Document:

<PAGE>

                                                                    EXHIBIT 10.X

                        RECEIVABLES PURCHASE AGREEMENT

                        dated as of  December 21, 1999

                                     Among

                        AILIC RECEIVABLES CORPORATION,
                                  as Seller,

                    AMERICAN INCOME LIFE INSURANCE COMPANY,
                                 as Servicer,

                  PREFERRED RECEIVABLES FUNDING CORPORATION,
                                 as Purchaser

                                      and

                                 BANK ONE, NA,
                     as a Financial Institution and Agent

                                       1
<PAGE>

                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<S>                                                                                        <C>
PRELIMINARY STATEMENTS                                                                      -1-

ARTICLE I
     PURCHASE ARRANGEMENTS                                                                  -1-
     Section 1.1   Purchase Facility                                                        -1-
                   -----------------
     Section 1.2   Increases                                                                -1-
                   ---------
     Section 1.3   Decreases                                                                -2-
                   ---------
     Section 1.4   Payment Requirements                                                     -2-
                   --------------------

ARTICLE II
     PAYMENTS AND COLLECTIONS                                                               -5-
     Section 2.1   Payments                                                                 -5-
                   --------
     Section 2.2   Collections Prior to Amortization                                        -5-
                   ---------------------------------
     Section 2.3   Collections Following Amortization                                       -6-
                   ----------------------------------
     Section 2.4   Application of Collections                                               -6-
                   --------------------------
     Section 2.5   Payment Recision                                                         -7-
                   ----------------
     Section 2.6   Aggregate Purchaser Interest                                             -7-
                   ----------------------------

ARTICLE III
     PREFCO FUNDING                                                                         -7-
     Section 3.1   CP Costs                                                                 -7-
                   --------
     Section 3.2   CP Costs Payments                                                        -8-
                   -----------------
     Section 3.3   Calculation of CP Costs                                                  -8-
                   -----------------------

ARTICLE IV
     FINANCIAL INSTITUTION FUNDING                                                          -8-
     Section 4.1   Financial Institution Funding                                            -8-
                   -----------------------------
     Section 4.2   Yield Payments                                                           -8-
                   --------------
     Section 4.3   Selection and Continuation of Tranche Periods                            -8-
                   ---------------------------------------------
     Section 4.4   Financial Institution Discount Rates                                     -8-
                   ------------------------------------
     Section 4.5   Suspension of the LIBO Rate                                              -9-
                   ---------------------------

ARTICLE V
     REPRESENTATIONS AND WARRANTIES                                                         -9-
     Section 5.1   Representations and Warranties of Seller Parties                         -9-
                   ------------------------------------------------
     Section 5.2   Financial Institution Representations and Warranties                    -14-
                   ----------------------------------------------------

ARTICLE VI
     CONDITIONS OF PURCHASES                                                               -14-
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                                        <C>
     Section 6.1   Conditions Precedent to Initial Purchase                                -14-
                   ----------------------------------------
     Section 6.2   Conditions Precedent to All Purchases and Reinvestments                 -15-
                   -------------------------------------------------------

ARTICLE VII
     COVENANTS                                                                             -15-
     Section 7.1   Affirmative Covenants of the Seller Parties                             -15-
                   -------------------------------------------
     Section 7.2   Negative Covenants of the Seller Parties                                -24-
                   ----------------------------------------

ARTICLE VIII
     ADMINISTRATION AND COLLECTION                                                         -26-
     Section 8.1   Designation of Servicer                                                 -26-
                   -----------------------
     Section 8.2   Duties of Servicer                                                      -26-
                   ------------------
     Section 8.3   Collection Rights                                                       -27-
                   -----------------
     Section 8.4   Responsibilities of Seller                                              -28-
                   --------------------------
     Section 8.5   Reports                                                                 -28-
                   -------
     Section 8.6   Servicing Fees                                                          -28-
                   --------------

ARTICLE IX
     AMORTIZATION EVENTS                                                                   -28-
     Section 9.1   Amortization Events                                                     -28-
                   -------------------
     Section 9.2   Remedies                                                                -31-
                   --------

ARTICLE X
     INDEMNIFICATION                                                                       -32-
     Section 10.1  Indemnities by the Seller Parties                                       -32-
                   ---------------------------------
     Section 10.2  Increased Cost and Reduced Return                                       -35-
                   ---------------------------------
     Section 10.3  Other Costs and Expenses                                                -35-
                   ------------------------
     Section 10.4  Allocations                                                             -36-
                   -----------

ARTICLE XI
     THE AGENT                                                                             -36-
     Section 11.1  Authorization and Action                                                -36-
                   ------------------------
     Section 11.2  Delegation of Duties                                                    -37-
                   --------------------
     Section 11.3  Exculpatory Provisions                                                  -37-
                   ----------------------
     Section 11.4  Reliance by Agent                                                       -37-
                   -----------------
     Section 11.5  Non-Reliance on Agent and Other Purchasers                              -38-
                   ------------------------------------------
     Section 11.6  Reimbursement and Indemnification                                       -38-
                   ---------------------------------
     Section 11.7  Agent in its Individual Capacity                                        -38-
                   --------------------------------
     Section 11.8  Successor Agent                                                         -38-
                   ---------------

ARTICLE XII
     ASSIGNMENTS; PARTICIPATIONS                                                           -39-
     Section 12.1  Assignments                                                             -39-
                   -----------
     Section 12.2  Participations                                                          -40-
                   --------------
</TABLE>

                                      ii
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<TABLE>
<S>                                                                                        <C>
ARTICLE XIII
     LIQUIDITY FACILITY                                                                    -40-
     Section 13.1  Transfer to Financial Institutions                                      -40-
                   ----------------------------------
     Section 13.2  Transfer Price Reduction Yield                                          -40-
                   ------------------------------
     Section 13.3  Payments to PREFCO                                                      -40-
                   ------------------
     Section 13.4  Limitation on Commitment to Purchase from PREFCO                        -41-
                   ------------------------------------------------
     Section 13.5  Defaulting Financial Institutions                                       -41-
                   ---------------------------------

ARTICLE XIV
     MISCELLANEOUS                                                                         -42-
     Section 14.1  Waivers and Amendments                                                  -42-
                   ----------------------
     Section 14.2  Notices                                                                 -43-
                   -------
     Section 14.3  Ratable Payments                                                        -43-
                   ----------------
     Section 14.4  Protection of Ownership Interests of the Purchasers                     -43-
                   ---------------------------------------------------
     Section 14.5  Confidentiality                                                         -44-
                   ---------------
     Section 14.6  Bankruptcy Petition                                                     -45-
                   -------------------
     Section 14.7  Limitation of Liability                                                 -45-
                   -----------------------
     Section 14.8  CHOICE OF LAW                                                           -46-
                   -------------
     Section 14.9  CONSENT TO JURISDICTION                                                 -46-
                   -----------------------
     Section 14.10 WAIVER OF JURY TRIAL                                                    -46-
                   --------------------
     Section 14.11 Integration; Binding Effect; Survival of Terms                          -46-
                   ----------------------------------------------
     Section 14.12 Counterparts; Severability; Section References                          -47-
                   ----------------------------------------------
     Section 14.13 Bank One Roles                                                          -47-
                   --------------
     Section 14.14 Characterization                                                        -47-
                   ----------------

EXHIBIT I

     DEFINITIONS                                                                           -51-

EXHIBIT II

FORM OF PURCHASE NOTICE                                                                    -71-

EXHIBIT III

     PLACES OF BUSINESS OF THE SELLER PARTIES;
     LOCATIONS OF RECORDS;
     FEDERAL EMPLOYER IDENTIFICATION NUMBER(S)                                             -73-
</TABLE>

                                      iii
<PAGE>

<TABLE>
<S>                                                                                        <C>
EXHIBIT IV

     FORM OF COMPLIANCE CERTIFICATE                                                        -74-

EXHIBIT V

     FORM OF ASSIGNMENT AGREEMENT                                                          -77-

EXHIBIT VI

     CREDIT AND COLLECTION POLICY                                                          -84-

EXHIBIT VII

     FORM OF CONTRACT(S)                                                                   -85-

EXHIBIT VIII

     FORM OF MONTHLY REPORT                                                                -86-

SCHEDULE A

     COMMITMENTS OF FINANCIAL INSTITUTIONS                                                 -90-

SCHEDULE B

     LIST OF CLOSING DOCUMENTS                                                             -91-
</TABLE>

                                      iv
<PAGE>

                        RECEIVABLES PURCHASE AGREEMENT

     This Receivables Purchase Agreement dated as of  December 21, 1999 is among
AILIC RECEIVABLES CORPORATION,  a Delaware corporation ("Seller"), AMERICAN
                                                         ------
INCOME LIFE INSURANCE COMPANY, an insurance company organized under the laws of
Indiana ("AIL"), as the initial Servicer (the Servicer together with the Seller,
          ---
the "Seller Parties" and each a "Seller Party"), the funding entities listed on
     --------------              ------------
Schedule A to this Agreement (together with their respective successors and
----------
assigns hereunder, the "Financial Institutions"), PREFERRED RECEIVABLES FUNDING
                        ----------------------
CORPORATION ("PREFCO"), and BANK ONE, NA (with headquarters in Chicago,
              ------
Illinois), as agent for the Purchasers hereunder or any successor agent
hereunder (together with its successors and assigns hereunder, the "Agent").
                                                                    -----
Unless defined elsewhere herein, capitalized terms used in this Agreement shall
have the meanings assigned to such terms in Exhibit I.
                                            ---------

                            PRELIMINARY STATEMENTS

     Seller desires to transfer and assign Purchaser Interests to the Purchasers
from time to time.

     PREFCO may, in its absolute and sole discretion, purchase Purchaser
Interests from Seller from time to time.

     In the event that PREFCO declines to make any purchase, the Financial
Institutions shall, at the request of Seller, purchase Purchaser Interests from
time to time.  In addition, the Financial Institutions have agreed to provide a
liquidity facility to PREFCO in accordance with the terms hereof.

     Bank One, NA has been requested and is willing to act as Agent on behalf of
PREFCO and the Financial Institutions in accordance with the terms hereof.

                                   ARTICLE I
                             PURCHASE ARRANGEMENTS

          Section 1.1  Purchase Facility.  Upon the terms and subject to the
                       -----------------
conditions hereof, Seller may, at its option, sell and assign Purchaser
Interests to the Agent for the benefit of one or more of the Purchasers.  In
accordance with the terms and conditions set forth herein, PREFCO may, at its
option, instruct the Agent to purchase on behalf of PREFCO, or if PREFCO shall
decline to purchase, the Agent shall purchase, on behalf of the Financial
Institutions, Purchaser Interests from time to time in an aggregate amount not
to exceed the Purchase Limit during the period from the date hereof to but not
including the earlier to occur of the Amortization Date and the Liquidity
Termination Date.

          Section 1.2  Increases.  Seller shall provide the Agent with at
                       ---------
least two Business Days' prior written notice of each Incremental Purchase.
Such notice (a "Purchase
                --------

                                       1
<PAGE>

Notice") shall be in the form set forth as Exhibit II hereto. Each Purchase
------                                     ----------
Notice shall be subject to Section 6.2 hereof and, except as set forth below,
                           -----------
shall be irrevocable and shall specify the requested Purchase Price (which
amount shall not be less than $500,000, or an increment of $100,000 in excess
thereof) and shall not be greater than the Commitment Availability as of the
date of the proposed purchase), the date of purchase (which shall be a
Settlement Date) and, in the case of an Incremental Purchase to be funded by the
Financial Institutions, the requested Discount Rate and Tranche Period.
Following receipt of a Purchase Notice, the Agent will determine whether PREFCO
agrees to make the purchase. If PREFCO declines to make a proposed purchase,
Seller may cancel the Purchase Notice or, in the absence of such a cancellation,
the Incremental Purchase of the Purchaser Interest will be made by the Financial
Institutions. On the date of each Incremental Purchase, upon satisfaction of the
applicable conditions precedent set forth in Article VI, PREFCO or the Financial
                                             ----------
Institutions, as applicable, shall deposit to the Facility Account, in
immediately available funds, no later than 12:00 noon (Chicago time), an amount
equal to (i) in the case of PREFCO, the aggregate Purchase Price of the
Purchaser Interests PREFCO is then purchasing or (ii) in the case of a Financial
Institution, such Financial Institutions' Pro Rata Share of the aggregate
Purchase Price of the Purchaser Interests the Financial Institutions are
purchasing.

          Section 1.3  Decreases.  Seller shall provide the Agent with prior
                       ---------

written notice in conformity with the Required Notice Period of any reduction
from Collections requested by Seller of Capital (a "Reduction Notice").  Such
                                                    ----------------
Reduction Notice shall designate (i) the date (the "Proposed Reduction Date")
                                                    -----------------------
upon which any such reduction of Capital shall occur (which date shall give
effect to the applicable Required Notice Period), and (ii) the aggregate amount
of Capital to be reduced which shall be applied ratably to the Purchaser
Interests of PREFCO and the Financial Institutions in accordance with the amount
of Capital (if any) owing to PREFCO, on the one hand, and the amount of Capital
(if any) owing to the Financial Institutions (ratably, based on their respective
Pro Rata Shares), on the other hand (the "Aggregate Reduction").  Only one (1)
                                          -------------------
Reduction Notice shall be outstanding at any time.  Notwithstanding the
foregoing, the Aggregate Reduction will not be made if the Amortization Date
shall have occurred for any reason on or prior to the Proposed Reduction Date.

          Section 1.4  Payment Requirements.  All amounts to be paid or
                       --------------------
deposited by any Seller Party pursuant to any provision of this Agreement shall
be paid or deposited in accordance with the terms hereof no later than 11:00
a.m. (Chicago time) on the day when due in immediately available funds, and if
not received before 11:00 a.m. (Chicago time) shall be deemed to be received on
the next succeeding Business Day.  If such amounts are payable to a Purchaser
they shall be paid to the Agent, for the account of such Purchaser, at Bank One,
NA, 1 Bank One Plaza, Mail Suite IL1-0596, Chicago, Illinois 60670 (ABA No.
071000013; FMSD Clearing Account No. 7521-7683; Reference: AILIC Receivables
Corporation) until otherwise notified by the Agent.  Upon notice to Seller, the
Agent may debit the Facility Account for all amounts due and payable hereunder.
All computations of Yield, per annum fees calculated as part of any CP Costs,
per annum fees hereunder and under the Fee Letter shall be made on the basis of
a year of 360 days for the actual number of days elapsed.  If any amount
hereunder shall be payable on a day which is not a Business Day, such amount
shall be payable on the next succeeding Business Day.

                                       2
<PAGE>

                                   ARTICLE II
                            PAYMENTS AND COLLECTIONS

          Section 2.1  Payments.  Notwithstanding any limitation on recourse
                       --------
contained in this Agreement, Seller shall immediately pay to the Agent when due,
for the account of the relevant Purchaser or Purchasers on a full recourse
basis, (i) such fees as set forth in the Fee Letter (which fees shall be
sufficient to pay all fees owing to the Financial Institutions), (ii) all CP
Costs, (iii) all amounts payable as Yield, (iv) all amounts payable as Deemed
Collections (which shall be applied to reduce outstanding Capital hereunder in
accordance with Sections 2.2 and 2.3 hereof), (v) all amounts payable pursuant
                ------------     ---
to Section 2.6, (vi) all amounts payable pursuant to Article X, if any, (vii)
   -----------                                       ---------
all Servicer costs and expenses in connection with servicing, administering and
collecting the Receivables, (viii) all Broken Funding Costs and (ix) all Default
Fees (collectively, the "Obligations").  If any Person fails to pay any of the
                         -----------
Obligations when due, such Person agrees to pay, on demand, the Default Fee in
respect thereof until paid.  Notwithstanding the foregoing, no provision of this
Agreement or the Fee Letter shall require the payment or permit the collection
of any amounts hereunder in excess of the maximum permitted by applicable law.
If at any time Seller receives any Collections or is deemed to receive any
Collections, Seller shall immediately pay such Collections or Deemed Collections
to the Servicer for application toward the purchase of new Receivables or for
handling as otherwise provided herein and, at all times prior to such payment,
such Collections shall be held in trust by Seller for the exclusive benefit of
the Purchasers and the Agent.

          Section 2.2  Collections Prior to Amortization.  Prior to the
                       ---------------------------------
Amortization Date, any Collections and/or Deemed Collections received by the
Servicer (after the initial purchase of a Purchaser Interest hereunder and on or
prior to the Amortization Date of such Purchaser Interest) shall be set aside
and held in trust by the Servicer for the payment of any accrued and unpaid
Aggregate Unpaids up to the amount necessary to fund such Aggregate Unpaids.  If
at any time any Collections and/or Deemed Collections are received by the
Servicer prior to the Amortization Date, Seller hereby requests and the
Purchasers hereby agree to make, simultaneously with such receipt, a
reinvestment (each a "Reinvestment") with that portion of each and every
                      ------------
Collection received by the Servicer that is part of any Purchaser Interest, such
that after giving effect to such Reinvestment, the amount of Capital of such
Purchaser Interest immediately after such receipt and corresponding Reinvestment
shall be equal to the amount of Capital immediately prior to such receipt.  On
each Settlement Date prior to the occurrence of the Amortization Date, the
Servicer shall remit to the Agent's account the amounts set aside during the
preceding Settlement Period and apply such amounts (if not previously paid in
accordance with Section 2.1) to reduce unpaid CP Costs, Yield and other
                -----------
Obligations.  If such CP Costs, Yield and other Obligations shall be reduced to
zero, any additional Collections and/or Deemed Collections received by the
Servicer shall (i) if applicable, be remitted to the Agent's account no later
than 11:00 a.m. (Chicago time) to the extent required to fund any Aggregate
Reduction on such Settlement Date and (ii) thereafter be remitted from the
Servicer to Seller on such Settlement Date.

                                       3
<PAGE>

          Section 2.3  Collections Following Amortization.  On the Amortization
                       ----------------------------------
Date and on each day thereafter, the Servicer shall set aside and hold in trust,
for the holder of each Purchaser Interest, all Collections and Deemed
Collections received on such day (together with all Collections and Deemed
Collections then held in trust pursuant to Section 2.2 or this Section 2.3).
                                           -----------         ------------
On and after the Amortization Date, the Servicer shall, at any time upon the
request from time to time by (or pursuant to standing instructions from) the
Agent (i) remit to the Agent's account the amounts set aside pursuant to the
preceding sentence, and (ii) apply such amounts to reduce the Capital associated
with each such Purchaser Interest and any other Aggregate Unpaids until such
time as the Aggregate Unpaids are reduced to zero.

          Section 2.4  Application of Collections.  If there shall be
                       --------------------------
insufficient funds on deposit for the Servicer to distribute funds in payment in
full of the aforementioned amounts pursuant to Section 2.2 or 2.3 (as
                                               -----------    ---
applicable), the Servicer shall distribute funds:

          first, (i) if AIL or one of its Affiliates is then the Servicer and
          -----
     no Amortization Event or Potential Amortization Event shall have occurred
     and then be continuing, to the payment of the accrued and unpaid Servicing
     Fee, and (ii) if neither AIL nor any of its Affiliates is then the
     Servicer, to the payment of the Servicer's reasonable out-of-pocket costs
     and expenses in connection with servicing, administering and collecting the
     Receivables,

          second, to the reimbursement of the Agent's costs of collection and
          ------
     enforcement of this Agreement,

          third, to the ratable payment of all accrued and unpaid (i) fees under
          -----
     the Fee Letter, (ii) CP Costs, (iii) Yield and (iv) amounts payable under

     Article X,
     ---------

          fourth, to the ratable payment of all other unpaid Obligations,
          ------
     provided that to the extent such Obligations relate to the payment of
     --------
     Servicer costs and expenses when Seller or one of its Affiliates is acting
     as the Servicer, such costs and expenses will not be paid until after the
     payment in full of all other Obligations,

          fifth, (if applicable) in reduction of Capital of the Purchaser
          -----
     Interests,

          sixth, to the payment of any accrued and unpaid Servicing Fee (unless
          -----
     such fee shall have been paid in accordance with first above), and
                                                      -----

          seventh, after the Aggregate Unpaids have been indefeasibly reduced
          -------
     to zero, to Seller.

          Collections applied to the payment of Aggregate Unpaids shall be
distributed in accordance with the aforementioned provisions, and, giving effect
to each of the priorities set forth in Section 2.4 above, shall be shared
                                       -----------
ratably (within each priority) among the Agent and the Purchasers in accordance
with the amount of such Aggregate Unpaids owing to each of them in respect of
each such priority.

                                       4
<PAGE>

          Section 2.5  Payment Rescission.  No payment of any of the Aggregate
                       ------------------
Unpaids shall be considered paid or applied hereunder to the extent that, at any
time, all or any portion of such payment or application is rescinded by
application of law or judicial authority, or must otherwise be returned or
refunded for any reason.  Seller shall remain obligated for the amount of any
payment or application so rescinded, returned or refunded, and shall promptly
pay to the Agent (for application to the Person or Persons who suffered such
rescission, return or refund) the full amount thereof, plus the Default Fee from
the date of any such rescission, return or refunding.

          Section 2.6  Aggregate Purchaser Interest. Seller shall ensure that
                       ----------------------------
the Purchaser Interests of the Purchaser shall at no time exceed in the
aggregate 100%.  If the aggregate of the Purchaser Interests of the Purchasers
exceeds 100%, Seller shall immediately pay to the Agent an amount to be applied
to reduce the Capital of the Purchaser Interests (as allocated by the Agent),
such that after giving effect to such payment the aggregate of the Purchaser
Interests equals or is less than 100%.

                                  ARTICLE III
                                 PREFCO FUNDING

          Section 3.1  CP Costs.  Seller shall pay CP Costs with respect to
                       --------
the Capital associated with each Purchaser Interest of PREFCO for each day that
any Capital in respect of such Purchaser Interest is outstanding.  Each
Purchaser Interest funded substantially with Pooled Commercial Paper will accrue
CP Costs each day on a pro rata basis, based upon the percentage share the
Capital in respect of such Purchaser Interest represents in relation to all
assets held by PREFCO and funded substantially with Pooled Commercial Paper.

          Section 3.2  CP Costs Payments.  On each Settlement Date, Seller
                       -----------------
shall pay to the Agent (for the benefit of PREFCO) an aggregate amount equal to
all accrued and unpaid CP Costs in respect of the Capital associated with all
Purchaser Interests of PREFCO for the Accrual Period then most recently ended in
accordance with Article II.
                ----------

                                       5
<PAGE>

          Section 3.3  Calculation of CP Costs.  On the 13th day of each month
                       -----------------------
(or, if such day is not a Business Day, the next following Business Day), PREFCO
shall calculate the aggregate amount of CP Costs for the applicable Accrual
Period and shall notify the Seller of such aggregate amount.

                                   ARTICLE IV
                         FINANCIAL INSTITUTION FUNDING

          Section 4.1  Financial Institution Funding.  Each Purchaser Interest
                       -----------------------------
of the Financial Institutions shall accrue Yield for each day during its Tranche
Period at either the LIBO Rate or the Base Rate in accordance with the terms and
conditions hereof.  Until Seller gives notice to the Agent of another Discount
Rate in accordance with Section 4.4, the initial Discount Rate for any Purchaser
                        -----------
Interest transferred to the Financial Institutions pursuant to the terms and
conditions hereof shall be the Base Rate.  If the Financial Institutions acquire
by assignment from PREFCO any Purchaser Interest pursuant to Article XIII, each
                                                             ------------
Purchaser Interest so assigned shall each be deemed to have a new Tranche Period
commencing on the date of any such assignment.

          Section 4.2  Yield Payments.  On the Settlement Date for each
                       --------------
Purchaser Interest of the Financial Institutions, Seller shall pay to the Agent
(for the benefit of the Financial Institutions) an aggregate amount equal to the
accrued and unpaid Yield for the entire Tranche Period of each such Purchaser
Interest in accordance with Article II.
                            ----------

          Section 4.3  Selection and Continuation of Tranche Periods.  (a)
                       ---------------------------------------------
With consultation from (and approval by) the Agent, Seller shall from time to
time request Tranche Periods for the Purchaser Interests of the Financial
Institutions, provided that, if at any time the Financial Institutions shall
have a Purchaser Interest, Seller shall always request Tranche Periods such that
at least one Tranche Period shall end on each Settlement Date.

                  (b)  Seller or the Agent may, effective on the last day of a
Tranche Period (the "Terminating Tranche") for any Purchaser Interest, divide
                     -------------------
any such Purchaser Interest into multiple Purchaser Interests or combine any
such Purchaser Interest with one or more other Purchaser Interests which either
have a Terminating Tranche ending on such day or are newly created on such day,
provided, in no event may a Purchaser Interest of PREFCO be combined with a
--------
Purchaser Interest of the Financial Institutions.

          Section 4.4  Financial Institution Discount Rates.  Seller may select
                       ------------------------------------
the LIBO Rate or the Base Rate for each Purchaser Interest of the
Financial Institutions.  Seller shall by 11:00 a.m. (Chicago time): (i) at least
three (3) Business Days prior to the expiration of any Terminating Tranche with
respect to which the LIBO Rate is being requested as a new Discount Rate and
(ii) at least one (1) Business Day prior to the expiration of any Terminating
Tranche with respect to which the Base Rate is being requested as a new Discount
Rate, give the Agent irrevocable notice of the new Discount Rate for the
Purchaser Interest associated with such Terminating Tranche.

                                       6

<PAGE>

          Section 4.5  Suspension of the LIBO Rate.   If any Financial
                       ---------------------------
Institution notifies the Agent that it has determined that funding its Pro Rata
Share of the Purchaser Interests of the Financial Institutions at a LIBO Rate
would violate any applicable law, rule, regulation, or directive of any
governmental or regulatory authority, whether or not having the force of law, or
that (i) deposits of a type and maturity appropriate to match fund its Purchaser
Interests at such LIBO Rate are not available or (ii) such LIBO Rate does not
accurately reflect the cost of acquiring or maintaining a Purchaser Interest at
such LIBO Rate, then the Agent shall suspend the availability of such LIBO Rate
and require Seller to select the Base Rate for any Purchaser Interest accruing
Yield at such LIBO Rate.

                                   ARTICLE V
                         REPRESENTATIONS AND WARRANTIES

          Section 5.1  Representations and Warranties of Seller Parties.  Each
                       ------------------------------------------------
Seller Party hereby represents and warrants to the Agent and the Purchasers
that:

                  (a)  Corporate Existence and Power.  Each Torchmark Entity
                       ----------------------------
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation. Each Torchmark Entity is duly qualified to
do business and is in good standing as a foreign corporation, and has and holds
all corporate power and all governmental licenses, authorizations, consents and
approvals required to carry on its business in each jurisdiction in which its
business is conducted, except where the failure to so qualify would not have a
Material Adverse Effect. AIL is duly qualified and licensed as an insurance
company in each state in which Receivables are originated.

                  (b)  Power and Authority; Due Authorization Execution and
                       ----------------------------------------------------
Delivery. The execution and delivery by each Torchmark Entity of this
--------
Agreement and each other Transaction Document to which it is a party, and the
performance of its obligations hereunder and thereunder and, in the case of
Seller, Seller's use of the proceeds of purchases made hereunder, are within its
respective corporate powers and authority and have been duly authorized by all
necessary corporate action on its part. This Agreement and each other
Transaction Document to which each Torchmark Entity is a party has been duly
executed and delivered by such Torchmark Entity.

                  (c)  No Conflict.  The execution and delivery by each
                       -----------
Torchmark Entity of this Agreement and each other Transaction Document to which
it is a party, and the performance of its obligations hereunder and thereunder
do not contravene or violate (i) its certificate or articles of incorporation or
by-laws, (ii) any law, rule or regulation applicable to it, (iii) any
restrictions under any material agreement, contract or instrument to which it is
a party or by which it or any of its property is bound, or (iv) any order, writ,
judgment, award, injunction or decree binding on or affecting it or its
property, and do not result in the creation or imposition of any Adverse Claim
on assets of such Torchmark Entity or its Subsidiaries (except as created
hereunder) and no transaction contemplated hereby requires compliance with any
bulk sales act or similar law.

                                       7
<PAGE>

          (d) Governmental Authorization.  Other than the filing of the
              --------------------------
financing statements required hereunder, no authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution and delivery by any Torchmark
Entity of this Agreement or any other Transaction Document to which it is a
party or the performance of its obligations hereunder and thereunder.

          (e) Actions, Suits.  There are no actions, suits or proceedings
              --------------
pending, or to the best of such Seller Party's knowledge, threatened, against or
affecting any Torchmark Entity, or any of its properties, in or before any
court, arbitrator or other body, that could reasonably be expected to have a
Material Adverse Effect. No Torchmark Entity is in default with respect to any
order of any court, arbitrator or governmental body.

          (f) Binding Effect.  This Agreement and each other Transaction
              --------------
Document to which any Torchmark Entity is a party constitute the legal, valid
and binding obligations of such Torchmark Entity enforceable against such
Torchmark Entity in accordance with their respective terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization
or other similar laws relating to or limiting creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).

          (g) Accuracy of Information.  All information heretofore furnished by
              -----------------------
any Torchmark Entity or any of its Affiliates to the Agent or the Purchasers for
purposes of or in connection with this Agreement, any of the other Transaction
Documents or any transaction contemplated hereby or thereby is, and all such
information hereafter furnished by such Torchmark Entity or any of its
Affiliates to the Agent or the Purchasers will be, true and accurate in every
material respect on the date such information is stated or certified and does
not and will not contain any material misstatement of fact or omit to state a
material fact or any fact necessary to make the statements contained therein not
misleading.

          (h) Use of Proceeds.  No proceeds of any purchase hereunder will be
              ---------------
used (i) to purchase "margin stock" as defined in, or otherwise for a purpose
that violates or would be inconsistent with, Regulation T, U or X promulgated by
the Board of Governors of the Federal Reserve System from time to time or (ii)
to acquire any security in any transaction which is subject to Section 13 or 14
of the Securities Exchange Act of 1934, as amended.

          (i) Good Title.  Immediately prior to each purchase hereunder, Seller
              ----------
shall be the legal and beneficial owner of the Receivables and Related Security
with respect thereto, free and clear of any Adverse Claim, except as created by
the Transaction Documents.  There have been duly filed all financing statements
or other similar instruments or documents necessary under the UCC (or any
comparable law) of all appropriate jurisdictions to perfect Seller's ownership
interest in each Receivable, its Collections and the Related Security.

          (j) Perfection.  This Agreement, together with the filing of the
              ----------
financing statements contemplated hereby, is effective to, and shall, upon each
purchase hereunder, transfer to the Agent for the benefit of the relevant
Purchaser or Purchasers (and the

                                       8
<PAGE>

Agent for the benefit of such Purchaser or Purchasers shall acquire from Seller)
a valid and perfected first priority undivided percentage ownership interest in
each Receivable existing or hereafter arising and in the Related Security and
Collections with respect thereto, free and clear of any Adverse Claim, except as
created by the Transactions Documents. There have been duly filed all financing
statements or other similar instruments or documents necessary under the UCC (or
any comparable law) of all appropriate jurisdictions to perfect the Agent's (on
behalf of the Purchasers) ownership interest in the Receivables, the Related
Security and the Collections.

          (k) Places of Business.  The principal places of business and chief
              ------------------
executive offices of each Torchmark Entity and the offices where it keeps all of
its Records are located at the respective address(es) listed on Exhibit III or
                                                                -----------
such other locations of which the Agent has been notified in accordance with
Section 7.2(a) in jurisdictions where all action required by Section 14.4(a) has
--------------                                               ---------------
been taken and completed. Each Torchmark Entity's Federal Employer
Identification Number is correctly set forth on Exhibit III.
                                                -----------

          (l) Collections.  The conditions and requirements set forth in Section
              -----------                                                -------
7.1(j) and in subsections (b), (c) and (e) of Section 8.2 have at all times been
------        ---------------  ---     ---    -----------
satisfied and duly performed.

          (m) Material Adverse Effect.  (i) The initial Servicer represents and
              -----------------------
warrants that since September 30, 1999 no event has occurred that would have a
material adverse effect on the financial condition or operations of the initial
Servicer and its Subsidiaries or the ability of the initial Servicer to perform
its obligations under this Agreement, (ii) Seller represents and warrants that
since the date of this Agreement, no event has occurred that would have a
material adverse effect on (A) the financial condition or operations of Seller,
(B) the ability of Seller to perform its obligations under this Agreement, or
(C) the collectibility of the Receivables or Related Security generally or of
any material portion of the Receivables or Related Security and (iii) each
Seller Party represents and warrants that since September 30, 1999 no event has
occurred that would have a material adverse effect on the financial condition or
operation of the Performance Guarantor or AIL or the ability of the Performance
Guarantor or AIL to perform its obligations under the Transaction Documents.

          (n) Names.  In the past five (5) years, (i) Seller has not used any
              -----
corporate names, trade names or assumed names other than the name in which it
has executed this Agreement and (ii) AIL has not used any corporate names, trade
names or assumed names other than as disclosed on Exhibit III hereto.
                                                  -----------

          (o) Ownership of Torchmark Entities.  Torchmark owns, directly or
              -------------------------------
indirectly, 100% of the issued and outstanding capital stock of each of AIL and
Seller, in each case, free and clear of any Adverse Claim.  AIL owns directly
100% of the issued and outstanding capital stock of Seller, free and clear of
any Adverse Claim.  Such capital stock in each case is validly issued, fully
paid and nonassessable, and there are no options, warrants or other rights to
acquire securities of Seller.

                                       9
<PAGE>

          (p) Not a Holding Company or an Investment Company.  No Torchmark
              ----------------------------------------------
Entity is (i) a "holding company" or a "subsidiary holding company" of a
"holding company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended, or any successor statute or (ii) an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, or any
successor statute.

          (q) Compliance with Law.  Each Torchmark Entity has complied in all
              -------------------
material respects with all applicable laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject.  Each
Receivable, together with the Contract related thereto, does not contravene any
laws, rules or regulations applicable thereto (including, without limitation,
                                               ---------  ------------------
laws, rules and regulations relating to truth in lending, fair credit billing,
fair credit reporting, equal credit opportunity, fair debt collection practices
and privacy), and no part of such Contract is in violation of any such law, rule
or regulation with respect to which any noncompliance, separately or in the
aggregate, is reasonably likely to have a Material Adverse Effect.

          (r) Compliance with Credit and Collection Policy.  AIL and Seller have
              --------------------------------------------
complied in all material respects with the Credit and Collection Policy with
regard to each Receivable and the related Contract, and neither AIL nor Seller
has made any change to the Credit and Collection Policy, except such material
change as to which the Agent has been notified in accordance with Section
                                                                  -------
7.1(a)(vii).
-----------

          (s) Payments to AIL.  With respect to each Receivable transferred to
              ---------------
Seller under the Receivables Sale Agreement, Seller has given reasonably
equivalent value to AIL in consideration therefor and such transfer was not made
for or on account of an antecedent debt.  No transfer by AIL of any Receivable
under the Receivables Sale Agreement is or may be voidable under any section of
the Bankruptcy Reform Act of 1978 (11 U.S.C. (S)(S) 101 et seq.), as amended.
                                                        -------

          (t) Enforceability of Contracts.  Each Contract with respect to each
              ---------------------------
Receivable is effective to create, and has created, a legal, valid and binding
obligation of the related Obligor (including each Obligor, whether a member of
an Agent-Hierarchy or otherwise, which is a guarantor of such Receivable) to pay
the Outstanding Balance of the Receivable created thereunder and any accrued
interest thereon, enforceable against such Obligor in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors' rights
generally and by general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law).

          (u) Eligible Receivables.  Each Receivable included in the Net
              --------------------
Receivables Balance as an Eligible Receivable on the date of its purchase under
the Receivables Sale Agreement was an Eligible Receivable on such purchase date.

                                      10
<PAGE>

              (v) Net Receivables Balance.  The Seller has determined that,
                  -----------------------
immediately after giving effect to each purchase hereunder, the Net Receivables
Balance is at least equal to the aggregate Capital of all the Purchaser
Interests.

              (w) Year 2000.  Such Seller Party (i) has reviewed the areas
                  ---------
within its business and operations which could be adversely affected by the Year
2000 Problem, (ii) has developed what it deems as a reasonable Year 2000 Plan to
address the Year 2000 Problem on a timely basis, (iii) is taking all actions it
deems reasonably necessary to meet the schedule and goals of the Year 2000 Plan
and (iv) has established adequate reserves to implement the Year 2000 Plan. Such
Seller Party does not reasonably anticipate that the Year 2000 Problem could
have a Material Adverse Effect.

              (x) Accounting.  The manner in which each Torchmark Entity
                  ----------
accounts for the transactions contemplated by this Agreement and the Receivables
Sale Agreement does not jeopardize the true sale analysis.

              (y) Compliance with Underwriting Guidelines.  AIL has complied
                  ---------------------------------------
in all material respects with its underwriting guidelines in issuing or agreeing
to issue each Insurance Product in connection with which a Receivable shall have
arisen, and in electing to extend the credit represented by such Receivable to
the applicable Obligor, and AIL has not made any material change to such
underwriting guidelines except such change as to which the Agent has been
notified in accordance with Section 7.1(a)(vii).
                            -------------------

              (z) Compliance with Representations.  On and as of the date of
                  -------------------------------
each purchase of a Purchaser Interest hereunder and the date of each
Reinvestment hereunder, each Seller Party hereby represents and warrants that
all of the other representations and warranties made by it set forth in this
Section 5.1 are true and correct on and as of the date of such purchase or
-----------
Reinvestment (and after giving effect to such purchase or Reinvestment) as
though made on and as of each such date.

     Section 5.2  Financial Institution Representations and Warranties. Each
                  ----------------------------------------------------
Financial Institution hereby represents and warrants to the Agent and PREFCO
that:

              (a) Existence and Power.  Such Financial Institution is a
                  -------------------
corporation or a banking association duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization, and has all corporate power to perform its obligations hereunder.

              (b) No Conflict.  The execution and delivery by such Financial
                  -----------
Institution of this Agreement and the performance of its obligations hereunder
are within its corporate powers, have been duly authorized by all necessary
corporate action, do not contravene or violate (i) its certificate or articles
of incorporation or association or by-laws, (ii) any law, rule or regulation
applicable to it, (iii) any restrictions under any agreement, contract or
instrument to which it is a party or any of its property is bound, or (iv) any
order, writ, judgment, award, injunction or decree binding on or affecting it or
its property, and do not result in the creation or

                                      11
<PAGE>

imposition of any Adverse Claim on its assets. This Agreement has been duly
authorized, executed and delivered by such Financial Institution.

              (c) Governmental Authorization.  No authorization or approval or
                  --------------------------
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution and delivery by such Financial
Institution of this Agreement and the performance of its obligations hereunder.

              (d) Binding Effect.  This Agreement constitutes the legal, valid
                  --------------
and binding obligation of such Financial Institution enforceable against such
Financial Institution in accordance with its terms, except as such enforcement
may be limited by applicable bankruptcy, insolvency, reorganization or other
similar laws relating to or limiting creditors' rights generally and by general
principles of equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law).

                                   ARTICLE VI
                            CONDITIONS OF PURCHASES

     Section 6.1  Conditions Precedent to Initial Purchase.  The initial
                  ----------------------------------------
purchase of a Purchaser Interest under this Agreement is subject to the
conditions precedent that (a) the Agent shall have received on or before the
date of such purchase those documents listed on Schedule B and (b) the Agent
                                                ----------
shall have received all fees and expenses required to be paid on such date
pursuant to the terms of this Agreement and the Fee Letter.

     Section 6.2  Conditions Precedent to All Purchases and Reinvestments. Each
                  -------------------------------------------------------
purchase of a Purchaser Interest (other than pursuant to Section 13.1) and each
                                                         ------------
Reinvestment shall be subject to the further conditions precedent that (a) in
the case of each such purchase or Reinvestment: (i) the Servicer shall have
delivered to the Agent on or prior to the date of such purchase, in form and
substance satisfactory to the Agent, all Monthly Reports as and when due under
Section 8.5 and (ii) upon the Agent's request, the Servicer shall have delivered
-----------
to the Agent at least three (3) days prior to such purchase or Reinvestment an
interim Monthly Report showing the amount of Eligible Receivables; (b) neither
the Amortization Date nor the Liquidity Termination Date shall have occurred;
(c) on the date of each such purchase or Reinvestment, the following statements
shall be true (and acceptance of the proceeds of such purchase or Reinvestment
shall be deemed a representation and warranty by Seller that such statements are
then true):

     (i)  the representations and warranties set forth in Section 5.1 are true
                                                          -----------
          and correct on and as of the date of such purchase or Reinvestment as
          though made on and as of such date;

     (ii) no event has occurred, or would result from such purchase or
          Reinvestment, that would constitute an Amortization Event or a
          Potential Amortization Event; and

                                      12
<PAGE>

          (iii)  the aggregate Capital of all Purchaser Interests does not
                 exceed the Purchase Limit;

and (d) the Agent shall have received such other approvals, opinions or
documents as it may reasonably request. It is expressly understood that each
Reinvestment shall, unless otherwise directed by the Agent or any Purchaser,
occur automatically on each day that the Servicer shall receive any Collections
without the requirement that any further action be taken on the part of any
Person and notwithstanding the failure of  Seller to satisfy  any of the
foregoing conditions precedent in respect of such Reinvestment.  The failure of
Seller to satisfy any of the foregoing conditions precedent in respect of any
Reinvestment shall give rise to a right of the Agent and the Purchasers, which
right may be exercised at any time on demand of the Agent, to rescind the
related purchase and direct Seller to pay to the Agent for the benefit of the
Purchasers an amount equal to the Collections that shall have been applied to
the affected Reinvestment.

                                  ARTICLE VII
                                   COVENANTS

          Section 7.1  Affirmative Covenants of the Seller Parties.  Until the
                       -------------------------------------------
date on which the Aggregate Unpaids have been indefeasibly paid in full and this
Agreement terminates in accordance with its terms, each Seller Party hereby
covenants, as to itself, as set forth below:

                   (a) Financial Reporting.  Such Seller Party will maintain,
                       -------------------
for itself and each of its Subsidiaries, a system of accounting established and
administered in accordance with generally accepted accounting principles, and
furnish to the Agent:

                           (i)  Annual Reporting.  Within
                                ---------------

                                (A)  90 days after the close of each fiscal year
                   of the Performance Guarantor, audited unqualified financial
                   statements (which shall include consolidated balance sheets,
                   statements of income and retained earnings and a statement of
                   cash flows) for the Performance Guarantor for such fiscal
                   year, certified by nationally recognized independent public
                   accountants;

                                (B)  120 days after the close of each fiscal
                   year of AIL, audited, unqualified financial statements (which
                   shall include balance sheets, statements of income and
                   retained earnings and a statement of cash flows) for AIL for
                   such fiscal year certified by nationally recognized
                   independent public accountants;

                                (C)  90 days after the close of each fiscal year
                   of Seller, unaudited financial statements (which shall
                   include balance sheets, statements of income and retained
                   earnings and a statement of cash flows) for Seller for such
                   fiscal year, certified by an Authorized Officer; and

                                      13

<PAGE>

                         (D) 90 days after the close of each fiscal year of AIL,
               an annual statement of the conditions and affairs of AIL prepared
               in accordance with NAIC annual statement instructions and
               accounting practices and procedures for, and as filed with,  the
               Insurance Department of its respective state of organization, all
               certified by an Authorized Officer thereof.

                    (ii) Quarterly Reporting.  Within 45 days after the close of
                         -------------------
          the first three (3) quarterly periods of each of the Servicer's fiscal
          years,

                         (A) in respect of each of the Performance Guarantor,
               AIL and Seller, balance sheets of each such Person as at the
               close of each such period and statements of income and retained
               earnings and a statement of cash flows for each such Person for
               the period from the beginning of such fiscal year to the end of
               such quarter, all certified by an Authorized Officer thereof; and

                         (B) in respect of AIL, a quarterly statement of the
               conditions and affairs of AIL prepared in accordance with NAIC
               quarterly statement instructions and accounting practices and
               procedures for, and as filed with,  the Insurance Department of
               its respective state of organization, all certified by an
               Authorized Officer thereof.

                  (iii)  Compliance Certificate.  Together with the financial
                         ----------------------
          statements required hereunder, a compliance certificate in
          substantially the form of Exhibit IV signed by an Authorized Officer
                                    ----------
          of each of the Performance Guarantor, AIL and Seller, and dated the
          date of such annual financial statement or such quarterly financial
          statement, as the case may be.

                  (iv)   Shareholders Statements and Reports.  Promptly upon the
                         -----------------------------------
          furnishing thereof to the shareholders of any Torchmark Entity copies
          of all financial statements, reports and proxy statements so
          furnished.
                  (v)    S.E.C. Filings.  Promptly upon the filing thereof,
                         --------------
          copies of all registration statements and annual, quarterly, monthly
          or other regular reports which any Torchmark Entity or any of its
          Subsidiaries files with the Securities and Exchange Commission.

                  (vi)   Copies of Notices. Promptly upon its receipt of any
                         -----------------
          notice, request for consent, financial statements, certification,
          report or other communication under or in connection with any
          Transaction Document from any Person other than the Agent or PREFCO,
          copies of the same.

