Document:

Exhibit
10.22

STOCK PURCHASE AGREEMENT

 

By
and Among

 

SYMMETRY
MEDICAL USA INC.

(the Purchaser)

and

EDWARD D. RILEY and RUSSELL P. HOLMES

(collectively, the Seller)

 

DATED:
MAY 1, 2006

 

STOCK
PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this “Agreement”)
is made and entered into effective as of 12:01 a.m. on the 1st day of May,
2006, by and between SYMMETRY MEDICAL USA
INC., a duly organized Delaware Corporation with a principal place
of business in Warsaw, Indiana (“Purchaser”), Edward D. Riley, of Portland,
Maine, and Russell P. Holmes, of Dover, Massachusetts (hereinafter Riley and
Holmes are referred to collectively as the “Seller”).

RECITALS

A.            The Seller owns all of
the issued and outstanding Class A and Class B shares of capital stock (the “Stock”) of RILEY MEDICAL, INC., a Massachusetts corporation with a
principal place of business in Auburn, Maine (the “Company”).

B.            The Company, Edward
D. Riley and Dr. Hans-Rudolf Staiger and Dr. Michael Hamm own all of the issued
and outstanding shares of capital stock of its subsidiary corporation, RILEY MEDICAL EUROPE SA, a Société anonyme
organized under the laws of Switzerland with a registered place of business in
Grand-Rue 34, CH-2606 Corgémont, Switzerland (the “Subsidiary”).

C.            The Seller owns all
of the equity of RILEY REAL ESTATE, LLC
a duly organized Maine limited liability company (“Affiliate”), which owns all the real property from which the
Company conducts its business (“Owned Real
Estate”), (except for a certain leased warehouse facility in Auburn,
Maine (“Leased Real Estate”).

D.            The Purchaser desires
to purchase the Stock and Owned Real Estate held by the Seller and the Seller
desires to sell the Stock and Owned Real Estate to the Purchaser on the terms
and subject to the conditions set forth in this Agreement and the Real Estate
Purchase and Sale Agreement attached as Exhibit A (“Real Estate Purchase
Agreement”).

E.             Upon
consummation of the purchase and sale of the Stock pursuant to this Agreement,
the Purchaser will own all of the issued and outstanding capital stock of the
Company, all of the Owned Real Estate and the Company will own 97 of the 100
issued and outstanding shares of the capital stock of the Subsidiary.

AGREEMENT

In consideration of the foregoing Recitals and
the mutual promises contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
intending to be legally bound, the Purchaser and the Seller agree as follows:

ARTICLE 1

DEFINITIONS

For purposes of this Agreement, the following terms have the meanings
specified:

“Affiliate” when used in
reference to a specified Person, means any Person that, directly or indirectly,
through one or more intermediaries, controls, or is controlled by, or is under
common control with the specified Person. With respect to the Seller, expressly
it shall mean Riley Real Estate, LLC, the Owned Real Estate of which shall be
sold herewith to the Purchaser in accordance with the separate Real Estate
Purchase Agreement.

“Agreement” has the
meaning set forth in the introductory paragraph of this Agreement.

“Ancillary Documents” are
all documents, instruments and agreements to be executed and delivered by the
Purchaser, Seller, Company, Subsidiary and Affiliate pursuant to this Agreement
including the Exhibits.

“Applicable Laws” means
any and all laws, ordinances, constitutions, regulations, statutes, treaties,
rules, codes, licenses, certificates, franchises, Permits, requirements and
Injunctions adopted, enacted, implemented, promulgated, issued, entered or
deemed applicable by or under the authority of any Governmental Body having
jurisdiction over a specified Person or any of such Person’s properties or
assets. Applicable Laws include any laws, regulations, ordinances,
constitutions, regulations, statutes, treaties, rules, codes, licenses,
certificates, franchises, Permits, or other legal requirements governing the
Subsidiary, its properties, assets and operations.

“Balance Sheets” has the
meaning set forth in Section 3.11(a) of this Agreement.

“Balance Sheet Date” has
the meaning set forth in Section 3.11(a) of this Agreement.

“Benefit Plan” means any
and all bonus, stock option, restricted stock, stock purchase, stock
appreciation, phantom stock, profit participation, profit-sharing,
deferred compensation, severance, retention, pension, retirement, health,
disability, life or other insurance, death 

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benefit, incentive compensation, welfare, or any
other employee benefit plan, policy or arrangement maintained, sponsored or
contributed to by the Company or Subsidiary for the benefit of any Employee.

“Business” means the
ownership and/or operation of facilities which formulate and manufacture
high-quality engineering plastics and metal trays and packaging for medical
devices.

“Cash Adjustment” has the
meaning set forth in Section 2.2(c) of this Agreement.

“Cash” means all cash (in
United States currency) and prepaid taxes deposited with the IRS in order to
maintain an S Corporation non-permitted year-end, as shown on the Balance
Sheets of the Company, Subsidiary and Affiliate as either in-hand or accrued as
of the Closing Date, expressly including, without limitation, the United States
currency equivalent of the Swiss francs carried on the Subsidiary’s Balance
Sheet, as determined in accordance with the exchange rate as of April 29, 2006,
as published by the Wall Street Journal.

“Cash-Free” means that all
Cash shall be added, as an addition, to the Interim Purchase Price and Final
Purchase Price payable to the Seller, as applicable, unless withdrawn by Seller
from the accounts of the Company, Subsidiary, or Affiliate prior to Closing.

“CERCLA” means the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
§ 9601 et  seq.).

“Closing” has the meaning
set forth in Section 2.5(a) of this Agreement.

“Closing Date” has the
meaning set forth in Section 2.5(a) of this Agreement.

“Code” means the Internal
Revenue Code of 1986, as amended.

“Company” has the meaning
set forth in the Recitals to this Agreement.

“Company and Subsidiary Welfare Plans”
has the meaning set forth in Section 8.2(c) of this Agreement.

“Confidential Information”
means any information or compilation of information not generally known to the
public or the industry or which the Company or the Subsidiary have not
disclosed to third parties without a written obligation of confidentiality,
which is proprietary to the Company or the Subsidiary, relating to the Company’s
or the Subsidiary’s procedures, techniques, methods, concepts, ideas, affairs,
products, processes and services, including, but not limited to, information
relating to marketing, merchandising, selling, research, development,
manufacturing, purchasing, accounting, engineering, financing, costs,
customers, plans, pricing, billing, needs of customers and products and
services used by customers, all lists of customers and their addresses,
prospects, sales calls, products, services, prices and the like as well as any
specifications, formulas, plans, drawings, accounts or sales records, sales
brochures, code books, manuals, trade secrets, knowledge, know-how,
pricing strategies, operating costs, sales margins, methods of operations,
invoices or statements and the like. Confidential Information shall not include
information which (i) becomes generally available to the public other than as a
result of a disclosure by a party to this Agreement, (ii) was available on a
non-confidential basis prior to its disclosure, or (iii) is independently
developed as evidenced by written records without making use of the Confidential
Information.

“Contract” means any
agreement, lease of personal or mixed property, license, contract, obligation,
promise, commitment, arrangement, understanding or undertaking, instrument,
document (whether written or oral and whether express or implied) of any type,
nature or description, but excluding leases of Leased Real Estate. As used
herein, the word “Contract” shall be limited in scope if modified by an
adjective specifying the type of contract to which this Agreement or a Section hereof
refers.

“Damages” has the meaning
set forth in Section 6.1(e) of this Agreement.

“Debt” means: (i) any long-term or short-term interest-bearing indebtedness
of the Company, the Subsidiary, or the Affiliate, owed to third parties; (ii) any
inter-company indebtedness; (iii) any Seller guarantees outstanding, issued to
secure obligations of the Company, Subsidiary, or Affiliate; (iv) any capital
leases; and (v) any letters of credit.

“Debt Adjustment” has the
meaning set forth in Section 2.2(c) of this Agreement.

“Debt-Free” means that all Debt (excluding the current portion of the long-term
debt), shall be deducted from the Interim Purchase Price and Final Purchase
Price payable to Seller determined as due as of the Closing Date.

“Director Indemnified Party”
or “Director Indemnified Parties”
has the meaning set forth in Section 8.3(a) of this Agreement.

“Disclose” means to
reveal, deliver, divulge, disclose, publish, copy, communicate, show or
otherwise make known or available to any other Person, or in any way to copy,
any of the Confidential Information of the Company, the Subsidiary or the
Affiliate.

“Employees” has the
meaning set forth in Section 3.20(a) of this Agreement.

“Encumbrance”
means and includes:

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(i)            with respect to any
personal property, any intangible property or any property other than real
property, any security or other property interest or right, claim, lien,
pledge, option, charge, security interest, contingent or conditional sale, or
other title claim or retention agreement or lease or use agreement in the
nature thereof whether voluntarily incurred or arising by operation of law, and
including any agreement to grant or submit to any of the foregoing in the
future; and

(ii)           with respect to any real
property (whether and including Owned Real Estate or Leased Real Estate), any
mortgage, lien, easement, interest, right-of-way, condemnation or
eminent domain proceeding, encroachment, any building, use or other form of
restriction, encumbrance or other claim (including adverse or prescriptive) or
right of third parties (including any Governmental Body), any lease or
sublease, boundary dispute, and agreements with respect to any real property
including: purchase, sale, right of first refusal, option, construction,
building or property service, maintenance, property management, conditional or
contingent sale, use or occupancy, franchise or concession, whether voluntarily
incurred or arising by operation of law, and including any agreement to grant
or submit to any of the foregoing in the future.

“Environmental Laws” means
any and all Applicable Laws, all court orders, decrees, arbitration awards, and
applicable common law which pertain to environmental matters or contamination
of any type whatsoever, including, but not limited to, those (i) regulating the
manufacturing process, use, treatment, generation, transportation, storage,
control, management, recycling or disposal of any Hazardous Material,
including, but not limited to, CERCLA, SARA, the Resource Conservation and
Recovery Act (42 U.S.C. § 6901 et  seq.), the Hazardous Materials
Transportation Act (49 U.S.C. § 1801 et  seq.), the Federal Water
Pollution Control Act (33 U.S.C. § 1251 et  seq.), the Clean Water
Act (33 U.S.C. § 1251 et  seq.), the Clean Air Act (42 U.S.C. §
7401 et  seq.), the Toxic Substances Control Act (15 U.S.C. § 2601
et  seq.), the Safe Drinking Water Act (42 U.S.C. § 300F et
seq.), and/or (ii) relating to the protection, preservation or
conservation of the environment, or protection of wildlife, endangered species,
wetlands or national resources.

“ERISA” means the Employee
Retirement Income Security Act of 1974, as amended.

“Escrowed Funds” has the
meaning set forth in Section 2.3(e) of this Agreement.

“Facility” means any facility as defined in CERCLA.

“Final Closing Statement” has
the meaning set forth in Section 2.3(c) of this Agreement.

“Final Purchase Price” has
the meaning set forth in Section 2.3(b) of this Agreement.

“GAAP” means generally
accepted accounting principles in the United States.

“Governmental Body” means
any:

(i)            nation, state, county,
city, town, village, district or other jurisdiction of any nature;

(ii)           federal, state, local,
municipal, foreign or other government;

(iii)          governmental or quasi-governmental
authority of any nature (including any governmental agency, branch, board,
commission, department, instrumentality, office or other entity, and any court
or other tribunal);

(iv)          multinational
organization or body; and/or

(v)           body exercising, or
entitled or purporting to exercise, any administrative, executive, judicial,
legislative, police, regulatory or taxing authority or power of any nature.

“Hazardous Materials”
means any and all (i) dangerous, toxic or hazardous pollutants, contaminants,
chemicals, wastes, materials or substances listed or identified in, or directly
or indirectly regulated by, any Environmental Laws, and (ii) any of the
following, whether or not included in the foregoing: polychlorinated biphenyls,
asbestos in any form or condition, urea-formaldehyde, petroleum
(including crude oil or any fraction thereof), natural gas, natural gas
liquids, liquefied natural gas, synthetic gas usable for fuel or mixtures
thereof, nuclear fuels or materials, chemical wastes, man-made radioactive
materials, explosives and known possible carcinogens.

“IRS” means the United
States Internal Revenue Service.

“Indemnification Threshold” has the meaning set forth in Section 6.3(a) of
this Agreement.

“Indemnified Party” has
the meaning set forth in Section 6.5 of this Agreement.

“Indemnifying Party” has
the meaning set forth in Section 6.5 of this Agreement.

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“Injunction” means any and
all writs, rulings, awards, directives, injunctions (whether temporary,
preliminary or permanent), judgments, decrees or orders (whether executive,
judicial or otherwise) adopted, enacted, implemented, promulgated, issued,
entered or deemed applicable by or under the authority of any Governmental
Body.

“Intellectual Property”
means any and all: (i) inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications and patent disclosures, together with all reissuances,
continuations, continuations in part, revisions, extensions and reexaminations
thereof; (ii) trademarks, service marks, trade dress, logos, trade names,
assumed names and corporate names, together with all translations, adaptations,
derivations and combinations thereof and including all goodwill associated
therewith, and all applications, registrations and renewals in connection
therewith; (iii) copyrightable works, all copyrights and all applications,
registrations and renewals in connection therewith; (iv) mask works and all
applications, registrations and renewals in connection therewith; (v) trade
secrets and confidential business information (including ideas, research and
development, know-how, technology, formulas, compositions, manufacturing
and production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information and
business and marketing plans and proposals); (vi) computer software and all
related and necessary licenses (including data and related software program
documentation in computer-readable and hard-copy forms other than
for so-called off-the-shelf product); (vii) other intellectual property and
proprietary rights of any kind, nature or description, including web sites, web
site domain names and other e-commerce assets and resources of any kind or
nature; and (viii) copies of tangible embodiments thereof (in whatever form or
medium).

“Interim Purchase Price”
has the meaning set forth in Section 2.2(a) of this Agreement.

“Leased Real Estate” has
the meaning set forth in the Recitals and in Section 3.17 of this Agreement.

“Leases” has the meaning
set forth in Section 3.17(a) of this Agreement.

“Liability” or “Liabilities” means any and all debts,
liabilities and/or obligations of any type, nature or description (whether
known or unknown, asserted or unasserted, secured or unsecured, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated and whether due or
to become due).

“Material Adverse Effect”
or “Material Adverse Change”
means, in connection with the Company, the Subsidiary, and the Affiliate with
due consideration to the size and complexity of the Business and transactions
contemplated by this Agreement, any event, change or effect that is materially
adverse, individually or in the aggregate, to the condition (financial or
otherwise), properties, assets, Liabilities, revenues, income, Business,
operations, results of operations of such Persons, taken as a whole; provided,
however, that in no event shall any of the following constitute a
Material Adverse Change, or be deemed to have a Material Adverse Effect, in the
Business, operations, assets, results of operations or condition of the
Company, the Subsidiary or Affiliate: (i) any change or effect resulting from
conditions affecting the industry in which the Company or Subsidiary operate or
from changes in general business or economic conditions, (ii) any change or
effect resulting from the announcement or pendency of any of the transactions
contemplated by this Agreement, (iii) any change or effect resulting from
compliance by the Company and/or the Subsidiary with the terms of, or the taking
of any action contemplated or permitted by, this Agreement and any Ancillary
Document, or (iv) any change or effect resulting from any change in Applicable
Law. In furtherance of the foregoing, and notwithstanding anything to the
contrary set forth in this Agreement, any Material Adverse Effect or any
Material Adverse Change with respect to the Company and/or the Subsidiary shall
be evaluated on the basis of the Company and the Subsidiary individually or
taken as a whole (in the aggregate).

“Offsite Facility” means any Facility which is not
presently, and has not heretofore been, owned, leased or occupied by the
Seller, Company, Subsidiary or Affiliate.

“Ordinary Course of Business”
means an action taken by a Person only if:

(i)            such action is
consistent with the past practices of such Person and is taken in the ordinary
course of the normal day-to-day operations of such Person; and

(ii)           such action is not
required to be authorized by the board of directors of such Person (or by any
Person or group of Persons constituting a governing body of a Person exercising
similar authority).

“Overlap Period” has the
meaning set forth in Section 7.2(a) of this Agreement.

“Owned Real Estate” has
the meaning set forth in Section 3.17 of this Agreement.

“PBGC”
means the Pension Benefit Guaranty Corporation.

“Permits” means all
permits, licenses, consents, declarations, franchises, orders, certifications,
registrations, certificates of authority, variances, approvals, local sitting
approvals, qualifications and other authorizations obtained from, or filing
with any Governmental Body or other Person, or other similar rights, including,
without limitation, those listed on Schedule
3.31 of the Schedules.

“Permitted Encumbrances”
has the meaning set forth in Section 3.17(c) of this Agreement.

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“Person” means any
individual, corporation (including any non-profit corporation), general,
limited or limited liability partnership, limited liability company, joint
venture, estate, trust, association, organization, or other entity or Governmental
Body.

“Pre-Closing Period” has
the meaning set forth in Section 3.8(b) of this Agreement.

“Proceeding” means any
suit, litigation, arbitration, hearing, audit, investigation, order, or other
action (whether civil, criminal, administrative or investigative) noticed,
commenced, brought, conducted, or heard by or before, or otherwise involving,
any Governmental Body or arbitrator.

“Purchase Price Escrow Agreement”
has the meaning set forth in Section 2.3(e) of this Agreement.

“Purchaser” has the meaning
set forth in the introductory paragraph of this Agreement.

“Purchaser Welfare Plans”
has the meaning set forth in Section 8.2(c) of this Agreement.

“Real Estate” has the
meaning set forth in Section 3.17 of this Agreement.

“Release” means any spill, discharge, leak, emission, escape, leaching,
disposing, emptying, pouring, pumping, injection, dumping, or other release or
threatened release of any Hazardous Materials into the environment, whether or
not notification or reporting to any governmental agency was or is required,
including any Release which is subject to CERCLA.

“Rights” means any and all
outstanding subscriptions, warrants, options, or other arrangements or
commitments obligating or which may obligate (with or without notice or passage
of time or both) the Company or the Subsidiary to issue or dispose of any of
their respective (as opposed to third party) securities.

“§338(h)(10) Election” has
the meaning set forth in Section 7.5 of this Agreement.

“SARA” means the Superfund
Amendments and Reauthorization Act (42 U.S.C. § 9601 et  seq.).

“Seller” has the meaning
set forth in the introductory paragraph of this Agreement.

“Seller’s Knowledge” means the actual knowledge of Edward D. Riley
or Russell P. Holmes or of any officer, director or Senior Management Employees
of the Company, Subsidiary or Affiliate.

“Senior Management Employees”
means the chief executive officer, president, any vice president, the chief
financial officer, treasurer, controller, secretary, director, general manager,
manager, environmental manager, or health and safety manager of the Company,
Subsidiary or Affiliate.

“Stock” has the meaning
set forth in the Recitals to this Agreement.

“Subsidiary” has the
meaning set forth in the Recitals to this Agreement.

“Survival Period” has the
meaning set forth in Section 6.1(a) of this Agreement.

“Swiss Tax Agreement” means that certain decision of the Government
of the Canton of Bern, Switzerland, dated March 22, 2000, providing income and
capital Tax relief to Subsidiary.

“Target Working Capital”
means Working Capital equal to the average of the month-end Net Working Capital
for the following six month-ends February 2006; January 2006; December 2005; November
2005; October 2005; and September 2005. The
Target Working Capital is $4,456,858.

“Tax” or “Taxes” means any and all net income, gross
income, gross revenue, gross receipts, net receipts, ad valorem, franchise,
profits, deferred, transfer, sales, use, social security, employment,
unemployment, disability, license, withholding, payroll, privilege, excise,
value-added, severance, stamp, occupation, property, customs, duties,
real estate and/or other taxes, assessments, levies, fees or charges of any
kind whatsoever imposed by any Governmental Body, together with any interest or
penalty relating thereto.

“Tax Adjustment” has the
meaning set forth in Section 2.4 of this Agreement.

“Tax Matter” has the
meaning set forth in Section 7.2(a) of this Agreement.

“Tax Return” or “Tax Returns” means any return,
declaration, report, claim for refund or information return or statement
relating to Taxes, including, without limitation, any schedule or attachment
thereto, any amendment thereof, and any estimated report or statement.

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“Threatened” means a
claim, Proceeding, dispute, action, or other matter for which any demand or
statement has been made, orally or in writing, or any oral or written notice
has been given, that would lead a reasonably prudent Person to conclude that
such a claim, Proceeding, dispute, action, or other matter may be asserted,
commenced, taken or otherwise pursued in the future.

“Use” means to appropriate
any of the Confidential Information of the Company and/or the Subsidiary for
the benefit of oneself or any other Person other than the Company.

“WARN Acts” has the
meaning set forth in Section 3.9(k) of this Agreement.

“Working Capital” means “Current Assets” less “Current
Liabilities”. “Current Assets” means the sum of accounts receivable (net of
allowances), prepaid expenses, and other current assets of Company (excluding
any cash, tax refunds, and refund of the monies deposited in escrow with the
IRS as required in connection with Subchapter S corporations having a
non-conforming fiscal year) as determined in accordance with GAAP consistently
applied. “Current Liabilities” means the sum of accounts payable and accrued
expenses of Company, excluding accrued interest defined as Debt and as
determined in accordance with GAAP consistently applied.

“Working Capital Adjustment” has the meaning set forth in Section 2.3(b) of
this Agreement.

ARTICLE 2

PURCHASE OF STOCK; PURCHASE PRICE

2.1.         Purchase and Sale of Stock. In reliance upon
the representations, warranties and covenants contained in this Agreement as of
the date hereof and on the Closing Date, the Purchaser agrees to purchase the
Stock from the Seller, and the Seller agrees to sell, transfer, convey, assign
and deliver the Stock to the Purchaser on the terms and conditions set forth in
this Agreement. Such sale, transfer, conveyance, assignment and delivery of the
Stock shall convey good and marketable title to the Stock, free and clear of
any and all Rights and Encumbrances, and at such time the Stock will be fully
paid and non-assessable. At the Closing the Seller will deliver to the
Purchaser certificate(s) evidencing the Stock duly endorsed in blank or with
stock powers duly executed by the Seller.

2.2.         Purchase Price.

(a)           The purchase price to
be paid to the Seller by the Purchaser for the Stock and Owned Real Estate
shall be Forty-Five Million United States Dollars ($45,000,000.00) of which the
purchase price for the Stock shall be Forty Three Million United States Dollars
($43,000,000.00) and the purchase price for the Owned Real Estate shall be Two
Million United States Dollars ($2,000,000.00), each as may be adjusted at the
Closing Date, and post-closing as provided by this Agreement. The purchase
price for the Owned Real Estate shall be due and payable in full at Closing,
subject only to such adjustments, if any, contained in the Real Estate Purchase
Agreement. The purchase price solely for the Stock shall be referred to as the “Interim Purchase
Price”. The Interim Purchase
Price shall be adjusted to determine the Final Purchase Price, as provided in
this Section 2.2 and Sections 2.3 and 2.4. The Interim Purchase Price and the
purchase price for the Owned Real Estate shall be paid on the Closing Date by
wire transfer of immediately available funds to an account (or accounts)
designated by the Seller at least two (2) calendar days prior to the Closing.

(b)           The Interim Purchase
Price has been based on the assumption that the Company and the Subsidiary
shall be Cash-Free (including any Subsidiary or Affiliate Cash) as of the
Closing Date. To the extent that the (i) Company has Cash on its books as of
the Closing Date, the Interim Purchase Price shall be increased on the Closing
Date by a corresponding amount, and (ii) Subsidiary has Cash on its books as of
the Closing Date, the Interim Purchase Price shall be increased on the Closing
Date by 92.5% of such amount of Cash (the “Cash Adjustment”).

(c)           The Interim Purchase
Price has been based on the assumption that the Company and the Subsidiary
shall be Debt-Free (including any Subsidiary or Affiliate Debt) as of the
Closing Date. To the extent that the Company, Subsidiary or Affiliate have
Debt, exclusive of the current portion of long-term debt, as of the Closing
Date, the Interim Purchase Price shall be reduced on the Closing Date by a
corresponding amount (the “Debt
Adjustment”) and such Debt
Adjustment shall be paid directly by the Purchaser to such creditor or
creditors, but may be paid from Closing proceeds.

2.3.         Working Capital Adjustment.

(a)           The Interim Purchase
Price shall also be adjusted after the Closing Date by an amount of dollars,
positive or negative, as the case may be, equal to the difference between the
Target Working Capital and the Working Capital as shown on the audited Balance
Sheets, which will be used to determine the Final Purchase Price.

(b)           If the Working Capital on the audited Balance Sheets
is:

(i)            less than the Target
Working Capital, an amount equal to the deficit shall be payable from the
Seller to the Purchaser;

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(ii)           greater than the
amount shown on the Target Working Capital, an amount equal to the surplus
shall be payable from the Purchaser to the Seller;

(iii)          equal to the amount
shown on the Target Working Capital, no amount shall be due to either party.

The adjustment provided for
in this Section 2.3(a) shall be known as the “Working
Capital Adjustment”. The Interim Purchase Price, after application
of the Working Capital Adjustment, shall constitute the “Final Purchase Price”.

(c)           Within seventy-five
(75) calendar days following the Closing Date, the Seller and
Purchaser, as applicable, shall cause the Company and its auditor to prepare
and deliver to the Purchaser and Seller, in good faith, an audited final
balance sheet and closing statement setting forth the Working Capital
Adjustment in accordance with this Section 2.3 (the “Final Closing Statement”). This audited final balance sheet and Final
Closing Statement shall be prepared by the Seller’s Auditors, Berry, Dunn,
McNeill & Parker, the cost of which shall be a Company expense, not
chargeable back to Seller and the statutory auditors of the Subsidiary Acton
Revisions AG. Within thirty (30) calendar days following the Purchaser’s and
Seller’s receipt of the Final Closing Statement, the Purchaser or Seller may
object in good faith to the Working Capital Adjustment in writing. In the event
of any such objection, the Purchaser and the Seller shall attempt to resolve
their differences by negotiation. If such parties are unable to do so within
thirty (30) calendar days following receipt of the objecting party’s objection,
the Seller and the Purchaser shall appoint a nationally recognized accounting
firm mutually acceptable to each of the Seller and the Purchaser, which shall,
at the Seller’s and the Purchaser’s joint expense, review the Final Closing
Statement and determine the Working Capital Adjustment, if any, within thirty
(30) calendar days of such appointment. The Seller and the Purchaser agree to
cooperate with such accounting firm and provide it with such information as it
reasonably requests to enable it to make such determination. The finding of
such accounting firm shall be binding on the parties hereto.

(d)           Any amounts owed
hereunder shall be paid to the party owed the same by the party owing the same
by wire transfer of immediately available funds to an account designated by the
party owed the same no later than five (5) business days following the
determination by agreement of the Seller and the Purchaser or by binding
determination of said accounting firm of the Working Capital Adjustment, and
such payment shall be accompanied by an additional payment of interest,
calculated with a 4% annual interest rate from the Closing Date to the date of
payment pursuant to this Section 2.3.

(e)           The Seller agrees and
authorizes the Purchaser to retain from the Interim Purchase Price and deposit
in escrow, with Sovereign Bank (“Escrow Agent”) acting
as an independent authorized escrow agent in an interest bearing account, the
sum of Three Million United States Dollars ($3,000,000.00) (the “Escrowed Funds”) as collateral security and to be used as
the initial source of funds for any breach of the representations, warranties,
covenants and obligations of the Seller under this Agreement, in accordance
with an escrow agreement in substantially the form set forth in Exhibit B attached hereto (the “Purchase Price Escrow Agreement”). The Escrowed Funds shall not be used in
any way for purposes of the Working Capital Adjustment.

(f)            The term of the
Purchase Price Escrow Agreement shall be two (2) years. After one year, the
Escrowed Funds shall be reduced from $3,000,000, plus any accrued interest, to
$1,500,000.

(g)           In accordance with
the terms of the Purchase Price Escrow Agreement and Article 6 of this
Agreement, the Purchaser shall promptly notify the Seller of the amount of any
Damages sustained by the Purchaser for which the Seller is obligated to
indemnify the Purchaser under Article 6 hereof (and which have not theretofore
been fully satisfied by the Seller), including Damages sustained as a result of
any breach of any representation or warranty by the Seller as provided under
said Article 6. In the event the Seller fails to direct the Escrow Agent to
reimburse the Purchaser the full amount of the Damages suffered by the
Purchaser within thirty (30) calendar days of the receipt of the Purchaser’s
notice, the provisions of Article 6 and the Purchase Price Escrow Agreement
shall apply.

2.4.         Tax Adjustment. The Interim Purchase Price shall also be
increased after the Closing Date by the amount necessary to cause Seller’s
after-Tax net proceeds from the sale of Stock hereunder with the §338(h)(10) Election
or any other election under Code §338 (collectively, the “§338 Elections”) in
effect to be equal to the after-Tax net proceeds that Seller would have
received had the §338 Elections not been made, taking into account all
appropriate state, federal, local and foreign Tax implications (the “Tax Adjustment”). Seller shall provide
Purchaser with a schedule computing the amount of the Tax Adjustment within 20
days after the Allocation Schedule (required under Section 7.6 hereof) is
completed. The amount of each Seller’s pro-rata portion of the Tax Adjustment
shall be paid to each Seller at the time each Seller signs Form 8023 to make
the federal §338(h)(10) Election, or promptly and timely upon any other §338
Election being made.

2.5          Closing and Closing Deliveries.

(a)           Closing and
Closing Date. The closing of the transactions contemplated by this
Agreement (the “Closing”) shall be held on May 2, 2006 at the offices
of Burns & Levinson LLP, 125 Summer Street, 8th Floor, Boston,
Massachusetts 02110.

(b)           Closing Deliveries
by the Seller. At the Closing, each Seller shall execute, where necessary
or appropriate, and deliver to the Purchaser each and all of the following:

(i)            The certificates
evidencing the Stock duly endorsed by each Seller in blank or accompanied by
stock powers duly executed by each Seller. With respect to the Subsidiary the
same and/or such other documents as may be required under Swiss law to complete
the transfer of control or ownership, as applicable;

 8
 

 

(ii)           The corporate minute
books, the corporate seals, and stock books for the Company and Subsidiary;

(iii)          A duly executed
written opinion letter by counsel for the Seller, dated as of the Closing Date,
addressed to the Purchaser;

(iv)          Duly executed
resignations of (A) the officers of the Company and the Subsidiary who are
designated by the Purchaser, and (B) the directors of the Company and the
Subsidiary who are the Seller, or who otherwise are designated by the
Purchaser, all effective as of the Closing Date;

(v)           Certificates of good
standing for the Company, Subsidiary and Affiliate issued by the Secretary of
State (or the equivalent office) of their respective places of incorporation or
organization;

(vi)          The non-foreign
person affidavit required by Section 1445 of the Code;

(vii)         Non-Disclosure and Non-Competition
Agreements for Edward D. Riley and Russell P. Holmes;

(viii)        Confidentiality and
Non-Compete Agreements for Martin Moore, Harold Engberg, Jr., Richard Campbell,
Pierre Louis-Beaud and Chris Melino; with executed agreement from Mr. Beaud.

(ix)           Retention Bonus
Agreements for Martin Moore, Harold Engberg, Jr., Richard Campbell, Chris
Melino and Pierre Louis-Beaud; with executed Employment Agreement from Mr. Beaud.

(x)            the Purchase Price
Escrow Agreement executed by each Seller;

(xi)           a statement executed
by the Company pursuant to Treas. Reg. §1.897-2(h), dated no more than
thirty (30) days prior to Closing, certifying that (i) the Shares do not
constitute a U.S. real property interest, or (ii) none of the holders of
capital stock of the Company is a foreign person;

(xi)           all necessary
third-party consents necessary to operate the Business;

(xi)           the Real Estate
Purchase Agreement executed by Riley Real Estate, LLC;

(xii)          Such documentation as is required to
convey all right, title and interest in and to the Owned Real Estate to the
Purchaser or Purchaser’s nominee together with any additional deliveries
related thereto as set forth in the Real Estate Purchase Agreement;

(xiii)         Waiver and Release executed by each
Seller and each director of Company, Subsidiary and Affiliate;

(xiv)        Such other documents and items as are
reasonably necessary or appropriate to effect the consummation of the
transactions contemplated hereby; and

(xv)         Memorandum of Understanding between the
Purchaser and Edward D. Riley regarding future employment with Purchaser.

(xvi)        Board of Directors’ Consents for the
Company; Secretary’s Certificate; and Shareholder’s Consents for the Company.

(c)           Closing Deliveries
by the Purchaser. At the Closing, the Purchaser shall execute, where necessary
or appropriate, and deliver to the Seller each and all of the following:

(i)            Payment of the
Interim Purchase Price and payment of the purchase price for the Affiliate’s
Owned Real Estate in the manner set forth in Section 2.2 of this Agreement;

(ii)           the Real Estate
Purchase Agreement executed by the Purchaser or an
affiliate of Purchaser;

(iii)          A copy certified by
the Secretary of the Purchaser of the duly adopted resolutions of the Board of
Directors of the Purchaser approving this Agreement, including the Ancillary
Documents, and authorizing the execution and delivery of this Agreement and the
Ancillary Documents, and the consummation of the transactions contemplated
hereby and thereby.

(iv)          A duly executed
written opinion letter by counsel for the Purchaser, dated as of the Closing
Date, addressed to the Seller;

 9
 

 

(v)           A certificate of good
standing of the Purchaser issued by the Secretary of State of the Purchaser’s
state of incorporation or the equivalent; and

(vi)          Such other documents
and items as are reasonably necessary or appropriate to effect the consummation
of the transactions contemplated hereby or which may be customary under local
law.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE SELLER

As an inducement for the Purchaser to enter into this Agreement and to
consummate the transactions contemplated hereby, each Seller jointly and
severally represents and warrants to the Purchaser that each and all of the
following representations and warranties are true and correct as of the date of
this Agreement and at Closing. The Schedules shall be arranged in paragraphs
corresponding to the sections and subsections contained in this Article 3.

3.1.         Organization and Good Standing.

(a)           Schedule 3.1
contains a complete and accurate list for the Company, Subsidiary and Affiliate
of its jurisdiction of incorporation (or other formation). The Company,
Subsidiary and Affiliate are duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation (or other
formation), with full power and authority to conduct their respective
businesses as same are now being conducted, to own or use the properties and
assets that each purports to own, lease, operate or use in the conduct of their
respective businesses, and to perform all their respective obligations under
any Contracts. The Company, Subsidiary and Affiliate are licensed or qualified
to transact business and are in good standing as a foreign corporation in each
jurisdiction (including European jurisdiction) in which, because of its
business conducted there or the nature of its assets or properties there, it
could be required to be so licensed or qualified, unless the lack of
registration does not have a Material Adverse Effect on the Business. Each such
foreign jurisdiction is set forth in Schedule
3.1.

(b)           Seller has delivered
to Purchaser copies of the organizational documents of the Company, Subsidiary
and Affiliates, as currently in effect.

3.2.         Authority; No Conflict.

(a)           This
Agreement constitutes the legal, valid, and binding obligation of the Seller,
enforceable against each Seller in accordance with its terms. The documents
delivered by the Seller will constitute the legal, valid, and binding
obligations of each Seller, enforceable against each Seller in accordance with
their respective terms. Each Seller has the right, power, authority, and
capacity to execute and deliver this Agreement and the Ancillary Documents to
which he is a party, and to perform his obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement and the Ancillary
Documents to which any Seller is or shall be a party have been duly authorized
by all necessary action on the part of such Seller. This Agreement and the
Ancillary Documents have been duly executed and delivered by each Seller which
is a party thereto.

(b)           Except
as set forth on Schedule
3.2(b), neither the
execution nor delivery of this Agreement and the Ancillary Documents nor the
consummation or performance of any of the contemplated transactions will, directly
or indirectly:

(i)            contravene, conflict
with, or result in a violation of (A) any provision of the organizational
documents of the Company, Subsidiary or Affiliate, or (B) any resolution
adopted by the board of directors, the shareholders, members of the Company,
Subsidiary or Affiliate, as the case may be;

(ii)           contravene, conflict
with, or result in a breach or violation of, or constitute a default under (or
an event which, with or without notice, lapse of time or both, could constitute
a default) or result in the invalidity of, or accelerate the performance
required by or cause or give rise to any right of acceleration or termination
of any right or obligation pursuant to any agreement or commitment to which any
Seller, the Company, Subsidiary or Affiliate is a party or by which any Seller,
the Company or Subsidiary (or any of their respective assets or properties) is
subject or bound;

(iii)          contravene, conflict with, or result in a breach or
violation of, or constitute a default under (or an event which, with or without
notice, lapse of time or both, could constitute a default) or result in the
invalidity of the Swiss Tax Agreement;

(iv)          result in the
creation of, or give any third party the right to create, any Encumbrance upon
the Stock or any assets or properties of any Seller, the Company, Subsidiary or
Affiliate;

(v)           conflict with any
Applicable Laws to which any Seller, the Company, Subsidiary or Affiliate or
any assets or properties of any of the foregoing are subject;

 10
 

 

(vi)          terminate or modify,
or give any third party the right to terminate or modify, the provisions or
terms of any contract or agreement to which any Seller, the Company, Subsidiary
or Affiliate is a party or by which any Seller, the Company, Subsidiary or
Affiliate (or any of their respective assets or properties) is subject or
bound;

(vii)         require any Seller,
the Company, Subsidiary or Affiliate to obtain any Consent; or

(viii)        result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under any contract or agreement to which any
Seller, the Company, Subsidiary or Affiliate or any Subsidiary is a party or by
which any of their respective assets or Properties is subject or bound.

3.3.         Capitalization.

The capitalization and identity of each shareholder or member of each of
the Company, the Subsidiary and the Affiliate, is as follows:

(a)           The authorized
capital stock of the Company consists solely of 300,000 shares of common voting
stock, One Cent ($0.01) par value, of which 200,000 shares are issued and
outstanding on the date hereof, and are owned beneficially and of record by the
Seller, free and clear of all Rights and Encumbrances. Said shares are divided
as follows: 102,000 designated as Class A are owned by Edward Riley and 98,000
designated as Class B are owned by Russell Holmes. The Stock is validly issued,
fully paid and nonassessable and was issued in compliance with Applicable Laws.
The Company is the sole legal, beneficial and equitable shareholder of 97 of
the 100 issued and outstanding equity interests in and with respect to the
Subsidiary. None of the Stock has been issued in violation of the rights of any
Person. As of the date hereof, (i) there are no Rights outstanding, and (ii) there
are no agreements, understandings or commitments relating to the Rights of the
Seller to vote or dispose of the Stock.

(b)           The authorized share
capital of the Subsidiary consists solely of One Hundred Thousand Swiss Francs
(CHF 100,000.-), with one hundred (100) registered shares of stock, each having
a nominal value of One Thousand Swiss Francs (CHF 1,000.-), with one hundred
shares of stock issued and outstanding on the date hereof, and 97 of said 100
shares owned beneficially and of record by the Company, free and clear of all
liens and Encumbrances. Of the remaining three shares, the three directors of
the Subsidiary, Dr. Hans-Rudolf Staiger and Dr. Michael Hamm (each in a
fiduciary capacity as trustee for the benefit of the Company pursuant to Trust
Agreements with the Company dated April 12, 1999) and Edward Riley, each hold
one share in trust on behalf of the Company in accordance with applicable Swiss
law, which provides that each director of a Swiss company must also be a
shareholder and that a majority of such directors must be Swiss or EU citizens,
domiciled in Switzerland. The outstanding stock of the Subsidiary is validly
issued, fully paid and nonassessable and was issued in compliance with
Applicable Laws. None of the outstanding stock of the Subsidiary has been
issued in violation of the rights of any Person. As of the date hereof, (i) there
are no Rights outstanding, and (ii) there are no agreements, understandings or
commitments relating to the rights of the Company to vote or dispose of the
stock of the Subsidiary.

(c)           The Affiliate is a
Maine Limited Liability Company and sole owner of the Owner Real Estate. The
equity of the Affiliate is owned 51% by Edward Riley and 49% by Russell Holmes.

3.4.         Clear Title. Except as otherwise set forth in Schedule 3.4 or the leased
property disclosed in Schedule 3.15(d) hereto,
on the Closing Date, (i) the Company, Subsidiary and Affiliate hold good title
(or valid and enforceable leasehold interests) to their respective personal
property, and (ii) such personal property is and shall be free and clear of any
and all Encumbrances of any kind, nature and description whatsoever, except for
Encumbrances which are disclosed, reflected or reserved for or against in the
Balance Sheets, or are being
released by payment from Closing proceeds.

3.5.         Condition of Assets. All of the properties and assets of the Company,
Subsidiary and Affiliate are the assets used to operate their respective
businesses as currently conducted, (ii) such properties and assets have been
properly maintained, consistent with past practices, and are in good operating
condition, normal wear and tear excepted, and (iii) all leased property is in
the condition received by the Company and Subsidiary at the time of the lease,
normal wear and tear excepted.

3.6.         Legal Proceedings. Except as set forth on Schedule 3.6(a), there has not
been in the twenty-four (24) months prior to the date hereof any claims,
actions, suits, inquiries, proceedings, orders or investigations of any kind or
nature whatsoever, at law or in equity, by or before any court or Governmental
Body. Except as set forth on Schedule 3.6(b), there are no claims, actions, suits,
inquiries, proceedings, orders or investigations of any kind or nature
whatsoever, at law or in equity, by or before any court or Governmental Body,
or to the Seller’s Knowledge, Threatened against or involving or potentially
involving:

(a)           the Company,
Subsidiary, Affiliate or Business, assets, properties, officers or directors,
or which questions or challenges the validity of this Agreement, any Ancillary
Document or any action taken or to be taken by Seller pursuant to this
Agreement, the Ancillary Document or in connection with the contemplated
transactions; and, to the Seller’s Knowledge, there is no valid basis for any
such claim, action, suit, inquiry, proceeding or investigation; or

(b)           any Seller, which
could adversely affect the consummation of the contemplated transactions.

 11
 

 

(c)           Neither the Company,
Subsidiary nor Affiliate is subject to any judgment, order, decree or legal
requirement which involves more than $25,000. The Company has delivered to
Purchaser copies of all pleadings, correspondence, and other documents relating
to any of the foregoing.

3.7.         Labor Matters. Except as set forth in Schedule 3.7 hereto, the Company
and the Subsidiary, individually or collectively, have never been a party to
any collective bargaining agreement or other labor Contract and there is not
presently pending or existing, and to the Seller’s Knowledge, the Company or
the Subsidiary, there is not Threatened (i) any strike, slowdown, walkout,
picketing, work stoppage, labor arbitration or other Proceeding in respect of
the grievance of any employee, (ii) any application or complaint filed by any
employee or union with the National Labor Relations Board, the Equal Employment
Opportunity Commission, the Occupational Safety and Health Administration or
any comparable Governmental Body, (iii) any other employee claim under any
Applicable Laws; or (iv) any organizational activity or other labor dispute
against or affecting the Company or the Subsidiary, and no application for
certification of a collective bargaining agreement is pending or, to the Seller’s
Knowledge, the Company or the Subsidiary, is Threatened. There is no lockout of
any employees by the Company or the Subsidiary and no such action is
contemplated by either the Company or the Subsidiary. Except as set forth in Schedule 3.7 hereto, there is
no Proceeding pending or, to the Seller’s Knowledge, the Company or the
Subsidiary, Threatened by any Person against the Company or the Subsidiary or
any of their current or former officers, directors or employees relating to
employment, equal employment opportunity, discrimination, harassment, wrongful
discharge, unfair labor practices, immigration, wages, hours, benefits,
collective bargaining, the payment of social security or similar Taxes,
occupational safety and health or plant closing. Except as disclosed in Schedule 3.7, there are no
worker’s compensation claims pending against the Company or Subsidiary, and the
Seller have no Knowledge of any basis for any such claim.

3.8.         Tax Matters.

(a)           Tax Returns. The
Company, Subsidiary and Affiliate have timely filed, or caused to be timely
filed, with the appropriate taxing authorities, all Tax Returns that are
required to be filed by, or with respect to, the Company, Subsidiary and
Affiliate on or prior to the Closing Date. The Returns have accurately
reflected and will accurately reflect all Liability for Taxes of the Company,
Subsidiary and Affiliate for the periods covered thereby. Schedule 3.8(a) lists all income Tax Returns filed with any
Governmental Body with respect to the Company, Subsidiary and Affiliate for the
taxable periods ended on or after September 30, 2001.

(b)           Payment of Taxes.
All Taxes and Tax Liabilities of the Company, Subsidiary and Affiliate for all
taxable years or periods that end on or before the Closing Date and, with
respect to any taxable year or period beginning before and ending after the
Closing Date, the portion of such taxable year or period ending on the day
immediately preceding the Closing Date (“Pre-Closing Period”)
have been timely paid to the extent due and/or adequate provisions have been
made for taxes which have accrued and/or become due or become due through the
Closing Date and there are no further liabilities for any Taxes, except as
reflected in Schedule
3.8(b).

(c)           Other Tax Matters.
Except as set forth in Schedule
3.8(c):

(i)            the Company,
Subsidiary and Affiliate have not been the subject of a dispute or claim or an
audit or other examination of Taxes by the Tax authorities of any Governmental
Body, nor have the Company, Subsidiary or Affiliate received any notices from
any such taxing authority relating to any issue which could have a Material
Adverse Effect.

(ii)           the Seller, the
Company, Subsidiary and Affiliate have not (A) entered into an agreement or
waiver or been requested to enter into an agreement or waiver extending any
statute of limitations relating to the payment or collection of Taxes of the
Company or the Subsidiary, or (B) contested the Tax Liability of the Company,
Subsidiary or Affiliate before any Governmental Body.

(iii)          the Company,
Subsidiary or Affiliate have not been included in any “consolidated,” “unitary”
or “combined” Tax Return provided for under Applicable Law with respect to
Taxes for any taxable period for which the statute of limitations has not
expired other than the consolidated group the parent of which is the Company.

(iv)          all Taxes which the
Company, Subsidiary and Affiliate are (or have been) required by law to
withhold or collect have been duly withheld or collected, and have been timely
paid over to the proper authorities to the extent due and payable.

(v)           there are no Tax
sharing, allocation, indemnification or similar agreements in effect as between
the Company and/or the Subsidiary or any predecessor or Affiliate thereof and
any other party (including the Seller and any predecessors or Affiliates
thereof) under which the Purchaser, the Company, Subsidiary or Affiliate could
be liable for any Taxes or other claims of any Person.

(vi)          the Company is and has been a validly
electing S Corporation within the meaning of Code §§1361 and 1362 at all times
since September 11, 1992.

(vii)         the
Subsidiary is not, and has never been treated as, a “qualified subchapter S
subsidiary” within the meaning of Code §1361(b)(3)(B).

 12

 

(viii)        the Company will not
be liable for any Tax under Code §1374 in connection with the deemed sale of
the Company’s assets caused by the Code §338(h)(10) Election. Within the past
ten (10) years, the Company has not (A) acquired assets from another corporation
in a transaction in which the Company’s tax basis for the acquired assets was
determined, in whole or in part, by reference to the Tax basis of the acquired
assets (or any other property) in the hands of the transferor or (B) acquired
the stock of any corporation that is or was a qualified subchapter S
subsidiary.

(ix)           The Subsidiary is not in breach or default, and there is
no basis for any claim of breach or default, under the Swiss Tax Agreement and
there exists no event or condition which (whether with or without notice, lapse
of time, or both) could constitute a breach or default thereunder, give rise to
a right to assess or impose additional Taxes on the Subsidiary, retroactively
or otherwise, or give rise to any Encumbrance on its property or assets, except
as specified on Schedule 3.8(c)(ix).

(x)            there is no action,
suit, taxing authority proceeding, audit, or investigation now in progress,
pending or, to the Seller’s Knowledge, Threatened against or with respect to
the Company, Subsidiary or Affiliate with respect to any Tax.

(xi)           the Company,
Subsidiary or Affiliate do not reasonably expect any taxing authority to claim
or assess any additional Tax against them for any period ending on or prior to
the Closing Date, and to the Seller’s Knowledge, there is no basis for any such
claim or assessment.

(xii)          neither the Company,
Subsidiary or Affiliate has distributed stock of another Person, or had its
stock distributed by another Person, in a transaction that purported or was
intended to be governed in whole or in part by IRC Section 355 or Section 361.

(xiii)         neither the Company, Subsidiary or
Affiliate has been a member of an affiliated or similar group filing a
consolidated, combined, unitary or similar income tax return other than the
consolidated group of which the Company is the common parent or has any
liability for the Taxes of any Person (other than the Company and Subsidiary)
under Treas. Reg. §1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by agreement, or otherwise.

