Document:

ex4-2.htm

Exhibit 4.2

 

Warrant No. W-     

 

WARRANT

to purchase

______________

Shares of Common Stock

 

of HMN FINANCIAL, INC.

 

 

 

1.     Definitions. Unless the context otherwise requires, when used herein the following terms shall have the meanings indicated.

 

“Affiliate” means, with respect to any Person, any Person directly or indirectly controlling, controlled by or under common control with, such other Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) when used with respect to any Person, means the possession, directly or indirectly, of the power to cause the direction of management and/or policies of such Person, whether through the ownership of voting securities by contract or otherwise.

 

“Board of Directors” means the board of directors of the Company, including any duly authorized committee thereof.

 

“Business Combination” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Company’s stockholders.

 

“business day” means any day except Saturday, Sunday and any day on which banking institutions in the State of New York generally are authorized or required by law or other governmental actions to close.

 

“Capital Stock” means (A) with respect to any Person that is a corporation or company, any and all shares, interests, participations or other equivalents (however designated) of capital or capital stock of such Person and (B) with respect to any Person that is not a corporation or company, any and all partnership or other equity interests of such Person.

 

“Charter” means, with respect to any Person, its certificate or articles of incorporation, articles of association, or similar organizational document.

 

“Common Stock” means the common stock, par value $0.01 per share, of the Company.

 

“Company” means the Person whose name, corporate or other organizational form and jurisdiction of organization is set forth in Item 1 of Schedule A hereto.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

 

“Exercise Price” means the amount set forth in Item 2 of Schedule A hereto.

 

 

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“Expiration Date” means the date set forth in Item 3 of Schedule A hereto.

 

“Expiration Time” means 5:00 p.m., New York City time on the Expiration Date.

 

“Fair Market Value” means, with respect to any security or other property, the fair market value of such security or other property as determined by the Board of Directors, acting in good faith.

 

“Governmental Entities” means, collectively, all United States and other governmental, regulatory or judicial authorities.

 

“Market Price” means, with respect to a particular security, on any given day, the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the last closing bid and ask prices regular way, in either case on the principal national securities exchange on which the applicable securities are listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, the average of the closing bid and ask prices as furnished by two members of the Financial Industry Regulatory Authority, Inc. selected from time to time by the Company for that purpose. “Market Price” shall be determined without reference to after hours or extended hours trading. If such security is not listed and traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price per share of Common Stock shall be deemed to be the fair market value per share of such security as determined in good faith by the Board of Directors in reliance on an opinion of a nationally recognized independent investment banking corporation retained by the Company for this purpose and certified in a resolution to the Warrantholder. For the purposes of determining the Market Price of the Common Stock on the “trading day” preceding, on or following the occurrence of an event, (i) that trading day shall be deemed to commence immediately after the regular scheduled closing time of trading on the principal stock exchange on which the Common Stock is then listed or traded (or, if not so listed or traded, the New York Stock Exchange) or, if trading is closed at an earlier time, such earlier time and (ii) that trading day shall end at the next regular scheduled closing time, or if trading is closed at an earlier time, such earlier time (for the avoidance of doubt, and as an example, if the Market Price is to be determined as of the last trading day preceding a specified event and the closing time of trading on a particular day is 4:00 p.m. and the specified event occurs at 5:00 p.m. on that day, the Market Price would be determined by reference to such 4:00 p.m. closing price).

 

“Ordinary Cash Dividends” means a regular quarterly cash dividend on shares of Common Stock out of surplus or net profits legally available therefor (determined in accordance with U.S. GAAP in effect from time to time), provided that Ordinary Cash Dividends shall not include any cash dividends to the extent the aggregate per share dividends paid on the outstanding Common Stock in any quarter exceed the Quarterly Dividend Threshold, as adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.

 

“Person” has the meaning given to it in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act.

 

“Per Share Fair Market Value” has the meaning set forth in Section 13(C).

 

 

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“Pro Rata Repurchases” means any purchase of shares of Common Stock by the Company or any Affiliate thereof pursuant to (A) any tender offer or exchange offer subject to Section 13(e) or 14(e) of the Exchange Act or Regulation 14E promulgated thereunder or (B) any other offer available to substantially all holders of Common Stock, in the case of both (A) or (B), whether for cash, shares of Capital Stock of the Company, other securities of the Company, evidences of indebtedness of the Company or any other Person or any other property (including, without limitation, shares of Capital Stock, other securities or evidences of indebtedness of a subsidiary), or any combination thereof, effected while this Warrant is outstanding. The “Effective Date” of a Pro Rata Repurchase shall mean the date of acceptance of shares for purchase or exchange by the Company under any tender or exchange offer which is a Pro Rata Repurchase or the date of purchase with respect to any Pro Rata Repurchase that is not a tender or exchange offer.

 

“Quarterly Dividend Threshold” means the amount set forth in Item 4 of Schedule A hereto.

 

“Regulatory Approvals” with respect to the Warrantholder, means, to the extent applicable and required to permit the Warrantholder to exercise this Warrant for shares of Common Stock and to own such Common Stock without the Warrantholder being in violation of applicable law, rule or regulation, the receipt of any necessary approvals and authorizations of, filings and registrations with, notifications to, or expiration or termination of any applicable waiting period under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder.

 

“SEC” means the U.S. Securities and Exchange Commission.

 

“Securities Act” means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

 

“Shares” has the meaning set forth in Section 2.

 

“trading day” means (A) if the shares of Common Stock are not traded on any national or regional securities exchange or association or over-the-counter market, a business day or (B) if the shares of Common Stock are traded on any national or regional securities exchange or association or over-the-counter market, a business day on which such relevant exchange or quotation system is scheduled to be open for business and on which the shares of Common Stock (i) are not suspended from trading on any national or regional securities exchange or association or over-the-counter market for any period or periods aggregating one half hour or longer; and (ii) have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the shares of Common Stock. The term “trading day” with respect to any security other than the Common Stock shall have a correlative meaning based on the primary exchange or quotation system on which such security is listed or traded.

 

“U.S. GAAP” means United States generally accepted accounting principles.

 

“Warrantholder” has the meaning set forth in Section 2.

 

“Warrant” means this Warrant.

 

 

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“Warrant Shares” means the number of Shares set forth in Item 6 of Schedule A hereto, as may be adjusted pursuant to the terms hereof from time to time.

 

2.     Number of Shares; Exercise Price. This certifies that, for value received, the person in whose name this Warrant is registered as set forth in Item 9 of Schedule A or such person’s permitted assigns (the “Warrantholder”) is entitled, upon the terms and subject to the conditions hereinafter set forth, to acquire from the Company, in whole or in part, after the receipt of all applicable Regulatory Approvals, if any, up to an aggregate of the number of fully paid and nonassessable shares of Common Stock set forth in Item 6 of Schedule A hereto, at a purchase price per share of Common Stock equal to the Exercise Price. The number of shares of Common Stock (the “Shares”) and the Exercise Price are subject to adjustment as provided herein, and all references to “Common Stock,” “Shares” and “Exercise Price” herein shall be deemed to include any such adjustment or series of adjustments.

 

3.     Exercise of Warrant; Term. Subject to Section 2, to the extent permitted by applicable laws and regulations, the right to purchase the Shares represented by this Warrant is exercisable, in whole or in part by the Warrantholder, at any time or from time to time after the execution and delivery of this Warrant by the Company on the date hereof, but in no event later than the Expiration Time, by (A) the surrender of this Warrant and Notice of Exercise annexed hereto, duly completed and executed on behalf of the Warrantholder, at the principal executive office of the Company located at the address set forth in Item 7 of Schedule A hereto (or such other office or agency of the Company in the United States as it may designate by notice in writing to the Warrantholder at the address of the Warrantholder appearing on the books of the Company), and (B) payment of the Exercise Price for the Shares thereby purchased by having the Company withhold, from the shares of Common Stock that would otherwise be delivered to the Warrantholder upon such exercise, shares of Common Stock issuable upon exercise of the Warrant equal in value to the aggregate Exercise Price as to which this Warrant is so exercised based on the Market Price of the Common Stock on the trading day on which this Warrant is exercised and the Notice of Exercise is delivered to the Company pursuant to this Section 3.

 

If the Warrantholder does not exercise this Warrant in its entirety, the Warrantholder will be entitled to receive from the Company within a reasonable time, and in any event not exceeding three business days, a new warrant in substantially identical form for the purchase of that number of Shares equal to the difference between the number of Shares subject to this Warrant and the number of Shares as to which this Warrant is so exercised. Notwithstanding anything in this Warrant to the contrary, the Warrantholder hereby acknowledges and agrees that its exercise of this Warrant for Shares is subject to the condition that the Warrantholder will have first received any applicable Regulatory Approvals.

 

 

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4.      Issuance of Shares; Authorization; Listing. Certificates for Shares issued upon exercise of this Warrant will be issued in such name or names as the Warrantholder may designate (or, if requested by the Warrantholder and agreed by the Company, Shares will be issued via book-entry transfer crediting the specified account of such named Person or Persons) and will be delivered to such named Person or Persons within a reasonable time, not to exceed three business days after the date on which this Warrant has been duly exercised in accordance with the terms of this Warrant. The Company hereby represents and warrants that any Shares issued upon the exercise of this Warrant in accordance with the provisions of Section 3 will be duly and validly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges (other than liens or charges created by the Warrantholder, income and franchise taxes incurred in connection with the exercise of the Warrant or taxes in respect of any transfer occurring contemporaneously therewith). The Company agrees that the Shares so issued will be deemed to have been issued to the Warrantholder as of the close of business on the date on which this Warrant and payment of the Exercise Price are delivered to the Company in accordance with the terms of this Warrant, notwithstanding that the stock transfer books of the Company may then be closed or certificates representing such Shares may not be actually delivered on such date. The Company will at all times until the Expiration Time (or, if such date shall not be a business day, then on the next succeeding business day) reserve and keep available, out of its authorized but unissued Common Stock, solely for the purpose of providing for the exercise of this Warrant, the aggregate number of shares of Common Stock then issuable upon exercise of this Warrant at any time. The Company will (A) procure, at its sole expense, the listing of the Shares issuable upon exercise of this Warrant at any time, subject to issuance or notice of issuance, on all principal stock exchanges on which the Common Stock is then listed or traded and (B) maintain such listings of such Shares at all times after issuance. The Company will use reasonable best efforts to ensure that the Shares may be issued without violation of any applicable law or regulation or of any requirement of any securities exchange on which the Shares are listed or traded.

 

5.      No Fractional Shares or Scrip. No fractional Shares or scrip representing fractional Shares shall be issued upon any exercise of this Warrant. In lieu of any fractional Share to which the Warrantholder would otherwise be entitled, the Warrantholder shall be entitled to receive a cash payment equal to the Market Price of the Common Stock on the last trading day preceding the date of exercise less the pro-rated Exercise Price for such fractional share.

 

6.      No Rights as Stockholders; Transfer Books. This Warrant does not entitle the Warrantholder to any voting rights or other rights as a stockholder of the Company prior to the date of exercise hereof. The Company will at no time close its transfer books against transfer of this Warrant in any manner which interferes with the timely exercise of this Warrant.

 

7.      Charges, Taxes and Expenses. Issuance of Shares to the Warrantholder upon the exercise of this Warrant shall be made without charge to the Warrantholder for any issue or transfer tax or other incidental expense in respect of the issuance of such Shares (other than liens or charges created by the Warrantholder, income and franchise taxes incurred in connection with the exercise of the Warrant or taxes in respect of any transfer occurring contemporaneously therewith), all of which taxes and expenses shall be paid by the Company.

 

8.      Transfer/Assignment.

 

(A)     Subject to compliance with clause (B) of this Section 8, this Warrant and all rights hereunder are transferable, in whole or in part, upon the books of the Company by the registered holder hereof in person or by duly authorized attorney, and a new warrant shall be made and delivered by the Company, of the same tenor and date as this Warrant but registered in the name of one or more transferees, upon surrender of this Warrant, duly endorsed, to the office or agency of the Company described in Section 3. All expenses (other than stock transfer taxes) and other charges payable in connection with the preparation, execution and delivery of the new warrants pursuant to this Section 8 shall be paid by the Company.

 

 

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(B)     Subject to compliance with applicable securities laws, the Warrantholder may transfer, sell, assign or otherwise dispose (“Transfer”) all or a portion of the Warrant or the Shares issuable upon exercise of the Warrant at any time, and the Company shall take all steps as may be reasonably requested by the Warrantholder to facilitate such Transfer.

 

9.     Exchange and Registry of Warrant. This Warrant is exchangeable, upon the surrender hereof by the Warrantholder to the Company, for a new warrant or warrants of like tenor and representing the right to purchase the same aggregate number of Shares. The Company shall maintain a registry showing the name and address of the Warrantholder as the registered holder of this Warrant. This Warrant may be surrendered for exchange or exercise in accordance with its terms, at the office of the Company, and the Company shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry. 

 

10.     Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in the case of any such loss, theft or destruction, upon receipt of a bond, indemnity or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company shall make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of Shares as provided for in such lost, stolen, destroyed or mutilated Warrant.

 

11.     Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a business day, then such action may be taken or such right may be exercised on the next succeeding day that is a business day.

 

12.     [Reserved]

 

13.     Adjustments and Other Rights. The Exercise Price and the number of Shares issuable upon exercise of this Warrant shall be subject to adjustment from time to time as follows; provided, that if more than one subsection of this Section 13 is applicable to a single event, the subsection shall be applied that produces the largest adjustment and no single event shall cause an adjustment under more than one subsection of this Section 13 so as to result in duplication:

 

(A)     Stock Splits, Subdivisions, Reclassifications or Combinations. If the Company shall (i) declare and pay a dividend or make a distribution on its Common Stock in shares of Common Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify the outstanding shares of Common Stock into a smaller number of shares, the number of Shares issuable upon exercise of this Warrant at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the Warrantholder after such date shall be entitled to purchase the number of shares of Common Stock which such holder would have owned or been entitled to receive in respect of the shares of Common Stock subject to this Warrant after such date had this Warrant been exercised immediately prior to such date. In such event, the Exercise Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be adjusted to the number obtained by dividing (x) the product of (1) the number of Shares issuable upon the exercise of this Warrant before such adjustment and (2) the Exercise Price in effect immediately prior to the record or effective date, as the case may be, for the dividend, distribution, subdivision, combination or reclassification giving rise to this adjustment by (y) the new number of Shares issuable upon exercise of the Warrant determined pursuant to the immediately preceding sentence.

 

 

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(B)     [Reserved]

 

(C)     Other Distributions. In case the Company shall fix a record date for the making of a distribution to all holders of shares of its Common Stock of securities, evidences of indebtedness, assets, cash, rights or warrants (excluding Ordinary Cash Dividends, dividends of its Common Stock and other dividends or distributions referred to in Section 13(A)), in each such case, the Exercise Price in effect prior to such record date shall be reduced immediately thereafter to the price determined by multiplying the Exercise Price in effect immediately prior to the reduction by the quotient of (x) the Market Price of the Common Stock on the last trading day preceding the first date on which the Common Stock trades regular way on the principal national securities exchange on which the Common Stock is listed or admitted to trading without the right to receive such distribution, minus the amount of cash and/or the Fair Market Value of the securities, evidences of indebtedness, assets, rights or warrants to be so distributed in respect of one share of Common Stock (such amount and/or Fair Market Value, the “Per Share Fair Market Value”) divided by (y) such Market Price on such date specified in clause (x); such adjustment shall be made successively whenever such a record date is fixed. In such event, the number of Shares issuable upon the exercise of this Warrant shall be increased to the number obtained by dividing (x) the product of (1) the number of Shares issuable upon the exercise of this Warrant before such adjustment, and (2) the Exercise Price in effect immediately prior to the distribution giving rise to this adjustment by (y) the new Exercise Price determined in accordance with the immediately preceding sentence. In the case of adjustment for a cash dividend that is, or is coincident with, a regular quarterly cash dividend, the Per Share Fair Market Value would be reduced by the per share amount of the portion of the cash dividend that would constitute an Ordinary Cash Dividend. In the event that such distribution is not so made, the Exercise Price and the number of Shares issuable upon exercise of this Warrant then in effect shall be readjusted, effective as of the date when the Board of Directors determines not to distribute such shares, evidences of indebtedness, assets, rights, cash or warrants, as the case may be, to the Exercise Price that would then be in effect and the number of Shares that would then be issuable upon exercise of this Warrant if such record date had not been fixed.

 

(D)     Certain Repurchases of Common Stock. In case the Company effects a Pro Rata Repurchase of Common Stock, then the Exercise Price shall be reduced to the price determined by multiplying the Exercise Price in effect immediately prior to the Effective Date of such Pro Rata Repurchase by a fraction of which the numerator shall be (i) the product of (x) the number of shares of Common Stock outstanding immediately before such Pro Rata Repurchase and (y) the Market Price of a share of Common Stock on the trading day immediately preceding the first public announcement by the Company or any of its Affiliates of the intent to effect such Pro Rata Repurchase, minus (ii) the aggregate purchase price of the Pro Rata Repurchase, and of which the denominator shall be the product of (i) the number of shares of Common Stock outstanding immediately prior to such Pro Rata Repurchase minus the number of shares of Common Stock so repurchased and (ii) the Market Price per share of Common Stock on the trading day immediately preceding the first public announcement by the Company or any of its Affiliates of the intent to effect such Pro Rata Repurchase. In such event, the number of shares of Common Stock issuable upon the exercise of this Warrant shall be increased to the number obtained by dividing (x) the product of (1) the number of Shares issuable upon the exercise of this Warrant before such adjustment, and (2) the Exercise Price in effect immediately prior to the Pro Rata Repurchase giving rise to this adjustment by (y) the new Exercise Price determined in accordance with the immediately preceding sentence. For the avoidance of doubt, no increase to the Exercise Price or decrease in the number of Shares issuable upon exercise of this Warrant shall be made pursuant to this Section 13(D).

 

 

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(E)     Business Combinations. In case of any Business Combination or reclassification of Common Stock (other than a reclassification of Common Stock referred to in Section 13(A)), the Warrantholder’s right to receive Shares upon exercise of this Warrant shall be converted into the right to exercise this Warrant to acquire the number of shares of stock or other securities or property (including cash) which the Common Stock issuable (at the time of such Business Combination or reclassification) upon exercise of this Warrant immediately prior to such Business Combination or reclassification would have been entitled to receive upon consummation of such Business Combination or reclassification; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of the Warrantholder shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to the Warrantholder’s right to exercise this Warrant in exchange for any shares of stock or other securities or property pursuant to this paragraph. In determining the kind and amount of stock, securities or the property receivable upon exercise of this Warrant following the consummation of such Business Combination, if the holders of Common Stock have the right to elect the kind or amount of consideration receivable upon consummation of such Business Combination, then the consideration that the Warrantholder shall be entitled to receive upon exercise shall be deemed to be the types and amounts of consideration received by the majority of all holders of the shares of common stock that affirmatively make an election (or of all such holders if none make an election).