                  (vii)  Change in Credit and Collection Policy or Underwriting
                         ------------------------------------------------------
          Guidelines.  At least thirty (30) days prior to the effectiveness of
          ----------
          any material change in or amendment to the (A) Credit and Collection
          Policy, a copy of the

                                      14
<PAGE>

          Credit and Collection Policy then in effect and a notice indicating
          such change or amendment or (B) underwriting guidelines of AIL, a copy
          of the underwriting guidelines of AIL then in effect and a notice
          indicating such change or amendment.

                  (viii) Other Information.  Promptly, from time to time, such
                         -----------------
          other information, documents, records or reports relating to the
          Receivables or the condition or operations, financial or otherwise, of
          such Seller Party or any Torchmark Entity as the Agent may from time
          to time reasonably request in order to protect the interests of the
          Agent and the Purchasers under or as contemplated by this Agreement.

              (b) Notices.  Such Seller Party will notify the Agent in writing
                  -------
of any of the following promptly upon learning of the occurrence thereof,
describing the same and, if applicable, the steps being taken with respect
thereto:

                  (i)    Amortization Events or Potential Amortization Events.
                         ----------------------------------------------------
          The occurrence of each Amortization Event and each Potential
          Amortization Event, by a statement of an Authorized Officer of such
          Seller Party.

                  (ii)   Judgment and Proceedings.  (A) The entry of any
                         ------------------------
          judgment or decree against (1) Torchmark or any of its respective
          Subsidiaries, if the aggregate amount of all judgments and decrees
          then outstanding against Torchmark and its Subsidiaries exceeds
          $50,000,000, (2) AIL or any of its respective Subsidiaries, if the
          aggregate amount of all judgments and decrees then outstanding against
          AIL and its Subsidiaries exceeds $5,000,000 or (3) Seller; or (B) the
          institution of any litigation, arbitration proceeding or governmental
          proceeding against any Torchmark Entity which may have a Material
          Adverse Effect.

                  (iii)  Material Adverse Effect.  The occurrence of any event
                         -----------------------
          or condition that has, or could reasonably be expected to have, a
          Material Adverse Effect.

                  (iv)   Amortization Date.  The occurrence of the "Amortization
                         -----------------                          ------------
          Date" under the Receivables Sale Agreement.
          ----

                  (v)    Defaults Under Other Agreements.  The occurrence of a
                         -------------------------------
          default or an event of default under any other material financing
          arrangement pursuant to which any Torchmark Entity is a debtor or an
          obligor.

                  (vi)   Downgrade of Torchmark Entities.  Any downgrade in the
                         -------------------------------
          claims-paying ability or the rating of any Indebtedness of any
          Torchmark Entity by Standard and Poor's Ratings Group or by Moody's
          Investors Service, Inc., setting forth the nature of such change.

                                      15
<PAGE>

              (vii)  Company Action Level Event.  With respect to AIL, the
                     --------------------------
          occurrence of a Company Action Level Event.

          (c) Compliance with Laws and Preservation of Corporate Existence.
              ------------------------------------------------------------
Such Seller Party will comply in all respects with all applicable laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject except, in the case of the Servicer, where noncompliance would
not be reasonably likely to have a Material Adverse Effect.  Such Seller Party
will preserve and maintain its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and qualify and remain
qualified in good standing as a foreign corporation in each jurisdiction where
its business is conducted except, in the case of the Servicer, where the failure
to so qualify would not be reasonably likely to have a Material Adverse Effect.
Such Seller Party shall cause AIL to remain at all times duly qualified and
licensed as an insurance company in each state in which Receivables are
originated.

          (d) Audits.  Such Seller Party will furnish to the Agent from time to
              ------
time such information with respect to it and the Receivables as the Agent may
reasonably request.  Such Seller Party will, from time to time during regular
business hours as requested by the Agent upon reasonable notice, permit the
Agent, or its agents or representatives, (i) to examine and make copies of and
abstracts from all Records in the possession or under the control of such Person
relating to the Receivables and the Related Security, including, without
limitation, the related Contracts, and (ii) to visit the offices and properties
of such Person for the purpose of examining such materials described in clause
(i) above, and to discuss matters relating to such Person's financial condition
or the Receivables and the Related Security or any Person's performance under
any of the Transaction Documents or any Person's performance under the Contracts
and, in each case, with any of the officers or employees of Seller or the
Servicer having knowledge of such matters.

          (e) Keeping and Marking of Records and Books.
              ----------------------------------------

              (i)   The Servicer will maintain and implement administrative and
       operating procedures (including, without limitation, an ability to
       recreate records evidencing Receivables in the event of the destruction
       of the originals thereof), and keep and maintain all documents, books,
       records and other information reasonably necessary or advisable for the
       collection of all Receivables (including, without limitation, records
       adequate to permit the immediate identification of each new Receivable
       and all Collections of and adjustments to each existing Receivable). The
       Servicer will give the Agent notice of any material change in the
       administrative and operating procedures referred to in the previous
       sentence.

              (ii)  Such Seller Party will (A) on or prior to the date hereof,
       mark its general ledger and master data processing records and other
       books and records relating to the Purchaser Interests with a legend,
       acceptable to the Agent, describing the Purchaser Interests and (B) upon
       the request of the Agent (x) mark

                                      16
<PAGE>

       each Contract with a legend describing the Purchaser Interests and (y)
       deliver to the Agent all Contracts (including, without limitation, all
       multiple originals of any such Contract) relating to the Receivables.

          (f) Compliance with Contracts and Credit and Collection Policy.  Such
              ----------------------------------------------------------
Seller Party will timely and fully (i) perform and comply with all provisions,
covenants and other promises required to be observed by it under the Contracts
related to the Receivables, and (ii) comply in all respects with the Credit and
Collection Policy in regard to each Receivable and the related Contract.  Seller
will pay when due any taxes payable in connection with the Receivables,
exclusive of taxes on or measured by income or gross receipts of PREFCO, the
Agent or any Financial Institution.

          (g) Performance and Enforcement of Receivables Sale Agreement.  Seller
              ---------------------------------------------------------
shall perform its obligations and undertakings under and pursuant to the
Receivables Sale Agreement, shall purchase Receivables thereunder in strict
compliance with the terms thereof and shall vigorously enforce the rights and
remedies accorded to Seller under the Receivables Sale Agreement.  Seller shall
take all actions to protect,  perfect and enforce its rights and interests (and
the rights and interests of the Agent and the Purchasers as assignees of Seller)
under the Receivables Sale Agreement as the Agent may from time to time
reasonably request, including, without limitation, making claims to which it may
                    ---------  ------------------
be entitled under any indemnity, reimbursement or similar provision contained in
the Receivables Sale Agreement and requesting such information or such audits as
may be permitted under the Receivables Sale Agreement.

          (h) Ownership.  Seller shall take all necessary action to (i) vest
              ---------
legal and equitable title to the Receivables, the Related Security and the
Collections purchased under the Receivables Sale Agreement irrevocably in
Seller, free and clear of any Adverse Claims other than Adverse Claims in favor
of the Agent and the Purchasers (including, without limitation, the filing of
                                 ---------  ------------------
all financing statements or other similar instruments or documents necessary
under the UCC (or any comparable law) of all appropriate jurisdictions, and the
giving of notice to each Obligor and to each Policy Holder owing premiums in
respect of which Receivables shall have arisen, to perfect Seller's ownership
interest in such Receivables, Related Security and Collections, and such other
action to perfect, protect or more fully evidence the interest of Seller therein
as the Agent may reasonably request), and (ii) establish and maintain, in favor
of the Agent, for the benefit of the Purchasers, a valid and perfected first
priority undivided percentage ownership interest (and/or a valid and perfected
first priority security interest) in all Receivables, Related Security and
Collections to the full extent contemplated herein, free and clear of any
Adverse Claims other than Adverse Claims in favor of the Agent for the benefit
of the Purchasers (including, without limitation, the filing of all financing
                   ---------  ------------------
statements or other similar instruments or documents necessary under the UCC (or
any comparable law) of all appropriate jurisdictions to perfect the Agent's (for
the benefit of the Purchasers) interest in such Receivables, Related Security
and Collections and such other action to perfect, protect or more fully evidence
the interest of the Agent for the benefit of the Purchasers as the Agent may
reasonably request).  Seller shall, by not later than January 20, 2000, give or
cause AIL to give to each Obligor in respect of any Receivable then outstanding
notice as to the transfers of the interests in the Receivables contemplated in
the Transaction Documents, and at all times thereafter give or cause
<PAGE>

AIL to give to each Obligor in respect of each Receivable then or thereafter
arising notice as to such interests for the purpose of perfecting such interests
in favor of Seller and the Agent. If at any time Seller shall fail to take any
actions required to be taken hereunder, or any additional actions as may have
been reasonably requested by the Agent (including, without limitation, the
giving of notice to each Obligor of the interests created under the Transaction
Documents in the Receivables), the Agent may, but shall not be required to, take
any such action.

          (i)  Purchasers' Reliance.  Seller acknowledges that the Purchasers
               --------------------
are entering into the transactions contemplated by this Agreement in reliance
upon Seller's identity as a legal entity that is separate from the other
Torchmark Entities. Therefore, from and after the date of execution and delivery
of this Agreement, Seller shall take all reasonable steps, including, without
limitation, all steps that the Agent or any Purchaser may from time to time
reasonably request, to maintain Seller's identity as a separate legal entity and
to make it manifest to third parties that Seller is an entity with assets and
liabilities distinct from those of the other Torchmark Entities and any
Affiliates thereof and not just a division of any other Torchmark Entity.
Without limiting the generality of the foregoing and in addition to the other
covenants set forth herein, Seller shall:

               (A) conduct its own business in its own name and require that all
     full-time employees of Seller, if any, identify themselves as such and not
     as employees of any other Torchmark Entity (including, without limitation,
     by means of providing appropriate employees with business or identification
     cards identifying such employees as Seller's employees);

               (B) compensate all employees, consultants and agents directly,
     from Seller's bank accounts, for services provided to Seller by such
     employees, consultants and agents and, to the extent any employee,
     consultant or agent of Seller is also an employee, consultant or agent of
     another Torchmark Entity, allocate the compensation of such employee,
     consultant or agent between Seller and such Torchmark Entity on a basis
     that reflects the services rendered to Seller and such Torchmark Entity;

               (C) clearly identify its offices (by signage or otherwise) as its
     offices and, if such office is located in the offices of any Torchmark
     Entity, Seller shall lease such office at a fair market rent;

               (D) have a separate telephone number, which will be answered only
     in its name and separate stationery, invoices and checks in its own name;

               (E) conduct all transactions with each other Torchmark Entity
     strictly on an arm's-length basis, allocate all overhead expenses
     (including, without limitation, telephone and other utility charges) for
     items shared between Seller and each other Torchmark Entity on the basis of
     actual use to the extent practicable and, to the extent such allocation is
     not practicable, on a basis reasonably related to actual use;

                                      18
<PAGE>

               (F)  at all times have a Board of Directors consisting of three
     or more members, at least one of which is an Independent Director;

               (G)  observe all corporate formalities as a distinct entity, and
     ensure that all corporate actions relating to (A) the selection,
     maintenance or replacement of the Independent Director on its board of
     directors, (B) the dissolution or liquidation of Seller or (C) the
     initiation of, participation in, acquiescence in or consent to any
     bankruptcy, insolvency, reorganization or similar proceeding involving
     Seller, are duly authorized by unanimous vote of its Board of Directors
     (including the Independent Director);

               (H)  maintain Seller's books and records separate from those of
     each other Torchmark Entity and otherwise readily identifiable as its own
     assets rather than assets of any other Torchmark Entity;

               (I)  prepare its financial statements separately from those of
     each other Torchmark Entity and insure that any consolidated financial
     statements of the Torchmark Entities that include Seller and that are filed
     with the Securities and Exchange Commission or any other governmental
     agency have notes clearly stating that Seller is a separate corporate
     entity and that its assets will be available first and foremost to satisfy
     the claims of the creditors of Seller;

               (J)  except as herein specifically otherwise provided, maintain
     the funds or other assets of Seller separate from, and not commingled with,
     those of any other Torchmark Entity and only maintain bank accounts or
     other depository accounts to which the Seller alone is the account party,
     into which the Seller alone makes deposits and from which the Seller alone
     (or the Agent hereunder) has the power to make withdrawals;

               (K)  pay all of Seller's operating expenses from the Seller's own
     assets (except for certain payments by another Torchmark Entity or other
     Persons pursuant to allocation arrangements that comply with the
     requirements of this Section 7.1(i));
                          --------------

               (L)  operate its business and activities such that: it does not
     engage in any business or activity of any kind, or enter into any
     transaction or indenture, mortgage, instrument, agreement, contract, lease
     or other undertaking, other than the transactions contemplated and
     authorized by this Agreement and the Receivables Sale Agreement; and does
     not create, incur, guarantee, assume or suffer to exist any indebtedness or
     other liabilities, whether direct or contingent, other than (1) as a result
     of the endorsement of negotiable instruments for deposit or collection or
     similar transactions in the ordinary course of business, (2) the incurrence
     of obligations under this Agreement, (3) the incurrence of obligations, as
     expressly contemplated in the Receivables Sale Agreement, to make payment
     to AIL thereunder for the purchase of Receivables from

                                      19
<PAGE>

     AIL under the Receivables Sale Agreement, and (4) the incurrence of
     operating expenses in the ordinary course of business of the type otherwise
     contemplated by this Agreement;

               (M) maintain its corporate charter and other organizational
     documents in conformity with this Agreement, such that it does not amend,
     restate, supplement or otherwise modify its Certificate of Incorporation or
     By-laws in any respect that would impair its ability to comply with the
     terms or provisions of any of the Transaction Documents, including, without
     limitation, Section 7.1(i) of this Agreement;
                 --------------

               (N) maintain the effectiveness of, and continue to perform under
     the Receivables Sale Agreement and each of the other Transaction Documents
     to which it is party, such that it does not amend, restate, supplement,
     cancel, terminate or otherwise modify the Receivables Sale Agreement or any
     other Transaction Document (whether or not Seller is party thereto), or
     give or permit any consent, waiver, directive or approval thereunder or in
     respect thereof or waive any default, action, omission or breach under the
     Receivables Sale Agreement or any other Transaction Document or otherwise
     grant any indulgence thereunder or in respect thereof, without (in each
     case) the prior written consent of the Agent;

               (O) maintain its corporate separateness such that it does not
     merge or consolidate with or into, or convey, transfer, lease or otherwise
     dispose of (whether in one transaction or in a series of transactions, and
     except as otherwise contemplated herein) all or substantially all of its
     assets (whether now owned or hereafter acquired) to, or acquire all or
     substantially all of the assets of, any Person, nor at any time create,
     have, acquire, maintain or hold any interest in any Subsidiary;

               (P) maintain at all times the Required Capital Amount (as defined
     in the Receivables Sale Agreement) and refrain from making any dividend,
     distribution, redemption of capital stock or payment of any subordinated
     indebtedness which would cause the Required Capital Amount to cease to be
     so maintained; and

               (Q) take such other actions as are necessary on its part to
     ensure that the facts and assumptions set forth in the opinion issued by
     Maynard, Cooper & Gale, P.C., as counsel for Seller, in connection with the
     closing and the initial purchase under this Agreement and relating to
     substantive consolidation issues, and in the certificates accompanying such
     opinion, remain true and correct in all material respects at all times.

           (j) Collections.  Such Seller Party shall direct each applicable
               -----------
     Torchmark Entity to remit all Collections received by such Torchmark Entity
     directly to the Servicer for the benefit of the Agent and the Purchasers.
     Immediately upon receipt by any Torchmark Entity of any premium payable by
     or on behalf of the Policy Holder or any other Person in respect of the
     Insurance Product that shall have given rise to any Receivable, such
     Torchmark Entity shall be required to remit to the Servicer an amount
     calculated in reference thereto that, in the ordinary course of business
     and in accordance

                                      20
<PAGE>

     with its customary practice, is then payable as a commission in respect of
     such Insurance Product to the Obligor on such Receivable and which but for
     the existence of such Receivable would be remitted to such Obligor. In the
     event any payments relating to Receivables are remitted directly to Seller
     or any Affiliate of Seller, Seller shall remit (or shall cause all such
     payments to be remitted) directly to the Servicer, and at all times prior
     to such remittance, Seller shall itself hold or, if applicable, shall cause
     such payments to be held in trust for the exclusive benefit of the Agent
     and the Purchasers. Seller shall maintain exclusive ownership, dominion and
     control (subject to the terms of this Agreement) of each deposit account in
     which any Collections are held and shall not grant the right to take
     dominion and control of any such account except to the Agent on the demand
     of the Agent. At any time following the occurrence of an Amortization
     Event, the Agent may, at Seller's sole cost and expense, direct Seller to
     notify, or to cause AIL to notify, the Obligors (including Obligors that
     are guarantors) of Receivables and all Policy Holders owing premiums in
     respect of which any Receivables shall have arisen of the ownership
     interests of the Agent and the Purchasers under this Agreement and may also
     direct that payments of all amounts due or that become due under any or all
     Receivables or Related Security be made directly to the Agent (or its
     respective designee) or to a lockbox or collection account designated by
     the Agent.

                 (k)   Taxes.  Such Seller Party shall file all tax returns and
                       -----
     reports required by law to be filed by it and shall promptly pay all taxes
     and governmental charges at any time due and payable; provided that in the
                                                           --------
     case of the Servicer, the Servicer shall not be required to pay any such
     taxes which are being diligently contested in good faith by appropriate
     proceedings and for which adequate reserves in accordance with generally
     accepted accounting principles shall have been set aside on its books.

                 (l)   Net Worth.  Seller shall at all times maintain net
                       ---------
     worth in an amount not less than $3,000,000.

          Section 7.2  Negative Covenants of the Seller Parties  .  Until the
                       ----------------------------------------
date on which the Aggregate Unpaids have been indefeasibly paid in full and this
Agreement terminates in accordance with its terms, each Seller Party hereby
covenants, that:

                 (a)   Name Change, Offices and Records.  Such Seller Party
                       --------------------------------
will not (and will not permit AIL to) change its name, identity or corporate
structure (within the meaning of Section 9-402(7) of any applicable enactment of
the UCC) or relocate its chief executive office or any office where Records are
kept unless it shall have: (i) given the Agent at least forty-five (45) days'
prior written notice thereof and (ii) delivered to the Agent all financing
statements, instruments and other documents requested by the Agent in connection
with such change or relocation.

                 (b)   Change in Payment Instructions to Obligors.  Such Seller
                       ------------------------------------------
Party will not make (or permit AIL to make) any change in the instructions to
Obligors regarding payments to be made on any Receivable without the prior
written consent of the Agent.

                                      21
<PAGE>

              (c) Modifications to Contracts and Credit and Collection Policy.
                  -----------------------------------------------------------
Such Seller Party will not make (or permit AIL to make) any change to the Credit
and Collection Policy that could adversely affect the collectibility of the
Receivables or decrease the credit quality of any newly created Receivables.
Except as provided in Section 8.2(d), the Servicer will not, and will not
                      --------------
extend, amend or otherwise modify the terms of any Receivable or any Contract
related thereto other than in accordance with the Credit and Collection Policy.

              (d) Sales, Liens.  Seller shall not sell, assign (by operation
                  ------------
of law or otherwise) or otherwise dispose of, or grant any option with respect
to, or create or suffer to exist any Adverse Claim upon (including, without
limitation, the filing of any financing statement) or with respect to, any
Receivable, Related Security or Collections, or upon or with respect to any
Contract under which any Receivable arises, or any deposit account in which
Collections may be held, or assign any right to receive income with respect
thereto (other than, in each case, the creation of the interests therein in
favor of the Agent and the Purchasers provided for herein), and Seller shall
defend the right, title and interest of the Agent and the Purchasers in, to and
under any of the foregoing property, against all claims of third parties
claiming through or under Seller or AIL.

              (e) Net Receivables Balance.  At no time prior to the Amortization
                  -----------------------
Date shall Seller permit the Net Receivables Balance to be less than the
aggregate Capital of all the Purchaser Interests at such time.

              (f) Amortization Date Determination.  Seller shall not designate
                  -------------------------------
or permit the designation of an Amortization Date (as defined in the Receivables
Sale Agreement), or send any written notice to AIL in respect thereof, without
the prior written consent of the Agent, except with respect to the occurrence of
such Amortization Date arising pursuant to Section 5.1(d) of the Receivables
Sale Agreement.

              (g) Change in Subordinated Note.  Seller shall not amend, modify
                  ---------------------------
(by course of conduct or otherwise) or terminate the Subordinated Note without
the prior written consent of the Agent.

                                  ARTICLE VIII
                         ADMINISTRATION AND COLLECTION

     Section 8.1  Designation of Servicer.  (a)  The servicing, administration
                  -----------------------
and collection of the Receivables shall be conducted by such Person (the
"Servicer") so designated from time to time in accordance with this
 --------
Section 8.1.  AIL is hereby designated as, and hereby agrees to perform the
-----------
duties and obligations of, the Servicer pursuant to the terms of this Agreement.
The Agent may, at any time following the occurrence of an Amortization Event,
designate as Servicer any Person to succeed AIL or any successor Servicer.

              (b) Without the prior written consent of the Agent and the
Required Financial Institutions, AIL shall not be permitted to delegate any of
its duties or responsibilities as Servicer to any Person other than, with
respect to certain Charged-Off Receivables, outside

                                      22
<PAGE>

collection agencies in accordance with its customary practices. If at any time
the Agent shall designate as Servicer any Person other than AIL, all duties and
responsibilities theretofore delegated by AIL to a subservicer may, at the
discretion of the Agent, be terminated forthwith on notice given by the Agent to
AIL and to Seller.

              (c) Notwithstanding the foregoing subsection (b), (i) AIL shall be
and remain primarily liable to the Agent and the Purchasers for the full and
prompt performance of all duties and responsibilities of the Servicer hereunder
and (ii) the Agent and the Purchasers shall be entitled to deal exclusively with
AIL in matters relating to the discharge by the Servicer of its duties and
responsibilities hereunder. The Agent and the Purchasers shall not be required
to give notice, demand or other communication to any Person other than AIL in
order for communication to the Servicer and its sub-servicer or other delegate
with respect thereto to be accomplished. AIL, at all times that it is the
Servicer, shall be responsible for providing any sub-servicer or other delegate
of the Servicer with any notice given to the Servicer under this Agreement.

      Section 8.2 Duties of Servicer.  (a)  The Servicer shall take or
                  ------------------
cause to be taken all such actions as may be necessary or advisable to collect
each Receivable from time to time, all in accordance with applicable laws, rules
and regulations, with reasonable care and diligence, and in accordance with the
Credit and Collection Policy.

              (b) The Servicer will handle all Collections in a manner
consistent with the terms hereof and as the Agent may otherwise reasonably
request. The Servicer shall, if requested by the Agent at any time following the
occurrence of an Amortization Event, (i) establish such accounts as the Agent
may reasonably request for the remittance of Collections and the remittance of
premiums on Insurance Products in respect of which a Receivable shall have
arisen as an advance on the commissions payable in connection with such
Insurance Product, and (ii) thereafter instruct each Obligor to make payments on
Receivables directly to such accounts.

              (c) The Servicer shall administer the Collections in accordance
with the procedures described herein and in Article II. The Servicer shall set
                                            ----------
aside and hold in trust for the account of Seller and the Purchasers their
respective shares of the Collections of Receivables in accordance with Article
                                                                       -------
II. The Servicer shall, upon the request of the Agent at any time, segregate, in
--
a manner acceptable to the Agent, all cash, checks and other instruments
received by it from time to time constituting Collections from the general funds
of the Servicer or Seller prior to the remittance thereof in accordance with
Article II.  If the Servicer shall be required to segregate Collections pursuant
-------
to the preceding sentence, the Servicer shall segregate and deposit with a bank
designated by the Agent such allocable share of Collections of Receivables set
aside for the Purchasers on the first Business Day following receipt by the
Servicer of such Collections, duly endorsed or with duly executed instruments of
transfer.

              (d) The Servicer shall not extend the maturity of any Receivable
or adjust the Outstanding Balance of any Receivable other than in accordance
with the Credit and Collection Policy. The Servicer shall have the absolute and
unlimited right to commence or

                                      23
<PAGE>

settle any legal action with respect to any Receivable or to foreclose upon or
repossess any Related Security.

                   (e) The Servicer shall hold in trust for Seller and the
Purchasers all Records that (i) evidence or relate to the Receivables, the
related Contracts and Related Security or (ii) are otherwise necessary or
desirable to collect the Receivables and shall, as soon as practicable upon
demand of the Agent at any time, deliver or make available to the Agent all such
Records, at a place selected by the Agent. The Servicer shall, as soon as
practicable following receipt thereof turn over to Seller any cash collections
or other cash proceeds received with respect to Indebtedness not constituting
Receivables. The Servicer shall, from time to time at the reasonable request of
the Agent, furnish to the Agent (as promptly as possible after any such request)
a calculation of the amounts set aside for the Purchasers pursuant to Article
                                                                      -------
II.
--

                   (f) Any payment (i) by an Obligor in respect of any
indebtedness owed by it to AIL or Seller or (ii) constituting a premium on an
Insurance Product in respect of which an advance giving rise to a Receivable
shall have been made in anticipation of the receipt of such premium, shall,
except as otherwise specified by such Obligor or Policy Holder or as otherwise
required by contract or law, and unless otherwise instructed by the Agent, be
applied as a Collection of any Receivable of the related Obligor (starting with
the oldest such Receivable) to the extent of any amounts then due and payable
thereunder before being applied to any other receivable or other obligation.

          Section 8.3  Collection Rights.  Seller hereby authorizes the Agent,
                       -----------------
and agrees that the Agent shall be entitled to (i) endorse Seller's name on
checks and other instruments representing Collections, (ii) enforce the
Receivables, the related Contracts and the Related Security and (iii) take such
action as shall be necessary or desirable to cause all cash, checks and other
instruments constituting Collections of Receivables to come into the possession
of the Agent rather than Seller.

          Section 8.4  Responsibilities of Seller.  Anything herein to the
                       --------------------------
contrary notwithstanding, the exercise by the Agent and the Purchasers of their
rights hereunder shall not release the Servicer, AIL or Seller from any of their
duties or obligations with respect to any Receivables or under the related
Contracts.  The Purchasers shall have no obligation or liability with respect to
any Receivables or related Contracts, nor shall any of them be obligated to
perform the obligations of Seller.

          Section 8.5  Reports.  The Servicer shall prepare and forward to the
                       -------
Agent (i) on the 10th day of each month (or, if such day is not a Business Day,
the next following day that is a Business Day) and at such other times as the
Agent shall reasonably request, a Monthly Report, which Monthly Report shall set
forth the relevant information in respect of the calendar month then most
recently ended, and (ii) at such times as the Agent shall reasonably request, a
listing by Obligor of all Receivables.

          Section 8.6  Servicing Fees.  In consideration of AIL's agreement to
                       --------------
act as Servicer hereunder, Seller hereby agrees that, so long as AIL shall
continue to perform as

                                      24
<PAGE>

Servicer hereunder, Seller shall pay AIL a fee (the "Servicing Fee") equal to
                                                     -------------
1/2 of 1% per annum of the average aggregate amount of outstanding Capital as
compensation for its servicing activities, which fee shall be payable monthly,
in arrears, on each Settlement Date in respect of the calendar month then most
recently ended. From and after the replacement of AIL as Servicer hereunder,
Seller shall pay all reasonable fees and expenses of the Person then acting as
Servicer hereunder, such fees and expenses to be paid on each Settlement Date or
at such other times as shall be acceptable to the Agent.

                                   ARTICLE IX
                              AMORTIZATION EVENTS

          Section 9.1  Amortization Events.  The occurrence of any one or more
                       -------------------
of the following events shall constitute an Amortization Event:

          (a)  Any of the following shall occur:

               (i)   any Seller Party shall fail to make any payment or deposit
          required hereunder when due; or

               (ii)  the Servicer shall fail to perform or observe any term,
          covenant or agreement hereunder (other than as referred to in clause
          (i) above) and such failure shall continue for five (5) consecutive
          Business Days; or

               (iii) Seller shall fail to perform or observe any term, covenant
          or agreement set forth in Section 7.1(b)(i), Section 7.1(h), Section
                                    -----------------  --------------  -------
          7.1(i)(L), (M) or (P), Section 7.1(l) or Section 7.2 and such failure
          ---------  ---    ---  --------------    -----------
          shall continue for three (3) consecutive Business Days; or

               (iv)  Seller shall fail to perform or observe any term, covenant
          or agreement hereunder (other than as referred to in any of the
          foregoing clauses) and such failure shall  continue for fifteen (15)
          consecutive days.

          (b)  Any representation, warranty, certification or statement made by
any Torchmark Entity in this Agreement, any other Transaction Document or in any
other document delivered pursuant hereto or thereto shall prove to have been
incorrect in any material respect when made or deemed made.

          (c)  Any of the following shall occur:

               (i)   the failure of Seller to pay any Indebtedness when due; or
          the default by Seller in the performance of any term, provision or
          conditions contained in any agreement under which any Indebtedness was
          created or is governed, or any other event shall occur or condition
          exist, the effect of which is to cause, or to permit the holder or
          holders of such Indebtedness to cause, such Indebtedness to become due
          prior to its stated maturity; or any Indebtedness of Seller shall be
          declared to

                                      25
<PAGE>

          be due and payable or required to be prepaid (other than by a
          regularly scheduled payment) prior to the stated maturity thereof; or

               (ii)  the failure of Torchmark or any of its Subsidiaries
          (including AIL) to pay when due any Indebtedness in excess of, singly
          or in the aggregate for all such Subsidiaries, $10,000,000; or the
          default by Torchmark or any of such Subsidiaries in the performance of
          any term, provision or conditions contained in any agreement under
          which any such Indebtedness was created or is governed, or any other
          event shall occur or condition exist, the effect of which is to cause,
          or to permit the holder or holders of such Indebtedness to cause, such
          Indebtedness to become due prior to its stated maturity; or any such
          Indebtedness of Torchmark or any such Subsidiary shall be declared to
          be due and payable or required to be prepaid (other than by a
          regularly scheduled payment) prior to the stated maturity thereof; or

               (iii) any event or condition shall have occurred or exist which
          would constitute a default under the Torchmark Credit Agreement (the
          terms of which are incorporated herein by this reference thereto, and
          shall remain in effect for purposes of this Agreement at all times
          during the term of this Agreement without regard to whether the
          Torchmark Credit Agreement shall then be in effect).

          (d)  (i)  Any Torchmark Entity shall generally not pay its debts as
such debts become due or shall admit in writing its inability to pay its debts
generally or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against any Torchmark Entity seeking to
adjudicate it bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, receivership, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee or other similar official for
it or any substantial part of its property or (ii) any Torchmark Entity shall
take any corporate action to authorize any of the actions set forth in clause
(i) above in this subsection (d).

          (e)  The aggregate Purchaser Interests shall exceed 100% and shall
continue as such until the earliest to occur of (i) five (5) Business Days
following the date any Seller Party has actual knowledge thereof, (ii) two (2)
Business Days after demand in respect thereof shall have been made under the
Performance Guaranty and (iii) the next Settlement Date.

          (f)  A Change of Control shall occur.

          (g)  One or more final judgments for the payment of money shall be
entered against (i) Seller, (ii) AIL, in excess of $10,000,000 singly or in the
aggregate, or (iii) Torchmark, in excess of $25,000,000 singly or in the
aggregate, in each case on claims not covered by insurance or as to which the
insurance carrier has denied its responsibility, and such judgment shall
continue unsatisfied and in effect for fifteen (15) consecutive days without
being

                                      26
<PAGE>

stayed on appeal or otherwise being appropriately contested in good faith by
such Torchmark Entity.

          (h) An "Amortization Event" shall for any reason occur under and as
                  ------------------
defined in the Receivables Sale Agreement, or AIL shall for any reason cease to
transfer, or cease to have the legal capacity to transfer, or otherwise be
incapable of transferring Receivables  under the Receivables Sale Agreement.

          (i) Any Transaction Document shall terminate in whole or in part
(except in accordance with its terms), or shall cease to be effective or to be
the legally valid, binding and enforceable obligation of Seller, AIL, Torchmark
or the Servicer, as applicable; or any Torchmark Entity, or Obligors in respect
of more than 10% of the Net Receivables Balance, shall directly or indirectly
contest in any manner such effectiveness, validity, binding nature or
enforceability; or the Agent for the benefit of the Purchasers shall cease to
have a valid and perfected first priority security interest in the Receivables,
the Related Security and the Collections with respect thereto.

          (j) At any time, with respect to AIL, a Regulatory Action Level Event
shall occur.

          (k) At any time, with respect to AIL, a Regulatory Control Event shall
occur.

          (l) AIL shall assert the invalidity or unenforceability of any term
or provision relating to the subordination in right of payment of any
indebtedness owing to AIL by Seller to the indebtedness and obligations owing to
the Purchasers and the Agent by Seller.

          (m) Torchmark shall assert the invalidity or unenforceability of any
term or provision of the Performance Guaranty, or shall at any time default in
the payment or performance of any of its obligations thereunder.

          Section 9.2  Remedies.  Upon the occurrence and during the
                       --------
continuation of an Amortization Event, the Agent may, or upon the direction of
the Required Financial Institutions shall, take any of the following actions:
(i) replace the Person then acting as Servicer, (ii) declare the Amortization
Date to have occurred, whereupon the Amortization Date shall forthwith occur,
without demand, protest or further notice of any kind, all of which are hereby
expressly waived by each Seller Party; provided, however, that upon the
                                       --------
occurrence of an Amortization Event described in Section 9.1(d), or of an actual
                                                 --------------
or deemed entry of an order for relief with respect to any Seller Party under
the Federal Bankruptcy Code, the Amortization Date shall automatically occur,
without demand, protest or any notice of any kind, all of which are hereby
expressly waived by each Seller Party, and (iii) to the fullest extent permitted
by applicable law, declare that the Default Fee shall accrue with respect to any
of the Aggregate Unpaids outstanding at such time. The aforementioned rights and
remedies shall be in addition to all other rights and remedies of the Agent and
the Purchasers available under this Agreement, by operation of law, at equity or
otherwise, all of which are hereby expressly reserved, including, without
limitation, all rights and remedies provided under the UCC, all of which rights
shall be cumulative.

                                      27
<PAGE>

                                   ARTICLE X
                                INDEMNIFICATION

          Section 10.1  Indemnities by the Seller Parties.  Without limiting
                        ---------------------------------
any other rights that the Agent or any Purchaser may have hereunder or under
applicable law, (A) Seller hereby agrees to indemnify the Agent and each
Purchaser and their respective assigns, officers, directors, agents and
employees (each an "Indemnified Party") from and against any and all damages,
                    -----------------
losses, claims, taxes, liabilities, costs, expenses and for all other amounts
payable, including reasonable attorneys' fees (which attorneys may be employees
of the Agent or such Purchaser) and disbursements (all of the foregoing being
collectively referred to as "Indemnified Amounts") awarded against or incurred
                             -------------------
by any of them arising out of or as a result of this Agreement or the
acquisition, either directly or indirectly, by a Purchaser of an interest in the
Receivables, and (B) the Servicer hereby agrees to indemnify each Indemnified
Party for Indemnified Amounts awarded against or incurred by any of them arising
out of the Servicer's activities as Servicer hereunder excluding, however, in
all of the foregoing instances under the preceding clauses (A) and (B):

               (i)   Indemnified Amounts to the extent a final judgment of a
     court of competent jurisdiction holds that such Indemnified Amounts
     resulted from gross negligence or willful misconduct on the part of the
     Indemnified Party seeking indemnification;

               (ii)  Indemnified Amounts to the extent the same includes losses
     in respect of Receivables that are uncollectible on account of the
     insolvency, bankruptcy or lack of creditworthiness of the related Obligor;
     or

               (iii) taxes imposed by the jurisdiction in which such
     Indemnified Party's principal executive office is located, on or measured
     by the overall net income of such Indemnified Party to the extent that the
     computation of such taxes is consistent with the characterization for
     income tax purposes of the acquisition by the Purchasers of Purchaser
     Interests as a loan or loans by the Purchasers to Seller secured by the
     Receivables, the Related Security and the Collections;

provided, however, that nothing contained in this sentence shall limit the
--------- --------
liability of any Seller Party or limit the recourse of the Purchasers to any
Seller Party for amounts otherwise specifically provided to be paid by such
Seller Party under the terms of this Agreement.  Without limiting the generality
of the foregoing indemnification, Seller shall indemnify the Agent and the
Purchasers for Indemnified Amounts (including, without limitation, losses in
respect of uncollectible receivables for matters specifically described below,
regardless of whether reimbursement therefor would constitute recourse to Seller
or the Servicer) relating to or resulting from:

               (i)   any representation or warranty made by any Torchmark Entity
     (or any officers of any such Person) under or in connection with this
     Agreement, any other

                                      28
<PAGE>

     Transaction Document or any other information or report delivered by any
     such Person pursuant hereto or thereto, which shall have been false or
     incorrect when made or deemed made;

               (ii)   the failure by any Torchmark Entity to comply with any
     applicable law, rule, regulation, agreement (including any confidentiality
     agreement), order, writ, judgment, injunction, decree or award, including
     with respect to any Receivable or Contract related thereto, or the
     nonconformity of any Receivable or Contract included therein with any such
     applicable law, rule or regulation or any failure of any Torchmark Entity
     to keep or perform any of its obligations, express or implied, with respect
     to any Contract;

               (iii)  any failure of any Torchmark Entity to perform its duties,
     covenants or other obligations in accordance with the provisions of this
     Agreement or any other Transaction Document;

               (iv)   any products liability or similar claim arising out of or
     in connection with merchandise, insurance or services that are the subject
     of any Contract;

               (v)    any dispute, claim, offset or defense (other than
     discharge in bankruptcy of the Obligor) of the Obligor to the payment of
     any Receivable (including, without limitation, a defense based on such
     Receivable or the related Contract not being a legal, valid and binding
     obligation of such Obligor enforceable against it in accordance with its
     terms), or any other claim resulting from the sale of the merchandise or
     service related to such Receivable or the furnishing or failure to furnish
     such merchandise or services;

               (vi)   the commingling of Collections of Receivables at any time
     with other funds;

               (vii)  any investigation, litigation or proceeding related to or
     arising from this Agreement or any other Transaction Document, the
     transactions contemplated hereby, the use of the proceeds of a purchase,
     the ownership of the Purchaser Interests or any other investigation,
     litigation or proceeding relating to any Torchmark Entity in which any
     Indemnified Party becomes involved as a result of any of the transactions
     contemplated hereby;

               (viii) any inability to litigate any claim against any Obligor
     in respect of any Receivable as a result of such Obligor being immune from
     civil and commercial law and suit on the grounds of sovereignty or
     otherwise from any legal action, suit or proceeding;

               (ix)   any Amortization Event described in Section 9.1(d);
                                                          ---------------

                                      29
<PAGE>

               (x)    any failure of Seller to acquire and maintain legal and
     equitable title to, and ownership of any Receivable and the Related
     Security and Collections with respect thereto, free and clear of any
     Adverse Claim (other than as created hereunder); or any failure of Seller
     to give reasonably equivalent value to AIL under the Receivables Sale
     Agreement in consideration of the transfer by AIL of any Receivable, or any
     attempt by any Person to void such transfer under statutory provisions or
     common law or equitable action;

               (xi)   any failure to vest and maintain vested in the Agent and
     the Purchasers, or to transfer to the Agent and the Purchasers, legal and
     equitable title to, and ownership of, a first priority undivided percentage
     ownership (to the extent of the Purchaser Interests contemplated hereunder)
     in the Receivables, the Related Security and the Collections, free and
     clear of any Adverse Claim;

               (xii)  the failure to have filed, or any delay in filing,
     financing statements or other similar instruments or documents under the
     UCC of any applicable jurisdiction or other applicable laws with respect to
     any Receivable, the Related Security and Collections with respect thereto,
     and the proceeds of any thereof, whether at the time of any Incremental
     Purchase or Reinvestment or at any subsequent time;

               (xiii) any action or omission by any Torchmark Entity which
     reduces or impairs the rights of the Agent or the Purchasers with respect
     to any Receivable or the value of any such Receivable;

               (xiv)  any action or omission by any Insurance Agent or any
     member of   an Agent-Hierarchy which (A) reduces or impairs the rights of
     the Agent or the Purchasers with respect to any Receivable or the value of
     any such Receivable and (B) does not entail the commencement by such
     Insurance Agent or member of any bankruptcy or insolvency proceeding or any
     other action or omission (including any failure to pay) by reason of the
     lack of creditworthiness or ability to pay on the part of such Insurance
     Agent or Agent-Hierarchy;

               (xv)   any attempt by any Person to void any Incremental Purchase
     or Reinvestment hereunder under statutory provisions or common law or
     equitable action; and

               (xvi)  the Year 2000 Problem.

        Section 10.2  Increased Cost and Reduced Return.  If after the date
                      ---------------------------------
hereof, any Funding Source shall be charged any fee, expense or increased cost
on account of the adoption of any applicable law, rule or regulation (including
any applicable law, rule or regulation regarding capital adequacy) or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency:  (i) that subjects any Funding Source to any
charge or withholding on or with respect to any Funding Agreement or a Funding
Source's obligations under a Funding Agreement, or on or with respect to the
Receivables, or changes the basis of taxation of payments to any Funding Source
of any

                                      30
<PAGE>

amounts payable under any Funding Agreement (except for changes in the rate of
tax on the overall net income of a Funding Source) or (ii) that imposes,
modifies or deems applicable any reserve, assessment, insurance charge, special
deposit or similar requirement against assets of, deposits with or for the
account of a Funding Source, or credit extended by a Funding Source pursuant to
a Funding Agreement or (iii) that imposes any other condition the result of
which is to increase the cost to a Funding Source of performing its obligations
under a Funding Agreement, or to reduce the rate of return on a Funding Source's
capital as a consequence of its obligations under a Funding Agreement, or to
reduce the amount of any sum received or receivable by a Funding Source under a
Funding Agreement or to require any payment calculated by reference to the
amount of interests or loans held or interest received by it, then, upon demand
by the Agent, Seller shall pay to the Agent, for the benefit of the relevant
Funding Source, such amounts charged to such Funding Source or compensate such
Funding Source for such reduction.

          Section 10.3  Other Costs and Expenses.  (a) Seller shall pay to the
                        ------------------------
Agent and PREFCO on demand all costs and out-of-pocket expenses in connection
with the preparation, execution, delivery and administration of the Transaction
Documents, the transactions contemplated hereby and the other documents to be
delivered hereunder, including without limitation, the cost (subject to Section
                                                                        -------
10.3(b) below) of PREFCO's auditors auditing the books, records and procedures
-------
of Seller, reasonable fees and out-of-pocket expenses of legal counsel for
PREFCO and the Agent (which such counsel may be employees of PREFCO or the
Agent) with respect thereto and with respect to advising PREFCO and the Agent as
to their respective rights and remedies under this Agreement.  Seller shall pay
to the Agent on demand any and all costs and expenses of the Agent and the
Purchasers, if any, including reasonable counsel fees and expenses in connection
with the enforcement of this Agreement and the other documents delivered
hereunder and in connection with any restructuring or workout of this Agreement
or such documents, or the administration of this Agreement following an
Amortization Event. Seller shall reimburse PREFCO on demand for all other costs
and expenses incurred by PREFCO ("Other Costs"), including, without limitation,
                                  -----------
the cost of auditing PREFCO's books by certified public accountants, the cost of
rating the Commercial Paper by independent financial rating agencies, and the
reasonable fees and out-of-pocket expenses of counsel for PREFCO or any counsel
for any shareholder of PREFCO with respect to advising PREFCO or such
shareholder as to matters relating to PREFCO's operations.

          (b) The cost and expense of an outside auditor at any time engaged by
the Agent or PREFCO to conduct an audit of the books, records and procedures of
Seller and the Torchmark Entities, whether pursuant to Section 7.1(d) hereof or
                                                       --------------
otherwise, shall be borne by Seller, and Seller shall promptly reimburse the
Agent therefor upon demand of the Agent.

          Section 10.4  Allocations.  PREFCO shall allocate the liability for
                        -----------
Other Costs among Seller and other Persons with whom PREFCO has entered into
agreements to purchase interests in receivables ("Other Sellers").  If any Other
                                                  -------------
Costs are attributable to Seller and not attributable to any Other Seller,
Seller shall be solely liable for such Other Costs.  However, if Other Costs are
attributable to Other Sellers and not attributable to Seller, such Other Sellers
shall be solely liable for such Other Costs.  All allocations to be made
pursuant to the foregoing

                                      31
<PAGE>

provisions of this Article X shall be made by PREFCO in its sole discretion and
                                              ------
shall be binding on Seller and the Servicer.

                                   ARTICLE XI
                                   THE AGENT

          Section 11.1  Authorization and Action.  Each Purchaser hereby
                        ------------------------
designates and appoints Bank One to act as its agent hereunder and under each
other Transaction Document, and authorizes the Agent to take such actions as
agent on its behalf and to exercise such powers as are delegated to the Agent by
the terms of this Agreement and the other Transaction Documents together with
such powers as are reasonably incidental thereto.  The Agent shall not have any
duties or responsibilities, except those expressly set forth herein or in any
other Transaction Document, or any fiduciary relationship with any Purchaser,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities on the part of the Agent shall be read into this Agreement or any
other Transaction Document or otherwise exist for the Agent.  In performing its
functions and duties hereunder and under the other Transaction Documents, the
Agent shall act solely as agent for the Purchasers and does not assume nor shall
be deemed to have assumed any obligation or relationship of trust or agency with
or for any Torchmark Entity or any of such Torchmark Entity's successors or
assigns.  The Agent shall not be required to take any action that exposes the
Agent to personal liability or that is contrary to this Agreement, any other
Transaction Document or applicable law.  The appointment and authority of the
Agent hereunder shall terminate upon the indefeasible payment in full of all
Aggregate Unpaids.  Each Purchaser hereby authorizes the Agent to execute each
of the Uniform Commercial Code financing statements on behalf of such Purchaser
(the terms of which shall be binding on such Purchaser).

