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Document

Exhibit 4.2
DESCRIPTION OF REGISTRANT’S SECURITIES
As of December 31, 2021, the Federal Home Loan Bank of Dallas (“the Bank”) has one class of securities, Class B stock, which is registered with the Securities and Exchange Commission under Section 12(g) of the Securities Exchange Act of 1934.
DESCRIPTION OF CLASS B STOCK
The Bank’s Capital Plan, which was amended and revised as of June 17, 2021 and approved by the Federal Housing Finance Agency (the “Finance Agency”) on November 9, 2021, sets forth the capital structure of the Bank. The following description of the Bank’s Class B Stock is qualified in its entirety by reference to the Bank’s organization certificate, bylaws and Capital Plan, each of which is either filed or incorporated by reference as an exhibit to the Bank’s 2021 Annual Report on Form 10-K.
General
The Bank is a cooperative and all of its outstanding capital stock is owned by its members or, in some cases, by non-member institutions that acquire stock by virtue of acquiring member  , by a federal or state agency or insurer acting as a receiver of a closed institution, or by former members of the Bank that retain capital stock to support advances or other extensions of credit that remain outstanding or until any applicable stock redemption or withdrawal notice period expires. All of the Bank’s members are financial institutions; no individual may own any of the Bank’s capital stock. 
Under the Bank’s Capital Plan, each member is required to maintain a minimum investment in Class B stock of the Bank. Each member’s minimum stock investment requirement is equal to the sum of a “membership” investment requirement and an “activity-based” investment requirement. The Bank has two sub-classes of Class B stock. Class B-1 Stock is used to meet a shareholder’s membership investment requirement and Class B-2 Stock is used to meet a shareholder’s activity-based investment requirement. Daily, subject to the limitations in the Capital Plan, the Bank converts shares of one sub-class of Class B Stock to the other sub-class of Class B Stock under the following circumstances: (i) shares of Class B-2 Stock held by a shareholder in excess of its activity-based investment requirement are converted into Class B-1 Stock, if necessary, to meet that shareholder’s membership investment requirement and (ii) shares of Class B-1 Stock held by a shareholder in excess of the amount required to meet its membership investment requirement are converted into Class B-2 Stock as needed in order to satisfy that shareholder’s activity-based investment requirement. All shares of stock held in excess of a shareholder’s minimum investment requirement (“Excess Stock”) is held as Class B-1 Stock at all times. 
Transfer of Class B Stock
The Bank’s capital stock is not publicly traded, nor is there an established market for the stock. The Bank’s capital stock has a par value of $100 per share and it may be purchased, redeemed, repurchased and transferred only at its par value. By regulation, the parties to a transaction involving the Bank’s stock can include only the Bank and its member institutions (or non-member institutions or former members, as described above). While a member could transfer stock to another member of the Bank, such transfer could occur only upon approval of the Bank and then only at par value. 
Voting Rights
Members’ voting rights are exercised in connection with the election of directors, approval of a proposed merger with another Federal Home Loan Bank (“FHLBank”), and such other matters as are authorized or required by the Federal Home Loan Bank Act, as amended (the “Bank Act”), and the governing regulations of the Finance Agency or any predecessor or successor. For purposes of voting rights, all shares of Class B Stock regardless of sub-class are treated the same. 
In accordance with the Bank Act and the governing regulations, the Finance Agency annually designates member director seats by state and independent director seats for at-large election. Each member is entitled to vote in the election of member directors representing the state in which the member is located, and in the election of all independent directors. In each such director election, each member is entitled to cast one vote for each share of capital stock that the member was required to hold as of the immediately preceding December 31, except that no 

