-capitalized,
profitable and independent community bank dedicated to financing home ownership
and consumer and small business needs in its market area and to provide quality
service to its customers. The Bank has implemented this strategy by: (i) closely
monitoring the needs of customers and providing quality service; (ii)
emphasizing consumer-oriented banking by originating residential mortgage loans
and consumer loans, and by offering checking accounts and other financial
services and products; (iii) focusing on expanding the volume of the Bank's
existing lending activities to produce moderate increases in loan originations;
(iv) maintaining high asset quality through conservative underwriting standards;
(v) maintaining capital in excess of regulatory requirements; and (vi) producing
stable earnings.
PRESIDENT'S MESSAGE
It is with great pleasure that I submit to you Falmouth Co-operative Bank's
first annual report to stockholders as a publicly-owned stock company in the
70-year history of the Bank. The Bank converted from mutual to stock form on
March 28, 1996 and issued 1,454,750 shares of common stock at that time.
Net income for the fiscal year ended September 30, 1996 was $570,000 as
compared to $439,000 for the prior year. The $131,000 increase in net income was
primarily the result of a $760,000 increase in interest income, particularly
interest on loans, partially offset by an increase of $346,000 in interest
expense and a $95,000 increase in other expenses.
The Bank's loan portfolio balance was $40.2 million at September 30, 1996.
Net loans increased by $7.7 million, or 23.8 %, as compared to the prior year.
Loan growth was indicative of the Bank's success in gathering an increased
market share of loan originations while maintaining quality loan standards. Only
one residential real estate loan for $78,000 and three personal loans totaling
$17,000 were two payments or more overdue. There were no loans in the
real estate owned account on September 30, 1996. We are pleased with these
results and believe that they reflect favorably on our strategy to moderately
expand the loan portfolio with a balance of residential and commercial loans.
As of this writing, completion of the first branch office of the Falmouth
Co-operative Bank in East Falmouth is near. Renovations of an existing building
are nearly complete and we expect the branch to be open for business by February
1997. In connection with the new branch office, we will provide our current ATM
card customers with the added convenience of ATM machines at the main office and
the branch location by February 1997.
We are pleased with the performance of the Bank during the past fiscal year
and remain confident that the financial performance of the Bank and stockholder
value will continue to be enhanced as our strategic initiatives gain momentum
during the coming year.
Sincerely,
/s/ Santo P. Pasqualucci
Santo P. Pasqualucci
President and Chief Executive Officer
FINANCIAL HIGHLIGHTS
The selected consolidated financial and other data of the Bank set forth
below is derived in part from and should be read in conjunction with the
Financial Statements of the Bank and Notes thereto. No cash dividends were
declared or paid during the year ended September 30, 1996. As a result,
dividends per share information is not presented.
At September 30, At April 30,
-------------------------------------- ---------------
1996 1995 1994 1993 1993(1) 1992
---- ---- ---- ---- ------ ----
(Dollars in thousands)
Selected Financial Condition Data:
Total amount of:
Assets ........................... $90,516 $73,679 $74,666 $75,144 $74,202 $72,826
Loans, net ....................... 40,237 32,503 27,584 28,956 29,406 32,380
Investment Securities(2): ........ 45,553 35,576 38,992 35,326 34,574 30,343
Deposits ......................... 66,439 65,061 66,696 67,571 66,321 66,623
Stockholders' equity/Net worth(3). 21,914 8,435 7,847 7,196 6,774 6,108
Year Ended
Year Ended September 30, April 30,
-------------------------------------------- ------------------------
1996 1995 1994 1993(1) 1993(1) 1992
---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
SELECTED OPERATING DATA:
Interest and dividend income .............. $ 5,576 $ 4,815 $ 4,629 $ 5,207 $ 5,466 $ 6,122
Interest expense on deposits and
borrowings ............................... 2,833 2,487 2,137 2,455 2,750 3,911
---------- ------- ------- -------- ---------- -------
Net interest income ....................... 2,743 2,328 2,492 2,752 2,716 2,211
Provision for possible loan losses......... 51 -- 9 -- 178 156
---------- ------- ------- -------- ---------- -------
Net interest income after provision
for possible loan losses ................. 2,692 2,328 2,483 2,752 2,538 2,055
---------- ------- ------- -------- ---------- -------
Other income:
Gain (loss) on sales of
investment securities, net ............. 2 16 16 48 -- (24)
Other .................................. 123 99 214 140 134 133
---------- ------- ------- -------- ---------- -------
Total other income ................. 125 115 230 188 134 109
---------- ------- ------- -------- ---------- -------
Operating expenses ....................... 1,888 1,793 1,615 1,652 1,541 1,475
---------- ------- ------- -------- ---------- -------
Income before income taxes .............. 929 650 1,098 1,288 1,131 689
Income taxes ............................. 359 211 447 470 465 275
---------- ------- ------- -------- ---------- -------
Income before cumulative effect
of change in accounting ................. 570 439 651 818 666 414
principle
Cumulative effect of change in ............ -- -- -- 106 -- --
---------- ------- ------- -------- ---------- -------
accounting principles ................... $ 570 $ 439 $ 651 $ 924 $ 666 $ 414
========== ======= ======= ======== ========== =======
Net income
Net income per common share (4) ........... .32 -- -- -- -- --
Weighted average number of
common shares outstanding(5) ............ 1,454,750 -- -- -- -- --
- ----------
(1) During 1993, the Bank changed its fiscal year end from April 30 to
September 30, Throughout this Annual Report, information for the year ended
September 30. 1993 represents a twelve-month audited period.
(2) Effective October 1, 1994. the Bank adopted Statement of Financial
Accounting Standards No. 115 which requires the classification of the
Bank's investment securities as "trading securities," "held-to-maturity" or
"available-for-sale."
(3) Includes unrealized gain on available-for-sale securities of $144,000 and
$149,000, net of tax, at September 30. 1996 and 1995, respectively.
(4) Amount calculated from March 28, 1996, the date of the Bank's conversion
from mutual to stock form (the "Conversion"), to September 30. 1996. For
the twelve months ended September 30, 1996, net income per share of common
stock was $0.39.
(5) Calculated from March 28, 1996. the date of the Conversion, to September
30, 1996.
3
At or for the Year
At or for the Year Ended September 30 Ended April 30,
------------------------------------------- --------------------
1996 1995 1994 1993 1993 1992
---- ---- ---- ---- ---- ----
Interest rate spread information:(1)
Average during period ......................... 2.59% 2,95% 3.21% 3.56% 3.48% 2.84%
End of period ................................. 2.73 2.97 3.12 3.52 3.71 2.89
Net interest margin(2) ......................... 3.40 3.33 3.49 3.80 3.75 3.16
Return on average assets ....................... .69 .61 .88 1.23 .89 .58
Return on average equity ....................... 3.51 5.48 8.52 13.55 10.13 7.13
Non-performing loans as a percent of
total loans ................................... .03 -- 1.15 1.17 1.52 2.72
Non-performing assets as a percent of
total assets .................................. .02 -- .43 .57 .61 1.45
Allowance for possible loan losses as a
percent of non-performing loans ................ 3,557.14 -- 96.27 80.99 61.42 28.62
Capital Ratios:
Average equity to average assets .............. 19.56 11.06 10.36 9.10 8.76 7.97
Regulatory Tier 1 leverage capital ratio ...... 24.27 11.52 10.55 9.54 9.00 8.39
- ----------
(1) Interest rate spread represents the difference between weighted average
yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(2) Net interest margin represents net interest income divided by average
interest-earning assets.
4
MANAGEMENT's DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The business of the Bank consists of attracting deposits from the general
public and using these funds to originate mortgage loans secured by one-to
four-family residences located primarily in Falmouth, Massachusetts and
surrounding areas and to invest in United States Government and Agency
securities. To a lesser extent, the Bank engages in various forms of consumer
and home equity lending. The Bank's profitability depends primarily on its net
interest income, which is the difference between the interest income it earns on
its loans and investment portfolio and its cost of funds, which consists mainly
of interest paid on deposits. Net interest income is affected by the relative
amounts of interest-earning assets and interest-bearing liabilities and the
interest rates earned or paid on these balances. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income.
The Bank's profitability is also affected by the level of noninterest
income and expense. Noninterest income or other income consists primarily of
service fees, late charges and other loan fees, and gain on sale of investment
securities. Noninterest expense or operating expenses consist of salaries and
benefits, deposit insurance premiums paid to the FDIC, occupancy related
expenses and other operating expenses.