          Section 11.2  Delegation of Duties.  The Agent may execute any of
                        --------------------
its duties under this Agreement and each other Transaction Document by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties.  The Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care.

          Section 11.3  Exculpatory Provisions.  Neither the Agent nor any of
                        ----------------------
its directors, officers, agents or employees shall be (i) liable for any action
lawfully taken or omitted to be taken by it or them under or in connection with
this Agreement or any other Transaction Document (except for its, their or such
Person's own gross negligence or willful misconduct), or (ii) responsible in any
manner to any of the Purchasers for any recitals, statements, representations or
warranties made by any Torchmark Entity contained in this Agreement, any other
Transaction Document or any certificate, report, statement or other document
referred to or provided for in, or received under or in connection with, this
Agreement, or any other Transaction Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, or
any other Transaction Document or any other document furnished in connection
herewith or therewith, or for any failure of any Torchmark Entity to perform its
obligations hereunder or thereunder, or for the satisfaction of any condition
specified in Article VI, or for the perfection, priority, condition, value or
             ----------
sufficiency of any collateral

                                      32
<PAGE>

pledged in connection herewith. The Agent shall not be under any obligation to
any Purchaser to ascertain or to inquire as to the observance or performance of
any of the agreements or covenants contained in, or conditions of, this
Agreement or any other Transaction Document, or to inspect the properties, books
or records of the Torchmark Entities. The Agent shall not be deemed to have
knowledge of any Amortization Event or Potential Amortization Event unless the
Agent has received notice from Seller or a Purchaser.

          Section 11.4  Reliance by Agent.  The Agent shall in all cases be
                        -----------------
entitled to rely, and shall be fully protected in relying, upon any document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel, independent accountants and other experts selected by the Agent.
The Agent shall in all cases be fully justified in failing or refusing to take
any action under this Agreement or any other Transaction  Document unless it
shall first receive such advice or concurrence of PREFCO or the Required
Financial Institutions or all of the Purchasers, as applicable, as it deems
appropriate and it shall first be indemnified to its satisfaction by the
Purchasers, provided that unless and until the Agent shall have received such
            --------
advice, the Agent may take or refrain from taking any action, as the Agent shall
deem advisable and in the best interests of the Purchasers.  The Agent shall in
all cases be fully protected in acting, or in refraining from acting, in
accordance with a request of PREFCO or the Required Financial Institutions or
all of the Purchasers, as applicable, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Purchasers.

          Section 11.5  Non-Reliance on Agent and Other Purchasers.  Each
                        ------------------------------------------
Purchaser expressly acknowledges that neither the Agent, nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates has made
any representations or warranties to it and that no act by the Agent hereafter
taken, including, without limitation, any review of the affairs of any Seller
Party, shall be deemed to constitute any representation or warranty by the
Agent.  Each Purchaser represents and warrants to the Agent that it has and
will, independently and without reliance upon the Agent or any other Purchaser
and based on such documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business, operations, property,
prospects, financial and other conditions and creditworthiness of Seller and
made its own decision to enter into this Agreement, the other Transaction
Documents and all other documents related hereto or thereto.

          Section 11.6  Reimbursement and Indemnification.  The Financial
                        ---------------------------------
Institutions agree to reimburse and indemnify the Agent and its officers,
directors, employees, representatives and agents ratably according to their Pro
Rata Shares, to the extent not paid or reimbursed by the Seller Parties (i) for
any amounts for which the Agent, acting in its capacity as Agent, is entitled to
reimbursement by the Seller Parties hereunder and (ii) for any other expenses
incurred by the Agent, in its capacity as Agent and acting on behalf of the
Purchasers, in connection with the administration and enforcement of this
Agreement and the other Transaction Documents.

          Section 11.7  Agent in its Individual Capacity.  The Agent and its
                        --------------------------------
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with any

                                      33
<PAGE>

Torchmark Entity or any Affiliate thereof as though the Agent were not the Agent
hereunder. With respect to the acquisition of Purchaser Interests pursuant to
this Agreement, the Agent shall have the same rights and powers under this
Agreement in its individual capacity as any Purchaser and may exercise the same
as though it were not the Agent, and the terms "Financial Institution,"
                                                ---------------------
"Purchaser," "Financial Institutions" and "Purchasers" shall include the Agent
 ----------   ----------------------       ----------
in its individual capacity.

          Section 11.8  Successor Agent.  The Agent may, upon five days'
                        ---------------
notice to Seller and the Purchasers, and the Agent will, upon the direction of
all of the Purchasers (other than the Agent, in its individual capacity) resign
as Agent.  If the Agent shall resign, then the Required Financial Institutions
during such five-day period shall appoint from among the Purchasers a successor
agent.  If for any reason no successor Agent is appointed by the Required
Financial Institutions during such five-day period, then effective upon the
termination of such five day period, the Purchasers shall perform all of the
duties of the Agent hereunder and under the other Transaction Documents and
Seller and the Servicer (as applicable) shall make all payments in respect of
the Aggregate Unpaids directly to the applicable Purchasers and for all purposes
shall deal directly with the Purchasers.  After the effectiveness of any
retiring Agent's resignation hereunder as Agent, the retiring Agent shall be
discharged from its duties and obligations hereunder and under the other
Transaction Documents and the provisions of this Article XI and Article X shall
                                                 ----------     ---------
continue in effect for its benefit with respect to any actions taken or omitted
to be taken by it while it was Agent under this Agreement and under the other
Transaction Documents.

                                  ARTICLE XII
                          ASSIGNMENTS; PARTICIPATIONS

          Section 12.1  Assignments.  (a)  Seller and each Financial Institution
                        -----------
hereby agree and consent to the complete or partial assignment by PREFCO of all
or any portion of its rights under, interest in, title to and obligations under
this Agreement to the Financial Institutions pursuant to Section 13.1 or to any
                                                         ------------
other Person, and upon such assignment, PREFCO shall be released from its
obligations so assigned. Further, Seller and each Financial Institution hereby
agree that any assignee of PREFCO of this Agreement or all or any of the
Purchaser Interests of PREFCO shall have all of the rights and benefits under
this Agreement as if the term "PREFCO" explicitly referred to such party, and no
                               ------
such assignment shall in any way impair the rights and benefits of PREFCO
hereunder. Neither the Seller nor the Servicer shall have the right to assign
its rights or obligations under this Agreement.

               (b)  Any Financial Institution may at any time and from time to
time assign to one or more Persons ("Purchasing Financial Institutions") all or
                                     ---------------------------------
any part of its rights and obligations under this Agreement pursuant to an
assignment agreement, substantially in the form set forth in Exhibit V hereto
                                                             ---------
(the "Assignment Agreement") executed by such Purchasing Financial Institution
      --------------------
and such selling Financial Institution.  The consent of PREFCO shall be required
prior to the effectiveness of any such assignment.  Each assignee of a Financial
Institution must have a short-term debt rating of A-1 or better by Standard &
Poor's Ratings Group and P-1 by Moody's Investor Service, Inc. and must agree to
deliver to the Agent, promptly following any request therefor by the Agent or
PREFCO, an enforceability opinion in

                                      34
<PAGE>

form and substance satisfactory to the Agent and PREFCO. Upon delivery of the
executed Assignment Agreement to the Agent, such selling Financial Institution
shall be released from its obligations hereunder to the extent of such
assignment. Thereafter the Purchasing Financial Institution shall for all
purposes be a Financial Institution party to this Agreement and shall have all
the rights and obligations of a Financial Institution under this Agreement to
the same extent as if it were an original party hereto and no further consent or
action by Seller, the Purchasers or the Agent shall be required.

          (c)  Each of the Financial Institutions agrees that in the event that
it shall cease to have a short-term debt rating of A-1 or better by Standard &
Poor's Ratings Group and P-1 by Moody's Investor Service, Inc. (an "Affected
                                                                    --------
Financial Institution"), such Affected Financial Institution shall be obliged,
---------------------
at the request of PREFCO or the Agent, to assign all of its rights and
obligations hereunder to (x) another Financial Institution or (y) another
funding entity nominated by the Agent and acceptable to PREFCO, and willing to
participate in this Agreement through the Liquidity Termination Date in the
place of such Affected Financial Institution; provided that the Affected
                                              --------
Financial Institution receives payment in full, pursuant to an Assignment
Agreement, of an amount equal to such Financial Institution's Pro Rata Share of
the Capital and Yield owing to the Financial Institutions and all accrued but
unpaid fees and other costs and expenses payable in respect of its Pro Rata
Share of the Purchaser Interests of the Financial Institutions.

       Section 12.2  Participations.  Any Financial Institution may, in the
                     --------------
ordinary course of its business at any time sell to one or more Persons (each a
"Participant") participating interests in its Pro Rata Share of the Purchaser
 -----------
Interests of the Financial Institutions, its obligation to pay PREFCO its
Acquisition Amounts or any other interest of such Financial Institution
hereunder.  Notwithstanding any such sale by a Financial Institution of a
participating interest to a Participant, such Financial Institution's rights and
obligations under this Agreement shall remain unchanged, such Financial
Institution shall remain solely responsible for the performance of its
obligations hereunder, and Seller, PREFCO and the Agent shall continue to deal
solely and directly with such Financial Institution in connection with such
Financial Institution's rights and obligations under this Agreement.  Each
Financial Institution agrees that any agreement between such Financial
Institution and any such Participant in respect of such participating interest
shall not restrict such Financial Institution's right to agree to any amendment,
supplement, waiver or modification to this Agreement, except for any amendment,
supplement, waiver or modification described in Section 14.1(b)(i).
                                                ------------------

                                  ARTICLE XIII
                               LIQUIDITY FACILITY

       Section 13.1  Transfer to Financial Institutions.  Each Financial
                     ----------------------------------
Institution hereby agrees, subject to Section 13.4, that immediately upon
                                      ------------
written notice from PREFCO delivered on or prior to the Liquidity Termination
Date, it shall acquire by assignment from PREFCO, without recourse or warranty,
its Pro Rata Share of one or more of the Purchaser Interests of PREFCO as
specified by PREFCO.  Each such assignment by PREFCO shall be made pro rata
among the Financial Institutions, provided, however, that PREFCO may at any
                                  --------  -------

                                      35
<PAGE>

time and from time to time, in its sole and absolute discretion, make any such
assignment to any Affected Financial Institution on a non-pro rata basis.  Each
Financial Institution shall, no later than 1:00 p.m. (Chicago time) on the date
of such assignment, pay in immediately available funds to the Agent at an
account designated by the Agent, for the benefit of PREFCO, its Acquisition
Amount.  Unless a Financial Institution has notified the Agent that it does not
intend to pay its Acquisition Amount, the Agent may assume that such payment has
been made and may, but shall not be obligated to, make the amount of such
payment available to PREFCO in reliance upon such assumption.  PREFCO hereby
sells and assigns to the Agent for the ratable benefit of the Financial
Institutions, and the Agent hereby purchases and assumes from PREFCO, effective
upon the receipt by PREFCO of the PREFCO Transfer Price, the Purchaser Interests
of PREFCO which are the subject of any transfer pursuant to this Article XIII.
                                                                 ------------

          Section 13.2  Transfer Price Reduction Yield.  If the Adjusted
                        ------------------------------
Liquidity Price is included in the calculation of the PREFCO Transfer Price for
any Purchaser Interest, each Financial Institution agrees that the Agent shall
pay to PREFCO the Reduction Percentage of any Yield received by the Agent with
respect to such Purchaser Interest.

          Section 13.3  Payments to PREFCO.  In consideration for the reduction
                        ------------------
of the PREFCO Transfer Prices by the PREFCO Transfer Price Reductions, effective
only at such time as the aggregate amount of the Capital of the Purchaser
Interests of the Financial Institutions equals the PREFCO Residual, each
Financial Institution hereby agrees that the Agent shall not distribute to the
Financial Institutions and shall immediately remit to PREFCO any Yield,
Collections or other payments received by it to be applied pursuant to the terms
hereof or otherwise to reduce the Capital of the Purchaser Interests of the
Financial Institutions.

          Section 13.4  Limitation on Commitment to Purchase from PREFCO.
                        ------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, no Financial
Institution shall have any obligation to purchase any Purchaser Interest from
PREFCO, pursuant to Section 13.1 or otherwise,  if:
                    ------------

                        (i)   PREFCO shall have voluntarily commenced any
          proceeding or filed any petition under any bankruptcy, insolvency or
          similar law seeking the dissolution, liquidation or reorganization of
          PREFCO or taken any corporate action for the purpose of effectuating
          any of the foregoing; or

                        (ii)  involuntary proceedings or an involuntary petition
          shall have been commenced or filed against PREFCO by any Person under
          any bankruptcy, insolvency or similar law seeking the dissolution,
          liquidation or reorganization of PREFCO and such proceeding or
          petition shall have not been dismissed.

          Section 13.5  Defaulting Financial Institutions.  If one or more
                        ---------------------------------
Financial Institutions defaults in its obligation to pay its Acquisition Amount
pursuant to Section 13.1 (each such Financial Institution shall be called a
            ------------
"Defaulting Financial Institution" and the aggregate amount of such defaulted
---------------------------------
obligations being herein called the "PREFCO Transfer Price Deficit"), then upon
                                     -----------------------------
notice from the Agent, each Financial Institution other than the Defaulting

                                      36
<PAGE>

Financial Institutions (a "Non-Defaulting Financial Institution") shall promptly
                           ------------------------------------
pay to the Agent, in immediately available funds, an amount equal to the lesser
of (x) such Non-Defaulting Financial Institution's proportionate share (based
upon the relative Commitments of the Non-Defaulting Financial Institutions) of
the PREFCO Transfer Price Deficit and (y) the unused portion of such Non-
Defaulting Financial Institution's Commitment.  A Defaulting Financial
Institution shall forthwith upon demand pay to the Agent for the account of the
Non-Defaulting Financial Institutions all amounts paid by each Non-Defaulting
Financial Institution on behalf of such Defaulting Financial Institution,
together with interest thereon, for each day from the date a payment was made by
a Non-Defaulting Financial Institution until the date such Non-Defaulting
Financial Institution has been paid such amounts in full, at a rate per annum
equal to the Federal Funds Effective Rate plus two percent (2%).  In addition,
without prejudice to any other rights that PREFCO may have under applicable law,
each Defaulting Financial Institution shall pay to PREFCO forthwith upon demand,
the difference between such Defaulting Financial Institution's unpaid
Acquisition Amount and the amount paid with respect thereto by the Non-
Defaulting Financial Institutions, together with interest thereon, for each day
from the date of the Agent's request for such Defaulting Financial Institution's
Acquisition Amount pursuant to Section 13.1 until the date the requisite amount
                               ------------
is paid to PREFCO in full, at a rate per annum equal to the Federal Funds
Effective Rate plus two percent (2%).

                                  ARTICLE XIV
                                 MISCELLANEOUS

          Section 14.1  Waivers and Amendments.  (a)  No failure or delay on
                        ----------------------
the part of the Agent or any Purchaser in exercising any power, right or remedy
under this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or remedy preclude any other further
exercise thereof or the exercise of any other power, right or remedy.  The
rights and remedies herein provided shall be cumulative and nonexclusive of any
rights or remedies provided by law.  Any waiver of this Agreement shall be
effective only in the specific instance and for the specific purpose for which
given.

                   (b)  No provision of this Agreement may be amended,
supplemented, modified or waived except in writing in accordance with the
provisions of this Section 14.1(b).  PREFCO, Seller, the Servicer and the Agent,
                   ---------------
at the direction of the Required Financial Institutions, may enter into written
modifications or waivers of any provisions of this Agreement, provided, however,
                                                              --------  -------
that no such modification or waiver shall:

                        (i)  without the consent of each affected Purchaser, (A)
          extend the Liquidity Termination Date or the date of any payment or
          deposit of Collections by Seller or the Servicer, (B) reduce the rate
          or extend the time of payment of Yield (or any component thereof), (C)
          reduce any fee payable to the Agent for the benefit of the Purchasers,
          (D) except pursuant to Article XII hereof, change the amount of the
                                 -----------
          Capital of any Purchaser, any Financial Institution's Pro Rata Share
          (except pursuant to Sections 13.1 or 13.5) or any Financial
                              -------------    ----
          Institution's Commitment, (E) amend, modify or waive any provision of
          the definition of Required Financial Institutions or this Section
                                                                    -------
          14.1(b), (F) consent to or permit
          -------

                                      37
<PAGE>

          the assignment or transfer by Seller of any of its rights and
          obligations under this Agreement, (G) change the definition of
          "Eligible Receivable,"or (H) amend or modify any defined term (or any
           -------------------
          defined term used directly or indirectly in such defined term) used in
          clauses (A) through (G) above in a manner that would circumvent the
          intention of the restrictions set forth in such clauses; or

                    (ii)  without the written consent of the then Agent, amend,
          modify or waive any provision of this Agreement if the effect thereof
          is to affect the rights or duties of such Agent; or

                    (iii) without the written consent of the Servicer, amend,
          modify or waive any provision of this Agreement  if the effect thereof
          is to affect the rights or duties of the Servicer.

Notwithstanding the foregoing, without the consent of the Financial
Institutions, the Agent may, with the consent of Seller, amend this Agreement
solely to add additional Persons as Financial Institutions hereunder.  Any
modification or waiver made in accordance with this Section 14.1 shall apply to
                                                    ------------
each of the Purchasers equally and shall be binding upon Seller, the Purchasers,
the Servicer and the Agent.

          Section 14.2  Notices.  Except as provided below, all communications
                        -------
and notices provided for hereunder shall be in writing (including bank wire,
telecopy or electronic facsimile transmission or similar writing) and shall be
given to the other parties hereto at their respective addresses or telecopy
numbers set forth on the signature pages hereof or at such other address or
telecopy number as such Person may hereafter specify for the purpose of notice
to each of the other parties hereto.  Each such notice or other communication
shall be effective (i) if given by telecopy, upon the receipt thereof, (ii) if
given by mail, three (3) Business Days after the time such communication is
deposited in the mail with first class postage prepaid or (iii) if given by any
other means, when received at the address specified in this Section 14.2.
                                                            ------------
Seller hereby authorizes the Agent to effect purchases and Tranche Period and
Discount Rate selections based on telephonic notices made by any Person whom the
Agent in good faith believes to be acting on behalf of Seller.  Seller agrees to
deliver promptly to the Agent a written confirmation of each telephonic notice
signed by an authorized officer of Seller; however, the absence of such
confirmation shall not affect the validity of such notice.  If the written
confirmation differs from the action taken by the Agent, the records of the
Agent shall govern absent manifest error.

          Section 14.3  Ratable Payments.  If any Purchaser, whether by setoff
                        ----------------
or otherwise, has payment made to it with respect to any portion of the
Aggregate Unpaids owing to such Purchaser (other than payments received pursuant
to Section 10.2 or 10.3) in a greater proportion than that received by any other
   ------------    ----
Purchaser entitled to receive a ratable share of such Aggregate Unpaids, such
Purchaser agrees, promptly upon demand, to purchase for cash without recourse or
warranty a portion of such Aggregate Unpaids held by the other Purchasers so
that after such purchase each Purchaser will hold its ratable proportion of such
Aggregate Unpaids; provided that if all or any portion of such excess amount is
thereafter recovered from such

                                      38
<PAGE>

Purchaser, such purchase shall be rescinded and the purchase price restored to
the extent of such recovery, but without interest.

          Section 14.4  Protection of Ownership Interests of the Purchasers.
                        ---------------------------------------------------
(a)  Seller agrees that from time to time, at its expense, it will promptly
execute and deliver all instruments and documents, and take all actions, that
may be reasonably necessary or desirable, or that the Agent may request, to
perfect, protect or more fully evidence the Purchaser Interests, or to enable
the Agent or the Purchasers to exercise and enforce their rights and remedies
hereunder.  At any time, the Agent may, or the Agent may direct Seller or the
Servicer to, notify the Obligors (including Obligors that are guarantors) of
Receivables, at Seller's expense, of the ownership interests of the Purchasers
under this Agreement and may also direct that payments of all amounts due or
that become due under any or all Receivables be made directly to the Agent or
its designee.   Seller or the Servicer (as applicable) shall, at any Purchaser's
request, withhold the identity of such Purchaser in any such notification.

               (b)      If any Seller Party fails to perform any of its
obligations hereunder, the Agent or any Purchaser may (but shall not be required
to) perform, or cause performance of, such obligation, and the Agent's or such
Purchaser's costs and expenses incurred in connection therewith shall be payable
by Seller as provided in Section 10.3.  Each Seller Party irrevocably authorizes
                         ------------
the Agent at any time and from time to time in the sole discretion of the Agent,
and appoints the Agent as its attorney-in-fact, to act on behalf of such Seller
Party (i) to execute on behalf of Seller as debtor and to file financing
statements necessary or desirable in the Agent's sole discretion to perfect and
to maintain the perfection and priority of the interest of the Purchasers in the
Receivables and (ii) to file a carbon, photographic or other reproduction of
this Agreement or any financing statement with respect to the Receivables as a
financing statement in such offices as the Agent in its sole discretion deems
necessary or desirable to perfect and to maintain the perfection and priority of
the interests of the Purchasers in the Receivables.  This appointment is coupled
with an interest and is irrevocable.

          Section 14.5  Confidentiality.  (a)  Each Seller Party and each
                        ---------------
Purchaser shall maintain and shall cause each of its employees and officers to
maintain the confidentiality of this Agreement and the other confidential
proprietary information with respect to Seller, the Servicer and its Affiliates,
the Agent and PREFCO and their respective businesses obtained by it or them in
connection with the structuring, negotiating and execution of the transactions
contemplated herein, except that such Seller Party and such Purchaser and its
officers and employees may disclose (i) such information to such Seller Party's
and such Purchaser's external accountants and attorneys and as required by any
applicable law or order of any judicial or administrative proceeding, and (ii)
such information as relates to the off-balance sheet accounting treatment
intended by the transactions contemplated in the Transaction Documents to any
rating agency rating any Indebtedness or the claims-paying ability of any
Torchmark Entity.  In the event any rating agency that is rating any
Indebtedness or the claims-paying ability of any Torchmark Entity shall request
any additional information of the type the disclosure of which is restricted by
this Section 14.5(a), Seller may with the consent of the Agent (which consent
     ---------------
shall not be unreasonably withheld) disclose such information to such rating
agency.

                                      39
<PAGE>

               (b)      Anything herein to the contrary notwithstanding, each
Seller Party hereby consents to the disclosure of any nonpublic information with
respect to it (i) to the Agent, the Financial Institutions or PREFCO by each
other, (ii) by the Agent or the Purchasers to any prospective or actual assignee
or participant of any of them, (iii) by the Agent to any rating agency,
Commercial Paper dealer or provider of a surety, guaranty or credit or liquidity
enhancement to PREFCO or any entity organized for the purpose of purchasing, or
making loans secured by, financial assets for which Bank One acts as the
administrative agent and to any officers, directors, employees, outside
accountants and attorneys of any of the foregoing, (iv) to the extent the same
becomes available to the Agent or any Purchaser on a non-confidential basis from
a source other than another party hereto, or (v) to the extent necessary in
connection with any legal proceeding relating to the enforcement of any right of
the Agent or the Purchasers under the Transaction Documents. In addition, the
Purchasers and the Agent may disclose any such nonpublic information pursuant to
any law, rule, regulation, direction, subpoena, request or order of any
judicial, administrative or regulatory authority or proceedings (whether or not
having the force or effect of law).

          Section 14.6  Bankruptcy Petition.  Seller, the Servicer, the Agent
                        -------------------
and each Financial Institution hereby covenants and agrees that, prior to the
date that is one year and one day after the payment in full of all outstanding
senior Indebtedness of PREFCO, it will not institute against, or join any other
Person in instituting against, PREFCO any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceeding
under the laws of the United States or any state of the United States.

          Section 14.7  Limitation of Liability.  Except with respect to any
                        -----------------------
claim arising out of the willful misconduct or gross negligence of PREFCO, the
Agent or any Financial Institution, no claim may be made by any Seller Party or
any other Person against PREFCO, the Agent or any Financial Institution or their
respective Affiliates, directors, officers, employees, attorneys or agents for
any special, indirect, consequential or punitive damages in respect of any claim
for breach of contract or any other theory of liability arising out of or
related to the transactions contemplated by this Agreement, or any act, omission
or event occurring in connection therewith; and each Seller Party hereby waives,
releases, and agrees not to sue upon any claim for any such damages, whether or
not accrued and whether or not known or suspected to exist in its favor.

          Section 14.8  CHOICE OF LAW.  THIS AGREEMENT SHALL BE GOVERNED AND
                        -------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF
THE STATE OF ILLINOIS.

          Section 14.9  CONSENT TO JURISDICTION.  EACH SELLER PARTY HEREBY
                        -----------------------
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED
BY SUCH PERSON PURSUANT TO THIS AGREEMENT AND EACH SELLER PARTY HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY
BE

                                      40
<PAGE>

HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT
MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING
HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY PURCHASER TO BRING PROCEEDINGS
AGAINST ANY SELLER PARTY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL
PROCEEDING BY ANY SELLER PARTY AGAINST THE AGENT OR ANY PURCHASER OR ANY
AFFILIATE OF THE AGENT OR A PURCHASER INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT
OR ANY DOCUMENT EXECUTED BY SUCH SELLER PARTY PURSUANT TO THIS AGREEMENT SHALL
BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS.

          Section 14.10 WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES
                        --------------------
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, ANY DOCUMENT EXECUTED BY THE
SELLER PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR
THEREUNDER.

          Section 14.11 Integration; Binding Effect; Survival of Terms.
                        ----------------------------------------------

               (a)      This Agreement and the Fee Letter contain the final and
complete integration of all prior expressions by the parties hereto with respect
to the subject matter hereof and shall constitute the entire agreement among the
parties hereto with respect to the subject matter hereof superseding all prior
oral or written understandings.

               (b)      This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns (including any trustee in bankruptcy). This Agreement shall create and
constitute the continuing obligations of the parties hereto in accordance with
its terms and shall remain in full force and effect until terminated in
accordance with its terms; provided, however, that the rights and remedies with
                           --------  -------
respect to (i) any breach of any representation and warranty made by any Seller
Party pursuant to Article V, (ii) the indemnification and payment provisions of
                  ---------
Article X, and Sections 14.5 and 14.6 shall be continuing and shall survive any
---------      -------------     ----
termination of this Agreement.

          Section 14.12 Counterparts; Severability; Section References.  This
                        ----------------------------------------------
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which when taken together shall constitute one and
the same Agreement.  Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

                                      41
<PAGE>

Unless otherwise expressly indicated, all references herein to "Article,"
"Section," "Schedule" or "Exhibit" shall mean articles and sections of, and
schedules and exhibits to, this Agreement.

          Section 14.13 Bank One Roles.  Each of the Financial Institutions
                        --------------
acknowledges that Bank One acts, or may in the future act, (i) as administrative
agent for PREFCO, (ii) as issuing and paying agent for the Commercial Paper,
(iii) to provide credit or liquidity enhancement for the timely payment for the
Commercial Paper and (iv) to provide other services from time to time for PREFCO
(collectively, the "Bank One Roles").  Without limiting the generality of this
                    --------------
Section 14.13, each Financial Institution hereby acknowledges and consents to
-------------
any and all Bank One Roles and agrees that in connection with any Bank One Role,
Bank One  may take, or refrain from taking, any action that it, in its
discretion, deems appropriate, including, without limitation, in its role as
administrative agent for PREFCO, and the giving of notice to the Agent of a
mandatory purchase pursuant to Section 13.1.
                               ------------

          Section 14.14 Characterization.  (a) It is the intention of the
                        ----------------
parties hereto that each purchase of a Purchaser Interest hereunder shall
constitute and be treated as an absolute and irrevocable sale, which purchase
shall provide the applicable Purchaser with the full benefits of ownership of
the applicable Purchaser Interest. Except as specifically provided in this
Agreement, each sale of a Purchaser Interest hereunder is made without recourse
to Seller; provided, however, that (i) Seller shall be liable to each Purchaser
and the Agent for all representations, warranties and covenants made by Seller
pursuant to the terms of this Agreement, and (ii) such sale does not constitute
and is not intended to result in an assumption by any Purchaser or the Agent or
any assignee thereof of any obligation of Seller, AIL or any other person
arising in connection with the Receivables, the Related Security, or the related
Contracts, or any other obligations of Seller or AIL.

               (b)      In addition to any ownership interest which the Agent
may from time to time acquire pursuant hereto, the Seller hereby grants to the
Agent for the ratable benefit of the Purchasers a valid and perfected security
interest in all of Seller's right, title and interest in, to and under all
Receivables now existing or hereafter arising, the Collections, all Related
Security, all other rights and payments relating to such Receivables, all of
Seller's rights under the Receivables Sale Agreement and all proceeds of any of
the foregoing prior to all other liens on and security interests therein to
secure the prompt and complete payment of the Aggregate Unpaids. After an
Amortization Event, the Agent and the Purchasers shall have, in addition to the
rights and remedies that they may have under this Agreement, all other rights
and remedies provided to a secured creditor after default under the UCC and
other applicable law, which rights and remedies shall be cumulative.

                 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      42
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date hereof.

                              AILIC RECEIVABLES CORPORATION

                              By: ________________________________
                                  Name:
                                  Title:

                              Address:

                              3700 South Stonebridge Drive
                              McKinney, Texas  75070
                              FAX:  (972) 569-3282
                              Attention: Danny Almond

                              AMERICAN INCOME LIFE INSURANCE COMPANY,
                              as Servicer

                              By: ________________________________
                                  Name:
                                  Title:

                              Address:

                              1200 Wooded Acres
                              Waco, Texas  76710
                              FAX:  (205) 325-4157
                              Attention: Michael J. Klyce
                                         Vice President and Treasurer

                               Signature Page to
                        Receivables Purchase Agreement

                                      43
<PAGE>

                              PREFERRED RECEIVABLES FUNDING CORPORATION

                              By: ________________________________
                                  Name:
                                  Title:    Authorized Signatory

                              Address:   c/o Bank One, NA, as Agent
                                         Asset Backed Finance
                                         Suite IL1-0079, 1-19
                                         1 Bank One Plaza
                                         Chicago, Illinois  60670-0019

                              Fax:       (312) 732-1844

                              BANK ONE, NA, as a Financial Institution
                              and as Agent

                              By: ________________________________
                                  Name:
                                  Title:

                              Address:   Bank One, NA
                                         Asset Backed Finance
                                         Suite IL1-0079, 1-19
                                         1 Bank One Plaza
                                         Chicago, Illinois  60670-0019

                              Fax:       (312) 732-4487

                                      44
<PAGE>

                               Signature Page to
                        Receivables Purchase Agreement

                                      45
<PAGE>

                                   EXHIBIT I

                                  DEFINITIONS

     As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):

     "Accrual Period" means a period commencing on and including the 10th day of
      --------------
a calendar month and ending but excluding the 10th day of the following calendar
month; provided that (i) the initial Accrual Period hereunder shall be the
       --------
period from and including the date of the initial purchase hereunder to but
excluding the next date that is the 10th day of a calendar month and (ii) the
final Accrual Period hereunder shall end on the date the Aggregate Unpaids shall
be reduced to zero.

     "Acquisition Amount" means, on the date of any purchase from PREFCO of
      ------------------
Purchaser Interests pursuant to Section 13.1, (i) with respect to each Financial
                                ------------
Institution other than Bank One, the lesser of (a) such Financial Institution's
Pro Rata Share of the PREFCO Transfer Price and (b) such Financial Institution's
unused Commitment and (ii) with respect to Bank One, the difference between (a)
the PREFCO Transfer Price and (b) the aggregate amount payable by all other
Financial Institutions on such date pursuant to clause (i) above.

     "Adjusted Liquidity Price" means, in determining the PREFCO Transfer Price
      ------------------------
for any Purchaser Interest, an amount equal to

                           RI x [(i) DC + (ii) NDR ]
                                              -----
                                              1.025

where:

    RI   =  the undivided percentage interest evidenced by such Purchaser
            Interest.

    DC   =  the Deemed Collections.

    NDR  =  the Outstanding Balance of all Receivables other than Charged-Off
            Receivables.

Each of the foregoing shall be determined from the most recent Monthly Report
received from the Servicer.

     "Adverse Claim" means a lien, security interest, charge or encumbrance, or
      -------------
other right or claim in, of or on any Person's assets or properties in favor of
any other Person.

                                      46
<PAGE>

     "Affected Financial Institution" has the meaning specified in Section
      ------------------------------                               -------
12.1(c).
-------

     "Affiliate" means, with respect to any Person, any other Person directly or
      ---------
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person or any Subsidiary of such Person.  A Person shall be
deemed to control another Person if the controlling Person owns 10% or more of
any class of voting securities of the controlled Person or possesses, directly
or indirectly, the power to direct or cause the direction of the management or
policies of the controlled Person, whether through ownership of stock, by
contract or otherwise.

     "Agent" has the meaning set forth in the preamble to this Agreement.
      -----

     "Agent-Hierarchy" means, in reference to any Insurance Agent, such
      ---------------
Insurance Agent together with all other Persons (including the SGA thereof and
all managing general agents, general agents, supervisory agents, Insurance
Agents and similar professional relations) which, under existing arrangements
with such Insurance Agent, share directly or indirectly (i) in the proceeds of
any commissions payable to such Insurance Agent by AIL, including any amounts
paid or advanced that give rise to any Receivable, and (ii) in the obligations
and liabilities relating to any Receivable arising in connection with the
cancellation or termination of the underlying Insurance Product.

     "Aggregate Reduction" has the meaning specified in Section 1.3.
      -------------------                               -----------

     "Aggregate Unpaids" means, at any time, an amount equal to the sum of all
      -----------------
accrued and unpaid fees under the Fee Letter, CP Costs, Yield, Capital and all
other unpaid Obligations (whether due or accrued) at such time.

     "Agreement" means this Receivables Purchase Agreement, as it may be amended
      ---------
or modified and in effect from time to time.

     "AIL" has the meaning set forth in the preamble to this Agreement.
      ---

     "Amortization Date" means the earliest to occur of (i) the day on which any
      -----------------
of the conditions precedent set forth in Section 6.2 are not satisfied, (ii) the
                                         -----------
Business Day immediately prior to the occurrence of an Amortization Event set
forth in Section 9.1(d), (iii) the Business Day specified in a written notice
         --------------
from the Agent following the occurrence of any other Amortization Event, (iv)
the date which is 30 Business Days after the Agent's receipt of written notice
from Seller that it wishes to terminate the facility evidenced by this Agreement
and (v) March 31, 2000.

     "Amortization Event" has the meaning specified in Article IX.
      ------------------                               ----------

     "Assignment Agreement" has the meaning set forth in Section 12.1(b).
      --------------------                               --------------

                                      47
<PAGE>

     "Authorized Control Level Risk Based Capital" means the authorized control
      -------------------------------------------
level risk-based capital as determined in accordance with the risk-based capital
instructions adopted by the NAIC, as such instructions may be amended, modified,
supplemented or restated from time to time.  For reference purposes only, such
term is also defined in Section 27-1-36-4 of the Indiana Code.

     "Authorized Officer" shall mean, with respect to any Seller Party, its
      ------------------
respective president, corporate controller or chief financial officer.

     "Bank One" means Bank One, NA,  a national banking association having its
      --------
principal offices in Chicago, Illinois,  in its individual capacity and its
successors.

     "Base Rate" means a rate per annum equal to the corporate base rate, prime
      ---------
rate or base rate of interest, as applicable, announced by the Reference Bank
from time to time, changing when and as such rate changes.

     "Broken Funding Costs" means for any Purchaser Interest which: (i) has its
      --------------------
Capital reduced without compliance by the Seller with the notice requirements
hereunder or (ii) does not become subject to an Aggregate Reduction following
the delivery of any Reduction Notice or (iii) is assigned under Article XIII or
                                                                ------------
terminated prior to the date on which it was originally scheduled to end; an
amount equal to the excess, if any, of (A) the CP Costs or Yield (as applicable)
that would have accrued during the remainder of the Tranche Periods or the
tranche periods for Commercial Paper determined by the Agent to relate to such
Purchaser Interest (as applicable) subsequent to the date of such reduction or
termination (or in respect of clause (ii) above, the date such Aggregate
Reduction was designated to occur pursuant to the Reduction Notice) of the
Capital of such Purchaser Interest if such reduction, assignment or termination
had not occurred or such Reduction Notice had not been delivered, over (B) the
sum of (x) to the extent all or a portion of such Capital is allocated to
another Purchaser Interest, the amount of CP Costs or Yield actually accrued
during the remainder of such period on such Capital for the new Purchaser
Interest, and (y) to the extent such Capital is not allocated to another
Purchaser Interest, the income, if any, actually received during the remainder
of such period by the holder of such Purchaser Interest from investing the
portion of such Capital not so allocated.  In the event that the amount referred
to in clause (B) exceeds the amount referred to in clause (A), the relevant
Purchaser or Purchasers agree to pay to Seller the amount of such excess.  All
Broken Funding Costs shall be due and payable hereunder upon demand.

     "Business Day" means any day on which banks are not authorized or required
      ------------
to close in New York, New York or Chicago, Illinois and The Depository Trust
Company of New York is open for business, and, if the applicable Business Day
relates to any computation or payment to be made with respect to the LIBO Rate,
any day on which dealings in dollar deposits are carried on in the London
interbank market.

     "Capital" of any Purchaser Interest means, at any time, (A) the Purchase
      -------
Price of such Purchaser Interest, minus (B) the sum of the aggregate amount of
Collections and other payments received by the Agent which in each case are
applied to reduce such Capital in accordance with the terms and conditions of
this Agreement; provided that such Capital shall be restored (in
                --------

                                      48
<PAGE>

accordance with Section 2.5) in the amount of any Collections or other payments
                -----------
so received and applied if at any time the distribution of such Collections or
payments are rescinded, returned or refunded for any reason.

     "Change of Control" means (i) the acquisition by any Person, or two or more
      -----------------
Persons acting in concert, of beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934) of 20% or more of the outstanding shares of voting stock of the
Performance Guarantor or (ii) the Performance Guarantor shall at any time cease
to own directly or indirectly 100% of the issued and outstanding capital stock
of each of AIL and Seller.

     "Charged-Off Receivable" means a Receivable: (i) as to which the Obligor
      ----------------------
thereof has taken any action, or suffered any event to occur, of the type
described in Section 9.1(d) (as if references to Torchmark Entity therein refer
             --------------
to such Obligor); (ii) which, consistent with the Credit and Collection Policy,
would be written off Seller's books as uncollectible , or (iii) which has been
identified by Seller as uncollectible.

     "Charge-Off Ratio" means, as of the last day of any month, a fraction
      ----------------
(expressed as a percentage) equal to (i) the aggregate Outstanding Balance of
all Receivables that became Charged-Off Receivables at any time during such
month, divided by (ii) the Outstanding Balance of all Receivables on such date.

     "Collections" means, with respect to any Receivable, all cash collections
      -----------
and other cash proceeds in respect of such Receivable, including, without
limitation, (i) all yield, finance charges or other related amounts accruing in
respect thereof, (ii) all cash proceeds of Related Security with respect to such
Receivable, (iii) all payments by any guarantor in respect of such Receivable
and (iv) upon the payment to AIL of any premium, the funds then available for
payment to the applicable Obligor as commission or related fees and which,
consistent with the Credit and Collection Policy, would be retained by AIL for
application against any Receivable.

     "Commercial Paper" means promissory notes of PREFCO issued by PREFCO in the
      ----------------
commercial paper market.

     "Commitment" means, for each Financial Institution, the commitment of such
      ----------
Financial Institution to purchase its Pro Rata Share of Purchaser Interests from
(i) Seller and (ii) PREFCO, such Pro Rata Share not to exceed, in the aggregate,
the amount set forth opposite such Financial Institution's name on Schedule A to
                                                                   ----------
this Agreement, as such amount may be modified in accordance with the terms
hereof.

     "Commitment Availability" means at any time the positive difference (if
      -----------------------
any) between (a) an amount equal to the aggregate amount of the Commitments

minus (b) an amount equal to 2% of such aggregate Commitments at such time minus
-----                                                                      -----
(c) the aggregate Capital at such time.

     "Company Action Level Event"  means a "company-action-level-event" as such
      --------------------------
term is defined in Section 27-1-36-29 of the Indiana Code, or any successor
statute, as the same  may be

                                      49
<PAGE>

amended, modified, recodified or reenacted, in whole or in part, including all
rules and regulations promulgated thereunder.

     "Concentration Limit" means, at any time, for any Obligor, for Training
      -------------------
Advance Receivables as a group or for Miscellaneous Receivables as a group, such
percentage of the aggregate Capital of the Purchaser Interests as may from time
to time be designated in a written notice by the Agent to Seller in respect of
such Obligor, the Training Advance Receivables or the Miscellaneous Receivables.
In the event the Agent shall at any time specify a Concentration Limit in
respect of any Obligor, the Concentration Limit shall be calculated as if such
Obligor and all of its Affiliates are one Obligor.

     "Contingent Obligation" of a Person means any agreement, undertaking or
      ---------------------
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement, take-or-pay contract or application for a letter of credit.

     "Contract" means, with respect to any Receivable, any and all instruments,
      --------
agreements (including loan agreements, notes, agent agreements, general agent
agreements, supervisory agent agreements, regional director agreements, broker-
dealer agreements and indemnity agreements), statements or other writings
pursuant to which (i) such Receivable arises or which evidence such Receivable
or (ii) the applicable Obligor shall have agreed to guaranty directly or
indirectly all or a portion of the payment obligations of the primary Obligor on
such Receivable.

     "CP Costs" means, for each day, the sum of (i) discount accrued on Pooled
      --------
Commercial Paper on such day, plus (ii) any and all accrued commissions in
respect of placement agents and Commercial Paper dealers, and issuing and paying
agent fees incurred, in respect of such Pooled Commercial Paper for such day,
plus (iii) other costs associated with funding small or odd-lot amounts with
respect to all receivable purchase facilities which are funded by Pooled
Commercial Paper for such day, minus (iv) any accrual of income net of expenses
received on such day from investment of collections received under all
receivable purchase facilities funded substantially with Pooled Commercial
Paper, minus (v) any payment received on such day net of expenses in respect of
Broken Funding Costs related to the prepayment of any receivables interest of
PREFCO pursuant to the terms of any receivable purchase facilities funded
substantially with Pooled Commercial Paper.  In addition to the foregoing costs,
if Seller shall request any Incremental Purchase during any period of time
determined by the Agent in its sole discretion to result in incrementally higher
CP Costs applicable to such Incremental Purchase, the Capital associated with
any such Incremental Purchase shall, during such period, be deemed to be funded
by PREFCO in a special pool (which may include capital associated with other
receivable purchase facilities) for purposes of determining such additional CP
Costs applicable only to such special pool and charged each day during such
period against such Capital.

                                      50
<PAGE>

     "Credit and Collection Policy" means , in respect of any Receivable, the
      ----------------------------
credit and collection policies and practices of AIL relating to Contracts and
Receivables, as in effect on the date hereof and summarized in Exhibit VI
                                                               ----------
hereto, and as modified from time to time in accordance with this Agreement.

     "Deemed Collections"  means the aggregate of all amounts Seller shall have
      ------------------
been deemed to have received as a Collection of a Receivable.  Seller shall be
deemed to have received a Collection in full of a Receivable if at any time:

          (i)   the Outstanding Balance of any such Receivable is either (x)
     reduced as a result of any dispute involving any of the Policy Holder, the
     Insurance Agent or any other Obligor or AIL in respect of such Receivable
     and relating to any aspect of the transaction giving rise to such
     Receivable, (y) reduced as a result of any discount or any adjustment or
     otherwise by any Torchmark Entity (other than cash Collections on account
     of the Receivables) or (z) reduced or canceled as a result of a setoff in
     respect of any claim by any Person (whether such claim arises out of the
     same or a related transaction or an unrelated transaction and including,
     without limitation, any setoff occurring by reason of the application of
     the proceeds of any subsequent advance or prepayment made by AIL to the
     applicable Insurance Agent or other Obligor in respect of any Insurance
     Product issued or scheduled to be issued after the date such Receivable
     shall have arisen), or

          (ii)  the applicable Policy Holder (or any other authorized Person)
     shall for any reason at any time decline, cancel, fail to accept or
     otherwise terminate the Insurance Product, the issuance or proposed
     issuance of which shall have led to the creation of such Receivable, or AIL
     shall at any time for any reason refuse to or fail to issue, or shall
     terminate, any such Insurance Product, or

          (iii) any of the representations or warranties in Article V are not
                                                            ---------
     true on the initial date an interest in such Receivable shall be
     transferred to the Purchasers hereunder or such Receivable shall not
     constitute an Eligible Receivable on any date the Outstanding Balance of
     such Receivable is included in the calculation of Net Receivables Balance,
     or

          (iv)  the applicable Policy Holder dies or ceases for any reason to
     make any or all payments due as premiums or otherwise in respect of the
     Insurance Product that shall have given rise to such Receivable during the
     period that such Receivable shall remain outstanding, or

          (v)   the applicable Obligor directly or indirectly contests in any
     manner the effectiveness, validity, binding nature or enforceability of the
     related Contract or this Agreement.