3.9.         Employee Benefits.

(a)           Schedule 3.9 (a) is a complete list of each “Benefit Plan”
(within the meaning of Section 3(3) of ERISA) and each other employee benefit
plan, agreement, policy, trust fund or arrangement (whether written or
unwritten, insured or self-insured) maintained or contributed to (or with
respect to which any obligation to contribute has been undertaken) by the
Company or Subsidiary on behalf of any employee or other service provider of
the Company or Subsidiary (whether current, former, or retired) or their
beneficiaries or with respect to which the Company or Subsidiary has or may
have any obligation or liability (contingent or otherwise) (each “Benefit Plan”). With respect to each Benefit Plan, Seller
has delivered to Purchaser (1) current, accurate and complete copies of each
such Benefit Plan and all contracts relating thereto (including without
limitation all trust agreements, insurance or annuity contracts, investment
management agreements, record keeping agreements and other material documents
or instruments relating thereto), and in the case of any Benefit Plan that is
not in written form, an accurate description of all material aspects of that
Benefit Plan; (2) copies of the most recent Internal Revenue Service
determination letter (including copies of any outstanding requests for
determination letters) or opinion letter with respect to each such Benefit Plan
which is an “employee pension benefit plan” (within the meaning of Section 3(2)
of ERISA) intended to qualify under Section 401(a) of the IRC; and (3) copies
of the most recent Forms 5500 annual report and accompanying schedules, and the
most recent summary plan descriptions.

(b)           Subsidiary meets the
requirements of Applicable Law with regard to the quantity and quality of
Benefit Plans provided, and all Benefit Plans, including both mandatory
governmental plans have been maintained, are fully funded and administered in
accordance with Applicable Law, and comply in form and in operation in all material
respects with the requirements of Applicable Law.

(c)           Each Benefit Plan has
been maintained, funded and administered in accordance with the terms of such
Benefit Plan and complies in form and in operation in all material respects
with the requirements of Applicable Law, including ERISA and the IRC.

(d)           All contributions
(including all inter-company charges, employer contributions and employee
salary reduction contributions) that are due have been made to each Benefit
Plan that is an “employee pension benefit plan” (within the meaning of Section 3(2)
of ERISA). All premiums or other payments (including all inter-company charges)
that are due have been paid with respect to each such Benefit Plan that is an “employee
welfare benefit plan” (within the meaning of Section 3(1) of ERISA).

(e)           Each Benefit Plan
that is intended to meet the requirements of a “qualified plan” under Section 401(a)
of the IRC has received a determination letter from the IRS to the effect that
it meets the requirements of Section 401(a) of the IRC.

(f)            Neither the Company,
Subsidiary, any ERISA Affiliate or any of their respective predecessors has
ever contributed to, contributes to, has ever been required to contribute to,
or otherwise participated in or maintains sponsors or in any way, directly or
indirectly, has any liability with respect to any plan subject to Section 412
of the IRC, Section 302 of ERISA or Title IV of 

 13
 

 

ERISA,
including, without limitation, any employee pension benefit plan that is a “defined
benefit plan” (as defined in ERISA §3(35), any “multiemployer plan” (within the
meaning of Sections 3(37) or 4001(a)(3) of ERISA or Section 414(f) of the IRC)
or any single employer pension plan (within the meaning of Section 4001(a)(15)
of ERISA) which is subject to Sections 4063, 4064 or 4069 of ERISA.

(g)           No non-exempt “prohibited
transaction,” within the meaning of Section 4975 of the IRC and Section 406 of
ERISA, has occurred or is reasonably expected to occur with respect to the
Employee Benefit Plans.

(h)           No Benefit Plan is
under, and neither Seller, Company or Subsidiary has received any notice of, an
audit or investigation by the IRS, Department of Labor or any other
Governmental Entity and no such completed audit, if any, has resulted in the
imposition of any tax or penalty.

(i)            The Company,
Subsidiary or any ERISA Affiliate has no unfunded liabilities pursuant to any
Benefit Plan that is not intended to be qualified under Section 401(a) of the
IRC and is an employee pension benefit plan within the meaning of Section 3(2) of
ERISA, a nonqualified deferred compensation plan or an excess benefit plan. Schedule 3.9(i) of the Disclosure Schedule sets forth a true,
correct and complete list of each Benefit Plan which is a nonqualified deferred
compensation plan. Each such nonqualified compensation plan, whether
deferred or otherwise, is not subject to IRC 409A.

(j)            The consummation of
the contemplated transactions alone, or in combination with a termination of
any employee, officer, director, other service provider or stockholder of the
Company or Subsidiary (whether current, former or retired): i) will not give
rise to any liability under any Benefit Plan, including, without limitation,
liability for severance pay, unemployment compensation, termination pay or
withdrawal liability, or accelerate the time of payment or vesting or increase
the amount of compensation or benefits due to any employee, officer, director,
other service provider or stockholder of the Company or Subsidiary (whether
current, former or retired) or their beneficiaries; and ii) will not cause any
Benefit Plan or contract of insurance or other ancillary agreement to become
void or voidable or cause any increase in cost, other than cost increases or
decreases attributable to annual renewal. No amount that could be received
(whether in cash or property or the vesting of property), as a result of the
consummation of the contemplated transactions, by any employee, stockholder or
other service provider of the Companies who is a “disqualified individual” (as
such term is defined in Treas. Reg. §1.280G—1) under any Benefit Plan or
otherwise could be characterized as an “excess parachute payment” (as defined
in Sections 280G(b)(1) and 280G(b)(5) of the IRC).

(k)           Any individual who
performs services for the Company or Subsidiary and who is not treated as an
employee for federal income tax purposes by the Company or Subsidiary is not an
employee under applicable law or for any purpose including, without limitation,
for tax withholding purposes or Employee Benefit Plan purposes.

(l)            WARN Compliance. The Company has complied in all respects
with the Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101 et
seq., and its corresponding regulations, and any similar state law, rule or
regulation or local ordinance, rule or regulation, in each case in effect as of
the date hereof, providing for notification to employees affected by closing,
relocation, sale of business, mass layoff or similar event (collectively, the “WARN Acts”) on account of closings, relocations, sales
of businesses, mass layoffs or similar events occurring on or prior to the
Closing and all related notices, payments, fines or assessments due to any
Government Body pursuant to such WARN Acts. The Company and Subsidiary have
complied with European/Swiss equivalents of the WARN Acts.

3.10.       Guarantees. Except as set forth in Schedule 3.10, (i) none of the
obligations of the Company, Subsidiary or Affiliate is guaranteed by, or
subject to a similar contingent Liability to, any Person, and (ii) neither the
Company, Subsidiary nor Affiliate has, individually or collectively,
guaranteed, or otherwise become contingently liable for, any Liability of any
Person.

3.11.       Financial Statements.

(a)           The Seller has caused
the Company, Subsidiary and Affiliate to furnish true and correct copies of the
financial statements (and the respective audit reports) identified in Schedule 3.11 hereto to the Purchaser. All of said
financial statements, including any notes thereto, fairly present the
consolidated financial position and condition of the Company, Subsidiary and
Affiliate as of their respective dates and the results of their operations for
the periods covered in accordance with GAAP applied by the Company, Subsidiary
and Affiliate on a consistent basis throughout the periods covered thereby and
on a basis consistent with that of prior years and periods; provided, however,
that any unaudited financial statements listed on such Schedule 3.11 are subject to year-end adjustments and
lack footnotes and other required presentation items and have not been prepared
in accordance with GAAP. Except for Liabilities (i) reflected or reserved
against in the consolidated balance sheets of the Company and the Subsidiary as
of March 31, 2006 (the “Balance
Sheet Date”) or in the notes
thereto (collectively, the “Balance
Sheets”), (ii) incurred in
the Ordinary Course of Business since the Balance Sheet Date (none of which
resulted from, arose out of, is related to, or was caused by any breach of
Contract), and/or (iii) set forth in Schedule 3.11
hereto, the Company and the Subsidiary do not have any Liabilities.

(b)           As of the Balance
Sheet Date, and except as set forth in Schedule 3.11
hereto, the Company, the Subsidiary and Affiliate have no material Liabilities
or obligations secured or unsecured (whether accrued, absolute, contingent) of
which, under GAAP, should have been, but which were not reflected or reserved
against in the Balance Sheets.

(c)           Since the Balance
Sheet Date, the Company, the Subsidiary and the Affiliate, have not incurred
any Liabilities or obligations including, without limitation, any items of
litigation of a type, kind or nature not reflected or reserved against in the
Balance Sheets.

 14
 

 

(d)           The prepaid expenses
on the Balance Sheets have been incurred solely for the benefit of the Company,
Subsidiary or Affiliate, and the Company, Subsidiary or Affiliate, will retain
the benefits of such prepaid expenses after the Closing Date.

(e)           The inventories of
the Company and the Subsidiary (including, without limitation, raw materials,
supplies, manufactured and processed parts, containers, work in process and
finished goods) are not damaged, or defective, and consist of items which are
usable or salable in the Ordinary Course of Business, and, if salable, are
salable at values no less than the book value amounts, subject only to the
reserve for inventory write-down set forth on the face of the Balance Sheets in
accordance with past custom and practice of Seller, provided such customs and
practices were consistent with GAAP. To Seller’s Knowledge, the Inventory is
not obsolete.

3.12.       Absence of Certain Developments. Except for the transactions contemplated by this
Agreement or as otherwise set forth on Schedule 3.12 hereto, since the Balance Sheet Date, (i) there
has not been any development or combination of developments affecting the
Company, Subsidiary or Affiliate of which the Seller’s Knowledge has had, or is
likely to have, a Material Adverse Effect, and (ii) the Company, Subsidiary and
Affiliate have conducted the Business in the Ordinary Course of Business and
since the Balance Sheet Date there has not been:

(a)           a change in the
Company’s or Subsidiary’s authorized or issued capital; grant of any stock
option or right to purchase shares of capital stock or other securities of the
Company, Subsidiary or Affiliate; issuance of any security convertible into
such capital stock or other securities; grant of any registration rights;
purchase, redemption, retirement, or other acquisition by the Company or
Subsidiary of any shares of any such capital stock or other securities; or
declaration or payment of any dividend or other distribution or payment in
respect of shares of capital stock or other securities;

(b)           payment or increase
by the Company or Subsidiary of any bonuses, salaries, or other compensation to
any stockholder, member, partner, director, manager, officer, or employee,
except payments or increases granted or agreed to be made in the Ordinary
Course of Business consistent with past practices;

(c)           adoption of, or
increase in the payments to or benefits under, any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement, or other
employee Benefit Plan for or with any employees of the Company or any
Subsidiary;

(d)           loss of the
employment, services or benefits of any officers or management level employees;

(e)           a loan to, or
entering into any other transaction with, any of the directors, officers, and
employees of the Company or Subsidiary except in the Ordinary Course of
Business consistent with past practice;

(f)            damage to,
destruction or other loss of, condemnation, taking or other proceeding against,
any asset or property of the Company or any Subsidiary, whether or not covered
by insurance;

(g)           incurrence of any
indebtedness or other liability (whether known or unknown, absolute, accrued,
fixed, contingent, liquidated, unliquidated or otherwise, and whether due or to
become due), except for liabilities reflected in the Balance Sheets or incurred
after the date of the Balance Sheets in the Ordinary Course of Business
consistent with past practice;

(h)           disposal of,
abandonment or permitted lapse of any rights to the use of any Intellectual
Property, or disposal of or disclosure, or permitted disclosure (except as
necessary in the conduct of its business), to any Person other than
Representatives of Purchaser, any trade secret, formula, or similar information
not theretofore a matter of public knowledge;

(i)            cancellation of any
debts or waiver of any claims or rights other than in the Ordinary Course of
Business consistent with past practice;

(j)            payment, discharge
or satisfaction of any claim, Liability or obligation other than the payment,
discharge or satisfaction of claims, Liabilities and obligations incurred in
the Ordinary Course of Business and consistent with past practice;

(k)           (i) prepayment of any
obligation having a fixed maturity of more than ninety (90) days from the date
such obligation was issued or incurred, or (ii) failure to pay when due, any
account payable, or sought the extension of the payment date of any account
payable;

(l)            a writing off as
uncollectible any notes or accounts receivable;

(m)          entry into,
termination of, amendment of, or receipt of notice of termination of any
Contract or transaction involving a total commitment by or to the Company or
Subsidiary of at least $25,000;

(n)           a sale, lease, or
other disposition of any asset or property of the Company or any Subsidiary
(except the sale of inventory in the Ordinary Course of Business consistent
with past practice);

(o)           creation of an
Encumbrance on any asset or property of the Company or Subsidiary;

 15
 

 

(p)           execution of any
agreement that materially limits or restricts the Company or Subsidiary from
engaging or competing in any line of business or in any geographic area or location;

(q)           execution of any
employment contract or collective bargaining agreement, written or oral, or
modified the terms of any existing employment contract or agreement or adopted,
amended, modified or terminated any Benefit Plan;

(r)            any change or amendment
in its articles of incorporation or bylaws;

(s)           an issuance or sale
of any securities; acquired, directly or indirectly, by redemption or
otherwise; or a grant or arrangement regarding any options, warrants, calls or
commitments of any kind with respect thereto;

(t)            any capital
expenditure exceeding $25,000;

(u)           any Liabilities,
except Liabilities incurred in the Ordinary Course of its Business, to which
the Company, Subsidiary and/or Affiliate have incurred or become subject to, or
have agreed to incur or become subject to,

(v)           a sale, assignment,
transfer, conveyance, lease or other disposition of any material assets or
properties of the Company or the Subsidiary, except in the Ordinary Course of
Business;

(w)          execution of any other
material transaction, contract or commitment outside of the Ordinary Course of
Business, except with respect to the transactions contemplated by this
Agreement;

(x)            any work stoppage with
respect to the Business or obtained Knowledge of any threatened or anticipated
work stoppage;

(y)           any material damage
or loss to its Business that would have a Material Adverse Effect;

(z)            any change in its
method of accounting;

(aa)         any Proceedings
instituted or settled; or

(bb)         either directly or
indirectly, a performance, or failure to perform, any act which would result in
the creation or imposition of any Encumbrance on any of the properties or
assets of the Company or Subsidiary, or otherwise adversely affect the
marketability of the Company’s or Subsidiary’s title to any of its properties
or assets, outside of the Ordinary Course of Business.

3.13.       Intellectual Property. Schedule
3.13 hereto contains a list and description of all Intellectual Property
owned or licensed by the Company or Subsidiary or used by the Company or
Subsidiary in the operation of the Business. Except as set forth in Schedule 3.13, the Company and
Subsidiary have all rights necessary to use such Intellectual Property, and
each Seller, the Company and Subsidiary have no Knowledge of any asserted or
Threatened claim to the effect that the operation of the Business (or the
possession or use in the Business of any of the Intellectual Property listed
and set forth in Schedule 3.13 hereto) infringes the Intellectual Property
rights of any other Person or that such Intellectual Property rights have been
terminated. Except as set forth in Schedule 3.13, the Seller has no Knowledge of any claim
that any of the Intellectual Property set forth in Schedule 3.13 is invalid; and,
except as set forth in Schedule 3.13 hereto, neither the Company nor the
Subsidiary is obligated under any Contract or otherwise to pay royalties, fees
or other payments with respect to any of the Intellectual Property listed and
set forth in Schedule 3.13 hereto. Except as set forth in Schedule 3.13, the consummation
of the transactions contemplated by this Agreement will not adversely affect
the use by the Company or Subsidiary of any of the Intellectual Property set
forth in Schedule
3.13 hereto.

3.14.       Compliance with Laws. The Business (i) has been operated and the
Company, Subsidiary and Affiliate are in compliance in all respects with the
requirements of Applicable Laws to which the Business, the Company, Subsidiary
and Affiliate are subject, and (ii) neither the Company nor the Subsidiary or
Affiliate have received any notice of, and the Seller has no Knowledge of, any
violation of any Applicable Laws respecting the Company, Subsidiary or
Affiliate. The Company, Subsidiary and Affiliate have obtained and complied, in
all material respects, with all Permits set forth in Schedule 3.31 and other
approvals necessary to conduct the Business and be in compliance with
Applicable Laws, including, but not limited to, all permits and other approvals
required to treat, transport, store, dispose of and otherwise handle Hazardous
Materials.

3.15.       Contracts. Except for Benefit Plans which are set forth on Schedule 3.9, Schedule
3.15 contains a complete and accurate list of all material Contracts, and
the Company has delivered to Purchaser true, correct and complete copies of all
material Contracts including:

(a)           each Contract that
involves performance of services or delivery of goods or materials by the
Company, Subsidiary or Affiliate of an amount or value in excess of $25,000
after the Closing Date;

(b)           each Contract that
involves performance of services or delivery of goods or materials to the
Company, Subsidiary or Affiliate of an amount or value in excess of $25,000
after the Closing Date;

(c)           each Contract that
involves expenditures or receipts of the Company or Subsidiary in excess of
$25,000;

 16
 

 

(d)           each lease, rental or
occupancy agreement, license, installment and conditional sale agreement, and
other material Contract affecting the ownership of, leasing of, title to, use
of, or any leasehold or other interest in, any real or personal property
(except personal property leases and installment and conditional sales
agreements having a value per item or aggregate payments of less than $25,000
and with terms of less than one (1) year);

(e)           each Contract
containing covenants that purport to restrict the business activity of the
Company, Subsidiary or Affiliate or limit the freedom of the Company or
Subsidiary to engage in any line of business or to compete with any Person;

(f)            each partnership or
joint venture agreement between the Company, Subsidiary or Affiliate and a
third party whether or not a separate legal entity is created thereby;

(g)           each Contract with an
employee, independent contractor or subcontractor of the Company, Subsidiary
and Affiliate, including contracts for employment, severance, consulting,
deferred compensation or benefit plans or agreements.

(h)           each collective
bargaining agreement or union agreement, with respect to employees of the
Company or Subsidiary;

(i)            each bonus, profit
sharing, retirement or other form of deferred compensation plan of the Company
or Subsidiary;

(j)            each equity
purchase, option or similar plan;

(k)           each Contract
pertaining to any Intellectual Property (other than off-the-shelf software);

(l)            each Contract
pursuant to which the Company or Subsidiary has guaranteed any obligations of
other Persons or made any agreements to acquire or guarantee any obligations of
or indemnify or hold harmless other Persons;

(m)          each Contract relating
to the lease or similar arrangement of any machinery, equipment, motor
vehicles, furniture, fixture or similar property of an amount or value in
excess of $25,000 and;

(n)           each Contract to
which any Governmental Body is a party;

(o)           each Contract
relating to the sale or other disposition of any of assets or property or other
rights of the Company or Subsidiary, other than with respect to obsolete
equipment;

(p)           each Contract that
could obligate the Company or Subsidiary to repair, replace, accept the return
of or make any refund in respect of any service performed by the Company or
Subsidiary;

(q)           each Contract
pursuant to which the Company or any Subsidiary is or may be obligated to make
payments, contingent or otherwise, on account of or arising out of prior
acquisitions or sales of businesses, assets or stock of other Persons;

(r)            each Contract which
provides for contingent payments or earn-outs;

(s)           each Contract which
provides for termination, acceleration or other similar rights with respect to
any direct or indirect change of control of the Company or any Subsidiary;

(t)            each Contract with a
related person;

(u)           each Contract that
involves any outstanding loan or advance to any Person.

(v)           each other Contract
not made in the Ordinary Course of Business of the Company and Subsidiary.

3.16.       Contracts; Compliance.

(a)           The Company,
Subsidiary and/or Affiliate are not in breach or default, and there is no basis
for any claim or breach or default, under any Contract (whether written or
oral) to which the Company, Subsidiary or Affiliate is a party or by which the
Company or any Subsidiary or any of its assets or properties are bound and,
there exists no event or condition which (whether with or without notice, lapse
of time, or both) could constitute a default thereunder, give rise to a right
to accelerate, modify or terminate any provision thereof or give rise to any
Encumbrance on its property or assets or a right to any additional or
guaranteed payments; and to the Seller’s Knowledge, no other party to any such
Contract is in breach or default thereof.

(b)           Each Contract listed
on Schedule
3.15 is valid and in full
force and effect and constitutes a legal, valid and binding obligation of the
Company, Subsidiary or Affiliate, and, to the Seller’s Knowledge, the other
parties thereto, enforceable in 

 17
 

 

accordance
with its terms, and will not cease to be valid and in full force and effect
after the Closing Date; accurate and complete copies thereof, together with all
amendments thereto, have been heretofore delivered to Purchaser.

3.17.       Real Estate. Owned Real Estate and Leased Real Estate shall
collectively be referred to herein as “Real Estate” with respect to the Real Estate:

(a)           Schedule 3.17(a) contains a description segregated by the
Company, Subsidiary, and Affiliate for each parcel of Owned Real Estate and a
listing and description (including the parties, term, expiration date(s),
address, and the general use description of the leased premises) of each
written or oral lease regarding Leased Real Estate (the leases of Leased Real
Estate described in Schedule
3.17(a) are collectively,
the “Leases”);

(b)           Except as set forth
in Schedule
3.17(b) hereto, there are
no deferred property Taxes or assessments with respect to the Real Estate which
may or will become due and payable as a result of the consummation of the
transaction contemplated hereby;

(c)           The Affiliate is the
sole owner in fee simple title of each parcel of Owned Real Estate and each
such parcel is free and clear of any and all Encumbrances, except (A) those
parcels of Owned Real Estate with encumbrances as set forth in Schedule 3.17(d), and (B) (i) those encumbrances set forth in Schedule 3.17(c) hereto, including (ii) municipal zoning
ordinances, recorded or platted easements for public utilities and recorded
building and use restrictions and covenants, (iii) general Real Estate Taxes
and installments of special assessments payable in the year of Closing, and (iv)
licenses, easements or reservations of, or rights of others for, water lines,
sewers, electric lines, telephone lines, and other similar public utility
purposes, or zoning or other restrictions on the use of real property
(collectively the “Permitted
Encumbrances”). The Permitted
Encumbrances and those Encumbrances set forth in Schedule 3.17(d) hereto
do not individually or in the aggregate materially impair or prohibit the
current use or operation of the Owned Real Estate by the Company or Subsidiary.
The Affiliate will sell, transfer, and convey said Owned Real Estate to the
Purchaser, or its nominee, pursuant to the terms of a separate Real Estate
Purchase Agreement;

(d)           Except for the
Permitted Encumbrances and those Encumbrances set forth in Schedule 3.17(d) hereto, there are no Encumbrances which
materially and adversely affect the use or occupancy of all or any part of any
parcel of Owned Real Estate or any easements;

(e)           Except as set forth
in Schedule
3.17(e) hereto, the
improvements located on each parcel of Real Estate, including fences, driveways
and other structures occupied, used or claimed by the Company, Subsidiary or
Affiliate, are wholly within the boundary lines of such parcels of Real Estate
and such improvements and the present uses thereof by the Company, Subsidiary
or Affiliate, as applicable, do not infringe upon the rights of any other
Person;

(f)            Except as set forth in
Schedule 3.17(f) hereto, no buildings, fences, driveways or
other structures of any adjoining owner encroach, in any material respect which
interferes with the operation of the Business, upon any part of any parcel of
Real Estate or any easements;

(g)           Except as set forth
in Schedule
3.17(g), the Company,
Subsidiary and Affiliate, as applicable, have all easements (or access through
public utility easements) on to private property, construction permits, highway
encroachment agreements and permits (and other similar licenses and permits)
and right-of-way-licenses reasonably necessary to conduct the
Business and to use and operate the Real Estate in the manner it is currently
being used and operated by the Company, Subsidiary and Affiliate;

(h)           Neither the Company,
Subsidiary nor Affiliate are in default in the performance of any material
obligation under the Leases or easements, and, to the Seller’s Knowledge, none
of the other parties to the Leases or easements are in default in performance
of their material obligations thereunder, the Leases and easements are in full
force and effect, and neither the Company, Subsidiary or Affiliate have
assigned their rights under the Leases or easements;

(i)            Except as set forth
in Schedule
3.17(i) neither the
Company, Subsidiary or Affiliate have leased or granted to any other Person or
entity the right to use or occupy all or any portion of the Owned Real Estate,
and the Owned Real Estate is not subject to an option or right to purchase in
favor of any Person or entity; and

(j)            Except as set forth
in Schedule
3.17(j), each of the
parcels of Owned Real Estate constitutes a separate tax parcel, and is not
taxed with any other real property.

3.18.       Accounts Receivable. Scheduled
3.18 sets forth a list of aged accounts receivable which is true, correct
and complete as of the indicated thereon. All of the accounts, notes and other
receivables of the Company and Subsidiary represent sales actually made in the
Ordinary Course of Business consistent with past practice for goods or services
delivered or rendered in bona fide arm’s-length transactions, constitute only
valid, undisputed claims, have not been extended or rolled over in order to
make them current and should be collectible at their recorded amounts net of
reserves for non-collectibility reflected on the Financial Statements in
accordance with GAAP. Except as set forth in Schedule 3.18, no such account,
note or other receivable has been assigned or pledged to any Person or, to the
Seller’s Knowledge, is subject to counterclaims or setoffs or any other
defenses.

3.19.       Books and Records; Bank Accounts. All of the books of account and other financial
and corporate records of the Company and the Subsidiary (including minute books
and stock records) have been made available to the Purchaser and its
representatives (or 

 18
 

 

will be so made available prior to the
Closing Date). Such books of account and records are current and complete in
all material respects. All such books and records are consistent with the
financial statements set forth in Schedule 3.11 hereto. All such books and records are kept
in a proper order and in the possession of the Company and the Subsidiary (as
the case may be).

3.20.       Employees.

(a)           Schedule 3.20(a) sets forth a complete and accurate list of all
the employees of the Company and the Subsidiary as of the date hereof (the “Employees”), together with the following information
for each such Employee: name, position held, current salary, and bonus
entitlement/arrangement.

(b)           None of the Employees
have informed the Company or the Subsidiary that he/she intends to terminate
employment with the Company or the Subsidiary, as applicable. Schedule 3.20(b)(ii) sets forth a description of any written
Contract, other than the Benefit Plans set forth in Schedules 3.9(a) & (i) hereto, with respect to the conditions of employment of any of the
Employees. Except as set forth in Schedule
3.20(b)(ii), all RMI
Employees are employed on an “at-will” basis.

(c)           None of the Employees
are working based upon a non-resident visa and the Company and the Subsidiary
has complied with their respective obligations under the Immigration Reform
Control Act.

3.21.       Subsidiary. Except for the Subsidiary, the Company does not
own any shares of stock or other securities or equity interests, directly or
indirectly, in any other Person. Except as disclosed or described in this
Agreement or as set forth in Schedule 3.21 hereto, the Company is not subject to any
obligation or requirement to provide funds to, or invest in, any such Person.

3.22.       Insurance.

(a)           The
Company has delivered to Purchaser:

(i)            true and complete
copies of all policies of insurance to which the Company, Subsidiary or
Affiliate is a party or under which the Company, Subsidiary, or any officer or
director of the Company, Subsidiary or Affiliate, has been covered at any time
within the three (3) years preceding the date of this Agreement; and

(ii)           true and complete
copies of all pending applications for policies of insurance;

(b)           Schedule 3.22(b) contains a true and complete list and/or
description of:

(i)            any self-insurance
arrangement by or affecting the Company, Subsidiary or Affiliate, including any
reserves established thereunder;

(ii)           all insurance
policies (including, but not limited to, liability, property and casualty,
workers compensation, directors and officers liability, surety bonds, key man
or corporate owned life insurance, vehicular and other insurance policies and
contracts) covering the Company, Subsidiary or Affiliate or otherwise held by
or on behalf of it, or any aspect of its assets or business, indicating the
type of coverage, name of insured, the insurer, the amount of coverage, the
deductibles, the premium, the expiration date, and other material terms thereof
and the aggregate amounts paid thereunder.

(iii)          any Contract, other
than a policy of insurance, for the transfer or sharing of any risk by the
Company; and

(iv)          all obligations of
the Company to third parties with respect to insurance (including such
obligations under leases and service agreements) and identifies the policy
under which such coverage is provided; and

(c)           Except as set forth
on Schedule
3.22(c), to Seller’s
Knowledge, there are no pending claims under any of the foregoing. To Seller’s
Knowledge there is no reason why any of such insurance policies or Contracts
will be terminated, suspended, modified or amended, or not renewed on
substantially identical terms (including, without limitation, premium costs),
or will require alteration of any equipment or any improvements to real
property occupied by or leased to or by the Company or Subsidiary, or the
purchase of additional equipment, or the modification of any of the methods of
doing business. Neither the Company, Subsidiary nor Affiliate, or to the Seller’s
Knowledge, any third party to such insurance policy or Contract is in default
with respect thereto, nor does any condition exist that with notice or lapse of
time or both could constitute such a default by any party thereunder. Neither
the Company, Subsidiary nor Affiliate have failed to give any notice or present
any claim under any such insurance policy or Contract in due or timely fashion
or as required thereby in a manner which may jeopardize full recovery
thereunder. All such insurance policies or Contracts provide coverage in
amounts and upon terms that are reasonable and adequate for Persons having
similar businesses, operation, assets and properties. Complete and accurate
copies of all such policies, Contracts and related documentation have
previously been delivered to Purchaser.

(d)           The Seller, the
Company, Subsidiary and Affiliate, as applicable, have individually or jointly
maintained, and will continue to maintain until the Closing Date, the insurance
set forth in Schedule
3.22(b), which insurance
covers the tangible real 

 19
 

 

and
personal property and assets of the Company, Subsidiary, and the Affiliate,
whether owned or leased, against loss or damage by fire or other casualty. The
Company and Subsidiary also carry product liability insurance. All such
insurance is in full force on the date of this Agreement and is carried with
insurers licensed in the states affected by such policies.

(e)           The Company and
Subsidiary are presently insured for general liability and worker’s
compensation risks through a third party insurance company, which insurance
covers claims made against the Company or Subsidiary.

(f)            The Company and
Subsidiary have promptly and adequately notified the insurance carriers of any
and all claims known with respect to the operations, products or services of
the Company or Subsidiary for which the Company or Subsidiary are insured and
no insurance carrier has denied coverage or reserved its rights with respect to
such claims. The Company and Subsidiary have not been refused any insurance
coverage by any insurance carrier to which they, individually or collectively,
have applied for insurance during the past three (3) years.

3.23.       Brokers. Except for the engagement of TRUDEAU & TRUDEAU
ASSOCIATES, INC. by the Seller, neither the Company, Subsidiary, the Seller nor
the Affiliate has employed or engaged any broker, finder, agent, banker or
third party, nor have they otherwise dealt with anyone purporting to act in the
capacity of a finder or broker in connection with the transactions contemplated
hereby. No commissions, finder’s fees or like charges have been or will be
incurred by the Company or the Subsidiary or Affiliate in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby. Any such commissions, finders’ fees or like
charges shall be directly chargeable to and will be paid by the Seller as
contemplated by the terms of this Agreement.

3.24.       Environmental Matters. Except as may be set forth in Schedule 3.24 and as set forth
in the information contained in the site surveys and the environmental reports
listed in Schedule
3.24, copies of which have been provided to the Purchaser, and except as
would not have a Material Adverse Effect: (i) the Company, Subsidiary and
Affiliate have transported, sorted, and/or disposed of Hazardous Materials
handled by the Company, Subsidiary and Affiliate in a manner that is reasonably
necessary for the conduct of the Business and in material compliance with
Environmental Laws, (ii) to the Seller’s Knowledge, the Real Estate, during its
use by the Company, Subsidiary, or Affiliate has not been used, as a landfill,
dump or other disposal, storage, transfer, treating or handling area for any
Hazardous Materials, except for such storage or handling of Hazardous Materials
as is reasonably necessary for the conduct of the Business and in material
compliance with Environmental Laws, (iii) to the Seller’s Knowledge, no
asbestos, polychlorinated biphenyls, or urea formaldehyde has been placed,
stored, located, or disposed on the Real Estate, and (iv) the Company,
Subsidiary and Affiliate have not agreed to assume and, to the Seller’s
Knowledge, have not assumed by operation of law, any environmental Liability of
any other Person, including, but not limited to, environmental Liabilities
under CERCLA or SARA. Except as may be set forth in Schedule 3.24 hereto, the Real
Estate is not listed on the National Priorities List, the Comprehensive
Environmental Response Compensation and Liability Information System, the
Resource Conservation and Recovery Information System or any other governmental
list of potentially contaminated properties.

3.25.       Debt. Schedule
3.25 is a true, correct and complete list of all mortgages, indentures,
notes, guarantees and other obligations for or relating to borrowed money, or
purchase money debt (including conditional sales contracts, capital leases and
all letters of credit whether or not such letters of credit have been drawn
against) for which the Company, Subsidiary, or Affiliate are primarily or
secondarily obligated.

3.26.       Customers and Suppliers.

(a)           Schedule 3.26(a) contains a true and complete list of the
fifteen (15) largest customers of the Company and Subsidiary in order of dollar
volume of services provided during its last full fiscal year showing the total
services provided in dollar volume to each such customer during such period.

(b)           Schedule 3.26(b) contains a true and complete list of the five (5)
largest suppliers of the Company and Subsidiary in order of dollar volume of
purchases during its last full fiscal year showing the total of purchases in
dollars to each such supplier during such period.

(c)           Except as set forth
on Schedule
3.26(c):

(i)            There has not been
any Material Adverse Change and, to the Seller’s Knowledge, there are no facts
which may reasonably be expected to indicate that any Material Adverse Change
may occur in the business relationship of the Company or Subsidiary with any
customer or supplier listed on Schedule 3.26(a) or
Schedule 3.26(b).

(ii)           Neither the Company
nor Subsidiary is engaged in any material disputes with any customers or
suppliers listed or to be listed on Schedules 3.26(a) or
3.26(b) and neither the Company, Subsidiary nor any
Seller has any reason to believe that any such customer or supplier intends to
discontinue or adversely modify its relationship with the Company or Subsidiary
after the Closing Date. In addition, to the Seller’s Knowledge, no customer
listed or to be listed on Schedule
3.26(a) of the Disclosure
Schedule is materially dissatisfied with its services. During the two-year
period prior to the date hereof neither the Company nor Subsidiary has granted
any rebate to any customer listed or to be listed on Schedule 3.26(a) of the Disclosure Schedule other than in the
Ordinary Course of Business consistent with past practice.

3.27.       Seller Loans. Except as set forth in Schedule 3.27, there are no
loans, advances or other obligations for borrowed money owing by the Company or
the Subsidiary to the Seller.

 20
 

 

3.28.       Adequacy of Properties. The Company, Subsidiary and Affiliate,
respectively, own, lease or otherwise have adequate rights to use the tangible
and intangible personal property necessary for the conduct of their Business in
the manner in which such Business is presently being conducted with no material
conflict with or infringement of the rights of others such that the absence of
such ownership or rights could not reasonably be expected to have a Material
Adverse Effect.

3.29.       Warranty and Product Liability Claims. Except as disclosed on Schedule 3.29: (a) neither the
Company nor the Subsidiary has made any express warranties and guaranties with
respect to any products manufactured or sold or services rendered in the
operation of the Business, and (b) no claims have been asserted during the past
three (3) years that any product of the Company or the Subsidiary was defective
or caused any injury or harm to any person or property, including all such
claims relating to returns, express or implied warranty violations, failure to
warn or similar matters.

3.30.       Related Party Transactions. Except as
disclosed in Schedule 3.30 hereto, no Person who is an officer, director or
shareholder in the Company or the Subsidiary (either directly or indirectly),
or a member of any such officer’s, director’s or shareholder’s immediate
family, or any Affiliate thereof, has, directly or indirectly: (a) any
financial interest in any Contract with the Company or Subsidiary, except as an
owner of the Company or for compensation for services as an officer, employee
or director of the Company or the Subsidiary; (b) any interest in any real or
personal property used in the Company’s or Subsidiary’s business, except for
the normal rights of a shareholder; or (c) any interest in (i) any Person which
purchases from or sells, licenses or furnishes to either of the Company or
Subsidiary any goods, property, technology or intellectual or other property
rights or services or (ii) any third-party Contract to which the Company or the
Subsidiary is a party or by which the Company or the Subsidiary may be bound. There
are no loans, advances or other obligations for borrowed money (i) from the
Seller or any Affiliate of the Seller, on the one hand, to the Company or
Subsidiary, on the other hand, or (ii) from the Company or Subsidiary, on the
one hand, to the Seller or any Affiliate of the Seller, on the other hand.

3.31.       Permits. Schedule 3.31 contains a
complete listing and summary description of all Permits held by the Company,
Subsidiary and Affiliate. Except as set forth on Schedule 3.31, the Company, Subsidiary
and Affiliate hold all of the Permits that are necessary or appropriate to own
and operate its Business as presently conducted, including, without limitation,
all Permits required under any Applicable Laws and each such Permit is, and
after the Closing shall be, in full force and effect. The Company and
Subsidiary are in compliance with the terms and conditions of the Permits set
forth on Schedule
3.31, and neither the Company nor Subsidiary has received any notices that
the Company, Subsidiary or Affiliate is in violation of any of the terms or
conditions of such Permits. There are no proceedings pending or, to the Seller’s
Knowledge, Threatened which may result in the revocation, cancellation,
suspension or modification of the Permits set forth on Schedule 3.31, and Seller does
not have any Knowledge of any basis therefore; and the consummation of the
contemplated transactions hereby will not result in any such revocation,
cancellation, suspension or modification nor require the Company, Subsidiary,
Affiliate or the Purchaser to make any filing or take any action in order to
maintain the validity of any item listed on Schedule 3.31.

3.32.       Absence of Undisclosed Liabilities.

(a)           Neither
the Company, Subsidiary nor Affiliate, has any liabilities, losses or
obligations of any nature (whether absolute, known or unknown, accrued, fixed,
contingent, liquidated, unliquidated, due or to become due, or otherwise),
except for (i) Liabilities included or reflected in the Company’s financial
statements and adequately reserved against therein in accordance with GAAP
consistently applied, or (ii) Liabilities or performance obligations arising
subsequent to the date of the Balance Sheet in the Ordinary Course of Business
(and not as a result of a breach or default by the Company or any Subsidiary)
out of or under agreements, Contracts, leases, arrangements or commitments to
which the Company or Subsidiary or Affiliate is a party.

(b)           To the extent that (i)
the subject matter or events giving rise to a breach of the Seller’s
representations set forth in Section 3.32(a) are specifically covered by
another representation in Article 3 and (ii) such other representation is
qualified by Seller’s Knowledge, then such knowledge qualifier shall be deemed
included in this Section 3.32 solely for purposes of determining whether the
subject matter or events in question constitute a breach of this Section 3.32.

3.33.       Closing Date. All of the representations and warranties of
Seller contained in this Article 3 and elsewhere in this Agreement and all
information delivered in any schedule or in any certificate delivered by any
Seller to the Purchaser are true and correct on the Closing Date.

3.34.       Representations and Warranties. No representation or warranty by the Seller
included in this Agreement, to Seller’s Knowledge, contains any untrue
statement of a material fact or omits any material fact necessary to make the
information contained herein not misleading.

3.35.       Limitation on Representations
and Warranties. Except for the
representations and warranties contained in this Article 3, neither the Seller,
the Company, the Subsidiary nor the Affiliate, nor any other Person acting on
behalf of the Seller, the Company, the Subsidiary or the Affiliate, makes any
representation or warranty, express or implied, concerning, without limitation,
the Stock, the Business, the Company and the Subsidiary or any other matter.

3.36        Assignability
of Representations and Warranties. In the event
Purchaser sells or otherwise transfers the Subsidiary to another entity owned
or controlled by Purchaser within the Company’s current fiscal year each of the
warranties and representations in this Article 3 of this Agreement shall be
deemed, as applicable, to be assigned to such transferee.

 21

 

ARTICLE 4

COVENANTS OF THE SELLER

4.1.         Further Assurances. The Seller hereto shall from time to time after
the Closing Date execute and deliver such additional instruments and documents,
as Purchaser may reasonably request. Without limiting the foregoing, Seller
specifically agrees to take any and all actions necessary under applicable law
to ensure that Company and Subsidiary have full use of and rights in the
Intellectual Property set forth on Schedule 3.13 following consummation of the
transactions contemplated by this Agreement. Seller also agrees to execute all
papers and to give such testimony and to perform such other acts as said
Purchaser or affiliates may require to enable it or them to procure any
continuations, divisionals, reissues or trademarks, in the United States of
America and/or in any foreign country, and/or to hold, enforce or convey said
Intellectual Property.

4.2.         Non-Solicitation of Employees. Each Seller agrees that for a period commencing on
the Closing Date and expiring on the fifth anniversary of the Closing Date,
each Seller will not, nor will any of his Affiliates, without the written
consent of Purchaser, directly or indirectly, for his own account or on behalf
of any other Person, (i) hire any person who is an officer or employee of the
Company or Subsidiary or (ii) induce or attempt to induce any such officer or
employee of the Company or Subsidiary to leave his or her employment with the
Company or Subsidiary.

4.3.         Non-Solicitation or Interference with
Customers and Suppliers. Each Seller agrees that for the period commencing
on the Closing Date and expiring on the fifth anniversary of the Closing Date,
each Seller will not, nor shall any of his Affiliates, without the written
consent of Purchaser, directly or indirectly, for his own account or on behalf
of any other Person, solicit, accept orders from, divert, take away or attempt
to take away any of the customers or suppliers of the Company or the Subsidiary
or the business or patronage of any such customers or suppliers or in any way
interfere with, disrupt or attempt to disrupt any then existing relationships
between the Company or the Subsidiary, on the one hand, and any of its
customers or suppliers or other Persons with whom it deals, on the other.

4.4.         Non-Disclosure and Non-Competition. Each Seller will
enter into a five year Non-Disclosure and Non-Competition Agreement to be
executed and delivered at Closing (“Non-Competition Agreements”).

4.5.         Confidential Information;
Non-Disparagement. The Seller shall not at any time use or disclose to or
for the benefit of any Person other than Purchaser, the Company and Subsidiary,
any information, knowledge or data relating to the Business of Purchaser, the
Company or Subsidiary (including, without limitation, information relating to
accounts, financial dealings, transactions, recipes, formulae, know-how,
distribution methods, intangibles, customer lists, pricing lists, processes,
plans, proposals and trade secrets) whether or not marked or otherwise
identified as confidential or secret. The Seller and Affiliate shall not,
directly or indirectly, make any statements or take any actions which in any
way disparage or which could reasonably be expected to harm the reputation
and/or goodwill of Purchaser.

4.6.         Acknowledgments. Each Seller acknowledges that, in view of the
nature of the business of the Company and Subsidiary and the business
objectives of Purchaser in entering into this Agreement and the contemplated
transactions, the restrictions contained in this Article 4 are reasonably
necessary to protect the legitimate business interests of Purchaser and that
any violation of such restrictions will result in irreparable injury to
Purchaser, the Company and Subsidiary for which damages will not be an adequate
remedy. Each Seller therefore acknowledges that, if any such restrictions are
violated, Purchaser, the Company and Subsidiary shall be entitled to
preliminary and injunctive relief against each Seller as well as to an
equitable accounting of earnings, profits and other benefits arising from such
violation.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

As an inducement for the Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, the Purchaser represents and
warrants to the Seller that each and all of the following representations and
warranties are true and correct as of the date of this Agreement. The Schedules
shall be arranged in paragraphs corresponding to the sections and subsections
contained in this Article 5.

5.1.         Organization. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite power and authority, corporate and otherwise, to own,
operate and lease its properties and assets and to conduct its business as it
is now being conducted.

5.2.         Due Authorization. The execution, delivery and performance of this
Agreement and the Ancillary Documents to be executed and delivered by the
Purchaser pursuant to this Agreement, and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of the Purchaser. This Agreement and the
Ancillary Documents have been, or will be on or before the Closing Date, duly
and validly authorized, executed and delivered by the Purchaser and the
obligations of the Purchaser hereunder and thereunder are or will be, upon such
execution and delivery, valid, legally binding and enforceable against the
Purchaser in accordance with their respective terms.

5.3.         No Breach. The Purchaser has full power and authority,
corporate and otherwise, to purchase the Stock being purchased hereunder and to
otherwise perform its obligations under this Agreement and the Ancillary
Documents to be executed and delivered by the Purchaser pursuant hereto. The
execution and delivery of this Agreement and the Ancillary Documents to be
executed and delivered by the Purchaser pursuant to this Agreement, and the
consummation of the transactions contemplated hereby and thereby will not: (i) violate
any 

 22
 

 

provision of the Certificate of
Incorporation or Bylaws (or comparable governing documents or instruments) of
the Purchaser, (ii) violate any Applicable Laws or Injunction applicable to the
Purchaser, (iii) other than filings and approvals required to comply with
Applicable Laws, including applicable requirements of any Governmental Body,
require any filing with, authorization, consent or approval of, or the giving
of any notice to, any Person, (iv) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give another party any rights of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, franchise, lease or other Contract to which the Purchaser
is a party, or by which it or any of its assets or properties may be bound.

5.4.         Investment Representations. The Purchaser understands that the Stock has not
been registered under the Securities Act of 1933, as amended, or under the
securities laws of any jurisdiction, by reason of reliance upon certain
exemptions.

5.5.         Brokers. Neither the Purchaser nor its respective
Affiliates has employed or engaged any broker, finder, agent, banker or third
party, nor have they otherwise dealt with anyone purporting to act in the
capacity of a finder or broker in connection with the transactions contemplated
hereby. Any such commissions, finders’ fees or like charges so claimed shall be
directly chargeable to and will be paid by the Purchaser, subject to Purchaser’s
right to contest any such claim.

5.6.         Securities and Exchange Commission and
State or Other Securities Filing Requirements. Except as set forth on Schedule 5.6 hereto, the
Purchaser is not required to file any pre-acquisition notifications either with
the United States Securities and Exchange Commission, any State or local
governmental agencies, or with any securities exchange. If, however, any such
filing is listed on Schedule 5.6, or is found to be required hereafter,
Purchaser will pay all costs incurred in connection with said filing, including
any filing fees, late filing penalties, and reasonable attorneys fees incurred
by either Seller or Purchaser; and Purchaser shall undertake to make any such
required filing in a timely manner so as not to delay the scheduled Closing
Date.

ARTICLE 6

INDEMNIFICATION

6.1.         Survival of Representations and
Warranties.

(a)           Representations
and Warranties of the Seller. Except as noted in section 6.1(b) below each
of the representations and warranties of the Seller contained in this Agreement
and in any Ancillary Documents delivered by or on behalf of any of the Sellers
hereto pursuant to this Agreement and the transactions contemplated hereby shall
survive the Closing of the transactions contemplated hereby for a period of two
(2) years after the Closing Date, or longer as expressly specified below (the “Survival Period”).

(b)           The representations
and warranties in Sections 3.1, 3.2 and 3.3 shall have no expiration; (ii) the
representations and warranties in Section 3.8 (the “Tax Representations”) shall survive the applicable statute of
limitations; (iii) the representations and warranties in Section 3.24 (the “Environmental Representations”) will terminate upon the fifth (5th)
year anniversary of the Closing Date.

(c)           Representations
and Warranties of the Purchaser. The representations and warranties of the
Purchaser in this Agreement will survive the Closing for two (2) years.

(d)           Covenants. All
covenants of the parties will survive until terminated in accordance with their
respective terms.

(e)           Certain
Definitions. The term “Damages” means any and all damages, losses, claims
(including Taxes), expenses, costs, fines, attorney and professional fees,
interest, penalties, special and punitive damages including incidental or
consequential damages; and with respect to indemnification for breach of the
representations and warranties in Section 3.24 (Environmental
Representations), “Damages”
shall mean such liabilities
as referenced above arising out of or in connection with government-mandated
remediation of conditions caused by: (i) the presence of Hazardous Materials or
(ii) any violation of Environmental Laws causing physical injury to persons or
property. “Damages” also shall including costs incurred arising
from such claims, actions, suits, demands, assessments, investigations,
judgments, penalties, fines, awards, arbitrations or other proceedings,
together with reasonable attorneys’ fees and expenses. The term “Purchaser Indemnitees” means the Purchaser, the Purchaser’s
successors and assigns, and any present or future officer, director, partner,
member, employee, agent, Affiliate, subsidiary, shareholder or Representative
of each such party. The term “Seller
Indemnitees” means the Seller
and any present or future heir, beneficiary, successor, assign or
Representative of the Seller.

(f)            The right to
indemnification or payment of Damages will not be affected adversely by any
investigation by any party or any knowledge acquired at any time with respect
to the accuracy or inaccuracy of or compliance with, any representation,
warranty, covenant, or obligation, except for the Environmental
Representations, unless any such investigation was the result of a request or
directive by a Governmental Body or was reasonably required by a prospective
purchaser or lender.