 

(F)     Rounding of Calculations; Minimum Adjustments. All calculations under this Section 13 shall be made to the nearest one-tenth (1/10th) of a cent or to the nearest one-hundredth (1/100th) of a share, as the case may be. Any provision of this Section 13 to the contrary notwithstanding, no adjustment in the Exercise Price or the number of Shares into which this Warrant is exercisable shall be made if the amount of such adjustment would be less than $0.01 or one-tenth (1/10th) of a share of Common Stock, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or 1/10th of a share of Common Stock, or more.

 

(G)     Timing of Issuance of Additional Common Stock Upon Certain Adjustments. In any case in which the provisions of this Section 13 shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the Warrantholder of this Warrant exercised after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such exercise by reason of the adjustment required by such event over and above the shares of Common Stock issuable upon such exercise before giving effect to such adjustment and (ii) paying to such Warrantholder any amount of cash in lieu of a fractional share of Common Stock; provided, however, that the Company upon request shall deliver to such Warrantholder a due bill or other appropriate instrument evidencing such Warrantholder’s right to receive such additional shares, and such cash, upon the occurrence of the event requiring such adjustment.

 

 

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(H)     [Reserved]

 

(I)     Other Events. The Exercise Price or the number of Shares into which this Warrant is exercisable shall not be adjusted in the event of a change in the par value of the Common Stock or a change in the jurisdiction of incorporation of the Company.

 

(J)     Statement Regarding Adjustments. Whenever the Exercise Price or the number of Shares into which this Warrant is exercisable shall be adjusted as provided in Section 13, the Company shall forthwith file at the principal office of the Company a statement showing in reasonable detail the facts requiring such adjustment and the Exercise Price that shall be in effect and the number of Shares into which this Warrant shall be exercisable after such adjustment, and the Company shall also cause a copy of such statement to be sent by mail, first class postage prepaid, to each Warrantholder at the address appearing in the Company’s records.

 

(K)     Notice of Adjustment Event. In the event that the Company shall propose to take any action of the type described in this Section 13 (but only if the action of the type described in this Section 13 would result in an adjustment in the Exercise Price or the number of Shares into which this Warrant is exercisable or a change in the type of securities or property to be delivered upon exercise of this Warrant), the Company shall give notice to the Warrantholder, in the manner set forth in Section 13(J), which notice shall specify the record date, if any, with respect to any such action and the approximate date on which such action is to take place. Such notice shall also set forth the facts with respect thereto as shall be reasonably necessary to indicate the effect on the Exercise Price and the number, kind or class of shares or other securities or property which shall be deliverable upon exercise of this Warrant. In the case of any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed, and in case of all other action, such notice shall be given at least 15 days prior to the taking of such proposed action. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action.

 

(L)     Proceedings Prior to Any Action Requiring Adjustment. As a condition precedent to the taking of any action which would require an adjustment pursuant to this Section 13, the Company shall take any action which may be necessary, including obtaining regulatory, New York Stock Exchange, NASDAQ Stock Market or other applicable national securities exchange or stockholder approvals or exemptions, in order that the Company may thereafter validly and legally issue as fully paid and nonassessable all shares of Common Stock that the Warrantholder is entitled to receive upon exercise of this Warrant pursuant to this Section 13.

 

(M)     Adjustment Rules. Any adjustments pursuant to this Section 13 shall be made successively whenever an event referred to herein shall occur. If an adjustment in Exercise Price made hereunder would reduce the Exercise Price to an amount below par value of the Common Stock, then such adjustment in Exercise Price made hereunder shall reduce the Exercise Price to the par value of the Common Stock.

 

 

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14.     [Reserved]

 

15.     No Impairment. The Company will not, by amendment of its Charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in taking of all such action as may be necessary or appropriate in order to protect the rights of the Warrantholder.

 

16.     Governing Law. This Warrant will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. To the extent permitted by applicable law, each of the Company and the Warrantholder hereby unconditionally waives trial by jury in any civil legal action or proceeding relating to the Warrant or the transactions contemplated hereby or thereby.

 

17.     Binding Effect. This Warrant shall be binding upon any successors or assigns of the Company.

 

18.     Amendments. This Warrant may be amended and the observance of any term of this Warrant may be waived only with the written consent of the Company and the Warrantholder.

 

19.     Prohibited Actions. The Company agrees that it will not take any action which would entitle the Warrantholder to an adjustment of the Exercise Price if the total number of shares of Common Stock issuable after such action upon exercise of this Warrant, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon the exercise of all outstanding options, warrants, conversion and other rights, would exceed the total number of shares of Common Stock then authorized by its Charter.

 

20.     Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other will be in writing and will be deemed to have been duly given (a) on the date of delivery if delivered personally, or by facsimile, upon confirmation of receipt, or (b) on the second business day following the date of dispatch if delivered by a recognized next day courier service. All notices hereunder shall be delivered as set forth in Item 8 of Schedule A hereto, or pursuant to such other instructions as may be designated in writing by the party to receive such notice.

 

21.     Entire Agreement. This Warrant, the forms attached hereto and Schedule A hereto (the terms of which are incorporated by reference herein) contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or undertakings with respect thereto.

 

[Remainder of page intentionally left blank]

 

 

10

 

 

[Form of Notice of Exercise]

 

Date: _________

 

	
TO:
	
HMN Financial, Inc.

 

	
RE:
	
Election to Purchase Common Stock

 

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby agrees to subscribe for and purchase the number of shares of the Common Stock set forth below covered by such Warrant. The undersigned, in accordance with Section 3 of the Warrant, hereby agrees to pay the aggregate Exercise Price for such shares of Common Stock via the cashless exercise provision of Section 3 of the Warrant. A new warrant evidencing the remaining shares of Common Stock covered by such Warrant, but not yet subscribed for and purchased, if any, should be issued in the name set forth below.

 

Number of Shares of Common Stock __________________

 

Aggregate Exercise Price: __________________

 

Holder: __________________

By: __________________

Name: __________________

Title: __________________

 

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by a duly authorized officer.

 

Dated:___________, 2015

 

	
 
	
HMN FINANCIAL, INC.

 

 

By:                                    

Name: Brad Krehbiel

Title: Chief Executive Officer

 

Attest:

 

 

By:                                    

Name: Jon Eberle

Title:   Chief Financial Officer

 

 

[Signature Page to Warrant]

 

 

12

 

 

Schedule A

 

Item 1

Name: HMN Financial, Inc.

Corporate or other organizational form: Corporation

Jurisdiction of organization: Delaware

 

Item 2

Exercise Price: $4.68 per share

 

Item 3

Expiration Date: December 23, 2018

 

Item 4

Quarterly Dividend Threshold: $0.25 per share

 

Item 5

[reserved]

 

Item 6

Number of shares of Common Stock underlying the Warrant (the “Warrant Shares”): 

 

Item 7

Company’s address: 1016 Civic Center Drive N.W., Rochester, MN 55901

 

Item 8

Notice information:              HMN Financial, Inc.

Attn: Chief Financial Officer

1016 Civic Center Drive N.W.

Rochester, MN 55901

 

Item 9

Name of Registered Warrantholder: 

 

 

 13ex10-5.htm

Exhibit 10.5

 

HMN FINANCIAL, INC.

EMPLOYEE STOCK OWNERSHIP PLAN 

(As Amended and Restated January 1, 2016)

 

 

 

 

 

 

HMN FINANCIAL, INC. 
EMPLOYEE STOCK OWNERSHIP PLAN

TABLE OF CONTENTS

 

Page

 

 

	
PREAMBLE  
	  1
	 	 
	
ARTICLE I DEFINITION OF TERMS AND CONSTRUCTION  
	  2
	
1.1        Definitions
	
2

	
(a)
	
“Act”
	
2

	
(b)
	
“Administrator”
	
2

	
(c)
	
“Affiliate”
	
2

	
(d)
	
“Annual Additions”
	
2

	
(e)
	
“Authorized Leave of Absence”
	
3

	
(f)
	
“Beneficiary”
	
3

	
(g)
	
“Board of Directors”
	
3

	
(h)
	
“Break”
	
3

	
(i)
	
“Code”
	
3

	
(j)
	
“Compensation”
	
4

	
(k)
	
“Date of Hire”
	
4

	
(l)
	
“Disability”
	
4

	
(m)
	
“Disability Retirement Date”
	
4

	
(n)
	
“Early Retirement Date”
	
4

	
(o)
	
“Effective Date”
	
4

	
(p)
	
“Eligibility Period”
	
4

	
(q)
	
“Employee”
	
5

	
(r)
	
“Employer”
	
5

	
(s)
	
“Employer Securities”
	
5

	
(t)
	
“Entry Date”
	
5

	
(u)
	
“Exempt Loan”
	
5

	
(v)
	
“Former Participant”
	
5

	
(w)
	
“Fund”
	
5

	
(x)
	
“Hour of Service”
	
5

	
(y)
	
“Investment Adjustments”
	
6

	
(z)
	
“Leased Employee”
	
6

	
(aa)
	
“Limitation Year”
	
6

	
(bb)
	
“Normal Retirement Date”
	
6

	
(cc)
	
“Participant”
	
6

	
(dd)
	
“Plan”
	
6

	
(ee)
	
“Plan Year”
	
6

	
(ff)
	
“Qualified Domestic Relations Order”
	
7

	
(gg)
	
“Retirement”
	
7

	
(hh)
	
“Service”
	
7

	
(ii)
	
“Sponsor”
	
7

	
(jj)
	
“Trust Agreement”
	
7

	
(kk)
	
“Trustee”
	
7

	
(ll)
	
“Valuation Date”
	
7

	
(mm)
	
“Year of Service”
	
7

 

 

i 

 

 

	
1.2
	
Plurals and Gender
	
8

	
1.3
	
Incorporation of Trust Agreement
	
8

	
1.4
	
Headings
	
8

	
1.5
	
Severability
	
8

	
1.6
	
References to Governmental Regulations
	
8

	
1.7
	
Benefits Determined Under Provisions in Effect at Termination of Employment
	
8

	
1.8
	
Effective Date of Restatement
	
8

	 	 	 
	
ARTICLE II PARTICIPATION  
	  9
	
2.1
	
Commencement of Participation
	
9

	
2.2
	
Termination of Participation
	
9

	
2.3
	
Resumption of Participation
	
9

	
2.4
	
Determination of Eligibility
	
10

	 	 	 
	
ARTICLE III CREDITED SERVICE  
	  11
	
3.1
	
Service Counted for Eligibility Purposes
	
11

	
3.2
	
Service Counted for Vesting Purposes
	
11

	
3.3
	
Credit for Pre-Break Service
	
11

	
3.4
	
Service Credit During Authorized Leaves
	
12

	
3.5
	
Service Credit During Maternity or Paternity Leave
	
12

	
3.6
	
Ineligible Employees
	
12

	
3.7
	
Periods of Military Service
	
12

	 	 	 
	
ARTICLE IV CONTRIBUTIONS  
	13
	
4.1
	
Employee Stock Ownership Contributions
	
13

	
4.2
	
Time and Manner of Employee Stock Ownership Contributions
	
13

	
4.3
	
Records of Contributions
	
14

	
4.4
	
Erroneous Contributions
	
14

	 	 	 
	
ARTICLE V ACCOUNTS, ALLOCATIONS AND INVESTMENTS  
	15
	
5.1
	
Establishment of Separate Participant Accounts
	
15

	
5.2
	
Establishment of Contribution Holding and Suspense Accounts
	
15

	
5.3
	
Allocation of Earnings, Losses and Expenses
	
16

	
5.4
	
Allocation of Forfeitures
	
16

	
5.5
	
Allocation of Annual Employee Stock Ownership Contributions
	
16

	
5.6
	
Limitation on Annual Additions
	
17

	
5.7
	
Erroneous Allocations
	
20

	
5.8
	
Value of Participant’s Interest in Fund
	
20

	
5.9
	
Investment of Account Balances
	
20

	 	 	 
	
ARTICLE VI RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY  
	  21
	
6.1
	
Normal Retirement
	
21

	
6.2
	
Early Retirement
	
21

	
6.3
	
Disability Retirement
	
21

	
6.4
	
Death Benefits
	
21

	
6.5
	
Designation of Death Beneficiary and Manner of Payment
	
21

 

 

ii 

 

 

	
ARTICLE VII VESTING AND FORFEITURES  
	  23
	
7.1
	
Vesting on Death, Disability and Normal Retirement
	
23

	
7.2
	
Vesting on Termination of Participation
	
23

	
7.3
	
Disposition of Forfeitures
	
23

	 	 	 
	
ARTICLE VIII EMPLOYEE STOCK OWNERSHIP PROVISIONS  
	  25
	
8.1
	
Right to Demand Employer Securities
	
25

	
8.2
	
Voting Rights
	
25

	
8.3
	
Nondiscrimination in Employee Stock Ownership Contributions
	
25

	
8.4
	
Dividends
	
26

	
8.5
	
Exempt Loans
	
26

	
8.6
	
Exempt Loan Payments
	
27

	
8.7
	
Put Option
	
28

	
8.8
	
Diversification Requirements
	
29

	
8.9
	
Independent Appraiser
	
29

	
8.10
	
Disqualified Person Transactions
	
29

	 	 	 
	
ARTICLE IX PAYMENTS AND DISTRIBUTIONS  
	  30
	
9.1
	
Payments on Termination of Service — In General
	
30

	
9.2
	
Commencement of Payments
	
30

	
9.3
	
Mandatory Commencement of Benefits
	
30

	
9.4
	
Required Beginning Dates
	
33

	
9.5
	
Form of Payment
	
33

	
9.6
	
Medium of Distribution
	
33

	
9.7
	
Payments Upon Termination of Plan
	
33

	
9.8
	
Distributions Pursuant to Qualified Domestic Relations Orders
	
33

	
9.9
	
Cash-Out Distributions
	
34

	
9.10
	
ESOP Distribution Rules
	
34

	
9.11
	
Withholding
	
34

	
9.12
	
Waiver of 30-day Notice
	
35

	
9.13
	
Direct Transfer Option
	
36

	 	 	 
	
ARTICLE X PROVISIONS RELATING TO TOP-HEAVY PLANS  
	  37
	
10.1
	
Top-Heavy Rules to Control
	
37

	
10.2
	
Top-Heavy Plan Definitions
	
37

	
10.3
	
Calculation of Accrued Benefits
	
38

	
10.4
	
Determination of Top-Heavy Status
	
40

	
10.5
	
Determination of Super Top-Heavy Status
	
40

	
10.6
	
Minimum Contribution
	
40

	
10.7
	
Vesting
	
41

	 	 	 
	
ARTICLE XI ADMINISTRATION  
	  42
	
11.1
	
Appointment of Administrator
	
42

	
11.2
	
Resignation or Removal of Administrator
	
42

	
11.3
	
Appointment of Successors: Terms of Office, Etc
	
42

 

 

iii 

 

 

	
11.4
	
Powers and Duties of Administrator
	
42

	
11.5
	
Action by Administrator
	
43

	
11.6
	
Participation by Administrators
	
44

	
11.7
	
Agents
	
44

	
11.8
	
Allocation of Duties
	
44

	
11.9
	
Delegation of Duties
	
44

	
11.10
	
Administrator’s Action Conclusive
	
44

	
11.11
	
Compensation and Expenses of Administrator
	
44

	
11.12
	
Records and Reports
	
45

	
11.13
	
Reports of Fund Open to Participants
	
45

	
11.14
	
Named Fiduciary
	
45

	
11.15
	
Information from Employer
	
45

	
11.16
	
Reservation of Rights by Employer
	
45

	
11.17
	
Liability and Indemnification
	
45

	
11.18
	
Service as Trustee and Administrator
	
46

	 	 	 
	
ARTICLE XII CLAIMS PROCEDURE  
	  47
	
12.1
	
Notice of Denial
	
47

	
12.2
	
Right to Reconsideration
	
47

	
12.3
	
Review of Documents
	
47

	
12.4
	
Decision by Administrator
	
47

	
12.5
	
Notice by Administrator
	
47

	
12.6
	
Limitations on Actions
	
47

	 	 	 
	
ARTICLE XIII AMENDMENTS, TERMINATION AND MERGER  
	48
	
13.1
	
Amendments
	
48

	
13.2
	
Consolidation, Merger or Other Transactions of Employer
	
48

	
13.3
	
Consolidation or Merger of Trust
	
49

	
13.4
	
Bankruptcy or Insolvency of Employer
	
49

	
13.5
	
Voluntary Termination
	
49

	
13.6
	
Partial Termination of Plan or Permanent Discontinuance of Contributions
	
50

	 	 	 
	
ARTICLE XIV MISCELLANEOUS  
	  51
	
14.1
	
No Diversion of Funds
	
51

	
14.2
	
Liability Limited
	
51

	
14.3
	
Incapacity
	
51

	
14.4
	
Spendthrift Clause
	
51

	
14.5
	
Benefits Limited to Fund
	
51

	
14.6
	
Cooperation of Parties
	
52

	
14.7
	
Payments Due Missing Persons
	
52

	
14.8
	
Governing Law
	
52

	
14.9
	
Nonguarantee of Employment
	
52

	
14.10
	
Counsel
	
52

 

 

iv 

 

 

HMN FINANCIAL, INC.
EMPLOYEE STOCK OWNERSHIP PLAN

PREAMBLE

 

Effective as of January 1, 1994, HMN Financial, Inc., a Delaware corporation, (the “Sponsor”), has adopted the HMN Financial, Inc. Employee Stock Ownership Plan in order to enable Participants to share in the growth and prosperity of the Sponsor and its wholly owned subsidiary, Home Federal Savings Bank, and to provide Participants with an opportunity to accumulate capital for their future economic security by accumulating funds to provide retirement, death and disability benefits. The Plan is a stock bonus plan designed to meet the requirements of an employee stock ownership plan as described at Code § 4975(e)(7) and ERISA § 407(d)(6). The primary purpose of the employee stock ownership plan is to invest in employer securities. The Sponsor intends that the Plan will qualify under Code §§ 401(a) and 501(a) and will comply with the provisions of ERISA.

 

 

1

 

 

ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION

 

	
1.1
	
Definitions.