Seller hereby agrees to pay all Deemed Collections immediately to the Servicer
for application in accordance with the terms and conditions hereof.

                                      51
<PAGE>

     "Default Fee" means with respect to any amount due and payable by Seller in
      -----------
respect of any Aggregate Unpaids, an amount equal to the greater of (i) $1000
and (ii) interest on any such unpaid Aggregate Unpaids at a rate per annum equal
to 2% above the Base Rate.

     "Designated Obligor" means an Obligor identified as such by the Agent to
      ------------------
Seller in writing based upon the reasonable credit judgment of the Agent.  In
the case of any Obligor that is a member of an Agent Hierarchy, identification
of such Obligor as being a Designated Obligor shall relate solely to such
Obligor and shall not automatically cause any other member of such Agent
Hierarchy to constitute a Designated Obligor.

     "Discount Rate" means, the LIBO Rate or the Base Rate, as applicable, with
      -------------
respect to each Purchaser Interest of the Financial Institutions.

     "Eligible Receivable" means, at any time, a Receivable:
      -------------------

          (i)   each Obligor in respect of which (a) if a natural person, is a
     resident of the United States, (b) if a corporation or other business
     organization, is organized under the laws of the United States or any
     political subdivision thereof and has its chief executive office in the
     United States; (c) is not, and the Policy Holder in respect of the
     Insurance Product that gave rise to such Receivable is not,  an Affiliate
     of any of the parties hereto; (d) is not a Designated Obligor; (e) is not,
     and the Policy Holder in respect of the Insurance Product that gave rise to
     such Receivable is not, a government or a governmental subdivision or
     agency; and (f) in the case of an Insurance Agent, is a qualified, licensed
     agent in good standing of AIL,

          (ii)  the Obligor of which is not the Obligor of any Charged-Off
     Receivable,

          (iii) which is not (a) an Unsupported Receivable, (b) a Charged-Off
     Receivable or (c) a Receivable as to which any payment or part thereof
     remains unpaid on the date occurring fourteen months after the date of the
     creation of such Receivable,

          (iv)  which (a) by its terms is due and payable within one year or
     less of the date of its creation, with payments thereon commencing within
     30 days of the original billing date and becoming due monthly thereafter,
     (b) has not had its payment terms extended, and (c) relates solely to the
     premium on the applicable Insurance Product that is scheduled to be paid
     within the first year of such Insurance Product's coming into existence and
     not to any premium scheduled to be paid in any subsequent period,

          (v)   which is an "account" or "general intangible" within the meaning
     of Section 9-106 of the UCC of all applicable jurisdictions, and is not an
     "instrument" within the meaning of Section 9-105 of the UCC of any
     applicable jurisdiction,

          (vi)  which is denominated and payable only in United States dollars
     in the United States,

                                      52

<PAGE>

          (vii)  which arises under a Contract in substantially the form of one
     of the form contracts set forth on Exhibit VII hereto or otherwise approved
                                        -----------
     by the Agent in writing, which, together with such Receivable, is in full
     force and effect and constitutes the legal, valid and binding obligation of
     each related Obligor (including, in the event the applicable Insurance
     Agent shall be a member of an Agent-Hierarchy, each other member of such
     Agent-Hierarchy as a guarantor of such Receivable) enforceable against such
     Obligor in accordance with its terms subject to no offset, counterclaim or
     other defense,

          (viii) which arises under a Contract which (A) does not require any
     Obligor under such Contract, any member of the applicable Agent-Hierarchy
     or any other Person to consent to the transfer, sale or assignment of the
     rights and duties of Seller under such Contract and (B) does not contain a
     confidentiality provision that purports to restrict the ability of any
     Purchaser to exercise its rights under this Agreement, including, without
     limitation, its right to review the Contract,

          (ix)   which, together with the Contract related thereto, does not
     contravene any law, rule or regulation applicable thereto (including,
     without limitation, any law, rule and regulation relating to truth in
     lending, fair credit billing, fair credit reporting, equal credit
     opportunity, fair debt collection practices and privacy) and with respect
     to which no part of the Contract related thereto is in violation of any
     such law, rule or regulation,

          (x)    which satisfies all applicable requirements of the Credit and
     Collection Policy and in respect of which all representations and
     warranties set forth in Section 5.1 and relating to Receivables shall be
                             -----------
     true and correct,

          (xi)   which was generated in the ordinary course of AIL's business,
     under a duly authorized Contract,

          (xii)  which either (A) represents monies advanced or prepaid to the
     applicable Insurance Agent, as commissions for a new Insurance Product, by
     AIL (and not by any other Person in whole or in part) and was advanced to
     such Insurance Agent based exclusively upon (and does not exceed the
     commissions payable in respect of) the first year's premium for such new
     Insurance Product without regard to any premiums (or

                                      53
<PAGE>

     commissions thereon) for any subsequent periods,  (B) constitutes a
     Miscellaneous Receivable representing a loan or an advance made to an SGA
     (and not any other type of Obligor), which Miscellaneous Receivable has
     been created in accordance with the applicable requirements for such loan
     and advances to SGAs, and does not exceed the limits for such loans and
     advances, set forth in the Credit and Collection Policy, or (C) constitutes
     a Training Advance Receivable representing an advance to a new Insurance
     Agent then becoming part of an existing Agent-Hierarchy, which Training
     Advance Receivable has been created in accordance with the applicable
     requirements for advances to new Insurance Agents, and does not exceed the
     limits for such advances, set forth in the Credit and Collection Policy;
     provided that in no event shall any Miscellaneous Receivable or Training
     --------
     Advance Receivable have an Outstanding Balance in excess of $10,000

          (xiii) if the primary Obligor thereon is an Insurance Agent that is a
     member of an Agent-Hierarchy, 100% of the payment obligation on such
     Receivable is guaranteed jointly or severally by the members of such Agent-
     Hierarchy, and

          (xiv)  in the event the Obligor thereon shall have died or been
     terminated as an agent of AIL, all obligations relating to such Receivable
     shall have been assumed by the Agent-Hierarchy in respect of such Obligor;
     provided that such Receivable shall cease to be an Eligible Receivable if
     --------
     at any time the members of the Agent-Hierarchy shall cease to exist or be
     terminated as agents of AIL or such members shall assert the invalidity or
     unenforceability of their obligations in respect of the Receivable.

     Notwithstanding the foregoing, a Receivable that otherwise satisfies the
     criteria set forth above but for the fact that (A) the Obligor thereon is a
     resident of Canada or New Zealand and (B) such Receivable is denominated in
     the lawful currency of Canada or New Zealand rather than United States
     Dollars may constitute an "Eligible Receivable" for purposes of this
     Agreement.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
           -----
     amended from time to time.

          "Facility Account" means the account of  Seller at Bank One, Account
           ----------------
     No. 10-36987.

          "Federal Funds Effective Rate" means, for any period, a fluctuating
           ----------------------------
     interest rate per annum equal for each day during such period equal to (a)
     the weighted average of the rates on overnight federal funds transactions
     with members of the Federal Reserve System arranged by federal funds
     brokers, as published for such day (or, if such day is not a Business Day,
     for the preceding Business Day) by the Federal Reserve Bank of New York in
     the Composite Closing Quotations for U.S. Government Securities; or (b) if
     such rate is not so published for any day which is a Business Day, the
     average of the quotations at approximately 10:30 a.m. (Chicago time) for
     such day on such transactions received by the Reference Bank from three
     federal funds brokers of recognized standing selected by it.

                                      54
<PAGE>

          "Fee Letter" means that certain letter agreement dated as of the date
           ----------
     hereof among the Agent, PREFCO and Seller, and acknowledged by Torchmark,
     as it may be amended or modified and in effect from time to time.

          "Finance Charges" means, with respect to a Contract, any finance,
           ---------------
     interest, late payment charges, fees, chargebacks or similar charges owing
     by an Obligor pursuant to such Contract.

          "Financial Institutions" has the meaning set forth in the preamble in
           ----------------------
     this Agreement.

          "Funding Agreement" means this Agreement and any agreement or
           -----------------
     instrument executed by any Funding Source with or for the benefit of
     PREFCO.

          "Funding Source" means (i) any Financial Institution or (ii) any
           --------------
     insurance company, bank or other funding entity providing liquidity, credit
     enhancement or back-up purchase support or facilities to PREFCO.

          "Incremental Purchase" means a purchase of one or more Purchaser
           --------------------
     Interests which increases the total outstanding Capital hereunder.

          "Indebtedness" of a Person means such Person's (i) obligations for
           ------------
     borrowed money, (ii) obligations representing the deferred purchase price
     of property or services (other than accounts payable arising in the
     ordinary course of such Person's business payable on terms customary in the
     trade), (iii) obligations, whether or not assumed, secured by liens or
     payable out of the proceeds or production from property now or hereafter
     owned or acquired by such Person, (iv) obligations which are evidenced by
     notes, acceptances, or other instruments, (v) capitalized lease
     obligations, (vi) net liabilities under interest rate swap, exchange or cap
     agreements, (vii) Contingent Obligations and (viii) liabilities in respect
     of unfunded vested benefits under plans covered by Title IV of ERISA.

          "Independent Director" shall mean a member of the Board of Directors
           --------------------
     of Seller who is not at such time, and has not been at any time during the
     preceding five (5) years,  (A) a director, officer, employee or affiliate
     of any Torchmark Entity or any of their respective Subsidiaries or
     Affiliates, or (B) the beneficial owner (at the time of such individual's
     appointment as an Independent Director or at any time thereafter while
     serving as an Independent Director) of any of the outstanding capital stock
     of any Torchmark Entity or any of their respective Subsidiaries or
     Affiliates.

          "Insurance Agent" means, in respect of any Receivable, the insurance
           ---------------
     broker or agent that shall have arranged the issuance or the proposed
     issuance of an Insurance Product in connection with which such Receivable
     shall have arisen.

                                      55
<PAGE>

          "Insurance Product" means any life insurance policy (whether term
           -----------------
     life, whole life or other life insurance policy of any type or kind),
     supplemental health insurance policy or any annuity, rider, other policy or
     similar contract.

          "Lapse Ratio" means, at any time, the average of the Monthly Lapse
           -----------
     Ratios for the three calendar months then most recently ended.

          "LIBO Rate" means the rate per annum equal to the sum of (i) (a) the
           ---------
     rate at which deposits in U.S. Dollars are offered by the Reference Bank to
     first-class banks in the London interbank market at approximately 11:00
     a.m. (London time) two Business Days prior to the first day of the relevant
     Tranche Period, such deposits being in the approximate amount of the
     Capital of the Purchaser Interest to be funded or maintained, divided by
     (b) one minus the maximum aggregate reserve requirement (including all
     basic, supplemental, marginal or other reserves) which is imposed against
     the Reference Bank in respect of Eurocurrency liabilities, as defined in
     Regulation D of the Board of Governors of the Federal Reserve System as in
     effect from time to time (expressed as a decimal), applicable to such
     Tranche Period plus (ii) 0.75% per annum.  The LIBO Rate shall be rounded,
     if necessary, to the next higher 1/16 of 1%.

          "Liquidity Termination Date" means December 19, 2000.
           --------------------------

          "Material Adverse Effect" means a material adverse effect on (i) the
           -----------------------
     financial condition or operations of any Seller Party and its Subsidiaries,
     (ii) the ability of any Seller Party to perform its obligations under this
     Agreement or the ability of the Performance Guarantor to perform its
     obligations under the Performance Guaranty, (iii) the legality, validity or
     enforceability of this Agreement or any other Transaction Document, (iv)
     any Purchaser's interest in the Receivables generally or in any significant
     portion of the Receivables, the Related Security or the Collections with
     respect thereto, or (v) the collectibility of the Receivables generally or
     of any material portion of the Receivables.

          "Minimum SGA Net Worth" means, with respect to any SGA at any time of
           ---------------------
     determination, a ratio (expressed as a percentage) of (i) the present value
     of all future commissions then payable to such SGA or to any member of its
     Agent-Hierarchy in respect of Insurance Products that have been arranged by
     such Agent-Hierarchy, as determined in accordance with the Credit and
     Collection Policy, divided by (ii) the aggregate Outstanding
                        -------
     Balance of all Receivables then owing by such SGA or any member of its
     Agent-Hierarchy, which ratio shall not be less than 100% at such time.

          "Miscellaneous Receivable" means the indebtedness arising in
           ------------------------
     connection with the extension by AIL to an Obligor or a loan of an advance,
     whether for working capital purposes or otherwise, in accordance with the
     Credit and Collection Policy, which loan or advance (i) has not been
     advanced in connection with the issuance of a specific Insurance Product,
     and the anticipated receipt of a commission thereon, and (ii) does not
     constitute a Training Advance Receivable therewith.

                                      56
<PAGE>

          "Monthly Lapse Ratio" means,  at any time, a percentage equal to (i)
           -------------------
     the number of Insurance Products issued by AIL that lapsed or were
     terminated during the calendar month then most recently ended divided by
     (ii) the average number of Insurance Products issued by AIL that were in
     force during such calendar month.

          "Monthly Report" means a report, in substantially the form of Exhibit
           --------------                                               -------
     VIII hereto (appropriately completed), furnished by the Servicer to the
     ----
     Agent pursuant to Section 8.5.
                       -----------

          "NAIC" means the National Association of Insurance Commissioners.
           ----

          "Net Receivables Balance" means, at any time, (i) the aggregate
           -----------------------
     Outstanding Balance of all Eligible Receivables at such time, minus (ii)
                                                                   -----
     the aggregate amount by which the Outstanding Balance of all Eligible
     Receivables of each Obligor and its Affiliates exceeds the Concentration
     Limit (if any) for such Obligor, minus (iii) the aggregate amount by which
                                      -----
     the aggregate Outstanding Balance of all Eligible Receivables comprising
     Training Advance Receivables exceeds the Concentration Limit (if any) for
     Training Advance Receivables, minus (iv) the aggregate amount by which the
                                   -----
     aggregate Outstanding Balance of all Eligible Receivables comprising
     Miscellaneous Receivables exceeds the Concentration Limit (if any) for
     Miscellaneous Receivables.

          "Obligations" shall have the meaning set forth in Section 2.1.
           -----------                                      -----------

          "Obligor" means a Person (including any guarantor) obligated to make
           -------
     payments pursuant to a Contract or by reason of the arrangements existing
     within an Agent-Hierarchy.

          "Outstanding Balance" of any Receivable at any time means the then
           -------------------
     outstanding principal balance thereof.

          "Performance Guarantor" means Torchmark, in its capacity as guarantor
           ---------------------
     under the Performance Guaranty.

          "Performance Guaranty" means that certain Performance Guaranty dated
           --------------------
     as of the date hereof made by Torchmark, as guarantor, in respect of the
     obligations of AIL and Seller and certain other liabilities specified
     therein, as the same may from time to time be amended, restated,
     supplemented or otherwise modified.

          "Person" means an individual, partnership, corporation (including a
           ------
     business trust), joint stock company, trust, unincorporated association,
     joint venture or other entity, or a government or any political subdivision
     or agency thereof.

          "Policy Holder" means, in respect of any Receivable, the Person that
           -------------
     shall have requested the issuance of the Insurance Product, which request
     shall have led to the creation of such Receivable, and/or the Person or
     Persons that shall have the obligation to make payments of the premium and
     related charges for such Insurance Product.

                                      57
<PAGE>

          "Pooled Commercial Paper" means Commercial Paper notes of PREFCO
           -----------------------
     subject to any particular pooling arrangement by PREFCO, but excluding
     Commercial Paper issued by PREFCO for a tenor and in an amount specifically
     requested by any Person in connection with any agreement effected by
     PREFCO.

          "Potential Amortization Event" means an event which, with the passage
           ----------------------------
     of time or the giving of notice, or both, would constitute an Amortization
     Event.

          "PREFCO" has the meaning set forth in the preamble to this Agreement.
           ------

          "PREFCO Residual" means the sum of the PREFCO Transfer Price
           ---------------
     Reductions.

          "PREFCO Transfer Price" means, with respect to the assignment by
           ---------------------
     PREFCO of one or more Purchaser Interests to the Agent for the benefit of
     the Financial Institutions pursuant to Section 13.1, the sum of (i) the
                                            ------------
     Capital of each Purchaser Interest (the "Capital Component") and (ii) all
                                              -----------------
     accrued and unpaid Yield for such Purchaser Interest; provided that if at
                                                           --------
     any time the senior long-term unsecured debt rating of Torchmark shall be
     below BB from Standard & Poor's Ratings Group or below Ba2 from Moody's
     Investor Services, Inc., the Capital Component at such time shall be equal
     to the lesser of (a) the Capital of each Purchaser Interest and (b) the
     Adjusted Liquidity Price of each Purchaser Interest.

          "PREFCO Transfer Price Reduction" means in connection with the
           -------------------------------
     assignment of a Purchaser Interest by PREFCO to the Agent for the benefit
     of the Financial Institutions, in the event the Adjusted Liquidity Price
     shall have been used in the determination of the PREFCO Transfer Price
     therefor, the positive difference between (i) the Capital of such Purchaser
     Interest and (ii) the Adjusted Liquidity Price for such Purchaser Interest.

          "Proposed Reduction Date" has the meaning set forth in Section 1.3.
           -----------------------                               -----------

          "Pro Rata Share" means, for each Financial Institution, the Commitment
           --------------
     of such Financial Institution divided by the Purchase Limit, adjusted as
     necessary to give effect to the application of the terms of Sections 13.1
                                                                 -------------
     or 13.5.
        ----

          "Purchase Limit" means $100,000,000.
           --------------

          "Purchase Notice" has the meaning set forth in Section 1.2.
           ---------------                               -----------

          "Purchase Price" means, with respect to any Incremental Purchase of a
           --------------
     Purchaser Interest, the amount paid to Seller for such Purchaser Interest
     which shall not exceed the least of (i) the amount requested by Seller in
     the applicable Purchase Notice, (ii) the unused portion of the Purchase
     Limit on the applicable purchase date, (iii) the Commitment Availability on
     the applicable purchase date and (iv) the excess, if any, of the Net
     Receivables Balance on the applicable purchase date over the aggregate
     outstanding amount of Capital without taking into account such proposed
     Incremental Purchase.

                                      58
<PAGE>

          "Purchaser" means PREFCO or a Financial Institution, as applicable.
           ---------

          "Purchaser Interest" means, at any time, an undivided percentage
           ------------------
     ownership interest (computed as set forth below) associated with a
     designated amount of Capital, selected pursuant to the terms and conditions
     hereof in (i) each Receivable arising prior to the time of the most recent
     computation or recomputation of such undivided interest, (ii) all Related
     Security with respect to each such Receivable, and (iii) all Collections
     with respect to, and other proceeds of, each such Receivable.  Each such
     undivided percentage interest shall equal:

                                       C
                                      ---
                                      NRB

     where:

     C    =    the Capital of such Purchaser Interest.

     NRB  =    the Net Receivables Balance.

     Such undivided percentage ownership interest shall be initially computed on
     its date of purchase.  Thereafter, until its Amortization Date, each
     Purchaser Interest shall be automatically recomputed (or deemed to be
     recomputed) on each day prior to its Amortization Date.  The variable
     percentage represented by any Purchaser Interest as computed ( or deemed
     recomputed) as of the close of the business day immediately preceding its
     Amortization Date shall remain constant at all times after such
     Amortization Date.

          "Receivable" means the indebtedness and other obligations owed by an
           ----------
     Obligor to AIL (but for giving effect to any transfer or conveyance under
     the Receivables Sale Agreement or this Agreement), whether constituting an
     account, chattel paper, instrument or general intangible, whether arising
     prior to, contemporaneous with or subsequent to the execution of this
     Agreement, and existing in connection with any Insurance Product issued by
     AIL (or an Affiliate thereof), the extension of credit by AIL to an Obligor
     (whether constituting an advance against anticipated premiums, a working
     capital advance or an extension of credit for any other purpose) or the
     rendering of any services by AIL to an Obligor.  "Receivable" shall
     include, without limitation, (i) any "debit balance," "agent debit balance"
     or "actual debit balance," or any similar or successor concept thereto,
     owing at any time by an Obligor to AIL, (ii) any amounts advanced to an
     Obligor by AIL, such as an annualized payment, commission advance, regular
     advance, special advance, loan, indebtedness, obligation for repayment, or
     any other advance of any type, whether with respect to commissions (whether
     annualized, renewal, override or any other type or kind), earnings,
     compensation, payments, service fees, bonuses, incentives, credits, monies
     due, sums due or other amounts earned or expected to be earned by such
     Obligor and (iii) the obligation of such Obligor to pay any Finance Charges
     with respect to any of the foregoing.  Indebtedness and other rights and
     obligations arising from any one transaction, notwithstanding the joint or
     several

                                      59
<PAGE>

     obligation of more than one Obligor thereon, shall constitute a single
     Receivable separate from a Receivable consisting of the indebtedness and
     other rights and obligations arising from any other transaction.

          "Receivables Sale Agreement" means the Receivables Sale Agreement of
           --------------------------
     even date herewith between AIL, as seller, and Seller, as buyer, as the
     same may from time to time be amended, restated, supplemented or otherwise
     modified.

          "Records" means, with respect to any Receivable, all Contracts and
           -------
     other documents, books, records and other information (including, without
     limitation, computer programs, tapes, disks, punch cards, data processing
     software and related property and rights) relating to such Receivable, any
     Related Security therefor and the related Obligor(s).

          "Reduction Notice" has the meaning set forth in Section 1.3.
           ----------------                               -----------

          "Reduction Percentage" means, for any Purchaser Interest acquired by
           --------------------
     the Financial Institutions from PREFCO for less than the Capital of such
     Purchaser Interest, a percentage equal to a fraction the numerator of which
     is the PREFCO Transfer Price Reduction for such Purchaser Interest and the
     denominator of which is the Capital of such Purchaser Interest.

          "Reference Bank" means Bank One or such other bank as the Agent shall
           --------------
     designate with the consent of Seller.

          "Regulatory Action Level Event"  means a "regulatory-action-level-
           -----------------------------
     event" as such term is defined in Section 27-1-36-35 of the Indiana Code,
     as the same may be amended, modified, recodified or reenacted, in whole or
     in part, including all rules and regulations promulgated thereunder.

          "Regulatory Control Event" means any event that causes the applicable
           ------------------------
     entity to be placed under supervision or any other regulatory control
     pursuant to Article 27-9 of the Indiana Code or any parallel provision in
     any other state law, or any successor provisions, as any of the foregoing
     may be amended, modified, recodified or reenacted, in whole or in part,
     including all rules and regulations promulgated thereunder.

          "Reinvestment" has the meaning set forth in Section 2.2.
           ------------                               -----------

          "Related Security" means, with respect to any Receivable:
           ----------------

               (i)  all of Seller's interest (including any assignment or pledge
     in favor of the Seller or any offset rights held by Seller) in or to (A)
     any and all commissions, annualized commissions, renewal commissions,
     override commissions, earnings, compensation, payments, service fees,
     bonuses, incentives, credits, monies due, sums due or other amounts,
     whether earned or unearned or that may at any time be or become payable to
     the related Obligor, whether existing in connection with any Receivable or

                                      60
<PAGE>

     otherwise, by AIL or any Affiliate thereof and (B) any and all premiums and
     related payments due from Policy Holders in respect of any Insurance
     Product the issuance or proposed issuance of which shall have given rise to
     such Receivable, to the extent such premiums and related payments are
     allocable to the commissions payable by AIL to the applicable Obligor in
     respect of such Insurance Product;

               (ii)  all of Seller's interest (including any assignment or
     pledge in favor of the Seller or any offset rights held by the Seller) in
     any other assets or interests in property of the applicable Insurance Agent
     or Agent-Hierarchy,

               (iii) all other security interests or liens and property subject
     thereto from time to time, if any, purporting to secure payment of such
     Receivable, whether pursuant to a Contract related to such Receivable or
     otherwise, together with all financing statements and security agreements
     describing any such arrangements securing such Receivable,

               (iv)  all guaranties, contracts of suretyship, insurance and
     other agreements or arrangements of whatever character from time to time
     supporting or securing payment of such Receivable whether pursuant to a
     Contract related to such Receivable or otherwise,

               (v)   all Records related to such Receivable,

               (vi)  all of Seller's right, title and interest in, to and under
     the Receivables Sale Agreement, and

               (vii) all proceeds of any of the foregoing.

          "Required Financial Institutions" means, at any time, Financial
           -------------------------------
     Institutions with Commitments in excess of 66-2/3% of the Purchase Limit.

          "Required Notice Period" means a period of two Business Days.
           ----------------------

          "Seller" has the meaning set forth in the preamble to this Agreement.
           ------

          "Seller Interest" means, at any time, an undivided percentage
           ---------------
     ownership interest of Seller in the Receivables, Related Security and all
     Collections with respect thereto equal to (i) one, minus (ii) the aggregate
     of the Purchaser Interests.

          "Seller Parties" has the meaning set forth in the preamble to this
           --------------
     Agreement.

          "Servicer" means at any time the Person (which may be the Agent) then
           --------
     authorized pursuant to Article VIII to service, administer and collect
                            ------------
     Receivables.

          "Servicing Fee" has the meaning set forth in Section 8.6.
           -------------                               -----------

                                      61
<PAGE>

          "Settlement Date" means (A) the 15th day of each month, and (B) the
           ---------------
     last day of the relevant Tranche Period in respect of each Purchaser
     Interest of the Financial Institutions.

          "Settlement Period"  means (A) in respect of each Purchaser Interest
           -----------------
     of PREFCO, the calendar month then most recently ended, and (B) in respect
     of each Purchaser Interest of the Financial Institutions, the entire
     Tranche Period of such Purchaser Interest.

          "SGA" means a Person that (i) has been engaged by AIL as a "state
           ---
     general agent", (ii) serves as the senior manager of an Agent-Hierarchy and
     (iii) has guaranteed to AIL the repayment in full of all Receivables owing
     by any member of such Agent-Hierarchy.

          "Subordinated Note" means the Subordinated Note issued under and in
           -----------------
     connection with the Receivables Sale Agreement, as the same may be amended,
     restated, supplemented or otherwise modified from time to time.

          "Subsidiary" of a Person means (i) any corporation more than 50% of
           ----------
     the outstanding securities having ordinary voting power of which shall at
     the time be owned or controlled, directly or indirectly, by such Person or
     by one or more of its Subsidiaries or by such Person and one or more of its
     Subsidiaries, or (ii) any partnership, association, joint venture or
     similar business organization more than 50% of the ownership interests
     having ordinary voting power of which shall at the time be so owned or
     controlled.  Unless otherwise expressly provided, all references herein to
     a "Subsidiary" shall mean a Subsidiary of Seller.

          "Terminating Tranche" has the meaning set forth in Section 4.3(b).
           -------------------                               --------------

          "Torchmark" means Torchmark Corporation, a Delaware corporation, and
           ---------
     its successors.

          "Torchmark Credit Agreement" means that certain Credit Agreement dated
           --------------------------
     as of October 22, 1997 among Torchmark, certain lenders parties thereto
     from time to time and Bank One (formerly known as The First National Bank
     of Chicago), as such Credit Agreement is in effect on the date hereof and
     without giving effect to any amendment, restatement, supplement,
     termination, release or other modification of all or any term or provision
     of such Credit Agreement after the date hereof.

          "Torchmark Entities" means, collectively, Torchmark, AIL and Seller.
           ------------------

          "Total Adjusted Capital" means the total adjusted capital as
           ----------------------
     determined in accordance with the risk-based capital instructions adopted
     by the NAIC, as such instructions may be amended, modified, supplemented or
     restated from time to time.  For reference purposes only, such term is also
     defined in Section 27-1-36-24 of the Indiana Code.

                                      62
<PAGE>

          "Training Advance Receivable" means a Receivable representing an
           ---------------------------
     advance made to any Person at the time of the commencement of such Person's
     engagement as an Insurance Agent for AIL.

          "Tranche Period" means, with respect to any Purchaser Interest held by
           --------------
     a Financial Institution:

          (a)  if Yield for such Purchaser Interest is calculated on the basis
     of the LIBO Rate, a period of one, two, three or six months, or such other
     period as may be selected by Seller with consultation from (and approval
     by) the Agent, commencing on a Business Day selected by Seller or the Agent
     pursuant to this Agreement.  Such Tranche Period shall end on the day in
     the applicable succeeding calendar month which corresponds numerically to
     the beginning day of such Tranche Period, provided, however, that if there
                                               --------
     is no such numerically corresponding day in such succeeding month, such
     Tranche Period shall end on the last Business Day of such succeeding month;
     or

          (b)  if Yield for such Purchaser Interest is calculated on the basis
     of the Base Rate, a period commencing on a Business Day selected by Seller
     and agreed to by the Agent, provided no such period shall exceed one month.
                                 --------

     If any Tranche Period would end on a day which is not a Business Day, such
     Tranche Period shall end on the next succeeding Business Day, provided,
                                                                   --------
     however, that in the case of Tranche Periods corresponding to the LIBO
     Rate, if such next succeeding Business Day falls in a new month, such
     Tranche Period shall end on the immediately preceding Business Day.  In the
     case of any Tranche Period for any Purchaser Interest of which commences
     before the Amortization Date and would otherwise end on a date occurring
     after the Amortization Date, such Tranche Period shall end on the
     Amortization Date.  The duration of each Tranche Period which commences
     after the Amortization Date shall be of such duration as selected by the
     Agent.

          "Transaction Documents" means, collectively, this Agreement, each
           ---------------------
     Purchase Notice, the Receivables Sale Agreement, the Subordinated Note, the
     Performance Guaranty, the Fee Letter and all other instruments, documents
     and agreements executed and delivered in connection herewith.

          "UCC" means the Uniform Commercial Code as from time to time in effect
           ---
     in the specified jurisdiction.

          "Unsupported Receivable" means any Receivable which as of January 31,
           ----------------------
     2000 (i) is subject to a Purchaser Interest, (ii) is owing by a member of
     an Agent-Hierarchy the SGA in respect of which shall then fail to have the
     Minimum SGA Net Worth for such SGA and (iii) such SGA shall have been an
     SGA for longer than twelve (12) months.

                                      63
<PAGE>

          "Year 2000 Plan" means a plan to prevent the Year 2000 Problem from
           --------------
     having an adverse effect upon the business, financial condition,
     operations, property or prospects of a Person.

          "Year 2000 Problem" means, with respect to any Person, the risk that
           -----------------
     computer applications directly used by that Person cannot or will not:  (a)
     handle date information involving any and all dates before, during and/or
     after January 1, 2000, including accepting input, providing output and
     performing date calculations in whole or in part; (b) operate accurately
     without interruption on and in respect of any and all dates before, during
     and/or after January 1, 2000; and (c) store and provide date input
     information without creating any ambiguity as to the century.

          "Yield" means for each respective Tranche Period relating to Purchaser
           -----
     Interests of the Financial Institutions, an amount equal to the product of
     the applicable Discount Rate for such Purchaser Interest multiplied by the
     Capital of such Purchaser Interest for each day elapsed during such Tranche
     Period, annualized on a 360 day basis.

     All accounting terms not specifically defined herein shall be construed in
accordance with generally accepted accounting principles.  All terms used in
Article 9 of the UCC in the State of Illinois, and not specifically defined
herein, are used herein as defined in such Article 9.

                                      64
<PAGE>

                                  EXHIBIT II

                            FORM OF PURCHASE NOTICE

                                        [Date]

Bank One, NA,
  as Agent for the Purchasers parties
  to the Receivables Purchase Agreement
  referred to below
Suite IL1-0079, 1-21
1 Bank One Plaza
Chicago, Illinois 60670

Attention:     Asset Backed Finance

Re:  Purchase Notice
     ---------------

Ladies and Gentlemen:

          The undersigned refers to the Receivables Purchase Agreement, dated as
of December 21, 1999 (the "Receivables Purchase Agreement," the terms defined
therein being used herein as therein defined), among the undersigned, as Seller
and American Income Life Insurance Company, as initial Servicer, Preferred
Receivables Funding Corporation ("PREFCO"), certain Financial Institutions
parties thereto and Bank One, NA, as Agent for PREFCO and such Financial
Institutions, and hereby gives you notice, irrevocably, pursuant to Section 1.2
of the Receivables Purchase Agreement, that the undersigned hereby requests an
Incremental Purchase under the Receivables Purchase Agreement, and in that
connection sets forth below the information relating to such Incremental
Purchase (the "Proposed Purchase") as required by Section 1.2 of the Receivables
Purchase Agreement:

          (i)   The Business Day of the Proposed Purchase is [insert purchase
date], which date is at least three (3) Business Days after the date hereof and
is a Settlement Date.

          (ii)  The requested Purchase Price in respect of the Proposed Purchase
is $__________.

          (iii) The requested Discount Rate is [LIBO Rate] [Base Rate] [Pooled
Commercial Paper rate] [having a Tranche Period of ___________________].

                                      65
<PAGE>

          The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Purchase
(before and after giving effect to the Proposed Purchase):

          (i)   the representations and warranties of the undersigned set forth
in Section 5.1 of the Receivables Purchase Agreement are true and correct on and
as of the date of such Proposed Purchase as though made on and as of such date;

          (ii)  no event has occurred and is continuing, or would result from
such Proposed Purchase, that will constitute an Amortization Event or a
Potential Amortization Event; and

          (iii) neither the Liquidity Termination Date nor the Amortization
Date shall have occurred, the aggregate Capital of all Purchaser Interests shall
not exceed the Purchase Limit and the aggregate Purchaser Interests shall not
exceed 100%.

                              Very truly yours,

                              AILIC RECEIVABLES CORPORATION

                              By: ________________________________
                              Name:
                              Title:

                               Signature Page to

Purchase Notice

                                      66
<PAGE>

                                  EXHIBIT III

                   PLACES OF BUSINESS OF THE SELLER PARTIES;
                             LOCATIONS OF RECORDS;
                   FEDERAL EMPLOYER IDENTIFICATION NUMBER(S)

AILIC RECEIVABLES CORPORATION

Principal Place of Business
---------------------------

None, except:

3700 South Stonebridge Drive
McKinney, Texas  75070

Location(s) of Records
----------------------

None, except:

3700 South Stonebridge Drive
McKinney, Texas  75070

Federal Employer Identification Number(s)
-----------------------------------------

None, except:

Corporate, Partnership Trade and Assumed Names
----------------------------------------------

None.

AMERICAN INCOME LIFE INSURANCE COMPANY

Principal Place of Business
---------------------------

None, except:

1200 Wooded Acres
Waco, Texas 76710

                                      67
<PAGE>

Location(s) of Records
----------------------

None, except:

1200 Wooded Acres
Waco, Texas 76710

3700 South Stonebridge Drive
McKinney, Texas  75070

Federal Employer Identification Number(s)
-----------------------------------------

None, except:

74-1365939

Corporate, Partnership Trade and Assumed Names
----------------------------------------------

None.

                                      68
<PAGE>

                                  EXHIBIT IV

                        FORM OF COMPLIANCE CERTIFICATE

To: Bank One, NA, as Agent

     This Compliance Certificate is furnished pursuant to that certain
Receivables Purchase Agreement dated as of December 21, 1999 among AILIC
Receivables Corporation (the "Seller"), American Income Life Insurance Company
                              ------
(the "Servicer"), the Purchasers party thereto and Bank One, NA, as agent for
      --------
such Purchasers (the "Agreement"). Terms used herein and not otherwise defined
                      ---------
herein shall have the meanings assigned under the Agreement.

     THE UNDERSIGNED HEREBY CERTIFIES THAT:

     1.  I am the duly elected _____________________ of [the Performance
Guarantor][AIL][Seller].

     2.  I have reviewed the terms of the Agreement and I have made, or have
caused to be made under my supervision, a detailed review of the transactions
and conditions of [the Performance Guarantor][AIL][Seller] and its Subsidiaries
during the accounting period covered by the attached financial statements.

     3.  The examinations described in paragraph 2 did not disclose, and I have
no knowledge of, the existence of any condition or event which (i) constitutes
an Amortization Event or Potential Amortization Event, as each such term is
defined under the Agreement, during or at the end of the accounting period
covered by the attached financial statements or as of the date of this
Certificate, except as set forth in paragraph 5 below, or (ii) which has had or
is reasonably likely to have a Material Adverse Effect.

     4.  Schedule I attached hereto sets forth financial data and computations
evidencing the compliance with certain covenants of the Agreement, all of which
data and computations are true, complete and correct. [Schedule I attached
hereto further sets forth financial data and computations evidencing the
compliance with the covenants of, and the absence of default under,  the
Torchmark Credit Agreement, all of which data and computations are true,
complete and accurate.]/1/

     5.  Described below are the exceptions, if any, to paragraph 3 by listing,
in detail, the nature of the condition or event, the period during which it has
existed and the action which Seller has taken, is taking, or proposes to take
with respect to each such condition or event:

__________________
/1/To be included in the Compliance Certificate to be issued by the Performance
Guarantor.

                                      69
<PAGE>

     It is understood and acknowledged that the undersigned is executing this
Certificate not in an individual capacity but solely in his or her capacity as
an officer of the Seller and is without any personal liability as to the matters
contained in this certificate.

     The foregoing certifications, together with the computations set forth in
Schedule I hereto and the financial statements delivered with this Certificate
----------
in support hereof, are made and delivered this ____ day of ______________,
____________.

                              ________________________________
                              Name:
                              Title:

                                      70
<PAGE>

                               Signature Page to
                            Compliance Certificate

                                      71
<PAGE>

                     SCHEDULE I TO COMPLIANCE CERTIFICATE

A.   Unless otherwise defined herein, the terms used in this Compliance
     Certificate have the meanings ascribed thereto in the Agreement.

This schedule relates to the month ended:___________

                                      72
<PAGE>

                                   EXHIBIT V

                         FORM OF ASSIGNMENT AGREEMENT

          THIS ASSIGNMENT AGREEMENT is entered into as of the ___ day of
____________, ____, by and between _____________________ ("Seller") and
                                                           ------
__________________ ("Purchaser").
                     ---------

PRELIMINARY STATEMENTS
----------------------

          A.   This Assignment Agreement is being executed and delivered in
     accordance with Section 12.1(b) of that certain Receivables Purchase
     Agreement dated as of December 21], 1999 by and among AILIC Receivables
     Corporation, American Income Life Insurance Company, as "Servicer",
     Preferred Receivables Funding Corporation, Bank One, NA, as Agent, and the
     Seller and certain other Financial Institutions party thereto (as amended,
     modified or restated from time to time, the "Purchase Agreement").
                                                  ------------------
     Capitalized terms used and not otherwise defined herein are used with the
     meanings set forth or incorporated by reference in the Purchase Agreement.

          B.   The Seller is a Financial Institution party to the Purchase
     Agreement, and the Purchaser wishes to become a Financial Institution
     thereunder; and

          C.   The Seller is selling and assigning to the Purchaser an undivided
     ____________% (the "Transferred Percentage") interest in all of Seller's
                         ----------------------
     rights and obligations under the Purchase Agreement and the Transaction
     Documents, including, without limitation, the Seller's Commitment and (if
     applicable) the Capital of the Seller's Purchaser Interests as set forth
     herein;

          The parties hereto hereby agree as follows:

          1.   This sale, transfer and assignment effected by this Assignment
     Agreement shall become effective (the "Effective Date") two (2) Business
                                            --------------
     Days (or such other date selected by the Agent in its sole discretion)
     following the date on which a notice substantially in the form of Schedule
     II to this Assignment Agreement ("Effective Notice") is delivered by the
                                       ----------------
     Agent to PREFCO, the Seller and the Purchaser. From and after the Effective
     Date, the Purchaser shall be a Financial Institution party to the Purchase
     Agreement for all purposes thereof as if the Purchaser were an original
     party thereto and the Purchaser agrees to be bound by all of the terms and
     provisions contained therein.

          2.   If the Seller has no outstanding Capital under the Purchase
     Agreement, on the Effective Date, Seller shall be deemed to have hereby
     transferred and assigned to the Purchaser, without recourse, representation
     or warranty (except as provided in paragraph 6 below), and the Purchaser
     shall be deemed to have hereby irrevocably taken, received and assumed from
     the Seller, the Transferred Percentage of the Seller's Commitment and all
     rights and obligations associated therewith under the terms of the Purchase
     Agreement, including, without limitation, the Transferred Percentage of the
     Seller's future funding obligations under Section 4.1 of the Purchase
                                               -----------
     Agreement.

                                      73
<PAGE>

          3.   If the Seller has any outstanding Capital under the Purchase
     Agreement, at or before 12:00 noon, local time of the Seller, on the
     Effective Date the Purchaser shall pay to the Seller, in immediately
     available funds, an amount equal to the sum of (i) the Transferred
     Percentage of the outstanding Capital of the Seller's Purchaser Interests
     (such amount, being hereinafter referred to as the "Purchaser's Capital");
                                                         -------------------
     (ii) all accrued but unpaid (whether or not then due) Yield attributable to
     the Purchaser's Capital; and (iii) accruing but unpaid fees and other costs
     and expenses payable in respect of the Purchaser's Capital for the period
     commencing upon each date such unpaid amounts commence accruing, to and
     including the Effective Date (the "Purchaser's Acquisition Cost");
                                        ----------------------------

whereupon, the Seller shall be deemed to have sold, transferred and assigned to
     the Purchaser, without recourse, representation or warranty (except as
     provided in paragraph 6 below), and the Purchaser shall be deemed to have
     hereby irrevocably taken, received and assumed from the Seller, the
     Transferred Percentage of the Seller's Commitment and the Capital of the
     Seller's Purchaser Interests (if applicable) and all related rights and
     obligations under the Purchase Agreement and the Transaction Documents,
     including, without limitation, the Transferred Percentage of the Seller's
     future funding obligations under Section 4.1 of the Purchase Agreement.

          4.   Concurrently with the execution and delivery hereof, the Seller
     will provide to the Purchaser copies of all documents requested by the
     Purchaser which were delivered to such Seller pursuant to the Purchase
     Agreement.

          5.   Each of the parties to this Assignment Agreement agrees that at
     any time and from time to time upon the written request of any other party,
     it will execute and deliver such further documents and do such further acts
     and things as such other party may reasonably request in order to effect
     the purposes of this Assignment Agreement.

          6.   By executing and delivering this Assignment Agreement, the Seller
     and the Purchaser confirm to and agree with each other, the Agent and the
     Financial Institutions as follows: (a) other than the representation and
     warranty that it has not created any Adverse Claim upon any interest being
     transferred hereunder, the Seller makes no representation or warranty and
     assumes no responsibility with respect to any statements, warranties or
     representations made by any other Person in or in connection with the
     Purchase Agreement or the Transaction Documents or the execution, legality,
     validity, enforceability, genuineness, sufficiency or value of the
     Purchaser, the Purchase Agreement or any other instrument or document
     furnished pursuant thereto or the perfection, priority, condition, value or
     sufficiency of any collateral; (b) the Seller makes no representation or
     warranty and assumes no responsibility with respect to the financial
     condition of the Seller, any Obligor, any Seller Affiliate or the
     performance or observance by the Seller, any Obligor, any Seller Affiliate
     of any of their respective obligations under the Transaction Documents or
     any other instrument or document furnished pursuant thereto or in
     connection therewith; (c) the Purchaser confirms that it has received a
     copy of the Transaction Documents, together with such other documents and
     information as it has deemed appropriate to make its own credit analysis
     and decision to enter into this Assignment Agreement; (d) the Purchaser
     will, independently and without reliance upon the Agent, PREFCO, the Seller
     or any

                                      74
<PAGE>

     other Financial Institution or Purchaser and based on such documents and
     information as it shall deem appropriate at the time, continue to make its
     own credit decisions in taking or not taking action under the Purchase
     Agreement and the Transaction Documents; (e) the Purchaser appoints and
     authorizes the Agent to take such action as agent on its behalf and to
     exercise such powers under the Transaction Documents as are delegated to
     the Agent by the terms thereof, together with such powers as are reasonably
     incidental thereto; (f) the Purchaser appoints and authorizes the Agent to
     take such action as agent on its behalf and to exercise such powers under
     the Transaction Documents as are delegated to the Agent by the terms
     thereof, together with such powers as are reasonably incidental thereto;
     and (g) the Purchaser agrees that it will perform in accordance with their
     terms all of the obligations which, by the terms of the Purchase Agreement
     and the Transaction Documents, are required to be performed by it as a
     Financial Institution or, when applicable, as a Purchaser.

          7.   Each party hereto represents and warrants to and agrees with the
     Agent that it is aware of and will comply with the provisions of the
     Purchase Agreement, including, without limitation, Sections 4.1, 13.1 and
     14.6 thereof.

          8.   Schedule I hereto sets forth the revised Commitment of the Seller
     and the Commitment of the Purchaser, as well as administrative information
     with respect to the Purchaser.

          9.   THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
     ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS.

          10.  The Purchaser hereby covenants and agrees that, prior to the date
     which is one year and one day after the payment in full of all senior
     indebtedness for borrowed money of PREFCO, it will not institute against,
     or join any other Person in instituting against, PREFCO any bankruptcy,
     reorganization, arrangement, insolvency or liquidation proceedings or other
     similar proceeding under the laws of the United States or any state of the
     United States.