 23
 

 

6.2.         Indemnification by the Seller.

Subject
to the provisions of Section 6.1 above and Section 6.3 below,
each Seller, jointly and severally, will indemnify and hold harmless the
Purchaser Indemnitees from and against any and all Damages directly incurred,
paid or accrued in connection with or resulting from or and arising out of:

(a)           the breach or inaccuracy of any
representation or warranty of the Seller or Affiliate contained in this
Agreement or any Ancillary Document executed by the Seller or Affiliate
pursuant hereto or thereto or in any certificate delivered to Purchaser
pursuant to Section 2.5 above;

(b)           the breach or violation of any
covenant or other obligation of the Seller or Affiliate under this Agreement or
any Ancillary Document executed by the Seller or Affiliate pursuant hereto or
thereto;

(c)           all Taxes not properly paid or
accrued for by the Company, the Subsidiary or Affiliate as of the Closing Date;

(d)           (A) the violation by the Company, the
Subsidiary, Affiliate or any of their respective affiliates or predecessors
(which shall include any Person whose liabilities, including, without
limitation, liabilities arising under any Environmental Laws, have or may have
been retained or assumed by the Company, the Subsidiary, Affiliate or any of
their respective Affiliates, either contractually or by operation of law) of
any Environmental Laws prior to the Closing Date or (B) the presence or release
of any Hazardous Materials at any property, present at the property on the
Closing Date, including, without limitation, any property owned, leased or
operated by them prior to the Closing Date, in each case regardless of whether
such violation of Environmental Laws or presence or Release of Hazardous
Materials is described or referenced on Schedule 3.24
hereto; and

(e)              damages or losses incurred for the
items set forth in Schedule
3.6(b) and Schedule 3.7.

6.3.         Limitations on Seller’s Indemnification
Liability.

(a)           Threshold for
Bringing Claims Against the Seller. If a Purchaser Indemnitee seeks
indemnification for matters identified in Section 6.2(a), the
indemnification by the Seller will not apply unless and until the aggregate
Damages for all claims exceeds $250,000 (the “Indemnification Threshold”). Once the Indemnification Threshold has
been reached (and subject to the provisions of Section 6.3(b) below),
the Seller will indemnify the Purchaser Indemnitees for the full amount of such
aggregate Damages exceeding the Indemnification Threshold.

(b)           Limitation of
Aggregate Amount of Seller’s Liability.

(i)            Except as set forth
in Section 6.3(b)(ii), 6.3(b)(iii), 6.3(b)(iv) and 6.3(b)(v), the total
cumulative amount of Damages for which the Seller shall be liable to the
Purchaser or Purchaser Indemnitees under Section 6.2(a) shall not exceed
$8,500,000;

(ii)           Notwithstanding
paragraph 6.3(b)(i) above, there shall not be any limitation on the aggregate
Damages resulting from or arising out of any breach of the representations and
warranties contained in Sections 3.1, 3.2, 3.3, and 3.8;

(iii)          Notwithstanding any
limitations set forth above and without regard to whether any one or more of
the items listed in this paragraph may be disclosed in any Schedule or otherwise
known to Purchaser as of the date hereof or the Closing Date, there shall be a
separate limitation not to exceed $2,500,000 on the aggregate Damages resulting
from or arising out of any generation, handling, transportation, storage,
treatment, disposal or Release of any Hazardous Materials occurring on or prior
to the Closing Date (including without limitation those that allegedly result
in, or result in, any Release or treatment of Hazardous Materials after the
Closing Date), regardless of when liability is asserted, at any Offsite
Facility with regard to any Hazardous Materials with which Seller was involved
in any way at any time;

(iv)          The limitation does
not apply to any intentional misstatement or misrepresentation, or fraudulent
act; and

(v)           The limitation does
not apply to any Damages arising out of or relating to the matters described in
Schedule 3.6(b).

(c)           Escrowed Funds.
The initial source for the Purchasers claims shall be the Escrow. The amount of
any Damages for which any Purchaser Indemnitee is entitled to be indemnified
under Section 6.1 of this Agreement shall be released from the Escrowed
Funds pursuant to the terms of the Purchase Price Escrow Agreement; provided,
however, that if the amount of Damages for which the Purchaser Indemnitees
are entitled to be indemnified under Section 6.1 exceeds the amount then
in the Escrowed Funds, the Seller shall be jointly and severally responsible
for all such excess amounts subject to the limitations set forth in this Section
6.3.

 24
 

 

(d)           Time Limit for
Claims against Seller. Except Claims for Damages arising from or relating
to: (i) a breach of the representations and warranties contained in Sections
3.1, 3.2, and 3.3 of this Agreement, which may be brought at any time prior
to the expiration of such representations and warranties as provided in Section
6.1(b) above and prosecuted until its conclusion (which may be after the
applicable expiration date), and (ii) matters described in Section 6.3(b)(iii),
which may be brought at any time up to and including the seventh (7th) year anniversary of the Closing Date and prosecuted until its
conclusion (which may be after such seventh (7th)
year anniversary), no Claim for indemnification for matters identified in Section
6.2 may be asserted or brought by the Purchaser against the Seller after
the applicable Survival Period has expired; provided, however, that any such
Claims asserted by written notice prior to the applicable Survival Period may
be prosecuted until its conclusion, which may be after the applicable Survival
Period.

(e)           Insurance. Damages
in respect of which the Seller is required to indemnify a Purchaser Indemnitee
under this Agreement shall be (i) reduced by an amount equal to the insurance
proceeds paid to or realized by the Purchaser Indemnitee with respect to any
Claim giving rise to Damages under this Agreement, and (ii) increased by an
amount equal to the sum of the reasonable out-of-pocket costs incurred by the
Purchaser Indemnitee in its pursuit of such insurance proceeds plus all other
costs incurred by the Purchaser Indemnitee as a result of any such insurance,
including, but not limited to, retroactive premium adjustments,
experience-based premium adjustments (whether retroactive or prospective for
the duration of the indemnification period only) and indemnification or surety
obligations of the Purchaser Indemnitee to any insurer.

6.4.         Indemnification by the Purchaser. The Purchaser shall indemnify and hold each Seller
and each of his respective successors and assigns, harmless from, against and
in respect of any and all Damages incurred, paid or accrued in connection with
or resulting from or arising out of:

(a)           the breach or
inaccuracy of any representation or warranty made by the Purchaser in this
Agreement and the Ancillary Documents to be executed and delivered by the
Purchaser pursuant hereto and thereto; or

(b)           the breach or
violation of any covenant or other obligation of the Purchaser under this
Agreement or any Ancillary Document executed by the Purchaser or its
representatives pursuant hereto or thereto.

6.5.         Procedure for Indemnification.

(a)           In the event a party intends to seek
indemnification pursuant to the provisions of Sections 6.2 or 6.4 hereof (the “Indemnified Party”), the Indemnified Party shall promptly give
notice hereunder to the other party (the “Indemnifying Party”)
of a claim or after obtaining written notice of any claim, investigation, or
the service of a summons or other initial or continuing legal or administrative
process or Proceeding in any action instituted against the Indemnified Party as
to which recovery or other action may be sought against the Indemnified Party
because of the indemnification provided for in Section 6.2 or 6.4 hereof, and,
if such indemnity shall arise from the claim of a third party, the Indemnified
Party shall permit the Indemnifying Party to assume the defense of any such
claim and any litigation resulting from such claim; provided, however,
that the Indemnified Party shall not be required to permit such an assumption
of the defense of any claim or Proceeding which, if not first paid, discharged
or otherwise complied with, would result in a material interruption or
disruption of the business of the Indemnified Party, or any material part
thereof. Notwithstanding the foregoing, the right to indemnification hereunder
shall not be affected by any failure of the Indemnified Party to give such
notice (or by delay by the Indemnified Party in giving such notice) unless, and
then only to the extent that, the rights and remedies of the Indemnifying Party
shall have been prejudiced as a result of the failure to give, or delay in
giving, such notice. Failure by the Indemnifying Party to notify the
Indemnified Party of its election to defend any such claim or action by a third
party within thirty (30) days after notice thereof shall have been given to the
Indemnifying Party shall be deemed a waiver by the Indemnifying Party of its
right to defend such claim or action.

(b)           If the Indemnifying Party assumes the
defense of such claim, investigation or Proceeding resulting therefrom, the
obligations of the Indemnifying Party hereunder as to such claim, investigation
or Proceeding shall include taking all steps necessary in the defense or
settlement of such claim, investigation or Proceeding and holding the Indemnified
Party harmless from and against any and all Losses arising from, in connection
with or incident to any settlement approved by the Indemnifying Party or any
judgment entered in connection with such claim, investigation or Proceeding,
except where, and only to the extent that, the Indemnifying Party has been
prejudiced by the actions or omissions of the Indemnified Party. The
Indemnifying Party shall not, in the defense of such claim or any Proceeding
resulting therefrom, consent to entry of any judgment (other than a judgment of
dismissal on the merits without costs) except with the written consent of the
Indemnified Party (which consent shall not be unreasonably withheld, delayed or
conditioned) or enter into any settlement (except with the written consent of
the Indemnified Party, which consent shall not be unreasonably withheld,
delayed or conditioned) unless (i) there is no finding or admission of any
violation of Applicable Law and no material effect on any claims that could
reasonably be expected to be made by or against the Indemnified Party, (ii) the
sole relief provided is monetary damages that are paid in full for Losses which
are or may be properly applied against the Indemnification Threshold, and (iii)
the settlement shall include the giving by the claimant or the plaintiff to the
Indemnified Party a release from all Liability in respect to such claim or
litigation.

(c)           If the Indemnifying Party assumes the
defense of such claim, investigation or Proceeding resulting therefrom, the
Indemnified Party shall be entitled to participate in the defense of the claim.
The Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it to participate in its defense unless any of the
following shall apply: (i) the employment of such counsel shall have been
authorized in writing by the Indemnifying Party, or (ii) the Indemnifying Party’s
legal counsel shall advise the Indemnifying Party in writing, with a copy to
the Indemnified Party, that there is a conflict of interest that would make it
inappropriate under applicable standards of professional conduct to have common
counsel. If clause (i) or (ii) in the immediately preceding sentence is
applicable, then the Indemnified Party may employ separate counsel at the
expense of the 

 25
 

 

Indemnifying Party to
represent the Indemnified Party, but in no event shall the Indemnifying Party
be obligated to pay the costs and expenses of more than one such separate
counsel for any one complaint, claim, action or Proceeding in any one jurisdiction.

(d)           If the Indemnifying Party does not
assume the defense of any such claim by a third party or litigation resulting
therefrom after receipt of notice from the Indemnified Party, the Indemnified
Party may defend against such claim or litigation in such manner as it
reasonably deems appropriate, and unless the Indemnifying Party shall deposit
with the Indemnified Party a sum equivalent to the total amount demanded in
such claim or litigation plus the Indemnified Party’s estimate of the cost
(including attorneys’ fees) of defending the same, the Indemnified Party may
settle such claim or Proceeding on such terms as it may reasonably deem
appropriate and the Indemnifying Party shall, subject to its defenses and the
applicability of any remaining Indemnification Threshold balance amount
provided for in Section 6.3 hereof, promptly reimburse the Indemnified Party
for the amount of such settlement and for all reasonable costs (including
attorneys’ fees), expenses and damages incurred by the Indemnified Party in
connection with the defense against or settlement of such claim, investigation
or litigation, or if any such claim or litigation is not so settled, the
Indemnifying Party shall, subject to its defenses and the applicability of any
remaining Indemnification Threshold balance provided for in Section 6.3 hereof,
promptly reimburse the Indemnified Party for the amount of any final
nonappealable judgment rendered with respect to any claim by a third party in
such litigation and for all costs (including attorneys’ fees), expenses and
damage incurred by the Indemnified Party in connection with the defense against
such claim or litigation, whether or not resulting from, arising out of, or
incurred with respect to, the act of a third party.

(e)           Each party shall cooperate in good
faith and in all respects with each Indemnifying Party and its representatives
(including without limitation its counsel) in the investigation, negotiation,
settlement, trial and/or defense of any Proceedings (and any appeal arising
therefrom) or any claim. The parties shall cooperate with each other in any
notifications to and information requests of any insurers. No individual
representative of any Person, or their respective Affiliates shall be
personally liable for any Loss or Losses under this Agreement, except as
specifically agreed to by said individual representative.

6.6.         Dispute Resolution. In the event a dispute arises under this
Agreement, except with respect to equitable remedies pursued under this
Agreement, any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules except
as modified by this section 6.6 (an “Arbitration”), with any hearing to
be conducted in Boston, Massachusetts subject to the following further
provisions:

(a)           Disputes Covered . The
agreement of the parties to arbitrate covers all disputes of every kind
relating to or arising out of this Agreement, and related agreement or any of
the Contemplated Transactions. Disputes include actions for breach of contract
with respect to this Agreement or the related agreement, as well as any claim
based upon tort or any other causes of action relating to the Contemplated
Transactions, such as claims based upon an allegation of fraud or
misrepresentation and claims based upon a federal or state statute. In
addition, the arbitrators selected according to procedures set forth below
shall determine the arbitrability of any matter brought to them, and their
decision shall be final and binding on the parties.

(b)           Selection. There
shall be three arbitrators, unless the parties are able to agree on a single
arbitrator. The parties shall make every reasonable effort to select a single
arbitrator, qualified by professional expertise and experience, to determine
any claim of damages for less than U.S. One Million Dollars. In the absence of
such agreement within ten(10) days after the initiation of an arbitration
proceeding, Seller shall select one arbitrator and Buyer shall select one
arbitrator, and those two arbitrators shall then select, within ten (10) days,
a third arbitrator from the commercial panel of the American Arbitration
Association. The decision in writing agreed to by at least two of the three
arbitrators shall be final and binding upon the parties.

(c)           Administration. The
Arbitration shall be administered by the American Arbitration Association.

(d)           Rules. The rules of
arbitration shall be the Commercial Arbitration Rules of the American
Arbitration Association, as modified by any other instructions that the parties
may agree upon at the time or as set forth within this section 6.6. The parties
shall accept the application of the so-called fast track rules where applicable.
All proceedings shall be conducted and decisions shall be rendered in English.

(e)           Substantive Law. The
arbitrators shall be bound by and shall strictly enforce the terms of this
Agreement and may not limit, expand or otherwise modify its terms. The arbitrators
shall make a good faith effort to apply substantive applicable law, but an
arbitration decisions hall not be subject to review because of errors of law. The
arbitrators shall be bound to honor claims of privilege or work-product
doctrine recognized at law.

(f)            Decision. The
arbitrators’ decision shall provide a reasoned basis for the resolution’ of
each dispute and for any award. The arbitrators shall not have power to award
damages in connection with any dispute in excess of damages permitted by this
Agreement and shall not multiply actual damages.

(g)           Expenses. Each party
shall bear its own fees and expenses with respect to the arbitration and any
proceeding related thereto and the parties shall share equally the fees and
expenses of the American Arbitration Association and the arbitrators.

(h)           Remedies; Award. The
arbitrators shall have power and authority to award any remedy or judgment that
could be awarded by a court of law in Massachusetts. The award rendered by
arbitration shall be final and binding upon the parties, and judgment upon the
award may be entered in any court of competent jurisdiction in the United
States.

 26
 

 

ARTICLE 7

TAX MATTERS

The following provisions shall govern the allocation of responsibility
as between the Purchaser and the Seller for certain Tax matters following the
Closing Date:

7.1.         Tax Returns.

(a)           Purchaser and Seller
agree to take all action required, or cause the Company to take the required
action, to elect under Code section 1377(a)(2) to make an interim closing of
the Company’s books and treat the taxable year of sale as two separate tax
years, the first ending as of the Closing Date.

(b)           The Seller has the exclusive
authority and obligation to prepare, execute on behalf of the Company and the
Subsidiary and timely file, or cause to be prepared and timely filed, all Tax
Returns of the Company and the Subsidiary that are due with respect to any
taxable year or other taxable period ending prior to the Closing Date. Except
as provided in Section 7.6, such authority shall include, but not be limited
to, the determination of the manner in which any items of income, gain,
deduction, Loss or credit arising out of the income, properties and operations
of the Company and the Subsidiary shall be reported or disclosed in such Tax
Returns; provided, however, that such Tax Returns shall be
prepared by treating items on such Tax Returns in a manner consistent with the
past practices with respect to such items and in a manner consistent with all
applicable IRS regulations.

(c)           Except as provided in Section 7.1(a),
the Purchaser shall have the exclusive authority and obligation to prepare,
execute on behalf of the Company and the Subsidiary and timely file, or cause
to be prepared and timely filed, all Tax Returns of the Company and the
Subsidiary that are due with respect to any taxable year or other taxable
period ending after the Closing Date; provided, however, with
respect to Tax Returns to be filed by the Purchaser pursuant to this Section 7.1
for taxable periods beginning before the Closing Date and ending after the
Closing Date, items set forth on such Tax Returns shall be treated in a manner
consistent with the past practices with respect to such items. Except as
provided in Section 7.6, such authority shall include, but not be limited to,
the determination of the manner in which any items of income, gain, deduction,
Loss or credit arising out of the income, properties and operations of the
Company shall be reported or disclosed on such Tax Returns.

(d)           All tax returns due
for the Affiliate whether prior to or after the Closing Date for the Calendar
Year 2005, or for the period in 2006 prior to the Closing, shall be prepared
and filed by the Seller, prepared consistent with past practices at the
Affiliate’s expense, by Affiliate’s accountants and auditors as of the Closing
Date.

7.2.         Controversies.

(a)           The Purchaser shall
promptly notify the Seller in writing upon receipt by the Purchaser or any
Affiliate of the Purchaser (including the Company and the Subsidiary after the
Closing Date) of written notice of any inquiries, claims, assessments, audits
or similar events with respect to Taxes relating to a taxable period ending
prior to the Closing Date for which the Seller may be liable under this
Agreement (any such inquiry, claim, assessment, audit or similar event, a “Tax Matter”). The Seller, at its sole expense, shall
have the authority to represent the interests of the Company and the Subsidiary
with respect to any Tax Matter before the IRS, any other taxing authority, any
other Governmental Body or authority or any court and shall have the sole right
to control the defense, compromise or other resolution of any Tax Matter,
including responding to inquiries, filing Tax Returns and contesting, defending
against and resolving any assessment for additional Taxes or notice of Tax
deficiency or other adjustment of Taxes of, or relating to, a Tax Matter. Neither
the Purchaser nor any of its Affiliates shall enter into any settlement of or
otherwise compromise any Tax Matter that affects or may affect the Tax
Liability of the Seller, the Company, the Subsidiary or any Affiliate of the
foregoing for any period ending after the Closing Date, which includes a
portion of a period beginning before the Closing Date and ending after the
Closing Date (the “Overlap
Period”), without the prior
written consent of the Seller, which consent shall not be unreasonably
withheld, delayed or conditioned. The parties hereto shall keep the other fully
and timely informed with respect to the commencement, status and nature of any
Tax Matter.

(b)           Except as otherwise
provided in this Section 7.2, the Purchaser shall have the sole right to
control any audit or examination by any taxing authority, initiate any claim
for refund or amend any Tax Return, and contest, resolve and defend against any
assessment for additional Taxes, notice of Tax deficiency or other adjustment
of Taxes of, or relating to, the income, assets or operations of the Company
and the Subsidiary for all taxable periods; provided, however,
that the Purchaser shall not, and shall cause its Affiliates (including the
Company and the Subsidiary) not to, enter into any settlement of any contest or
otherwise compromise any issue with respect to the portion of the Overlap
Period ending on or prior to the Closing Date without the prior written consent
of the Seller, which consent shall not be unreasonably withheld, delayed or
conditioned.

7.3.         Transfer Taxes. All transfer, documentary, stamp, registration,
sales and use and similar Taxes and fees (including all penalties and interest)
imposed in connection with the sale of the Stock or any other transaction that
occurs pursuant to this Agreement shall be the obligation of the Purchaser,
except for real estate transfer taxes which shall be paid as provided in the
Real Estate Purchase Agreement.

7.4.         Post-Closing Access and Cooperation. From and after the Closing Date, the Purchaser
agrees, and agrees to cause the Company and the Subsidiary, to permit the
Seller and its representatives to have reasonable access, during normal
business hours, to the books and records of the Company and the Subsidiary, to
the extent that such books and records relate to a Pre-Closing Period, and
personnel, for the 

 27
 

 

purpose of enabling the Seller to: (i) prepare
Tax Returns, (ii) investigate or contest any Tax Matter which the Seller has
the authority to conduct (iii) evaluate any claim for indemnification, and (iv)
prepare the Seller and its Affiliates’ financial statements.

7.5.         §338(h)(10) Election. At Purchaser’s option, each Seller shall join
with Purchaser in making an election under Code §338(h)(10) (and any
corresponding election under state, local, and foreign tax law) with respect to
the purchase and sale of the Stock hereunder (collectively, a “§338(h)(10)
Election”).

7.6          Purchase Price Allocation. The Purchaser,
the Company and Seller agree that the Final Purchase Price and the liabilities
of the Company will be allocated to the assets of the Company for all purposes
(including Tax and financial accounting) as shown on the Allocation Schedule to
be attached hereto as Schedule 7.6 within forty-five
(45) days following the Closing Date. The Purchaser, the Company and Seller
shall file all Tax Returns (including amended returns and claims for refund)
and information reports in a manner consistent with the Allocation Schedule.

ARTICLE 8

PERFORMANCE FOLLOWING THE CLOSING DATE

The following covenants and agreements are to be performed after the
Closing by the parties and shall continue in effect for the periods
respectively indicated or, where no indication is made, until performed:

8.1.         Further Acts and Assurances. The parties agree that, at any time and from time
to time, on and after the Closing Date, upon the reasonable request of the
other party, they will do or cause to be done all such further acts and things
and execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered any and all papers, documents, instruments, agreements, assignments,
transfers, assurances and conveyances as may be necessary or desirable to carry
out and give effect to the provisions and intent of this Agreement. In
addition, from and after the Closing Date, the Purchaser will afford to the
Seller and its attorneys, accountants and other representatives access, during
normal business hours, to such personnel, books and records relating to the
Company and/or the Subsidiary as may reasonably be required in connection with
the preparation of financial information or the filing of Tax Returns and will
cooperate in all reasonable respects in connection with claims and Proceeding
asserted by or against third parties, relating to or arising from the
transactions contemplated hereby.

8.2.         Employee Matters.

(a)           Employment. Each
Employee who is employed by the Company or the Subsidiary on the Closing Date
shall continue to be employed by the Company or the Subsidiary, as applicable,
on and after the Closing Date at substantially the same base wage or salary as
in effect immediately prior to the Closing Date. Such continued employment
shall be employment at-will, except for those Employees with employment
agreements identified in Schedule
3.20(b)(ii) of this
Agreement, and nothing in this Section 8.2 is intended to create, or shall
create or confer, any right of employment after the Closing Date for any
Employee.

(b)           Service Credit.
All past service of the Employees with the Company and/or the Subsidiary shall
be taken into account for purposes of eligibility and vesting under the benefit
plans provided by the Purchaser and for purposes of calculating vacation
benefits and severance benefits under the vacation plan and severance plan
maintained by the Purchaser.

(c)           Welfare Plans.
Assuming the applicable carrier(s) consents, the Purchaser shall take all
action necessary and appropriate to ensure that, as soon as practicable after
the Closing Date, the Purchaser maintains or adopts (or causes the Subsidiary
to maintain or adopt), as of the Closing Date, one or more employee welfare
benefit plans, including medical, health, dental, flexible spending account,
accident, life, short-term disability, and other employee welfare benefit plans
for the benefit of the Employees (the “Purchaser Welfare Plans”).
Assuming the applicable carrier(s) consents, the Purchaser Welfare Plans shall
provide as of the Closing Date benefits to the Employees (and their dependents
and beneficiaries) that, in the aggregate, are comparable to the benefits to
which they were entitled under the corresponding welfare benefit plans
maintained by the Company or the Subsidiary on the Closing Date (the “Company and Subsidiary Welfare
Plans”), through the
applicable renewal date. At renewal, Purchaser shall review renewal increases
and make necessary modifications. Any restrictions on coverage for preexisting
conditions or requirements for evidence of insurability under the Purchaser
Welfare Plan shall be waived for the Employees, and the Employees shall receive
credit under the Purchaser Welfare Plan for co-payments and payments under a
deductible limit made by them and for out-of-pocket maximums applicable to them
during the plan year of the Company and Subsidiary Welfare Plan in accordance
with the corresponding Company and Subsidiary Welfare Plan. Notwithstanding the
aforementioned, nothing contained herein shall obligate the Purchaser to
provide Purchaser Welfare Plans having benefits in excess of those currently
offered to Purchaser’s existing employees.

8.3.         Indemnification of Officers and
Directors of the Company and the Subsidiary.

(a)           Indemnification.
After the Closing, the Company will, and the Purchaser will cause the Company,
the Subsidiary and the Affiliate to: (i) indemnify, defend and hold harmless
the present officers and directors (collectively, the “Director Indemnified Parties” and individually, a “Director Indemnified Party”) in respect of acts or omissions occurring
on or prior to the Closing Date to the extent provided under Applicable Law or
under the organizational documents of the Company. The Subsidiary, or
Affiliate, in each case as in effect on the date hereof, and (ii) advance
expenses as incurred by such officers and directors to the fullest extent
permitted under Applicable Law or under the organizational documents of the
Company and/or the Subsidiary or Affiliate, 

 28
 

 

whichever
is greater, in each case as in effect on the date hereof; provided, that
such indemnification and advancement of expenses shall be subject to any
limitation imposed from time to time under Applicable Law.

(b)           No Claims. Except
as set forth in Schedule
8.3, there is no pending,
nor, to the Seller’s Knowledge Threatened claims as described in Section 8.3(a)
for indemnification by any Director Indemnified Party.

(c)           Insurance Proceeds.
If the Company and/or the Subsidiary provide indemnification and/or advancement
of expenses as provided for in Section 8.3(a) above, the Company and/or the
Subsidiary shall be entitled to all of the proceeds of any insurance providing
coverage under any policies maintained by the Seller, the Company, the
Subsidiary, or any of the Affiliates for such acts or omissions prior to the
Closing Date.

(d)           Third Party
Beneficiaries. Notwithstanding any contrary provision set forth in this
Agreement or any Ancillary Document, the provisions of this Section 8.3 are
intended for the benefit of, and shall be directly enforceable by, each of the
Director Indemnified Parties, their heirs and personal representatives.

8.4.         Continued Insurance Coverage. The Purchaser will cause the Company to maintain
general and product liability insurance policies, reasonable in both scope and
amount as determined in its sole discretion, for a period of three (3) years
from the Closing Date.

ARTICLE 9

MISCELLANEOUS

9.1.         Preservation of and Access to Records. The Purchaser shall preserve or cause the Company
and the Subsidiary to preserve all books and records of the Company and the
Subsidiary for a period of six (6) years after the later of Closing Date, or
the filing date of any Company or Subsidiary tax return due post-closing or any
later date of retention required by Applicable Law; provided, however,
the Purchaser may destroy any part or parts of such records upon obtaining
written consent of the Seller for such destruction, which consent may be
withheld in the Seller’s absolute discretion. Such records shall be made
available to the Seller and its representatives at all reasonable times during
normal business hours of the Company and/or the Subsidiary, as applicable,
during said retention period with the right at the Seller’s expense to make
abstracts from and copies thereof.

9.2.         Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that, except as otherwise provided in this Agreement, the
parties shall be entitled to injunctive relief to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.

9.3.         Public and Private Announcements. Any public or private announcement or similar
publicity (including, without limitation, the publication of any press release)
with respect to this Agreement will be issued at such time and in such manner
as the Purchaser determines. Purchaser and Seller shall keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
Person (except for (i) lenders, banks and financial institutions in connection
with Purchaser’s financing of the acquisition, and (ii) Representatives,
customers, and suppliers of the Company and any Subsidiary); provided, however,
that any party hereto may make a public and/or private announcement to the
extent required by law, judicial process or the rules, regulations or
interpretations of the Securities and Exchange Commission or any national
securities exchange.

9.4.         Notices. All notices, demands and other communications provided
for hereunder shall be in writing and shall be given (i) by personal delivery, (ii)
via e-mail or facsimile transmission (receipt confirmed, with follow up
transmittal within 48 hours by (iii) or (iv) which follows), (iii) by
nationally recognized overnight courier (prepaid), or (iv) by certified or
registered first class mail, postage prepaid, return receipt requested, sent to
each party, at its and its representative’s address as set forth below or at
such other address or in such other manner as may be designated by such party
or the respective representative in a written notice to each of the other
parties:

If to the Purchaser:              Symmetry Medical USA Inc.

220
West Market Street

Warsaw,
IN 46580

E-Mail:
fred.hite@symmetrymedical.com

Fax No.: 574-267-4551

Attention: Fred Hite, Chief Financial Officer

With a copy to:    Barrett & McNagny LLP

215
East Berry Street

Fort
Wayne, IN 46802

E-Mail:
sjt@barrettlaw.com

Phone: 260-423-8812

Fax No.: 260-423-8920

Attention: Samuel J. Talarico,
Jr., Esq.

 29
 

 

If to the Seller:      Edward D. Riley

16
Brookside

East
Falmouth, ME

E-Mail:
ed@rileymedical.com

Attention:
Mr. Riley

Russell P. Holmes

16
Fox Run

Dover,
MA

E-Mail:
holmes16@earthlink.net

Attention:
Mr. Holmes

With a copy to:    Burns & Levinson, LLP

125
Summer Street, 8th Floor

Boston,
MA 02110

E-Mail:
hburg@burnslev.com

Fax
No.: (617) 854-4040

Attention: Harvey M. Burg, Esq.

9.5.         Entire Agreement. Except for any confidentiality agreement executed
by a party hereto, this Agreement, including the Ancillary Documents to be executed
by the parties pursuant hereto, contains the entire agreement of the parties
hereto and supersedes all prior or contemporaneous agreements and
understandings, oral or written, between the parties hereto with respect to the
subject matter hereof.

9.6.         Amendments. No purported amendment, modification or waiver of
any provision of this Agreement or any of the documents, instruments or
agreements to be executed by the parties pursuant hereto shall be effective
unless in writing specifically referring to this Agreement and signed by all of
the parties hereto.

9.7.         Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns, but except as hereinafter
provided in this Section 9.7, nothing in this Agreement is to be construed as
an authorization or right of any party to assign its rights or delegate its
duties under this Agreement without the prior written consent of the other parties
hereto. Notwithstanding the foregoing, the Purchaser, in its sole discretion,
may assign its rights in and/or delegate its duties under this Agreement to an
Affiliate of the Purchaser. In the event of such an assignment of rights and/or
delegation of duties, all references to the Purchaser or the Seller, as
applicable to the assignment in this Agreement shall also be deemed to be
references to the Person to which this Agreement is assigned; provided that no
such assignment and/or delegation shall relieve the assignor of any of its
duties or obligations hereunder.

9.8.         Fees and Expenses. Each party hereto shall pay their own fees and
expenses incurred in connection with negotiating and preparing this Agreement
and consummating the transactions contemplated hereby, including but not
limited to fees and disbursements of their respective attorneys, accountants
and investment bankers, except with respect to such post-Closing Date
accounting and auditing fees as referenced elsewhere in this Agreement. If the
transaction is consummated, all fees and expenses, including legal, accounting,
investment banking, broker’s and finder’s fees and expenses incurred by the
Seller in connection with this transaction shall be deemed expenses of the
Seller and shall be borne by the Seller.

9.9.         Governing Law and Jurisdiction. This Agreement, including the Ancillary Documents
to be executed and/or delivered by the parties pursuant hereto, shall be
construed, governed by and enforced in accordance with the internal laws of the
Commonwealth of Massachusetts, without giving effect to the principles of
comity or conflicts of laws thereof.

9.10.       Counterparts and Facsimile Signature. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same Agreement. The
counterparts of this Agreement and all Ancillary Documents may be executed and
delivered by facsimile signature by any of the parties to any other party and
the receiving party may rely on the receipt of such document so executed and
delivered by facsimile as if the original had been received.

9.11.       Headings. The headings of the articles, sections and
subsections of this Agreement are intended for the convenience of the parties
only and shall in no way be held to explain, modify, construe, limit, amplify
or aid in the interpretation of the provisions hereof. The terms “this
Agreement,” “hereof,” “herein,” “hereunder,” “hereto” and similar expressions
refer to this Agreement as a whole and not to any particular article, section,
subsection or other portion hereof and include the Schedules and Exhibits
hereto and any document, instrument or agreement executed and/or delivered by
the parties pursuant hereto.

9.12.       Number and Gender. Unless the context otherwise requires, words
importing the singular number shall include the plural and vice versa and words
importing the use of any gender shall include all genders.

9.13.       Severability. In the event that any provision of this Agreement
is declared or held by any court of competent jurisdiction to be invalid or
unenforceable, such provision shall be severable from, and such invalidity or
unenforceability shall not be construed to have any effect on, the remaining
provisions of this Agreement, unless such invalid or unenforceable provision
goes to the essence of this Agreement, in which case the entire Agreement may
be declared invalid and not binding upon any of the parties.

 30
 

 

9.14.       Parties in Interest. Nothing implied in this Agreement is intended or
shall be construed to confer any rights or remedies under or by reason of this
Agreement upon any Person other than the Purchaser and the Seller and their
respective representatives, successors and permitted assigns. Nothing in this
Agreement is intended to relieve or discharge the Liabilities of any third
Person to the Purchaser or the Seller.

9.15.       Waiver. The terms, conditions, warranties, representations
and indemnities contained in this Agreement, including the documents,
instruments and agreements executed and delivered by the parties pursuant
hereto, may be waived only by a written instrument executed by the party
waiving compliance. Any such waiver shall only be effective in the specific
instance and for the specific purpose for which it was given and shall not be
deemed a waiver of any other provision hereof or of the same breach or default
upon any recurrence thereof. No failure on the part of a party hereto to
exercise and no delay in exercising any right hereunder shall operate as a
waiver thereof nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right.

9.16.       Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of
any of the provisions of this Agreement. The words “including,” “include” or “includes”
shall mean including without limitation. The parties intend that each
representation, warranty and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty or
covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in
breach of the first representation, warranty or covenant.

 31
 

 

IN WITNESS
WHEREOF, the parties
hereto have caused this Agreement to be executed by duly authorized
representatives as of the day, month and year first above written.

	
  SELLER:

  	
   

  	
  PURCHASER:

  
	
   

  	
   

  	
   

  
	
  /s/  EDWARD
  D. RILEY

  	
   

  	
  SYMMETRY MEDICAL USA INC.

  
	
  Edward
  D. Riley

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/  RUSSELL
  P. HOLMES

  	
   

  	
  By:

  	
  /s/  BRIAN S. MOORE

  
	
  Russell
  P. Holmes

  	
   

  	
  Name:

  	
  Brian S. Moore

  
	
   

  	
   

  	
  Title:

  	
  President and CEO

  
	
   

  	
   

  	
   

  
	
  CONFIRMED
  AS APPLICABLE:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  RILEY
  MEDICAL, Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/  EDWARD
  D. RILEY

  	
   

  	
   

  
	
  Name:

  	
  Edward D. Riley

  	
   

  	
   

  
	
  Title:

  	
  Chief Executive Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  RILEY
  REAL ESTATE LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/  EDWARD
  D. RILEY

  	
   

  	
   

  
	
  Name:

  	
  Edward D. Riley

  	
   

  	
   

  
	
  Title:

  	
  Managing Director

  	
   

  	
   

  

 

 32
 

 

EXHIBITS
AND SCHEDULES

Schedules

3.1                           Organization
and Good Standing

3.2(b)                      Authority;
No Conflict

3.3                           Capitalization

3.4                           Clear
Title

3.5                           Condition
of Assets

3.6(a)                      Legal
Proceedings (24 months)

3.6(b)                      Legal
Proceedings (Threatened)

3.7                           Labor
Matters

3.8(a)                      Tax
Returns

3.8(c)                      Other
Tax Matters

3.9(a)                      Employee
Benefits

3.9(i)                       Non-Qualified
Deferred Compensation Plans

3.10                         Guarantees

3.11                         Financial
Statements

3.12                         Absence
of Certain Developments

3.13                         Intellectual
Property

3.14                         Compliance
with Laws

3.15                         Contracts

3.16                         Contracts;
Compliance

3.17(a)                    Real
Estate – Owned and Leased 

3.17(b)                    Real
Estate – Taxes

3.17(c)                    Real
Estate – Permitted Encumbrances

3.17(d)                    Real
Estate – Material Encumbrances

3.17(e)                    Real
Estate – Improvements

3.17(f)                     Real
Estate – Adjoining Owner Encroachments

3.17(g)                    Real
Estate – Easements

3.17(i)                     Real
Estate – Owned Real Estate Leases

3.17(j)                     Real
Estate – Separate Parcel

3.18                         Accounts
Receivable

3.19                         Books
and Records

3.20(a)                    Employee
– List

3.20(b)(ii)               Employee
- Contracts

3.21                         Subsidiary

3.22(b)                    Insurance
Policies

3.22(c)                    Insurance
Policy Claims

3.24                         Environmental
Matters

3.25                         Debt

3.26(a)                    Customers

3.26(b)                    Suppliers

3.26(c)                    Material
Adverse Changes

3.27                         Seller
Loans

3.28                         Adequacy
of Properties

3.29                         Warranty
and Product Liability Claims

3.30                         Related
Party Transaction

3.31                         Permits
and Certifications

5.6                           Securities
Filing Requirements

7.6                           Allocation
Schedule

8.3                           Director Indemnification
Claims 

Exhibits

Exhibit A                Real Estate Purchase and Sale
Agreement

 

Exhibit B                Purchase Price Escrow Agreement

 

 33Exhibit 10.1

 

TEXAS REGIONAL BANCSHARES, INC.

EMPLOYEE STOCK OWNERSHIP PLAN

(WITH 401(K) PROVISIONS)

 

Restated Effective January 1, 2006

 

 

TEXAS REGIONAL BANCSHARES, INC.

EMPLOYEE STOCK OWNERSHIP PLAN

(WITH 401(K) PROVISIONS)

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
  NATURE OF THE
  PLAN

  	
  2

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  DEFINITIONS

  	
  2

  
	
  2.1

  	
  “Act”

  	
  2

  
	
  2.2

  	
  “Administrator”.

  	
  2

  
	
  2.3

  	
  “Affiliated Employer”.

  	
  2

  
	
  2.4

  	
  “Anniversary Date”.

  	
  3

  
	
  2.5

  	
  “Annuity Starting Date”

  	
  3

  
	
  2.6

  	
  “Beneficiary”

  	
  3

  
	
  2.7

  	
  “Board of Directors”

  	
  3

  
	
  2.8

  	
  “Code”.

  	
  3

  
	
  2.9

  	
  “Company”

  	
  3

  
	
  2.10

  	
  “Company Stock”

  	
  3

  
	
  2.11

  	
  “Company Stock Account”

  	
  3

  
	
  2.12

  	
  “Compensation”

  	
  3

  
	
  2.13

  	
  “Contract” or “Policy”

  	
  4

  
	
  2.14

  	
  “Deferred Compensation”

  	
  4

  
	
  2.15

  	
  “Early Retirement Age”

  	
  4

  
	
  2.16

  	
  “Elective Contribution”

  	
  4

  
	
  2.17

  	
  “Eligible Employee”.

  	
  5

  
	
  2.18

  	
  “Employee”

  	
  5

  
	
  2.19

  	
  “Employer”

  	
  5

  
	
  2.20

  	
  “Employer Contributions”

  	
  5

  
	
  2.21

  	
  “Employer Discretionary Matching Contributions”.

  	
  5

  
	
  2.22

  	
  “Employer Discretionary Optional Contributions”

  	
  5

  
	
  2.23

  	
  “Excess Aggregate Contributions”

  	
  6

  
	
  2.24

  	
  “Excess Contributions”

  	
  6

  
	
  2.25

  	
  “Excess Deferred Compensation”

  	
  6

  
	
  2.26

  	
  “ESOP”.

  	
  6

  
	
  2.27

  	
  “Fiduciary”

  	
  6

  
	
  2.28

  	
  “Fiscal Year”.

  	
  7

  
	
  2.29

  	
  “Forfeiture”

  	
  7

  
	
  2.30

  	
  “Former Participant”

  	
  7

  
	
  2.31

  	
  “415 Compensation”

  	
  7

  
	
  2.32

  	
  “414(s) Compensation”

  	
  8

  
	
  2.33

  	
  “Highly Compensated Employee”

  	
  8

  
	
  2.34

  	
  “Highly Compensated Participant”.

  	
  9

  
	
  2.35

  	
  “Hour of Service”

  	
  9

  
	
  2.36

  	
  “Income”

  	
  10

  

 

i

 

	
  2.37

  	
  “Investment Manager”

  	
  11

  
	
  2.38

  	
  “Key Employee”

  	
  11

  
	
  2.39

  	
  “Late Retirement Date”.

  	
  12

  
	
  2.40

  	
  “Leased Employee”

  	
  12

  
	
  2.41

  	
  “Non-Elective Contribution”

  	
  12

  
	
  2.42

  	
  “Non-Highly Compensated Participant”

  	
  13

  
	
  2.43

  	
  “Non-Key Employee”

  	
  13

  
	
  2.44

  	
  “Normal Retirement Age”

  	
  13

  
	
  2.45

  	
  “Normal Retirement Date”

  	
  13

  
	
  2.47

  	
  “Other Investments Account”

  	
  13

  
	
  2.48

  	
  “Participant”.

  	
  14

  
	
  2.49

  	
  “Participant Direction Procedures”

  	
  14

  
	
  2.50

  	
  “Participant’s Account”

  	
  14

  
	
  2.51

  	
  “Participant’s Combined Account”

  	
  14

  
	
  2.52

  	
  “Participant’s Directed Account”

  	
  14

  
	
  2.53

  	
  “Participant’s Elective Account”

  	
  14

  
	
  2.54

  	
  “Participant’s Rollover Account”

  	
  14

  
	
  2.55

  	
  “Participant’s Transfer Account”

  	
  15

  
	
  2.56

  	
  “Plan”

  	
  15

  
	
  2.57

  	
  “Plan Year”

  	
  15

  
	
  2.58

  	
  “Qualified Joint and Survivor Annuity”

  	
  15

  
	
  2.59

  	
  “Qualified Preretirement Survivor Annuity”

  	
  15

  
	
  2.60

  	
  “Qualified Non-Elective Contribution”

  	
  15

  
	
  2.61

  	
  “Regulation” or “Treasury Regulation”

  	
  15

  
	
  2.62

  	
  “Retired Participant”

  	
  15

  
	
  2.63

  	
  “Retirement Date”

  	
  15

  
	
  2.64

  	
  “Salary Reduction Contributions”

  	
  15

  
	
  2.65

  	
  [Reserved]

  	
  15

  
	
  2.66

  	
  “Target Benefit Capital Accumulation”

  	
  16

  
	
  2.67

  	
  “Terminated Participant”

  	
  16

  
	
  2.68

  	
  “Top-Heavy Plan”.

  	
  16

  
	
  2.69

  	
  “Top-Heavy Plan Year”

  	
  16

  
	
  2.70

  	
  “Top-Paid Group”

  	
  16

  
	
  2.71

  	
  “Total and Permanent Disability”

  	
  17

  
	
  2.72

  	
  “Trustee”.

  	
  17

  
	
  2.73

  	
  “Trust Fund”

  	
  17

  
	
  2.74

  	
  “Valuation Date”

  	
  17

  
	
  2.75

  	
  “Vested”.

  	
  17

  
	
  2.76

  	
  “Year of Service”

  	
  17

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  ADMINISTRATION

  	
  18

  
	
  3.1

  	
  Powers And Responsibilities Of The Employer

  	
  18

  
	
  3.2

  	
  Designation Of Administrative Authority

  	
  19

  
	
  3.3

  	
  Allocation And Delegation Of Responsibilities

  	
  19

  
	
  3.4

  	
  Powers And Duties Of The Administrator

  	
  19

  
	
  3.5

  	
  Records And Reports

  	
  21

  

 

ii

 

	
  3.6

  	
  Appointment Of Advisers

  	
  21

  
	
  3.7

  	
  Payment Of Expenses

  	
  21

  
	
  3.8

  	
  Claims Procedure

  	
  22

  
	
  3.9

  	
  Claims Review Procedure

  	
  23

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  ELIGIBILITY

  	
  26

  
	
  4.1

  	
  Conditions Of Eligibility

  	
  26

  
	
  4.2

  	
  Effective Date Of Participation

  	
  26

  
	
  4.3

  	
  Determination Of Eligibility

  	
  27

  
	
  4.4

  	
  Termination Of Eligibility

  	
  27

  
	
  4.5

  	
  Omission Of Eligible Employee

  	
  27

  
	
  4.6

  	
  Inclusion Of Ineligible Employee

  	
  27

  
	
  4.7

  	
  Rehired Employees And Breaks In Service

  	
  28

  
	
  4.8

  	
  Election Not To Participate

  	
  29

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  CONTRIBUTION
  AND ALLOCATION

  	
  30

  
	
  5.1

  	
  Formula For Determining Employer Contribution

  	
  30

  
	
  5.2

  	
  Participant’s Salary Reduction Election

  	
  31

  
	
  5.3

  	
  Time Of Payment Of Employer Contribution

  	
  34

  
	
  5.4

  	
  Allocation Of Contribution, Forfeitures And Earnings

  	
  34

  
	
  5.5

  	
  Actual Deferral Percentage Tests

  	
  39

  
	
  5.6

  	
  Adjustment To Actual Deferral Percentage Tests

  	
  40

  
	
  5.7

  	
  Actual Contribution Percentage Tests

  	
  43

  
	
  5.8

  	
  Adjustment To Actual Contribution Percentage Tests

  	
  45

  
	
  5.9

  	
  Maximum Annual Additions

  	
  47

  
	
  5.10

  	
  Adjustment For Excessive Annual Additions

  	
  49

  
	
  5.11

  	
  Rollovers And Plan-To-Plan Transfers From Qualified Plans

  	
  51

  
	
  5.12

  	
  Directed Investment Account

  	
  53

  
	
  5.13

  	
  Diversification Rights

  	
  54

  
	
  5.14

  	
  Qualified Military Service

  	
  55

  
	
  5.15

  	
  Catch-Up Contributions

  	
  55

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  FUNDING AND
  INVESTMENT POLICY

  	
  55

  
	
  6.1

  	
  Investment Policy

  	
  55

  
	
  6.2

  	
  Transactions Involving Company Stock

  	
  56

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  VALUATIONS

  	
  57

  
	
  7.1

  	
  Valuation Of The Trust Fund

  	
  57

  
	
  7.2

  	
  Method Of Valuation

  	
  57

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  DETERMINATION
  AND DISTRIBUTION OF BENEFITS

  	
  58

  
	
  8.1

  	
  Determination Of Benefits Upon Retirement

  	
  58

  
	
  8.2

  	
  Determination Of Benefits Upon Death

  	
  58

  
	
  8.3

  	
  Determination Of Benefits In Event Of Disability

  	
  60

  
	
  8.4

  	
  Determination Of Benefits Upon Termination

  	
  60

  
	
  8.5

  	
  Distribution Of Benefits

  	
  62

  

 

iii

 

	
  8.6

  	
  How Plan Benefits Will Be Distributed

  	
  76

  
	
  8.7

  	
  Distribution For Minor Or Incompetent Beneficiary

  	
  77

  
	
  8.8

  	
  Location Of Participant Or Beneficiary Unknown

  	
  77

  
	
  8.9

  	
  Advance Distribution For Hardship

  	
  77

  
	
  8.10

  	
  Qualified Domestic Relations Order Distribution

  	
  81

  
	
  8.11

  	
  In-Service Distribution

  	
  81

  
	
  8.12

  	
  Direct Rollover

  	
  82

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
  TRUSTEE

  	
  83

  
	
  9.1

  	
  Basic Responsibilities Of The Trustee

  	
  83

  
	
  9.2

  	
  Investment Powers And Duties Of The Trustee

  	
  84

  
	
  9.3

  	
  Other Powers Of The Trustee

  	
  86

  
	
  9.4

  	
  Loans To Participants

  	
  89

  
	
  9.5

  	
  Voting Company Stock

  	
  90

  
	
  9.6

  	
  Duties Of The Trustee Regarding Payments

  	
  91

  
	
  9.7

  	
  Trustee’s Compensation And Expenses And Taxes

  	
  91

  
	
  9.8

  	
  Annual Report Of The Trustee

  	
  92

  
	
  9.9

  	
  Audit

  	
  92

  
	
  9.10

  	
  Resignation, Removal And Succession Of Trustee

  	
  93

  
	
  9.11

  	
  Transfer Of Interest

  	
  94

  
	
  9.12

  	
  Trustee Indemnification

  	
  94

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  	
  AMENDMENT, TERMINATION
  AND MERGERS

  	
  94

  
	
  10.1

  	
  Amendment

  	
  94

  
	
  10.2

  	
  Termination

  	
  95

  
	
  10.3

  	
  Merger, Consolidation Or Transfer Of Assets

  	
  95

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI

  	
  TOP-HEAVY

  	
  96

  
	
  11.1

  	
  Top-Heavy Plan Requirements

  	
  96

  
	
  11.2

  	
  Determination Of Top Heavy Status

  	
  96

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII

  	
  MISCELLANEOUS

  	
  99

  
	
  12.1

  	
  Participant’s Rights

  	
  99

  
	
  12.2

  	
  Alienation

  	
  99

  
	
  12.3

  	
  Construction Of Plan

  	
  100

  
	
  12.4

  	
  Gender And Number

  	
  100

  
	
  12.5

  	
  Legal Action

  	
  100

  
	
  12.6

  	
  Prohibition Against Diversion Of Funds

  	
  101

  
	
  12.7

  	
  Employer’s And Trustee’s Protective Clause

  	
  101

  
	
  12.8

  	
  Insurer’s Protective Clause

  	
  101

  
	
  12.9

  	
  Receipt And Release For Payments

  	
  102

  
	
  12.10

  	
  Action By The Employer

  	
  102

  
	
  12.11

  	
  Named Fiduciaries And Allocation Of Responsibility

  	
  102

  
	
  12.12

  	
  Headings

  	
  103

  
	
  12.13

  	
  Approval By Internal Revenue Service

  	
  103

  
	
  12.14

  	
  Uniformity

  	
  103

  

 

iv

 

	
  12.15

  	
  Securities And Exchange Commission Approval

  	
  103

  
	
  12.16

  	
  S Corporation Nonallocation Provisions

  	
  103

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIII

  	
  PARTICIPATING
  EMPLOYERS

  	
  104

  
	
  13.1

  	
  Adoption By Other Employers

  	
  104

  
	
  13.2

  	
  Requirements Of Participating Employers

  	
  104

  
	
  13.3

  	
  Designation Of Agent

  	
  105

  
	
  13.4

  	
  Employee Transfers

  	
  105

  
	
  13.5

  	
  Participating Employer Contribution And Forfeitures

  	
  105

  
	
  13.6

  	
  Amendment

  	
  106

  
	
  13.7

  	
  Discontinuance Of Participation

  	
  106

  
	
  13.8

  	
  Administrator’s Authority

  	
  106

  
	
   

  	
   

  
	
  Schedule “A” Service of Acquired Employees

  	
  108

  
	
   

  	
   

  
	
  Schedule B Effective Date of
  Participating Employer Adoption

  	
  111

  

 

v

 

TEXAS REGIONAL BANCSHARES, INC.