 

Unless a different meaning is plainly implied by the context, the following terms as used in this Plan shall have the following meanings:

 

(a)     “Act” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor statute.

 

(b)     “Administrator” shall mean the administrative committee provided for in Article XI.

 

(c)     “Affiliate” shall mean any trade or business entity under common control with the Employer, or under common control with a predecessor employer (if so required by regulations prescribed by the Secretary of the Treasury) while it is such. For this purpose, a trade or business entity (whether a corporation, partnership, sole proprietorship or otherwise) is under “common control” with another trade or business entity (i) if both entities are corporations which are members of a controlled group of corporations as defined in Code § 414(b), or (ii) if both entities are trades or businesses (whether or not incorporated) which are under common control as defined in Code § 414(c), or (iii) if both entities are members of an affiliated service group as defined in Code § 414(m), or (iv) if both entities are required to be aggregated pursuant to regulations under Code § 414(o). Service for all entities under common control shall be treated as service for a single employer to the extent required by the Code; provided, however, that an individual shall not be a Participant in the Plan by reason of this section. In applying the first sentence of this section for purposes of Section 5.6 of the Plan, the provisions of subsections (b) and (c) of Code § 414 are deemed to be modified as provided in Code § 415(h).

 

(d)     “Annual Additions” shall mean the sum of the following amounts allocated to a Participant for a Limitation Year under this Plan and all other defined contribution plans maintained by the Employer in which he or she participates:

 

(1)     Annual Additions include:

 

(A)     Employer contributions.

 

(B)     Forfeitures, if any.

 

(C)     Voluntary non-deductible (Employee) contributions, if any.

 

(D)     Amounts attributable to medical benefits as described in Code §§ 415(l) and 419A(d)(1).

 

(2)     Notwithstanding the foregoing, Annual Additions do not include:

 

(A)     The direct transfer of a benefit or employee contributions from a qualified plan to the Plan.

 

 

2

 

 

(B)     Reinvested dividends on Employer Securities.

 

(C)     Restorative payments made to restore losses to the Plan resulting from actions by a fiduciary for which there is reasonable risk of liability for breach of a fiduciary duty under Title I of ERISA or under other applicable federal or state law.

 

(D)     Rollover contributions (as described in Code §§ 401(a)(31), 402(c)(1), 403(a)(4), 403(b)(8), 408(d)(3) or 457(e)(16), or any other Code section that permits rollovers).

 

(E)     Employer contributions that are used by the Trust to pay interest on an Exempt Loan or any forfeitures of Employer Securities purchased with the proceeds of an Exempt Loan, provided that not more than one-third of the Employer contributions are allocated to Participants who are among the group of Employees determined to be “highly compensated employees” within the meaning of Code § 414(q).

 

An Annual Addition with respect to a Participant’s Accounts shall be deemed credited thereto with respect to a Limitation Year if it is allocated to the Participant’s accounts under the terms of the plan as of any date within such Limitation Year.

 

(e)     “Authorized Leave of Absence” shall mean an absence from Service with respect to which the Employee may or may not be entitled to Compensation and which meets any one of the following requirements:

 

(1)     Service in any of the armed forces of the United States for up to 36 months, provided that the Employee resumes Service within 90 days after discharge, or such longer period of time during which such Employee’s employment rights are protected by law; or

 

(2)     Any other absence or leave expressly approved and granted by the Employer which does not exceed 24 months, provided that the Employee resumes Service at or before the end of such approved leave period. In approving such leaves of absence, the Employer shall treat all Employees on a uniform and nondiscriminatory basis.

 

(f)     “Beneficiary” shall mean such persons as may be designated by the Participant to receive benefits after the death of the Participant, or such persons designated by the Administrator to receive benefits after the death of the Participant, all as provided in Section 6.5.

 

(g)     “Board of Directors” shall mean the Board of Directors of the Sponsor.

 

(h)     “Break” shall mean a Plan Year during which an Employee fails to complete more than 500 Hours of Service.

 

(i)     “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor statute.

 

 

3

 

 

(j)     “Compensation” shall mean the amount of remuneration paid to an Employee by the Employer during a Plan Year, on or after the date on which the Employee becomes a Participant, for services rendered to the Employer during such Plan Year, including base salary, bonuses, overtime and any amount of compensation contributed pursuant to a salary reduction election to any plan which meets the requirements of Code §§ 125, 132(f)(4) or 401(k), but excluding amounts paid by the Employer or accrued with respect to this Plan or any other qualified or non-qualified unfunded plan of deferred compensation or other employee welfare plan to which the Employer contributes, payments for group insurance, medical benefits, reimbursement for expenses, and other forms of extraordinary pay, and excluding amounts accrued for a prior year. Compensation includes military differential wage payments (as defined in Code § 3401(h)) to the extent required under Code § 414(u).

 

Effective for Plan Years commencing during or after 2016, the Compensation of a Participant for a Plan Year shall not exceed $265,000, adjusted for each Plan Year to take into account any increase provided for that year in accordance with the Code § 401(a)(17) or regulations prescribed by the Secretary of the Treasury. The dollar increase in effect on January 1 of any calendar year shall apply to Plan Years beginning in that calendar year. If a Plan Year is shorter than 12 months, the limit under this subsection for that year shall be multiplied by a fraction, the numerator of which is the number of months in the short Plan Year and the denominator of which is 12.

 

(k)     “Date of Hire” shall mean the date on which a person shall perform his first Hour of Service. Notwithstanding the foregoing, in the event a person incurs one or more consecutive Breaks after his initial Date of Hire which results in the forfeiture of his pre-Break Service pursuant to Section 3.3, his “Date of Hire” shall thereafter be the date on which he completes his first Hour of Service after such Break or Breaks.

 

(l)     “Disability” shall mean a physical or mental impairment which prohibits a Participant from engaging in any occupation for wages or profit and which has caused the Social Security Administration to classify the individual as “disabled” for purposes of Social Security.

 

(m)     “Disability Retirement Date” shall mean the first day of the month after which a Participant incurs a Disability.

 

(n)     “Early Retirement Date” shall mean the first day of the month coincident with or next following the date on which a Participant attains age 55 and completes 5 Years of Service.

 

(o)     “Effective Date” shall mean the orginal effective date of the Plan, which was January 1, 1994.

 

(p)     “Eligibility Period” shall mean the period of 12 consecutive months commencing on an Employee’s Date of Hire. Succeeding eligibility computation periods after the initial eligibility computation period shall be based on Plan Years which include the first anniversary of an Employee’s Date of Hire.

 

 

4

 

 

(q)     “Employee” shall mean any person employed by the Employer, including officers, but excluding Leased Employees and directors in their capacity as such; provided further, however, that the term “Employee” shall not include any employee included in a unit of employees covered by a collective bargaining agreement with the Employer that does not expressly provide for participation of such employees in this Plan, where there has been good-faith bargaining between the Employer and the employees’ representatives on the subject of retirement benefits. Notwithstanding anything herein to the contrary, an individual is not an Employee during any period during which the individual is classified by the Employer as an independent contractor or as any other status in which the person is not treated as a common law employee of the Employer for purposes of withholding of taxes, regardless of the correct legal status of the individual. The previous sentence applies to all periods of such service of an individual who is subsequently reclassified as an employee, whether the reclassification is retroactive or prospective.

 

(r)     “Employer” shall mean HMN Financial, Inc., a Delaware corporation, and its wholly owned subsidiary, Home Federal Savings Bank, or any successors to the aforesaid corporations by merger, consolidation or otherwise, which may agree to continue this Plan, or any affiliated or subsidiary corporation or business organization of any Employer which, with the consent of the Sponsor, shall agree to become a party to this Plan.

 

(s)     “Employer Securities” shall mean the common stock issued by HMN Financial, Inc.

 

(t)     “Entry Date” shall mean each January 1 and July 1, so long as this Plan shall remain in effect.

 

(u)     “Exempt Loan” shall mean a loan described at Code § 4975(d)(1) to the Trustee to purchase Employer Securities for the Plan, made or guaranteed by a disqualified person, as defined at Code § 4975(e)(2), including, but not limited to, a direct loan of cash, a purchase money transaction, an assumption of an obligation of the Trustee, an unsecured guarantee or the use of assets of such disqualified person as collateral for such a loan.

 

(v)     “Former Participant” shall mean any previous Participant whose participation has terminated but who has a vested interest in the Plan which has not been distributed in full.

 

(w)     “Fund” shall mean the Fund maintained by the Trustee pursuant to the Trust Agreement in order to provide for the payment of the benefits specified in the Plan.

 

(x)     “Hour of Service” shall mean each hour for which an Employee is directly or indirectly paid or entitled to payment by an Employer for the performance of duties or for reasons other than the performance of duties (such as vacation time, holidays, sickness, disability, paid lay-offs, jury duty and similar periods of paid non-working time). To the extent not otherwise included, Hours of Service shall also include each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. Hours of working time shall be credited on the basis of actual hours worked, even though compensated at a premium rate for overtime or other reasons. In computing and crediting Hours of Service for an Employee under this Plan, the rules set forth in Sections 2530.200b-2(b) and (c) of the Department of Labor Regulations shall apply, said Sections being herein incorporated by reference. Hours of Service shall be credited to the Plan Year or other relevant period during which the services were performed or the nonworking time occurred, regardless of the time when Compensation therefor may be paid. Any Employee for whom no hourly employment records are kept by the Employer shall be credited with 190 Hours of Service for each calendar month in which he would have been credited with a least one Hour or Service under the foregoing provisions, if hourly records were available. Effective January 1, 1985, for absences commencing on or after that date, solely for purposes of determining whether a Break for participation and vesting purposes has occurred in an Eligibility Period or Plan Year, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, 8 Hours of Service per day of such absence. For purposes of this Section 1.1(x), an absence from work for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the individual, (2) by reason of a birth of a child of the individual, (3) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement. The Hours of Service credited under this provision shall be credited (1) in the computation period in which the absence begins if the crediting is necessary to prevent a Break in that period, or (2) in all other cases, in the following computation period.

 

 

5

 

 

(y)     “Investment Adjustments” shall mean the increases and/or decreases in the value of a Participant’s accounts attributable to earnings, gains, losses and expenses of the Fund, as set forth in Section 5.3.

 

(z)     “Leased Employee” shall mean any person defined as such by Code § 414(n). In general, a Leased Employee is any person who is not otherwise an employee of the Employer or an Affiliate (referred to collectively as the “recipient”) and who pursuant to an agreement between the recipient and any other person (“leasing organization”) has performed services for the recipient (or for the recipient and related persons determined in accordance with Code § 414(n)(6)) on a substantially full-time basis for a period of at least one year and such services are performed under primary direction or control by the recipient. For purposes of the requirements listed in Code § 414(n)(3), any Leased Employee shall be treated as an employee of the recipient, and contributions or benefits provided by the leasing organization which are attributable to services performed for the recipient shall be treated as provided by the recipient. However, if Leased Employees constitute less than 20% of the recipient’s non-highly compensated work force within the meaning of Code § 414(n)(5)(C)(ii), those Leased Employees covered by a plan described in Code § 414(n)(5) shall be disregarded. Notwithstanding the foregoing, no Leased Employee shall be an Employee or a Participant in this Plan.

 

(aa)     “Limitation Year” shall mean the Plan Year.

 

(bb)     “Normal Retirement Date” shall mean the first day of the month coincident with or during which a Participant attains age 65 and completes the fifth anniversary of his participation in the Plan.

 

(cc)     “Participant” shall mean an Employee who has met all of the eligibility requirements of the Plan and who is ‘currently included in the Plan as provided in Article II hereof.

 

(dd)     “Plan” shall mean the HMN Financial, Inc. Employee Stock Ownership Plan, as described herein or as hereafter amended from time to time.

 

(ee)     “Plan Year” shall mean any 12 consecutive month period commencing on January 1 and ending on December 31.

 

 

6

 

 

(ff)     “Qualified Domestic Relations Order” shall mean any judgment, decree or order (including approval of a property settlement agreement) that relates to the provision of child support, alimony, marital property rights to a spouse, former spouse, child or other dependent of the Participant (all such persons hereinafter termed “alternate payee”) and is made pursuant to a State domestic relations law (including community property law) and, further, that creates or recognizes the existence of an alternate payee’s right to, or assigns to an alternate payee the right to receive all or a portion of the benefits payable with respect to a Participant and that clearly specifies the following:

 

(1)     the name and last known mailing address (if available) of the Participant and the name and mailing address of each alternate payee to which the order relates;

 

(2)     the amount or percentage of the Participant’s benefits to be paid to an alternate payee or the manner in which the amount is to be determined; and

 

(3)     the number of payments or period for which payments are required.

 

A domestic relations order is not a Qualified Domestic Relations Order if it:

 

(1)     requires the Plan to provide any type or form of benefit or any option not otherwise provided under the Plan; or,

 

(2)     requires the Plan to provide increased benefits; or

 

(3)     requires payment of benefits to an alternate payee that is required to be paid to another alternate payee under a previously existing Qualified Domestic Relations Order.

 

(gg)     “Retirement” shall mean termination of employment which qualifies as early, normal or Disability retirement as described in Article VI.

 

(hh)     “Service” shall mean employment with the Employer.

 

(ii)     “Sponsor” shall mean HMN Financial, Inc., a Delaware corporation.

 

(jj)     “Trust Agreement” shall mean the agreement, dated June 2, 1994 by and between HMN Financial, Inc., a Delaware corporation, and First Bankers Trust Co, N.A.

 

(kk)     “Trustee” shall mean the Trustee or Trustees by whom the assets of the Plan are held, as provided in the Trust Agreement, or his or their successors.

 

(ll)     “Valuation Date” shall mean the last day of each Plan Year. The Trustee may make additional valuations, at the instruction of the Administrator, but in no event may the Administrator request additional valuations by the Trustee more frequently than quarterly. Whenever such date falls on a Saturday, Sunday or holiday, the preceding business day shall be the Valuation Date.

 

(mm)     “Year of Service” shall mean any Plan Year during which an Employee has completed at least 1,000 Hours of Service, except as otherwise specified in Article III. In the determination of Years of Service for eligibility and vesting purposes under this Plan, the term “Year of Service” shall also mean any Plan Year during which an Employee has completed at least 1,000 Hours of Service with an Affiliate.

 

 

7

 

 

	
1.2
	
Plurals and Gender.

 

Where appearing in the Plan and the Trust Agreement, the masculine gender shall include the feminine and neuter genders, and the singular shall include the plural, and vice versa, unless the context clearly indicates a different meaning.

 

	
1.3
	
Incorporation of Trust Agreement.

 

The Trust Agreement, as the same may be amended from time to time, is intended to be and hereby is incorporated by reference into this Plan and for all purposes shall be deemed a part of the Plan.

 

	
1.4
	
Headings.

 

The headings and sub-headings in this Plan are inserted for the convenience of reference only and are to be ignored in any construction of the provisions hereof.

 

	
1.5
	
Severability.

 

In case any provision of this Plan shall be held illegal or void, such illegality or invalidity shall not affect the remaining provisions of this Plan, but shall be fully severable, and the Plan shall be construed and enforced as if said illegal or invalid provisions had never been inserted herein.

 

	
1.6
	
References to Governmental Regulations.

 

References in this Plan to regulations issued by the Internal Revenue Service, the Department of Labor, or other governmental agencies shall include all regulations, rulings, procedures, releases and other position statements issued by any such agency.

 

	
1.7
	
Benefits Determined Under Provisions in Effect at Termination of Employment.

 

Except as may be specifically provided herein to the contrary, benefits under the Plan attributable to service prior to a Participant’s employment termination shall be determined and paid in accordance with the provisions of the Plan as in effect as of the date the employment termination occurred unless he or she resumes Service after that date and such resumption of Service causes a contrary result under the provisions hereof. However, the provisions of this document shall apply to any such Participant to the extent necessary to maintain the qualified status of the Plan under Code § 401(a) or to comply with the requirements of ERISA.

 

	
1.8
	
Effective Date of Restatement.

 

Unless a different date is specified for some purpose in this document, the provisions of this amended and restated Plan document are generally effective as of January 1, 2016. However, any provision necessary to comply with a requirement of federal legislation or a Treasury regulation which has an effective date earlier than January 1, 2016, shall be effective as of the date required by the applicable law or regulation, unless a different effective date is specifically stated in this document.

 

 

8

 

 

ARTICLE II
PARTICIPATION

 

	
2.1
	
Commencement of Participation.

 

(a)     Any Employee who completes at least 1,000 Hours of Service during his Eligibility Period or during any Plan Year beginning after his Date of Hire shall initially become a Participant on the Entry Date coincident with or next following the later of the following dates, provided he is employed by the Employer on that Entry Date:

 

(1)     The date which is 12 months after his Date of Hire; and

 

(2)     The date on which he attains age 18.

 

(b)     Any Employee who had satisfied the requirements set forth in Section 2.1(a) during the 12-month period prior to the Effective Date became a Participant on the Effective Date, provided he was still employed by the Employer on the Effective Date.

 

	
2.2
	
Termination of Participation.

 

After commencement or resumption of his participation, an Employee shall remain a Participant during each consecutive Plan Year thereafter until the earliest of the following dates:

 

(a)     His actual Retirement date;

 

(b)     His date of death; or

 

(c)     The last day of a Plan Year during which he incurs a Break.

 

	
2.3
	
Resumption of Participation.

 

(a)     Any Participant whose employment terminates and who resumes Service before he incurs a Break shall resume participation immediately on the date he is reemployed.

 

(b)     Except as otherwise provided in Section 2.3(c), any Participant who incurs one or more Breaks and resumes Service shall resume participation retroactively as of the first day of the first Plan Year in which he completes a Year of Service after such Break(s).

 

(c)     Any Participant who incurs one or more Breaks and resumes Service, but whose pre-Break Service is not reinstated to his credit pursuant to Section 3.3, shall be treated as a new Employee and shall again be required to satisfy the eligibility requirements contained in Section 2.1 before resuming participation on the appropriate Entry Date, as specified in Section 2.1.

 

 

9

 

 

	
2.4
	
Determination of Eligibility.

 

The Administrator shall determine the eligibility of Employees in accordance with the provisions of this Article. For each Plan Year, the Employer shall furnish the Administrator a list of all Employees, indicating the original date of their reemployment with the Employer and any Breaks they may have incurred.

 

 

10

 

 

ARTICLE III
CREDITED SERVICE

 

	
3.1
	
Service Counted for Eligibility Purposes.