                                      75
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be executed by their respective duly authorized officers as of the
date hereof.

                         [SELLER]

                         By:
                           Title:

                         [Purchaser]

                         By:
                           Title:

                                      76
<PAGE>

                      SCHEDULE I TO ASSIGNMENT AGREEMENT
                      ----------------------------------

                      LIST OF LENDING OFFICES, ADDRESSES
                      FOR NOTICES AND COMMITMENT AMOUNTS
                      ----------------------------------

Date: _______________, ____

Transferred Percentage:  ________%
----------------------

             A-1             A-2             B-1              B-2
             ---             ---             ---              ---
                                             Outstanding
             Commitment      Commitment      Capital          Ratable
Seller       [existing]      [revised]       (if any)         Share
------       ----------      ---------       --------         -----

             A-1                             B-1              B-2
             ---                             ---              ---
                                             Outstanding
             Commitment                      Capital          Ratable
Seller       [initial]                       (if any)         Share
------       ----------                      --------         -----

Address for Notices
-------------------

Attention:
Phone:
Fax:

                                      77
<PAGE>

                      SCHEDULE II TO ASSIGNMENT AGREEMENT
                      -----------------------------------

                               EFFECTIVE NOTICE

TO:________________________, Seller
     ________________________
     ________________________
     ________________________

TO:________________________, Purchaser
     ________________________
     ________________________
     ________________________

          The undersigned, as Agent under the Receivables Purchase Agreement
dated as of December 21, 1999 by and among AILIC Receivables Corporation,
American Income Life Insurance Company, as "Servicer", Preferred Receivables
Funding Corporation, Bank One, NA, as Agent, and the Financial Institutions
party thereto, hereby acknowledges receipt of executed counterparts of a
completed Assignment Agreement dated as of ____________, ____ between
__________________, as Seller, and __________________, as Purchaser.  Terms
defined in such Assignment Agreement are used herein as therein defined.

          1.   Pursuant to such Assignment Agreement, you are advised that the
Effective Date will be ______________, ____.

          2.   PREFCO hereby consents to the Assignment Agreement as required by
Section 12.1(b) of the Purchase Agreement.

          [3.  Pursuant to such Assignment Agreement, the Purchaser is required
to pay $____________ to the Seller at or before 12:00 noon (local time of the
Seller) on the Effective Date in immediately available funds.]

                       Very truly yours,

                       BANK ONE, NA,
                       individually and as Agent

                       By:__________________________

                       Title:_______________________

                                      78
<PAGE>

                         PREFERRED RECEIVABLES FUNDING
                         CORPORATION

                         By: ____________________________
                         Authorized Signatory

                                      79
<PAGE>

                                  EXHIBIT VI

                         CREDIT AND COLLECTION POLICY

                                  (Attached)

                                      80
<PAGE>

                                  EXHIBIT VII

                              FORM OF CONTRACT(S)

                                  (Attached)

                                      81
<PAGE>

                                 EXHIBIT VIII

                            FORM OF MONTHLY REPORT

                                  (Attached)

          [In addition to such other information as may be included on this
     exhibit, each Monthly Report should set forth the following with respect to
     the related Calculation Period (as defined in the Receivables Sale
     Agreement): (i) the aggregate Outstanding Balance of Receivables created
     and conveyed by AIL to Seller in purchases pursuant to the Receivables Sale
     Agreement during such Calculation Period, as well as the Net Receivables
     Balance included therein, (ii) the aggregate purchase price payable to AIL
     in respect of such purchases, specifying the Discount Factor (as defined in
     the Receivables Sale Agreement) in effect for such Calculation Period and
     the aggregate Purchase Price Credits (as defined in the Receivables Sale
     Agreement) deducted in calculating such aggregate purchase price, (iii) the
     aggregate amount of funds received by the Servicer during such Calculation
     Period which are to be applied as Reinvestments, (iv) the increase or
     decrease in the amount outstanding under the Subordinated Note as of the
     end of such Calculation Period after giving effect to the application of
     funds toward the aggregate purchase price and the restrictions on
     Subordinated Loans (as defined in the Receivables Sale Agreement) set forth
     in Section 1.2(a)(ii) of the Receivables Sale Agreement, and (v) the amount
     of any capital contribution made by AIL to Seller as of the end of such
     Calculation Period pursuant to Section 1.2(b) of the Receivables Sale
     Agreement.]

[In the event Seller elects to have any Monthly Report serve as a Purchase
     Notice, the following shall be appended to such Monthly Report as the last
     page thereof:

          Seller gives you notice, irrevocably, pursuant to Section 1.2 of the
          Receivables Purchase Agreement, that the undersigned hereby requests
          an Incremental Purchase under the Receivables Purchase Agreement, and
          in that connection sets forth below the information relating to such
          Incremental Purchase (the "Proposed Purchase") as required by Section
          1.2 of the Receivables Purchase Agreement:

               (i)   The Business Day of the Proposed Purchase is [insert
          purchase date], which date is at least three (3) Business Days after
          the date hereof and is a Settlement Date.

               (ii)  The requested Purchase Price in respect of the Proposed
          Purchase is $__________.

               (iii) The requested Discount Rate is [LIBO Rate] [Base Rate]
          [Pooled Commercial Paper rate] [having a Tranche Period of
          ___________________].

               The undersigned hereby certifies that the following statements
     are true on the date hereof, and will be true on the date of the Proposed
     Purchase (before and after giving effect to the Proposed Purchase):

                                      82
<PAGE>

          (i)   the representations and warranties of the undersigned set forth
     in Section 5.1 of the Receivables Purchase Agreement are true and correct
     on and as of the date of such Proposed Purchase as though made on and as of
     such date;

          (ii)  no event has occurred and is continuing, or would result from
     such Proposed Purchase, that will constitute an Amortization Event or a
     Potential Amortization Event; and

          (iii) neither the Liquidity Termination Date nor the Amortization
     Date shall have occurred, the aggregate Capital of all Purchaser Interests
     shall not exceed the Purchase Limit and the aggregate Purchaser Interests
     shall not exceed 100%.

                              Very truly yours,

                                    AILIC RECEIVABLES CORPORATION

                                    By: ________________________________
                                    Name:
                                    Title: ]

                                      83
<PAGE>

                                  SCHEDULE A

                     COMMITMENTS OF FINANCIAL INSTITUTIONS

----------------------------------------  --------------------------------------
         Financial Institution                           Commitment
         ---------------------                           ----------
----------------------------------------  --------------------------------------
BANK ONE, NA                                        $102,040,816.00
----------------------------------------  --------------------------------------

                                      84
<PAGE>

                                  SCHEDULE B

                    DOCUMENTS TO BE DELIVERED TO THE AGENT
                      ON OR PRIOR TO THE INITIAL PURCHASE

                                  (Attached)

                                      85
<PAGE>

::ODMA\PCDOCS\CHICAGO4\1004451\9   December 23, 1999 (2:59PM)

                                      86<PAGE>

                                                                    Exhibit 10.6
                                                                    ------------

                    NATIONAL BANK OF COMMERCE PENSION PLAN
<PAGE>

                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<S>                                                                         <C>
ARTICLE I:  DEFINITIONS..................................................    1
      Section 1.01.  Accrued Benefit.....................................    1
      Section 1.02.  Act or ERISA........................................    1
      Section 1.03.  Actuarial Equivalent................................    1
      Section 1.04.  Actuary.............................................    2
      Section 1.05.  Affiliated Employer or Affiliate....................    3
      Section 1.06.  Annual Compensation.................................    3
      Section 1.07.  Average Monthly Earnings............................    6
      Section 1.08.  Board of Directors..................................    7
      Section 1.09.  Break in Service....................................    7
      Section 1.10.  Code................................................    7
      Section 1.11.  Claimant............................................    7
      Section 1.12.  Continuous Service..................................    7
      Section 1.13.  Covered Service.....................................    9
      Section 1.14.  Deferred Retirement Date............................    9
      Section 1.15.  Earliest Retirement Age and Early Retirement Date...    9
      Section 1.16.  Effective Date......................................    9
      Section 1.17.  Employee............................................    9
      Section 1.18.  Employer............................................    9
      Section 1.19.  First Gulf Plan.....................................   10
      Section 1.20.  Former Participant..................................   10
      Section 1.21.  Highly Compensated Employee, Highly Compensated
                     Former Employee, and Highly Compensated Participant.   10
      Section 1.22.  Hour of Service.....................................   12
      Section 1.23.  Investment Manager..................................   12
      Section 1.24.  Key Employee........................................   13
      Section 1.25.  Leased Employee.....................................   13
      Section 1.26.  Monthly Earnings....................................   13
      Section 1.27.  Monthly Retirement Income...........................   14
      Section 1.28.  Named Fiduciary.....................................   14
      Section 1.29.  Non-Highly Compensated Participant..................   14
      Section 1.30.  Non-Key Employee....................................   14
      Section 1.31.  Normal Retirement Date..............................   14
      Section 1.32.  Participant.........................................   14
      Section 1.33.  PBGC................................................   14
      Section 1.34.  Plan................................................   14
      Section 1.35.  Plan Administrator..................................   14
      Section 1.36.  Plan Year...........................................   15
      Section 1.37.  Pre-retirement Survivor Annuity.....................   15
      Section 1.38.  Regulation..........................................   15
      Section 1.39.  Required Beginning Date.............................   15
      Section 1.40.  Retired Participant.................................   15
      Section 1.41.  Service Year or Year of Service.....................   15
      Section 1.42.  Terminated Participant..............................   16
      Section 1.43.  Top Heavy Plan......................................   16
      Section 1.44.  Top Heavy Plan Year.................................   16
      Section 1.45.  Total and Permanent Disability......................   16
      Section 1.46.  Trust Agreement.....................................   17
</TABLE>

                                      -i-
<PAGE>

<TABLE>
<S>                                                                         <C>
      Section 1.47.  Trustee.............................................   17
      Section 1.48   Trust Fund..........................................   17
      Section 1.49   USERRA..............................................   17
      Section 1.50.  Vested..............................................   17

ARTICLE II:  PLAN ADMINISTRATION.........................................   17

      Section 2.01.  Named Fiduciary.....................................   17
      Section 2.02.  Allocation Of Fiduciary Responsibilities;
                     Designation Of A Plan Administrator.................   17
      Section 2.03.  Powers And Responsibilities Of The Employer.........   18
      Section 2.04.  Powers And Duties Of The Plan Administrator.........   19
      Section 2.05.  Powers And Duties Of The Trustee....................   21
      Section 2.06.  Powers And Duties Of The Actuary....................   21
      Section 2.07.  Claims For Benefits.................................   21
      Section 2.08.  Completion Of Forms And Submission Of Proof By
                     Participants........................................   22
      Section 2.09.  Payment Of Expenses.................................   22

ARTICLE III: BENEFITS....................................................   22
      Section 3.01.  Normal Retirement...................................   22
      Section 3.02.  Deferred Retirement.................................   24
      Section 3.03.  Early Retirement....................................   24
      Section 3.04.  Total And Permanent Disability......................   24
      Section 3.05.  Benefit Distribution................................   25
      Section 3.06.  Distribution Of Benefits Upon Death.................   28
      Section 3.07.  Determination Of Accrued Benefits Upon Termination..   32
      Section 3.08.  Lump Sum Distributions..............................   33
      Section 3.09.  Maximum Benefit Payment Date........................   36
      Section 3.10.  Suspension Of Benefits Upon Re-Employment Or
                     Continued Employment................................   36
      Section 3.11.  Direct Rollover.....................................   38
      Section 3.12.  Appointment Of Guardian For Beneficiary.............   38

ARTICLE IV:  CONTRIBUTION AND VALUATION..................................   39
      Section 4.01.  Deposit Of Funds....................................   39
      Section 4.02.  Payment Of Expenses.................................   39
      Section 4.03.  Periodic Actuarial Valuation........................   39
      Section 4.04.  Funding Standard Account............................   39
      Section 4.05.  Contributions By Mistake Of Fact....................   39
      Section 4.06.  Contributions Conditioned On Deductibility..........   39

ARTICLE V:   TRUST FUND AND TRUST AGREEMENT..............................   39
      Section 5.01.  Trust Fund..........................................   39
      Section 5.02.  Trust Agreement.....................................   40

ARTICLE VI:  MAXIMUM BENEFIT LIMITATIONS.................................   40
      Section 6.01.  General.............................................   40
      Section 6.02.  Annual Additions....................................   42
      Section 6.03.  Annual Benefit......................................   42
      Section 6.04.  Compensation........................................   42
      Section 6.05.  Current Accrued Benefit.............................   43
      Section 6.06.  Defined Benefit Dollar Limitation...................   43
</TABLE>

                                     -ii-
<PAGE>

<TABLE>
<S>                                                                         <C>
      Section 6.07.  Defined Benefit Fraction............................   43
      Section 6.08.  Defined Contribution Fraction.......................   44
      Section 6.09.  Employer............................................   44
      Section 6.10.  Highest Average Compensation........................   44
      Section 6.11.  Limitation Year.....................................   44
      Section 6.12.  Maximum Permissible Amount..........................   45
      Section 6.13.  Projected Annual Benefit............................   45
      Section 6.14.  Social Security Retirement Age......................   46
      Section 6.15.  Year of Participation...............................   46

ARTICLE VII:  TOP HEAVY PROVISIONS.......................................   46
      Section 7.01.  General.............................................   46
      Section 7.02.  Key Employee........................................   46
      Section 7.03.  Top Heavy Plan......................................   47
      Section 7.04.  Top Heavy Ratio.....................................   47
      Section 7.05.  Permissive Aggregation Group........................   48
      Section 7.06.  Required Aggregation Group..........................   48
      Section 7.07.  Determination Date..................................   48
      Section 7.08.  Valuation Date......................................   49
      Section 7.09.  Present Value.......................................   49
      Section 7.10.  Minimum Accrued Benefit.............................   49
      Section 7.11.  Vesting.............................................   49

ARTICLE VIII: AMENDMENT, MERGER, CONSOLIDATION OR TRANSFER OF
              ASSETS.....................................................   50
      Section 8.01.  Plan Amendment......................................   50
      Section 8.02.  Merger, Consolidation Or Transfer Of Assets.........   51

ARTICLE IX:   PLAN TERMINATION...........................................   53
      Section 9.01.  Termination Of Plan.................................   53
      Section 9.02.  Limitation Of Benefits On Termination...............   55

ARTICLE X:  MISCELLANEOUS PROVISIONS.....................................   57
      Section 10.01. Headings And Subheadings Contained In Plan..........   57
      Section 10.02. Illegality Of Plan Provisions.......................   57
      Section 10.03. Correction Of Misstatements.........................   57
      Section 10.04. Singular And Plural Terms...........................   57
      Section 10.05. Governing Law.......................................   57
      Section 10.06. Voluntary Continuance Of The Plan By The Employer...   57
      Section 10.07. Source Of Payment Of Benefits.......................   57
      Section 10.08. Suspension Of Contributions By The Employer.........   57
      Section 10.09. No Employment Rights Under Plan.....................   57
      Section 10.10. Alienation Of Benefits Disallowed...................   57
      Section 10.11. Indemnification By Employer.........................   58
      Section 10.12. Bonding Of Fiduciaries..............................   58
</TABLE>

                                     -iii-
<PAGE>

                    NATIONAL BANK OF COMMERCE PENSION PLAN

     WHEREAS, National Bank of Commerce of Birmingham, a national banking
association having its principal place of business in Birmingham, Alabama,
established the National Bank of Commerce Pension Plan effective January 1, 1982
to provide retirement benefits for eligible employees; and

     WHEREAS, the National Bank of Commerce Pension Plan was amended and
restated effective January 1, 1984 and was again amended and restated, generally
effective January 1, 1989; and

     WHEREAS, there have been four (4) amendments to the National Bank of
Commerce Pension Plan since it was amended and restated, generally effective
January 1, 1989; and

     WHEREAS, as a result of changes in applicable tax laws, it is necessary to
amend and restate the National Bank of Commerce Pension Plan.

     NOW, THEREFORE, the National Bank of Commerce Pension Plan is hereby
amended and restated effective as of January 1, 1997 with certain provisions
effective as of earlier or later dates as expressly set forth herein.

                            ARTICLE I:  DEFINITIONS
                            -----------------------

     As used in the Plan, the following words and phrases shall have the
meanings specified below, unless a different meaning is plainly required by the
context:

     Section 1.01. Accrued Benefit.  "Accrued Benefit," as of any date, shall
                   ---------------
mean a Participant's benefit earned as of that date.  The Participant's Accrued
Benefit shall be calculated in accordance with Section 1.27 (Monthly Retirement
Income).  Effective December 31, 1999, the Plan shall be frozen, and no
Participant shall accrue any benefits under the Plan after said date.

     Section 1.02. Act or ERISA.  "Act" or "ERISA" means the Employee
                   ------------
Retirement Income Security Act of 1974, as amended from time to time.

     Section 1.03. Actuarial Equivalent.  "Actuarial Equivalent" shall mean
                   --------------------
equality in the value of the aggregate amounts expected to be received under
different forms of payment as set forth below.

     (a)  For Plan Years beginning prior to January 1, 2000, for the lump sum
distributions as described in Section 3.08, the Actuarial Equivalent amount
payable to the Participant shall be calculated using the PBGC immediate or, if
applicable, deferred annuity factors for males as in effect on January 1 of the
year in which the lump sum distribution is paid.

          For Plan Years beginning on or after January 1, 2000, the Actuarial
Equivalent for the lump sum distributions as described in Section 3.08 shall be
determined as set forth below:

          (i)    Interest Assumption.  The applicable interest rate used for the
                 -------------------
          purpose of computing a lump sum distribution as described in Section
          3.08 and for the purpose of computing the present value of a benefit
          payable under the Plan is the annual rate of interest on 30-Year
          Treasury Securities determined as of the second calendar month
          preceding the first day of the Plan Year during which the payment is
          made.

          (ii)   Mortality Assumption.  The applicable mortality table used for
                 --------------------
          the purpose of computing lump sum distributions as described in
          Section 3.08 and for the purpose of computing the present value of a
          benefit payable under the Plan is the table prescribed by the
          Secretary of the Treasury.  Such table shall

                                  Page 1 of 58
<PAGE>

          be based on the prevailing commissioner's standard table (described in
          Code Section 807(d)(5)(A)) used to determine reserves for group
          annuity contracts issued on the date as of which present value is
          being determined (without regard to any other subparagraph of Code
          Section 807(d)(5)).

     (b)  For an annuity which is payable for the life of the Participant with a
fifty percent (50%) survivor annuity for the life of the spouse, the Actuarial
Equivalent amount payable to the Participant shall be equal to the single life
annuity multiplied by eighty-eight percent (88%).  Notwithstanding the above, if
the birth dates of the Participant and spouse are more than five (5) years
apart, the eighty-eight percent (88%) factor shall be

          (1)  decreased, if the Participant is older, or

          (2)  increased, if the spouse is older, as follows:

               (i)    one percent (1%), multiplied by

               (ii)   the survivor annuity percentage (50%), multiplied by

               (iii)  the number of full years, up to a maximum of twenty (20),
          by which the difference in birth dates exceeds five (5) years.

If the assumptions described in this Section 1.03(b) change, the Actuarial
Equivalent of the Accrued Benefit on or after the date of such change shall be
the greater of the Actuarial Equivalent of the Accrued Benefit as of such date
computed using the assumptions in effect immediately before such change or the
Actuarial Equivalent of the Accrued Benefit computed using the assumptions in
effect after such change.

     (c)  For an annuity which is payable for the life of the Participant with a
one hundred percent (100%) survivor annuity for the life of the spouse, the
Actuarial Equivalent amount payable to the Participant shall be equal to the
single life annuity multiplied by seventy-nine percent (79%).  Notwithstanding
the above, if the birth dates of the Participant and spouse are more than five
(5) years apart, the seventy-nine percent (79%) factor shall be

          (1)  decreased, if the Participant is older, or

          (2)  increased, if the spouse is older, as follows:

               (i)    one percent (1%), multiplied by

               (ii)   the number of full years, up to a maximum of twenty (20),
          by which the difference in birth dates exceeds five (5) years.

If the assumptions described in this Section 1.03(c) change, the Actuarial
Equivalent of the Accrued Benefit on or after the date of such change shall be
the greater of the Actuarial Equivalent of the Accrued Benefit as of such date
computed using the assumptions in effect immediately before such change or the
Actuarial Equivalent of the Accrued Benefit computed using the assumptions in
effect after such change.

     (d)  For all other purposes, the Actuarial Equivalent amount payable to the
Participant shall be calculated using annuities derived from the 1971 Group
Annuity Mortality Table for males, with a five-year age set-back for
Beneficiaries and six percent (6%) interest per annum.

     Section 1.04. Actuary.  "Actuary" shall mean a Fellow of the Society of
                   -------
Actuaries who has been enrolled by the Joint Board for the Enrollment of
Actuaries under ERISA Section 3042 or a firm of actuaries, at least one of

                                  Page 2 of 58
<PAGE>

whose members is a Fellow of the Society of Actuaries who has been so enrolled.
The Actuary shall be designated by the Employer.

     Section 1.05. Affiliated Employer or Affiliate.  An "Affiliated Employer"
                   --------------------------------
or "Affiliate" is any corporation which is a member of a controlled group of
corporations (as defined in Code Section 414(b)) which includes the following:
(a) the Employer; (b) any trade or business (whether or not incorporated) which
is under common control (as defined in Code Section 414(c)) with the Employer;
(c) any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and (d) any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).

     Section 1.06. Annual Compensation.
                   -------------------

     (a)  Definition Of Annual Compensation Effective On And After January 1,
          -------------------------------------------------------------------
1994.  Notwithstanding the immediately following paragraphs (b) and (c), on and
----
after January 1, 1994 "Annual Compensation" shall mean, with respect to any
Participant, wages as defined in Code Section 3401(a) and all other payments of
compensation by the Employer (in the course of the Employer's trade or business)
for a Plan Year for which the Employer is required to furnish the Participant a
written statement under Code Sections 6041(d), 6051(a)(3) and 6052.  Annual
Compensation must be determined without regard to any rules under Code Section
3401(a) that limit the remuneration included in wages based on the nature or
location of the employment or the services performed (such as the exception for
agricultural labor in Code Section 3401(a)(2)).

          (1)  Annual Compensation determined according to Section 1.06(a) shall
     not include (even if includible in gross income) reimbursements or other
     expense allowances, fringe benefits (cash or noncash), moving expenses,
     deferred compensation, and welfare benefits.

          (2)  Annual Compensation determined according to Section 1.06(a) shall
     include amounts which are contributed by the Employer pursuant to a salary
     reduction agreement and which are not includible in the gross income of the
     Participant under Code Section 125, 402(e)(3), 402(h), 403(b) or 457, and
     Employee contributions described in Code Section 414(h)(2) that are treated
     as Employer contributions.

     (b)  Definition Of Annual Compensation Effective On And After January 1,
          -------------------------------------------------------------------
1984 But Prior To January 1, 1994.  On and after January 1, 1984 but prior to
---------------------------------
January 1, 1994, "Annual Compensation" shall mean all of a Participant's
earnings from the Employer for the Plan Year which are (a) actually paid within
such Plan Year, and (b) subject to tax under Code Section 3101(a) without the
dollar limitation of Code Section 3121(a), but not including deferred
compensation other than contributions, if any, through a salary reduction
agreement to a cash or deferred plan under Code Section 401(k) or to a tax-
deferred annuity under Code Section 403(b).  Only for purposes of the foregoing
provisions of this Section 1.06(b), Section 1.07, and Section 1.26, the
"Employer" shall be deemed to refer to MetroBank prior to the sale of its stock
to National Commerce Corporation.

          Effective as of January 1, 1991, with respect to the persons retiring
after December 31, 1990 or whose employment otherwise terminates after December
31, 1990, Annual Compensation shall be determined without regard to any deemed
or imputed compensation from Employer-provided life insurance, moving expenses,
mileage or other reimbursements or other imputed income non-cash items which may
be counted for purposes of Code Section 3101. Notwithstanding the foregoing, the
minimum Accrued Benefit (expressed as a monthly annuity for life beginning at
the Normal Retirement Date) of each person who was a Participant in the Plan on
December 31, 1990 shall be determined using Continuous Service of such
Participant through December 31, 1990 and based upon the Average Monthly
Earnings of the Participant determined at December 31, 1990 (that is, without
regard to the foregoing change in the definition of Annual Compensation and
without regard to any amount of compensation paid on and after January 1, 1991).

                                  Page 3 of 58
<PAGE>

     (c)  Definition Of Annual Compensation Effective On And Before December 31,
          ----------------------------------------------------------------------
1983.  On and before December 31, 1983, "Annual Compensation" shall mean the
----
total of a Participant's Annual Compensation from the Employer, including
salary, overtime, and bonuses.

     (d)  Limitations On Annual Compensation Taken Into Account In Determining
          --------------------------------------------------------------------
Benefits.  For Plan Years after December 31, 1988 and prior to January 1, 1994,
--------
the Annual Compensation (sometimes referred to in this Section 1.06(d) as
"compensation") taken into account for determining all benefits provided under
this Plan for any Plan Year shall not exceed $200,000, as adjusted.  This
limitation shall be automatically adjusted to the amounts fixed by the Secretary
of the Treasury from time to time under Code Section 415(d) except that the
dollar increase in effect on January 1 of any calendar year is effective for
Plan Years beginning on July 1 in such calendar year and the first adjustment to
the $200,000 limitation is effective on January 1, 1990.

     In addition to the other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit.  The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Code.  The cost-of-living adjustment in effect
for a calendar year applies to any period, not exceeding twelve (12) months,
over which compensation is determined ("determination period") beginning in such
calendar year.

     For plan years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA
'93 annual compensation limit set forth in this provision.

     If compensation is determined on a period of time that contains less than
twelve (12) calendar months (in the case of a short plan year), then the
compensation limit is an amount equal to the compensation limit for the calendar
year in which the compensation period begins multiplied by the ratio obtained by
dividing the number of full months in the period by twelve (12).

     If compensation for any prior determination period is taken into account in
determining an Employee's benefits accruing in the current Plan Year, the
compensation for that prior determination period is subject to the applicable
annual compensation limit in effect for that prior determination period.  For
this purpose, in determining benefits in Plan Years beginning on or after
January 1, 1989, the annual compensation limit in effect for determination
periods beginning before that date is $200,000.  In addition, in determining
benefits for determination periods beginning on or after January 1, 1994, the
annual compensation limit in effect for determination periods beginning before
that date is $150,000.

     For Plan Years beginning prior to January 1, 1997, in determining the
compensation of a Participant for purposes of this limitation, the rules of
Section 414(q)(6) of the Code shall apply, except in applying such rules, the
term "family" shall include only the spouse of the Participant and any lineal
descendants of the Participant who have not attained age 19 before the close of
the year.  If, as a result of the application of such rules the adjusted annual
compensation limitation is exceeded, then (except for purposes of determining
the portion of compensation up to the integration level if this Plan provides
for permitted disparity) the limitation shall be pro rated among the affected
individuals in proportion to each such individual's compensation as determined
under the Plan prior to the application of this limitation.

     Unless otherwise provided under the Plan, each Section 401(a)(17)
employee's accrued benefit under this Plan will be the greater of the accrued
benefit determined for the employee under (a) or (b) below:

     (a)  the employee's accrued benefit determined with respect to the benefit
formula applicable for the Plan Year beginning on or after January 1, 1994, as
applied to the employee's total years of service taken into account under the
Plan for the purposes of benefit accruals, or

                                  Page 4 of 58
<PAGE>

     (b)  the sum of:

          (1)  the employee's accrued benefit as of the last day of the last
     Plan Year beginning before January 1, 1994, calculated by applying the 1993
     indexed limitation retroactively to all years before 1994, frozen in
     accordance with Section 1.401(a)(4)-13 of the regulations, and

          (2)  the employee's accrued benefit determined under the benefit
     formula applicable for the Plan Year beginning on or after January 1, 1994,
     as applied to the employee's years of service credited to the employee for
     Plan Years beginning on or after January 1, 1994, for purposes of benefit
     accruals.

     A Section 401(a)(17) employee means an employee whose current accrued
     benefit as of a date on or after the first day of the first Plan Year
     beginning on or after January 1, 1994, is based on compensation for a year
     beginning prior to the first day of the first Plan Year beginning on or
     after January 1, 1994, that exceeded $150,000.

     If the Plan satisfies the requirements of Section 1.401(a)(4)-13(d) of the
Regulations for a fresh-start as of the last day of the last Plan Year beginning
before January 1, 1994, then, notwithstanding any other provisions of the Plan,
any Section 401(a)(17) employee's Accrued Benefit, frozen in accordance with
Section 1.401(a)(4)-13 of the Regulations as of a fresh-start date, is adjusted
to reflect increases in the employee's compensation after the fresh-start date.
However, this adjustment may be made only if the adjustment will not cause the
Plan to fail to satisfy the consistency requirement of Section 1.401(a)(4)-
13(c), as modified by Section 1.401(a)(17)-1(e) of the proposed Regulations.

     In determining a Section 401(a)(17) employee's Accrued Benefit in any Plan
Year beginning on or after January 1, 1994, the portion of the employee's frozen
Accrued Benefit attributable to Plan Years beginning before January 1, 1994,
will be determined in accordance with Method A for statutory Section 401(a)(17)
employees and Method B for Section 401(a)(17) employees other than statutory
Section 401(a)(17) employees.

     A statutory Section 401(a)(17) employee means an employee whose current
Accrued Benefit as of a date on or after the first day of the first Plan Year
beginning on or after January 1, 1994, is based on compensation for a year
beginning prior to the first day of the first Plan Year beginning on or after
January 1, 1989, that exceeded $200,000.

     A Section 401(a)(17) employee means an employee whose current Accrued
Benefit as of a date on or after the first day of the first Plan Year beginning
on or after January 1, 1994, is based on compensation for a year beginning prior
to the first day of the first Plan Year beginning on or after January 1, 1994,
that exceeded $150,000.

     METHOD A (statutory Section 401(a)(17) employees):

     STEP 1:  Determine each statutory Section 401(a)(17) employee's Accrued
              Benefit as of the last day of the last Plan Year beginning before
              January 1, 1989, frozen in accordance with Section 1.401(a)(4)-13
              of the Regulations.

     STEP 2:  Adjust the amount in Step 1 up through the last day of the last
              Plan Year beginning before the first Plan Year beginning on or
              after January 1, 1994, under the method provided under the Plan
              for increasing the amount in Step 1 to take into account increases
              in compensation in Plan Years beginning on or after January 1,
              1989. However, if the Plan does not provide for such increases,
              the amount in Step 2 shall be equal to the amount in Step 1.

     STEP 3:  Determine the statutory Section 401(a)(17) employee's Accrued
              Benefit as of the last day of the last Plan Year beginning before
              January 1, 1994, frozen in accordance with

                                  Page 5 of 58
<PAGE>

              Section 1.401(a)(4)-13 of the Regulations.

     STEP 4:  Subtract the amount determined Step 2 from the amount determined
              in Step 3.

     STEP 5:  Adjust the amount in Step 4 by multiplying it by the following
              fraction (not less than 1). The numerator of the fraction is the
              statutory Section 401(a)(17) employee's average compensation
              determined for the current year (as limited by Section
              401(a)(17)), using the same definition and compensation formula in
              effect as of the last day of the last Plan Year beginning before
              January 1, 1994. The denominator of the fraction is the employee's
              average compensation for the last day of the last Plan Year
              beginning before January 1, 1994, using the definition and
              compensation formula in effect as of the last day of the last Plan
              Year beginning before January 1, 1994.

     STEP 6:  Adjust the amount in Step 1 by multiplying it by the following
              fraction (not less than 1). The numerator of the fraction is the
              statutory Section 401(a)(17) employee's average compensation for
              the current year (as limited by Section 401(a)(17)), using the
              same definition and compensation formula in effect as of the last
              day of the last Plan Year beginning before January 1, 1989. The
              denominator of the fraction is the employee's average compensation
              for the last day of the last Plan Year beginning before January 1,
              1989, using the definition and compensation formula in effect as
              of the last day of the last Plan Year beginning before January 1,
              1989.

     STEP 7:  Add the amounts determined in Step 5, and the greater of Steps 6
              or 2.

     METHOD B (Section 401(a)(17) employees other than statutory Section
401(a)(17) employees):

     STEP 1:  Determine the Accrued Benefit of each Section 401(a)(17) employee
              other than statutory Section 401(a)(17) employees as of the last
              day of the Plan Year beginning before January 1, 1994, frozen in
              accordance with Section 1.401(a)(4)-13 of the Regulations.

     STEP 2:  Adjust the amount in Step 1 by multiplying it by the following
              fraction (not less than 1). The numerator of the fraction is the
              average compensation of the Section 401(a)(17) employee who is not
              a statutory Section 401(a)(17) employee determined for the current
              year (as limited by Section 401(a)(17)), using the same definition
              and compensation formula in effect as of the last day of the last
              Plan Year beginning before January 1, 1994. The denominator of the
              fraction is the employee's average compensation for the last day
              of the last Plan Year beginning before January 1, 1994, using the
              definition and compensation formula in effect as of the last day
              of the last Plan Year beginning before January 1, 1994.

     Section 1.07. Average Monthly Earnings.  "Average Monthly Earnings" shall
                   ------------------------
mean the average of Monthly Earnings (as defined in Section 1.26) for the sixty
(60) months immediately preceding a Participant's Normal Retirement Date.

     (a)  If a Participant has fewer than sixty (60) months of continuous
employment, "Average Monthly Earnings" shall be the average of Monthly Earnings
for all months of continuous employment.

     (b)  If immediately prior to calculation of Average Monthly Earnings an
Employee shall have been absent from work for one (1) or more calendar months
for which he or she did not receive his or her monthly salary from the Employer,
the sixty (60) months used in determining his or her Average Monthly Earnings
shall be the last sixty (60) calendar months during which compensation was paid
to the Employee by the Employer.

                                  Page 6 of 58
<PAGE>

     Section 1.08. Board of Directors.  "Board of Directors" shall mean the
                   ------------------
Board of Directors of the Employer.

     Section 1.09. Break in Service.  "Break in Service" shall mean a Plan Year
                   ----------------
in which a Participant completes 500 or fewer Hours of Service.

     Section 1.10. Code.  "Code" shall mean the Internal Revenue Code of 1986,
                   ----
as amended or replaced from time to time.

     Section 1.11. Claimant.  "Claimant," for the purposes of Section 2.07,
                   --------
shall mean Participants, former Employees claiming to be Participants, surviving
spouses, or any other persons claiming a benefit under the Plan.

     Section 1.12. Continuous Service.  Prior to January 1, 1988, the term
                   ------------------
"Continuous Service" meant service with the Employer prior to the attainment of
age sixty-five (65) calculated from the later of the Employee's last hiring date
or January 1, 1980.  Notwithstanding the foregoing, for Participants who are
credited with at least one (1) Hour of Service after December 31, 1987,
"Continuous Service" shall mean service with the Employer calculated from the
later of the Employee's last hiring date or January 1, 1980.  The calculation of
Continuous Service shall be subject to the following rules and conditions:

     (a)  Length of Continuous Service shall be computed in whole months from
the date the Employee has been continuously employed in the service of the
Employer as an Employee as defined in Section 1.17, determined by the practices
in effect at the date of such employment, or re-employment, after a Break in
Continuous Service. Continuous Service shall be broken by the following events:

          (1)  Discharge from the employment of the Employer;

          (2)  Voluntarily quitting the employment of the Employer;

          (3)  Absence due to disability continuing for more than two (2) years,
     provided that the Employee may accumulate up to six (6) months Continuous
     Service during any such absence; and further provided, however, that an
     Employee absent because of compensable injury or sickness under applicable
     Workers Compensation laws shall accumulate Continuous Service until the
     termination of the period for which such compensation is payable, if he or
     she applies for return to work, and does return to work, within fifteen
     (15) days next following the last payment of such compensation to him or
     her; or

          (4)  Failure to report for work after a layoff within five (5)
     regularly scheduled work days of the mailing by the Employer by registered
     or certified mail to the Employee's latest address appearing on the
     Employer's records of a notice to return to work or declining the work
     offered or at the hours stipulated. It is the individual Employee's duty to
     keep the Employer informed of any changes in the Employee's address.

                    (i)    Continuous Service shall not be broken because of
               absence due to service in the Armed Forces or Merchant Marine
               Service of the United States, for which the Employee has re-
               employment rights under the law and complies with the
               requirements of the law as to re-employment and is re-employed.

                    (ii)   Employees whose employment with the Employer and all
               Affiliates terminated on or after January 1, 1982 and before
               January 1, 1985 shall lose all prior Continuous Service in
               accordance with the foregoing rules of Continuous Service in
               Section 1.12 if rehired by the Employer or any Affiliate, unless,
               the foregoing provisions of Section 1.12 to the contrary
               notwithstanding:

                                  Page 7 of 58
<PAGE>

                    (A)  they were Vested in their Accrued Benefit at the time
               of termination, or

                    (B)  they were not Vested in any portion of their Accrued
               Benefit at the time of termination and the number of consecutive
               Breaks in Service is less than the aggregate number of Plan Years
               in which Continuous Service was earned prior to the Break in
               Service.

          In the event Continuous Service is preserved for an Employee under the
          terms of the foregoing provisions of Section 1.12(a) and consistent
          with Section 1.12(b), one Accrued Benefit shall be calculated under
          the terms of the Plan as in effect at the time of such calculation
          using all years of Continuous Service.

               (iii)  With respect to terminations of employment occurring on or
          after January 1, 1985, an Employee will be credited on rehire with all
          years of Continuous Service credited prior to his or her termination
          unless, with respect to an Employee who does not have any
          nonforfeitable right to an Accrued Benefit hereunder, the number of
          consecutive one-year Breaks in Service equals or exceeds the greater
          of

                    (A)  five (5), or

                    (B)  the aggregate number of Plan Years in which Continuous
               Service was earned prior to the first one-year Break in Service.

          In the event Continuous Service is so preserved, the provisions of the
          last paragraph of Section 1.12(a)(4)(ii) will be applied.

     (b)  In determining length of service, there shall be deducted all time
lost in excess of thirty (30) days, for which monthly salary is not paid by the
Employer, due to leave of absence, suspension, or non-compensable disability
except to the extent credit for such periods of absence specifically is granted
under the terms of the Plan.

     (c)  Anything herein to the contrary notwithstanding, the minimum
Continuous Service credit for purposes of calculating the Accrued Benefit of an
Employee shall be based upon the number of Hours of Service (determined under
Section 1.22 but only while the Employee is an Employee within the meaning of
Section 1.17) in a Plan Year on the basis of the following proration:

          (1)  1000-1149 Hours  -    6 months
          (2)  1150-1299 Hours  -    7 months
          (3)  1300-1449 Hours  -    8 months
          (4)  1450-1599 Hours  -    9 months
          (5)  1600-1749 Hours  -   10 months
          (6)  1750-1899 Hours  -   11 months
          (7)  1900 or more     -   12 months

     (d)  Section 1.12(c) and any other provision of the Plan to the contrary
notwithstanding, with respect to Participants who were employees of MetroBank
prior to the purchase of its stock by National Commerce Corporation, Continuous
Service shall only include service for the Employer after the time of such sale
and, with respect to the remainder of 1985 after the said sale of stock,
Employees not previously covered by the Plan shall accrue Continuous Service on
the basis of one month for each calendar month in which they work at least one
Hour of Service for the Employer on or after September 1, 1985.

     (e)  Effective December 31, 1999, the Plan shall be frozen, and no
Participant shall accrue any additional

                                  Page 8 of 58
<PAGE>

Continuous Service after said date.

      Section 1.13. Covered Service.  "Covered Service" shall mean service
                    ---------------
covered by ERISA Section 203(a)(3)(B).

       Section 1.14. Deferred Retirement Date.  Deferred Retirement Date is a
                     ------------------------
Participant's date of termination of employment or, if earlier, a Participant's
date of death, after remaining in service beyond his or her Normal Retirement
Date, whether continuing employment through his or her Normal Retirement Date or
being reemployed after such date.

      Section 1.15. Earliest Retirement Age and Early Retirement Date.
                    -------------------------------------------------
"Earliest Retirement Age" shall mean attainment of age sixty (60) and completion
of seven (7) years of Continuous Service.  "Early Retirement Date" shall mean
the first day of the month coincident with or next following the date on which
an eligible Participant elects to retire early.

      Section 1.16. Effective Date.  The "Effective Date" of the Plan is January
                    --------------
1, 1982 which is the original effective date of the Plan.  The general effective
date of this amendment and restatement is January 1, 1997.

      Section 1.17. Employee.  "Employee" shall mean any person in the
                    --------
employment of the Employer. Employees of Affiliates other than the Employer are
not to be considered to be "Employees" for any purpose of the Plan except that

      (a) Hours of Service for vesting will be credited for employment with
other members of an affiliated service group (under Code Section 414(m)), a
controlled group of corporations (under Code Section 414(b)), or a group of
trades or businesses under common control (under Code Section 414(c)), of which
the Employer is a member, and

      (b) Hours of Service for vesting will also be credited for any individual
considered an Employee for purposes of the Plan under Section 1.25 (Leased
Employee).

      Section 1.18. Employer.  "Employer" shall mean National Bank of Commerce
                    --------
of Birmingham, National Commerce Corporation of Birmingham and their successors
and assigns.  The Employer shall not, except as otherwise provided in Section
1.06, be deemed to refer to MetroBank prior to the time of the sale of its stock
to National Commerce Corporation.

      Effective May 15, 1995, "Employer" shall also mean any Affiliated Employer
which shall adopt this Plan with the approval of the Board of Directors of
National Bank of Commerce of Birmingham.  Such adopting Affiliated Employers
shall be "Participating Employers" in the Plan.  The following rules shall apply
with regard to Participating Employers:

      (a) The Trustee shall commingle, hold and invest as one Trust Fund all
contributions made by the Employer and Participating Employers, as well as all
increments thereof.  The assets of the Plan shall, on an ongoing basis, be
available to pay benefits to all Participants and beneficiaries under the Plan
without regard to the Employer or Participating Employer who contributed such
assets.

      (b) The transfer of any Participant from or to an Employer participating
in this Plan, whether he is an Employee of the Employer or a Participating
Employer, shall not affect such Participant's rights under the Plan, and the
Participant's Accrued Benefit as well as his accumulated service time with the
transferor or predecessor and his length of participation in the Plan, shall
continue to his credit.

      (c) Each Participating Employer shall be deemed to be a party to this
Plan; provided, however, that with respect to all of its relations with the
Trustee and Administrator for purposes of this Plan, each Participating Employer

                                  Page 9 of 58
<PAGE>

shall be deemed to have designated irrevocably the Employer as its agent. Unless
the context of the Plan clearly indicates the contrary, the word "Employer"
shall be deemed to include each Participating Employer as related to its
adoption of the Plan. However, with regard to provisions of the Plan under which
the "Employer" is authorized to act (such as, by way of example and not
limitation, amending or terminating the Plan, removing the Trustee, determining
claims, etc.), such action must be taken by the Employer, and the Participating
Employers shall have no power or authority to take such actions.

     Section 1.19. First Gulf Plan.  The First Gulf Bancorp Retirement Plan.
                   ---------------
See Section 1.41(b)(2) (Service Year or Year of Service).

     Section 1.20. Former Participant.  "Former Participant" shall mean any
                   ------------------
Employee of the Employer who has been a Participant, but who has ceased to be a
Participant for any reason.

     Section 1.21. Highly Compensated Employee, Highly Compensated Former
                   ------------------------------------------------------
Employee, and Highly Compensated Participant.
--------------------------------------------

     (a)  "Highly Compensated Employee" shall mean, for Plan Years beginning
after December 31, 1996, an Employee described in Code Section 414(q) and the
Regulations thereunder, and generally means an Employee who performed services
for the Employer during the "determination year" and is in one or more of the
following groups:

          (1)  Employees who at any time during the "determination year" or
     "look-back year" were "five percent owners." See Section 7.02.

          (2)  Employees who received "415 Compensation" during the "look-back
     year" from the Employer in excess of $80,000.

          The "determination year" shall be the Plan Year for which testing is
     being performed, and the "look-back year" shall be the immediately
     preceding twelve-month period.

          For purposes of this Section, the determination of "415 Compensation"
     shall be made by including amounts which are contributed by the Employer
     pursuant to a salary reduction agreement and which are not includible in
     the gross income of the Participant under Code Section 125, 402(e)(3),
     402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in
     Code Section 414(h)(2) that are treated as Employer contributions.
     Additionally, the dollar threshold amounts specified in (a)(2) above shall
     be adjusted at such time and in such manner as is provided under Code
     Section 415(d), accept that the base period shall be the calendar year
     ending September 30, 1996.  In the case of such an adjustment, the dollar
     limits which shall be applied are those for the calendar year in which the
     "determination year" or "look-back year" begins.

