Document:

ex10-2.htm

 

EXHIBIT 10.2

 

EMPLOYMENT AGREEMENT

 

AGREEMENT made as of the 1st day of January, 2013, by and between Innovative Food Holdings, Inc., a Florida corporation with its principal offices at 3845 Beck Blvd., Suite 805, Naples, FL (the “Corporation” or “IVFH”), and Justin Wiernasz (the “Executive”).

 

W I T N E S S E T H:

 

In consideration of the mutual covenants contained herein, the parties hereto agree as follow:

 

1. Employment.  The Corporation hereby employs the Executive as an executive of the Corporation, and the Executive agrees to serve the Corporation as such, upon the terms and conditions set forth in this Agreement for the period commencing as of the date hereof and, unless Executive's employment under the Agreement is otherwise terminated in accordance with the provisions hereof, ending on December 31, 2015.

 

2. Duties.  (a)  The Executive shall serve as the President and Chief Marketing Officer of the Corporation and its subsidiary companies, with such duties and authority as are generally incident to such positions, or in such other management position as the Corporation shall determine. Without limiting the generality of the foregoing, the Executive shall (i) develop a sales program and sales staff; (ii) if the Corporation shall so determine, shall assist the Corporation in developing support staff; (iii) shall solicit sales of the Corporation's product; (iv) report directly to the CEO; (v) perform such responsibilities and duties as designated by the Chief Executive Officer; and (iv) perform other duties as requested by the Chief Executive Officer.  The Executive will hold such offices in the Corporation and/or any subsidiaries or affiliates of the Corporation to which, from time to time, he may be elected or appointed (if any); provided that the offices to which the Executive may be so elected or appointed shall not be inconsistent with such duties and authority.  In performing his duties hereunder, the Executive shall be subject to the direction of the Corporation's Board of Directors and its Chief Executive Officer.

 

   (b)  The Executive agrees that he will devote substantially all of his time and attention to the affairs of the Corporation, (including subsidiaries) that he will use his best efforts to promote the business and interests of the Corporation, and that he will not engage, directly or indirectly, in any other business or occupation during the term of employment hereunder.  It is understood, however, that the foregoing will not prohibit the Executive from engaging in personal investment activities for himself and his family that do not interfere with the performance of his duties hereunder.

 

3. Compensation. (a) The Corporation will pay the Executive for all services to be rendered by the Executive hereunder (including, without limitation, all services to be rendered by him as an officer of the Corporation and its subsidiaries and affiliates) an annual base salary (hereinafter referred to as the "Base Salary") at the rate of: (i) $226,250 per annum from the date hereof through December 31, 2013, (ii) $248,875 per annum from January 1, 2014 through December 31, 2014, and (iii) $273,763 per annum from January 1, 2015 through December 31, 2015. The Base Salary for each year shall be payable in equal, weekly installments in accordance with customary payroll practices for executives of the Corporation.  As permitted by law, Executive may receive any portion of Base Salary in the form of shares of the Corporation’s common stock by delivering notice to the Corporation from to time at a valuation based upon the average closing price of the Corporation’s common stock over the 30 trading days ended on a trading date that is five trading days prior to Executive’s notice.

 

  

  

  

  

 (b) Executive shall also be entitled to receive an annual bonus based upon the consolidated aggregate incremental revenues of the Corporation and its subsidiaries (collectively, referred to herein as “IVFH”), over each of the three 12-month periods beginning January 1, 2013 (the “Bonus”) pursuant to the schedule below. The Bonus shall be payable in cash, stock or a combination of stock and cash, at the discretion of Executive, with such decision to be made by Executive prior to the payment of the Bonus. The equity component shall be valued based upon the average closing price of the Corporation’s common stock over the 30 trading days ended on December 31 of the year for which the Bonus is being calculated, but under no circumstance will be below $0.25 per share. All calculations with respect to the Base Salary and Bonus shall be based upon the Corporation’s financial statements and available financial information and Cash EBITDA calculations as determined by the CEO, working together when necessary, with the Corporation’s outside accountants and the Corporation’s principal accounting officer and shall be completed no later than February 1 of the following year. The Bonus for each year, if earned, shall be payable in full on or before by the following February 27th.  For purposes of this Agreement, Cash EBITDA means EBITDA not including any non-operational, accounting required, adjustments relating to equity or debt related instruments issued by the Corporation such as stock option, note or warrant related revaluation costs or benefits impacting the Corporation’s income statement.

The Bonus shall be payable according to the following schedule:

 

Food Innovations EBITDA Bonus:

a)  5% of Food Innovations’ EBITDA if Food Innovations’ cash EBITDA increases by 6% or greater over prior year.

b)  8% of Food Innovations’ EBITDA if Food Innovations’ cash EBITDA increases by 30% or greater over prior year.

c)  10% of Food Innovations’ EBITDA if Food Innovations’ cash EBITDA increases by 50% or greater over prior year.

d)  If Food Innovations EBITDA increases by 55% or more in addition to the Bonus payable pursuant to c), Executive will receive 8% of all EBITDA increases above 55%.

e)  If Food Innovations’ EBITDA increases by 65% or more in addition to the Bonus payable pursuant to c) and d), Executive will receive 9.5% of all EBITDA increases above 65% up to 100% of such increase.

Artisan Specialty EBITDA Bonus:

 

a)  10% of Artisan Specialty EBITDA if Artisan Specialty cash EBITDA increases by 11% or greater over prior year.

b)  15% of Artisan Specialty EBITDA if Artisan Specialty cash EBITDA increases by 30% or greater over prior year.

c)  If Artisan Specialty EBITDA increases by 50% or more in addition to the bonus payable pursuant to b), Executive will receive 9.5% of all EBITDA increases above 50% up to 100% of such increase.

Gourmet Food service group (GFG) group Bonus:

a)  20% of GFGD EBITDA for the first year that GFGD cash EBITDA reaches $100,000.

b)  25% of GFGD EBITDA for the first year that GFGD cash EBITDA reaches $150,000.

c)  Once GFGD EBITDA has reached $100,000 the bonus shall follow the same structure as the Artisan Specialty EBITDA bonus outlined above for the following year

 

  

  

  

4 The Gourmet (d/b/a For The Gourmet) (FTG) group direct Bonus:

a) 15% of FTG EBITDA if FTG cash EBITDA reaches $150,000

b) 18% of FTG EBITDA if FTG cash EBITDA reaches $250,000

c) 20% of FTG EBITDA if FTG cash EBITDA reaches $350,000

d) Once FTG EBITDA has reached $150,000 the bonus shall follow the samestructure as the Artisan Specialty EBITDA bonus outlined above for thefollowing year)

Haley Food Group Bonus:

a)  10% of Haley Group EBITDA if Haley Food Group cash EBITDA reaches $100,000 (net of any payments  to Lou Haley)

b)  15% of Haley Group EBITDA if Haley Food group cash EBITDA reaches$200,000 (net of any bonus payments to Lou Haley)

c)  Once Haley Food Group EBITDA has reached $100,000 the bonus shall follow the same structure as the Artisan Specialty EBITDA bonus outlined above for the following year

Miscellaneous Bonuses

	
·  

	
If the Corporation’s common stock is listed, traded or quoted on The New York Stock Exchange or NASDAQ, Executive shall receive a $20,000 cash bonus.

	
·  

	
Executive will receive 5% of the equity owned by IVFH, of any Food Hatch portfolio company.

	
·  

	
 Executive will receive 5% of any carry owned by Food Hatch . If the Corporation spins off a subsidiary, Executive shall receive 1.5% of company spun off.

	
·  

	
If the aggregate revenues of all the entities acquired by the Corporation following the date hereof exceeds $3 million, Executive shall receive $15,000.

	
·  

	
If the aggregate revenues of all the entities acquired by the Corporation following the date hereof exceeds $5 million, Executive shall receive $30,000.

	
·  

	
If the aggregate revenues of all the entities acquired by the Corporation following the date hereof exceeds $15 million, Executive shall receive $60,000.

	
·  

	
If the value of the Corporation’s shares traded on a daily basis for any 30 trading days within any 3 month period equals or exceeds $10,000 Executive shall receive a $3,000 cash bonus, if such trading equals or exceeds $25,000 Executive shall receive a $15,000 cash bonus, and if such trading equals or exceeds $100,000 Executive shall receive a $50,000 cash bonus.  Each of these bonuses may only be earned once during the term of this Agreement.

Stock Options

On the effective date of this Agreement, Executive shall receive the following:

 

	
·  

	
A 4 year Option to purchase 100,000 shares of the Corporation’s common stock at an exercise price of $0.40 per share, of which 50,000 options vest on December 31, 2014 and the balance on December 31, 2015.

	
·  

	
A 5 year Option to purchase 100,000 shares of the Corporation’s common stock at an exercise price of $0.57 per share, all of which options vests on December 31, 2014.

	
·  

	
A 5 year option to purchase 125,000 shares of the Corporation’s common stock at an exercise price of $1.60 per share, one-half of which vests on December 31, 2013 and the balance on December 31, 2014.

 

  

  

  

All of such options shall be granted using the Corporation’s standard form of stock option grant and shall be subject to the terms of such form and the terms of the Corporation’s 2011 Stock Option Plan.  In the event the issuance of such options would trigger the adjustment provisions of any of the Corporation’s outstanding notes or warrants with respect to conversion rates or exercise price or number of underlying securities, the above notwithstanding, the exercise price shall automatically increase to be the lowest possible price that would not so trigger any adjustments, except with the approval of all of such noteholders and warrantholders waiving the adjustments.

Stock Grant:

On the date hereof Executive shall be given a stock grant of 75,000 restricted shares which shall only vest if the 30 day average trading price of the Corporation’s common stock equals or exceeds $1.75 per share and has average volume of at least 25,000 shares per day for 30 consecutive trading days.

For 2013 and 2014 and 2015, the Corporation shall establish a separate account in which it will maintain Executive’s Bonus as if it was earned and payable. In the event it is determined that Executive is entitled to such additional Bonus, the accrued amount of funds in said account shall be delivered in a lump sum when such determination is made, but no later than February 27th  of each such year. In the event it is determined that Executive is not entitled to such funds, they shall be returned to the Corporation’s general working account.

If Executive leaves the employ of the Corporation before the Bonuses for the previous year are paid, he will forfeit any Bonus for such previous year.  Similarly, partial Bonuses shall not be calculated on a pro rata basis for any partial year worked.  To illustrate, if Executive leaves the employ of the Company in 2014, prior to the payment of any Bonus earned for 2013, Executive shall not receive any Bonus for 2013 or 2014.

The Corporation hereby agrees that payment of Executive’s Bonuses shall be paid prior to the payment of any bonus to any other executive officers of the Corporation (i.e. the Corporation’s chief executive officer and its chief information officer).

Wherever Executive is to receive, or has the right to receive, stock as a Bonus or as Base Salary, Executive shall have the option to receive such equity in the form of restricted stock units or stock.

(c)  The above notwithstanding, the Corporation’s obligation to pay such Bonuses is limited as follows: (i) The Bonus shall only be paid in cash if the Corporation will have at least $600,000 in cash after payment of the Bonus to Executive.  In the event the Corporation has insufficient cash to make the required Bonus payments, the Corporation shall inform Executive of the amount of cash available for distribution and Executive shall have five business days to determine if he wants to change his previous allocation of the form of Bonus payment as between cash and stock.  Within two business days thereafter, the Corporation shall distribute such available cash (i.e. cash above $600,000) to Executive.  Going forward, in such situations, the Corporation shall determine, within three business days following the end of each month, its cash on hand and if it exceeds $600,000 the excess cash shall be distributed to Executive within two business days thereof.  This process shall continue until the cash portion of the Bonus is paid in full.  While any portion of the cash portion of the Bonus remains unpaid, Executive may change his cash/stock allocation of the Bonus.  For purposes of this Agreement, the term “cash” shall mean cash and cash equivalents as described on the Corporation’s balance sheet.  (ii)  The Corporation’s obligation to pay any Bonus otherwise earned pursuant to the formulas described above shall be reduced as follows: in the event the EBITDA of Food Innovations, Inc.(assuming it is still owned by the Company)  in any year covered by this Agreement is 25% - 49% lower than the previous year, the aggregate amount of Bonuses earned shall be reduced by 25%; in the event the EBITDA of Food Innovations, Inc. in any year covered by this Agreement is 50% - 74% lower than the previous year, the aggregate amount of Bonuses earned shall be reduced by 50%; in the event the EBITDA of Food Innovations, Inc. in any year covered by this Agreement is 75% - 99% lower than the previous year, the aggregate amount of Bonuses earned shall be reduced by 75%; in the event the EBITDA of Food Innovations, Inc. in any year covered by this Agreement is lower than the previous year by 100% or more, no Bonus for such year shall be payable.

 

  

  

  

 

4. Expenses.  The Executive shall be entitled to reimbursement by the Corporation, in accordance with the Corporation's policies then applicable to executives at the Executive's level, against appropriate vouchers or other receipts for authorized travel, entertainment and other business expenses reasonably incurred by him in the performance of his duties hereunder.

 

5. Executive Benefits.  The Executive shall be entitled to participate in, and receive either personal or family health insurance of the highest tier of health insurance currently offered by the Corporation’s insurance provider, and all benefits currently offered to employees of the Corporation or the cash equivalent of such health insurance and other benefits including a life insurance policy up to one million dollars and a disability policy up to one hundred percent of disability coverage. The Corporation shall be responsible for paying 75% of the cost of such health insurance and benefits and shall pay, at the choice of the Executive, either through direct payments to the health insurance and benefit providers or through weekly direct cash payments to the Executive (in the cash amount of 75% of the cost of such personal or family health insurance and benefits had the executive participated in such personal or family health insurance plan and benefit plans).

 

6. Withholding.  All payments required to be made by the Corporation hereunder to the Executive shall be subject to the withholding of such amounts relating to taxes and other governmental assessments as the Corporation may reasonably determine it should withhold pursuant to any applicable law, rule or regulation.

  

7. Death; Permanent Disability; Termination.  (a)  Upon the death of the Executive during the term of this Agreement, this Agreement shall terminate.  If during the term of this Agreement the Executive fails because of illness or other incapacity to perform the services required to be performed by him hereunder for any consecutive period of more than 30 days, or for shorter periods aggregating more than 45 days in any consecutive twelve-month period (any such illness or incapacity being hereinafter referred to as “permanent disability”), then the Corporation, in its discretion, may at any time thereafter terminate this Agreement upon not less then 10 days’ written notice thereof to the Executive, and this Agreement shall terminate and come to an end upon the date set forth in said notice as if said date were the termination date of this Agreement; provided, however, that no such termination shall be effective if prior to the date set forth in such notice, the Executive’s illness or incapacity shall have terminated and he shall be physically and mentally able to perform the services required hereunder and shall have taken up and be performing such duties.  If there shall be any dispute as to whether the Executive has a permanent disability, the dispute shall be submitted to a panel of three physicians, one of whom shall be selected by each of the parties, and the third of whom shall be a physician selected by the first two.  The written decision of such panel shall be determinative of the issue as to whether the Executive has a permanent disability, and shall be binding upon both parties.

 

(b)           If the Executive’s employment shall be terminated by reason of his death or permanent disability, the Executive or his estate, as the case may be, shall be entitled to receive (i) any earned and unpaid Base Salary accrued through the date of termination, (ii) a pro rata portion of any Bonus which the Executive would otherwise have been entitled to receive pursuant to any bonus plan or arrangement for senior executives of the Corporation (such pro rata portion to be payable at the time such Bonus would otherwise have been payable to the Executive), and (iii) subject to the terms thereof, any benefits which may be due to the Executive on the date of termination under the provisions of any employee benefit plan, program or policy.

 

  

  

  

 

(c)           In the event the Corporation terminates this Agreement without Cause (as defined in Section 8), Executive shall be paid in a lump sum, on the date of termination, an amount equal to the Base Salary he would have earned hereunder for the six months following the date of termination.  In addition, the Executive shall be paid, no later than February 27th of the following year, the pro rata amount of any Bonus he would have been entitled to for the portion of the year he actually worked prior to when he was so terminated.  The Corporation shall have no other obligations to the Executive.

 

8.           Termination for Cause.  The Corporation may at any time during the term of this Agreement, by written notice, terminate the employment of the Executive for cause, the cause to be specified (in reasonable detail) in the notice.  For purposes of this Agreement, “cause” shall mean any malfeasance of the Executive in connection with the performance of any of his duties hereunder, including, without limitation, misappropriation of funds or property of the Corporation; wrongfully securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of the Corporation; any intentional act having the effect of injuring the reputation, business or business relationships of the Corporation; the failure, neglect or refusal to perform the Executive's duties hereunder in any material respect; the breach of any material covenants contained in this Agreement (provided, however, that the Executive shall be entitled to thirty days from the date on which the Corporation gives written notice of termination to cure such conduct or breach); conviction (or nolocontendere plea) in connection with a felony; or conviction (or nolo contendere plea) in connection with a misdemeanor involving moral turpitude.  Termination for cause shall be effective upon the giving of such notice or, where applicable, the expiration of the cure period without such a cure having been affected by Executive in all material respects; and the Executive shall be entitled to receive any earned and unpaid Base Salary accrued through the date of termination.  The Executive hereby disclaims any right to receive a pro rata portion of any Bonus with respect to the fiscal year in which such termination occurs or unpaid moving expense reimbursement.

 

9.           Insurance.  The Executive agrees that the Corporation may procure insurance on the life of the Executive, in such amounts as the Corporation may in its discretion determine, and with the Corporation named as the beneficiary under the policy or policies.  The Executive agrees that upon request from the Corporation he will submit to a physical examination and will execute such applications and other documents as may be required for the procurement of such insurance.  The Executive shall be granted the right to purchase such policy at its cash surrender value upon the termination of his employment hereunder.

 

10.           Non-Competition; Solicitation, Disparagement.  (a) The Executive agrees that during his employment with the Corporation and for a period of two years after Executive leaves the Corporation’s employ for any reason, he shall not, without the written consent of the Corporation, directly or indirectly, either individually or as an employee, agent, partner, shareholder, consultant, option holder, lender of money, guarantor or in any other capacity, participate in, engage in or have a financial interest or management position or other interest in any business, firm, corporation or other entity if it competes directly with any business operation conducted by the Corporation or its subsidiaries or affiliates or any successor or assign thereof at the time the Executive’s employment with the Corporation is terminated, nor will he solicit any other person to engage in any of the foregoing activities.  Participation in the operation of any business other than in connection with the operation of a business which is in direct competition with the Corporation or its subsidiaries or affiliates or any successor or assign thereof shall not be deemed to be a breach of this Section 10(a).  The foregoing provisions of this Section 10(a) shall not prohibit the ownership by the Executive (as the result of open market purchase) of 1% or less of any class of capital stock of a corporation which is regularly traded on a national securities exchange, on the NASDAQ System or on an over-the-counter system.