member may cast a number of votes greater than the average number of shares of capital stock required to be held by all members in its state as of the preceding December 31. Shares of capital stock held by members that were Excess Stock as of the preceding December 31 do not convey voting rights in the election of directors.
If any member's actual holdings of capital stock are less than the applicable minimum investment requirement on the preceding December 31, the number of shares eligible to be voted is based on the number of shares of capital stock actually held by that member as of the preceding December 31. 
There is no cumulative voting.
Dividends
The Bank is permitted by statute and regulation to pay dividends on members’ capital stock either in cash or capital stock only from previously retained earnings or a portion of current net earnings. The Bank’s Board of Directors may not declare or pay a dividend based on projected or anticipated earnings, nor may it declare or pay a dividend if the Bank is not in compliance with its minimum capital requirements or if the Bank would fail to meet its minimum capital requirements after paying such dividend. The Bank is prohibited from paying dividends if the principal or interest on any consolidated obligations issued on behalf of any FHLBank through the Office of Finance have not been paid in full when due or if the Bank is a noncomplying FHLBank under Finance Agency regulations as a result of its inability to comply with statutory or regulatory liquidity requirements or to satisfy its current obligations. In addition, the Bank may not declare or pay any dividends in the form of capital stock if excess stock held by its shareholders is greater than one percent of the Bank’s total assets or if, after the issuance of such shares, excess stock held by its shareholders would be greater than one percent of the Bank’s total assets. Further, under the terms of the Amended Joint Capital Enhancement Agreement (“the Amended JCE Agreement”) by and among each of the FHLBanks, the Bank is required to allocate at least 20 percent of its net income to a restricted retained earnings account (“RRE Account”) until such time that the RRE Account balance is equal to one percent of its total outstanding consolidated obligations, as defined in the Amended JCE agreement. The Amended JCE Agreement provides that during periods in which the Bank’s RRE Account is less than the amount prescribed in the preceding sentence, it may pay dividends only from unrestricted retained earnings or from the portion of its net income that exceeds the amount required to be allocated to its RRE Account. In light of these requirements, dividends may be limited or prohibited in some circumstances. 
Shares of capital stock issued as dividend payments have the same rights, obligations, and restrictions as all other shares of capital stock, including rights, privileges, and restrictions related to the repurchase and redemption of capital stock. To the extent such shares represent excess stock, they may be repurchased or redeemed by the Bank in accordance with the provisions of the Bank’s Capital Plan.
The Board of Directors may declare dividends to be paid on Class B Stock on a quarterly basis or otherwise as it determines in its discretion. Dividend payments may be made in the form of cash, additional shares of either, or both, sub-classes of Class B Stock, or a combination thereof as determined by the Bank’s Board of Directors. Each member will be entitled to receive dividends on all Class B Stock held during the applicable period for the period of time that the member owns the Class B Stock. Dividends are non-cumulative with respect to payment obligation. A member that has provided a withdrawal notice, or whose membership is otherwise terminated, will continue to receive dividends on its Class B Stock as long as the institution or its successor owns Class B Stock.
The Board of Directors may declare dividends at the same rate for all shares of Class B Stock, or at different rates for Class B-1 Stock and Class B-2 Stock; provided that, in no event will the dividend rate on Class B-2 Stock be lower than the dividend rate on Class B-1 Stock. Except as otherwise provided in the Bank’s Capital Plan or by regulation or statute, the Bank’s Board of Directors has sole discretion to determine the amount, form, frequency and timing of dividend payments. 
Liquidation, Merger or Consolidation
In accordance with the Bank Act, the retained earnings, surplus, undivided profits and equity reserves, if any, of the Bank are owned by the holders of Class B Stock in proportion to each holder’s share of the total outstanding shares of Class B Stock. Holders of Class B Stock have no right to receive any portion of the retained earnings, surplus, undivided profits and equity reserves, if any, of the Bank except through the declaration of a dividend or capital distribution approved by the Board of Directors, or upon liquidation of the Bank. In the event of a liquidation of the 

Bank, and subject to the authority of the Finance Agency governing liquidations, after payment of the Bank’s liabilities, the holders of Class B Stock will receive par value for their Class B Stock, provided that if funds are insufficient to make payment in full on all of the Class B Stock, the payment will occur on a pro rata basis. In addition, any undistributed retained earnings, paid-in surplus, undivided profits, equity reserves, and other assets not otherwise identified will be allocated among the holders of Class B Stock in proportion to the number of shares of Class B Stock owned by each such holder. None of the shares of Class B stock has any right of preference in liquidation.
In the event the Bank is merged or consolidated into another FHLBank, the holders of the outstanding Class B Stock of the Bank will be entitled to the rights and benefits set forth in any applicable plan of merger and/or terms established or approved by the Finance Agency. In the event another FHLBank is merged or consolidated into the Bank, the holders of the outstanding capital stock of the other FHLBank will be entitled to the rights and benefits set forth in any applicable plan of merger and/or terms established or approved by the Finance Agency.
Redemption and Repurchase of Class B Stock
Redemption Upon Application by the Member
Subject to the limitations in the Bank’s Capital Plan, Class B Stock is redeemable for cash at par value with five year’s prior written notice provided by the member to the Bank. A member may request redemption of Class B Stock by providing a written stock redemption notice to the Bank indicating the number of shares of Class B Stock to be redeemed and the date(s) those shares were issued to the member, or by submitting a membership withdrawal notice. If the redemption notice fails to properly identify the particular shares to be redeemed, the member shall be deemed to have requested redemption of the most recently issued shares that are not already subject to a pending redemption request. The five-year stock redemption notice period will commence upon receipt by the Bank of the written stock redemption or withdrawal notice. 
At the expiration of the five-year period following receipt by the Bank of the stock redemption or withdrawal notice, the Bank will pay the stated par value of the Class B Stock covered by the stock redemption notice to the member in cash to the extent the Bank determines that the Class B Stock is Excess Stock, as determined in accordance with the minimum investment requirements in effect at the end of the redemption notice period. All shares of Class B Stock that are acquired by the Bank pursuant to redemption or repurchase transactions will be retired.
A member that has previously notified the Bank in writing of its intent to redeem some or all of its Class B Stock may cancel the stock redemption notice for all or a portion of the shares of Class B Stock subject to the stock redemption notice prior to the expiration of the redemption notice period by providing a written redemption cancellation notice to the Bank. A member may rescind a redemption cancellation notice by providing written notice to the Bank within 30 days of the original redemption cancellation notice. A member that cancels a stock redemption notice more than 30 days after it is received by the Bank and prior to its expiration will be subject to a redemption cancellation fee calculated as a percentage of the par value of the shares of Class B Stock subject to the redemption cancellation notice.  
Repurchase Initiated by the Bank
The Bank in its sole discretion may repurchase Excess Stock from time to time without regard to the five-year redemption notice period. Excess Stock repurchases may be initiated by the Bank or requested by members, and are subject to limitations contained in the Bank’s Capital Plan. The decision to repurchase Excess Stock rests solely with the Bank and cannot be compelled by a member.
Upon 15 days’ written notice, the Bank may initiate the repurchase of any amount of members' Excess Stock. The Bank will determine the criteria for Excess Stock repurchases from time to time, and will apply the repurchase criteria equally and without discrimination to all members. If the Bank initiates the repurchase of an amount of all members’ Excess Stock, then for each member the Bank will repurchase shares of Class B-1 Stock that are Excess Stock until the designated total repurchase amount is repurchased. Pursuant to an application submitted by a member to the Bank in writing or in such other form as the Bank may designate from time to time, the Bank may repurchase Class B Stock that the Bank determines to be Excess Stock.
Unless the Bank is notified by a member otherwise in writing on or prior to the date of a Class B Stock repurchase transaction, repurchases of Excess Stock will automatically reduce the amount of Class B Stock subject to any 

