Exhibit 10.5

APPALACHIAN BANCSHARES, INC.

Employee Stock Ownership Plan with 401(k) Provisions

(EFFECTIVE JANUARY 1, 2008)

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TABLE OF CONTENTS

 

         Page

ARTICLE I

      DEFINITIONS    2

            1.01

  ACCOUNT    2

            1.02

  ACCOUNT BALANCE    2

            1.03

  ACCOUNTING DATE    2

            1.04

  ACP    2

            1.05

  ACR    2

            1.06

  ADP    2

            1.07

  ADR    2

            1.08

  ALTERNATE PAYEE    3

            1.09

  ANNUITY STARTING DATE    3

            1.10

  BANK    3

            1.11

  BENEFICIARY    3

            1.12

  BOARD OF DIRECTORS    3

            1.13

  CATCH-UP CONTRIBUTION    3

            1.14

  CODE    3

            1.15

  COMPENSATION    3

            1.16

  DETERMINATION OF TOP HEAVY STATUS    4

            1.17

  DIRECT ROLLOVER    6

            1.18

  DISABILITY    6

            1.19

  DISQUALIFIED PERSON    6

            1.20

  DISTRIBUTEE    8

            1.21

  DISTRIBUTION RESTRICTIONS    8

            1.22

  DIVIDEND    8

            1.23

  EFFECTIVE DATE    9

            1.24

  ELECTIVE CONTRIBUTIONS    9

            1.25

  ELIGIBLE EMPLOYEE    9

            1.26

  ELIGIBLE RETIREMENT PLAN    9

            1.27

  ELIGIBLE ROLLOVER DISTRIBUTION    10

            1.28

  EMPLOYEE    11

 

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(continued)

 

         Page

            1.29

 

EMPLOYER

   11

            1.30

 

EMPLOYER OPTIONAL CONTRIBUTIONS

   11

            1.31

 

EMPLOYER OPTIONAL CONTRIBUTION ACCOUNT

   11

            1.32

 

EMPLOYER SECURITIES

   11

            1.33

 

ENTRY DATE

   12

            1.34

 

ERISA

   12

            1.35

 

ESOP COMMITTEE

   12

            1.36

 

EXEMPT LOAN

   12

            1.37

 

FIDUCIARY

   12

            1.38

 

FORFEITURE

   13

            1.39

 

GENERAL INVESTMENTS ACCOUNTS

   13

            1.40

 

GENERAL OBLIGATIONS

   13

            1.41

 

HIGHLY COMPENSATED EMPLOYEE

   13

            1.42

 

HIGHLY COMPENSATED GROUP

   14

            1.43

 

HOUR OF SERVICE

   14

            1.44

 

INACTIVE PARTICIPANT

   15

            1.45

 

INCOME

   15

            1.46

 

INCOME OF THE TRUST FUND

   15

            1.47

 

LATE RETIREMENT DATE

   16

            1.48

 

LEASED EMPLOYEES

   16

            1.49

 

LEVERAGED EMPLOYER SECURITIES

   16

            1.50

 

MATCHING CONTRIBUTIONS

   16

            1.51

 

MATCHING CONTRIBUTION ACCOUNT

   16

            1.52

 

NET PROFITS

   16

            1.53

 

NONFORFEITABLE

   17

            1.54

 

NONHIGHLY COMPENSATED EMPLOYEE

   17

            1.55

 

NORMAL RETIREMENT AGE

   17

            1.56

 

PARTICIPANT

   17

            1.57

 

PARTICIPANT EMPLOYER SECURITIES ACCOUNT

   17

 

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TABLE OF CONTENTS

(continued)

 

         Page

            1.58

 

PARTICIPANT GENERAL INVESTMENTS ACCOUNT

   17

            1.59

 

PARTICIPATION OF OTHER EMPLOYERS

   17

            1.60

 

PLAN

   18

            1.61

 

PLAN ADMINISTRATOR

   18

            1.62

 

PLAN YEAR

   18

            1.63

 

PROFIT SHARING PLAN PORTION

   18

            1.64

 

PUBLICLY TRADED

   18

            1.65

 

QUALIFIED MATCHING CONTRIBUTIONS

   18

            1.66

 

QUALIFIED NONELECTIVE CONTRIBUTIONS

   19

            1.67

 

QUALIFIED NONELECTIVE CONTRIBUTION ACCOUNT

   19

            1.68

 

QUALIFYING EMPLOYER SECURITIES

   19

            1.69

 

REGULATIONS

   19

            1.70

 

RELATED EMPLOYERS

   19

            1.71

 

RESTATEMENT DATE

   19

            1.72

 

RETIREMENT

   19

            1.73

 

ROLLOVER ACCOUNT

   20

            1.74

 

SALARY REDUCTION CONTRIBUTIONS

   20

            1.75

 

SALARY REDUCTION CONTRIBUTION ACCOUNT

   20

            1.76

 

SERVICE

   20

            1.77

 

SERVICE FOR PREDECESSOR EMPLOYER

   20

            1.78

 

SEVERANCE DATE

   20

            1.79

 

SEVERANCE FROM SERVICE

   20

            1.80

 

STOCK BONUS PLAN PORTION

   20

            1.81

 

TRUST

   20

            1.82

 

TRUSTEE

   20

            1.83

 

TRUST FUND

   21

            1.84

 

UNALLOCATED EMPLOYER SECURITIES ACCOUNT

   21

            1.85

 

UNALLOCATED GENERAL INVESTMENTS ACCOUNT

   21

            1.86

 

VALUATION DATE

   21

 

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TABLE OF CONTENTS

(continued)

 

         Page

            1.87

  VESTED    21

            1.88

  YEAR OF SERVICE    21

ARTICLE II

      EMPLOYEE PARTICIPANTS    22

            2.01

  PARTICIPATION    22

            2.02

  YEAR OF SERVICE PARTICIPATION    22

            2.03

  PARTICIPATION UPON RE EMPLOYMENT    22

            2.04

  INELIGIBILITY TO BECOME A PARTICIPANT    22

            2.05

  TERMINATION OF ELIGIBILITY    22

            2.06

  EMPLOYMENT BY EMPLOYER; SERVICE WITH NEWLY ACQUIRED ENTITIES; RECORDS OF
EMPLOYER    23

ARTICLE III

      EMPLOYER CONTRIBUTIONS AND FORFEITURES    24

            3.01

  AMOUNT    24

            3.02

  DETERMINATION OF CONTRIBUTION    26

            3.03

  TIME OF PAYMENT OF CONTRIBUTION    26

            3.04

  CONTRIBUTION ALLOCATION    26

            3.05

  TREATMENT OF EMPLOYER SECURITIES PURCHASED UNDER INSTALLMENT PAYMENT CONTRACTS
OR WITH BORROWED FUNDS    32

            3.06

  ACCRUAL OF BENEFIT    33

            3.07

  LIMITATIONS ON ALLOCATIONS TO PARTICIPANTS’ ACCOUNTS    34

            3.08

  DEFINITIONS – ARTICLE III    36

            3.09

  TRANSACTIONS INVOLVING EMPLOYER SECURITIES    40

ARTICLE IV

      PARTICIPANT CONTRIBUTIONS    42

            4.01

  CODE SECTION 401(k) ARRANGEMENT    42

            4.02

  ANNUAL ELECTIVE DEFERRAL LIMITATION    42

            4.03

  ACTUAL DEFERRAL PERCENTAGE (“ADP”) TEST    43

            4.04

  NONDISCRIMINATION RULES FOR MATCHING CONTRIBUTIONS    49

            4.05

  PARTICIPANT ROLLOVER CONTRIBUTIONS    54

 

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TABLE OF CONTENTS

(continued)

 

         Page

            4.06

 

MATCHING CATCH-UP CONTRIBUTIONS

   55

            4.07

 

PLAN YEAR REQUIREMENT

   55

            4.08

 

CHANGE OF PLAN YEAR

   55

            4.09

 

PLAN TERMINATION

   56

ARTICLE V

 

    TERMINATION OF SERVICE PARTICIPANT VESTING

   57

            5.01

 

RETIREMENT

   57

            5.02

 

PARTICIPANT DEATH OR DISABILITY

   57

            5.03

 

VESTING SCHEDULE

   57

            5.04

 

CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS AND RESTORATION OF
FORFEITED ACCOUNT BALANCE

   58

            5.05

 

SEGREGATED ACCOUNT FOR REPAID AMOUNT

   60

            5.06

 

BREAK IN SERVICE - VESTING

   61

            5.07

 

INCLUDED YEARS OF SERVICE VESTING

   61

            5.08

 

FORFEITURE OCCURS

   61

ARTICLE VI

 

    TIME AND METHOD OF PAYMENT OF BENEFITS

   63

            6.01

 

TIME OF PAYMENT OF ACCRUED BENEFIT

   63

            6.02

 

METHOD OF PAYMENT OF ACCOUNT BALANCE

   65

            6.03

 

BENEFIT PAYMENT ELECTIONS

   67

            6.04

 

ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES

   71

            6.05

 

DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS

   72

            6.06

 

LATE RETIREMENT

   73

            6.07

 

LIMITATIONS ON BENEFITS

   73

ARTICLE VII

 

    EMPLOYER ADMINISTRATIVE PROVISIONS

   74

            7.01

 

INFORMATION TO ESOP COMMITTEE

   74

            7.02

 

NO LIABILITY

   74

            7.03

 

INDEMNITY OF CERTAIN FIDUCIARIES

   74

            7.04

 

AMENDMENT TO VESTING SCHEDULE

   74

ARTICLE VIII

 

    PARTICIPANT ADMINISTRATIVE PROVISIONS

   76

 

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TABLE OF CONTENTS

(continued)

 

         Page

            8.01

 

BENEFICIARY DESIGNATION

   76

            8.02

 

NO BENEFICIARY DESIGNATION

   77

            8.03

 

PERSONAL DATA TO ESOP COMMITTEE

   77

            8.04

 

ADDRESS FOR NOTIFICATION

   78

            8.05

 

ASSIGNMENT OR ALIENATION

   78

            8.06

 

LITIGATION AGAINST THE TRUST

   78

            8.07

 

INFORMATION AVAILABLE

   78

            8.08

 

CLAIMS PROCEDURE FOR DENIAL OF BENEFITS

   79

            8.09

 

DIVERSIFICATION OF PARTICIPANT’S ACCOUNT

   79

            8.10

 

PARTICIPANT VOTING RIGHTS - EMPLOYER SECURITIES

   80

            8.11

 

FEES AND EXPENSES

   81

            8.12

 

PARTICIPANT DIRECTION OF INVESTMENT

   81

ARTICLE IX

 

    ESOP COMMITTEE DUTIES WITH RESPECT TO PARTICIPANTS’ ACCOUNTS

   83

            9.01

 

MEMBERS’ COMPENSATION, EXPENSES

   83

            9.02

 

TERM

   83

            9.03

 

POWERS

   83

            9.04

 

GENERAL

   83

            9.05

 

FUNDING POLICY

   85

            9.06

 

MANNER OF ACTION

   85

            9.07

 

AUTHORIZED REPRESENTATIVE

   85

            9.08

 

INTERESTED MEMBER

   85

            9.09

 

VALUE OF PARTICIPANT’S ACCOUNT BALANCE

   85

            9.10

 

ALLOCATIONS TO PARTICIPANTS’ ACCOUNTS

   85

            9.11

 

ACCOUNT CHARGED

   85

            9.12

 

UNCLAIMED ACCOUNT PROCEDURE

   85

ARTICLE X

 

    REPURCHASE OF EMPLOYER SECURITIES

   87

            10.01

 

PUT OPTION

   87

            10.02

 

RESTRICTION ON EMPLOYER SECURITIES

   87

 

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TABLE OF CONTENTS

(continued)

 

         Page

            10.03

 

LIFETIME TRANSFER AND RIGHT OF FIRST REFUSAL

   88

            10.04

 

PAYMENT OF PURCHASE PRICE

   88

            10.05

 

NOTICE

   89

            10.06

 

TERMS AND DEFINITIONS

   89

            10.07

 

TRUSTEE’S PUT OPTION

   90

            10.08

 

SECURITY HOLDER

   90

            10.09

 

PROVISIONS NON-TERMINABLE

   90

ARTICLE XI

 

    PROVISIONS RELATING TO INSURANCE AND INSURANCE COMPANY

   91

ARTICLE XII

 

    MISCELLANEOUS

   92

            12.01

 

EVIDENCE

   92

            12.02

 

NO RESPONSIBILITY FOR PLAN ACTIONS

   92

            12.03

 

FIDUCIARIES NOT INSURERS

   92

            12.04

 

WAIVER OF NOTICE

   92

            12.05

 

SUCCESSORS

   92

            12.06

 

WORD USAGE

   92

            12.07

 

STATE LAW

   93

            12.08

 

EMPLOYMENT NOT GUARANTEED

   93

            12.09

 

SEVERABILITY

   93

            12.10

 

CONTRARY PROVISIONS

   93

            12.11

 

NOTICE TO EMPLOYEES

   93

            12.12

 

AGREEMENT OF PARTICIPANTS

   93

            12.13

 

ACTION BY EMPLOYERS

   93

            12.14

 

ADOPTION OF THE PLAN BY A CONTROLLED GROUP MEMBER

   93

            12.15

 

DISASSOCIATION OF ANY EMPLOYER FROM PLAN

   94

            12.16

 

BONDING

   94

            12.17

 

NAMED FIDUCIARY

   94

            12.18

 

SECURITIES AND EXCHANGE COMMISSION APPROVAL

   95

 

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(continued)

 

         Page

            12.19

 

VALUATION OF TRUST

   95

            12.20

 

EXEMPT LOAN

   95

            12.21

 

RECORDS AND STATEMENTS

   97

            12.22

 

PARTIES TO LITIGATION

   98

            12.23

 

PROFESSIONAL AGENTS

   98

            12.24

 

DISTRIBUTION OF TRUST FUND

   98

            12.25

 

DISTRIBUTION DIRECTIONS

   99

            12.26

 

WITHHOLDING FOR ANY PAYMENT OF TAXES

   100

            12.27

 

USERRA COMPLIANCE

   100

            12.28

 

SECTION 4975(e) OF THE CODE

   100

ARTICLE XIII

 

    EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION

   101

            13.01

 

EXCLUSIVE BENEFIT

   101

            13.02

 

AMENDMENT BY BANK

   101

            13.03

 

DISCONTINUANCE

   102

            13.04

 

FULL VESTING ON TERMINATION

   102

            13.05

 

MERGER AND DIRECT TRANSFER

   102

            13.06

 

COMPLETE TERMINATION

   103

            13.07

 

PARTIAL TERMINATION

   104

            13.08

 

TERMINATION RESTRICTIONS UNDER CODE SECTION 401(k)

   104

 

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APPALACHIAN BANCSHARES, INC.

Employee Stock Ownership Plan With 401(k) Provisions

(Effective January 1, 2008)

Appalachian Bancshares, Inc., a corporation organized under the laws of the
State of Georgia (the “Bank”), hereby amends and restates the Appalachian
Bancshares, Inc. Employees’ Savings and Profit Sharing Plan, in restated form,
to be known as the Appalachian Bancshares, Inc. Employee Stock Ownership Plan
With 401(k) Provisions (the “Plan”) (effective January 1, 2008). It is intended
that the Plan continue to be a stock bonus plan that qualifies as an employee
stock ownership plan under Code Sections 401(a) and 4975(e)(7) of the Code and
Section 407(d)(6) of ERISA. It is also intended that the Appalachian Bancshares,
Inc. Employee Stock Ownership Trust (the “Trust”) which implements and forms a
part of the Plan continue to be exempt from tax under Section 501(a) of the
Code. The Plan shall be interpreted, wherever possible, to comply with the terms
of the Code, ERISA and all applicable Regulations and rulings thereunder.

PURPOSES:

The purpose of this Plan is to enable participating Employees to share in the
growth and prosperity of the Bank through Employer contributions to the Plan and
to provide Participants with an opportunity to accumulate capital for their
future economic security. The Plan is designed to permit both Employer and
Employee contributions to the Plan. The primary purpose of the Plan is to enable
Participants to acquire stock ownership interests in the Bank. Therefore, the
Trust assets held under the Plan will be invested primarily in Bank stock.

The Plan is also designed to be available as a technique of corporate finance to
the Bank. Accordingly, it may be used to accomplish the following objectives:

 

  (a)

To meet general financing requirements of the Bank, including capital growth and
transfers in the ownership of Bank stock;

 

  (b)

To provide Participants with beneficial ownership of Bank stock and other assets
through Employer and Employee contributions to the Plan; and

 

  (c)

To receive loans (or other extensions of credit) to finance the acquisition of
Bank stock (“Exempt Loans”), with such loans to be repaid by Employer
contributions to the Trust and dividends received on such Bank stock.

The Plan is intended to qualify under Section 401(a) and 401(k) and 401(m) of
the Internal Revenue Code. The Plan also was designed to be an employee stock
ownership plan under Section 4975(e)(7) of the Code.

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WITNESSETH:

WHEREAS, the Bank hereby establishes the Appalachian Bancshares, Inc. Employee
Stock Ownership Plan With 401(k) Provisions (effective January 1, 2008);

WHEREAS, this Plan was formerly known as the Appalachian Bancshares, Inc.
Employees’ Savings and Profit Sharing Plan, originally effective as of
September 25, 2001, and is now hereby amended as an employee stock ownership
plan with 401(k) provisions and adopted as the Appalachian Bancshares, Inc.
Employee Stock Ownership Plan With 401(k) Provisions for the exclusive benefit
of Participants and their Beneficiaries.

NOW, THEREFORE, the Bank establishes the following terms and conditions:

ARTICLE I

DEFINITIONS

1.01 ACCOUNT. “Account” means the separate account(s) established and maintained
for a Participant under the Plan.

1.02 ACCOUNT BALANCE. “Account Balance” means the amount standing in a
Participant’s Account(s) as of any Valuation Date derived from Salary Reduction
Contributions, Employer Optional Contributions, Qualified Nonelective
Contributions and Forfeitures, allocated to a Participant’s Account as of any
Valuation Date.

1.03 ACCOUNTING DATE. “Accounting Date” is the last day of the Plan Year. Unless
otherwise specified in the Plan, all Plan allocations for a particular Plan Year
will be made as of the Accounting Date of that Plan Year.

1.04 ACP. “ACP” means the actual contribution percentage for a group of Eligible
Employees for a Plan Year. The ACP for a group of Eligible Employees for a Plan
Year is the average of the ACRs of the Eligible Employees in the group for that
Plan Year.

1.05 ACR. “ACR” means the actual contribution ratio of a Participant for the
Plan Year which is the sum of the Eligible Employee’s Matching Contributions
allocated to the Eligible Employee’s Account for the Plan Year, and the
Qualified Nonelective Contributions and Elective Contributions treated as
Matching Contributions for the Plan Year, divided by the Eligible Employee’s
Compensation taken into account for the Plan Year for which the Employee was
actually a Participant.

1.06 ADP. “ADP” means the actual deferral percentage for a group of Eligible
Employees for a Plan Year. The ADP for a group of Employees for a Plan Year is
the average of the ADPs of Eligible Employees in the group for that Plan Year.

1.07 ADR. “ADR” means the actual deferral ratio of a Participant for the Plan
Year which is the sum of the Eligible Employee’s Salary Reduction Contributions
and amounts treated as Salary Reduction Contributions for the Plan Year, divided
by the

 

Appalachian Bancshares, Inc. Employee Stock Ownership Plan with 401(k)
Provisions

(effective January 1, 2008)

   Page 2

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Employee’s Compensation taken into account for the Plan Year for which the
Employee was actually a Participant.

1.08 ALTERNATE PAYEE. “Alternate Payee” means a spouse, former spouse, child, or
other dependent of a Participant to whom benefits are payable under the Plan
pursuant to the terms of a qualified domestic relations order as defined in
Section 414(p) of the Code.

1.09 ANNUITY STARTING DATE. “Annuity Starting Date” means the first day on which
all events have occurred which entitle the Participant to a distribution from
this Plan.

1.10 BANK. “Bank” means Appalachian Bancshares, Inc., or its successor. The tax
identification number of the Bank is 58-2242407.

1.11 BENEFICIARY. “Beneficiary” is a person who is designated by a Participant
as such in accordance with Section 8.01 hereof or who is or may become entitled
to a benefit under the Plan. A Beneficiary who becomes entitled to a benefit
under the Plan remains a Beneficiary under the Plan until his benefit has been
fully distributed to him. A Beneficiary’s right to (and the ESOP Committee’s or
the Trustee’s duty to provide to the Beneficiary) information or data concerning
the Plan does not arise until he first becomes entitled to receive a benefit
under the Plan.

1.12 BOARD OF DIRECTORS. “Board of Directors” or “Board” means the Board of
Directors of the Bank, as from time to time constituted.

1.13 CATCH-UP CONTRIBUTION. “Catch-Up Contribution” means Elective Deferrals
made to the Plan that are in excess of an otherwise applicable Plan limit and
that are made by Participants who are age 50 or over by the end of their taxable
year which ends with or within the Plan Year. An otherwise applicable Plan limit
is a limit in the Plan that applies to Elective Deferrals without regard to
Catch-Up Contributions, such as (a) the limit on Annual Additions; (b) the
dollar limit on Elective Deferrals under Code Section 402(g) (not counting
Catch-Up Contributions); (c) the limit imposed by the ADP test under
Section 401(k)(3); or (d) a Plan imposed limit set forth in a resolution
properly executed by the Employer which is considered to be an amendment to the
Plan.

1.14 CODE. “Code” means the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute thereto. References herein to Sections of the
Code shall include any successor provisions thereto.

1.15 COMPENSATION. “Compensation” with respect to any Participant means such
Participant’s wages as defined in Code Section 3401(a) and all other payments of
compensation by the Employer (in the course of the Employer’s trade or business)
during the Plan Year for which the Employer is required to furnish the
Participant a written statement under Code Sections 6041(d), 6051(a)(3) and
6052. Compensation must be determined without regard to any rules under Code
Section 3401(a) that limit the remuneration included in wages based on the
nature or location of the employment or the services performed (such as the
exception for agricultural labor in Code Section

 

Appalachian Bancshares, Inc. Employee Stock Ownership Plan with 401(k)
Provisions

(effective January 1, 2008)

   Page 3

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3401(a)(2)). A Participant’s Compensation shall be determined subject to the
following provisions:

(a) Compensation Determination Period. Under this Section 1.15, the
“Compensation Determination Period” is the Plan Year. Notwithstanding the
preceding, Compensation and the Compensation Determination Period shall include
Post Severance Compensation as defined in Section 3.08(h) hereof.

(b) Treatment of Elective Contributions. For purposes of this Section 1.15,
Elective Contributions will be included in determining Compensation.

(c) The Compensation of each Participant taken into account under the Plan for
any Plan Year shall not exceed $230,000, as adjusted by the Commissioner of
Internal Revenue to reflect increases in the cost-of-living in accordance with
Section 401(a)(17)(B) of the Code.

1.16 DETERMINATION OF TOP HEAVY STATUS. The ESOP Committee must determine
whether the Plan is top heavy for a Plan Year. If this Plan is the only
qualified plan maintained by the Employer, the Plan is top heavy for a Plan Year
if the top heavy ratio as of the Determination Date (as hereafter defined)
exceeds sixty percent (60%). The “top heavy ratio” is a fraction, the numerator
of which is the sum of the present value of Account Balances of all Key
Employees (as hereafter defined) as of the Determination Date and the
denominator of which is a similar sum determined for all Employees. The ESOP
Committee must include in the top heavy ratio, as part of the present value of
Account Balances, any contribution not made as of the Determination Date but
includible under Code Section 416 and the applicable Treasury Regulations, and
distributions made within the Determination Period (as hereafter defined). The
ESOP Committee must calculate the top heavy ratio by disregarding the Account
Balance (and distributions, if any, of the Account Balance) of any Non Key
Employee (as hereafter defined) who was formerly a Key Employee, and by
disregarding the Account Balance (including distributions, if any, of the
Account Balance) of an individual who has not received credit for at least one
(1) Hour of Service with the Employer during the Determination Period. The ESOP
Committee must calculate the top heavy ratio, including the extent to which it
must take into account distributions, rollovers and transfers, in accordance
with Code Section 416 and the Treasury Regulations thereunder.

If the Employer maintains other qualified plans (including a 401(k) arrangement
or simplified employee pension plan), or maintained another such plan which now
is terminated, this Plan is top heavy only if it is part of the Required
Aggregation Group (as hereafter defined), and the top heavy ratio for the
Required Aggregation Group and for the Permissive Aggregation Group (as
hereafter defined), if any, each exceeds sixty percent (60%). The top heavy
ratio will be calculated in the same manner as required by the first paragraph
of this Section 1.16, taking into account all plans that are aggregated. To the
extent distributions to a Participant are taken into account, distributions from
a terminated plan which would have been part of the Required Aggregation Group
if it were in existence on the Determination Date must be included. The present
value of the Account Balances or account balances under defined benefit plans or
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employee pension plans included within the group will be calculated in
accordance with the terms of those plans, Code Section 416 and the Treasury
Regulations under that Code Section. If a Participant in a defined benefit plan
is a Non-Key Employee, his Account Balance will be determined under the accrual
method, if any, which is applicable uniformly to all defined benefit plans
maintained by the Employer or, if there is no uniform method, in accordance with
the slowest accrual rate permitted under the fractional rule accrual method
described in Code Section 411(b)(1)(C). To calculate the present value of
benefits from a defined benefit plan, actuarial assumptions (interest and
mortality only) prescribed by the defined benefit plan(s) will be used to value
benefits for top heavy purposes. If an aggregated plan does not have a valuation
date coinciding with the Determination Date, the Account Balances in the
aggregated plan must be valued as of the most recent valuation date falling
within the twelve month period ending on the Determination Date, except as Code
Section 416 and applicable Treasury Regulations require for the first and second
plan year of a defined benefit plan. The top heavy ratio will be calculated with
reference to the Determination Dates that fall within the same calendar year.

Definitions. For purposes of applying the provisions of this Section 1.16:

(a) “Key Employee” means any Employee or former Employee (including any deceased
Employee) who at any time during the Plan Year that includes the Determination
Date: (i) was an officer of the Employer having annual has Compensation greater
than One Hundred Thirty Thousand Dollars ($130,000) (as adjusted under Code
Section 416(i)(1)); (ii) is a five percent (5%) owner of the Employer; or
(iii) is a one percent (1%) owner of the Employer and has annual Compensation of
more than One Hundred Fifty Thousand Dollars ($150,000). The constructive
ownership rules of Code Section 318 (or the principles of that Section, in the
case of an unincorporated Employer) will apply to determine ownership in the
Employer. The ESOP Committee will make the determination of who is a Key
Employee in accordance with Code Section 416(i)(1), the Treasury Regulations
under that Code Section, and the other guidance of general applicability issued
thereunder.

(b) “Non-Key Employee” is an employee who does not meet the definition of Key
Employee.

(c) “Compensation” means the general definition of Compensation.

(d) “Required Aggregation Group” means: (1) each qualified plan of the Employer
in which at least one Key Employee participates at any time during the
Determination Period; and (2) any other qualified plan of the Employer which
enables a plan described in clause (1) to meet the requirements of Code
Section 401(a)(4) or of Code Section 410.

(e) “Permissive Aggregation Group” is the Required Aggregation Group plus any
other qualified plans maintained by the Employer, but only if such group would
satisfy in the aggregate the requirements of Code Sections 401(a)(4)

 

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and 410. The ESOP Committee will determine the Permissive Aggregation Group.

(f) “Employer” means the Employer that adopts this Plan and any Related
Employers.

(g) “Determination Date” for any Plan Year is the Accounting Date of the
preceding Plan Year or, in the case of the first Plan Year of this Plan, the
Accounting Date of that Plan Year.

The present values of Account Balances of an Employee as of the Determination
Date shall be increased by the distributions made with respect to the Employee
under this Plan and any plan aggregated with this Plan under Code
Section 416(g)(2) during the one (1) year period ending on the Determination
Date. The preceding sentence shall also apply to distributions under a
terminated plan which, had it not been terminated, would have been aggregated
with this Plan under Code Section 416(g)(2)(A)(i). In the case of a distribution
made for a reason other than severance from employment, death, or Disability,
this provision shall be applied by substituting ‘five (5) year period’ for ‘one
(1) year period.’

The Account of any individual who has not performed services for the Employer
during the one (1) year period ending on the Determination Date shall not be
taken into account.

(h) The “Determination Period” is the one (1) year period ending on the
Determination Date. In the case of a distribution made for a reason other than
severance from employment as described in Code Section 416(g)(3)(B), death or
Disability, the Determination Period shall be the five (5) year period ending on
the Determination Date.

(i) Notwithstanding the foregoing, no top heavy determination shall be made for
any Plan Year in which this Plan satisfies Code Section 416(g)(4)(H).

1.17 DIRECT ROLLOVER. A “Direct Rollover” is a payment by this Plan in the form
of a trustee-to-trustee transfer that also meets the requirements of an Eligible
Rollover Distribution.

1.18 DISABILITY. “Disability” means a Participant who has separated from
employment by reason of a disability which is expected to last in excess of 12
consecutive months and who is either (i) approved for disability under the
provisions of any other benefit program or policy maintained by the Employer,
which policy or program is applied on a uniform and nondiscriminatory basis to
all Employees of the Employer, or (ii) is eligible for, or is receiving,
disability insurance benefits under the Federal Social Security Act.

1.19 DISQUALIFIED PERSON. “Disqualified Person” means a person who is:

(a) a Fiduciary;

 

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(b) a person providing services to the Plan;

(c) an Employer any of whose Employees are covered by the Plan;

(d) an employee organization any of whose members are covered by the Plan;

(e) an owner, direct or indirect, of fifty percent (50%) or more of:

(i) the combined voting power of all classes of stock entitled to vote or the
total value of shares of all classes of stock of a corporation;

(ii) the capital interest or the profits interest of a partnership; or

(iii) the beneficial interest of a trust or unincorporated enterprise, which is
an Employer or an employee organization described in subparagraph (c) or
(d) above;

(f) a member of the family (as hereafter defined) of any individual described in
subparagraph (a), (b), (c), or (e) above (the term “family” means an
individual’s spouse, ancestor, and lineal descendent and any spouse of a lineal
descendant);

(g) a corporation, partnership, or trust or estate of which (or in which) fifty
percent (50%) or more of:

(i) the combined voting power of all classes of stock entitled to vote or the
total value of shares of all classes of stock of such corporation;

(ii) the capital interest or profits interest of such partnership; or

(iii) the beneficial interest of such trust or estate is owned, directly or
indirectly, or held by persons described in subparagraph (a), (b), (c), (d) or
(e) above;

(h) an officer, director (or an individual having powers or responsibilities
similar to those of officers or directors), a ten percent (10%) or more
shareholder, or a highly compensated employee (earning ten percent (10%) or more
of the yearly wages of an Employer) of a person described in subparagraph (c),
(d), (e) or (g) above; or

(i) a ten percent (10%) or more (in capital or profits) partner or joint
venturer of a person described in subparagraph (c), (d), (e) or (g) above.

The Secretary of the Treasury, after consultation and coordination with the
Secretary of Labor or his delegate, may by regulation prescribe a percentage
lower than

 

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fifty percent (50%) for subparagraphs (e) and (g) above and lower than ten
percent (10%) for subparagraphs (h) and (i) above.