EMPLOYEE STOCK OWNERSHIP PLAN

(WITH 40I(K) PROVISIONS)

 

THIS AGREEMENT
is hereby made and entered into this       day of        ,
2005 by and between Texas Regional Bancshares, Inc. (herein referred to as the “Company”)
and Glen E. Roney, Morris Atlas, and Robert F. Boggus (herein referred to as
the “Trustee”).

 

W I T N E S S E T H

 

WHEREAS, the
Company heretofore established a target benefit plan effective January 1, 1984
(hereinafter called the “Effective Date”), known as Texas Regional Bancshares,
Inc. Target Benefit Plan, which plan was converted to the current Plan in 1990
and which plan is now known as Texas Regional Bancshares, Inc. Employee Stock
Ownership Plan (with 401(k) Provisions) (“Plan”) in recognition of the
contribution made to its successful operation by its employees and for the
exclusive benefit of its eligible employees; and

 

WHEREAS, under
the terms of the Plan, the Company has the ability to amend the Plan, provided
the Trustee joins in such amendment if the provisions of the Plan affecting the
Trustee are amended; and

 

WHEREAS, the
Company has most recently restated the Plan effective December 31, 2001 and has
amended the restated Plan eighteen times; and

 

WHEREAS, the
italicized portions of this restatement are intended as good faith compliance
with the requirements of EGTRRA and are to be construed in accordance with
EGTRRA and guidance issued thereunder. 
Except as otherwise provided, the italicized portions of this
restatement of the Plan shall be effective as of the first day of the first
Plan Year beginning after December 31, 2001. 
Furthermore, the italicized portions of this restatement shall supersede
the provisions of the Plan to the extent those provisions are inconsistent with
the provisions of this restatement.

 

WHEREAS, the
Board of Directors of the Company and the Trustee have determined that it is
the best interest of the Participants of this Plan and their Beneficiaries to
amend and restate this Plan as provided herein;

 

NOW,
THEREFORE, effective January 1, 2006, except as otherwise provided herein, the
Company and the Trustee, in accordance with the provisions of the Plan
pertaining to amendments thereof, hereby amend and restate the Plan in its
entirety to provide as follows:

 

 

Article I

NATURE OF THE PLAN

 

This plan
document is an amendment and restatement of the Texas Regional Bancshares, Inc.
Employee Stock Ownership Plan (with 401 (k) Provisions) which was initially
adopted effective as of January 1, 1990 and restated effective December 31,
2001.  The purpose of this Plan is to
enable participating Employees to share in the growth and prosperity of the
Company and to provide Participants with an opportunity to accumulate capital
for their future economic security, all without requiring any deductions from
Participant’s paychecks and without calling upon them to invest their personal
savings.  The primary purpose of the Plan
is to enable Participants to acquire stock ownership interests in the
Company.  Therefore, the Trust Assets
held under the Plan will be invested primarily in Company Stock.

 

The Plan,
hereby amended and restated, and which was adopted effective as of January 1,
1990, is a stock bonus plan containing Section 401(k) features that is intended
to qualify under Section 401(a) of the Internal Revenue Code.  The Plan is a complete amendment and
restatement of the Texas Regional Bancshares, Inc. Employee Stock Ownership
Plan (with 401(k) Provisions), which, in turn, was a complete amendment and
restatement of the Texas Regional Bancshares, Inc. Target Benefit Plan,
originally effective January 1, 1984. 
The Plan is also designed to be an employee stock ownership plan under
Section 4975(e)(7) of the Code.

 

All Trust
Assets under the Plan will be administered, distributed, forfeited and
otherwise governed by the provisions of this Plan and trust.  The Plan is administered by the Trustee and
the Administrator for the exclusive benefit of Participants (and their
Beneficiaries).

 

Article II

DEFINITIONS

 

2.1           “Act”
means the Employee Retirement Income Security Act of 1974, as it may be amended
from time to time.

 

2.2           “Administrator”
means the Employer unless another person or entity has been designated by the
Employer pursuant to Section 3.2 to administer the Plan on behalf of the
Employer.

 

2.3           “Affiliated
Employer” means any corporation which is a member of a controlled group of
corporations (as defined in Code Section 414(b)) which includes the Employer;
any trade or business (whether or not incorporated) which is under common
control (as defined in Code Section 414(c) with the Employer; any organization
(whether or not incorporated) which is a member of an affiliated service group
(as defined in Code Section 414(m)) which includes the Employer; and any other
entity required to be aggregated with the Employer pursuant to Regulations
under Code Section 414(o).

 

2

 

2.4           “Anniversary Date”
means the last day of the Plan Year.

 

2.5           “Annuity
Starting Date” means the first day of the first period for which an amount is
payable as an annuity; or in the case of a benefit not payable in the form of
an annuity, the first day on which all events have occurred which entitle the
Participant to such benefit.

 

2.6           “Beneficiary”
means the person (or entity) to whom the share of a deceased Participant’s
total account is payable, subject to the restrictions of Sections 8.2 and 8.5.

 

2.7           “Board
of Directors” means the Board of Directors of the Company.

 

2.8           “Code”
means the Internal Revenue Code of 1986, as amended or replaced from time to
time.

 

2.9           “Company”
means Texas Regional Bancshares, Inc., a corporation organized under the laws
of Texas and registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended.

 

2.10         “Company
Stock” means common stock issued by the Company (or by a corporation which is a
member of the controlled group of corporations of which the Company is a
member) which is readily tradable on an established securities market.  If there is no common stock which meets the
foregoing requirement, the term “Company Stock” means common stock issued by
the Company (or by a corporation which is a member of the same controlled
group) having a combination of voting power and dividend rights equal to or in
excess of: (A) that class of common stock of the Company (or of any other such
corporation) having the greatest voting power and (B) that class of common
stock of the Company (or of any other such corporation) having the greatest
dividend rights.  Noncallable preferred
stock shall be deemed to be “Company Stock” if such stock is convertible at any
time into stock which constitutes “Company Stock” hereunder and if such
conversion is at a conversion price which (as of the date of the acquisition by
the Trust) is reasonable.  For purposes
of the preceding sentence, pursuant to Regulations, preferred stock shall be treated
as noncallable if after the call there will be a reasonable opportunity for a
conversion which meets the requirements of the preceding sentence.

 

2.11         “Company
Stock Account” means the account of a Participant which is credited with the
shares of Company Stock purchased and paid for by the Trust Fund or contributed
to the Trust Fund.  A separate accounting
shall be maintained with respect to that portion of the Company Stock Account
attributable to Elective Contributions and Non-Elective Contributions.

 

2.12         “Compensation”
with respect to any Participant means such Participant’s “415 Compensation” as
defined in Section 2.31.

 

For purposes
of this Section, the determination of Compensation shall be made by including
amounts which are contributed by the Employer pursuant to a salary 

 

3

 

reduction
agreement and which are not includible in the gross income of the Participant
under Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457(b),
and Employee contributions described in Code Section 414(h)(2) that are treated
as Employer Contributions.

 

Except as
provided in Section 5.1(b) for purposes of Employer Discretionary Matching
Contributions, Compensation shall be recognized for the entire Plan Year in a
Participant’s initial year of participation.

 

For all
purposes other than for purposes of salary deferral elections made pursuant to
Section 5.2, the annual Compensation of each Participant taken into account in
determining allocations for any Plan Year beginning after December 31, 2001
shall not exceed $200,000, as adjusted for cost-of-living increases in
accordance with Section 401(a)(17)(B) of the Code.

 

Annual Compensation means Compensation during
the Plan Year or such other consecutive 12-month period over which Compensation
is otherwise determined under the Plan (the determination period).  The cost-of-living adjustment in effect for a
calendar year applies to annual Compensation for the determination period that
begins with or within such calendar year.

 

For any short
Plan Year the Compensation limit shall be an amount equal to the Compensation
limit for the calendar year in which the Plan Year begins, multiplied by the
ratio obtained by dividing the number of full months in the short Plan Year by
twelve (12).

 

For purposes
of this Section, if the Plan is a plan described in Code Section 413(c) or
414(f) (a plan maintained by more than one Employer), the limitation applies
separately with respect to the Compensation of any Participant from each
Employer maintaining the Plan.

 

2.13         “Contract”
or “Policy” means any life insurance policy, retirement income policy or
annuity policy (group or individual) issued pursuant to the terms of the
Plan.  In the event of any conflict
between the terms of this Plan and the terms of any contract purchased
hereunder, the Plan provisions shall control.

 

2.14         “Deferred
Compensation” with respect to any Participant means the amount of the
Participant’s total Compensation which has been contributed to the Plan in accordance
with the Participant’s deferral election pursuant to Section 5.2, excluding any
such amounts distributed as excess Annual Additions pursuant to Section 5.10.

 

2.15         “Early
Retirement Age” means the date, prior to the Participant’s Normal Retirement
Age, on which a Participant or Former Participant attains age 55 and has
completed at least 10 Years of Service with the Employer (“Early Retirement Age”).  A Participant shall become fully Vested upon
satisfying this requirement if still employed at Early Retirement Age.

 

2.16         “Elective
Contribution” means the Employer Contributions of Deferred 

 

4

 

Compensation,
excluding any such amounts distributed as “excess annual additions” pursuant to
Section 5.10.  In addition, the Employer
Discretionary Matching Contribution made pursuant to Section 5.1 (b) which is
used to satisfy the “Actual Deferral Percentage” tests and any Employer
Qualified Non-Elective Contribution made pursuant to Section 5.6(b) which is
used to satisfy the “Actual Deferral Percentage” tests shall be considered an
Elective Contribution for purposes of the Plan. 
Any contributions deemed to be Elective Contributions (whether or not
used to satisfy the “Actual Deferral Percentage” tests or the “Actual
Contribution Percentage” tests) shall be subject to the requirements of
Sections 5.2(b) and 5.2(c) and shall further be required to satisfy the
nondiscrimination requirements of Regulation §1.401(k)—1(b)(5) and Regulation
§1.401(m)—1(b)(5), the provisions of which are specifically incorporated herein
by reference.

 

2.17         “Eligible
Employee” means any Employee.

 

Employees of
Affiliated Employers shall not be eligible to participate in this Plan unless
such Affiliated Employers have specifically adopted this Plan in writing.

 

Employees
classified by the Employer as independent contractors who are subsequently
determined by the Internal Revenue Service to be Employees shall not be
Eligible Employees.

 

2.18         “Employee”
means any person who is employed by the Employer or a Participating Employer,
including but not limited to Texas State Bank and TSB Securities, Inc., and
excludes any person who is employed as an independent contractor.  Employee shall include Leased Employees
within the meaning of Code Sections 414(n)(2) and 414(o)(2) unless such Leased
Employees are covered by a plan described in Code Section 414(n)(5) and such
Leased Employees do not constitute more than 20% of the recipient’s non-highly
compensated work force.

 

2.19         “Employer”
means Texas Regional Bancshares, Inc. and any successor which shall maintain
this Plan; and any predecessor which has maintained this Plan.  In addition, where appropriate, the term
Employer shall include any Participating Employer (as defined in Section 13.1
and as listed on Schedule B, Effective Date of Participating Employer
Adoption) which adopts this Plan. For purposes of Article IX, TRUSTEE, and
Sections 10.1 and 10.2, relating to the Employer’s authority to amend or
terminate the Plan, however, the term “Employer” shall mean only Texas Regional
Bancshares, Inc., which shall act under those provisions without the need to
consult any Participating Employer.

 

2.20         “Employer
Contributions” means payments made to the Trust by an Employer, including
Employer Discretionary Matching Contributions and Employer Discretionary
Optional Contributions.

 

2.21         “Employer Discretionary
Matching Contributions” means Plan contributions made at the sole discretion of
the Employer pursuant to Plan Section 5.1(b).

 

2.22         “Employer Discretionary
Optional Contributions” means Plan 

 

5

 

contributions
made at the sole discretion of the Employer pursuant to Plan Section 5.1(c).

 

2.23         “Excess
Aggregate Contributions” means, with respect to any Plan Year, the excess of
the aggregate amount of the Employer Discretionary Matching Contributions made
pursuant to Section 5.1(b) (to the extent such Employer Discretionary Matching
Contributions are not used to satisfy the “Actual Deferral Percentage” tests)
and any qualified non-elective contributions or elective deferrals taken into
account pursuant to Section 5.7(c) on behalf of Highly Compensated Participants
for such Plan Year, over the maximum amount of such contributions permitted
under the limitations of Section 5.7(a) (determined by hypothetically reducing
contributions made on behalf of Highly Compensated Participants in order of the
actual contribution ratios beginning with the highest of such ratios).  Such determination shall be made after first
taking into account corrections of any Excess Deferred Compensation pursuant to
Section 5.2 and taking into account any adjustments of any Excess Contributions
pursuant to Section 5.6.

 

2.24         “Excess
Contributions” means, with respect to a Plan Year, the excess of Elective
Contributions used to satisfy the “Actual Deferral Percentage” tests made on
behalf of Highly Compensated Participants for the Plan Year over the maximum
amount of such contributions permitted under Section 5.5(a) (determined by
hypothetically reducing contributions made on behalf of Highly Compensated
Participants in order of the actual deferral ratios beginning with the highest
of such ratios).  Excess Contributions
shall be treated as an Annual Addition pursuant to Section 5.9(b).

 

2.25         “Excess
Deferred Compensation” means, with respect to any taxable year of a
Participant, the excess of the aggregate amount of such Participant’s Deferred
Compensation and the elective deferrals pursuant to Section 5.2(e) actually
made on behalf of such Participant for such taxable year, over the dollar
limitation provided for in Code Section 402(g), which is incorporated herein by
reference.  Excess Deferred Compensation
shall be treated as an Annual Addition pursuant to Section 5.9(b) when
contributed to the Plan unless distributed to the affected Participant not
later than the first April 15th following the close of the Participant’s
taxable year.  Additionally, for purposes
of Sections 11.2 and 5.4(g), Excess Deferred Compensation shall continue to be
treated as Employer Contributions even if distributed pursuant to Section
5.2(e).  However, Excess Deferred
Compensation of Non-Highly Compensated Participants is not taken into account
for purposes of Section 5.5(a) to the extent such Excess Deferred Compensation
occurs pursuant to Section 5.2(d).

 

2.26         “ESOP”
means an employee stock ownership plan that meets the requirements of Code
Section 4975(e)(7) and Regulation §54.4975—11.

 

2.27         “Fiduciary”
means any person who (a) exercises any discretionary authority or discretionary
control respecting management of the Plan or exercises any authority or control
respecting management or disposition of its assets, (b) renders investment
advice for a fee or other compensation, direct or indirect, with respect to any
monies or other property of the Plan or has any authority or responsibility to
do so, or (c) has any discretionary authority or discretionary responsibility
in the administration of the Plan.

 

6

 

2.28         “Fiscal
Year” means the Employer’s accounting year of 12 months commencing on
January 1st of each year and ending the following
December 31st.

 

2.29         “Forfeiture”
means that portion of a Participant’s Account that is not Vested, as determined
on the earlier of:

 

(a)           the
distribution of the entire Vested portion of the Participant’s Account of a
Former Participant who has severed employment with the Employer.  For purposes of this provision, if the Former
Participant has a Vested benefit of zero, then such Former Participant shall be
deemed to have received a distribution of such Vested benefit as of the year in
which the severance of employment occurs, or

 

(b)           the
last day of the Plan Year in which a Former Participant who has severed
employment with the Employer incurs five (5) consecutive 1-Year Breaks in
Service.

 

2.30         “Former
Participant” means a person who has been a Participant, but who has ceased to
be a Participant for any reason.

 

2.31         “415
Compensation” with respect to any Participant means such Participant’s earned
income, wages, salaries, fees for professional service and other amounts
received for personal services actually rendered in the course of employment
with the Employer to the extent that the amounts are includible in gross income
(including, but not limited to, commissions paid salespersons, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips, bonuses, fringe benefits and reimbursements or other expense
allowances under a nonaccountable plan as defined in Treasury Regulation
§1.62-2(c)), and excluding the following:

 

(a)           Employer
contributions to a plan of deferred compensation to the extent that the
contributions are not included in gross income of the Participant for the
taxable year in which contributed, or Employer contributions on behalf of a
Participant to a simplified employee pension plan to the extent that such
contributions are excludable from the Participant’s gross income, and any
distributions from a plan of deferred compensation whether or not includible in
the gross income of the Participant when distributed;

 

(b)           amounts
realized from the exercise of a nonqualified stock option, or when restricted
stock (or property) held by an Employee 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 

 

7

 

premiums for group term life insurance (but only to the extent that the
premiums are not includible in the gross income of the Participant), or
contributions made by the Employer (whether or not under a salary reduction
agreement) toward the purchase of a Code Section 403(b) annuity contract
(whether or not the contributions are excludable from the gross income of the
Participant); and

 

(e)           any
amount treated as an annual addition under Section 415 of the Code.

 

The
determination of “415 Compensation” shall include any elective deferral (as
defined in Code Section 402(g)(3)) and any amount which is contributed or
deferred by the Employer at the election of the Participant and which is not
includible in the gross income of the Participant by reason of Code Sections
125, 132(f)(4), and 457.

 

2.32         “414(s)
Compensation” means any definition of compensation that satisfies the
nondiscrimination requirements of Code Section 414(s) and the Regulations
thereunder.  The period for determining
414(s) Compensation must be either the Plan Year or the calendar year ending
with or within the Plan Year.  An
Employer may further limit the period taken into account to that part of the
Plan Year or calendar year in which an Employee was a Participant in the component
of the Plan being tested.  The period
used to determine 414(s) Compensation must be applied uniformly to all
Participants for the Plan Year.

 

2.33         “Highly
Compensated Employee” means an Employee described in Code Section 414(q) and
the Regulations thereunder, and generally means any Employee who:

 

(a)           was
a “five percent owner” as defined in Section 2.38(c) at any time during the “determination
year” or the “look-back year”; or

 

(b)           for
the “look-back year” had “415 Compensation” from the Employer in excess of
$80,000 and was in the Top Paid Group of Employees for the Plan Year.  The $80,000 amount is adjusted at the same
time and in the same manner as under Code Section 415(d), except that the base
period is the calendar quarter ending September 30, 1996.

 

The “determination
year” means the Plan Year for which testing is being performed, and the “look
back year” means the immediately preceding twelve-month period.

 

A highly
compensated former Employee is based on the rules applicable to determining Highly
Compensated Employee status as in effect for the “determination year,” in
accordance with Treasury Regulation §1.414(q)-1T, A-4 and I. R. Notice 97-45
(or any superseding guidance).

 

In determining
who is a Highly Compensated Employee, Employees who are non-resident aliens and
who received no earned income (within the meaning of Code Section 911(d)(2))
from the Employer constituting United States source income within the meaning
of Code Section 861(a)(3) shall not be treated as Employees.  Additionally, all 

 

8

 

Affiliated
Employers shall be taken into account as a single employer and Leased Employees
within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered
Employees unless such Leased Employees are covered by a plan described in Code
Section 414(n)(5) and are not covered in any qualified plan maintained by the
Employer.  The exclusion of Leased
Employees for this purpose shall be applied on a uniform and consistent basis
for all of the Employer’s retirement plans. 
Highly Compensated Former Employees shall be treated as Highly
Compensated Employees without regard to whether they performed services during
the “determination year.”

 

2.34         “Highly
Compensated Participant” means any Highly Compensated Employee who is eligible
to participate in the component of the Plan being tested.

 

2.35         “Hour
of Service” means (1) each hour for which an Employee is directly or indirectly
compensated or entitled to compensation by the Employer for the performance of
duties (these hours will be credited to the Employee for the computation period
in which the duties are performed); (2) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
(irrespective of whether the employment relationship has terminated) for
reasons other than performance of duties (such as vacation, holidays, sickness,
jury duty, disability, lay-off, military duty or leave of absence) during the
applicable computation period (these hours will be calculated and credited
pursuant to Labor Regulation § 2530.200b-2 which is incorporated herein by
reference); (3)) each hour for which back pay is awarded or agreed to by the
Employer without regard to mitigation of damages (these hours will be credited
to the Employee for the computation period or periods to which the award or
agreement pertains rather than the computation period in which the award,
agreement or payment is made).  The same
Hours of Service shall not be credited both under (1) or (2), as the case may
be, and under (3).

 

Notwithstanding
(2) above, (i) no more than 501 Hours of Service are required to be credited to
an Employee on account of any single continuous period during which the
Employee performs no duties (whether or not such period occurs in a single
computation period); (ii) an hour for which an Employee is directly or
indirectly paid, or entitled to payment, on account of a period during which no
duties are performed is not required to be credited to the Employee if such
payment is made or due under a plan maintained solely for the purpose of
complying with applicable worker’s compensation, or unemployment compensation
or disability insurance laws; and (iii) Hours of Service are not required to be
credited for a payment which solely reimburses an Employee for medical or
medically related expenses incurred by the Employee.

 

For purposes
of (2) above, a payment shall be deemed to be made by or due from the Employer
regardless of whether such payment is made by or due from the Employer
directly, or indirectly through, among others, a trust fund or insurer to which
the Employer contributes or pays premiums and regardless of whether
contributions made or due to the trust fund, insurer, or other entity are for
the benefit of particular Employees or are on behalf of a group of Employees in
the aggregate.

 

9

 

Notwithstanding
the foregoing, a Participant shall be credited with 190 Hours of Service for
each month in which an Employee is paid or entitled to payment for at least one
Hour of Service.

 

For purposes
of this Section, Hours of Service will be credited for employment with other
Affiliated Employers.  The provisions of
Labor Regulation §§ 2530.200b-2(b) and (c) are incorporated herein by
reference.

 

2.36         “Income”
means the income or losses allocable to “excess amounts” which shall equal the
allocable gain or loss for the “applicable computation period.”  The income allocable to “excess amounts” for
the “applicable computation period” is determined by multiplying the income for
the “applicable computation period” by a fraction.  The numerator of the fraction is the “excess
amount” for the “applicable computation period.”  The denominator of the fraction is the total “account
balance” attributable to “Employer Contributions” as of the end of the “applicable
computation period,” reduced by the gain allocable to such total amount for the
“applicable computation period” and increased by the loss allocable to such
total amount for the “applicable computation period.”  The provisions of this Section shall be
applied:

 

(a)           For
purposes of Section 5.2(e), by substituting:

 

(1)           “Excess
Deferred Compensation” for “excess amounts”;

 

(2)           “taxable
year of the Participant” for “applicable computation period”;

 

(3)           “Deferred
Compensation” for “Employer Contributions”; and

 

(4)           “Participant’s
Elective Account” for “account balance.

 

(b)           For
purposes of Section 5.6(a), by substituting:

 

(1)           “Excess
Contributions” for “excess amounts’”;

 

(2)           “Plan
Year” for “applicable computation period”;

 

(3)           “Elective
Contributions” for “Employer Contributions”; and

 

(4)           “Participant’s
Elective Account” for “account balance.”

 

(c)           For
purposes of Section 5.8(a), by substituting:

 

(1)           “Excess
Aggregate Contributions” for “excess amounts”;

 

(2)           “Plan
Year” for “applicable computation period”;

 

(3)           “Employer
Discretionary Matching Contributions made 

 

10

 

pursuant to Section 5.1(b) (to the extent such Employer Discretionary
Matching Contributions are not used to satisfy the “Actual Deferral Percentage”
tests) and any qualified non-elective contributions or elective deferrals taken
into account pursuant to Section 5.7(c)” for “Employer Contributions”; and

 

(4)           “Participant’s
Account” for “account balance.”

 

Income
allocable to any distribution of Excess Deferred Compensation on or before the
last day of the taxable year of the Participant shall be calculated from the
first day of the taxable year of the Participant to the date on which the
distribution is made pursuant to either the “fractional method” or the “safe
harbor method.”  Under such “safe harbor
method,” allocable Income for such period shall be deemed to equal ten percent
(10%) of the Income allocable to such Excess Deferred Compensation multiplied
by the number of calendar months in such period.  For purposes of determining the number of
calendar months in such period, a distribution occurring on or before the
fifteenth day of the month shall be treated as having been made on the last day
of the preceding month and a distribution occurring after such fifteenth day
shall be treated as having been made on the first day of the next subsequent
month.

 

2.37         “Investment
Manager” means an entity that (a) has the power to manage, acquire, or dispose
of Plan assets and (b) acknowledges fiduciary responsibility to the Plan
in writing.  Such entity must be a
person, firm, or corporation registered as an investment adviser under the Investment
Advisers Act of 1940, a bank, or an insurance company.

 

2.38         “Key
Employee” means, for purposes of determining whether the Plan is a Top-Heavy
Plan under Section 11.2 and under Code Section 416(g) for Plan Years beginning
after December 31, 2001, any Employee or former Employee (including any
deceased Employee) who at any time during the Plan Year that includes the “Determination
Date” was an officer of the Employer having annual compensation greater than
$130,000 (as adjusted under Code Section 416(i)(1) for Plan Years beginning
after December 31, 2002), a five-percent owner of the Employer, or a
one-percent owner of the Employer having 415 Compensation of more than
$150,000.  The determination of who is a
Key Employee will be made in accordance with Code Section 416(i)(1) and the
applicable Regulations and other guidance of general applicability issued
thereunder.

 

(a)           “Five
percent owner” means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than five percent (5%) of the outstanding
stock of the Employer or stock possessing more than five percent (5%) of the
total combined voting power of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than five percent (5%) of the
capital or profits interest in the Employer. 
In determining percentage ownership hereunder, employers that would
otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be
treated as separate employers.

 

11

 

(b)           “One
percent owner” means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than one percent (1%) of the outstanding
stock of the Employer or stock possessing more than one percent (1%) of the
total combined voting power of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than one percent (1%) of the
capital or profits interest in the Employer.

 

(c)           In
determining percentage ownership hereunder, employers that would otherwise be
aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as
separate employers.  However, in
determining whether an individual has 415 Compensation of more than $150,000,
415 Compensation from each employer required to be aggregated under Code
Sections 414(b), (c), (m) and (o) shall be taken into account.

 

2.39         “Late
Retirement Date” means a Participant’s actual Retirement Date after having
reached Normal Retirement Date.

 

2.40         “Leased
Employee” means any person (other than an Employee of the recipient Employer)
who pursuant to an agreement between the recipient Employer and any other
person or entity (“leasing organization”) has performed services for the
recipient (or for the recipient and related persons determined in accordance
with Code Section 414(n)(6)) on a substantially full time basis for a period of
at least one year, and such services are performed under primary direction or
control by the recipient Employer. Contributions or benefits provided a Leased
Employee by the leasing organization which are attributable to services
performed for the recipient Employer shall be treated as provided by the
recipient Employer.  Furthermore,
Compensation for a Leased Employee shall only include Compensation from the
leasing organization that is attributable to services performed for the
recipient Employer.  A Leased Employee
shall not be considered an Employee of the recipient Employer:

 

(a)           if such employee is
covered by a money purchase pension plan providing:

 

(1)           a nonintegrated
employer contribution rate of at least 10% of compensation, as defined in Code
Section 415(c)(3), but including amounts which are contributed by the Employer
pursuant to a salary reduction agreement which are not includible in the gross
income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B),
403(b);

 

(2)           immediate
participation;

 

(3)           full
and immediate vesting; and

 

(b)           if
Leased Employees do not constitute more than 20% of the recipient Employer’s
non-highly compensated work force.

 

2.41         “Non-Elective
Contribution” means the Employer Contributions to the Plan, but excluding
contributions made pursuant to the Participant’s deferral election 

 

12

 

provided for
in Section 5.2, Employer Discretionary Matching Contributions which are used in
the “Actual Deferral Percentage” tests and made pursuant to Section 5.1(b), and
any Qualified Non-Elective Contribution used in the “Actual Deferral Percentage”
tests.

 

2.42         “Non-Highly
Compensated Participant” means any Participant who is not a Highly Compensated
Employee.  However, for purposes of
Section 5.5 and Section 5.7, if the prior year testing method is used, a
Non-Highly Compensated Participant shall be determined using the definition of
Highly Compensated Employee in effect for the preceding Plan Year.

 

2.43         “Non-Key
Employee” means any Employee or former Employee (and such Employee’s or former
Employee’s Beneficiaries) who is not, and has never been, a Key Employee.

 

2.44         “Normal
Retirement Age” means the Participant’s 65th birthday.  A Participant shall become fully Vested in
the Participant’s Account upon attaining Normal Retirement Age.

 

2.45         “Normal
Retirement Date” means the Participant’s Normal Retirement Age.

 

2.46         “1-Year
Break in Service” means the applicable computation period during which an
Employee has not completed more than 500 Hours of Service with the
Employer.  Further, solely for the
purpose of determining whether a Participant has incurred a 1-Year Break in
Service, Hours of Service shall be recognized for “authorized leaves of absence”
and “maternity and paternity leaves of absence.”  Years of Service and 1-Year Breaks in Service
shall be measured on the same computation period.

 

“Authorized
leave of absence” means an unpaid, temporary cessation from active employment
with the Employer pursuant to an established nondiscriminatory policy, whether
occasioned by illness, military service, or any other reason.

 

A “maternity
or paternity leave of absence” means an absence from work for any period by
reason of the Employee’s pregnancy, birth of the Employee’s child, placement of
a child with the Employee in connection with the adoption of such child, or any
absence for the purpose of caring for such child for a period immediately
following such birth or placement.  For
this purpose, Hours of Service shall be credited for the computation period in
which the absence from work begins, only if credit therefore is necessary to
prevent the Employee from incurring a 1-Year Break in Service, or, in any other
case, in the immediately following computation period.  The Hours of Service credited for a “maternity
or paternity leave of absence” shall be those which would normally have been
credited but for such absence, or, in any case in which the Administrator is
unable to determine such hours normally credited, eight (8) Hours of Service
per day.  The total Hours of Service
required to be credited for a “maternity or paternity leave of absence” shall
not exceed the number of Hours of Service needed to prevent the Employee from
incurring a 1-Year Break in Service.

 

2.47         “Other
Investments Account” means the account of a Participant which is 

 

13

 

credited with
such Participant’s share of the net gain (or loss) of the Plan, Forfeitures and
Employer Contributions in other than Company Stock and which is debited with
payments made to pay for Company Stock. 
A separate accounting shall be maintained with respect to that portion
of the Other Investments Account attributable to Elective Contributions and
Non-Elective Contributions.

 

2.48         “Participant”
means any Eligible Employee who participates in the Plan and has not for any
reason become ineligible to participate further in the Plan.

 

2.49         “Participant
Direction Procedures” means such instructions, guidelines or policies, the
terms of which are incorporated herein, as are established pursuant to Section
5.12 and observed by the Administrator and applied to Participants who have
Participant Directed Accounts.

 

2.50         “Participant’s
Account” means the account established and maintained by the Administrator for
each Participant with respect to such Participant’s total interest in the Plan
and Trust resulting from the Employer Non-Elective Contributions.

 

A separate
accounting shall be maintained with respect to that portion of the Participant’s
Account attributable to Employer Discretionary Matching Contributions made
pursuant to Section 5.1(b), Employer Discretionary Optional Contributions made
pursuant to Section 5.1 (c), and any Employer Qualified Non-Elective
Contributions made pursuant to Section 5.1(d) for the purpose of satisfying the
tests of Section 5.7.  In addition, a
separate accounting shall be maintained with respect to that portion of the
Participant’s Account attributable to a Participant’s Target Benefit Capital
Accumulation.

 

2.51         “Participant’s
Combined Account” means the total aggregate amount of each Participant’s
Elective Account and Participant’s Account, including a Participant’s Target
Benefit Capital Accumulation.

 

2.52         “Participant’s
Directed Account” means that portion of a Participant’s interest in the Plan
with respect to which the Participant has directed the investment in accordance
with the Participant Direction Procedure.

 

2.53         “Participant’s
Elective Account” means the account established and maintained by the
Administrator for each Participant with respect to the Participant’s total
interest in the Plan and Trust resulting from the Employer Elective
Contributions used to satisfy the “Actual Deferral Percentage” tests.  A separate accounting shall be maintained
with respect to the portions of the Participant’s Elective Account attributable
to such Elective Contributions pursuant to Section 5.2 and to any Employer
Qualified Non-Elective Contributions made pursuant to Section 5.1(d) for the
purposes of satisfying the tests of Section 5.5.

 

2.54         “Participant’s
Rollover Account” means the account established and maintained by the
Administrator for each Participant with respect to the Participant’s total
interest in the Plan resulting from amounts transferred to this Plan from
another plan or “conduit” Individual Retirement Account in accordance with
Section 5.11(b).

 

14

 

2.55         “Participant’s
Transfer Account” means the account established and maintained by the
Administrator for each Participant with respect to the Participant’s total
interest in the Plan resulting from amounts transferred to this Plan in a
direct plan-to-plan transfer and in accordance with Section 5.11(a).  A Participant’s Transfer Account shall
include Bank of Texas Transfer Accounts, Harlingen National Bank Transfer
Accounts, Riverway Bank Transfer Accounts, Texas Country Bank Transfer
Accounts, First State Bank, Bishop Transfer Accounts, all of which are fully
vested, and any other such accounts resulting from mergers of other plans into
this Plan.

 

2.56         “Plan”
means this instrument, including all amendments thereto.

 

2.57         “Plan
Year” means the Plan’s accounting year of twelve (12) months commencing on
January 1st of each year and ending the following December 31st.

 

2.58         “Qualified
Joint and Survivor Annuity” means an annuity for the life of the Participant
with a survivor annuity for the life of the spouse which is not less than 50%
of and is not greater than 100% of the amount of the annuity which is payable
during the joint lives of the Participant and the spouse and which is the
actuarial equivalent of a single life annuity for the Participant.  The payments under the Qualified Joint and
Survivor Annuity will commence immediately.

 

2.59         “Qualified
Preretirement Survivor Annuity” means a survivor annuity for the surviving
spouse of a Participant if the payments to the surviving spouse under such
annuity are not less than the amounts which would be payable as a survivor
annuity under the Qualified Joint and Survivor Annuity, and which otherwise
satisfies the requirements of Code Section 417(c).

 

2.60         “Qualified
Non-Elective Contribution” means any Employer Contributions made pursuant to
Section 5.1(d), Section 5.6(b) and Section 5.8(b).  Such contributions shall be considered an
Elective Contribution for the purposes of the Plan and used to satisfy the “Actual
Deferral Percentage” tests or the “Actual Contribution Percentage” tests.

 

2.61         “Regulation”
or “Treasury Regulation” means the Regulations promulgated by the Secretary of
the Treasury or a delegate of the Secretary of the Treasury, and as amended
from time to time.

 

2.62         “Retired
Participant” means a person who has been a Participant, but who has become
entitled to retirement benefits under the Plan.

 

2.63         “Retirement
Date” means the date as of which a Participant retires for reasons other than
Total and Permanent Disability, whether such retirement occurs on a Participant’s
Normal Retirement Date, Early or Late Retirement Date (see Section 8.1).

 

2.64         “Salary
Reduction Contributions” means Plan contributions made as a result of the
salary reduction elections of Participants pursuant to Plan Section 5.2.

 

2.65         [Reserved]

 

15

 

2.66         “Target
Benefit Capital Accumulation” means the portion of a Participant’s Combined
Account consisting of Account Balances under the Texas Regional Bancshares,
Inc. Target Benefit Plan, at the time of the adoption of this restated Plan in
1990, together with any income and/or losses attributable thereto.

 

2.67         “Terminated
Participant” means a person who has been a Participant, but whose employment
has been terminated other than by death, Total and Permanent Disability or
retirement.

 

2.68         “Top-Heavy
Plan” means a plan described in Section 11.2(a).

 

2.69         “Top-Heavy
Plan Year” means a Plan Year during which the Plan is a Top-Heavy Plan.

 

2.70         “Top-Paid
Group” means the top 20% of Employees who performed services for the Employer
during the applicable year, ranked according to the amount of “415 Compensation”
received from the Employer during such year. 
All Affiliated Employers shall be taken into account as a single
employer, and Leased Employees within the meaning of Code Sections 414(n)(2)
and 414(o)(2) shall be considered Employees unless such Leased Employees are
covered by a plan described in Code Section 414(n)(5) and are not covered in
any qualified plan maintained by the Employer. 
Employees who are non-resident aliens and who received no earned income
(within the meaning of Code Section 911(d)(2)) from the Employer constituting
United States source income within the meaning of Code Section 861(a)(3) shall
not be treated as Employees. 
Furthermore, for the purpose of determining the number of active
Employees in any year, the following additional Employees shall also be
excluded, however, such Employees shall still be considered for the purpose of
identifying the particular Employees in the Top-Paid Group:

 

(a)           Employees
with less than six (6) months of service;

 

(b)           Employees
who normally work less than 17 1⁄2 hours per week;

 

(c)           Employees
who normally work less than six (6) months during a year; and

 

(d)           Employees
who have not yet attained age twenty-one (21).

 

In addition,
if 90% or more of the Employees of the Employer are covered under agreements
the Secretary of Labor finds to be collective bargaining agreements between
Employee representatives and the Employer, and the Plan covers only Employees
who are not covered under such agreements, then Employees covered by such
agreements shall be excluded from both the total number of active Employees as
well as from the identification of particular Employees in the Top-Paid Group.

 

The foregoing
exclusions set forth in this Section shall be applied on a uniform and
consistent basis for all purposes for which the Code Section 414(q) definition
is applicable.

 

16

 

2.71         “Total
and Permanent Disability” means a physical or mental
condition of a Participant resulting from bodily injury, disease, or mental
disorder which renders such Participant incapable of continuing usual and
customary employment with the Employer. 
The disability of a Participant shall be determined by a licensed
physician chosen by the Administrator. 
The determination shall be applied uniformly to all Participants.

 

2.72         “Trustee” means the person(s) or entity
named as trustee herein or in any separate trust forming a part of this Plan,
and any successors.

 

2.73         “Trust
Fund” means the assets of the Plan
and Trust as such assets exist from time to time.

 

2.74         “Valuation
Date” means the Anniversary Date
and may include any other date or dates deemed necessary or appropriate by the
Administrator for the valuation of the Participant’s accounts during the Plan
Year, which may include any day that the Trustee, any transfer agent appointed
by the Trustee or the Employer, or any stock exchange used by such agent, is
open for business.

 

2.75         “Vested” means the nonforfeitable
portion of any account maintained on behalf of a Participant.

 

2.76         “Year
of Service” means the computation period
of twelve (12) consecutive months, herein set forth, during which an Employee
has at least 1000 Hours of Service.

 

For purposes
of eligibility for participation, the initial computation period shall begin
with the date on which the Employee first performs an Hour of Service.  The participation computation period
beginning after a 1-Year Break in Service shall be measured from the date on
which an Employee again performs an Hour of Service.  The participation computation period shall shift
to the Plan Year which includes the anniversary of the date on which the
Employee first performed an Hour of Service. 
An Employee who is credited with the required Hours of Service in both
the initial computation period (or the computation period beginning after a
1-Year Break in Service) and the Plan Year which includes the anniversary of
the date on which the Employee first performed an Hour of Service shall be
credited with two (2) Years of Service for purposes of eligibility to
participate.

 

For vesting
purposes, the computation period shall be the Plan Year, including periods
prior to the Effective Date of the Plan.

 

The
computation period shall be the Plan Year if not otherwise set forth herein.

 

Notwithstanding
the foregoing, for any short Plan Year, the determination of whether an
Employee has completed a Year of Service shall be made in accordance with Labor
Regulation §2530.203-2(c).  However, in
determining whether an Employee has completed a Year of Service for benefit
accrual purposes in a short Plan Year, the number of the Hours of Service
required shall be proportionately reduced based on the number of full months in
the short Plan Year.

 

17

 

Years of
Service with the Employer or an Affiliated Employer shall be recognized for
purposes of eligibility and vesting.  In
addition, upon the Employer’s or an Affiliated Employer’s acquisition of one or
more employees as the result of a merger or other acquisition of a business or
assumption of operations of a business, or as the result of similar
circumstances, the Employer may elect to grant Years of Service to such
acquired Employees for all or part of the period of such Employees’ service
with the employer whose business or operations are assumed or which has been
merged into the Employer or an Affiliated Employer.  Any such grant of Years of Service, the
purpose or purposes for which Years of Service will be credited, and the
effective date of such grant shall be represented by Schedule A, Service of Acquired Employees, attached
to this Plan and incorporated herein, or by an amendment to Schedule A.

 

Article III

ADMINISTRATION

 

3.1           POWERS
AND RESPONSIBILITIES OF THE EMPLOYER

 

(a)           In
addition to the general powers and responsibilities otherwise provided for in
this Plan, the Employer shall be empowered to appoint and remove the Trustee
and the Administrator from time to time as it deems necessary for the proper
administration of the Plan to ensure that the Plan is being operated for the
exclusive benefit of the Participants and their Beneficiaries in accordance
with the terms of the Plan, the Code, and the Act.  The Employer may appoint counsel,
specialists, advisers, agents (including any nonfiduciary agent) and other
persons as the Employer deems necessary or desirable in connection with the
exercise of its fiduciary duties under this Plan.  The Administrator may compensate such agents
or advisers from the assets of the Plan as fiduciary expenses (but not including
any business (settlor) expenses of the Employer), to the extent not paid by the
Employer.

 

(b)           The
Employer may, by written agreement or designation, appoint at its option an
Investment Manager, investment adviser, or other agent to provide direction to
the Trustee with respect to any or all of the Plan assets.  Such appointment shall be given by the
Employer in writing in a form acceptable to the Trustee and shall specifically
identify the Plan assets with respect to which the Investment Manager or other
agent shall have authority to direct the investment.

 

(c)           The
Employer shall establish a “funding policy and method,” i.e., it shall
determine whether the Plan has a short run need for liquidity (e.g., to pay
benefits) or whether liquidity is a long run goal and investment growth (and
stability of same) is a more current need, or shall appoint a qualified person
to do so.  The Employer or its delegate
shall communicate such needs and goals to the Trustee, who shall coordinate
such Plan needs with its investment policy. 
The communication of such a “funding policy and method” shall not,
however, constitute a directive to the Trustee as to the investment of the
Trust Funds.  Such “funding policy and
method” shall be consistent with the objectives of this Plan and with the
requirements of Title I of the Act.

 

18

 

(d)           The
Employer shall periodically review the performance of any Fiduciary or other
person to whom duties have been delegated or allocated by it under the
provisions of this Plan or pursuant to procedures established hereunder.  This requirement may be satisfied by formal
periodic review by the Employer or by a qualified person specifically
designated by the Employer, through day-to-day conduct and evaluation, or
through other appropriate ways.

 

(e)           The
Employer will furnish Plan Fiduciaries and Participants with notices and
information statements when voting rights must be exercised pursuant to Section
9.5.

 

3.2           DESIGNATION
OF ADMINISTRATIVE AUTHORITY

 

The Employer shall be the Administrator unless
it appoints another person or committee to serve in that capacity.  The Employer may appoint any person,
including, but not limited to, the Employees of the Employer, as Administrator.  Any person so appointed shall signify
acceptance by filing written acceptance with the Employer.  Upon the resignation or removal of any
individual performing the duties of the Administrator, the Employer may
designate a successor.

 

3.3           ALLOCATION
AND DELEGATION OF RESPONSIBILITIES

 

If more than one person is appointed as
Administrator, the responsibilities of each Administrator may be specified by
the Employer and accepted in writing by each Administrator.  In the event that no such delegation is made
by the Employer, the Administrators may allocate the responsibilities among
themselves, in which event the Administrators shall notify the Employer and the
Trustee in writing of such action and specify the responsibilities of each
Administrator.  The Trustee thereafter
shall accept and rely upon any documents executed by the appropriate
Administrator until such time as the Employer or the Administrators file with
the Trustee a written revocation of such designation.

 

3.4           POWERS
AND DUTIES OF THE ADMINISTRATOR

 

The primary responsibility of the
Administrator is to administer the Plan for the exclusive benefit of the
Participants and their Beneficiaries, subject to the specific terms of the
Plan.  The Administrator shall administer
the Plan in accordance with its terms and shall have the power and discretion
to construe the terms of the Plan and to determine all questions arising in
connection with the administration, interpretation, and application of the
Plan.  Any such determination by the
Administrator shall be conclusive and binding upon all persons.  The Administrator may establish procedures,
correct any defect, supply any information, or reconcile any inconsistency in
such manner and to such extent as shall be deemed necessary or advisable to
carry out the purpose of the Plan; provided, however, that any procedure, discretionary
act, interpretation or construction shall be done in a nondiscriminatory manner
based upon uniform principles consistently applied and shall be consistent with
the intent that the Plan shall continue to be deemed a qualified plan under the
terms of Code Section 401(a), and shall comply with the terms of 

 

19

 

the Act and all regulations issued pursuant thereto. The Administrator
shall have all powers necessary or appropriate to accomplish the Administrator’s
duties under the Plan.

 

The Administrator shall be charged with the
duties of the general administration of the Plan as set forth under the terms
of the Plan, including, but not limited to, the following:

 

(a)           the discretion to
determine all questions relating to the eligibility of Employees to participate
or remain a Participant hereunder and to receive benefits under the Plan;

 

(b)           to
compute, certify, and direct the Trustee with respect to the amount and the
kind of benefits to which any Participant shall be entitled hereunder;

 

(c)           to
authorize and direct the Trustee with respect to all nondiscretionary or
otherwise directed disbursements from the Trust;

 

(d)           to
maintain all necessary records for the administration of the Plan;

 

(e)           to
interpret the provisions of the Plan and to make and publish such rules for
regulation of the Plan as are consistent with the terms hereof;

 

(f)            to
determine the size and type of any Contract to be purchased from any insurer,
and to designate the insurer from which such Contract shall be purchased;

 

(g)           to
compute and certify to the Employer and to the Trustee from time to time the
sums of money necessary or desirable to be contributed to the Plan;

 

(h)           to
consult with the Employer and the Trustee regarding the short and long term
liquidity needs of the Plan in order that the Trustee can exercise any
investment discretion in a manner designed to accomplish specific objectives;

 

(i)            to
prepare and implement a procedure to notify Eligible Employees that they may
elect to have a portion of their Compensation deferred or paid to them in cash;

 

(j)            to
establish and communicate to Participants a procedure for allowing each
Participant to direct the Trustee as to the distribution of such Participant’s
Company Stock Account pursuant to Section 8.6;

 

(k)           to
establish and communicate to Participants a procedure and method to insure that
each Participant will vote Company Stock allocated to such Participant’s
Company Stock Account pursuant to Section 9.5;

 

(l)            to
determine the validity of, and take appropriate action with 

 

20

 

respect to, any qualified domestic relations order received by it; and

 

(m)          to
assist any Participant regarding the Participant’s rights, benefits, or elections
available under the Plan.