          In determining who is a Highly Compensated Employee, Employees who
     are non-resident aliens and who received no earned income (within the
     meaning of Code Section 911(d)(2)) from the Employer constituting United
     States source income within the meaning of Code Section 861(a)(3) shall not
     be treated as Employees.  Additionally, all Affiliated Employers shall be
     taken into account as a single employer and Leased Employees within the
     meaning of Code Section 414(n)(2) and 414(o)(2) shall be considered
     Employees unless such Leased Employees are covered by a plan described in
     Code Section 414(n)(5) and are not covered in any qualified plan maintained
     by the Employer.  The exclusion of Leased Employees for this purpose shall
     be applied on a uniform and consistent basis for all of the Employer's
     retirement plans.  Highly Compensated Former Employees shall be treated as
     Highly Compensated Employees without regard to whether they performed
     services during the "determination year."

     (b)  "Highly Compensated Former Employee" shall mean a former Employee who
had a separation year prior to the "determination year" and was a Highly
Compensated Employee in the year of separation from service or in any

                                 Page 10 of 58
<PAGE>

"determination year" after attaining age 55. Notwithstanding the foregoing, an
Employee who separated from service prior to 1987 will be treated as a Highly
Compensated Former Employee only if during the separation year (or year
preceding the separation year) or any year after the Employee attains age 55 (or
the last year ending before the Employee's 55th birthday), the Employee either
received "415 Compensation" in excess of $50,000 or was a "five percent owner."
For purposes of this Section, "determination year," "415 Compensation" and "five
percent owner" shall be determined in accordance with Section 1.21(a). Highly
Compensated Former Employees shall be treated as Highly Compensated Employees.
The method set forth in this Section for determining who is a "Highly
Compensated Former Employee" shall be applied on a uniform and consistent basis
for all purposes for which the Code Section 414(q) definition is applicable.

     (c)  "Highly Compensated Participant" means any Highly Compensated Employee
who is eligible to participate in the Plan.

                                 Page 11 of 58
<PAGE>

     Section 1.22.  Hour of Service.
                    ---------------

     (a)  "Hour of Service" shall mean:

          (1)  Each hour for which an Employee is paid, or entitled to payment,
     for the performance of duties for the Employer. Hours of Service will be
     credited to the Employee for the computation period in which the duties are
     performed; and

          (2)  Each Hour of Service for which an Employee is paid, or entitled
     to payment, by the Employer on account of a period of time during which no
     duties are performed (irrespective of whether the employment relationship
     has terminated) due to vacation, holiday, illness, incapacity (including
     disability), layoff, jury duty, military duty or leave-of-absence. No more
     than 501 Hours of Service will be credited under this paragraph for a
     single continuous period (whether or not the period occurs in a single
     period). Hours of Service under this paragraph will be calculated and
     credited pursuant to Section 2530.200b-2 of the Department of Labor
     Regulations which is incorporated herein by this reference; and

          (3)  Each Hour of Service for which back pay, irrespective of
     mitigation of damages, is either awarded or agreed to by the Employer. The
     same Hours of Service shall not be credited both under the immediately
     preceding paragraph (1) or the immediately preceding paragraph (2), as the
     case may be, and under this paragraph (3). These Hours of Service will be
     credited to the Employee for the computation period or periods to which the
     award or agreement pertains rather than the computation period in which the
     award, agreement, or payment is made.

     (b)  Hours of Service will be credited for employment with other members of
an affiliated service group (under Code Section 414(m)), a controlled group of
corporations (under Code Section 414(b)), or a group of trades or businesses
under common control (under Code Section 414(c)), of which the Employer is a
member, and any other entity required to be aggregated with the Employer
pursuant to Code Section 414(o).

     (c)  Hours of Service also will be credited for any individual who is
considered to be an employee for purposes of the Plan under Code Sections 414(n)
or 414(o).

     (d)  Solely for purposes of determining whether a Break in Service (as
defined in Section 1.09 for participation and vesting purposes) has occurred in
a computation period, 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, eight (8) Hours of Service per
day of such absence.  An absence from work for maternity or paternity reasons
means an absence (i) by reason of the pregnancy of the individual, (ii) by
reason of a birth of a child of the individual, (iii)  by reason of the
placement of a child with the individual in connection with the adoption of such
child by such individual, or (iv) for purposes of carrying for such child for a
period beginning immediately following such birth or placement.  Hours of
Service shall be credited (A) in the computation period in which the absence
begins if the crediting is necessary to prevent a Break in Service in that
period, or (B) in all other cases, in the following computation period.

     (e)  Employees who are exempt from the Fair Labor Standards Act shall be
credited, for all purposes hereof, with forty-five (45) Hours of Service for
each calendar week in which an Employee worked, or was paid or entitled to
payment for, at least one Hour of Service for the Employer.  Employees who are
not exempt from the Fair Labor Standards Act shall be credited, for all purposes
hereof, with Hours of Service in an amount equal to the actual number of hours
worked.

     Section 1.23.  Investment Manager.  "Investment Manager" shall mean an
                    ------------------
entity appointed by the Employer as provided in Section 2.03(b) who

                                 Page 12 of 58
<PAGE>

     (a)  has the power to manage, acquire, or dispose of any Plan asset;

     (b)  acknowledges fiduciary responsibility to the Plan in writing;

     (c)  has been designated as a "Qualified Plan Asset Manager" and/or
"Qualified Professional Asset Manager" so that the Investment Manager may
successfully pursue and obtain a QPAM exemption; and

     (d)  falls within at least one of the following categories:

          (1)  A registered investment adviser under the Investment Advisers Act
     of 1940 (15 U.S.C. Section 80a-1 et seq.);

          (2)  A bank (as defined in the Investment Advisers Act of 1940);

          (3)  A savings and loan association whose accounts are insured by the
     Federal Savings and Loan Insurance Corporation and that has made
     application for and been granted trust powers to manage, acquire, or
     dispose of plan assets by a state or federal authority having supervision
     over savings and loan associations; or

          (4)  An insurance company qualified to perform asset management,
     acquisition, and disposition services under the laws of more than one
     state.

     Section 1.24.  Key Employee.  See Section 7.02.
                    ------------

     Section 1.25.  Leased Employee.  A "Leased Employee" means, for Plan Years
                    ---------------
beginning after December 31, 1996, any person (other than an Employee of the
Employer) who pursuant to an agreement between the Employer and any other person
("leasing organization") has performed services for the Employer (or for the
Employer 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
Employer.  Contributions or benefits provided a Leased Employee by the leasing
organization which are attributable to services performed for the Employer shall
be treated as provided by the Employer.  A Leased Employee shall be considered
an Employee of the Employer, unless:

     (a)  Such Leased Employee is covered by a money purchase pension plan
providing:

          (1)  a non-integrated employer contribution rate of at least 10% of
     compensation, as defined in Code Section 415(c)(3), but including amounts,
     if any, which are contributed by the Employer pursuant to a salary
     reduction agreement and which are not includible in the gross income of the
     Participant under Code Sections 125, 402(e)(3), 402(h), 403(b) or 457, and
     Employee contributions, if any, described in Code Section 414(h)(2) that
     are treated as Employer contributions;

          (2)  immediate participation; and

          (3)  full and immediate vesting; and

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

     Section 1.26.  Monthly Earnings.  "Monthly Earnings" shall mean the total
                    ----------------
of a Participant's Annual Compensation, as defined in Section 1.06, from the
Employer, as averaged on a monthly basis.

                                 Page 13 of 58
<PAGE>

      Section 1.27.  Monthly Retirement Income.  A Participant's "Monthly
                     -------------------------
Retirement Income" commencing at his or her Normal Retirement Date shall be
calculated pursuant to Section 3.01 on the basis of the following assumptions:

     (a)  That the Participant's Average Monthly Earnings at date of calculation
would have been his or her Average Monthly Earnings at his or her Normal
Retirement Date, and

     (b)  That his or her Continuous Service would have continued uninterrupted
until his or her Normal Retirement Date.

The amount determined in accordance with this Section 1.27 shall be multiplied
by a fraction, the numerator of which shall be the Participant's Continuous
Service as of the calculation date and the denominator of which shall be the
Continuous Service the Participant would have accumulated had he or she
continued until his or her Normal Retirement Date without interruption of his or
her service.

      Section 1.28. Named Fiduciary.  See Section 2.01.
                    ---------------

      Section 1.29. Non-Highly Compensated Participant.  "Non-Highly Compensated
                    ----------------------------------
Participant" shall mean any Participant who is not a Highly Compensated Employee
and, for Plan Years beginning prior to January 1, 1997, is not a "family member"
under Code Section 414(q)(6)(B).

      Section 1.30. Non-Key Employee.  A "Non-Key Employee" shall mean any
                    ----------------
Employee or former Employee (and his or her beneficiaries) who is not a Key
Employee.

      Section 1.31. Normal Retirement Date.
                    ----------------------

     (a)  "Normal Retirement Date" shall mean the first day of the month
coincident with or immediately preceding a Participant's sixty-fifth (65th)
birthday.

     (b)  With respect to persons whose first Hour of Service with the Employer
is on or after January 1, 1989, Normal Retirement Date shall mean, if later than
attainment of age sixty-five (65), the first day of the month coinciding with or
next following the completion of five (5) years of Continuous Service (or, if
earlier, five (5) Service Years).

     Section 1.32.  Participant.
                    -----------

     (a)  "Participant" shall mean any Employee of the Employer who was employed
by the Employer on January 1, 1982 (provided that at such time the Employee was
under the age of 65) or is thereafter hired by the Employer. Provided, however,
that any Employee who had been a Participant and is rehired shall be a
Participant as of his or her date of rehire.  Any employee of MetroBank at the
time of the sale of its stock to National Commerce Corporation shall become a
Participant if employed by the Employer on or after such time, but no benefits
shall be accrued under the Plan with respect to any service prior to such time.

     (b)  Leased Employees shall not be eligible to participate in the Plan.

     Section 1.33.  PBGC.  "PBGC" shall mean the Pension Benefit Guaranty
                    ----
Corporation.

     Section 1.34.  Plan.  "Plan" refers to the National Bank of Commerce
                    ----
Pension Plan.

     Section 1.35.  Plan Administrator.  The Employer shall be the "Plan
                    ------------------
Administrator" within the

                                 Page 14 of 58
<PAGE>

meaning of ERISA, unless the Employer, pursuant to Section 2.02(b), designates
another person or entity to administer the Plan on behalf of the Employer.

     Section 1.36.  Plan Year.  "Plan Year" shall mean each twelve (12) month
                    ---------
period which begins on January 1.  Plan Years will be the vesting computation
and accrual computation periods for purposes of the Plan.

     Section 1.37.  Pre-retirement Survivor Annuity.  "Pre-retirement Survivor
                    -------------------------------
Annuity" shall mean an immediate annuity form of payment for the life of the
surviving spouse of a Participant who dies prior to his or her annuity starting
date.

     Section 1.38.  Regulation.  "Regulation" shall mean Income Tax Regulations
                    ----------
as promulgated by the Secretary of the Treasury or his or her delegate, and as
amended from time to time and/or Department of Labor Regulations under the Act
promulgated by the Department of Labor, as amended from time to time.

     Section 1.39.  Required Beginning Date.  The Required Beginning Date for an
                    -----------------------
active and inactive Participant is April 1 following the calendar year in which
he or she reaches age 70 1/2.  However, the Required Beginning Date for an
active Participant who reached age 70 1/2 before 1988, and who was not a 5-
percent owner, is his or her actual retirement date.  A Participant will be
treated as a 5-percent owner if he or she owns or owned at least 5 percent of
any Employer at any time during the Plan Year ending within the calendar year in
which he or she reaches age 66 1/2 or any subsequent Plan Year.  See also
Sections 3.05, 3.06 and 3.09.

     Section 1.40.  Retired Participant.  A "Retired Participant" is a person
                    -------------------
who has been a Participant, but who has become entitled to retirement benefits
under the Plan.

     Section 1.41.  Service Year or Year of Service.  "Service Year" or "Year of
                    -------------------------------
Service," for vesting purposes only, shall mean

     (a)  With respect to calendar years 1980 and 1981, the number of full years
(and monthly fractions) of Continuous Service determined pursuant to Section
1.12, and

     (b)  With respect to Plan Years after 1981, a Plan Year during which an
Employee has completed 1,000 or more Hours of Service.  Provided, however, that
for any Plan Year in which an Employee is not entitled to credit for a Service
Year, he or she shall receive as a Service Year the number of months of
Continuous Service determined for such Plan Year under Section 1.12.

          (1)  The calculations under the immediately preceding paragraph (b)
     shall include periods of time before and after any absences or Breaks in
     Service, except as follows:

               (i)  Service Years of an Employee who does not have any Vested
          interest pursuant to the provisions of the Plan at the time of his or
          her termination prior to January 1, 1985 will be eliminated if he or
          she incurs a number of consecutive Breaks in Service equal to or
          exceeding his or her aggregate number of Service Years at the time of
          his or her return to employment prior to January 1, 1985.

               (ii) With respect to resumptions of employment occurring on or
          after January 1, 1985, an Employee will be credited or rehire with all
          Service Years credited prior to his or her termination unless, with
          respect to an Employee who does not have any nonforfeitable right to
          an Accrued Benefit hereunder, the number of consecutive Breaks in
          Service equals or exceeds the greater of

                    (A)  five (5), or

                    (B)  the aggregate number of Service Years prior to the
               first Break in Service.

                                 Page 15 of 58
<PAGE>

               (iii) If any Service Years of an Employee are not required to be
          taken into account by reason of the provisions of the immediately
          preceding subparagraphs (i) and (ii), then those Service Years
          referred to in (i) and (ii) are not required to be taken into account
          if there is a subsequent separation from service and rehire of the
          Employee.  Provided, however, that application of the immediately
          foregoing provision shall not cause the elimination of any Service
          Years for Employees who were active on January 1, 1982.

          (2)  Participants who, prior to becoming Participants in the Plan,
     were participants in the First Gulf Plan or employees eligible to
     participate thereunder shall have that number of "Service Years" through
     1985 counted for the purposes of vesting in the Plan to which they were
     entitled through December 31, 1985 under the provisions of the First Gulf
     Plan in effect upon the date of sale of MetroBank stock to National
     Commerce Corporation, as if employed by MetroBank through December 31,
     1985. The Plan Administrator shall obtain and preserve in the Plan's
     records the determination of vesting credit under the First Gulf Plan.

          (3)  Effective April 15, 1994, those employees of First American Bank
     of Pelham ("FAB") who became employees of the Employer effective as of
     April 15, 1994 shall have their number of "Service Years" with FAB through
     April 15, 1994 counted according to the provisions of Section 1.41 for
     purposes of vesting in the Plan. Service with FAB shall not be counted for
     purposes of determining Continuous Service. The Plan Administrator shall
     examine those records of FAB needed to determine, under Section 1.41, the
     vesting credit of each of the aforementioned employees due to employment by
     FAB, and the Plan Administrator shall preserve in the Plan's records his or
     her determination of said vesting credit.

          (4)  Former employees of St. Clair Federal Savings Bank, effectively
     employees of National Bank of Commerce of Birmingham as of October 17,
     1996, shall receive service credit for purposes of vesting hereunder for
     the ten and one-half (10 1/2) months that both St. Clair Federal Savings
     Bank and National Bank of Commerce reported to Alabama National
     BanCorporation.

     Section 1.42.  Terminated Participant.  A "Terminated Participant" is a
                    ----------------------
person who has been a Participant, but whose employment has been terminated
other than by death, Total and Permanent Disability, or retirement.

     Section 1.43.  Top Heavy Plan.  See Section 7.03.
                    --------------

     Section 1.44.  Top Heavy Plan Year.  "Top Heavy Plan Year" means a Plan
                    -------------------
Year during which the Plan is a Top Heavy Plan.

     Section 1.45.  Total and Permanent Disability.  "Total and Permanent
                    ------------------------------
Disability" shall mean disability resulting from bodily injury or disease so as
to prevent an Employee from engaging in any occupation or employment with the
Employer for remuneration or profit, provided that said disability shall have
continued for a period of six (6) consecutive months and, in the opinion of a
qualified physician chosen by the Employer, will be permanent and continuous
during the remainder of the Employee's life, but shall exclude a disability:

     (a)  Contracted, suffered or incurred while the Employee was engaged in, or
resulted from his or her having engaged in, a criminal enterprise;

     (b)  The result of his or her habitual drunkenness or addiction to or use
of narcotics;

     (c)  The result of a self-inflicted injury; or

     (d)  The result of future service in the Armed Forces of the United States
which prevents him or her from returning to the employment of the Company, and
for which he or she receives a military pension.

                                 Page 16 of 58
<PAGE>

     Section 1.46.  Trust Agreement.  "Trust Agreement" shall mean the Trust
                    ---------------
Agreement entered into by the Employer with the Trustee to hold the funds
necessary to provide the benefits as set forth in the Plan.

     Section 1.47.  Trustee.  "Trustee" shall mean the bank from time to time
                    -------
designated by the Employer to serve in such capacity with respect to the Plan.
The Trustee shall at all times be a banking corporation organized and doing
business under the laws of the United States of America or any state therein,
authorized under such laws to execute corporate trust powers and subject to
supervision or examination by Federal or State authority.

     Section 1.48   Trust Fund.  "Trust Fund" shall mean all cash, securities,
                    ----------
real estate, or any other property held by the Trustee pursuant to the terms of
the Trust Agreement, together with income therefrom.  As used herein "Trust
Fund" shall only refer to the allocable interest of the Plan as shown on the
records in and to a portion of the total assets and income administered by the
Trustee under the Trust Agreement with contributions furnished by the
corporation separately for purposes of each Plan whose assets are so commingled.

     Section 1.49   USERRA.  "USERRA" means the Uniformed Services Employment
                    ------
and Reemployment Rights Act of 1994.  Notwithstanding any provision of this Plan
to the contrary, effective December 12, 1994, contributions, benefits and
service credit with respect to qualified military service will be provided in
accordance Code Section 414(u).

     Section 1.50.  Vested.  "Vested" shall mean the portion of a Participant's
                    ------
benefits under the Plan which is not forfeitable.

                       ARTICLE II:  PLAN ADMINISTRATION
                       --------------------------------

     Section 2.01.  Named Fiduciary.
                    ---------------

     (a)  The Employer shall be the Named Fiduciary of the Plan within the
meaning of ERISA Section 402 and shall have authority to control and manage the
operation and administration of the Plan, unless the Board of Directors shall
appoint in writing and communicate to Participants another person, firm or
corporation to serve as Named Fiduciary.

     (b)  The following shall also be Named Fiduciaries of the Plan:

          (1)  The Board of Directors;

          (2)  The Trustee;

          (3)  Any entity designated as an Investment Manager or Named Fiduciary
     pursuant to a resolution of the Board of Directors of the Employer for the
     purpose of directing the Trustee in the investment or reinvestment of all
     or a part of the assets of the Trust, which resolution shall specify the
     portion, class or classes or dollar amount of the assets of the Trust with
     respect to which the Investment Manager or Named Fiduciary shall have
     investment discretion at the time of such appointment;

          (4)  Plan Administrator(s), if any, designated by the Employer
     pursuant to Section 2.02; and

          (5)  Any Affiliate whose employees are Participants in the Plan.

     Section 2.02.  Allocation Of Fiduciary Responsibilities; Designation Of A
                    ----------------------------------------------------------
Plan Administrator.
-------------------

     (a)  The Employer shall have the power to delegate and allocate specific
fiduciary responsibilities (other than

                                 Page 17 of 58
<PAGE>

those of the Trustee with respect to the control of the assets of the Plan),
including without limitation, to a Plan Administrator. Delegations of specific
fiduciary responsibilities may be to officers or employees of the Employer or to
other individuals, persons, firms or corporations, all of whom shall serve at
the pleasure of the Employer and, if full-time employees of the Employer,
without additional compensation by virtue of such duties. Vacancies created by
resignation, death or other cause may be filled by the Employer or the assigned
responsibilities may be reabsorbed or redelegated by the Employer. No person
shall be appointed by the Employer in violation of Section 411 of the Act.

     (b)  The Employer may designate a Plan Administrator to exercise the
powers, fulfill the responsibilities, and perform the duties enumerated in
Section 2.04. Any Plan Administrator so appointed shall signify acceptance of
such appointment by filing a written acceptance with the Employer.

          (1)  In the event the Employer does not exercise its power to
     designate a Plan Administrator, then the Employer, in addition to its
     responsibilities and duties under the Plan as Employer, shall serve in the
     capacity of Plan Administrator and shall exercise the powers, fulfill the
     responsibilities and perform the duties set forth in Section 2.04.

          (2)  If more than one Plan Administrator is appointed by the Employer,
     the responsibilities of each Plan Administrator may be specified by the
     Employer and accepted in writing by each Plan Administrator.  In the event
     that no such specification of responsibilities is made by the Employer, the
     Plan Administrators may allocate the responsibilities among themselves, in
     which event the Plan Administrators shall notify the Employer and the
     Trustee in writing of such action and specify the responsibilities of each
     Plan Administrator. The Trustee thereafter shall accept and rely upon any
     documents executed by the appropriate Plan Administrator until such time as
     the Employer or the Plan Administrators file with the Trustee a written
     revocation of such designation.  In the event there is more than one Plan
     Administrator and there has been no allocation and delegation of
     administrative authority among the Plan Administrators, then the Plan
     Administrators shall act by a majority of their number, but may authorize
     one or more of them to sign all papers on their behalf.

          (3)  A Plan Administrator may resign by delivering a written
     resignation to the Employer or be removed by the Employer by delivery of a
     written notice of removal, to take effect at a date specified therein or
     upon delivery to the Plan Administrator if no date is specified. The
     Employer, upon the resignation or removal of a Plan Administrator, shall
     promptly designate in writing a successor. If the Employer does not appoint
     a Plan Administrator, the Employer shall function as the Plan
     Administrator.

     (c)  The Employer and those persons to whom the Employer has delegated
fiduciary duties shall keep a record of all of their proceedings and actions and
shall maintain all such books of account, records and other data as shall be
necessary for the proper administration of the Plan and to meet the disclosure
and reporting requirements of the Act.

     Section 2.03.  Powers And Responsibilities Of The Employer.
                    -------------------------------------------

     (a)  The Employer shall be empowered to appoint and remove the Trustee and
appoint and remove the Plan Administrator as the Employer deems necessary for
the proper administration of the Plan to assure that the Plan is being operated
for the exclusive benefit of the Participants and their beneficiaries in
accordance with the terms of the Plan, the Code, and the Act.

     (b)  The Employer shall select, employ, and compensate from time to time
such pension consultants, actuaries, accountants, attorneys, advisers,
specialists and other agents and employees as the Employer may deem necessary or
advisable in the proper and efficient operation of the Plan.  Any agent or
employee so selected by the Employer may be a person or firm then, theretofore,
or thereafter serving the Employer in any capacity.  The Employer may, in its
discretion, appoint one or more Investment Managers to manage all or a
designated portion of the assets of the Plan. In such event, the Trustee, as
provided in Section 2.05(a), shall follow the directives of the Investment
Manger(s) in investing the assets of the Plan managed by the Investment
Manager(s).

     (c)  The Employer shall establish a "funding policy and method" (i.e., it
shall determine whether the Plan

                                 Page 18 of 58
<PAGE>

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

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

     (e)  To enable the Plan Administrator to perform his or her functions, the
Employer shall supply full and timely information to the Plan Administrator on
all matters relating to the compensation of all Participants, their Hours of
Service, their Service Years, their Continuous Service, their retirement, death,
disability, or termination of employment, and such other pertinent facts as the
Plan Administrator may require.

     (f)  Whenever the Employer under the terms of the Plan is permitted or
required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by the Board of Directors.

     Section 2.04.  Powers And Duties Of The Plan Administrator.
                    -------------------------------------------

     (a)  The primary responsibility of the Plan Administrator is to administer
the Plan for the exclusive benefit of the Participants and their beneficiaries,
subject to the specific terms of the Plan.

     (b)  The Plan Administrator shall administer the Plan in accordance with
its terms and shall have

          (1)  full and exclusive authority to determine all questions of
     coverage and eligibility arising under the Plan, and

          (2)  full power to construe the provisions of the Plan.

     The Plan Administrator shall have final, conclusive, discretionary
authority to construe all of the terms, provisions, conditions, and limitations
of the Plan.  The Plan Administrator shall have final, conclusive, discretionary
authority to make determinations regarding the eligibility of Members for
benefits under the Plan.  The aforementioned determinations and decisions of the
Plan Administrator shall be conclusive and binding upon all persons.

     (c)  The Plan Administrator may establish procedures, correct any defect,
supply any information, or reconcile any inconsistency in such manner and to
such extent as shall be deemed necessary or advisable to carry out the purpose
of the Plan; provided, however, that any procedure, discretionary act,
interpretation or construction shall be done in a nondiscriminatory manner based
upon uniform principles consistently applied and shall be consistent with the
intent that the Plan shall continue to be deemed a qualified plan under the
terms of Code Section 401(a), and shall comply with the terms of the Act and all
regulations issued pursuant thereto.  The Plan Administrator shall have all
powers necessary or appropriate to accomplish the Plan Administrator's duties
under the Plan.

     (d)  The Plan Administrator shall be charged with the general
administration of the Plan, including, but not limited to, the following:

          (1)  Determining all questions relating to the eligibility of
     Employees to become Participants, to remain

                                 Page 19 of 58
<PAGE>

     Participants in the Plan, and to receive benefits under the Plan. See
     Section 2.04(b).

          (2)  Interpreting the provisions of the Plan and making and publishing
     rules and regulations for the administration of the Plan that are
     consistent with the terms and provisions of the Plan and the Trust
     Agreement.  See Section 2.04(b).

          (3)  Selecting, employing and compensating from time to time such
     pension consultants, actuaries, accountants, attorneys, advisers,
     specialists and other agents and employees as the Plan Administrator may
     deem necessary or advisable in the proper and efficient administration of
     the Plan, subject to prior approval by the Employer. Any agent or employee
     so selected by the Plan Administrator may be a person or firm then,
     theretofore, or thereafter serving the Employer in any capacity.

          (4)  Selecting from time to time the issuing company or companies from
     which annuity contracts may be purchased as provided herein, and
     determining the form, type and kind of such contracts.

          (5)  Making all determinations and computations concerning the
     benefits, credits, and debits to which any Participant or beneficiary may
     be entitled under the Plan. See Section 2.04(b).

          (6)  Authorizing and directing the Trustee to pay from the Trust Fund
     as an administrative expense all costs and expenses incurred by the Plan
     Administrator in the administration of the Plan not paid directly by the
     Employer.

          (7)  Computing, certifying, and directing the Trustee with respect to
     the amount and the kind of benefits to which a Participant shall be
     entitled under the Plan.

          (8)  Authorizing and directing the Trustee with regard to all
     nondiscretionary or otherwise directed disbursements from the Trust.

          (9)  Keeping a record of all actions taken and to keeping all other
     books of account, records, and other data as may be necessary for the
     proper administration of the Plan and being responsible for supplying all
     information and reports to the Internal Revenue Service, Department of
     Labor, Participants, beneficiaries and others as required by law.

          (10) Computing and certifying to the Employer and to the Trustee from
     time to time the sums of money necessary or desirable to be contributed to
     the Plan.

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

          (12) Preparing and distributing any required notices and distribution
     forms, including but not limited to, notices concerning annuity
     distributions, as required by the Act and the Regulations thereunder.

          (13) Assisting any Participant regarding his or her rights, benefits,
     or elections available under the Plan.

          (14) Determining whether a Participant is disabled for the purposes of
     Section 3.04.

     (e)  The Plan Administrator may rely upon the information furnished to the
Plan Administrator by the Employer under Section 2.03(e) and shall have no duty
or responsibility to verify such information.  The Plan Administrator shall
advise the Trustee of such information provided by the Employer as may be
pertinent to the Trustee's duties under the Plan.

                                 Page 20 of 58
<PAGE>

     Section 2.05.  Powers And Duties Of The Trustee.
                    --------------------------------

     (a)  The Trustee shall have such powers to hold, invest, reinvest, control,
and disburse funds as at that time shall be set forth in the Trust Agreement.
The Trustee shall exercise the aforementioned powers consistent with the
"funding method" and "funding standards" referred to in Article IV and subject
to the direction of one or more Investment Managers as to all or a portion of
the assets of the Plan, if the Employer should appoint such Investment
Manager(s) as provided in Section 2.03(b).

     (b)  The Employer may remove the Trustee at any time upon notice required
by the terms of the Trust Agreement, and upon such removal or upon the
resignation of the Trustee, the Board of Directors shall designate and appoint a
successor Trustee.

     Section 2.06.  Powers And Duties Of The Actuary.
                    --------------------------------

     (a)  The Actuary employed by the Employer shall make all actuarial
calculations and perform all duties required of the Actuary and/or necessary in
the administration of the Plan.  Neither the Employer nor the Trustee shall be
liable for the actuarial correctness of any determination made by the Actuary.

     (b)  In making an actuarial valuation of the Plan and Trust from time to
time, the Actuary may rely upon the written statement of the Trustee concerning
the assets in the Trust and shall not be required to make any independent
calculations with respect thereto.  The Actuary shall certify to the Employer in
writing the results of the calculations required of the Actuary and the
Employer, Plan Administrator, and the Trustee may rely thereon.  In making all
calculations hereunder, the Actuary shall use such actuarial tables as the
Actuary deems appropriate, but the Actuary shall use the same tables in making
calculations during a specified period; provided, however, the Actuary, with the
consent of the Employer, may from time to time change the actuarial tables and
other assumptions used by him or her hereunder.

     (c)  The Employer, Plan Administrator, and the Trustee shall furnish the
Actuary such information concerning Employees, payrolls, and other related data
as the Actuary may require from time to time.  The Actuary may rely upon any
information furnished to the Actuary by the Employer, Plan Administrator, or the
Trustee.

     Section 2.07.  Claims For Benefits.
                    -------------------

     (a)  A Claimant must make a claim in writing to the Plan Administrator for
any benefit under the provisions of the Plan.

     (b)  The Plan Administrator shall, within ninety (90) days of receipt of
such claim, provide to the Claimant written notice of the disposition of the
claim.  If the Plan Administrator denies in whole or in part a claim for
benefits, write a letter to the Claimant setting forth the reasons for denial in
language calculated to be understood by the Claimant, with specific reference to
applicable Plan provisions and an explanation of the necessary steps to be taken
by the Claimant to perfect the claim.  The Claimant shall also be furnished an
explanation of the Plan's review procedure.  Even if the Claimant does not
receive such notice within such period, he or she shall have the right to
proceed under paragraph (c), below, as in the case of receipt of a denial on the
90th day after filing.

     (c)  Any Claimant for a benefit (or, as applicable, his or her estate or
other representative or beneficiary) who has been denied a benefit by decision
of the Plan Administrator pursuant to the immediately preceding paragraph (b)
may, within sixty (60) days after receipt of the letter, referred to in the
immediately preceding paragraph (b), appeal to the Plan Administrator and
request a review of the denial of benefits with the opportunity to appear in
person or, at the Claimant's option, to submit his or her position in writing.
In the event a hearing is held, the Claimant may be represented by an attorney
or other representative of his or her choosing and shall have the opportunity to
submit written or oral evidence and arguments in support of his or her claim.
At the hearing (or prior thereto upon five (5)

                                 Page 21 of 58
<PAGE>

business days written notice to the Plan Administrator) the Claimant or his or
her representative shall have an opportunity to review all documents in the
possession of the Plan Administrator that are pertinent to the claim at issue
and to disallowance of the claim. Either the Claimant or the Plan Administrator
may cause a court reporter to attend the hearing and record the proceedings, and
in such event a complete written transcript of the proceedings shall be
furnished to both parties by the court reporter. The full expense of any such
court reporter and such transcripts shall be borne by the party causing the
court reporter to attend the hearing.

          The Plan Administrator, not later than sixty (60) days after receipt
of the request for review (or one hundred and twenty (120)) days, if a hearing
is held) after the request for review referred to in the foregoing provision of
this paragraph (c) is received, shall render a written decision written in a
manner calculated to be understood by the Claimant and mail the decision to the
Claimant at the Claimant's last address known to the Employer specifying by
reference to the Plan the reasons for the denial of such part or all of the
claimed benefits.

     (d)  The Plan Administrator shall cause to be paid promptly any part or all
of a benefit determined on review to be proper and otherwise due to be paid or,
if the claim related to a matter of record rather than payment, cause such
records to be properly changed.

     (e)  For purposes hereof, any calculation of Service Years, Continuous
Service, Vested interest or Accrued Benefits which is required or permitted to
be disclosed to any person with respect to the Plan shall be considered to have
been a "benefit claimed" if written challenge thereto or disagreement therewith
is filed by the recipient thereof with the Plan Administrator, and, in such
event, the foregoing provisions of this Section 2.07 shall apply.

     Section 2.08.  Completion Of Forms And Submission Of Proof By Participants.
                    -----------------------------------------------------------
Each Participant entitled to receive benefits under the Plan shall complete such
forms and furnish such proofs as shall be required by the Plan Administrator.

     Section 2.09.  Payment Of Expenses.  All expenses of administration may be
                    -------------------
paid out of the Trust Fund unless paid by the Employer.  Such expenses shall
include any expenses incident to the functioning of the Plan Administrator,
including, but not limited to, fees of pension consultants, actuaries,
accountants, attorneys, advisers, and other specialists and their agents, and
other costs of administering the Plan, including, to the extent provided in the
Trust Agreement, expenses incurred by the Trustee in performing its duties.
Until paid, the expenses shall constitute a liability of the Trust Fund.

                            ARTICLE III:  BENEFITS
                            ----------------------

     Section 3.01.  Normal Retirement.
                    -----------------

     (a)  When a Participant continues his or her employment with the Employer
to his or her Normal Retirement Date, he or she shall have a nonforfeitable
(Vested) right to a Monthly Retirement Income for life, in an amount calculated
by the Actuary and certified to the Trustee by the Employer. Upon termination of
services for the Employer on a Participant's Normal Retirement Date, the
Participant shall be entitled to receive payment of a Monthly Retirement Income.

     (b)  The amount of a Participant's Monthly Retirement Income payable on his
or her Normal Retirement Date shall be One and Three-Tenths percent (1.3%) of
the Participant's Average Monthly Earnings multiplied by his or her years of
Continuous Service.

     (c)  In no event shall a Participant receive a Monthly Retirement Income at
his or her Normal Retirement Date which is in excess of Fifty Percent (50%) of
his or her Monthly Earnings averaged during the twelve (12) months immediately
prior to his or her Normal Retirement Date, nor one which is less than the
largest periodic benefit that would have been payable to the Participant upon
separation from service at or prior to the Normal Retirement

                                 Page 22 of 58
<PAGE>

Date under the Plan.

     (d)  For purposes of comparing periodic benefits in the same form,
commencing prior to and at Normal Retirement Date, the greater benefit is
determined by converting the benefit payable prior to the Participant's Normal
Retirement Date into the same form of annuity benefit payable at the Normal
Retirement Date and comparing the amount of such annuity payments.

     (e)  No Retired Participant shall receive less than Fifty Dollars ($50.00)
per month; however, this Section 3.01(e) shall not apply to any Participant who
first performs an Hour of Service after December 31, 1988, or to any Participant
to whom Sections 3.01 or 3.02 do not apply.

                                 Page 23 of 58
<PAGE>

     Section 3.02.  Deferred Retirement.
                    -------------------

     (a)  A Participant whose employment terminates, for any reason other than
death, on the Deferred Retirement Date and before his or her Required Beginning
Date shall be entitled to receive a retirement benefit equal to his or her
Accrued Benefit as of his or her Deferred Retirement Date.

     (b)  A Participant who continues employment after his or her Normal
Retirement Date shall receive a Suspension of Benefits Notice pursuant to
Section 3.02(e) below.

     (c)  A Participant who continues employment after his or her Required
Beginning Date shall be entitled to receive a retirement benefit as described in
Article III.

     (d)  The annuity commencement date of any Participant who is to receive his
or her benefit pursuant to Section 3.02(a) shall be the first day of the month
coinciding with or next following his or her Deferred Retirement Date.

     (e)  Upon the reemployment, or continued employment, of a Participant after
his or her Normal Retirement Date, retirement benefits in pay status shall be
suspended only in accordance with the applicable provisions of Section 3.10.

     Section 3.03.  Early Retirement.  A Participant whose employment with the
                    ----------------
Employer is terminated except by death or Total and Permanent Disability may
retire from the employ of the Employer upon attainment of age sixty (60), and
the completion of at least seven (7) years of Continuous Service.  The amount of
the pension shall be computed in the same manner as a pension payable under
Section 3.01 except that it shall be based on Continuous Service and/or Average
Monthly Earnings to date of early retirement.  If a retiring or terminating
Participant has complied with the applicable requirements for early retirement
at the time his or her employment ceases, he or she may elect one of the
following benefits, subject to the provisions of Article III pertaining to the
distribution of benefits:

     (a)  A deferred pension at the age of sixty-five (65) in the full amount as
set forth in the Plan, but based on Continuous Service and/or Average Monthly
Earnings to date of early retirement; or

     (b)  An immediate pension, for Participants who are not receiving early
retirement benefits as of January 1, 1989, commencing at early retirement equal
to the Vested Accrued Benefit at the time of termination of active employment
but reduced by one-half percent (0.5%) for each month from Normal Retirement
Date to Early Retirement Date (subject to the receipt of all necessary consents
pursuant to Article III).

     Section 3.04.  Total And Permanent Disability.
                    ------------------------------

     (a)  If and when the Plan Administrator in his or her sole discretion and
based upon proper medical authority certified to by a physician of its choosing
and other information shall find a Participant with at least seven (7) years of
Continuous Service to be, at the time of the Participant's separation from
service, Totally and Permanently Disabled (see Section 1.45) and shall certify
such fact to the Trustee, then such disabled Participant shall be entitled to
receive the greater of the amount of Monthly Retirement Income the Participant
would have received under Section 3.01, or $100.00 per month.

     (b)  If the disabled Participant recovers prior to Normal Retirement Date,
the Plan Administrator shall immediately direct the Trustee to discontinue the
disability payments.

     (c)  If the disabled Participant recovers prior to Normal Retirement Date
and returns to the employ of the Employer within a period of time after recovery
which the Plan Administrator deems reasonable, he or she shall on

                                 Page 24 of 58
<PAGE>

actual return to employment again become an active Participant in the Plan and
shall be entitled to the benefits provided hereunder as if he or she had never
been Totally and Permanently Disabled; provided, however, that the benefits to
which he or she may become entitled hereunder shall be reduced by the Actuarial
Equivalent of the disability payments received, as certified to the Plan
Administrator by the Actuary.

     (d)  The Plan Administrator shall have the right from time to time to have
a medical examination or examinations made by a duly licensed physician or
physicians to determine whether total disability is continuing, and to ascertain
from the disabled Participant by warranties or otherwise the extent to which he
or she has had his or her earning ability restored, and upon such findings to
discontinue payments accordingly. If the disabled Participant refuses to submit
to such medical examinations, or to submit any other information requested, the
Plan Administrator shall have the power to suspend or withhold the payment of
any benefit until the Participant does so submit. Should a Participant falsify
any such statement, his or her benefit shall immediately terminate. Based upon
such examination and statement of the Participant, the Plan Administrator shall
determine whether the Participant is totally disabled, the extent of recovery
attained, or whether such disability has fully ceased. In the event a
Participant receives any benefit payments under the Plan because of a
misrepresentation regarding his or her recovery, or failure to disclose
recovery, the Plan Administrator will seek to obtain recovery of all such
payments, by offsetting subsequent retirement payments or by any other
reasonable means, to the extent that the Plan Administrator determines that the
amount involved warrants recovery efforts.

     Section 3.05.  Benefit Distribution.
                    --------------------

     (a)  General Application.  Subject to the provisions of the
          -------------------
Section 3.05(b)-(k) and Section 3.06 and notwithstanding any other provision of
the Plan, the form of an early, normal, or deferred retirement benefit or
disability retirement benefit (only if disabled Employee met the requirements of
Section 3.03 as well) under the Plan to a married Participant shall be a joint
and survivor annuity under which such Retired Participant will receive the
Actuarial Equivalent of his or her retirement benefit otherwise calculated
pursuant to the terms of the Plan during his or her lifetime following actual
retirement, and after his or her death one-half of such monthly income payable
to him or her shall be payable to his or her spouse for the lifetime of his or
her spouse.

          (1)  The provisions of Section 3.05(b)-(k) shall apply to any
     Participant who is credited with at least one Hour of Service with the
     Employer on or after August 23, 1984.

          (2)  On and after January 1, 1985, the provisions of Section 3.05(b)-
     (k) shall take precedence over any conflicting provision in the Plan, but
     shall not be construed so as to grant a benefit to any person, unless and
     only to the extent that by Plan provisions other than Section 3.05(b)-(k),
     the subject Participant or Former Participant would have, if living on the
     date of his or her death, a nonforfeitable right to any portion of his or
     her Accrued Benefit.

     (b)  Qualified Joint And Survivor Annuity; Immediate Life Annuity.  Unless
          ------------------------------------------------------------
otherwise elected by a Participant pursuant to a qualified election, as provided
below, a married Participant's Vested Accrued Benefit shall be paid in the form
of a qualified joint and survivor annuity.  An unmarried Participant's Vested
Accrued Benefit shall be paid in the form of an immediate life annuity.

          (1)  A qualified joint and survivor annuity is an annuity payable
     during the joint lives of the Participant and the Participant's spouse that
     commences immediately and which shall be the Actuarial Equivalent of an
     immediate life annuity, or, if greater, any optional form of benefit. Such
     joint and survivor benefits following the Participant's death shall
     continue to the spouse during the spouse's lifetime at a rate equal to
     fifty percent (50%) of the rate at which such benefits were payable to the
     Participant. This joint and 50% survivor annuity shall be considered the
     designated qualified joint and survivor annuity and automatic form of
     payment for the purposes of the Plan. However, the Participant may elect to
     receive a smaller annuity

                                 Page 25 of 58
<PAGE>

     benefit with continuation of payments to the Participant's spouse at the
     rate of one hundred percent (100%) of the rate payable to a Participant
     during his or her lifetime, which alternative joint and survivor annuity
     shall be the Actuarial Equivalent of the automatic joint and 50% survivor
     annuity.

          (2)  The joint and survivor annuity and the immediate life annuity
     forms of distribution shall be the Actuarial Equivalent of the benefits due
     the Participant.

          (3)  A Participant may elect to have the annuity applicable to him or
     her under Section 3.05(b) distributed upon attainment of the Earliest
     Retirement Age under the Plan.

     (c)  Spouse.  "Spouse," for the purposes of this Section 3.05, shall mean
          ------
the spouse of a Participant; provided, however, that a former spouse will be
treated as the Participant's spouse (and a current spouse will not be treated as
the Participant's spouse) to the extent provided under a qualified domestic
relations order as described in Code Section 414(p).

          (1)  Notwithstanding the provisions of this Section 3.05 or other Plan
     provisions, a person will not be treated as the spouse of a Participant or
     Former Participant unless the Participant and such person had been married
     through the one-year period ending on the earlier of

               (i)  the Participant's annuity starting date, or

               (ii) the date of the Participant's death.

          (2)  For the purposes of this Section 3.05, if

               (i)  a Participant marries within one year before the annuity
          starting date, and

               (ii) the Participant and his or her spouse in such marriage have
          been married for at least a one-year period ending on or before the
          date of his or her death,

     the Participant and such spouse shall be treated as having been married
     throughout the one-year period ending on his or her annuity starting date.

     (d)  Annuity Starting Date.  The annuity starting date is the first day of
          ---------------------
the first period for which an amount is paid as an annuity, or, in the case of a
benefit not payable in the form of an annuity, the first day on which all events
have occurred which entitle the Participant to such benefit.

          (1)  The annuity starting date for disability benefits shall be the
     date such benefits commence, if the disability benefit is not an auxiliary
     benefit.

          (2)  An auxiliary benefit is a disability benefit which does not
     reduce the benefit payable at the Normal Retirement Date.

     (e)  Qualified Election.  A qualified election is a waiver of a qualified
          ------------------
joint and survivor annuity or the immediate life annuity.

          (1)  Any election to waive the joint and survivor annuity must be made
     by the Participant in writing during the election period and be consented
     to by the Participant's spouse. If the spouse is legally incompetent to
     give consent, the spouse's legal guardian, even if such guardian is the
     Participant, may give consent. Such election shall designate a (1)
     beneficiary (including any class of beneficiaries or any

                                 Page 26 of 58
<PAGE>

     contingent beneficiaries) that may not be changed without spousal consent
     (unless the consent of the spouse expressly permits designations by the
     Participant without the requirement of further consent by the spouse) and
     (2) a form of benefits, that may not be changed without spousal consent
     (unless the consent of the spouse expressly permits designations by the
     Participant without the requirement of further consent by the spouse). Such
     spouse's consent shall be irrevocable and must acknowledge the effect of
     such election and be witnessed by a Plan representative or a notary public.
     Such consent shall not be required if it is established to the satisfaction
     of the Plan Administrator that the required consent cannot be obtained
     because there is no spouse, the spouse cannot be located, or other
     circumstances that may be prescribed by the Regulations. The election made
     by the Participant and consented to by his or her spouse may be revoked by
     the Participant in writing without the consent of the spouse at any time
     during the election period. The number of revocations shall not be limited.
     Any new election must comply with the requirements of this paragraph (e). A
     former spouse's waiver shall not be binding on a new spouse.

          (2)  An unmarried Participant may elect in writing to waive the
     immediate life annuity. The election must comply with the provisions of
     this Section 3.05(e) as if it were an election to waive the joint and
     survivor annuity by a married Participant, but without the spousal consent
     requirement.