For purposes of subparagraphs (e)(i) and (g)(i) above, there shall be taken into
account indirect stockholdings which would be taken into account under
Section 267(c)(4) of the Code, except that, for purposes of this paragraph,
Section 267(c)(4) of the Code shall be treated as providing that the members of
the family of an individual shall include his spouse, ancestor, lineal
descendant, and any spouse of a lineal descendant.

For purposes of subparagraphs (e)(ii) and (iii), (g)(ii) and (iii), and
(i) above, the ownership of profits or beneficial interests shall be determined
in accordance with the rules for constructive ownership of stock provided in
Section 267(c) of the Code (other than paragraph (3) thereof), except that
Section 267(c)(4) of the Code shall be treated as providing that the members of
the family of an individual shall include his spouse, ancestor, lineal
descendant, and any spouse of a lineal descendant.

1.20 DISTRIBUTEE. “Distributee” means:

(a) a Participant or former Participant,

(b) the surviving spouse of a Participant, and

(c) the former spouse of a Participant who is an Alternate Payee under a
qualified domestic relations order, as defined in Code Section 414(p).

1.21 DISTRIBUTION RESTRICTIONS. “Distribution Restrictions” means the Employee
may not receive a distribution of his Salary Reduction Contributions or Matching
Contributions (nor earnings on those contributions) except in the event of
(1) the Participant’s death, Disability, termination of employment, attainment
of age fifty-nine and one-half (591/2), (2) financial hardship satisfying the
requirements of Code Section 401(k) and the applicable Treasury Regulations,
(3) plan termination without establishment of a successor defined contribution
plan (other than an employee stock ownership plan (“ESOP”) or a simplified
employee pension), (4) a sale of substantially all of the assets (within the
meaning of Code Section 409(d)(2)) used in a trade or business, but only to an
employee who continues employment with the corporation acquiring those assets,
or (5) a sale by a corporation of its interest in a subsidiary (within the
meaning of Code Section 409(d)(3)), but only to an employee who continues
employment with the subsidiary. A distribution on account of financial hardship,
as described in clause (2), may not include earnings on Salary Reduction
Contributions credited as of a date later than December 31, 1988, and may not
include any earnings on Qualified Nonelective Contributions, regardless of when
credited. A distribution described in clauses (3), (4) or (5), must be a lump
sum distribution, as required under Code Section 401(k)(10).

1.22 DIVIDEND. “Dividend” means a distribution made by the Employer to its
shareholders in the form of a dividend (as defined in Code Section 316) with
respect to its Employer Securities.

 

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1.23 EFFECTIVE DATE. “Effective Date” of the Appalachian Bancshares, Inc.
Employees’ Savings & Profit Sharing Plan means September 25, 2001, but as to
this amendment and restatement as the Appalachian Bancshares, Inc. Employee
Stock Ownership Plan With 401(k) Provisions means January 1, 2008.

1.24 ELECTIVE CONTRIBUTIONS. “Elective Contributions” are amounts excludable
from the Employee’s gross income under Code Sections 125, 132(f), 402(e)(3),
402(h) or 403(b), and contributed by the Employer, at the Employee’s election,
to a Code Section 401(k) arrangement, a simplified employee pension, a cafeteria
plan, a tax-sheltered annuity or a Code Section 132(f) plan. Amounts under Code
Section 125 include any amounts not available to a participant in cash in lieu
of group health coverage because the participant is unable to certify that he or
she has other health coverage. An amount will be treated as an amount under Code
Section 125 only if the Employer does not request or collect information
regarding the participant’s other health coverage as part of the enrollment
process for the health plan. Elective Contributions include amounts, which are
not includible in the gross income of an Employee under Code Section 132(f)(4).

1.25 ELIGIBLE EMPLOYEE. Each Employee who is at least eighteen (18) years old is
an “Eligible Employee,” and thereby eligible to participate in the Plan
immediately. An Employee who fails to meet these requirements following his
initial date of Service shall be eligible to participate in the Plan on the date
he or she has attained age eighteen (18). For purposes of the ADP test described
in Section 4.03 hereof, an Employee who is eligible to participate in the Plan
is an Eligible Employee, regardless of whether the Employer actually makes
deferral contributions on behalf of the Employee. For purposes of the ACP test
described in Section 4.04 hereof, an “Eligible Employee” means a Participant who
is eligible to receive an allocation of Matching Contributions (or would be
eligible if he made the type of contributions necessary to receive an allocation
of Matching Contributions) and a Participant who is eligible to make Employee
contributions, regardless of whether he actually makes Employee contributions.
An Employee continues to be an Eligible Employee during a period the Plan
suspends the Employee’s right to make Salary Reduction Contributions or
nondeductible contributions following a hardship distribution.

1.26 ELIGIBLE RETIREMENT PLAN.

(a) The term “Eligible Retirement Plan” means any of the following that accepts
an Eligible Rollover Distribution:

(i) an individual retirement account described in Code Section 408(a);

(ii) an individual retirement annuity described in Code Section 408(b) (other
than an endowment contract);

(iii) a qualified plan described in Code Section 401(a);

(iv) an annuity plan described in Code Section 403(a);

 

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(v) an annuity contract described in Code Section 403(b); or

(vi) an eligible deferred compensation plan described in Code Section 457(b)
which is maintained by an eligible employer described in section 457(b) and
which agrees to separately account for amounts transferred into such plan from
this Plan.

(b) Notwithstanding anything contained herein to the contrary, in the case of an
Eligible Rollover Distribution to:

(i) a Participant’s surviving spouse or to a spouse or former spouse who is an
Alternate Payee under a qualified domestic relations order, as defined in Code
Section 414(p), an Eligible Retirement Plan means any one of the accounts,
annuities or plans described in Section 1.26(a)(i) through Section 1.26(a)(iv),
and

(ii) a Beneficiary who is not otherwise described in Section 1.26(b)(i), an
Eligible Retirement Plan means any one of the accounts or annuities described in
described in Section 1.26(a)(i) or Section 1.26(a)(ii), which is established for
the purpose of receiving the distribution on behalf of an individual who was
designated as a Beneficiary by the Participant; provided such Beneficiary is not
the Participant’s surviving spouse.

1.27 ELIGIBLE ROLLOVER DISTRIBUTION.

(a) The term “Eligible Rollover Distribution” means any distribution, other than
a distribution described in Section 1.27(b), of all or any portion of the
balance to the credit of:

(i) a Distributee, or

(ii) a Beneficiary, if the distribution is made in accordance with Code
Section 402(c)(11) in a direct trustee-to-trustee transfer to an Eligible
Retirement Plan described in Section 1.26(a)(i) or Section 1.26(a)(ii), which is
established for the purpose of receiving the distribution on behalf of an
individual who was designated as a Beneficiary by the Participant; provided such
Beneficiary is not the Participant’s surviving spouse.

(b) Notwithstanding Section 1.27(a), the term “Eligible Rollover Distribution”
does not include:

(i) any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for:

(A) the life (or life expectancy) of:

 

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(1) a Distributee.

(2) a Beneficiary,

(3) the joint lives (or joint life expectancies) of a Distributee and the
Distributee’s Beneficiary, or

(4) a specified period of ten (10) years or more;

(B) any distribution to the extent such distribution is required under Code
Section 401(a)(9); or

(C) any hardship distribution from any qualified plan.

(c) A portion of a distribution shall not fail to be an Eligible Retirement
Distribution merely because the portion consists of after-tax employee
contributions, which are not includible in gross income. However, such portion
may be transferred only to an Eligible Retirement Plan that agrees to separately
account for amounts so transferred, including separately accounting for the
portion of such distribution which is includible in gross income and the portion
of such distribution which is not so includible.

1.28 EMPLOYEE. “Employee” means any common law employee of the Employer or a
Related Employer, but excludes any person who is an independent contractor.
Employee shall include Leased Employees to the extent provided in Section 1.48.
In the event that an individual is misclassified as other than an Employee and,
as a result, is denied eligibility into this Plan, any re-classification of such
individual as an Employee (by a court, administrative agency, or otherwise)
shall only be effective for purposes of this Plan from the date of such
determination (notwithstanding any retroactive classification of such individual
as an Employee for any other purpose under the Code).

1.29 EMPLOYER. “Employer” means Appalachian Bancshares, Inc., a bank organized
under the laws of the State of Georgia, and any Related Employer, or other
entity or person adopting this Plan pursuant to Sections 1.70 and 12.14 hereof.

1.30 EMPLOYER OPTIONAL CONTRIBUTIONS. “Employer Optional Contributions” means
the contributions the Employer contributes to the Trust pursuant to Section
3.01(a)(v).

1.31 EMPLOYER OPTIONAL CONTRIBUTION ACCOUNT. “Employer Optional Contribution
Account” means the Account of a Participant which is credited with Employer
Optional Contributions.

1.32 EMPLOYER SECURITIES. “Employer Securities” means:

(a) General Definition. “Employer Securities” means common stock issued by the
Bank, or by a corporation which is a member of the same controlled group of the
Bank (within the meaning of Code Section 409(1)), which is readily

 

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tradable on an established securities market. If there is no common stock which
meets such requirements, the term “Employer Securities” shall mean common stock
issued by the Bank or by a corporation which is a member of the same controlled
group of the Bank (within the meaning of Code Section 409(1)), having a
combination of voting power and dividend rights equal to or in excess of:

(i) that class of common stock of the Bank (or any other such corporation)
having the greatest voting power; and

(ii) that class of common stock of the Bank (or any other such corporation)
having the greatest dividend rights.

Noncallable preferred stock shall also be treated as “Employer Securities” if
such stock is convertible at any time into stock which meets the qualifications
above, and if such conversion is at a conversion price which (at the date of the
acquisition by the Trust) is reasonable. For purposes of the preceding sentence,
preferred stock shall be treated as noncallable if, pursuant to Regulations,
after the call there will be a reasonable opportunity for a conversion which
meets such requirements.

(b) Special Definition. The term “Employer Securities” means the definition as
defined in this Section 1.32 above.

1.33 ENTRY DATE. “Entry Date” means the first day of each calendar month.

1.34 ERISA. “ERISA” means the Employee Retirement Income Security Act of 1974,
as amended from time to time, or any successor statute thereto and the final and
temporary Regulations promulgated, and the applicable rulings issued thereunder.
References herein to Sections of ERISA shall include any successor provisions
thereto.

1.35 ESOP COMMITTEE. “ESOP Committee” means the Appalachian Bancshares, Inc.
ESOP Committee, which members are appointed by the Bank, as from time to time
constituted.

1.36 EXEMPT LOAN. “Exempt Loan” means a loan or loans made to the Plan by a
Disqualified Person or a loan or loans to the Plan which is guaranteed by a
Disqualified Person. The term “Exempt Loan” includes a direct loan of cash, a
purchase-money transaction, and an assumption of the obligation of the Plan. For
purposes of this Section, “Guarantee” includes an unsecured guarantee and the
use of assets of a Disqualified Person as collateral for a loan, even though the
use of assets may not be a guarantee under applicable state law. For purposes of
this Section, an amendment of a loan in order to qualify as an exempt loan is
not a refinancing of the loan or the making of another loan.

1.37 FIDUCIARY. “Fiduciary” means any person who (a) exercises any discretionary
authority or discretionary control and management of the Plan or exercises any
authority or control and management or disposition of Plan assets, (b) renders

 

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investment advice for a fee or other compensation, direct or indirect, with
respect to any monies or other property of the Trust or has any authority or
responsibility to do so, or (c) has any discretionary authority or discretionary
responsibility in the administration of the Plan and the Trust, including, but
not limited to, the ESOP Committee, and any person designated under ERISA
Section 405(c)(1)(B).

1.38 FORFEITURE. “Forfeiture” refers to the amount of a Participant’s Account
Balance which is not Vested and which is forfeited pursuant to Section 5.08.

1.39 GENERAL INVESTMENTS ACCOUNTS. “General Investments Accounts” means the
Participant General Investments Account and the Unallocated General Investments
Account.

1.40 GENERAL OBLIGATIONS. “General Obligations” means obligations of the Trust
not arising from extensions of credit to the Trust, but which are commitments
which arise from authorized activities of the Trust.

1.41 HIGHLY COMPENSATED EMPLOYEE. A “Highly Compensated Employee” or “HCE” means
an Employee who:

(a) is a more than five percent (5%) owner of the Employer (applying the
constructive ownership rules of Code Section 318, and applying the principles of
Code Section 318, for an unincorporated entity) during the Plan Year or during
the preceding Plan Year; or

(b) for the preceding Plan Year, had Compensation from the Employer greater than
One Hundred Five Thousand Dollars ($105,000) (as adjusted by the Commissioner of
the Internal Revenue Service for the relevant year), and was in the top paid
group of Employees. For purposes of this clause (b), the “top paid group” is the
top twenty percent (20%) of Employees based on their Compensation.

The dollar threshold amount specified in this Section 1.41(b) shall be adjusted
at such time and in the same manner as under Code Section 415(d), except that
the base period shall be the calendar quarter ending September 30, 1996. In the
case of such an adjustment, the dollar limit which shall be applied is the limit
for the calendar year.

In determining who is a Highly Compensated Employee, Employees who are
non-resident aliens and who received no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer constituting United States source
income within the meaning of Code Section 861(a)(3) shall not be treated as
Employees. Additionally, all Related Employers shall be taken into account as a
single employer and Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section 414(n)(5) and are not
covered in any qualified plan maintained by the Employer. The exclusion of
Leased Employees for this purpose shall be applied on a uniform and consistent
basis for all of the Employer’s retirement plans. Highly

 

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Compensated Former Employees shall be treated as Highly Compensated Employees
without regard to whether they performed services during the “determination
year.” A “Highly Compensated Former Employee” means a former employee who was a
Highly Compensated Employee when such Employee separated from service, or was a
Highly Compensated Employee at any time after attaining age fifty-five (55).

For purposes of this Section, “Compensation” means the general definition of
“Compensation” in Section 1.15.

1.42 HIGHLY COMPENSATED GROUP. “Highly Compensated Group” means the group of
Eligible Employees who are Highly Compensated Employees for the Plan Year.

1.43 HOUR OF SERVICE. “Hour of Service” means:

(a) Each Hour of Service for which the Employer, either directly or indirectly,
pays an Employee, or for which the Employee is entitled to payment, for the
performance of duties. The ESOP Committee credits Hours of Service under this
paragraph (a) to the Employee for the computation period in which the Employee
performs the duties, regardless of when paid;

(b) Each Hour of Service for back pay, regardless of mitigation of damages, to
which the Employer has agreed or for which the Employee has received an award.
The ESOP Committee credits Hours of Service under this paragraph (b) to the
Employee for the computation period(s) to which the award or the agreement
pertains rather than for the computation period in which the award, agreement or
payment is made; and

(c) Each Hour of Service for which the Employer, either directly or indirectly,
pays an Employee, or for which the Employee is entitled to payment (regardless
of whether the employment relationship is terminated), for reasons other than
for the performance of duties during a computation period, such as leave of
absence, vacation, holiday, sick leave, illness, incapacity (including
Disability), layoff, jury duty or military duty. The ESOP Committee will credit
no more than five hundred and one (501) Hours of Service under this paragraph
(c) to an Employee on account of any single continuous period during which the
Employee does not perform any duties (whether or not such period occurs during a
single computation period). The ESOP Committee credits Hours of Service under
this paragraph (c) in accordance with the rules of paragraphs (b) and (c) of
Labor Regulation Section 2530.200b 2, which the Plan, by this reference,
specifically incorporates in full within this paragraph (c).

(d) The ESOP Committee shall not credit an Hour of Service under more than one
(1) of the above subsections.

(e) Method of Crediting Hours of Service. Except as provided herein, the
Employer will credit every Employee with Hours of Service on the basis of the
“actual” method. For purposes of the Plan, “actual” method means the

 

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determination of Hours of Service from records of hours worked and hours for
which the Employer makes payment or for which payment is due from the Employer.

(f) Maternity or Paternity Leave. Solely for purposes of determining whether the
Employee incurs a Break in Service under any provision of this Plan, the ESOP
Committee may credit Hours of Service during an Employee’s unpaid absence period
due to maternity or paternity leave. The ESOP Committee considers an Employee on
maternity or paternity leave if the Employee’s absence is due to the Employee’s
pregnancy, the birth of the Employee’s child, the placement with the Employee of
an adopted child, or the care of the Employee’s child immediately following the
child’s birth or placement. The ESOP Committee may credit Hours of Service under
this paragraph on the basis of the number of Hours of Service the Employee would
receive if he were paid during the absence period or, if the ESOP Committee
cannot determine the number of Hours of Service the Employee would receive, on
the basis of eight (8) hours per day during the absence period. The ESOP
Committee may credit only the number (not exceeding five hundred and one
(501)) of Hours of Service necessary to prevent an Employee’s Break in Service.
The ESOP Committee credits all Hours of Service described in this paragraph to
the computation period in which the absence period begins or, if the Employee
does not need these Hours of Service to prevent a Break in Service in the
computation period in which his absence period begins, the ESOP Committee may
credit these Hours of Service to the immediately following computation period.

(g) Determination of Hours of Service to be Credited to Salaried Employees. With
respect to salaried Employees whose hours are not required to be counted and
recorded by the Fair Labor Standards Act of 1938, the determination of the Hours
of Service which must be credited to an Employee in accordance with the
provisions of this Section shall be based upon an equivalency schedule of ten
(10) Hours of Service for each day on which the Employee performs an Hour of
Service.

1.44 INACTIVE PARTICIPANT. An “Inactive Participant” is a Participant who is no
longer an Employee.

1.45 INCOME. “Income” means the net income of the Plan.

1.46 INCOME OF THE TRUST FUND. “Income of the Trust Fund” means the net gain or
loss of the General Investments Accounts, as reflected by interest payments,
Dividends, realized and unrealized gains and losses on securities (other than
Employer Securities) and on other investment transactions, and reduced by
expenses paid from the Trust Fund. The expenses of the Trust Fund do not include
interest paid on any Exempt Loan for the purchase of Employer Securities by the
Trust or on any loan of the Trust incurred to purchase Employer Securities.

 

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1.47 LATE RETIREMENT DATE. “Late Retirement Date” means the date of Separation
from Service with the Employer for any reason other than death where the
termination occurs subsequent to the Employee’s attainment of Normal Retirement
Age.

1.48 LEASED EMPLOYEES. A Leased Employee is an individual (who otherwise is not
an Employee of the Employer) who, pursuant to a leasing agreement between the
Employer and any other person, has performed services for the Employer (or for
the Employer and any persons related to the Employer within the meaning of Code
Section 144(a)(3)) on a substantially full time basis for at least one (1) year
and who performs services under the primary direction and control of the
Employer. If a Leased Employee is treated as an Employee by reason of this
Section 1.48, “Compensation” includes compensation from the leasing organization
which is attributable to services performed for the Employer.

The Plan does not treat a Leased Employee as an Employee if the leasing
organization covers the employee in a safe harbor plan and, prior to application
of this safe harbor plan exception, twenty percent (20%) or less of the
Employer’s Employees (other than Highly Compensated Employees) are Leased
Employees. A safe harbor plan is a money purchase pension plan providing
immediate participation, full and immediate vesting, and a non-integrated
contribution formula equal to at least ten percent (10%) of the employee’s
compensation without regard to employment by the leasing organization on a
specified date. The safe harbor plan must determine the ten percent
(10%) contribution on the basis of compensation (as defined in Code
Section 415(c)(3)).

The ESOP Committee must apply this Section 1.48 in a manner consistent with Code
Sections 414(n) and 414(o) and the Regulations issued under those Code Sections.
The ESOP Committee will reduce a Leased Employee’s allocation of Employer
contributions under this Plan by the Leased Employee’s allocation under the
leasing organization’s plan, but only to the extent that allocation is
attributable to the Leased Employee’s service provided to the Employer.

1.49 LEVERAGED EMPLOYER SECURITIES. “Leveraged Employer Securities” means
Employer Securities acquired by the Trust with the proceeds of an Exempt Loan.

1.50 MATCHING CONTRIBUTIONS. “Matching Contributions” are contributions made by
the Employer on behalf of a Participant on account of that Participant’s Salary
Reduction Contributions. Matching Contributions also include Forfeitures
allocated on account of such Salary Reduction Contributions.

1.51 MATCHING CONTRIBUTION ACCOUNT. “Matching Contribution Account” means the
Account of a Participant which is credited with such Participant’s portion of
the Matching Contributions made by the Employer to the Plan for the Plan Year.

1.52 NET PROFITS. “Net Profits” mean, with respect to any fiscal year, the
Employer’s net income or profit for such fiscal year determined upon the basis
of the Employer’s books of account in accordance with generally accepted
accounting principles

 

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without any reduction for tax based upon income, or for contributions made by
the Employer to the Plan.

1.53 NONFORFEITABLE. “Nonforfeitable” means a Participant’s or Beneficiary’s
unconditional claim, legally enforceable against the Plan, to the Participant’s
Account Balance.

1.54 NONHIGHLY COMPENSATED EMPLOYEE. “Nonhighly Compensated Employee” or “NHCE”
means an Eligible Employee who is not a Highly Compensated Employee.

1.55 NORMAL RETIREMENT AGE. “Normal Retirement Age” means sixty-five (65) years
of age.

1.56 PARTICIPANT. “Participant” is an Eligible Employee who becomes a
Participant in the Plan in accordance with the provisions of Article II hereof.

1.57 PARTICIPANT EMPLOYER SECURITIES ACCOUNT. “Participant Employer Securities
Account” means the Account of a Participant which is credited with shares and
fractional shares of Employer Securities purchased and paid for by the Trust or
contributed to the Trust or shares of Employer Securities otherwise allocable
because of the Participant’s participation in the Plan. “Participant Employer
Securities Account” is also referred to as “Employer Securities Account.”

1.58 PARTICIPANT GENERAL INVESTMENTS ACCOUNT. “Participant General Investments
Account” means the Account of a Participant which is increased by his share of
net income (or loss) of the Trust Fund and Employer contributions and
Forfeitures, other than amounts invested in Employer Securities, and which is
decreased (to the extent allowed by law) by amounts necessary to pay for
Employer Securities.

1.59 PARTICIPATION OF OTHER EMPLOYERS. Subject to Section 12.14 hereof, any
other corporation or organization which is a member of a group of corporations
described in Code Section 409(l) that includes the Bank may adopt this Plan,
effective as of the date indicated in its instrument of adoption, if (i) its
application is made in writing to the Board and ESOP Committee; (ii) such
application is accepted in writing by the Board and ESOP Committee; and
(iii) such approved Employer executes an instrument in writing duly authorized
by it adopting this Plan and delivers a copy thereof to the ESOP Committee.

Throughout this instrument, a distinction is purposely drawn between rights and
obligations of the Bank and rights and obligations of an Employer. The rights
and obligations specified as belonging to the Bank shall belong only to it,
including but not limited to, appointment of the ESOP Committee, appointment and
removal of the Trustee, amendment of the Plan, and termination of the Plan. An
Employer’s instrument of adoption may provide for the following: (i) making of
an initial contribution to the Trust, (ii) making such other changes with
respect to the Plan as are approved by the Bank, and (iii) the designation of
the name of the Plan with respect to its Employees. Each Employer shall have the
obligation, as hereinafter provided and as may be provided

 

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in its instrument of adoption, to make contributions for its own Participants,
and no Employer shall have the obligation to make contributions for the
Participants of any other Employer unless determined by the Bank. Any failure by
an Employer to fulfill its own obligations under this Plan shall, except as
provided in the next preceding sentence, have no effect upon any other Employer.
An Employer may withdraw from this Plan without affecting any other Employer. If
an Employer withdraws or its participation is terminated by the Board, such
Employer may, in its sole discretion, adopt for its Employees alone and
independent of this Plan its own plan which shall be considered a continuation
of this Plan with respect to itself and its Participants.

1.60 PLAN. “Plan” means the retirement plan established and continued herein by
the Bank designated as the Appalachian Bancshares, Inc. Employee Stock Ownership
Plan With 401(k) Provisions (effective January 1, 2008). The Plan shall consist
of two portions: a “Stock Bonus Plan Portion” and a “Profit Sharing Plan
Portion,” which together shall constitute a single plan. It is intended:
(i) that the Stock Bonus Plan Portion qualify as an employee stock ownership
plan under Sections 401(a) and 4975(e)(7) of the Code and Section 407(d)(6) of
ERISA; and (ii) the Profit Sharing Plan Portion contains a Code Section 401(k)
feature which is intended to qualify under Sections 401(a), 401(k) and 401(m) of
the Code. The Stock Bonus Plan Portion is designed to invest primarily in
Employer Securities. The Profit Sharing Plan Portion will invest only in assets
that are not Employer Securities. All references to the Plan herein shall refer
to both the Profit Sharing Plan Portion and the Stock Bonus Plan Portion, unless
otherwise specified or the context requires otherwise.

1.61 PLAN ADMINISTRATOR. “Plan Administrator” is the ESOP Committee unless the
Bank designates another person or entity to hold the position of Plan
Administrator. In addition to its other duties, the Plan Administrator has full
responsibility for compliance with the reporting and disclosure rules under
ERISA.

1.62 PLAN YEAR. “Plan Year” means the tax year of the Plan, a twelve
(12) consecutive month period, beginning on January 1 of each year and ending on
the following December 31.

1.63 PROFIT SHARING PLAN PORTION. “Profit Sharing Plan Portion” means the profit
sharing plan portion established under this Plan, which is intended to be
qualified under Code Section 401(a).

1.64 PUBLICLY TRADED. “Publicly Traded” means Qualifying Employer Securities
that are listed on a national securities exchange registered under Section 6 of
the Securities Exchange Act of 1934 (“Securities Exchange Act”) or that are
quoted on a system which is sponsored by a national securities association
registered under Section 15A(b) of the Securities Exchange Act.

1.65 QUALIFIED MATCHING CONTRIBUTIONS. “Qualified Matching Contributions” shall
mean Matching Contributions which are subject to the distribution and
nonforfeitability requirements under Code Section 401(k) when made.

 

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1.66 QUALIFIED NONELECTIVE CONTRIBUTIONS. “Qualified Nonelective Contributions”
are contributions (other than Matching Contributions or Qualified Matching
Contributions) which are one hundred percent (100%) Nonforfeitable at all times
and which are subject to the Distribution Restrictions described in Section 1.21
hereof. Any Qualified Nonelective Contributions allocated to a Participant’s
Qualified Nonelective Contribution Account under the Plan automatically satisfy
the definition of Qualified Nonelective Contributions.

1.67 QUALIFIED NONELECTIVE CONTRIBUTION ACCOUNT. “Qualified Nonelective
Contribution Account” means the Account of a Participant which is credited with
such Participant’s portion of the Qualified Nonelective Contributions made by
the Employer to the Plan for the Plan Year.

1.68 QUALIFYING EMPLOYER SECURITIES. “Qualifying Employer Securities” means
Employer Securities which are (1) stock or otherwise an equity security or (2) a
bond, debenture, note, or certificate, or other evidence of indebtedness
described in Section 503(e) of the Code.

1.69 REGULATIONS. “Regulations” and “Treasury Regulations” means the final and
temporary regulations issued by the Internal Revenue Service which interpret the
provisions of the Internal Revenue Code of 1986, as amended. If the context
requires, “Regulations” and “Labor Regulations” also means the final and
temporary regulations issued by the Department of Labor which interpret the
provisions of the Employee Retirement Income Security Act of 1974, as amended.

1.70 RELATED EMPLOYERS. “Related Employers” means a controlled group of
corporations (as defined in Code Section 414(b)), trades or businesses (whether
or not incorporated) which are under common control (as defined in Code
Section 414(c)) or an affiliated service group (as defined in Code
Section 414(m) or in Code Section 414(o)) with the Bank. If the Employer is a
Related Employer, the term “Employer” includes the Related Employers for
purposes of crediting Hours of Service, determining Years of Service and Breaks
in Service under Articles II and V hereof, applying the Coverage Test under the
suspension of accrual requirements of Section 3.06(a) hereof, applying the
limitations on allocations in Part 2 of Article III hereof, applying the top
heavy rules and the minimum allocation requirements of Article III hereof, the
definitions of Employee, Highly Compensated Employee, Compensation and Leased
Employee, and for any other purpose required by the applicable Code section or
by a Plan provision. Only an Employer described in Section 1.29 hereof may
contribute to the Plan, and only an Employee described in Section 1.28 hereof is
eligible to participate in this Plan.

1.71 RESTATEMENT DATE. “Restatement Date” means January 1, 2008, or as otherwise
required by law.

1.72 RETIREMENT. “Retirement” means a Participant’s Severance from Service with
an Employer at or after attaining Normal Retirement Age.

 

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1.73 ROLLOVER ACCOUNT. “Rollover Account” has the meaning given in Section 4.05
hereof.

1.74 SALARY REDUCTION CONTRIBUTIONS. “Salary Reduction Contributions” are the
salary reduction contributions the Employer contributes to the Trust at the
election of an Eligible Employee. If the Code Section 401(k) arrangement
includes a cash or deferred feature, any portion of a cash or deferred
contribution contributed to the Trust because of the Employee’s failure to make
a cash election is a Salary Reduction Contribution, but any portion of a cash or
deferred contribution over which the Employee does not have a cash election is
not a Salary Reduction Contribution. Salary Reduction Contributions do not
include amounts which have become currently available to the Employee prior to
the election nor amounts designated as nondeductible employee contributions at
the time of deferral or contribution.

1.75 SALARY REDUCTION CONTRIBUTION ACCOUNT. “Salary Reduction Contribution
Account” means the Account of a Participant which is credited with such
Participant’s Salary Reduction Contributions and Catch-Up Contributions made to
the Plan for the Plan Year, pursuant to his salary reduction agreement on file
with the Employer or the ESOP Committee.

1.76 SERVICE. “Service” means any period of time the Employee is in the employ
of the Employer, including any period the Employee is on an unpaid leave of
absence authorized by the Employer under a uniform, nondiscriminatory policy
applicable to all Employees.

1.77 SERVICE FOR PREDECESSOR EMPLOYER. If the Employer maintains the plan of a
predecessor employer, the Plan treats Service of the Employee with the
predecessor employer as Service with the Employer.

1.78 SEVERANCE DATE. “Severance Date” means the date of termination of a
Participant’s Service prior to Normal Retirement Age for reasons other than
Retirement, Disability or death.

1.79 SEVERANCE FROM SERVICE. “Severance from Service” or “Severs from Service”
or “Severed from Service” means the Employee no longer has an employment
relationship with the Employer maintaining this Plan.

1.80 STOCK BONUS PLAN PORTION. “Stock Bonus Plan Portion” means the stock bonus
plan portion established under the Plan, as represented by all Accounts of
Participants under the Plan.

1.81 TRUST. “Trust” means the separate trust established and continued by the
Bank designated as the Appalachian Bancshares, Inc. Employee Stock Ownership
Trust (effective January 1, 2008), which may be amended from time to time, and
which is and becomes a part of this Plan.

1.82 TRUSTEE. “Trustee” means the Trustee or Trustees acting at the time in
question under the Trust, and its or his or her or their successor(s) as such.

 

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1.83 TRUST FUND. “Trust Fund” means all property of every kind held or acquired
by the Trustees under the Trust. “Trust Fund” is also referred to as “Trust
Assets.”