 

Except as provided in Section 3.3, all Years of Service completed by an Employee shall be counted in determining his eligibility to become a Participant on and after the Effective Date, whether such Service was completed before or after the Effective Date. Further, Years of Service completed prior to January 1, 1998, with the former Marshalltown Finance Corporation and its subsidiary, Marshalltown Savings Plan FSB, shall be treated as Years of Service with an Employer in determining his eligibility to become a Participant on and after January 1, 1998.

 

	
3.2
	
Service Counted for Vesting Purposes.

 

All Years of Service completed by an Employee (including Years of Service completed prior to the Effective Date) shall be counted in determining his vested interest in this Plan, except the following:

 

(a)     Service which is disregarded under the provisions of Section 3.3;

 

(b)     Service prior to the Effective Date of this Plan if such Service would have been disregarded under the “break in service” rules (within the meaning of IRS Treas. Reg. § 1.41l(a)-5(b)(6)).

 

Further, Years of Service completed prior to January 1, 1998, with the former Marshalltown Finance Corporation and its subsidiary, Marshalltown Savings Bank FSB, shall be treated as Years of Service with an Employer in determining his vested interest in the Plan.

 

	
3.3
	
Credit for Pre-Break Service.

 

Upon his resumption of participation following one or a series of consecutive Breaks, an Employee’s pre-Break Service shall be reinstated to his credit for all purposes of this Plan only if either:

 

(a)     He was vested in any portion of his accrued benefit at the time the Break(s) began; or

 

(b)     The number of his consecutive Breaks does not equal or exceed the greater of 5 or the number of his Years of Service credited to him before the Breaks began.

 

Except as provided in the foregoing, none of an Employee’s Service prior to one or a series of consecutive Breaks shall be counted for any purpose in connection with his participation in this Plan thereafter.

 

 

11

 

 

	
3.4
	
Service Credit During Authorized Leaves.

 

An Employee shall receive no Service credit under Section 3.1 or 3.2 during any Authorized Leave of Absence. However, solely for the purpose of determining whether he has incurred a Break during any Plan Year in which he is absent from Service for one or more Authorized Leaves of Absence, he shall be credited with 40 Hours of Service for each week during any such leave period. Notwithstanding the foregoing, if an Employee fails to return to Service on or before the end of a leave period, he shall be deemed to have terminated Service as of the first day of such leave period and his credit for Hours of Service, determined under this Section 3.4, shall be revoked. Notwithstanding anything contained herein to the contrary, an Employee who is absent by reason of military service as set forth in Section 1.1(d)(1) shall be given Service credit under this Plan for such military leave period to the extent, and for all purposes, required by law.

 

	
3.5
	
Service Credit During Maternity or Paternity Leave.

 

Effective for absences beginning on or after January 1, 1985, for purposes of determining whether a Break has occurred for participation and vesting purposes, an individual who is on maternity or paternity leave as described in Section 1.1(x), shall be deemed to have completed Hours of Service during such period of absence, all in accordance with Section 1.1(x). Notwithstanding the foregoing, no credit shall be given for such Hours of Service unless the individual furnishes to the Administrator such timely information as the Administrator may reasonably require to determine:

 

(a)     that the absence from Service was attributable’ to one of the maternity or paternity reasons enumerated in Section 1.1(x); and

 

(b)     the number of days for which such absence lasted.

 

In no event, however, shall any credit be given for such leave other than for determining whether a Break has occurred.

 

	
3.6
	
Ineligible Employees.

 

Notwithstanding any provisions of this Plan to the contrary, any person who is employed by the Employer, but who is ineligible to participate in this Plan, either because of his failure

 

(a)     To meet the eligibility requirements contained in Article II; or

 

(b)     To be an Employee, as defined in Section 1.1(q), shall, nevertheless, earn Years of Service for eligibility and vesting purposes pursuant to the rules contained in this Article III. However, such a person shall not be entitled to receive any contributions hereunder unless and until he becomes a Participant in this Plan, and then, only during his period of participation.

 

	
3.7
	
Periods of Military Service. 

 

The Plan will comply with the requirements of Code § 414(u) with respect to each Participant who is absent from service because of “qualified military service” (as defined in Code § 414(u)(5)) as prescribed under Code § 414(u) (or other federal law cited therein). 

 

 

12

 

 

ARTICLE IV
CONTRIBUTIONS

 

	
4.1
	
Employee Stock Ownership Contributions.

 

(a)     Subject to all of the provisions of this Article IV, for each Plan Year commencing on or after the Effective Date, the Employer shall make an Employee Stock Ownership contribution to the Fund, in such amount as may be determined by the Board of Directors in its discretion. Such contribution shall be in the form of cash or Employer Securities. In determining the value of Employer Securities transferred to the Fund as an Employee Stock Ownership contribution, the Administrator may determine the average of closing prices of such securities for a period of up to 90 consecutive days immediately preceding the date on which the securities are contributed to the Fund. In the event that the Employer Securities are not readily tradable on an established securities market, the value of the Employer Securities transferred to the Fund shall be determined by an independent appraiser in accordance with Section 8.9.

 

(b)     In no event shall such contribution by the Employer exceed for any Plan Year the maximum amount that may be deducted by the Employer under Code § 404, nor shall such contribution cause the Employer to violate its regulatory capital requirements. Each Employee Stock Ownership contribution by the Employer shall be deemed to be made on the express condition that the Plan, as then in effect, shall be qualified under Code §§ 401 and 501 and that the amount of such contribution shall be deductible from the Employer’s income under Code § 404.

 

	
4.2
	
Time and Manner of Employee Stock Ownership Contributions.

 

(a)     The Employee Stock Ownership contribution (if any) for each Plan Year shall be paid to the Trustee in one lump sum or installments at any time on or before the expiration of the time prescribed by law (including any extensions) for filing of the Employer’s federal income tax return for its fiscal year ending concurrent with or during such Plan Year. Any portion of the Employee Stock Ownership contribution for each Plan Year that may be made prior to the last day of the Plan Year shall be maintained by the Trustee in the Contribution Holding Account described in Section 5.2 until the last day of such Plan Year.

 

(b)     If an Employee Stock Ownership contribution for a Plan Year is paid after the close of the Employer’s fiscal year which ends concurrent with or during such Plan Year but on or prior to the due date (including any extensions) for filing of the Employer’s federal income tax return for such fiscal year, it shall be considered, for allocation purposes, as an Employee Stock Ownership contribution to the Fund for the Plan Year for which it was computed and accrued, unless such contribution is accompanied by a statement to the Trustee, signed by a representative of the Employer, which specifies that the Employee Stock Ownership contribution is made with respect to the Plan Year in which it is received by the Trustee. Any Employee Stock Ownership contribution paid by the Employer during any Plan Year but after the due date (including any extensions) for filing of its federal income tax return for the fiscal year of the Employer ending on or before the last day of the preceding Plan Year shall be treated, for allocation purposes, as an Employee Stock Ownership contribution to the Fund for the Plan Year in which the contribution is paid to the Trustee.

 

 

13

 

 

(c)     Notwithstanding anything contained herein to the contrary, no Employee Stock Ownership contribution shall be made for any year during which a “limitations account” created pursuant to Section 5.6(c)(2) is in existence until the balance of such limitations account has been reallocated in accordance with Section 5.6(c)(2).

 

	
4.3
	
Records of Contributions.

 

The Employer shall deliver at least annually to the Trustee, with respect to the contributions contemplated in Section 4.1, a certificate of the Administrator, in such form as the Trustee shall approve, setting forth:

 

(a)     The aggregate amount of contributions, if any, to the Fund for such Plan Year;

 

(b)     The names, Internal Revenue Service identifying numbers and current residential addresses of all Participants in the Plan;

 

(c)     The amount and category of contributions to be allocated to each such Participant; and

 

(d)     Any other information reasonably required for the proper operation of the Plan.

 

	
4.4
	
Erroneous Contributions.

 

(a)     Notwithstanding anything herein to the contrary, upon the Employer’s request, a contribution which was made by a mistake of fact, or conditioned upon the qualification of the Plan or any amendment thereof, under Code § 401, or upon the deductibility of the contribution under Code § 404, shall be returned to the Employer by the Trustee within one year after the payment of the contribution, the denial of the qualification or the disallowance of the deduction (to the extent disallowed), whichever is applicable; provided, however, that in the case of disqualification of the Plan based upon any amendment hereto, the Employer shall not be entitled to the return of its Employee Stock Ownership contribution unless an Application for Determination with respect to the Plan amendment had been filed with the Internal Revenue Service within one year after the adoption of such amendment by the Employer. Any portion of a contribution returned pursuant to this Section 4.4 shall be adjusted to reflect its proportionate share of the losses of the fund, but shall not be adjusted to reflect any earnings or gains. Notwithstanding any provisions of this Plan to the contrary, the right or claim of any Participant or Beneficiary to any asset of the Fund or any benefit under this Plan shall be subject to and limited by this Section 4.4.

 

(b)     In no event shall voluntary Employee contributions be accepted. Any such voluntary Employee contributions (and any earnings attributable thereto) mistakenly received by the Trustee shall promptly be returned to the Participant.

 

 

14

 

 

ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS

 

	
5.1
	
Establishment of Separate Participant Accounts.

 

The Administrator shall establish and maintain separate individual accounts for Participants in the Plan and for each Former Participant in accordance with the provisions of this Article V. Such separate accounts shall be for accounting purposes only and shall not require a segregation of the Fund, and no Participant, Former Participant or Beneficiary shall acquire any right to or interest in any specific assets of the Fund as a result of the allocations provided for under this Plan, except where segregation is expressly provided for in this Plan.

 

(a)     Employee Stock Ownership Accounts.

 

The Administrator shall establish a separate Employee Stock Ownership Account in the Fund for each Participant. The account shall be credited as of the last day of each Plan Year with the amounts allocated to the Participant under Sections 5.4 and 5.5. The Administrator may establish subaccounts hereunder, an Employer Stock Account reflecting a Participant’s interest in Employer Securities held by the Trust and an Other Investments Account reflecting the Participant’s interest in his Employee Stock Ownership Account other than Employer Securities.

 

(b)     Distribution Accounts.

 

In any case where distribution of a terminated Participant’s vested interest in the Plan is to be deferred, the Administrator shall establish a separate, nonforfeitable account in the Fund to which the balance in his Employee Stock Ownership Account in the Plan shall be transferred after such Participant incurs a Break. Unless the Former Participant’s distribution accounts are segregated for investment purposes pursuant to section 9.4, they shall share in Investment Adjustments.

 

(c)     Other Accounts.

 

The Administrator shall establish such other separate accounts for each Participant as may be necessary or desirable for the convenient administration of the Fund.

 

5.2     Establishment of Contribution Holding and Suspense Accounts.

 

The Administrator shall establish separate accounts as follows:

 

(a)     Contribution Holding Account. 

 

The Administrator shall establish a Contribution Holding Account. There shall be credited to such Contribution Holding Account any Employee Stock Ownership contributions that may be made prior to the last day of the Plan Year, as provided in Section 4.2. The Contribution Holding Account shall share proportionately as to time and amount in any Investment Adjustments. As of the last day of each Plan Year, the balance of the Contribution Holding Account shall be added to any other Employee Stock Ownership contributions that may have been made for that Plan Year and allocated to the Employee Stock Ownership Accounts of Participants as provided in Section 5.5.

 

 

15

 

 

(b)     Exempt Loan Suspense Account.

 

For each Exempt Loan taken by the Plan, the Administrator shall establish a separate Exempt Loan Suspense Account. Exempt Loan payments shall be attributed to the appropriate Exempt Loan Suspense Account in accordance with Sections 8.5 and 8.6. All Employer Securities released for a given Plan Year from all the ESOP Exempt Loan Suspense Accounts pursuant to Sections 8.5 and 8.6 shall be pooled and allocated as of the last day of such Plan Year to the Employee Stock Ownership Accounts of Participants as provided in Section 5.5. 

 

	
5.3
	
Allocation of Earnings, Losses and Expenses.

 

As of each Valuation Date, any increase or decrease in the net worth of the aggregate Employee Stock Ownership Accounts held in the Fund attributable to earnings, losses, expenses and unrealized appreciation or depreciation in each such aggregate Account, as determined by the Trustee pursuant to the Trust Agreement, shall be credited to or deducted from the appropriate suspense accounts and all Participants’ Employee Stock Ownership Accounts (except segregated distribution accounts described in Section 5.1(b) and the “limitations account” described in Section 5.6(c)(4)) in the proportion that the value of each such Account (determined immediately prior to such allocation and before crediting any Employee Stock Ownership contributions and forfeitures for the current Plan year but after adjustment for any transfer to or from such Accounts and for the time such funds were in such Accounts) bears to the value of all Employee Stock Ownership Accounts.

 

	
5.4
	
Allocation of Forfeitures.

 

As of the last day of each Plan Year, all forfeitures attributable to the Employee Stock Ownership Accounts which are then available for reallocation shall be, as appropriate, added to the Employee Stock Ownership contribution (if any) for any such year and allocated among the Participants’ Employee Stock Ownership Accounts, as appropriate, in the manner provided in Sections 5.5 and 5.6.

 

	
5.5
	
Allocation of Annual Employee Stock Ownership Contributions.

 

As of the last day of each Plan Year for which the Employer shall make an Employee Stock Ownership contribution, the Administrator shall allocate the Employee Stock Ownership contribution (including reallocable forfeitures) for such Plan year to the Employee Stock Ownership account of each Participant who completed at least 1,000 Hours of Service during that Plan Year, provided that he is still employed by the Employer on the last day of the Plan Year. Such allocation shall be made in the same proportion that each such Participant’s Compensation for such Plan Year bears to the total Compensation of all such Participants for such Plan Year, subject to Section 5.6. Notwithstanding the foregoing, if a Participant attains his Normal Retirement Date and terminates Service prior to the last day of the Plan Year but after completing 1,000 Hours of Service, he shall be entitled to an allocation based on his Compensation earned prior to his termination and during the Plan Year. Notwithstanding the foregoing, if a Participant attains age 62 and has completed 10 years of service with the Company and terminates service prior to the last day of the Plan Year, but after completing 1,000 Hours of Service, he shall be entitled to an allocation based on his Compensation earned prior to his termination and during the Plan Year. Notwithstanding the foregoing, if a Participant attains age 60 and has completed 15 Years of Service with the Company and terminates service prior to the last day of the Plan Year, but after completing 1,000 Hours of Service, he shall be entitled to an allocation based on his Compensation earned prior to his termination and during the Plan Year. Furthermore, if a Participant completes 1,000 Hours of Service and is on a Leave of Absence on the last day of the Plan Year because of pregnancy or other medical reason, such a Participant shall be entitled to an allocation based on his Compensation earned during such Plan Year. 

 

 

16

 

 

	
5.6
	
Limitation on Annual Additions.

 

(a) Notwithstanding any provisions of this Plan to the contrary, the total Annual Additions credited to a Participant’s accounts under this Plan (and under any other defined contribution plan to which the Employer or an Affiliate contributes) for any Limitation Year shall not exceed the lesser of:

 

(1)     $53,000 for the Plan Year commencing in 2016, and adjusted for each Plan Year to reflect cost of living adjustments for that Plan Year provided under Code § 415(d) or published by the Secretary of the Treasury.

 

(2)     100% of the Compensation of such Participant. This paragraph (2) shall not apply to any contribution for medical benefits after separation from service within the meaning of Code §§ 401(h) or 419A(f)(2) which is otherwise treated as an Annual Addition.

 

(b)     Solely for the purpose of this Section 5.6, the term “Compensation” is defined as wages, salaries, and fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer to the extent that the amounts are includable in gross income (or to the extent the amount would have been received and includible in gross income but for an election under Code §§ 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B), 402(k), or 457(b). 

 

(1)          “Compensation” specifically includes, but is not limited to:

 

(A)     Commissions paid to salespeople, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, reimbursements or other expense allowances under a nonaccountable plan (as described in IRS Treas. Reg. § 1.62-2(c));

 

(B)     Amounts described in Code §§ 104(a)(3), 105(a), or 105(h), but only to the amount that these amounts are includible in gross income;

 

(C)     Amounts paid or reimbursed by the Employer for moving expenses incurred by an Employee, but only to the extent that at the time of the payment it is reasonable to believe that these amounts are not deductible by the Employee under Code § 217;

 

(D)     The value of a nonqualified stock option granted to an Employee, but only to the extent that the value of the option is includible in gross income of the Employee for the taxable year of the stock option grant;

 

 

17

 

 

(E)     The amount includible in the gross income of the Employee upon making the election described in Code § 83(b); 

 

(F)     Amounts that are includible in the gross income of an Employee under the rules of Code §§ 409A or 457(f)(1)(A) or because the amounts are constructively received by the Employee; and

 

(G)     Amounts paid after the Employee’s severance from employment, but only including regular pay for services during the Employee’s regular working hours, or pay for services outside the Employee’s regular working hours, (such as overtime or shift differential), commissions, bonuses, or other similar payments, and only if such pay would have been paid to the Employee prior to severance from employment if the Employee had continued in employment with the Employer. Such pay is Compensation only if paid by the later of (i) 21⁄2 months after the Employee’s severance from employment with the Employer or (ii) the end of the Limitation Year that includes the date of the Employee’s severance from employment.

 

Notwithstanding anything in this section to the contrary, “Compensation” will not exceed the amount permitted to be taken into account for any Limitation Year under Code § 401(a)(17). 

 

(2)          “Compensation” specifically excludes:

 

(A)     Employer contributions (other than elective contributions described in Code §§ 402(e)(3), 408(k)(6), 408(p)(2)(A)(i), or 457(b)) to a plan of deferred compensation (including a simplified employee pension described in Code § 408(k) or a simple retirement account described in Code § 408(p)), to the extent not includible in the Employee’s gross income for the taxable year in which contributed, and any distributions from a plan of deferred compensation regardless of whether the distribution amounts are includible in the gross income of the Employee when distributed;

 

(B)     Amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by the employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture;

 

(C)     Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; 

 

(D)     Other amounts which receive special tax benefits, such as premiums for group term life insurance (but only to the extent that the premiums are not includible in the gross income of the Employee and are not salary reduction amounts described in Code § 125); 

 

(E)     Amounts received after an Employee’s severance from employment for unused accrued bona fide sick, vacation or other leave; and

 

(F)     Other items of remuneration similar to items described in (b)(2)(a)-(d) above.

 

 

18

 

 

(c)          In the event that the limitations on Annual Additions described in this Section 5.6(a) above are exceeded for any reason allowed under any applicable guidance with respect to any Participant in any Limitation Year, then the contributions allocable to the Participant for such year shall be reduced to the minimum extent required by such limitations in the following order of priority:

 

(1)     If any further reductions in Annual Additions are necessary, then the Employee Stock Ownership contributions and forfeitures allocated during such Limitation Year to the Participant’s Employee Stock Ownership Account shall be reduced. The amount of any such reductions in the Employee Stock Ownership contributions and forfeitures shall be reallocated to all other Participants in the same manner as set forth under Sections 5.4 and 5.5.