 

3.5           RECORDS AND REPORTS

 

The
Administrator shall keep a record of all actions taken and shall keep all other
books of account, records, policies, and other data that may be necessary for
proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.

 

3.6           APPOINTMENT
OF ADVISERS

 

The Administrator, or the Trustee with the
consent of the Administrator, may appoint counsel, specialists, advisers,
agents (including nonfiduciary agents) and other persons as the Administrator
or the Trustee deems necessary or desirable in connection with the
administration of this Plan, including but not limited to agents and advisers
to assist with the administration and management of the Plan, and thereby to
provide, among such other duties as the Administrator may appoint, assistance
with maintaining Plan records and the providing of investment information to
the Plan’s investment fiduciaries and to Plan Participants.

 

3.7           PAYMENT
OF EXPENSES

 

All expenses of administration may be paid
out of the Trust Fund unless paid by the Employer.  Such expenses shall include any expenses
incident to the functioning of the Administrator, or any person or persons
retained or appointed by any Named Fiduciary incident to the exercise of their
duties under the Plan, including, but not limited to, fees of accountants,
counsel, Investment Managers, agents (including nonfiduciary agents) appointed
for the purpose of assisting the Administrator or the Trustee in carrying out
the instructions of Participants as to the directed investment of their
accounts and other specialists and their agents, the costs of any bonds required
pursuant to Section 412 of the Act, and other costs of administering the Plan.
Until paid, the expenses shall constitute a liability of the Trust Fund.

 

21

 

3.8           CLAIMS
PROCEDURE

 

(a)           Method
of Making Claim.  Claims for benefits
under the Plan may be filed with the Administrator on forms supplied by the
Employer.  An authorized representative
of a claimant may act on behalf of a claimant, provided that the representative
is appointed in a writing that is signed by the claimant and supplied to the
Administrator.  The term “claimant,” when
used in this procedure and in the claims review procedure below, shall include
a duly appointed representative.

 

(b)           Time
and Manner of Giving Notice of Adverse Benefit Determination.  If a claim is wholly or partially denied, the
Administrator shall notify the claimant of the adverse benefit determination no
later than 90 (45 days in the case of a disability benefit determination) days
after the claim was received by the Plan. 
This period begins when a claim is received by the Plan, whether or not
the claim contains all information necessary to make a benefit
determination.  (In the case of a disability
benefit determination, however, if a period is extended as described immediately
below due to a claimant’s failure to submit information necessary to decide a
claim, the period for making the benefit determination shall be tolled from the
date on which the notification of the extension is sent to the claimant until
the date on which the claimant responds to the request for additional
information.)

 

If the Administrator determines
that special circumstances require more time to process a claim, this period
may be extended up to a maximum of 90 additional days.  If such an extension is required, the
Administrator shall give written notice no later than 90 days after the claim
was received by the Plan.  The written
notice shall describe the special circumstances requiring the extension and the
expected date by which the benefit determination will be made.

 

In the case of a disability
benefit determination, however, the foregoing paragraph shall not apply, and
the following rules shall apply:  This
period may be extended by an additional 30 days if the Administrator both
determines that such an extension is necessary due to matters beyond the Plan’s
control and notifies the claimant before the end of the 45-day period of the
circumstances requiring the extension and the date by which the Plan expects to
render a decision.  This period may be
extended by an additional 30 days if, during the first 30-day extension period,
the Administrator both determines that a decision cannot be rendered within
that extension period due to matters beyond the Plan’s control and notifies the
claimant before the end of the first 30-day period of the circumstances
requiring the extension and the date by which the Plan expects to render a
decision.  In the case of any initial or
additional 30-day extension, the notice of extension shall specifically explain
the standards on which entitlement to a benefit is based, the unresolved issues
that prevent a decision on the claim, and the additional information needed to
resolve the issues.  In addition, the
claimant shall be given at least 45 days to provide the specified information.

 

22

 

In its consideration of the
claim, the Administrator shall consult the documents and instruments
constituting the Plan and all other documents that may have a bearing on its
interpretation, including past interpretations or claims of the same general
type.  The Administrator shall also,
where appropriate, consult Internal Revenue Service, Department of Labor, or
other governmental or private publications or authorities which may assist the
Administrator to interpret Plan language or administrative procedures.

 

Notice of adverse benefit
determination described in this section shall be given in writing.

 

(c)           Content
of Notice of Adverse Benefit Determination. 
Notice of an adverse benefit determination described in this section
must set forth in a manner calculated to be understood by the claimant:

 

(1)           the
specific reason(s) for the adverse determination;

 

(2)           specific
Plan provisions upon which the determination is based;

 

(3)           a
description and explanation of any additional material or information needed
for the claimant to perfect the claim;

 

(4)           a
description of the Plan’s review procedures and applicable time limits;

 

(5)           a
statement of the claimant’s right to bring a civil action under Section 502(a)
of the Act following an adverse benefit determination on review; and

 

(6)           solely
in the case of a disability benefit determination, if any internal rule,
guideline, protocol, or other similar criterion was relied upon in making the
adverse determination, either:

 

(A)          a
copy of such internal rule, guideline, protocol, or other similar criterion; or

 

(B)           a
statement that such internal rule, guideline, protocol, or other similar
criterion was relied upon and that a copy is available to the claimant at no
charge upon request.

 

3.9           CLAIMS
REVIEW PROCEDURE

 

(a)           Request
for Review.  If the Administrator
makes an adverse benefit decision as described above, a claimant may request
that the Administrator review the claim and the adverse benefit determination.  The claimant must make this request no later
than 60 (180 for disability benefit determinations) days after receiving the
written notice provided for above.  This
period begins when a 

 

23

 

request for review is filed in accordance with the Plan’s reasonable
procedures, whether or not the request for review contains all information
necessary to make a benefit determination.

 

A claimant may submit written
comments, documents, records, or other information relating to the claim for
consideration in the review.  The review
shall take into account all such information submitted by the claimant,
regardless of whether it was submitted or considered in the initial benefit
determination.  For disability benefit
determinations, on review, no deference shall be given to the initial adverse
benefit determination.  The review shall
be conducted by the Plan’s Disability Appeal Fiduciary.  If, in connection with the adverse disability
benefit determination, the Plan obtained on its behalf the advice of any
medical or vocational experts, such expert(s) shall be identified, whether or
not their advice was relied upon in making the adverse benefit
determination.  If the adverse disability
benefit decision was based in whole or part on a medical judgment, in
conducting the review the Disability Appeal Fiduciary shall consult with a
health care professional with appropriate training and experience in the field
of medicine involved in the medical judgment. 
This health care professional shall not be a person or a subordinate of
a person who was consulted in connection with the adverse benefit
determination.

 

Upon request, the claimant
shall have reasonable access to and free copies of all documents, records, and
other information that is relevant to the claim.  A document, record or other information shall
be considered to be relevant to a claim if it:

 

(1)           was
relied upon, submitted, considered or generated in the course of making the
benefit determination; or

 

(2)           demonstrates
compliance with the administrative processes and safeguards required in the
making of the benefit determination; or

 

(3)           in
the case of a disability benefit determination, constitutes a statement of
policy or guidance with respect to the Plan concerning the benefit denied for
the claimant’s diagnosis, whether or not such advice or statement was relied
upon in making the benefit determination.

 

The Administrator shall notify
the claimant of the determination on review not later than 60 (45 for
disability benefit determinations) days after the receipt of the claimant’s
request for review.  If the Administrator
determines that special circumstances require more time to process the review
of a claim, this period may be extended up to a maximum of 60 (45 for disability
benefit determinations) additional days. 
If such an extension is required, the Administrator shall give written
notice no later than 60 (45 for disability benefit determinations) days after
the receipt of the request for review. 
The written notice shall describe the special circumstances requiring
the extension and the expected date by which the review determination will be
made.  If the Administrator extends the
review period due to 

 

24

 

a claimant’s
failure to submit information necessary to decide a claim, the deadline by
which the Administrator must make its determination on review shall be
suspended from the date on which it notifies the claimant of the extension
until the date the claimant responds to the request for additional information.

 

(b)           Notice
of Decision on Review.  The
Administrator shall notify a claimant in writing of the benefit determination
on review.  If the benefit determination
is adverse, the notification shall set forth in a manner calculated to be
understood by the claimant:

 

(1)           the
specific reason(s) for the adverse determination;

 

(2)           specific
Plan provisions upon which the determination is based;

 

(3)           a
statement that the claimant is entitled to receive, upon request and free of
charge, reasonable access to and copies of all documents, records, and other
information relevant (as defined above) to the claim for benefits;

 

(4)           a
statement describing any voluntary appeal procedures offered by the Plan;

 

(5)           a
statement of the claimant’s right to bring a civil action under Section 502(a)
of the Act; and

 

(6)           for
disability benefit determinations, if any internal rule, guideline, protocol,
or other similar criterion was relied upon in making the adverse determination,
either:

 

(A)          a
copy of such internal rule, guideline, protocol, or other similar criterion; or

 

(B)           a
statement that such internal rule, guideline, protocol, or other similar
criterion was relied upon and that a copy is available to the claimant at no charge
upon request; and

 

(7)           the
following statement: “You and your plan may have other voluntary alternative
dispute resolution options, such as mediation. 
One way to find out what may be available is to contact your local U.S.
Department of Labor Office and your State insurance regulatory agency.”

 

This claims procedure is
designed so as not to contain any provision that unduly inhibits or hampers the
initiation or processing of claims for benefits, nor shall it be administered
in such a manner.  Specifically, no fee
shall be charged as a prerequisite to making a claim or appealing an adverse
benefit decision.  Furthermore, in the
case of disability benefit determinations, there is no requirement that a
claimant must file more than two appeals of an adverse benefit 

 

25

 

determination
prior to bringing a civil action under Section 502(a) of the Act, nor is there
any requirement that adverse benefit determinations must be submitted to
binding arbitration.

 

Article IV

ELIGIBILITY

 

4.1           CONDITIONS
OF ELIGIBILITY

 

With respect to salary
reduction elections pursuant to Section 5.2 and Employer Discretionary Matching
Contributions pursuant to Section 5.1(b), any Eligible Employee who has
completed three (3) consecutive months of service with at least 250 Hours of
Service and has attained age 21 shall be eligible to participate hereunder as
of the date such Employee has satisfied such requirements.  For purposes of this Section, however, if an
Eligible Employee completes one (1) Year of Service prior to completing three
(3) consecutive months of service, then such Employee will be deemed to have
completed three (3) consecutive months of service.

 

With respect to Employer
Discretionary Optional contributions pursuant to Section 5.1(c), any Eligible
Employee who has completed one (1) Year of Service and has attained age 21
shall be eligible to participate hereunder as of the date such Employee has
satisfied such requirements.

 

Notwithstanding any other
provision of this Section, any Employee who was a Participant in the Plan prior
to the effective date of this amendment and restatement shall continue to
participate in the Plan.

 

4.2           EFFECTIVE
DATE OF PARTICIPATION

 

With respect to Salary
Reduction Contribution elections made pursuant to Section 5.2 and Employer
Discretionary Matching Contributions made pursuant to Section 5.1(b), an
Eligible Employee shall become a Participant effective as of the first day of
the month coinciding with or next following the date on which such Employee met
the eligibility requirements of Section 4.1, provided said Employee was still
employed as of such date.  However, with
respect to Employer Discretionary Optional Contributions made pursuant to
Section 5.1(c), an Eligible Employee shall become a Participant effective as of
the earlier of the first day of the Plan Year or the first day of the seventh
month of such Plan Year coinciding with or next following the date such
Employee met the eligibility requirements of Section 4.1, provided said Employee
was still employed as of such date (or if not employed on such date and if a
1-Year Break in Service has not occurred, as of the date of rehire or, if
later, the date that the Employee would have otherwise entered the Plan had the
Employee not terminated employment).

 

If an Eligible Employee
satisfies the Plan’s eligibility requirement conditions by reason of
recognition of service with a predecessor employer, such Employee will become a
Participant as of the day the Plan credits service with a 

 

26

 

predecessor
employer or, if later, the date the Employee would have otherwise entered the
Plan had the service with the predecessor employer been service with the
Employer.

 

4.3           DETERMINATION
OF ELIGIBILITY

 

The Administrator shall determine the
eligibility of each Employee for participation in the Plan based upon
information furnished by the Employer. 
Such determination shall be conclusive and binding upon all persons, as
long as the same is made pursuant to the Plan and the Act.  Such determination shall be subject to review
pursuant to Sections 3.8 and 3.9.

 

4.4           TERMINATION
OF ELIGIBILITY

 

In the event that a Participant who was
previously an Eligible Employee becomes ineligible, such Former Participant
shall continue to vest in the Plan for each Year of Service completed while an
ineligible Employee, until such time as the Participant’s Account is forfeited
or distributed pursuant to the terms of the Plan.  During such time, the Former Participant’s interest
in the Plan shall continue to share in the earnings of the Trust Fund.

 

4.5           OMISSION
OF ELIGIBLE EMPLOYEE

 

If, in any Plan Year, any
Employee who should be included as a Participant in the Plan is erroneously
omitted and discovery of such omission is not made until after a contribution
by the Employer for the year has been made and allocated, then the Employer
shall make a subsequent contribution, if necessary after the application of
Section 5.4(e), so that the omitted Employee receives a total amount which the
Employee would have received (including both Employer Contributions and
earnings thereon) had the Employee not been omitted. Such contribution shall be
made regardless of whether it is deductible in whole or in part in any taxable
year under applicable provisions of the Code.

 

4.6           INCLUSION
OF INELIGIBLE EMPLOYEE

 

If in any Plan Year, any person
who should not have been included as a Participant in the Plan is erroneously
included and discovery of such inclusion is not made until after a contribution
for the year has been made and allocated, the Employer shall not be entitled to
recover the contribution made with respect to the ineligible person.  In such event, the amount contributed with
respect to the ineligible person shall constitute a Forfeiture for the Plan
Year in which the discovery is made. 
Notwithstanding the forgoing, any Deferred Compensation made by an
ineligible person shall be distributed to the person (along with any earnings
attributable to such Deferred Compensation).

 

27

 

4.7           REHIRED
EMPLOYEES AND BREAKS IN SERVICE

 

(a)           Participation.

 

(1)           A
Former Participant shall participate in the Plan as of the date of
reemployment.

 

(2)           A
rehired Eligible Employee who had fulfilled the requirements of Section 4.1 for
participation in salary reduction elections and Employer Discretionary Matching
Contributions prior to severance from employment may participate in such
contributions immediately upon reemployment unless the Employee has incurred a
1-Year Break in Service.  If a 1-Year
Break in Service was incurred, the Employee’s prior service will be disregarded
for eligibility purposes, and the Eligible Employee shall be treated as a new
employee.

 

(3)           A
rehired Eligible Employee who had fulfilled the requirements of Section 4.1 for
participation in Employer Discretionary Optional Contributions prior to
severance from employment, but who had not reached his or her effective date of
participation under Section 4.2 shall participate in such those contributions
as described in Section 4.2 unless the Employee has incurred a 1-Year Break in
Service.  If a 1-Year Break in Service
was incurred, the Employee’s prior service will be disregarded for eligibility
purposes, and the Eligible Employee shall be treated as a new employee.

 

(4)           A
rehired Eligible Employee who had not fulfilled the requirements of Section 4.1
for participation in salary reduction elections and Employer Discretionary
Matching Contributions prior to severance from employment shall continue to
earn Years of Service for eligibility purposes upon reemployment unless the
Employee has incurred a 1-Year Break in Service.  If a 1-Year Break in Service was incurred,
the Employee’s prior service will be disregarded for eligibility purposes, and
the Eligible Employee shall be treated as a new employee for purposes of such
contributions.

 

(5)           A
rehired Eligible Employee who had not fulfilled the requirements of Section 4.1
for participation in Employer Discretionary Optional Contributions prior to
severance from employment shall continue to earn Years of Service for
eligibility purposes upon reemployment unless the Employee has incurred a
1-Year Break in Service.  If a 1-Year
Break in Service was incurred, the Employee’s prior service will be disregarded
for eligibility purposes, and the Eligible Employee shall be treated as a new
employee for purposes of such contributions.

 

(b)           Vesting.  All Years of Service, as defined for vesting
purposes under Section 2.76, shall be credited for all Accounts under the Plan
except as 

 

28

 

specifically provided below for a Former Participant who is partially
vested in any pre-break Account that is subject to vesting under the Plan.

 

(1)           After
a partially Vested Former Participant incurs five consecutive 1-Year Breaks in
Service, the Vested portion of said Former Participant’s Account attributable
to pre-break service shall not be increased as a result of post-break service,
nor shall the Participant’s Account attributable to post-break service be
increased as a result of pre-break service. 
In such case, separate accounts will be maintained as follows:

 

(A)          one
account for nonforfeitable benefits attributable to pre-break service; and

 

(B)           one
account representing the Participant’s Employer- derived account balance in the
Plan attributable to post-break service.

 

(2)           If
a partially Vested Participant becomes a Former Participant due to severance of
employment with the Employer and is reemployed by the Employer before five
consecutive 1-Year Breaks in Service, and such Former Participant had received
a distribution of his or her entire Vested interest prior to reemployment, then
the forfeited account shall be reinstated only if the Former Participant repays
the full amount which had been distributed. 
Such repayment must be made before the earlier of five years after the
first date on which the Participant is subsequently reemployed by the Employer
or the close of the first period of five consecutive 1-Year Breaks in Service
commencing after the distribution.  If a
distribution occurs for any reason other than a severance of employment, the
time for repayment may not end earlier than five years after the date of
distribution.  If the Former Participant
does repay the full amount distributed, the forfeited portion of the
Participant’s Account must be restored in full, unadjusted by any gains or
losses occurring subsequent to the Valuation Date preceding the
distribution.  The source for such
reinstatement may be Forfeitures occurring during the Plan Year.  If such source is insufficient, then the
Employer will contribute an amount which is sufficient to restore any such
forfeited Accounts, provided, however, that if a discretionary contribution is
made for such year, such contribution shall first be applied to restore any
such Accounts and the remainder shall be allocated in accordance with Section
4.4.

 

4.8           ELECTION
NOT TO PARTICIPATE

 

The Administrator may, in its
discretion, allow Employees to elect voluntarily not to participate in the
Plan.  Any election not to participate
must be communicated to the Employer, in writing, within a reasonable period of
time 

 

29

 

before the
beginning of a Plan Year, and shall be subject to rules and limitations adopted
by the Administrator.

 

Article V

CONTRIBUTION AND ALLOCATION

 

5.1           FORMULA
FOR DETERMINING EMPLOYER CONTRIBUTION

 

For each Plan Year, the
Employer shall contribute to the Plan:

 

(a)           Salary
Reduction Contributions:  The amount
of the total salary reduction elections of all Participants made pursuant to
Section 5.2(a), which amount shall be deemed an Employer Elective
Contribution.  As provided in Section
5.2(b), the interest of a Participant in the Salary Reduction Contributions allocated
to his account will always be 100% vested.

 

(b)           Discretionary
Matching Contribution: On behalf of each Participant who is eligible to
share in Employer Discretionary Matching Contributions for the Plan Year, an
Employer Discretionary Matching Contribution in an amount determined at the
sole discretion of the Employer, on behalf of each Participant up to a maximum
of one hundred percent (100%) of the Participant’s Salary Reduction
Contributions, provided, however, that the maximum Employer Discretionary
Matching Contribution shall be based on a Participant’s Salary Reduction
Contribution of up to four percent (4%) of such Participant’s Compensation from
and after the Participant’s effective date of participation with respect to
salary reduction elections. The interest of a Participant in the Employer
Discretionary Matching Contributions allocated to his account will always be
100% vested.

 

(c)           Discretionary
Optional Contribution: An Employer Discretionary Optional Contribution,
which shall be determined in the sole discretion of the Employer.  The interest of a Participant in the Employer
Discretionary Optional Contributions allocated to his account will become
nonforfeitable pursuant to the vesting schedule contained in Section 8.4(b).

 

(d)           Qualified
Non-Elective Contribution:  In the
discretion of the Employer, An Employer Qualified Non-Elective Contribution
made for the purpose of adjusting the Actual Deferral Percentage tests of
Section 5.5 and/or the Actual Contribution Percentage tests of Section 5.7.

 

(e)           Top
Heavy Minimum Contribution: Additionally, to the extent necessary, the
Employer shall contribute to the Plan the amount necessary to provide the top
heavy minimum contribution.

 

All contributions by the
Employer shall be made in cash or in such property as is acceptable to the
Trustee.

 

30

 

5.2           PARTICIPANT’S
SALARY REDUCTION ELECTION

 

(a)           Elections.  Each Participant may elect to defer a portion
of Compensation (within the meaning of Code Section 415(c) and Treasury
Regulation § 1.415(c)-2) which would have been received in the Plan Year
(except for the deferral election) up to the maximum amount which will not
cause the Plan to violate the provisions of Sections 5.5(a) and 5.9.  A deferral election (or modification of an
earlier election) may not be made with respect to Compensation which is
currently available on or before the date the Participant executed such
election, and shall remain in effect until terminated or modified.  The amount by which a Participant’s
Compensation is reduced shall be that Participant’s Deferred Compensation and
shall be treated as an Employer Elective Contribution and allocated to that
Participant’s Elective Account.

 

For purposes of this Section, Compensation
shall be determined prior to any reductions made pursuant to Code Sections 125,
132(f)(4)( for Plan Years beginning after December 31, 2000), 402(e)(3),
402(h)(1)(B), 403(b) or 457(b), and before determining any Employee
contributions described in Code Section 414(h)(2) that are treated as Employer
Contributions.

 

(b)           Vesting.  The balance in each Participant’s Elective
Account shall be fully Vested at all times and, except as otherwise provided
herein, shall not be subject to Forfeiture for any reason.

 

(c)           Distribution
Limitations.  Notwithstanding
anything in the Plan to the contrary, amounts held in the Participant’s
Elective Account may not be distributable (including any offset of loans)
earlier than:

 

(1)           severance
from employment (for distributions after December 31, 2001, regardless of the
date of severance from employment), Total and Permanent Disability, or death;

 

(2)           a
Participant’s attainment of age 59 1⁄2;

 

(3)           the
termination of the Plan without the existence at the time of Plan termination
of another defined contribution plan or the establishment of a successor
defined contribution plan by the Employer or an Affiliated Employer within the
period ending twelve months after distribution of all assets from the Plan
maintained by the Employer.  For this purpose,
a defined contribution plan does not include an employee stock ownership plan
(as defined in Code Section 4975(e)(7) or 409), a simplified employee pension
plan (as defined in Code Section 408(k)), or a simple individual retirement
account plan (as defined in Code Section 408(p)); or

 

(4)           the
proven financial hardship of a Participant, subject to the limitations of
Section 8.9.

 

31

 

(d)           402(g)
Limit.  For each Plan Year, a
Participant’s Deferred Compensation made under this Plan and all other plans,
contracts or arrangements of the Employer maintaining this Plan shall not
exceed, during any taxable year of the Participant, the limitation imposed by
Code Section 402(g), as in effect at the beginning of such taxable year, except
to the extent permitted under Section 5.15 of the Plan and Code Section 414(v),
if applicable to the Participant.  If
such dollar limitation is exceeded, a Participant will be deemed to have notified
the Administrator of such excess amount which shall be distributed in a manner
consistent with Section 5.2(e).  The
dollar limitation shall be adjusted annually pursuant to the method provided in
Code Section 415(d) in accordance with Regulations.

 

(e)           402(g)
Limit Correction.  If a Participant’s
Deferred Compensation under this Plan together with any elective deferrals (as
defined in Regulation §1.402(g)-1(b)) under another qualified cash or deferred
arrangement (as described in Code Section 401(k)), a simplified employee
pension (as described in Code Section 408(k)(6)), a simple individual
retirement account plan (as described in Code Section 408(p)), a salary
reduction arrangement (within the meaning of Code Section 3121(a)(5)(D)), a
deferred compensation plan under Code Section 457(b), or a trust described in
Code Section 501(c)(18) cumulatively exceed the limitation imposed by Code
Section 402(g) (as adjusted annually in accordance with the method provided in
Code Section 415(d) pursuant to Regulations) for such Participant’s taxable year,
the Participant may, not later than March 1 following the close of the
Participant’s taxable year, notify the Administrator in writing of such excess
and request that the Participant’s Deferred Compensation under this Plan be
reduced by an amount specified by the Participant. In such event, the
Administrator may direct the Trustee to distribute such excess amount (and any
Income allocable to such excess amount) to the Participant not later than the
first April 15th following the close of the Participant’s taxable year.  Any distribution of less than the entire
amount of Excess Deferred Compensation and Income shall be treated as a pro
rata distribution of Excess Deferred Compensation and Income.  The amount distributed shall not exceed the
Participant’s Deferred Compensation under the Plan for the taxable year (and
any Income allocable to such excess amount). 
Any distribution on or before the last day of the Participant’s taxable
year must satisfy each of the following conditions:

 

(1)           the
distribution must be made after the date on which the Plan received the Excess
Deferred Compensation;

 

(2)           the
Participant shall designate the distribution as Excess Deferred Compensation;
and

 

(3)           the
Plan must designate the distribution as a distribution of Excess Deferred
Compensation.

 

32

 

Any distribution made pursuant
to this Section 5.2(e) shall be made first from unmatched Deferred Compensation
and, thereafter, from Deferred Compensation which is matched.  Employer Discretionary Matching Contributions
which relate to such Deferred Compensation shall be forfeited.

 

(f)            Excess
Contributions Offset. 
Notwithstanding Section 5.2(e) above, a Participant’s Excess Deferred
Compensation shall be reduced, but not below zero, by any distribution of
Excess Contributions pursuant to Section 5.6(a) for the Plan Year beginning
with or within the taxable year of the Participant.

 

(g)           Distribution.  At Normal Retirement Date, or such other date
when the Participant is entitled to receive benefits, the fair market value of
the Participant’s Elective Account shall be used to provide additional benefits
to the Participant or the Participant’s Beneficiary.

 

(h)           Election
Procedures.  The Employer and the
Administrator shall implement the salary reduction elections provided for
herein in accordance with the following:

 

(1)           A
Participant’s initial salary deferral election must be made within a reasonable
time, not to exceed thirty (30) days, after entering the Plan pursuant to
Section 5.2.  If the Participant fails to
make an initial salary deferral election within such time, then such
Participant may thereafter make an election in accordance with the rules
governing modifications.  The Participant
shall make such an election by entering into a written salary reduction
agreement with the Employer and filing such agreement with the
Administrator.  Such election shall
initially be effective beginning with the pay period following the acceptance
of the salary reduction agreement by the Administrator, shall not have
retroactive effect, and shall remain in force until revoked.

 

(2)           A
Participant may modify a prior election during the Plan Year and concurrently
make a new election by filing a written notice with the Administrator within a
reasonable time before the pay period for which such modification is to be
effective.  However, modifications to a
salary deferral election shall be permitted only during election periods
established by the Administrator prior to (i) the first day of a Plan Year, (ii)
the first day of the seventh month of a Plan Year, and (iii) the last payroll
date of the Plan Year.  Any modification
shall not have retroactive effect and shall remain in force until revoked.

 

(3)           A
Participant may elect to prospectively revoke the Participant’s salary
reduction agreement in its entirety at any time during the Plan Year by
providing the Administrator with thirty (30) days written notice of such
revocation (or upon such shorter notice period as may be acceptable to the
Administrator).  Such revocation shall
become effective 

 

33

 

as of the beginning of the first pay period coincident with or next
following the expiration of the notice period. 
Furthermore, the termination of the Participant’s employment, or the
cessation of participation for any reason, shall be deemed to revoke any salary
reduction agreement then in effect, effective immediately following the close
of the pay period within which such termination or cessation occurs.

 

5.3           TIME
OF PAYMENT OF EMPLOYER CONTRIBUTION

 

Except for
Employer Elective Contributions made to implement Participants’ salary
reduction elections, the Employer may make its contribution to the Plan for a
particular Plan Year at such time as the Employer, in its sole discretion,
determines.  If the Employer makes a
contribution for a particular Plan Year after the close of that Plan Year, the
Employer will designate to the Trustee the Plan Year for which the Employer is
making its contribution.

 

5.4           ALLOCATION
OF CONTRIBUTION, FORFEITURES AND EARNINGS

 

(a)           Accounts.  The Administrator shall establish and
maintain an account in the name of each Participant to which the Administrator
shall credit, as of each Anniversary Date or other Valuation Date, all amounts
allocated to each such Participant as set forth herein.

 

(b)           Allocation.  The Employer shall provide the Administrator
with all information required by the Administrator to make a proper allocation
of the Employer Contributions for each Plan Year.  Within a reasonable period of time after the
date of receipt by the Administrator of such information, the Administrator
shall allocate such contribution as follows:

 

(1)           Employer
Elective Contribution: With respect to the Employer Elective Contribution
of Salary Reduction Contributions made pursuant to Section 5.1(a), to each
Participant’s Elective Account in an amount equal to each such Participant’s
Deferred Compensation for the year.

 

(2)           Employer
Discretionary Matching Contribution: With respect to the Employer Discretionary
Matching Contribution made pursuant to Section 5.1(b), to each Participant’s
Account in accordance with Section 5.1(b). 
Only Participants who have completed a Year of Service during the Plan
Year and who are actively employed on the last day of the Plan Year shall be
eligible to share in the Employer Discretionary Matching Contribution for the
year.  The requirements of the preceding
sentence, however, shall not apply to Participants whose employment has been
severed during the Plan Year because of death, Total and Permanent Disability,
or retirement after reaching Early or Normal Retirement Age.

 

34

 

(3)           Employer
Discretionary Optional Contribution: With respect to the Employer
Discretionary Optional Contribution made pursuant to Section 5.1(c), to each
Participant’s Account in the same proportion that each such Participant’s
Compensation for the year bears to the total Compensation of all Participants
for such year.  Only Participants who
have completed a Year of Service during the Plan Year and are actively employed
on the last day of the Plan Year shall be eligible to share in the Employer
Optional Discretionary Contribution for the year.  The requirements of the preceding sentence,
however, shall not apply to Participants whose employment has been severed
during the Plan Year because of death, Total and Permanent Disability, or
retirement after reaching Early or Normal Retirement Age.

 

(4)           Qualified
Non-Elective Contribution.  In the
event that the Employer elects to make a Qualified Non-Elective Contribution
pursuant to the terms of Section 5.6(b) and/or Section 5.8(b) below for the
purpose of enabling the Plan to satisfy one of the tests set forth in Section
5.5 and/or Section 5.7, as applicable. 
Each such Qualified Non-Elective Contribution shall be allocated to
Non-Highly Compensated Participants as described in Section 5.6(b) or Section
5.8(b), as the case may be.

 

(c)           Company
Stock, Dividends.  The Company Stock
Account of each Participant shall be credited as of each Anniversary Date with
Forfeitures of Company Stock and the Participant’s allocable share of Company
Stock (including fractional shares) purchased and paid for by the Plan or
contributed in kind by the Employer for the Plan Year.  Stock dividends on Company Stock held in the
Participant’s Company Stock Account shall be credited to the Participant’s
Company Stock Account pursuant to the resolutions of the Board of Directors
that declared said dividends.  Cash
dividends on Company Stock held in the Participant’s Company Stock Account
shall be credited to the Participant’s Other Investments Account pursuant to
the resolutions of the Board of Directors that declared said dividends.  If no direction is
provided to the Administrator for the allocation of such dividends, dividends
on Company Stock held in the Participant’s Company Stock Account shall be
allocated as soon as feasible following the declaring of the dividend. 
Dividends attributable to unallocated Company Stock shall be allocated at the
end of the Plan Year in which the dividends were declared.

 

(d)           Earnings
and Losses.  As of each Valuation
Date, before the allocation of Employer Contributions and Forfeitures for the
current valuation period, any earnings or losses (net appreciation or net
depreciation) of the Trust Fund shall be allocated in the same proportion that
each Participant’s and Former Participant’s nonsegregated accounts (other than
each Participant’s Company Stock Account) bear to the total of all Participants’
and Former Participants’ nonsegregated accounts (other than each Participant’s
Company Stock Account) as of such date. 
Participants’ transfers from other qualified plans deposited in the
general Trust Fund shall share in any earnings and losses (net appreciation or
net 

 

35

 

depreciation) of the Trust Fund in the manner provided above.

 

Each segregated account, if
any, maintained on behalf of a Participant shall be credited or charged with
its separate share of earnings and losses. 
Earnings or losses with respect to a Participant’s Directed Account
shall be allocated in accordance with Section 5.12.

 

(e)           Forfeitures.  On or before each Anniversary Date any
amounts which became Forfeitures since the last Anniversary Date may be made
available to reinstate previously forfeited account balances of Former
Participants, if any, in accordance with Section 4.7(b), be used to satisfy any
contribution that may be required pursuant to Section 4.5 and/or 8.8, or used
to pay any administrative expenses of the Plan. 
The remaining Forfeitures, if any, shall be allocated each year among
the Participants’ Accounts of Participants otherwise eligible to share in the
allocation of discretionary contributions in the same proportion that each such
Participant’s Compensation for the year bears to the total Compensation of all
such Participants for the year.

 

In the event, however, that the
allocation of Forfeitures provided herein causes the Annual Addition (as
defined in Section 5.9) to any Participant’s Account to exceed the amount
allowable by the Code, the excess shall be reallocated in accordance with
Section 5.10.

 

(f)            Top-Heavy
Allocations.  For any Top-Heavy Plan
Year, Non-Key Employees not otherwise eligible to share in the allocation of
contributions and Forfeitures as provided above shall receive the minimum
allocation provided for in Section 5.4(g) if eligible pursuant to the
provisions of Section 5.4(g)(2).

 

(g)           Minimum
Allocations Required for Top-Heavy Plan Years.  Notwithstanding the foregoing provisions, for
any Top-Heavy Plan Year, the sum of the Employer Contributions and Forfeitures
allocated to the Participant’s Combined Account of each Non-Key Employee shall
be equal to at least three percent (3%) of such Non-Key Employee’s “415
Compensation” (reduced by contributions and forfeitures, if any, allocated to
each Non-Key Employee in any defined contribution plan included with this Plan
in a Required Aggregation Group). However, if (1) the sum of the Employer
Contributions and Forfeitures allocated to the Participant’s Combined Account
of each Key Employee for such Top-Heavy Plan Year is less than three percent
(3%) of each Key Employee’s “415 Compensation” and (2) this Plan is not
required to be included in an Aggregation Group to enable a defined benefit
plan to meet the requirements of Code Section 401(a)(4) or 410, the sum of the
Employer Contributions and Forfeitures allocated to the Participant’s Combined
Account of each Non-Key Employee shall be equal to the largest percentage
allocated to the Participant’s Combined Account of any Key Employee.  In determining whether a Non-Key Employee has
received the required minimum allocation, such Non-Key Employee’s Deferred
Compensation and Employer Discretionary Matching Contributions needed to
satisfy the “Actual Deferral Percentage” tests pursuant to 

 

36

 

Section 5.5(a) or the “Actual Contribution Percentage” tests pursuant
to Section 5.7(a) shall not be taken into account.

 

No such minimum allocation
shall be required in this Plan for any Non-Key Employee who participates in
another defined contribution plan subject to Code Section 412 included with
this Plan in a Required Aggregation Group.

 

(1)           For
purposes of the minimum allocations set forth above, the percentage allocated
to the Participant’s Combined Account of any Key Employee shall be equal to the
ratio of the sum of the Employer Contributions and Forfeitures allocated on
behalf of such Key Employee divided by the “415 Compensation” for such Key
Employee.

 

(2)           For
any Top-Heavy Plan Year, the minimum allocations set forth above shall be
allocated to the Participant’s Combined Account of all Non-Key Employees who
are Participants and who are employed by the Employer on the last day of the
Plan Year, including Non-Key Employees who have (1) failed to complete a Year
of Service and (2) declined to make any mandatory contributions or, in the case
of a cash or deferred arrangement, elective contributions to the Plan.

 

(3)           Employer
Optional Matching Contributions shall be taken into account for purposes of
satisfying the minimum contribution requirements of Code Section 416(c)(2) and
Section 5.4 (g) of the Plan.  The
preceding sentence shall apply with respect to matching contributions under the
Plan or, if the Plan provides that the minimum contribution requirement shall
be met in another plan, such other plan. 
Employer Optional Matching Contributions that are used to satisfy the
minimum contribution requirements shall be treated as matching contributions
for purposes of the actual contribution percentage test and other requirements
of Code Section 401(m).

 

(h)           Short
Plan Years.  For purposes of this
Section, in any short Plan Year the “415 Compensation” limit shall be an amount
equal to the “415 Compensation” limit for the calendar year in which the Plan
Year begins multiplied by the ratio obtained by dividing the number of full
months in the short Plan Year by twelve (12).

 

(i)            Delayed
Data.  Notwithstanding anything in
this Section to the contrary, when all information necessary to properly
reflect a given transaction is not available until after the date specified
herein for processing such transaction, the transaction will be reflected when
such information is received and processed. 
Subject to express limits that may be imposed under the Code, the
processing of any contribution, distribution or other transaction may be
delayed for any legitimate business reason (including, but not limited to,
failure of systems or computer programs, failure of the means of the
transmission of data, force majeure, the failure of a service provider to
timely receive values or prices, and 

 

37

 

the correction for errors or omissions or the errors or omissions of
any service provider).  The processing
date of a transaction will be binding for all purposes of the Plan.

 

(j)            410(b)
Fail-Safe Provision.  Notwithstanding
anything contained herein to the contrary, if this Plan would otherwise fail to
meet the requirements of Code Section 410(b)(1) and the Regulations thereunder
because Employer Contributions would not be allocated to a sufficient number or
percentage of Participants for a Plan Year, then the following rules shall
apply:

 

(1)           The
group of Participants eligible to share in the Employer Contributions and
Forfeitures for the Plan Year shall be expanded to include the minimum number
of Participants who would not otherwise be eligible and who are necessary to
satisfy the applicable test specified above. 
The specific Participants who shall become eligible under the terms of
this paragraph shall be those who have not separated from service prior to the
last day of the Plan Year and have completed the greatest number of Hours of
Service in the Plan Year.

 

(2)           If
after application of paragraph (1) above, the applicable test is still not
satisfied, then the group of Participants eligible to share in the Employer
Contributions and Forfeitures for the Plan Year shall be further expanded to
include the minimum number of Participants who have separated from service
prior to the last day of the Plan Year and are necessary to satisfy the
applicable test.  The specific
Participants who shall become eligible to share shall be those Participants who
have completed the greatest number of Hours of Service in the Plan Year before
terminating employment.

 

(3)           Nothing
in this Section shall permit the reduction of a Participant’s accrued
benefit.  Therefore, any amounts that
have previously been allocated to Participants may not be reallocated to
satisfy these requirements.  Rather, the
Employer shall make an additional contribution equal to the amount such
affected Participants would have received had they been included in the allocations,
even if it exceeds the amount which would be deductible under Code Section
404.  Any adjustment to the allocations
made pursuant to this paragraph shall be considered a retroactive amendment
adopted by the last day of the Plan Year.

 

(4)           Notwithstanding
the foregoing, if the portion of the Plan which is not a Code Section 401(k) or
401(m) plan would fail to satisfy Code Section 410(b) if the coverage tests
were applied by treating those Participants whose only allocation would
otherwise be provided under the top-heavy formula as if they were not currently
benefiting under the Plan, then, for purposes of this Section 5.4(j), such
Participants shall be treated as not benefiting and shall therefore be eligible
to be included in the 

 

38

 

expanded class of Participants who will share in the allocation
provided under the Plan’s non-top-heavy formula.

 

5.5           ACTUAL
DEFERRAL PERCENTAGE TESTS

 

(a)           Maximum
Annual Allocation: For each Plan Year beginning after December 31, 1996, the
annual allocation derived from Employer Elective Contributions to a Highly
Compensated Participant’s Elective Account shall satisfy one of the following
tests:

 

(1)           The
“Actual Deferral Percentage” for the Highly Compensated Participant group shall
not exceed the “Actual Deferral Percentage” of the Non-Highly Compensated
Participant group multiplied by 1.25, or

 

(2)           The
excess of the “Actual Deferral Percentage” for the Highly Compensated
Participant group over the “Actual Deferral Percentage” for the Non-Highly
Compensated Participant group shall not be more than 2 percentage points.  Additionally, the “Actual Deferral Percentage”
for the Highly Compensated Participant group shall not exceed the “Actual
Deferral Percentage” for the Non-Highly Compensated Participant group (for the
preceding Plan Year if the prior year testing method is used to calculate the “Actual
Deferral Percentage” for the Non-Highly Compensated Participant group)
multiplied by 2.  The provisions of Code
Section 401(k)(3) and Regulation §1.401(k)-2 are incorporated herein by
reference.  Pursuant to said Regulation,
Employer Discretionary Matching Contributions may be taken into account for
purposes of determining the “Actual Deferral Percentage” under this paragraph.

 

However, in order to prevent
the multiple use of the alternative method described in (2) above and in Code
Section 401(m)(9)(A), any Highly Compensated Participant eligible to make
elective deferrals pursuant to Section 5.2 and to make Employee contributions
or to receive Employer Discretionary Matching Contributions under this Plan or
under any other plan maintained by the Employer or an Affiliated Employer shall
have a combination of such Participant’s Elective Contributions and Employer
Discretionary Matching Contributions reduced pursuant to Regulation §1.401
(m)-2, the provisions of which are incorporated herein by reference.  The preceding sentence shall not apply for
Plan Years beginning after December 31, 2001.

 

(b)           For
the purposes of this Section “Actual Deferral Percentage” means, with respect
to the Highly Compensated Participant group and Non-Highly Compensated
Participant group for a Plan Year, the average of the ratios, calculated
separately for each Participant in such group, of the amount of Employer
Elective Contributions allocated to each Participant’s Elective Account for
such Plan Year, to such Participant’s “414(s) Compensation” for such Plan 

 

39

 

Year.  The actual deferral ratio
for each Participant and the “Actual Deferral Percentage” for each group shall
be calculated to the nearest one-hundredth of one percent.  Employer Elective Contributions allocated to
each Non-Highly Compensated Participant’s Elective Account shall be reduced by
Excess Deferred Compensation to the extent such excess amounts are made under
this Plan or any other plan maintained by the Employer and by any Employer
Discretionary Matching Contributions which relate to such Excess Deferred
Compensation.

 

(c)           For
the purposes of Sections 5.5(a) and 5.6, a Highly Compensated Participant and a
Non-Highly Compensated Participant shall include any Employee eligible to make
a deferral election pursuant to Section 5.2; whether or not such deferral
election was made or suspended pursuant to Section 5.2.

 

(d)           For
purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k), this
Plan may not be combined with any other plan in Plan Years beginning before
January 1, 2006.

 

(e)           For
the purpose of this Section, for Plan Years beginning after December 31, 1996,
when calculating the “Actual Deferral Percentage” for the Non-Highly
Compensated Participant group, the current year testing method shall be
used.  Any change from the current year
testing method to the prior year testing method shall be made pursuant to Internal
Revenue Service Notice 98-1, Section VII (or superseding guidance), the
provisions of which are incorporated herein by reference.

 

(f)            For
Plan Years beginning on or after January 1, 2006, notwithstanding anything in
this Section to the contrary, if a Highly Compensated Participant is eligible
under more than one cash or deferred arrangement of the Employer, the
provisions of this Section and Section 5.6 shall be applied to Employer
Elective Contributions (and other contributions treated as Employer Elective
Contributions) made for such Highly Compensated Participant as if such
contributions had been made under a single arrangement, as provided in
Regulation §1.401(k)-2.  Notwithstanding
the foregoing, certain plans shall be treated as separate if mandatorily
disaggregated under Regulations under Code Section 401(k).

 

(g)           For
Plan Years beginning after December 31, 1998, the provisions of Code Section
401(k)(3)(F) may be used to exclude from consideration all Non-Highly
Compensated Employees who have not satisfied the minimum age and service
requirements of Code Section 410(a)(1)(A).

 

5.6           ADJUSTMENT
TO ACTUAL DEFERRAL PERCENTAGE TESTS

 

In the event
(or if it is anticipated) that the initial allocations of the Employer Elective
Contributions made pursuant to Section 5.4 do not or might not satisfy one of
the tests set forth in Section 5.5(a), the Administrator shall adjust Excess
Contributions pursuant to the options set forth below:

 

40

 

(a)           Distribution
of Excess Contributions.  On or
before the fifteenth day of the third month following the end of each Plan
Year, but in no event later than the close of the following Plan Year, the
Highly Compensated Participant having the largest dollar amount of Elective Contributions
shall have a portion of such Participant’s Elective Contributions distributed
until the total amount of Excess Contributions has been distributed or until
the amount of such Participant’s Elective Contributions equals the Elective
Contributions of the Highly Compensated Participant having the second largest
dollar amount of Elective Contributions. This process shall continue until the
total amount of Excess Contributions has been distributed.  In determining the amount of Excess
Contributions to be distributed with respect to an affected Highly Compensated
Participant, such amount shall be reduced pursuant to Section 5.2(e) by any
Excess Deferred Compensation previously distributed to such affected Highly
Compensated Participant for such Participant’s taxable year ending with or
within such Plan Year and by any forfeited Employer Discretionary Matching
Contributions which relate to such Excess Deferred Compensation.

 

(1)           With
respect to the distribution of Excess Contributions pursuant to (a) above, such
distribution:

 

(i)            may
be postponed but not later than the close of the Plan Year following the Plan
Year to which it is allocable;

 

(ii)           shall
be made first from unmatched Deferred Compensation and, thereafter,
proportionately from Deferred Compensation which is matched and Employer
Discretionary Matching Contributions which relate to such Deferred
Compensation, if used in the “Actual Deferral Percentage” tests pursuant to
Section 5.5;

 

(iii)          shall
be adjusted for Income; and

 

(iv)          shall
be designated by the Employer as a distribution of excess Contributions (and
Income).

 

(2)           Any
distribution of less than the entire amount of Excess Contributions shall be
treated as a pro rata distribution of Excess Contributions and Income.

 

(3)           Employer
Discretionary Matching Contributions which relate to Excess Contributions shall
be forfeited unless the related matching contribution is distributed as an
Excess Contribution pursuant to (1) above or as an Excess Aggregate
Contribution pursuant to Section 5.8.

 

(4)           Any
Excess Contributions (and Income) which are distributed on or after 21⁄2 months
after the end of the Plan Year shall be subject to the ten percent Employer
excise tax imposed by Code Section 4979.

 

41

 

(b)           Qualified
Non-Elective Contribution.  Within
twelve (12) months after the end of the Plan Year, the Employer may make a
special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated
Participants in an amount sufficient to satisfy (or to prevent an anticipated
failure of) one of the tests set forth in Section 5.5(a).  Such contribution shall be allocated to the
Participant’s Elective Account of each Non-Highly Compensated Participant
eligible to share in the allocation under the method designated by the Employer
for the Plan Year.  The Employer shall
provide the Administrator with written notification of the amount of the
contribution being made and the method of allocation to be used, such method to
be one of the following:

 

(1)           Prorata
to All NHCPs.  Such contribution
shall be allocated to all Non-Highly Compensated Participants in the same
proportion that each Non-Highly Compensated Participant’s 414(s) Compensation
for the year bears to the total 414(s) Compensation of all Non-Highly Compensated
Participants for such year.

 

(2)           Per
Capita to All NHCPs.  Such
contribution shall be allocated in equal amounts (per capita) to all Non-Highly
Compensated Participants.

 

(3)           Prorata
to All Electing NHCPs.  Such
contribution shall be allocated to all Non-Highly Compensated Participants
electing salary reductions pursuant to Section 5.2 in the same proportion that
the Deferred Compensation of each such Non-Highly Compensated Participant bears
to the total Deferred Compensation of all such Non-Highly Compensated
Participants for such year.

 

(4)           Per
Capita to All Electing NHCPs.  Such
contribution shall be allocated to all Non-Highly Compensated Participants
electing salary reductions pursuant to Section 5.2 in equal amounts (per
capita).

 

Any of the foregoing
options may be modified at the Employer’s discretion by application of the
following rule: Non-Highly Compensated Participants who are not employed at the
end of the Plan Year shall not be eligible to receive a special Qualified
Non-Elective Contribution and shall be disregarded.