The operations of the Bank, and banking institutions in general, are
influenced significantly by general economic conditions and related monetary and
fiscal policies of financial institutions' regulatory agencies. Deposit flows
and the cost of funds are influenced by interest rates on competing investments
and general market rates of interest. Lending activities are affected by the
demand for financing real estate and other types of loans, which in turn are
affected by the interest rates at which such financing may be offered and other
factors affecting loan demand and the availability of funds.
BUSINESS STRATEGY
Falmouth's business strategy is to operate as a well-capitalized,
profitable and independent community bank dedicated to financing home ownership
and consumer needs in its market area and to provide quality service to its
customers. The Bank has implemented this strategy by: (i) closely monitoring the
needs of customers and providing quality service; (ii) emphasizing
consumer-oriented banking by originating residential mortgage loans and consumer
loans, and by offering checking accounts and other financial services and
products; (iii) focusing on expanding lending activities to produce moderate
increases in loan originations; (iv) maintaining asset quality; (v) maintaining
capital in excess of regulatory requirements; and (vi) producing stable
earnings.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1996 AND 1995
The Bank's total assets increased by $16.8 million or 22.9% for the year
ended September 30, 1996 from $73.7 million in September 30, 1995 to $90.5
million at September 30, 1996. Total assets increased primarily from the
proceeds of the Bank's mutual to stock conversion on March 28, 1996 and to a
lesser extent from the growth in deposits. Total net loans were $40.2 million or
60.6% of total deposits at September 30, 1996 as compared to $32.5 million or
50.0% of total deposits at September 30, 1995, representing an increase of $7.7
million. Investment securities were $45.9 million or 50.7% of total assets at
September 30, 1996 as compared to $35.9 million or 48.7% of total assets at
September 30, 1995. The proceeds from maturing securities were in part allocated
to fund an increased volume of loan production, with the balance redeployed into
short-term securities investments. Total deposits were $66.4 million at
September 30, 1996 as compared to $65.1 million at September 30, 1995. Total
deposits increased by $1.3 million for the year ended September 30, 1996 despite
the $2.5 million transferred from deposits to purchase the Bank's initial public
offering of stock on March 28, 1996. Stockholders' equity was $21.9 million at
September 30, 1996 as compared to net worth of $8.4 million at September 30,
1995, an increase of $13.5 million which was primarily the result of the
conversion of the Bank from mutual to stock form.
5
The issuance of 1,454,750 common shares at a par value of $0.10 per share
provided capital of $145,475 with additional paid-in capital of $13.6 million
and unearned ESOP shares costing $872,850. Stockholders' equity reported at
September 30, 1996 included an unrealized gain in available-for-sale securities
of $144,000 and retained earnings of $8.9 million. The ratio of stockholders'
equity to total assets was 24.2% at September 30, 1996 and the book value per
share of common stock was $15.06. Historical net income per share of common
stock from March 28, 1996 (date of Conversion) to September 30, 1996 was $0.32.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1995 AND 1994
The Bank's total assets decreased by $931,000 or 1.25 % for the year ended
September 30, 1995, from $74.7 million at September 30, 1994 to $73.7 million at
September 30, 1995. Total net loans were $27.6 million or 41.5% of total
deposits at September 30, 1994 as compared to $32.5 million or 50.2% of total
deposits at September 30, 1995, representing an increase of $4.9 million.
Investment securities held by the Bank decreased from $43.5 million in 1994 to
$35.9 million in 1995. The proceeds from maturing securities were in part
allocated to fund the increased volume of loan production as well as net deposit
withdrawals, with the balance redeployed in short-term securities investments.
While total deposits declined by $1.6 million or 2.5 % from $66.4 million at
September 30, 1994 to $64.8 million at September 30, 1995, net worth increased
by 7.5% to $8.4 million at September 30, 1995 as a result of the transfer of
$439,000 from net income and the addition to net worth at September 30, 1995 of
$149,000 resulting from the unrealized gain on available-for-sale securities.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
Net Income. The Bank's net income for the twelve months ended September
30, 1996 was $570,000 as compared to $439,000 for the twelve months ended
September 30, 1995. The $131,000 increase in net income was primarily the
result of a $760,000 increase in interest and dividend income which was partly
offset by a $346,000 increase in interest expense on deposits and borrowed
funds, a $95,000 increase in other expenses and a $148,000 increase in income
taxes.
Net interest income. Net interest income for the twelve months ended
September 30, 1996 was $2,743,000 as compared to $2,328,000 for the twelve
months ended September 30, 1995. The $415,000 increase in net interest income
was the result of the increase in interest income on loans and securities that
more than offset the increase in interest expense on deposits. The net interest
margin for the twelve months ended September 30, 1996 was 3.40%, an increase of
.07% as compared to 3.33% for the twelve months ended September 30, 1995. The
return on average assets for the twelve months ended September 30, 1996 was
.69%, an increase of .08% as compared to .61 % for the same period of the prior
year. The primary reason for the increase in the return on average assets was
the deployment of proceeds from maturing securities into an increased volume of
residential loan originations during the year ended September 30, 1996.
Interest Income. Total interest and dividend income for the twelve months
ended September 30, 1996 was $5,576,000, an increase of $761,000 as compared to
$4,815,000 for the twelve months ended September 30, 1995. The increase in
interest and dividend income was due primarily to a $518,000 increase in
interest income on loans and a $242,000 increase in interest and dividends on
securities and short-term investments. The increases in interest income on loans
and securities was, for the most part, the result of an increase in the volume
of loans and securities held.
Interest Expense. Interest expense for the twelve months ended September
30, 1996 was $2,833,000, an increase of $346,000 as compared to $2,487,000 for
the twelve months ended September 30, 1995. The increase in interest expense was
due to higher deposit rates paid on primarily certificates of deposit accounts
during the period.
Provision for Loan Losses. The provision for possible loan losses for the
twelve months ended September 30, 1996 was $51,000 was compared to zero for the
twelve months ended September 30, 1995. The increase in the amount of the
provision for possible loan losses was in response to the increase in the
balance of loans held by the Bank and the Bank's commitment to maintain general
loan loss reserves at adequate levels.
Non-interest income. Non-interest income or other income for the twelve
months ended September 30, 1996 was $125,000 as compared to
6
$115,000 for the twelve months ended September 30, 1995. The $10,000 increase
was due to modest increases in income from service charges coupled with a
moderate increase in other fee income that offset a decrease in gain on sales of
investment securities.
Operating Expense. Operating expenses for the twelve months ended September
30, 1996 were $1,888,000 as compared to $1,793,000 for the twelve months ended
September 30, 1995. The $95,000 increase was primarily due to an increase in
salaries and employee benefits of $104,000, an increase in legal and
professional fees of $48,000 and an increase in other operating expenses of
$63,000 offset by a decrease in deposit insurance expense of $100,000 and a
decrease in director's fees of $10,000. It is expected that the leasehold
improvements and non-interest expenses will increase during fiscal 1997 as work
progresses on the new branch located in East Falmouth scheduled to be in
operation in February, 1997.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
Net Income. The Bank's net income for the year ended September 30, 1995 was
$439,000 as compared to $651,000 for the year ended September 30, 1994. This
$212,000 decrease in net income during the period was the result of a $164,000
decline in net interest income and an increase of $178,000 in operating
expenses, partially offset by a $236,000 decrease in the provision for income
taxes. During fiscal year ended September 30, 1995, the general level of
short-term interest rates experienced a gradual 60 basis point increase by
mid-year and a decline of approximately 90 basis points by year-end, resulting
in a net 30 basis point decrease during fiscal 1995. The general rise in
interest rates in the first half of fiscal 1995 coupled with a liability
sensitive interest rate exposure produced a $350,000 increase in interest
expense which was only partially offset by a $186,000 rise in interest income.
Interest Income. Total interest and dividend income increased by $186,000
or 4.0% from $4.6 million for year ended September 30, 1994 to $4.8 million for
year ended September 30, 1995. The increase in interest income was in part the
result of loan originations of $4.9 million funded by maturing lower yield
investment securities.
Interest Expense. Interest expense increased by approximately $350,000 or
16.4% from $2.1 million for the year ended September 30, 1994 to $2.5 million
for year ended September 30, 1995. The primary reason for the increase in
interest expense was the increase in the general level of interest rates driving
an increase in both the rollover rates for certificates of deposit and the rates
paid on money market deposit accounts. This rate increase offset a decline of
$1.6 million in total deposits from $66.7 million at September 30, 1994 to $65.1
million at September 30, 1995.