 

  

  

  

 

(b)           The Executive will not at any time during his employment with the Corporation and for a period of two years after the Executive leaves the Corporation’s employ for any reason, solicit (or assist or encourage the solicitation of) any employee of the Corporation or any of its subsidiaries or affiliates to work for the Executive or for any business, firm, corporation or other entity in which the Executive, directly or indirectly, in any capacity described in Section 10(a) hereof, participates or engages (or expects to participate or engage) or has (or expects to have) a financial interest or management position.

(c)           The Executive agrees during the term of this Agreement and for three years after its termination that he will not disparage the Corporation in any way, directly or indirectly, by spoken word, in writing, electronically, or otherwise.

 

(d)           If any of the covenants contained in this Section 10 or any part thereof, is held by a court of competent jurisdiction to be unenforceable because of the duration of such provision, the activity limited by or the subject of such provision and/or the area covered thereby, then the court making such determination shall construe such restriction so as to thereafter be limited or reduced to be enforceable to the greatest extent permissible by applicable law.

 

(e)    If the Executive is terminated without cause Sections 10(a) through (c) will be null and void.

 

11.           Inventions, Etc.  The Executive agrees that any and all systems, work-in-progress, inventions, discoveries, improvements, processes, compounds, formulae, patents, copyrights and trademarks, made, discovered or developed by him, solely or jointly with others, or otherwise, during the term of his employment by the Corporation, and which may be useful in or relate to any business of the Corporation and/or any subsidiary or affiliate of the Corporation shall be fully disclosed by the Executive to the Chief Executive Officer of the Corporation, and shall be the sole and absolute property of the Corporation, and the Corporation will be the sole and absolute owner thereof.  The Executive agrees that at all times, both during his employment and after the termination of his employment, he will keep all of the same secret from everyone except the Corporation and its duly authorized employees and will disclose the same to no one except as required in good faith in the course of his employment with the Corporation, or by law, or unless otherwise authorized in writing by the Chief Executive Officer of the Corporation.

 

12.           Trade Secrets, Etc.  The Executive agrees that he shall not, during or after the termination of this Agreement, divulge, furnish or make accessible to any person, firm, corporation or other business entity, any information, trade secrets, client lists, vendor lists, pricing information, technical data or know-how relating to the business, business practices, methods, products, processes, equipment or other confidential or secret aspect of the business of the Corporation and/or any subsidiary or affiliate, except as may be required in good faith in the course of his employment with the Corporation or by law, without the prior written consent of the Corporation, unless such information shall become public knowledge (other than by reason of Executive’s breach of the provisions hereof).

 

13.           Acceptance by Executive and Corporation.  The Executive and the Corporation each accept all of the terms and provisions of this Agreement, and agree to perform all of the covenants on their respective parts to be performed hereunder.

 

14.           Equitable Remedies.  The Executive acknowledges that he has been employed for his unique talents and that his leaving the employ of the Corporation during the Term of this Agreement would seriously hamper the business of the Corporation and that the Corporation will suffer irreparable damage if any provisions of Sections 10, 11 or 12 hereof are not performed strictly in accordance with their terms or are otherwise breached.  The Executive hereby expressly agrees that the Corporation shall be entitled as a matter of right to injunctive or other equitable relief, in addition to all other remedies permitted by law, to prevent a breach or violation by the Executive and to secure enforcement of the provisions of Sections 10, 11 or 12 hereof.  Resort to such equitable relief, however, shall not constitute a waiver of any other rights or remedies that the Corporation may have.

 

  

  

  

 

15.           Entire Agreement.  This Agreement constitutes the entire agreement between the parties hereto and there are no other terms other than those contained herein.  No waiver, amendment or modification hereof shall be deemed valid unless in writing and signed by the parties hereto (or their permitted successors and assigns) and no discharge of the terms hereof shall be deemed valid unless by full performance of the parties hereto or by a writing signed by the parties hereto.  No waiver by the Corporation or any breach by the Executive or the Corporation of any provision or condition of this Agreement by either of them to be performed shall be deemed a waiver of a breach of a similar or dissimilar provision or condition at the same time or any prior or subsequent time.

 

16.           Severability.  In case any provision in this Agreement shall be declared invalid, illegal or unenforceable by any court of competent jurisdiction, the validity and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

17.           Notices.  All notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be deemed to have been given at the following times: (i) when delivered if given by hand, or (ii) three business days after mailing in the United States enclosed in a registered or certified post-paid envelope, return receipt requested, and addressed to the addressee at the Company’s address listed above or to such changed addresses as such parties may fix by notice with a copy to:

Howard I. Rhine, Esq.

Feder Kaszovitz LLP

845 Third Avenue, 11th Floor

New York, NY  10022

provided, however, that any notice of change of address shall be effective only upon receipt.

 

18.           Successors and Assigns.  This Agreement is personal in its nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder (except for an assignment or transfer by the Corporation to any of its affiliate or subsidiary entities); provided, however, that the provisions hereof shall inure to the benefit of, and be binding upon, any successor of the Corporation, whether by merger, consolidation, transfer of all or substantially all of the assets of the Corporation, or otherwise, and upon the Executive, his heirs, executors, administrators and legal representatives.

 

19.           Governing Law.  This Agreement and its validity, construction and performance shall be governed in all respects by the internal laws of the State of Florida without giving effect to any principles of conflict of laws.

 

20.           Headings.  The headings in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of this Agreement.

 

21.           Counterparts.  This Agreement may be executed in two counterparts, each of which shall be deemed an original of this Agreement.

 

[Remainder of page is intentionally blank]

 

 

  

  

  

 

IN WITNESS WHEREOF, the parties hereto have hereunder set their hands and seals the day and year first above written.

 

 

Innovative Food Holdings, Inc.

By: _____________________________________                                                                          

Name:  Sam Klepfish

Title:    Chief Executive Officer

_________________________________________

Justin Wiernaszex10-1.htm

Exhibit 10.1

 

FIRST NORTHWEST BANCORP

EMPLOYEE STOCK OWNERSHIP PLAN

 

Effective January 1, 2013

  

  

  

FIRST NORTHWEST BANCORP

EMPLOYEE STOCK OWNERSHIP PLAN

 

TABLE OF CONTENTS

	  	  	  	  	  
	
PREAMBLE

	
1

	  	  	  	  	  
	
ARTICLE I - DEFINITION OF TERMS AND CONSTRUCTION

	
2

	  	
1.1

	
Definitions

	
2

	  	  	
(a)

	
Account

	
2

	  	  	
(b)

	
Act

	
2

	  	  	
(c)

	
Administrator

	
2

	  	  	
(d)

	
Annual Additions

	
2

	  	  	
(e)

	
Authorized Leave of Absence

	
2

	  	  	
(f)

	
Beneficiary

	
2

	  	  	
(g)

	
Board of Directors

	
3

	  	  	
(h)

	
Break

	
3

	  	  	
(i)

	
Code

	
3

	  	  	
(j)

	
Compensation

	
3

	  	  	
(k)

	
Date of Hire

	
4

	  	  	
(l)

	
Disability

	
4

	  	  	
(m)

	
Disability Retirement Date

	
4

	  	  	
(n)

	
Early Retirement Date

	
4

	  	  	
(o)

	
Effective Date

	
4

	  	  	
(p)

	
Eligibility Period

	
4

	  	  	
(q)

	
Employee

	
5

	  	  	
(r)

	
Employee Stock Ownership Account

	
5

	  	  	
(s)

	
Employee Stock Ownership Contribution

	
5

	  	  	
(t)

	
Employee Stock Ownership Suspense Account

	
5

	  	  	
(u)

	
Employer

	
5

	  	  	
(v)

	
Employer Securities

	
5

	  	  	
(v-1)

	
Employment Commencement Date

	
5

	  	  	
(w)

	
Entry Date

	
5

	  	  	
(x)

	
Exempt Loan

	
5

	  	  	
(y)

	
Exempt Loan Suspense Account

	
6

	  	  	
(z)

	
Financed Shares

	
6

	  	  	
(aa)

	
Former Participant

	
6

	  	  	
(bb)

	
Fund

	
6

	  	  	
(cc)

	
Hour of Service

	
6

	  	  	
(dd)

	
Investment Adjustments

	
6

	  	  	
(ee)

	
Limitation Year

	
6

	  	  	
(ff)

	
Normal Retirement Date

	
6

	  	  	
(ff-1)

	
One Year Period of Severance

	
6

	  	  	
(gg)

	
Participant

	
7

	  	  	
(gg-1)

	
Period of Severance

	
7

	  	  	
(hh)

	
Plan

	
7

	  	  	
(ii)

	
Plan Year

	
7

	  	  	
(jj)

	
Qualified Domestic Relations Order

	
7

	  	  	
(kk)

	
Qualified Military Service

	
7

	  	  	
(ll)

	
Related Employer

	
7

	  	  	
(mm)

	
Retirement

	
8

	  	  	
(nn)

	
Service

	
8

	  	  	
(oo)

	
Sponsor

	
8

	  	  	
(pp)

	
Statutory Compensation

	
8

  

  

  

 

	  	  	
(qq)

	
Trust Agreement

	
8

	  	  	
(rr)

	
Trustee

	
8

	  	  	
(ss)

	
Valuation Date

	
8

	  	  	
(tt)

	
Year of Eligibility Service

	
8

	  	  	
(uu)

	
Year of Vesting Service

	
8

	  	
1.2

	
Plurals and Gender

	
9

	  	
1.3

	
Incorporation of Trust Agreement

	
9

	  	
1.4

	
Headings

	
9

	  	
1.5

	
Severability

	
9

	  	
1.6

	
References to Governmental Regulations

	
9

	  	
1.7

	
Notices

	
9

	  	
1.8

	
Evidence

	
9

	  	
1.9

	
Action by Employer

	
9

	  	  	  	  	  
	
ARTICLE II - PARTICIPATION

	
10

	  	
2.1

	
Commencement of Participation

	
10

	  	
2.2

	
Termination of Participation

	
10

	  	
2.3

	
Resumption of Participation

	
10

	  	
2.4

	
Determination of Eligibility

	
10

	  	
2.5

	
Restricted Participation

	
11

	  	  	  	  	  
	
ARTICLE III - CREDITED SERVICE

	
12

	  	
3.1

	
Service Counted for Eligibility Purposes

	
12

	  	
3.2

	
Service Counted for Vesting Purposes

	
12

	  	
3.3

	
Credit for Pre-Break Service

	
12

	  	
3.4

	
Service Credit During Authorized Leaves

	
12

	  	
3.5

	
Service Credit During Maternity or Paternity Leave

	
13

	  	
3.6

	
Ineligible Employees

	
13

	  	
3.7

	
Military Service Provisions

	
13

	  	
3.8

	
Elapsed Time Method of Crediting Service

	
14

	  	  	  	  	  
	
ARTICLE IV - CONTRIBUTIONS

	
15

	  	
4.1

	
Employee Stock Ownership Contribution

	
15

	  	
4.2

	
Time and Manner of Employee Stock Ownership Contribution

	
15

	  	
4.3

	
Records of Contributions

	
16

	  	
4.4

	
Erroneous Contributions

	
16

	  	  	  	  	  
	
ARTICLE V - ACCOUNTS, ALLOCATIONS AND INVESTMENTS

	
17

	  	
5.1

	
Establishment of Separate Participant Accounts

	
17

	  	
5.2

	
Establishment of Suspense Accounts

	
17

	  	
5.3

	
Allocation of Earnings, Losses and Expenses

	
18

	  	
5.4

	
Application of Forfeitures

	
18

	  	
5.5

	
Allocation of Employee Stock Ownership Contribution

	
18

	  	
5.6

	
Limitation on Annual Additions

	
19

	  	
5.7

	
Erroneous Allocations

	
19

	  	
5.8

	
Value of Participant’s Account

	
19

	  	
5.9

	
Investment of Account Balances

	
19

	  	  	  	  	  
	
ARTICLE VI - RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY

	
20

	  	
6.1

	
Normal Retirement

	
20

	  	
6.2

	
Early Retirement

	
20

	  	
6.3

	
Disability Retirement

	
20

	  	
6.4

	
Death Benefits

	
20

	  	
6.5

	
Designation of Beneficiary and Manner of Payment

	
20

  

  

  

	
ARTICLE VII - VESTING AND FORFEITURES

	
22

	  	
7.1

	
Vesting on Death, Disability and Normal Retirement

	
22

	  	
7.2

	
Vesting on Termination of Participation

	
22

	  	
7.3

	
Forfeitures

	
22

	  	  	  	  	  
	
ARTICLE VIII - EMPLOYEE STOCK OWNERSHIP PROVISIONS

	
24

	  	
8.1

	
Right to Demand Employer Securities

	
24

	  	
8.2

	
Voting Rights; Tendering Shares

	
24

	  	
8.3

	
Nondiscrimination in Employee Stock Ownership Contribution

	
25

	  	
8.4

	
Dividends

	
25

	  	
8.5

	
Exempt Loans

	
26

	  	
8.6

	
Exempt Loan Payments

	
27

	  	
8.7

	
Put Option

	
28

	  	
8.8

	
Diversification Requirements

	
29

	  	
8.9

	
Independent Appraiser

	
29

	  	  	  	  	  
	
ARTICLE IX - PAYMENTS AND DISTRIBUTIONS

	
30

	  	
9.1

	
Payments on Termination of Service - In General

	
30

	  	
9.2

	
Commencement of Payments

	
30

	  	
9.3

	
Mandatory Commencement of Benefits

	
31

	  	
9.4

	
Required Beginning Dates

	
33

	  	
9.5

	
Form of Payment

	
34

	  	
9.6

	
Payments Upon Termination of Plan

	
34

	  	
9.7

	
Distributions Pursuant to Qualified Domestic Relations Orders

	
34

	  	
9.8

	
ESOP Distribution Rules

	
35

	  	
9.9

	
Direct Rollover

	
35

	  	
9.10

	
Share Legend

	
36

	  	
9.11

	
Power to Reduce Benefit

	
36

	  	  	  	  	  
	
ARTICLE X - PROVISIONS RELATING TO TOP-HEAVY PLANS

	
37

	  	
10.1

	
Top-Heavy Rules to Control

	
37

	  	
10.2

	
Top-Heavy Plan Definitions

	
37

	  	
10.3

	
Calculation of Accrued Benefits

	
38

	  	
10.4

	
Determination of Top-Heavy Status

	
39

	  	
10.5

	
Minimum Contribution

	
39

	  	  	  	  	  
	
ARTICLE XI - ADMINISTRATION

	
41

	  	
11.1

	
Appointment of Administrator

	
41

	  	
11.2

	
Resignation or Removal of Administrator

	
41

	  	
11.3

	
Appointment of Successors: Terms of Office, Etc.

	
41

	  	
11.4

	
Powers and Duties of Administrator

	
41

	  	
11.5

	
Action by Administrator

	
42

	  	
11.6

	
Participation by Administrator

	
42

	  	
11.7

	
Agents

	
43

	  	
11.8

	
Allocation of Duties

	
43

	  	
11.9

	
Delegation of Duties

	
43

	  	
11.10

	
Administrator’s Action Conclusive

	
43

	  	
11.11

	
Compensation and Expenses of Administrator

	
43

	  	
11.12

	
Records and Reports

	
43

	  	
11.13

	
Reports of Fund Open to Participants

	
43

	  	
11.14

	
Named Fiduciary

	
44

	  	
11.15

	
Information from Employer

	
44

	  	
11.16

	
Responsibilities of Directors

	
44

  

  

  

	  	
11.17

	
Liability and Indemnification

	
44

	  	  	  	  	  
	
ARTICLE XII - CLAIMS PROCEDURE

	
45

	  	
12.1

	
Notice of Denial

	
45

	  	
12.2

	
Right to Reconsideration

	
45

	  	
12.3

	
Review of Documents

	
45

	  	
12.4

	
Decision by Administrator

	
45

	  	
12.5

	
Notice by Administrator

	
45

	  	
12.6

	
Special Claims Procedures

	
45

	  	  	  	  	  
	
ARTICLE XIII - AMENDMENTS, TERMINATION AND MERGER

	
47

	  	
13.1

	
Amendments

	
47

	  	
13.2

	
Effect of Change In Control

	
47

	  	
13.3

	
Consolidation or Merger of Trust

	
48

	  	
13.4

	
Bankruptcy or Insolvency of Employer

	
49

	  	
13.5

	
Voluntary Termination

	
49

	  	
13.6

	
Partial Termination of Plan or Permanent Discontinuance of Contributions

	
49

	  	  	  	  	  
	
ARTICLE XIV - MISCELLANEOUS

	
50

	  	
14.1

	
No Diversion of Funds

	
50

	  	
14.2

	
Liability Limited

	
50

	  	
14.3

	
Facility of Payment

	
50

	  	
14.4

	
Spendthrift Clause

	
50

	  	
14.5

	
Benefits Limited to Fund

	
50

	  	
14.6

	
Cooperation of Parties

	
51

	  	
14.7

	
Payments Due Missing Persons

	
51

	  	
14.8

	
Governing Law

	
51

	  	
14.9

	
Nonguarantee of Employment

	
51

	  	
14.10

	
Counsel

	
51

	  	
14.11

	
Purposes

	
51

	  	
14.12

	
Invalidity

	
52

  

  

  

 

FIRST NORTHWEST BANCORP

 

EMPLOYEE STOCK OWNERSHIP PLAN

PREAMBLE

THIS PLAN AGREEMENT, made and entered into this ____ day of ______________, 20___, by and between First Northwest Bancorp (hereinafter referred to as “Sponsor” or “Employer”) and  Pentegra Trust Company (hereinafter referred to as “Trustee”), is to witnesseth that:

WHEREAS, effective as of January 13, 2013,  First Northwest Bancorp has adopted the First Northwest Bancorp Employee Stock Ownership Plan (“Plan”) in order to enable Participants to share in the growth and prosperity of the Sponsor and its wholly owned subsidiary, First Federal Savings and Loan Association of Port Angeles, and to provide Participants with an opportunity to accumulate capital for their future economic security by accumulating funds to provide retirement, death and disability benefits; and

WHEREAS,  the Plan is a stock bonus plan, designed to meet the applicable requirements of Code Section 409, and an employee stock ownership plan, designed to meet the applicable requirements of Code Section 4975(e)(7) and Act Section 407(d)(6); and

WHEREAS, the Plan is intended to invest primarily in “qualifying employer securities” as defined in Code Section 4975(e)(8); and

WHEREAS, The Sponsor intends that the Plan will qualify under Code Sections 401(a) and 501(a) and will comply with such provisions; and

WHEREAS, the Sponsor’s Board of Directors has resolved to adopt, continue, sponsor, and maintain the Plan for the benefit of eligible employees.