outstanding stock redemption or withdrawal notices by the amount of Class B Stock repurchased. If a member has more than one stock redemption and / or withdrawal notice outstanding, this reduction will be applied first to the most recently received stock redemption or withdrawal notice.
Termination of Membership
The Board of Directors may terminate membership of an institution that (a) has not complied with any provision of the Capital Plan or the Bank Act or the governing regulations, (b) has become insolvent or (c) would jeopardize the safety and soundness of the Bank if it were to remain a member. In such an event, membership terminates as of the date the Board of Directors acts, and the institution loses all its membership rights except the right to receive dividends until its Class B Stock is redeemed. 
In addition, an institution’s membership may be terminated (i) by operation of law if it is the non-surviving entity in a consolidation or merger with a non-member, another member of the Bank, or an institution outside the Bank’s district, or (ii) if it relocates outside the Bank’s district. If two or more members consolidate into one institution, the Class B Stock of the disappearing member(s) transfers to the surviving member and is allocated as appropriate to that member’s stock accounts. If a member consolidates with and into a member of another FHLBank, the disappearing member’s membership generally terminates when its charter is cancelled. Similarly, if a member consolidates with and into an institution that is not a member of any FHLBank, the member’s membership terminates when its charter is cancelled, unless the surviving institution applies to become, and is accepted as, a member of the Bank. 
At the time of a termination, the Bank will repurchase any Excess Stock at par value. The Bank may not redeem or repurchase any of the terminating member’s Class B Stock that is required to support remaining indebtedness to or business transactions with the Bank.
Limitations on Redemption and Repurchase 
The Bank will not redeem or repurchase Class B Stock without the prior written approval of the Finance Agency if the Finance Agency or the Board of Directors has determined that the Bank has incurred, or is likely to incur, losses that result in, or are likely to result in, charges against the capital of the Bank. 
The Bank will not redeem or repurchase Class B Stock if the redemption or repurchase would cause the Bank to be out of compliance with its minimum capital requirements, or if the redemption or repurchase would cause the member to be out of compliance with its minimum investment requirement.  
In accordance with the regulations, the Bank's Board of Directors may suspend redemption of Class B Stock if the Bank reasonably believes that continued redemption of Class B Stock would cause the Bank to fail to meet its minimum capital requirements in the future, would prevent the Bank from maintaining adequate capital against a potential risk that may not be adequately reflected in its minimum capital requirements, or would otherwise prevent the Bank from operating in a safe and sound manner. In accordance with the regulations, the Bank will not repurchase any Class B Stock without the written consent of the Finance Agency during any period in which the Bank has suspended redemptions of Class B Stock. 
If at any time the Bank determines that the total amount of Class B Stock subject to outstanding stock redemption or withdrawal notices with expiration dates within the following 12 months exceeds the amount of Class B Stock the Bank could redeem and still comply with its minimum capital requirements, the Bank will determine whether to suspend redemption and repurchase activities altogether, to fulfill requests for redemption sequentially in the order in which they were received, to fulfill the requests on a pro rata basis, or to take other action deemed appropriate by the Bank. 
Modification of Rights of Holders
Both the Bank’s Board of Directors and the Finance Agency must approve any amendments to the Capital Plan. Members’ consent is not required to amend the Capital Plan. The Bank is subject to the Bank Act and the regulations, orders, directives and guidance adopted by the Finance Agency. From time to time, Congress has amended the Bank Act, and the Finance Agency has amended its regulations or issued orders, directives or guidance in ways that have significantly affected the rights and obligations of the Bank and its members. It is possible that 

legislative or regulatory changes in the future could further modify the rights and/or obligations of the Bank and its members.Document

Exhibit 10.23

FEDERAL HOME LOAN BANK OF DALLAS 

2022 EXECUTIVE INCENTIVE PLAN

FEDERAL HOME LOAN BANK OF DALLAS
2022 EXECUTIVE INCENTIVE PLAN
TABLE OF CONTENTS
															
					PAGE
	Article I INTRODUCTION		1
					
	Section 1.1		Purpose		1
	Section 1.2		Effective Date		1
	Section 1.3		Administration		1
	Section 1.4		Supplements		1
	Section 1.5		Definitions		1
					
	Article II PARTICIPATION		2
					
	Section 2.1		Eligibility and Participation.		2
					
	Article III AWARDS		2
					
	Section 3.1		Awards		2
	Section 3.2		Performance Goals		3
	Section 3.3		Earning and Vesting of Awards for Participants		4
	Section 3.4		Effect of Termination of Service		4
	Section 3.5		Effect of Reorganization		7
	Section 3.6		Payment of Awards		8
	Section 3.7		Reduction or Forfeiture of Awards		9
					
	Article IV ADMINISTRATION		9
					
	Section 4.1		Appointment of the Committee		9
	Section 4.2		Powers and Responsibilities of the Committee		10
	Section 4.3		Income and Employment Tax Withholding		10
	Section 4.4		Plan Expenses		10
					