1.84 UNALLOCATED EMPLOYER SECURITIES ACCOUNT. “Unallocated Employer Securities
Account” means the suspense account maintained under the Plan to which will be
credited all shares of Leveraged Employer Securities prior to the allocation of
such shares to the Participant Employer Securities Accounts.

1.85 UNALLOCATED GENERAL INVESTMENTS ACCOUNT. “Unallocated General Investments
Account” means the account maintained under the Plan which reflects all
transactions of the Plan involving cash and assets other than Employer
Securities, prior to the allocation of any remaining amounts of cash and other
assets to the Participant General Investments Accounts. After all allocations to
the Participant General Investments Accounts have been completed under
Section 9.10 hereof, the Unallocated General Investments Account shall have a
zero balance at the end of the Plan Year.

1.86 VALUATION DATE. “Valuation Date” means each date on which the Trust Fund is
valued under Sections 9.10 and 12.19 hereof.

1.87 VESTED. “Vested” refers to the portion of a Participant’s Account Balance
which is Nonforfeitable.

1.88 YEAR OF SERVICE. For purposes of vesting and eligibility hereof, Year of
Service means any Plan Year during which an Employee completes not less than one
thousand (1,000) Hours of Service with the Employer. The initial eligibility
computation period is the first twelve (12) consecutive month period measured
from the Employment Commencement Date. The Plan measures the subsequent periods
by reference to the Plan Year, beginning with the Plan Year which includes the
first anniversary of the Employee’s Employment Commencement Date. “Employment
Commencement Date” means the date on which the Employee first performs an Hour
of Service for the Employer.

The participation computation period beginning after a Break in Service shall be
measured from the date on which an Employee again performs an Hour of Service.
The participation computation period shall shift to the Plan Year which includes
the anniversary of the date on which the Employee first performed an Hour of
Service. An Employee who is credited with the required Hours of Service in both
the initial computation period (or the computation period beginning after a
Break in Service) and the Plan Year which includes the anniversary of the date
on which the Employee first performed an Hour of Service, shall be credited with
two (2) Years of Service for purposes of eligibility to participate.

End of Article I

 

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ARTICLE II

EMPLOYEE PARTICIPANTS

2.01 PARTICIPATION. Each Eligible Employee becomes a Participant in the Plan on
the Entry Date (if employed by an Employer on such date) coincident with or
immediately following the date on which he became an Eligible Employee.
Notwithstanding the provisions of this Section 2.01, all Participants in the
Plan on the day before the Restatement Date shall become Participants in this
Plan as of the Restatement Date (if employed by an Employer on such date).

2.02 YEAR OF SERVICE PARTICIPATION. For purposes of an Eligible Employee’s
participation in the Plan under Section 2.01 hereof, the Plan takes into account
all of his Years of Service with the Employer.

2.03 PARTICIPATION UPON RE EMPLOYMENT. A Participant whose employment terminates
shall re-enter the Plan as a Participant on the date of his reemployment. An
Employee who satisfies the Plan’s eligibility conditions but who terminates
employment with the Employer prior to becoming a Participant will become a
Participant on the later of the Entry Date on which he would have entered the
Plan had he not terminated employment or the date of his reemployment. Any
Employee who terminates employment prior to satisfying the Plan’s eligibility
conditions becomes a Participant in accordance with the provisions of
Section 2.01 hereof.

2.04 INELIGIBILITY TO BECOME A PARTICIPANT. Notwithstanding the provisions of
Section 2.01 above, any Eligible Employee shall not be eligible and shall not
become a Participant if:

(a) Such Employee is or becomes a member of a collective bargaining unit if
retirement benefits covering such unit were the subject of good faith bargaining
and coverage under this Plan was not agreed to under such bargaining;

(b) Such Employee is a non-resident alien (within the meaning of Code
Section 7701(b)(1)(B)) and receives no earned income (within the meaning of Code
Section 911(d)(2) from the Employer which constitutes income from sources within
the United States (within the meaning of Code Section 861(a)(3)).

2.05 TERMINATION OF ELIGIBILITY.

(a) In the event a Participant shall go from a classification of an Eligible
Employee to an ineligible Employee, such Inactive Participant shall continue to
vest in his interest in this Plan for each Year of Service completed while a
noneligible Employee, until such time as his Account shall be forfeited or
distributed pursuant to the terms of this Plan. Additionally, his interest in
this Plan shall continue to share in the earnings of the Trust Fund.

(b) In the event a Participant is no longer a member of an eligible class of
Employees and becomes ineligible to participate, such Employee will

 

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participate immediately upon returning to an eligible class of Employees. The
Break in Service rules do not apply for purposes of eligibility to participate
in this Plan.

2.06 EMPLOYMENT BY EMPLOYER; SERVICE WITH NEWLY ACQUIRED ENTITIES; RECORDS OF
EMPLOYER. Notwithstanding any other provision herein, this provision applies, as
follows:

(a) In the event the Employer has or shall acquire the control of any
organization by the purchase of assets or stock, merger, amalgamation,
consolidation or any other similar event, the Board of Directors may direct to
what extent, if any, employment by such organization shall be deemed to be
employment by the Employer, and, in connection therewith, may specify a special
Entry Date.

(b) The personnel records of the Employer or any Related Employer shall be
conclusive evidence for the purpose of determining the period of employment of
any and all Employees.

End of Article II

 

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ARTICLE III

EMPLOYER CONTRIBUTIONS AND FORFEITURES

 

PART 1.

AMOUNT OF EMPLOYER CONTRIBUTIONS AND PLAN ALLOCATIONS: SECTIONS 3.01 THROUGH
3.06

3.01 AMOUNT.

(a) Contribution Formula. For each Plan Year, the Employer will contribute to
the Trust the following amounts:

(i) Salary Reduction Contributions. The amount by which the Participants have
elected to reduce their Compensation for the Plan Year under their salary
reduction agreements on file with the Employer or the ESOP Committee. Such
Salary Reduction Contributions shall be stated as a whole percentage, and shall
not be less than one percent (1%) or more than twenty five percent (25%) of the
Participant’s Compensation.

(ii) Catch-Up Contributions. Participants who are age 50 (as defined in Treasury
Regulation 1.414(v)-1(g)(3)(ii)) or over before the close of the Plan Year will
be eligible to make Catch-Up Contributions. Any Participant who turns 50 during
a calendar year will be considered to be age 50 as of January 1st of that
calendar year and can make Catch-Up Contributions during the Plan Year
coincident with such calendar year, or if the Plan Year is not a calendar year,
the Plan Year in which the calendar year begins. Catch-Up Contributions will be
treated as Elective Deferrals and will be matched with a Matching Contribution.

(iii) Matching Contributions. An amount equal to a percentage (which the
Employer may from time to time deem advisable) of the Participant’s Salary
Reduction Contributions (including Catch-Up Contributions, if any). Such
Matching Contributions, however, shall not exceed six percent (6%) of such
Participant’s Compensation for such Plan Year. The Employer will determine the
amount of its Matching Contributions by disregarding Participants not entitled
to an allocation of Matching Contributions. The Employer may make its Matching
Contributions in cash, Employer Securities, or any combination thereof as the
Employer from time to time may determine, provided the contribution consisting
of Employer Securities is not a prohibited transaction under the Code or under
ERISA and is held in the Stock Bonus Plan Portion of the Plan.

(iv) Qualified Nonelective Contributions. The amount the Employer, in its sole
discretion, designates as Qualified Nonelective Contributions. The Employer may
make its Qualified Nonelective Contributions in cash, Employer Securities, or
any combination thereof as

 

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the Employer from time to time may determine, provided the contribution
consisting of Employer Securities is not a prohibited transaction under the Code
or under ERISA and is held in the Stock Bonus Plan Portion of the Plan.

(v) Employer Optional Contributions. The additional discretionary amount the
Employer may from time to time deem advisable. Such Employer Optional
Contributions will be held in Participant’s Employer Optional Contribution
Accounts (if made in cash or in other than Employer Securities) or Participant’s
Employer Securities Accounts (if made in Employer Securities). The Employer may
make its Employer Optional Contributions in cash, Employer Securities, or any
combination thereof as the Employer from time to time may determine, provided
the contribution consisting of Employer Securities is not a prohibited
transaction under the Code or under ERISA and is held in the Stock Bonus Plan
Portion of the Plan.

(b) Restrictions on Contributions. The Employer may contribute to this Plan
regardless of whether it has Net Profits and notwithstanding whether some or all
of such contributions may fail to qualify for income tax deductions by the
Employer. However, the Employer may not make a contribution to the Trust for any
Plan Year to the extent the contribution would exceed the Participants’ Maximum
Permissible Amounts pursuant to Part 2 of this Article III.

(c) Return of Contributions. The Employer contributes to this Plan on the
condition its contribution is not due to a mistake of fact and the Internal
Revenue Service will not disallow the deduction for its contribution. The
Trustee, upon written request from the ESOP Committee, must return to the
Employer the amount of the Employer’s contribution made by the Employer by
mistake of fact or the amount of the Employer’s contribution disallowed as a
deduction under Code Section 404. However, no portion of the Employer’s
contribution under the provisions of this Paragraph will be returned longer than
one (1) year after:

(i) The Employer made the contribution by mistake of fact; or

(ii) The disallowance of the contribution as a deduction, and then, only to the
extent of the disallowance.

The amount of the returned Employer contribution under this Section 3.01 shall
not be increased for any earnings attributable to the contribution, but the ESOP
Committee will direct the Trustee to decrease the Employer contribution
returnable for any losses attributable to it. The ESOP Committee may direct the
Trustee to require the Employer to furnish it whatever evidence it deems
necessary to enable the ESOP Committee to confirm the amount the Employer has
requested be returned is properly returnable under ERISA.

 

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3.02 DETERMINATION OF CONTRIBUTION. The Employer, from its records, determines
the amount of any contributions to be made by it to the Trust under the terms of
this Article III.

3.03 TIME OF PAYMENT OF CONTRIBUTION. The Employer may pay its contribution for
each Plan Year in one or more installments without interest. The Employer must
make its contribution to the Trust within the time prescribed by the Code or
applicable Treasury Regulations but in no event later than the due date
(including extensions thereon) for filing the Employer’s federal income tax
return for that Plan Year. Salary Reduction Contributions are Employer
contributions for all purposes under this Plan, except to the extent the Code or
Treasury Regulations prohibit the use of these contributions to satisfy the
qualification requirements of the Code. Salary Reduction Contributions shall be
paid to the Trust promptly following each pay period.

3.04 CONTRIBUTION ALLOCATION.

(a) Method of Allocation. To make allocations under this Article III, the ESOP
Committee must, at a minimum, establish, or direct the Trustee to establish, a
Salary Reduction Contribution Account, Catch-Up Contributions, Matching
Contribution Account, Qualified Nonelective Contribution Account, Employer
Optional Contribution Account, Employer Securities Account and a General
Investments Account for each Participant.

(i) Salary Reduction Contributions. The ESOP Committee will allocate to each
Participant’s Salary Reduction Contribution Account the Salary Reduction
Contributions the Employer makes to the Plan on behalf of the Participant. The
ESOP Committee will make this allocation no later than the time prescribed by
the Code or ERISA.

(ii) Catch-Up Contributions. The ESOP Committee will allocate to each
Participant’s Salary Reduction Contribution Account the Catch-Up Contributions
the Employer makes to the Plan on behalf of the Participant. The ESOP Committee
will make this allocation no later than the time prescribed by the Code or ERISA

(iii) Matching Contributions. The ESOP Committee will allocate Matching
Contributions, if any, as of the last day of each Plan Year or as otherwise
designated or specified by the ESOP Committee. The ESOP Committee will allocate
the Matching Contributions to the Matching Contribution Account of each
Participant who satisfies the accrual requirements for Matching Contributions
specified in Section 3.06 pursuant to Section 3.01(a)(ii) hereof.

(iv) Qualified Nonelective Contributions. If the Employer, at the time of
contribution, designates a contribution to be a Qualified Nonelective
Contribution for the Plan Year and if such contribution satisfies the
requirements of Code Section 401(m)(3) and the applicable

 

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Regulations thereunder the ESOP Committee will allocate Qualified Nonelective
Contributions to the Qualified Nonelective Contribution Account of each Eligible
Participant. The ESOP Committee will make the allocation on the basis of a
“bottom up” allocation pursuant to Sections 4.03(h) or 4.04(i) to each Eligible
Participant’s Qualified Nonelective Contribution Account up to the minimum
amount necessary to ensure the Plan’s compliance with Sections 4.03 and 4.04.
For purposes of allocating the Qualified Nonelective Contributions, the term
“Eligible Participant” means any Nonhighly Compensated Employee.

(v) Employer Optional Contributions. Subject to any restoration allocation
required under Sections 5.04 and 9.12 hereof, in the event the Employer
designates Employer Optional Contributions to be held in Participant’s Employer
Optional Contribution Account, the ESOP Committee will allocate and credit each
annual Employer Optional Contribution to the Employer Optional Contribution
Account of each Participant who satisfies the conditions of Section 3.06 hereof
in the same ratio that each Participant’s Compensation for the Plan Year bears
to the total Compensation of all Participants for the Plan Year.

(vi) Participant Employer Securities Account. The Participant Employer
Securities Account of each Participant shall be increased by his allocable share
(determined under the Plan) of (i) the shares of Employer Securities (including
fractional shares) purchased and paid for in cash by the Plan and designated by
the Employer to be held in the Participant Employer Securities Account,
(ii) shares of Employer Securities contributed in kind by the Employer and
designated by the Employer to be held in the Participant Employer Securities
Account; (iii) Forfeitures of Employer Securities held in another Participant’s
Employer Securities Account; (iv) stock (in kind) Dividends of Employer
Securities held in his Participant Employer Securities Account; and (v) Employer
Securities released from the Unallocated Employer Securities Account. Such
credits shall be recorded in whole shares and fractional shares of Employer
Securities in order that such Account shall share in any appreciation in the
market value of the shares of Employer Securities in the Participant Employer
Securities Account, or in any decreases in such market value. All fractional
shares shall be computed at least to the nearest one-one hundredth (1/100th) of
a share (i.e., at least two places to the right of the decimal).

(vii) Participant General Investments Account. The Participant General
Investments Account of each Participant will be increased (or decreased) by the
dollar value of his allocable share of (i) the net income (or loss) of the Plan
attributable to such Account; (ii) cash Dividends and other rights or warrants
received on Employer Securities in his Participant Employer Securities Account;
(iii) Employer contributions and Forfeitures in other than Employer Securities
and designated by the Employer to be

 

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held in the Participant General Investments Account; (iv) Salary Reduction
Contributions; (v) Catch-Up Contributions; and (vi) appreciation (or
depreciation) in the fair market value of the assets of the Plan (other than
Employer Securities) attributable to such General Investments Account. To the
extent allowed by law, the General Investments Account of each Participant will
be decreased for any payments on purchases of Employer Securities or repayment
of an Exempt Loan (including principal and interest).

(viii) Unallocated Employer Securities Accounts and Unallocated General
Investment Accounts.

(A) Unallocated Employer Securities Account. The Unallocated Employer Securities
Account shall be increased as of each Valuation Date by the number of shares of
Employer Securities purchased with the proceeds of an Exempt Loan. The
Unallocated Employer Securities Account shall also be increased as of each
Valuation Date by the stock (in kind) Dividends received with respect to
Employer Securities held in such Account and by any Employer Securities
purchased with funds of the Unallocated General Investments Account. The
Unallocated Employer Securities Account shall be decreased by the number of
shares of Employer Securities released from such Account in accordance with
Section 3.05 hereof.

(B) Unallocated General Investments Account. The Unallocated General Investments
Account will be increased (or decreased) by: (A) the Income (or loss) of the
Plan attributable to such Account; (B) the dollar value of Employer
contributions made to the Plan to repay an Exempt Loan; (C) cash Dividends (and
other rights or warrants received on Employer Securities in the Unallocated
Employer Securities Account; and (D) decreased by the dollar value of amounts
attributable to such Account that are used to purchase Employer Securities or to
repay an Exempt Loan in accordance with Section 3.05 hereof.

(ix) Allocation Procedures for Participants’ General Investments Accounts, the
Unallocated General Investments Account, Participants’ Employer Securities
Accounts and the Unallocated Employer Securities Account. Subject to
Section 3.05 below, Participants’ General Investments Accounts, the Unallocated
General Investments Account, Participants’ Employer Securities Accounts and the
Unallocated Employer Securities Account shall be adjusted in accordance with the
following:

(A) Income and Appreciation in Value of Participant General Investments
Accounts. The income of the Participants’ General Investments Accounts and the
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Investments Account under the Plan (including appreciation or depreciation)
shall be allocated to such Accounts in proportion to the balances in such
Accounts as of the next preceding Valuation Date, but after first reducing each
such Account Balance by any distributions or charges from such Account since the
next preceding Valuation Date. Such amounts shall be allocated among the
Participants’ General Investments Accounts and the Unallocated General
Investments Account in a uniform and nondiscriminatory manner.

(B) Income and Appreciation in Value of Participant Employer Securities
Accounts. The income (except stock in kind Dividends) with respect to Employer
Securities (except the unrealized appreciation or depreciation in value of
Employer Securities held in both the Participants’ Employer Securities Accounts
and the Unallocated Employer Securities Account) shall be allocated to the
Participants’ General Investments Accounts and the Unallocated General
Investments Account, as is appropriate, in proportion to the balances, as of the
last Valuation Date, in the respective Participants’ Employer Securities
Accounts or Unallocated Employer Securities Account to which the income is
attributable but after first reducing each such Account Balance by any
distributions or charges from such Accounts since the last Valuation Date. Stock
(in kind) Dividends with respect to Employer Securities shall be allocated to
the Account which held the Employer Securities that earned the stock (in kind)
Dividend. Any cash Dividends received with respect to Employer Securities in the
Unallocated Employer Securities Account purchased with the proceeds of an Exempt
Loan shall be used first to repay current principal and then to repay current
interest with respect to such Exempt Loan. To the extent no such Exempt Loan
exists, such cash Dividends may be used to purchase Employer Securities to the
extent available or to satisfy General Obligations of the Plan or for such other
purposes as set forth in Section 3.05 hereof.

(C) Employer Contributions. Employer contributions for the Plan Year shall be,
to the extent made in cash and not used to repay an Exempt Loan, allocated to
Participants’ General Investments Accounts, or, if made in Employer Securities,
to Participants’ Employer Securities Accounts.

(x) Forfeitures. Forfeitures occurring during such Plan Year (net of any amount
of Forfeitures allocated to the restoration of prior Forfeitures) shall be
allocated to the Account of each Participant. Forfeitures shall be allocated as
of the Accounting Date of the Plan Year in which the Forfeiture occurs according
to the ratio that the Compensation for the Plan Year of each Participant bears
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Compensation of all such Participants for the Plan Year. In making a Forfeiture
allocation under this provision, the ESOP Committee, to the extent possible,
must first forfeit from a Participant’s General Investment Account, then from
any other Participant’s Account holding assets other than Employer Securities
before making a Forfeiture from the Participant’s Employer Securities Account
(or any other Account of a Participant holding Employer Securities), and then
from the Participant’s Employer Securities Account (or any other Account of a
Participant holding Employer Securities); provided that any Leveraged Employer
Securities allocated to such Employer Securities Account from the Unallocated
Employer Securities Account shall be forfeited last. If the Employer is not an S
Corporation and if the Participant has an interest in more than one (1) class of
Qualifying Employer Securities which have been allocated to the Participant
Employer Securities Account (and any other Account holding Employer Securities),
the ESOP Committee, to the extent possible, must forfeit the same proportion of
each class of stock held in the Participant Employer Securities Account (and any
other Account holding Employer Securities). In making a Forfeiture allocation
under this provision, the ESOP Committee will base Forfeitures of Employer
Securities at the end of the Plan Year in which the Forfeitures occur.

To the extent any portion of the Participant’s Forfeiture is attributable to
Matching Contributions, then in lieu of the first paragraph of this
Section 3.04(a)(x), the ESOP Committee will allocate that portion to reduce
Matching Contributions for the Plan Year in which the Forfeiture occurs and, if
necessary, to reduce Matching Contributions in subsequent Plan Years.

A Participant will forfeit any Matching Contributions allocated with respect to
excess deferrals, excess contributions or excess aggregate contributions, as
determined under Article VI hereof. The ESOP Committee will allocate these
forfeited amounts in accordance with this Section 3.04(a)(x).

(b) Top Heavy Minimum Allocation.

(i) Minimum Allocation. The ESOP Committee will determine whether the Plan is
top heavy in any Plan Year. If the Employer satisfies the top heavy minimum
benefit requirements in another qualified retirement plan it maintains, this
Plan does not guarantee a top heavy minimum allocation. If another qualified
retirement plan maintained by the Employer does not satisfy the top heavy
minimum benefit requirements and the Plan is top heavy in any Plan Year, the
following provisions apply:

(A) Each Non-Key Employee who is a Participant and is employed by the Employer
on the last day of the Plan Year will

 

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receive a top heavy minimum allocation for that Plan Year, irrespective of
whether he satisfies the Hours of Service condition under Section 3.06(a)
hereof; and

(B) The top heavy minimum allocation is the lesser of three percent (3%) of the
Non-Key Employee’s Compensation for the Plan Year or the highest contribution
rate for the Plan Year made on behalf of any Key Employee. However, if a defined
benefit plan maintained by the Employer which benefits a Key Employee depends on
this Plan to satisfy the nondiscrimination rules of Code Section 401(a)(4) or
the coverage rules of Code Section 410 (or another plan benefiting the Key
Employee so depends on such defined benefit plan), the top heavy minimum
allocation is three percent (3%) of the Non-Key Employee’s Compensation
regardless of the contribution rate for the Key Employees.

(ii) Special Definitions. For purposes of this Section 3.04(b), the term
“Participant” includes any Employee otherwise eligible to participate in the
Plan but who is not a Participant because of his failure to make Salary
Reduction Contributions under the Plan. For purposes of Section 3.04(b)(i)(B)
hereof, “Compensation” means Compensation as described in Section 1.15.

(iii) Determining Contribution Rates. For purposes of this Section 3.04(b), a
Participant’s contribution rate is the sum of Employer contributions (not
including Employer contributions to Social Security) and Forfeitures allocated
to the Participant’s Account for the Plan Year divided by his or her
Compensation for the entire Plan Year. However, for purposes of satisfying a
Participant’s top heavy minimum, a Non-Key Employee Participant’s contribution
rate does not include any elective contributions under a Code Section 401(k)
arrangement nor any Employer matching contributions necessary to satisfy the
nondiscrimination requirements of Code Section 401(k) or Code Section 401(m). To
determine a Participant’s contribution rate, the ESOP Committee must treat all
qualified top heavy defined contribution plans maintained by the Employer or by
any Related Employer as a single plan.

(iv) No Allocations. If, for a Plan Year, there are no allocations of Employer
contributions or Forfeitures for any Key Employee, the Plan does not require any
top heavy minimum allocation for the Plan Year, unless a top heavy minimum
allocation applies because of the maintenance by the Employer of more than one
(1) plan.

(v) Method of Compliance. The Plan will satisfy the top heavy minimum allocation
in accordance with this Section 3.04(b)(v). The ESOP Committee first will
allocate the Employer contributions (and

 

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Forfeitures, if any) for the Plan Year in accordance with the allocation formula
under Section 3.04(a) hereof. The Employer then will contribute an additional
amount for the Account of any Participant entitled under this Section 3.04(b) to
a top heavy minimum allocation and whose contribution rate for the Plan Year,
under this Plan, is less than the top heavy minimum allocation. The additional
amount is the amount necessary to increase the Participant’s contribution rate
to the top heavy minimum allocation. The ESOP Committee will allocate the
additional contribution to the Account of the Participant on whose behalf the
Employer makes the contribution.

3.05 TREATMENT OF EMPLOYER SECURITIES PURCHASED UNDER INSTALLMENT PAYMENT
CONTRACTS OR WITH BORROWED FUNDS.

(a) Debt Purchase of Employer Securities. All Employer Securities purchased by
the Plan under an Exempt Loan shall initially be allocated to the Unallocated
Employer Securities Account.

(b) Reallocation from Unallocated Employer Securities Account. As of the
Valuation Date, there shall be transferred from the Unallocated Employer
Securities Account to the Participant Employer Securities Accounts, a portion of
the Employer Securities purchased under an Exempt Loan equal to the number of
shares determined by taking the shares so purchased which have not theretofore
been released from the Unallocated Employer Securities Account multiplied in a
manner specified in Section 12.20(f) hereof. Each Participant’s share of the
Employer Securities to be allocated pursuant to the preceding sentence shall be
determined by multiplying the number of shares of Employer Securities to be
allocated in a manner specified in Section 12.20(f) hereof.

(c) Payments on Installment Purchase Contracts and Loan Obligations of the Plan.
As of the Valuation Date, installment payments, including principal and
interest, made by the Plan out of Employer contributions made with respect to
the period then ending, under an Exempt Loan will reduce Participant General
Investments Accounts (to the extent allowed by law) in the same proportion that
Employer contributions are allocated under the provisions of Section 3.04(a)(ix)
hereof. Unless required by law or herein, Dividends paid on Employer Securities
held in the Unallocated Employer Securities Account shall be allocated in
accordance with Section 3.04(a)(viii)(B) hereof. For purposes of determining
payments on Exempt Loans, each such Exempt Loan shall provide for payment of
principal and interest substantially in accordance with the following: All
income (“specified income”) allocable to the Unallocated Employer Securities
Account and Unallocated General Investments Account that is attributable to
collateral for the obligation or attributable to Employer contributions made in
order to meet the Plan’s obligation under such a loan shall be used, before any
Employer contributions are so used, to pay principal amounts due under such
Exempt Loans; Employer contributions shall be first applied to repay interest
under Exempt Loans; with any excess used to fund current principal requirements
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otherwise funded by the specified income; if the specified income of the
Unallocated Employer Securities Account and Unallocated General Investments
Account is not sufficient to pay principal due under the Exempt Loan, then
Employer contributions shall be used to fund the difference; if the specified
income exceeds the amount necessary to pay principal due on Exempt Loans for the
Plan Year, then such excess amount shall be first used to pay interest currently
due with respect to the Exempt Loan and any remaining amount of income may, at
the direction of the ESOP Committee, be used to prepay principal due on Exempt
Loans in succeeding Plan Years.

(d) Dividends Used to Repay Loan. To the extent permitted by law, if cash
Dividends on allocated Leveraged Employer Securities are to be used to repay an
Exempt Loan, the following provisions shall apply:

(i) Employer Securities at least equal in value to the cash Dividends used to
make Exempt Loan payments shall be allocated to the Account that would otherwise
have received the Dividend allocations; and

(ii) remaining released Employer Securities shall be allocated as a contribution
pursuant to Section 3.04(a)(ix) hereof.

If cash Dividends on Employer Securities held in the Participant Employer
Securities Accounts and cash Dividends on Employer Securities held in the
Unallocated Employer Securities Account are not used to repay an Exempt Loan,
such Dividends may be allocated to the Participant’s General Investments Account
pursuant to Section 3.04(a)(viii). Alternatively, the ESOP Committee may direct
the Trustee to distribute the cash Dividends to the Participants (and
Beneficiaries) within ninety (90) days after the close of the Plan Year in which
the Dividends have been paid to the extent of each Participant’s respective
Nonforfeitable vesting percentages determined as of the close of the Plan Year
pursuant to Section 5.03 hereof.

3.06 ACCRUAL OF BENEFIT. The ESOP Committee will determine the accrual of
benefits (Employer contributions and Forfeitures) on the basis of the Plan Year.

(a) Compensation Taken Into Account. In allocating Employer contributions and
Forfeitures to a Participant’s Account, the ESOP Committee will take into
account Compensation for the entire Plan Year.

(i) Hours of Service Requirement. A Participant will share in an allocation of
Employer contributions and Forfeitures, if any, for a Plan Year only if the
Participant is credited with at least one thousand (1,000) Hours of Service
during the Plan Year, unless the Participant terminates employment during the
Plan Year because of death, Disability or the attainment of Normal Retirement
Age.

(ii) Employment Requirement. A Participant will share in an allocation of
Employer contributions and Forfeitures, if any, for a Plan

 

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Year only if the Participant is employed on the last day of the Plan Year,
unless the Participant terminates employment during the Plan Year because of
death, Disability or the attainment of Normal Retirement Age.

(iii) Suspension of Allocation Requirements. The Plan suspends the allocation
requirement under Section 3.06(a) hereof if the Plan fails to satisfy the
Coverage Test. The Plan satisfies the Coverage Test if, for the Plan Year, the
percentage of Nonhighly Compensated Employees who benefit under the Plan is at
least equal to seventy percent (70%) of the percentage of Includible Employees
who are Highly Compensated Employees for the Plan Year. “Includible Employees”
are all Employees other than the following: (1) those Employees excluded from
participating in the Plan for the entire Plan Year by reason of the collective
bargaining unit exclusion or the nonresident alien exclusion described under the
Code or by reason of the eligibility requirements of Section 1.25 hereof; and
(2) any Employee who incurs a Separation from Service during the Plan Year and
fails to complete at least five hundred and one (501) Hours of Service for the
Plan Year.

(b) If Section 3.06(a)(iii) applies for a Plan Year, the ESOP Committee will
suspend the allocation requirement for the Includible Employees who are
Participants, beginning first with the Includible Employee(s) employed with the
Employer on the last day of the Plan Year, then the Includible Employee(s) who
have the latest Severance Date during the Plan Year, and continuing to suspend
the allocation requirements for each Includible Employee who incurred an earlier
Severance Date, from the latest to the earliest Severance Date, until the Plan
satisfies the Coverage Test for the Plan Year. If two or more Includible
Employees have the same Severance Date, the ESOP Committee will suspend the
allocation requirements for all such Includible Employees, notwithstanding
whether the Plan can satisfy the Coverage Test by allocating benefits for fewer
than all such Includible Employees. If the Plan suspends the allocation
requirements for an Includible Employee, that Employee will share in the
allocation of Employer contributions and Forfeitures, if any, without regard to
the number of Hours of Service he has earned for the Plan Year and without
regard to whether he is employed by the Employer on the last day of the Plan
Year.

 

PART 2.

LIMITATIONS ON ALLOCATIONS: SECTIONS 3.07 THROUGH 3.09

3.07 LIMITATIONS ON ALLOCATIONS TO PARTICIPANTS’ ACCOUNTS. The amount of Annual
Additions (as defined in Section 3.08) which the ESOP Committee may allocate
under this Plan on a Participant’s behalf for a Limitation Year (as defined in
Section 3.08) may not exceed the Maximum Permissible Amount (as defined in
Section 3.08). If the amount the Employer otherwise would contribute to the
Account would cause the Annual Additions for the Limitation Year to exceed the
Maximum Permissible Amount, the Employer will reduce the amount of its
contribution so the Annual Additions for the Limitation Year will equal the
Maximum Permissible Amount. If an allocation of

 

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Employer contributions, pursuant to Section 3.04, would result in an Excess
Amount (as defined in Section 3.08) (other than an Excess Amount resulting from
the circumstances described in Section 3.07(b)) to the Account, the ESOP
Committee will reallocate the Excess Amount to the remaining Participants who
are eligible for an allocation of Employer contributions for the Plan Year in
which the Limitation Year ends. The ESOP Committee will make this reallocation
on the basis of the allocation method under this Plan as if the Participant
whose Account otherwise would receive the Excess Amount is not eligible for an
allocation of Employer contributions. If the amount the Employer otherwise would
contribute to the Account will still cause the Annual Additions for the
Limitation Year to exceed the Maximum Permissible Amount, the ESOP Committee
will dispose of such excess amount in accordance with Section 3.07(b) to the
extent permitted by the Code and the Regulations.

