-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SC+oAPE3kQMUBXABJrn2ZKuLxabyR6i9UfwwAKQXCRYBg9iwW9DzqlbTw70m+egI lGW4CPBu59PXP2V2X9k/qQ== 0001013044-97-000002.txt : 19970329 0001013044-97-000002.hdr.sgml : 19970329 ACCESSION NUMBER: 0001013044-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAND PREMIER FINANCIAL INC CENTRAL INDEX KEY: 0001013044 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 364077455 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20987 FILM NUMBER: 97566595 BUSINESS ADDRESS: STREET 1: 486 WEST LIBERTY STREET CITY: WAUCONDA STATE: IL ZIP: 60084-2989 BUSINESS PHONE: 8474871818 MAIL ADDRESS: STREET 1: 486 WEST LIBERTY STREET CITY: WAUCONDA STATE: IL ZIP: 60084-2989 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 Commission file number 0-20987 Grand Premier Financial, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 36-4077455 (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 486 West Liberty, Wauconda, IL 60084 (Address of Principal Executive Office) (Zip Code) Registrant's telephone number, including area code: (847) 487-1818 Securities registered pursuant to Section 12(g) of the Act: Common Stock ($.01 par value) Title of Class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by a check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to form 10-K. X The number of shares of the registrant's Common Stock outstanding on February 28, 1997 was 20,002,563 shares. The aggregate market value of the registrant's Common Stock held by nonaffiliates of the registrant as of February 28, 1997, based upon the average bid and asked price at this date was $108,398,291. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1996 Annual Report to Shareholders are incorporated by reference into Part II of the Form 10-K. Portions of the Proxy Statement for Registrant's 1997 Annual Meeting of Shareholders to be held May 28, 1997 have been incorporated by reference into Part III of the Form 10-K. No. of Pages Sequentially Numbered: 30 Exhibit Index is on Page 28 PART I ITEM 1. BUSINESS Grand Premier Financial, Inc. (the Company) is a registered bank holding company organized in 1996 under Delaware law. The operations of the Company and its subsidiaries consist primarily of those financial activities, including trust and investment services, common to the commercial banking industry. Unless the context otherwise requires, the term "Company" as used herein includes the Company and its subsidiaries on a consolidated basis. The primary function of the Company is to coordinate the policies and operations of its subsidiaries in order to improve and expand their services and effect economies in their operations by joint efforts in certain areas such as auditing, training, marketing, and business development. The Company also provides operational and data processing services for its subsidiaries. All services and counsel to subsidiaries are provided on a fee basis, with fees based upon fair market value. The Company's banking subsidiaries include Grand National Bank (GNB), First Bank North ("FBN"), First Bank South ("FBS"), First National Bank of Northbrook ("Northbrook") and First Security Bank of Cary Grove ("FSBCG"). Although chartered as commercial banks, the offices of the banks serve as general sales offices providing a full array of financial services and products to individuals, businesses, local governmental units and institutional customers throughout northern Illinois. Banking services include those generally associated with the commercial banking industry such as demand, savings and time deposits, loans to commercial, agricultural and individual customers, cash management, electronic funds transfers and other services tailored for the client. The Company has banking offices located in Cary, Crete, Crystal Lake, DeKalb, Dixon, Freeport, Gurnee, Homewood, Island Lake, Mokena, Mt. Carroll, Mundelein, Niles, Northbrook, Riverwoods, Polo, Rockford, S. Chicago, Heights, Sterling, Stockton, Tinley Park, Warren, Waukegan, Wauconda and Woodstock, Illinois. Grand Premier Trust and Investment, Inc., ("Trust") a wholly owned subsidiary of FBN, provides a full line of fiduciary and investment services throughout the Company's general market area. Grand Premier Insurance Services, Inc., a direct subsidiary of the Company, is a full line casualty and life insurance agency. Grand Premier Operating Systems, Inc., ("GPOS"), is also a direct subsidiary of the Company. GPOS provides data processing and operational services to the Company and its subsidiaries. American Suburban Mortgage Corporation, (ASMC) a direct subsidiary of the Company was established to engage in secondary mortgage operations. ASMC is currently inactive, with secondary mortgage operations performed by the banking subsidiaries. Competition Active competition exists in all principal areas where the Company and its subsidiaries are engaged, not only with commercial banking organizations, but also with savings and loan associations, finance companies, mortgage companies, credit unions, brokerage houses and other providers of financial services. The Company has seen the level of competition and number of competitors in its markets increase in recent years and expects a continuation of these aggressively competitive market conditions. To gain a competitive market advantage, the Company relies on a strategic marketing plan that is employed throughout the Company, reaching every level of its sales force. The marketing plan includes the identification of target markets and customers so that the Company's resources, both financial and manpower, can be utilized where the greatest opportunities