	Article V BENEFIT CLAIMS		10
					
	Article VI AMENDMENT AND TERMINATION OF THE PLAN		11
					
	Section 6.1		Amendment of the Plan		11
	Section 6.2		Termination of the Plan		11
					
	Article VII MISCELLANEOUS		11
					
	Section 7.1		Governing Law		11
	Section 7.2		Headings and Gender		11
	Section 7.3		Spendthrift Clause		11
	Section 7.4		Counterparts		11

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	Section 7.5		No Enlargement of Employment Rights		11
	Section 7.6		Limitations on Liability		12
	Section 7.7		Incapacity of Participant		12
	Section 7.8		Evidence		12
	Section 7.9		Action by Bank		12
	Section 7.10		Severability		12
	Section 7.11		Information to be Furnished by a Participant		12
	Section 7.12		Binding on Successors		13
					
	APPENDIX I 2022 Performance Period AWARDS & GOALS		1

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ARTICLE I 
 
INTRODUCTION

Section 1.1    Purpose.  The purpose of the Federal Home Loan Bank of Dallas 2022 Executive Incentive Plan (the “Plan”) is to attract, retain and motivate executive officers of the Federal Home Loan Bank of Dallas (the “Bank”) and to focus their efforts on achieving the Bank’s business goals while maintaining the Bank’s safety and soundness.  The Plan is a cash-based incentive plan that provides award opportunities based on achievement of specified performance goals.

Section 1.2    Effective Date.  The “Effective Date” of the Plan is January 1, 2022.

Section 1.3    Administration.  The Plan will be administered by the Compensation & Human Resources Committee (the “Committee”) of the Bank’s Board of Directors (the “Board”).  The Committee, from time to time, may adopt any rules and procedures it deems necessary or desirable for the proper and efficient administration of the Plan that are consistent with the terms of the Plan.  Any notice or document required to be given or filed with the Committee will be properly given or filed if delivered to or mailed by registered mail, postage paid, to the General Counsel, Federal Home Loan Bank of Dallas, 8500 Freeport Parkway South, Suite 100, Irving, TX 75063.

Section 1.4    Supplements.  The provisions of the Plan may be modified by supplements to the Plan only if in writing and approved by the Board.  The terms and provisions of each supplement are a part of the Plan and supersede any other provisions of the Plan to the extent necessary to eliminate any inconsistencies between the supplement and any other Plan provisions.

Section 1.5    Definitions.  The following terms are defined in the Plan in the following Sections:
						
	Term
	Plan Sections

	Current Award	3.3(a)
	Annual Award	3.1
	Bank	1.1
	Board	1.3
	Committee	1.3
	Deferral Performance Period	3.1
	Deferred Award	3.3(b)
	Disability	3.4(f)(i)
	Effective Date	1.2

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	Extraordinary Occurrences	3.1(c)
	Good Reason	3.4(f)(v)
	FHFA	3.5(b)
	Award Payments	3.1(c)
	Participant	2.1
	Stretch	3.2(b)(iii)
	Performance Goals	3.2
	Performance Period	3.1
	Plan	1.1
	Reduction in Force	3.4(f)(ii)
	Reorganization	3.5(b)
	Retirement	3.4(f)(iii)
	Target	3.2(b)(ii)
	Termination of Service	3.4(f)(iv)
	Threshold	3.2(b)(i)
 

 

ARTICLE II 
 
PARTICIPATION

Section 2.1    Eligibility and Participation.   Participation in the Plan is limited to those officers of the Bank that are voting members of the Executive Management Committee, each a Participant in the plan.   

ARTICLE III 
 
AWARDS

Section 3.1    Awards.  At the beginning of the Performance Period, the Board will make an “Annual Award” to eligible Participants.  As described in this Article, the Annual Award will be divided into a Current Award (as defined in subsection 3.3(a)) and a Deferred Award (as defined in subsection 3.3(b)). The Annual Award will be equal to a percentage of the Participant’s annual base salary for 2022, as set forth in Appendix I to the Plan.  The “Performance Period” is the one-calendar year period over which the Current Award can be earned and vested pursuant to subsection 3.3(a). Under the Plan, the Performance Period begins on January 1, 2022 and ends on December 31, 2022. The “Deferral Performance Period” is the three-calendar year period over which the Deferred Award can be earned and vested pursuant to subsection 3.3(b). Under the Plan, the Deferral Performance Period begins on January 1, 2023 and ends on December 31, 2025.
(a)    Award Notification.  Participants will be notified by the Bank of the Annual Awards.
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(b)    Award Levels. Participants will receive Annual Awards for the Performance Period based on their position with the Bank as described in Appendix I to the Plan.
(c)    Award Payments.  Award Payments are the amount of an earned and vested Current Award and Deferred Award that are ultimately paid to a Participant based upon the level at which the Performance Goals applicable to those awards have been achieved. The Board, in its discretion, may consider Extraordinary Occurrences when assessing performance results and determining Award Payments.  “Extraordinary Occurrences” mean those events that, in the opinion and discretion of the Board, are outside the significant influence of the Participant or the Bank and are likely to have a significant unanticipated effect, whether positive or negative, on the Bank’s operating and/or financial results.   