NOW, THEREFORE, in consideration of the foregoing premises, effective January 13, 2013, except to the extent a different effective date is prescribed by applicable pension legislation, or except to the extent a particular Plan section specifies a different effective date, the sponsor adopts and agrees to maintain that certain stock bonus plan and employee stock ownership plan qualified under Code Section 401(a) and 4975(e)(7) and Treas. Reg. §1.401-1(b)(1)(iii) known as the “First Northwest Bancorp Employee Stock Ownership Plan” in accordance with the provisions set forth herein.  Notwithstanding the foregoing, the rights of any person (including such person’s beneficiaries) who terminated employment or who retired on or before any effective date, or the effective date of a particular amend­­ment, shall be deter­mined solely under the terms of this Plan as in effect on the date of his termination of employment or retirement, unless such per­son is thereafter reemployed and again becomes a participant.

 

  

  

  

 

ARTICLE I

DEFINITION OF TERMS AND CONSTRUCTION

1.1           Definitions.

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

(a)           “Account” shall mean a Participant’s or Former Participant’s entire accrued benefit under the Plan, including the balance credited to his Employee Stock Ownership Account and any other account described in Section 5.1.

(b)           “Act” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor statute, together with the applicable regulations promulgated thereunder.

(c)           “Administrator” shall mean the fiduciary provided for in Article XI.

(d)           “Annual Additions” shall mean, with respect to each Participant, the sum of those amounts allocated to the Participant’s Account under this Plan and accounts under any other qualified defined contribution plan to which the Employer or a Related Employer contributes for any Limitation Year, consisting of the following:

(1)   Employer contributions;

(2)   Forfeitures; and

(3)   Employee contributions (if any).

Annual Additions shall not include any Investment Adjustment.  Annual Additions also shall not include employer contributions which are used by the Trust to pay interest on an Exempt Loan nor any forfeitures of Employer Securities purchased with the proceeds of an Exempt Loan, provided that not more than one-third of the employer contributions are allocated to Participants who are among the group of employees deemed “highly compensated employees” within the meaning of Code Section 414(q), as further described in Section 8.3.  Annual Additions also shall not include any other amounts not considered annual additions pursuant Treasury Regulations issued under Code Section 415.

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

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

(2)            Any other absence or leave expressly approved and granted by the Employer.  In approving such leaves of absence, the Employer shall treat all Employees on a uniform and nondiscriminatory basis.

(f)           “Beneficiary” shall mean such legal or natural persons, who may be designated contingently or successively, as may be designated by the Participant pursuant to Section 6.5 to receive benefits after the death of the Participant, or in the absence of a valid designation, such persons specified in Section 6.5(b) to receive benefits after the death of the Participant.

 

  

2

  

 

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

(h)           “Break” shall mean a Plan Year during which an Employee fails to complete more than 500 Hours of Service.  No Break shall occur while a Participant is performing Qualified Military Service.  If the Plan uses the elapsed time method of crediting Service (pursuant to Section 3.8), then references herein to “Break” or “Breaks” shall be deemed to refer to a One-Year Period(s) of Severance.

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

(j)           “Compensation” shall be defined as follows:

(1)           Generally.  Compensation shall mean an Employee’s base salary and commissions (disregarding commissions in excess of $50,000 and taking into amounts attributable to such compensation which are deferred under an election under Code Sections 125(a), 132(f)(4) or 402(e)(3).  Only Compensation (as herein defined) that is paid to the Employee after he becomes a Participant shall be taken into account.

(2)           Statutory Compensation.  For purposes of applying the limitations of Code Section 415 and certain other statutory purposes, , the term “Compensation” shall mean wages within the meaning of Code Section 3401(a) for purposes of income tax withholding at the source but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code section 3401(a)(2)), that are paid to an Employee by the Employer for services rendered to the Employer during a Plan Year, plus amounts that would be included in wages but for an election under Code Sections 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B), 402(k), or 457(b), but excluding amounts paid or reimbursed by the Employer for moving expenses incurred by the Participant, but only to the extent that, at the time of the payment, it is reasonable to believe that these amounts are deductible by the Participant under Code Section 217.  Back pay, within the meaning of section 1.415(c)-2(g)(8) of the Treasury Regulations, shall be treated as Statutory Compensation for the Plan Year to which the back pay relates to the extent the back pay represents wages and compensation that would otherwise be included in this definition.  This paragraph shall be interpreted in a manner consistent with the Regulations under Code Section 415.

(3)           General timing rule.  In order to be taken into account for a Plan Year under subparagraphs (1) and (2) above, Compensation must be actually paid or made available to a Participant (or, if earlier, includible in the gross income of the Participant) within the Plan Year or Limitation Year, as the case may be. For this purpose, compensation is treated as paid on a date if it is actually paid on that date or it would have been paid on that date but for an election under Code section 125, 132(f)(4), 401(k), 403(b), 408(k), 408(p)(2)(A)(i), or 457(b).

 

  

3

  

 

(4)           Special rules regarding severance compensation.  For purposes of applying subparagraphs (1) and (2) above, in order to be taken into account for a Plan Year or Limitation Year, Compensation must be paid or treated as paid to the Participant prior to the Participant’s severance from employment with the Employer maintaining the plan.  For this purpose, severance from employment is determined in the same manner as under Treasury Regulation Section 1.401(k)-1(d)(2) except that, for purposes of determining the employer of an employee, the modifications provided under Code Section 415(h) to the employer aggregation rules apply.

(5)           Notwithstanding subparagraph (4), for purposes of applying the definition in (2) above, Compensation for a Plan Year shall also include Compensation paid by the later of 2 1/2 months after an Employee’s severance from employment (as defined in subparagraph (4)) with the Employer maintaining the Plan or the end of the Plan Year that includes the date of the Employee’s severance from employment with the Employer maintaining the Plan, if the payment is regular Compensation for services during the Employee’s regular working hours, or Compensation for services outside the Employee’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments, and, absent a severance from employment, the payments would have been paid to the Employee while the Employee continued in employment with the Employer.  Any payments not described above shall not be considered Compensation if paid after severance from employment, even if they are paid by the later of 2 1/2 months after the date of severance from employment or the end of the Limitation Year that includes the date of severance from employment.

(6)           Dollar Limitation.   Notwithstanding anything herein to the contrary, the annual Compensation of each Participant taken into account under the Plan for any purpose during any Plan Year shall not exceed the compensation limitation set forth in Code Section 401(a)(17) ($250,000 for the 2012 Plan Year.  This limitation shall be adjusted from time to time as permitted by Code Section 401(a)(17)(B).

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

(l)            “Disability” shall mean a physical or mental impairment which prevents a Participant from performing the duties assigned to him by the Employer, and which either has caused the Social Security Administration to classify the individual as “disabled” for purposes of Social Security or qualifies as a disability under a long-term disability plan maintained by the Employer in which the Participant participates.  The determination of whether a Participant has a Disability shall be made by a qualified physician selected by the Administrator.

(m)          “Disability Retirement Date” shall mean the date a Participant is determined to have incurred a Disability while employed by an Employer.

(n)           “Early Retirement Date”.   There is no early retirement under this Plan.

(o)           “Effective Date” shall mean January 13, 2013.

(p)           “Eligibility Period” shall mean the period of 12 consecutive months commencing on an Employee’s Date of Hire.  Succeeding Eligibility Periods after the initial Eligibility Period shall be based on the Plan Year beginning with the Plan Year which includes the first anniversary date of an Employee’s Date of Hire, and subsequent Plan Years.

 

  

4

  

 

(q)           “Employee” shall mean any person who is classified as an employee by the Employer or a Related Employer, including officers, but excluding directors in their capacity as such.  Individuals not originally classified as Employees who are later classified as such for any reason shall not be treated as Employees under the Plan.

(r)            “Employee Stock Ownership Account” shall mean the separate bookkeeping account established for each Participant pursuant to Section 5.1(a).

(s)           “Employee Stock Ownership Contribution” shall mean the cash, Employer Securities, or both that are contributed to the Plan by the Employer pursuant to Article IV.

(t)            “Employee Stock Ownership Suspense Account” shall mean the temporary account in which the Trustee may maintain any Employee Stock Ownership Contribution that is made prior to the last day of the Plan Year for which it is made, as described in Section 5.2.

(u)           “Employer” shall mean First Northwest Bancorp and its wholly owned subsidiary, First Federal Savings and Loan Association of Port Angeles, or any successors to the aforesaid corporations by merger, consolidation or otherwise, which may agree to continue this Plan, or any Related Employer or any other business organization which, with the consent of the Sponsor, shall agree to become a party to this Plan.  To the extent required by the Code or the Act, references herein to the Employer shall also include all Related Employers, whether or not they are participating in this Plan.

(v)           “Employer Securities” shall mean the common stock issued by First Northwest Bancorp.  Such term shall also mean, in the discretion of the Board of Directors, any other common stock issued by the Employer or any Related Employer having voting power and dividend rights equal to or in excess of:

(1)           that class of common stock of the Employer or a Related Employer having the greatest voting power, and

(2)           that class of common stock of the Employer or a Related Employer having the greatest dividend rights.

Non-callable preferred stock shall be treated as Employer Securities if such stock is convertible at any time into stock which meets the requirements of (1) and (2) next above and if such conversion is at a conversion price which (as of the date of the acquisition by the Plan) is reasonable.  For purposes of the last preceding sentence, preferred stock shall be treated as non-callable if, after the call, there will be a reasonable opportunity for a conversion which meets the requirements of the last preceding sentence.

(v-1)       “Employment Commencement Date” shall mean the first date on which the Eligible Employee performs an Hour of Service.

(w)          “Entry Date” shall mean each January 1 and July 1.

(x)           “Exempt Loan” shall mean a loan described at Section 4975(d)(3) of the Code to the Trustee to purchase Employer Securities for the Plan, made or guaranteed by a disqualified person, as defined at Section 4975(e)(2) of the Code, including, but not limited to, a direct loan of cash, a purchase money transaction, an assumption of an obligation of the Trustee, an unsecured guarantee or the use of assets of such disqualified person as collateral for such a loan.

 

  

5

  

 

(y)           “Exempt Loan Suspense Account” shall mean the account to which Financed Shares are initially credited until they are released in accordance with Section 8.5.

(z)           “Financed Shares” shall mean the Employer Securities acquired by the Trustee with the proceeds of an Exempt Loan and which are credited to the Exempt Loan Suspense Account until they are released in accordance with Section 8.5.

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

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

(cc)         “Hour of Service” shall mean each hour for which an Employee is directly or indirectly paid or entitled to payment by the Employer or a Related Employer for the performance of duties or for reasons other than the performance of duties (such as vacation time, holidays, sickness, disability, paid lay-offs, jury duty and similar periods of paid nonworking time).  To the extent not otherwise included, Hours of Service shall also include each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer or a Related Employer.  Hours of working time shall be credited on the basis of actual hours worked, even though compensated at a premium rate for overtime or other reasons.  In computing and crediting Hours of Service for an Employee under this Plan, the rules set forth in Sections 2530.200b-2(b) and (c) of the Department of Labor Regulations shall apply, said sections being herein incorporated by reference.  Hours of Service shall be credited to the Plan Year or other relevant period during which the services were performed or the nonworking time occurred, regardless of the time when compensation therefor may be paid.  Any Employee for whom no hourly employment records are kept by the Employer or a Related Employer shall be credited with 45 Hours of Service for each calendar week in which he would have been credited with a least one Hour or Service under the foregoing provisions, if hourly records were available.  Solely for purposes of determining whether a Break for participation and vesting purposes has occurred in an Eligibility Period or a Plan Year, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, 8 Hours of Service per day of such absence.  For purposes of Section 1.1(cc), an absence from work for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the individual, (2) by reason of the birth of a child of the individual, (3) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement.  The Hours of Service credited under this provision shall be credited (1) in the computation period in which the absence begins if the crediting is necessary to prevent a Break in that period, or (2) in all other cases, in the following computation period.

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

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

(ff)           “Normal Retirement Date” shall mean the date on which a Participant attains age 65 or the fifth anniversary of the date the Employee commences participation in the Plan .

(ff-1)       “One-Year Period of Severance” shall mean a Period of Severance of at least 12 consecutive months.  In the case of an individual who is absent from work for maternity or paternity reasons, the 12-consecutive month period beginning on the first anniversary of the first date of such absence shall not constitute a One-Year Period of Severance.  For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the individual, (2) by reason of the birth of a child of the individual, (3) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement.

 

  

6

  

 

(gg)        “Participant” shall mean an Employee who has met all of the eligibility requirements of the Plan and who is currently included in the Plan as provided in Article II hereof; provided, however, that the term “Participant” shall not include (1) leased employees (as defined herein), (2) any individual who is employed by a Related Employer that has not adopted the Plan, (3) any Employee who is a non-resident alien individual and who has no earned income from sources within the United States, or (4) any Employee who is included in a unit of Employees covered by a collective-bargaining agreement with the Employer or a Related Employer that does not expressly provide for participation of such Employees in the Plan, where there has been good-faith bargaining between the Employer or a Related Employer and Employees’ representatives on the subject of retirement benefits.  To the extent required by the Code or the Act, or appropriate based on the context, references herein to Participant shall include Former Participant.  The term “leased employee” means any person (other than an employee of the recipient) who pursuant to an agreement between the recipient and any other person (“leasing organization”) has performed services for the recipient (or for the recipient and related persons determined in accordance with Code 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.

(gg-1)     “Period of Severance” shall mean a continuous period of time during which the Employee does not perform an Hour of Service for the Employer.  Such period begins on the date the Employee retires, dies, quits or is discharged, or if earlier, the 12 month anniversary of the date on which the Employee was otherwise first absent from service.

(hh)        “Plan” shall mean the First Northwest Bancorp Employee Stock Ownership Plan, as described herein or as hereafter amended from time to time.

(ii)           “Plan Year” shall mean the twelve month period commencing January 1 and ending December 31.

(jj)           “Qualified Domestic Relations Order” shall mean any judgment, decree or order that satisfies the requirements to be a “qualified domestic relations order,” as defined in Section 414(p) of the Code.

(kk)         “Qualified Military Service” shall have the meaning provided for in Code Section 414(u).

(ll)           “Related Employer” shall mean any entity that is:

(1)           a member of a controlled group of corporations that includes the Employer, while it is a member of such controlled group (within the meaning of Section 414(b) of the Code);

(2)           a member of a group of trades or businesses under common control with the Employer, while it is under common control (within the meaning of Section 414(c) of the Code);

(3)           a member of an affiliated service group that includes the Employer, while it is a member of such affiliated service group (within the meaning of Section 414(m) of the Code); or

 

  

7

  

 

(4)           a leasing or other organization that is required to be aggregated with the Employer pursuant to the provisions of Section 414(n) or 414(o) of the Code.

(mm)       “Retirement” shall mean termination of employment which qualifies a retirement under Article VI.

(nn)        “Service” shall mean, for purposes of eligibility to participate and vesting, employment with the Employer or any Related Employer, and for purposes of allocation of the Employee Stock Ownership Contribution and forfeitures, employment with the Employer.

(oo)        “Sponsor” shall mean First Northwest Bancorp.

(pp)        “Statutory Compensation” shall mean Compensation as defined in Section 1.1(j)(2), as modified and limited by Sections 1.1(j)(3) through (6).

 

(qq)        “Trust Agreement” shall mean the agreement by and between the Sponsor and the Trustee, as in effect from time to time, whether set forth herein or otherwise.

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

(ss)         “Valuation Date” shall mean the last day of each Plan Year.  Notwithstanding the foregoing, the Trustee may value the Trust as frequently as each business day of the Plan Year to determine the fair market value of each Participant’s Account under the Plan.  For transactions involving the Plan and a disqualified person (within the meaning of Code Section 4975(e)(2)), the valuation date shall be the date of the transaction.

(tt)          “Year of Eligibility Service” shall mean an Eligibility Period during which an Employee is credited with at least 1,000 Hours of Service, except as otherwise specified in Article III.  If the Plan uses the elapsed time method: (i) “Year of Eligibility Service” means a twelve month period of time beginning on an Employee’s Employment Commencement Date and ending on the date on which eligibility service is being determined; (ii) in order to determine the number of whole Years of Eligibility Service under the elapsed time method, nonsuccessive periods of service and less than whole year periods of service shall be aggregated on the basis that 12 months of service (30 days are deemed to be a month in the case of the aggregation of fractional months) or 365 days of service are equal to a whole year of service; (iii) an Employee will also receive credit for any Period of Severance of less than 12 consecutive months; and (iv) if less than one Year of Eligibility Service is required in Article III, such service shall be determined by substituting such period for “twelve month” and “Year” where they appear in this paragraph.

(uu)        “Year of Vesting Service” shall mean a Plan Year during which an Employee is credited with at least 1,000 Hours of Service, except as otherwise specified in Article III.  If the Plan uses the elapsed time method: (i) “Year of Vesting Service” means a twelve month period of time beginning on an Employee’s Employment Commencement Date and ending on the date on which vesting service is being determined; (ii) in order to determine the number of whole Years of Vesting Service under the elapsed time method, nonsuccessive periods of service and less than whole year periods of service shall be aggregated on the basis that 12 months of service (30 days are deemed to be a month in the case of the aggregation of fractional months) or 365 days of service are equal to a whole year of service; and (iii) an Employee will also receive credit for any Period of Severance of less than 12 consecutive months.

 

  

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1.2           Plurals and Gender.

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

1.3           Incorporation of Trust Agreement.

If there is a separate Trust Agreement, then that Trust Agreement, as the same may be amended from time to time, is intended to be and hereby is incorporated by reference into this Plan.  All contributions made under the Plan will be held, managed and controlled by the Trustee pursuant to the terms and conditions of the Trust Agreement.