Net Interest Income. The net interest income for the year ended September
30, 1995 was $2.3 million as compared to $2.5 million for the year ended
September 30, 1994, a decline of 6.6%. The $164,000 decrease in net interest
income can be attributed to a combination of the $186,000 increase in interest
and dividend income and the $350,000 increase in interest expense on deposits.
The average yield on interest earning assets increased by .40% to 6.88% for the
year ended September 30, 1995. The average cost on interest-bearing liabilities
increased by .66% to 3.93% for the year ended September 30, 1995. The return on
average assets for the year ended September 30, 1995 was .61%, a decrease of
.27% as compared to prior year.
Provision for Possible Loan Losses. The provision for loan losses for the
year ended September 30, 1995 was $0 as compared to $9,000 for the year ended
September 30, 1994.
At September 30, 1994, the balance for allowance for loan losses was
$310,000 or 1.1% of total loans. During the year ended September 30, 1995, there
were no changes against the allowance for loan losses while $135,000 in
recoveries was credited to the allowance for loan losses. At September 30, 1995,
the balance of allowance for loan losses was $445,000, which was 1.4% of total
loans.
Other Income. Non-interest income or other income was $115,000 for the year
ended September 30, 1995 as compared to $229,000 for the year ended September
30, 1994. The $114,000 decrease was primarily the result of a $32,000 decrease
in service fees, as the Bank reduced service charges on several of its deposit
products in an attempt to retain and attract accounts, a full cash recovery of
$34,000 in connection with a defalcation and a special dividend of $24,000 from
the Co-operative Central Bank during the year ended September 30, 1994. The net
gain on sales of investment securities was S 16,000 for each of the years ended
September 30, 1995 and September 30, 1994.
7
Operating Expenses. Operating expense increased from $1,615,000 for the
year ended September 30, 1994 to $1,793,000 for the year ended September 30,
1995. The increase of $178,000 or 11.0% mainly resulted from a $140,000 increase
in compensation primarily due to the addition of a commercial lending officer
and residential loan originator to the Bank's staff. The one time charges
associated with the conversion of the Bank's data processing to another provider
coupled with an increase in bank's administrative deposit expense account for a
$28,000 increase over the prior year. Annual operating expenses are expected to
increase by approximately $210,000 in future periods due to the Bank's plans to
establish a new branch location.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds consist of deposits, repayment and
prepayment of loans and mortgage-backed securities, maturities of investments
and interest-bearing deposits, and funds provided from operations. While
scheduled repayments of loans and mortgage-backed securities and maturities of
investment securities are predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by the general level of interest rates,
economic conditions and competition. The Bank uses its liquidity resources
principally to fund existing and future loan commitments, to fund net deposit
outflows, to invest in other interest-earning assets, to maintain liquidity, and
to meet operating expenses. Management believes that loan repayments and other
sources of funds will be adequate to meet the Bank's liquidity needs for fiscal
year 1997.
The Bank is required to maintain adequate levels of liquid assets. This
guideline, which may be varied depending upon economic conditions and deposit
flows, is based upon a percentage of deposits and short-term borrowings. The
Bank has historically maintained a level of liquid assets in excess of
regulatory requirements. The Bank's liquidity ratio at September 30, 1996 was
72.4%.
A major portion of the Bank's liquidity consists of short-term U.S.
Government obligations. The level of these assets is dependent on the Bank's
operating, investing, lending and financing activities during any given period.
At September 30, 1996, regulatory liquidity totaled $48.2 million.
The primary investing activities of the Bank include origination of loans
and purchase of investment securities. During the year ended September 30, 1996,
purchases of investment securities and mortgage-backed securities totaled $43.2
million, while loan originations totaled $16.3 million. These investments were
funded primarily from loan repayments of $8.5 million and investment security
maturities of $33.3 million.
Liquidity management is both a daily and long-term function of management.
If the Bank requires funds beyond its ability to generate them internally, the
Bank believes that it could borrow additional funds from the FHLB of Boston. At
September 30, 1996, the Bank had no outstanding advances from the FHLB of
Boston.
At September 30, 1996, the Bank had $1.8 million in outstanding commitments
to originate loans. The Bank anticipates that it will have sufficient funds
available to meet its current loan origination commitments. Certificates of
deposit which are scheduled to mature in one year or less totaled $29.7 million
at September 30, 1996. Based on historical experience, management believes that
a significant portion of such deposits will remain with the Bank.
At September 30, 1996, the Bank exceeded all of its regulatory capital
requirements.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and results of operations in terms
of historical dollars without considering changes in the relative purchasing
power of money over time because of inflation. Unlike most industrial companies,
virtually all of the assets and liabilities of the Bank are monetary in nature.
As a result, interest rates have a more significant impact on the Bank's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services.
8
MARKET FOR THE BANK'S COMMON STOCK
Falmouth Co-operative Bank common stock is traded on the American Stock
Exchange and quoted under the symbol " FCB. " The table below shows the high and
low sales price during the period indicated. The Bank's common stock began
trading on March 28, 1996, the date of the Conversion and initial public
offering.
At September 30, 1996, the last trading date in the Bank's fiscal year, the
Bank's common stock closed at $12.50. At December 12, 1996, there were 1,454,750
shares of the Bank's common stock outstanding, which were held of record by
approximately 900 stockholders, not including persons or entities who hold the
stock in nominee or "street" name through various brokerage firms.
The Board of Directors of the Bank did not declare any dividends on common
stock during the fiscal year ended September 30, 1996. On November 19, 1996, the
Board of Directors of Falmouth declared a quarterly cash dividend of $0.05 per
share of common stock, which was paid on December 15, 1996 to stockholders of
record on December 2, 1996.
There are significant regulatory limitations on the Bank's ability to pay
dividends depending on its capital structure and the overall health of the
institution. An insured depository institution may not make a capital
distribution if, following such distribution, the institution will be
"undercapitalized" as that term is defined for purposes of the prompt corrective
action provisions of the Federal Deposit Insurance Corporation Improvement Act
("FDICIA"). Pursuant to the Bank's formal dividend policy, the Board of
Directors has determined that the Bank will not pay dividends in excess of
current earnings for the three years following the Conversion, and will not pay
dividends from borrowed funds or nonrecurring gains. As a condition to the
approval of the Conversion, any change in this policy to permit the payment of
dividends in excess of current earnings would require the prior approval of the
Commissioner of the Division of Banks of the Commonwealth of Massachusetts.
The Bank is also prohibited from paying any dividend which would reduce the
Bank's total regulatory capital below the amount then required for the
liquidation account established for the benefit of the Bank's "Eligible Account
Holders" at the time of the Conversion.
Price Range
--------------------------------
Quarter Ended High Low
------------- ---- ---
Fiscal year ended September 30, 1996:
Second Quarter ended March 31, 1996................ $ 11 1/8 $ 10 5/8
Third Quarter ended June 30, 1996.................. 11 5/8 10 1/8
Fourth Quarter ended September 30, 1996............ 12 7/8 10 1/4
Fiscal year ending September 30, 1997:
First Quarter (through December 12, 1996)......... 14 1/8 12
9
SHATSWELL, MACLEOD & COMPANY, P C.
CERTIFIED PUBLIC ACCOUNTANTS
83 PINE STREET
WEST PEABODY, MASSACHUSETTS 01960-3635
(508) 535-0206
The Board of Directors
Falmouth Co-operative Bank
Falmouth, Massachusetts
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying balance sheet of Falmouth Co-Operative Bank as
of September 30, 1996 and the related statements of income, changes in
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Banks management. Our responsibility is
to express an opinion on these financial statements based on our audit. The
financial statements of Falmouth Co-Operative Bank as of September 30, 1995 and
1994, were audited by other auditors whose report dated November 20, 1995,
expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the financial position of Falmouth Co-Operative Bank
as of September 30, 1996, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Bank adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" as of October 1, 1994.
/s/ SHATSWELL, MacLEOD & COMPANY, P.C.
SHATSWELL, MacLEOD & COMPANY, P.C.
October 18, 1996
except for Note 14,
as to which the
date is November 19, 1996
10
KEITH - HERSEY - SHEEHAN - BENOIT - DEMPSEY & OMAN, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
----------------------------
To The Finance Committee
The Falmouth Cooperative Bank
Falmouth, Massachusetts
We have audited the accompanying statements of financial condition of The
Falmouth Cooperative Bank as of September 30, 1995 and 1994, and the related
statements of income, changes in net worth and cash flows for each of the years
in the three-year period ended September 30, 1995. These financial statements
are the responsibility of the Bank's management. Our responsibility is to
express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of The Falmouth Cooperative Bank
as of September 30, 1995 and 1994, and the results of its operations and cash
flows for each of the years in the three-year period ended September 30, 1995 in
conformity with generally accepted accounting principles.