Section 3.2    Performance Goals.  “Performance Goals” are the performance factors established by the Board for the Performance Period and the Deferral Performance Period as set forth in Appendix I to the Plan, which are taken into consideration in determining the value the Current Award and the Deferred Award.  The Board may adjust the Performance Goals to ensure the purposes of the Plan are served.
(a)    Establishment of Performance Goals.  Performance Goals for the Performance Period and the Deferral Performance Period will be communicated to Participants after they have been established by the Board.
(b)    Achievement Level.  Three achievement levels will be defined for each Performance Goal in determining how much of an Annual Award is earned.
(i)    Threshold.  The “Threshold” achievement level is the minimum achievement level accepted for a Performance Goal.
(ii)    Target.  The “Target” achievement level is aligned to satisfactory business results.
(iii)    Stretch.  The “Stretch” achievement level is achievement that substantially exceeds the Target achievement level.
(c)    Interpolation.  Achievement levels between Threshold and Target and between Target and Stretch will be interpolated in a consistent manner as determined by the Committee.
(d)    Considerations in Establishing Performance Goals.  In determining appropriate Performance Goals and the relative weight assigned to each Performance Goal, the Committee will:
(i)    Balance risk and financial results in a manner that does not encourage Participants to expose the Bank to imprudent risks;
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(ii)    Make such determination in a manner designed to ensure that Participants’ overall compensation is balanced and not excessive in amount and that the Current Awards and Deferred Awards are consistent with the Bank’s policies and procedures regarding such compensation arrangements; and
(iii)    Monitor the success of the Performance Goals and weighting established in prior years and make appropriate adjustments in future calendar years as needed so that payments appropriately incentivize Participants, appropriately reflect risk and align with regulatory guidance.

Section 3.3    Earning and Vesting of Awards for Participants.
(a)    Earning and Vesting of Current Awards.  Fifty percent of the Annual Award will become earned and vested on the last day of the Performance Period (i.e., December 31, 2022), provided the following requirements are met (the “Current Award”):
(i)    The applicable Performance Goals for the Performance Period are satisfied;
(ii)    The Participant received a performance rating for the Performance Period of at least “Solid Performance” in their individual performance rating; and
(iii)    The Participant is actively employed on the last day of the Performance Period, unless otherwise provided in subsection 3.4(b), 3.4(c), 3.4(d) or 3.4(e) or Section 3.5.
(b)    Earning and Vesting of Deferred Awards.  The remaining 50 percent of the Annual Award will become earned and vested on the last day of the Deferral Performance Period (i.e., December 31, 2025), provided the following requirements are met (the “Deferred Award”):
(i)    The applicable Performance Goals for the Deferral Performance Period are satisfied;
(ii)    The Participant received at least a “Solid Performance” performance rating for the final year of the Deferral Performance Period; and
(iii)    The Participant is actively employed on the last day of the Deferral Performance Period, unless otherwise provided in subsection 3.4(b), 3.4(c), 3.4(d) or 3.4(e) or Section 3.5.
(c)    Calculation of Awards.  Current Awards and Deferred Awards will be calculated in accordance with Appendix I to the Plan.

Section 3.4    Effect of Termination of Service.
(a)    In General.  If a Participant incurs a Termination of Service for any reason other than a reason set forth in subsection 3.4(b), 3.4(c), 3.4(d) or 3.4(e) or Section 3.5, 
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the Participant’s unvested Current Award and/or Deferred Award will be forfeited effective as of the date of such Termination of Service.  
(b)    Termination Due to Death or Disability.  
(i)    Notwithstanding the provisions of Section 3.3 and subsection 3.4(a), if a Participant incurs a Termination of Service due to death or Disability during the Deferral Performance Period, then the Participant’s Deferred Award will be treated as earned and vested based on the assumption the Bank would have achieved the applicable Performance Goals for the Deferral Performance Period. 
(ii)    Notwithstanding the provisions of Section 3.3 and subsection 3.4(a), if a Participant incurs a Termination of Service during the Performance Period due to death or Disability, any Current Award which has not been earned and vested for the year of the Participant’s Termination of Service due to death or Disability, will be treated as earned and vested for the portion of the Performance Period during which the Participant was employed based on the assumption the Bank would have achieved the Performance Goals at the Target achievement level for the Performance Period.
(c)    Termination Due to a Reduction in Force.
(i)    Notwithstanding the provisions of Section 3.3 and subsection 3.4(a), if a Participant incurs a Termination of Service during the Performance Period due to a Reduction in Force, any Current Award which has not been earned and vested will be treated as earned and vested for the portion of the Performance Period during which the Participant was employed to the extent the Performance Goals for the Performance Period are satisfied.
(ii)    Notwithstanding the provisions of Section 3.3 and subsection 3.4(a), if a Participant incurs a Termination of Service during the Deferral Performance Period due to a Reduction in Force, the Deferred Award will be treated as fully earned and vested upon completion of the three-year Deferral Performance Period.
(d)    Termination Due to a Retirement.
(i)    Notwithstanding the provisions of Section 3.3 and subsection 3.4(a), if a Participant incurs a Termination of Service during the Performance Period due to a Retirement, any Current Award which has not been earned and vested will be treated as earned and vested for the portion of the Performance Period during which the Participant was employed to the extent the Performance Goals for the Performance Period are satisfied.
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(ii)    Notwithstanding the provisions of Section 3.3 and subsection 3.4(a), if a Participant incurs a Termination of Service during the Deferral Performance Period due to a Retirement, the Deferred Award will be treated as fully earned and vested upon completion of the three-year Deferral Performance Period.
(e)    Termination by Participant for Good Reason.
(i)    Notwithstanding the provisions of Section 3.3 and subsection 3.4(a), if a Participant incurs a Termination of Service during the Performance Period due to a termination by the Participant for Good Reason, any Current Award which has not been earned and vested will be treated as earned and vested for the portion of the Performance Period during which the Participant was employed to the extent the Performance Goals for the Performance Period are satisfied.
(ii)    Notwithstanding the provisions of Section 3.3 and subsection 3.4(a), if a Participant incurs a Termination of Service during the Deferral Performance Period due to a termination by the Participant for Good Reason, the Deferred Award will be treated as fully earned and vested upon completion of the three-year Deferral Performance Period.
(f)    Definitions.
(i)    “Disability” is defined as per the Bank’s Long-term Disability Plan.
(ii)    “Reduction in Force” means an involuntary termination of service of a Participant pursuant to the Bank’s Reduction in Workforce Policy.
(iii)    “Retirement” means the Participant’s planned and voluntary termination of employment on or after the Participant has attained age 55 with at least ten years of service to the Bank.