1.4           Headings.

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

1.5           Severability.

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

1.6           References to Governmental Regulations.

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

1.7           Notices.

Any notice or document required to be filed with the Administrator or Trustee under the Plan will be properly filed if delivered or mailed by registered mail, postage prepaid, to the Administrator in care of the Sponsor or to the Trustee, each at its principal business offices.  Any notice required under the Plan may be waived in writing by the person entitled to notice.

1.8           Evidence.

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

 

1.9           Action by Employer.

Any action required or permitted to be taken by any entity constituting the Employer under the Plan shall be by resolution of its Board of Directors or by a person or persons authorized by its Board of Directors.

 

  

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ARTICLE II

PARTICIPATION

2.1           Commencement of Participation.

(a)           Any Employee who is eligible to become a Participant in accordance with Section 1.1(gg) hereof shall initially become a Participant on the Entry Date coincident with or next following the date on which he has attained age twenty-one (21) and completes one Year of Eligibility Service.

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

(c)           An Employee who is actively employed by the Employer or on an Authorized Leave of Absence on the original Effective Date shall be considered a Participant on such original Effective Date, unless the Employee is described within a classification that is not treated as a “Participant”, as defined in Section 1.1(gg).

2.2           Termination of Participation.

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

(a)           His actual Retirement date;

(b)           His date of death; or

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

2.3           Resumption of Participation.

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

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

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

2.4           Determination of Eligibility.

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

  

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2.5           Restricted Participation.

Subject to the terms and conditions of the Plan, during the period between the Participant’s date of termination of participation in the Plan (as described in Section 2.2) and the distribution of his entire Account (as described in Article IX), and during any period that a Participant does not meet the requirements of Section 2.1(a) or is employed by a Related Employer that is not participating in the Plan (or otherwise is not within a classification of Employee that is considered a Participant as defined herein), the Participant or, in the event of the Participant’s death, the Beneficiary of the Participant, will be considered and treated as a Participant for all purposes of the Plan, except as follows:

(a)           the Participant will not share in the Employee Stock Ownership Contribution and forfeitures (as described in Sections 7.2 and 7.3), except as provided in Sections 5.4 and 5.5; and

(b)           the Beneficiary of a deceased Participant cannot designate a Beneficiary under Section 6.5.

 

  

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ARTICLE III

CREDITED SERVICE

3.1           Service Counted for Eligibility Purposes.

Except as provided in Section 3.3, all Years of Eligibility Service completed by an Employee shall be counted in determining his eligibility to become a Participant on and after the Effective Date, regardless of whether such Service was completed before or after the Effective Date.

3.2           Service Counted for Vesting Purposes.

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

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

(b)           Service prior to the Effective Date of this Plan if such Service would have been disregarded under the “break in service” rules (within the meaning of Section 1.411(a)-5(b) of the Treasury Regulations).

3.3           Credit for Pre-Break Service.

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

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

(b)           The number of his consecutive Breaks does not equal or exceed the greater of 5 or the number of his Years of Eligibility Service or Years of Vesting Service, as the case may be, credited to him before the Breaks began.

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

3.4           Service Credit During Authorized Leaves.

An Employee shall receive no Service credit under Section 3.1 or 3.2 during any Authorized Leave of Absence.  However, solely for the purpose of determining whether he has incurred a Break (if the Plan does not use the elapsed time method of crediting Service) during any Plan Year in which he is absent from Service for one or more Authorized Leaves of Absence, he shall be credited with 45 Hours of Service for each week during any such leave period.  Notwithstanding the foregoing, if an Employee fails to return to Service on or before the end of a leave period, he shall be deemed to have terminated Service as of the first day of such leave period and his credit for Hours of Service, determined under this Section 3.4, shall be revoked.

 

  

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3.5           Service Credit During Maternity or Paternity Leave.

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

(a)           that the absence from Service was attributable to one of the maternity or paternity reasons enumerated in Section 1.1(cc) or 1.1(ff-1), as applicable; and

 

(b)           the number of days of such absence.

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

3.6           Ineligible Employees.

Notwithstanding any provisions of this Plan to the contrary, any Employee who is ineligible to participate in this Plan either because of his failure

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

(b)           To be a Participant, as defined in Section 1.1(gg),

shall, nevertheless, earn Years of Eligibility Service and Years of Vesting Service pursuant to the rules contained in this Article III.  However, such Employee shall not be entitled to an allocation of any contributions or forfeitures hereunder unless and until he becomes a Participant in this Plan, and then, only during his period of participation.

3.7           Military Service Provisions.

 

(a)           In General. Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service shall be provided in accordance with Code Section 414(u).

 

(b)           Death Benefits Under USERRA. If a Participant dies while performing Qualified Military Service, the survivors of the Participant are entitled to any additional benefits provided under the plan as if the Participant had resumed and then terminated employment on account of death pursuant to Code Section 401(a)(37), Notice 2010-5 and any superseding guidance.

 

(c)           Differential Military Pay. Pursuant to Code Section 414(u)(12), Notice 2010-5 and any superseding guidance, a Participant receiving differential wage payments (as defined in Code Section 3401(h)(2)) shall be treated as an Employee of the Employer making the payment and the differential wage payments shall be treated as Compensation under the Plan.

 

(d)           Deemed Severance. If a Participant performs service in the uniformed services (as defined in Code Section 414(u)(12)(B)) on active duty for a period of more than 30 days, the Participant will be deemed to have a severance from employment solely for purposes of eligibility for distribution of amounts not subject to Code Section 412. However, the Plan will not distribute such a Participant’s account on account of this deemed severance unless the Participant specifically elects to receive a benefit distribution hereunder. If a Participant elects to receive a distribution on account of this deemed severance, then the individual may not make an elective deferral or employee contribution during the 6-month period beginning on the date of the distribution. If a Participant would be entitled to a distribution on account of a deemed severance, and a distribution on account of another Plan provision (such as a qualified reservist distribution), then the other Plan provision will control and the 6-month suspension will not apply.

 

  

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3.8           Elapsed Time Method of Crediting Service.

The Plan shall use the elapsed time method of crediting Service.

 

  

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ARTICLE IV

CONTRIBUTIONS

4.1           Employee Stock Ownership Contribution.

(a)           Subject to all of the provisions of this Article IV, for each Plan Year commencing on or after the Effective Date, the Employer shall make an Employee Stock Ownership Contribution to the Fund in such amount as may be determined by resolution of the Board of Directors in its discretion; provided, however, that the Employer shall contribute an amount in cash not less than the amount required to enable the Trustee to discharge any indebtedness incurred with respect to an Exempt Loan in accordance with Section 8.6(c).  If any part of the Employee Stock Ownership Contribution under this Section 4.1 for any Plan Year is in cash in an amount exceeding the amount needed to pay the amount due during or prior to such Plan Year with respect to an Exempt Loan, such cash shall be applied by the Trustee, as directed by the Administrator in its sole discretion, either to the purchase of Employer Securities or to repay an Exempt Loan.  Contributions hereunder shall be in the form of cash, Employer Securities or any combination thereof.  In determining the value of Employer Securities transferred to the Fund as an Employee Stock Ownership Contribution, the Administrator may determine the average of closing prices of such securities for a period of up to 90 consecutive days immediately preceding the date on which the securities are contributed to the Fund.  In the event that the Employer Securities are not readily tradable on an established securities market, the value of the Employer Securities transferred to the Fund shall be determined by an independent appraiser in accordance with Section 8.9.

(b)           Subject to Section 4.1(a), in no event shall the Employee Stock Ownership Contribution exceed for any Plan Year the maximum amount that may be deducted by the Employer under Section 404 of the Code, nor shall such contribution cause the Employer to violate its regulatory capital requirements.  Each Employee Stock Ownership Contribution by the Employer shall be deemed to be made on the express condition that the Plan, as then in effect, shall be qualified under Sections 401(a) and 501(a) of the Code and that the amount of such contribution shall be deductible from the Employer’s income under Section 404 of the Code.

4.2           Time and Manner of Employee Stock Ownership Contribution.

(a)           The Employee Stock Ownership Contribution (if any) for each Plan Year shall be paid to the Trustee in one lump sum or installments at any time on or before the expiration of the time prescribed by law (including any extensions) for filing of the Employer’s federal income tax return for its fiscal year ending concurrent with or during such Plan Year; provided, however, that the Employee Stock Ownership Contribution (if any) for a Plan Year shall be made in a timely manner to make any required payment of principal and/or interest on an Exempt Loan for such Plan Year.  Any portion of the Employee Stock Ownership Contribution for each Plan Year that may be made prior to the last day of the Plan Year shall, if there is an Exempt Loan outstanding at such time, at the election of the Administrator, either (i) be applied immediately to make payments on such Exempt Loan or (ii) be maintained in the Employee Stock Ownership Suspense Account described in Section 5.2 until the last day of such Plan Year.

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

 

  

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(c)           Notwithstanding anything contained herein to the contrary, no Employee Stock Ownership Contribution shall be made for any Plan Year that would cause the Plan to violate the requirements of Section 5.6 (related to the Code Section 415 limitations).

4.3           Records of Contributions.

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

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

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

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

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

4.4           Erroneous Contributions.

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

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

 

  

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ARTICLE V

ACCOUNTS, ALLOCATIONS AND INVESTMENTS

5.1           Establishment of Separate Participant Accounts.

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

(a)           Employee Stock Ownership Accounts.

The Administrator shall establish a separate Employee Stock Ownership Account in the Fund for each Participant.  The Administrator may establish subaccounts hereunder, an Employer Stock Account reflecting a Participant’s interest in Employer Securities held by the Fund, and an Other Investments Account reflecting the Participant’s interest in his Employee Stock Ownership Account other than Employer Securities.  Each Participant’s Employer Stock Account shall reflect his share of any Employee Stock Ownership Contribution made in Employer Securities, his allocable share of forfeitures (as described in Section 5.4), and any Employer Securities attributable to earnings on such stock.  Each Participant’s Other Investments Account shall reflect any Employee Stock Ownership Contribution made in cash, any cash dividends on Employer Securities allocated and credited to his Employee Stock Ownership Account (other than currently distributable dividends) and his share of corresponding cash forfeitures, and any income, gains, losses, appreciation, or depreciation attributable thereto.   Dividends attributable to Employer Securities that are allocated to a Participant pursuant to Section 8.4 (and not distributable thereunder) shall be treated as part of the Participant’s Employee Stock Ownership Account.

(b)           Other Accounts.

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

5.2           Establishment of Suspense Accounts.

The Administrator shall establish a separate Employee Stock Ownership Suspense Account.  There shall be credited to such account any Employee Stock Ownership Contribution that may be made prior to the last day of the Plan Year and that are allocable to the Employee Stock Ownership Suspense Account pursuant to Section 4.2(a).  The Employee Stock Ownership Suspense Account shall share proportionately as to time and amount in any Investment Adjustments.  As of the last day of each Plan Year, the balance of the Employee Stock Ownership Suspense Account shall be added to the Employee Stock Ownership Contribution and allocated to the Employee Stock Ownership Accounts of Participants as provided in Section 5.5, except as provided herein.  In the event that the Plan takes an Exempt Loan, the Employer Securities purchased thereby shall be allocated as Financed Shares to a separate Exempt Loan Suspense Account, from which Employer Securities shall be released in accordance with Section 8.5 and shall be allocated in accordance with Section 8.6(b).

 

  

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5.3           Allocation of Earnings, Losses and Expenses.

Except as otherwise provided in this instrument, as of each Valuation Date, any increase or decrease in the net worth of the aggregate Employee Stock Ownership Accounts held in the Fund attributable to earnings, losses, expenses and unrealized appreciation or depreciation in each such account, as determined by the Trustee, shall be credited to or deducted from the appropriate suspense accounts and all Participants’ Employee Stock Ownership Accounts, in accordance with this Section.  Earnings, losses, and unrealized appreciation or depreciation in Employer Securities in a Participant’s Employee Stock Ownership Account shall be determined and allocated only to such account, but such determination shall be made immediately prior to crediting any Contributions and forfeitures for the current Plan Year, but after adjustment for any transfer to or from such accounts.  Earnings, losses, and unrealized appreciation or depreciation in investments other than Employer Securities in the Participant’s Other Investment Accounts shall be allocated in the proportion that the value of each such account (determined immediately prior to such allocation and before crediting any Contributions and forfeitures for the current Plan Year but after adjustment for any transfer to or from such accounts and for the time such funds were in such accounts) bears to the value of all Other Investment Accounts.  Provided, however, cash dividends paid to the Plan shall be allocated or otherwise disposed of in accordance with Plan Section 8.4. Plan expenses paid from the assets of this employee pension benefit plan shall be allocated across all Accounts in the proportion that the value of each Participant’s Account bears to the value of all Participant Accounts.

5.4           Application of Forfeitures.

Forfeitures occurring during the Plan Year may, at the discretion of the Administrator, be used to pay or reimburse expenses of the Plan, to the extent such payment or reimbursement is consistent with the applicable fiduciary requirements of the Act.  As of the last day of each Plan Year, all forfeitures which have not been applied in accordance with the preceding sentence shall be added to the Employee Stock Ownership Contribution (if any) for such year and allocated among the Participants’ Employee Stock Ownership Accounts, as appropriate, in the manner provided in Section 5.5.

5.5           Allocation of Employee Stock Ownership Contribution.

As of the last day of each Plan Year for which the Employer shall make an Employee Stock Ownership Contribution, the Administrator shall allocate the Employee Stock Ownership Contribution (including reallocable forfeitures) for such Plan Year to the Employee Stock Ownership Account of each Participant who completed a Year of Vesting Service during that Plan Year, provided that he is still employed by the Employer on the last day of the Plan Year (or the Participant terminated employment with the Employer and all Related Employers during the Plan Year on account of death, Disability or after attaining Normal Retirement Age).  Such allocation shall be made in the same proportion that each such Participant’s Compensation (defined in Section 1.1(j)(1), as modified by Section 1.1(j)(3) through (6)) for such Plan Year bears to the total Compensation (defined in Section 1.1(j)(1), as modified by Section 1.1(j)(3) through (6)) of all such Participants for such Plan Year, subject to Section 5.6.  Furthermore, if a Participant completes a Year of Vesting Service and is on an Authorized Leave of Absence on the last day of the Plan Year, such a Participant shall be entitled to an allocation based on his Compensation earned during such Plan Year.

 

  

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5.6           Limitation on Annual Additions.

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

(1)           the applicable dollar limitation provided for in Code Section 415(c)(1)(A) for the Limitation ($50,000 for Limitation Years commencing in 2012), as adjusted for increases in the cost-of-living under Code Section 415(d), or

 

(2)           100 percent of the Participant’s Statutory Compensation for the Limitation Year.

(b)           This Section 5.6 shall be applied in a manner consistent with the Treasury Regulations under Code Section 415, which shall be incorporated herein by this reference, except as provided herein or in the definition of Compensation.

(c)           In the event that the limitations on Annual Additions described in Section 5.6(a) above are exceeded with respect to any Participant in any Limitation Year, then:

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

(2)           If any excess Annual Additions remain, then the excess shall be corrected pursuant to a correction method provided for in the Internal Revenue Service employee plans compliance resolution system (EPCRS) then in effect.

5.7           Erroneous Allocations.

No Participant shall be entitled to any Annual Additions or other allocations to his Account in excess of those permitted under Sections 5.3, 5.4, 5.5, and 5.6.  If it is determined at any time that the Administrator has erred in accepting and allocating any contributions or forfeitures under this Plan, or in allocating Investment Adjustments, or in excluding or including any person as a Participant, then the Administrator, in a uniform and nondiscriminatory manner, shall determine the manner in which such error shall be corrected and shall promptly advise the Trustee in writing of such error and of the method for correcting such error.  The accounts of any or all Participants may be revised, if necessary, in order to correct such error.  To the extent applicable, such correction shall be made in accordance with the requirements of the Internal Revenue Service employee plans compliance resolution system (EPCRS) then in effect.

5.8           Value of Participant’s Account.

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

5.9           Investment of Account Balances.

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

 

  

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ARTICLE VI

RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY

6.1           Normal Retirement.

A Participant who reaches his Normal Retirement Date and who shall retire at that time shall thereupon be entitled to retirement benefits based on the value of his Account, payable pursuant to the provisions of Section 9.1.  A Participant who remains in Service after his Normal Retirement Date shall not be entitled to any retirement benefits until his actual termination of Service thereafter (except as provided in Section 9.4), and he shall meanwhile continue to participate in this Plan.

6.2           Early Retirement.

There is no early retirement under this Plan.

6.3           Disability Retirement.

In the event a Participant incurs a Disability before his Retirement or other termination of Service, he may retire on his Disability Retirement Date and shall thereupon be entitled to retirement benefits based on the value of his Account, payable pursuant to the provisions of Section 9.1.

6.4           Death Benefits.

(a)           Upon the death of a Participant before his Retirement or other termination of Service, the value of his Account shall be payable pursuant to the provisions of Section 9.1.  The Administrator shall direct the Trustee to distribute his Account to any surviving Beneficiary designated by the Participant or, if none, to such persons specified in Section 6.5(b).  Survivors of a Participant who dies while performing Qualified Military Service shall be entitled to any additional benefits provided under the Plan as if the Participant resumed service with the Employer and then terminated employment on account of death. The additional benefits shall not include benefit accruals relating to the period of Qualified Military Service.

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

(c)           The Administrator may require such proper proof of death and such evidence of the right of any person to receive the balance credited to 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.

6.5           Designation of Beneficiary and Manner of Payment.

(a)           Each Participant shall have the right to designate a Beneficiary to receive the sum or sums to which he may be entitled upon his death.  The Participant may also designate the manner in which any death benefits under this Plan shall be payable to his Beneficiary, provided that such designation is in accordance with Section 9.5.  Such designation of Beneficiary and manner of payment shall be in writing and delivered to the Administrator, and shall be effective when received by the Administrator while the Participant is alive.  The Participant shall have the right to change such designation by notice in writing to the Administrator while the Participant is alive.  Such change of Beneficiary or the manner of payment shall become effective upon its receipt by the Administrator while the Participant is alive.  Any such change shall be deemed to revoke all prior designations.