 

Further, if
the testing method changes from the current year testing method to the prior
year testing method, then for purposes of preventing the double counting of
Qualified Non-Elective Contributions for the first testing year for which the
change is effective, any special Qualified Non-Elective Contribution made on
behalf of Non-Highly Compensated Participants and used to satisfy the “Actual
Deferral Percentage” or “Actual Contribution Percentage” test under the current
year testing method for the prior year testing year shall be disregarded.

 

42

 

(c)           Reduction
or Limitation of Deferrals.  If,
during a Plan Year, it is projected that the aggregate amount of Elective
Contributions to be allocated to all Highly Compensated Participants under this
Plan would cause the Plan to fail the tests set forth in Section 5.5(a), then
the Administrator may automatically reduce the deferral amount of affected
Highly Compensated Participants, beginning with the Highly Compensated
Participant who has the highest deferral ratio until it is anticipated the Plan
will pass the tests or until the actual deferral ratio equals the actual
deferral ratio of the Highly Compensated Participant having the next highest
actual deferral ratio.  This process may
continue until it is anticipated that the Plan will satisfy one of the tests
set forth in Section 5.5(a). 
Alternatively, the Employer may specify a maximum percentage of
Compensation that may be deferred.

 

5.7           ACTUAL
CONTRIBUTION PERCENTAGE TESTS

 

(a)           The
“Actual Contribution Percentage” for Plan Years beginning after December 31,
1996 for the Highly Compensated Participant group shall not exceed the greater
of:

 

(1)           125
percent of such percentage for the Non-Highly Compensated Participant group; or

 

(2)           the
lesser of 200 percent of such percentage for the Non-Highly Compensated
Participant group, or such percentage for the Non-Highly Compensated
Participant group plus 2 percentage points. However, to prevent the multiple
use of the alternative method described in this paragraph and Code Section
401(m)(9)(A), any Highly Compensated Participant eligible to make elective
deferrals pursuant to Section 5.2 or any other cash or deferred arrangement
maintained by the Employer or an Affiliated Employer and to make Employee
contributions or to receive Employer Discretionary Matching Contributions under
this Plan or under any plan maintained by the Employer or an Affiliated
Employer shall have a combination of Elective Contributions and Employer
Discretionary Matching Contributions reduced pursuant to Regulation §1.401(m)-2
and Section 5.8(a). The preceding sentence shall not apply for Plan Years
beginning after December 31, 2001.

 

The provisions of Code Section 401(m)
and Regulation §1.401(m)-1(b) are incorporated herein by reference.

 

(b)           For
the purposes of this Section and Section 5.8, “Actual Contribution Percentage”
for a Plan Year means, with respect to the Highly Compensated Participant group
and Non-Highly Compensated Participant group, the average of the ratios
(calculated separately for each Participant in each group and rounded to the
nearest one-hundredth of one percent) of:

 

(1)           the
sum of Employer Discretionary Matching Contributions 

 

43

 

made pursuant to Section 5.1 (b) (to the extent such Employer
Discretionary Matching Contributions are not used to satisfy the “Actual
Deferral Percentage” tests) on behalf of each such Participant for such Plan
Year; to

 

(2)           the
Participant’s “414(s) Compensation” for such Plan Year.

 

(c)           For
purposes of determining the “Actual Contribution Percentage,” only Employer
Discretionary Matching Contributions contributed to the Plan prior to the end
of the succeeding Plan Year shall be considered.  In addition, the Administrator may elect to
take into account, with respect to Employees eligible to have Employer
Discretionary Matching Contributions pursuant to Section 5.1 (b) allocated to
their accounts (to the extent such Employer Discretionary Matching
Contributions are not used to satisfy the “Actual Deferral Percentage” tests),
elective deferrals (as defined in Regulation §1.402(g)-1(b)) and qualified
non-elective contributions (as defined in Code Section 401(m)(4)(C)) contributed
to any plan maintained by the Employer. Such elective deferrals and qualified
non-elective contributions shall be treated as Employer Discretionary Matching
Contributions subject to Regulation §1.401(m)-2(a)(6), which is incorporated
herein by reference.  However, the Plan
Year must be the same as the plan year of the plan to which the elective
deferrals and the qualified non-elective contributions are made.

 

(d)           For
purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(m), this
Plan may not be combined with any other plan in Plan Years beginning before
January 1, 2006.

 

(e)           For
purposes of Sections 5.7(a) and 5.8, a Highly Compensated Participant and
Non-Highly Compensated Participant shall include any Employee eligible to have
Employer Discretionary Matching Contributions (whether or not a deferral
election was made or suspended) allocated to the Participant’s account for the
Plan Year.

 

(f)            For
the purpose of this Section, for Plan Years beginning after December 31, 1996,
when calculating the “Actual Contribution Percentage” for the Non-Highly
Compensated Participant group, the current year testing method shall be
used.  Any change from the current year
testing method to the prior year testing method shall be made pursuant to
Internal Revenue Service Notice 98-1, Section VII (or superseding guidance),
the provisions of which are incorporated herein by reference.

 

(g)           For
Plan Years beginning on or after January 1, 2006, notwithstanding anything in
this Section to the contrary, if a Highly Compensated Participant is eligible
under more than one plan of the Employer to which matching contributions or
employee contributions may be made, the provisions of this Section and Section
5.8 shall be applied to Employer Discretionary Matching 

 

44

 

Contributions and employee contributions made for or by such Highly
Compensated Participant as if such contributions had been made under a single
arrangement, as provided in Regulation §1.401(m)-2(a)(3).  Notwithstanding the foregoing, certain plans
shall be treated as separate if mandatorily disaggregated under Regulations
under Code Section 401(m).

 

(h)           For
Plan Years beginning after December 31, 1998, the provisions of Code Section
401(k)(3)(F) may be used to exclude from consideration all Non-Highly
Compensated Employees who have not satisfied the minimum age and service
requirements of Code Section 410(a)(1)(A).

 

5.8           ADJUSTMENT
TO ACTUAL CONTRIBUTION PERCENTAGE TESTS

 

In the event (or if it is anticipated) that
the “Actual Contribution Percentage” for the Highly Compensated Participant
group exceeds (or might exceed) the “Actual Contribution Percentage” for the
Non-Highly Compensated Participant group pursuant to Section 5.7(a), the
Administrator shall adjust Excess Aggregate Contributions pursuant to the
options set forth below:

 

(a)           Distribution
of Excess Aggregate Contributions. 
On or before the fifteenth day of the third month following the end of
the Plan Year, but in no event later than the close of the following Plan Year,
the Administrator shall direct the Trustee to distribute to the Highly
Compensated Participant having the largest dollar amount of contributions
determined pursuant to Section 5.7(b) the portion of such contributions (and
Income allocable to such contributions) until the total amount of Excess
Aggregate Contributions has been distributed, or until the Participant’s
remaining amount equals the amount of contributions determined pursuant to
Section 5.7(b) of the Highly Compensated Participant having the second largest
dollar amount of contributions. This process shall continue until the total
amount of Excess Aggregate Contributions has been distributed.

 

(1)           Any
distribution of less than the entire amount of Excess Aggregate Contributions
(and Income) shall be treated as a pro rata distribution of Excess Aggregate
Contributions and Income.  Distribution
of Excess Aggregate Contributions shall be designated by the Employer as a
distribution of Excess Aggregate Contributions (and Income).

 

(2)           Excess
Aggregate Contributions shall be treated as Employer Contributions for purposes
of Code Sections 404 and 415 even if distributed from the Plan.

 

(3)           The
determination of the amount of Excess Aggregate Contributions with respect to
any Plan Year shall be made after first determining the Excess Contributions,
if any, to be treated as after-tax voluntary Employee contributions due to
recharacterization for the plan year of any other qualified cash or deferred
arrangement (as defined in Code Section 401(k)) maintained by the Employer that
ends with or within 

 

45

 

the Plan Year.

 

(4)           Any
Excess Aggregate Contributions (and Income) which are distributed on or after
21⁄2 months after the end of the Plan Year shall be subject to the ten percent
(10%) Employer excise tax imposed by Code Section 4979.

 

(b)           Qualified
Non-Elective Contribution. 
Notwithstanding the above, within twelve (12) months after the end of
the Plan Year, the Employer may make a special Qualified Non-Elective
Contribution in an amount sufficient to satisfy (or to prevent an anticipated
failure of) one of the tests set forth in Section 5.7.  Such contribution shall be allocated to the
Participant’s Account of each Non-Highly Compensated Participant eligible to
share in the allocation in accordance under the method designated by the
Employer for the Plan Year.  The Employer
shall provide the Administrator with written notification of the amount of the contribution
being made and the method of allocation being used, such method to be one of
the following:

 

(1)           Prorata
to All NHCPs.  Such contribution
shall be allocated to all Non-Highly Compensated Participants in the same
proportion that each Non-Highly Compensated Participant’s 414(s) Compensation
for the year bears to the total 414(s) Compensation of all Non-Highly
Compensated Participants for such year.

 

(2)           Per
Capita to All NHCPs.  Such
contribution shall be allocated to all Non-Highly Compensated Participants in
equal amounts (per capita).

 

(3)           Prorata
to All Electing NHCPs.  Such
contribution shall be allocated to all Non-Highly Compensated Participants
electing salary reductions pursuant to Section 5.2 in the same proportion that
the Deferred Compensation of each such Non-Highly Compensated Participant bears
to the total Deferred Compensation of all such Non-Highly Compensated
Participants for such year.

 

(4)           Per
Capita to All Electing NCHPs.  Such
contribution shall be allocated for the year to each Non-Highly Compensated
Participant electing salary reductions pursuant to Section 5.2 in equal amounts
(per capita).

 

Any of the
foregoing options may be modified at the Employer’s discretion by application
of the following rule: Non-Highly Compensated Participants who are not employed
at the end of the Plan Year shall not be eligible to receive a special
Qualified Non-Elective Contribution and shall be disregarded.

 

Further, if
the testing method changes from the current year testing method to the prior
year testing method, then for purposes of preventing the double counting of
Qualified Non-Elective Contributions for the first testing year 

 

46

 

for which the change is effective, any special Qualified Non-Elective
Contribution made on behalf of Non-Highly Compensated Participants and used to
satisfy the “Actual Deferral Percentage” or “Actual Contribution Percentage”
test under the current year testing method for the prior year testing year
shall be disregarded.

 

(c)           Reduction
or Limitation of Deferrals.  If,
during a Plan Year, the projected aggregate amount of Employer Discretionary
Matching Contributions to be allocated to all Highly Compensated Participants
under this Plan would, by virtue of the tests set forth in Section 5.7(a),
cause the Plan to fail such tests, then the Administrator may automatically
reduce proportionately or in the order provided in Section 5.8(a) each affected
Highly Compensated Participant’s projected share of such contributions by an
amount necessary to satisfy one of the tests set forth in Section 5.7(a).

 

5.9           MAXIMUM
ANNUAL ADDITIONS

 

(a)           For Limitation Years beginning after December 31, 2001, except to the
extent permitted under Section 5.15 and Code Section 414(v), if applicable, the
Annual Addition that may be contributed or allocated to a Participant’s
accounts under the Plan for any Limitation Year shall not exceed the lesser of:
(1) $40,000, as adjusted for increases in the cost of living under Code Section
415(d), or (2) 100 percent of the Participant’s “415 Compensation” for such
Limitation Year.  The “415 Compensation
referred to in (2) shall not apply to any contribution for medical benefits
after separation form service (within the meaning of Code Section 401(h) or
419A(f)(2)) which is otherwise treated as an Annual Addition.  If the Employer contribution that would
otherwise be contributed or allocated to the Participant’s accounts would cause
the Annual Additions for the Limitation Year to exceed the maximum Annual
Additions, the amount contributed or allocated will be reduced so that the
Annual Additions for the Limitation Year will equal the maximum Annual
Additions, and any amount in excess of the maximum Annual Additions, which
would have been allocated to such Participant may be allocated to other Participants.
For any short Limitation Year, the dollar limitation in (1) above shall be
reduced by a fraction the numerator of which is the number of full months in
the short Limitation Year and the denominator of which is twelve (12).

 

(b)           For
purposes of applying the limitations of Code Section 415, Annual Addition means
the sum credited to a Participant’s accounts for any Limitation Year of (1)
Employer Contributions, (2) Employee contributions, (3) forfeitures, (4)
amounts allocated, after March 31, 1984, to an individual medical account, as
defined in Code Section 415(1)(2) which is part of a pension or annuity plan
maintained by the Employer and (5) amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after such date, which
are attributable to post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code Section 419A(d)(3)) under a
welfare benefit plan (as defined in Code Section 419(e)) 

 

47

 

maintained by the Employer. The “415 Compensation” percentage
limitation referred to in paragraph (a)(2) above, however, shall not apply to:
(1) any contribution for medical benefits (within the meaning of Code Section
419A(f)(2)) after separation from service which is otherwise treated as an
Annual Addition or (2) any amount otherwise treated as an Annual Addition under
Code Section 415(1)(1).

 

(c)           For
purposes of applying the limitations of Code Section 415, the transfer of funds
from one qualified plan to another is not an Annual Addition.  In addition, the following are not Employee
contributions for the purposes of Section 5.9(b): (1) rollover contributions
(as defined in Code Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3));
(2) repayments of loans made to a Participant from the Plan; (3) repayments of
distributions received by an Employee pursuant to Code Section 411(a)(7)(B)
(cash-outs); (4) repayments of distributions received by an Employee pursuant
to Code Section 411(a)(3)(D) (mandatory contributions); and (5) Employee
contributions to a simplified employee pension excludable from gross income
under Code Section 408(k)(6).

 

(d)           For
purposes of applying the limitations of Code Section 415, the Limitation Year
shall be the Plan Year.

 

(e)           For
the purpose of this Section, all qualified defined contribution plans (whether
terminated or not) ever maintained by the Employer shall be treated as one
defined contribution plan.

 

(f)            For
the purpose of this Section, if the Employer is a member of a controlled group
of corporations, trades or businesses under common control (as defined by Code
Section 1563(a) or Code Section 414(b) and (c) as modified by Code Section
415(h)), is a member of an affiliated service group (as defined by Code Section
414(m)), or is a member of a group of entities required to be aggregated
pursuant to Regulations under Code Section 414(o), all Employees of such
Employers shall be considered to be employed by a single Employer.

 

(g)           For
the purpose of this Section, if this Plan is a Code Section 413(c) plan, each
Employer who maintains this Plan will be considered to be a separate Employer.

 

(h)           If
a Participant participates in more than one defined contribution plan
maintained by the Employer, the following rules shall apply:

 

(1)           If
a Participant participates in more than one defined contribution plan
maintained by the Employer and such plans have different Anniversary Dates, the
maximum Annual Additions under this Plan shall equal the maximum Annual Additions
for the Limitation Year minus any Annual Additions previously credited to such
Participant’s accounts during the Limitation Year.

 

48

 

(2)           If
a Participant participates in both a defined contribution plan subject to Code
Section 412 and a defined contribution plan not subject to Code Section 412
maintained by the Employer and such plans have the same Anniversary Date,
Annual Additions will be credited to the Participant’s accounts under the
defined contribution plan subject to Code Section 412 prior to crediting Annual
Additions to the Participant’s accounts under the defined contribution plan not
subject to Code Section 412.

 

(3)           If
a Participant participates in more than one defined contribution plan not subject
to Code Section 412 maintained by the Employer and such plans have the same
Anniversary Date, the maximum Annual Additions under this Plan shall equal the
product of (A) the maximum Annual Additions for the Limitation Year minus any
Annual Additions previously credited under subparagraphs (1) or (2) above,
multiplied by (B) a fraction (i) the numerator of which is the Annual Additions
which would be credited to such Participant’s accounts under this Plan without
regard to the limitations of Code Section 415 and (ii) the denominator of which
is such Annual Additions for all plans described in this subparagraph.

 

(i)            Notwithstanding
anything contained in this Section to the contrary, the limitations,
adjustments and other requirements prescribed in this Section shall at all
times comply with the provisions of Code Section 415 and the Regulations
thereunder.

 

5.10         ADJUSTMENT
FOR EXCESSIVE ANNUAL ADDITIONS

 

(a)           Correction
of Excess Amounts.  If, as a result
of the allocation of Forfeitures, a reasonable error in estimating a
Participant’s Compensation, a reasonable error in determining the amount of
elective deferrals (within the meaning of Code Section 402(g)(3)) that may be
made with respect to any Participant under the limits of Section 5.9 or other
facts and circumstances to which Regulation §1.415-6(b)(6) is applicable, the
Annual Additions under this Plan would cause the maximum Annual Additions to be
exceeded for any Participant, the “excess amount” will be disposed of in one of
the following manners, as uniformly determined by the Administrator for all
Participants similarly situated.

 

49

 

(1)           Reduction
of Deferrals and Matching Contributions. 
Any unmatched Deferred Compensation and, thereafter, proportionately
from Deferred Compensation which is matched and Employer Discretionary Matching
Contributions which relate to such Deferred Compensation, will be reduced to
the extent they would reduce the “excess amount.”  The Deferred Compensation and any gains
attributable thereto will be distributed to the Participant, and the Employer
Discretionary Matching Contributions and any gains attributable thereto will be
used to reduce the Employer contribution in the next Limitation Year.

 

(2)           Reduction
of Employer Contribution.  If, after
the application of subparagraph (1) above, an “excess amount” still exists, and
the Participant is covered by the Plan at the end of the Limitation Year, the “excess
amount” will be used to reduce the Employer contribution (including allocation
of any Forfeitures) for such Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary.

 

(3)           Suspense
Account.  If, after the application
of subparagraph (1) above, an “excess amount” still exists, and the Participant
is not covered by the Plan at the end of the Limitation Year, the “excess
amount” will be held unallocated in a “Section 415 suspense account.”  The “Section 415 suspense account” will be
applied to reduce future Employer Contributions (including allocation of any
Forfeitures) for all remaining Participants in the next Limitation Year, and
each succeeding Limitation Year if necessary.

 

(4)           Rules
for Suspense Account.  If a “Section
415 suspense account” is in existence at any time during the Limitation Year
pursuant to this Section, it will not participate in the allocation of
investment gains and losses of the Trust Fund. 
If a “Section 415 suspense account” is in existence at any time during a
particular Limitation Year, all amounts in the “Section 415 suspense account”
must be allocated and reallocated to Participants’ accounts before any Employer
Contributions or any Employee contributions may be made to the Plan for that
Limitation Year.  Except as provided in
(1) above, “excess amounts” may not be distributed to Participants or Former
Participants.

 

(b)           Excess
Amount.  For purposes of this
Section, “excess amount” for any Participant for a Limitation Year shall mean
the excess, if any, of (1) the Annual Additions which would be credited to the
Participant’s account under the terms of the Plan without regard to the
limitations of Code Section 415 over (2) the maximum Annual Additions
determined pursuant to Section 5.9.

 

(c)           Section
415 Suspense Account.  For purposes
of this Section, “Section 415 suspense account” shall mean an unallocated
account equal to the sum of “excess amounts” for all Participants in the Plan
during the Limitation Year.

 

50

 

5.11         ROLLOVERS
AND PLAN-TO-PLAN TRANSFERS FROM QUALIFIED PLANS

 

(a)           Transfers
from Qualified Plans.  With the
consent of the Administrator, amounts may be transferred (within the meaning of
Code Section 414(l)) to this Plan from other tax qualified plans under Code
Section 401(a) by Eligible Employees or by Employers, provided that the trust
from which such funds are transferred permits the transfer to be made and the
transfer will not jeopardize the tax exempt status of the Plan or Trust or
create adverse tax consequences for the Employer. Prior to accepting any
transfers to which this Section applies, the Administrator shall reasonably
conclude that the amounts to be transferred meet the requirements of this
Section.  The amounts transferred shall
be set up in a separate account herein referred to as a Participant’s Transfer
Account. Furthermore, unless a Participant is fully vested in the amounts
transferred, for vesting purposes, the Participant’s portion of the Participant’s
Transfer Account attributable to any transfer shall continue to vest in
accordance with the vesting provisions of the transferring plan.

 

Except as
permitted by Regulations (including Treasury Regulation §1.411(d)-4), amounts
attributable to elective contributions (as defined in Treasury Regulation
§1.401(k)-1(g)(3)), including amounts treated as elective contributions, which
are transferred from another qualified plan in a plan-to-plan transfer (other
than a direct rollover) shall be subject to the distribution limitations
provided for in Treasury Regulation §1.401(k)-1(d).

 

Accounts transferred
to this Plan as the result of a plan merger shall be subject to this Section
5.11(a).

 

(b)           Rollovers.  With the consent of the Administrator, the
Plan may accept a “rollover” made by an Eligible Employee, provided the “rollover”
will not jeopardize the tax-exempt status of the Plan or create adverse tax
consequences for the Employer.  Prior to
accepting any “rollovers” to which this Section applies, the Administrator must
reasonably conclude that the amounts to be rolled over to this Plan meet the requirements
of this Section.  The amounts rolled over
shall be set up in a separate account herein referred to as a “Participant’s
Rollover Account.”  Such account shall be
fully Vested at all times and shall not be subject to Forfeiture for any
reason.

 

For purposes
of this Section, the term “rollover” means: (i) amounts transferred to this
Plan directly from a qualified plan described in Code Section 401(a) or 403(a),
or, effective October 1, 2005, directly from an annuity contract described in
Code Section 403(b); (ii) distributions received by an Employee from another
qualified plan described in Code Section 401(a) or 403(a) or, effective October
1, 2005, distributions received by an Employee from an annuity contract
described in Code Section 403(b), which distributions are eligible for tax-free
rollover and which are transferred by the Employee to this Plan within sixty
(60) days following receipt thereof; (iii) amounts transferred to this Plan
from a 

 

51

 

conduit individual retirement account provided that the conduit
individual retirement account has no assets other than assets which (A) were
previously distributed to the Employee by another qualified plan described in
Code Section 401(a) or 403(a), (B) were eligible for tax-free rollover,  and (C) were deposited in such conduit
individual retirement account within sixty (60) days of receipt thereof; and
(iv) amounts distributed to the Employee from a conduit individual retirement
account meeting the requirements of clause (iii) above and transferred by the
Employee to this Plan within sixty (60) days of receipt thereof from such
conduit individual retirement account. 
In no event shall after-tax employee contributions be accepted as “rollovers”
into this Plan except those after-tax employee contributions that were
previously accepted by a plan that is subsequently merged into this Plan.

 

(c)           Trustee’s
Duties.  Amounts in a Participant’s
Transfer Account or Rollover Account shall be held by the Trustee pursuant to
the provisions of this Plan.  The Trustee
shall have no duty or responsibility to inquire as to the propriety of the
amount, value or type of assets transferred, nor to conduct any due diligence
with respect to such assets; provided, however, that such assets are otherwise
eligible to be held by the Trustee under the terms of this Plan.

 

(d)           Distributions.  Amounts in a Participant’s Transfer Account
or Rollover Account may not be withdrawn by, or distributed to the Participant,
in whole or in part, except as provided in Section 8.9, Section 8.11, and
paragraphs (d) and (f) of this Section. 
At such date when the Participant or the Participant’s Beneficiary is
entitled to receive benefits, the Participant’s Transfer Account or Rollover
Account shall be used to provide additional benefits to the Participant or the
Participant’s Beneficiary.  Any
distributions of amounts held in a Participant’s Transfer Account or Rollover
Account shall be made in a manner which is consistent with and satisfies the
provisions of Section 8.5, including, but not limited to, all notice and
consent requirements of Code Section 411(a)(11) and the Regulations thereunder.

 

(e)           Temporary
Segregation.  The Administrator may
direct that Employee transfers and rollovers made after a Valuation Date be
segregated into a separate account for each Participant until such time as the
allocations pursuant to this Plan have been made, at which time they may remain
segregated or be invested as part of the general Trust Fund or be directed by
the Participant pursuant to Section 5.12.

 

(f)            Protected
Benefits.  Notwithstanding anything
herein to the contrary, a transfer directly to this Plan from another qualified
plan described in Code Section 401(a) or 403(a) (or a transaction having the
effect of such a transfer) shall be permitted only if it will not result in the
elimination or reduction of any “Section 411(d)(6) protected benefit” as
described in Section 10.1.

 

52

 

5.12         DIRECTED
INVESTMENT ACCOUNT

 

(a)           In
General.  Participants may, subject
to a procedure established by the Administrator (the Participant Direction
Procedures) applied in a uniform nondiscriminatory manner, direct the Trustee,
in writing (or in such other form which is acceptable to the Trustee), to
invest all or a portion of their individual account balances attributable to
their Deferred Compensation and attributable to their Participants’ Transfer
Account (excluding any portion attributable to a stock bonus plan that has been
merged into this Plan) or Rollover Accounts in specific assets, specific funds
or other investments permitted under the Plan and the Participant Direction
Procedures.  That portion of the interest
of any Participant so directing will thereupon be considered a Participant’s
Directed Account.

 

(b)           Valuation.  As of each Valuation Date, all Participant
Directed Accounts shall be charged or credited with the net earnings, gains,
losses and expenses as well as any appreciation or depreciation in the market
value using publicly listed fair market values when available or appropriate as
follows:

 

(1)           to
the extent that the assets in a Participant’s Directed Account are accounted
for as pooled assets or investments, the allocation of earnings, gains and
losses of each Participant’s Directed Account shall be based upon the total
amount of funds so invested in a manner proportionate to the Participant’s
share of such pooled investment; and

 

(2)           to
the extent that the assets in the Participant’s Directed Account are accounted
for as segregated assets, the allocation of earnings, gains and losses from
such assets shall be made on a separate and distinct basis.

 

(c)           Time
of Implementation.  Investment
directions will be processed as soon as administratively practicable after
proper investment directions are received from the Participant.  No guarantee is made by the Plan, Employer,
Administrator or Trustee that investment directions will be processed on a
daily basis, and no guarantee is made in any respect regarding the processing
time of an investment direction. 
Notwithstanding any other provision of the Plan, the Employer,
Administrator or Trustee reserves the right to not value an investment option
on any given Valuation Date for any reason deemed appropriate by the Employer,
Administrator or Trustee.  Furthermore,
the processing of any investment transaction may be delayed for any legitimate
business reason (including, but not limited to, failure of systems or computer
programs, failure of the means of the transmission of data, force majeure. the
failure of a service provider to timely receive values or prices, and
correction for errors or omissions or the errors or omissions of any service
provider).  The processing date of a
transaction will be binding for all purposes of the Plan and considered the
applicable Valuation Date for an investment transaction.

 

53

 

5.13         DIVERSIFICATION
RIGHTS

 

(a)           Diversification
of Company Stock Account. Each “Qualified Participant” may elect
within ninety (90) days after the close of each Plan Year during the “Qualified
Election Period” to direct the Trustee in writing to invest, as described
below, twenty-five percent (25%) of the total number of shares of Company Stock
acquired by or contributed to the Plan that have ever been allocated to such “Qualified
Participant’s” Company Stock Account, (reduced by the number of shares of Company
Stock previously diversified or distributed, pursuant to a prior election, in
cash, in mutual fund interests as permitted by Section 8.6(a), and/or in
Company Stock). For this purpose, the Participant’s Company Stock Account shall
include any portion of the Company Stock Account attributable to the
Participant’s Target Benefit Capital Accumulation and any portion attributable
to a stock bonus plan that has been merged into this Plan, but shall exclude
any portion that is attributable to Elective Contributions or to the
Participant’s Transfer Account or Rollover Account (other than a portion
attributable to a stock bonus plan that has been merged into this Plan). An
investment election described in this paragraph may be directed to such
specific assets, specific funds or other investments as are permitted under the
Plan for this purpose, which investment options shall consist of at least three
(3) investment options not inconsistent with any Regulations promulgated
by the Secretary of the Treasury. The Trustee shall invest the portion of the “Qualified
Participant’s” Company Stock that is subject to the diversification election
within ninety (90) days after the period during which the Participant’s
election may be made. In the case of the election year in which the last
election can be made by the Participant, the preceding sentence shall be
applied by substituting “50 percent” for “25 percent.”  If the “Qualified Participant” elects to
direct the Trustee as to the distribution of the Participant’s Company Stock
Account, such direction shall be effective no later than 180 days after the
close of the Plan Year to which such direction applies.

 

Notwithstanding the preceding paragraph, if
the fair market value (determined pursuant to Section 6.1 at the Plan Valuation
Date immediately preceding the first day on which a “Qualified Participant” is
eligible to make an election) of Company Stock acquired by or contributed to
the Plan and allocated to a “Qualified Participant’s” Company Stock Account is
$500 or less, then such Company Stock shall not be subject to this paragraph. For
purposes of determining whether the fair market value exceeds $500, Company
Stock held in accounts of all employee stock ownership plans (as defined in
Code Section 4975(e)(7)) and tax credit employee stock ownership plans (as
defined in Code Section 409(a)) maintained by the Employer or any
Affiliated Employer shall be considered as held by the Plan.

 

(b)           Definitions.
For the purposes of this Section, the following definitions shall apply:

 

54

 

(1)           “Qualified
Participant” means any Participant or Former Participant who has completed ten
(l0) years of participation and has attained age 55.

 

(2)           “Qualified
Election Period” means the six (6) Plan Year period beginning with the
later of (i) the first Plan Year in which the Participant first became a “Qualified
Participant,” or (ii) the first Plan Year beginning after December 31,
1986.

 

(c)           This
Section 5.13 shall be administered in accordance with Notice 88-56 until
the promulgation of Regulations which supersede said Notice. The Administrator may adopt
a uniform nondiscriminatory policy for the substitution of distribution
rights in satisfaction of the requirements of offering diversification rights
to Qualified Participants, or may offer both distribution and
diversification rights. Such distribution and/or diversification rights shall
comply with the applicable requirements of Notice 88-56 or superseding
Regulations by making available for diversification or distribution the amounts
described in Section 5.13(a) above within the period therein
described.

 

5.14         QUALIFIED
MILITARY SERVICE

 

Notwithstanding any provision of this Plan to
the contrary, effective December 12, 1994, contributions, benefits and
service will be provided in accordance with Code Section 414(u).

 

5.15         CATCH-UP
CONTRIBUTIONS

 

All Employees
who are eligible to make elective deferrals under this Plan and who have
attained age 50 before the close of the Plan Year shall be eligible to make
catch-up contributions in accordance with, and subject to the limitations of,
Code Section 414(v). Such catch-up contributions shall not be taken into
account for purposes of the provisions of the Plan implementing the required
limitations of Code Sections 402(g) and 415. The Plan shall not be treated
as failing to satisfy the provisions of the Plan implementing the requirements
of Code Sections 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416, as
applicable, by reason of the making of such catch-up contributions.

 

No Employer
Discretionary Matching Contribution will be made with respect to catch-up
contributions.

 

Article VI

FUNDING AND INVESTMENT POLICY

 

6.1           INVESTMENT
POLICY

 

(a)           The
Plan is designed to invest primarily in Company Stock.

 

(b)           With
due regard to subparagraph (a) above, the Administrator may also
direct the Trustee to invest funds under the Plan in other property described

 

55

 

in the Trust or in life insurance policies to
the extent permitted by subparagraph (c) below, or the Trustee may hold
such funds in cash or cash equivalents.

 

(c)           With
due regard to subparagraph (a) above, the Administrator may also
direct the Trustee to invest funds under the Plan in insurance policies on the
life of any “keyman” Employee. The proceeds of a “keyman” insurance policy may not
be used for the repayment of any indebtedness owed by the Plan which is secured
by Company Stock. In the event any “keyman” insurance is purchased by the
Trustee, the premiums paid thereon during any Plan Year, net of any policy
dividends and increases in cash surrender values, shall be treated as the cost
of Plan investment and any death benefit or cash surrender value received shall
be treated as proceeds from an investment of the Plan.

 

(d)           The
Plan may not obligate itself to acquire Company Stock from a particular
holder thereof at an indefinite time determined upon the happening of an event
such as the death of the holder.

 

(e)           The
Plan may not obligate itself to acquire Company Stock under a put option
binding upon the Plan. However, at the time a put option is exercised, the Plan
may be given an option to assume the rights and obligations of the
Employer under a put option binding upon the Employer.

 

(f)            All
purchases of Company Stock shall be made at a price which, in the judgment of
the Administrator, does not exceed the fair market value thereof. All sales of
Company Stock shall be made at a price which, in the judgment of the
Administrator, is not less than the fair market value thereof. The valuation rules set
forth in Article VI shall be applicable.

 

6.2           TRANSACTIONS
INVOLVING COMPANY STOCK

 

(a)           No
portion of the Trust Fund attributable to (or allocable in lieu of) Company
Stock acquired by the Plan in a sale to which Code Section 1042 applies may accrue
or be allocated directly or indirectly under any plan maintained by the
Employer meeting the requirements of Code Section 401(a):

 

(1)           during
the “Nonallocation Period,” for the benefit of

 

(i)            any
taxpayer who makes an election under Code Section 1042(a) with
respect to Company Stock,

 

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

 

(2)           for
the benefit of any other person who owns (after application of Code Section 318(a) applied
without regard to the employee trust exception in Code Section 318(a)(2)(B)(i))
more than 25 percent of

 

56

 

(i)            Any
class of outstanding stock of the Employer or Affiliated Employer which issued
such Company Stock, or

 

(ii)           the
total value of any class of outstanding stock of the Employer or
Affiliated Employer.

 

(b)           Except,
however, subparagraph (a)(1)(ii) above shall not apply to lineal
descendants of the taxpayer, provided that the aggregate amount allocated to
the benefit of all such lineal descendants during the “Nonallocation Period”
does not exceed more than five (5) percent of the Company Stock (or
amounts allocated in lieu thereof) held by the Plan which are attributable to a
sale to the Plan by any person related to such descendants (within the meaning
of Code Section 267(c)(4)) in a transaction to which Code Section 1042
is applied.

 

(c)           A
person shall be treated as failing to meet the stock ownership limitation under
paragraph (a)(2) above if such person fails such limitation:

 

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

 

(2)           on
the date as of which Company Stock is allocated to Participants in the Plan.

 

(d)           For
purposes of this Section, “Nonallocation Period” means the period beginning on
the date of the sale of the Company Stock and ending on the date which is ten (10) years
after the date of sale.

 

Article VII

VALUATIONS

 

7.1           VALUATION
OF THE TRUST FUND

 

The Administrator shall direct the Trustee,
as of each Valuation Date, to determine the net worth of the assets comprising
the Trust Fund as it exists on the Valuation Date. In determining such net
worth, the Trustee shall value the assets comprising the Trust Fund at their
fair market value (or their contractual value in the case of a Contract or
Policy) as of the Valuation Date and shall deduct all expenses for which the
Trustee has not yet obtained reimbursement from the Employer or the Trust Fund.
The Trustee may update the value of any shares held in the Participant
Directed Account by reference to the number of shares held by that Participant,
priced at the market value as of the Valuation Date.

 

7.2           METHOD
OF VALUATION

 

Valuations must be made in good faith and based
on all relevant factors for determining the fair market value of securities. In
the case of a transaction between a Plan and a disqualified person, value must
be determined as of the date

 

57

 

of the transaction. For all
other Plan purposes, value must be determined as of the most recent Valuation
Date under the Plan. An independent appraisal will not in itself be a good
faith determination of value in the case of a transaction between the Plan and
a disqualified person. However, in other cases, a determination of fair market
value based on at least an annual appraisal independently arrived at by a
person who customarily makes such appraisals and who is independent of any
party to the transaction will be deemed to be a good faith determination of
value. Company Stock not readily tradable on an established securities market
shall be valued by an independent appraiser meeting requirements similar to the
requirements of the Regulations prescribed under Code Section 170(a)(1).

 

Article VIII

DETERMINATION AND DISTRIBUTION OF BENEFITS

 

8.1           DETERMINATION
OF BENEFITS UPON RETIREMENT

 

Every Participant may terminate
employment with the Employer and retire for the purposes hereof on the
Participant’s Normal Retirement Date or Early Retirement Date. However, a
Participant may postpone the termination of employment with the Employer
to a later date, in which event the participation of such Participant in the
Plan, including the right to receive allocations pursuant to Section 8.4,
shall continue until such Participant’s Late Retirement Date. Upon a
Participant’s Retirement Date or attainment of Normal Retirement Date without
termination of employment with the Employer, or as soon thereafter as is
practicable, the Trustee shall distribute, at the election of the Participant,
all amounts credited to such Participant’s Combined Account in accordance with
Sections 8.5 and 8.6.

 

8.2           DETERMINATION
OF BENEFITS UPON DEATH

 

(a)           Upon
the death of a Participant before the Participant’s Retirement Date or other
termination of employment, all amounts credited to such Participant’s Combined
Account shall become fully Vested. If elected, distribution of the Participant’s
Combined Account shall commence not later than one (1) year after the close
of the Plan Year in which such Participant’s death occurs. The Administrator
shall direct the Trustee, in accordance with the provisions of Sections 8.5 and
8.6, to distribute the value of the deceased Participant’s accounts to the
Participant’s Beneficiary.

 

(b)           Upon
the death of a Former Participant, the Administrator shall direct the Trustee,
in accordance with the provisions of Sections 8.5 and 8.6, to distribute any
remaining Vested amounts credited to the accounts of a deceased Former
Participant to such Former Participant’s Beneficiary.

 

(c)           Any
security interest held by the Plan by reason of an outstanding loan to the
Participant or Former Participant shall be taken into account in determining
the amount of the death benefit.

 

58

 

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

 

(e)           The
Beneficiary of the death benefit payable pursuant to this Section shall be
the Participant’s spouse. Except, however, the Participant may designate a
Beneficiary other than the spouse if:

 

(1)           the
spouse has waived the right to be the Participant’s Beneficiary, or

 

(2)           the
Participant is legally separated or has been abandoned (within the meaning of
local law) and the Participant has a court order to such effect (and there is
no “qualified domestic relations order” as defined in Code Section 414(p)
which provides otherwise), or

 

(3)           the
Participant has no spouse, or

 

(4)           the
spouse cannot be located.

 

In such event, the designation of a
Beneficiary shall be made on a form satisfactory to the Administrator. A
Participant may at any time revoke a designation of a Beneficiary or
change a Beneficiary by filing written (or in such other form as permitted
by the Internal Revenue Service) notice of such revocation or change with the
Administrator. However, the Participant’s spouse must again consent in writing
(or in such other form as permitted by the Internal Revenue Service) to
any change in Beneficiary unless the original consent acknowledged that the
spouse had the right to limit consent only to a specific Beneficiary and that
the spouse voluntarily elected to relinquish such right.

 

(f)            In
the event no valid designation of Beneficiary exists, or if the Beneficiary is
not alive at the time of the Participant’s death, the death benefit will be
paid to the Participant’s estate. If the Beneficiary does not predecease the
Participant, but dies prior to distribution of the death benefit, the death
benefit will be paid to the Beneficiary’s estate.

 

(g)           Notwithstanding
anything in this Section to the contrary, if a Participant has designated
the spouse as a Beneficiary, then a divorce decree or a legal separation that
relates to such spouse shall revoke the Participant’s designation of the spouse
as a Beneficiary unless the decree or a qualified domestic relations order
(within the meaning of Code Section 414(p)) provides otherwise.

 

(h)           Any
consent by the Participant’s spouse to waive any rights to the death benefit
must be in writing (or in such other form as permitted by the Internal
Revenue Service), must acknowledge the effect of such waiver, and be

 

59

 

witnessed by a Plan representative or a
notary public. Further, the spouse’s consent must be irrevocable and must
acknowledge the specific nonspouse Beneficiary.

 

8.3           DETERMINATION
OF BENEFITS IN EVENT OF DISABILITY

 

In the event of a Participant’s Total and Permanent Disability prior to
the Participant’s Retirement Date or other termination of employment, all
amounts credited to such Participant’s Combined Account shall become fully
Vested. In the event of a Participant’s Total and Permanent Disability, the
Administrator, in accordance with the provisions of Sections 8.5 and 8.6, shall
direct the distribution to such Participant of all Vested amounts credited to
such Participant’s Combined Account. If such Participant elects, distribution
shall commence not later than one (1) year after the close of the Plan
Year in which Total and Permanent Disability occurs.

 

8.4           DETERMINATION
OF BENEFITS UPON TERMINATION

 

(a)           If
a Participant’s employment with the Employer is terminated for any reason other
than death, Total and Permanent Disability or retirement, then such Participant
shall be entitled to such benefits as are provided hereinafter pursuant to this
Section 8.4.

 

If a portion of a Participant’s Account is
forfeited, Company Stock allocated to the Participant’s Company Stock Account
must be forfeited only after the Participant’s Other Investments Account has
been depleted. If interest in more than one class of Company Stock has
been allocated to a Participant’s Account, the Participant must be treated as
forfeiting the same proportion of each such class.

 

Distribution of the funds due to a Terminated
Participant shall be made as soon as administratively feasible following the
occurrence of an event which would result in the distribution had the
Terminated Participant remained in the employ of the Employer (upon the
Participant’s death, Total and Permanent Disability, Early or Normal
Retirement). However, at the election of the Participant, the Administrator
shall direct the Trustee that the entire Vested portion of the Terminated
Participant’s Combined Account shall be payable to such Terminated Participant.
Any distribution under this paragraph shall be made in a manner which is
consistent with and satisfies the provisions of Section 8.5 and 8.6,
including, but not limited to, all notice and consent requirements of Code Section 411(a)(11)
and the Regulations thereunder.

 

If the value of a Terminated Participant’s
Vested benefit derived from Employer and Employee contributions does not exceed
$1,000, then the Administrator shall direct the Trustee to cause the entire
Vested benefit to be paid to such Participant in a single lump sum.

 

60

 

For purposes of this Section 8.4, if the
value of a Terminated Participant’s Vested benefit is zero, the Terminated
Participant shall be deemed to have received a distribution of such Vested
benefit.

 

(b)           The
Vested portion of any Participant’s Account attributable to Employer
Discretionary Optional Contributions shall be a percentage of the total amount
credited to the Participant’s Account determined on the basis of the
Participant’s number of Years of Service according to the following schedule:

 

	
  Vesting Schedule

  
	
   

  
	
  Years of Service

  	
   

  	
  Percentage

  	
   

  
	
  Less than 2

  	
   

  	
  0

  	
  %

  
	
  2

  	
   

  	
  20

  	
  %

  
	
  3

  	
   

  	
  40

  	
  %

  
	
  4

  	
   

  	
  60

  	
  %

  
	
  5

  	
   

  	
  80

  	
  %

  
	
  6

  	
   

  	
  100

  	
  %

  

 

(c)           Notwithstanding
the vesting schedule above, the Vested percentage of a Participant’s
Account shall not be less than the Vested percentage attained as of the later
of the effective date or adoption date of this amendment and restatement.

 

(d)           Notwithstanding
the vesting schedule above, upon the complete discontinuance of the
Employer Contributions to the Plan or upon any full or partial termination of
the Plan, all amounts then credited to the account of any affected Participant
shall become 100% Vested and shall not thereafter be subject to Forfeiture.

 

(e)           The
computation of a Participant’s nonforfeitable percentage of such Participant’s
interest in the Plan shall not be reduced as the result of any direct or
indirect amendment to this Plan. In the event that the Plan is amended to
change or modify any vesting schedule, or if the Plan is amended in any way
that directly or indirectly affects the computation of the Participant’s
nonforfeitable percentage, or if the Plan is deemed amended by an automatic
change to a top heavy vesting schedule then each Participant with at least
three (3) Years of Service as of the expiration date of the election
period may elect to have such Participant’s nonforfeitable percentage
computed under the Plan without regard to such amendment or change. If a
Participant fails to make such election, then such Participant shall be subject
to the new vesting schedule. The Participant’s election period shall commence
on the adoption date of the amendment and shall end sixty (60) days after the
latest of:

 

(1)           the
adoption date of the amendment,

 

(2)           the
effective date of the amendment, or

 

61

 

(3)           the
date the Participant receives written notice of the amendment from the Employer
or Administrator.

 

8.5           DISTRIBUTION
OF BENEFITS

 

(a)           Form of
Payment. Except as provided in subsection (h) below, relating to
the distribution of Target Benefit Capital Accumulations, the Administrator,
pursuant to the election of the Participant, shall direct the Trustee to
distribute to a Participant or such Participant’s Beneficiary any amount to
which the Participant is entitled under the Plan in one lump-sum payment or in
partial lump-sum payments each of which partial payments is less than the
entire remaining Participant’s Combined Account.

 

(b)           Cash-Outs
and Required Consent. Any distribution to a Participant who has a benefit
which exceeds $1,000 shall require such Participant’s written (or other form permitted
by the Internal Revenue Service) consent if such distribution occurs prior to
the time the benefit is “immediately distributable.” A benefit is “immediately
distributable” if any part of the benefit could be distributed to the
Participant (or surviving spouse) before the Participant attains (or would have
attained if not deceased) the later of the Participant’s Normal Retirement Age
or age 62. Any distribution to a Beneficiary or “alternate payee” (as defined
in Section 8.10), however, shall require such Beneficiary’s or alternate
payee’s consent only if the benefit exceeds $5,000. For purposes of such
involuntary distributions to Beneficiaries and alternate payees (but not for
purposes of involuntary distributions to terminated Participants), the value of
a Participant’s nonforfeitable account balance shall be determined without
regard to that portion of the account balance that is attributable to rollover
contributions (and earnings allocable thereto) within the meanings of Code
Sections 402(c), 403(a)(4),403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16). If the
value of the terminated Participants’ nonforfeitable account balance as so
determined is $1,000 or less, the Plan shall immediately distribute the
Participant’s entire nonforfeitable account balance.

 

With regard to the required consent:

 

(1)           The
Participant, Beneficiary, or alternate payee must be informed of the right to
defer receipt of the distribution. If a Participant, Beneficiary, or alternate
payee fails to consent, it shall be deemed an election to defer the
distribution of any benefit. However, any election to defer the receipt of
benefits shall not apply with respect to distributions which are required under
Section 8.5(e).

 

(2)           Notice
of the rights specified under this paragraph shall be provided no less than
thirty (30) days and no more than ninety (90) days before the date the
distribution commences.

 

62

 

(3)           Written
(or other form permitted by the Internal Revenue Service) consent of the
Participant to the distribution must not be made before the Participant,
Beneficiary, or alternate payee receives the notice and must not be made more
than ninety (90) days before the date the distribution commences.

 

(4)           No
consent shall be valid if a significant detriment is imposed under the Plan on
any Participant, Beneficiary, or alternate payee who does not consent to the
distribution.

 

Any such distribution may commence less
than thirty (30) days after the notice required under Regulation §1.411(a)-11 (c) is
given, provided that: (1) the Administrator clearly informs the
Participant, Beneficiary, or alternate payee that he or she has a right to a
period of at least thirty (30) days after receiving the notice to consider the
decision of whether or not to elect a distribution (and, if applicable, a
particular distribution option), and (2) the Participant, Beneficiary, or
alternate payee, after receiving the notice, affirmatively elects a
distribution.

 

(c)           Cash
Dividends. Notwithstanding anything herein to the contrary, the
Administrator may direct that cash dividends on shares of Company Stock
allocable to Participants’ or Former Participants’ Company Stock Accounts be
distributed to such Participants or Former Participants within ninety (90) days
after the close of the Plan Year in which the dividends are paid.

 

(d)           Retained
Accounts. Any part of a Participant’s benefit which is retained in the
Plan after the Anniversary Date on which the Participant’s participation ends
will continue to be treated as a Company Stock Account or as an Other
Investments Account (subject to Section 8.4(a)) as provided in Article IV.
However, neither account will be credited with any further Employer
Contributions or Forfeitures.

 

(e)           Required
Minimum Distributions. Subject to Subsection (h), relating to the
distribution of Target Benefit Capital Accumulations, the requirements of this
Subsection (e) shall apply to any distribution of a Participant’s
interest in the Plan and will take precedence over any inconsistent provisions
of the Plan. The provisions of this Subsection (e) apply to calendar
years beginning after December 31, 2002.

 

(1)           Code
Section 401(a)(9). All distributions required under this Subsection shall
be determined and made in accordance with the Regulations under Code Section 401(a)(9) and
the minimum distribution incidental death benefit requirements of Code Section 401(a)(9)(G).

 

(2)           Limits
on Distribution Periods. As of the first distribution calendar year with
respect to a Participant, distributions, if not made in a single lump sum, may be
made over one of the following periods only (or a combination thereof):

 

63

 

(A)          the
life of the Participant,

 

(B)           the
life of the Participant and a Designated Beneficiary,

 

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

 

(D)          a
period certain not extending beyond the joint and last survivor expectancy of
the Participant and a Designated Beneficiary.

 

(3)           Required
Beginning Date. A Participant’s entire interest in the Plan shall be
distributed or must begin to be distributed to the Participant no later than
the Participant’s required beginning date.