(iv)    “Termination of Service” means the occurrence of any act or event or any failure to act, that actually or effectively causes or result in a Participant ceasing, for whatever reason, to be an employee of the Bank, including, but not limited to, death, Disability, Retirement, termination of the Participant’s employment by the Bank (whether for cause or otherwise), termination by the Participant of his or her employment with the Bank for Good Reason and voluntary resignation or termination by the Participant of his or her employment.

(v)    “Good Reason” shall mean the occurrence, without the Participant’s written consent, of any of the following events:

(1)    any material diminution in the Participant’s authority, duties or responsibilities with the Bank; 
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(2)    a material reduction by the Bank in the Participant’s incentive compensation award range under the Executive Incentive Plan program, except for an across-the-board reduction similarly affecting substantially all similarly-situated Participants;

(3)    a material reduction in the Participant’s base salary, except for across-the-board salary reductions similarly affecting substantially all similarly-situated Participants; 

(4)    the Bank’s requiring the Participant to perform the Participant’s principal services more than 100 miles from the Participant’s place of primary employment on the Effective Date or such other location at which the Participant has later agreed to provide such services; or

(5)    a material breach by the Bank of any material provision of this Plan.

No resignation by a Participant will be treated as a termination for Good Reason unless (x) the Participant has given written notice to the Bank of the Participant’s intention to terminate the Participant’s employment for Good Reason, describing in detail the grounds for such action, no later than thirty (30) calendar days after the first occurrence of such circumstance, (y) the Participant has provided the Bank with at least thirty (30) calendar days in which to cure the circumstance, and (z) if the Bank is not successful in curing the circumstance, the Participant ends employment within thirty (30) calendar days following the conclusion of the cure period in (y).  If the Bank informs the Participant that it will not treat the Participant’s resignation as for Good Reason, the Participant may withdraw the resignation and remain employed (provided that the Participant does so before the original notice of resignation becomes effective) or may proceed and dispute the Bank’s decision.  Notwithstanding the foregoing, placing of the Participant on administrative leave by the Bank shall not be considered “Good Reason.”

Section 3.5    Effect of Reorganization.
(a)    Notwithstanding the provisions of Sections 3.3 and 3.4, if a Reorganization of the Bank occurs, then any portion of the Current Award which has not otherwise become earned and vested will be paid on a pro-rated basis based on the assumption the Bank would have achieved the Performance Goals at the Target achievement level for the Performance Period. If a Reorganization of the Bank occurs during the Deferral Performance Period, then the Deferred Award will be treated as fully earned and vested effective as of the date of the Reorganization based on the assumption the Bank would have achieved the applicable Performance Goals for the Deferral Performance Period. Any interest accrued on the Deferred Award through the Reorganization date will be added to the Deferred  Award payment.

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(b)    “Reorganization” of the Bank will mean the occurrence at any time of any of the following events:
(i)    The Bank is merged or consolidated with or reorganized into or with another bank or other entity, or another bank or other entity is merged or consolidated into the Bank;
(ii)    The Bank sells or transfers all, or substantially all of its business and/or assets to another bank or other entity; or
(iii)    The liquidation or dissolution of the Bank.
The term “Reorganization” shall not include any Reorganization that is mandated by federal statute, rule, regulation, or directive, including 12 U.S.C. § 1421, et seq., as amended, and 12 U.S.C. § 4501 et seq., as amended, and which the Director of the Federal Housing Finance Agency (the “FHFA”) (or successor agency) has determined should not be a basis for accelerating vesting under this Plan, by reason of the capital condition of the Bank or because of unsafe or unsound acts, practices, or condition ascertained in the course of the FHFA’s supervision of the Bank or because any of the conditions identified in 12 U.S.C. § 4617(a)(3) are met with respect to the Bank (which conditions do not result solely from the mandated reorganization itself, or from action that the FHFA has required the Bank to take under 12 U.S.C. § 1431(d)).

Section 3.6    Payment of Awards.
(a)    Payments Related to Termination of Service.  The following provisions apply to awards payable as a result of a Termination of Service.
(i)    In the event of a Termination of Service due to death or Disability, payment of the Current Award or Deferred Award, as applicable, will be made in a single sum within 75 days of the date of Termination of Service.
(ii)    In the event of a Termination of Service due to a Retirement, a termination for Good Reason, or a termination by the Bank due to a Reduction in Force, payment of the Current Award or Deferred Award, as applicable,  will be made in a single sum within 75 days following the end of the Performance Period or Deferral Performance Period, as applicable.  Notwithstanding the foregoing, in the event of a Reduction in Force or termination for Good Reason, a Participant must execute the severance agreement offered by the Bank in order to be eligible to receive payment.
(b)    Payments Not Related to a Termination of Service.  Current Awards and Deferred Awards which become vested for reasons other than a Termination of Service, will be paid in a single sum within 75 days following the end of the Performance Period or Deferral Performance Period, as applicable.
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(c)    Notwithstanding the foregoing provisions of this Section, Current Awards and Deferred Awards will be paid upon approval by the Board, and after review of the calculations by the FHFA.  However, in the event of a Reorganization, a Participant's Current Award or Deferred Award, as applicable, will be paid in a single sum on the date on which the Reorganization occurs.