(a) Estimation of Compensation. Prior to the determination of the Participant’s
actual Compensation for a Limitation Year, the ESOP Committee may determine the
Maximum Permissible Amount on the basis of the Participant’s estimated annual
Compensation for such Limitation Year. The ESOP Committee must make this
determination on a reasonable and uniform basis for all Participants similarly
situated. The ESOP Committee must reduce any Employer contributions (including
any allocation of Forfeitures) based on estimated annual Compensation by any
Excess Amounts carried over from prior years. As soon as is administratively
feasible after the end of the Limitation Year, the ESOP Committee will determine
the Maximum Permissible Amount for such Limitation Year on the basis of the
Participant’s actual Compensation for such Limitation Year.

(b) Disposition of Excess Amount. If, pursuant to Section 3.07 above, or because
of (i) the allocation of Forfeitures, or (ii) a recharacterization of proceeds
from the sale of Employer Securities as Annual Additions, there is an Excess
Amount with respect to a Participant for a Limitation Year, the ESOP Committee
will dispose of such Excess Amount as follows (to the extent permitted by the
Code and the Regulations):

(i) If an Excess Amount still exists, and this Plan covers the Participant at
the end of the Limitation Year, then the ESOP Committee will use the Excess
Amount(s) to reduce future Employer contributions (including any allocation of
Forfeitures) under this Plan for the next Limitation Year and for each
succeeding Limitation Year, as is necessary, for the Participant. The
Participant may elect to limit his Compensation for allocation purposes to the
extent necessary to reduce his allocation for the Limitation Year to the Maximum
Permissible Amount and eliminate the Excess Amount.

(ii) If an Excess Amount still exists, and this Plan does not cover the
Participant at the end of the Limitation Year, then the ESOP Committee will hold
the Excess Amount unallocated in a suspense account. The ESOP Committee will
apply the suspense account to reduce

 

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Employer contributions (including allocation of Forfeitures) for all remaining
Participants in the next Limitation Year, and in each succeeding Limitation Year
if necessary.

(iii) The ESOP Committee will not distribute any Excess Amount(s) to
Participants or to Inactive Participants.

(iv) Adjustment for Excessive Annual Additions. If for any Limitation Year the
Annual Additions allocated to a Participant’s Account exceeds the Maximum
Permissible Amount then the Employer will follow the rules of any Employee Plans
Compliance Resolution System (“EPCRS”) that is issued by the Internal Revenue
Service.

(c) More Than One Plan. The Employer may contribute under another Defined
Contribution Plan in addition to its contributions under this Plan. If the ESOP
Committee allocated an Excess Amount to an Account on an Accounting Date which
coincides with an allocation of the other Defined Contribution Plan, the ESOP
Committee will attribute the total Excess Amount allocated as of such date to
any other qualified plan maintained by the Employer unless the ESOP Committee
determines otherwise or applicable law prohibits such allocation to the other
qualified plan maintained by the Employer. For purposes of applying the
limitations that are applicable to a Participant for a particular Limitation
Year under the provisions of this Section and Code Section 415(c), the Employer
shall aggregate all Defined Contribution Plans in accordance with the
requirements set forth in Section 1.415(f)-1 of the Regulations.

3.08 DEFINITIONS – ARTICLE III. For purposes of Section 3.07, the following
terms mean:

(a) “Annual Addition”

(i) The term Annual Addition means the sum of the following amounts credited on
the behalf of a Participant to any Defined Contribution Plan for the Limitation
Year:

(A) Employer contributions, even if such Employer contributions are excess
contributions (as described in Code Section 401(k)(8)(B)) or excess aggregate
contributions (as described in Code Section 401(m)(6)(B)), or excess aggregate
contributions are corrected through distribution;

(B) Employee contributions, which includes mandatory employee contributions (as
defined in Code Section 411(c)(2)(C) and the Regulations promulgated thereunder)
and voluntary employee contributions;

(C) Forfeitures;

 

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(D) Contributions allocated to any individual medical account, as defined in
Code Section 415(l)(2), which is part of a pension or annuity plan established
pursuant to Code Section 401(h) and maintained by the Employer;

(E) Amounts attributable to post-retirement medical benefits allocated to a
separate account for a Key Employee (any Employee who, at any time during the
plan year or any preceding plan year, is or was a Key Employee pursuant to Code
Section 419A(d)), maintained by the Employer;

(F) The difference between the value of any assets transferred to the Plan and
the consideration, where an Employee or the Employer transfers assets to the
Plan in exchange for consideration that is less than the fair market value of
the assets transferred to the Plan; and

(G) Amounts Related to Employer Securities.

a. If the value of Employer Securities acquired with the proceeds of an Exempt
Loan (“Financed Shares”) released from the Unallocated Employer Securities
Account for a Plan Year is less than the amount of Employer contributions
applied to repayment of the Exempt Loan used to acquire such Financed Shares for
that year, then the value of such Financed Shares released shall be substituted
for the amount of Employer contributions in the computation of Annual Additions
for that Plan Year; or

b. If the value of Financed Shares released from the Unallocated Employer
Securities Account for a Plan Year is greater than or equal to the amount of
Employer contributions applied to repayment of the Exempt Loan, including
payments relating to both principal and interest, the amount of Employer
contributions that are to be considered Annual Additions for a Limitation Year
shall be determined in accordance with Treasury Regulation
Section 1.415(c)-1(f)(2)(i).

(ii) Notwithstanding the foregoing, a Participant’s Annual Additions do not
include the following:

(A) The direct transfer of benefits or employee contributions from a qualified
plan to a Defined Contribution Plan;

(B) The reinvestment of dividends on Employer securities under an employee stock
ownership plan pursuant to Code Section 404(k)(2)(A)(iii)(II);

 

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(C) The restoration of an employee’s accrued benefit by the Employer in
accordance with Code Section 411(a)(3)(D) or Code Section 411(a)(7)(C) or
resulting from the repayment of cash outs (as described in Code
Section 415(k)(3) under a governmental plan (as defined in Code Section 414(d))
for the Limitation Year in which the restoration occurs, regardless of whether
the Plan restricts the timing of repayments to the maximum extent allowed by
Code Section 411(a);

(D) Catch-up Contributions made in accordance with Code Section 414(v) and
Regulation Section 1.414(v)-1;

(E) A Restorative Payment that is allocated to a Participant’s Account. For
purposes of this paragraph, the term “Restorative Payment” is a payment made to
restore some or all of the Plan’s losses resulting from an action (or a failure
to act) by a fiduciary for which there is reasonable risk of liability for
breach of a fiduciary duty (other than a breach of fiduciary duty arising from
failure to remit contributions to the Plan) under ERISA or under other
applicable federal or state law, where Plan participants who are similarly
situated are treated similarly with respect to the payments. This includes
payments to the Plan made pursuant to a Department of Labor order, the
Department of Labor’s Voluntary Fiduciary Correction Program, or a
court-approved settlement, to restore losses to a qualified Defined Contribution
Plan. Payments made to the Plan to make up for losses due merely to market
fluctuations and other payments that are not made on account of a reasonable
risk of liability for breach of a fiduciary duty under Title I of ERISA are not
Restorative Payments and generally constitute contributions that give rise to
Annual Additions;

(F) Excess deferrals that are distributed in accordance with Regulation
Section 1.402(g)-1(e)(2) or (3);

(G) Rollover contributions (as described in Code Section 401(a)(31),
Section 402(c)(1), Section 403(a)(4), Section 403(b)(8), Section 408(d)(3), and
Section 457(e)(16));

(H) Repayments of loans made to a participant from the Plan;

(I) Repayments of prior Plan distributions described in Code
Section 411(a)(7)(B) (in accordance with Code Section 411(a)(7)(C)) and Code
Section 411(a)(3)(D) or repayment of contributions to a governmental plan (as
defined in Code Section 414(d)) as described in Code Section 415(k)(3);

 

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(J) Employee contributions to a qualified cost of living arrangement within the
meaning of Code Section 415(k)(2)(B); or

(b) “Compensation” means, for purposes of applying the limitations of
Section 3.07, the general definition of Compensation as defined in Section 1.15
for the Limitation Year. If the Limitation Year is not the calendar year, then
the Code Section 404(a)(17) Compensation Limit that applies to such Limitation
Year is the Code Section 401(a)(17) Compensation Limit in effect for the
respective calendar year in which such Limitation Year begins.

(c) “Defined Contribution Plan.” The term “Defined Contribution Plan” shall be
defined in accordance with Code Section 415(k)(1) and the Regulations
promulgated thereunder.

(d) “Employer” means the Employer that adopts this Plan and any Related Employer
described in Section 1.70. Solely for purposes of applying the limitations of
Article III, the ESOP Committee will determine Related Employers described in
Section 1.70 by modifying Code Sections 414(b) and (c) in accordance with Code
Section 415(h).

(e) “Excess Amount” means the excess of the Participant’s Annual Additions for
the Limitation Year over the Maximum Permissible Amount.

(f) “Limitation Year” means the Plan Year. If the Employer amends the Limitation
Year to a different twelve (12) consecutive month period, the new Limitation
Year must begin on a date within the Limitation Year for which the Employer
makes the amendment, creating a short Limitation Year.

(g) “Maximum Permissible Amount” means the lesser of (i) Forty-Six Thousand
Dollars ($46,000) (as adjusted under Code Section 415(d)) or (ii) one hundred
percent (100%) of the Participants Compensation for the Limitation Year. If
there is a short Limitation Year because of a change in Limitation Year, the
ESOP Committee will multiply the Forty-Six Thousand Dollars ($46,000) (or
adjusted limitation) by the following fraction:

Number of months in the short Limitation Year

12

(h) “Post Severance Compensation.” The term “Post-Severance Compensation” means
the amount that would have been included in the definition of Compensation if
the amounts were paid prior to the Employee’s Separation from Service with the
Employer and that are paid to the Employee by the later of 2 1/2 months after
Separation from Service with the Employer or the end of the Limitation Year that
includes the Employee’s date of Separation from Service with the Employer.
Regular Pay after Separation from Service. Regular pay after Separation from
Service will be considered Post-Severance Compensation if:

 

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(i) The payment is regular compensation for services during the Employee’s
regular working hours, or compensation for services outside the Employee’s
regular working hours (such as overtime or shift differential), commissions,
bonuses, or other similar payments; and

(ii) The payment would have been paid to the Employee prior to a Separation from
Service if the Employee had continued in employment with the Employer.

3.09 TRANSACTIONS INVOLVING EMPLOYER SECURITIES.

(a) No portion of the Plan attributable to (or allocable in lieu of) Employer
Securities acquired by the Plan in a sale to which Code Section 1042 applies may
accrue or be allocated directly or indirectly under any plan maintained by the
Employer meeting the requirements of Code Section 401(a); during the “Non
allocation Period” (as defined in Section 3.09(d) below), for the benefit of:

(i) any taxpayer who makes an election under Code Section 1042(a) with respect
to Employer Securities or who is part of an integrated transaction in which any
taxpayer participating in the same transaction makes an election under Code
Section 1042(a) with respect to Employer Securities,

(ii) any individual who is related to the taxpayer (within the meaning of Code
Section 267(b)), or

(iii) any other person who owns (after application of Code Section 318(a)) more
than twenty five percent (25%) of:

(A) any class of outstanding stock of the Employer which issued such Employer
Securities or of any corporation which is a member of the same controlled group
of corporations (as defined in Code Section 409(1)(4)), or

(B) the total value of any class of outstanding stock of any such corporation.

(b) Subparagraph (a)(i)(B) above shall not apply to lineal descendants of the
taxpayer, provided that, the aggregate amount allocated to the benefit of all
such lineal descendants during the “Non allocation Period” does not exceed more
than five percent (5%) of the Employer Securities (or amounts allocated in lieu
thereof) held by the Plan which are attributable to a sale to the Plan by any
person related to such descendants (within the meaning of Code
Section 267(c)(4)) in a transaction to which Code Section 1042 applied.

(c) A person shall be treated as failing to meet the stock ownership limitation
under paragraph (a)(i) above if such person fails such limitation:

 

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(i) at any time during the one (1) year period ending on the date of sale of
Employer Securities to the Plan, or

(ii) on the date as of which Employer Securities are allocated to Participant
Employer Securities Accounts.

(d) For purposes of this Section 3.09, “Non-allocation Period” means the ten
(10) year period beginning on the date of the sale of the Employer Securities
and ending on the later of:

(i) the date which is ten (10) years after the sale of the Employer Securities,
or

(ii) the date of the Plan allocation attributable to the final payment of the
Exempt Loan incurred in connection with such sale.

End of Article III

 

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ARTICLE IV

PARTICIPANT CONTRIBUTIONS

4.01 CODE SECTION 401(k) ARRANGEMENT. The Employer makes the Salary Reduction
Contributions described in Section 3.01 hereof pursuant to a Code Section 401(k)
arrangement. An Employee who is eligible to participate in the Code
Section 401(k) arrangement may file a salary reduction agreement with the ESOP
Committee or the Employer. The salary reduction agreement may not be effective
earlier than the following date which occurs last: (i) the Employee’s Entry Date
(or, in the case of a reemployed Employee, his reparticipation date under
Article II hereof); (ii) the execution date of the Employee’s salary reduction
agreement; (iii) the date the Employer adopts the Code Section 401(k)
arrangement; or (iv) the effective date of the Code Section 401(k) arrangement.
A salary reduction agreement must specify the amount of Compensation (as defined
in Section 1.15 hereof) or percentage of Compensation the Employee wishes to
defer. The salary reduction agreement will apply only to Compensation which
becomes currently available to the Employee after the effective date of the
salary reduction agreement. The Employer will apply a reduction election to all
Compensation (and to increases and decreases in such Compensation) unless the
Employee specifies in his salary reduction agreement to limit the election to
certain Compensation.

An Employee’s Salary Reduction Contributions for the Plan Year, subject to the
limitations of Section 4.03 hereof, may not be less than one percent (1%) nor
exceed ten percent (10%) of his Compensation for the entire Plan Year. An
Employee may modify his salary reduction agreement, either to reduce or to
increase the amount of deferral contributions, but upon not less than thirty
(30) days prior written notice to the Employer, Trustee or ESOP Committee. The
Employee will make this modification by filing a new salary reduction agreement
with the ESOP Committee, Trustee or the Employer. An Employee may revoke a
salary reduction agreement at any time by giving prior written notice to the
Employer, Trustee or the ESOP Committee. An Employee who revokes his salary
reduction agreement may file a new salary reduction agreement effective as of
the next Plan Year.

4.02 ANNUAL ELECTIVE DEFERRAL LIMITATION.

(a) Annual Elective Deferral Limitation. An Employee’s Salary Reduction
Contributions for a calendar year may not exceed the limitation set forth in
Code Section 402(g) (“402(g) limitation”). The 402(g) limitation is Ten Fifteen
Thousand, Five Hundred Dollars ($15,500.00), or the adjusted amount determined
by the Secretary of the Treasury. If the Employer determines the Employee’s
Salary Reduction Contributions to the Plan for a calendar year would exceed the
402(g) limitation, the Employer will not make any additional Salary Reduction
Contributions with respect to such Employee for the remainder of that calendar
year, paying in cash to the Employee any amounts which would result in the
Employee’s Salary Reduction Contributions for the calendar year exceeding the
402(g) limitation. If the ESOP Committee determines an Employee’s Salary

 

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Reduction Contributions already contributed to the Plan for a calendar year
exceed the 402(g) limitation, the ESOP Committee will distribute the amount in
excess of the 402(g) limitation (the “excess deferral”), as adjusted for
allocable income, no later than April 15 of the following calendar year. If the
ESOP Committee distributes the excess deferral by the appropriate April 15, it
may make the distribution regardless of any other provision under this Plan or
under the Code. The ESOP Committee will reduce the amount of excess deferrals
for a calendar year distributable to the Employee by the amount of excess
contributions (as determined in Section 4.03 hereof), if any, previously
distributed to the Employee for the Plan Year beginning in that calendar year.

If an Employee participates in another plan under which he makes Salary
Reduction Contributions pursuant to a Code Section 401(k) arrangement, Salary
Reduction Contributions under a simplified employee pension, or salary reduction
contributions to a tax-sheltered annuity, regardless of whether the Employer
maintains the other plan, he may provide the ESOP Committee a written claim for
excess deferrals made for a calendar year. The Employee must submit the claim no
later than the March 1 following the close of the particular calendar year and
the claim must specify the amount of the Employee’s Salary Reduction
Contributions under this Plan which are excess deferrals. If the ESOP Committee
receives a timely claim, it will distribute the excess deferrals (as adjusted
for allocable income) the Employee has assigned to this Plan, in accordance with
the distribution procedure described in the immediately preceding paragraph. A
corrective distribution of excess deferrals (and income) may be made under this
Section 4.02(a) without regard to any notice or consent otherwise required under
Code Sections 411(a)(11) and 417.

(b) Allocable Income. For purposes of making a distribution of excess deferrals,
allocable income means net income or net loss allocable to the excess deferrals
for the calendar year in which the Employee made the excess deferral and for the
“gap period” measured from the beginning of the next calendar year to the date
of the distribution. If the distribution of the excess deferral occurs during
the calendar year in which the Employee made the excess deferral, the ESOP
Committee will treat as a “gap period” the period from the first day of that
calendar year to the date of the distribution. The ESOP Committee will determine
allocable income in the same manner as described in Section 4.03 hereof for
excess contributions, except the numerator of the allocation fraction will be
the amount of the Employee’s excess deferrals for the taxable year and the
denominator of the allocation fraction will be the sum of: (a) the total Account
Balance of the Employee attributable to Elective Contributions as of the
beginning of the taxable year; and (b) the Employee’s Salary Reduction
Contributions for the taxable year.

4.03 ACTUAL DEFERRAL PERCENTAGE (“ADP”) TEST. For each Plan Year, the ESOP
Committee must determine whether the Code Section 401(k) arrangement satisfies
either of the following ADP tests:

 

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(a) The ADP for the Highly Compensated Group does not exceed 1.25 times the
average ADP of the Nonhighly Compensated Group; or

(b) The ADP for the Highly Compensated Group does not exceed the average ADP for
the Nonhighly Compensated Group by more than two (2) percentage points (or the
lesser percentage permitted by the multiple use limitation in Section 4.05
hereof) and the ADP for the Highly Compensated Group is not more than twice the
ADP for the Nonhighly Compensated Group.

(c) Calculation of ADP. A Nonhighly Compensated Employee’s ADR does not include
Salary Reduction Contributions made to this Plan or to any other Plan maintained
by the Employer, to the extent such Salary Reduction Contributions exceed the
402(g) limitation described in Section 4.02(a) hereof. In determining whether
the Plan’s Code Section 401(k) arrangement satisfies ADP test, the ESOP
Committee will use the ADP of the Nonhighly Compensated Group for the current
Plan Year for the calculation.

(d) Special Aggregation Rule for Highly Compensated Employees. To determine the
ADR of any Highly Compensated Employee, the Salary Reduction Contributions taken
into account must include any Salary Reduction Contributions made by the Highly
Compensated Employee under any other Code Section 401(k) arrangement maintained
by the Employer, unless the Salary Reduction Contributions are to an ESOP. If
the plans containing the Code Section 401(k) arrangements have different plan
years, the ESOP Committee will determine the combined Salary Reduction
Contributions on the basis of the plan years ending in the same calendar year.

(e) Aggregation of Certain Code Section 401(k) Arrangements. If the Employer
treats two (2) plans as a unit for coverage or nondiscrimination purposes, the
Employer must combine the Code Section 401(k) arrangements under such plans to
determine whether either plan satisfies the ADP test. This aggregation rule
applies to the ADR determination for all Eligible Employees, regardless of
whether an Eligible Employee is a Highly Compensated Employee or a Nonhighly
Compensated Employee. The ESOP Committee may elect to aggregate the Code
Section 401(k) arrangements under plans which the Employer does not treat as a
unit for coverage or nondiscrimination purposes. An aggregation of Code
Section 401(k) arrangements under this Paragraph does not apply to plans which
have different plan years. The ESOP Committee may not aggregate an ESOP (or the
Stock Bonus Plan Portion of a plan) with a non-ESOP plan (or non-Stock Bonus
Plan Portion of a plan).

(f) Characterization of Excess Contributions. If, pursuant to this Section 4.03
hereof, the ESOP Committee has elected to include Qualified Matching
Contributions in the ADP, the ESOP Committee will treat excess contributions as
attributable proportionately to Salary Reduction Contributions and to Qualified
Matching Contributions allocated on the basis of those Salary Reduction
Contributions. The ESOP Committee will reduce the amount of excess

 

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contributions for a Plan Year distributable to a Highly Compensated Employee by
the amount of excess deferrals (as defined in Section 4.02 hereof), if any,
previously distributed to that Employee for the Employee’s taxable year ending
in that Plan Year.

(g) Distribution of Excess Contributions. If the ESOP Committee the Plan fails
to satisfy the ADP test for a Plan Year, the Trustee, as directed by the ESOP
Committee, must distribute the excess contributions, as adjusted for allocable
income, during the next Plan Year. However, the Employer will incur an excise
tax equal to ten percent (10%) of the amount of excess contributions for a Plan
Year not distributed to the appropriate Highly Compensated Employees during the
first 2 1/2 months of that next Plan Year. The excess contributions are the
amount of Salary Reduction Contributions made by the Highly Compensated
Employees which causes the Plan to fail to satisfy the ADP test. The ESOP
Committee will determine the amount of the excess contributions by starting with
the Highly Compensated Employee(s) who has the greatest deferral percentage of
Salary Reduction Contributions, reducing his ADR (but not below the next highest
ADR), then, if necessary, reducing the ADR of the Highly Compensated Employee(s)
at the next highest deferral percentage of Salary Reduction Contributions,
including the ADR of the Highly Compensated Employee(s) whose ADR the ESOP
Committee already has reduced (but not below the next highest ADR), and
continuing in this manner until the ADR for the Highly Compensated Group
satisfies the ADP test.

The amount of Excess Contributions to be distributed to individual Highly
Compensated Participants is determined by applying the excess contributions to
reduce the aggregate dollar amount of Salary Reduction Contributions elected by
such Highly Compensated Employees. After the ESOP Committee has determined the
excess contribution amount, the Trustee, as directed by the ESOP Committee, then
will distribute to each Highly Compensated Employee his respective share(s) of
the excess contributions. The ESOP Committee will determine the respective
share(s) of excess contributions by starting with the Highly Compensated
Employee(s) who has the greatest dollar amount of Salary Reduction
Contributions, reducing his elective contributions (but not below the next
highest level of Salary Reduction Contributions), then, if necessary, reducing
the Salary Reduction Contributions of the Highly Compensated Employee(s) at the
next highest dollar amount of Salary Reduction Contributions, including the
Salary Reduction Contributions of the Highly Compensated Employee(s) whose
Salary Reduction Contributions the ESOP Committee already has reduced (but not
below the next highest dollar amount of Salary Reduction Contributions), and
continuing in this manner until all excess contributions have been distributed.
The amount of excess contributions (and income thereon) to be distributed to
each affected Highly Compensated Participant is equal to the Salary Reduction
Contributions made on behalf of such Participant prior to reduction of the
excess contributions under the above method, less the Salary Reduction
Contributions on behalf of such Participant after reductions made under the
above method. If these distributions are made, then the tests of Sections
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deemed satisfied regardless of whether the ADP, if recalculated, would satisfy
the tests of Sections 4.03(a) or 4.03(b).

(h) Allocable Income. Distributions of Excess Contributions must be adjusted for
income (gain or loss), including an adjustment for income for the period between
the end of the Plan Year and the date of the distribution (the “gap period”).
The Plan Administrator has the discretion to determine and allocate income using
any of the methods set forth below:

(A) Reasonable method of allocating income. The Plan Administrator may use any
reasonable method for computing the income allocable to Excess Contributions,
provided that the method does not violate Code Section 401(a)(4), is used
consistently for all Participants and for all corrective distributions under the
Plan for the Plan Year, and is used by the Plan for allocating income to
Participant’s accounts. A Plan will not fail to use a reasonable method for
computing the income allocable to Excess Contributions merely because the income
allocable to Excess Contributions is determined on a date that is no more than
seven (7) days before the distribution.

(B) Alternative method of allocating income. The Plan Administrator may allocate
income to Excess Contributions for the Plan Year by multiplying the income for
the Plan Year allocable to the Salary Reduction Contributions and other amounts
taken into account under the ADP test (including contributions made for the Plan
Year), by a fraction, the numerator of which is the Excess Contributions for the
Employee for the Plan Year, and the denominator of which is the sum of the:

(1) Account Balance attributable to Salary Reduction Contributions and other
amounts taken into account under the ADP test as of the beginning of the Plan
Year, and

(2) Any additional amount of such contributions made for the Plan Year.

(C) Safe harbor method of allocating gap period income. The Plan Administrator
may use the safe harbor method in this paragraph to determine income on Excess
Contributions for the gap period. Under this safe harbor method, income on
Excess Contributions for the gap period is equal to ten percent (10%) of the
income allocable to Excess Contributions for the Plan Year that would be
determined under paragraph (b) above, multiplied by the number of calendar
months that have elapsed since the end of the Plan Year. For purposes of
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months that have elapsed under the safe harbor method, a corrective distribution
that is made on or before the fifteenth (15th) day of a month is treated as made
on the last day of the preceding month and a distribution made after the
fifteenth day of a month is treated as made on the last day of the month.

(D) Alternative method for allocating Plan Year and gap period income. The Plan
Administrator may determine the income for the aggregate of the Plan Year and
the gap period, by applying the alternative method provided by paragraph
(b) above to this aggregate period. This is accomplished by (1) substituting the
income for the Plan Year and the gap period, for the income for the Plan Year,
and (2) substituting the amounts taken into account under the ADP test for the
Plan Year and the gap period, for the amounts taken into account under the ADP
test for the Plan Year in determining the fraction that is multiplied by that
income.

(E) Recharacterization as Catch-Up Contributions. To the extent that a catch-up
eligible Participant who is a Highly Compensated Employee is to receive a
distribution of Excess Contributions, and (ii) to the extent that such catch-up
eligible Participant has not exceeded the Participant’s Catch-Up Contribution
Limit, the Excess Contributions of such Participant may be recharacterized as
Catch-Up Contributions (to the extent that the recharacterized Catch-Up
Contributions do not cause the Catch-Up Contribution Limit to be exceeded for
the Plan Year that ends with or within the taxable year of the Participant). The
term “Catch-Up Contribution Limit” means the statutory limit on Catch-Up
Contributions for a Participant for any taxable year. A Participant’s Catch-Up
Contributions for a taxable year may not exceed (a) the dollar limit on Catch-Up
Contributions under Code §414(v)(2)(B)(i) for the taxable year, or (b) when
added to other Elective Deferrals, 100% of the Participant’s Compensation for
the taxable year. The dollar limit on Catch-Up Contributions under Code
§414(v)(2)(B)(i) is $5,000 and will be adjusted by the Secretary of the Treasury
for cost-of-living increases under Code §414(v)(2)(C). Any such adjustments will
be in multiples of $500.

(ii) Qualified Non-Elective Contributions. Within twelve (12) months after the
end of the Plan Year, the ESOP Committee may make a Qualified Non-Elective
Contribution on behalf of Nonhighly Compensated Employees in an amount
sufficient to satisfy one of the tests set forth in Sections 4.03(a) or 4.03(b).
In addition to or in lieu of the above procedures to conform Salary Deferral
Contributions to the limitations of this Section, the Employer may, in its sole
discretion, contribute on behalf of some or all Participants who are not Highly
Compensated Employees Qualified Non-Elective Contributions (which

 

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shall be treated as Salary Deferral Contributions) to the extent necessary to
ensure that the limitations of Section 4.03(b) are met. Such Qualified
Non-Elective Contributions shall be immediately fully vested, and subject to the
following requirements:

(A) Targeted Contribution Limit. Qualified Non-Elective Contributions (as
defined in Regulation Section 1.401(k)-6) cannot be taken into account in
determining the ADR for a Plan Year for a Nonhighly Compensated Employee to the
extent such contributions exceed the product of that Nonhighly Compensated
Employee’s Code Section 414(s) compensation and the greater of five percent
(5%) or two (2) times the Plan’s “ADR Representative Contribution Rate.” Any
Qualified Non-Elective Contribution taken into account under an ACP test under
Regulation Section 1.401(m)-2(a)(6) (including the determination of the
Representative Contribution Rate for purposes of Regulation
Section 1.401(m)-2(a)(6)(v)(B)), is not permitted to be taken into account for
purposes of determining a Participant’s ADR. For purposes of this Section:

(1) The Plan’s “ADR Representative Contribution Rate” is the lowest “ADR
Applicable Contribution Rate” of any eligible Nonhighly Compensated Employee
among a group of eligible Nonhighly Compensated Employees that consists of half
of all eligible Nonhighly Compensated Employees for the Plan Year (or, if
greater, the lowest “Applicable Contribution Rate” of any eligible Nonhighly
Compensated Employee who is in the group of all eligible Nonhighly Compensated
Employees for the Plan Year and who is employed by the Employer on the last day
of the Plan Year), and

(2) The “ADR Applicable Contribution Rate” for an eligible Nonhighly Compensated
Employee is the sum of the Qualified Matching Contributions (as defined in
Regulation Section 1.401(k)-6) taken into account in determining the Actual
Deferral Ratio for the eligible Nonhighly Compensated Employee for the Plan Year
and the Qualified Non-Elective Contributions made for the eligible Nonhighly
Compensated Employee for the Plan Year, divided by the eligible Nonhighly
Compensated Employee’s Code Section 414(s) compensation for the same period.

Notwithstanding the above, Qualified Non-Elective Contributions that are made in
connection with an Employer’s obligation to pay prevailing wages under the
Davis-Bacon Act (46 Stat. 1494), Public Law

 

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71-798, Service Contract Act of 1965 (79 Stat. 1965), Public Law 89-286, or
similar legislation can be taken into account for a Plan Year for an non-Highly
Compensated Employee to the extent such contributions do not exceed 10 percent
(10%) of that Nonhighly Compensated Employee’s Code Section 414(s) compensation.

Qualified Matching Contributions may only be used to calculate an Actual
Deferral Ratio to the extent that such Qualified Matching Contributions are
matching contributions that are not precluded from being taken into account
under the ACP test for the Plan Year under the rules of Regulation
Section 1.401(m)-2(a)(5)(ii) and as set forth in Section 4.07.

(B) Limitation on QNECs and QMACs. Qualified Non-Elective Contributions and
Qualified Matching Contributions cannot be taken into account to determine an
ADR to the extent such contributions are taken into account for purposes of
satisfying any other ADP test, any ACP test, or the requirements of Regulation
Section 1.401(k)-3, 1.401(m)-3, or 1.401(k)-4. Thus, for example, matching
contributions that are made pursuant to Regulation Section 1.401(k)-3(c) cannot
be taken into account under the ADP test. Similarly, if a plan switches from the
current year testing method to the prior year testing method pursuant to
Regulation Section 1.401(k)-2(c), Qualified Non-Elective Contributions that are
taken into account under the current year testing method for a year may not be
taken into account under the prior year testing method for the next year.