 

(2)     Any amounts which cannot be reallocated to other Participants in a current Limitation Year in accordance with Section 5.6(c)(1) above because of the limitations contained in Section 5.6(a) shall be credited to an account designated as the “limitations account” and carried forward to the next and subsequent Limitation Years until it can be reallocated to all Participants as set forth in Sections 5.4, and 5.5, as appropriate. No Investment Adjustments shall be allocated to this limitations account. In the next and subsequent Limitation Years, all amounts in the limitations account must be allocated in the manner described in Sections 5.4 and 5.5, as appropriate, before any Employee Stock Ownership contributions may be made to this Plan for that Limitation Year.

 

(3)     The Administrator shall determine to what extent the Annual Additions to any Participant’s Employee Stock Ownership Account must be reduced in each Limitation Year. The Administrator shall reduce the Annual Additions to all other qualified, tax-exempt retirement plans maintained by the Employer in accordance with the terms contained therein for required reductions or reallocations mandated by Code § 415 before reducing any Annual Additions in this Plan.

 

(4)     In the event this Plan is voluntarily terminated by the Employer under Section 13.5, any amounts credited to the limitations account described in Section 5.6(c)(2) above which have not be reallocated as set forth herein shall be distributed to the Participants who are still employed by the Employer on the date of termination, in the proportion that each Participant’s Compensation bears to the Compensation of all Participants.

 

(5)     Corrections for excess Annual Additions, if any, will be made as provided above (to the extent not inconsistent with applicable Treasury Regulations or other guidance) and under the appropriate program described in IRS Revenue Procedure 2013-12 (or subsequent guidance).

 

 

19

 

 

(d)     In the event that the Employer is a member of (1) a controlled group of corporations or a group of trades or businesses under common control (as described in Code §§ 414(b) or (c), as modified by Code § 415(h) thereof), or (2) an affiliated service group (as described in Code § 414(m)), the Annual Additions credited to any Participant’s accounts in any such Limitation Year shall be further limited by reason of the existence of all other qualified retirement plans maintained by such affiliated corporations, other entities under common control or other members of the affiliated service group, to the extent such reduction is required by Code § 415 and the regulations promulgated thereunder. The Administrator shall determine if any such reduction in the Annual Additions to a Participant’s accounts is required for this reason, and if so, the same provisions as stated in 5.6(c) above shall apply.

 

	
5.7
	
Erroneous Allocations.

 

No Participant shall be entitled to any Annual Additions or other allocations to his accounts in excess of those permitted under Sections 5.3, 5.4, 5.5, and 5.6. If it is determined at anytime that the Administrator and/or Trustees have erred in accepting and allocating any contributions or forfeitures under this Plan, or in allocating Investment Adjustments, or in excluding or including any person as a Participant, then the Administrator, in a uniform and nondiscriminatory manner, shall determine the manner in which such error shall be corrected and shall promptly advise the Trustee in writing of such error and of the method for correcting such error. The accounts of any or all Participants may be revised, if necessary, in order to correct such error.

 

	
5.8
	
Value of Participant’s Interest in Fund.

 

At any time, the value of a Participant’s interest in the Fund shall consist of the aggregate value of his Employee Stock Ownership Account and his distribution account, if any, determined as of the next-preceding Valuation Date. The Administrator shall maintain adequate records of the cost basis of Employer Securities allocated to each Participant’s Employer Stock Ownership Account.

 

	
5.9
	
Investment of Account Balances.

 

The Employee Stock Ownership Accounts shall be invested primarily in Employer Securities. Employer Securities shall constitute at least 51% of the assets of all Employee Stock Ownership Accounts. All sales of Employer Securities by the Trustee attributable to the Employee Stock Ownership Accounts of all Participants shall be charged pro rata to the Employee Stock Ownership Accounts of all Participants.

 

 

20

 

 

ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY

 

	
6.1
	
Normal Retirement.

 

A Participant who reaches his Normal Retirement Date and who shall retire at that time shall thereupon be entitled to retirement benefits based on the value of his interest in the Fund, payable pursuant to the provisions of Section 9.1. A Participant who remains in Service after his Normal Retirement Date shall not be entitled to any retirement benefits until his actual termination of Service thereafter (except as provided in Section 9.3(g)) and he shall meanwhile continue to participate in this Plan.

 

	
6.2
	
Early Retirement.

 

A Participant who reaches his Early Retirement .Date may retire at such time (or, at his election, as of the first day of any month thereafter prior to his Normal Retirement Date) and shall thereupon be entitled to retirement benefits based on the value of his interest in the Fund, payable pursuant to the provisions of Section 9.1.

 

	
6.3
	
Disability Retirement.

 

In the event a Participant incurs a Disability, he may retire on his Disability Retirement Date and shall thereupon be entitled to retirement benefits based on the value of his interest in the Fund, payable pursuant to the provisions of Section 9.1.

 

	
6.4
	
Death Benefits.

 

(a)     Upon the death of a Participant before his Retirement or other termination of Service, the value of his interest in the Fund shall be payable pursuant to the provisions of Section 9.1. The Administrator shall direct the Trustee to distribute his interest in the Fund to any surviving Beneficiary designated by the Participant or, if none, to such persons designated by the Administrator pursuant to Section 6.5.

 

(b)     Upon the death of a Former Participant, the Administrator shall direct the Trustee to distribute any undistributed balance of his interest in the Fund to any surviving Beneficiary designated by him or, if none, to such persons designated by the Administrator pursuant to Section 6.5.

 

(c)     The Administrator may require such proper proof of death and such evidence of the right of any person to receive the interest in the Fund of a deceased Participant or Former Participant as the Administrator may deem desirable. The Administrator’s determination of death and of the right of any person to receive payment shall be conclusive.

 

	
6.5
	
Designation of Death Beneficiary and Manner of Payment.

 

(a)     Each Participant shall have the right to designate a Beneficiary or Beneficiaries to receive the sum or sums to which he may be entitled upon his death. The Participant may also designate the manner in which any death benefits under this Plan shall be payable to his Beneficiary, provided that such designation is in accordance with Section 9.4. Such designation of Beneficiary and manner of payment shall be in writing and delivered to the Administrator, and shall be effective when received by the Administrator. The Participant shall have the right to change such designation by notice in writing to the Administrator. Such change of Beneficiary or the manner of payment shall become effective upon its receipt by the Administrator. Any such change shall be deemed to revoke all prior designations.

 

 

21

 

 

(b)     If a Participant shall fail to designate validly a Beneficiary or if no designated Beneficiary survives the Participant, his interest in the Fund shall be paid to the person or persons in the first of the following classes of successive preference Beneficiaries surviving at the death of the Participant: the Participant’s (1) widow or widower, (2) children, (3) parents, and (4) estate. The Administrator shall decide what Beneficiaries, if any, shall have been validly designated, and its decision shall be binding and conclusive on all persons.

 

(c)     Notwithstanding the foregoing, if a Participant has been married throughout the 12 month period preceding the date of his death, the sum or sums to which he may be entitled under this Plan upon his death shall be paid to his spouse, unless the Participant’s spouse shall have consented to the election of another Beneficiary. Such a spousal consent shall be in writing and shall be witnessed either by a representative of the Plan or a notary public. If it is established to the satisfaction of the Administrator that such spousal consent cannot be obtained because there is no spouse, because the spouse cannot be located, or other reasons prescribed by governmental regulations, the consent of the spouse may be waived, and the Participant may designate a Beneficiary or Beneficiaries other than his spouse.

 

 

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ARTICLE VII
VESTING AND FORFEITURES

 

	
7.1
	
Vesting on Death, Disability and Normal Retirement.

 

Unless his participation in this Plan shall have terminated prior thereto, upon a Participant’s death, Disability or upon his attainment of Normal Retirement Date (whether or not he actually retires at that time) while he is still employed by the Employer, the Participant’s entire interest in the Fund shall be fully vested and nonforfeitable.

 

	
7.2
	
Vesting on Termination of Participation.

 

Upon termination of his participation in this Plan for any reason other than death, Disability, or Normal Retirement, a Participant shall be vested in a percentage of his Employee Stock Ownership Account based on the Years of Service (including Years of Service prior to the Effective Date) credited to him for vesting purposes at the time of his termination of participation.

 

(a)     For any Participant who completes at least one Hour of Service on or after January 1, 2015 (or, if earlier, the date on which any Exempt Loan that was outstanding on January 1, 2007 is repaid), the following vesting schedule applies:

 

	
Years of Service Completed
	 	
Percentage Vested

	 	 	 
	
Less than 3
	 	
0%

	 	 	 
	
3 or more
	 	
100%

 

(b)     For any Participant who does not meet the requirement in subsection (a), the following vesting schedule applies: 

 

	
Years of Service Completed
	 	
Percentage Vested

	 	 	 
	
Less than 5
	 	
0%

	 	 	 
	
5 or more
	 	
100%

 

Any portion of the Participant’s Employee Stock Ownership Account which is not vested at the time he incurs a Break shall thereupon be forfeited and disposed of pursuant to Section 7.3. Distribution of the vested portion of a terminated Participant’s interest in the Plan may be authorized by the Administrator in any manner permitted under Section 9.1.

 

	
7.3
	
Disposition of Forfeitures.

 

(a)     In the event a Participant incurs a Break and subsequently resumes both his Service and his participation in the Plan prior to incurring at least 5 Breaks, the forfeitable portion of his Employee Stock Ownership Account shall be reinstated to the credit of the Participant as of the date he resumes participation.

 

 

23

 

 

(b)     In the event a Participant terminates Service and subsequently incurs a Break and receives a distribution, or in the event a Participant does not terminate Service, but incurs at least 5 Breaks, or in the event that a Participant terminates Service and incurs at least 5 Breaks but has not received a distribution, then the forfeitable portion of his Employer Account, including Investment Adjustments, shall be reallocated to other Participants, pursuant to Section 5.4 as of the date the Participant incurs such Break or Breaks, as the case may be.

 

(c)     In the event a former Participant who had received a distribution from the Plan is rehired, he shall repay the amount of his distribution before the earlier of 5 years after the date of his rehire by the Employer, or the close of the first period of 5 consecutive Breaks commencing after the withdrawal in order for any forfeited amounts to be restored to him.

 

 

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ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS

 

	
8.1
	
Right to Demand Employer Securities.

 

A Participant entitled to a distribution from his Employee Stock Ownership Account shall be entitled to demand that his interest in the Account be distributed to him in the form of Employer Securities, all subject to Section 9.10. In the event that the Employer Securities are not readily tradable on an established market, the Participant shall be entitled to require that the Employer repurchase the Employer Securities under a fair valuation formula, as provided by governmental regulations. The Participant or Beneficiary shall be entitled to exercise the put option described in the preceding sentence for a period of not more than 60 days following the date of distribution of Employer Securities to him. If the put option is not exercised within such 60-day period, the Participant or Beneficiary may exercise the put option during an additional period of not more than 60 days after the beginning of the first day of the first Plan Year following the Plan Year in which the first put option period occurred, all as provided in regulations promulgated by the Secretary of the Treasury.

 

	
8.2
	
Voting Rights.

 

Each Participant with an Employee Stock Ownership Account shall be entitled to direct the Trustee as to the manner in which the Employer Securities in such Account are to be voted. Employer Securities held in the Employee Stock Ownership Suspense Account or the Exempt Loan Suspense Account shall be voted by the Trustee on each issue with respect to which shareholders are entitled to vote, in the proportion that the Participants had voted the shares allocated to their Accounts with respect to such issue. Prior to the initial allocation of shares, the Trustee shall be entitled to vote the shares in the Suspense Account without prior direction from the Participants or the Administrator.

 

	
8.3
	
Nondiscrimination in Employee Stock Ownership Contributions.

 

In the event that the amount of the Employee Stock Ownership contributions that would be required in any Plan Year to make the scheduled payments on an Exempt Loan would exceed the amount that would otherwise be deductible by the Employer for such Plan Year under Code § 404, then no more than one-third of the Employee Stock Ownership contributions for the Plan Year, which is also the Employer’s taxable year, shall be allocated to the group consisting of those Employees who, during the Plan Year or the preceding Plan Year, meet any one of the following requirements:

 

(a)     The employee at any time during the current or prior Plan Year was a more than 5-percent owner as defined in Code § 414(q)(2), or was the spouse, child, parent or grandparent of such an owner to whom the owner’s stock is attributed pursuant to Code § 318 (regardless of the Compensation of the owner or family member). 

 

(b)     The employee received Compensation from the employer in excess of $120,000 for the prior Plan Year. The employee must also have been in the top 20 percent of employees of the employer who performed services for the employer in such prior Plan Year, when ranked on the basis of Compensation paid during the Plan Year. For purposes of determining the top 20 percent of employees under Code § 414(q)(3), the Plan will disregard any non-resident aliens who receive no earned income from the employer which constitutes income from sources within the United States.

 

 

25

 

 

(c)     The individual is a former employee who had a separation year prior to the current Plan Year and such individual performed services for the employer and was a highly compensated employee within the meaning of Code § 414(q) for either (i) such separation year, or (ii) any Plan Year ending on or after the individual’s 55th birthday. A “separation year” is the Plan Year in which the individual separates from service with the employer. With respect to an individual who separated from service before January 1, 1987, the individual will be included as a highly compensated employee only if the individual was a more than 5-percent owner or received Compensation in excess of $50,000 during (i) the employee’s separation year (or the year preceding such separation year), or (ii) any year ending on or after such individual’s 55th birthday (or the last year ending before such individual’s 55th birthday).

 

(d)     The dollar amount specified in subsection (b) shall be indexed for cost of living increases for each calendar year after 2016 as provided in the applicable Treasury regulations. For any Plan Year, the applicable dollar amount shall be the dollar amount in effect for the calendar year in which the Plan Year commences.

 

(e)     For purposes of this section, “employer” includes the Employer and all Affiliates, and “employee” includes Leased Employees.

 

(f)     For purposes of this section, “Compensation” means the amount defined as such under Section 5.6.

 

	
8.4
	
Dividends.

 

Dividends paid with respect to Employer Securities credited to a Participant’s Employee Stock Ownership account as of the record date for the dividend payment may be paid in cash to the Participants, pursuant to the directions of the Board of Directors of the Sponsor. If the Board of Directors shall direct that the aforesaid dividends shall be paid directly to Participants, the quarterly dividends paid with respect to such Employer Securities shall be paid to the Plan, from which dividend distributions in cash shall be made to the Participants with respect to the Employer Securities in their Employee Stock Ownership Accounts within 90 days of the close of the Plan Year in which the dividends were paid. Dividends on Employer Securities obtained pursuant to an Exempt Loan and still held in the Suspense Account may be used to make payments on an Exempt Loan, as described in Section 8.5.

 

 

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8.5
	
Exempt Loans.

 

(a)     The Sponsor may direct the Trustee to obtain Exempt Loans. The Exempt Loan may take the form of (i) a loan from a bank or other commercial lender to purchase Employer Securities (ii) a loan from the Employer to the Plan; or (iii) an installment sale of Employer Securities to the Plan. The proceeds of any such Exempt Loan shall be used, within a reasonable time after the Exempt Loan is obtained, only to purchase Employer Securities, repay the Exempt Loan, or repay any prior Exempt Loan. Any such Exempt Loan shall provide for no more than a reasonable rate of interest and shall be without recourse against the Plan. The number of years to maturity under the Exempt Loan must be definitely ascertainable at all times. The only assets of the Plan that may be given as collateral for an Exempt Loan are Employer Securities acquired with the proceeds of the Exempt Loan and Employer Securities that were used as collateral for a prior Exempt Loan repaid with the proceeds of the current Exempt Loan. Such Employer Securities so pledged shall be placed in an Exempt Loan Suspense Account. No person or institution entitled to payment under an Exempt Loan shall have recourse against Trust assets other than the aforesaid collateral, Employer Stock Ownership contributions (other than contributions of Employer Securities) that are available under the Plan to meet obligations under the Exempt Loan and earnings attributable to such collateral and the investment of such contributions. All Employee Stock Ownership contributions paid during the Plan Year in which an Exempt Loan is made (whether before or after the date the proceeds of the Exempt Loan are received), all Employee Stock Ownership contributions paid thereafter until the Exempt Loan has been repaid in full, and all earnings from investment of such Employee Stock Ownership contributions, without regard to whether any such Employee Stock Ownership contributions and earnings have been allocated to Participants’ Employee Stock Ownership Accounts, shall be available to meet obligations under the Exempt Loan as such obligations accrue, or prior to the time such obligations accrue, unless otherwise provided by the Employer at the time any such contribution is made. Any pledge of Employer Securities shall provide for the release of shares so pledged upon the payment of any portion of the Exempt Loan.

 

(b)     For each Plan Year during the duration of the Exempt Loan, the number of shares of Employer Securities released from such pledge shall equal the number of encumbered shares held immediately before release for the current Plan Year multiplied by a fraction. The numerator of the fraction is the sum of principal and interest paid in such Plan Year. The denominator of the fraction is the sum of the numerator plus the principal and interest to be paid for all future years. Such years will be determined without taking into account any possible extension or renewal periods. If interest on any Exempt Loan is variable, the interest to be paid in future years under the Exempt Loan shall be computed by using the interest rate applicable as of the end of the Plan Year.

 

(c)     Notwithstanding the foregoing, the Trustee may obtain an Exempt Loan pursuant to the terms of which the number of Employer Securities to be released from encumbrance shall be determined solely with reference to principal payments. In the event that such an Exempt Loan is obtained, annual payments of principal and interest shall be at a cumulative rate that is not less rapid at any time than level payments of such amounts for not more than 10 years. The amount of interest in any such annual loan repayment shall be disregarded only to the extent that it would be determined to be interest under standard loan amortization tables. The requirement set forth in the preceding sentence shall not be applicable from the time that, by reason of a renewal, extension, or refinancing, the sum of the expired duration of the Exempt Loan, the renewal period, the extension period, and the duration of a new Exempt Loan exceeds 10 years.

 

	
8.6
	
Exempt Loan Payments.