Section 3.7    Reduction or Forfeiture of Awards.
(a)    Any Current Award or Deferred Award not yet paid may be reduced or eliminated, if any actual losses or other measures or aspects of performance are realized which would have caused a reduction in the amount of the awards. 
NOTE:  Executives are responsible for completing employee performance reviews within 45 days of the notification date announced by Human Resources. Failure to adhere to the designated performance review deadline, will result in an Executive being assessed a 10 percent reduction in their final Annual Award. 

(b)    Notwithstanding any other provision of the Plan, if during the most recent examination of the Bank by the FHFA, the FHFA identified an unsafe or unsound practice or condition that is material to the financial operation of the Bank within the Participant’s area(s) of responsibility and such unsafe or unsound practice or condition is not subsequently resolved in favor of the Bank, then all of a Participant’s vested and unvested awards under this Plan will be forfeited.  Any future payments for a vested award will cease and the Bank will have no further obligation to make such payments.
(c)    By resolution, the Board may reduce or eliminate an award that is otherwise earned under this Plan but not yet paid, if the Board finds that a serious, material safety-soundness problem, or a serious, material risk-management deficiency exists at the Bank, or if: (i) operational errors or omissions result in material revisions to the financial results, information submitted to the FHFA, or data used to determine incentive payouts; (ii) submission of material information to the SEC, Office of Finance, and/or FHFA is significantly past due, or (iii) the Bank fails to make sufficient progress, as determined by the Board, in the timely remediation of significant examination, monitoring and other supervisory findings.

ARTICLE IV 
 
ADMINISTRATION

Section 4.1    Appointment of the Committee.  The Committee, or a duly authorized officer or officers of the Bank empowered by the Committee to act on its behalf under subsection 4.2(c), will be responsible for administering the Plan, and the Committee will be charged with the full power and the responsibility for administering the Plan in all its details, provided that the power to determine eligibility pursuant to Article II is reserved to the Board.
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Section 4.2    Powers and Responsibilities of the Committee.  The Committee will have all powers necessary to administer the Plan, including the power to construe and interpret the Plan document; to decide all questions relating to an individual’s continued eligibility to participate in the Plan; to determine the amount, manner and timing of any distribution of benefits under the Plan; to resolve any claim for benefits in accordance with Article V, and to appoint or employ advisors, including legal counsel, to render advice with respect to any of the Committee’s responsibilities under the Plan.  Any construction, interpretation, or application of the Plan by the Committee will be final, conclusive and binding.
(a)    Records and Reports.  The Committee, or a duly authorized officer or officers of the Bank empowered by the Committee to act on its behalf under subsection 4.2(c), will be responsible for maintaining sufficient records to determine each Participant’s eligibility to participate in the Plan.
(b)    Rules and Decisions.  The Committee may adopt such rules as it deems necessary, desirable, or appropriate in the administration of the Plan.  All rules and decisions of the Committee will be applied uniformly and consistently to all Participants in similar circumstances.  When making a determination or calculation, the Committee will be entitled to rely upon information furnished by a Participant, the Bank or the legal counsel of the Bank.
(c)    Delegation.  The Committee may authorize one or more officers or employees of the Bank to perform administrative responsibilities on its behalf under the Plan.  Any such duly authorized officer will have all powers necessary to carry out the administrative duties delegated to such officer by the Committee.

Section 4.3    Income and Employment Tax Withholding.  The Bank will withhold from payments to Participants of their Current Award and Deferred Award, to the extent required by law, all applicable federal, state, city and local taxes.

Section 4.4    Plan Expenses.  The expenses incurred for the administration and maintenance of the Plan will be paid by the Bank.

ARTICLE V 
 
BENEFIT CLAIMS
While a Participant need not file a claim to receive his or her benefit under the Plan, if he or she wishes to do so, a claim must be made in writing and filed with the Committee.  If a claim is denied, the Committee will furnish the claimant with written notice of its decision.  A claimant may request a full and fair review of the denial of a claim for benefits by filing a written request with the Committee.
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ARTICLE VI 
 
AMENDMENT AND TERMINATION OF THE PLAN

Section 6.1    Amendment of the Plan.  The Bank, acting through the Board, may amend the Plan at any time in its sole discretion.  Notwithstanding the foregoing, the Bank may not amend the Plan to reduce a Participant’s Annual Award as determined on the day preceding the effective date of the amendment or to otherwise retroactively impair or adversely affect the rights of a Participant.

Section 6.2    Termination of the Plan.  The Bank, acting through the Board, may terminate the Plan at any time in its sole discretion.  Absent an amendment to the contrary, Plan benefits that were earned and vested prior to the termination will be paid at the times and in the manner provided for by the Plan at the time of the termination.

ARTICLE VII 
 
MISCELLANEOUS

Section 7.1    Governing Law.  Except to the extent superseded by laws of the United States, the laws of Texas will be controlling in all matters relating to the Plan without regard to the choice of law principles therein.  The Plan and all awards are intended to comply, and will be construed by the Bank in a manner in which they are exempt from or comply with the applicable provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).  To the extent there is any conflict between a provision of the Plan or an Annual Award and a provision of Code Section 409A, the applicable provision of Code Section 409A will control.