(iii) Qualified Matching Contributions. Any Qualified Matching Contributions
treated as Salary Reduction Contributions for purposes of this Section shall be
immediately and fully Vested when made and shall be subject to the Distribution
Restrictions in Section 1.21. Any Qualified Matching Contributions shall satisfy
the requirements of Code Section 401(a)(4).

4.04 NONDISCRIMINATION RULES FOR MATCHING CONTRIBUTIONS. The ESOP Committee must
determine whether the annual discretionary Matching Contributions, if any,
satisfy one of the following ACP tests:

(a) The ACP for the Participants who are Highly Compensation Employees for the
Plan Year shall not exceed the prior year’s ACP for Participants who were
Nonhighly Compensated Employees for the prior Plan Year multiplied by 1.25; or

(b) The ACP for the Participants who are Highly Compensation Employees for the
Plan Year shall not exceed the prior year’s ACP for Participants who were
Nonhighly Compensated Employees for the prior Plan

 

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Year multiplied by 2.0, providing that the ACP for Participants who are Highly
Compensation Employees does not exceed the ACP for Participants who were
Nonhighly Compensation Employees in the prior Plan Year by more then two
(2) percentage points.

(c) Calculation of ACP. In determining whether this Plan satisfies the ACP test,
the ESOP Committee will use the ACP of the Participants who were Nonhighly
Compensation Employees for the current Plan Year for the calculation.

(d) Targeted Matching Contribution Limit. A matching contribution with respect
to an Salary Reduction Contribution for a Plan Year is not taken into account
under the ACP test for an non-Highly Compensated Employee to the extent it
exceeds the greatest of:

(i) five percent (5%) of the non-Highly Compensated Employee ‘s Code
Section 414(s) compensation for the Plan Year;

(ii) the non-Highly Compensated Employee’s Salary Reduction Contributions for
the Plan Year; and

(iii) the product of two (2) times the Plan’s “representative matching rate” and
the non-Highly Compensated Employee ‘s Salary Reduction Contributions for the
Plan Year.

(iv) For purposes of this Section, the Plan’s “representative matching rate” is
the lowest “matching rate” for any eligible non-Highly Compensated Employee
among a group of non-Highly Compensated Employee s that consists of half of all
eligible non-Highly Compensated Employee s in the Plan for the Plan Year who
make Salary Reduction Contributions for the Plan Year (or, if greater, the
lowest “matching rate” for all eligible non-Highly Compensated Employee s in the
Plan who are employed by the Employer on the last day of the Plan Year and who
make Salary Reduction Contributions for the Plan Year).

For purposes of this Section, the “matching rate” for an Employee generally is
the matching contributions made for such Employee divided by the Employee’s
Salary Reduction Contributions for the Plan Year. If the matching rate is not
the same for all levels of Salary Reduction Contributions for an Employee, then
the Employee’s “matching rate” is determined assuming that an Employee’s Salary
Reduction Contributions are equal to six percent (6%) of Code Section 414(s)
compensation.

If the Plan provides a match with respect to the sum of the Employee’s after-tax
Employee contributions and Salary Reduction Contributions, then for purposes of
this Section, that sum is substituted for the amount of the Employee’s Salary
Reduction Contributions in Sections 4.04(b) and 4.04(c) above and in determining
the “matching rate,” and Employees who make either after-tax Employee
contributions or Salary Reduction Contributions are taken into account

 

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in determining the Plan’s “representative matching rate.” Similarly, if the Plan
provides a match with respect to the Employee’s after-tax Employee
contributions, but not Salary Reduction Contributions, then for purposes of this
subsection, the Employee’s after-tax Employee contributions are substituted for
the amount of the Employee’s Salary Reduction Contributions in Sections 4.04(b)
and 4.04(c) above and in determining the “matching rate,” and Employees who make
after-tax Employee contributions are taken into account in determining the
Plan’s “representative matching rate.”

(e) Special Aggregation Rule for Highly Compensated Employees. To determine the
ACR of any Highly Compensated Employee, the aggregate contributions taken into
account must include any Matching Contributions and any Employee contributions
made on his behalf to any other plan maintained by the Employer. All such plans
and arrangements ending within the same calendar year shall be treated as a
single plan or arrangements. Notwithstanding the foregoing, certain plans shall
be treated as separated if mandatorily disaggregated under regulations under
Code Section 401(m).

(f) Aggregation of Certain Plans. If the Employer treats two plans as a unit for
coverage or nondiscrimination purposes, the Employer must combine the plans to
determine whether either plan satisfies the ACP test. This aggregation rule
applies to the ACR determination for all Eligible Employees, regardless of
whether an Eligible Employee is a Highly Compensated Employee or a Nonhighly
Compensated Employee. The ESOP Committee also may elect to aggregate plans which
the Employer does not treat as a unit for coverage or nondiscrimination
purposes.

(g) Distribution of Excess Aggregate Contributions. The ESOP Committee will
determine Excess Aggregate Contributions after determining Excess Contributions.
If the ESOP Committee determines this Plan fails to satisfy the ACP test for a
Plan Year, the Trustee, as directed by the ESOP Committee, must distribute such
excess amounts, as adjusted for allocable income (“Excess Aggregate
Contributions”), during the next Plan Year. If such amounts are held in the
Matching Contributions Account in the Stock Bonus Plan Portion of the Plan, the
ESOP Trustee will make such distribution, and if such amounts are held in the
Matching Contributions Account in the Profit Sharing Plan Portion of the Plan,
the 401(k) Trustee will make such distribution. However, the Employer will incur
an excise tax under Code Section 4979 on the amount of Excess Aggregate
Contributions for a Plan Year not distributed to the appropriate Highly
Compensated Employees during the first two and one-half (2 1/ 2) months of that
next Plan Year. The Excess Aggregate Contributions are the amount of the
aggregate contributions allocated on behalf of the Highly Compensated Employees
which causes this Plan to fail to satisfy the ACP test. The ESOP Committee will
determine the amount of the Excess Aggregate Contributions by starting with the
Highly Compensated Employee(s) who has the greatest ACR, reducing his ACR (but
not below the next highest ACR), then, if necessary, reducing the ACR of the
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ACR level, including the ACR of the Highly Compensated Employee(s) whose ACR the
ESOP Committee already has reduced (but not below the next highest ACR), and
continuing in this manner until the ACP for the Participants who were Highly
Compensation Employees satisfies the ACP test.

The amount of Excess Aggregate Contributions to be distributed to individual
Highly Compensated Employees is determined by applying the Excess Aggregate
Contributions to reduce the aggregate dollar amount of Matching Contributions
elected by such Highly Compensated Employees. After the ESOP Committee has
determined the excess aggregate contribution amount, the ESOP Trustee or the
401(k) Trustee, as applicable, as directed by the ESOP Committee, then will
distribute to each Highly Compensated Employee his respective share of Vested
Excess Aggregate Contributions. The ESOP Committee will determine the respective
share(s) of Excess Aggregate Contributions by starting with the Highly
Compensated Employee(s) who has the greatest dollar amount of aggregate
contributions, reducing his aggregate contributions (but not below the next
highest amount of the aggregate contributions), then, if necessary, reducing the
amount of aggregate contributions of the Highly Compensated Employee(s) at the
next highest dollar amount of aggregate contributions, including the salary
reduction contribution of the Highly Compensated Employee(s) whose aggregate
contributions the ESOP Committee already has reduced (but not below the next
highest level of aggregate contributions), and continuing in this manner until
all Excess Aggregate Contributions have been distributed. The amount of Excess
Aggregate Contributions (and income thereon) to be distributed to each affected
Highly Compensated Participant is equal to the Matching Contributions made on
behalf of such Participant prior to reduction of the Excess Aggregate
Contributions under the above method, less the Matching Contributions on behalf
of such Participant after reductions made under the above method. If these
distributions are made, then the tests of Sections 4.04(a) and 4.04(b) will be
deemed satisfied regardless of whether the ACP, if recalculated, would satisfy
the tests of Sections 4.04(a) or 4.04(b).

(h) Allocable Income. Excess aggregate contributions will be adjusted for any
income or loss up to the last day of the plan year, without considering the gap
period (the period between the end of the play year and the date of
distribution) or any adjustment for income or loss during the gap period.

(i) Characterization of Excess Aggregate Contributions. The ESOP Committee will
treat a Highly Compensated Employee’s allocable share of excess aggregate
contributions in the following priority: (1) first as Matching Contributions
allocable with respect to excess Contributions determined under the ADP test;
(2) then on a pro rata basis to Matching Contributions and to the Salary
Reduction Contribution relating to those Matching Contributions which the ESOP
Committee has included in the ACP test; and (3) last to Qualified Nonelective
Contributions used in the ACP test. To the extent the Highly Compensated
Employee is not one hundred percent (100%) Vested in his Matching Contribution
Account, the ESOP Committee will distribute only the Vested

 

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portion and forfeit the nonvested portion. The Vested portion of the Highly
Compensated Employee’s excess aggregate contributions attributable to Matching
Contributions is the total amount of such excess aggregate contributions (as
adjusted for allocable income) multiplied by his Vested percentage (determined
as of the last day of the Plan Year for which the Employer made the Matching
Contribution). The Plan will allocate forfeited excess aggregate contributions
as Matching Contributions for the Plan Year in which the Forfeiture occurs,
except the ESOP Committee will not allocate these Forfeitures to the Highly
Compensated Employees who incurred the Forfeitures.

(j) Targeted QNEC Limit. Qualified Non-Elective Contributions (as defined in
Regulation Section 1.401(k)-6) cannot be taken into account under the ACP test
for a Plan Year for a Nonhighly Compensated Employee to the extent such
contributions exceed the product of that Nonhighly Compensated Employee’s Code
Section 414(s) compensation and the greater of five percent (5%) or two
(2) times the Plan’s “representative contribution rate.” Any Qualified
Non-Elective Contribution taken into account under an ADP test under Regulation
Section 1.401(k)-2(a)(6) (including the determination of the “representative
contribution rate” for purposes of Regulation Section 1.401(k)-2(a)(6)(iv)(B))
is not permitted to be taken into account for purposes of this Section 4.04(k).
For purposes of this Section:

(k) The Plan’s “representative contribution rate” is the lowest “applicable
contribution rate” of any eligible Nonhighly Compensated Employee among a group
of eligible Nonhighly Compensated Employees that consists of half of all
eligible Nonhighly Compensated Employees for the Plan Year (or, if greater, the
lowest “applicable contribution rate” of any eligible Nonhighly Compensated
Employee who is in the group of all eligible Nonhighly Compensated Employees for
the Plan Year and who is employed by the Employer on the last day of the Plan
Year), and

(l) The “applicable contribution rate” for an eligible Nonhighly Compensated
Employee is the sum of the matching contributions (as defined in Regulation
Section 1.401(m)-1(a)(2)) taken into account in determining the ACR for the
eligible Nonhighly Compensated Employee for the Plan Year and the Qualified
Non-Elective Contributions made for that Nonhighly Compensated Employee for the
Plan Year, divided by that Nonhighly Compensated Employee’s Code Section 414(s)
compensation for the Plan Year.

Notwithstanding the above, Qualified Non-Elective Contributions that are made in
connection with an Employer’s obligation to pay prevailing wages under the
Davis-Bacon Act (46 Stat. 1494), Public Law 71-798, Service Contract Act of 1965
(79 Stat. 1965), Public Law 89-286, or similar legislation can be taken into
account for a Plan Year for a Nonhighly Compensated Employee to the extent such
contributions do not exceed 10 percent (10%) of that Nonhighly Compensated
Employee’s Code Section 414(s) compensation.

 

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4.05 PARTICIPANT ROLLOVER CONTRIBUTIONS.

(a) Rollover Contributions. Any Employee of an Employer, with the ESOP
Committee’s written consent, and after filing with the ESOP Committee the form
prescribed by the ESOP Committee, may contribute cash or other property to the
Trust (other than as a voluntary contribution) if the contribution is a
“Rollover Contribution” which the Code permits an employee to transfer either
directly or indirectly from one qualified plan to another qualified plan. Before
accepting a Rollover Contribution, the ESOP Committee may require an Employee to
furnish satisfactory evidence that the proposed transfer is in fact a “Rollover
Contribution” which the Code permits an employee to make to a qualified plan. A
Rollover Contribution is not an Annual Addition under Part 2 of Article III
hereof.

(b) Rollover Account. A “Rollover Contribution” accepted by the ESOP Committee
shall be credited to a separate Rollover Account, and (i) shall be held pursuant
to the provisions of this Plan and the Trust; (ii) shall be fully Vested at all
times and not be subject to Forfeiture for any reason; and (iii) may be
withdrawn by the Employee as provided in Section 6.03 hereof.

(c) Definitions. For purposes of this Section 4.05 the term “Rollover
Contribution” shall include:

(i) amounts transferred to the Trust directly from another qualified plan which
does not provide a life annuity form of payment, provided that the trust from
which such funds are transferred permits the transfer to be made;

(ii) amounts which are properly characterized as a qualifying rollover
distribution (including a lump sum distribution), received by a person who is
not an Employee, from another qualified plan with respect to such person’s
service for such employer, which amounts are eligible for tax-free rollover
treatment and which are transferred by the Employee to Trust within sixty
(60) days following receipt thereof;

(iii) amounts transferred to the Trust from an individual retirement account,
provided that the individual retirement account contains no assets: (A) other
than assets which were previously distributed to a person (who is now an
Employee) by another qualified plan as a qualifying rollover distribution
(including a lump sum distribution) with respect to such person’s service for
such employer, which amounts were eligible for tax-free rollover treatment, and
which amounts were deposited in such individual retirement account within sixty
(60) days of receipt thereof; and (B) other than earnings on said assets; and

(iv) amounts distributed to a person (who is now an Employee) from an individual
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paragraph (3) above, and transferred by the Employee to the Trust within sixty
(60) days of receipt thereof from such individual retirement account.

(d) Transfers. Prior to accepting the transfers to which this Section 4.05
applies, the ESOP Committee may require the following: (1) the Employee to
furnish satisfactory evidence that the proposed transfer is in fact a “Rollover
Contribution” which the Code permits an Employee to make to a qualified plan;
(2) the Employee to establish that the amounts to be transferred to the Trust
meet the requirements of this Section 4.05; (3) the Employee to furnish
documentation satisfactory to the ESOP Committee that the amounts to be
transferred will not jeopardize the tax exempt status of this Plan and the Trust
for any reason (including, but not limited to, the failure of the amount to be
excluded from the definition of Annual Addition in Section 415(c)(2) of the
Code, and thereby causing the Annual Addition to the account to exceed the
permissible limits of Section 415 of the Code, or create adverse tax
consequences to the Employer); and (4) the Employee to furnish to the ESOP
Committee a written opinion from legal counsel (legal counsel must be approved
by the ESOP Committee) which provides, among other things, that such Rollover
Contribution does not violate any provisions under the federal and state
securities laws.

(e) Investment. The Rollover Account shall be invested in accordance with
Section 8.12 hereof.

(f) Written Consent of ESOP Committee. Notwithstanding any provision to the
contrary herein, Participant Rollover Contributions shall not be accepted unless
the ESOP Committee consents to such Rollover Contribution in writing.

4.06 MATCHING CATCH-UP CONTRIBUTIONS. Catch-up contributions (as defined in Code
Section 414(v)) will be taken into account in applying Matching Contributions
under the Plan.

4.07 PLAN YEAR REQUIREMENT. Except as provided in Regulation Sections
1.401(k)-3(e) and 1.401(k)-3(f), and below, the Plan will fail to satisfy the
requirements of Code Section 401(k)(12) and this Section for a Plan Year unless
such provisions remain in effect for an entire twelve (12) month Plan Year.

4.08 CHANGE OF PLAN YEAR. If a Plan has a short Plan Year as a result of
changing its Plan Year, then the Plan will not fail to satisfy the requirements
of Section 4.05 merely because the Plan Year has less than twelve (12) months,
provided that:

(a) The Plan satisfied the requirements of Section 4.03 for the immediately
preceding Plan Year; and

(b) The Plan satisfies the requirements of Section 4.03 (determined without
regard to Regulation Section 1.401(k)-3(g)) for the immediately following Plan
Year (or for the immediately following twelve (12) months if the immediately
following Plan Year is less than twelve (12) months).

 

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4.09 PLAN TERMINATION. An Employer may terminate the Plan during a Plan Year in
accordance with Plan termination provisions of the Plan and this Section.

(a) Acquisition/disposition or substantial business hardship. If the Employer
terminates the Plan resulting in a short Plan Year, and the termination is on
account of an acquisition or disposition transaction described in Code
Section 410(b)(6)(C), or if the termination is on account of the Employer’s
substantial business hardship within the meaning of Code Section 412(d), then
the Plan remains a safe harbor Plan provided that the Employer satisfies the
provisions of Section 4.03 through the effective date of the Plan termination.

(b) Other termination. If the Employer terminates the Plan for any reason other
than as described in Section 4.09(a) above, and the termination results in a
short Plan Year, the Employer must conduct the termination under the provisions
of Section 4.09(a) above, except that the Employer need not provide Participants
with the right to change their cash or deferred elections.

End of Article IV

 

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ARTICLE V

TERMINATION OF SERVICE PARTICIPANT VESTING

5.01 RETIREMENT.

(a) Normal Retirement Age. A Participant’s Account Balance derived from Employer
contributions and Forfeitures is one hundred percent (100%) Nonforfeitable upon
and after his attaining Normal Retirement Age (if employed by the Employer on or
after such date). Under Section 6.07 hereof, a Participant who remains in the
employ of the Employer after attaining Normal Retirement Age shall continue to
participate in the Plan until his Late Retirement Date.

5.02 PARTICIPANT DEATH OR DISABILITY. If a Participant’s employment with the
Employer terminates as a result of death or Disability, the Participant’s
Account Balance will be one hundred percent (100%) Nonforfeitable.

5.03 VESTING SCHEDULE.

(a) Salary Reduction Contribution Account, Qualified Nonelective Contribution
Account and Rollover Account. A Participant shall be one hundred percent
(100%) Vested at all times in his Salary Reduction Contribution Account,
Qualified Nonelective Contribution Account, and Rollover Account.

(b) Upon the Severance from Service of a Participant with the Bank or any
Related Employer for any reason other than death, Disability or Retirement, for
his Years of Service with the Bank and any Related Employer, except as provided
in Sections 5.01, 5.02 and 9.12 hereof, for each Year of Service a Participant’s
Nonforfeitable percentage of his Employer Optional Contribution Account and
Matching Contribution Account, equals the percentage in the following vesting
schedule:

 

Years of Service

With the Bank and Related Employer

   Percent of
Nonforfeitable
Account Balance

Less than 2 years

   0%    

2 years but less than 3

   20%    

3 years but less than 4

   40%    

4 years but less than 5

   60%    

5 years but less than 6

   80%    

6 or more years

   100%    

(c) Special Vesting Formula. If a distribution (other than a cash out
distribution described in Section 5.04 hereof) is made to a partially-Vested
Participant, and the Participant has not incurred a Forfeiture Break in Service
at the relevant time, the ESOP Committee will establish a separate Account for
the

 

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Participant’s Account Balance. At any relevant time following the distribution,
the ESOP Committee will determine the Participant’s Nonforfeitable Account
Balance derived from Employer contributions and Forfeitures in accordance with
the following formula: P(AB + (R x D))—(R x D).

To apply this formula, “P” is the Participant’s current vesting percentage at
the relevant time, “AB” is the Participant’s Employer-derived Account Balance at
the relevant time, “R” is the ratio of “AB” to the Participant’s
Employer-derived Account Balance immediately following the earlier distribution
and “D” is the amount of the earlier distribution. If, under a restated Plan,
the Plan has made distribution to a partially-Vested Participant prior to its
restated effective date and is unable to apply the cash-out provisions of
Section 5.04 hereof to that prior distribution, this special vesting formula
also applies to that Participant’s remaining Account.

(d) Upon a Change in Control, a Participant will be 100% Vested in his Account,
including his Employer Optional Contribution Account. For these purposes, a
“Change in Control” means:

(i) a transaction or series of related transactions by which the Bank is sold,
either through the sale of a Controlling Interest in the Bank’s voting stock or
through the sale of substantially all of the Bank’s assets, to a party not
having a Controlling Interest in the Bank’s voting stock on the date of
execution of this Plan;

(ii) a transaction or series of transactions wherein the Bank is combined with
another business entity, and after which the persons or entities who had owned,
either directly or indirectly, a Controlling Interest in the Bank’s voting stock
on the date of execution of this Plan own less than a Controlling Interest in
the voting stock of the combined entity; or

(iii) a transaction or series of transactions in which a Controlling Interest in
the Bank is acquired by or for a person or business entity, either of which did
not own, either directly or indirectly, a Controlling Interest in the Bank on
the date that this Plan was executed. The above shall not apply to Employer
Securities purchased by the Plan.

For purposes of this Subsection 5.03(d) “Controlling Interest” means the
ownership, either directly or indirectly of more than twenty percent (20%) of
the Bank’s voting stock.

5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS AND RESTORATION OF
FORFEITED ACCOUNT BALANCE. If, pursuant to Article VI hereof, a partially-Vested
Participant receives a cash-out distribution before he incurs a Forfeiture Break
in Service, the cash-out distribution will result in an immediate Forfeiture of
the non-Vested portion of the Participant’s Account Balance derived from
Employer contributions and Forfeitures. A partially-Vested

 

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Participant is a Participant whose Nonforfeitable percentage determined under
Section 5.03 hereof is less than one hundred percent (100%). A cash-out
distribution is a distribution of the entire present value of the Participant’s
Nonforfeitable Account Balance.

(a) Restoration and Conditions upon Restoration. A partially-Vested Participant
who is re employed by the Employer after receiving a cash out distribution of
the Nonforfeitable percentage of his Account Balance may repay the amount of the
cash out distribution attributable to Employer contributions and Forfeitures,
unless the Participant no longer has a right to restoration by reason of the
conditions of this Section 5.04(a). If a partially-Vested Participant makes the
cash out distribution repayment, the ESOP Committee at the direction of the ESOP
Committee), subject to the conditions of this Section 5.04(a), must restore his
Account Balance attributable to Employer contributions and Forfeitures to the
same dollar amount as the dollar amount of his Account Balance on the Accounting
Date, or other Valuation Date, immediately preceding the date of the cash out
distribution, unadjusted for any gains or losses occurring subsequent to that
Accounting Date, or other Valuation Date. Restoration of the Participant’s
Account Balance includes restoration of all Code Section 411(d)(6) protected
benefits with respect to that restored Account Balance, in accordance with
applicable Treasury Regulations. The ESOP Committee will not restore a re
employed Participant’s Account Balance under this paragraph if:

(i) Five (5) years have elapsed since the Participant’s first re-employment date
with the Employer following the cash-out distribution; or

(ii) The Participant incurred a Forfeiture Break in Service. This condition also
applies if the Participant makes repayment within the Plan Year in which he
incurs the Forfeiture Break in Service and that Forfeiture Break in Service
would result in a complete Forfeiture of the amount the ESOP Committee otherwise
would restore.

(b) Time and Method of Restoration. If neither of the two conditions preventing
restoration of the Participant’s Account Balance applies, the ESOP Committee
will restore the Participant’s Account Balance as of the Plan Year Accounting
Date coincident with or immediately following the repayment. To restore the
Participant’s Account Balance, the ESOP Committee, to the extent necessary, will
allocate to the Participant’s Account:

(i) First, the amount, if any, of Forfeitures the ESOP Committee would otherwise
allocate under Section 3.04 hereof;

(ii) Second, the amount, if any, of the Trust Fund net income or gain for the
Plan Year; and

(iii) Third, the Employer contribution for the Plan Year to the extent made
under a discretionary formula.

 

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To the extent the amounts described in clauses (1), (2) and (3) above are
insufficient to enable the ESOP Committee to make the required restoration, the
Employer must contribute, without regard to any requirement or condition of
Section 3.01 hereof, the additional amount necessary to enable the ESOP
Committee to make the required restoration. If, for a particular Plan Year, the
ESOP Committee must restore the Account Balance of more than one re employed
Participant, then the ESOP Committee will make the restoration allocation(s) to
each such Participant’s Account in the same proportion that a Participant’s
restored amount for the Plan Year bears to the restored amount for the Plan Year
of all re employed Participants. The ESOP Committee will not take into account
the allocation under this Section 5.04 in applying the limitation on allocations
under Part 2 of Article III hereof.

(c) Zero Percent Vested Participant. The deemed cash-out rule applies to a zero
percent (0%) Vested Participant. A zero percent (0%) Vested Participant is a
Participant whose Accrued Benefit derived from Employer contributions is
entirely Forfeitable at the time of his Separation from Service. If the Account
is not entitled to an allocation of Employer contributions or Forfeitures for
the Plan Year in which he has a Separation from Service, the ESOP Committee will
apply the deemed cash-out rule as if the zero percent (0%) Vested Participant
received a cash-out distribution on the date of the Participant’s Separation
from Service. If the Account is entitled to an allocation of Employer
contributions or Forfeitures for the Plan Year in which he has a Separation from
Service, the ESOP Committee will apply the deemed cash-out rule as if the zero
percent (0%) Vested Participant received a cash-out distribution on the first
day of the first Plan Year beginning after his Separation from Service. For
purposes of applying the restoration provisions of this Section 5.04, the ESOP
Committee will treat the zero percent (0%) Vested Participant as repaying his
cash-out “distribution” on the first date of his re-employment with the
Employer.

5.05 SEGREGATED ACCOUNT FOR REPAID AMOUNT. Until the ESOP Committee restores the
Participant’s Account Balance, as described in Section 5.04 hereof, the cash-out
amount the Participant has repaid will be held in a segregated Account
maintained solely for that Participant. The amount in the Participant’s
segregated Account must be invested in federally insured interest bearing
savings account(s) or time deposit(s) (or a combination of both), or in other
fixed income investments. Until commingled with the balance of the Trust Fund on
the date the ESOP Committee restores the Participant’s Account Balance, the
Participant’s segregated Account remains a part of the Plan, but it alone shares
in any income it earns and it alone bears any expense or loss it incurs. The
ESOP Committee will direct the ESOP Committee to repay to the Participant as
soon as is administratively practicable the full amount of the Participant’s
segregated Account if the ESOP Committee determines either of the conditions of
Section 5.04(a) prevents restoration as of the applicable Accounting Date,
notwithstanding the Participant’s repayment. The ESOP Committee will direct the
ESOP Committee to commingle the Participant’s segregated Account with the
balance of the Trust Fund as of the second Accounting Date immediately following
the date of the Participant’s repayment.

 

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5.06 BREAK IN SERVICE – VESTING. For purposes of this Article V, a Participant
incurs a “Break in Service” if during any Plan Year he does not complete more
than five hundred (500) Hours of Service with the Employer, unless he does not
complete more than five hundred (500) Hours of Service because: (a) he is
transferred; (b) he is on an approved leave of absence which does not exceed
eighteen (18) months and he returns to employment with the Employer immediately
following the leave of absence; or (c) he is temporarily laid off, and he
returns to employment with the Employer immediately following the temporary
layoff. Solely for the purpose of determining whether an Employee has incurred a
Break in Service, if the Employee is absent from Service because of pregnancy,
the birth of the Employee’s child, the Employee’s receipt of a child through
adoption, or the Employee’s caring for the child immediately after birth or
adoption, he or she shall be entitled to the Hours of Service that he or she
would have received but for that absence for one (1) year after the absence
began. Ten (10) Hours of Service shall be credited for each day of such absence.
However, no more than a total of five hundred one (501) hours can be credited.
The five hundred one (501) hours shall be credited to the Plan Year in which the
absence first begins if such hours shall prevent a Break in Service in that
period; otherwise, the five hundred one (501) hours shall be credited to the
next Plan Year.

5.07 INCLUDED YEARS OF SERVICE VESTING.

(a) Included Years of Service. For purposes of determining “Years of Service”
under Section 5.06 hereof, the Plan takes into account all Years of Service an
Employee completes with the Employer after the Effective Date of this Plan,
except: any Year of Service before a Break in Service if the number of
consecutive Breaks in Service equals or exceeds the greater of five (5) or the
aggregate number of Years of Service prior to the Break. This exception applies
only if the Participant is not Vested in his Account Balance derived from
Employer contributions and Forfeitures at the time he has a Break in Service.
The aggregate number of Years of Service before a Break in Service does not
include any Years of Service not required to be taken into account under this
exception by reason of any prior Break in Service.

(b) Forfeiture Break in Service. For the sole purpose of determining a
Participant’s Nonforfeitable percentage of his Account Balance derived from
Employer contributions and Forfeitures which accrued for his benefit prior to a
Forfeiture Break in Service, the Plan disregards any Year of Service after the
Participant first incurs a Forfeiture Break in Service. The Participant incurs a
Forfeiture Break in Service when he incurs five (5) consecutive Breaks in
Service.

5.08 FORFEITURE OCCURS. A Forfeiture, if any, of a Participant’s Account Balance
derived from Employer contributions and Forfeitures occurs under the Plan as of
the last day of the Plan Year in which the Participant first incurs a Forfeiture
Break in Service or receives a cash-out distribution, if earlier. The ESOP
Committee determines the percentage of a Participant’s Account Balance
Forfeiture, if any, under this Section 5.08 solely by reference to the vesting
schedule of Section 5.03 hereof. A Participant will not forfeit any portion of
his Account Balance for any other reason or cause except as expressly provided
by this Section 5.08 or as provided under Section 9.12 hereof.

 

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ARTICLE VI

TIME AND METHOD OF PAYMENT OF BENEFITS

6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. Unless, pursuant to Section 6.03
hereof, the Participant or the Beneficiary elects in writing to a different time
or method of payment, the ESOP Committee will direct the Trustee to commence
distribution of a Participant’s Nonforfeitable Accrued Benefit in accordance
with this Section 6.01. A Participant must consent, in writing, to any
distribution required under this Section 6.01 if the present value of the
Participant’s Nonforfeitable Accrued Benefit at the time of the distribution to
the Participant exceeds One Thousand Dollars ($1,000). Distribution under this
Article VI will occur unless otherwise specified within the Plan as soon as
administratively practicable following a distribution date. For purposes of
applying this Section 6.01, a Participant’s Account shall not include Leveraged
Employer Securities until the close of the Plan Year in which the Exempt Loan is
repaid in full subject to: (i) the minimum distribution requirements of Code
Section 401(a)(9); (ii) the diversification requirements as set forth in
Section 8.09; (iii) death; (iv) Disability of a Participant; (v) the
Participant’s Retirement; or (vi) as the ESOP Committee otherwise determines.
Notwithstanding any provision in this Plan to the contrary, the Participant’s
consent is not required to distribute Dividends. Benefits under this Plan will
be paid only if the ESOP Committee in its discretion determines that the
applicant is entitled to them.

(a) Severance from Service For a Reason Other Than Death or Disability.

(i) Participant’s Nonforfeitable Account Balance Not Exceeding $1,000. If the
Participant’s Nonforfeitable Account Balance does not exceed One Thousand
Dollars ($1,000) and if the Participant’s Separation from Service is for any
reason other than death, the ESOP Committee will direct the Trustee to
distribute the Participant’s Nonforfeitable Account Balance in a lump sum as
soon as administratively practicable following the close of the Plan Year in
which the Participant’s Separation from Service occurs, but in no event later
than the sixtieth (60th) day following the close of the Plan Year in which the
Participant attains Normal Retirement Age. Notwithstanding anything to the
contrary in this Paragraph, the Participant may elect to have his Nonforfeitable
Account Balance distributed, in whole or in part, directly to an Eligible
Retirement Plan specified by the Participant in a Direct Rollover and at the
time and in the manner prescribed by the ESOP Committee; provided, however, the
Direct Rollover portion of the distribution qualifies as an Eligible Rollover
Distribution. This provision shall apply regardless of whether a Participant’s
Account includes any Leveraged Employer Securities.