 

  

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(b)           If a Participant shall fail to designate validly a Beneficiary, or if no designated Beneficiary survives the Participant, the balance credited to his Account shall be paid to the person or persons in the first of the following classes of successive preference Beneficiaries surviving at the death of the Participant:  the Participant’s (1) widow or widower, (2) natural-born or adopted children, (3) natural-born or adoptive parents, and (4) estate.  The Administrator shall determine which Beneficiary, if any, shall have been validly designated or entitled to receive the balance credited to the Participant’s Account in accordance with the foregoing order of preference, and its decision shall be binding and conclusive on all persons.

(c)           Notwithstanding the foregoing, if a Participant is married on the date of his death, the sum or sums to which he may be entitled under this Plan upon his death shall be paid to his spouse, unless the Participant’s spouse shall have consented to the election of another Beneficiary.  Such a spousal consent shall be in writing and shall be witnessed either by a representative of the Administrator or by a notary public.  Any designation by an unmarried Participant shall be rendered ineffective by any subsequent marriage, and any consent of a spouse shall be effective only as to that spouse.  If it is established to the satisfaction of the Administrator that spousal consent cannot be obtained because there is no spouse, because the spouse cannot be located, or other reasons prescribed by governmental regulations, the consent of the spouse may be waived, and the Participant may designate a Beneficiary or Beneficiaries other than his spouse.

(d)           Automatic revocation of spousal designation. A divorce decree, or a decree of legal separation, shall automatically revoke the Participant’s prior designation, if any, of his or her spouse or former spouse as his or her Beneficiary under the Plan unless a qualified domestic relations order or other written agreement specifically provides otherwise.

  

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ARTICLE VII

VESTING AND FORFEITURES

7.1           Vesting on Death, Disability and Normal Retirement.

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

7.2           Vesting on Termination of Participation.

(a)           Upon termination of his participation in this Plan for any reason other than death, Disability, or Normal Retirement, a Participant shall be vested in a percentage of his Employee Stock Ownership Account, such vested percentage to be determined under the following table (“Vesting Schedule”), based on the Years of Vesting Service (including Years of Vesting Service prior to the Effective Date) credited to him at the time of his termination of participation:

 

	 	Years of Vesting Service 	 	Percentage Vested	 
	 	
Less than 1

	 	
0%

	 
	 	1	 	
25%

	 
	 	2	 	
50%

	 
	 	3	 	
75%

	 
	 	
4 or more

	 	
100%

	 

 

Notwithstanding the foregoing, a Participant shall at all times have a nonforfeitable interest in Employer Securities acquired with dividends received pursuant to Section 8.4(c).

(b)           Any portion of the Participant’s Employee Stock Ownership Account which is not vested at the time he incurs a Break shall thereupon be forfeited and disposed of pursuant to Section 7.3.  In such event, Employer Securities shall be forfeited only after other assets. Distribution of the vested portion of a terminated Participant’s interest in the Plan shall be payable in any manner permitted under Section 9.1.

(c)           If a portion of a Participant’s Account is forfeited, Employer Securities allocated from an Exempt Loan must be forfeited only after other assets.   If interests in more than one class of Employer Securities have been allocated to the Participant’s Account, the Participant must forfeit the same proportion of each such class.

7.3           Forfeitures.

(a)           Subject to the provisions of this Section 7.3, a Participant shall forfeit the nonvested portion of his Employee Stock Ownership Account upon the earlier of the date (1) the Participant receives a complete distribution of his Employee Stock Ownership Account (or is deemed to receive, in the case of a Participant who terminates employment with a zero percent vested interest in his Employee Stock Ownership Account), or (2) the Participant incurs 5 consecutive Breaks.

 

(b)           In the event an Employee is rehired by the Employer, the following rules shall apply in determining the vested portion of the Employee’s interest in the Plan:

 

(1)           If the Employee has a Break, Years of Vesting Service before such Break shall not be taken into account until after he is credited with a Year of Vesting Service after his return.

 

  

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(2)           If the Employee has five or more consecutive Breaks upon his return, then his Years of Vesting Service after such Breaks shall not be taken into account in determining the vested portion of his Employee Stock Ownership Account that accrued before such Breaks.

 

(3)           If the Employee was not vested in his Employee Stock Ownership Account at the time of his termination, then Years of Vesting Service before a consecutive period of Breaks shall not be required to be taken into account if the number consecutive Breaks exceeds the greater of (A) five, or (B) the aggregate number of Years of Vesting Service before such period.

 

(c)           If the Plan operates under a graded vesting schedule and a Participant receives a distribution of his entire vested Account balance because of the termination of his participation in the Plan, the Plan shall disregard the Participant’s Service with respect to which such cash-out distribution shall have been made, in computing his Account balance in the event that a Former Participant shall again become an Employee and become eligible to participate in the Plan. Such a distribution shall be deemed to be made on termination of participation in the Plan if it is made not later than the close of the second Plan Year following the Plan Year in which such termination occurs.  The forfeitable portion of a Participant’s Account balance shall be restored upon repayment to the Plan by such Former Participant of the full amount of the cash-out distribution, provided that the Former Participant again becomes an Employee.  Such repayment must be made by the Employee not later than the end of the 5-year period beginning with the date the Participant is reemployed by the Employer or a Related Employer, or the close of the first period of 5 consecutive Breaks commencing after the distribution to the Employee.  Forfeitures required to be restored by virtue of such repayment shall be restored from the following sources in the following order of preference: (1) current forfeitures; (2) an additional Employer contribution, as appropriate, and as subject to Section 5.6; and (3) investment earnings of the Fund.  In the event that a Participant’s Account balance is totally forfeitable, a Participant shall be deemed to have received a distribution of zero upon his termination of Service, and in the event of a return to Service within 5 years of the date of his deemed distribution, the Participant shall be deemed to have repaid his distribution as of the date of his return to Service.

(d)           Vesting Following Payment in Installments.  If a distribution is made at a time when a Participant has a nonforfeitable right to less than 100 percent of his Account and the Participant may increase the nonforfeitable percentage in the Account:

(1)           A separate account will be established for the Participant’s interest in the Plan as of the time of the distribution, and

(2)           At any relevant time the Participant’s nonforfeitable portion of the separate account will be equal to an amount (“X”) determined by the formula:

X = P(AB + (R x D)) - (R x D)

For purposes of applying the formula: P is the nonforfeitable percentage at the relevant time, AB is the Account balance at the relevant time, D is the amount of the distribution, and R is the ratio of the Account balance at the relevant time to the Account balance after distribution.

 

  

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ARTICLE VIII

EMPLOYEE STOCK OWNERSHIP PROVISIONS

8.1           Right to Demand Employer Securities.

A Participant entitled to a distribution from his Account shall be entitled to demand that his interest in the Account be distributed to him in the form of Employer Securities, all subject to Section 9.9.  The Administrator shall notify the Participant of his right to demand distribution of his vested Account balance entirely in whole shares of Employer Securities (with the value of any fractional share paid in cash).  However, if the charter or by-laws of the Employer restrict ownership of substantially all of the outstanding Employer Securities to Employees and the Trust, then the distribution of a Participant’s vested Account shall be made entirely in the form of cash or other property, and the Participant is not entitled to a distribution in the form of Employer Securities.

8.2           Voting Rights; Tendering Shares.

(a)           Each Participant with an Employee Stock Ownership Account shall be entitled to direct the Trustee as to the manner in which the Employer Securities in such account are to be voted.  Employer Securities held in the Employee Stock Ownership Suspense Account or the Exempt Loan Suspense Account shall be voted by the Trustee on each issue with respect to which shareholders are entitled to vote in the same proportion as the Participants who timely directed the Trustee as to the manner of voting their shares in the Employee Stock Ownership Accounts with respect to such issue (that is, affirmatively, negatively or with an abstention).  In the event that a Participant fails to give timely voting instructions to the Trustee with respect to the voting of Employer Securities that are allocated to his Employee Stock Ownership Account, the Trustee shall vote such shares in the same proportion as those shares on which the Trustee has received timely direction from the Participants with respect to such issue (that is, affirmatively, negatively or with an abstention).

(b)           Tender rights or exchange offers for Employer Securities will be passed through to Participants.  As soon as practicable after the commencement of a tender or exchange offer for Employer Securities, the Employer shall cause each person with power to control the response to such tender or exchange offer to be advised in writing the terms of the offer and, if applicable, to be provided with a form for instructing the Trustee, or for revoking such instruction, to tender or exchange shares of Employer Securities, to the extent permitted under the terms of such offer.  In advising such persons of the terms of the offer, the Employer may include statements from the board of directors setting forth its position with respect to the offer.  To the extent some or all of the Participants have not directed or have not timely directed the Trustee on how to respond to such tender or exchange, then the Trustee shall tender or exchange such Employer Securities on which no direction was received as directed by the Plan Administrator.  In addition, shares attributable to Employer Securities held unallocated in the Exempt Loan Suspense Account as a result of an Exempt Loan shall be tendered or exchanged (or not tendered or exchanged) in the same proportion as those tendered by Participants.  If the tender or exchange offer is limited so that all of the shares that the Trustee has been directed to tender or exchange cannot be sold or exchanged, the shares that each Participant directed to be tendered or exchanged shall be deemed to have been sold or exchanged in the same ratio that the number of shares actually sold or exchanged bears to the total number of shares that the Trustee was directed to tender or exchange. The Trustee shall hold the Participant’s individual directions with respect to voting rights or tender decisions in confidence and, except as required by law, shall not divulge or release such individual directions to anyone associated with the Employer. The Employer may require verification of the Trustee’s compliance with the directions received from Participants by any independent auditor selected by the Employer, provided that such auditor agrees to maintain the confidentiality of such individual directions. The Employer may develop procedures to facilitate the exercise of votes or tender rights, such as the use of facsimile transmissions for the Participants located in physically remote areas.

 

  

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8.3           Nondiscrimination in Employee Stock Ownership Contribution.

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

(a)           Was at any time during the Plan Year or the preceding Plan Year a 5 percent owner of the Employer (within the meaning of Code Section 416(i)(1)); or

(b)           Received Statutory Compensation from the Employer for the preceding Plan Year in excess of $80,000, as adjusted under Code Section 414(q) with respect to the current year.

A former Employee shall be included in the group of Employees described above if either such former Employee was included in such group when such Employee separated from Service, or such former Employee was included in such group at any time after attaining age 55.

The determination of who is included in the group of Employees described above, including the determination of the number and identity of Employees in the “top-paid group,” will be made in accordance with Code Section 414(q) and the regulations thereunder. Amounts not allocable on account of this Section 8.3 shall be allocated among the Accounts of Participants who are not highly compensated employees, as defined herein, in accordance with Sections 5.5 and 5.6.

8.4           Dividends.

(a)           Dividends paid with respect to Employer Securities credited to a Participant’s Employee Stock Ownership Account as of the record date for the dividend payment may be allocated to the Participant’s Employee Stock Ownership Account, paid in cash to the Participant, or used by the Trustee to make payments on an Exempt Loan, pursuant to the direction of the Administrator.

(b)           If the Administrator shall direct that the aforesaid dividends shall be paid directly to Participants, the dividends paid with respect to such Employer Securities shall be paid to the Plan, from which dividend distributions in cash shall be made to the Participants with respect to the Employer Securities in their Employee Stock Ownership Accounts within 90 days of the close of the Plan Year in which the dividends were paid.

(c)           If the Administrator permits, then Participants shall be able to elect, in accordance with regulations or other guidance, to have the dividends paid and allocable to the Participant’s Account either (i) distributed to the Participant (or his Beneficiary) no later than 90 days after close of the Plan Year in which the dividend is paid (reduced by any investment losses occurring from when the dividend is paid to the Plan to when it is distributed to the Participant), or (ii) retained in the Participant’s Account under the Plan to be invested in Employer Securities.  Such election procedure shall be consistent with the requirements of Section 404(k) of the Code. If the Participant fails to make the election, he shall be deemed to have elected payment to the Plan and reinvestment in Employer Securities.  All elections shall be irrevocable upon the later of (i) the date of the Participant’s election, or (ii) the end of the applicable election period.

 

  

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(d)           If dividends on Employer Securities already allocated to Participants’ Employee Stock Ownership Accounts are used to make payments on an Exempt Loan, the Employer Securities which are released from the Exempt Loan Suspense Account shall first be allocated to each Employee Stock Ownership Account in an amount equal to the amount of dividends that would have been allocated to such Account if the dividends had not been used to make payments on an Exempt Loan, and the remaining Employer Securities (if any) which are released shall be allocated in the proportion that the value of each Employee Stock Ownership Account bears to the value of all such Accounts, all in accordance with Section 404(k) of the Code.

(e)           Dividends on Employer Securities obtained pursuant to an Exempt Loan and still held in the Exempt Loan Suspense Account may be used to make payments on an Exempt Loan, as described in Section 8.6.

8.5           Exempt Loans.

(a)           The Sponsor may direct the Trustee to obtain Exempt Loans.  The Exempt Loan shall be primarily for the benefit of the Plan participants and their beneficiaries. The Exempt Loan may take the form of (i) a loan from a bank or other commercial lender to purchase Employer Securities (ii) a loan from the Employer to the Plan; or (iii) an installment sale of Employer Securities to the Plan.  The proceeds of any such Exempt Loan shall be used, within a reasonable time after the Exempt Loan is obtained, only to purchase Employer Securities, repay the Exempt Loan, or repay any prior Exempt Loan.  Any such Exempt Loan shall provide for no more than a reasonable rate of interest and shall be without recourse against the Plan.  The number of years to maturity under the Exempt Loan must be definitely ascertainable at all times.  At the time the Exempt Loan is entered into, the interest rate on the Exempt Loan and the price of the Employer Securities acquired with the proceeds of the Exempt Loan shall not be such that Plan assets might be drained off.  The only assets of the Plan that may be given as collateral for an Exempt Loan are Financed Shares acquired with the proceeds of the Exempt Loan and Financed Shares that were used as collateral for a prior Exempt Loan repaid with the proceeds of the current Exempt Loan.  Such Financed Shares so pledged shall be placed in an Exempt Loan Suspense Account.  No person or institution entitled to payment under an Exempt Loan shall have recourse against Trust assets other than the Financed Shares, the Employer Stock Ownership Contribution (other than contributions of Employer Securities) that is available under the Plan to meet obligations under the Exempt Loan, and earnings attributable to such Financed Shares and the investment of such contribution.  Any Employee Stock Ownership Contribution paid during the Plan Year in which an Exempt Loan is made (whether before or after the date the proceeds of the Exempt Loan are received), any Employee Stock Ownership Contribution paid thereafter until the Exempt Loan has been repaid in full, and all earnings from investment of such Employee Stock Ownership Contribution, without regard to whether any such Employee Stock Ownership Contribution and earnings have been allocated to Participants’ Employee Stock Ownership Accounts, shall be available to meet obligations under the Exempt Loan as such obligations accrue, or prior to the time such obligations accrue, unless otherwise provided by the Employer at the time any such contribution is made.  Any pledge of Employer Securities shall provide for the release of Financed Shares upon the payment of any portion of the Exempt Loan.  The Exempt Loan shall not be payable at the demand of any person, except in the event of default. In the event of a default regarding the repayment of an Exempt Loan, the amounts transferred in satisfaction of the Exempt Loan must not exceed the amount of default.  If the lender of the Exempt Loan is a disqualified person (within the meaning of Code Section 4975(e)(2)), then the transfer of assets in connection with an Exempt Loan shall be permitted only upon and to the extent of the failure of the Plan to meet the payment schedule of the Exempt Loan.  For purposes of the preceding two sentences, the making of a guarantee shall not make a person a lender.

 

  

26

  

 

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

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

8.6           Exempt Loan Payments.

(a)           Payments of principal and interest on any Exempt Loan during a Plan Year shall be made by the Trustee (as directed by the Administrator) only from (1) the Employee Stock Ownership Contribution to the Trust made to meet the Plan’s obligation under an Exempt Loan (other than contributions of Employer Securities) and from any earnings attributable to Financed Shares and investments of such contributions (both received during or prior to the Plan Year); (2) the proceeds of a subsequent Exempt Loan made to repay a prior Exempt Loan; and (3) the proceeds of the sale of any Financed Shares.  Such contribution and earnings shall be accounted for separately by the Plan until the Exempt Loan is repaid.  Payments made with respect to an Exempt Loan during a Plan Year shall not exceed an amount equal to the sum of such contributions and earnings received during or prior to the year, less such payment in prior years.  The Exempt Loan shall not be paid off prematurely with Plan assets.

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

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

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

(2)           Purchase any Financed Shares in an amount necessary to provide the Trustee with sufficient funds to meet the principal and interest repayments.  Any such sale by the Plan shall meet the requirements of Section 408(e) of the Act; or

 

  

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(3)           Any combination of the foregoing.

However, the Employer shall not, pursuant to the provisions of this subsection, do, fail to do or cause to be done any act or thing which would result in a disqualification of the Plan as an employee stock ownership plan under Section 4975(e)(7) of the Code.

(d)           Except as provided in Section 8.1 above and notwithstanding any amendment to or termination of the Plan which causes it to cease to qualify as an employee stock ownership plan within the meaning of Section 4975(e)(7) of the Code, or any repayment of an Exempt Loan, no shares of Employer Securities acquired with the proceeds of an Exempt Loan obtained by the Trust to purchase Employer Securities may be subject to a put, call or other option, or buy-sell or similar arrangement, while such shares are held by the Plan or when such shares are distributed from the Plan.  The provisions of this Section 8.6(d) shall continue to be applicable to Employer Securities held by the Trustee, whether or not allocated to Participants’ and Former Participants’ Accounts, even if the Plan ceases to be an employee stock ownership plan, as defined in Section 4975(e)(7) of the Code.  The Plan shall not obligate itself to acquire Employer Securities from a particular security at an indefinite time upon the happening of an event, such as the death of the security holder.

8.7           Put Option.

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

If a Participant exercises the foregoing put option with respect to Employer Securities that were distributed as part of a total distribution pursuant to which a Participant’s Employee Stock Ownership Account is distributed to him in a single taxable year, the Employer or the Plan may elect to pay the purchase price of the Employer Securities over a period not to exceed 5 years.  Such payments shall be made in substantially equal installments not less frequently than annually over a period beginning not later than 30 days after the exercise of the put option.  Reasonable interest shall be paid to the Participant with respect to the unpaid balance of the purchase price, and adequate security shall be provided with respect thereto.  In the event that a Participant exercises a put option with respect to Employer Securities that are distributed as part of an installment distribution, if permissible under Section 9.5, the amount to be paid for such securities shall be paid not later than 30 days after the exercise of the put option.