Section 7.2    Headings and Gender.  The headings and subheadings in the Plan have been inserted for convenience of reference only and will not affect the construction of the Plan provisions.  In any necessary construction, the masculine will include the feminine and the singular the plural, and vice versa.

Section 7.3    Spendthrift Clause.  No benefit or interest available under the Plan will be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or attachment by creditors of a Participant, either voluntarily or involuntarily.

Section 7.4    Counterparts.  This Plan may be executed in any number of counterparts, each one constituting but one and the same instrument, and may be sufficiently evidenced by any one counterpart.

Section 7.5    No Enlargement of Employment Rights.  Nothing contained in the Plan may be construed as a contract of employment between the Bank and any person, 
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nor may the Plan be deemed to give any person the right to be retained in the employ of the Bank or limit the right of the Bank to employ or discharge any person with or without cause.

Section 7.6    Limitations on Liability.  The individual members of the Board will, in accordance with the Bank’s by-laws, be indemnified and held harmless by the Bank with respect to any alleged breach of responsibilities performed or to be performed hereunder.  In addition, notwithstanding any other provision of the Plan, neither the Bank nor any individual acting as an employee or agent of the Bank will be liable to a Participant for any claim, loss, liability or expense incurred in connection with the Plan, except when the same has been affirmatively determined by a court order or by the affirmative and binding determination of an arbitrator, to be due to the gross negligence or willful misconduct of that person.

Section 7.7    Incapacity of Participant.  If any person entitled to receive a distribution under the Plan is physically or mentally incapable of personally receiving and giving a valid receipt for any payment due (unless a prior claim for the distribution has been made by a duly qualified guardian or other legal representative), then, unless and until a claim for the distribution has been made by a duly appointed guardian or other legal representative of the person, the Committee may provide for the distribution to be made to any other individual or institution then contributing toward or providing for the care and maintenance of the person.  Any payment made for the benefit of the person under this Section will be a payment for the account of such person and a complete discharge of any liability of the Bank and the Plan.

Section 7.8    Evidence.  Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information which the person relying on the evidence considers pertinent and reliable, and signed, made or presented by the proper party or parties.

Section 7.9    Action by Bank.  Any action required of or permitted by the Bank under the Plan will be by resolution of the Board or by a person or persons authorized by resolution of the Board.

Section 7.10    Severability.  In the event any provisions of the Plan are held to be illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and endorsed as if the illegal or invalid provisions had never been contained in the Plan.

Section 7.11    Information to be Furnished by a Participant.  A Participant, or his or her beneficiary, must furnish the Committee with any and all documents, evidence, data or other information the Committee considers necessary or desirable for the purpose of administering the Plan.  Benefit payments under the Plan are conditioned on a Participant (or beneficiary) furnishing full, true and complete data, evidence or other information to the Committee, and on the prompt 
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execution of any document reasonably related to the administration of the Plan requested by the Committee.

Section 7.12    Binding on Successors.  The Plan will be binding upon and inure to the benefit of the Bank and its successors and assigns, and the successors, assigns, designees and estates of a Participant.  The Plan will also be binding upon and inure to the benefit of any successor organization succeeding to substantially all of the assets and business of the Bank, but nothing in the Plan will preclude the Bank from merging or consolidating into or with, or transferring all or substantially all of its assets to, another organization which assumes the Plan and all obligations of the Bank hereunder.  The Bank agrees that it will make appropriate provision for the preservation of a Participant’s rights under the Plan in any agreement or plan which it may enter into to effect any merger, consolidation, reorganization or transfer of assets.  Upon such a merger, consolidation, reorganization or transfer of assets and assumption of Plan obligations of the Bank, the term “Bank” will refer to such other organization and the Plan will continue in full force and effect.

(As revised and approved by the Board of Directors on December 2, 2021.)

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APPENDIX I 
 
2022 PERFORMANCE PERIOD AWARDS & GOALS
A.    Incentive Opportunities
																														
		TOTAL INCENTIVE 
AS % OF 2022 BASE SALARY	CURRENT INCENTIVE 
AS % OF 2022 BASE SALARY	DEFERRED INCENTIVE
AS % OF 2022 BASE SALARY
										
		Threshold	Target	Maximum	Threshold	Target	Maximum	Threshold	Target	Maximum
	CEO	50 	%	75 	%	100 	%	25 	%	37.5 	%	50 	%	25 	%	37.5 	%	50 	%
										
										
	Tier 1 - SEO	30 	%	50 	%	70 	%	15 	%	25 	%	35 	%	15 	%	25 	%	35 	%
	Tier 2 – SEO	30 	%	60 	%	80 	%	15 	%	30 	%	40 	%	15 	%	30 	%	40 	%

B.    2022 Performance Goals 
Information in this section of Appendix I relating to individual performance goals has been excluded and will be disclosed in the Registrant’s periodic filing following the completion of the 2022 Performance Period.

 

C.    Deferred Performance Goals
If the following “Safety and Soundness” Goals are achieved, the deferral is paid in full with an additional annual compounding interest rate of 6% applied to the deferred awards during the Deferral Performance Period: (i) no material risk-management deficiency exists at the Bank; (ii) no operational errors or omissions result in material revisions to the financial results, information submitted to the FHFA, or data used to determine incentive payouts; (iii) no submission of material information to the SEC, Office of Finance, and/or FHFA is significantly past due; (iv) the Bank makes sufficient progress, as determined by the Board, in the timely remediation of significant examination, monitoring and other supervisory findings; and (v) the Bank has sufficient capital to pay dividends and repurchase member stock.
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