/s/ KEITH - HERSEY - SHEEHAN - BENOIT - DEMPSEY & OMAN, P.C.
November 20, 1995
11
FALMOUTH CO-OPERATIVE BANK
BALANCE SHEETS
September 30, 1996 and 1995
ASSETS 1996 1995
- ------ ----------- -----------
Cash and due from banks 1,171,761 3,597,614
Federal funds sold 1,583,437
----------- -----------
Total cash and cash equivalents 2,755,198 3,597,614
Investments in available-for-sale securities (at fair value) 22,713,053 19,541,740
Investments in held-to-maturity @ties (fair values of $22,845,398
as of September 30, 1996 and $16,047,468 as of September 30, 1995) 22,839,596 16,034,740
Federal Home Loan Bank stock, at cost 300,900 280,100
Loans, net 40,236,846 32,502,902
Premises and equipment 526,061 531,247
Accrued interest receivable 746,601 519,793
Cooperative Central Bank Reserve Fund Deposit 285,680 285,680
Other assets 112,173 385,252
----------- -----------
$90,516,108 $73,679,068
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Demand deposits $ 8,713,244 $ 9,142,238
Savings and NOW deposits 19,660,383 19,761,461
Time deposits 38,065,803 36,156,852
----------- -----------
Total deposits 66,439,430 65,060,551
Deferred income taxes 49,248 53,300
Other liabilities 123,608 95,151
Due to broker 1,000,000
Income taxes payable 156,027 26,427
Treasury tax and loan account 4,170 8,353
Employee Stock Ownership Plan loan 829,208
----------- -----------
Total liabilities 68,601,691 65,243,782
=========== ===========
Stockholders' equity:
Preferred stock, par value $. 10 per share, authorized 500,000 shares;
none issued
Common stock, par value $. 10 per share, authorized 2,500,000 shares;
issued and outstanding 1,454,750 shares 145,475
Paid-in capital 13,598,174
Retained earnings 8,856,291
Surplus 8,286,070
Employee Stock Ownership Plan loan (829,208)
Net unrealized holding gain on available-for-sale securities 143,685 149,216
----------- -----------
Total stockholders' equity 21,914,417 8,435,286
----------- -----------
$90,516,108 $73,679,068
=========== ===========
The accompanying notes are an integral part of these financial statements.
12
FALMOUTH CO-OPERATIVE BANK
STATEMENTS OF INCOME
Years Ended September 30, 1996, 1995 and 1994
1996 1995 1994
---------- ---------- ----------
Interest and dividend income:
Interest and fees on loans $2,966,330 $2,448,193 $2,089,452
Interest and dividends on investment securities 2,457,953 2,289,648 2,484,210
Interest on short-term investments 151,549 77,540 55,052
---------- ---------- ----------
Total interest and dividend income 5,575,832 4,815,381 4,628,714
---------- ---------- ----------
Interest expense:
Interest expense on deposits 2,797,827 2,486,994 2,136,299
Interest expense on borrowings 35,060
---------- ---------- ----------
Total interest expense 2,832,887 2,486,994 2,136,299
---------- ---------- ----------
Net interest income 2,742,945 2,328,387 2,492,415
Provision for possible loan losses 51,000 9,000
---------- ---------- ----------
Net interest income after provision for possible
loan losses 2,691,945 2,328,387 2,483,415
---------- ---------- ----------
Other income:
Service charges 53,094 49,789 80,236
Other fee income 34,650 31,998 33,881
Other non-interest income 35,258 17,182 99,580
Gain on sales of investment securities, net 2,338 16,079 15,777
---------- ---------- ----------
Total other income 125,340 115,048 229,474
---------- ---------- ----------
Other expense:
Salaries and employee benefits 1,165,167 1,061,389 891,177
Deposit insurance expense 7,666 107,554 150,828
Other real estate owned expense 2,447 1,833
Data processing expense 111,410 119,129 99,656
Director's fees 57,100 66,900 70,900
Legal and professional fees 58,485 9,884 29,538
Other operating expenses 488,636 425,996 371,550
---------- ---------- ----------
Total other expense 1,888,464 1,793,299 1,615,482
---------- ---------- ----------
Income before income taxes 928,821 650,136 1,097,407
Income taxes 358,600 210,900 446,800
---------- ---------- ----------
Net income $ 570,221 $ 439,236 $ 650,607
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
13
FALMOUTH CO-OPERATIVE BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended September 30, 1996, 1995 and 1994
Net
Unrealized Employee
Holding Stock
Gain on Ownership
Common Paid-in Retained Available-for- Plan
Stock Capital Earnings Surplus Sale Securities Loan Total
--------- ------- -------- ---------- --------------- -------- ----------
Balance, September 30, 1993 $ $ $ $7,196,227 $ $ $7,196,227
Net income 650,607 650,607
--------- ----------- ---------- ---------- ---------- --------- ----------
Balance, September 30, 1994 7,846,834 7,846,834
Net income 439,236 439,236
Net unrealized gain on
available-for-sale securities 149,216 149,216
--------- ----------- ---------- ---------- ---------- --------- ----------
Balance, September 30, 1995 8,286,070 149,216 8,435,286
Transfer of surplus to retained
earnings 8,286,070 (8,286,070)
Issuance of common stock 145,475 13,598,174 13,743,649
Employee Stock ownership
Plan loan (872,850) (872,850)
Principal payments on Employee
Stock Ownership Plan loan 43,642 43,642
Net income 570,221 570,221
Net change in unrealized
holding gain on available- (5,531) (5,531)
for-sale securities --------- ----------- ---------- ---------- ---------- --------- -----------
Balance, September 30, 1996 $ 145,475 $13,598,174 $8,856,291 $ $ 143,685 $(829,208) $21,914,417
========= =========== ========== ========== ========== ========= ===========
The accompanying notes are an integral part of these financial statements.
14
FALMOUTH CO-OPERATIVE BANK
STATEMENTS OF CASH FLOWS
Years Ended September 30, 1996, 1995 and 1994
1996 1995 1994
---------- -------- --------
Cash flows from operating activities:
Net income $ 570,221 $ 439,236 $ 650,607
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 51,000 9,000
Net (accretion) amortization of investment
securities (51,206) (51,139) 75,402
Amortization of net deferred loan fees 22,246 20,264 (20,336)
Gain on sales of investment securities, net (2,338) (16,079) (15,777)
Deferred taxes (6,432) (3,000) 56,800
Depreciation 55,908 33,912 37,133
(Increase) decrease in other assets 46,271 (97,919) 21,510
Increase in other liabilities 1,160,306 6,719 15,331
----------- ----------- -----------
Net cash provided by (used in) operating activities 1,845,976 331,994 829,670
----------- ----------- -----------
Cash flows from investing activities:
Purchases of available-for-sale securities (25,655,599)
Proceeds from sales of available-for-sale securities 237,841
Proceeds from maturities of available-for-sale securities 22,300,000
Purchases of held-to-maturity securities (17,564,866)
Proceeds from maturities of held-to-maturity securities 10,750,416
Purchase of Federal Home Loan Bank stock (20,800)
Proceeds from the sale of and maturity of investment
securities 22,973,324 16,034,737
Purchases of investment securities (15,095,206) (16,041,458)
Proceeds from principal repayment on mortgage-
backed investments 115,264 41,061
Purchases of mortgage-backed investments (1,059,919)
Net (increase) decrease in loans (7,807,190) (4,939,160) 1,383,277
Purchase of premises and equipment (50,722) (196,066) (19,931)
Proceeds from sale of other real estate owned 85,000
----------- ----------- -----------
Net cash provided by (used in) investing activities (17,810,920) 2,858,156 422,767
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 14,547,500
Costs related to issuance of common stock (803,851)
Net decrease in deposits, excluding certificate accounts (530,072) (3,199,188) (1,075,465)
Proceeds from issuance of certificates of deposit, net
of payments for maturities 1,908,951 1,563,406 (68,380)
----------- ----------- -----------
Net cash provided by (used in) financing activities 15,122,528 (1,635,782) (1,143,845)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (842,416) 1,554,368 108,592
Cash and cash equivalents at beginning of period 3,597,614 2,043,246 1,934,654
----------- ----------- -----------
Cash and cash equivalents at end of period $ 2,755,198 $ 3,597,614 $ 2,043,246
=========== =========== ===========
15
FALMOUTH CO-OPERATIVE BANK
STATEMENTS OF CASH FLOWS
Years Ended September 30, 1996, 1995 ind 1994
(continued)
1996 1995 1994
-------- ---------- ----------
Supplemental disclosures:
Interest paid on deposits $2,832,887 $2,486,994 $2,136,299
Income taxes paid 229,000 213,762 380,968
Unrealized gain on securities available-for-sale, net of taxes 143,685 149,216
The accompanying notes are an integral part of these financial statements.