 

  

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8.8           Diversification Requirements.

Each Participant who has completed at least 10 years of participation in the Plan and has attained age 55 may elect within 90 days after the close of each Plan Year during his “qualified election period” to direct the Plan as to the investment of at least 25 percent of his Employee Stock Ownership Account (reduced by the amount of any distributions made pursuant to a prior election under this Section 8.8).  For purposes of this Section 8.8, the term “qualified election period” shall mean the five Plan Year period beginning with the Plan Year after the Plan Year in which the Participant attains age 55 (or, if later, beginning with the Plan Year after the first Plan Year in which the Employee first completes at least 10 years of participation in the Plan).  In the case of an Employee who has attained age 60 and completed 10 years of participation in the prior Plan Year and in the case of the election year in which any other Participant who has met the minimum age and service requirements for diversification can make his last election hereunder, he shall be entitled to direct the Plan as to the investment of at least 50 percent of his Employee Stock Ownership Account (reduced by the amount of any distributions made pursuant to a prior election under this Section 8.8).  The Plan shall make available at least 3 investment options (chosen by the Administrator in accordance with Treasury Regulations) to each Participant making an election hereunder.  The Plan shall be deemed to have met the requirements of this Section 8.8 if the portion of the Participant’s Employee Stock Ownership Account covered by the election hereunder is distributed to the Participant or his designated Beneficiary within 90 days after the period during which the election may be made.  In the absence of such a distribution, the Trustee shall implement the Participant’s election within 90 days following the expiration of the qualified election period.  Notwithstanding the foregoing, if the fair market value of the Employer Securities allocated to the Employee Stock Ownership Account of a Participant otherwise entitled to diversify hereunder is $500 or less as of the Valuation Date immediately preceding the first day of any election period, then such Participant shall not be entitled to an election under this Section 8.8 for that qualified election period.

8.9           Independent Appraiser.

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

 

  

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ARTICLE IX

PAYMENTS AND DISTRIBUTIONS

9.1           Payments on Termination of Service - In General.

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

9.2           Commencement of Payments.

(a)           Distributions upon Retirement, Disability or Death.  Upon a Participant’s Retirement, Disability or death, payment of benefits under this Plan shall, unless the Participant otherwise elects (in accordance with Section 9.3), commence as soon as practicable after the Valuation Date next following the date of the Participant’s Retirement, Disability or death.

(b)           Distribution following Termination of Service.  Unless a Participant elects otherwise, if a Participant terminates Service prior to Retirement, Disability or death, he shall be accorded an opportunity to commence receipt of benefits as soon as practicable after the Valuation Date next following the date of the Participant’s termination of Service.  A Participant who terminates Service with a vested Account balance shall be entitled to receive from the Administrator a statement of his benefits.  If a Participant’s vested Account balance does not exceed $1,000, the Plan Administrator shall distribute the vested Account balance as soon as practicable after the Valuation Date next following the date the Participant terminates Service without the consent of the Participant or his spouse.

(c)           Distribution of Larger Accounts.  If the value of a Participant’s vested Account balance exceeds $1,000, and the vested Account balance is immediately distributable (i.e., is distributable prior to the date the Participant attains age 65), the Participant must consent to any distribution of such vested Account balance.  The Administrator shall notify the Participant of the right to defer any distribution until the Participant’s vested Account balance is no longer immediately distributable.  Such notification shall be provided no less than 30 days, nor more than 180 days, prior to the account distribution date.  The Administrator must clearly inform the Participant: (1) that the Participant has a right to a period of at least 30 days after receiving the notice to decide whether or not to elect a distribution (and, if applicable, a particular distribution option); (2) that there are consequences for failing to defer receipt of a distribution; (3) that the Participant must affirmatively elect a distribution after receiving the 30-day notice, and (4) any other information required under Code Section 411(a)(11) and Treasury Regulations. The consent of the Participant shall be obtained in writing within the 180-day period ending on the date the distribution is to be made. If a distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such distribution may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: (1) the Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution.

 

  

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9.3           Mandatory Commencement of Benefits.

 

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

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

(1)           All distributions required under this Section 9.3(b) shall be determined and made in accordance with the Treasury Regulation under Code Section 401(a)(9).

(2)           Time and Manner of Distribution.

(A)           The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s Required Beginning Date.

(B)           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:

(i)             If the Participant’s surviving spouse is the Participant’s sole designated beneficiary, then 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 701⁄2, if later.

(ii)            If the Participant’s surviving spouse is not the Participant’s sole designated beneficiary, then distributions to the designated beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

(iii)           If there is no designated beneficiary as of September 30 of the year 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.

(iv)           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 Section 9.3(b)(2)(B), other than Section 9.3(b)(2)(B)(i), will apply as if the surviving spouse were the participant.

For purposes of this Section 9.3(b)(2)(B) and Section 9.3(b)(4) ,unless Section 9.3(b)(2)(B)(iv) applies, distributions are considered to begin on the Participant’s required beginning date. If Section 9.3(b)(2)(B)(iv) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 9.3(b)(2)(B)(i).

(3)           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 the Uniform Lifetime Table set forth in section 1.401(a)(9)-9 of the Treasury Regulations, 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 section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the distribution calendar year.

 

  

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Required minimum distributions will be determined under this Section 9.3(b)(2) beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the participant’s date of death.

	
  

	
(4)

	
Required Minimum Distributions After Participant’s Death.

(A)           Participant Survived by Designated Beneficiary. If the Participant dies on or after 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 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 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 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 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)           If the Participant dies on or after the date distributions begin and there is no designated 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 Participant’s  account balance by the Participant’s remaining life expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

	
  

	
(5)

	
Death Before Date Distributions Begin.

(A)           Participant Survived by Designated Beneficiary. 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 (4) above.

(B)           No Designated Beneficiary. If the Participant dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s  death.

 

  

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(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, this paragraph (5) will apply as if the surviving spouse were the Participant.

	
  

	
(6)

	
Definitions.

(A)           Designated beneficiary. The individual who is designated as the beneficiary under the Plan and is the designated beneficiary under Code Section 401(a)(9) of and section 1.401(a)(9)-1, Q&A-4, of the Treasury Regulations.

(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 Section 9.3(b)(2).  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 the Single Life Table in section 1.401(a)(9)-9 of the Treasury Regulations.

(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 balance 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 date specified in Section 9.4.

9.4           Required Beginning Dates.

(a)           General Rule. The required beginning date of a Participant who is a 5-percent owner of the Employer is the first day of April of the calendar year following the calendar year in which the Participant attains age 70-1/2.  The required beginning date of a Participant who is not a 5-percent owner shall be April 1 of the calendar year following the later of either:  (i) the calendar year in which the Participant attains age 70-1/2, or (ii) the calendar year in which the Participant retires.

(b)           5-percent owner.  A Participant is treated as a 5-percent owner for purposes of this section if such Participant is a 5-percent owner as defined in section 416(i) of the Code (determined in accordance with section 416 but without regard to whether the plan is top-heavy) at any time during the Plan Year ending with or within the calendar year in which such owner attains age 66-1/2 or any subsequent Plan Year.  Once distributions have begun to a 5-percent owner under this section, they must continue to be distributed, even if the Participant ceases to be a 5-percent owner in a subsequent year.

 

  

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9.5           Form of Payment.

Each Participant’s vested Account balance shall be distributed in a lump sum payment.  This form of payment shall be the normal form of distribution.  However, in the event that the Administrator must commence distributions, as required by Section 9.4 herein, with respect to an Employee who has attained age 70 1⁄2 and is still employed by the Employer, if the Employee does not elect a lump sum distribution, payments shall be made in installments in such amounts as shall satisfy the minimum distribution rules of Section 9.3.

9.6           Payments Upon Termination of Plan.

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

9.7           Distributions Pursuant to Qualified Domestic Relations Orders.

Nothing contained in this Plan prevents the Trustee, in accordance with the direction of the Retirement and Benefits Committee, from complying with the provisions of a Qualified Domestic Relations Order. This Plan specifically permits distribution to an alternate payee under a Qualified Domestic Relations Order at any time, irrespective of whether the Participant has attained his earliest retirement age (as defined under Code §414(p)) under the Plan. A distribution to an alternate payee prior to the Participant’s attainment of earliest retirement age is available only if: (1) the order specifies distribution at that time or permits an agreement between the Plan and the alternate payee to authorize an earlier distribution; and (2) if the present value of the alternate payee’s benefits under the Plan exceeds $5,000, and the order requires, the alternate payee consents to any distribution occurring prior to the Participant’s attainment of earliest retirement age. Nothing in this Section 9.7 gives a Participant a right to receive distribution at a time otherwise not permitted under the Plan nor does it permit the alternate payee to receive a form of payment not otherwise permitted under the Plan.

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

 

  

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If any portion of the Participant’s Account is payable during the period the Committee is making its determination of the qualified status of the domestic relations order, the Committee must make a separate accounting of the amounts payable. If the Committee determines the order is a Qualified Domestic Relations Order within 18 months of the date amounts first are payable following receipt of the order, the Committee will direct the Trustee to distribute the payable amounts in accordance with the order. If the Committee does not make its determination of the qualified status of the order within the 18 month determination period, the Committee will direct the Trustee to distribute the payable amounts in the manner the Plan would distribute if the order did not exist and will apply the order prospectively if the Committee later determines the order is a Qualified Domestic Relations Order. To the extent it is not inconsistent with the provisions of the Qualified Domestic Relations Order, the Committee may direct the Trustee to invest any partitioned amount in a segregated sub-account or separate account and to invest the account in Federally insured, interest-bearing savings account(s) or time deposit(s) (or a combination of both), or in other fixed income investments. A segregated sub-account remains a part of the Trust, but it alone shares in any income it earns, and it alone bears any expense or loss it incurs. The Trustee will make any payments or distributions required under this Section 9.7 by separate benefit checks or other separate distribution to the alternate payee(s).

9.8           ESOP Distribution Rules.

Notwithstanding any provision of this Article IX to the contrary, the distribution of a Participant’s Employee Stock Ownership Account (unless the Participant elects otherwise in writing) shall commence as soon as administratively feasible as of the first Valuation Date coincident with or next following his death, Disability or termination of Service, but not later than 1 year after the close of the Plan Year in which the Participant separates from Service by reason of the attainment of his Normal Retirement Date, Disability, death or separation from Service.  In addition, all distributions hereunder shall, to the extent that the Participant’s Account is invested in Employer Securities, be made in the form of Employer Securities or cash, or a combination of Employer Securities and cash, in the discretion of the Administrator, subject to the Participant’s right to demand Employer Securities in accordance with Section 8.1.  Fractional shares, however, may be distributed in the form of cash.   If Employer Securities acquired with the proceeds of an Exempt Loan available for distribution consist of more than one class of Employer Securities, the Participant receiving a distribution of Employer Securities shall receive substantially the same proportion of each such class.

9.9           Direct Rollover.

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

(b)           An “eligible rollover distribution” is any distribution of all or any portion of the balance to the credit of the distributee, except that an “eligible rollover distribution” does not include:  any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (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); the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer Securities); and any hardship distribution made on behalf of the Participant.

 

  

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(c)           An “eligible retirement plan” is 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), or a qualified trust described in Code Section 401(a), that accepts the distributee’s eligible rollover distribution.  However, in the case of an “eligible rollover distribution” to the surviving spouse or a non-spouse designated beneficiary, an “eligible retirement plan” is an individual retirement account or individual retirement annuity (and in the case of a non-spouse designated beneficiary an inherited individual retirement account or individual retirement annuity).  An eligible retirement plan shall also mean an annuity contract described in Code Section 403(b) and 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.  The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse or a non-spouse designated beneficiary, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order, as defined in Code Section 414(p).

(d)           A “distributee” includes a Participant or Former Participant.  In addition, the Participant’s or Former Participant’s surviving spouse and the Participant’s or Former Participant’s spouse or former spouse who is the alternate payee under a Qualified Domestic Relations Order are “distributees” with regard to the interest of the spouse or former spouse.  Pursuant to Code Section 402(c)(11), a “distributee” may also be a designated beneficiary of the Participant (determined in accordance with Code Section 401(a)(9)(E)).

(e)           A “direct rollover” is a payment by the Plan to the “eligible retirement plan” specified by the distributee.

(f)           The Plan shall allow a direct trustee-to-trustee transfer of an eligible rollover distribution to a Roth IRA (within the meaning of Code Section 408A).

 

9.10         Share Legend.

Employer Securities held or distributed by the Trustee may include such legend restrictions on transferability as the Employer may reasonably require in order to assure compliance with applicable Federal and State securities and other laws.

 

9.11.        Power to Reduce Benefit.

 

Notwithstanding Section 14.4, effective for judgments, orders, and decrees issued, and settlement agreements entered into, on or after August 5, 1997, a Participant’s Plan benefit may be reduced to satisfy liabilities of the Participant to the Plan due to:

(a)           The Participant’s being convicted of committing a crime involving the Plan;

(b)           A civil judgment (or consent order or decree) entered by a court in an action brought in connection with a violation of the fiduciary provisions of the Act; or

(c)           A settlement agreement between the Department of Labor and the Participant in connection with a violation of the fiduciary provisions of the Act.

The court order establishing such liability must require that the Participant’s benefit in the Plan be applied to satisfy the liability.

 

  

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ARTICLE X

PROVISIONS RELATING TO TOP-HEAVY PLANS

10.1         Top-Heavy Rules to Control.

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

10.2         Top-Heavy Plan Definitions.

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

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

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

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

(d)           “Key Employee” shall mean 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 Statutory Compensation greater than $130,000 (as adjusted under Code Section 416(i)(1)), a 5-percent owner of the Employer, or a 1-percent owner of the Employer having Statutory 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.

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

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

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

 

  

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10.3         Calculation of Accrued Benefits.

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

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

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

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

(4)           The present values of accrued benefits and the amounts of account balances of an employee as of the Determination Date shall be increased by the distributions made with respect to the employee 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.  The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Code Section 416(g)(2)(A)(i).  In the case of a distribution made for a reason other than severance from employment, death, or disability, this provision shall be applied by substituting “5-year period” for “1-year period.”

(5)           The accrued benefits and accounts of any individual who has not performed services for the Employer during the 1-year period ending on the Determination Date shall not be taken into account.

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

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

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

 

  

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

10.4         Determination of Top-Heavy Status.

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

10.5         Minimum Contribution.

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

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

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

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

(1)           The percentage minimum contribution required under this Plan shall in no event exceed the percentage contribution made for the Key Employee for whom such percentage is the highest for the Plan Year after taking into account contributions under other defined contribution plans in this Plan’s Required Aggregation Group; provided, however, that this Section 10.5(b)(1) shall not apply if this Plan is included in a Required Aggregation Group and this Plan enables a defined benefit plan in such Required Aggregation Group to meet the requirements of Code Section 401(a)(4) or 410.

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

 

  

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(c)           For purposes of this Section 10.5, there shall be disregarded (1) any Employer contributions attributable to a salary reduction or similar arrangement, or (2) any Employer contributions to or any benefits under Chapter 21 of the Code (relating to the Federal Insurance Contributions Act), Title II of the Social Security Act, or any other federal or state law.

(d)           For purposes of this Section 10.5, minimum contributions shall be required to be made on behalf of only those Non-Key Employees, as described in Section 10.6(a), who have not terminated Service as of the last day of the Plan Year.  If a Non-Key Employee is otherwise entitled to receive a minimum contribution pursuant to this Section 10.5(d), the fact that such Non-Key Employee failed to complete 1,000 Hours of Service or failed to make any mandatory or elective contributions under this Plan, if any are so required, shall not preclude him from receiving such minimum contribution.

(e)           Matching contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Code Section 416(c)(2) and 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.  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).

 

  

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ARTICLE XI

ADMINISTRATION

11.1         Appointment of Administrator.

This Plan shall be administered by a committee consisting of up to 7 persons, whether or not Employees or Participants, who shall be appointed from time to time by the Board of Directors to serve at its pleasure.  Such Committee may, at the Board’s discretion, be one and the same as the Committee or Retirement and Benefits Committee which administers the Sponsor’s other employee benefit plans.  The Sponsor may require that each person appointed as an Administrator shall signify his acceptance by filing an acceptance with the Sponsor.  The term “Administrator” as used in this Plan shall refer to the members of the committee, either individually or collectively, as appropriate.  The authority to control and manage the operation and administration of the Plan is vested in the Administrator appointed by the Board of Directors. The Administrator shall have the rights, duties and obligations of an “administrator,” as that term is defined in section 3(16)(A) of the Act, and of a “plan administrator,” as that term is defined in Code Section 414(g).  In the event that the Sponsor shall elect not to appoint any individuals to constitute a committee to administer the Plan, the Sponsor shall serve as the Administrator hereunder.

11.2         Resignation or Removal of Administrator.

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

11.3         Appointment of Successors:  Terms of Office, Etc.

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

11.4         Powers and Duties of Administrator.

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

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

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

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

 

  

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

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

 

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

(g)           To direct the Trustee concerning all matters requiring the Administrator’s direction pursuant to the provisions of this Plan and the Trust Agreement;

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

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

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

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

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

(m)          To direct the Trustee to pay all expenses of administering this Plan, except to the extent that the Employer pays such expenses.

Full discretion is granted to the Administrator to interpret the Plan and to determine the benefits, rights and privileges of Participants, Beneficiaries or other persons affected by this Plan.  The Administrator shall exercise its discretion under the terms of this Plan and shall administer the Plan in accordance with its terms, such administration to be exercised uniformly so that all persons similarly situated shall be similarly treated.

11.5         Action by Administrator.

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

11.6         Participation by Administrator.

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

 

  

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11.7         Agents.

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

11.8         Allocation of Duties.

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

11.9         Delegation of Duties.

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

11.10       Administrator’s Action Conclusive.

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

11.11       Compensation and Expenses of Administrator.

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

11.12       Records and Reports.

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

11.13       Reports of Fund Open to Participants.

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

 

  

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11.14       Named Fiduciary.

The Administrator is the named fiduciary for purposes of Section 402 of the Act and shall be the designated agent for receipt of service of process on behalf of the Plan.  It shall use the care and diligence in the performance of its duties under this Plan that are required of fiduciaries under the Act.  Nothing in this Plan shall preclude the Employer from purchasing liability insurance to protect the Administrator with respect to its duties under this Plan.