for gaining market share exist. The differentiation between the Company's approach to providing products and services to its customers and that of the competition is in the individualized attention that the Company devotes to the needs of its customers. This focus on fulfilling customer's financial needs generally results in long-term customer relationships. Banking deposits are well balanced, with a large customer base and no dominant accounts in any category. The Company's loan portfolio is also characterized by a large customer base, balanced between loans to individuals, commercial and agricultural customers, with no dominant relationships. There is no readily available source of information which delineates the market for financial services, including services offered by non-bank competitors, in the company's market area. Supervision and Regulation Bank holding companies, banks and financial institutions generally are highly regulated, with numerous federal and state laws and regulations governing their activities. The Company is a registered bank holding company under and subject to the provisions of the Bank Holding Company Act (BHCA.) As such, the Company is required to file with the Federal Reserve Board periodic reports and such additional information as the Federal Reserve Board may require. It also is subject to the supervision of, and examination by, the Federal Reserve Board. The Company is also subject to regulation under the Illinois Bank Holding Company Act of 1957, as amended (the "Illinois BHCA"). Grand National Bank and First National Bank of Northbrook ("Northbrook") are national banks chartered under the laws of the United States and are subject to the supervision of, and examination by, the Office of the Comptroller of the Currency (OCC), their primary regulator. The OCC regularly examines such areas as reserves, loans, investments, management practices and other aspects of Grand National Bank's and Northbrook's operations. Grand National Bank and Northbrook must also furnish to the OCC quarterly reports containing full and accurate statements of their affairs. All national banks are members of the Federal Reserve System and subject to the applicable provisions of the Federal Reserve Act and to regular examination by the Federal Reserve Bank of their district, in this case the Federal Reserve Bank of Chicago. First Bank North, First Bank South and First Security Bank of Cary Grove ("Cary Grove") are Illinois state banks chartered under the Illinois Banking Act and members of the Federal Reserve System. As such, they are subject to the supervision of, and examination by, the Illinois Commissioner and the Federal Reserve Board. The Illinois Commissioner and the Federal Reserve Board regularly examine such areas as reserves, loans, investments, management practices, and other aspects of the operations of First Bank North, First Bank South and Cary Grove. First Bank North, First Bank South and Cary Grove must also furnish to the Illinois Commissioner and the Federal Reserve Bank of Chicago quarterly reports containing full and accurate statements of their affairs. As an Illinois trust company, Premier Trust Services, Inc. is also subject to the supervision of and examination by the Illinois Commissioner. The deposits of all of the banks, subject to FDIC limitations are insured by BIF of the FDIC. As a result, the banks are also subject to the provisions of the Federal Deposit Insurance Act and to examination by the FDIC. The examinations of the various regulatory agencies are designed for the protection of bank depositors and not for stockholders of the banks or their holding companies. The following references to material statutes and regulations affecting the Company and its subsidiaries are brief summaries thereof and are qualified in their entirety by reference to such statutes and regulations. Any change in applicable law or regulations may have a material effect on the business of the Company and its subsidiary banks. The BHCA requires prior Federal Reserve Board approval for, among other things, the acquisition by a bank holding company of direct or indirect ownership or control of more than five percent (5%) of the voting shares or substantially all the assets of any bank, or for a merger or consolidation of a bank holding company with another bank holding company. With certain exceptions, the BHCA prohibits a bank holding company from acquiring direct or indirect ownership or control of voting shares of any company which is not a bank or bank holding company and from engaging directly or indirectly in any activity other than banking or managing or controlling banks or performing services for its authorized subsidiaries. A bank holding company may, however, engage in or acquire an interest in a company that engages in activities which the Federal Reserve Board has determined by regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. A bank holding company is a legal entity separate and distinct from its subsidiary bank or banks. Normally, the major source of a bank holding company's revenue is the dividends it receives from its subsidiary banks. The right of a bank holding company to participate as a stockholder in any distribution of assets of its subsidiary banks upon their liquidation or reorganization or otherwise is subject to the prior claims of creditors of such subsidiary banks. The subsidiary banks are subject to claims by creditors for long-term and short-term debt obligations, including substantial obligations for federal funds purchased and securities sold under repurchase agreements, as well as deposit liabilities. Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), in the event that the FDIC suffers a loss in connection with a banking subsidiary of a bank holding company, other banking subsidiaries of the same holding company may be held liable for such loss. Federal laws limit the transfer of funds by a subsidiary bank to its holding company and the non-bank subsidiaries of the holding company ("affiliates") in the form of loans or extensions of credit, investments in stock or other securities of the bank holding company or its other subsidiaries or advances to any borrower collateralized by such stock or other securities. Transfers of this kind are limited to 10 percent of a bank's capital and surplus with respect to each affiliate and to 20 percent with respect to all affiliates in the aggregate and are also subject to certain collateral requirements. These transactions, as well as other transactions between a subsidiary bank and its holding company and other affiliates, must also be on terms substantially the same as, or at least as favorable as, those prevailing at the time for comparable transactions with non-affiliated companies or, in the absence of comparable transactions, on terms or under circumstances, including credit standards, that would be offered to, or would apply to, non-affiliated companies. It is the policy of the Federal Reserve Board that a bank holding company is expected to act as a source of financial strength to each of its subsidiary banks and to commit resources to support each of its subsidiary banks. The Federal Reserve Board takes the position that, in implementing this policy, it may require bank holding companies to provide such support when the holding company otherwise would not consider itself able to do so. The Illinois BHCA permits bank holding companies domiciled in Illinois to make acquisitions throughout the state. It also permits bank holding companies located in any state of the United States to acquire banks or bank holding companies within the State of Illinois, subject to certain conditions, including a regulatory determination that the laws of the state in which the acquiring bank holding company is located permit bank holding companies in Illinois to acquire banks or bank holding companies in the acquiror's state under qualifications and conditions that are not unduly restrictive when compared to those imposed by Illinois law. Subject to these regulatory determinations, the Company may acquire banks and bank holding companies in such states, and bank holding companies in those states may acquire banks and bank holding companies in Illinois. The federal and state laws and regulations generally applicable to banks regulate, among other things, the scope of a bank's business, allowable investments, required reserves against deposits, loans and collateral, establishment of branch offices and activities performed at such offices. These laws and regulations are generally designed for the protection of bank depositors and not the stockholders of the bank. A national bank, such as Grand National Bank or Northbrook, may not pay a dividend in any calendar year in excess of its net profits for the current year plus its adjusted retained profits for the two prior years, unless it obtains OCC approval. Net profits from which dividends may be paid must be adjusted for losses and the amount of statutory bad debts in excess of the balance of the bank's allowance for possible credit losses. "Bad debts" are generally defined to include the principal amounts of loans which are in arrears with respect to interest by six months or more unless such loans are well secured and in the process of collection. Under the Illinois Banking Act, state banks, such as First Bank North, First Bank South, and Cary Grove may not declare dividends (I) except out of the bank's net profits and (ii) unless the bank has transferred to surplus at least one-tenth of its net profits since the date of the declaration of the last preceding dividend, until the amount of its surplus is at least equal to its capital. Net profits under the Illinois Banking Act must be adjusted for losses and bad debts (i.e., debts owing to the bank on which interest is past due and unpaid for a period of six months or more unless such debts are secured and in the process of collection). The Community Reinvestment Act (the "CRA") is intended to encourage banks and thrifts to help meet the credit needs of their entire communities, including low- and moderate-income neighborhoods, consistent with safe and sound lending practices. Under the CRA, the federal banking agencies take into account a financial institution's record of helping to meet the credit needs of its entire community when evaluating various types of applications, such as applications for branches, office relocations, mergers, consolidations, and purchase and assumption transactions, and may deny or condition approval of an application on the basis of an institution's record. All depository institutions are reviewed and rated by their primary federal bank regulator. In reviewing applications by bank holding companies, the Federal Reserve Board takes into account the record of compliance of a holding company's subsidiary banking institutions with the CRA. The various federal bank regulators, including the Federal Reserve Board and the OCC, have adopted risk-based capital requirements for assessing bank holding company and bank capital adequacy. The capital standards (including the definitions of Tier 1 Capital and Tier 2 Capital) established by the OCC (for national banks such as Grand National Bank and Northbrook) and by the Federal Reserve Board (for state member