(ii) Participant’s Nonforfeitable Account Balance Exceeds $1,000. If the
Participant’s Nonforfeitable Account Balance exceeds One Thousand Dollars
($1,000), and if the Participant’s Separation from

 

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Service is for any reason other than death, the ESOP Committee will direct the
Trustee to distribute the Participant’s Nonforfeitable Account Balance in a form
and at the time elected by the Participant, pursuant to Section 6.03 hereof.
Subject to Section 6.03 hereof, in the absence of an election by the
Participant, the ESOP Committee will direct the Trustee to commence distribution
of the Participant’s Nonforfeitable Account Balance in a lump sum as soon as
administratively practicable following the close of the Plan Year in which the
latest of the following events occurs: (a) the Participant attains Normal
Retirement Age, (b) the Participant Separates from Service, or (c) the tenth
anniversary of the date on which the Participant began participation in the
Plan.

(b) Required Beginning Date. If any distribution commencement date described
under Section 6.01(a), either by Plan provision or by Participant election (or
nonelection), is later than the Participant’s Required Beginning Date, the ESOP
Committee instead must direct the Trustee to make distribution on the
Participant’s Required Beginning Date. The Required Beginning Date of a
Participant (other than a five percent (5%) owner) is the first April 1 of the
calendar year following the later of: (i) the calendar year in which the
Participant attains age seventy and one-half (701/2) or (ii) the calendar year
in which occurs the Retirement of the Participant. In the case of a five percent
(5%) owner of the Employer with respect to the Plan Year ending in the calendar
year in which the Employee attains age seventy and on-half (701/2), a
Participant’s Required Beginning Date is the first April 1 following the close
of the calendar year in which the Participant attains age seventy and one-half
(701/2). For purposes of this paragraph, “five percent (5%) owner” shall have
the meaning as defined in Code Section 416. A mandatory distribution at the
Participant’s Required Beginning Date will be in lump sum unless the
Participant, pursuant to the provisions of this Article VI, makes a valid
election to receive an alternative form of payment. Any Participant who is still
employed by an Employer and who has attained age seventy and one-half
(701/2) prior to their Retirement Date will have the option of continuing to
receive distributions pursuant to this Section 6.01(b) on account of his
attainment of age seventy and one-half (701/2). For purposes of Section 6.01(a)
and Section 6.01(b) of the Plan, the value of a Participant’s Vested Account
Balance shall be determined without regard to that portion of the Vested Account
Balance that is attributable to Rollover Contributions (and earnings allocable
thereto) within the meaning of Sections 402(c), 403(a)(4), 403(b)(8),
408(d)(3)(A)(ii), and 457(e)(16) of the Code.

(c) Death of the Participant. The ESOP Committee will direct the Trustee, in
accordance with this Section 6.01(c), to distribute to the Participant’s
Beneficiary the Participant’s Nonforfeitable Account Balance remaining in the
Trust at the time of the Participant’s death.

(i) Deceased Participant’s Nonforfeitable Account Balance Does Not Exceed
$1,000. If the deceased Participant’s Nonforfeitable Account Balance does not
exceed One Thousand Dollars ($1,000), the

 

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ESOP Committee will direct the Trustee to distribute the deceased Participant’s
Nonforfeitable Account Balance in a lump sum as soon as administratively
practicable following the Participant’s death or, if later, the date on which
the ESOP Committee receives notification of or otherwise confirms the
Participant’s death. Notwithstanding anything to the contrary in this paragraph,
the Participant’s Beneficiary (if such Beneficiary is the Participant’s
surviving spouse) may elect to have his or her Nonforfeitable Account Balance
distributed, in whole or in part, directly to an Eligible Retirement Plan
specified by the Participant’s Beneficiary in a Direct Rollover and at the time
and in the manner prescribed by the ESOP Committee; provided, however, the
Direct Rollover portion of the distribution qualifies as an Eligible Rollover
Distribution.

(ii) Deceased Participant’s Nonforfeitable Account Balance Exceeds $1,000. If
the deceased Participant’s Nonforfeitable Account Balance exceeds One Thousand
Dollars ($1,000), the ESOP Committee will direct the Trustee to distribute the
deceased Participant’s Nonforfeitable Account Balance at the time and in the
form elected by the Participant or, if applicable, by the Beneficiary, as
permitted under this Article VI, provided however that if the Beneficiary is not
the Participant’s spouse, the distribution must occur within five (5) years of
the Participant’s death. In the absence of an election, the ESOP Committee will
direct the Trustee to distribute the Participant’s undistributed Nonforfeitable
Account Balance in a lump sum as soon as administratively practicable following
the close of the Plan Year in which the Participant’s death occurs or, if later,
the first distribution date (as defined in Section 6.01 hereof) following the
date the ESOP Committee receives notification of or otherwise confirms the
Participant’s death.

If the death benefit is payable in full to the Participant’s surviving spouse,
the surviving spouse, in addition to the distribution options provided in this
Section 6.01(c), may elect distribution at any time or in any form this Article
VI would permit for a Participant.

6.02 METHOD OF PAYMENT OF ACCOUNT BALANCE. Subject to any Distribution
Restrictions in Section 1.21 and any restrictions prescribed by Section 6.03
hereof, a Participant or Beneficiary may elect distribution under one, or any
combination, of the following methods:

(a) Lump Sum. A Participant’s Account Balance shall be distributed in a lump sum
as soon as administratively practicable after the close of the Plan Year in
which occurs the Participant’s Separation from Service but in no event later
than sixty (60) days following the close of the Plan Year in which the
Participant has reached his Normal Retirement Age.

 

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(b) Payments over a period certain in substantially equal annual installments.
The period over which such payment is to be made shall not exceed the lesser of
five (5) years or the Participant’s life expectancy (or the life expectancy of
the Participant and his Designated Beneficiary) or the limited distribution
period provided for in the following sentences. In the case of a Participant
with an Account Balance in the Plan in excess of $500,000, the five (5) year
period shall be extended one (1) additional year (but not more than five
(5) additional years) for each $100,000 or fraction thereof by which such
balance exceeds $500,000. The dollar amount limits shall be adjusted at the same
time and in the same manner as provided in Code Section 415(d).

(c) Direct Rollover. At the time the Participant is entitled to receive a
distribution under paragraphs (a) or (b) above, the Participant’s Account
Balance, in whole or in part, shall be distributed directly to an Eligible
Retirement Plan specified by the Participant in a Direct Rollover and at the
time and in the manner prescribed by the ESOP Committee; provided, however, the
Direct Rollover portion of the distribution qualifies as an Eligible Rollover
Distribution.

Distribution option (b) is available only if the present value of the
Participant’s Nonforfeitable Account Balance at the time of the distribution to
the Participant exceeds One Thousand Dollars ($1,000). If a Participant elects
distribution option (c), the Participant’s Account, in whole or in part, shall
be distributed directly to the Eligible Retirement Plan specified by the
Participant in a Direct Rollover and at the time and in the manner prescribed by
the ESOP Committee; provided, however, the Direct Rollover portion of the
distribution qualifies as an Eligible Rollover Distribution.

To facilitate installment payments under this Article VI, the ESOP Committee may
direct the Trustee to segregate all or any part of the Participant’s Account
Balance in a segregated Account. A segregated Account remains a part of the
Trust, but it alone shares in any income it earns, and it alone bears any
expense or loss it incurs. Notwithstanding any other provision herein, the
Participant may elect to commence distribution on any later distribution date as
provided under Treasury Regulation Section 1.411(d)-4.

(d) Minimum Distribution Requirements for Participants. The ESOP Committee may
not direct the Trustee to distribute the Participant’s Nonforfeitable Account
Balance, nor may the Participant elect to have his Nonforfeitable Account
Balance, distributed under a method of payment which, as of the Required
Beginning Date, does not satisfy the minimum distribution requirements under
Code Section 401(a)(9) and the applicable Treasury Regulations. The method of
distribution to the Participant’s Beneficiary must satisfy Code
Section 401(a)(9) and the applicable Treasury Regulations. The provision shall
continue in effect until the last day of the last calendar year beginning before
the effective date of final regulations under Code Section 401(a)(9) or such
other date as may be specified in guidance published by the Internal Revenue
Service.

 

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The minimum distribution for the first distribution calendar year is due by the
Participant’s Required Beginning Date. The minimum distribution for each
subsequent distribution calendar year, including the calendar year in which the
Participant’s Required Beginning Date falls, is due by December 31 of that year.

6.03 BENEFIT PAYMENT ELECTIONS. Not earlier than one-hundred eighty (180) days,
but not later than thirty (30) days, before the Participant’s Annuity Starting
Date, the ESOP Committee must provide a benefit notice to a Participant who is
eligible to make an election under this Section 6.03. The benefit notice must
explain the optional forms of benefit in the Plan, including the material
features and relative values of those options, and the Participant’s right to
defer distribution until he attains Normal Retirement Age.

(a) If a Participant or Beneficiary makes an election prescribed by this
Section 6.03, the ESOP Committee will direct the Trustee to distribute the
Participant’s Nonforfeitable Account Balance in accordance with that election.
Thirty (30) Day Waiver. A distribution may commence less than thirty (30) days
but no less than seven (7) days after the notice required under Treasury
Regulation Section 1.411(a)-11(c) is given, provided that:

(i) The ESOP Committee clearly informs the Participant that the Participant has
a right to a period of at least thirty (30) days after receiving the notice to
consider the decision of whether or not to elect a distribution (and, if
applicable, a particular distribution option), and

(ii) the Participant, after receiving the notice, affirmatively elects a
distribution.

Any election under this Section 6.03 is subject to the requirements of
Section 6.02 hereof. The Participant or Beneficiary must make an election under
this Section 6.03 by filing his election form with the ESOP Committee at any
time before the ESOP Committee otherwise would commence to pay a Participant’s
Account Balance in accordance with the requirements of Article VI hereof.

(b) Participant Elections After Separation from Service. If the present value of
a Participant’s Nonforfeitable Account Balance exceeds One Thousand Dollars
($1,000), he may elect to have the ESOP Committee commence distribution as of
any distribution date, but not earlier than March 1 following the close of the
Plan Year in which the Participant’s Separation from Service occurs. The
Participant may reconsider an election at any time prior to the Annuity Starting
Date and elect to commence distribution as of any other distribution date, but
not earlier than the date described in the first sentence of this Paragraph(A).
Following his attainment of Normal Retirement Age, a Participant who has
Separated from Service may elect distribution as of any distribution date,
regardless of the restrictions otherwise applicable under this Section 6.03(b).
If the Participant is partially-Vested in his Account Balance, an election under
this Section 6.03(b) to distribute prior to the Participant’s incurring a
Forfeiture Break

 

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in Service (as defined in Section 5.08 hereof), must be in the form of a
cash-out distribution (as defined in Article V hereof). A Participant may not
receive a cash-out distribution if, prior to the time the ESOP Committee
actually makes the cash-out distribution, the Participant returns to employment
with the Employer.

(c) Participant Elections Prior to Separation from Service. After a Participant
attains Normal Retirement Age, the Participant, until he retires, has a
continuing election to receive all or any portion of his Account Balance. A
Participant must make an election under this Section 6.03(c) on a form
prescribed by the ESOP Committee at any time during the Plan Year for which his
election is to be effective. In his written election, the Participant must
specify the percentage or dollar amount he wishes distributed to him. The
Participant’s election relates solely to the percentage or dollar amount
specified in his election form and his right to elect to receive an amount, if
any, for a particular Plan Year greater than the dollar amount or percentage
specified in his election form terminates on the Accounting Date. A distribution
to a Participant must be made in accordance with his election under this
Section 6.03(c) within the ninety (90) day period (or as soon as
administratively practicable) after the Participant files his written election
with the ESOP Committee. The balance of the Participant’s Account Balance not
distributed pursuant to his election(s) will be distributed in accordance with
the other distribution provisions of this Plan.

(d) Hardship. A Participant under age fifty-nine and one-half (59 1/2), prior to
the time at which he has a Separation from Service, may request and receive a
distribution from his Salary Reduction Contribution Account (not including
income) in an amount necessary to satisfy a hardship (“hardship distribution”),
but not more than once in any two-year period. For purposes of this
Section 6.03(d) a hardship distribution must be on account of one or more of the
following immediate and heavy financial needs: (a) medical expenses described in
Code Section 213(d) incurred by the Participant, the Participant’s spouse, or by
any of the Participant’s dependents; (b) the purchase (excluding mortgage
payments) of a principal residence for the Participant; (c) the payment of
post-secondary education tuition for the next twelve (12) months, for the
Participant, for the Participant’s spouse, or for any of the Participant’s
dependents; (d) to prevent the eviction of the Participant from his principal
residence or the foreclosure on the mortgage of the Participant’s principal
residence; or (e) any other event designated by the Treasury Regulations for the
safe harbor definition of “hardship.” The ESOP Committee will make the hardship
distribution as soon as administratively practicable after the Participant makes
a valid request for the hardship distribution. A hardship distribution shall be
in an amount of not less than Five Hundred and No/100 Dollars ($500.00) and
shall not exceed one hundred percent (100%) of the Participant’s Salary
Reduction Contributions.

The following restrictions apply to a Participant who receives a hardship
distribution: (a) the Participant may not make Salary Reduction Contributions to
the Plan for the twelve (12) month period following the date of his hardship
distribution; (b) the distribution is not in excess of the amount of the
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and heavy financial need; (c) the Participant must have obtained all
distributions, other than hardship distributions, and all non-taxable loans
currently available under this Plan and all other qualified plans maintained by
the Employer; and (d) the Participant agrees to limit Salary Reduction
Contributions under this Plan and under any other qualified plan maintained by
the Employer, for the Participant’s taxable year immediately following the
taxable year of the hardship distribution, to the Code Section 402(g) limitation
(as described in Section 4.02 hereof), reduced by the amount of the
Participant’s Salary Reduction Contributions made in the taxable year of the
hardship distribution. The amount of an immediate and heavy financial need of an
employee may include any amounts necessary to pay any federal, state, or local
income taxes or penalties reasonably anticipated to result from the
distribution. The suspension of Salary Reduction Contributions described in
clause (a) of this paragraph also applies to all other qualified plans and to
all nonqualified plans of deferred compensation maintained by the Employer,
other than any mandatory Employee contribution portion of a defined benefit
plan, including stock option, stock purchase and other similar plans, but not
including health or welfare benefit plans (other than the cash or deferral
arrangement portion of a cafeteria plan). A hardship distribution may not
include earnings on a Participant’s Salary Reduction Contributions.

The restrictions in the prior paragraph do not apply if the Participant
represents, and the ESOP Committee determines under the facts and circumstances
it is reasonable to rely on such representation, he is not able to relieve his
immediate and heavy financial need: (a) through reimbursement or compensation by
insurance or otherwise; (b) by reasonable liquidation of the Participant’s
assets (including the assets of the Participant’s spouse or of the Participant’s
minor children, if those assets are reasonably available to the Participant);
(c) by cessation of Salary Reduction Contributions under the Plan; (d) by other
distributions or non-taxable loans from this Plan or from any other qualified
plan maintained by the Employer or by any other employer; or (e) by borrowing
from commercial sources on reasonable commercial terms.

(e) Procedure. All withdrawals shall be subject to ESOP Committee approval after
receipt of a written request for withdrawal on such forms as the ESOP Committee
shall prescribe. When an application for withdrawal is granted under the
provisions of this Section 6.03, the ESOP Committee shall give such directions
to the Trustee as shall be appropriate to effectuate the distribution in
accordance with the terms hereof of the interest being withdrawn. The date of
withdrawal payment shall be specified by the ESOP Committee at the time of its
approval, if such withdrawal request is approved. Withdrawals shall be paid in
the form of a single cash lump sum; provided, however, that withdrawals shall be
paid pro rata from each investment fund in which the Participant’s Salary
Reduction Contribution Account is then invested, unless the ESOP Committee
determines, in its sole discretion, that a different allocation is appropriate
and all withdrawals shall be made in cash. For purposes of allocating
appreciation or depreciation of the Trust Fund and income of the Trust Fund, any
withdrawal pursuant to this Section 6.03 shall be subtracted from the
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Account Balance at the beginning of the calendar quarter in which the withdrawal
occurs.

(f) Death Benefit Elections. If the present value of the deceased Participant’s
Nonforfeitable Account Balance exceeds One Thousand Dollars ($1,000), the
Participant’s Beneficiary may elect to have the Participant’s Nonforfeitable
Account Balance distributed in a form and within a period permitted under
Section 6.02 hereof. The Beneficiary’s election is subject to any restrictions
designated in writing by the Participant and not revoked as of his date of
death.

(g) Election to Postpone Distribution of Benefits. If the present value of a
Participant’s Nonforfeitable Account Balance exceeds One Thousand Dollars
($1,000), he may elect to postpone the distribution of the Nonforfeitable
Account Balance under the Plan as provided in Sections 6.02 and 6.03(b) hereof.
Upon request, the ESOP Committee will direct the Trustee to provide the
Participant electing to postpone his distribution of his Nonforfeitable Account
Balance with the necessary election forms.

(h) Inactive Participant. Any part of an Inactive Participant’s Nonforfeitable
Accrued Benefit which is retained in the Trust may be converted into cash during
any Plan Year following the close of the Plan Year in which the Inactive
Participant Separated from Service for any reason, provided at such time the
Trust has an adequate amount of cash to convert (in whole or part) the Inactive
Participant’s Employer Securities Account. However, except in the case of
reemployment, none of an Inactive Participant’s Nonforfeitable Accrued Benefit
will be credited with any further Employer contributions, Forfeitures, Dividends
on Employer Securities or gain on the sale of Employer Securities held in the
Unallocated Employer Securities Account.

(i) Direct Rollover Election. Notwithstanding anything to the contrary herein,
at the time the Participant is entitled to receive a distribution, any
Participant who is considered a “Distributee” and who receives an Eligible
Rollover Distribution may elect to have all or any portion of the distribution
transferred directly to an Eligible Retirement Plan. Upon request, the ESOP
Committee will direct the Trustee to provide the Distributee with the necessary
forms.

(j) Loans to Participants. The ESOP Committee is hereby designated with sole
authority and responsibility to approve or deny Participant loans, and except as
provided in this Section 6.03(j), collect unpaid loans. Loans may be made on any
quarterly date upon the written application of a Participant submitted to the
ESOP Committee during the period thirty (30) days prior to and ending fifteen
(15) days before the date the loan is to be made. Loans should be made only for
reasons of financial hardship described in Section 6.03(d) and in an amount not
less than One Thousand Dollars ($1,000).

 

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Written application shall be in a form acceptable to the ESOP Committee and
shall set forth the reason the loan is being requested. Loans shall be made
available to all Participants in a uniform and nondiscriminatory manner. All
loans will be adequately secured and will bear a reasonable rate of interest as
determined by the ESOP Committee. The term of the loan shall be determined by
the ESOP Committee, but shall not exceed five (5) years, except that the ESOP
Committee, in its discretion, may permit a repayment period in excess of five
(5) years for loans used to acquire, construct, or substantially rehabilitate
any dwelling unit which is to be used as a principal residence of the
Participant.

The ESOP Committee shall bear sole responsibility for ensuring compliance with
all applicable federal or state laws and regulations. Each loan shall be secured
by a written assignment of that portion of the Participant’s Vested Account.
However, no portion of the Participant’s Accounts may be used as security for
such loan unless the spouse (if any) consents in writing to such use during the
ninety (90) day period ending on the date on which the loan is secured. No loan
to any Participant can be made to the extent that such loan when added to the
outstanding balance of all other loans to the Participant or Beneficiary would
exceed the lesser of: (a) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans during the one year period ending on the date
before the loan is made; or (b) one-half (1/2) of the present value of the
Nonforfeitable accrued benefit of the Participant.

Each loan shall be made from the borrowing Participant’s Accounts. Repayments of
the loan and interest shall be credited to his Account. No loan shall be
considered a general investment of the Trust Fund. In the event a Participant
does not repay the principal of such loan within the time prescribed by the ESOP
Committee or interest thereon at such times as are required by the terms of the
loan or if the Participant ceases to be an Employee while such Participant has a
loan which is outstanding, the ESOP Committee may direct the ESOP Committee to
take such action as the ESOP Committee may reasonably determine, including:

(i) demand repayment of the loan and institute legal action to enforce
collection, or

(ii) demand repayment of the loan and charge the total amount against the
balance credited to the Participant’s Vested Account which was assigned as
security, and reduce any payment or distribution from the Trust Fund to which
the Participant or his Beneficiary may become entitled to the extent necessary
to discharge the obligation on the loan.

6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. The joint and
survivor annuity requirements of the Code do not apply to this Plan. The Plan
does not provide for annuity distributions to Participants. A transfer agreement
may not permit a plan which is subject to the provisions of Code Section 417 to
transfer assets to this Plan.

 

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6.05 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing contained in this
Plan prevents the ESOP Committee from complying with the provisions of a
qualified domestic relations order (as defined in Code Section 414(p)). This
Plan specifically permits distribution to an Alternate Payee under a qualified
domestic relations order at any time regardless of whether the Participant has
attained his earliest retirement age (as defined under Code Section 414(p))
under the Plan. A distribution to an Alternate Payee prior to the time the
Participant reaches his earliest retirement age is available only if the order
specifies distribution at that time or permits an agreement between the Plan and
the Alternate Payee to authorize an earlier distribution. Nothing in this
Section 6.05 gives a Participant a right to receive distribution at a time
otherwise not permitted under the Plan nor does it permit the Alternate Payee to
receive a form of payment not otherwise permitted under the Plan.

The ESOP Committee must establish reasonable procedures to determine the
qualified status of a domestic relations order. Upon receiving a domestic
relations order, the ESOP Committee promptly will notify the Participant and any
Alternate Payee named in the order, in writing, of the receipt of the order and
the Plan’s procedures for determining the qualified status of the order. Within
a reasonable period of time after receiving the domestic relations order, the
ESOP Committee must determine the qualified status of the order and must notify
the Participant and each Alternate Payee, in writing, of its determination. The
ESOP Committee must provide notice under this paragraph by mailing to the
individual’s address specified in the domestic relations order, or in a manner
consistent with Department of Labor Regulations.

If any portion of the Participant’s Nonforfeitable Account Balance is payable
during the period the ESOP Committee is making its determination of the
qualified status of the domestic relations order, the ESOP Committee must make a
separate accounting of the amounts payable. If the ESOP Committee determines the
order is a qualified domestic relations order within eighteen (18) months of the
date amounts first are payable following receipt of the order, the ESOP
Committee will direct the Trustee to distribute the payable amounts in
accordance with the order. If the ESOP Committee determines that the order is
not a qualified domestic relations order or does not make its determination of
the qualified status of the order within the eighteen (18) month determination
period, the ESOP Committee will direct the Trustee to distribute the payable
amounts in the manner the Plan would distribute if the order did not exist and
will apply the order prospectively if the ESOP Committee later determines the
order is a qualified domestic relations order.

To the extent it is not inconsistent with the provisions of the qualified
domestic relations order, the ESOP Committee may direct the Trustee to invest
any partitioned amount in a segregated subaccount or separate account and to
invest the account in federally insured, interest bearing savings account(s) or
time deposit(s) (or a combination of both), or in other fixed income
investments. A segregated subaccount remains a part of the Plan, but it alone
shares in any income it earns, and it alone bears any expense or loss it incurs.
Any payments or distributions required under this Section 6.05 will be made by
separate benefit checks or other separate distribution to the Alternate
Payee(s).

 

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6.06 LATE RETIREMENT. A Participant may remain in the Service of the Employer
after his Normal Retirement Date. In such case, he shall remain a Participant
until his Late Retirement Date. At such time, his interest in his Account shall
be distributed to him in accordance with this Article VI.

6.07 LIMITATIONS ON BENEFITS. All of the provisions of this Article VI are
subject to Section 12.26 hereof, relating to withholding for payment of taxes,
and are subject to the rights of any Alternate Payee.

End of Article VI

 

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ARTICLE VII

EMPLOYER ADMINISTRATIVE PROVISIONS

7.01 INFORMATION TO ESOP COMMITTEE. The Employer must supply current information
to the ESOP Committee as to the name, date of birth, date of employment, annual
Compensation, leaves of absence, Years of Service and date of termination of
employment of each Employee who is, or who will be eligible to become, a
Participant under the Plan, together with any other information which the ESOP
Committee considers necessary. The Employer’s records as to the current
information the Employer furnishes to the ESOP Committee are conclusive as to
all persons.

7.02 NO LIABILITY. The Employer assumes no obligation or responsibility to any
of its Employees, Participants, Inactive Participants or Beneficiaries for any
act of, or failure to act, on the part of the Trustee or the ESOP Committee
(unless the Employer is the ESOP Committee).

7.03 INDEMNITY OF CERTAIN FIDUCIARIES. The Employer indemnifies and saves
harmless the ESOP Committee, and the members of the ESOP Committee, and each of
them, from and against any and all loss resulting from liability to which the
the ESOP Committee, or the members of the ESOP Committee, may be subjected by
reason of any act or conduct (except willful misconduct or gross negligence) in
their official capacities in the administration of this Plan, including all
court costs and other expenses reasonably incurred in their defense, in case the
Employer fails to provide such defense. The indemnification provisions of this
Section 7.03 do not relieve the any ESOP Committee member from any liability he
may have under ERISA, including any liability for breach of a fiduciary duty. In
the case of any ESOP Committee member, the indemnification provisions of this
Section 7.03 do not relieve him from any liability, to the extent that a court
of competent jurisdiction from which no appeal can be taken, enters a final
judgment that the ESOP Committee member’s actions or omissions were the result
of gross negligence or willful misconduct. The ESOP Committee members, and the
Bank may execute a letter agreement further delineating the indemnification
provisions of this Section 7.03, provided the letter agreement is consistent
with and does not violate ERISA and Georgia law. The indemnification provisions
of this Section 7.03 extend to any other fiduciary solely to the extent provided
by a letter agreement executed by such person and the Bank.

7.04 AMENDMENT TO VESTING SCHEDULE. Though the Bank reserves the right to amend
the vesting schedule at any time, the amended vesting schedule will not be
applied to reduce the Nonforfeitable percentage of any Participant’s Account
Balance derived from Employer contributions (determined as of the later of the
date the Employer adopts the amendment, or the date the amendment becomes
effective) to a percentage less than the Nonforfeitable percentage computed
under the Plan without regard to the amendment. An amended vesting schedule will
apply to a Participant only if the Participant receives credit for at least one
(1) Hour of Service after the new schedule becomes effective.

 

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If the Bank makes a permissible amendment to the vesting schedule, each
Participant having at least three (3) Years of Service with the Employer may
elect to have the percentage of his Nonforfeitable Account Balance computed
under the Plan without regard to the amendment. The Participant must file his
election with the ESOP Committee within sixty (60) days of the latest of (a) the
Bank’s adoption of the amendment; (b) the effective date of the amendment; or
(c) his receipt of a copy of the amendment. The ESOP Committee, as soon as
practicable, must forward a true copy of any amendment to the vesting schedule
to each affected Participant, together with an explanation of the effect of the
amendment, the appropriate form upon which the Participant may make an election
to remain under the vesting schedule provided under the Plan prior to the
amendment and notice of the time within which the Participant must make an
election to remain under the prior vesting schedule. The election described in
this Section 7.04 does not apply to a Participant if the amended vesting
schedule provides for vesting at least as rapid at all times as the vesting
schedule in effect prior to the amendment. For purposes of this Section 7.04, an
amendment to the vesting schedule includes any Plan amendment which directly or
indirectly affects the computation of the Nonforfeitable percentage of a
Participant’s rights to his Account Balance derived from Employer contributions
and Forfeitures.

End of Article VII

 

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ARTICLE VIII

PARTICIPANT ADMINISTRATIVE PROVISIONS

8.01 BENEFICIARY DESIGNATION. Any Participant from time to time may designate,
in writing, any person or persons contingently or successively to whom the Plan
will pay his Nonforfeitable Account Balance (including any life insurance
proceeds payable to the Participant’s Account) in the event of his or her death,
and the Participant may designate the form and method. The ESOP Committee will
prescribe the form for the written designation of Beneficiary and upon the
Participant’s filing the form with the Employer, the form effectively revokes
all designations filed prior to that date by the same Participant.

The Beneficiary designation of a married Participant is not valid unless the
Participant’s spouse consents, in writing, to the Beneficiary designation. The
Participant’s spouse shall automatically be the named Beneficiary and shall be
paid the Participant’s death benefit unless (1) the Participant’s spouse
affirmatively consents to the Beneficiary designation in the manner prescribed
in Code Section 417(a)(2); or (2) the following sentence applies. The spousal
consent requirements in this paragraph do not apply if the Participant and his
spouse are not married throughout the one year period ending on the date of the
Participant’s death or if the Participant’s spouse is the Participant’s sole
primary Beneficiary.

Any consent by the Participant’s spouse to waive any rights to the death benefit
must be in writing, must acknowledge the effect of such waiver, and be witnessed
by a Plan representative or notary public. Further, the spouse’s consent must be
irrevocable and must acknowledge the specific nonspouse Beneficiary.

In the event a distribution is to be made to a minor, then the ESOP Committee
may direct that such distribution be paid to the legal guardian, or if none, to
a parent of such Beneficiary or a responsible adult with whom the Beneficiary
maintains his residence, or to the custodian for such Beneficiary under the
Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted by the
laws of the state in which said Beneficiary resides. Such a payment to the legal
guardian, custodian or parent of a minor Beneficiary shall fully discharge the
Trustee, Employer, and Plan from further liability on account thereof.

If a married Participant designates the Participant’s spouse as the
Participant’s beneficiary, and subsequent to such designation the Participant
and the Participant’s spouse are divorced, such designation shall automatically
be voided. In this instance the Participant’s Beneficiary shall be the
contingent or successive Beneficiary designated pursuant to this Section, or if
no such designation has been made, the Participant’s estate as described in
Section 8.02. Should the Participant wish to designate an ex-spouse as his
Beneficiary, he must affirmatively do so by completing a new Beneficiary
designation form after his divorce, naming his ex-spouse as his Beneficiary.

 

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8.02 NO BENEFICIARY DESIGNATION. If a Participant fails to name a Beneficiary in
accordance with Section 8.01 hereof, or if the Beneficiary named by a
Participant predeceases him, or if the Beneficiary designation is invalid or
void, the Participant’s Nonforfeitable Account Balance will be paid in
accordance with Section 6.02 hereof in the following order of priority to:

(a) The Participant’s surviving spouse;

(b) The Participant’s surviving children, including adopted children, in equal
shares;

(c) The Participant’s surviving parents, in equal shares; or

(d) The Participant’s estate.

If the Beneficiary does not predecease the Participant, but dies prior to
distribution of the Participant’s entire Nonforfeitable Account Balance, the
remaining Nonforfeitable Account Balance will be paid to the Beneficiary’s
estate unless the Participant’s Beneficiary designation provides otherwise.