11.15       Information from Employer.

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

11.16       Responsibilities of Directors.

Subject to the rights reserved to the Board of Directors acting on behalf of the Employer as set forth in this Plan, no member of the Board of Directors shall have any duties or responsibilities under this Plan, except to the extent he shall be acting in the capacity of an Administrator or Trustee.

11.17       Liability and Indemnification.

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

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

  

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ARTICLE XII

CLAIMS PROCEDURE

12.1         Notice of Denial.

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

(a)           A specific reference to pertinent Plan provisions;

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

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

12.2         Right to Reconsideration.

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

12.3         Review of Documents.

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

12.4         Decision by Administrator.

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

12.5         Notice by Administrator.

The Administrator’s decision shall be conveyed to the claimant in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, with specific references to the pertinent Plan provisions on which the decision is based.  The Administrator’s decision shall be binding and conclusive with respect to all persons interested therein unless the Administrator has no reasonable basis for its decision.

12.6         Special Claims Procedures.

The following changes to the claims procedures set forth above shall apply to all claims for disability benefits under the Plan.  A disability benefit is any benefit, the availability of which is conditioned upon a showing of a disability.  Unless a change to the normal claims procedures set forth above is indicated, the normal procedures will also apply to claims for disability benefits.

 

  

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(a)           In the case of a claim for disability benefits, the Administrator shall advise the claimant of any adverse determination not later than 45 days after receipt of the claim.  Should it be necessary, that period may be extended by 30 days provided the Plan notifies the claimant of the circumstances prior to the expiration of the initial 45 day period.  In addition to the disclosure requirements of Section 12.1, a notice of denial of disability benefits must include:  (a) any internal rule or guideline relied upon by the Plan in making its determination and; (b) if the adverse determination is based on a medical necessity or experimental treatment, a statement explaining the specific clinical judgment for the determination, or a statement that such an explanation will be provided upon request.

(b)           Within 180 days of receipt of a notice of denial of a disability claim, the claimant may file a written claim for review with the Administrator.

(c)           Within 45 days, the Administrator must provide the claimant with a written notification of the benefit determination on review.  Should an extension of time be required, the initial period may be extended by up to 45 additional days.  The notice of the review determination shall include all of the disclosures required to be made by Section 12.1 and this Section 12.6.

 

  

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ARTICLE XIII

AMENDMENTS, TERMINATION AND MERGER

13.1         Amendments.

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

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

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

(c)           No amendment may eliminate an optional form of benefit; and.

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

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

13.2         Effect of Change In Control.

(a)           In the event of a “change in control” of the Sponsor, as defined in paragraph (d) below, this Plan shall terminate at the effective time of such change in control.  Nothing in this Plan shall prevent the Sponsor from becoming a party to such a change in control.

(b)           Upon the effective time of a change in control, the Account balances of all affected Participants and Former Participants shall become fully vested and nonforfeitable, and the Trustee shall make payments to each Participant and Beneficiary in accordance with Section 9.5.

(c)           Notwithstanding any provision of the Plan to the contrary, at and after the effective time of a change in control, each of the following provisions shall become applicable; provided, however, that any such provision shall not apply if the Board of Directors determines that such provision would adversely affect the tax-qualified status of the Plan pursuant to Code Section 401(a), or should not apply for any other reason:

(1)           The Plan shall be interpreted, maintained and operated exclusively for the benefit of those individuals who are participating in the Plan as of the effective time of the change in control and their Beneficiaries.  Notwithstanding the provisions of Section 2.1(a), no Employee shall become a Participant for the first time at or after the effective time of a change in control.

 

  

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(2)           After a Participant’s Retirement, Disability or other termination of Service, such Participant’s Account, regardless of its value, shall not be distributed and shall share in the allocation of the Employee Stock Ownership Contribution and Investment Adjustments until such time as either (A) the Fund is liquidated in connection with the termination of the Plan, or (B) the Participant (or his Beneficiary) receives a full distribution of his Account either upon his election in accordance with Section 9.2(c) or as required in accordance with Section 8.8, 9.3 or 9.4.

(3)           Upon the termination of the Plan, Employer Securities that are allocated to the Exempt Loan Suspense Account and that are not used to repay an Exempt Loan shall be allocated as Investment Adjustments in accordance with Section 5.3.

(4)           Employer Securities that are released from the Exempt Loan Suspense Account in accordance with Section 8.5 shall be allocated to the Employee Stock Ownership Account of each Participant regardless of whether he completed a Year of Vesting Service during the Plan Year or was an Employee on the last day of such Plan Year.

(5)           The Administrator shall consist of a committee selected by the Board of Directors, and such committee shall have the exclusive authority (i) to remove the Trustee and to appoint a successor trustee, (ii) to adopt amendments to the Plan or the Trust Agreement to effectuate the provisions and intent of this Section 13.2, and (iii) to perform any or all of the functions and to exercise all of the discretion that are delegated to the Administrator pursuant to Article XI.

(6)           Any application for a favorable determination letter with respect to the tax-qualified status of the Plan under Code Section 401(a) with respect to its termination shall be subject to the prior review, comment and approval (which approval shall not be unreasonably withheld) of the Administrator, as defined in paragraph (5) above.

(d)           For purposes of this Section 13.2, the term “change in control” means the occurrence of any one or more of the events specified in the following clauses (i) through (iii): (i)any third person, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, shall become the beneficial owner of shares of the Sponsor with respect to which 25% or more of the total number of votes for the election of the Board of Directors may be cast, (ii) as a result of, or in connection with, any cash tender offer, merger or other business combination, sale of assets or contested election, or combination of the foregoing, the persons who were directors of the Sponsor shall cease to constitute a majority of the Board of Directors, or (iii) the effective time of a transaction that is approved by the stockholders of the Sponsor and that provides either for the Sponsor to cease to be an independent publicly-owned corporation or for a sale or other disposition of all or substantially all of the assets of the Sponsor.

13.3         Consolidation or Merger of Trust.

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

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

 

  

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

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

13.4         Bankruptcy or Insolvency of Employer.

In the event of (a) the Employer’s legal dissolution or liquidation by any procedure other than a consolidation or merger, (b) the Employer’s receivership, insolvency, or cessation of its business as a going concern, or (c) the commencement of any proceeding by or against the Employer under the federal bankruptcy laws, or similar federal or state statute, or any federal or state statute or rule providing for the relief of debtors, compensation of creditors, arrangement, receivership, liquidation or any similar event which is not dismissed within 30 days, this Plan shall terminate automatically with respect to such entity on such date (provided, however, that if a proceeding is brought against the Employer for reorganization under Chapter 11 of the United States Bankruptcy Code or any similar federal or state statute, then this Plan shall terminate automatically if and when said proceeding results in a liquidation of the Employer, or the approval of any Plan providing therefor, or the proceeding is converted to a case under Chapter 7 of the Bankruptcy Code or any similar conversion to a liquidation proceeding under federal or state law including, but not limited to, a receivership proceeding).  In the event of any such termination as provided in the foregoing sentence, the Trustee shall make payments to the persons entitled thereto in accordance with Section 9.6 hereof.

13.5         Voluntary Termination.

The Board of Directors reserves the right to terminate this Plan at any time by giving to the Trustee and the Administrator notice in writing of such desire to terminate.  The Plan shall terminate upon the date of receipt of such notice, the Account balances of all affected Participants and Former Participants shall become fully vested and nonforfeitable, and the Trustee shall make payments to each Participant or Beneficiary in accordance with Section 9.6.  Alternatively, the Sponsor, in its discretion, may determine to continue the Trust Agreement and to continue the maintenance of the Fund, in which event distributions shall be made upon the contingencies and in all the circumstances under which such distributions would have been made, on a fully vested basis, had there been no termination of the Plan.  In addition, an entity other than the Sponsor that is participating in this Plan may terminate its participation in the Plan on a prospective basis by action of its board of directors.  Upon such termination of participation, Participants who are employees of such entity shall be entitled to distributions from this Plan in accordance with Article IX and this Article XIII.

13.6         Partial Termination of Plan or Permanent Discontinuance of Contributions.

In the event that a partial termination of the Plan shall be deemed to have occurred, or if the Employer shall discontinue permanently its contributions hereunder, the right of each affected Participant and Former Participant in his Account balance shall be fully vested and nonforfeitable.  The Sponsor, in its discretion, shall decide whether to direct the Trustee to make immediate distribution of such portion of the Fund assets to the persons entitled thereto or to make distribution in the circumstances and contingencies which would have controlled such distributions if there had been no partial termination or permanent discontinuance of contributions.  Determining whether a partial termination of the Plan pursuant to Code Section 411(d)(3) has occurred depends on the facts and circumstances including the extent to which participating Employees have had a severance from employment. If the turnover rate is at least 20 percent, there is a presumption that a partial termination of the Plan has occurred.

 

  

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ARTICLE XIV

MISCELLANEOUS

14.1         No Diversion of Funds.

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

14.2         Liability Limited.

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

14.3         Facility of Payment.

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

14.4         Spendthrift Clause.

Except as permitted by the Act or the Code, including in the case of certain judgments and settlements described in subparagraph (C) of Section 401(a)(13) of the Code, no benefits or other amounts payable under the Plan shall be subject in any manner to anticipation, sale, transfer, assignment, pledge, encumbrance, charge or alienation.  If the Administrator determines that any person entitled to any payments under the Plan has become insolvent or bankrupt or has attempted to anticipate, sell, transfer, assign, pledge, encumber, charge or otherwise in any manner alienate any benefit or other amount payable to him under the Plan or that there is any danger of any levy or attachment or other court process or encumbrance on the part of any creditor of such person entitled to payments under the Plan against any benefit or other accounts payable to such person, the Administrator may, at any time, in its discretion, and in accordance with applicable law, direct the Trustee to withhold any or all payments to such person under the Plan and apply the same for the benefit of such person, in such manner and in such proportion as the Administrator may deem proper.

14.5         Benefits Limited to Fund.

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

 

  

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14.6         Cooperation of Parties.

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

14.7         Payments Due Missing Persons.

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

14.8         Governing Law.

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

14.9         Nonguarantee of Employment.

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

14.10       Counsel.

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

14.11       Purposes.

This Plan is intended to satisfy the Federal Tax Qualification Requirements for stock bonus plans which are intended to operate and serve as employee stock ownership plans as described in Code Section 4975(e)(7).  This Plan has been implemented so that Participants may be provided with an opportunity to accumulate capital for their future economic security by being provided an equity interest in their employer.  This Plan, as an employee stock ownership plan, is intended to invest primarily in “qualifying employer securities” as defined in Code Section 4975(e)(8) of the Code.

 

  

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14.12       Invalidity.

Subject to the requirements of the Code and the Act, in the event any provision of the Agreement, as between the Sponsor and the Trustee, shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions hereof, and this Agreement shall thereafter be construed and enforced as if said illegal or invalid provisions had never been included herein.

 

IN WITNESS WHEREOF, the Sponsor has caused these presents to be executed by its duly authorized officers and its corporate seal to be affixed on this _____ day of _______, 20__.

 

	
ATTEST:

	 	First Northwest Bancorp	 
	 	 	 	 	 
	 	 	By	 	 
	
Secretary

	 	 	
President and Chief Executive Officer

	 
	 	 	 	 	 
	[Corporate Seal] 	 	 	 	 
	 	 	 	 	 
	
ATTEST:

	 	First Federal Savings and Loan Association of Port Angeles	 
	 	 	 	 	 
	 	 	By	 	 
	
Secretary

	 	 	
President and Chief Executive Officer

	 
	 	 	 	 	 
	[Corporate Seal]	 	 	 	 

 

  

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ESOP TRUST AGREEMENT

 

BETWEEN

 

PENTEGRA TRUST COMPANY

 

AND

 

FIRST NORTHWEST BANCORP

 

THIS AGREEMENT OF TRUST (the “Agreement”) is effective as of ___________________, 20___, by and between First Northwest Bancorp, a ___________________ chartered corporation (the “Company”) and PENTEGRA TRUST COMPANY, a non-depository trust company incorporated under the laws of the State of Maine (the “Trustee”);

 

WITNESSETH

 

WHEREAS, the Company has adopted the First Northwest Bancorp Employee Stock Ownership Plan (the “Plan”), effective as of _____________________, 20___, for the exclusive purpose of providing benefits under the Plan to participants and their beneficiaries of the Company and related entities of the Company, if any; and

 

WHEREAS, the Company desires to establish a trust (the “Trust”) for the Plan and to appoint the Trustee to serve as trustee for the Trust, effective as of __________________, 20__; and

 

WHEREAS, the Trustee wishes to accept its appointment as trustee for the Plan;

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto, intending to be legally bound, hereby agree and declare as follows:

 

ARTICLE I

 

ESTABLISHMENT OF TRUST

 

Section 1.1.        The Company and the Trustee hereby agree to the establishment of a trust consisting of such sums as shall from time to time be paid to the Trustee under the Plan and such earnings, income and appreciation as may accrue thereon which, less payments made by the Trustee to carry out the purposes of the Plan, are referred to herein as the “Fund”.  The Trustee shall carry out the duties and responsibilities herein specified, but shall be under no duty to determine whether the amount of any contribution by the Company or any affiliated entity or by any participant under the Plan is in accordance with the terms of the Plan, nor shall the Trustee be responsible for the collection of any contributions required under the Plan.

 

Section 1.2.        The Fund shall be held, invested, reinvested and administered by the Trustee in accordance with the terms of the Plan and this Agreement solely in the interest of participants and their beneficiaries under the Plan and for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying the reasonable expenses of administering the Plan.  Except as provided in Section 4.2, no assets of the Plan shall inure to the benefit of the Company or any affiliated entity.

 

  

  

  

 

Section 1.3.        The Trustee shall pay benefits and expenses from the Fund only upon the written direction of the Plan Administrator, the individual specified in the Plan as the fiduciary responsible for the day-to-day operation and administration of the Plan.  The Trustee shall be fully entitled to rely on such directions furnished by the Plan Administrator and shall be under no duty to ascertain whether the directions are in accordance with the provisions of the Plan.

 

ARTICLE II

INVESTMENT OF THE FUND

 

Section 2.1.        In accordance with the provisions of the Plan, the Trustee shall invest and reinvest the Fund without distinction between principal and income in the Company’s common stock (herein “Company Stock”) in accordance with the terms of the Plan and this Agreement as directed by the Company.  To the extent that contributions are made in Company Stock, the Trustee will be expected to retain such Company Stock.  To the extent contributions are made in cash or other amounts are received in cash and are not needed to pay principal or interest on an ESOP loan, to pay distributions to participants and their beneficiaries or to pay expenses of the Trust, the Trustee will be expected to acquire Company Stock either from other shareholders or directly from the Company as directed by the Plan Administrator.  If at the time Company Stock is to be purchased, the Company has outstanding more than one class of Company Stock, the Plan Administrator shall direct the Trustee as to which class of Company Stock shall be purchased.

 

Section 2.2.        In accordance with the provisions of the Plan and except as provided in Section 2.1 herein or the Plan, all assets of the Fund shall be invested by the Trustee solely in Company Stock, with the exception that if the Trustee is notified by the Plan Administrator that a participant is eligible to make a diversification election, if provided for under the Plan, whereby the participant may transfer a specified portion of the participant’s account to other investment options available under the Plan, the Trustee shall invest such specified portion of the participant’s account in accordance with the participant’s investment directions as provided for in the Plan and Section 2.3 hereof.  The Plan Administrator shall notify the Trustee of any such investment options currently available under the Plan and any other plan sponsored by the Company which accepts such amounts and of any changes thereto, which changes shall be effective no earlier than 60 days after delivery of written notice to the Trustee (unless otherwise agreed to by the Trustee).   The Plan Administrator may also notify the Trustee that all or a portion of the Plan assets shall be invested in assets other than Company Stock, in which case the Plan Administrator shall direct the Trustee regarding how such Plan assets shall be invested; provided, however, that the Plan Administrator may not cause the Trust to be invested in a manner that would result in the Plan not being invested primarily in Company Stock, within the meaning of Section 4975(e)(7) of the Internal Revenue Code of 1986, as amended (“Code”).

 

  

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In accordance with the provisions of the Plan, the Named Fiduciary of the Plan is authorized to appoint an “investment manager” as defined in Section 3(38) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), to be responsible for managing one or more of the designated investment options available under the Plan and selecting the specific investments that comprise any such investment option.  In such case, the Named Fiduciary shall establish the investment policies and guidelines that the investment manager shall follow when managing the investment option for the Plan, but the Named Fiduciary shall not be responsible for the selection of the specific investments that comprise any such investment option.  The Trustee shall follow the directions of the investment manager regarding the designated investment option(s) for which the investment manager is assigned responsibility.

 

Section 2.3.        In accordance with the provisions of the Plan, each participant who is eligible to make the diversification election described in Section 2.2 shall direct the Trustee as to the investment of that portion of his or her account subject to such election.  All investment directions by participants shall be timely furnished to the Trustee by the Plan Administrator, except to the extent such directions are transmitted telephonically or otherwise by participants and beneficiaries directly to the Trustee in accordance with rules and procedures established and approved by the Plan Administrator and the Trustee.  A participant’s diversification election shall be effected in the manner (i.e., reinvestment in the Plan in other assets, or transfer to another tax-qualified plan sponsored by the Company, or directly to an individual retirement account for the benefit of the participant) determined by the Plan Administrator and conveyed to the Trustee by the Plan Administrator in writing.  In making any such investment or transfer of the assets of the Fund, the Trustee shall be fully entitled to rely on the directions from participants and/or the Plan Administrator that are properly furnished to the Trustee, and the Trustee shall be under no duty to make any inquiry or investigation with respect thereto.