 

(a)     Payments of principal and interest on any Exempt Loan during a Plan Year shall be made by the Trustee (as directed by the Administrator) only from (1) Employee Stock Ownership contributions to the Trust made to meet the Plan’s obligation under an Exempt Loan (other than contributions of Employer Securities) and from any earnings attributable to Employer Securities held as collateral for an Exempt Loan and investments of such contributions (both received during or prior to the Plan Year); (2) the proceeds of a subsequent Exempt Loan made to repay a prior Exempt Loan; and (3) the proceeds of the sale of any Employer Securities held as collateral for an Exempt Loan. Such contribution and earnings shall be accounted for separately by the Plan until the Exempt Loan is repaid.

 

 

27

 

 

(b)     Employer Securities released by reason of the payment of principal or interest on an Exempt Loan from amounts allocated to Participants’ Employee Stock Ownership Accounts shall immediately upon payment be allocated as set forth in Section 5.5. 

 

(c)     The Employer shall contribute to the Trust sufficient amounts to enable the Trust to pay principal and interest on any such Exempt Loans as they are due, provided however that no such contribution shall exceed the limitations in Section 5.6. In the event that such contributions by reason of the limitations in Section 5.6 are insufficient to enable the Trust to pay principal and interest on such Exempt Loan as it is due, then upon the Trustee’s request the Employer shall:

 

(1)     Make an Exempt Loan to the Trust in sufficient amounts to meet such principal and interest payments. Such new Exempt Loan shall be subordinated to the prior Exempt Loan. Securities released from the pledge of the prior Exempt Loan shall be pledged as collateral to secure the new Exempt Loan. Such Employer Securities will be released from this new pledge and allocated to the Employee Stock Ownership Accounts of the Participants in accordance with applicable provisions of the Plan;

 

(2)     Purchase any Employer Securities pledged as collateral in an amount necessary to provide the Trustee with sufficient funds to meet the principal and interest repayments. Any such sale by the Plan shall meet the requirements of ERISA § 408(e); or

 

(3)     Any combination of the foregoing. However, the Employer shall not, pursuant to the provisions of this subsection, do, fail to do or cause to be done any act or thing which would result in a disqualification of the Plan as an Employee Stock Ownership Plan under the Code.

 

(d)     Except as provided in Section 8.1 above and notwithstanding any amendment to or termination of the Plan which causes it to cease to qualify as an Employee Stock Ownership plan within the meaning of Code § 4975(e)(7), or any repayment of an Exempt Loan, no shares of Employer Securities acquired with the proceeds of an Exempt Loan obtained by the Trust to purchase Employer Securities may be subject to a put, call or other option, or buy-sell or similar arrangement while such shares are held by the Plan or when such Shares are distributed from the Plan. The protections and rights provided under this subsection (d) shall be non-terminable as provided in IRS Treas. Reg. § 54.4975-11(a)(3)(ii).

 

	
8.7
	
Put Option.

 

If a Participant exercises a put option (as set forth in Section 8.1) with respect to Employer Securities that were distributed as part of a total distribution pursuant to which a Participant’s Employee Stock Ownership Account is distributed to him in a single taxable year, the Employer or the Plan may elect to pay the purchase price of the Employer Securities over a period not to exceed 5 years. Such payments shall be made in substantially equal installments not less frequently than annually over a period beginning not later than 30 days after the exercise of the put option. Reasonable interest shall be paid to the Participant with respect to the unpaid balance of the purchase price and adequate security shall be provided with respect thereto. In the event that a Participant exercises a put option with respect to Employer Securities that are distributed as part of an installment distribution, the amount to be paid for such securities shall be paid not later than 30 days after the exercise of the put option.

 

 

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8.8
	
Diversification Requirements.

 

Each Participant who has completed at least 10 years of participation in the Plan and has attained age 55 may elect within 90 days after the close of each Plan Year during his “qualified election period” to direct the Plan as to the investment of at least 25 percent of his Employee Stock Ownership Account (to the extent such percentage exceeds the amount to which a prior election under this Section 8.8 had been made). For purposes of this Section 8.8, the term “qualified election period” shall mean the 5-Plan-Year period beginning with the Plan Year after the Plan Year in which the Participant attains age 55 (or, if later, beginning with the Plan Year after the first Plan Year in which the Employee first completes at least 10 years of participation in the Plan). In the case of the Employee who has attained age 60 and completed 10 years of participation in the prior Plan Year and in the case of the election year in which any other Participant who has met the minimum age and service requirements for diversification can make his last election hereunder, he shall be entitled to direct the Plan as to the investment of at least 50 percent of his Employee Stock Ownership Account (to the extent such percentage exceeds the amount to which a prior election under this Section 8.8 had been made). The Plan shall make available at least 3 investment options (not inconsistent with regulations prescribed by the Department of Treasury) to each Participant making an election hereunder. The Plan shall be deemed to have met the requirements of this Section if the portion of the Participant’s Employee Stock Ownership Account covered by the election hereunder is distributed to the Participant or his designated Beneficiary within 90 days after the period during which the election may be made. In the absence of such a distribution, the Trustee shall implement the Participant’s election within 90 days following the expiration of the qualified election period.

 

	
8.9
	
Independent Appraiser.

 

An independent appraiser meeting the requirements of Code § 170(a)(1) shall value the Employer Securities in those Plan Years when such securities are not readily tradable on an established securities market.

 

	
8.10
	
Disqualified Person Transactions. 

 

In the case of any transaction between the Plan and a disqualified person, as defined at Code § 4975(e)(2), the value of Employer Securities shall be determined as of the date of the transaction.

 

 

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ARTICLE IX
PAYMENTS AND DISTRIBUTIONS

 

	
9.1
	
Payments on Termination of Service — In General.

 

All benefits provided under this Plan shall be funded by the value of a Participant’s vested interest in the Fund. As soon as practicable after a Participant’s Retirement, death or termination of Service, the Administrator shall ascertain the value of his vested interest in the Fund, as provided in Article V, and the Administrator shall hold or dispose of the same in accordance with the following provisions of this Article IX.

 

	
9.2
	
Commencement of Payments.

 

(a)     Distributions upon Retirement or Death. Upon a Participant’s Retirement or Death, payment of benefits under this Plan shall, unless the Participant otherwise elects (in accordance with Section 9.3), commence no later than 6 months after the close of the Plan Year in which occurs the date of the Participant’s Retirement or death.

 

(b)     Distribution following Termination of Service. Unless a Participant elects otherwise, if a Participant terminates Service prior to Retirement or death, he shall be accorded an opportunity to commence receipt of distributions from his Accounts within six (6) months after the Valuation Date next following the date of his termination of service. A Participant who terminates Service with a deferred vested benefit shall be entitled to receive from the Administrator a statement of his benefits. In the event that a Participant elects not to commence receipt of distributions from his Accounts in accordance with this Section 9.2(b), after the Participant incurs a Break, the Administrator shall transfer his deferred vested interest to a distribution account. If the value of a Participant’s vested Accounts (including any rollover accounts, if permitted under the Plan) do not exceed $1,000 on the Valuation Date next following the date of his termination of Service (or if the value is later determined to be $1,000 or less), the Plan Administrator may distribute the vested portion of his Accounts as soon as administratively feasible without the consent of the Participant or his spouse.

 

(c)     Distribution of Accounts Greater Than $1,000. If the value of a Participant’s vested Accounts exceeds $1,000, and the Account balance is immediately distributable, the Participant must consent to any distribution of such Account balance. The Plan Administrator shall notify the Participant of the right to defer any distribution until the Participant’s Account balance is no longer immediately distributable. The consent of the Participant shall not be required to the extent that a distribution is required to satisfy Code §§ 401(a)(9) or 415.

 

	
9.3
	
Mandatory Commencement of Benefits.

 

(a)     Unless a Participant elects otherwise, in writing, distribution of benefits will begin no later than the 60th day after the latest of the close of the Plan Year in which (i) the Participant attains age 65, (ii) occurs the tenth anniversary of the year in which the Participant commenced participation in the Plan Year, or (iii) the Participant terminates Service with the Employer.

 

 

30

 

 

(b)     In the event that the Plan shall be subsequently amended to provide for a form of distribution other than a lump sum, as of the first distribution calendar year, distributions, if not made in a lump sum, may be made only over one of the following periods (or a combination thereof):

 

	
(i)
	 	
the life of the Participant,

	 	 	 
	
(ii)
	 	
the life of the Participant and the designated beneficiary,

	 	 	 
	
(iii)
	 	
a period certain not extending beyond the life expectancy of the Participant, or

	 	 	 
	
(iv)
	 	
a period certain not extending beyond the joint and last survivor expectancy of the Participant and a designated beneficiary.

 

(c)     In the event that the Plan shall be subsequently amended to provide for a form of distribution other than a lump sum, if the participant’s interest is to be distributed in other than a lump sum, the following minimum distribution rules shall apply on or after the required beginning date:

 

(i)     If a Participant’s benefit is to be distributed over (1) a period not extending beyond the life expectancy of the Participant or the joint life and last survivor expectancy of the Participant and the Participant’s designated beneficiary or (2) a period not extending beyond the life expectancy of the designated beneficiary, the amount required to be distributed for each calendar year, beginning with distributions for the ‘first distribution calendar year, must at least equal the quotient obtained by dividing the Participant’s benefit by the applicable life expectancy.

 

(ii)     For calendar years beginning after December 31, 1988, the amount to be distributed each year, beginning with distributions for the first distribution calendar year shall not be less than the quotient obtained by dividing the Participant’s benefit by the lesser of (1) the applicable life expectancy or (2) if the Participant’s spouse is not the designated beneficiary, the applicable divisor determined from the table set forth in Proposed Regulations § 1.401(a)(9)-2 Q&A-4. Distributions after the death of the participant shall be distributed using the applicable life expectancy in subsection (iii) above as the relevant divisor without regard to Proposed Regulations § 1.401(a)(9)-2.

 

(iii)     The minimum distribution required for the Participant’s first distribution calendar year must be made on or before the Participant’s required beginning date. The minimum distribution for other calendar years, including the minimum distribution for the distribution calendar year in which the employee’s required beginning date occurs, must be made on or before December 31 of the distribution calendar year.

 

(d)     If a Participant dies after a distribution has commenced in accordance with Section 8.3(b) but before his entire interest has been distributed to him, the remaining portion of such interest shall be distributed to his Beneficiary at least as rapidly as under the method of distribution in effect as of the date of his death.

 

 

31

 

 

(e)     If a Participant shall die before the distribution of his interest in the Plan has begun, the entire interest of the Participant shall be distributed by December 31 of the calendar year containing the fifth anniversary of the death of the Participant, except in the following events:

 

(i)     If any portion of the Participant’s interest is payable to (or for the benefit of) a designated beneficiary over a period not extending beyond the life expectancy of such beneficiary and such distributions begin not later than December 31 of the calendar year immediately following the calendar year in which the Participant died.

 

(ii)     If any portion of the Participant’s interest is payable to (or for the benefit of) the Participant’s spouse over a period not extending beyond the life expectancy of such spouse and such distributions begin no later than December 31 of the calendar year in which the Participant would have attained age 701⁄2.

 

If the Participant has not made a distribution election by the time of his death, the Participant’s designated beneficiary shall elect the method of distribution no later than the earlier of (1) December 31 of the calendar year in which distributions would be required to begin under this Article or (2) December 31 of the calendar year which contains the fifth anniversary of the date of death of the Participant. If the Participant has no designated beneficiary, or if the designated beneficiary does not elect a method of distribution, distribution of the Participant’s entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

 

(f)     For purposes of this Article, the life expectancy of a Participant and his spouse may be redetermined but not more frequently than annually. The life expectancy (or joint and last survivor expectancy) shall be calculated using the attained age of the Participant (or designated beneficiary) as of the Participant’s (or designated beneficiary’s) birthday in the applicable calendar year reduced by one for each calendar year which has elapsed since the date life expectancy was first calculated. If life expectancy is being recalculated, the applicable life expectancy shall be the life expectancy as so recalculated. The applicable calendar year shall be the first distribution calendar year, and if life expectancy is being recalculated, such succeeding calendar year. Unless otherwise elected by the Participant (or his spouse, if applicable) by the time distributions are required to begin, life expectancies shall be recalculated annually. Any such election not to recalculate shall be irrevocable and shall apply to all subsequent years. The life expectancy of a nonspouse beneficiary may not be recalculated.

 

(g)     For purposes of Section 9.3(b) and 9.3(e), any amount paid to a child shall be treated as if it had been paid to a surviving spouse if such amount will become payable to the surviving spouse upon such child reaching majority (or other designated event permitted under regulations).

 

(h)     For distributions beginning before the Participant’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant’s required beginning date. For distributions beginning after the Participant’s death, the first distribution calendar year is the calendar year in which distributions are required to begin pursuant to this Article.

 

 

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9.4
	
Required Beginning Dates.

 

For purposes of this section, a Participant’s “required beginning date” is April 1 of the calendar year following the later of (i) the calendar year in which the Participant attained age 701⁄2, or (ii) the calendar year in which the Participant terminates Service with the Employer. However, clause (ii) of the previous sentence does not apply to any Participant who is a more than 5-percent owner of the Employer (as defined in Code § 416) with respect to the Plan Year ending in the calendar year in which the Participant attains age 701⁄2. Any Participant who had begun receiving minimum distributions for years prior to 1999, but who is not required to receive such distributions under the provisions of this subsection, may file a written election with the Company to stop those distributions until the required beginning date under this subsection.

 

	
9.5
	
Form of Payment.

 

Each Participant’s vested interest shall be distributed in a lump sum payment. Notwithstanding the preceding sentence, but subject to Section 9.3, the Administrator may not distribute a lump sum when the value of a Participant’s vested Accounts is in excess of $1,000 without the Participant’s consent. This form of payment shall be the normal form of distribution. Furthermore, however, in the event that the Administrator must commence distributions with respect to an Employee who has attained age 701⁄2 and is still employed by the Employer, if the Employee does not elect a lump sum distribution, payments shall be made in installments in such amounts as shall satisfy the minimum distribution rules of Section 9.3.

 

	
9.6
	
Medium of Distribution.

 

The distribution (including any direct rollover) will be made, pursuant to the Participant’s election, in either one or a combination of the following: (i) cash, or (ii) whole shares of Employer Securities (with any fractional share paid in cash). If the Participant does not elect a medium of distribution, the distribution will be made in cash.

 

	
9.7
	
Payments Upon Termination of Plan.

 

Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5 or 13.6, the Administrator shall continue to perform its duties and the Trustee shall make all payments upon the following terms, conditions and provisions: All interests of Participants shall immediately become fully vested; the value of the interests of all Participants shall be determined within 60 days after such termination, and the Administrator shall have the same powers to direct the Trustee in making payments as contained in Sections 9.1 and 13.5.

 

	
9.8
	
Distributions Pursuant to Qualified Domestic Relations Orders.

 

Upon receipt of a domestic relations order, the Administrator shall notify promptly the Participant and any alternate payee of receipt of the order and the Plan’s procedure for determining whether the order is a Qualified Domestic Relations Order. While the issue of whether a domestic relations order is a Qualified Domestic Relations Order is being determined, if the benefits would otherwise be paid, the Administrator shall segregate in a separate account in the Plan the amounts that would be payable to the alternate payee during such period if the order were a Qualified Domestic Relations Order. If within 18 months the order is determined to be a Qualified Domestic Relations Order, the amounts so segregated, along with the interest or investment earnings attributable thereto shall be paid to the alternate payee. Alternatively, if within 18 months, it is determined that the order is not a Qualified Domestic Relations Order or if the issue is still unresolved, the amounts segregated under this Section 9.8, with the earnings attributable thereto, shall be paid to the Participant or Beneficiary who would have been entitled to such amounts if there had been no order. The determination as to whether the order is qualified shall be applied prospectively. Thus, if the Administrator determines that the order is a Qualified Domestic Relations Order after the 18-month period, the Plan shall not be liable for payments to the alternative payee for the period before the order is determined to be a Qualified Domestic Relations Order.

 

 

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9.9
	
Cash-Out Distributions.

 

If a Participant receives a distribution of the entire present value of his vested Account balances under this Plan because of the termination of his participation in the Plan, the Plan shall disregard a Participant’s Service with respect to which such cash-out distribution shall have been made, in computing his accrued benefit under the Plan in the event that a Former Participant shall again become an Employee and become eligible to participate in the Plan. Such a distribution shall be deemed to be made on termination of participation in the Plan if it is made not later than the close of the second Plan Year following the Plan Year in which such termination occurs. The forfeitable portion of a Participant’s accrued benefit shall be restored upon repayment to the Plan by such former Participant of the full amount of the cash-out distribution, provided that the former Participant again becomes an Employee. Such repayment must be made by the Employee not later than the end of the 5-year period beginning with the date of the distribution. Forfeitures required to be restored by virtue of such repayment shall be restored from the following sources in the following order of preference: (i) current forfeitures; (ii) additional employee stock ownership contributions, as appropriate and as subject to Section 5.6; and (iii) investment earnings of the Fund. In the event that a Participant’s interest in the Plan is totally forfeitable, a Participant shall be deemed to have received a distribution of zero upon his termination of Service. In the event of a return to Service within 5 years of the date of his deemed distribution, the Participant shall be deemed to have repaid his distribution in accordance with the rules of this Section 9.9

 

	
9.10
	
ESOP Distribution Rules.

 

Notwithstanding any provision of this Article IX to the contrary, the distribution of a Participant’s Employee Stock Ownership Account (unless the Participant elects otherwise in writing), shall commence as soon as administratively feasible as of the first Valuation Date coincident with or next following his death, disability or termination of Service, but not later than 1 year after the close of the Plan Year in which the Participant separates from Service by reason of the attainment of his Normal Retirement Date, disability, death or separation from Service. In addition, the medium of all distributions hereunder shall be determined pursuant to Section 9.6.

 

	
9.11
	
Withholding.

 

(a)     Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee’s election under this Article IX, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an “eligible rollover distribution” paid directly to an “eligible retirement plan” specified by the distributee in a “direct rollover.”

 

 

34

 

 

(b)     An “eligible rollover distribution” is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life expectancy of the distributee or the joint life expectancies of the distributee and the distributee’s designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code § 401(a)(9); and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities).

 

(1)     Any withdrawal from the Participant’s accounts due to financial hardship prior to age 591⁄2 is not an eligible rollover distribution.

 

(2)     A portion of a distribution shall not fail to be an eligible rollover 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 individual retirement account or annuity described in Code § 408(a) or (b), or to a qualified defined contribution plan described in Code §§ 401(a) or 403(a) that agrees to separately account for the 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.