banks such as First Bank North, First Bank South and Cary Grove) are substantially the same as those established by the Federal Reserve Board for bank holding companies. These standards significantly revise the definition of capital and establish minimum capital standards in relation to assets and off-balance sheet exposures, as adjusted for credit risks. Capital is classified into two tiers. For bank holding companies, Tier 1 or "core" capital consists of common shareholders' equity, perpetual preferred stock (subject to certain limitations) and minority interests in the common equity accounts of consolidated subsidiaries and is reduced by goodwill and certain investments in other corporations ("Tier 1 Capital"). Tier 2 capital consists of (subject to certain conditions and limitations) the allowance for possible credit losses, perpetual preferred stock, "hybrid capital instruments," perpetual debt and mandatory convertible debt securities, and term subordinated debt and intermediate-term preferred stock ("Tier 2 Capital"). Under the risk-adjusted capital standards, a minimum total capital to total risk-weighted assets ratio of eight percent (8%) is required, and Tier 1 Capital must be at least 50 percent of total capital. The Federal Reserve Board also has adopted a minimum leverage ratio of Tier 1 Capital to total assets of three percent (3%). The three percent Tier 1 Capital to total assets ratio constitutes the leverage standard for bank holding companies and is used in conjunction with the risk-based ratio in determining the overall capital adequacy of banking organizations. The federal banking agencies have emphasized that the foregoing standards are supervisory minimums and that an institution would be permitted to maintain such minimum levels of capital only if it were rated in the highest category under the regulatory rating systems for bank holding companies and banks. All other bank holding companies and banks are required to maintain a leverage ratio of 3 percent plus at least one to two percent (1% to 2%) of additional capital. These rules further provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain capital positions substantially above the minimum supervisory levels and comparable to peer group averages, without significant reliance on intangible assets. The Federal Reserve Board continues to consider a "tangible Tier 1 leverage ratio" in evaluating proposals for expansion or new activities. The tangible Tier 1 leverage ratio is the ratio of a banking organization's Tier 1 Capital, less all intangibles, to total assets, less all intangibles. The Company and its banking subsidiaries meet or exceed the regulating capital guidelines as currently defined. For additional information regarding the capital ratios of the Company and its banking subsidiaries, see the Company's 1996 Annual Report page 20. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") imposed relatively detailed standards and mandated the development of additional regulations governing nearly every aspect of the operations, management and supervision of banks and bank holding companies. It also significantly enhanced the authority of bank regulators to intervene in the cases of deterioration of a bank's capital level. FDICIA requires that the banking regulators take prompt corrective action with respect to depository institutions that fall below certain capital levels and prohibits any depository institution from making any capital distribution that would cause it to be considered undercapitalized. Regulations adopted pursuant to FDICIA established five capital categories: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Institutions that are not adequately capitalized may be subjected to a broad range of restrictions on their activities and will be required to submit a capital restoration plan which, to be accepted by the regulators, must be guaranteed in part by any company having control of the institution. Only well-capitalized institutions and adequately capitalized institutions receiving a waiver from the FDIC will be permitted to accept brokered deposits, and only those institutions eligible to accept brokered deposits may provide pass-through deposit insurance for participants in employee benefit plans. A range of other regulations adopted as a result of FDICIA have established interagency guidelines standards for safety and soundness for depository institutions and their holding companies; requirements relating to annual audits of depository institutions; requirements applicable to closure of branches; additional requirements for disclosures to depositors with respect to terms and interest rates applicable to deposit accounts; requirements for the banking agencies to adopt uniform regulations for extensions of credit secured by real estate; modification of accounting standards to conform to GAAP, including the reporting of off-balance sheet items and supplemental disclosure of estimated fair market value of assets and liabilities in financial statements filed with the banking regulators; increased penalties for failing to file assessment reports with the FDIC; greater restrictions on extensions of credit to directors, officers and principal shareholders; and increased reporting requirements on agricultural loans and loans to small businesses. As required by FDICIA, the FDIC has established a risk-based assessment system for deposit insurance provided to depositors at depository institutions whereby assessments to each institution are calculated upon the probability that the insurance fund will incur a loss with respect to the institution, the likely amount of such loss, and the