16
FALMOUTH CO-OPERATIVE BANK
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30,1996,1995 and 1994
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Falmouth Co-Operative Bank
(Bank) is presented to assist in understanding the Bank's financial statements.
These accounting policies conform to generally accepted accounting principles
and prevailing practices within the banking industry. In preparing the financial
statements, management is required to make estimates and assumptions that affect
the reported values of assets and liabilities at the balance sheet date and
income and expenses for the year. Actual results could differ from those
estimates. The estimates that are particularly susceptible to change in the near
term relate to the allowance for possible loan losses and the valuation of other
real estate owned.
The Bank's loans are principally secured by real estate located on Cape Cod. The
collectibility of the Bank's loans and the recovery of the full book value of
other real estate owned are dependent upon market conditions.
ORGANIZATION:
As of March 28, 1996, the bank converted from a Massachusetts chartered
mutual co-operative bank to a Massachusetts chartered stock co-operative
bank. The Bank was organized in 1925. Its two offices are in Falmouth,
which is in the Cape Cod region of Massachusetts. The Bank is monitored by
two regulators, the Federal Deposit Insurance Corp. (FDIC) and the bank
commissioner for the Commonwealth of Massachusetts.
CASH AND CASH EQUIVALENTS:
For purposes of reporting cash flow, cash and cash equivalents include cash
on hand, cash items, due from banks and federal funds sold.
INVESTMENT SECURITIES:
As of October 1, 1994, the Bank adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Statement establishes
standards for all debt securities and for equity securities that have
readily determinable fair values. As required under SFAS No. 115, prior
year financial statements were not restated.
SFAS No. 115 requires that investments in debt securities that management
has the positive intent and ability to hold-to-maturity be classified as
"held-to-maturity" and reflected at amortized cost. Investments that are
purchased and held principally for the purpose of selling them in the near
term, are classified as "trading securities" and reflected on the balance
sheet at fair value, with unrealized gains and losses included in earnings.
Investments not classified as either of the above are classified as
"available-for-sale" and reflected on the balance sheet at fair value, with
unrealized gains and losses excluded from earnings and reported as a
separate component of net worth. The cumulative effect of the change in
accounting principle as of September 30, 1995, was to increase net worth,
net of income tax effects, by $149,216. There was no effect on 1995 act
income relating to the adoption of SFAS No. 115.
Prior to September 30, 1995, debt securities that management had the intent
and ability to hold until maturity were reflected at amortized cost.
Marketable equity securities were stated at the lower of aggregate cost or
fair value. Net unrealized losses applicable to marketable equity
securities were reflected as a charge to net worth. For all years
presented, restricted equity securities are reflected at cost. Purchase
premiums and discounts are amortized to earnings by a method that
approximates the interest method over the terms of the investments.
Declines in the value of investments that are deemed to be other than
temporary are reflected in earnings when identified. Gains and losses on
disposition of investments are computed by the specific identification
method.
17
For regulatory capital purposes, unrealized gains or losses, after tax
effects, on securities available-for-sale are not recognized.
LOANS AND ACCRUED INTEREST RECEIVABLE:
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their
outstanding principal balances reduced by unadvanced funds on mortgage
loans, net deferred loan fees and the allowance for possible loan losses.
When a loan is put on non-accrual status, all interest previously accrued,
but not collected, is reversed against interest income in the current
period.
Net deferred loan fees are amortized on the interest method over the
contractual life of the loan.
The Bank's lending activities are conducted principally in the Greater
Falmouth Massachusetts area. The Bank grants single family residential
loans, commercial real estate loans, commercial loans, equity lines of
credit and installment loans. In addition, the Bank grants loans for the
construction of residential homes. Most loans granted by the Bank are
collateralized by real estate. A significant volume of the Bank's loans
have been associated with owner-occupied single family mortgages. The
ability and willingness of the single family residential and consumer
borrowers to honor their repayment commitments is generally dependent on
the level of overall economic activity within the borrowers' geographic
areas and real estate values. The ability and willingness of commercial
real estate, commercial and construction loan borrowers to honor their
repayment commitments is generally dependent on the health of the real
estate economic sector in the borrowers' geographic areas and the general
economy.
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
The allowance for loan losses has been established to absorb foreseeable
losses inherent in the loan portfolio. The provisions for loan losses and
the level of the allowance are evaluated periodically by management and the
Board of Directors. These provisions are the results of the Bank's internal
loan review, historical loan loss experience, trends in delinquent and
non-accrual loans, known and inherent risks in the nature and volume of the
loan portfolio, adverse situations that may affect the borrower's ability
to repay, collateral values, an estimate of potential loss exposure on
significant credits, concentrations of credit and present and prospective
economic conditions based on facts then known.
Periodically, management reviews the portfolio, classifying each loan into
categories by assessing the degree of risk involved. Considering this
review, the Bank establishes the adequacy of its allowance and necessary
additions are charged to operations through the provision for loan losses.
As of October 1, 1995, the Bank adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118. According to SFAS No. 114 a loan is impaired when,
based on current information and events, it is probable that a creditor
will be unable to collect all amounts due according to the contractual
terms of the loan agreement. The Statement requires that impaired loans be
measured on a loan by loan basis by either the present value of expected
future cash flows discounted at the loan's effective interest rate, the
loan's observable market price, or the fair value of the collateral if the
loan is collateral dependent.
The Statement is applicable to all loans, except large groups of smaller
balance homogeneous loans that are collectively evaluated for impairment
loans that are measured at fair value or at the lower of cost or fair
value, leases, and convertible or nonconvertible debentures and bonds and
other debt securities. The Bank considers its residential real estate loans
and consumer loans that are not individually significant to be large groups
of smaller balance homogeneous loans.
18
Factors considered by management in determining impairment include payment
status, net worth and collateral value. An insignificant payment delay or
an insignificant shortfall in payment does not in itself result in the
review of a loan for impairment. The Bank applies SFAS No. 114 on a
loan-by-loan basis. The Bank does not apply SFAS No. 114 to aggregations of
loans that have risk characteristics in common with other impaired loans.
Interest on a loan is not generally accrued when the loan becomes ninety or
more days overdue. The Bank may place a loan on nonaccrual status but not
classify it as impaired, if (i) it is probable that the Bank will collect
all amounts due in accordance with the contractual terms of the loan or
(ii) the loan is an individually insignificant residential mortgage loan or
consumer loan. Impaired loans are charged-off when management believes that
the collectibility of the loan's principal is remote.
The financial statement impact of adopting the provisions of this Statement
was not material.
PREMISES AND EQUIPMENT:
Land is carried at cost; bank premises and equipment are stated at cost
less accumulated depredation. Depreciation is provided for over the
estimated useful lives of the assets computed on straight-line and
accelerated methods. Maintenance and repair costs are charged to earnings
when incurred while major expenditures for betterments are capitalized and
depreciated.
OTHER REAL ESTATE OWNED:
Other real estate owned (OREO) is held for sale and is comprised of
properties acquired through foreclosure proceedings or acceptance of a deed
in lieu of foreclosure and is reported at the lower of cost or fair value
less estimated costs to sell and an allowance for losses. Expenses of
holding properties are charged to operations in the current period.
The recognition of gains and losses on the sale of real estate is dependent
upon whether the nature and terms of the sale and future involvement of the
Bank in the property sold meet certain requirements. If the transaction
does not meet these requirements, income recognition is deferred and income
is recognize when the requirements have been met.
Beginning on October 1, 1995, in accordance with Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan," the Bank classifies loans as in-substance repossessed or foreclosed
if the Bank receives physical possession of the debtor's assets regardless
of whether formal Foreclosure proceedings take place.
DEPOSIT INSURANCE:
The deposits of the Bank are insured by the Federal Deposit Insurance
Corporation (FDIC). The FDIC provides deposit insurance up to $100,000 per
depositor and normally charges member banks a premium based on deposits.
The premium increased to 26 cents per $100 of deposits on June 1, 1993.