8.03 PERSONAL DATA TO ESOP COMMITTEE. Each Participant and each Beneficiary of a
deceased Participant must furnish to the ESOP Committee such evidence, data or
information as the ESOP Committee considers necessary or desirable for the
purpose of administering the Plan. The provisions of this Plan are effective for
the benefit of each Participant upon the condition precedent that each
Participant will promptly furnish full, true, and complete evidence, data, and
information when requested by the ESOP Committee, provided the ESOP Committee
advises each Participant of the effect of his failure to comply with its
request. Any adjustment required by reason of lack of proof or the misstatement
of the age of persons entitled to benefits hereunder, by the Participant or
otherwise, shall be in such manner as the ESOP Committee deems equitable.

Any notice or information which according to the terms of the Plan or the rules
of the ESOP Committee must be filed with the ESOP Committee, shall be deemed so
filed if addressed and either delivered in person or mailed, postage fully
prepaid, to the ESOP Committee. If mailed, any such notice or information shall
be addressed to the ESOP Committee Chairman c/o Appalachian Bancshares, Inc. and
mailed to its corporate headquarters address.

Whenever a provision herein requires that a Participant (or the Participant’s
Beneficiary) give notice to the ESOP Committee within a specified number of days
or by a certain date, and the last day of such period, or such date falls on a
Saturday, Sunday, or Bank holiday, the Participant (or the Participant’s
Beneficiary) will be deemed in compliance with such provision if notice is
delivered in person to the ESOP Committee or is mailed, properly addressed,
postage prepaid, and postmarked on or before the business day next following
such Saturday, Sunday or Bank holiday. The ESOP Committee may, in its sole
discretion, modify or waive any specified requirement notice; provided, however,
that such modification or waiver must be administratively feasible,

 

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must be in the best interest of the Participant (or Beneficiary), and must be
made on the basis of rules of the ESOP Committee which are applied uniformly to
all Participants.

8.04 ADDRESS FOR NOTIFICATION. Each Participant, each Beneficiary of a deceased
Participant, and other person entitled to benefits hereunder must file with the
ESOP Committee from time to time, in writing, his mailing address and any change
of mailing address. Any communication, statement or notice addressed to a
Participant, former participant or Beneficiary, at his last mailing address
filed with the ESOP Committee, or as shown on the records of the Employer, binds
the Participant, former participant or Beneficiary, for all purposes of this
Plan. Any check representing payment hereunder and any communication addressed
to a Participant, former participant, an Employee, a former Employee, or
Beneficiary, at such person’s last mailing address filed with the ESOP
Committee, or if no such address has been filed, then at such person’s last
mailing address as indicated on the records of the Employer, shall be deemed to
have been delivered to such person on the date on which such check or
communication is deposited, postage prepaid, in the United States mail.

If the ESOP Committee, for any reason, is in doubt as to whether payments are
being received by the person entitled thereto, it shall, by registered mail
addressed to the person concerned, at his mailing address last known to the ESOP
Committee, notify such person that all unmailed and future payments shall be
henceforth withheld until he provides the ESOP Committee with evidence of his
existence and his proper mailing address.

8.05 ASSIGNMENT OR ALIENATION. Unless Section 6.06 hereof applies, which relates
to qualified domestic relations orders, neither a Participant nor a Beneficiary
may anticipate, assign or alienate (either at law or in equity) any benefit
provided under the Plan. A benefit under the Plan is not subject to attachment,
garnishment, levy, execution or other legal or equitable process. All of the
provisions of this Section 8.05, however, are subject to the withholding of any
applicable taxes and to assignments permitted by Code Section 401(a)(13).

8.06 LITIGATION AGAINST THE TRUST. A court of competent jurisdiction may
authorize any appropriate equitable relief to redress violations of ERISA or to
enforce any provisions of ERISA or the terms of the Plan. A fiduciary may
receive reimbursement of expenses properly and actually incurred in the
performance of his duties with the Plan.

8.07 INFORMATION AVAILABLE. Any Participant in the Plan or any Beneficiary may
examine copies of the Plan description, latest annual report, any bargaining
agreement, or this Plan, contract or any other instrument under which the Plan
was established or is operated. The Plan Administrator will maintain all of the
items listed in this Section 8.07 in his office, or in such other place or
places as he may designate from time to time in order to comply with the
Regulations issued under ERISA, for examination during reasonable business
hours. Upon the written request of a Participant or Beneficiary, the Plan
Administrator will furnish him with a copy of any item listed in this
Section 8.07. The Plan Administrator may make a reasonable charge to the
requesting person for the copy so furnished.

 

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8.08 CLAIMS PROCEDURE FOR DENIAL OF BENEFITS. A Participant, former Participant
or Beneficiary (“Claimant”) may file a written claim for benefits, if the
Claimant determines that the distribution procedures of this Plan have not
provided him his proper Vested Account Balance. Furthermore, if any claim is
wholly or partially denied, the Claimant may file a request for appeal to have
his denied claim reviewed. Any such claim for benefits or request for appeal
should be determined by the Appeal Committee in accordance with the Claims
Procedures adopted by the ESOP Committee.

8.09 DIVERSIFICATION OF PARTICIPANT’S ACCOUNT. With respect to Employer
Securities held in a Participant’s Accounts which are publicly traded securities
readily tradable on an established securities market, the following shall apply:

(a) Salary Reduction Contribution Accounts. With respect to Salary Reduction
Contribution Accounts and Rollover Accounts, Participants must be able to
diversify such Employer Securities into alternative investments at any time.
Participants may direct the investment of the diversified funds in accordance
with Section 8.12.

(b) Employer Securities Accounts. With respect to Participant Employer
Securities Accounts, Participants with at least three vesting Years of Service
must be able to diversify such Employer Securities into alternative investments
in accordance with Section 8.12. Employer Securities held in Participant
Employer Securities Accounts prior to January 1, 2007, are subject to a three
year transition rule if the Participant has not attained age 55 by January 1,
2006 as follows:

 

Plan Year for Which

Diversification Applies

   Applicable Percentage

First year

   33%

Second year

   66%

Third year

   100%

(c) Alternative Investments. A Participant must be offered not less than three
investment options to direct the proceeds from the divestment of Employer
Securities. Each of the investment options must be diversified and have
materially different risk and return characteristics. A Participant may direct
the investment in one of the funds listed in Section 8.12. A direction for
diversification from a Participant will be accepted once each business day on a
written election form or other acceptable direction, as a part of this Plan,
containing such conditions, limitations and other provisions the Trustee deems
appropriate.

(d) Diversification Notice. The ESOP Committee must provide a notice to
Participants not later than 30 days before the first date on which the
Participant becomes eligible to diversify Employer Securities.

 

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8.10 PARTICIPANT VOTING RIGHTS – EMPLOYER SECURITIES.

(a) With respect to Employer Securities held in the Participant Employer
Securities Account which are not part of a registration-type class of securities
(as defined in Code Section 409(e)(4)), a Participant has the right to direct
the Trustee regarding the voting of such Employer Securities allocated to his or
her Participant Employer Securities Account with respect to any corporate matter
which involves the approval or disapproval of any corporate merger or
consolidation, recapitalization, reclassification, liquidation, dissolution,
sale of substantially all assets of a trade or business, or such similar
transaction as the Department of Treasury may prescribe in Regulations. On other
corporate matters requiring a vote of the shareholders, the Trustee shall
properly vote such Employer Securities which are held in the Participant
Employer Securities Account of the Participants. As to any Employer Securities
allocated to the Participant’s Employer Securities Account which are part of a
registration-type class of securities, the voting rights provided in this
Section 8.10(a) extend to all corporate matters requiring a vote of
stockholders. The Trustee shall vote allocated Employer Securities held in the
Participant Employer Securities Account for which it has not received direction
or for which it has not received a valid direction from a Participant (or
Beneficiary) as part of the Trust Assets.

Each Participant (or Beneficiary) who timely provides instructions to the
Trustee shall be entitled to direct the Trustee how to vote Employer Securities
allocated to such Participant’s Employer Securities Account in accordance with
this Section 8.10(a). In order to implement these voting directions, the Bank
shall provide each Participant (or Beneficiary) with proxy solicitation
materials or other notices or information statements which are distributed to
Bank shareholders, together with a form requesting confidential instructions as
to the manner in which Employer Securities allocated to the Participant’s
Employer Securities Account are to be voted. Each Participant (or Beneficiary)
shall, as a named fiduciary described in Section 403(a)(1) of ERISA, direct the
Trustee with respect to the vote of such Employer Securities which are allocated
to the Employer Securities Account of the Participant (or Beneficiary).
Reasonable means shall be employed to provide confidentiality with respect to
the voting by such Participant (or Beneficiary), it being the intent of this
provision of this Section 8.10(a) to ensure that the Bank (and its directors,
officers, employees and agents) cannot determine the direction given by any
Participant (or Beneficiary). Such instructions shall be in such form and shall
be filed in such manner and at such time as the ESOP Committee may prescribe.

(b) With respect to Employer Securities held in the Unallocated Employer
Securities Account, whether or not part of a registration-type class of
securities, the Trustee shall properly vote such Employer Securities which are
held in the Unallocated Employer Securities Account for or against any proposal.
If all Employer Securities are held in the Unallocated Employer Securities
Account on the record date when a matter is submitted to a vote of the Bank’s

 

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shareholders, the Trustee shall properly vote such Employer Securities for or
against any proposal.

(c) Notwithstanding any provision contained in this Section 8.10, Participant
(or Beneficiary) directions which are or would result in a violation of ERISA or
would not be in the best interest of the Participant (or Beneficiary) shall not
be complied with.

If the Participant (or Beneficiary) does not direct the Trustee to vote on a
matter, or the Participant (or Beneficiary) directions are or would result in a
violation of ERISA or would not be in the best interest of the Participant (or
Beneficiary), the Trustee, in its discretion, shall properly vote the Employer
Securities in a manner which is in the best interest of the Participants (or
Beneficiaries).

(d) If any provision contained in or action required by this Section 8.10
violates any provision under ERISA, the provisions under ERISA shall be complied
with.

8.11 FEES AND EXPENSES. The Bank may direct the ESOP Committee to pay from the
Trust all fees and expenses reasonably incurred by the Plan, to the extent such
fees and expenses are for the ordinary and necessary administration and
operation of the Plan, unless the Employer pays the fees and expenses. Any fee
or expense paid, directly or indirectly, by the Employer is not an Employer
contribution to the Plan, provided the fee or expense relates to the ordinary
and necessary administration of the Plan.

8.12 PARTICIPANT DIRECTION OF INVESTMENT. A Participant, with the consent of the
Trustee, may direct the Trustee with respect to the investment or re-investment
of the assets held in his Salary Reduction Contribution Account and Rollover
Account among various investment funds as selected by the ESOP Committee which
funds may include:

(a) An Equity Fund shall be a fund, the principal investment goal of which shall
be capital appreciation.

(b) A Fixed Income Fund shall be a fund, the Principal investment goal of which
shall be the production of income.

(c) A Money Market Fund shall be a fund, the principal investment goal shall be
the preservation of principal and the production of high current income with
liquidity, primarily through government and other money market fixed income
securities.

(d) A Stable Value Fund shall be a fund.

(e) A Government Bond Fund shall be a fund.

 

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(f) S & P 500 Stock Fund shall be a fund.

(g) S & P 500/Value Stock Fund shall be a fund.

(h) S & P 500/Growth Stock Fund shall be a fund.

(i) S & P MidCap Stock Fund shall be a fund.

(j) Russell 2000 Stock Fund shall be a fund.

(k) International Stock Fund shall be a fund.

(l) Asset Allocation Funds shall be a fund.

As of each Accounting Date, the Trustee shall determine the fair market value of
each investment fund being administered by the Trustee. With respect to each
such investment fund, the Trustee shall determine (i) the net gain or loss
resulting from expenses paid, and (ii) realized and unrealized gains and losses.
After each Accounting Date, the net gain or loss of each investment fund shall
be allocated by the Trustee to the Accounts of Participants participating in
such investment fund.

The reasonable and equitable decision of the Trustee as to the value of each
investment fund and of any Account as of each Accounting Date shall be
conclusive and binding upon all Participants having any interest, direct or
indirect, in the investment funds or in any Account.

The Employer, the ESOP Committee, and the Trustee are not liable for any loss,
nor is the Employer, the ESOP Committee, and the Trustee liable for any breach,
resulting from a Participant’s direction of investment. If the Trustee consents
to a Participant direction of investment, direction from such Participant will
be accepted once each business day on a written election form or other
acceptable direction, as a part of this Plan, containing such conditions,
limitations and other provisions the Trustee deems appropriate. The ESOP
Committee and the Trustee may establish written procedures incorporated
specifically as part of this Plan, relating to Participant direction of
investment under this Section 8.12.

End of Article VIII

 

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ARTICLE IX

ESOP COMMITTEE DUTIES WITH RESPECT TO PARTICIPANTS’

ACCOUNTS

9.01 MEMBERS’ COMPENSATION, EXPENSES. The Bank may appoint an ESOP Committee to
administer the Plan, the members of which may or may not be Participants in the
Plan, or which may be the Plan Administrator acting alone. In the absence of an
ESOP Committee appointment, the Bank will serve as Plan Administrator. The
members of the ESOP Committee will serve without compensation for services as
such, but the Employer will pay all expenses of the ESOP Committee, except to
the extent the Trust properly pays for such expenses.

9.02 TERM. Each member of the ESOP Committee serves until the appointment of his
successor.

9.03 POWERS. The ESOP Committee is empowered to assist and direct the Trustee to
satisfy and operate the Plan in accordance with the terms of the Plan, the
Trust, the Code, and ERISA. In case of a vacancy in the membership of the ESOP
Committee, the remaining members of the ESOP Committee may exercise any and all
of the powers, authority, duties and discretion conferred upon the ESOP
Committee pending the filling of the vacancy.

9.04 GENERAL. The ESOP Committee has the full discretion and authority to
perform the following powers and duties:

(a) To select a Secretary, who need not be a member of the ESOP Committee;

(b) To determine the rights of eligibility of an Employee to participate in the
Plan, the value of a Participant’s Account Balance and the Nonforfeitable
percentage of each Participant’s Account Balance;

(c) To adopt rules of procedure and regulations and guidelines necessary for the
proper and efficient administration of the Plan provided the rules are not
inconsistent with the terms of this Agreement;

(d) To construe and enforce the terms of the Plan and the rules and regulations
it adopts, including interpretation of the Plan documents and documents related
to the Plan’s operation;

(e) To direct the Trustee in crediting and distributing the Trust Assets;

(f) To review and render decisions respecting a claim for (or denial of a claim
for) a benefit under the Plan;

(g) To furnish the Employer with information which the Employer may require for
tax or other purposes;

 

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(h) To engage the service of agents whom it may deem advisable to assist it with
the performance of its duties;

(i) To engage the services of an Investment Manager or Managers (as defined in
ERISA Section 3(38)), each of whom will have full power and authority to manage,
acquire or dispose (or direct the Trustee with respect to acquisition or
disposition) of any Plan Asset under its control;

(j) To construe and interpret the Plan and the rules and regulations adopted and
to answer all questions arising in the administration, interpretation and
application of the Plan document and documents related to the Plan’s operation;

(k) To establish and maintain a funding standard account and to make credits and
charges to the account to the extent required by and in accordance with the
provisions of the Code;

(l) To distribute cash instead of Employer Securities;

(m) To require a Participant (or his Beneficiary) to resell the Employer
Securities immediately to the Employer if Employer Securities are distributed;

(n) To direct the Trustee to convert an Inactive Participant’s Employer
Securities Account (in whole or in part) into cash during any Plan Year
following the close of the Plan Year in which the Inactive Participant Separated
from Service for any reason, provided at such time the Trust has an adequate
amount of cash to convert (in whole or part) the Inactive Participant’s
Participant Employer Securities Account;

(o) To direct the Trustee to sell or exchange Employer Securities held in the
Unallocated Employer Securities Account in complete satisfaction of an Exempt
Loan; and

(p) To establish procedures, correct any plan defect, and resolve any
inconsistency in such manner and to such extent as shall be necessary or
advisable to carry out the purpose of the Plan.

Notwithstanding any other provision herein to the contrary, the ESOP Committee
shall not interfere or cause the Trustee to violate the terms of the Plan, the
Trust, the Code, and ERISA. The ESOP Committee must exercise all of its powers,
duties and discretion under the Plan in a uniform and nondiscriminatory manner.
All decisions, determinations, directions, interpretations, and applications of
the Plan by the ESOP Committee shall be final and binding upon all persons,
including (but not limited to) the Bank, Employer, the Trustee, and all
Participants, former participants, Beneficiaries and Alternate Payees unless in
violation of the Plan, the Trust, ERISA, the Code or any federal or state laws.

 

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9.05 FUNDING POLICY. The Stock Bonus Plan Portion of this Plan is designed to
invest primarily in Employer Securities, which is a Qualifying Employer Security
with respect to the Employer within the meaning of Sections 409(1) and
4975(e)(8) of the Code. The Trustee, however, may invest in assets other than
Employer Securities to provide for payment of expenses and distributions and to
the extent as the ESOP Committee deems appropriate.

9.06 MANNER OF ACTION. The decision of a majority of the members of the ESOP
Committee appointed and qualified controls.

9.07 AUTHORIZED REPRESENTATIVE. The ESOP Committee may authorize any one of its
members, or its Secretary, to sign on its behalf any notices, directions,
applications, certificates, consents, approvals, waivers, letters or other
documents. The ESOP Committee must evidence this authority by an instrument
signed by all members.

9.08 INTERESTED MEMBER. No member of the ESOP Committee may decide or determine
any matter concerning the distribution, nature or method of settlement of his
own benefits under the Plan, except in exercising an election available to that
member in his capacity as a Participant, unless the Plan Administrator is acting
alone in the capacity of the ESOP Committee.

9.09 VALUE OF PARTICIPANT’S ACCOUNT BALANCE. The value of each Participant’s
Account Balance consists of that proportion of the net worth (at fair market
value) of the Trust Fund which the net credit balance in his Account bears to
the total net credit balance in the Accounts of all Participants. For purposes
of a distribution under the Plan, the value of a Participant’s Account Balance
is its value as of the Valuation Date immediately preceding the date of the
distribution.

9.10 ALLOCATIONS TO PARTICIPANTS’ ACCOUNTS. A “Valuation Date” under this Plan
is each Accounting Date and each interim valuation date determined under
Section 12.19 hereof. As of each Valuation Date, the ESOP Committee must adjust,
or direct the Trustee to adjust, Participants’ Accounts to reflect net income,
gain or loss since the last Valuation Date. The valuation period is the period
beginning the day after the last Valuation Date and ending on the current
Valuation Date. The ESOP Committee will allocate, or direct the Trustee to
allocate, the Employer contributions, Forfeitures, net income, gain or loss, if
any, in accordance with Article III hereof.

9.11 ACCOUNT CHARGED. The ESOP Committee shall charge, or direct the Trustee to
charge, all distributions made to a Participant or to his Beneficiary from his
Account, against the Account of the Participant when made.

9.12 UNCLAIMED ACCOUNT PROCEDURE. The Plan does not require the ESOP Committee,
the Plan Administrator, the Employer, or the Bank to search for, or to ascertain
the whereabouts of, any Participant or Beneficiary. The ESOP Committee, by
certified or registered mail addressed to his last known address of record with
the ESOP Committee or the Employer, shall notify any Participant, or
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to a distribution under this Plan, and the notice shall quote the provisions of
this Section 9.12. If the Participant, or Beneficiary, fails to claim his
distributive share or make his whereabouts known in writing to the ESOP
Committee within six (6) months from the date of mailing of the notice, the ESOP
Committee may treat the Participant’s or Beneficiary’s unclaimed payable Account
Balance as forfeited and shall reallocate and use the amount of the unclaimed
payable Account Balance to reduce the Employer’s contribution for the Plan Year
in which the Forfeiture occurs.

If a Participant or Beneficiary who has incurred a Forfeiture of his Account
Balance under the provisions of the first paragraph of this Section 9.12 makes a
claim, at any time, for his forfeited Account Balance, the ESOP Committee shall
restore, or direct the ESOP Committee to restore, the Participant’s or
Beneficiary’s forfeited Account Balance to the same dollar amount as the dollar
amount of the Account Balance forfeited, unadjusted for any gains or losses
occurring subsequent to the date of the Forfeiture to the extent permitted by
ERISA and the Code. The ESOP Committee will make, or direct the ESOP Committee
to make, the restoration during the Plan Year in which the Participant or
Beneficiary makes the claim, first from the amount, if any, of Forfeitures the
ESOP Committee otherwise would allocate for the Plan Year, then from the amount,
if any, of the Trust Fund net income or gain for the Plan Year and then from the
amount, or additional amount, the Employer contributes to enable the ESOP
Committee to make the required restoration. The ESOP Committee must direct the
Trustee to distribute the Participant’s or Beneficiary’s restored Account
Balance to him not later than sixty (60) days after the close of the Plan Year
in which the ESOP Committee restores, or directs the Trustee to restore, the
forfeited Account Balance. The Forfeiture provisions of this Section 9.12 apply
solely to the Participant’s or to the Beneficiary’s Account Balance derived from
Employer contributions and Forfeitures.

End of Article IX

 

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ARTICLE X

REPURCHASE OF EMPLOYER SECURITIES

10.01 PUT OPTION. The Bank will issue a “put option” to each Participant
receiving a distribution of Employer Securities from his Employer Securities
Account if such Employer Securities are not Publicly Traded when distributed or
are subject to a “trading limitation” (within the meaning of Regulation
Section 54.4975-7(b)(10)). The put option will permit the Participant or the
Participant’s Beneficiary or the Participant’s donees or such person (including
an estate or its distributee) to whom the Employer Securities pass by reason of
the Participant’s or Beneficiary’s death to sell the Employer Securities to the
Bank, at any time during two (2) option periods, at the current fair market
value. The first put option period runs for a period of at least sixty (60) days
commencing on the date of distribution of Employer Securities to the
Participant. The second put option period runs for a period of at least sixty
(60) days commencing on the first day after the new determination of the fair
market value of Employer Securities is made in the subsequent Plan Year. If a
Participant (or Beneficiary) exercises his put option, the Bank must purchase
the Employer Securities at fair market value upon the terms provided under
Section 10.04 hereof. The Bank may grant the Trust an option to assume the
Bank’s rights and obligations at the time a Participant exercises a put option
under this Section 10.01.

10.02 RESTRICTION ON EMPLOYER SECURITIES. Except upon the prior written consent
of the Bank, no Participant (or Beneficiary) may sell, assign, give, pledge,
encumber, transfer or otherwise dispose of any Employer Securities which are not
Publicly Traded (at the time of such transaction) and which are now owned or
subsequently acquired by him without complying with the terms of this Article X.
If a Participant (or Beneficiary) pledges or encumbers any Employer Securities
with the required prior written consent, any security holder’s rights with
respect to such Employer Securities are subordinate and subject to the rights of
the Bank.

Certificates for Employer Securities distributed to Participants, Inactive
Participants, former participants, or Beneficiaries thereof, shall contain the
following legend:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE TRANSFERABLE ONLY UPON COMPLIANCE
WITH THE TERMS OF THE APPALACHIAN BANCSHARES, INC. EMPLOYEE STOCK OWNERSHIP PLAN
WITH 401(K) PROVISIONS WHICH GRANTED TO THE BANK A RIGHT OF FIRST REFUSAL. THE
BANK WILL FURNISH TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON
WRITTEN REQUEST TO THE BANK AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED
OFFICE A COPY OF THE PLAN. THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER
THE SECURITIES LAWS OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY
STATE IN WHICH THEY HAVE BEEN SOLD. WITHOUT SUCH REGISTRATION, SUCH SECURITIES
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SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, UNLESS AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.

On the front of each such certificate, there may be placed the following
notation in capital letters:

RESTRICTIONS ON TRANSFER STATED ON REVERSE SIDE

10.03 LIFETIME TRANSFER AND RIGHT OF FIRST REFUSAL. If any Participant (or
Beneficiary) who receives Employer Securities under this Plan which are not
Publicly Traded desires to dispose of any of his Employer Securities for any
reason during his lifetime (whether by sale, assignment, gift or any other
method of transfer), he first must offer the Employer Securities for sale to the
Bank. The ESOP Committee may require a Participant (or Beneficiary) entitled to
a distribution of Employer Securities to execute an appropriate stock transfer
agreement (evidencing the right of first refusal) prior to receiving a
certificate of Employer Securities.

In the case of an offer by a third party, the offer to the Bank is subject to
all the terms and conditions set forth in Section 10.04 hereof based on the
price equal to the fair market value per share and payable in accordance with
the terms of Section 10.04 hereof unless the selling price and terms offered to
the Participant by the third party are more favorable to the Participant than
the selling price and terms of Section 10.04 hereof, in which case the selling
price and terms of the offer of the third party apply. The Bank must give
written notice to the offering Participant of its acceptance of the
Participant’s offer within fourteen (14) days after the Participant has given
written notice to the Bank or the Bank’s rights under this Section 10.03 will
lapse. The Bank may grant the Trust the option to assume the Bank’s rights and
obligations with respect to all or any part of the Employer Securities offered
to the Bank under this Section 10.03.

Notwithstanding any provision to the contrary herein, the Trustee is prohibited
from exercising this first right of refusal if the fair market value at the time
of exercise is higher than the last Valuation Date unless the ESOP Committee and
the Trustee determine such action shall not have an effect on the qualification
of this Plan.

10.04 PAYMENT OF PURCHASE PRICE. If the Bank exercises an option to purchase a
Participant’s Employer Securities pursuant to an offer given under Section 10.03
hereof, the purchaser(s) must make payment in lump sum or, if the distribution
to the Participant (or to his Beneficiary) constitutes a Total Distribution, in
substantially equal installments over a period not exceeding five (5) years. A
“Total Distribution” to a Participant (or to a Beneficiary) is the distribution,
within one taxable year of the recipient, of the entire balance to the
Participant’s credit under the Plan. In the case of a distribution which is not
a Total Distribution or which is a Total Distribution with respect to which the
purchaser(s) will make payment in lump sum, the purchaser(s) must pay the
Participant (or Beneficiary) the fair market value of the Employer Securities
repurchased no later than thirty (30) days after the date the Participant (or
Beneficiary) exercises the option. In the case of a Total Distribution with
respect to which the purchaser(s) will make installment payments, the
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(30) days after the Participant (or Beneficiary) exercises the put option. For
installment amounts not paid within thirty (30) days of the exercise of the put
option, the purchaser(s) must evidence the balance of the purchase price by
executing a promissory note, delivered to the selling Participant at the
Closing. The note delivered at Closing (as defined in Section 10.06 hereof) must
bear a reasonable rate of interest, determined as of the Closing Date (as
defined in Section 10.06 hereof), and the purchaser(s) must provide adequate
security. The note must provide for equal annual installments with interest
payable with each installment, the first installment being due and payable one
year after the Closing Date. The note further must provide for acceleration in
the event of thirty (30) days’ default of the payment on interest or principal
and must grant to the maker of the note the right to prepay the note in whole or
in part at any time or times without penalty; provided, however, the
purchaser(s) may not have the right to make any prepayment during the calendar
year or fiscal year of the Participant (or Beneficiary) in which the Closing
Date occurs.

10.05 NOTICE. A person has given Notice permitted or required under this Article
X when the person deposits the Notice in the United States mail, first class,
postage prepaid, addressed to the person entitled to the Notice at the address
currently listed for him in the records of the ESOP Committee or the Employer.
Any person affected by this Article X has the obligation of notifying the ESOP
Committee of any change of address.

10.06 TERMS AND DEFINITIONS. For purposes of this Article X:

(a) “Fair market value” means the value of the Employer Securities
(i) determined as of the date of the exercise of an option if the exercise is by
a Disqualified Person, or (ii) in all other cases, determined as of the most
recent Accounting Date. The Trustee must determine fair market value of Employer
Securities for all purposes of the Plan by engaging the services of an
independent appraiser or independent financial advisor (“independent party”).
The ESOP Committee shall rely upon a determination of valuation of Employer
Securities made by the independent party selected by the Trustee. The ESOP
Committee shall rely upon the independent party selected by the Trustee to be
(1) independent as required by law, and (2) qualified and experienced in
preparing valuations of banks for ESOP purposes.

(b) “Notice” means any offer, acceptance of an offer, payment or any other
communications.

(c) “Beneficiary” includes the legal representative of a deceased Participant.

(d) “Closing” means the place, date, and time (“Closing Date”) to which the
selling Participant (or his Beneficiary) and purchaser may agree for purposes of
a sale and purchase under this Article X, provided Closing must take place not
later than thirty (30) days after the exercise of an offer under Section 10.03
hereof.

 

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10.07 TRUSTEE’S PUT OPTION. To the extent permitted by Regulation
Section 54.4975-7(b)(4) (with respect to Leveraged Employer Securities), the
ESOP Committee may authorize the Trustee to put the shares of Employer
Securities held by the Trust to the Bank to be purchased by the Bank at the then
fair market value in the event that a distribution from a Participant’s Employer
Securities Account is to be made in cash, or a distribution pursuant to
Section 12.24 hereof, or the Trustee expects to incur Plan expenses which will
not be paid directly by the Employer and the Trustee determines that the Trust
has insufficient cash to make the anticipated distributions or pay Plan
expenses.

10.08 SECURITY HOLDER. Notwithstanding any provision herein, the Trustee shall
not otherwise obligate itself to acquire Employer Securities from a particular
shareholder at an indefinite time determined upon the happening of an event such
as, but not limited to, the death of a shareholder. Furthermore and except as
provided otherwise in Sections 10.01 and 10.03 hereof, Leveraged Employer
Securities may not be subject to a put, call, or other option, or buy-sell or
similar arrangement while held by or when distributed from the Plan.

10.09 PROVISIONS NON-TERMINABLE. The provisions described in this Article X are
non-terminable even if the Exempt Loan is repaid or the Plan ceases to be an
employee stock ownership plan.

End of Article X

 

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ARTICLE XI

PROVISIONS RELATING TO INSURANCE AND INSURANCE COMPANY

The Trustee shall not be authorized to purchase incidental life insurance on
behalf of a Participant or Beneficiary as an investment of the Trust.

End of Article XI

 

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ARTICLE XII

MISCELLANEOUS

12.01 EVIDENCE. Anyone required to give evidence under the terms of the Plan may
do so by certificate, affidavit, document or other information which the person
to act in reliance may consider pertinent, reliable and genuine, and to have
been signed, made or presented by the proper party or parties. The ESOP
Committee and the ESOP Committee are fully protected in acting and relying upon
any evidence described under the immediately preceding sentence.

12.02 NO RESPONSIBILITY FOR PLAN ACTIONS. The ESOP Committee does not have any
obligation or responsibility with respect to any action required by the Plan or
Trust to be taken by the Trustee, Employer, the Bank, the Plan Administrator,
any Participant or Eligible Employee, or for the failure of any of the above
persons to act or make any payment or contribution, or to otherwise provide any
benefit contemplated under this Plan. The Plan does not require the ESOP
Committee to determine if a loan obtained by the Trustee is an Exempt Loan, the
Trustee is purchasing Qualifying Employer Securities, the Trustee is purchasing
Qualifying Employer Securities for no more than adequate consideration (as
defined in ERISA), or to collect any contribution required under the Plan, or to
determine the correctness of the amount of any Employer contribution. The ESOP
Committee need not inquire into or be responsible for any action or failure to
act on the part of the others, or on the part of any other person who has any
responsibility regarding the management, administration or operation of the
Plan, whether by the express terms of the Plan, the Trust or by a separate
agreement authorized by the Plan or by the applicable provisions of ERISA.