     (f)  Election Period.  The election period to waive the joint and survivor
          ---------------
annuity shall be the ninety-day period ending on the "annuity starting date."

     (g)  Notice To Be Provided To Participants.  With regard to the qualified
          -------------------------------------
election, the Plan Administrator shall provide to the Participant, no less than
thirty (30) days and no more than ninety (90) days before the annuity starting
date, a written explanation of the following:

          (1)  The terms and conditions of the joint and survivor annuity, and

          (2)  The Participant's right to make, and the effect of, an election
     to waive the joint and survivor annuity, and

          (3)  The right of the Participant's spouse to consent to any election
     to waive the joint and survivor annuity, and

          (4)  The right of the Participant to revoke such election, and the
     effect of such revocation, and

          (5)  The relative values of the various optional forms of benefit
     under the Plan.

               (i)  Notwithstanding the other requirements of Section 3.05, the
          respective notices prescribed by Section 3.05(g) need not be given to
          a Participant if

                    (A)  the Plan "fully subsidizes" the costs of a qualified
               joint and survivor annuity, and

                    (B)  the Plan does not allow the Participant to waive the
               qualified joint and survivor annuity and does not allow a married
               Participant to designate a non-spouse beneficiary.

               (ii) For purposes of this Section 3.05(g), the Plan fully
          subsidizes the costs of a benefit if under the Plan no increase in
          cost or decrease in benefits to the Participant may result from the
          Participant's failure to elect another benefit.

     (h)  Lump Sum Distribution Option.  In the event a married Participant duly
          ----------------------------
elects pursuant to the immediately preceding paragraph (e) not to receive
benefits in the form of a joint and survivor annuity, or if such

                                 Page 27 of 58
<PAGE>

Participant is not married, in the form of an immediate life annuity, the Plan
Administrator, pursuant to the election of the Participant, shall direct that
the Participant's benefits be distributed in accordance with the provisions of
Section 3.08.

     (i)  Distribution Limitations.  Notwithstanding any provision in the Plan
          ------------------------
to the contrary, the distribution of a Participant's benefits made on or after
January 1, 1985 shall be made in accordance with the following requirements and
shall otherwise comply with Code Section 401(a)(9) and the Regulations
thereunder (including Regulation 1.401(a)(9)-2), the provisions of which are
incorporated herein by reference:

          (1)  A Participant's benefits shall be distributed to him or her not
     later than April 1st of the calendar year following the later of (i) the
     calendar year in which the Participant attains age 70 1/2 or (ii) the
     calendar year in which the Participant retires, provided, however, that
     this clause (ii) shall not apply in the case of a Participant who is a
     "five (5) percent owner" at any time during the five (5) Plan Year period
     ending in the calendar year in which he or she attains age 70 1/2 or, in
     the case of a Participant who becomes a "five (5) percent owner" during any
     subsequent Plan Year, clause (ii) shall no longer apply and the required
     beginning date shall be the April 1st of the calendar year following the
     calendar year in which such subsequent Plan Year ends. Alternatively,
     distributions to a Participant must begin no later than the applicable
     April 1st as determined under the preceding sentence and must be made over
     the life of the Participant (or the lives of the Participant and the
     Participant's designated beneficiary) or the life expectancy of the
     Participant (or the life expectancies of the Participant and his or her
     designated beneficiary) in accordance with Regulations.  Notwithstanding
     the foregoing, clause (ii) above shall not apply to any Participant unless
     the Participant had attained age 70 1/2 before January 1, 1988 and was not
     a "five (5) percent owner" at any time during the Plan Year ending with or
     within the calendar year in which the Participant attained age 66 1/2 or
     any subsequent Plan Year.

          (2)  Distributions to a Participant and his or her Beneficiaries shall
     only be made in accordance with the incidental death benefit requirements
     of Code Section 401(a)(9)(G) and the Regulations thereunder. Additionally,
     for calendar years beginning before 1989, distributions may also be made
     under an alternative method which provides that the then present value of
     the payments to be made over the period of the Participant's life
     expectancy exceeds fifty percent (50%) of the then present value of the
     total payments to be made to the Participant and his or her Beneficiaries.

     (j)  Calculation Of Life Expectancy.  Life expectancy and joint and last
          ------------------------------
survivor expectancy shall be computed using the return multiples in Tables V and
VI of Regulation 1.72-9.  For purposes of this Section 3.05, the life expectancy
of a Participant and a Participant's spouse (other than in the case of a life
annuity) shall not be subject to recalculation.

     (k)  Transitional Rule.  Subject to the spouse's right of consent afforded
          -----------------
under the Plan, the restrictions imposed by this Section 3.05 shall not apply if
a Participant has, prior to January 1, 1984, made a written designation to have
his or her retirement benefit paid in an alternative method acceptable under
Code Section 401(a) as in effect prior to the enactment of the Tax Equity and
Fiscal Responsibility Act of 1982.

     Section 3.06.  Distribution Of Benefits Upon Death.
                    -----------------------------------

     (a)  General Application.  The provisions of Section 3.06 shall apply to
          -------------------
any Participant who is credited with at least one Hour of Service with the
Employer on or after August 23, 1984. Under the provisions of Section 3.06, a
married Participant in active employment may elect to provide for the payment of
monthly benefits to his or her surviving spouse in the event of his or her death
while he or she is actively employed. On and after January 1, 1985, the
provisions of Section 3.06 shall take precedence over any conflicting provision
in the Plan, but shall not be construed so as to grant a benefit to any person,
unless and only to the extent that by Plan provisions other than Section 3.06,
the subject Participant or Former Participant would have, if living on the date
of his or her death, a

                                 Page 28 of 58
<PAGE>

nonforfeitable right to any portion of his or her Accrued Benefit.

          (1)  After January 1, 1985, certain Former Participants of the Plan,
     as provided in Article III, may elect to provide for the payment of monthly
     benefits to a surviving spouse in the event of the Participant's death
     while the Participant is actively employed.

          (2)  Prior to December 31, 1984, regardless of a Participant's
     election or failure to elect to provide for the payment of monthly benefits
     to the Participant's surviving spouse in the event of the Participant's
     death while the Participant was actively employed and regardless of the
     Participant's designation of a beneficiary, if a Participant remained
     employed past the Participant's Normal Retirement Date and died prior to
     termination of service with the Employer, the Participant's surviving
     spouse was entitled to receive a fifty percent (50%) survivor annuity as if
     the deceased Participant had retired on the day prior to the Participant's
     date of death and had been entitled under Section 3.05 to a qualified
     annuity with a fifty percent (50%) survivor benefit, which qualified
     annuity was the Actuarial Equivalent of the then value of the Participant's
     deferred payment account, provided that the Participant's surviving spouse
     had been married to the Participant throughout the one-year period ending
     on the Participant's date of death. Otherwise, if a Participant died after
     the Participant's Normal Retirement Date while still in the employ of the
     Employer under the Deferred Retirement provisions of the Plan, the
     Participant's surviving spouse, or if none, the Participant's beneficiary
     designated in a writing filed with the Employer (otherwise, the
     Participant's estate), was entitled to receive as a death benefit one-half
     of the value of the Participant's deferred payment account. The payment of
     the death benefit was made by the Trustee from the Trust Fund at such time,
     and in such form, as directed by the Employer.

               As used in the foregoing provisions of this Section 3.06(a)(2),
     "deferred payment account" refers to the single sum actuarial value of the
     Participant's Monthly Retirement Income as of the Participant's Normal
     Retirement Date, as calculated by the Actuary and certified to the Employer
     by the Actuary.  In calculating the assets and the liabilities of the Plan,
     the Actuary carried the Participant's deferred payment account as a
     liability of the Plan.

     (b)  Qualified Pre-retirement Survivor Annuity.
          -----------------------------------------

          (1)  Unless an optional form of benefit is selected within the
     election period pursuant to a qualified election,

               (i)  if a Participant dies after the Earliest Retirement Age, and

               (ii) thus would have been, if living, Vested in a benefit,

     the Participant's surviving spouse (if any) will receive the same benefit
     that would be payable if the Participant had retired with an immediate
     qualified joint and survivor annuity, unless an optional form of benefit is
     selected within the election period pursuant to a qualified election. The
     surviving spouse may direct that payment under the annuity commence within
     a reasonable period after the Participant's death.  If the surviving spouse
     does not so direct, payment of such benefit will commence at the time the
     Participant would have attained the later of his or her Normal Retirement
     Date or age 62.  However, the surviving spouse may elect a later
     commencement date, subject to the rules specified in Section 3.06(i).  The
     actuarial value of benefits which commence later than the date on which
     payments would have been made to the surviving spouse under a qualified
     joint and survivor annuity in accordance with this provision shall be
     adjusted to reflect the delayed payment.

          (2)  Unless an optional form of benefit is selected within the
     election period pursuant to a qualified election, if a Participant whose
     Accrued Benefits are Vested under the terms of the Plan dies on or before

                                 Page 29 of 58
<PAGE>

     the Earliest Retirement Age, the Participant's surviving spouse (if any)
     will receive the same benefit that would be payable if the Participant had:

               (i)   separated from service on the earlier of the actual time of
          separation or the date of his or her death,

               (ii)  survived to the Earliest Retirement Age,

               (iii) retired with an immediate joint and survivor annuity at the
          Earliest Retirement Age based on his or her Vested Accrued Benefit on
          his or her date of death, and

               (iv)  died on the day after the day on which said Participant
          would have attained the Earliest Retirement Age.

     (c)  Surviving Spouse.  "Surviving spouse," as used in this Section 3.06,
          ----------------
shall mean the surviving spouse of a Participant; provided, however, that a
former spouse will be treated as the Participant's surviving spouse (and a
current spouse will not be treated as the Participant's surviving spouse) to the
extent provided under a qualified domestic relations order as described in Code
Section 414(p).

          (1)  Notwithstanding the provisions of this Section 3.06 or other Plan
     provisions, a person will not be treated as the surviving spouse of a
     Participant or Former Participant unless the Participant and such person
     had been married through the one-year period ending on the earlier of

               (i)   the Participant's annuity starting date, or

               (ii)  the date of the Participant's death.

          (2)  For the purposes of this Section 3.06, if

               (i)   a Participant marries within one year before the annuity
          starting date, and

               (ii)  the Participant and his or her spouse in such marriage have
          been married for at least a one-year period ending on or before the
          date of his or her death,

     the Participant and such spouse shall be treated as having been married
     throughout the one-year period ending on his or her annuity starting date.

     (d)  Annuity Starting Date.  Annuity starting date shall have the meaning
          ---------------------
set forth in Section 3.05(d).

     (e)  Qualified Election.  A qualified election is a waiver of the Pre-
          ------------------
retirement Survivor Annuity.  Any election to waive the Pre-Retirement Survivor
Annuity before the Participant's death must be made by the Participant in
writing during the election period and shall require the spouse's irrevocable
consent in the same manner provided for in Section 3.05(e)(1).  Further, the
spouse's consent must acknowledge the specific nonspouse beneficiary.
Notwithstanding the foregoing, the nonspouse beneficiary need not be
acknowledged, provided the consent of the spouse acknowledges that the spouse
has the right to limit consent only to a specific beneficiary and that the
spouse voluntarily elects to relinquish such right.

     (f)  Election Period.  The election period to waive the Pre-Retirement
          ---------------
Survivor Annuity shall begin on the first day of the Plan Year in which the
Participant attains age 35 and end on the date of the Participant's death.  An
earlier waiver (with spousal consent) may be made provided (1) a written
explanation of the Pre-Retirement Survivor Annuity, which contains comparable
information to that required by Section 3.05(g), is given to the Participant and

                                 Page 30 of 58
<PAGE>

(2) such waiver becomes invalid at the beginning of the Plan Year in which the
Participant turns age 35, with any subsequent waiver being subject to the full
requirements of this Section 3.06.  In the event a Vested Participant separates
from service prior to the beginning of the election period, the election period
shall begin on the date of such separation from service.

     (g)  Notice To Be Provided To Participants.  With regard to the qualified
          -------------------------------------
election, the Plan Administrator shall provide each Participant within the
applicable period, with respect to such Participant (and consistent with
Regulations), a written explanation of the Pre-Retirement Survivor Annuity
containing comparable information to that required pursuant to Section 3.05(g).
For the purposes of this Section 3.06(g), the term "applicable period" means,
with respect to a Participant, whichever of the following periods ends last:

          (1)  The period beginning with the first day of the Plan Year in which
     the Participant attains age 32 and ending with the close of the Plan Year
     preceding the Plan Year in which the Participant attains age 35;

          (2)  A reasonable period after the individual becomes a Participant;

          (3)  A reasonable period ending after the Plan no longer fully
     subsidizes the cost of the Pre-Retirement Survivor Annuity with respect to
     the Participant;

          (4)  A reasonable period ending after Code Section 401(a)(11) applies
     to the Participant; or

          (5)  A reasonable period after separation from service in the case of
     a Participant who separates before attaining age 35. For this purpose, the
     Plan Administrator must provide the explanation beginning one year before
     the separation from service and ending one year after such separation. If
     such a Participant thereafter returns to employment with the Employer, the
     applicable period for such Participant shall be redetermined.

     For purposes of applying this Section 3.06(g), a reasonable period ending
after the enumerated events described in the immediately preceding paragraphs
(2), (3) and (4) is the end of the two year period beginning one year prior to
the date the applicable event occurs, and ending one year after that date.

               (i)  Notwithstanding the other requirements of Section 3.06, the
          respective notices prescribed by Section 3.06 need not be given to a
          Participant if

                    (A)  the Plan "fully subsidizes" the costs of a qualified
               Pre-retirement Survivor Annuity, and

                    (B)  the Plan does not allow the Participant to waive the
     qualified Pre-retirement Survivor Annuity and does not allow a married
     Participant to designate a non-spouse beneficiary.

               (ii) For purposes of this Section 3.06, the Plan fully subsidizes
          the costs of a benefit if under the Plan no increase in cost or
          decrease in benefits to the Participant may result from the
          Participant's failure to elect another benefit.

     (h)  Lump Sum Distribution Option.  In the event the death benefit is not
          ----------------------------
distributed in the form of a Pre-Retirement Survivor Annuity, it shall be
distributed in accordance with the provisions of Section 3.08.

     (i)  Distribution Limitations.  Notwithstanding any provision in the Plan
          ------------------------
to the contrary, distributions upon the death of a Participant made on or after
January 1, 1985 shall be made in accordance with the following requirements and
shall otherwise comply with Code Section 401(a)(9) and the Regulations
thereunder.  Distributions to the Participant's surviving spouse must commence
on or before the later of: (1) December 31st of the calendar year immediately
following the calendar year in which the Participant died; or (2) December
31st of the calendar year in

                                 Page 31 of 58
<PAGE>

which the Participant would have attained age 70 1/2. If it is determined
pursuant to Regulations that the distribution of a Participant's interest has
begun and the Participant dies before his or her entire interest has been
distributed to him or her, the remaining portion of such interest shall be
distributed at least as rapidly as under the method of distribution selected
pursuant to Section 3.05 as of his or her date of death.

     However, the 5-year distribution requirement of the immediately preceding
paragraph shall not apply to any portion of the deceased Participant's interest
which is payable to or for the benefit of a designated beneficiary.  In such
event, such portion may, at the election of the Participant (or the
Participant's designated beneficiary), be distributed over the life of such
designated beneficiary (or over a period not extending beyond the life
expectancy of such designated beneficiary) provided such distribution begins not
later than December 31st of the calendar year immediately following the calendar
year in which the Participant died.  However, in the event the Participant's
surviving spouse is his or her beneficiary, the requirement that distributions
commence within one year of a Participant's death shall not apply.  In lieu
thereof, distributions must commence on or before the later of: (1) December
31st of the calendar year immediately following the calendar year in which the
Participant died; or (2) December 31st of the calendar year in which the
Participant would have attained age 70 1/2.  If the surviving spouse dies before
distributions to such spouse begin, then the 5-year distribution requirement of
this Section shall apply as if the spouse was the Participant.

     For purposes of Section 3.05(i), the election by a designated beneficiary
to be excepted from the 5-year distribution requirement must be made no later
than December 31st of the calendar year following the calendar year of the
Participant's death.  Except, however, with respect to a designated beneficiary
who is the Participant's surviving spouse, the election must be made by the
earlier of: (1) December 31st of the calendar year immediately following the
calendar year in which the Participant died or, if later, the calendar year in
which the Participant would have attained age 70 1/2; or (2) December 31st of
the calendar year which contains the fifth anniversary of the date of the
Participant's death.  An election by a designated beneficiary must be in writing
and shall be irrevocable as of the last day of the election period stated
herein.  In the absence of an election by the Participant or a designated
beneficiary, the 5-year distribution requirement shall apply.

     (j)  Calculation Of Life Expectancy.  Life expectancy and joint and last
          ------------------------------
survivor expectancy shall be computed using the return multiples in Tables V and
VI of Regulation 1.72-9.  For purposes of this Section 3.06, the life expectancy
of a Participant and a Participant's spouse (other than in the case of a life
annuity) shall not be subject to recalculation.

     (k)  Transitional Rule.  Subject to the spouse's right of consent afforded
          -----------------
under the Plan, the restrictions imposed by this Section shall not apply if a
Participant has, prior to January 1, 1984, made a written designation to have
his or her death benefits paid in an alternative method acceptable under Code
Section 401(a) as in effect prior to the enactment of the Tax Equity and Fiscal
Responsibility Act of 1982.

     Section 3.07.  Determination Of Accrued Benefits Upon Termination.
                    ---------------------------------------------------

     (a)  When the employment of a Participant by the Employer shall be
terminated for any reason other than death or retirement (including disability
retirement, early retirement, or deferred retirement), such Participant shall
cease to be an active Participant in the Plan, and the Accrued Benefit of such
Participant shall be determined as follows:

          (1)  With respect to Employees who have at least one Hour of Service
     on or after January 1, 1989: If at the time of termination as an Employee
     (or if employed thereafter by the Employer in any capacity or by an
     Affiliate, at the time of termination of service for the Employer and all
     Affiliates) the Employee is a Participant with either seven (7) years of
     Continuous Service or five (5) Service Years, the Accrued Benefit under the
     Plan shall be Vested and payable at Normal Retirement Age in accordance
     with the benefit distribution provisions contained in Article III (and
     nonforfeitable except in the event of death prior to

                                 Page 32 of 58
<PAGE>

     Normal Retirement Date without a surviving spouse); or

          (2)  With respect to Employees who do not have at least one Hour of
     Service on or after January 1, 1989: If at the time of termination as an
     Employee (or if employed thereafter by the Employer in any capacity or by
     an Affiliate, at the time of termination of service for the Employer and
     all Affiliates) he or she was credited with at least ten (10) Service Years
     or at least seven (7) years of Continuous Service, such Employee shall be
     entitled to receive at his or her Normal Retirement Date a Monthly
     Retirement Income equal to his or her Accrued Benefit at date of
     termination as an Employee covered hereby.

     (b)  In lieu of the benefits provided by the immediately preceding Section
3.07(a), a Participant with at least ten (10) Service Years or at least seven
(7) years of Continuous Service who is no longer employed by any Employer or
Affiliate may at any time after attainment of age sixty (60) apply for an
immediate Monthly Retirement Income for life (subject to the benefit
distribution provisions of Article III) equal to the Actuarial Equivalent of the
benefit due at Normal Retirement Date under 3.07(a) above.  If such a person
dies prior to the commencement of benefits, no death benefit shall be payable
under the Plan.

     Section 3.08.  Lump Sum Distributions.
                    -----------------------

     (a)  Cash-Out Of Vested Accrued Benefits.
          -----------------------------------

          (1)  Notwithstanding the other provisions of the Plan, if after
     December 31, 1984

               (i)  the Actuarial Value of a terminated or retiring
          Participant's Vested Accrued Benefit as calculated at his or her date
          of severance is $5,000 ($3,500 for Plan Years beginning prior to
          January 1, 2000) or less, determined not pursuant to the immediately
          following paragraph (A), but in accordance with the applicable PBGC
          annuity factor for males in effect at the beginning of the Plan Year,
          or

               (ii) the Participant agrees in writing regardless of the amount
          of such Actuarial Value, but subject to the benefit distribution
          provisions of Article III, including but not limited to Section
          3.07(a),

     the Employer may, but need not, direct that the Actuarial Value of his or
     her Vested Accrued Benefits as calculated at his or her date of severance
     be paid in a lump sum to such Terminated Participant, with interest at the
     rate specified in the immediately following paragraph (A), from the date as
     of which the said value was calculated to the date as of which it was paid.

                         (A)  For the purposes of the immediately preceding
               paragraph (1), "Actuarial Value" means equality in the value of
               the aggregate amounts to be received under different forms of
               payment based upon the 1971 Group Annuity Mortality Table for
               males, with a five (5) year age setback for beneficiaries and
               interest at six percent (6%) per annum, compounded annually for
               other than lump sum payments, and for lump sum payments, interest
               at the rate used by the PBGC to value immediate annuities
               compounded annually, but not less than six percent (6%) per
               annum. In the event the assumptions stated in the immediately
               preceding sentence change, the Actuarial Value of the Accrued
               Benefit on or after the date of the change is the greater of the
               Actuarial Value of the Accrued Benefit as of the date of the
               change computed on the old basis or the Actuarial Value of the
               Accrued Benefit computed on the new basis.

                         (B)  In the event benefits are paid as provided in the
               immediately preceding paragraph (a), no other benefits of any
               type shall be payable to a Former Participant, or to his or her
               beneficiaries, receiving benefits as provided in the immediately
               preceding paragraph (a).

          (2)  Notwithstanding the immediately preceding paragraph (1) or any
     other Plan provision, including

                                 Page 33 of 58
<PAGE>

     without limitation the provisions of Article III pertaining to benefit
     distribution, the Plan Administrator

             (i)  shall direct distributions in lump sum of the Actuarial
          Equivalent of any Plan benefit due after January 1, 1989 which is
          $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) or
          less, and

            (ii)  shall not permit distributions in such form, even with the
          written request of Participant and spouse, if the Actuarial Equivalent
          is in excess of $25,000.

          The lump sum distributions shall discharge all obligations of the Plan
          with respect to the benefits so paid. If the Actuarial Equivalent of a
          Participant's Vested Accrued Benefit is zero, the Participant is
          deemed to have received a distribution of the Vested Accrued Benefit.

     (b)  Repayment Of Distribution Upon Re-employment.
          --------------------------------------------

          (1)  If a terminated or retiring Participant is subsequently re-
     employed and again becomes a Participant in the Plan, his or her Continuous
     Service shall not include (for purposes of accrual of benefits only but not
     for vesting) any periods of employment prior to his or her re-employment
     date, unless prior to his or her having five (5) consecutive one-year
     Breaks in Service the amount of such payment is repaid to the Trust Fund,
     plus interest at five percent (5%) per annum between the date of payment
     and the date of re-payment.

            (i)   Such five percent (5%) rate shall automatically be adjusted to
          reflect any Regulation issued by the Secretary of Treasury changing
          such interest rate for mandatory Employee contributions.

            (ii)  If such amount (plus interest) is repaid, the Participant's
          Continuous Service shall be based on all periods of employment.

            (iii) The provisions of the foregoing paragraph (b) have no effect
          on Service Years for vesting purposes.

          (2)  Effective on and after January 1, 1987, only in the event that a
     partial vesting rule is applicable, a Former Participant who had received a
     lump sum pursuant to the Plan of a partially Vested interest shall have the
     right to restore his or her Employer-derived Accrued Benefit (including all
     optional forms of benefits and subsidies relating to such benefits) to the
     extent forfeited upon the repayment to the Plan of the full amount of the
     distribution plus interest, compounded annually from the date of
     distribution at the rate of five percent (5%).

            (i)   The repayment to the Plan must be made before the earlier of
          five (5) years after the first date on which the Participant is
          subsequently reemployed by the Employer, or the date the Participant
          incurs five (5) consecutive one-year Breaks in Service following the
          date of distribution.

            (ii)  If a Terminated Participant or Retired Participant is
          subsequently employed and becomes a Participant in the Plan and does
          not repay the full amount of the prior distribution, plus interest,
          within the time specified above, no Continuous Service shall be
          restored.

            (iii) For purposes of this Section, if the present value of a
          Participant's Vested Accrued Benefit is zero, the Participant shall be
          deemed to have received a distribution of such Vested Accrued Benefit.

            (iv)  If a Former Participant is deemed to receive a distribution
          pursuant to this Section and the Participant resumes employment
          covered under the Plan before the date the Participant incurs five (5)

                                 Page 34 of 58
<PAGE>

          consecutive one-year Breaks in Service, upon reemployment of such
          Participant, the Employer-derived Accrued Benefit will be restored to
          the amount of such Accrued Benefit on the date of the deemed
          distribution.

     (c)  Qualified Joint And Survivor Annuity.  Notwithstanding the foregoing
          ------------------------------------
provisions of this Section 3.08 and any other Plan provisions, the present value
of a Participant's joint and survivor annuity may not be paid without his or her
written consent if the present value exceeds, or has ever exceeded, $5,000
($3,500 for Plan Years beginning prior to January 1, 2000) at the time of any
prior distribution. Further, the spouse of a Participant must consent in writing
to any immediate distribution. If the present value of the Participant's benefit
does not exceed $5,000 ($3,500 for Plan Years beginning prior to January 1,
2000) and has never exceeded $5,000 ($3,500 for Plan Years beginning prior to
January 1, 2000) at the time of any prior distribution, the Plan Administrator
may immediately distribute such benefit without such Participant's consent. No
distribution may be made under the immediately preceding sentence after the
"annuity starting date," unless the Participant and his or her spouse consent in
writing to such distribution. Any written consent required under this paragraph
must be obtained not more than 90 days before commencement of the distribution
and shall be made in a manner consistent with Section 3.05(e).

     Any distribution to a Participant who has a benefit which exceeds, or has
ever exceeded, $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000)
at the time of any prior distribution shall require such Participant's consent
if such distribution commences prior to the later of his or her Normal
Retirement Date or age 62.  With regard to this required consent:

          (1)  No consent shall be valid unless the Participant has received a
     general description of the material features and an explanation of the
     relative values of the optional forms of benefit available under the Plan
     that would satisfy the notice requirements of Code Section 417.

          (2)  The Participant must be informed of his or her right to defer
     receipt of the distribution. If a Participant fails to consent, it shall be
     deemed an election to defer the commencement of payment of any benefit.
     However, any election to defer the receipt of benefits shall not apply with
     respect to distributions which are required under Section 3.05(i).

          (3)  Notice of the rights specified under this paragraph shall be
     provided no less than 30 days and no more than 90 days before the "annuity
     starting date."

          (4)  Written consent of the Participant to the distribution must not
     be made before the Participant receives the notice and must not be made
     more than 90 days before the "annuity starting date."

          (5)  No consent shall be valid if a significant detriment is imposed
     under the Plan on any Participant who does not consent to the distribution.

     (d)  Qualified Pre-retirement Survivor Annuity.  Notwithstanding the
          -----------------------------------------
foregoing provisions of this Section 3.08 and any other Plan provisions, if the
present value of the Pre-retirement Survivor Annuity does not exceed $5,000
($3,500 for Plan Years beginning prior to January 1, 2000) and has never
exceeded $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) at
the time of any prior distribution, the Plan Administrator shall direct the
immediate distribution of such amount to the Participant's spouse. No
distribution may be made under the preceding sentence after the annuity starting
date unless the spouse consents in writing. If the value exceeds, or has ever
exceeded, $5,000 ($3,500 for Plan Years beginning prior to January 1, 2000) at
the time of any prior distribution, an immediate distribution of the entire
amount may be made to the surviving spouse, provided such surviving spouse
consents in writing to such distribution. Any written consent required under
this Paragraph must be obtained not more than 90 days before commencement of the
distribution and shall be made in a manner consistent with Section 3.05(e).

                                 Page 35 of 58
<PAGE>

     (e)  Annuity Option For Lump Sum Distributions In Excess Of $5,000 ($3,500
          ---------------------------------------------------------------------
for Plan Years Beginning Prior to January 1, 2000).  If an immediate lump sum
--------------------------------------------------
distribution in excess of $5,000 ($3,500 for Plan Years beginning prior to
January 1, 2000) is to be made pursuant to the foregoing provisions of this
Section 3.08, then the recipient of such a distribution may instead elect to
receive the distribution in the form of an immediate life annuity, and notice of
the option to elect payment through the form of an immediate life annuity shall
be given by the Plan Administrator as required under the Code and applicable
Regulations.

     Section 3.09. Maximum Benefit Payment Date.
                   ----------------------------

     (a)  Unless a Participant otherwise elects in a writing filed with the
Employer stating the amount of payments and the date they are to begin, the
payment of benefits, if any, due under the terms of the Plan to a Participant
shall begin not later than the 60th day after the latest of the close of the
Plan Year in which:

          (1) occurs the 65th birthday of the Participant,

          (2) occurs the 10th anniversary of the time the Participant commenced
     participation in the Plan, or

          (3) the Participant terminates his or her service with the Employer
     and all Affiliates.

     (b)  Notwithstanding the foregoing, in no event may benefits commence later
than the first day of April following the calendar year in which attainment of
age seventy and one-half (70 1/2) occurs.

     (c)  Notwithstanding the foregoing, the Accrued Benefit of a five percent
(5%) owner (as described in Code Section 416(i) determined with respect to the
Plan Year ending in the calendar year in which such individual attains age
seventy and one-half (70 1/2)) must be distributed, or commence to be
distributed, no later than the first day of April following the calendar year in
which such individual attains age seventy and one-half (70 1/2).

     Section 3.10. Suspension Of Benefits Upon Re-Employment Or Continued
                   ------------------------------------------------------
Employment.
----------

     (a)  No Suspension Of Benefits On And After January 1, 1994.
          ------------------------------------------------------
Notwithstanding the immediately following paragraph (b), on and after January 1,
1994 retirement benefits in pay status (1) shall not be suspended due to a
Participant's continued employment after his or her Normal Retirement Date and
(2) shall not be suspended as of a Retired Participant's date of rehire if the
Retired Participant is re-employed.  However, the aforementioned Participant's
Accrued Benefit or Retired Participant's Accrued Benefit, calculated at the time
of the subsequent termination of employment by the said Participant or Retired
Participant, shall be actuarially reduced to reflect prior benefit payments,
including, but not limited to, the prior payment of benefits in the form of a
lump sum.

     (b)  Suspension Of Benefits On And Before December 31, 1993.  On and before
          ------------------------------------------------------
December 31, 1993 and in accordance with the immediately following provisions of
this Section 3.10, the benefits of a Retired Participant will be suspended as of
the Retired Participant's date of rehire if the Retired Participant is re-
employed.

          (1)  Suspension of Benefits.  Retirement benefits in pay status shall
               ----------------------
     cease as of the date of rehire if the Retired Participant is re-employed
     and will be suspended for each calendar month during which the Employee
     completes at least forty (40) Hours of Service with the Employer in Covered
     Service.  The Actuarial Value of benefits which commence later than a
     Participant's Normal Retirement Date will be computed without regard to
     amounts which would have been suspended under the preceding sentence as if
     the Employee had been receiving benefits since his or her Normal Retirement
     Date.

          (2)  Resumption of Payment.  If benefit payments have been suspended,
               ---------------------
     payments shall resume no later than the first day of the third calendar
     month after the calendar month in which the Employee ceases to be

                                 Page 36 of 58
<PAGE>

     employed in Covered Service. The initial payment upon resumption shall
     include the payment scheduled to occur in the calendar month when payments
     resume, and any amounts withheld during the period between the cessation of
     Covered Service and the resumption of payments.

          (3)  Notification.  The Plan Administrator will notify the Employee by
               ------------
     personal delivery or first class mail during the first calendar month or
     payroll period in which the Plan withholds payments that his or her
     benefits are suspended. Such notifications shall contain a description of
     the specific reasons why benefit payments are being suspended, a
     description of the Plan provisions relating to the suspension of payments,
     a copy of such provisions, and a statement to the effect that applicable
     Department of Labor regulations may be found in Section 2530.203-3 of the
     Code of Federal Regulations. In the event the Plan Administrator fails to
     timely provide this notice to any Employee, his or her retirement benefit
     will include an amount equal to the greater of an Actuarial Equivalent
     increase for the period between the date when the notice was due and the
     date when it is delivered, or continued accruals for that period.

               (i)  The notification shall inform the Employee of the Plan's
          procedures for affording a review of the suspension of benefits.

               (ii) Requests for reviews may be considered in accordance with
          the claims procedure (see Section 2.07) adopted by the Plan pursuant
          to Section 503 of ERISA and applicable regulations.

          (4)  Amount suspended.
               ----------------

               (i)  Life Annuity. In the case of benefits payable periodically
                    ------------
          on a monthly basis for as long as a life (or lives) continues, such as
          a straight life annuity or a qualified joint and survivor annuity, an
          amount equal to the portion of a monthly benefit payment derived from
          Employer contributions.

               (ii) Other Benefit Forms.  In the case of a benefit payable in a
                    -------------------
          form other than the form described in the immediately preceding
          paragraph (1), above, an amount of the Employer-derived portion of
          benefit payments for a calendar month in which the Employee is
          employed in Covered Service, equal to the lesser of

                    (A)  The amount of benefits which would have been payable to
               the Employee if he or she had been receiving monthly benefits
               under the Plan since actual retirement based on a single life
               annuity commencing at actual retirement age; or

                    (B)  The actual amount paid or scheduled to be paid to the
               Employee for such month (payments which are scheduled to be paid
               less frequently than monthly may be converted to monthly
               payments).

          (5)  Effective January 1, 1987, only those foregoing provisions of
     Section 3.10(b)(1)-(4) that are inconsistent with the following provisions
     of this Section 3.10(b)(5) shall be superseded by the following provisions
     of this Section 3.10(b)(5):  Upon the continued employment or reemployment
     of a Participant after his or her Normal Retirement Date, the Plan
     Administrator shall provide such Participant with a written notice of
     suspension of benefit payment by personal delivery or certified mail in the
     month following his or her Normal Retirement Date.  Such notice will

               (i)  state that the suspension of benefit payments is due to
          employment after Normal Retirement Date,

               (ii) include a copy of amended Article III of the Plan and a
          statement that applicable Department of Labor Regulations may be found
          at Section 2530.203-3 of the Code of Federal

                                 Page 37 of 58
<PAGE>

          Regulations, and

            (iii)  state that the Participant may request a review of the
          suspension of his or her Plan benefit payments under the claim
          provisions of Section 2.07.

      Section 3.11. Direct Rollover.
                    ----------------

      (a) This Section 3.11 applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Section 3.11, a distributee
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.

     (b)  For the purposes of this Section 3.11, the following definitions shall
apply:

          (1)  An eligible rollover distribution is any distribution of all or
     any portion of the balance to the credit of the distributee, except that an
     eligible rollover distribution does not include:

               (i)   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;

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

               (iii) the portion of any distribution that is not includible in
          gross income (determined without regard to the exclusion for net
          unrealized appreciation with respect to employer securities, if any);
          and

               (iv)  any other distribution(s) that is reasonably expected to
          total less than $200 during a year.

          (2)  An eligible retirement plan is

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

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

               (iii) a qualified plan 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, an eligible retirement plan is an individual
          retirement account or individual retirement annuity.

          (3)  A distributee includes an Employee or former Employee. In
     addition, the Employee's or former Employee's surviving spouse and the
     Employee's or former Employee's spouse or former spouse who is the
     alternate payee under a qualified domestic relations order, as defined in
     Code Section 414(p), are distributees with regard to the interest of the
     spouse or former spouse.

          (4)  A direct rollover is a payment by the plan to the eligible
     retirement plan specified by the distributee.

     Section 3.12. Appointment Of Guardian For Beneficiary.  In making any
                   ---------------------------------------
distribution to or for the benefit of any minor or incompetent beneficiary, the
Plan Administrator, in his or her sole, absolute and uncontrolled

                                 Page 38 of 58
<PAGE>

discretion may, but need not, order the Trustee to make such distribution to a
legal or natural guardian or other relative of such minor or court appointed
committee of incompetent temporarily or permanently resides, and any such
guardian, committee, relative or other person shall have full authority and
discretion to expend such distribution for the use and benefit of such minor or
incompetent, and the receipt of such guardian, committee, relative or other
person shall be a complete discharge to the Trustee, without any responsibility
on its part or on the part of the Employer or Plan Administrator to see to the
application thereof.

                    ARTICLE IV:  CONTRIBUTION AND VALUATION
                    ---------------------------------------

      Section 4.01. Deposit Of Funds.  The Employer shall deposit with the
                    ----------------
Trustee from time to time the funds actuarially necessary to provide the
benefits under the Plan for Participants and Beneficiaries in a manner
consistent with the funding standards mandated by ERISA and the applicable
regulations issued thereunder.

      Section 4.02. Payment Of Expenses.  The Employer will pay, or cause to be
                    -------------------
paid from the Trust Fund, all expenses of administering the Plan and the Trust
as may be mutually agreed upon by the Employer, Plan Administrator and Trustee
from time to time that may arise in connection with the Plan and Trust.

      Section 4.03. Periodic Actuarial Valuation.  The Actuary shall perform
                    ----------------------------
periodically an actuarial valuation of the Plan and Trust Fund and shall certify
to the Employer in writing the results of the valuation. The Actuary in his or
her actuarial valuation shall apply all gains arising in the operation of the
Plan, including but not limited to gains resulting from terminations of
employment of Participants prior to qualifying for benefits hereunder, to reduce
the contributions of the Employer pursuant to the funding method and actuarial
tables then in use.

      Section 4.04. Funding Standard Account.  A funding standard account shall
                    ------------------------
be established and maintained so that it may be determined whether or not the
Employer has complied with minimum funding standards.

      Section 4.05. Contributions By Mistake Of Fact.  Notwithstanding Section
                    --------------------------------
5.01(b), in the case of contributions made by the Employer by reason of a
mistake of fact, such contributions (or the portion thereof made in mistake) may
be returned to the Employer within one year after its payment into the Plan. Any
such amount returned may not include any income, earnings or gains attributable
to such nondeductible amount but shall be reduced by the proportionate part of
any loss of the Trust Fund between the time of its deposit in trust and the time
of its withdrawal.

      Section 4.06. Contributions Conditioned On Deductibility.  Any
                    ------------------------------------------
contribution by the Employer is conditioned upon its deductibility under
Sections 404 or 162 of the Code, as amended, and to the extent that any such
deduction may hereafter be disallowed, there shall be returned to the Employer
the portion of the contribution which is disallowed within one year of the
disallowance of the said deduction. Any such amount returned may not include any
income, earnings or gains attributable to such nondeductible amount but shall be
reduced by the proportionate part of any loss of the Trust Fund between the time
of its deposit in trust and the time of its withdrawal.

                  ARTICLE V:  TRUST FUND AND TRUST AGREEMENT
                  ------------------------------------------

      Section 5.01. Trust Fund.
                    ----------

      (a) The assets of the Plan shall be received, held in Trust, and disbursed
by the Trustee in accordance with the provisions of the Trust Agreement and the
provisions of the Plan.  See Section 2.05.

      (b) No part of the Trust Fund shall be used for or diverted to purposes
other than for the exclusive benefit of Participants, Retired Participants,
Disabled Participants, or their beneficiaries or spouses under the Plan prior to
the satisfaction of all liabilities hereunder with respect to them. The assets
of the Plan shall be held for the exclusive purposes of providing benefits to
Participants of the Plan (and to their beneficiaries) and of defraying
reasonable

                                 Page 39 of 58
<PAGE>

expenses of administering the Plan (including, without limitation, fees and
charges of the Trustee and Actuary) except that because of errors made in the
actuarial calculations of the liabilities of the Trust Fund, after all
liabilities and contingent liabilities to the Participants and their
beneficiaries as provided for herein have been fully satisfied, any remaining
balance may be returned to the Employer.

      (c) No person shall have any interest in or right to the Trust Fund or any
part thereof, except as specifically provided for in the Plan and/or the Trust
Agreement.

      Section 5.02. Trust Agreement.  The Trust Agreement shall be deemed to
                    ---------------
form a part of the Plan and all rights of Participants or others under the Plan
shall be subject to the provisions of the Trust Agreement.

                   ARTICLE VI:  MAXIMUM BENEFIT LIMITATIONS
                   ----------------------------------------

      Section 6.01. General.
                    -------

      (a) This Section 6.01(a), except for (2) below, applies regardless of
whether any Participant is or has ever been a participant in another qualified
plan maintained by the Employer. If any Participant is or has ever been a
participant in another qualified plan maintained by the Employer, or a welfare
benefit fund, as defined in Code Section 419(e), maintained by the Employer, or
an individual medical account, as defined in Code Section 415(l)(2), maintained
by the employer, or a simplified employee pension plan, as defined in Code
Section 408(k), maintained by the Employer, that provides an annual addition as
defined in Section 6.02, Section 6.01(b) is also applicable to that
Participant's benefits.

          (1)  The annual benefit otherwise payable to a Participant at any time
      will not exceed the maximum permissible amount. If the benefit the
      Participant would otherwise accrue in a limitation year would produce an
      annual benefit in excess of the maximum permissible amount, the rate of
      accrual will be reduced so that the annual benefit will equal the maximum
      permissible amount.

          (2)  The limitation in the immediately preceding paragraph (1) is
      deemed satisfied if the annual benefit payable to a Participant is not
      more than $1,000 multiplied by the Participant's number of years of
      service or parts thereof (not to exceed 10) with the Employer, and the
      Employer has not at any time maintained a defined contribution plan, a
      welfare benefit plan as defined in Code Section 419(e), or an individual
      medical account as defined in Code Section 415(l)(2) in which such
      Participant participated.

      (b) This Section 6.01(b) applies if any Participant is covered, or has
ever been covered, by another plan maintained by the Employer, including a
qualified plan, or a welfare benefit fund, as defined in Code Section 419(e), or
an individual medical account, as defined in Code Section 415(l)(2), which
provides an annual addition as described in Section 6.02.

          (1)  If a Participant is, or has ever been, covered under more than
     one defined benefit plan maintained by the Employer, the sum of the
     Participant's annual benefits from all such plans may not exceed the
     maximum permissible amount.

          (2)  For limitation years beginning prior to the first day of the
     first limitation year beginning after December 31, 1999, if the Employer
     maintains, or at any time maintained, one or more qualified defined
     contribution plans covering any Participant in this Plan, a welfare benefit
     fund, as defined in Code Section 419(e), an individual medical account as
     defined in Code Section 415(l)(2), or a simplified employee pension the sum
     of the Participant's defined contribution fraction and defined benefit
     fraction (as each fraction is defined below) will not exceed 1.0 in any
     limitation year and the annual benefit otherwise payable to the Participant
     under this Plan will be reduced so that such limitation is not exceeded.
     Such limitation shall be in lieu of any adjustment to annual additions
     under the Employer's defined contribution plan, if any, required

                                 Page 40 of 58
<PAGE>

     by the provisions of Code Section 415 and the Regulations thereunder.

       (3)  In the case of an individual who was a Participant in one or more
     defined benefit plans of the Employer as of the first day of the first
     limitation year beginning after December 31, 1986, the application of the
     limitations of this Section 6.01 shall not cause the maximum permissible
     amount for such individual under all such defined benefit plans to be less
     than the individual's current Accrued Benefit. The preceding sentence
     applies only if such defined benefit plans met the requirements of Code
     Section 415 for all limitation years beginning before January 1, 1987.

                                 Page 41 of 58
<PAGE>

     Section 6.02. Annual Additions.
                   ----------------

     (a) Annual additions are the sum of the following amounts credited to a
Participant's account for the limitation year:

        (1)  Employer contributions;

        (2)  Employee contributions;

        (3)  Forfeitures; and

        (4)  Amounts allocated after March 31, 1984 to an individual medical
     account as defined in Code Section 415(l)(2) which is part of a pension or
     annuity plan maintained by the Employer are treated as annual additions to
     a defined contribution plan. Also, amounts derived from contributions paid
     or accrued after December 31, 1985, in taxable years ending after such
     date, that are attributable to post-retirement medical benefits allocated
     to the separate account of a Key Employee, as defined in Code Section
     419A(d)(3), under a welfare benefit fund, as defined in Code Section
     419(e), are treated as annual additions to a defined contribution plan; and

        (5)  Allocations under a simplified employee pension.

     Section 6.03. Annual Benefit.  Annual benefit shall mean a retirement
                   --------------
benefit under the Plan which is payable annually in the form of a straight life
annuity. Except as provided below, a benefit payable in a form other than a
straight life annuity must be adjusted to an actuarially equivalent straight
life annuity before applying the limitations of this Section. The interest rate
assumption used to determine actuarial equivalence will be the greater of the
interest rate specified in Section 1.03 of this Plan or 5 percent. The annual
benefit does not include any benefits attributable to Employee contributions or
rollover contributions, or the assets transferred from a qualified plan that was
not maintained by the Employer. No actuarial adjustment to the benefit is
required for

     (a)  the value of a qualified joint and survivor annuity,

     (b)  the value of benefits that are not directly related to retirement
benefits (such as the qualified disability benefit, pre-retirement death
benefits, and post-retirement medical benefits), and

     (c)  the value of post-retirement cost-of-living increases made in
accordance with Code Section 415(d) and Section 1.415-3(c)(2)(iii) of the
Regulations.