However, those banks classified as well-capitalized were permitted to
retain the rate of 23 cents per $100 of deposits. As of May 31, 1995, the
premium charge was reduced to 4 cents per $100 of deposits. The Bank
carries additional insurance provided by the Share Insurance Fund of The
Cooperative Central Bank whereby deposits in excess of $100,000 per
depositor are insured in full.
COOPERATIVE CENTRAL BANK RESERVE FUND DEPOSIT:
The Reserve Fund was established for liquidity purposes and consists of
deposits required of all cooperative banks in Massachusetts. The Fund is
used by the Central Bank to advance funds to member banks, but such
advances generally are not made until Federal Home Loan Bank and commercial
bank sources of borrowings have been exhausted. The Bank has not borrowed
funds from the Central Bank since rejoining the Federal Home Loan Bank on
January 2, 1975.
19
INCOME TAXES:
The Bank recognizes income taxes under the assets and liability method. The
objective of the asset and liability method is to established deferred tax
assets and liabilities for the temporary differences between financial reporting
basis and the tax basis of the Bank's assets and liabilities at enacted tax
rates expected to be in effect when such amounts are realized or settled.
Deferred tax assets may be recognized only where based on available evidence it
is more likely than not that the asset will ultimately be realized. Future
taxable income may be considered as a potential source of available evidence.
For regulatory capital purposes, the recognition of deferred tax assets, when
realized of such is dependent on an institution's future taxable income is
limited to the amount that can be realized within one year or 10% of core
capital, whichever is less.
RETIREMENT PLAN:
The compensation cost of an emoloyee's pension benefit is recognized on the net
periodic pension cost method over the employee's approximate service period. The
aggregate cost method is used for funding purposes.
FAIR VALUES OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires that the Bank disclose estimated fair
value for its financial instruments. Fair value methods and assumptions used by
the Bank in estimating its fair value disclosures are as follows:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and federal funds sold approximate those assets' fair values.
Securities (including mortgage-backed securities): Fair values for securities
are based on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of comparable
instruments.
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for other loans are estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The carrying amount of accrued interest
approximates its fair value.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, passbook savings and money market accounts)
are, by definition, equal to the amount payable on demand at the reporting date
(i.e., their carrying amounts). Fair values for fixed-rate certificates of
deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Off-balance sheet instruments: The fair value of commitments to originate loans
is estimated using the fees currently charged to enter similar agreements,
taking into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed-rate loan commitments and the
unadvanced portion of loans, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
letters of credit is based on fees currently charged for similar agreements or
on the estimated cost to terminate them or otherwise settle the obligation with
the counterparties at the reporting date.
EARNINGS PER SHARE:
Because of the Bank's conversion in mid 1996 from mutual form to stock
ownership, a presentation of earnings per share for fiscal 1996 would not be
meaningful.
20
NOTE 2 - INVESTMENTS IN SECURITIES
Debt and equity securities have been classified in the balance sheets according
to management's intent. The carrying amount of securities and their
approximate fair values are as follows as of September 30:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Basis Gains Losses Value
---------- ------------ ---------- -----
Available-for-sale:
September 30, 1996:
Debt securities issued by the U.S. Treasury
and other U.S. government corporations
and agencies $10,345,434 $ 21,408 $ 9,823 $10,357,019
Other debt securities 4,082,553 19,826 1,421 4,100,958
Mortgage-backed securities 1,485,000 5,643 1,490,643
Equity securities 6,551,133 546,755 333,455 6,764,433
----------- --------- -------- -----------
$22,464,120 $ 593,630 $344,619 22,713,053
=========== ========= ======== ===========
September 30, 1995:
Debt securities issued by the U.S. Treasury
and other U.S. government corporations
and agencies $ 9,314,533 $ 41,226 $ 30,188 $ 9,325,571
Other debt securities 3,621,193 27,726 15,266 3,633,653
Equity securities 6,347,498 502,323 267,305 6,582,516
----------- ---------- -------- -----------
$19,283,224 $ 571,275 $312,759 $19,541,740
=========== ========== ======== ===========
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Basis Gains Losses Value
Held-to-maturity: ----------- ---------- -------- -------
September 30, 1996:
Debt securities issued by the U.S. Treasury
and other U.S. government corporations
and agencies $15,128,466 $ 8,534 $ 25,437 $15,111,563
Other debt securities 6,338,239 8,026 7,460 6,338,805
Mortgage-backed securities 1,372,891 26,206 4,067 1,395,030
----------- ---------- -------- -----------
$22,839,596 $42,766 $ 36,964 $22,845,398
=========== ========== ======== ===========
September 30, 1995:
Debt securities issued by the U.S. Treasury
and other U.S. government corporations
and agencies $ 9,976,125 $26,968 $ 25,074 $ 9,978,019
Other debt securities 4,099,043 14,811 12,316 4,101,538
Mortgage-backed securities 1,959,572 23,535 15,196 1,967,911
----------- ---------- -------- -----------
$16,034,740 $65,314 $ 52,586 $16,047,468
=========== ========== ======== ===========
21
The scheduled maturities of held-to-maturity securities and available-for-sale
securities (other than equity securities) were as follows as of September 30,
1996:
Held-to-maturity Available-for-sale
securities: securities:
---------------- ------------------
Amortized Amortized
Cost Fair Cost Fair
Basis Value Basis Value
--------- ------- ---------- --------
Due within one year $14,469,782 $14,471,535 $ 9,058,672 $ 9,071,011
Due after one year through five years 6,996,923 6,978,833 4,347,736 4,365,076
Due after five years through ten years 1,021,579 1,021,890
Mortgage-backed securities 1,372,891 l,395,030 1,485,000 1,490,643
----------- ----------- ---------- -----------
$22,839,596 $22,845,398 $15,912,987 $15,948,620
=========== =========== =========== ===========
For the year ended September 30, 1996, proceeds from sales of securities
available-for-sale amounted to $237,841. Gross realized gains and gross realized
losses on those sales amounted to $24,775 and $22,437, respectively. For the
year ended September 30, 1995, proceeds from sales of securities
available-for-sale amounted to $458,738. Gross realized gains and gross realized
losses on those sales amounted to $62,402 and $26,910, respectively. For the
year ended September 30, 1994, proceeds from the sales of securities were
$1,641,837. Gross realized gains and gross realized losses on those sales
amounted to $39,495 and $23,718, respectively.
The aggregate carrying amount and fair value of securities of issuers which
exceeded 10% of stockholders' equity were as follows as of September 30, 1996:
Amortized
Cost Fair
Issuer Basis Value
------ --------- -------
Bank Investment Fund One $4,232,557 $3,949,279
========== ==========
NOTE 3 - LOANS
Loans consisted of the following as of September 30:
1996 1995
---- ----
Mortgage Loans:
Residential $33,993,747 $26,093,790
Commercial 4,346,891 3,538,212
Equity lines of credit 1,682,916 1,889,816
----------- -----------
Total principal balances 40,023,554 31,521,818
Less: Unadvanced principal on construction loans (289,442) (102,191)
Net deferred loan fees (143,126) (l2O,88O)
----------- -----------
Total mortgage loans 39,590,986 31,298,747
=========== ===========
Other Loans:
Commercial 372,836 830,122
Consumer 771,247 819,249
----------- -----------
Total other loans 1,144,083 1,649,371
----------- -----------
Total loans 40,735,069 32,948,118
Allowance for possible loan losses (498,223) (445,216)
----------- -----------
Loans, net $40,236,846 $32,502,902
=========== ===========
Interest accrued and unpaid on non-accrual loans as of September 30, 1994
was $119,630.
22
Included in loans are amounts due to the Bank from certain officers, directors
and employees of the Bank. Loans to officers, directors and employees totaled
$552,088 as of September 30, 1996. During the year ended September 30, 1996
total payments amounted to $410,992 and principal advances totaled $427,567.
Changes in the allowance for possible loan losses were as follows for the years
ended September 30:
1996 1995 1994
---- ---- ----
Balance at beginning of period $445,216 $309,931 $ 276,842
Provision for loan losses 51,000 9,000
Recoveries 2,007 135,285 25,980
Loans charged of (1,891)
-------- -------- ---------
Balance at end of period $498,223 $445,216 $ 309,931
======== ======== =========
As of September 30, 1996 there were no loans that met the definition of an
impaired loan in Statement of Financial Accounting Standards No. 114. There was
no investment in impaired loans or related interest-income recognized on
impaired loans during the year ended September 30, 1996.