12.03 FIDUCIARIES NOT INSURERS. The ESOP Committee, the Trustee, the Bank, and
the Employer in no way guarantee the Trust Fund from loss or depreciation. The
Employer and the Bank do not guarantee the payment of any money which may be or
becomes due to any person from the Trust Fund.

12.04 WAIVER OF NOTICE. Any person entitled to notice under the Plan may waive
the notice, unless the Code or Treasury Regulations prescribe the notice or
ERISA specifically or impliedly prohibits such a waiver.

12.05 SUCCESSORS. The Plan is binding upon all persons entitled to benefits
under the Plan, their respective heirs and legal representatives, upon the
Employer, its successors and assigns, and upon the Trustee, the ESOP Committee,
and their successors.

12.06 WORD USAGE. Words used in the masculine also apply to the feminine and
neuter where applicable, and wherever the context of the Plan dictates, the
plural includes the singular and the singular includes the plural. Whenever a
noun, or pronoun in lieu thereof, is used in this Plan in plural form and there
may be only one person within the scope of the word so used, or in singular form
and there be more than one person within the scope of the word so used, such
word, or pronoun used in lieu thereof, shall have a singular or plural meaning,
as the case may be. The words “herein,” “hereof,” and

 

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“hereunder” and other similar compounds of the word “here” shall mean and refer
to the entire Plan, not to any particular provision or Section. Reference to
Plan means this Plan. Article and Section headings are included for convenience
of reference and are not intended to add to, or subtract from, the terms of the
Plan.

12.07 STATE LAW. Georgia law will determine all questions arising with respect
to the provisions of this Agreement, such as (but not limited to) the execution,
construction, administration and enforcement of the Plan, except to the extent
superseded by federal law.

12.08 EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan, or with respect
to the establishment of the Trust, or any modification or amendment to the Plan
or Trust, or in the creation of any Account, or the payment of any benefit,
gives any Employee, Participant, former participant or any Beneficiary any right
to continue employment, any legal or equitable right against the Bank, the
Employer, or Employee of the Employer, or its agents or employees, the ESOP
Committee, or the Trustee except as expressly provided by the Plan, the Trust,
ERISA or by a separate agreement.

12.09 SEVERABILITY. Notwithstanding any provision contained in the Plan to the
contrary, the provisions of this Plan shall be deemed severable and the validity
or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions thereof.

12.10 CONTRARY PROVISIONS. The provisions of this Article XII shall govern
notwithstanding anything contained in the Plan to the contrary.

12.11 NOTICE TO EMPLOYEES. Notice of the Plan and of any amendments thereto, of
eligibility of each Employee, and notice of such other matters as may be
required by law or this instrument, shall be given by the Employer to the
Employees in such form as the ESOP Committee may deem appropriate and reasonable
and in conformity to lawful requirements.

12.12 AGREEMENT OF PARTICIPANTS. Each Participant, by becoming such, for himself
or herself, and such Participant’s heirs, executors, administrators, legal
representatives, and Beneficiaries, ipso facto, approves and agrees to be bound
by the provisions of this Plan.

12.13 ACTION BY EMPLOYERS. Any written action herein permitted or required to be
taken by an Employer shall be by resolution of its board of directors or by
written instrument executed by a person or group of persons who has been
authorized by resolution of its board of directors as having authority to take
such action.

12.14 ADOPTION OF THE PLAN BY A CONTROLLED GROUP MEMBER. Any business enterprise
which on or after the Restatement Date is or becomes a member of a group of
corporations described in Code Section 409(1) that includes the Bank shall be
authorized to adopt the Plan for the benefit of its eligible employees if
approval of its board of directors is obtained.

 

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(a) Method of Adopting the Plan by an Affiliate. In order to adopt the Plan, the
board of directors of the adopting Employer must approve a resolution expressly
adopting the Plan for the benefit of its Employees and the requirements set
forth in Section 1.63 hereof must be satisfied. The Bank may require the
Employer to authorize the appropriate officer of such adopting Employer to
contribute from time to time, for purposes of the Plan, such sum as may be
determined by the board, to be such adopting Employer’s contribution for the
benefit of Participants who are employed by such adopting Employer.

(b) Transmittal of Resolution. Upon the Bank’s request, a certified copy of the
adopting Employer’s resolution shall be transmitted to the Bank and approval of
the Board of Directors shall be deemed to constitute the adoption of the Plan by
the adopting Employer as of the date specified in such adopting Employer’s
resolution or other agreement.

12.15 DISASSOCIATION OF ANY EMPLOYER FROM PLAN. Any Employer may withdraw from
the provisions of this Plan at any time upon the expiration of thirty (30) days
after delivery of written notice of its intent to do so to the ESOP Committee
and the Board, and shall thereupon cease to be a party to this Plan. In such
event, liability for further contributions for such Employer shall cease, and
the money attributable to its then Participants and former participants shall
either be distributed to the Participants or former participants, if it elects
to terminate the Plan as to it, in the same manner as provided in the case of
termination of the whole Plan, or shall be transferred to an independent
successor plan and trust that it may establish for the benefit of its own
employees, which shall be deemed a continuation of this Plan. Withdrawal from
the Plan by an Employer shall not affect the continued operation of the Plan
with respect to the Bank and other Employers.

12.16 BONDING. Every Fiduciary, for the faithful performance of its duties under
the Plan to the extent required by ERISA, shall be bonded. The amount of funds
handled shall be determined at the beginning of each Plan Year by the amount of
the funds handled by such person, group, or class to be covered and their
predecessors, if any, during the preceding Plan Year or if there is no preceding
Plan Year, then the amount of the funds to be handled during the then current
year. The bond shall provide protection to the Plan against any and all loss by
reason of acts of fraud or dishonesty by the Fiduciary, alone or in connivance
with others. The security shall be a corporate security as the term is used in
Section 412(a)(2) of ERISA, and the bond shall be in a form approved by the
Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the
cost of such bond shall be an expense of, and may at the election of the Bank be
paid from, the Trust or by the Employer.

12.17 NAMED FIDUCIARY. The “Named Fiduciaries” of this Plan are (1) the Trustee,
(2) the Plan Administrator, and (3) any Investment Manager appointed hereunder.
The Named Fiduciaries shall have only those specified powers, duties,
responsibilities, and obligations as are specifically given them under this
Plan. In general, the Employer shall have the sole responsibility for making the
contributions provided for under the Plan. The Bank shall have the sole
authority to appoint and remove the ESOP Committee. The ESOP Committee shall
have the sole responsibility for the administration of the Plan. The

 

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Trustee shall have the sole responsibility to determine if a loan secured by the
Trustee on behalf of the Plan is an Exempt Loan, to determine that the Employer
Securities purchased by the Trust are Qualifying Employer Securities, to
determine that the purchase price paid to purchase Qualifying Employer
Securities does not violate the prohibited transaction rules, and for management
of the assets held under the Trust except those assets, management of which have
been delegated to an Investment Manager who shall be solely responsible for the
management of the assets delegated to it or as specifically provided under this
Plan. Each Named Fiduciary warrants that any directions given, information
furnished, or action taken by it shall be taken in accordance with the
provisions of this Plan, authorizing or providing for such direction,
information, or action. Except for the Trustee, each other Named Fiduciary may
rely upon any such direction, information, or action of another Named Fiduciary
as being proper under this Plan and is not required under this Plan to inquire
into priority of any such direction, information, or action. It is intended
under this Plan that the Named Fiduciary shall be responsible for the proper
exercise of its own powers, duties, responsibilities or obligations under this
Plan. No Named Fiduciary shall guarantee the Plan in any manner against
investment lost or depreciation in asset value.

12.18 SECURITIES AND EXCHANGE COMMISSION APPROVAL. The Bank may request an
interpretative letter from the Securities and Exchange Commission stating that
the transfers of Employer Securities contemplated thereunder do not involve
transactions requiring a registration of such Employer Securities under the
Securities Exchange Act of 1933. In the event a favorable interpretative letter
is not obtained, the Bank reserves the right to amend the Plan, to amend the
Plan retroactively for an effective date to obtain a favorable interpretative
letter, or to terminate the Plan.

12.19 VALUATION OF TRUST. The Trust Fund must be valued as of each Accounting
Date, and in addition, as of each transaction date with any Disqualified Person,
or on such other dates as determined by the ESOP Committee, to determine the
fair market value of each Participant’s Account Balance in the Plan. Investments
of the Trust Fund in assets other than Employer Securities may be valued on a
more frequent basis as directed by the ESOP Committee. If a Valuation Date would
otherwise occur on a Saturday, Sunday, or Bank holiday, then the Valuation Date
shall mean the preceding business day. For the purposes of each such valuation,
the assets of the Trust Fund shall be valued at their respective current fair
market value, and the amount of any obligations for which the Trust Fund may be
liable shall be deducted from the total value of the assets. With respect to
activities carried on by the Plan, an independent appraiser meeting requirements
similar to those prescribed by Treasury Regulations under Code Section 170(a)(1)
must perform all valuations of Employer Securities which are not readily
tradable on an established securities market.

12.20 EXEMPT LOAN. This Section 12.20 specifically authorizes the Trustee to
enter into an Exempt Loan transaction. The Board may empower the Bank to
authorize the guarantee or making by the Employer of any such loan. The
following terms and conditions will apply to any Exempt Loan.

 

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(a) The proceeds of the Exempt Loan will be used within a reasonable time after
receipt only for any or all of the following purposes: (i) to acquire Employer
Securities, (ii) to repay such Exempt Loan, or (iii) to repay a prior Exempt
Loan. Except as provided under Article X hereof, no Employer Securities acquired
with the proceeds of an Exempt Loan may be subject to a put, call or other
option, or buy-sell or similar arrangement while held by and when distributed
from the Trust, whether or not this Plan is then an employee stock ownership
plan.

(b) The interest rate of the Exempt Loan may not be more than a reasonable rate
of interest. Notwithstanding anything to the contrary in this Plan, at the time
that an Exempt Loan is made, the interest rate for such Exempt loan and the
price of the Employer Securities acquired by such Exempt Loan should not be such
that Plan assets might be drained off.

(c) Any collateral pledged to the creditor must consist only of the assets
purchased by the borrowed funds and those assets used as collateral on the prior
Exempt Loan repaid with the proceeds of the current Exempt Loan.

(d) The creditor may have no recourse against the Plan under the Exempt Loan
except with respect to such collateral given for the loan, contributions (other
than contributions of Employer Securities) that the Employer makes to the Plan
to meet its obligations under the Exempt Loan, and earnings attributable to such
collateral and the investment of such contributions. The payment made with
respect to an Exempt Loan by the Plan during a Plan Year must not exceed an
amount equal to the sum of such contributions and earnings received during or
prior to the year less such payments in prior years.

(e) In the event of default upon the Exempt Loan, the value of Plan Assets
transferred in satisfaction of the Exempt Loan must not exceed the amount of the
default, and if the lender is a Disqualified Person, the Exempt Loan must
provide for transfer of Plan Assets upon default only upon and to the extent of
the failure of the Plan to meet the payment schedule of the Exempt Loan.

(f) All Employer Securities acquired with the proceeds of an Exempt Loan must be
added to and maintained in the Unallocated Employer Securities Account. In
withdrawing Employer Securities from the Unallocated Employer Securities
Account, the provisions of Treasury Regulation Sections 54.4975-7(b)(8) and
(15) will be applied as if all Employer Securities in the Unallocated Employer
Securities Account were encumbered. Notwithstanding any other provision herein,
upon the payment of any portion of the Exempt Loan, Employer Securities in the
Unallocated Employer Securities Account shall be released from encumbrances. For
each Plan Year during the duration of the Exempt Loan, the number of Employer
Securities released must equal the number of encumbered Employer Securities held
immediately before release for the current Plan Year multiplied by a fraction of
(i) the numerator of which is the amount of principal paid under the Exempt Loan
for the current Plan Year; (ii) the denominator of

 

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which is the total of the all principal to be paid for the current and all
future Plan Years during the term of the Exempt Loan (determined without
reference to any possible extensions or renewals thereof); provided the terms of
the Exempt Loan satisfy all the requirements under Treasury Regulation
Section 54.4975-7(b)(8)(ii). At the option of the Bank, or if the Exempt Loan
does not contain the following characteristics: (1) the annual payments of
principal and interest (at a cumulative rate) are at least as rapid as level
annual payments of such amounts over ten years, (2) the portion of each Exempt
Loan payment treated as interest does not exceed the amount of payment that
would be treated as interest under standard loan amortization tables, and
(3) the Exempt Loan term (including extensions and renewals) does not exceed ten
years, then interest paid and to be paid in the future on the Exempt Loan shall
be included in the numerator and denominator of the fraction. The number of
future Plan Years under the Exempt Loan must be definitely ascertainable and
must be determined without taking into account any possible extension or renewal
periods. If the interest rate under the Exempt Loan is variable, the interest to
be paid in future Plan Years must be computed by using the interest rate
applicable as of the end of the Plan Year. If the collateral includes more than
one class of Employer Securities, the number of Employer Securities of each
class to be released for a Plan Year must be determined by applying the same
fraction to each such class. The ESOP Committee will allocate Employer
Securities withdrawn from the Unallocated Employer Securities Account to the
Employer Securities Accounts of Participants who otherwise share in the
allocation of the Employer’s contribution for the Plan Year for which the
portion of the Exempt Loan resulting in the release of the Employer Securities
has been paid in accordance with the provisions of Section 3.04(a)(ix) hereof.
The ESOP Committee consistently will make this allocation as of each Accounting
Date, and of any special Valuation Date if directed by the ESOP Committee, on
the basis of non-monetary units, taking into account the relative Compensation
of all such Participants for such Plan Year.

(g) An Exempt Loan may be obtained provided such Exempt Loan is primarily for
the benefit of the Plan Participants and Beneficiaries.

(h) In the event a portion of a Participant’s Employer Securities Account is
forfeited, if more than one class of Qualifying Employer Securities subject to
the Exempt Loan provisions have been allocated to a Participant’s Employer
Securities Account, the same proportion of each class of Qualifying Employer
Securities shall be forfeited. Such forfeiture shall occur only when assets
other than Employer Securities held in the Accounts have been forfeited.

(i) The Exempt Loan must be for a specific term. Such Exempt Loan may not be
payable at the demand of any person, except in the case of default

12.21 RECORDS AND STATEMENTS. The records pertaining to the Plan shall be open
to the inspection of the ESOP Committee and the Employer at all reasonable times
and may be audited from time to time by any person or persons as the Bank or
ESOP Committee may specify in writing. The ESOP Committee may direct the Trustee
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furnish the ESOP Committee with whatever information relating to the Trust Fund
the Bank or ESOP Committee considers necessary.

12.22 PARTIES TO LITIGATION. Except as otherwise provided by ERISA, no
Participant or Beneficiary is a necessary party or is required to receive notice
of process in any court proceeding involving the Plan or any fiduciary of the
Plan. Any final judgment entered in any proceeding will be conclusive upon the
Employer, the ESOP Committee, the Trustee, Participants and Beneficiaries.

12.23 PROFESSIONAL AGENTS. The ESOP Committee (with approval of the Bank) may
employ and direct the Trustee to pay from the Trust Fund reasonable compensation
to agents, financial advisors, appraisers, attorneys, accountants, and other
persons to advise the Trustee as in its opinion may be necessary. The ESOP
Committee (with approval of the Bank) may delegate to any agent, financial
advisor, appraiser, attorney (which may be counsel of the Employer), accountant,
or other person selected by it, any non-Trustee power or duty vested in it by
the Plan.

12.24 DISTRIBUTION OF TRUST FUND.

(a) Unregistered Employer Securities. The ESOP Committee shall follow the
following provisions:

(i) If Employer Securities held in a Participant Employer Securities Account or
other Accounts are unregistered, the Trustee will make all distributions under
the Plan in Employer Securities, provided the distribution of the Employer
Securities to the Participant (or Beneficiary) does not violate any provision in
the Bank’s articles of incorporation, charter or bylaws. The Participant (or his
or her Beneficiary), however, may elect in writing to have all of his or her
Accounts distributed in cash provided, the ESOP Committee approves such
distribution request. At the discretion of the ESOP Committee, the Trustee may
pay in cash any fractional security share and any funds in the Participant
General Investments Account to which a Participant or his or her Beneficiary is
entitled. At the discretion of the ESOP Committee, the Trustee may apply any
balance in a Participant General Investments Account or Participant Profit
Sharing Account to provide whole shares of Employer Securities for distribution;
or

(ii) If Employer Securities held in a Participant Employer Securities Account or
other Accounts are unregistered or if the articles of incorporation, charter or
bylaws of the Bank restrict ownership of substantially all of the outstanding
Employer Securities to Employees or the Trust, the Participant is not entitled
to a distribution in the form of Employer Securities and the distribution of a
Participant’s Employer Securities Account, or other Accounts holding Employer
Securities, shall be made entirely in the form of cash or other property, or
Employer Securities which is subject to the requirement that it be immediately
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to the Employer. At the time the distribution is made by the Trustee, the
Trustee, as directed by the ESOP Committee, shall distribute (1) cash to the
Participant or his or her Beneficiary, or (2) transfer, in the Trustee’s
capacity as nominee of the Participant or Beneficiary (and not in its fiduciary
capacity as Trustee of the Trust), the Employer Securities held by the
Participant’s Accounts to the Bank in exercise of the Participant’s put option
pursuant to Article X hereof.

(b) Registered Employer Securities. If Employer Securities held in a Participant
Employer Securities Account are registered Employer Securities, all
distributions under the Plan will be made only as directed by the ESOP Committee
valued at the time of distribution. Distribution of a Participant’s Account(s)
will be made in whole shares of Employer Securities, cash or a combination
thereof, as determined by the ESOP Committee; provided, however, that the ESOP
Committee shall notify the Participant of his or her right to demand
distribution of his or her Account(s) entirely in whole shares of Employer
Securities. At the discretion of the ESOP Committee, the Trustee may pay in cash
any fractional security share to which a Participant or his or her Beneficiary
is entitled. In the event the Trustee is to make a distribution in shares of
Employer Securities, any balance in a Participant General Investments Account
may be applied to provide whole shares of Employer Securities for distribution
at the then value.

(c) Dividends. Notwithstanding the preceding provisions of this Section 12.24,
the Trustee, if directed in writing by the ESOP Committee, shall pay to the
Participant, in cash, any cash Dividends on Employer Securities allocated, or
allocable to Participant Employer Securities Accounts pursuant to
Section 3.05(d) hereof. The ESOP Committee’s direction must state whether the
Trustee is to pay the cash Dividend distributions currently, or within the
ninety (90) day period following the close of the Plan Year in which the
Employer pays the Dividends to the Trust. The ESOP Committee may request the
Employer to pay Dividends on Employer Securities directly to Participants. If
the Bank declares a Dividend, the Trustee, if directed in writing by the ESOP
Committee, shall distribute such Dividends, in whole or part, to the
Participants and Beneficiaries as a distribution under Article VI hereof to the
extent permitted by applicable law.

(d) Other Investments. To the extent allowed by Code Section 409(h)(2), the
Trustee (at the direction of the ESOP Committee) will make all distributions of
the assets held by the Trust (other than Employer Securities) to the
Participants or Beneficiaries in the form of cash or property or any combination
thereof.

12.25 DISTRIBUTION DIRECTIONS. If no one claims a payment or distribution made
from the Plan, disposition of the payment will be made in accordance with the
direction of the ESOP Committee.

 

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12.26 WITHHOLDING FOR ANY PAYMENT OF TAXES. If any assets of the Plan, or any
benefits payable under the Plan, shall become liable for the payment of any
estate, inheritance, income, or other tax, charge or assessment, which in the
Bank’s opinion the Trustee shall or may be required to pay, the ESOP Committee
may direct the Trustee to pay or withhold such tax, charge or assessment out of
any monies or other property in the Trustee’s hands for the account of the
person whose interest hereunder is liable for such tax. The ESOP Committee may
require such releases or other documents from any lawful taxing authority and
may require such indemnity from such Participant or Beneficiary the ESOP
Committee shall deem necessary. The Plan may provide any notices required by
Section 3405 of the Code with respect to federal income tax withholding from
distributions hereunder, and shall withhold and pay any federal income tax
required under Section 3405 of the Code.

12.27 USERRA COMPLIANCE. Notwithstanding any provision of this Plan to be
contrary, contributions, benefits and service credit with respect to qualified
military service will be provided in accordance with Section 414(u) of the Code.

12.28 SECTION 4975(e) OF THE CODE. Notwithstanding any provision of this Plan to
the contrary, this Plan is intended to invest in qualified employer securities
in accordance with section 4975(e)(7) of the Code which is incorporated herein
by reference.

End of Article XII

 

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ARTICLE XIII

EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION

13.01 EXCLUSIVE BENEFIT. Except as provided under Article III hereof, the
Employer has no beneficial interest in any asset of the Trust and no part of any
asset in the Trust may ever revert to or be repaid to an Employer, either
directly or indirectly; nor, prior to the satisfaction of all liabilities with
respect to the Participants and their Beneficiaries under the Plan, may any part
of the corpus or income of the Trust Fund, or any asset of the Trust, be (at any
time) used for, or diverted to, purposes other than the exclusive benefit of the
Participants or their Beneficiaries. In the event the Commissioner of the
Internal Revenue Service, upon the Employer’s request for approval of this Plan,
determines the Plan is not a qualified plan under the Code, any contribution
made incident to that qualification by the Employer must be returned to the
Employer within one (1) year after the date the qualification is denied, but
only if the application for qualification is made by the time prescribed by law
for filing the Employer’s return to the taxable year in which the Plan was
adopted or such later date as the Secretary of the Treasury may prescribe. The
Plan will terminate upon the return of the Employer’s contributions.

13.02 AMENDMENT BY BANK. The Bank has the right at any time and from time to
time:

(a) To amend this Plan in any manner it deems necessary or advisable in order to
qualify (or maintain qualification of) this Plan under the appropriate
provisions of Code Sections 401(a) and 4975(e)(7);

(b) To amend distribution options in a nondiscriminatory manner as permitted
under Code Section 411(d)(6)(C)(ii); and

(c) To amend this Plan in any other manner.

No amendment may authorize or permit any of the Trust Fund (other than the part
which is required to pay taxes and administration expenses) to be used for or
diverted to purposes other than for the exclusive benefit of the Participants or
their Beneficiaries or estates. No amendment may cause or permit any portion of
the Trust Fund to revert to or become a property of the Bank or Employer. The
Bank also may not make any amendment which affects the rights, duties or
responsibilities of the Trustee or the ESOP Committee without the written
consent of the affected Trustee or the affected member of the ESOP Committee.
The Bank must make all amendments in writing. Each amendment must state the date
to which it is either retroactively or prospectively effective.

(d) Code Section 411(d)(6) Protected Benefits. An amendment (including the
adoption of this Plan as a restatement of an existing plan) may not decrease a
Participant’s Account Balance, except to the extent permitted under Code
Section 412(c)(8), and may not reduce or eliminate Code Section 411(d)(6)

 

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protected benefits determined immediately prior to the adoption date (or, if
later, the effective date) of the amendment.

(e) Effective Date of Amendment. Any such amendment shall become effective as
provided therein upon its execution except the amendments which are required to
be made by provisions of ERISA or the Code, which if not made would disqualify
the qualified status of the Plan and the amendment shall be deemed to be made
prior to the end of any retroactive amendment period provided for in ERISA or
the Code.

13.03 DISCONTINUANCE. Any Employer has the right, at any time, to suspend or
discontinue its contributions under the Plan. The Bank has the right to
terminate, at any time, this Plan. The Plan will terminate upon the first to
occur of the following:

(a) The date terminated by action of the Bank; and

(b) The dissolution or merger of the Bank, unless the successor entity makes
provision to continue the Plan, in which event the successor must substitute
itself as the Bank under this Plan. Any termination of the Plan resulting from
this paragraph (b) is not effective until compliance with any applicable notice
requirements under ERISA.

13.04 FULL VESTING ON TERMINATION. Upon either full or partial termination of
the Plan, or, if applicable, upon complete discontinuance of Plan contributions
to the Plan, an affected Participant’s right to his Account Balance is one
hundred percent (100%) Nonforfeitable, regardless of the Nonforfeitable
percentage which otherwise would apply under Article V hereof. A partial
termination of the Plan or discontinuance of Plan contributions to the Plan will
in no way accelerate the time of distribution of benefits to any Participant.

13.05 MERGER AND DIRECT TRANSFER. The Bank may not consent to, or be a party to,
any merger or consolidation with another plan, or to a transfer of assets or
liabilities to another plan, unless immediately after the merger, consolidation
or transfer, the surviving plan provides each Participant a benefit equal to or
greater than the benefit each Participant would have received had the Plan
terminated immediately before the merger or consolidation or transfer.

The Plan may accept a direct transfer of plan assets on behalf of an Employee
prior to the date the Employee satisfies the Plan’s eligibility conditions. If
the Plan accepts a direct transfer of plan assets, the ESOP Committee must treat
the Employee as a Participant for all purposes of the Plan except the Employee
is not a Participant for purposes of sharing in Employer contributions or
Forfeitures under the Plan until he actually becomes a Participant in the Plan.

(a) Elective Transfers. Unless a transfer of assets to this Plan is an elective
transfer, the Plan will preserve all Code Section 411(d)(6) protected benefits
with respect to those transferred assets, in the manner described in
Section 13.02 hereof. A transfer is an elective transfer if: (1) the transfer
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the first paragraph of this Section 13.05 hereof; (2) the transfer is voluntary,
under a fully informed election by the Participant; (3) the Participant has an
alternative that retains his Code Section 411(d)(6) protected benefits
(including an option to leave his benefit in the transferor plan, if that plan
is not terminating); (4) the transfer satisfies the applicable spousal consent
requirements of the Code; (5) the transferor plan satisfies the joint and
survivor notice requirements of the Code, if the Participant’s transferred
benefit is subject to those requirements; (6) the Participant has a right to
immediate distribution from the transferor plan, in lieu of the elective
transfer; (7) the transferred benefit is at least the greater of the single sum
distribution provided by the transferor plan for which the Participant is
eligible or the present value of the Participant’s accrued benefit under the
transferor plan payable at that plan’s normal retirement age; (8) the
Participant has a one hundred percent (100%) Nonforfeitable interest in the
transferred benefit; and (9) the transfer otherwise satisfies applicable
Treasury Regulations. An elective transfer may occur between qualified plans of
any type.

(b) Distribution Restrictions Under Code Section 401(k). If the Plan receives a
direct transfer (by merger or otherwise) of Elective Contributions (or amounts
treated as Elective Contributions) under a Plan with a Code Section 401(k)
arrangement, the distribution restrictions of Code Sections 401(k)(2) and
(10) continue to apply to those transferred Elective Contributions.

13.06 COMPLETE TERMINATION. Upon termination of the Plan, the distribution
provisions of Article VI hereof remain operative, with the following exceptions:

(a) if the present value of the Participant’s Nonforfeitable Account Balance
does not exceed One Thousand Dollars ($1,000), the ESOP Committee will direct
the Trustee to distribute the Participant’s Nonforfeitable Account Balance to
him in lump sum as soon as administratively practicable after the Plan
terminates; and

(b) if the present value of the Participant’s Nonforfeitable Account Balance
exceeds One Thousand Dollars ($1,000), the Participant or the Beneficiary, in
addition to the distribution events permitted under Article VI hereof, may elect
to have the ESOP Committee commence distribution of his Nonforfeitable Account
Balance as soon as administratively practicable after the Plan terminates.

(c) any amounts held in the Unallocated General Investments Account or the
Unallocated Employer Securities Account will be allocated to Participants, as an
Employer Optional Contribution pursuant to Section 3.04(a)(v) hereof without
regard to such Participants satisfaction of the requirements of Section 3.06
hereof (to the extent permitted by Code Section 415) and any amounts remaining
shall revert to the Bank, as permitted by law.

 

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To liquidate the Trust, the ESOP Committee may purchase, or direct the Trustee
to purchase, a deferred annuity contract for each Participant which protects the
Participant’s distribution rights under the Plan, if the Participant’s
Nonforfeitable Account Balance exceeds One Thousand Dollars ($1,000) and the
Participant does not elect an immediate distribution pursuant to
Section 13.06(b). The Trust will continue until the Trustee, in accordance with
the direction of the ESOP Committee, has distributed all of the benefits under
the Plan.

On each Valuation Date, the ESOP Committee will credit, or direct the Trustee to
credit, any part of a Participant’s Account Balance retained in the Trust with
its proportionate share of the Trust’s income, expenses, gains and losses, both
realized and unrealized. Upon termination of the Plan, the amount, if any, in a
suspense account under Article III hereof will revert to the Employer, subject
to the conditions of the Treasury Regulations permitting such a reversion. A
resolution or amendment to freeze all future benefit accrual, but otherwise to
continue maintenance of this Plan, is not a termination for purposes of this
Section 13.06.

13.07 PARTIAL TERMINATION. The rights of each Participant and Beneficiary
affected by a partial termination of the Plan to the amounts credited to his
Account shall be fully Vested and Nonforfeitable as of the date of such partial
termination as set forth in Section 13.04 hereof. Such amounts shall either be
distributed to such affected Participants and Beneficiaries, as in the case of a
complete termination of the Plan, or held, as in the case of a discontinuance of
contributions, as directed by the ESOP Committee. However, a partial termination
of the Plan will in no way accelerate the time of distribution of benefits to
any Participant.

13.08 TERMINATION RESTRICTIONS UNDER CODE SECTION 401(k). Notwithstanding any
provision herein, the portion of the Participant’s Nonforfeitable Account
Balance attributable to Elective Contributions (or to amounts treated under the
Plan as Elective Contributions), is not distributable on account of Plan
termination, as described in Section 13.06 and Section 13.07 hereof, unless:
(a) the Participant otherwise is entitled to a distribution of that portion of
his Nonforfeitable Account Balance; or (b) the Plan termination occurs without
the establishment of a successor plan. A successor plan under clause (b) is a
defined contribution plan (other than an employee stock ownership plan as
defined in Code Section 4975(e) or Code Section 409 or a simplified employee
pension plan as defined in Section 408(k)) maintained by the Employer (or by a
Related Employer) at the time of the termination of the Plan or within the
period ending twelve (12) months after the final distribution of assets.
However, if fewer than two percent (2%) of the Employees who are eligible under
the Plan that includes the cash or deferral arrangement at the time of its
termination are or were eligible under another defined contribution plan at any
time during the twenty-four (24) month-period beginning twelve (12) months
before the time of the termination, the other plan is not a successor plan. A
distribution made pursuant to clause (b) must be part of a lump sum distribution
to the Participant of his Nonforfeitable Account Balance.

End of Article XIII

 

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IN WITNESS WHEREOF, the Bank has executed this Plan on the 31st day of July,
2008, to be effective the 1st day of January, 2008 or as otherwise provided
herein or as otherwise required by law.

 

“EMPLOYER” AND “BANK”

APPALACHIAN BANCSHARES, INC.

By:

 

/s/ Danny Dukes

 

Danny Dukes, Chief Financial Officer

 

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