revenue needs of the insurance fund. Under the system, deposit insurance premiums are based upon an institution's assignment to one of three capital categories and a further assignment to one of three supervisory subcategories within each capital category. The result is a nine category assessment system. The classification of an institution into a category depends, among other things, on the results of off-site surveillance systems, capital ratio, and its CAMEL rating (a supervisory rating of capital, asset quality, management, earnings and liquidity). On September 29, 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act") became law. Since September 29, 1995, the Riegle-Neal Act has permitted adequately capitalized and managed bank holding companies to acquire banks across state lines, without regard to whether the transaction is prohibited by state law, except that state law may establish the minimum age of the banks in such state that are subject to acquisition by out-of-state bank holding companies (not to exceed five years). The acquiring bank holding company must maintain the acquired bank as a separately chartered institution. Under the Riegle-Neal Act, the Federal Reserve Board generally may not approve an acquisition if, upon consummation, the applicant bank holding company would control more than 10% of the total deposits of U.S. insured depository institutions or 30% or more of the deposits in the state where the target bank is located. The Federal Reserve Board could approve an acquisition, notwithstanding the 30% limit, if the state waives the limit either by statute, regulation or order of the appropriate state official. Since September 29, 1995, the Riegle-Neal Act has also permitted any bank subsidiary of a bank holding company to receive deposits, renew time deposits, close loans, service loans and receive payments on loans and other obligations as agent for a bank or thrift affiliate, whether such affiliate is located in a different state or in the same state. Beginning on June 1, 1997, banks may, with the approval of the appropriate Federal bank regulatory agency, merge with one another across state lines and thereby create a main bank with branches in separate states. After establishing branches in a state through an interstate merger transaction, the bank could establish and acquire additional branches at any location in the state where any bank involved in the merger could have established or acquired branches under applicable federal or state law. The responsible federal bank regulatory agency generally may not approve such a merger, however, if, after the merger, the resulting entity would control more than 10% of the total deposits of U.S. insured depository institutions or 30% or more of the deposits in the state where the target bank is located, the responsible federal bank regulatory agency may approve such a merger, notwithstanding the 30% limit, if the state waives the limit either by statute, regulation or order of the appropriate state official. Under the Riegle-Neal Act, states may adopt legislation permitting interstate mergers before June 1, 1997. Alternatively, states may adopt legislation before June 1, 1997, subject to certain conditions, opting-out of interstate branching. If a state opts out of interstate branching, no out-of- state bank may establish a branch in that state through an acquisition or de novo, and a bank whose home state opts-out may not participate in an interstate merger transaction. Illinois has adopted legislation permitting interstate mergers beginning June 1, 1997. Subject to the limited exception described below, deposits of the banks are insured by the FDIC under the BIF. The FDIC also maintains another insurance fund, the Savings Association Insurance Fund (the "SAIF"), which primarily insures savings association deposits. Applicable law requires that the SAIF and BIF funds each achieve and maintain a ratio of insurance reserves to total insured deposits equal to 1.25%. The BIF reached this 1.25% reserve level in 1996, and the FDIC announced a reduction in BIF premiums for most banks. Based on this reduction, the highest rated institutions (approximately 92 percent of the nearly 11,000 BIF-insured banks) will pay the statutory annual minimum of $2,000 for FDIC insurance. Rates for all institutions were reduced by $0.04 per $100 of deposits, leaving a premium range of $0.00 (in which the statutory minimum applies) to $0.27 per $100 instead of the previous $0.04 to $0.31 per $100. The banks, for deposit insurance assessment purposes, are all classified in the highest category and pay the statutory annual minimum of $2,000 for FDIC deposit insurance. First Bank North holds approximately $11,250,000 of deposits acquired in connection with the acquisition of a branch of a savings association. Those deposits are insured by SAIF and will continue to be subject to the higher premiums due on SAIF- insured deposits. Monetary Policy and Economic Conditions The earnings of commercial banks and bank holding companies are affected not only by general economic conditions, but also by the policies of various governmental regulatory authorities. In particular, the Federal Reserve Board influences conditions in the money and capital markets, which affect interest rates and growth in bank credit and deposits. Federal Reserve Board monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to in the future.In view of changing conditions in the national economy and in the money markets, as well as the effect of credit policies by monetary and fiscal authorities, including the Federal Reserve System, no representation can be made as