NOTE 4 - PREMISES AND EQUIPMENT
The following is a summary of premises and equipment as of September 30:
1996 1995
---- ----
Bank building $ 615,219 $ 591,035
Furniture, fixtures and equipment 459,492 432,954
Vehicle 25,071 25,071
---------- ----------
1,099,792 1,049,060
Accumulated depreciation (573,721) (517,813)
---------- ----------
$ 526,061 $ 531,247
========== ==========
NOTE 5 - DEPOSITS
The aggregate amount of time deposit accounts (including CDs), each with a
minimum denomination of $ 100,000, was approximately $5,153,781 as of September
30, 1996.
For time deposits as of September 30, 1996, the aggregate amount of maturities
for each of the following five years ended September 30 and thereafter are as
follows:
(in thousands)
1997 $29,718
1998 6,117
1999 2,103
2000 86
2001 1
2002 and thereafter 41
-------
$38,066
=======
23
NOTE 6 - INCOME TAXES
The components of income tax expense are as follows for the years ended
September 3O:
1996 1995 1994
---- ---- ----
Current:
Federal $241,168 $140,650 $265,000
state 111,000 73,250 125,000
-------- -------- --------
352,168 213,900 390,000
-------- -------- --------
Deferred:
Federal 9,154 10,185 20,840
State 3,710 4,297 8,791
-------- -------- --------
12,864 14,482 29,631
-------- -------- -------
365,032 228,382 419,631
Changes in valuation allowance (6,432) (17,482) 27,169
-------- -------- --------
Total income tax expense $358,600 $210,900 $446,800
======== ======== ========
The deferred income tax provision is a result of certain income and expense
items being accounted for in different time periods for financial reporting
purposes than for income tax purposes.
The components of net deferred tax liability are as follows as of September 30:
1996 1995
---- ----
Deferred tax asset:
Federal $179,442 $185,562
State 76,053 78,253
-------- --------
255,495 263,815
Valuation allowance on asset (45,500) (55,984)
-------- --------
209,995 207,831
-------- --------
Deferred tax liability:
Federal (182,131) (183,674)
State (77,112) (77,457)
-------- --------
(259,243) (261,131)
-------- --------
$(49,248) $(53,300)
Net deferred tax liability ======== =========
The tax effects of each type of item that gives rise to deferred taxes are as
follows as of September 30:
1996 1995
---- ----
Allowance for loan losses $ 111,327 $119,647
Deferred income 60,006 51,108
Unrealized loss on securities (105,248) (109,300)
Reserve for contingencies 16,143 17,159
Excess depreciation (89,262) (83,262)
Other 7,332
-------- --------
(7,034) 2,684
Valuation allowance (42,214) (55,984)
-------- --------
Net deferred tax liability $(49,248) $(53,300)
======== ========
A summary of the change in the net deferred tax liability is as follows for the
years ended September 30:
1996 1995
---- ----
Balance at beginning of year $ (53,300) $53,000
Deferred tax provision (6,432) (14,482)
Deferred tax liability on SFAS 115 unrealized
gain on available-for-sale securities 4,052 (109,300)
Utilization of valuation allowance 6,432 17,482
-------- --------
Balance at end of year $ (49,248) $(53,300)
======== ========
24
The reasons for the differences between the tax at the statutory federal income
rate and the effective tax rate are summarized as follows for the years ended
September 30:
1996 1995 1994
---- ---- ----
Tax at statutory rate of 34% $ 315,799 $ 221,046 $ 373,118
Increase (decrease) resulting from:
State taxes, net of federal tax benefit 66,858 53,832 90,866
Utilization (provision) of deferred tax asset valuation reserve (6,432) (17,482) 27,169
Dividend received deduction (33,051) (33,504) (31,815)
Other, net 15,426 12,992 (12,538)
--------- --------- ---------
Income tax provision $ 358,600 $ 210,900 $ 446,800
========= ========= =========
As part of the Adoption Tax Credit within the Minimum Wage Bill that was enacted
into law on August 20, 1996 the Section 593 tax additions to the reserve for bad
debts was repealed, effective for taxable years beginning after December 31,
1995. Thus, the Bank will be allowed a tax deduction for bad debts under the
experience method only starting with the year beginning October 1, 1996.
As part of this legislation the Bank will have to recapture into taxable income
the excess of the tax reserve for bad debts at September 30, 1996 over the tax
reserve at April 30, 1988. It is estimated that the recapture amount will be
approximately $250,000 resulting in Federal and Massachusetts income taxes of
approximately $100,000 which will be paid over a six year period starting with
the tax year beginning October 1, 1998. This tax has been provided for in past
years and will not result in any charge to earnings.
NOTE 7 - EMPLOYEE RETIREMENT, PENSION PLANS AND BENEFITS
The Bank is a participant in the Cooperative Banks Employee Retirement
Association Defined Contribution and Defined Benefit Plans (a multi-employer
plan). The plans provide benefits to substantially all of the Bank's employees.
Benefits under the defined contribution plan are based on a percentage of
employee contributions while benefits under the defined benefit plan are based
primarily on years of service and employees' compensation. The Bank's funding
policy for the defined benefit plan is to fund amounts required by applicable
regulations and which are tax deductible. Amounts charged to retirement fund
expense for the years ending September 30, 1996, 1995 and 1994 totaled $93,870,
$84,144 and $72,551, respectively.
Effective March 1996 the Bank adopted the Falmouth Co-Operative Bank Employee
Stock Ownership Plan (ESOP).
On March 26, 1996 the ESOP borrowed $872,850 from Bridgewater Savings Bank to
purchase 87,285 shares of the stock of Falmouth Co-Operative Bank. The loan is
secured by a pledge of the stock purchased. The Bank will make annual
contributions to the ESOP in amounts determined by the Board of Directors.
Dividends received by the ESOP may be credited to participants' accounts or may
be used to repay the ESOP's debt.
Any shares of the Bank purchased by the ESOP are subject to the accounting
specified by the American Institute of CPA's Statement of Position 93-6. Under
the statement, as any shares are released from collateral the Bank will report
compensation expense equal to the current market price of the shares and the
shares will be outstanding for earnings-per-share computations. Also, as the
shares are released, the related dividends will be recorded as a reduction of
retained earnings and dividends on the allocated shares will be recorded as a
reduction of debt and accrued interest.
25
The shares purchased by the ESOP were pledged as collateral for its debt. As the
debt is repaid, shares are released from collateral and allocated to active
employees, based on the proportion of debt service paid in the year. The debt of
the ESOP is recorded as debt of the Bank and the shares pledged as collateral
are reported as unearned ESOP shares in the balance sheet. The ESOP shares were
as follows as of September 30, 1996:
Unreleased shares 87,285
------
Total ESOP shares 87,285
======
Estimated fair value of unreleased shares as of September 30: $1,091,063
==========
For the first five years of the ESOP debt, the interest rate per annum is 8.15%.
At the end of said five year period, the interest rate per annum shall be
adjusted to equal 2.65 percentage points above the weekly average yield on U.S.
Treasury Securities adjusted to a constant maturity of five years. Interest
expense on the note was $35,060 for the year ended September 30, 1996.
Although the Bank has guaranteed payment of the loan, and annual contributions
to the plan are discretionary, an implied guarantee exists as the only source of
income available to the Employee Stock Ownership Plan for payments on the loan
is from the normal retirement contributions made by the Bank to the plan.
Contributions to the ESOP Plan by the Bank were $78,702 for the year ended
September 30, 1996 and ESOP compensation expense was $43,642. The minimum
principal payments due on the loan are as follows as of September 30, 1996:
Principal
- ---------
1997 $ 61,388
1998 66,582
1999 72,216
2000 78,327
2001 84,955
Years thereafter 465,740
--------
Total due $829,208
========
NOTE 8 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's 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 Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risks
weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of September 30, 1996, that the
Bank meets all capital adequacy requirements to which it is subject.
As of September 30, 1996, the most recent notification from the Federal Deposit
Insurance Corporation categorized 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 I risk-based and Tier I
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the institution's
category.
26
For Capital
Actual Adequate Purposes:
---------------- -------------------- -
Amount Ratio Amount Ratio
------ ----- ------ -----
As of September 30, 1996:
Total Capital (to Risk Weighted Assets) $22,268 55.81% $3,192 greater than or equal to 8.0%
Tier I Capital (to Risk Weighted Assets) $21,770 54.56% $1,596 greater than or equal to 4.0%
Tier I Capital (to Average Assets) $21,770 24.27% $3,588 greater than or equal to 4.0%
To Be Well
Capitalized Under
Prompt Collective Action Provisions
-----------------------------------
Amount Ratio
------ -----
Total Capital (to Risk Weighted Assets) $3,990 greater than or equal to 10.0%
Tier I Capital (to Risk Weighted Assets) $2,394 greater than or equal to 6.0%
Tier I Capital (to Average Assets) $4,485 greater than or equal to 5.0%
As of September 30, 1995, the capital ratios of the Bank significantly exceeded
minimum applicable regulatory requirements with a capital ratio of 10.89% and a
risk-based capital ratio of 27.30% (unaudited).