 

(4)           Death
of Participant Before Distributions Begin. If the Participant dies before
distributions begin, the Participant’s entire interest will be distributed, or
begin to be distributed, no later than as follows:

 

(A)          If
the Participant’s surviving spouse is the Participant’s sole Designated
Beneficiary, then, except as provided in paragraph (9), distributions to the
surviving spouse will begin by December 31 of the calendar year
immediately following the calendar year in which the Participant died, or by December 31
of the calendar year in which the Participant would have attained age 70 1⁄2, if
later.

 

(B)           If
the Participant’s surviving spouse is not the Participant’s sole Designated
Beneficiary, then, except as provided in paragraph (9), distributions to the
Designated Beneficiary will begin by December 31 of the calendar year
immediately following the calendar year in which the Participant died.

 

(C)           If
there is no beneficiary designated as of the date of the Participant’s death
who remains a beneficiary as of September 30 of the year immediately
following the year of the Participant’s death, the Participant’s entire
interest will be distributed by December 31 of the calendar year
containing the fifth anniversary of the Participant’s death.

 

(D)          If
the Participant’s surviving spouse is the Participant’s sole Designated
Beneficiary and the surviving spouse dies after the Participant but before
distributions to the surviving spouse begin, this paragraph (4), other than
subparagraph (4)(A), will apply as if the surviving spouse were the
Participant.

 

64

 

For purposes of this paragraph (4) and paragraphs (7) and
(8), unless paragraph (4)(D) applies, distributions are considered to
begin on the Participant’s required beginning date. If subparagraph (4)(D) applies,
distributions are considered to begin on the date distributions are required to
begin to the surviving spouse under subparagraph (4)(A). If distributions under
an annuity purchased from an insurance company irrevocably commence to the
Participant before the participant’s required beginning date (or to the
Participant’s surviving spouse before the date distributions are required to
begin to the surviving spouse under paragraph (4)(A)), the date distributions
are considered to begin is the date distributions actually commence.

 

(5)           Forms
of Distribution. Unless the Participant’s interest is distributed in the form of
an annuity purchased from an insurance company or in a single lump sum on or
before the required beginning date, then as of the first distribution calendar
year distributions will be made in accordance with paragraphs (6), (7), and (8) of
this Subsection. If the Participant’s interest is distributed in the form of
an annuity purchased from an insurance company, distributions thereunder will
be made in accordance with the requirements of Code Section 401(a)(9) and
the Regulations thereunder.

 

(6)           Required
Minimum Distributions During Participant’s Lifetime. During the Participant’s
lifetime, the minimum amount that will be distributed for each distribution
calendar year is the lesser of:

 

(A)          the
quotient obtained by dividing the Participant’s account balance by the
distribution period in set forth in the Uniform Lifetime Table found in
Treasury Regulation §1.401(a)(9)-9, Q&A-2, using the Participant’s age as
of the Participant’s birthday in the distribution calendar year; or

 

(B)           if
the Participant’s sole Designated Beneficiary for the distribution calendar
year is the Participant’s spouse, the quotient obtained by dividing the
Participant’s account balance by the number in the Joint and Last Survivor
Table set forth in Treasury Regulation §1.401(a)(9)-9, Q&A-3, using the
Participant’s and spouse’s attained ages as of the Participant’s and spouse’s
birthdays in the distribution calendar year.

 

Required minimum distributions will be
determined under this paragraph (6) beginning with the first distribution
calendar year and continuing up to and including the distribution calendar year
that includes the Participant’s date of death.

 

65

 

(7)           Participant’s
Death On or After Date Required Distributions Begin.

 

(A)          Participant
Survived by Designated Beneficiary. If the Participant dies on or after the
date required distributions begin and there is a Designated Beneficiary, the
minimum amount that will be distributed for each distribution calendar year
after the year of the Participant’s death is the quotient obtained by dividing
the Participant’s account balance by the longer of the remaining life
expectancy of the Participant or the remaining life expectancy of the
Participant’s Designated Beneficiary, determined as follows:

 

(i)            The
Participant’s remaining life expectancy is calculated in accordance with the
Single Life Table found in Treasury Regulation §1.401(a)(9)-9, Q&A-1, using
the age of the Participant in the year of death, reduced by one for each
subsequent year.

 

(ii)           If
the Participant’s surviving spouse is the Participant’s sole Designated
Beneficiary, the remaining life expectancy of the surviving spouse is
calculated using the Single Life Table found in Treasury Regulation
§1.401(a)(9)-9, Q&A-1, for each distribution calendar year after the year
of the Participant’s death using the surviving spouse’s age as of the spouse’s
birthday in that year. For distribution calendar years after the year of the
surviving spouse’s death, the remaining life expectancy of the surviving spouse
is calculated using the age of the surviving spouse as of the spouse’s birthday
in the calendar year of the spouse’s death, reduced by one for each subsequent
calendar year.

 

(iii)          If
the Participant’s surviving spouse is not the Participant’s sole Designated
Beneficiary, the Designated Beneficiary’s remaining life expectancy is
calculated under the Single Life Table using the age of the beneficiary in the
year following the year of the Participant’s death, reduced by one for each
subsequent year.

 

(B)           No
Designated Beneficiary. If the Participant dies on or after the date required
distributions begin and there is no Designated Beneficiary as of the
Participant’s date of death who remains a beneficiary as of September 30
of the year after the year of the Participant’s death, the minimum amount that
will be distributed for each distribution calendar year after the year of the
Participant’s death is the quotient obtained by dividing the

 

66

 

Participant’s account balance by the Participant’s
remaining life expectancy under the Single Life Table, calculated using the age
of the Participant in the year of death, reduced by one for each subsequent
year.

 

(8)           Death
Before Date Distributions Begin.

 

(A)          Participant
Survived by Designated Beneficiary. Except as provided in paragraph (9), if the
Participant dies before the date distributions begin and there is a Designated
Beneficiary, the minimum amount that will be distributed for each distribution
calendar year after the year of the Participant’s death is the quotient
obtained by dividing the Participant’s account balance by the remaining life
expectancy of the Participant’s Designated Beneficiary, determined as provided
in paragraph (7).

 

(B)           No
Designated Beneficiary. If the Participant dies before the date distributions
begin and there is no Designated Beneficiary as of the date of death of the
Participant who remains a beneficiary as of September 30 of the year
following the year of the Participant’s death, distribution of the Participant’s
entire interest must be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant’s death.

 

(C)           Death
of Surviving Spouse Before Distributions to Surviving Spouse Are Required to
Begin. If the Participant dies before the date distributions begin, the
Participant’s surviving spouse is the Participant’s sole Designated
Beneficiary, and the surviving spouse dies before distributions are required to
begin to the surviving spouse under subparagraph (4)(A), this paragraph (8) will
apply as if the surviving spouse were the Participant.

 

(9)           Election
to Allow Participants or Beneficiaries to Elect 5-Year Rule. Participants
or beneficiaries may elect on an individual basis whether the 5-year rule or
the life expectancy rule in paragraphs (4) and (8) applies to
distributions after the death of a Participant who has a Designated Beneficiary.
The election must be made no later than the earlier of September 30 of the
calendar year in which distribution would be required to begin under paragraph
(4), or by September 30 of the calendar year which contains the fifth
anniversary of the Participant’s (or, if applicable, surviving spouse’s) death.
If neither the Participant nor the beneficiary makes an election under this
paragraph, distributions will be made in accordance with paragraphs (4) and
(8) and, if applicable, the elections in paragraphs (3)-(5) above.

 

67

 

(10)         Definitions.

 

(A)          Designated
Beneficiary. The individual who is designated as the Beneficiary under
Sections 2.6 and 8.2 of the Plan and is the Designated Beneficiary under Code Section 401(a)(9) and
Treasury Regulations §1.401(a)(9)-4.

 

(B)           Distribution
Calendar Year. A calendar year for which a minimum distribution is required.
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
under paragraph (4). The required minimum distribution for the Participant’s
first distribution calendar year will be made on or before the Participant’s
required beginning date. The required minimum distribution for other
distribution calendar years, including the required minimum distribution for
the distribution calendar year in which the Participant’s required beginning
date occurs, will be made on or before December 31 of that distribution
calendar year.

 

(C)           Life
Expectancy. Life expectancy as computed by use of one of the following
tables, as appropriate: (i) the Single Life Table, (ii) the Uniform Life
Table, or (iii) the Joint and Last Survivor Table found in Treasury
Regulation § 1.401(a)(9)-9.

 

(D)          Participant’s
Account Balance. The account balance as of the last valuation date in the
calendar year immediately preceding the distribution calendar year (valuation
calendar year) increased by the amount of any contributions made and allocated
or forfeitures allocated to the account as of dates in the valuation calendar
year after the valuation date and decreased by distributions made in the
valuation calendar year after the valuation date. The account balance for the
valuation calendar year includes any amounts rolled over or transferred to the
Plan either in the valuation calendar year or in the distribution calendar year
if distributed or transferred in the valuation calendar year.

 

(E)           Required
Beginning Date. The required beginning date of a Participant is the April 1st
of the calendar year following the later of (i) the calendar year in which
the Participant attains age 701⁄2 or (ii) the calendar year in which the
Participant retires, provided, however, that this clause (ii) shall not
apply in the case of a Participant who is a “five percent owner” at any time
during the Plan Year ending with or within the calendar year in which

 

68

 

such owner
attains age 701⁄2.

 

(i)            A
Participant is treated as a “five percent owner” for purposes of this
subparagraph (E) if such Participant is a “five (5) percent owner” as
defined in Code §416 at any time during the Plan Year ending with or within the
calendar year in which such owner attains age 70 1⁄2.

 

(ii)           Once
distributions have begun to a “five (5) percent owner” under this
subparagraph (E), they must continue to be distributed, even if the Participant
ceases to a five percent owner in a subsequent year.

 

(f)            Annuity
Contracts. All annuity Contracts under this Plan shall be non-transferable
when distributed. Furthermore, the terms of any annuity Contract purchased and
distributed to a Participant or spouse shall comply with all of the requirements
of the Plan.

 

(g)           Distribution
of Target Benefit Capital Accumulation. Notwithstanding anything contained
herein to the contrary, this Section 8.5(g) shall apply with respect
to any Participant’s Target Benefit Capital Accumulation.

 

(1)           Qualified
Joint and Survivor Annuity.

 

(i)            General.
Unless otherwise elected as provided below, the Participant’s Target Benefit
Capital Accumulation (less amounts attributable to Employee contributions
within the meaning of Code Section 72(o)) of a Participant who is married
on the Annuity Starting Date and who does not die before the Annuity Starting
Date shall be paid in the form of a Qualified Joint and Survivor Annuity. If
said Participant has elected a life annuity option under this Plan, the vested
portion of the Participant’s Combined Account shall be paid in the form of
a Qualified Joint and Survivor Annuity, unless otherwise elected as provided
below.

 

An unmarried
Participant shall receive the value of his benefit in the form of a life
annuity. Such unmarried Participant, however, may elect in writing to
waive the life annuity. The election must comply with the provisions of Section 8.5(g)(1)(ii) of
this Plan as if it were an election to waive the Qualified Joint and Survivor
Annuity by a married Participant, but without the spousal consent requirement.

 

69

 

The
Participant may elect to have any annuity provided for in this Section distributed
upon the attainment of the “earliest retirement age” under the Plan. The “earliest
retirement age” is the earliest date on which, under the Plan, the Participant
could elect to receive retirement benefits.

 

(ii)           Election
to Waive Qualified Joint and Survivor Annuity. Any election to waive the
Qualified Joint and Survivor Annuity must be made by the Participant in writing
during the election period and be consented to in writing by the Participant’s
spouse. If the spouse is legally incompetent to give consent, the spouse’s
legal guardian, even if such guardian is the Participant, may give consent.
Such election shall designate a Beneficiary (or a form of benefits) that may not
be changed without spousal consent (unless the consent of the spouse expressly
permits designations by the Participant without the requirement of further consent
by the spouse). Such spouse’s consent shall be irrevocable and must acknowledge
the effect of such election and be witnessed by a Plan representative or notary
public. Such consent shall not be required if it is established to the
satisfaction of the Administrator that the required consent cannot be obtained
because there is no spouse, the spouse cannot be located, or other
circumstances that may be prescribed by Regulations. The election made by
the Participant and consented to by his spouse may be revoked by the
Participant in writing without the consent of the spouse at any time during the
election period. The number of revocations shall not be limited. Any new
election must comply with the requirements of this paragraph. A former spouse’s
waiver shall not be binding on a new spouse.

 

The election
period to waive the Qualified Joint and Survivor Annuity shall be the 90 day
period ending on the Annuity Starting Date.

 

(iii)          Written
Explanation of Qualified Joint and Survivor Annuity. With regard to the
election, the Administrator shall provide to the Participant no less than 30
days and no more than 90 days before the Annuity Starting Date a written
explanation of:

 

(1)           a
general description or written explanation of the Qualified Joint and Survivor
Annuity and the circumstances in which it will be provided,

 

70

 

(2)           the
Participant’s right to make, and the effect of, an election to waive the
Qualified Joint and Survivor Annuity,

 

(3)           A
general explanation of the relative financial effect on a Participant’s benefit
attributable to his Target Benefit Capital Accumulation (or, if applicable, the
vested portion of the Participant’s Combined Account) of the failure to elect a
single distribution,

 

(4)           A
statement that the Administrator will furnish him, upon his written request,
with an explanation in nontechnical language of the terms and conditions of the
Qualified Joint and Survivor Annuity and the financial effect upon the
Participant’s benefit attributable to his Target Benefit Capital Accumulation
(or, if applicable, the vested portion of the Participant’s Combined Account)
of the failure to make such an election,

 

(5)           the
rights of the Participant’s spouse under this Section, and

 

(6)           the
right of the Participant to revoke such election, and the effect of such
revocation.

 

In the event
that a Participant makes a timely request for the additional information
specified in clause (4) above, the date by which he must elect to receive
a single distribution shall be extended to include at least the ninety (90)
days following the date the additional information is mailed or personally
delivered to him.

 

(iv)          Lump
Sum Payment. In the event a married Participant duly elects pursuant to
this Section not to receive his benefit in the form of a Qualified
Joint and Survivor Annuity, or if such Participant is not married, in the form of
a life annuity, the Administrator shall direct the Trustee to distribute to a
Participant or his Beneficiary any amount to which he is entitled under the
Plan in one lump-sum payment.

 

(v)           Cash-Out
Distributions. If the value of the Participant’s benefit under this Plan
does not exceed

 

71

 

$1,000, the Administrator may immediately
distribute such benefit without such Participant’s consent. No distribution may be
made under the preceding sentence after the Annuity Starting Date unless the
Participant and his spouse consent in writing to such distribution.

 

(vi)          Restrictions
on Cash-Out Distributions in Excess of $1,000. Any distribution to a
Participant who has a benefit which exceeds $1,000 shall require such
Participant’s written (or in such other form as permitted by the Internal
Revenue Service) consent if such distribution commences prior to the time the
benefit is “immediately distributable.” A benefit is “immediately distributable”
if any part of the benefit could be distributed to Participant (or
surviving spouse) before the Participant attains (or would have attained if not
deceased) the later of his Normal Retirement Age or age 62. Further, the spouse
of a Participant must consent in writing to any immediate distribution. With
regard to this required consent:

 

(1)           No
consent shall be valid unless the Participant has received a general description
of the material features and an explanation of the relative values of the
optional forms of benefit available under the Plan that would satisfy the
notice requirements of Code Section 417.

 

(2)           The
Participant must be informed of his right to defer receipt of the distribution.
If a Participant fails to consent, it shall be deemed an election to defer the
commencement of payment of any benefit. However, any election to defer the
receipt of benefits shall not apply with respect to distributions which are
required under Section 8.5(e).

 

(3)           Notice
of the rights specified under this paragraph shall be provided no less than
thirty (30) days and no more than ninety (90) days before the Annuity Starting
Date.

 

(4)           Written
(or such other form as permitted by the Internal Revenue Service) consent
of the Participant to the distribution must not be made before the Participant
receives the notice and must not be made more than ninety (90) days before the
Annuity Starting Date.

 

72

 

(5)           No
consent shall be valid if a significant detriment is imposed under the Plan on
any Participant who does not consent to the distribution.

 

Distributions
from the Plan will be made in accordance with the requirements of Code Section 401(a)(9) and
the Regulations thereunder (including Regulation §1.401(a)(9)-2, the provisions
of which are incorporated herein by reference).

 

(2)           Qualified
Preretirement Survivor Annuity.

 

(i)            General.
Unless otherwise elected as provided below, in the case of a Vested Participant
(or former Vested Participant) who dies before the Annuity Starting Date and
who has a surviving spouse, the Participant’s Target Benefit Capital
Accumulation shall be paid to his or her surviving spouse in the form of a
Qualified Preretirement Survivor Annuity. Further, if said Vested Participant
(or former Vested Participant) has elected a life annuity option prior to December 31,
2001 under this Plan, the vested portion of the Participant’s Combined Account
shall be paid to the surviving spouse in the form of a Qualified
Preretirement Survivor Annuity.

 

The
Participant’s spouse may direct that payment of the Qualified
Preretirement Survivor Annuity commence within a reasonable period after the
Participant’s death. If the spouse does not so direct, payment of such benefit
will commence at the time the Participant would have attained the later of his
Normal Retirement Age or age 62. However, the spouse may elect a later
commencement date. Any distribution to the Participant’s spouse shall be
subject to the rules specified in Section 8.5(e).

 

(ii)           Election
to Waive Qualified Preretirement Survivor Annuity. Any election to waive
the Qualified Preretirement Survivor Annuity before the Participant’s death
must be made by the Participant in writing during the election period and shall
require the spouse’s irrevocable written consent in the same manner provided
for in Section 8.5(g)(1)(ii) with respect to Qualified Joint and
Survivor Annuities. Further, the spouse’s consent must acknowledge the specific
nonspouse Beneficiary. Notwithstanding the foregoing, the nonspouse Beneficiary
need not be acknowledged, provided the consent of the spouse acknowledges that
the spouse has the right to limit

 

73

 

consent only to a specific
Beneficiary and that the spouse voluntarily elects to relinquish such right.

 

The election
period to waive the Qualified Preretirement Survivor Annuity shall begin on the
first day of the Plan Year in which the Participant attains age 35 and end on
the date of the Participant’s death. An earlier waiver (with spousal consent) may be
made provided a written explanation of the Qualified Preretirement Survivor
Annuity is given to the Participant and such waiver becomes invalid at the
beginning of the Plan Year in which the Participant turns age 35. In the event
a Vested Participant separates from service prior to the beginning of the
election period, the election period shall begin on the date of such separation
from service.

 

(iii)          Written
Explanation. With regard to the election, the Administrator shall provide
each Participant within the applicable period, with respect to such Participant
(and consistent with Regulations), a written explanation of the Qualified
Preretirement Survivor Annuity containing comparable information to that
required pursuant to Section 8.5(g)(1)(iii). For the purposes of this
paragraph, the term “applicable period” means, with respect to a Participant,
whichever of the following periods ends last:

 

(1)           The
period beginning with the first day of the Plan Year in which the Participant
attains age 32 and ending with the close of the Plan Year preceding the Plan
Year in which the Participant attains age 35;

 

(2)           A
reasonable period after the individual becomes a Participant;

 

(3)           A
reasonable period ending after the Plan no longer fully subsidizes the cost of
the Qualified Preretirement Survivor Annuity with respect to the Participant;

 

(4)           A
reasonable period ending after Code Section 40l(a)(11) applies to the
Participant; or

 

(5)           A
reasonable period after separation from service in the case of a Participant
who

 

74

 

separates before attaining age
35. For this purpose, the Administrator must provide the explanation beginning
one year before the separation from service and ending one year after such
separation. If such a Participant thereafter returns to employment with the
Employer, the applicable period for such Participant shall be redetermined.

 

For purposes of
applying this Section 8.5(g)(2)(iii), a reasonable period ending after the
enumerated events described in paragraphs (2), (3) and (4) is the end
of the two year period beginning one year prior to the date the applicable
event occurs, and ending one year after that date.

 

(iv)          Cash-Out
Distributions and Restrictions on Cash-Out Distributions. If the value of
the Participant’s benefit under this Plan does not exceed $5,000, the
Administrator may immediately distribute such benefit without the consent
of the Participant’s spouse. No distribution may be made under the
preceding sentence after the Annuity Starting Date unless the spouse consents
in writing. If the value exceeds $5,000, an immediate distribution of such
benefit shall require written consent of the surviving spouse. Any written
consent required under this paragraph must be obtained not more than ninety
(90) days before commencement of the distribution and shall be made in a manner
consistent with Section 8.5(g)(1)(iv).

 

Distributions
from this Plan will be made in accordance with the requirements of Code Section 401(a)(9) and
the Regulations thereunder (including Regulation §1.401(a)(9)-2, the provisions
of which are incorporated herein by reference).

 

(v)           To
the extent the death benefit is not paid in the form of a Qualified
Preretirement Survivor Annuity, it shall be paid to the Participant’s
Beneficiary by one lump-sum payment in cash and/or Company Stock.

 

(h)           Latest
Distribution. Except as limited by Sections 8.5 and 8.6, whenever the
Trustee is to make a distribution, the distribution may be made on such
date or as soon thereafter as is practicable. However, unless a Former
Participant elects in writing to defer the receipt of benefits (such election may not
result in a death benefit that is more than incidental), the payment of
benefits shall occur not later than the sixtieth (60th) day after the close of
the Plan Year in which the latest of the following events occurs:

 

75

 

(1)           the
date on which the Participant attains the earlier of age 65 or the Normal
Retirement Age specified herein;

 

(2)           the
tenth (10th) anniversary of the year in which the Participant commenced
participation in the Plan; or

 

(3)           the
date the Participant terminates his service with the Employer.

 

(i)            Partially
Vested Benefits. If a distribution is made to a Participant who is not
fully Vested in the Participant’s Account and the Participant may increase
the Vested percentage in such account, then, at any relevant time the Participant’s
Vested portion of the account will be equal to an amount (“X”) determined by
the formula:

 

X = P(AB + D) - D

 

For purposes
of applying the formula: P is the Vested percentage at the relevant time, AB is
the account balance at the relevant time, and D is the amount of distribution.

 

8.6           HOW
PLAN BENEFITS WILL BE DISTRIBUTED

 

(a)           Right
to Distribution in Stock. Distribution of a Participant’s benefit may be
made in cash or Company Stock, or both, provided, however, that if a
Participant or Beneficiary so demands, such benefit shall be distributed solely
in the form of Company Stock. Prior to making a distribution of benefits,
the Administrator shall advise the Participant or the Participant’s
Beneficiary, in writing (or such other form as permitted by the Internal
Revenue Service), of the right to demand that benefits be distributed solely in
Company Stock. In addition, a Participant may elect distribution of
interests in mutual funds to the extent that such mutual fund interests are
allocated to the Participant’s Combined Account at the time of distribution,
provided that the distributee of such interests in mutual funds is capable of
holding such interests.

 

(b)           Whole
and Fractional Shares. If a Participant or Beneficiary demands that
benefits be distributed solely in Company Stock, distribution of a Participant’s
benefit will be made entirely in whole shares or other units of Company Stock. Any
balance in a Participant’s Other Investments Account will be applied to acquire
for distribution the maximum number of whole shares or other units of Company
Stock at the then fair market value. Any fractional unit value unexpended will
be distributed in cash. If Company Stock is not available for purchase by the
Trustee, then the Trustee shall hold such balance until Company Stock is
acquired and then make such distribution, subject to Sections 8.5(h) and
8.5(e).

 

(c)           Administrator
Direction. The Trustee will make distributions from the Trust only on
instructions from the Administrator.

 

76

 

(d)           Ownership
Restrictions. Notwithstanding anything contained herein to the contrary, if
the Employer charter or by-laws restrict ownership of substantially all shares
of Company Stock to Employees and the Trust Fund, as described in Code Section 409(h)(2)(B)(ii)(I),
the Administrator shall distribute a Participant’s Combined Account entirely in
cash and/or mutual fund interests as described in Section 8.6(a) without
granting the Participant the right to demand distribution in shares of Company
Stock.

 

(e)           Transfer
Restrictions. Except as otherwise provided herein, Company Stock
distributed by the Trustee may be restricted as to sale or transfer by the
by-laws or articles of incorporation of the Employer, provided restrictions are
applicable to all Company Stock of the same class. If a Participant is required
to offer the sale of Company Stock to the Employer before offering to sell
Company Stock to a third party, in no event may the Employer pay a price
less than that offered to the distributee by another potential buyer making a
bona fide offer and in no event shall the Trustee pay a price less than the
fair market value of the Company Stock.

 

8.7           DISTRIBUTION
FOR MINOR OR INCOMPETENT BENEFICIARY

 

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

 

8.8           LOCATION
OF PARTICIPANT OR BENEFICIARY UNKNOWN

 

In the event that all, or any portion, of the distribution payable to a
Participant or Beneficiary hereunder shall, at the later of the Participant’s
attainment of age 62 or Normal Retirement Age, remain unpaid solely by reason
of the inability of the Administrator, after sending a registered letter,
return receipt requested, to the last known address, and after further diligent
effort, to ascertain the whereabouts of such Participant or Beneficiary, the
amount so distributable shall be treated as a Forfeiture pursuant to the Plan. In
the event a Participant or Beneficiary is located subsequent to the Forfeiture,
such benefit shall be restored, first from Forfeitures, if any, and then from
an additional Employer contribution if necessary. However, regardless of the
preceding, a benefit which is lost by reason of escheat under applicable state
law is not treated as a Forfeiture for purposes of this Section nor as an
impermissible forfeiture under the Code.

 

8.9           ADVANCE
DISTRIBUTION FOR HARDSHIP

 

(a)           At
the election of a Participant, the Administrator shall direct the Trustee to
make distributions to the Participant because of the Participant’s

 

77

 

hardship.

 

(1)           Sources
of Distributions. A hardship distribution shall be limited to (i) the “maximum
distributable amount” of the Participant’s Elective Account as defined in (b) below,
(ii) any portion of the Participant’s Account (excluding, however, the
Participant’s Target Benefit Capital Accumulation, if any), and (iii) any
portion of the Participant’s Transfer and/or Rollover Account.

 

(2)           Financial
Need. A distribution of Deferred Compensation may be made under this Section only
if (i) it is made on account of an immediate and heavy financial need of
the Participant and if (ii) it is necessary to satisfy the financial need.

 

(3)           Accounting
for Hardship Distributions. Any distribution made pursuant to this Section shall
be deemed to be made as of the first day of the Plan Year or, if later, the
Valuation Date immediately preceding the date of distribution, and the
Participant’s Elective Account and Participant’s Account and Participant’s
Transfer and/or Rollover Account shall be reduced accordingly.

 

(b)           Maximum
Distributable Amount. Distributions from the Participant’s Elective Account
pursuant to this Section shall be limited to the Participant’s total
Deferred Compensation as of the date of distribution, reduced by the amount of
any previous distributions of Deferred Compensation under the Plan. There shall
be no limitation on the amount distributable from the Participant’s Account (excluding
any Target Benefit Capital Accumulation) or from the Participant’s Transfer
and/or Rollover Account.

 

(c)           Definitions.

 

(1)           Immediate
and Heavy Financial Need. For purposes of Section (a)(2)(i) above,
whether a financial need is immediate and heavy is to be based on all the
relevant facts and circumstances. Furthermore, a financial need may be
immediate and heavy even if it was reasonably foreseeable or voluntarily
incurred by the Participant. A distribution shall be deemed to be on account of
a Participant’s immediate and heavy financial need, however, if it is for any
of the following purposes:

 

(A)          Medical
Care. Expenses for (or necessary to obtain) medical care for the
Participant, the Participant’s spouse or dependents, which expenses would be
deductible under Code Section 213(d) (determined without regard to
whether the expenses exceed 7.5% of adjusted gross income);

 

(B)           Principal
Residence. Costs directly related to the purchase (excluding mortgage
payments) of a principal residence for the Participant;

 

78

 

(C)           Education.
Payment of tuition, related educational fees, and room and board expenses
for up to the next twelve (12) months of post-secondary education for the
Participant, and the Participant’s spouse, children, or dependents (as defined
in Code Section 152, without regard to Section 152(b)(1), (b)(2), and
(d)(1)(B), relating to certain ineligible dependents and the gross income
test);

 

(D)          Eviction.
Payments necessary to prevent the eviction of the Participant from the
Participant’s principal residence or foreclosure on the mortgage on that
residence;

 

(E)           Funeral.
Payments for burial or funeral expenses for the Participant’s deceased parent,
spouse, children or dependents (as defined in Code Section 152, without
regard to Section 152(d)(1)(B), relating to the gross income test); or

 

(F)           Casualty.
Expenses for the repair of damage to the Participant’s principal residence that
would qualify for the casualty deduction under Code Section 165
(determined without regard to whether the loss exceeds 10% of adjusted gross
income).

 

(2)           Distribution
Necessary to Satisfy Immediate and Heavy Financial Need. For purposes of Section (a)(2)(ii) above,
a distribution is treated as necessary to satisfy an immediate and heavy
financial need of the Participant only if it meets the following requirements:

 

(A)          Distribution
May Not Exceed Amount of Need. The
amount of the distribution may not exceed the amount required to satisfy
the financial need. For this purpose, the amount required to satisfy the
financial need may include any amounts necessary to pay any federal,
state, or local income taxes or penalties reasonably anticipated to result from
the distribution.

 

(B)           No
Alternative Means Available. A distribution is not treated as necessary to
satisfy an immediate and heavy financial need to the extent that the need may be
relieved from other resources that are reasonably available to the Participant,
based on all of the relevant facts and circumstances. For purposes of this
paragraph, the Participant’s resources are deemed to include those assets of
the Participant’s spouse and minor children that are reasonably available to
the Participant.

 

(C)           Reliance
on Participant Representation. The requirement of paragraph (B) above
will generally be met if the Participant represents to the Administrator (and
the Administrator does not have actual knowledge to the contrary) that the need

 

79

 

cannot reasonably be relieved—

 

(i)            Through
reimbursement or compensation by insurance or otherwise;

 

(ii)           By
liquidation of the Participant’s assets;

 

(iii)          By
cessation of elective contributions or employee contributions under the Plan;

 

(iv)          By
other currently available distributions (including distribution of ESOP
dividends under Code Section 404(k)) and nontaxable (at the time of the
loan) loans, under plans maintained by the Employer or by any other employer;
or

 

(v)           By
borrowing from commercial sources on reasonable commercial terms in an amount
sufficient to satisfy the need.

 

(D)          Participant
Need Not Take Counterproductive Actions. For purposes of Section (a)(2)(ii) above,
a need cannot reasonably be relieved by one of the actions described in
paragraph (c)(2)(C) of this Section if the effect would be to
increase the amount of the need. For example, the need for funds to purchase a
principal residence cannot reasonably be relieved by a Plan loan if the loan
would disqualify the Participant from obtaining other necessary financing.

 

(3)           Deemed
Satisfaction of Section (a)(2). Furthermore, a distribution shall be
deemed necessary to satisfy an immediate and heavy financial need of the
Participant if each of the following requirements is satisfied:

 

(A)          Other
Distributions. The Participant has obtained all other currently available
distributions (including distribution of ESOP dividends under Code Section 404(k),
but not hardship distributions) and nontaxable (at the time of the loan) loans,
under the Plan and all other plans maintained by the Employer; and

 

(B)           Suspension
of Contributions. The Participant is prohibited, under the terms of the
Plan or an otherwise legally enforceable agreement, from making elective
contributions and employee contributions to the Plan and all other plans
maintained by the Employer for at least 6 months after receipt of the hardship
distribution.

 

(4)           Plans
Maintained by the Employer. For purposes of

 

80

 

paragraphs (c)(2)(A)(iv) and (c)(3)(A) above,
“plans maintained by the Employer” means all qualified and nonqualified plans
of deferred compensation maintained by the Employer, and for purposes of
paragraph (c)(3)(B) above, the term includes a stock option, stock
purchase, or similar plan maintained by the Employer.

 

(5)           Six-Month Suspension. A Participant who
receives a distribution of elective deferrals after December 31, 2001 on
account of hardship shall be prohibited from making elective deferrals and
employee contributions under this and all other plans of the Employer for 6
months after receipt of the distribution.

 

(d)           General
Distribution Requirements. Any distribution made pursuant to this Section shall
be made in a manner which is consistent with and satisfies the provisions of
Sections 8.5 and 8.6, including, but not limited to, all notice and consent
requirements of Code Section 411(a)(11) and the Regulations thereunder.

 

8.10         QUALIFIED
DOMESTIC RELATIONS ORDER DISTRIBUTION

 

All rights and benefits, including elections, provided to a Participant
in this Plan shall be subject to the rights afforded to any “alternate payee”
under a “qualified domestic relations order.” 
Furthermore, a distribution to an “alternate payee” shall be permitted
if such distribution is authorized by a “qualified domestic relations order,”
even if the affected Participant has not separated from service and has not
reached the “earliest retirement age” under the Plan. For the purposes of this
Section, “alternate payee,” “qualified domestic relations order” and “earliest
retirement age” shall have the meaning set forth under Code Section 414(p).

 

8.11         IN-SERVICE
DISTRIBUTION

 

(a)           Age
59 1⁄2. At such time as an Employee has attained the age of 59 1⁄2 years or at
any time thereafter, the Employee may elect to commence distribution of all
or a portion of any of the following amounts:

 

(1)           The
portion of the Employee’s Elective Account that is attributable to Salary
Reduction Contributions and any Employer Qualified Non-Elective Contributions.

 

(2)           The
portion of the Employee’s Transfer Account or Rollover Account that is
attributable to matching contributions made to a plan that was subsequently
merged into this Plan.

 

(3)           The
portion of the Employee’s Transfer Account or Rollover Account that is
attributable to after-tax employee contributions made to a plan that was
subsequently merged into this Plan.

 

(4)           The
portion of an Employee’s Transfer Account or

 

81

 

Rollover Account that is attributable to “rollovers”
(as defined in Section 5.11(b)).

 

(5)           The
Employee’s Bank of Texas Transfer Account (if any), as defined in Section 2.55.

 

(b)           Age
70 1⁄2. At such time as an Employee has attained the age of 70 1⁄2 years or at
any time thereafter, the Employee may elect to commence distribution of
all or a portion of any of the Participant’s Accounts.

 

(c)           Continued
Participation. In the event that a distribution is made to a Participant
under this Section, the Participant shall continue to be eligible to
participate in the Plan on the same basis as any other Eligible Employee. Any
distribution made pursuant to this Section shall be made in a manner
consistent with Article VIII, including, but not limited to, all
applicable notice and consent requirements.

 

8.12         DIRECT
ROLLOVER

 

(a)           Notwithstanding
any provision of the Plan to the contrary that would otherwise limit a “distributee’s”
election under this Section, a “distributee” may elect, at the time and in
the manner prescribed by the Administrator, to have any portion of an “eligible
rollover distribution” that is equal to at least $500 paid directly to an “eligible
retirement plan” specified by the “distributee” in a “direct rollover.”

 

(b)           For
purposes of this Section the following definitions shall apply:

 

(1)           An
“eligible rollover distribution” is any distribution of all or any portion of
the balance to the credit of the “distributee,” except that an “eligible
rollover distribution” does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the “distributee” or the joint lives (or
joint life expectancies) of the “distributee” and the “distributee’s”
designated beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Code Section 401(a)(9);
any hardship distribution; the portion of any other distribution that is not
includible in gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities); any hardship
distribution described in Code Section 401(k)(2)(B)(i)(IV); and any other
distribution that is reasonably expected to total less than $200 during a year.

 

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

 

82

annuity described in Section 408(a) or
(b) of the Code, or to a qualified defined contribution plan described in Section 401(a) or
403(a) of the Code that agrees to separately account for amounts so
transferred, including separately accounting for the portion of such
distribution which is includible in gross income and the portion of such
distribution which is not so includible.

 

(2)           An “eligible
retirement plan” is an eligible plan under Code Section 457(b) which
is maintained by a state, political subdivision of a state, or any agency or
instrumentality of a state or political subdivision of a state and which agrees
to separately account for amounts transferred into such plan from this plan, an
individual retirement account described in Code Section 408(a), an
individual retirement annuity described in Code Section 408(b), an annuity
plan described in Code Section 403(a), an annuity contract described in
Code Section 403(b), or a qualified trust described in Code Section 401(a),
that accepts the “distributee’s” “eligible rollover distribution.”  The definition of “eligible retirement plan”
shall also apply in the case of a distribution to a surviving spouse or to a
spouse or former spouse who is the alternate payee under a qualified domestic
relations order as defined in Code section 414(p).

 

(3)           A “distributee”
includes an Employee or former Employee. 
In addition, the Employee’s or former Employee’s surviving spouse and
the Employee’s or former Employee’s spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in Code Section 414(p)
are “distributees” with regard to the interest of the spouse or former spouse.

 

(4)           A “direct
rollover” is a payment by the Plan to the “eligible retirement plan” specified
by the “distributee.”

 

Article IX

TRUSTEE

 

9.1           BASIC
RESPONSIBILITIES OF THE TRUSTEE

 

(a)           The Trustee
shall have the following categories of responsibilities:

 

(1)           Consistent with
the “funding policy and method” determined by Texas Regional Bancshares, Inc.,
to invest, manage, and control the Plan assets subject, however, to the
direction of a Participant with respect to Participant Directed Accounts, Texas
Regional Bancshares, Inc. or an Investment Manager appointed by Texas
Regional Bancshares, Inc. or any agent of Texas Regional Bancshares, Inc.;

 

(2)           At the
direction of the Administrator, to pay benefits required under the Plan to be
paid to Participants, or, in the event of their death, to their Beneficiaries;
and

 

83

 

(3)           To maintain
records of receipts and disbursements and furnish to Texas Regional Bancshares, Inc.
and/or the Administrator for each Plan Year a written annual report pursuant to
Section 9.8.

 

(b)           In the event
that the Trustee shall be directed by a Participant (pursuant to the
Participant Direction Procedures), or Texas Regional Bancshares, Inc., or
an Investment Manager or other agent appointed by Texas Regional Bancshares, Inc.
with respect to the investment of any or all Plan assets, the Trustee shall
have no liability with respect to the investment of such assets, but shall be
responsible only to execute such investment instructions as so directed.

 

(1)           The Trustee
shall be entitled to rely fully on the written (or other form acceptable to the
Administrator and the Trustee, including, but not limited to, voice recorded)
instructions of a Participant (pursuant to the Participant Direction
Procedures), or Texas Regional Bancshares, Inc., or any Fiduciary or
nonfiduciary agent of Texas Regional Bancshares, Inc., in the discharge of
such duties, and shall not be liable for any loss or other liability, resulting
from such direction (or lack of direction) of the investment of any part of the
Plan assets.

 

(2)           The Trustee may
delegate the duty of executing such instructions to any nonfiduciary agent,
which may be an affiliate of the Trustee or any Plan representative.

 

(3)           The Trustee may
refuse to comply with any direction from the Participant in the event the
Trustee, in its sole and absolute discretion, deems such directions improper by
virtue of applicable law.  The Trustee
shall not be responsible or liable for any loss or expense which may result
from the Trustee’s refusal or failure to comply with any directions from the
Participant.

 

(4)           Any costs and
expenses related to compliance with the Participant’s directions shall be borne
by the Participant’s Directed Account, unless paid by Texas Regional Bancshares, Inc.
or another Employer.

 

(c)           If there shall
be more than one Trustee, they shall act by a majority of their number, but may
authorize one or more of them to sign papers on their behalf.

 

9.2           INVESTMENT
POWERS AND DUTIES OF THE TRUSTEE

 

(a)           The Trustee
shall invest and reinvest the Trust Fund to keep the Trust Fund invested
without distinction between principal and income and in such securities or
property, real or personal, wherever situated, as the Trustee shall deem
advisable, including, but not limited to, stocks, common or preferred, open-end
or close-end mutual fund bonds and other evidences of indebtedness or
ownership, a common trust fund maintained by a fiduciary which is a bank or

 

84

 

insurance company (“Common Trust Fund”), and real estate or any
interest therein.  The Trustee shall at
all times in making investments of the Trust Fund consider, among other
factors, the short and long-term financial needs of the Plan on the basis of
information furnished by Texas Regional Bancshares, Inc..  In making such investments, the Trustee shall
not be restricted to securities or other property of the character expressly
authorized by applicable State law for trust investments; however, the Trustee
shall give due regard to any limitations imposed by the Code or the Act so that
at all times the Plan may qualify as an Employee Stock Ownership Plan and
Trust.

 

(b)           The Trustee may
employ a bank or trust company pursuant to the terms of its usual and customary
bank agency agreement, under which the duties of such bank or trust company
shall be of a custodial, clerical and record-keeping nature.

 

(c)           In the event
that the Trustee invests any part of the Trust Fund, pursuant to the directions
of the Administrator, in any shares of stock issued by Employer, and the
Administrator thereafter directs the Trustee to dispose of such investment, or
any part thereof, under circumstances which, in the opinion of counsel for the
Trustee, require registration of the securities under the Securities Act of
1933 and/or qualification of the securities under the Blue Sky laws of any
state or states, then Texas Regional Bancshares, Inc., at its own expense,
will take or cause to be taken any and all such action as may be necessary or
appropriate to effect such registration and/or qualification.

 

(d)           In the event
that the Trustee invests any part of the Trust Fund in a Common Trust Fund (as
defined in subparagraph (a) above), such Common Trust Fund shall be
maintained by a bank within the meaning of Code Section 581 (“Bank”).  Provided that the Company or any other party
in interest (as defined in Section 3(14) of the Act) qualifies as a Bank,
such entity may serve as the Bank for one or more Common Trust Funds.  If the Company or other party in interest is
the Bank for a Common Trust Fund and ceases to qualify as a Bank, or wishes no
longer to have or maintain management and investment duties, the Company shall
appoint a successor to maintain the Common Trust Fund, and such successor must
qualify as a Bank.  The Bank shall have
exclusive managerial and investment authority over its Common Trust Funds.  The managerial and investment authority over
the Common Trust Fund may be delegated to a committee, provided that such
committee is composed exclusively of Bank officers, directors, and employees.  Each Common Trust Fund shall be created and
maintained exclusively for the collective investment and reinvestment of
contributions to the Common Trust Fund by the Bank or an affiliate Bank,
provided that such affiliate Bank qualifies as a Bank, either acting alone or
with one or more other fiduciaries in their capacity as fiduciary of the Common
Trust Fund.  In acquiring, investing,
re-investing, exchanging, retaining, selling, supervising and managing the
Common Trust Fund, the Bank shall act as a fiduciary as to the participants in
the Common Trust Fund.  The Bank shall
have full fiduciary powers, including management, administrative, and
investment

 

85

 

authority.  The Bank’s
management, administrative and investment authority shall be exercised in
accordance with the Plan.  Each Common
Trust Fund shall be administered in conformity with the rules and
regulations prevailing from time to time and issued by the Comptroller of the
Currency, Administrator of National Banks, U.S. Department of the Treasury,
pertaining to collective investment of trust funds by national banks; Code Section 584
governing group trust funds and the regulations thereunder; and other
applicable federal and Texas laws.  If
liquidating or segregated accounts are used to segregate investments in the
Common Trust Fund, these accounts are subject to and governed by all of the
provisions of the Plan.  Further, no
Common Trust Fund accounts shall be represented by transferable certificates.  Admissions to and withdrawals from the Common
Trust Fund by participants in the Fund shall be made on the basis of a
valuation of the assets of the Fund and as of the date of the valuation.

 

(e)           The terms of
the Common Trust Fund known as “Plan of Community Bank and Trust, SSB, Group
Trust Funds” dated April 14, 2000, as amended or restated from time to
time, including each of its Retirement Common Trust Funds as set forth in Exhibit A
of such Group Trust instrument, are hereby incorporated into this Article.

 

9.3           OTHER POWERS OF
THE TRUSTEE

 

The
Trustee, in addition to all powers and authorities under common law, statutory
authority, including the Act, and other provisions of the Plan, shall have the
following powers and authorities, to be exercised in the Trustee’s sole
discretion:

 

(a)           To purchase, or
subscribe for, any securities or other property and to retain the same.  In conjunction with the purchase of
securities, margin accounts may be opened and maintained;

 

(b)           To sell,
exchange, convey, transfer, grant options to purchase, or otherwise dispose of
any securities or other property held by the Trustee, by private contract or at
public auction.  No person dealing with
the Trustee shall be bound to see to the application of the purchase money or
to inquire into the validity, expediency, or propriety of any such sale or
other disposition, with or without advertisement;

 

(c)           To vote upon
any stocks, bonds, or other securities; to give general or special proxies or
powers of attorney with or without power of substitution; to exercise any
conversion privileges, subscription rights or other options, and to make any
payments incidental thereto; to oppose, or to consent to, or otherwise
participate in, corporate reorganizations or other changes affecting corporate
securities, and to delegate discretionary powers, and to pay any assessments or
charges in connection therewith; and generally to exercise any of the powers of
an owner with respect to stocks, bonds, securities, or other property. However,
the Trustee shall not vote proxies relating to securities for which it has not
been assigned full investment management responsibilities.  In those cases where

 

86

 

another party has such investment authority or discretion, the Trustee
will deliver all proxies to said party who will then have full responsibility
for voting those proxies;

 

(d)           To cause any
securities or other property to be registered in the Trustee’s own name or in
the name of one or more of the Trustee’s nominees, in a clearing corporation,
in a depository, or in entry form or in bearer form, but the books and records
of the Trustee shall at all times show that all such investments are part of
the Trust Fund;

 

(e)           To borrow or
raise money for the purposes of the Plan in such amount, and upon such terms
and conditions, as the Trustee shall deem advisable: and for any sum so
borrowed, to issue a promissory note as Trustee, and to secure the repayment
thereof by pledging all, or any part, of the Trust Fund; and no person lending
money to the Trustee shall be bound to see to the application of the money lent
or to inquire into the validity, expediency, or propriety of any borrowing;

 

(f)            To keep such
portion of the Trust Fund in cash or cash balances as the Trustee may, from
time to time, deem to be in the best interests of the Plan, without liability
for interest thereon;

 

(g)           To accept and
retain for such time as the Trustee may deem advisable any securities or other
property received or acquired as Trustee hereunder, whether or not such securities
or other property would normally be purchased as investments hereunder;

 

(h)           To make,
execute, acknowledge, and deliver any and all documents of transfer and
conveyance and any and all other instruments that may be necessary or
appropriate to carry out the powers herein granted;

 

(i)            To settle,
compromise, or submit to arbitration any claims, debts, or damages due or owing
to or from the Plan, to commence or defend suits or legal or administrative
proceedings, and to represent the Plan in all suits and legal and
administrative proceedings;

 

(j)            To employ
suitable agents and counsel and to pay their reasonable expenses and
compensation, and such agent or counsel may or may not be agent or counsel for
Texas Regional Bancshares, Inc.;

 

(k)           To apply for and
procure from responsible insurance companies, to be selected by the
Administrator, as an investment of the Trust Fund such annuity, or other
Contracts (on the life of any Participant) as the Administrator shall deem
proper; to exercise, at any time or from time to time, whatever rights and
privileges may be granted under such annuity, or other Contracts; to collect,
receive, and settle for the proceeds of all such annuity or other Contracts as
and when entitled to do so under the provisions thereof;

 

87

 

(l)            To invest funds
of the Trust in time deposits or savings accounts bearing a reasonable rate of
interest or in cash or cash balances without liability for interest thereon;

 

(m)          To invest in
Treasury Bills and other forms of United States government obligations;

 

(n)           To invest in
shares of investment companies registered under the Investment Company Act of
1940;

 

(o)           To deposit
monies in federally insured savings accounts or certificates of deposit in banks
or savings and loan associations;

 

(p)           To vote Company
Stock as provided in Section 9.5;

 

(q)           To consent to
or otherwise participate in reorganizations, recapitalizations, consolidations,
mergers and similar transactions with respect to Company Stock or any other
securities and to pay any assessments or charges in connection therewith;

 

(r)            To deposit such
Company Stock (but only if such deposit does not violate the provisions of Section 9.5
hereof) or other securities in any voting trust, or with any protective or like
committee, or with a trustee or with depositories designated thereby;

 

(s)           To sell or
exercise any options, subscription rights and conversion privileges and to make
any payments incidental thereto;

 

(t)            To exercise any
of the powers of an owner, with respect to such Company Stock and other
securities or other property comprising the Trust Fund.  The Administrator, with the Trustee’s
approval, may authorize the Trustee to act on any administrative matter or
class of matters with respect to which direction or instruction to the Trustee
by the Administrator is called for hereunder without specific direction or
other instruction from the Administrator;

 

(u)           To sell,
purchase and acquire put or call options if the options are traded on and purchased
through a national securities exchange registered under the Securities Exchange
Act of 1934, as amended, or, if the options are not traded on a national
securities exchange, are guaranteed by a member firm of the New York Stock
Exchange regardless of whether such options are covered;

 

(v)           To appoint a
nonfiduciary agent or agents to assist the Trustee in carrying out any
investment instructions of Participants and of any Investment Manager or
Fiduciary, and to compensate such agent(s) from the assets of the Plan, to the
extent not paid by Texas Regional Bancshares, Inc.;

 

(w)          To do all such
acts and exercise all such rights and privileges, although not specifically
mentioned herein, as the Trustee may deem necessary to

 

88

 

carry out the purposes of the Plan.