     Section 6.04. Compensation.
                   ------------

     (a)  Compensation shall refer to wages, salaries, and fees for professional
services, and other amounts received (without regard to whether an amount is
paid in cash) for personal services actually rendered in the course of
employment with the Employer (to the extent that the amounts are includable in
gross income) including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements, or
other expense allowances under a nonaccountable plan (as described in 1.62-
2(c)).

     (b)  Compensation shall not include the following:

          (1)  Employer contributions to a deferred compensation plan which are
     not included in the Employee's gross income for the taxable year in which
     contributed or Employer contributions under a simplified employee pension
     plan to the extent such contributions are deductible by the Participant, or
     any distributions

                                 Page 42 of 58
<PAGE>

     from a plan of deferred compensation plan;

          (2)  Amounts realized from the exercise of a non-qualified stock
     option, or when restricted stock (or property) held by the Participant
     either becomes freely transferable or is no longer subject to a substantial
     risk of forfeiture;

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

          (4)  Other amounts which received special tax benefits, or
     contributions made by the Employer (whether or not under a salary reduction
     agreement) towards the purchase of an annuity described in Code Section
     403(b) (whether or not the amounts are actually excludable from the gross
     income of the Participant).

     (c)  Compensation for a limitation year is the compensation actually paid
or made available during such limitation year.

     Section 6.05. Current Accrued Benefit.  Current accrued benefit shall mean
                   -----------------------
a Participant's Accrued Benefit under the Plan, determined as if the Participant
had separated from service as of the close of the last limitation year beginning
before January 1, 1987, when expressed as an annual benefit within the meaning
of Code Section 415(b)(2). In determining the amount of a Participant's current
Accrued Benefit, the following shall be disregarded:

     (a)  Any change in the terms and conditions of the Plan after May 5, 1986;
and

     (b)  Any cost of living adjustments occurring after May 5, 1986.

     Section 6.06. Defined Benefit Dollar Limitation.  The defined benefit
                   ----------------------------------
dollar limitation shall be $90,000. Effective on January 1, 1988, and each
January thereafter, the $90,000 limitation above will be automatically adjusted
by multiplying such limit by the cost of living adjustment factor prescribed by
the Secretary of the Treasury under Code Section 415(d) in such manner as the
Secretary shall prescribe. The new limitation will apply to limitation years
ending within the calendar year of the date of the adjustment.

     Section 6.07. Defined Benefit Fraction.
                   ------------------------

     (a)  The defined benefit fraction is a fraction,

          (1)  the numerator of which is the sum of the Participant's projected
     annual benefits under all the defined benefit plans (whether or not
     terminated) maintained by the Employer, and

          (2)  the denominator of which is the lesser of 125 percent of the
     dollar limitation determined for the limitation year under Code Sections
     415(b) and (d) and in accordance with Section 6.12(a) below or 140 percent
     of the highest average compensation, including any adjustments under Code
     Section 415(b).

     (b)  Notwithstanding the immediately preceding paragraph (a), if the
Participant was a Participant as of the first day of the first limitation year
beginning after December 31, 1986, in one or more defined benefit plans
maintained by the Employer which were in existence on May 6, 1986, the
denominator of the defined benefit fraction will not be less than 125 percent of
the sum of the annual benefits under such plans which the Participant had
accrued as of the close of the last limitation year beginning before January 1,
1987, disregarding any changes in the terms and conditions of the plans after
May 5, 1986. The preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of Code Section 415
for all limitation years beginning before January 1, 1987.

                                 Page 43 of 58
<PAGE>

      Section 6.08. Defined Contribution Fraction.
                    -----------------------------

      (a) The defined contribution fraction is a fraction,

          (1)  the numerator of which is the sum of the annual additions to the
     Participant's account under all the defined contribution plans (whether or
     not terminated) maintained by the Employer for the current and all prior
     limitation years, (including the annual additions attributable to the
     Participant's nondeductible Employee contributions to this and all other
     defined benefit plans (whether or not terminated) maintained by the
     Employer, and the annual additions attributable to all welfare benefit
     funds, as defined in Code Section 419(e), or individual medical accounts,
     as defined in Code Section 415(l)(2), and simplified employee pensions
     maintained by the Employer), and

          (2)  the denominator of which is the sum of the maximum aggregate
     amounts for the current and all prior limitation years of service with the
     Employer (regardless of whether a defined contribution plan was maintained
     by the Employer).

The maximum aggregate amount in any limitation year is the lesser of 125 percent
of the dollar limitation determined under Code Sections 415(b) and (d) in effect
under Code Section 415(c)(1)(A) or 35 percent of the Participant's compensation
for such year.

     (b)  If the Employee was a participant as of the first day of the first
limitation year beginning after December 31, 1986, in one or more defined
contribution plans maintained by the Employer which were in existence on May 6,
1986, the numerator of this fraction will be adjusted if the sum of this
fraction and the defined benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the product of

          (1)  the excess of the sum of the fractions over 1.0 times

          (2)  the denominator of this fraction, will be permanently subtracted
     from the numerator of this fraction.

The adjustment is calculated using the fractions as they would be computed as of
the end of the last limitation year beginning before January 1, 1987,
disregarding any changes in the terms and conditions of the Plan after May 5,
1986, but using the Code Section 415 limitation applicable to the first
limitation year beginning on or after January 1, 1987. The annual addition for
any limitation year beginning before January 1, 1987, shall not be recomputed to
treat all Employee contributions as annual additions.

     Section 6.09. Employer.  Employer, for the purposes of Section 6.01, shall
                   --------
mean the Employer and all members of a controlled group of corporations (as
defined in Code Section 414(b), as modified by Code Section 415(h)), all
commonly controlled trades or businesses (as defined in Code Section 414(c) as
modified by Code Section 415(h)), or affiliated service groups (as defined in
Code Section 414(m)) of which the Employer is a part, and any other entity
required to be aggregated with the Employer pursuant to Regulations under Code
Section 414(o).

     Section 6.10. Highest Average Compensation.  Highest average compensation
                   ----------------------------
shall mean the average Compensation for the three (3) consecutive years of
service with the Employer that produces the highest average.  A year of service
with the Employer is the twelve (12) consecutive month period corresponding to a
calendar year.

     Section 6.11. Limitation Year.  Limitation year shall mean a calendar
                   ---------------
year.  All qualified plans maintained by the Employer use the same limitation
year.  If the limitation year is amended to a different twelve (12) consecutive
month period, the new limitation year must begin on a date within the limitation
year in which the amendment is made.

                                 Page 44 of 58
<PAGE>

     Section 6.12. Maximum Permissible Amount.  Maximum permissible amount
                   --------------------------
shall mean the lesser of the defined benefit dollar limitation or 100 percent of
the Participant's highest average compensation.

     (a)  If the Participant has less than 10 years of participation with the
Employer, the defined benefit dollar limitation is reduced by one-tenth for each
year of Participation (or part thereof) less than ten. To the extent provided in
Regulations or in other guidance issued by the Internal Revenue Service, the
preceding sentence shall be applied separately with respect to each change in
the benefit structure of the Plan.

          (1)  If the Participant has less than 10 years of service with the
     Employer, the compensation limitation is reduced by one-tenth for each year
     of service (or part thereof) less than ten (10).

          (2)  The adjustments of under this Section 6.12 (a) shall be applied
     in the denominator of the defined benefit fraction based upon years of
     service. Years of service shall include future years occurring before the
     Participant's normal retirement age. Such future years shall include the
     year which contains the date the Participant reaches normal retirement age,
     only if it can be reasonably anticipated that the Participant will receive
     a year of service for such year.

     (b)  If the annual benefit of the Participant commences before the
Participant's social security retirement age, but on or after age sixty-two
(62), the defined benefit dollar limitation as reduced above, if necessary,
shall be determined as follows:

          (1)  If a Participant's social security retirement age is sixty (65),
     the dollar limitation for benefits commencing on or after age sixty-two
     (62) is determined by reducing the defined benefit dollar limitation by
     five-ninths (5/9) of one percent for each month by which benefits commence
     before the month in which the Participant attains age sixty-five (65).

          (2)  If a Participant's social security retirement age is greater than
     sixty-five (65), the dollar limitation for benefits commencing on or after
     age sixty-two (62) is determined by reducing the defined benefit dollar
     limitation by five-ninths (5/9) of one percent for each of the first
     thirty-six (36) months and five-twelfths (5/12) of one percent for each of
     the additional months (up to twenty-four (24) months) by which benefits
     commence before the month of the Participant's social security retirement
     age.

     (c)  If the annual benefit of a Participant commences prior to age sixty-
two (62), the defined benefit dollar limitation shall be the actuarial
equivalent of an annual benefit beginning at age sixty-two (62), as determined
above, reduced for each month by which benefits commence before the month in
which the Participant attains age sixty-two (62). To determine actuarial
equivalence, the interest rate assumption is the greater of the rate specified
in Section 1.03 or 5 percent. Any decrease in the defined benefit dollar
limitation determined in accordance with this paragraph (c) shall not reflect
the mortality decrement to the extent that benefits will not be forfeited upon
the death of the Participant.

     (d)  If the annual benefit of a Participant commences after the
Participant's social security retirement age, the defined benefit dollar
limitation as reduced in the immediately preceding paragraph (a), if necessary,
shall be adjusted so that it is the actuarial equivalent of an annual benefit of
such dollar limitation beginning at the Participant's social security retirement
age. To determine actuarial equivalence, the interest rate assumption is the
lesser of the rate specified in Section 1.03 or 5 percent.

     Section 6.13. Projected Annual Benefit.  Projected annual benefit shall
                   ------------------------
mean the annual benefit as defined in Section 6.03, to which the Participant
would be entitled under the terms of the Plan assuming the following:

                                 Page 45 of 58
<PAGE>

     (a)  The Participant will continue employment until normal retirement age
under the Plan (or current age, if later), and

     (b)  The Participant's compensation for the current limitation year and all
other relevant factors used to determine benefits under the Plan will remain
constant for all future limitation years.

     Section 6.14. Social Security Retirement Age.  Social Security Retirement
                   ------------------------------
Age means the age used as the retirement age under Section 216(l) of the Social
Security Act, except that such section shall be applied without regard to the
age increase factor and as if the early retirement age under Section 216(l)(2)
of such Act were 62.

     Section 6.15. Year of Participation.
                   ---------------------

     (a)  A year of participation (computed to fractional parts of a year) shall
be credited to Participants for each accrual computation period for which the
following conditions are met:

          (1)  The Participant is credited with at least the number of hours of
     service for benefit accrual purposes required under the terms of the Plan
     in order to accrue a benefit for the accrual computation period, and

          (2)  The Participant is included as a Participant under the
     eligibility provisions of the Plan for at least one day of the accrual
     computation period.

     (b)  If the conditions set forth in the immediately preceding paragraphs
(1) and (2) are met, the portion of a year of participation credited to the
Participant shall equal the amount of benefit accrual service credited to the
Participant for such accrual computation period.

     (c)  A Participant who is permanently and totally disabled within the
meaning of Code Section 415(c)(3)(C)(i) for an accrual computation period shall
receive a year of participation with respect to that period.

     (d)  For a Participant to receive a year of participation (or part thereof)
for an accrual computation period, the Plan must be established no later than
the last day of such accrual computation period.

     (e)  In no event will more than one year of participation be credited for
any 12-month period.

                      ARTICLE VII:  TOP HEAVY PROVISIONS
                      ----------------------------------

     Section 7.01. General.  If the Plan is or becomes top heavy in any Plan
                   -------
Year the provisions below will supersede any conflicting provisions in the Plan
for such Plan Year and each Plan Year thereafter.

     Section 7.02. Key Employee.  A Key Employee is any Employee or former
                   ------------
Employee (and the beneficiaries of such Employee) who at any time during the
determination period was an officer of the Employer if such individual's annual
compensation exceeds fifty percent (50%) of the dollar limitation under Section
415(b)(1)(A) of the Code, an owner (or considered an owner under Section 318 of
the Code) of one of the ten largest interests in the Employer if such
individual's compensation exceeds 100 percent of the dollar limitation under
Code Section 415(c)(1)(A), a five percent (5%) owner of the Employer, or a 1-
percent owner of the Employer who has an annual compensation of more than
$150,000.

     (a)  Annual compensation means compensation as defined in Code Section
415(c)(3), but including amounts contributed by the Employer pursuant to a
salary reduction agreement which are excludable from the Employee's gross income
under Code Sections 125, 402(e)(3), 402(h) or 403(b).

                                 Page 46 of 58
<PAGE>

     (b)  The determination period is the Plan Year containing the determination
date and the 4 preceding Plan Years.  The determination of who is a Key Employee
will be made in accordance with Section 416(i)(1) of the Code and the
Regulations thereunder.

     Section 7.03. Top Heavy Plan.  For any Plan Year beginning after December
                   --------------
31, 1983, this Plan is top heavy if any of the following conditions exist:

     (a)  If the top heavy ratio for this Plan exceeds sixty percent (60%) and
this Plan is not part of any required aggregation group or permissive
aggregation group of plans,

     (b)  If this Plan is a part of a required aggregation group of plans (but
which is not part of a permissive aggregation group) and the top heavy ratio for
the group of plans exceeds sixty percent (60%) percent, or

     (c)  If this Plan is a part of a required aggregation group of plans and
part of a permissive aggregation group and the top heavy ratio for the
permissive aggregation group exceeds sixty percent (60%) percent.

     Section 7.04. Top Heavy Ratio.
                   ---------------

     (a)  If the Employer maintains one or more defined benefit plans and the
Employer has not maintained any defined contribution plans (including any
simplified employee pension plan) which during the five-year period ending on
the determination date(s) has or has had account balances, the top heavy ratio
for this Plan alone or for the required or permissive aggregation group as
appropriate is a fraction,

          (1)  the numerator of which is the sum of the Present Values of
     Accrued Benefits of all Key Employees as of the determination date(s)
     (including any part of any Accrued Benefit distributed in the five-year
     period ending on the determination date(s)), and

          (2)  the denominator of which is the sum of all Accrued Benefits
     (including any part of any Accrued Benefit distributed in the five-year
     period ending on the Determination Date(s)), determined in accordance with
     Code Section 416 and the Regulations thereunder.

     (b)  If the Employer maintains one or more defined benefit plans and the
Employer maintains or has maintained one or more defined contribution plans
(including any simplified employee pension plan) which during the five-year
period ending on the Determination Date(s) has or has had any account balances,
the top heavy ratio for any required or permissive aggregation group as
appropriate is a fraction,

          (1)  the numerator of which is the sum of the present value of accrued
     benefits under the aggregate defined benefit plan or plans for all Key
     Employees, determined in accordance with (a) above, and

          (2)  the sum of account balances under the aggregated defined
     contribution plan or plans for all Key Employees as of the determination
     date(s), and the denominator of which is the sum of the present values of
     accrued benefits under the aggregated defined benefit plan or plans,
     determined in accordance with (a) above, for all Participants and the sum
     of the account balances under the aggregated defined contribution plan or
     plans for all Participants as of the determination date(s), all determined
     in accordance with Code Section 416 and the Regulations thereunder.

The account balances under a defined contribution plan in both the numerator and
denominator of the top-heavy ratio are increased for any distribution of an
account balance made in the 5-year period ending on the determination date.

     (c)  For purposes of (a) and (b) above,

                                 Page 47 of 58
<PAGE>

          (1)  the value of account balances and the present value of Accrued
     Benefits will be determined as of the most recent Valuation Date that falls
     within or ends with the 12-month period ending on the determination date
     except as provided in Code Section 416 and the Regulations thereunder for
     the first and second Plan Years of a defined benefit plan.

          (2)  The account balances are Accrued Benefits of a Participant

               (i)  who is not a Key Employee but who was a Key Employee in a
          prior year, or

               (ii)  who has not been credited with at least one Hour of Service
          with the Employer maintaining the Plan at any time during the 5-year
          period ending on the determination date

     will be disregarded.

          (3)  The calculation of the top heavy ratio, and the extent to which
     distributions, rollovers, and transfers are taken into account will be made
     in accordance with Code Section 416 and the Regulations thereunder.
     Deductible Employee contributions will not be taken into account for
     purposes of computing the top-heavy ratio. When aggregating plans, the
     value of account balances and Accrued Benefits will be calculated with
     reference to the determination dates that fall within the same calendar
     year.

          (4)  The Accrued Benefit of a Participant, other than a Key Employee,
     shall be determined under

               (i)  the method, if any, that uniformly applies for accrual
          purposes under all defined benefit plans maintained by the Employer,
          or

               (ii) if there is no such method, as if such benefit accrued not
          more rapidly than the slowest accrual rate permitted under the
          fractional rule of Code Section 411(b)(1)(C).

     Section 7.05. Permissive Aggregation Group.  The required aggregation
                   ----------------------------
group of plans plus any other plan or plans of the Employer which, when
considered as a group with the required aggregation group, would continue to
satisfy the requirements of Sections 401(a)(4) and 410 of the Code.

     Section 7.06. Required Aggregation Group.  The required aggregation group
                   --------------------------
shall consist of:

     (a)  Each qualified plan of the Employer in which at least one Key Employee
participates or participated at any time during the determination period
(regardless of whether the Plan has terminated), and

     (b)  Any other qualified plan of the Employer which enables a Plan
described in (a) to meet the requirements of Code Sections 401(a)(4) or 410.

     Section 7.07. Determination Date.  For any Plan Year subsequent to the
                   ------------------
first Plan Year, the last day of the preceding Plan Year.  For the first Plan
Year of the Plan, the last day of that year.

                                 Page 48 of 58
<PAGE>

     Section 7.08. Valuation Date.  The valuation date shall be January 1.
                   --------------

     Section 7.09. Present Value.  Present Value shall be based only on the
                   -------------
interest and mortality rates specified in Section 1.03(d).

     Section 7.10. Minimum Accrued Benefit.
                   -----------------------

     (a)  Notwithstanding any other provision in this Plan, except for the
immediately following paragraphs (e) and (f) below, for any Plan Year in which
this Plan is top heavy, each Participant who is not a Key Employee and has
completed 1,000 Hours of Service will accrue a benefit (to be provided solely by
Employer contributions and expressed as a life annuity commencing at Normal
Retirement Date) of two percent (2%) of his or her highest average compensation
for the five (5) consecutive years for which the Participant had the highest
compensation. The aggregate compensation for the years during the five-year
period in which the Participant was credited with a Year of Service will be
divided by the number of such years in order to determine average annual
compensation.

     (b)  The minimum accrual is determined without regard to any Social
Security contribution.

     (c)  The minimum accrual applies even though under other Plan provisions
the Participant would not otherwise be entitled to receive an accrual, or would
have received a lesser accrual for the year because

          (1)  the Non-Key Employee fails to make mandatory contributions to the
     Plan,

          (2)  the Non-Key Employee's compensation is less than a stated amount,

          (3)  the Non-Key Employee is not employed on the last day of the
     accrual computation period, or

          (4)  the Plan is integrated with Social Security.

     (d)  For purposes of computing the minimum accrued benefit, compensation
will include W-2 wages for the calendar year ending with or within the Plan
Year, as limited by Code Section 401(a)(17).

     (e)  No additional benefit accruals shall be provided pursuant to the
immediately preceding paragraph (a) to the extent that the total accruals on
behalf of the Participant attributable to Employer contributions will provide a
benefit expressed as a life annuity commencing at Normal Retirement Date that
equals or exceeds twenty percent (20%) of the Participant's highest average
compensation for the five (5) consecutive years for which the Participant had
the highest compensation.

     (f)  All accruals of Employer derived benefit, whether or not attributable
to years for which the Plan is top heavy, may be used in computing whether the
minimum accrual requirement of the immediately preceding paragraph (e) is
satisfied.

          (1)  If the form of benefit is other than a single life annuity, the
     Employee must receive an amount that is the Actuarial Equivalent of the
     minimum single life annuity benefit. If the benefit commences at a date
     other than at Normal Retirement Date, the Employee must receive at least an
     amount that is the Actuarial Equivalent of the minimum single life annuity
     benefit commencing at Normal Retirement Date.

          (2)  The minimum accrued benefit required (to the extent required to
     be nonforfeitable under Code Section 416(b)) may not be suspended or
     forfeited under Sections 411(a)(3)(B) or 411(a)(3)(D).

     Section 7.11. Vesting.
                   -------

                                 Page 49 of 58
<PAGE>

     (a)  The vesting schedule for Plan Years in which this Plan is not top
heavy is located in Section 3.07(a)(1). However, for any Plan Year in which this
Plan is top heavy, the nonforfeitable interest of each Participant in his or her
Accrued Benefits shall be:

          Service Years                  % Vested
          -------------                  --------

               2                                    20%
               3                                    40%
               4                                    60%
               5                                    80%
               6 or more                           100%

     (b)  The minimum vesting schedule applies to all benefits within the
meaning of Code Section 411(a)(7), except those attributable to Employee
contributions, including benefits accrued before the effective date of Section
416 and benefits accrued before the Plan became top-heavy.

          (1)  No reduction in Vested benefits may occur in the event the Plan's
     status at top heavy changes for any Plan Year.

          (2)  This Section 7.11 does not apply to the Accrued Benefits of any
     Employee who does not have an Hour of Service after the Plan has initially
     become top heavy and such Employee's Accrued Benefits attributable to
     Employer contributions will be determined without regard to this Section
     7.11.

                       ARTICLE VIII:  AMENDMENT, MERGER,
                      CONSOLIDATION OR TRANSFER OF ASSETS
                      -----------------------------------

     Section 8.01. Plan Amendment.
                   --------------

     (a)  The Employer shall have the right, subject to the limitations of this
Section 8.01, to act at any time and from time to time, without consent of
Participants, active or retired, beneficiaries, or any person or persons
claiming through them, to modify or amend, in whole or in part, any or all of
the provisions of the Plan, including specifically the right to make any such
amendments effective retroactively, if necessary, to bring the Plan into
conformity with governmental regulations which must be complied with in order to
maintain qualification of the Plan, provided that no such modification or
amendment shall make it possible for any part of the assets of the Plan to be
used for or diverted to purposes other than for the exclusive benefit of
Participants and Retired Participants, and their beneficiaries under the Plan,
prior to the satisfaction of all liabilities with respect to such Participants
and Retired Participants and their beneficiaries under the Plan as provided by
Section 5.01(b). Furthermore, no amendment shall deprive Participants of any
optional form of benefit to the extent protected by law or as a condition to
qualification of the Plan under the Code provisions in effect at the applicable
time.

     (b)  No amendment to the Plan (including a change in the actuarial basis
for determining optional or early retirement benefits) shall be effective to the
extent that it has the effect of decreasing a Participant's Accrued Benefit.
Notwithstanding the preceding sentence, a Participant's Accrued Benefit may be
reduced to the extent permitted under Code Section 412(c)(8).

          (1)  For the purposes of this Section 8.01(b), a Plan amendment which
     has the effect of

               (i)  eliminating or reducing an early retirement benefit or a
          retirement-type subsidy, or

               (ii) eliminating an optional form of benefit, with respect to
          benefits attributable to

                                 Page 50 of 58
<PAGE>

          service before the amendment

     shall be treated as reducing Accrued Benefits.

          (2)  In the case of a retirement-type subsidy, the immediately
     preceding paragraph (1) shall apply only with respect to a Participant who
     satisfies (either before or after the amendment) the preamendment
     conditions for the subsidy. In general, a retirement-type subsidy is a
     subsidy that continues after retirement, but does not include a qualified
     disability benefit, a medical benefit, a social security supplement, or a
     death benefit (including life insurance).

          (3)  If the vesting schedule of the Plan is amended, in the case of a
     Participant who is a Participant as of the later of the date such amendment
     is adopted or the date it becomes effective, the nonforfeitable percentage
     (determined as of such date) of such Participant's Employer-derived Accrued
     Benefit will not be less than the percentage computed under the Plan
     without regard to such amendment.

     (c)  If the Plan's vesting schedule is amended or the Plan is amended in
any way that directly or indirectly affects the computation of a Participant's
nonforfeitable percentage, or if the Plan is deemed amended by an automatic
change to or from a top heavy vesting schedule, each Participant with at least
three (3) years of service with the Employer may elect within a reasonable
period after the adoption of the amendment or change, to have his or her
nonforfeitable percentage computed under the Plan without regard to such
amendment or change. For Participants who do not have at least one Hour of
Service in any Plan Year beginning after December 31, 1988, the preceding
sentence shall be applied by substituting "five years of service" for "three
years of service" where such language appears.

     (d)  The period during which the election referred to in the immediately
preceding paragraph (c) may be made shall commence with the date the amendment
is adopted or deemed to be made and shall end on the latest of:

          (1)  60 days after the amendment is adopted:

          (2)  60 days after the amendment becomes effective; or

          (3)  60 days after the Participant is issued written notice of the
amendment by the Employer or Plan Administrator.

     (e)  If the Plan is amended and an effect of such amendment is to increase
current liability (as defined in Code Section 401(a)(29)(E)) under the Plan for
a Plan Year, and the funded current liability percentage of the Plan for the
Plan Year in which the amendment takes effect is less than sixty percent (60%),
including the amount of the unfunded current liability under the Plan
attributable to the amendment, the amendment shall not take effect until the
Employer (or any member of a controlled group which includes the Employer)
provides security to the Plan. The form and amount of such security shall
satisfy the requirements of Code Section 401(a)(29)(B) and (C). Such security
may be released provided the requirements of Code Section 401(a)(29)(D) are
satisfied.

     (f)  Pursuant to the Employer's right to amend the Plan, the Board of
Directors will determine whether an amendment is appropriate and will direct
that the amendment be drafted. A quorum of the Board of Directors must approve
the amendment. As soon as practicable after the Board of Directors' approval,
the Employer's President, or an officer designated by the President, will sign
the amendment, thereby adopting the amendment.

     Section 8.02. Merger, Consolidation Or Transfer Of Assets.
                   -------------------------------------------

     (a)  In the event of a merger or consolidation of the Employer or transfer
of all or substantially all of

                                 Page 51 of 58
<PAGE>

its assets to any other corporation, partnership or association, provision may
be made by such successor corporation, partnership or association at its
election for the continuance of the Plan as to such successor entity. Such
successor shall, upon its election to continue the Plan, be substituted in place
of the Employer by an instrument duly authorizing such substitution and duly
executed by the Employer and its successor. Upon notice of such substitution
accompanied by a certified copy of the resolutions of the Board of Directors and
its successor authorizing such substitution and delivered to the Trustee, the
Trustee and all Participants hereunder shall be authorized to recognize such
successor in the place of the Employer.

     (b)  In the case of any merger or consolidation with, or transfer of assets
or liabilities to, any other plan, each Participant in the Plan would (if the
new plan then terminated) receive a benefit immediately after the merger,
consolidation, or transfer which is equal to or greater than the benefit he or
she would have been entitled to receive immediately before the merger,
consolidation or transfer (if the Plan had then terminated).

     (c)  Before the Plan can be merged or consolidated with any other qualified
plan or its assets or liabilities transferred to any other qualified plan, the
Plan Administrator must secure (and file with the Secretary of the Treasury at
least 30 days beforehand) a certification from a government-enrolled actuary
that the benefits that would be received by a Participant of the Plan in the
event of a termination of the Plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the elimination or reduction of any of the protected benefits
described in Section 8.01(b).

                                 Page 52 of 58
<PAGE>

                         ARTICLE IX:  PLAN TERMINATION
                         -----------------------------

     Section 9.01.  Termination Of Plan.
                    -------------------

     (a)  The Employer shall have the right to terminate the Plan. The Board of
Directors will determine whether plan termination is appropriate. A quorum of
the Board of Directors must approve the termination. As soon as practicable
after the Board of Directors' approval of the termination, the Board of
Directors will direct that a written notice of such termination be drafted and
delivered to the Trustee and the Plan Administrator.

          However, any termination (other than a partial termination or an
involuntary termination pursuant to Act Section 4042) must satisfy the
requirements and follow the procedures outlined herein and in ERISA Section 4041
for a Standard Termination or a Distress Termination. Upon any termination (full
or partial), all amounts shall be allocated in accordance with the provisions
hereof and the Accrued Benefit, to the extent funded as of such date, of each
affected Participant shall become fully Vested and shall not thereafter be
subject to forfeiture.

     (b)  Standard Termination Procedure.
          ------------------------------

          (1)  The Plan Administrator shall first notify all "affected parties"
     (as defined in Act Section 4001(a)(21)) of the Employer's intention to
     terminate the Plan and the proposed date of termination. Such termination
     notice must be provided at least sixty (60) days prior to the proposed
     termination date. However, in the case of a standard termination, it shall
     not be necessary to provide such notice to the PBGC. As soon as practicable
     after the termination notice is given, the Plan Administrator shall provide
     a follow-up notice to the PBGC setting forth the following:

               (i)   a certification of an enrolled actuary of the projected
          amount of the assets of the Plan as of the proposed date of final
          distribution of assets, the actuarial present value of the "benefit
          liabilities" (as defined in Act Section 4001(a)(16)) under the Plan as
          of the proposed termination date, and confirmation that the Plan is
          projected to be sufficient for such "benefit liabilities" as of the
          proposed date of final distribution;

               (ii)  a certification by the Plan Administrator that the
          information provided to the PBGC and upon which the enrolled actuary
          based his or her certification is accurate and complete; and

               (iii) such other information as the PBGC may prescribe by
          regulation.

          The certification of the enrolled actuary and of the Plan
          Administrator shall not be applicable in the case of a plan funded
          exclusively by individual insurance contracts.

          (2)  No later than the date on which the follow-up notice is sent to
     the PBGC, the Plan Administrator shall provide all Participants and
     beneficiaries under the Plan with an explanatory statement specifying each
     such person's "benefit liabilities," the benefit form on the basis of which
     such amount is determined, and any additional information used in
     determining "benefit liabilities" that may be required pursuant to
     regulations promulgated by PBGC.

          (3)  A standard termination may only take place if at the time the
     final distribution of assets occurs, the Plan is sufficient to meet all
     "benefit liabilities" determined as of the termination date.

     (c)  Distress Termination Procedure.
          ------------------------------

          (1)  The Plan Administrator shall first notify all "affected parties"
     of the Employer's intention to terminate the Plan and the proposed date of
     termination. Such termination notice must be provided at least

                                 Page 53 of 58
<PAGE>

     60 days prior to the proposed termination date. As soon as practicable
     after the termination notice is given, the Plan Administrator shall also
     provide a follow-up notice to the PBGC setting forth the following:

               (i)   a certification of an enrolled actuary of the amount, as of
          the proposed termination date, of the current value of the assets of
          the Plan, the actuarial present value (as of such date) of the
          "benefit liabilities" under the Plan, whether the Plan is sufficient
          for "benefit liabilities" as of such date, the actuarial present value
          (as of such date) of benefits under the Plan guaranteed under Act
          Section 4022, and whether the Plan is sufficient for guaranteed
          benefits as of such date;

               (ii)  in any case in which the Plan is not sufficient for
          "benefit liabilities" as of such date, the name and address of each
          Participant and beneficiary under the Plan as of such date;

               (iii) a certification by the Plan Administrator that the
          information provided to the PBGC and upon which the enrolled actuary
          based his or her certification is accurate and complete; and

               (iv)  such other information as the PBGC may prescribed by
          regulation.

          This certification of the enrolled actuary and of the Plan
     Administrator shall not be applicable in the case of a plan funded
     exclusively by individual insurance contracts.

          (2)  A distress termination may only take place if:

               (i)   the Employer demonstrates to the PBGC that such termination
          is necessary to enable the Employer to pay its debts while staying in
          business, or to avoid unreasonably burdensome pension costs caused by
          a decline in the employer' work force;

               (ii)  the Employer is the subject of a petition seeking
          liquidation in a bankruptcy or insolvency proceeding which has not
          been dismissed as of the proposed termination date; or

               (iii) the Employer is the subject of a petition seeking
          reorganization in a bankruptcy or insolvency proceeding which has not
          been dismissed as of the proposed termination date, and the bankruptcy
          court (or such other appropriate court) approves the termination and
          determines that the Employer will be unable to continue in business
          outside a Chapter 11 reorganization process and that such termination
          is necessary to enable the Employer to pay its debts pursuant to a
          plan of reorganization.

     (d)  Priority And Payment Of Benefits.  In the case of a distress
          --------------------------------
termination, upon approval by the PBGC that the Plan is sufficient for "benefit
liabilities" or for "guaranteed benefits," or in the case of a standard
termination, a letter of non- compliance has not been issued within the sixty
(60) day period (as extended) following the receipt by the PBGC of the follow-up
notice, the Plan Administrator shall allocate the assets of the Plan among
Participants and beneficiaries pursuant to ERISA Section 4044(a).

          (1)  If the Employer terminates the Plan, the Employer shall direct
     the Trustee to compute the value of the Trust Fund held for the benefit of
     Participants, Retired Participants, qualified Terminated Participants,
     Disabled Participants, spouses, and beneficiaries otherwise eligible to
     receive benefits hereunder. The Plan Administrator, based upon the
     certification of the Actuary, shall apportion the amount so valued to all
     such Participants, Retired Participants, qualified Terminated Participants,
     Disabled Participants, spouses and beneficiaries in shares as determined in
     accordance with ERISA Section 4044(a), but subject to the provisions of
     Section 9.01(g).

                                 Page 54 of 58
<PAGE>

          (2)  The value of that portion of the Trust Fund remaining after
     providing for the expenses of administration of the Plan and Trust shall be
     allocated for purposes of paying Monthly Retirement Income, Disability
     Payments and Death Benefits in the order of precedence indicated and in the
     amounts indicated in ERISA Section 4044.

          (3)  The allocation of the Trust Fund in accordance with ERISA Section
     4044(a) shall be based on the method of payments of Monthly Retirement
     Income, Disability Payments or Death Benefits specified in the Plan. In the
     event that the Trust Fund assets on or after the date of termination are
     insufficient to fund all benefits within any class of benefits, see ERISA
     Section 4044(a), the benefits of all higher order of precedence shall be
     funded, the benefits of all lower order of precedence shall be unfunded,
     and the assets remaining shall be allocated among Participants of that
     class on the basis of their respective actuarial reserves, subject to the
     provisions of Section 4044 of ERISA.

     (e)  In the event of failure of the Employer upon termination of this Plan
to pay or reimburse the Trustee or the Actuary for the then outstanding charges
or expenses incurred hereunder, the Trustee is empowered to satisfy such claims
by lien upon the Trust Fund, prior to making any allocation in accordance with
Section 9.01(d).

     (f)  The application of the Trust Fund on the foregoing basis shall be
calculated by the Actuary and certified to the Trustee by the Employer as of the
date on which the Plan terminated. Subject to the restrictions of ERISA, as it
may be amended, when the calculations shall be completed, the interest of each
Participant, qualified Terminated Participant, Retired Participant, Disabled
Participant, spouse and beneficiary shall continue to be held in the Trust Fund
pursuant to the terms of Section 9.01(d) hereof, or at the direction of the
Employer, the Trust Fund shall be liquidated and each of their interests
distributed to them in a form of annuity contracts, annuity payments,
installments or in a lump sum subject to the provisions of Article III;
provided, however, that any funds remaining after the satisfaction of all
liabilities to Participants, qualified Terminated Participants, Retired
Participants, Disabled Participants, spouses and beneficiaries under this Plan
due to erroneous actuarial computations, shall be returned to the Employer.

     (g)  If the Plan is terminated within ten (10) years after the Effective
Date, the amount in excess of a Participant's restricted benefits under Section
9.02 shall become part of the general fund for purposes of allocation in
accordance with Section 9.01(d).

     (h)  Notwithstanding any other provision herein contained (except the
provisions of Section 9.02), should the Plan terminate or partially terminate,
the rights of all affected Participants to benefits accrued to the date of such
termination or partial termination or the amounts credited to the Participant's
accounts, are nonforfeitable. Although the rights of Participants hereunder
shall become nonforfeitable upon termination of the Plan, no Participant shall
have any recourse toward satisfaction of his or her nonforfeitable benefits
other than from the Plan assets or the PBGC.

     (i)  A partial termination shall be deemed to have occurred in accordance
with a determination to that effect by the Federal regulatory agency (the
Treasury Department, the Labor Department or the PBGC) having jurisdiction to so
determine under ERISA.

     (j)  The termination of the Plan shall comply with such other requirements
and rules as may be promulgated by the PBGC under authority of Title IV of the
ERISA, including any rules relating to time periods or deadlines for providing
notice or for making a necessary filing.

     Section 9.02.  Limitation Of Benefits On Termination.
                    -------------------------------------

     (a)  In the event of Plan termination, the benefit of any Highly
Compensated Participant or any Highly Compensated Former Employee shall be
limited to a benefit that is nondiscriminatory under Code Section 401(a)(4).

                                 Page 55 of 58
<PAGE>

     (b)  Benefits distributed to any of the twenty-five (25) most highly
compensated active and Highly Compensated Former Employees with the greatest
compensation in the current or prior year are restricted such that the monthly
payments are no greater than an amount equal to the monthly payment that would
be made on behalf of such individual under a straight life annuity that is the
Actuarial Equivalent of the sum of the individual's Accrued Benefit, the
individual's other benefits under the Plan (other than a social security
supplement within the meaning of Regulations 1.411(a)-7(c)(4)(ii)), and the
amount the individual is entitled to receive under a social security supplement.
However, the limitation of this Section 9.02 shall not apply if:

          (1)  after payment of the benefit to an individual described above,
     the value of Plan assets equals or exceeds 110 percent of the value of
     current liabilities, as defined in Code Section 412(l)(7);

          (2)  the value of the benefits for an individual described above is
     less than 1 percent of the value of current liabilities before
     distribution; or

          (3)  the value of the benefits payable under the Plan to an individual
     described above does not exceed $5,000 ($3,500 for Plan Years beginning
     prior to January 1, 2000).

     (c)  For purposes of this Section, benefit includes any periodic income,
any withdrawal values payable to a living Participant, and any death benefits
not provided for by insurance on the individual's life.

     (d)  An individual's otherwise restricted benefit may be distributed in
full to the affected individual if, prior to receipt of the restricted amount,
the individual enters into a written agreement with the Plan Administrator to
secure repayment to the Plan of the restricted amount. The restricted amount is
the excess of the amounts distributed to the individual (accumulated with
reasonable interest) over the amounts that could have been distributed to the
individual under the straight life annuity described above (accumulated with
reasonable interest). The individual may secure repayment of the restricted
amount upon distribution by:

          (1)  entering into an agreement for promptly depositing in escrow with
     an acceptable depositary, property having a fair market value equal to at
     least 125 percent of the restricted amount;

          (2)  providing a bank letter of credit in an amount equal to at least
     100 percent of the restricted amount; or

          (3)  posting a bond equal to at least 100 percent of the restricted
     amount. The bond must be furnished by an insurance company, bonding company
     or other surety for federal bonds.

     (e)  The escrow agreement may permit an individual to withdraw from escrow
amounts in excess of 125 percent of the restricted amount. If the market value
of the property in an escrow account falls below 110 percent of the remaining
restricted amount, the individual must deposit additional property to bring the
value of the property held by the depositary up to 125 percent of the restricted
amount. The escrow arrangement may provide that the individual has the right to
receive any income from the property placed in escrow, subject to the
individual's obligation to deposit additional property, as set forth in the
preceding sentence.

     (f)  A surety or bank may release any liability on a bond or letter of
credit in excess of 100 percent of the restricted amount.

     (g)  If the Plan Administrator certifies to the depositary, surety or bank
that the individual (or the individual's estate) is no longer obligated to repay
any restricted amount, a depositary may deliver to the individual any property
held under an escrow arrangement, and a surety or bank may release any liability
on an individual's bond or letter of credit.

                                 Page 56 of 58
<PAGE>

                     ARTICLE X:  MISCELLANEOUS PROVISIONS
                     ------------------------------------

      Section 10.01.  Headings And Subheadings Contained In Plan.  Any headings
                      ------------------------------------------
or subheadings in the Plan are inserted for convenience of reference only and
are to be ignored in the construction of any provisions hereof.

      Section 10.02.  Illegality Of Plan Provisions.  In case any provision of
                      -----------------------------
the Plan shall be held illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining parts of the Plan and the Plan shall
be construed and enforced as if such illegal and invalid provisions had never
been inserted herein.

      Section 10.03.  Correction Of Misstatements.  A misstatement in the age,
                      ---------------------------
sex, length of Continuous Service, date of employment or birth, or Average
Monthly Earnings of a Participant, shall be corrected when it becomes known that
any such misstatement of facts has occurred.

      Section 10.04.  Singular And Plural Terms.  Words used in the singular
                      -------------------------
shall be read and construed as though used in the plural in all cases where they
would so apply.

      Section 10.05.  Governing Law.  The Plan shall be construed in accordance
                      -------------
with the laws of the State of Alabama except where such laws are superseded by
ERISA, in which case ERISA shall control.

      Section 10.06.  Voluntary Continuance Of The Plan By The Employer.
                      -------------------------------------------------
Although it is the intention of the Employer that the Plan shall be continued
and contributions by the Employer made regularly each year, the Plan is entirely
voluntary on the part of the Employer and the continuance of the Plan and the
payments thereunder are not assumed as a contractual obligation of the Employer
or the Trustee.

      Section 10.07.  Source Of Payment Of Benefits.  Each Participant, Retired
                      -----------------------------
Participant, Totally and Permanently Disabled Participant, beneficiary, or
spouse or any other person who shall claim the right to any payment or benefit
under the Plan, shall be entitled only to look to the Trust Fund for such
payment or benefit and shall not have any right, claim or demand therefor
against the Employer or Trustee except as otherwise provided by law.

      Section 10.08.  Suspension Of Contributions By The Employer.  The Employer
                      -------------------------------------------
specifically reserves the right, in its sole discretion, to modify or suspend,
in whole or in part, at any time or from time to time, the contributions
specified in Article IV of the Plan.

      Section 10.09.  No Employment Rights Under Plan.  The Plan shall not be
                      -------------------------------
deemed to constitute a contract between the Employer and any Participant or to
be a consideration or an inducement for the employment of any Participant or
Employee. Nothing contained in the Plan shall be deemed to give any Participant
or other Employee the right to be retained in the service of the Employer or to
interfere with the right of the Employer to discharge any Participant or
Employee at any time, regardless of the effect which such discharge shall have
upon him or her as a Participant in the Plan.

      Section 10.10.  Alienation Of Benefits Disallowed.  No benefit or interest
                      ---------------------------------
available hereunder will be subject in any manner to assignment, alienation,
anticipation, sale, transfer, pledge, encumbrance, or charge, and any attempt to
assign, alienate, anticipate, sell, transfer, pledge, encumber, or charge the
same shall be void; and no such benefit shall in any manner be liable for, or
subject to, the debts, contracts, liabilities, engagements, or torts of any such
person, nor shall it be subject to attachment or legal process for or against
such person, and the same shall not be recognized by the Employer, Trustee or
Plan Administrator, except as may be required by law.

          The foregoing provisions of this paragraph Section 10.10 shall not
apply to a "qualified domestic relations order" defined in Code Section 414(p).
The Plan Administrator shall establish a written procedure to determine the
qualified status of domestic relations orders and to administer distributions
under such qualified orders. Finally, to the extent provided under a "qualified
domestic relations order," a former spouse of a Participant shall be

                                 Page 57 of 58
<PAGE>

treated as the spouse or surviving spouse for all purposes under the Plan.

      Section 10.11.  Indemnification By Employer.  The Employer shall and does
                      ---------------------------
hereby indemnify all persons in its employ to whom it has delegated or from time
to time hereafter does delegate any fiduciary duties against any and all claims,
losses, damages, expenses and liability arising from or in connection with their
responsibilities in connection with the Plan unless the same is determined to be
due to their own gross negligence or willful misconduct. The Employer may obtain
insurance in support of such indemnification but may only charge the cost of
such insurance to the Trust to the extent individuals remain personally liable
for breach of their fiduciary responsibilities.

      Section 10.12.  Bonding Of Fiduciaries.  Every fiduciary, except a bank or
                      ----------------------
an insurance company, unless exempted by the Act and Regulations thereunder,
shall be bonded in an amount not less than ten percent (10%) of the amount of
the funds such fiduciary handles; provided, however, that the minimum bond shall
be $1,000 and the maximum bond, $500,000. The amount of funds handled shall be
determined at the beginning of the Plan Year by the amount of funds handled by
such person, group, or class to be covered and their predecessors, if any,
during the preceding Plan Year, or if there is no preceding Plan Year, then by
the amount of the funds to be handled during the then current year. The bond
shall provide protection to the Plan against any loss by reason of acts of fraud
or dishonesty by the fiduciary alone or in connivance with others. The surety
shall be a corporate surety company (as such term is used in ERISA Section
412(a)(2)), and the bond shall be in a form approved by the Secretary of Labor.
Notwithstanding anything in the Plan to the contrary, the cost of such bonds
shall be an expense of and may, at the election of the Plan Administrator, be
paid from the Trust Fund or by the Employer.

     IN WITNESS WHEREOF, National Bank of Commerce of Birmingham has caused this
Plan, amended and restated, generally effective as of January 1, 1997, to be
executed, as of the 16th day of December, 1999.

                             NATIONAL BANK OF COMMERCE OF BIRMINGHAM

                             By:   /s/ John H. Holcomb, III
                                 ------------------------------------------
                                       John H. Holcomb, III
                                       Its:  President

Attest:

By:    /s/ Kimberly Moore
    ---------------------------
       Kimberly Moore
       Its: Corporate Secretary

                                 Page 58 of 58

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