 

Section 2.4.        Subject to the provisions of Section 2.1, 2.2, and 2.3, the Trustee shall have the authority, in addition to any authority given by law, to exercise the following powers in the administration of the Fund:

 

(a)         in accordance with Section 2.2 above, to invest and reinvest all or a part of the assets of the Fund in the available investment options under the Plan without restriction to investments authorized for fiduciaries, including, without limitation on the amount that may be invested therein, any common, collective or commingled trust fund maintained by the Trustee, investment company, mutual fund, or other security or investment option offered by the Trustee.  Any investment in, and any terms and conditions of, any common, collective or commingled trust fund available only to employee trusts which meet the requirements of the Code or corresponding provisions of subsequent income tax laws of the United States, shall constitute an integral part of this Agreement and the Plan;

 

(b)         to dispose of all or any part of the investments, securities, or other property which may from time to time or at any time constitute the Fund and to make, execute and deliver to the purchasers thereof good and sufficient deeds of conveyance thereof, and all assignments, transfers and other legal instruments, either necessary or convenient for passing the title and ownership thereto, free and discharged of all trusts and without liability on the part of such purchasers to see to the application of the purchase money;

 

  

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(c)         to cause any investment of the Fund to be registered in the name of the Trustee or the name of its nominee or nominees or to retain such investment unregistered or in a form permitting transfer by delivery; provided that the books and records of the Trustee shall at all times show that all such investments are part of the Fund;

 

(d)         to consult and employ any suitable agent to act on behalf of the Trustee and to contract for legal, accounting, clerical and other services deemed necessary by the Trustee to manage and administer the Fund according to the terms of the Plan and this Agreement;

 

(e)         to pay from the Fund all taxes imposed or levied with respect to the Fund or any part thereof under existing or future laws, and to contest the validity or amount of any tax, assessment, claim or demand respecting the Fund or any part thereof;  and

 

(f)          generally to exercise any of the powers of an owner with respect to all or any part of the Fund.

 

Section 2.5.        Each participant or beneficiary to whose account shares of Company Stock have been allocated shall, as a named fiduciary within the meaning of Section 403(a)(1) of ERISA, direct the Trustee with respect to the voting and, if applicable, tendering of shares of Company Stock allocated to his or her account, and the Trustee shall follow the directions of those participants and beneficiaries who provide timely instructions to the Trustee.  The Trustee shall vote the shares of Company Stock allocated to the accounts of participants for whom no timely instructions have been received in the same proportion as those shares of Company Stock for which instructions were timely received, provided that the Plan requires that participants and beneficiaries be given advance notice as to the consequences of any failure to instruct the Trustee as to the voting of allocated shares of Company Stock.  Allocated shares of Company Stock will not be tendered, unless directed by a participant or beneficiary to whose account shares of Company Stock have been allocated.  The Company or an independent fiduciary (approved of by the Trustee, which approval shall not be unreasonably withheld) shall direct the Trustee with respect to the voting and, if applicable, tendering of shares of Company Stock which have not been allocated to the accounts of participants or beneficiaries; provided, however, that the Trustee may require, in its sole discretion, that an independent fiduciary (approved of by the Trustee, which approval shall not be unreasonably withheld) shall direct the Trustee with respect to the voting, and, if applicable, tendering of shares of Company Stock which have not been allocated with respect to any corporate matter which involves the voting of Company Stock with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, a sale of substantially all assets of the business, or any similar transaction.

 

Section 2.6.        Except as may be authorized by regulations promulgated by the Secretary of Labor, the Trustee shall not maintain the indicia of ownership in any assets of the Fund outside of the jurisdiction of the district courts of the United States.

 

  

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ARTICLE III

DUTIES AND RESPONSIBILITIES

 

Section 3.1.        The Trustee, Company, Named Fiduciary and Plan Administrator shall each discharge their assigned fiduciary duties and responsibilities under this Agreement and the Plan solely in the interest of participants and their beneficiaries in the following manner:

 

(a)         for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the Plan;

 

(b)         with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims;

 

(c)         except as permitted by ERISA Section 404(a)(2), by diversifying the Plan investments so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so, including selecting a range of available investment options under the Plan referenced in Section 2.2 so as to permit participants and beneficiaries to diversify their investments pursuant to Section 2.3; and

 

(d)         in accordance with the provisions of the Plan and this Trust Agreement insofar as they are consistent with the provisions of ERISA.

 

Section 3.2.        The Trustee shall keep full and accurate accounts of all receipts, investments, disbursements and other transactions hereunder, including such specific records as may be agreed upon in writing between the Company and Trustee.  All such accounts, books and records shall be open to inspection and audit at all reasonable times by any authorized representative of the Company, the Named Fiduciary or the Plan Administrator.  Any participant or beneficiary under the Plan may examine only those individual account records pertaining directly to that participant or beneficiary.

 

Section 3.3.        The Trustee shall determine the value of the Fund at such times as are mutually agreed upon by the Trustee and the Company but in no case less frequently than annually or as required under the terms of the Plan, the Code or ERISA.  The value of shares of Company Stock held in the Fund shall be determined at their fair market value defined as their closing market price on the relevant valuation date; provided, however, that in the event such shares of Company Stock have no readily-ascertainable fair market value because they are thinly-traded, at their fair value as determined in good faith and pursuant to written procedures recommended by the Plan Administrator and approved by the Trustee as of such times as the Trustee determines to be appropriate, and from such financial publications, pricing services, or other services or sources as the Trustee reasonably believes appropriate.  All other securities and the value of other assets held in the Fund shall be valued by the Trustee at their market values on the relevant valuation date under procedures established by the Trustee.  For purposes of this Section, Company Stock shall be considered “thinly traded” if it is publicly traded on a national exchange or other generally recognized market, but not in sufficient volume and/or with sufficient frequency to assure prompt execution of buy and sell orders.  In making this determination, Internal Revenue Service Notice 2011-19 shall be taken into account.  The Trustee may seek an opinion from an independent investment advisor or legal counsel as to whether a given stock is “thinly traded.”

 

  

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Section 3.4.        Within 120 days after the end of each plan year for the Plan, or within 120 days after its removal or resignation, the Trustee shall file with the Named Fiduciary a written account of the administration of the Fund showing all transactions effected by the Trustee with respect to the assets of the Plan subsequent to the period covered by the last preceding account to the end of such plan year or date of removal or resignation and all property held at its fair market value at the end of the accounting period.  Such accounting shall show the net value of the Plan’s interest in each investment option maintained by the Trustee for the Fund and shall include financial information necessary for the completion of the annual reports required for the Plan under ERISA.  The Named Fiduciary may approve such accounting by written notice of approval delivered to the Trustee or by failure to express objection to such accounting in writing delivered to the Trustee within 120 days from the date on which the accounting is delivered to the Named Fiduciary.

 

Section 3.5.        In accordance with the terms of the Plan, the Trustee shall establish and maintain separate accounts in the name of each participant in order to record all contributions by or on behalf of the participant to the Plan and any earnings, losses and expenses attributable thereto.  The Plan Administrator shall furnish the Trustee with participant enrollment data in a format acceptable to the Trustee identifying the name, address, social security number, and current investment directions of each participant for whom one or more separate accounts are to be established by the Trustee under this Agreement.  With respect to all contributions to the Plan and other amounts that are transmitted to the Trustee, the Plan Administrator shall furnish the Trustee with participant allocation data in a format acceptable to the Trustee identifying each participant on whose behalf an amount is being transmitted to the Trustee and the dollar amount to be allocated to each of the participant’s separate account under the Plan.  In allocating amounts to participants’ separate accounts under the Plan, the Trustee shall be fully entitled to rely on the participant enrollment and allocation data furnished to it by the Plan Administrator and shall be under no duty to make any inquiry or investigation with respect thereto.

 

Section 3.6.        The Trustee shall, at least annually, or more frequently as required by the Code or ERISA, furnish each participant in the Plan with statements reflecting the current fair market value of the participant’s separate accounts under the Plan and all activities occurring within such accounts during the most recent reporting period, including Plan contributions, earnings, investment exchanges, distributions, and withdrawals.

 

Section 3.7.        The Trustee shall not be required to determine the facts concerning the eligibility of any participant to participate in the Plan, the amount of benefits payable to any participant or beneficiary under the Plan, or the date or method of payment or disbursement.  The Trustee shall be fully entitled to rely solely upon the written advice and directions of the Plan Administrator as to any such question of fact.

 

Section 3.8.        Unless resulting from the Trustee’s gross negligence, willful misconduct, lack of good faith, or breach of its fiduciary duties under this Agreement or ERISA, the Company shall indemnify and save harmless the Trustee from, against, for and in respect of any and all damages, losses, obligations, liabilities, liens, deficiencies, costs and expenses, including without limitation, reasonable attorney’s fees incident to any suit, action, investigation, claim or proceedings suffered, sustained, incurred or required to be paid by the Trustee in connection with the Plan or this Agreement.

 

  

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ARTICLE IV

PROHIBITION OF DIVERSION

 

Section 4.1.        Except as provided in Section 4.2, at no time prior to the satisfaction of all liabilities with respect to participants and their beneficiaries under the Plan shall any part of the corpus or income of the Fund be used for, or diverted to, purposes other than for the exclusive benefit of participants or their beneficiaries, or for defraying reasonable expenses of administering the Plan.

 

Section 4.2.        The provisions of Section 4.1 notwithstanding, contributions made by the Company or any affiliated entity under the Plan will be returned to the Company or affiliated entity under the following conditions:

 

(a)         If a contribution is made by mistake of fact, such contributions may be returned within one year of the payment of such contribution upon demand of the Company or affiliated entity; and

 

(b)         Contributions to the Plan are specifically conditioned upon their deductibility under the Code.  To the extent a deduction is disallowed for any such contribution, it will be returned within one year after the disallowance of the deduction upon demand of the Company or affiliated entity.  Contributions which are not deductible in the taxable year in which made but are deductible in subsequent taxable years shall not be considered to be disallowed for purposes of this subsection; and

 

(c)         Contributions to the Plan are specifically conditioned on initial qualification of the Plan under the Code.  If a Plan is determined by the Internal Revenue Service to not be initially qualified, upon demand of the Company, any employer contributions made incident to that initial qualification will be returned within one year after the date the initial qualification is denied, provided that the determination of the Internal Revenue Service is made pursuant to an application for determination made by the time prescribed by law for filing the return of the Company for the taxable year in which the Plan is adopted or such later date as is prescribed by the Secretary of the Treasury.

 

ARTICLE V

COMMUNICATION WITH FIDUCIARIES

 

Section 5.1.        Whenever the Trustee is permitted or required to act upon the directions or instructions of the Company, any named fiduciary, any investment manager or the Plan Administrator, the Trustee shall be entitled to rely upon any written communication signed by any person or agent designated to act as or on behalf of any such fiduciary.  Such person or agent shall be so designated either under the provisions of the Plan or in writing by the Company and such authority shall continue until revoked in writing.  The Trustee shall incur no liability for failure to act on such person’s or agent’s instructions or orders without written communication, and the Trustee shall be fully protected in all actions taken in good faith in reliance upon any instructions, directions, certifications and communications believed to be genuine and to have been signed or communicated by the proper person.

 

  

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Section 5.2.        The Company shall notify the Trustee in writing of the appointment, removal or resignation of any person designated to act as or on behalf of the Company, the Named Fiduciary, any investment manager, or the Plan Administrator.  After such notification, the Trustee shall be fully protected in acting upon the directions of any person designated to act as or on behalf of any such fiduciary until the Trustee receives notice from the Company to the contrary.  The Trustee shall have no duty to inquire into the qualifications of any person designated to act as or on behalf of the Company, the Named Fiduciary, any investment manager or the Plan Administrator.

 

ARTICLE VI

TRUSTEE’S COMPENSATION

 

Section 6.1.        The Trustee shall be entitled to reasonable compensation for its services as is agreed upon with the Company.  The Trustee shall also be entitled to reimbursement for all direct expenses properly and actually incurred on behalf of the Plan.  Such compensation or reimbursement shall be paid to the Trustee out of the Fund unless paid directly by the Company.  Trustee compensation is set forth in Schedule A, attached to and forming part of this Agreement.

 

ARTICLE VII

RESIGNATION AND REMOVAL OF TRUSTEE

 

Section 7.1.        The Trustee may resign at any time by written notice to the Company which shall be effective 60 days after delivery unless prior thereto a successor trustee shall have been appointed.

 

Section 7.2.        The Trustee may be removed by the Company at any time upon 60 days written notice to the Trustee; such notice, however, may be waived by the Trustee.

 

Section 7.3.        The appointment of a successor trustee hereunder shall be accomplished by and take effect upon the delivery to the Trustee of written notice of the Company appointing such successor trustee, and an acceptance in writing of the successor trustee hereunder executed by the successor so appointed.  A successor trustee may be either a corporation authorized and empowered to exercise trust powers or one or more individuals.  All of the provisions set forth herein with respect to the Trustee shall relate to each successor trustee so appointed with the same force and effect as if such successor trustee had been originally named herein as the trustee hereunder.  If within 60 days after notice of resignation or removal shall have been given under the provisions of this Article VII, a successor trustee shall not have been appointed, the Trustee or Company may apply to any court of competent jurisdiction for the appointment of a successor trustee.

 

Section 7.4.        Upon the appointment of a successor trustee, the Trustee shall transfer and deliver the Fund to such successor trustee, after reserving such reasonable amount as it shall deem necessary to provide for its expenses in the settlement of its account, the amount of any compensation due to it and any sums chargeable against the Fund for which it may be liable.  If the sums so reserved are not sufficient for such purposes, the resigning or removed Trustee shall be entitled to reimbursement for any deficiency from the successor trustee and the Company who shall be jointly and severally liable therefor.

 

  

8

  

 

ARTICLE VIII

AMENDMENT AND TERMINATION OF THE TRUST AND PLAN

 

Section 8.1.        The Company may, by delivery to the Trustee of an instrument in writing, terminate this Agreement at any time.

 

Section 8.2.        The Company may partially terminate this Agreement, at any time, by delivering to the Trustee a written direction to transfer such part of the Fund as may be specified in such direction to any other trust established for the purpose of funding benefits under the Plan or under any other plan qualifying under Section 401 of the Code, established for the benefit of participants in the Plan or their beneficiaries by the Company or any affiliated entity or any successor transferee of the Company or any affiliated entity; provided such transfer shall be in conformity with the requirements of Federal law.

 

Section 8.3.        This Agreement may be amended from time to time by the Company; provided, however, that no amendment shall increase the duties or liabilities of the Trustee without the Trustee’s consent; and, provided further, that no amendment shall divert any part of the Fund to any purpose other than providing benefits to participants and their beneficiaries under the Plan or defraying the reasonable expenses of administering the Plan.

 

Section 8.4.        If the Plan is terminated in whole or in part, the Trustee shall distribute the Fund or any part thereof in such manner and at such times as the Plan Administrator shall direct in writing in accordance with the provisions of the Plan; provided, however, that the Trustee may delay distribution of the Fund until it has received from the Company a copy of an Internal Revenue Service determination letter addressing the Plan’s tax-qualified status upon termination, or, in lieu thereof at the Trustee’s sole discretion, an opinion from the Company’s legal counsel that the Plan met all qualification requirements at the date of termination.

 

ARTICLE IX

MISCELLANEOUS PROVISIONS

 

Section 9.1.        Unless the context of this Agreement clearly indicates otherwise, the terms defined in the Plan shall, when used herein, have the same meaning as in the Plan.

 

Section 9.2.        Except as otherwise required by law in the case of any qualified domestic relations order within the meaning of Section 414(p) of the Code, to the extent of any offset of a Participant’s benefits as a result of any judgment, order, decree or settlement agreement provided in Section 401(a)(13)(C) of the Code, or any federal tax levy made pursuant to Section 6331 of the Code, or except as otherwise provided in the Plan with respect to any loan to a leveraged ESOP described in Section 4975(d)(3) of the Code or loan from the Fund to a participant in accordance with the provisions of the Plan, the benefits or proceeds of any allocated or unallocated portion of the assets of the Fund and any interest of any participant or beneficiary arising out of or created by the Plan either before or after the participant’s retirement shall not be subject to execution, attachment, garnishment or other legal or judicial process whatsoever by any person, whether creditor or otherwise, claiming against such participant or beneficiary.  Except as otherwise provided in the Plan with respect to any loan from the Fund to a participant in accordance with the provisions of the Plan, no participant or beneficiary shall have the right to alienate, encumber or assign any of the payments or proceeds or any other interest arising out of or created by the Plan and any action purporting to do so shall be void.  The provisions of this Section shall apply to all participants and beneficiaries, regardless of their citizenship or place of residence.

 

  

9

  

 

Section 9.3.        Any person dealing with the Trustee may rely upon a copy of this Agreement and any amendments thereto certified to be true and correct by the Trustee.

 

Section 9.4.        The Trustee hereby acknowledges receipt of a copy of the Plan.  The Company will cause a copy of any amendment to the Plan to be delivered to the Trustee.

 

Section 9.5.        The construction, validity and administration of this Agreement shall be governed by ERISA and, to the extent not preempted by ERISA, the laws of the State of Maine without regard to its rules regarding conflict of laws.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their respective names by their duly authorized officers as of the day and year first above written.

 

	 	FIRST NORTHWEST BANCORP	 
	 	 	 	 
	 	BY:	 	 
	 	 	 	 
	 	 	 	 
	 	 	PRINT NAME 	 
	 	 	 	 
	 	 	 	 
	 	 	TITLE	 

 

	 	PENTEGRA TRUST COMPANY	 
	 	 	 	 
	 	BY:	 	 
	 	 	 	 
	 	 	Stephen P. Pollak	 
	 	 	PRINT NAME 	 
	 	 	 	 
	 	 	Executive Vice President	 
	 	 	TITLE	 

  

10

  

 

	STATE OF WASHINGTON	)	 
	 	:  ss.:	 
	COUNTY OF	)	 

 

On this         day of                          , in the year 2012, before me, the undersigned, a Notary Public in and for the said state, personally appeared                                                            , personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies) and that by his/her/their signature(s) on the instrument, the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument.

 

	SEAL:	 	 
	 	Notary Public of	 	 
	 	My Commission expires 	 	 

	STATE OF NEW YORK	)	 
	 	:  ss.:	 
	COUNTY OF WESTCHESTER	)	 

 

On this         day of                                   , in the year 2012, before me, the undersigned, a Notary Public in and for the said state, personally appeared Stephen P. Pollak, personally known to me or proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity(ies) and that by his signature on the instrument, the person or the entity upon behalf of which the person acted, executed the instrument.

 

	SEAL:	 	 
	 	Notary Public of	 	 
	 	My Commission expires 	 	 

 

  

11

  

 

Schedule A

 

Fee Schedule Prepared for

	 First Northwest Bancorp Employee Stock Ownership Plan

 

Directed Trustee Services

Annual Asset Fee

$1,500 plus 0.050% (5 basis points)

 

Assumptions and Comments:

 

Client acknowledges and agrees that Pentegra Services, Inc., of which Pentegra Trust Company is an affiliate, will provide administrative services for the Plan, which are detailed in a separate service agreement.

 

 

12

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