to possible future changes in interest rates, deposit levels and loan demand, or their effect on the business and earnings of the Company and its subsidiaries. Employees As of December 31, 1996 the Company and its subsidiaries had a total of 588 full-time and 102 part-time employees. Item 2. Properties The Company's corporate office is at 486 West Liberty Street, Wauconda, Illinois in a building owned by GNB. The Company leases approximately 5,000 square feet. The banking affiliates, as of December 31, 1996 occupied 35 offices in 25 different communities within northern Illinois, of which seven are leased and 28 are owned. In addition to the banking offices, Grand Premier Operating Systems, Inc. (GPOS) conducts the majority of its operations from a 28,800 square foot, one story office building located at 588 Lakeview Parkway, Vernon Hills, Illinois. GPOS leases this building from an unaffiliated party (with an option to purchase) through September, 2001. GPOS also conducts business in Freeport, Illinois. The two story office building in Freeport consists of approximately 13,000 square feet, and is located at 110 West Stephenson Street, Freeport, Illinois. The building and underlying land are owned by GPOS. Item 3. Legal Proceedings Neither the Company nor its subsidiaries are a party to any material legal proceedings, other than routine litigation incidental to the business of the banks as of December 31, 1996. Item 4. Submission of Matters to a Vote of Security Holders No matters, through the solicitation of proxies or otherwise, have been submitted to a vote of security holders for the quarter ended December 31, 1996. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters The approximate number of Holders of Common Stock as of 12/31/96 was as follows: Title of Class No. of Record Holders Common Stock ($.01 Par Value) 1,231 Other information required by this item is incorporated herein by reference to the Registrant's Annual Report to its shareholders for the year ended December 31, 1996, which is included as an exhibit to this report. Item 6. Selected Financial Data Incorporated herein by reference to the Registrant's Annual Report to its shareholders for the year ended December 31, 1996, which is included as an exhibit to this report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Incorporated by reference to the Registrant's Annual Report to its shareholders for the year ended December 31, 1996, which is included as an exhibit to this report. Submitted herewith is the following supplementary financial information of the registrant for each of the last three years (unless otherwise stated): Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential Changes in Interest Margin for each of the last two years Investment Portfolio Maturities of Investments, December 31, 1996 Loan Portfolio for each of the last five years Loan Maturities and Sensitivity to Changes in Interest Rates, December 31, 1996 Risk Elements in the Loan Portfolio for the last five years Summary of Loan Loss Experience for the last five years Deposits Time Certificates and other Time Deposits of $100,000 or more as of December 31, 1996 Return on Equity and Assets Short Term Borrowings Item 8. Financial Statements and Supplementary Data The following consolidated financial statements of the Company, which are included in the annual report of the registrant to its stockholders for the year ended December 31, 1996, are submitted herewith as an exhibit, and are incorporated by reference: 1. Consolidated Balance Sheets, December 31, 1996 and 1995 2. Consolidated Statements of Earnings, for the three years ended December 31, 1996 3. Consolidated Statements of Changes in Stockholders' Equity for the three years ended December 31, 1996 4. Consolidated Statements of Cash Flows for the three years ended December 31, 1996 5. Notes to Consolidated Financial Statements 6. Independent Auditors' Report 7. Selected Quarterly Financial Information Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosures None Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differentials The following table presents the average balances of major categories of interest earning assets and interest bearing liabilities, the interest earned or paid on such categories, and the average yield on such categories of interest earning assets and the average rates paid on such categories of interest bearing liabilities during each of the reported periods, (in thousands) Year Ended December 31, 1996 1995 1994
Average Average Average Average Average Average Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate Assets Interest earning assets Interest bearing deposits in other banks $ 4,071 $ 244 5.99% $ 3,967 $ 219 5.52% $ 15,200 $ 656 4.32% Investment securities (1) Taxable 424,754 26,514 6.24 461,622 27,680 6.00 435,086 21,897 5.03 Tax exempt (2) 126,830 7,142 8.53 113,027 6,880 9.22 121,612 7,230 9.01 Federal funds sold 12,413 654 5.27 14,814 895 5.80 13,714 664 4.84 Loans (3) 915,107 79,816 8.72 810,527 73,108 9.02 742,129 61,719 8.32 Total int. earning assets/interest income 1,483,175 114,370 7.96 1,403,957 108,782 8.00 1,327,741 92,166 7.22 Cash and due from banks 52,745 52,768 54,756 Premises and equipment 35,945 36,578 37,067 Other assets 46,138 47,275 48,331 Securities valuation-available for sale (1) 10,879 2,301 518 Allowance for loan losses (9,743) (9,367) (10,293) Total $1,619,139 $1,533,512 $1,458,120 Liabilities and Shareholders' Equity Interest bearing liabilities Demand deposits $289,698 8,357 2.88 $289,753 9,090 3.14 $244,864 5,700 2.33 Savings deposits 279,386 8,521 3.05 283,557 8,592 3.03 328,644 8,890 2.71 Other time deposits 613,910 35,380 5.76 537,652 30,566 5.69 468,804 20,609 4.40 Short-term borrowings 60,826 3,482 5.72 79,840 4,845 6.07 79,309 3,593 4.53 Long-term borrowings 12,758 818 6.41 6,555 448 6.83 2,148 136 6.33 Total interest bearing liabilities/ interest expense 1,256,578 56,558 4.50 1,197,357 53,541 4.47 1,123,769 38,928 3.46 Noninterest bearing deposits 189,645 181,177 191,959 Other liabilities 20,826 14,844 11,138 Shareholders' equity 152,090 140,134 131,254 Total $1,619,139 $1,533,512 $1,458,120 Net interest income $57,812 3.46% $55,241 3.53% $53,238 3.76% Net yield on interest earning assets 4.15% 4.19% 4.29%