 

(c)     An “eligible retirement plan” is an individual retirement account described in Code § 408(a), an individual retirement annuity described in Code § 408(b), an annuity plan described in Code § 403(a), or a qualified trust described in Code § 401(a) with respect to a defined contribution plan, that accepts the distributee’s eligible rollover distribution. An eligible retirement plan also means an annuity contract described in Code § 403(b), or an eligible plan under Code § 457(b) which is maintained by a state, a political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to account separately for amounts transferred into such plan from this Plan.

 

(d)     For purposes of this Section 9.11, a distributee includes a Participant or former Participant. In addition, the Participant’s or former Participant’s surviving spouse and the Participant’s or former Participant’s spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code § 414(p), are “distributees” with regard to the interest of the spouse or former spouse.

 

(e)     For purposes of this Section 9.11, a “direct rollover” is a payment by the Plan to the “eligible retirement plan” specified by the distributee.

 

	
9.12
	
Waiver of 30-day Notice.

 

If a distribution is one to which Code §§ 401(a)(11) and 417 do not apply, such distribution may commence less than 30 days after the notice required under IRS Treas. Reg. § l.411(a)-11(c) is given, provided that: (1) the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution.

 

 

35

 

 

9.13     Direct Transfer Option.

 

A Beneficiary who is not a spouse of a deceased Participant, but who is a “designated beneficiary” under Code § 401(a)(9)(E) may elect, at the time and in the manner prescribed by the Administrator, to have all or any portion of the “transfer-eligible” amount payable from the Plan transferred directly to an individual retirement account described in Code § 408. For this purpose, the “transfer-eligible” amount is:

 

(a)     During the calendar year containing the date of the Participant’s death, the Beneficiary’s full interest in the Plan.

 

(b)     During the next calendar year, the Beneficiary’s full interest in the Plan, provided, however, that if the Beneficiary wants to apply the “life expectancy” rule of Code § 401(a)(9)(B)(iii) to the individual retirement account, the “transfer-eligible” amount is the balance of the Beneficiary’s, less the required minimum distribution due to the Beneficiary, as determined under Code § 401(a)(9).

 

(c)     During the subsequent three calendar years, the full balance of the Beneficiary’s Account.

 

(d)     During the calendar year containing the fifth anniversary of the Participant’s death, the “transfer-eligible” amount is zero, because the Beneficiary’s Account must be fully distributed from the Plan. 

 

A Beneficiary electing a direct transfer under this Section 9.13 must provide the Administrator with the information necessary to accomplish the direct transfer in such manner and in accordance with such rules as may be prescribed for this purpose by the Administrator.

 

 

36

 

 

ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS

 

	
10.1
	
Top-Heavy Rules to Control.

 

Anything contained in this Plan to the contrary notwithstanding, if for any Plan Year the Plan is a top-heavy plan, as determined pursuant to Code § 416 and the regulations thereunder in effect for the particular Plan Year, then the Plan must meet the requirements of this Article X for such Plan Year.

 

	
10.2
	
Top-Heavy Plan Definitions.

 

Unless a different meaning is plainly implied by the context, the following terms as used in this Article X shall have the following meanings:

 

(a)     “Accrued Benefit” shall mean the account balances or accrued benefits of an Employee, calculated pursuant to Section 10.3.

 

(b)     “Determination Date” shall mean, with respect to any particular Plan Year of this Plan, the last day of the preceding Plan Year (or, in the case of the first Plan Year of the Plan, the last day of the first Plan Year). In addition, the term “Determination Date” shall mean, with respect to any particular plan year of any plan (other than this Plan) in a Required Aggregation Group or a Permissive Aggregation Group, the last day of the plan year of such plan which falls within the same calendar year as the Determination Date for this Plan.

 

(c)     “Employer” shall mean the Employer (as defined in Section 1.1(r)) and any entity which is (1) a member of a controlled group including such Employer, while it is a member of such controlled group (within the meaning of Code § 414(b)), (2) in a group of trades or businesses under common control with such Employer, while it is under common control (within the meaning of Code § 414(c)), and (3) a member of an affiliated service group including such Employer, while it is a member of such affiliated service group (within the meaning of Code § 414(m)).

 

(d)     “Key Employee” shall mean any Employee or former Employee (or any Beneficiary of such Employee or former Employee, as the case may be) who, at any time during the Plan Year or during the 4 immediately preceding Plan Years is one of the following:

 

(1)     An officer of the Employer who has compensation greater than 150% of the amount in effect under Code § 415(c)(1)(A) for the Plan Year; provided, however, that no more than 50 Employees (or, if lesser, the greater of 3 or 10% of the Employees) shall be deemed officers;

 

(2)     One of the 10 Employees having annual compensation (as defined in Code § 414(q)(7)) in excess of the limitation in effect under Code § 415(c)(1)(A), and owning (or considered as owning, within the meaning of Code § 318) the largest interests in the Employer;

 

 

37

 

 

(3)     Any Employee owning (or considered as owning, within the meaning of Code § 318) more than 5% of the outstanding stock of the Employer or stock possessing more than 5% of the total combined voting power of ‘all stock of the Employer; or

 

(4)     Any Employee having annual compensation (as defined in Code § 414(q)(7)) of more than $150,000 and who would be described in Section 10.2(d)(3) if “1%” were substituted for “5%” wherever the latter percentage appears.

 

For purposes of applying Code § 318 of the Code to the provisions of this Section 10.2(d), Code § 318(a)(2)(C) shall be applied by substituting “5%” for “50%” wherever the latter percentage appears. In addition, for purposes of this Section 10.2(d), the provisions of Code §§ 414(b), (c) and (m) shall not apply in determining ownership interests in the Employer. However, for purposes of determining whether an individual has compensation in excess of $150,000, or whether an individual is a Key Employee under Section 10.2(d)(1) and (2), compensation from each entity required to be aggregated under Code §§ 414(b), (c) and (m) shall be taken into account. Notwithstanding anything contained herein to the contrary, all determinations as to whether a person is or is not a Key Employee shall be resolved by reference to Code § 416 and any rules and regulations promulgated thereunder.

 

(e)     “Non-Key Employee” shall mean any Employee or former Employee (or any Beneficiary of such Employee or former Employee, as the case may be) who is not considered to be a Key Employee with respect to this Plan.

 

(f)     “Permissive Aggregation Group” shall mean all plans in the Required Aggregation Group and any other plans maintained by the Employer which satisfy Code §§ 401(a)(4) and 410 when considered together with the Required Aggregation Group.

 

(g)     “Required Aggregation Group” shall mean each plan (including any terminated plan) of the Employer in which a Key Employee is (or in the case of a terminated plan, had been) a Participant in the Plan Year containing the Determination Date or any of the 4 preceding Plan Years, and each other plan of the Employer which enables any plan of the Employer in which a Key Employee is a Participant to meet the requirement of Code §§ 401(a)(4) and 410.

 

	
10.3
	
Calculation of Accrued Benefits.

 

(a)           An Employee’s Accrued Benefit shall be equal to:

 

(1)     With respect to this Plan or any other defined contribution plan (other than a defined contribution pension plan) in a Required Aggregation Group or a Permissive Aggregation Group, the Employee’s account balances under the respective plan, determined as of the most recent plan valuation date within a 12-month period ending on the Determination Date, including contributions actually made after the valuation date but before the Determination Date (and, in the first plan year of a plan, also including any contributions made after the Determination Date which are allocated as of a date in the first plan year).

 

(2)     With respect to any defined contribution pension plan in a Required Aggregation Group or a Permissive Aggregation Group, the Employee’s account balances under the plan, determined as of the most recent plan valuation date within a 12-month period ending on the Determination Date, including contributions which have not actually been made, but which are due to be made as of the Determination Date.

 

 

38

 

 

(3)     With respect to any defined benefit plan in a Required Aggregation Group or a Permissive Aggregation Group, the present value of the Employee’s accrued benefits under the plan, determined as of the most recent plan. valuation date within a 12-month period ending on the Determination Date, pursuant to the actuarial assumptions used by such plan, and calculated as if the Employee terminated Service under such plan as of the valuation date (except that, in the first plan year of a plan, a current Participant’s estimated Accrued Benefit Plan as of the Determination Date shall be taken into account).

 

(4)     If an individual has not performed any services for the Employer at any time during the one-year period ending on the Determination Date with respect to a Plan Year, any account balance or accrued benefit for such individual shall not be taken into account for such Plan Year.

 

(b)          The Accrued Benefit of any Employee shall be further adjusted as follows:

 

(1)     The Accrued Benefit shall be calculated to include all amounts attributable to both Employer and Employee contributions, but shall exclude amounts attributable to voluntary deductible Employee contributions, if any.

 

(2)     The Accrued Benefit shall be increased by the aggregate distributions made with respect to an Employee under the plan or plans, as the case may be, during the 5-year period ending on the Determination Date.

 

(3)     Rollover and direct plan-to-plan transfers shall be taken into account as follows:

 

(A)     If the transfer is initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another unrelated employer, the transferring plan shall continue to count the amount transferred; the receiving plan shall not count the amount transferred.

 

(B)     If the transfer is not initiated by the Employee or is made between plans maintained by related employers, the transferring plan shall no longer count the amount transferred; the receiving plan shall count the amount transferred.

 

(4)     Any distribution due to severance from employment, death or disability which was made prior to the one-year period ending on the Determination Date shall be disregarded for purposes of applying this subsection (b). Paragraphs (1) and (2) of this subsection shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with this Plan under Code § 416(a)(2)(A)(i).

 

(c)         If any individual has not performed services for the Employer at any time during the 5-year period ending on the Determination Date, any accrued benefit for such individual (and the account of such individual) shall not be taken into account.

 

 

39

 

 

	
10.4
	
Determination of Top-Heavy Status.

 

This Plan shall be considered to be a top-heavy plan for any Plan Year if, as of the Determination Date, the value of the Accrued Benefits of Key Employees exceeds 60% of the value of the Accrued Benefits of all eligible Employees under the Plan. Notwithstanding the foregoing, if the Employer maintains any other qualified plan, the determination of whether this Plan is top-heavy shall be made after aggregating all other plans of the Employer in the Required Aggregation Group and, if desired by the Employer as a means of avoiding top-heavy status, after aggregating any other plan of the Employer in the Permissive Aggregation Group. If the required Aggregation Group is top-heavy, then each plan contained in such group shall be deemed to be top-heavy, notwithstanding that any particular plan in such group would not otherwise be deemed to be top-heavy. Conversely, if the Permissive Aggregation Group is not top-heavy, then no plan contained in such group shall be deemed to be top-heavy, notwithstanding that any particular plan in such group would otherwise be deemed to be top-heavy. In no event shall a plan included in a top-heavy Permissive Aggregation Group be deemed a top-heavy plan unless such plan is also included in a top-heavy Required Aggregation Group.

 

	
10.5
	
Determination of Super Top-Heavy Status.

 

The Plan shall be considered to be a super top-heavy plan if, as of the Determination Date, the Plan would meet the test specified in Section 10.4 above for classification as a top-heavy plan, except that “90%” shall be substituted for “60%” whenever the latter percentage appears.

 

	
10.6
	
Minimum Contribution.

 

(a)         For any year in which the Plan is top-heavy, each Non-Key Employee who has met the age and service requirements, if any, contained in the Plan, shall be entitled to a minimum contribution (which may include forfeitures otherwise allocable) equal to a percentage of such Non-Key Employee’s compensation (as defined in Code § 415) as follows:

 

(1)     If the Non-Key Employee is not covered by a defined benefit plan maintained by the Employer, then the minimum contribution under this Plan shall be 3% of such Non-Key Employee’s compensation.

 

(2)     If the Non-Key Employee is covered by a defined benefit plan maintained by the Employer, then the minimum contribution under this Plan shall be 5% of such Non-Key Employee’s compensation.

 

(b)         Notwithstanding the foregoing, the minimum contribution otherwise allocable to a Non-Key Employee under this Plan shall be reduced in the following circumstances:

 

(1)     The percentage minimum contribution required under this Plan shall in no event exceed the percentage contribution made for the Key Employee for whom such percentage is the highest for the Plan Year after taking into account contributions under other defined contribution plans in this Plan’s Required Aggregation Group; provided, however, that this Section 10.7(b)(1) shall not apply if this Plan is included in a Required Aggregation Group and this Plan enables a defined benefit plan in such Required Aggregation Group to meet the requirements of Code §§ 401(a)(4) or 410.

 

 

40

 

 

(2)     No minimum contribution shall be required (or the minimum contribution shall be reduced, as the case may be) for a Non-Key Employee under this Plan for any Plan Year if the Employer maintains another qualified plan under which a minimum benefit or contribution is being accrued or made on account of such Plan Year, in whole or in part, on behalf of the Non-Key Employee, in accordance with Code § 416(c).

 

(c)         For purposes of this Section 10.6, there shall be disregarded (1) any Employer contributions attributable to a salary reduction or similar arrangement, or (2) any Employer contributions to or any benefits under Chapter 21 of the Code (relating to the Federal Insurance Contributions Act), Title II of the Social Security Act, or any other federal or state law. Notwithstanding the foregoing, elective contributions on behalf of Key Employees shall be taken into account in determining the minimum required contribution.

 

(d)         For purposes of this Section 10.6, minimum contributions shall be required to be made on behalf of only those Non-Key Employees who have not terminated Service as of the last day of the Plan Year. If a Non-Key Employee is otherwise entitled to receive a minimum contribution pursuant to this Section 10.6(d), the fact that such Non-Key Employee failed to complete 1,000 Hours of Service or failed to make any mandatory or elective contributions under this Plan, if any are so required, shall not preclude him from receiving such minimum contribution.

 

	
10.7
	
Vesting.

 

(a)       For any Plan Year in which the Plan is a top-heavy plan, a Participant’s Employer account shall continue to vest according to the following schedule:

 

	
Years of Service Completed
	 	
Percentage Vested

	 	 	 
	
Less than 3
	 	
0%

	 	 	 
	
3 or more
	 	
100%

 

(b)       For purposes of Section 10.7(a), the term “year of service” shall have the same meaning as set forth in Section 1.1(mm), as modified by Section 3.2.

 

(c)       If for any Plan Year the Plan becomes top-heavy and the vesting schedule set forth in Section 10.7(a) becomes effective, then, even if the Plan ceases to be top-heavy in any subsequent Plan Year, the vesting schedule set forth in Section 10.7(a) shall remain applicable with respect to any Participant who has completed 3 Years of Service.

 

 

41

 

 

ARTICLE XI
ADMINISTRATION

 

	
11.1
	
Appointment of Administrator.

 

This Plan shall be administered by a committee consisting of up to 5 persons, whether or not Employees or Participants, who shall be appointed from time to time by the Board of Directors to serve at its pleasure. The Sponsor may require that each person appointed as an Administrator shall signify his acceptance by filing an acceptance with the Sponsor. The term “Administrator” as used in this Plan shall refer to the members of the committee, either individually or collectively, as appropriate. In the event that the Sponsor shall elect not to appoint any individuals to constitute a committee to administer the Plan, the Sponsor shall serve as the Administrator hereunder.

 

	
11.2
	
Resignation or Removal of Administrator.

 

An Administrator shall have the right to resign at any time by giving notice in writing, mailed or delivered to the Employer and to the Trustee. Any Administrator who was an employee of the Employer at the time of his appointment shall be deemed to have resigned as an Administrator upon his termination of Service. The Board of Directors may, in its discretion, remove any Administrator with or without cause, by giving notice in writing, mailed or delivered to the Administrator and to the Trustee.

 

	
11.3
	
Appointment of Successors: Terms of Office, Etc.

 

Upon the death, resignation or removal of an Administrator, the Employer may appoint, by Board of Directors’ resolution, a successor or successors. Notice of termination of an Administrator and notice of appointment of a successor shall be made by the Employer in writing, with copies mailed or delivered to the Trustee, and the successor shall have all the rights and privileges and all of the duties and obligations of the predecessor.

 

	
11.4
	
Powers and Duties of Administrator.

 

The Administrator shall have the following duties and responsibilities in connection with the administration of this Plan:

 

(a)     To promulgate and enforce such rules, regulations and procedures as shall be proper for the efficient administration of the Plan, such rules, regulations and procedures to apply uniformly to all Employees, Participants and Beneficiaries;

 

(b)     To determine all questions arising in the administration, interpretation and application of the Plan, including questions of eligibility and of the status and rights of Participants, Beneficiaries and any other persons hereunder;

 

(c)     To decide any dispute arising hereunder strictly in accordance with the terms of the Plan; provided, however, that no Administrator shall participate in any matter involving any questions relating solely to his own participation or benefits under this Plan;

 

 

42

 

 

(d)     To advise the Employer and the Trustee regarding the known future needs for funds to be available for distribution in order that the Trustee may establish investments accordingly;

 

(e)     To correct defects, supply omissions and reconcile inconsistencies to the extent necessary to effectuate the Plan;

 

(f)     To advise the Employer of the maximum deductible contribution to the Plan for each fiscal year;

 

(g)     To direct the Trustee concerning all payments which shall be made out of the Fund pursuant to the provisions of this Plan;

 

(h)     To advise the Trustee on all terminations of Service by Participants, unless the Employer has so notified the Trustee;

 

(i)     To confer with the Trustee on the settling of any claims against the Fund;

 

(j)     To make recommendations to the Board of Directors with respect to proposed amendments to the Plan and the Trust Agreement;

 

(k)     To file all reports with government agencies, Employees and other parties as may be required by law, whether such reports are initially the obligation of the Employer, the Plan or the Trustee; and

 

(l)     To have all such other powers as may be necessary to discharge its duties hereunder.

 

Except as expressly otherwise provided herein, the Administrator shall have full discretion to control and manage the operation and administration of the Plan and to make all decisions and determinations incident thereto. In carrying out its Plan responsibilities, the Administrator shall have full discretionary authority to construe the terms of the Plan and to make any factual determinations necessary to determine eligibility for benefits or the amount of any benefits. It is intended that the Administrator have discretion to the fullest extent permitted by law and that the Administrator’s exercise of its discretion be given deference to the greatest extent allowed under the law. This discretion includes, but is not limited to, the authority to make any rules, regulations or computations that the Administrator deems necessary to administer the Plan.

 

	
11.5
	
Action by Administrator.

 

The Administrator may elect a Chairman and Secretary from among its members and may adopt rules for the conduct of its business. A majority of the members then serving shall constitute a quorum for the transaction of business. All resolutions or other action taken by the Administrator shall be by vote of a majority of those present at such meeting and entitled to vote. Resolutions may be adopted or other action taken without a meeting upon written consent signed by at least a majority of the members. All documents, instruments, orders, requests, directions, instructions and other papers shall be executed on behalf of the Administrator by either the Chairman or the Secretary of the Administrator, if any, or by any member or agent of the Administrator duly authorized to act on the Administrator’s behalf.