 

9.4           LOANS TO
PARTICIPANTS

 

(a)           The Trustee
may, in the Trustee’s discretion, make loans to Participants and Beneficiaries
under the following circumstances: (1) loans shall be made available to
all Participants and Beneficiaries on a reasonably equivalent basis; (2) loans
shall not be made available to Highly Compensated Employees in an amount
greater than the amount made available to other Participants and Beneficiaries;
(3) loans shall bear a reasonable rate of interest; (4) loans shall
be adequately secured; and (5) loans shall provide for periodic repayment
over a reasonable period of time.

 

(b)           Loans made
pursuant to this Section (when added to the outstanding balance of all
other loans made by the Plan to the Participant) shall, in accordance with a
uniform and nondiscriminatory policy established by the Administrator, be
limited to the lesser of:

 

(1)           $50,000 reduced
by the excess (if any) of the highest outstanding balance of loans from the
Plan to the Participant during the one year period ending on the day before the
date on which such loan is made, over the outstanding balance of loans from the
Plan to the Participant on the date on which such loan was made, or

 

(2)           one-half (1⁄2) of
the present value of the non-forfeitable accrued benefit of the Participant
under the Plan.

 

For purposes
of this limit, all plans of the Employer shall be considered one plan.

 

(c)           Loans shall
provide for level amortization with payments to be made not less frequently
than quarterly over a period not to exceed five (5) years from the date of
the loan.  However, loans used to acquire
any dwelling unit which, within a reasonable time, is to be used (determined at
the time the loan is made) as a “principal residence” of the Participant shall
provide for periodic repayment over a reasonable period of time that may exceed
five (5) years.  For this purpose, a
“principal residence” has the same meaning as a “principal residence” under
Code Section 1034.  Loan repayments
may be suspended under this Plan as permitted under Code Section 414(u)(4)(for
Participants performing service in the uniformed services of the United States)
and/or under Regulation § 1.72(p)-1, Q&A-9, (for Participants on
certain leaves of absence).

 

(d)           Any loans
granted or renewed shall be made pursuant to a Participant loan program
approved by the Administrator.  Such loan
program shall be established in writing and must include, but need not be
limited to, the following:

 

(1)           the identity of
the person or positions authorized to

 

89

 

administer the Participant loan program;

 

(2)           a procedure for
applying for loans;

 

(3)           the basis on
which loans will be approved or denied;

 

(4)           the account or
accounts from which loans may be made, such accounts to exclude, however, a
Participant’s Target Benefit Capital Accumulation;

 

(5)           limitations, if
any, on the types and amounts of loans offered;

 

(6)           the procedure
under the program for determining a reasonable rate of interest;

 

(7)           the types of
collateral which may secure a Participant loan; and

 

(8)           the events
constituting default and the steps that will be taken to preserve Plan assets.

 

Such
Participant loan program shall be contained in a separate written document
which, when properly approved by the Administrator, is hereby incorporated by
reference and made a part of the Plan. 
Furthermore, such Participant loan program may be modified or amended in
writing from time to time without the necessity of amending this Section.

 

(e)           Notwithstanding
anything in this Plan to the contrary, if a Participant or Beneficiary defaults
on a loan made pursuant to this Section, then the loan default will be a deemed
distribution to the extent provided by the Code and Regulations.

 

(f)            Notwithstanding
anything in this Section to the contrary, any loans made prior to the date
this amendment and restatement is adopted shall be subject to the terms of the
Plan as in effect at the time such loan was made.

 

9.5           VOTING COMPANY
STOCK

 

The
Trustee shall vote all Company Stock held by it as part of the Plan assets.
Provided, however, that if any agreement entered into by the Trust provides for
voting of any shares of Company Stock pledged as security for any obligation of
the Plan, then such shares of Company Stock shall be voted in accordance with
such agreement. If the Trustee does not timely receive voting directions from a
Participant or Beneficiary with respect to any Company Stock allocated to that
Participant’s or Beneficiary’s Company Stock Account, such Company Stock shall
not be voted.

 

90

 

Notwithstanding
the foregoing, if Texas Regional Bancshares, Inc. has a registration-type
class of securities, each Participant or Beneficiary shall be entitled to
direct the Trustee as to the manner in which the Company Stock which is
entitled to vote and which is allocated to the Company Stock Account of such
Participant or Beneficiary is to be voted. If Texas Regional Bancshares, Inc.
does not have a registration-type class of securities, each Participant or
Beneficiary in the Plan shall be entitled to direct the Trustee as to the
manner in which voting rights on shares of Company Stock which are allocated to
the Company Stock Account of such Participant or Beneficiary are to be
exercised with respect to any corporate matter which involves the voting of
such shares with respect to the approval or disapproval of any corporate merger
or consolidation, recapitalization, reclassification, liquidation, dissolution,
sale of substantially all assets of a trade or business, or such similar
transaction as prescribed in Regulations. For purposes of this Section the
term “registration-type class of securities” means: (A) a class of
securities required to be registered under Section 12 of the Securities
Exchange Act of 1934; and (B) a class of securities which would be
required to be so registered except for the exemption from registration
provided in subsection (g)(2)(H) of such Section 12.

 

If
Texas Regional Bancshares, Inc. does not have a registration-type class of
securities and the by-laws of Texas Regional Bancshares, Inc. require the
Plan to vote an issue in a manner that reflects a one-man, one-vote philosophy,
each Participant or Beneficiary shall be entitled to cast one vote on an issue
and the Trustee shall vote the shares held by the Plan in proportion to the
results of the votes cast on the issue by the Participants and Beneficiaries.

 

9.6           DUTIES OF THE
TRUSTEE REGARDING PAYMENTS

 

At
the direction of the Administrator, the Trustee shall, from time to time, in
accordance with the terms of the Plan, make payments out of the Trust
Fund.  The Trustee shall not be
responsible in any way for the application of such payments.

 

9.7           TRUSTEE’S
COMPENSATION AND EXPENSES AND TAXES

 

The
Trustee shall be paid such reasonable compensation as set forth in the Trustee’s
fee schedule (if the Trustee has such a schedule) or as agreed upon in
writing by Texas Regional Bancshares, Inc. and the Trustee.  However, an individual serving as Trustee who
already receives full-time pay from an Employer shall not receive compensation
from the Plan.  In addition, the Trustee
shall be reimbursed for any reasonable expenses, including reasonable counsel fees
incurred by it as Trustee.  Such compensation
and expenses shall be paid from the Trust Fund unless paid or advanced by the
Employer.  All taxes of any kind
whatsoever that may be levied or assessed under existing or future laws upon,
or in respect of, the Trust Fund or the income thereof, shall be paid from the
Trust Fund.

 

91

 

9.8           ANNUAL REPORT
OF THE TRUSTEE

 

(a)           Within a
reasonable period of time after the later of the Anniversary Date or receipt of
the Employer contribution for each Plan Year, the Trustee, or its agent, shall
furnish to Texas Regional Bancshares, Inc. and Administrator a written
statement of account with respect to the Plan Year for which such contribution
was made setting forth:

 

(1)           the net income,
or loss, of the Trust Fund;

 

(2)           the gains, or
losses, realized by the Trust Fund upon sales or other disposition of the
assets;

 

(3)           the increase,
or decrease, in the value of the Trust Fund;

 

(4)           all payments
and distributions made from the Trust Fund; and

 

(5)           such further information
as the Trustee and/or Administrator deems appropriate.

 

(b)           Texas Regional
Bancshares, Inc., promptly upon its receipt of each such statement of
account, shall acknowledge receipt thereof in writing and advise the Trustee
and/or Administrator of its approval or disapproval thereof.  Failure by Texas Regional Bancshares, Inc.
to disapprove any such statement of account within thirty (30) days after its
receipt thereof shall be deemed an approval thereof.  The approval by Texas Regional Bancshares, Inc.
of any statement of account shall be binding on the Employer and the Trustee as
to all matters contained in the statement to the same extent as if the account
of the Trustee had been settled by judgment or decree in an action for a
judicial settlement of its account in a court of competent jurisdiction in
which the Trustee, the Employer and all persons having or claiming an interest
in the Plan were parties.  However,
nothing contained in this Section shall deprive the Trustee of its right
to have its accounts judicially settled if the Trustee so desires.

 

9.9           AUDIT

 

(a)           If an audit of
the Plan’s records shall be required by the Act and the regulations thereunder
for any Plan Year, the Administrator shall direct the Trustee to engage on
behalf of all Participants an independent qualified public accountant for that
purpose.  Such accountant shall, after an
audit of the books and records of the Plan in accordance with generally
accepted auditing standards, within a reasonable period after the close of the Plan
Year, furnish to the Administrator and the Trustee a report of the audit
setting forth the accountant’s opinion as to whether any statements, schedules
or lists that are required by Act Section 103 or the Secretary of Labor to
be filed with the Plan’s annual report, are presented fairly in conformity with
generally accepted accounting principles applied consistently.

 

92

 

(b)           All auditing
and accounting fees shall be an expense of and may, at the election of Texas
Regional Bancshares, Inc., be paid from the Trust Fund.

 

(c)           If some or all
of the information necessary to enable the Administrator to comply with Act Section 103
is maintained by a bank, insurance company, or similar institution, regulated,
supervised, and subject to periodic examination by a state or federal agency,
then it shall transmit and certify the accuracy of that information to the
Administrator as provided in Act Section 103 (b) within one hundred
twenty (120) days after the end of the Plan Year or by such other date as may
be prescribed under regulations of the Secretary of Labor.

 

9.10         RESIGNATION,
REMOVAL AND SUCCESSION OF TRUSTEE

 

(a)           Unless
otherwise agreed to by both the Trustee and Texas Regional Bancshares, Inc.,
a Trustee may resign at any time by delivering to Texas Regional Bancshares, Inc.,
at least thirty (30) days before its effective date, a written notice of
resignation.

 

(b)           Unless
otherwise agreed to by both the Trustee and Texas Regional Bancshares, Inc.,
Texas Regional Bancshares, Inc. may remove a Trustee at any time by
delivering to the Trustee, at least thirty (30) days before its effective date,
a written notice of such Trustee’s removal.

 

(c)           Upon the death,
resignation, incapacity, or removal of any Trustee, a successor may be
appointed by Texas Regional Bancshares, Inc.; and such successor, upon
accepting such appointment in writing and delivering same to Texas Regional
Bancshares, Inc., shall, without further act, become vested with all the
powers and responsibilities of the predecessor as if such successor had been
originally named as a Trustee herein. 
Until such a successor is appointed, the remaining Trustee or Trustees
shall have full authority to act under the terms of the Plan.

 

(d)           Texas Regional
Bancshares, Inc. may designate one or more successors prior to the death,
resignation, incapacity, or removal of a Trustee.  In the event a successor is so designated by
Texas Regional Bancshares, Inc. and accepts such designation, the
successor shall, without further act, become vested with all the powers and
responsibilities of the predecessor as if such successor had been named as
Trustee herein immediately upon the death, resignation, incapacity, or removal
of the predecessor.

 

(e)           Whenever any
Trustee hereunder ceases to serve as such, the Trustee shall furnish to Texas
Regional Bancshares, Inc. and Administrator a written statement of account
with respect to the portion of the Plan Year during which the individual or
entity served as Trustee.  This statement
shall be either (i) included as part of the annual statement of account
for the Plan Year required under Section 9.8 or (ii) set forth in a
special statement.  Any such special
statement of account should be rendered to Texas Regional Bancshares, Inc.
no

 

93

 

later than the due date of the annual statement of account for the Plan
Year.  The procedures set forth in Section 9.8
for the approval by Texas Regional Bancshares, Inc. of annual statements
of account shall apply to any special statement of account rendered hereunder
and approval by Texas Regional Bancshares, Inc. of any such special
statement in the manner provided in Section 9.8 shall have the same effect
upon the statement as Texas Regional Bancshares, Inc.’s approval of an
annual statement of account.  No
successor to the Trustee shall have any duty or responsibility to investigate
the acts or transactions of any predecessor who has rendered all statements of
account required by Section 9.8 and this subparagraph.

 

9.11         TRANSFER OF
INTEREST

 

Notwithstanding
any other provision contained in this Plan, the Trustee at the direction of the
Administrator shall transfer the Vested interest, if any, of a Participant to
another trust forming part of a pension, profit sharing or stock bonus plan
maintained by such Participant’s new employer and represented by said employer
in writing as meeting the requirements of Code Section 401(a), provided
that the trust to which such transfers are made permits the transfer to be
made.

 

9.12         TRUSTEE
INDEMNIFICATION

 

Texas
Regional Bancshares, Inc. agrees to indemnify and hold harmless the
Trustee against any and all claims, losses, damages, expenses and liabilities
the Trustee may incur in the exercise and performance of the Trustee’s power
and duties hereunder, unless the same are determined to be due to gross
negligence or willful misconduct.

 

Article X

AMENDMENT, TERMINATION AND MERGERS

 

10.1         AMENDMENT

 

(a)           Texas Regional
Bancshares, Inc. shall have the right at any time to amend this Plan
subject to the limitations of this Section. 
However, any amendment which affects the rights, duties or
responsibilities of the Trustee or Administrator may only be made with the
Trustee’s or Administrator’s written consent. 
Any such amendment shall become effective as provided therein upon its
execution.  The Trustee shall not be
required to execute any such amendment unless the amendment affects the duties
of the Trustee hereunder.

 

94

 

(b)           No amendment to
the Plan shall be effective if it authorizes or permits any part of the Trust
Fund (other than such part as is required to pay taxes and administration
expenses) to be used for or diverted to any purpose other than for the
exclusive benefit of the Participants or their Beneficiaries or estates; or
causes any reduction in the amount credited to the account of any Participant;
or causes or permits any portion of the Trust Fund to revert to or become
property of the Employer.

 

(c)           Except as permitted
by Regulations (including Regulation §1.411(d)-4) or other IRS guidance, no
Plan amendment or transaction having the effect of a Plan amendment (such as a
merger, plan transfer or similar transaction) shall be effective if it
eliminates or reduces any “Section 411(d)(6) protected benefit” or
adds or modifies conditions relating to “Section 411(d)(6) protected
benefits” which results in a further restriction on such benefit unless such “Section 411(d)(6) protected
benefits” are preserved with respect to benefits accrued as of the later of the
adoption date or effective date of the amendment. “Section 411(d)(6) protected
benefits” are benefits described in Code Section 411(d)(6)(A), early
retirement benefits and retirement-type subsidies, and optional forms of
benefit.

 

10.2         TERMINATION

 

(a)           Texas Regional
Bancshares, Inc. shall have the right at any time to terminate the Plan by
delivering to the Trustee and Administrator written notice of such
termination.  Upon any full or partial
termination, all amounts credited to the affected Participants’ Combined
Accounts shall become 100% Vested as provided in Section 7.4 and shall not
thereafter be subject to forfeiture, and all unallocated amounts, including
Forfeitures, shall be allocated to the accounts of all Participants in
accordance with the provisions hereof.

 

(b)           Upon the full
termination of the Plan, Texas Regional Bancshares, Inc. shall direct the
distribution of the assets of the Trust Fund to Participants in a manner which
is consistent with and satisfies the provisions of Sections 7.5 and 7.6.  Except as permitted by Regulations, the
termination of the Plan shall not result in the reduction of “Section 411(d)(6) protected
benefits” in accordance with Section 10.1(c).

 

10.3         MERGER,
CONSOLIDATION OR TRANSFER OF ASSETS

 

This
Plan and Trust may be merged or consolidated with, or its assets and/or
liabilities may be transferred to any other plan and trust only if the benefits
which would be received by a Participant of this Plan, in the event of a
termination of the Plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the elimination or

 

95

 

reduction of any “Section 411(d)(6) protected benefits” in
accordance with Section 10.1(c).

 

Article XI

TOP-HEAVY

 

11.1         TOP-HEAVY PLAN
REQUIREMENTS

 

For
any Top-Heavy Plan Year, the Plan shall provide the special vesting
requirements of Code Section 416(b) pursuant to Section 7.4 of
the Plan and the special minimum allocation requirements of Code Section 416(c) pursuant
to Sections 5.4(f) and (g) of the Plan.

 

11.2         DETERMINATION
OF TOP HEAVY STATUS

 

(a)           This Plan shall
be a Top-Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the
Present Value of Accrued Benefits of Key Employees and (2) the sum of the
Participant’s Combined Accounts of Key Employees under this Plan and all plans
of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of
Accrued Benefits and the Participant’s Combined Accounts of all Key and Non-Key
Employees under this Plan and all plans of an Aggregation Group.

 

If any
Participant is a Non-Key Employee for any Plan Year, but such Participant was a
Key Employee for any prior Plan Year, such Participant’s Present Value of
Accrued Benefit and/or Participant’s Combined Account balance shall not be
taken into account for purposes of determining whether this Plan is a Top-Heavy
Plan (or whether any Aggregation Group which includes this Plan is a Top-Heavy
Group).  In addition, if a Participant or
Former Participant has not performed any services for any Employer maintaining
the Plan at any time during the one-year period ending on the Determination
Date, any accrued benefit for such Participant or Former Participant shall not
be taken into account for the purposes of determining whether this Plan is a
Top-Heavy Plan.

 

(b)           A Participant’s
Combined Account as of the Determination Date is the sum of:

 

(1)           the Participant’s
Combined Account balance as of the most recent valuation occurring within a
twelve (12) month period ending on the Determination Date.

 

(2)           an adjustment
for any contributions due as of the Determination Date.  Such adjustment shall be the amount of any
contributions actually made after the Valuation Date but due on or before the
Determination Date, except for the first Plan Year when such adjustment shall
also reflect the amount of any contributions made after the Determination Date
that are allocated as of a date in that first Plan Year.

 

96

 

(3)           any Plan
distributions made with respect to the Participant under the Plan and any plan
aggregated with the Plan under Code Section 416(g)(2) during the 1-year
period ending on the Determination Date. 
However, in the case of distributions made after the Valuation Date and
prior to the Determination Date, such distributions are not included as
distributions for top heavy purposes to the extent that such distributions are
already included in the Participant’s Participant’s Combined Account balance as
of the Valuation Date.  Notwithstanding anything
herein to the contrary, all distributions, including distributions under a
terminated plan which if it had not been terminated would have been required to
be included in an Aggregation Group, will be counted.  Further, distributions from the Plan (including
the cash value of life insurance policies) of a Participant’s account balance
because of death shall be treated as a distribution for the purposes of this
paragraph.  In the case of a distribution
made for a reason other than separation from service, death, or disability,
this provision shall be applied by substituting “5-year period” for “1-year
period.”

 

(4)           any Employee
contributions, whether voluntary or mandatory. 
However, amounts attributable to tax deductible qualified voluntary
employee contributions shall not be considered to be a part of the Participant’s
Participant’s Combined Account balance.

 

(5)           with respect to
unrelated rollovers and plan-to-plan transfers (ones which are both initiated
by the Employee and made from a plan maintained by one employer to a plan
maintained by another employer), if this Plan provides the rollovers or
plan-to-plan transfers, it shall always consider such rollovers or plan-to-plan
transfers as a distribution for the purposes of this Section.  If this Plan is the plan accepting such
rollovers or plan-to-plan transfers, it shall not consider such rollovers or
plan-to-plan transfers as part of the Participant’s Participant’s Combined
Account balance.

 

(6)           with respect to
related rollovers and plan-to-plan transfers (ones either not initiated by the
Employee or made to a plan maintained by the same employer), if this Plan
provides the rollover or plan-to-plan transfer, it shall not be counted as a
distribution for purposes of this Section. 
If this Plan is the plan accepting such rollover or plan-to-plan
transfer, it shall consider such rollover or plan-to-plan transfer as part of
the Participant’s Participant’s Combined Account balance, irrespective of the
date on which such rollover or plan-to-plan transfer is accepted.

 

(7)           For the
purposes of determining whether two employers are to be treated as the same
employer in (5) and (6) above, all employers aggregated under Code Section 414(b),
(c), (m) and (o) are treated as the same employer.

 

97

 

(c)           “Aggregation
Group” means either a Required Aggregation Group or a Permissive Aggregation
Group as hereinafter determined.

 

(1)           Required
Aggregation Group: In determining a Required Aggregation Group hereunder, each
plan of the Employer in which a Key Employee is a participant in the Plan Year
containing the Determination Date or any of the four preceding Plan Years, and
each other plan of the Employer which enables any plan in which a Key Employee
participates to meet the requirements of Code Sections 401(a)(4) or 410,
will be required to be aggregated.  Such
group shall be known as a Required Aggregation Group.

 

In the case of
a Required Aggregation Group, each plan in the group will be considered a
Top-Heavy Plan if the Required Aggregation Group is a Top-Heavy Group.  No plan in the Required Aggregation Group
will be considered a Top-Heavy Plan if the Required Aggregation Group is not a
Top-Heavy Group.

 

(2)           Permissive
Aggregation Group: The Employer may also include any other plan not required to
be included in the Required Aggregation Group, provided the resulting group,
taken as a whole, would continue to satisfy the provisions of Code Sections
401(a)(4) and 410.  Such group shall
be known as a Permissive Aggregation Group.

 

In the case of
a Permissive Aggregation Group, only a plan that is part of the Required
Aggregation Group will be considered a Top-Heavy Plan if the Permissive
Aggregation Group is a Top-Heavy Group. 
No plan in the Permissive Aggregation Group will be considered a
Top-Heavy Plan if the Permissive Aggregation Group is not a Top-Heavy Group.

 

(3)           Only those
plans of the Employer in which the Determination Dates fall within the same
calendar year shall be aggregated in order to determine whether such plans are
Top-Heavy Plans.

 

(4)           An Aggregation
Group shall include any terminated plan of the Employer if it was maintained
within the last five (5) years ending on the Determination Date.

 

(d)           “Determination
Date” means (a) the last day of the preceding Plan Year, or (b) in
the case of the first Plan Year, the last day of such Plan Year.

 

(e)           Present Value
of Accrued Benefit: In the case of a defined benefit plan, the Present Value of
Accrued Benefit for a Participant other than a Key Employee, shall be as determined
using the single accrual method used for all plans of the Employer and
Affiliated Employers, or if no such single method exists, using a method which
results in benefits accruing not more rapidly than the slowest accrual rate
permitted under Code Section 411(b)(1)(C). 
The determination of the Present Value of Accrued Benefit shall be
determined as of

 

98

 

the most recent valuation date that falls within or ends with the 12-month
period ending on the Determination Date except as provided in Code Section 416
and the Regulations thereunder for the first and second plan years of a defined
benefit plan.

 

(f)            “Top-Heavy
Group” means an Aggregation Group in which, as of the Determination Date, the
sum of:

 

(1)           the Present
Value of Accrued Benefits of Key Employees under all defined benefit plans
included in the group, and

 

(2)           the Participant’s
Combined Accounts of Key Employees under all defined contribution plans
included in the group, exceeds sixty percent (60%) of a similar sum determined
for all Participants.

 

Article XII

MISCELLANEOUS

 

12.1         PARTICIPANT’S
RIGHTS

 

This
Plan shall not be deemed to constitute a contract between the Employer and any
Participant or to be a consideration or an inducement for the employment of any
Participant or Employee.  Nothing
contained in this Plan shall be deemed to give any Participant or Employee the
right to be retained in the service of the Employer or to interfere with the
right of the Employer to discharge any Participant or Employee at any time
regardless of the effect which such discharge shall have upon the Employee as a
Participant of this Plan.

 

12.2         ALIENATION

 

(a)           Subject to the
exceptions provided below, and as otherwise permitted by the Code and Act, no
benefit which shall be payable out of the Trust Fund to any person (including a
Participant or the Participant’s Beneficiary) shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber, or charge the same shall be void; and no such benefit shall
in any manner be liable for, or subject to, the debts, contracts, liabilities,
engagements, or torts of any such person, nor shall it be subject to attachment
or legal process for or against such person, and the same shall not be
recognized by the Trustee, except to such extent as may be required by law.

 

(b)           Subsection (a) shall
not apply to the extent a Participant or Beneficiary is indebted to the Plan by
reason of a loan made pursuant to Section 12.4, as a result of a loan from
the Plan.  At the time a distribution is
to be made to or for a Participant’s or Beneficiary’s benefit, such proportion
of the amount to be distributed as shall equal such indebtedness shall be paid
to the Plan, to apply against or discharge such indebtedness.  Prior to making a payment, however, the
Participant or Beneficiary must be given written notice by the Administrator
that

 

99

 

such indebtedness is to be so paid in whole or part from the
Participant’s Combined Account.  If the
Participant or Beneficiary does not agree that the indebtedness is a valid
claim against the Vested Participant’s Combined Account, the Participant or
Beneficiary shall be entitled to a review of the validity of the claim in
accordance with procedures provided in Sections 3.8 and 3.9.

 

(c)           Subsection (a) shall
not apply to a “qualified domestic relations order” defined in Code Section 414(p),
and those other domestic relations orders permitted to be so treated by the
Administrator under the provisions of the Retirement Equity Act of 1984.  The Administrator shall establish a written
procedure to determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders.  Further, to the extent provided under a “qualified
domestic relations order,” a former spouse of a Participant shall be treated as
the spouse or surviving spouse for all purposes under the Plan.

 

(d)           Subsection (a) shall
not apply to an offset to a Participant’s accrued benefit against an amount
that the Participant is ordered or required to pay the Plan with respect to a
judgment, order, or decree issued, or a settlement entered into, on or after August 5,
1997, in accordance with Code Sections 401(a)(13)(C) and (D).

 

12.3         CONSTRUCTION OF
PLAN

 

This
Plan and Trust shall be construed and enforced according to the Code, the Act
and the laws of the State of Texas, other than its laws respecting choice of
law, to the extent not preempted by the Act.

 

12.4         GENDER AND
NUMBER

 

Wherever
any words are used herein in the masculine, feminine or neuter gender, they
shall be construed as though they were also used in another gender in all cases
where they would so apply, and whenever any words are used herein in the
singular or plural form, they shall be construed as though they were also used
in the other form in all cases where they would so apply.

 

12.5         LEGAL ACTION

 

In
the event any claim, suit, or proceeding is brought regarding the Trust and/or
Plan established hereunder to which the Trustee, the Employer or the
Administrator may be a party, and such claim, suit, or proceeding is resolved
in favor of the Trustee, the Employer or the Administrator, they shall be
entitled to be reimbursed from the Trust Fund for any and all costs, attorney’s
fees, and other expenses pertaining thereto incurred by them for which they
shall have become liable.

 

100

 

12.6         PROHIBITION
AGAINST DIVERSION OF FUNDS

 

(a)           Except as
provided below and otherwise specifically permitted by law, it shall be
impossible by operation of the Plan or of the Trust, by termination of either,
by power of revocation or amendment, by the happening of any contingency, by
collateral arrangement or by any other means, for any part of the corpus or
income of any Trust Fund maintained pursuant to the Plan or any funds
contributed thereto to be used for, or diverted to, purposes other than the
exclusive benefit of Participants, Former Participants, or their Beneficiaries.

 

(b)           In the event
the Employer shall make an excessive contribution under a mistake of fact
pursuant to Act Section 403(c)(2)(A), the Employer may demand repayment of
such excessive contribution at any time within one (1) year following the
time of payment and the Trustees shall return such amount to the Employer
within the one (1) year period. 
Earnings of the Plan attributable to the contributions may not be
returned to the Employer but any losses attributable thereto must reduce the
amount so returned.

 

(c)           Except for
Sections 4.5, 4.6, and 5.1(e), any contribution by the Employer to the Trust
Fund is conditioned upon the deductibility of the contribution by the Employer
under the Code and, to the extent any such deduction is disallowed, the
Employer may, within one (1) year following the final determination of the
disallowance, whether by agreement with the Internal Revenue Service or by
final decision of a competent jurisdiction, demand repayment of such disallowed
contribution and the Trustee shall return such contribution within one (1) year
following the disallowance. Earnings of the Plan attributable to the
contribution may not be returned to the Employer, but any losses attributable
thereto must reduce the amount so returned.

 

12.7         EMPLOYER’S AND
TRUSTEE’S PROTECTIVE CLAUSE

 

The
Employer, Administrator and Trustee, and their successors, shall not be
responsible for the validity of any Contract issued hereunder or for the
failure on the part of the insurer to make payments provided by any such
Contract, or for the action of any person which may delay payment or render a
Contract null and void or unenforceable in whole or in part.

 

12.8         INSURER’S
PROTECTIVE CLAUSE

 

Except
as otherwise agreed upon in writing between the Employer and the insurer, an
insurer which issues any Contracts hereunder shall not have any responsibility
for the validity of this Plan or for the tax or legal aspects of this Plan.  The insurer shall be protected and held
harmless in acting in accordance with any written direction of the Trustee, and
shall have no duty to see to the application of any funds paid to the Trustee,
nor be required to question any actions directed by the Trustee.  Regardless of any provision of this Plan, the
insurer shall not be required to take or permit any action or allow any benefit
or

 

101

 

privilege contrary to the terms of any Contract which it issues
hereunder, or the rules of the insurer.

 

12.9         RECEIPT AND
RELEASE FOR PAYMENTS

 

Any
payment to any Participant, the Participant’s legal representative,
Beneficiary, or to any guardian or committee appointed for such Participant or
Beneficiary in accordance with the provisions of the Plan, shall, to the extent
thereof, be in full satisfaction of all claims hereunder against the Trustee
and the Employer, either of whom may require such Participant, legal
representative, Beneficiary, guardian or committee, as a condition precedent to
such payment, to execute a receipt and release thereof in such form as shall be
determined by the Trustee or Employer.

 

12.10       ACTION BY THE
EMPLOYER

 

Whenever
the Employer under the terms of the Plan is permitted or required to do or
perform any act or matter or thing, it shall be done and performed by a person
duly authorized by its legally constituted authority.

 

12.11       NAMED
FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY

 

The
“named Fiduciaries” of this Plan are (1) the Employer, (2) the
Administrator, (3) the Trustee, and (4) any Investment Manager
appointed hereunder.  The named
Fiduciaries shall have only those specific powers, duties, responsibilities,
and obligations as are specifically given them under the Plan including, but
not limited to, any agreement allocating or delegating their responsibilities,
the terms of which are incorporated herein by reference.  In general, the Employer shall have the sole
responsibility for making the contributions provided for under Section 4.1;
and shall have the authority to appoint and remove the Trustee and the
Administrator; to formulate the Plan’s “funding policy and method”; and to
amend or terminate, in whole or in part, the Plan.  The Administrator shall have the sole
responsibility for the administration of the Plan, including, but not limited
to, the items specified in Article II of the Plan, as the same may be
allocated or delegated thereunder.  The
Trustee shall have the sole responsibility of management of the assets held
under the Trust, except to the extent directed pursuant to Article II or
with respect to those assets, the management of which has been assigned to an
Investment Manager, who shall be solely responsible for the management of the
assets assigned to it, all as specifically provided in the Plan.  Each named Fiduciary warrants that any
directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for such
direction, information or action. 
Furthermore, each named Fiduciary may rely upon any such direction,
information or action of another named Fiduciary as being proper under the
Plan, and is not required under the Plan to inquire into the propriety of any
such direction, information or action. 
It is intended under the Plan that each named Fiduciary shall be
responsible for the proper exercise of its

 

102

 

own powers, duties, responsibilities and obligations under the Plan as
specified or allocated herein.  No named
Fiduciary shall guarantee the Trust Fund in any manner against investment loss
or depreciation in asset value.  Any
person or group may serve in more than one Fiduciary capacity.

 

12.12       HEADINGS

 

The
headings and subheadings of this Plan have been inserted for convenience of
reference and are to be ignored in any construction of the provisions hereof.

 

12.13       APPROVAL BY
INTERNAL REVENUE SERVICE

 

Notwithstanding
anything herein to the contrary, if, pursuant to an application for
qualification filed by or on behalf of the Plan by the time prescribed by law
for filing the Employer’s return for the taxable year in which the Plan is
adopted, or such later date that the Secretary of the Treasury may prescribe,
the Commissioner of Internal Revenue Service or the Commissioner’s delegate
should determine that the Plan does not initially qualify as a tax-exempt plan
under Code Sections 401 and 501, and such determination is not contested, or if
contested, is finally upheld, then if the Plan is a new plan, it shall be void
ab initio and all amounts contributed to the Plan by the Employer, less
expenses paid, shall be returned within one (1) year and the Plan shall
terminate, and the Trustee shall be discharged from all further obligations. If
the disqualification relates to an amended plan, then the Plan shall operate as
if it had not been amended.

 

12.14       UNIFORMITY

 

All
provisions of this Plan shall be interpreted and applied in a uniform,
nondiscriminatory manner.  In the event
of any conflict between the terms of this Plan and any Contract purchased
hereunder, the Plan provisions shall control.

 

12.15       SECURITIES AND
EXCHANGE COMMISSION APPROVAL

 

The
Employer may request an interpretative letter from the Securities and Exchange
Commission stating that the transfers of Company Stock contemplated hereunder
do not involve transactions requiring a registration of such Company Stock
under the Securities Act of 1933.  In the
event that a favorable interpretative letter is not obtained, the Employer
reserves the right to amend the Plan and Trust retroactively to their Effective
Dates in order to obtain a favorable interpretative letter or to terminate the
Plan.

 

12.16       S CORPORATION
NONALLOCATION PROVISIONS

 

(a)           No
Prohibited Allocations.               Effective
for Plan Years beginning after December 31, 2001 in which the Company is
an S Corporation, no “EGTRRA Prohibited Allocation” may be made directly or
indirectly in an

 

103

 

“EGTRRA Nonallocation Year” to an EGTRRA Disqualified Person (as defined
in paragraph (e)) under this Plan or any other plan maintained by the Employer
and meeting the requirements of Code Section 401(a).

 

(b)           EGTRRA
Nonallocation Year.          For
purposes of this Section, “EGTRRA Nonallocation Year” means any Plan Year if,
at any time during such Plan Year, the Company is an S Corporation and EGTRRA
Disqualified Persons own at least 50% of the number of shares of stock in the S
Corporation.  The attribution and
ordering rules of Code Section 409(p)(3) shall apply for
purposes of determining share ownership under this Subsection.

 

(c)           EGTRRA
Prohibited Allocation.      For
purposes of this Section, an “EGTRRA Prohibited Allocation” occurs when any
portion of the assets of the Plan attributable to (or allocable in lieu of)
Company Stock accrues (or is allocated directly or indirectly under any other
qualified plan of the Employer) during an EGTRRA Nonallocation Year for the
benefit of an EGTRRA Disqualified Person.

 

(d)           First
Nonallocation Year. “First
Nonallocation Year” shall mean, for purposes of this Section, an EGTRRA
Nonallocation Year that is described in Code Sections 4979A(a)(3) and
(e)(2)(C).  A First Nonallocation Year
may occur regardless of whether there is an EGTRRA Prohibited Allocation during
such Plan Year.

 

(e)           EGTRRA Disqualified
Person.          “EGTRRA Disqualified Person”
means, effective for Plan Years beginning after December 31, 2004, and
solely for purposes of this Section in years, if any, when the Company is
an S Corporation, a person described in Code Section 409(p)(4).

 

Article XIII

PARTICIPATING EMPLOYERS

 

13.1         ADOPTION BY
OTHER EMPLOYERS

 

Notwithstanding
anything herein to the contrary, with the consent of Texas Regional Bancshares, Inc.
and Trustee, any other corporation or entity, whether an affiliate or subsidiary
or not, may adopt this Plan and all of the provisions hereof, and participate
herein and be known as a Participating Employer, by a properly executed
document evidencing said intent and will of such Participating Employer.

 

13.2         REQUIREMENTS OF
PARTICIPATING EMPLOYERS

 

(a)           Each such
Participating Employer shall be required to use the same Trustee as provided in
this Plan.

 

(b)           The Trustee
may, but shall not be required to, commingle, hold and invest as one Trust Fund
all contributions made by Participating Employers, as

 

104

 

well as all increments thereof.

 

(c)           At the option
of Texas Regional Bancshares, Inc. and with the approval of the
Administrator, any expenses of the Plan which are to be paid by the Employer or
borne by the Trust Fund shall be paid by Texas Regional Bancshares, Inc.
or by each Participating Employer in the same proportion that the total amount
standing to the credit of all Participants employed by such Employer bears to
the total standing to the credit of all Participants.

 

13.3         DESIGNATION OF
AGENT

 

Each
Participating Employer shall be deemed to be a party to this Plan; provided,
however, that with respect to all of its relations with the Trustee and
Administrator for the purpose of this Plan, each Participating Employer shall
be deemed to have designated irrevocably Texas Regional Bancshares, Inc.
as its agent.

 

13.4         EMPLOYEE
TRANSFERS

 

In
the event an Employee is transferred between Participating Employers,
accumulated service and eligibility shall be carried with the Employee
involved.  No such transfer shall effect
a termination of employment hereunder if the transfer involves an Affiliated
Employer, and the Participating Employer to which the Employee is transferred
shall thereupon become obligated hereunder with respect to such Employee in the
same manner as was the Participating Employer from whom the Employee was
transferred.

 

13.5         PARTICIPATING
EMPLOYER CONTRIBUTION AND FORFEITURES

 

With
respect to Participating Employers that are not Affiliated Employers, any
contribution or Forfeiture subject to allocation during each Plan Year shall be
allocated only among those Participants of the Participating Employer making
the contribution or by which the forfeiting Participant was employed.  However, if the contribution is made, or the
forfeiting Participant was employed, by an Affiliated Employer, such
contribution or Forfeiture shall be allocated among all Participants of all
Participating Employers who are Affiliated Employers in accordance with the
provisions of this Plan.  On the basis of
the information furnished by the Administrator, the Trustee may keep separate
books and records concerning the affairs of each non-Affiliated Participating
Employer hereunder and as to the accounts and credits of the Employees of each
non-Affiliated Participating Employer. 
The Trustee may, but need not, register Contracts so as to evidence that
a particular Participating Employer is the interested Employer hereunder, but
in the event of an Employee transfer to or from a non-Affiliated Participating
Employer to another Employer, the employing Participating Employer shall
immediately notify the Trustee thereof.

 

105

 

13.6         AMENDMENT

 

Amendment
of this Plan shall only be by the written action of Texas Regional Bancshares, Inc.
and with the consent of the Trustee where such consent is necessary in
accordance with the terms of this Plan.

 

13.7         DISCONTINUANCE
OF PARTICIPATION

 

No
Participating Employer shall be permitted to discontinue or revoke its
participation in the Plan without the consent of Texas Regional Bancshares, Inc.  Texas Regional Bancshares, Inc., may,
however, discontinue the participation of any Participating Employer at any
time without the consent of any person. 
At the time of any such discontinuance or revocation, satisfactory
evidence thereof shall be delivered to the Trustee by Texas Regional Bancshares, Inc.  The Trustee shall thereafter transfer,
deliver and assign Contracts and other Trust Fund assets allocable to the
Participants of such Participating Employer to such new trustee as shall have
been designated by such Participating Employer, in the event that it has
established a separate qualified retirement plan for its Employees, provided,
however, that no such transfer shall be made if the result is the elimination
or reduction of any “Section 411(d)(6) protected benefits” as
described in Section 9.1(c). If no successor is designated, the Trustee
shall retain such assets for the Employees of said Participating Employer
pursuant to the provisions of Article VII hereof.  In no such event shall any part of the corpus
or income of the Trust as it relates to a non-Affiliated Employer be used for
or diverted for purposes other than for the exclusive benefit of the Employees
of such non-Affiliated Employer.

 

13.8         ADMINISTRATOR’S
AUTHORITY

 

The
Administrator shall have authority to make any and all necessary rules or
regulations, binding upon all Participating Employers and all Participants, to
effectuate the purpose of this Article.

 

106

 

IN
WITNESS WHEREOF, this Plan has been executed the day and year first above
written.

 

	
   

  	
  EMPLOYER:

  
	
   

  	
   

  	
   

  
	
   

  	
  TEXAS REGIONAL BANCSHARES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Glen E. Roney

  	
   

  
	
   

  	
  Title:

  	
    Chairman of the Board & CEO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TRUSTEE:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Morris Atlas

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Robert F. Boggus

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Glen E. Roney

  	
   

  
												

 

107

 

TEXAS
REGIONAL BANCSHARES, INC.
AMENDED AND RESTATED
EMPLOYEE STOCK

OWNERSHIP PLAN (WITH 401(K) PROVISIONS

 

Schedule ”A”

Service of Acquired Employees

 

The Employer, Texas Regional Bancshares, Inc.,
grants “Years of Service” (as that term is defined in Plan Section 2.76)
to the following groups of acquired Employees for the following periods of
service with other employers, as of the dates indicated below, and for the Plan
purposes indicated below:

 

	
  Acquired Group

  (including date of hire)

  	
   

  	
  Participation Service

  (including limits)

  	
   

  	
  Vesting Service

  (including limits)

  	
   

  	
  Entry Date

  (including limits)

  
	
  Mid Valley Bank, 1992 (former participants
  in Mid Valley Bank Employees’ Pension Plan only)

  	
   

  	
  Yes; all service with Mid Valley Bank

  	
   

  	
  Yes; all service with Mid Valley Bank

  	
   

  	
  Immediately upon employment by Employer
  (and for compensation earned from Mid Valley Bank in 1992 and the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  First National Bank of South Texas, 1995
  (employees of Rio Grande City and Roma branches as of acquisition by Texas
  State Bank)

  	
   

  	
  Yes; all service with First National Bank
  of South Texas

  	
   

  	
  Yes; all service with First National Bank
  of South Texas

  	
   

  	
  Immediately upon employment by Employer
  (but only for compensation earned from the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  First State Bank & Trust Co., The
  Border Bank, 1996 (employees as of time of merger into Texas State Bank)

  	
   

  	
  Yes; all service with First State Bank &
  Trust Co., The Border Bank

  	
   

  	
  Yes; all service with First State Bank &
  Trust Co., The Border Bank

  	
   

  	
  Immediately upon employment by Employer
  (but only for compensation earned from the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Brownsville National Bank, Texas Bank &
  Trust, and Bank of Texas, 1998

  	
   

  	
  Yes; all service with Brownsville National
  Bank, Texas Bank & Trust, and Bank of Texas

  	
   

  	
  Yes; all service with Brownsville National
  Bank, Texas Bank & Trust, and Bank of Texas

  	
   

  	
  Immediately upon employment by Employer
  (but only for compensation earned from the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Harlingen Bancshares, Inc., HN
  Bancshares of Delaware, Inc., and Harlingen National Bank, August 15,
  1999

  	
   

  	
  Yes; all service with Harlingen Bancshares, Inc.,
  HN Bancshares of Delaware, Inc., and Harlingen National Bank

  	
   

  	
  Yes; all service with Harlingen Bancshares, Inc.,
  HN Bancshares of Delaware, Inc., and Harlingen National Bank

  	
   

  	
  Immediately upon employment by Employer
  (but only for compensation earned from the Employer)

  

 

108

 

	
  Frost National Bank and Overton Park Bank
  (Frost National Bank data processing location in Grapevine, Texas), March 12,
  2002

  	
   

  	
  Yes; all service with Frost National Bank
  and Overton Park Bank

  	
   

  	
  Yes; all service with Frost National Bank
  and Overton Park Bank

  	
   

  	
  Immediately upon employment by Employer
  (but only for compensation earned from the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Riverway Holdings, Inc., Riverway
  Holdings of Delaware, Inc., and Riverway Bank, time of 2002 merger

  	
   

  	
  Yes; all service with Riverway Holdings, Inc.,
  Riverway Holdings of Delaware, Inc., and Riverway Bank

  	
   

  	
  Yes; all service with Riverway Holdings, Inc.,
  Riverway Holdings of Delaware, Inc., and Riverway Bank

  	
   

  	
  Immediately upon employment by Employer
  (but only for compensation earned from the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  San Juan Bancshares, Inc., San Juan
  Delaware Financial Corporation, Texas Country Bank, time of 2002 merger

  	
   

  	
  Yes; all service with San Juan Bancshares, Inc.,
  San Juan Delaware Financial Corporation, Texas Country Bank

  	
   

  	
  Yes; all service with San Juan Bancshares, Inc.,
  San Juan Delaware Financial Corporation, Texas Country Bank

  	
   

  	
  Immediately upon employment by Employer
  (but only for compensation earned from the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Corpus Christi Bancshares, Inc.,
  CCB-Nevada, Inc., and The First State Bank; February 14, 2003

  	
   

  	
  Yes; all service with Corpus Christi
  Bancshares, Inc., CCB-Nevada, Inc., and The First State Bank

  	
   

  	
  Yes; all service with Corpus Christi
  Bancshares, Inc.,  CCB-Nevada, Inc.,
  and The First State Bank

  	
   

  	
  Immediately upon employment by Employer
  (but only for compensation earned from the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Southeast Texas Bancshares, Inc., Community Bank & Trust, SSB, Port Arthur
  Abstract and Title Company, Southeast Texas Title Company, and Southeast
  Texas Insurance Services, L.P. (“its subsidiaries”) (for employees on date of
  merger) March 12, 2004

  	
   

  	
  Yes; all service with Southeast Texas
  Bancshares, Inc., its subsidiaries, and Secure Trust if credited by Southeast
  Texas Bancshares, Inc. (for employees on date of merger)

  	
   

  	
  Yes; all service with Southeast Texas
  Bancshares, Inc., its subsidiaries, and Secure Trust if credited by Southeast
  Texas Bancshares, Inc. (for employees on date of merger)

  	
   

  	
  Immediately upon employment by Employer
  (but only for eligible employees age 21 or more, and only for compensation
  earned from the Employer); in addition, Hours of Service with Southeast Texas
  Bancshares, Inc. and subsidiaries served from January 1, 2004-March 12,
  2004 shall be credited for purposes of allocating Employer Discretionary
  Optional Contributions if the employee is otherwise eligible

  

 

109

 

	
  Valley Mortgage Company, Inc., November 23,
  2004

  	
   

  	
  Yes; all service with Valley Mortgage
  Company, Inc. (for employees on date of merger)

  	
   

  	
  Yes; all service with Valley Mortgage
  Company, Inc. (for employees on date of merger)

  	
   

  	
  Immediately upon employment by Employer
  (but only for eligible employees age 21 or more, and only for compensation
  earned from the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mercantile Bank & Trust and its
  subsidiaries Mercantile Texas Realty Services, Inc. and Mercantile
  Securities, Inc., January 14, 2005

  	
   

  	
  Yes; all service with Mercantile Bank &
  Trust and its subsidiaries Mercantile Texas Realty Services, Inc. and
  Mercantile Securities, Inc. (for employees on date of merger)

  	
   

  	
  Yes; all service with Mercantile Bank &
  Trust and its subsidiaries Mercantile Texas Realty Services, Inc. and
  Mercantile Securities, Inc., (for employees on date of merger)

  	
   

  	
  Immediately upon employment by Employer
  (but only for eligible employees age 21 or more, and only for compensation
  earned from the Employer)

  

 

110

 

Schedule B

 

Effective
Date of Participating Employer Adoption

 

The following Participating Employers have
adopted the Texas Regional Bancshares, Inc. Amended and Restated Employee
Stock Ownership Plan (with 401(k) Provisions) for the benefit of their eligible
employees effective as of the dates indicated below.

 

	
  Name of Company

  	
   

  	
  Effective Date

  of Adoption

  
	
   

  	
   

  	
   

  
	
  TEXAS REGIONAL BANCSHARES, INC.

  	
   

  	
  January 1, 1984

  
	
   

  	
   

  	
   

  
	
  TEXAS STATE BANK

  	
   

  	
  January 1, 1984

  
	
   

  	
   

  	
   

  
	
  TSB SECURITIES, INC.

  	
   

  	
  January 1, 1997

  
	
   

  	
   

  	
   

  
	
  PORT ARTHUR ABSTRACT AND TITLE COMPANY

  	
   

  	
  March 12, 2004

  
	
   

  	
   

  	
   

  
	
  SOUTHEAST TEXAS TITLE COMPANY

  	
   

  	
  March 12, 2004

  
	
   

  	
   

  	
   

  
	
  SOUTHEAST TEXAS INSURANCES SERVICES, L.P.

  	
   

  	
  March 12, 2004

  
	
   

  	
   

  	
   

  
	
  VALLEY MORTGAGE COMPANY, INC.

  	
   

  	
  November 23, 2004

  

 

111

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