The ability of the Bank to pay dividends on its common stock is restricted by
Massachusetts banking law. No dividends may be paid if such dividends would
reduce stockholders' equity of the Bank below the amount of the liquidation
account required by Massachusetts conversion regulations and described in Note
10. In addition, the Bank may not pay dividends in excess of current earnings
for three years following the conversion of the Bank from mutual to stock form.
NOTE- 9 - FINANCIAL INSTRUMENTS
The Bank is 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 originate loans. The instruments
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheets. The contract amounts of those instruments
reflect the extent of involvement the Bank has in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for loan commitments is represented by the
contractual amounts of those instruments. The Bank uses the same credit policies
in making commitments and conditional obligations as it does for on-balance
sheet instruments.
Commitments to originate loans are agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit-
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit is based on management's credit
evaluation of the borrower. Collateral held varies, but may include secured
interests in mortgages, accounts receivable, inventory, property, plant and
equipment and income-producing properties.
27
The estimated fair values of the Bank's financial instruments, all of which are
held or issued for purposes other than trading, are as follows as of September
30:
1996 1995
---- ----
Carrying Fair Carryng Fair
Amount Value Amount Value
-------- ----- -------- ------
Financial assets:
Cash and cash equivalents $ 2,755,198 $ 2,755,198 $3,597,614 3,597,614
Available-for-sale securities 22,713,053 22,713,053 19,541,740 19,541,740
Held-to-maturity securities 22,839,596 22,845,398 16,034,740 16,047,468
Federal Home Loan Bank stock 300,900 300,900 280,100 280,100
Loans 40,236,846 39,971,000 32,502,902 32,502,902*
Accrued interest receivable 746,601 746,601 519,793 519,793
Cooperative Central Bank Reserve Fund Deposit 285,680 285,680 285,680 285,680
Financial liabilities:
Deposits 66,205,112 66,298,000 64,781,669 64,781,669*
Employee Stock Ownership Plan loan 829,208 813,025
The carrying amounts of financial instruments shown in the above table are
included in the balance sheet under the indicated captions. Accounting policies
related to financial instruments are described in Note 1.
* At September 30, 1995, the carrying values of total loans and total deposit
liabilities approximated their estimated fair values.
Notional amounts of financial instruments liabilities with off-balance sheet
credit risk are as follows as of September 30:
1996 1995
---- ----
Commitments to grant mortgage loans $1,781,455 $ 385,000
Unadvanced funds on construction loans 289,442 102,191
Unadvanced funds on home equity lines of credit 2,361,777 1,396,384
Unadvanced funds on commercial lines of credit 292,500 205,000
---------- ----------
$4,725,174 $2,088,575
========== ==========
There is no material difference between the notional amount and the estimated
fair value of the off-balance sheet liabilities as of September 30, 1996.
The Bank has no derivative financial instruments subject to the provisions of
SFAS No. 119 "Disclosure About Derivative Financial Instruments Fair Value of
Financial Instruments."
NOTE 10 - CONVERSION
On March 29, 1996, The Falmouth Co-operative Bank converted from a mutual
cooperative bank to a Massachusetts-chartered capital stock cooperative bank.
The Bank issued 1,454,750 shares of common stock through a public offering which
provided net proceeds of $13,743,649 after conversion costs of $803,851.
At the time of conversion to stock form, the Bank established a liquidation
account in an amount equal to the Bank's net worth as of the date of the latest
financial statements included in the final Offering Circular used in connection
with the Conversion. In accordance with Massachusetts statutes, the liquidation
account is maintained for the benefit of Eligible Account Holders who continue
to maintain their accounts in the Bank after the conversion. The liquidation
account is reduced annually to the extent that Eligible Account Holders have
reduced their qualifying deposits. Subsequent increases will not restore an
Eligible Account Holder's interest in the liquidation account. In the event of a
complete liquidation, each Eligible Account Holder is entitled to receive a
distribution from the liquidation account in a proportionate amount to the
current adjusted qualifying balances for the account then held. The balance in
the liquidation account was $22,351,283 as of September 30, 1996.
28
NOTE 11 - EMPLOYMENT AGREEMENTS
The Bank has employment agreements with its President and Chief Executive
Officer and its Vice President and Treasurer. The employment agreements
generally provide for the continued payment of specified compensation and
benefits for specified periods after termination, unless the termination is for
"cause" as defined in the employment agreements. The employment agreements
provide for the payment, under certain circumstances, of lump-sum amounts upon
termination following a "change in control" as defined in the Agreements. The
employment agreements also provide for lump-sum payments in the event of the
officers' voluntary termination of employment on the occurrence of certain
specified events.
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES
The Bank is obligated under certain agreements issued during the normal course
of business which are not reflected in the accompanying financial statements.
The Bank is obligated under a lease agreement covering the branch office located
in East Falmouth, Massachusetts. This agreement is considered to be an operating
lease. The lease term is for five years with three extension periods of five
years each. The total minimum rental due in future periods under this agreement
is as follows as of September 30, 1996:
1997 $ 20,000
1998 20,000
1999 20,000
2000 20,000
2001 20,000
--------
Total minimum lease payments $100,000
========
The lease contains provisions for escalation of minimum lease payments
contingent upon percentage increases in the consumer price index.
NOTE 13 - RECLASSIFICATION
Certain amounts in the prior years have been reclassified to be consistent with
the current year's statement presentation.
NOTE 14 - SUBSEQUENT EVENT, PLAN OF REORGANIZATION
As of November 25, 1996 the Bank entered into a Plan of Reorganization pursuant
to which the Bank will become a wholly-owned subsidiary of a bank holding
company which was newly formed for the purpose of effecting the Plan of
Reorganization. The Plan of Reorganization is subject of the approval of the
Bank's stockholders and regulators.
29
DIRECTORS AND OFFICERS OF THE BANK
DIRECTORS
Walter A. Murphy
Chairman of the Board
Retired President, Falmouth Co-operative Bank
Santo P. Pasqualucci
President and Chief Executive Officer
John W. Holland, Jr.
Attorney at Law
James A. Keefe
Principal, Falmouth Ford
Gardner L. Lewis
Retired, Former Owner, The Pancake Man Family
Restaurant
John J. Lynch, Jr.
President, Paul Peters Insurance Agency
Ronald L. McLane
Retired building contractor
Eileen C. Miskell, CPA
CPA, Principal and Treasurer, Wood Lumber
Company
Robert H. Moore
Agent, Paul Peters Insurance Agency
William E. Newton
Principal, C. H. Newton Builders, Inc.
Armand Ortins
Retired, Former Owner, Ortins Photo Supply
EXECUTIVE OFFICERS
Santo P. Pasqualucci
President and Chief Executive Officer
George E. Young, III
Vice President and Treasurer
Ronald Garcia
Vice President Commercial Lending
Sharon L. Shoner
Vice President/Loan Production
John A. DeMello
Vice President/Compliance
CORPORATE INFORMATION
TRANSFER AGENT AND REGISTRAR
Inquiries regarding stockholder administration and services should be directed
to:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 851-9677
INDEPENDENT AUDITORS
Shatswell MacLeod & Co., P.C.
83 Pine Street
West Peabody, MA 01960-3635
(508) 535-0206
LEGAL COUNSEL
Thacher Proffitt & Wood
1500 K Street, N.W., Suite 200
Washington, D.C. 20005
STOCK INFORMATION
The Bank's Common Stock trades on the American Stock Exchange under the symbol
"FCB." Prices for the stock are reported in the American Stock Exchange
Composite Transactions section of The Wall Street Journal and other major
newspapers as "FalmBk."
INVESTOR RELATIONS
Inquiries regarding Falmouth Co-operative Bank should be directed to:
Santo P. Pasqualucci
Falmouth Co-operative Bank
20 Davis Straits
Falmouth, MA 02540
ANNUAL MEETING OF STOCKHOLDERS
The Bank's Annual Meeting of Stockholders will be held at 3:00 p.m. Eastern
Standard time on Tuesday, January 21, 1997, at the Quality Inn, 921 Jones Road,
Falmouth, Massachusetts. Holders of common stock as of December 13, 1996 will be
eligible to vote.
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