 

 

43

 

 

	
11.6
	
Participation by Administrators.

 

No Administrator shall be precluded from becoming a Participant in the Plan if he would be otherwise eligible, but he shall not be entitled to vote or act upon matters or to sign any documents relating specifically to his own participation under the Plan, except when such matters or documents relate to benefits generally. If this disqualification results in the lack of a quorum, then the Board of Directors shall appoint a sufficient number of temporary Administrators who shall serve for the sole purpose of determining such a question.

 

	
11.7
	
Agents.

 

The Administrator may employ agents and provide for such clerical, legal, actuarial, accounting, medical, advisory or other services as it deems necessary to perform its duties under this Plan. The cost of such services and all other expenses incurred by the Administrator in connection with the administration of the Plan shall be paid from the Fund, unless paid by the Employer.

 

	
11.8
	
Allocation of Duties.

 

The duties, powers and responsibilities reserved to the Administrator may be allocated among its members so long as such allocation is pursuant to written procedures adopted by the Administrator, in which case, except as may be required by the Act, no Administrator shall have any liability, with respect to any duties, powers or responsibilities not allocated to him, for the acts of omissions of any other Administrator.

 

	
11.9
	
Delegation of Duties.

 

The Administrator may delegate any of its duties to other employees of the Employer, to the Trustee with its consent, or to any other person or firm, provided that the Administrator shall prudently choose such agents and rely in good faith on their actions.

 

	
11.10
	
Administrator’s Action Conclusive.

 

Any action on matters within the authority of the Administrator shall be final and conclusive except as provided in Article XII.

 

	
11.11
	
Compensation and Expenses of Administrator.

 

No Administrator who is receiving compensation from the Employer as a full-time employee, as a director or agent, shall be entitled to receive any compensation or fee for his services hereunder. Any other Administrator shall be entitled to receive such reasonable compensation for his services as an Administrator hereunder as may be mutually agreed upon between the Employer and such Administrator. Any such compensation shall be paid from the Fund, unless paid by the Employer. Each Administrator shall be entitled to reimbursement by the Employer for any reasonable and necessary expenditures incurred in the discharge of his duties.

 

 

44

 

 

	
11.12
	
Records and Reports.

 

The Administrator shall maintain adequate records of its actions and proceedings in administering this Plan and shall file all reports and take all other actions as it deems appropriate in order to comply with the Act, the Code and governmental regulations issued thereunder.

 

	
11.13
	
Reports of Fund Open to Participants.

 

The Administrator shall keep on file, in such form as it shall deem convenient and proper, all annual reports of the Fund received by the Administrator from the Trustee, and a statement of each Participant’s interest in the Fund as from time to time determined. The annual reports of the Fund and the statement of his own interest in the Fund, as well as a complete copy of the Plan and the Trust Agreement and copies of annual reports to the Internal Revenue Service, shall be made available by the Administrator to the Employer for examination by each Participant during reasonable hours at the office of the Employer, provided, however, that the statement of a Participant’s interest shall not be made available for examination by any other Participant.

 

	
11.14
	
Named Fiduciary.

 

The Administrator is the named fiduciary for purposes of the Act and shall be the designated agent for receipt of service of process on behalf of the Plan. It shall use ordinary care and diligence in the performance of its duties under this Plan. Nothing in this Plan shall preclude the Employer from indemnifying the Administrator for all actions under this Plan, or from purchasing liability insurance to protect it with respect to its duties under this Plan.

 

	
11.15
	
Information from Employer.

 

The Employer shall promptly furnish all necessary information to the Administrator to permit it to perform its duties under this Plan. The Administrator shall be entitled to rely upon the accuracy and completeness of all information furnished to it by the Employer, unless it knows or should have known that such information is erroneous.

 

	
11.16
	
Reservation of Rights by Employer.

 

Where rights are reserved in this Plan to the Employer, such rights shall be exercised only by action of the Board of Directors, except where the Board of Directors, by written resolution, delegates any such rights to one or more officers of the Employer or to the Administrator. Subject to the rights reserved to the Board 6f Directors acting on behalf of the Employer as set forth in this Plan, no member of the Board of Directors shall have any duties or responsibilities under this Plan, except to the extent he shall be acting in the capacity of an Administrator or Trustee.

 

	
11.17
	
Liability and Indemnification.

 

(a)     The Administrator shall perform all duties required of it under this Plan in a prudent manner. To the extent not prohibited by the Act, the Administrator shall not be responsible in any way for any action or omission of the Employer, the Trustee or any other fiduciaries in the performance of their duties and obligations set forth in this Plan and in the Trust Agreement. To the extent not prohibited by the Act, the Administrator shall also not be responsible for any act or omission of any of its agents, or with respect to reliance upon advice of its counsel (whether or not such counsel is also counsel to the Employer or the Trustee), provided that such agents or counsel were prudently chosen by the Administrator and that the Administrator relied in good faith upon the action of such agent or the advice of such counsel.

 

 

45

 

 

(b)     The Administrator shall not be relieved from responsibility or liability for any responsibility, obligation or duty imposed upon it under this Plan or under the Act. Except for its own gross negligence, willful misconduct or willful breach of the terms of this Plan, the Administrator shall be indemnified and held harmless by the Employer against liability or losses occurring by reason of any act or omission of the Administrator to the extent that such indemnification does not violate the Act or any other federal or state laws.

 

	
11.18
	
Service as Trustee and Administrator.

 

Nothing in this Plan shall prevent one or more Trustees from serving as Administrator under this Plan.

 

 

46

 

 

ARTICLE XII
CLAIMS PROCEDURE

 

	
12.1
	
Notice of Denial.

 

If a Participant or his Beneficiary is denied any benefits under this Plan, either in whole or in part, the Administrator shall advise the claimant in writing of the amount of his benefit, if any, and the specific reasons for the denial. The Administrator shall also furnish the claimant at that time with a written notice containing:

 

(a)     A specific reference to pertinent Plan provisions;

 

(b)     A description of any additional material or information necessary for the claimant to perfect his claim, if possible, and an explanation of why such material or information is needed; and

 

(c)     An explanation of the Plan’s claim review procedure.

 

	
12.2
	
Right to Reconsideration.

 

Within 60 days of receipt of the information described in 12.1 above, the claimant shall, if he desires further review, file a written request for reconsideration with the Administrator.

 

	
12.3
	
Review of Documents.

 

So long as the claimant’s request for review is pending (including the 60-day period described in Section 12.2 above), the claimant or his duly authorized representative may review pertinent Plan documents and the Trust Agreement (and any pertinent related documents) and may submit issues and comments in writing to the Administrator.

 

	
12.4
	
Decision by Administrator.

 

A final and binding decision shall be made by the Administrator within 60 days of the filing by the claimant of his request for reconsideration; provided, however, that if the Administrator feels that a hearing with the claimant or his representative present is necessary or desirable, this period shall be extended an additional 60 days.

 

	
12.5
	
Notice by Administrator.

 

The Administrator’s decision shall be conveyed to the claimant in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, with specific references to the pertinent Plan provisions on which the decision is based.

 

12.6     Limitations on Actions. A claimant must follow the claims procedure (and comply with all applicable deadlines established as part thereof) as a condition to the receipt of any benefits under the Plan, and as a condition to the availability of any other relief under or with respect to the Plan. The failure of a claimant to follow the claims procedure (including the failure to comply with the deadlines established as part thereof) will extinguish his right to file a subsequent claim or to file a lawsuit with respect to the claim. If a claimant follows the claims procedure, but his final appeal is denied, he will have one year to file a lawsuit with respect to that claim, and failure to meet the one-year deadline will extinguish his right to file a lawsuit with respect to that claim.

 

 

47

 

 

ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER

 

	
13.1
	
Amendments.

 

The Employer reserves the right at any time and from time to time, and retroactively if deemed necessary or appropriate by it, to the extent permissible under law, to conform with governmental regulations or other policies, to amend in whole or in part any or all of the provisions of this Plan, provided that:

 

(a)     No amendment shall make it possible for any part of the Fund to be used for, or diverted to, purposes other than for the exclusive benefit of Participants or their Beneficiaries under the Trust Agreement, except to the extent provided in Sections 4.4 and 5.6(c)(5);

 

(b)     No amendment may, directly or indirectly, reduce the vested portion of any Participant’s interest as of the effective date of the amendment or change the vesting schedule with respect to the future accrual of Employer contributions for any Participants unless each Participant with 3 or more Years of Service with the Employer is permitted to elect to have the vesting schedule in effect before the amendment used to determine his vested benefit; and

 

(c)     No amendment shall divest a Participant or Beneficiary of accounts accrued prior to the amendment, eliminate any optional form of benefit, decrease a Participant’s accrued benefit, or otherwise place greater restrictions or conditions on a Participant’s rights to Code § 411(d)(6) benefits except to the extent permitted by Code § 411(d)(6).

 

(d)     No amendment may increase the duties of the Trustee without its consent.

 

(e)     No amendment that shall change any of the following types of provisions shall be made more than once every 6 months, other than to comport with changes in the Code, the Act or the regulations thereunder: (i) any provision stating the amount and price of Employer Securities to be awarded to designated officers and directors or categories of officers and directors; (ii) any provisions specifying the timing of awards or allocations to officers and directors; (iii) any provision setting forth a formula that determines the amount, price and timing of allocations or awards, using objective criteria such as earnings of the issuer, value of the Employer Securities, Years of Service, job classification and Compensation levels.

 

Amendments may be made in the form of Board of Directors’ resolutions or separate written document. Copies of all amendments shall be delivered to the Trustee.

 

	
13.2
	
Consolidation, Merger or Other Transactions of Employer.

 

Nothing in this Plan shall prevent the consolidation, merger, reorganization or liquidation of the Employer, or prevent the sale by Employer of any or all of its property. Any successor corporation or other entity formed and resulting from any such transaction shall have the right to become a party to this Plan by adopting the same by resolution and by appointing a new Trustee as though the Trustee had resigned in accordance with the Trust Agreement, and by executing a proper supplemental agreement with the Trustee. If, within 180 days from the effective date of such transaction, such new entity does not become a party to this Plan as above provided, this Plan shall automatically be terminated and the Trustee shall make payments to the persons entitled thereto in accordance with Section 9.5.

 

 

48

 

 

	
13.3
	
Consolidation or Merger of Trust.

 

In the event of any merger or consolidation of the Fund with, or transfer in whole or in part of the assets and liabilities of the Fund to, another trust fund held under any other plan of deferred compensation maintained or to be established for the benefit of all or some of the Participants of this Plan, the assets of the Fund applicable to such Participants shall be transferred to the other trust fund only if:

 

(a)     Each Participant would receive a benefit under such successor trust fund immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer (determined as if this Plan and such transferee trust fund had then terminated);

 

(b)     Resolutions of the Board of Directors under this Plan, or of any new or successor employer of the affected Participants, shall authorize such transfer of assets, and, in the case of the new or successor employer of the affected Participants, its resolutions shall include an assumption of liabilities with respect to such Participants’ inclusion in the new employer’s plan; and

 

(c)     Such other plan and trust are qualified under Code §§ 401(a) and 501(a).

 

	
13.4
	
Bankruptcy or Insolvency of Employer.

 

In the event of (a) the Employer’s legal dissolution or liquidation by any procedure other than a consolidation or merger, (b) the Employer’s receivership, insolvency, or cessation of its business as a going concern, or (c) the commencement of any proceeding by or against the Employer under the federal bankruptcy laws, and similar federal or state statute, or any federal or state statute or rule providing for the relief of debtors, compensation of creditors, arrangement, receivership, liquidation or any similar event which is not dismissed within 30 days, this Plan shall terminate automatically on such date (provided, however, that if a proceeding is brought against the Employer for reorganization under Chapter 11 of the United States Bankruptcy Code or any similar federal or state statute, then this Plan shall terminate automatically if and when said proceeding results in a liquidation of the Employer, or the approval of any Plan providing therefor, or the proceeding is converted to a case under Chapter 7 of the Bankruptcy Code or any similar conversion to a liquidation proceeding under federal or state law including, but not limited to, a receivership proceeding). In the event of any such termination as provided in the foregoing sentence, the Trustee shall make payments to the persons entitled thereto in accordance with Section 9.5 hereof.

 

	
13.5
	
Voluntary Termination.

 

The Board of Directors reserves the right to terminate this Plan at any time by giving to the Trustee and the Administrator notice in writing of such desire to terminate. The Plan shall terminate upon the date of receipt of such notice, the interests of all Participants shall become fully vested, and the Trustee shall make payments to each Participant or Beneficiary in accordance with Section 9.5. Alternatively, the Employer, in its discretion, may determine to continue the Trust Agreement and to continue the maintenance of the Fund, in which event distributions shall be made upon the contingencies and in all the circumstances which would have been entitled such distributions on a fully vested basis, had there been no termination of the Plan.

 

 

49

 

 

	
13.6
	
Partial Termination of Plan or Permanent Discontinuance of Contributions.

 

In the event that a partial termination of the Plan shall be deemed to have occurred, or if the Employer shall discontinue completely its contributions hereunder, the right of each affected Participant to his interest in the Fund shall be fully vested. The Employer, in its discretion, shall decide whether to direct the Trustee to make immediate distribution of such portion of the Fund assets to the persons entitled thereto or to make distribution in the circumstances and contingencies which would have controlled such distributions if there had been no partial termination or discontinuance of contributions.

 

 

50

 

 

ARTICLE XIV
MISCELLANEOUS

 

	
14.1
	
No Diversion of Funds.

 

It is the intention of the Employer that it shall be impossible for any part of the corpus or income of the Fund to be used for, or diverted to, purposes other than for the exclusive benefit of the Participants or their Beneficiaries, except to extent that a return of the Employer’s contribution is permitted under Sections 4.4 and 5.6(c)(5).

 

	
14.2
	
Liability Limited.

 

Neither the Employer nor the Administrator, nor any agents, employees, officers, directors or shareholders of any of them, nor the Trustee, nor any other person shall have any liability or responsibility with respect to this Plan, except as expressly provided herein.

 

	
14.3
	
Incapacity.

 

If the Administrator shall receive evidence satisfactory to it that a Participant or Beneficiary entitled to receive any benefit under the Plan is, at the time when such benefit becomes payable, a minor, or is physically or mentally incompetent to receive such benefit and to give a valid release therefor, and that another person or an institution is then maintaining or has custody of such Participant or Beneficiary, and that no guardian, committee or other representative of the estate of such Participant or Beneficiary shall have been duly appointed, the Administrator may direct the Trustee to make payment of such benefit otherwise payable to such Participant or Beneficiary, to such other person or institution, including a custodian under a Uniform Gifts to Minor Act, or corresponding legislation (who shall be an adult, a guardian of the minor or a trust company), and the release of such other person or institution shall be a valid and complete discharge for the payment of such benefit.

 

	
14.4
	
Spendthrift Clause.

 

Except as permitted by the Act or the Code, no benefits or other amounts payable under the Plan shall be subject in any manner to anticipation, sale, transfer, assignment, pledge, encumbrance, charge or alienation. If the Administrator determines that any person entitled to any payments under the Plan has become insolvent or bankrupt or has attempted to anticipate, sell, transfer, assign, pledge, encumber, charge or otherwise in any manner alienate any benefit or other amount payable to him under the Plan or that there is any danger of any levy or attachment or other court process or encumbrance on the part of any creditor of such person entitled to payments under the Plan against any benefit or other accounts payable to such person, the Administrator may, at any time, in its discretion, direct the Trustee to withhold any or all payments to such person under the Plan and apply the same for the benefit of such person, in such manner and in such proportion as the Administrator may deem proper.

 

	
14.5
	
Benefits Limited to Fund.

 

All contributions by the Employer to the Fund shall be voluntary, and the Employer shall be under no legal liability to make any such contributions. The benefits of this Plan shall be only as can be provided by the assets of the Fund, and no liability for the payment of benefits under the Plan or for any loss of assets due to any action or inaction of the Trustee shall be imposed upon the Employer.

 

 

51

 

 

	
14.6
	
Cooperation of Parties.

 

All parties to this Plan and any party claiming interest hereunder agree to perform any and all acts and execute any and all documents and papers which are necessary and desirable for carrying out this Plan or any of its provisions.

 

	
14.7
	
Payments Due Missing Persons.

 

The Administrator shall direct the Trustee to make a reasonable effort to locate all persons entitled to benefits under the Plan; however, notwithstanding any provision in the Plan to the contrary, if, after a period of 5 years from the date such benefit shall be due, any such persons entitled to benefits have not been located, their rights under the Plan shall stand suspended. Before this provision becomes operative, the Trustee shall send a certified letter to all such persons at their last known address advising them that their interest in benefits under the Plan shall be suspended. Any such suspended amounts shall be held by the Trustee for a period of 3 additional years (or a total of 8 years from the time the benefits first became payable), and thereafter such amounts shall be reallocated among current Participants in the same manner that a current contribution would be allocated. However, if a person subsequently makes a valid claim with respect to such reallocated amounts and any earnings thereon, the Plan earnings or the Employer’s contribution to be allocated for the year in which the claim shall be paid shall be reduced by the amount of such payment. Any such suspended amounts shall be handled in a manner not inconsistent with regulations issued by the Internal Revenue Service and Department of Labor.

 

	
14.8
	
Governing Law.

 

This Plan has been executed in the State of Minnesota and all questions pertaining to its validity, construction and administration shall be determined in accordance with the laws of that State, except to the extent superseded by the Act.

 

	
14.9
	
Nonguarantee of Employment.

 

Nothing contained in this Plan shall be construed as a contract of employment between the Employer and any Employee, or as a right of any Employee to be continued in the employment of the Employer, or as a limitation of the right of the Employer to discharge any of its Employees, with or without cause.

 

	
14.10
	
Counsel.

 

The Trustee and the Administrator may consult with legal counsel, who may be counsel for the Employer and for the Administrator or the Trustee (as the case may be), with respect to the meaning or construction of this Plan and the Trust Agreement, their respective obligations or duties hereunder or with respect to any action or proceeding or any question of law, and they shall be fully protected with respect to any action taken or omitted by them in good faith pursuant to the advice of legal counsel.

 

 

52

 

 

IN WITNESS WHEREOF, the Sponsor has caused these presents to be executed by its duly authorized officers and its corporate seal to be affixed on this ___ day of ________, 2016.

 

	  	
HMN FINANCIAL, INC.

	 	 
	  	  
	 	 
	

	
By:__________________________________

 

Its __________________________________

 

And: ________________________________

 

Its __________________________________
  

 

 

53

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