(1) Investments are at amortized cost. The valuation from amortized cost to market for available for sale securities is shown separately. (2) Yields on tax exempt securities are full tax equivalent yields at a 34% rate. (3) Average volume includes nonaccrual loans. CHANGES IN INTEREST MARGIN GRAND PREMIER FINANCIAL, INC. The following table sets forth the registrant's dollar amount of change in interest earned on each major interest earning assets and the dollar amount of change in interest paid on each major interest bearing liabilities, as well as the portion of such changes attributable to changes in rate and changes in volume for each of the last two years (Dollar figures in thousands): Increase (Decrease) 1996 over 1995 1995 over 1994 Rate Volume Rate Volume Changes in Interest Earned: Interest Bearing Deposits $ 19 $ 6 $ 149 $(586) Taxable Investment Securities 1,087 (2,253) 4,391 1,392 Non-taxable Investment Securities (taxable equivalent) (868) 1,130 247 (597) Fed Funds Sold (87) (154) 165 66 Loans (net of unearned discount) (3,608) 10,316 6,086 5,303 Total $(3,457) $ 9,045 $11,038 $5,578 Changes in Interest Paid: Interest Bearing Deposits $ 888 $ 3,122 $10,593 $2,456 Short Term Borrowings ( 266) (1,097) 1,228 24 Long Term Borrowings (30) 400 12 300 Total $ 592 $ 2,425 $11,833 $2,780 Changes in Interest Margin $(4,049) $ 6,620 $ ( 795) $2,798 Changes attributable to rate/volume, i.e., changes in the interest margin which occurred because of a combination rate/volume change and cannot be attributed solely to a rate change or a volume change, are apportioned between rate and volume as follows: 1. Percentage rate increases (decreases) in rate and in volume were calculated for each major interest earning asset and interest bearing liability based upon their year-to-year change. 2. The percentage rate changes in rate and in volume were then allocated proportionately in relationship to 100%. 3. The proportionate allocations were applied to the total rate/volume change. INVESTMENT PORTFOLIO GRAND PREMIER FINANCIAL, INC. The following table sets forth the registrant's book values of investments in obligations of the U.S. Treasury Government Agencies and Corporations, State and Political Subdivisions (U.S.), and other securities for each of the last three years (dollar figures in thousands): 1994 1995 1996 U.S. Treasury and U.S. Agency Securities $393,005 $385,256 $348,877 Obligations of States and Political Subdivisions 114,174 137,175 134,633 Other Securities 64,156 76,139 52,177 Total $571,335 $598,570 $535,687 The following table sets forth the registrant's book values of investments in obligations of the U.S. Treasury, U.S. Government Agencies and Corporations, State and Political Subdivisions (U.S.), and other securities as of December 31, 1996 by maturity and also sets forth the weighted average yield for each range of maturities. Obligations of U.S. Treasury States and Weighted and U.S. Agency Political Other Average Book Value: Securities Subdivision Securities Yield One Year or Less $ 33,559 $ 10,304 $ 5,777 6.69% After One Year to Five Years 71,636 34,023 4,886 7.13% After Five Years to Ten Years 77,575 23,617 2,048 7.30% Over Ten Years 166,107 66,689 39,466 7.44% Total $ 348,877 $134,633 $52,177 7.28% (1) Weighted Average Yields were calculated as follows: 1. The weighted average yield for each category in the portfolio was calculated based upon the maturity distribution shown in the table above. 2. The yields determined in step 1 were weighted in relation to the total investments in each maturity range shown in the table above. (2) Yields on tax exempt securities are full tax equivalent yields at a 34% rate. (3) At December 31, 1996 the Company did not own any Obligation of a State or Political Subdivision or Other Security which was greater than 10% of its total equity capital. LOAN PORTFOLIO GRAND PREMIER FINANCIAL, INC. The following table sets forth the registrant's Loan Portfolio by major category for each of the last five years (dollar figures in thousands): Year Ended December 31 1992 1993 1994 1995 1996 Commercial, financial and agricultural Loans $201,746 $242,342 $200,178 $229,589 $229,700 Real Estate - Construction 44,728 44,717 46,150 45,098 42,772 Mortgage 335,115 417,028 450,271 530,636 625,364 Loans to Individuals 42,609 65,685 68,453 71,010 68,488 Total $624,198 $769,772 $765,052 $876,333 $966,324 The following tables set forth the registrant's loan maturity distribution for certain major categories of loans as of December 31, 1996 (dollar figures in thousands). AMOUNT DUE IN 1 Year or Less 1-5 Years After 5 Years Commercial, financial and agricultural loans $132,394 $ 78,875 $ 18,431 Real Estate - Construction 37,040 5,299 433 Total $169,434 $ 84,174 $ 18,864 As of December 31, 1996 loans totaling $61,272,000, which are due after one year have predetermined interest rates, while $41,766,000 of loans due after one year have floating interest rates. RISK ELEMENTS IN THE LOAN PORTFOLIO GRAND PREMIER FINANCIAL, INC. The Company's financial statements are prepared on the accrual basis of accounting, and substantially all of the loans currently accruing interest are accruing at the rate contractually agreed upon when the loan was negotiated. When in the judgement of management the timely receipt of interest payments on a loan is doubtful, it is the Company's policy to cease the accrual of interest thereon and to recognize income on a cash basis when payments are received, unless there is adequate collateral or other substantial basis for continued accrual of interest. An exception is made in the case of consumer installment and charge card loans; such loans are not placed on a cash basis and all interest accrued thereon is charged against income at the time a loan is charged off. At the time a loan is placed in non-accrual status all interest accrued in the current year but not yet collected is reversed against current interest income. Troubled debt restructurings (renegotiated loans) are loans on which interest is being accrued at less than the original contractual rate of interest because of the inability of the borrower to service the obligation under the original terms of the agreement. Income is accrued at the renegotiated rate so long as the borrower is current under the revised terms and conditions of the agreement. Other Real Estate is real estate, sales contracts, and other assets acquired because of the inability of the borrower to serve the obligation of a previous loan collateralized by such assets. The following table sets forth the registrant's non-accrual, past due, and renegotiated loans, for each of the last five years (dollar figures in thousands): Year Ended December 31 1992 1993 1994 1995 1996 Non-accrual Loans $ 11,923 $ 10,343 $ 8,911 $ 6,118 $ 4,718 Loans Past Due 90 days or More 922 5,273 703 539 1,946 Renegotiated Loans 4,580 4,697 3,395 551 510 Total $ 17,425 $ 20,313 $13,009 $ 7,208 $7,174 The following table sets forth interest information for certain non-performing loans for the year ended December 31, 1996 (dollar figures in thousands): Non-Accrual Loans Renegotiated Loans Balance December 31, 1996 $ 4,718 $ 510 Gross interest income that would have been recorded if the loans had been current in accordance with their original terms 557 32 Amount of interest included in net earnings. 188 39 SUMMARY OF LOAN LOSS EXPERIENCE GRAND PREMIER FINANCIAL, INC. The Company and its subsidiary banks have historically evaluated the adequacy of their Allowance for Possible Loan Losses on an overall basis, and the resulting provision charged to expense has similarly been determined in relation to management's evaluation of the entire loan portfolio. In determining the adequacy of its Allowance for Possible Loan Losses, management considers such factors as the size, composition and quality of the loan portfolio, historical loss experience, current loan losses, current potential risks, economic conditions, and other risks inherent in the loan portfolio. Because the Company has historically evaluated its Allowance for Loan Losses on an overall basis, the Allowance has not been allocated by category. The allocation shown in the table below, encompassing the major segments of the loan portfolio judged most informative by management, represents only an estimate for each category of loans based upon historical loss experience and management's judgement of amounts deemed reasonable to provide for the possibility of losses being incurred within each category. The following table sets forth the registrant's loan loss experience for each of the last five years (dollar figures in thousands): Year Ended December 31, 1996 1995 1994 1993 1992 Balance at beginning of year $9,435 $9,738 $10,595 $8,160 $7,926 Charge-offs: Commercial, financial and agricultural 1,896 1,707 1,437 2,367 3,895 Real estate construction - - 55 - - Real estate mortgage 91 235 140 875 432 Installment loans to individuals 778 912 706 367 343 2,766 2,854 2,338 3,609 4,670 Recoveries: Commercial, financial and agricultural 286 865 578 560 269 Real estate construction - - - - - Real estate mortgage 26 28 15 - 30 Installment loans to individuals 259 223 333 151 106 572 1,116 926 711 405 Net charge-offs 2,194 1,738 1,412 2,898 4,265 Allowance from acquired entities - - - 2,351 - Operating expense provision 2,875 1,435 555 2,982 4,499 Balance at end of year $10,116 $9,435 $9,738 $10,595 $8,160 Ratio of net charge-offs during the year to average loans .24% .21% .19% .42% .70% Allocation of the Allowance for Loan Losses (In thousands of dollars) Year End December 31,
1996 1995 1994 1993 1992 % of Loans % of Loans % of Loans % of Loans % of Loans in Each in Each in Each in Each in Each Category to Category to Category to Category to Category to Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Commercial, financial and agricultural $3,343 23.8% 2,475 26.2% $2,964 26.2% $4,460 31.5% $3,253 32.3% Real estate-construction 445 4.4 445 5.1 186 6.0 69 5.8 628 7.2 Real estate-mortgage 5,628 64.7 5,693 60.6 5,396 58.9 5,318 54.2 3,966 53.7 Installment loans to individuals 700 7.1 822 8.1 1,192 8.9 748 8.5 313 6.8 $10,116 100.0% $9,435 100.0% $9,738 100.0% $10,595 100.0% $8,160 100.0%
The amount of the additions to the allowance for possible loan losses charged to expense for the periods indicated were based on a variety of factors, including actual charge-offs during the year, historical loss experience, character of portfolio, specific loan allocations, industry guidelines and an evaluation of current and prospective economic conditions in the Bank's market areas. DEPOSITS GRAND PREMIER FINANCIAL, INC. The following table sets forth the classification of average deposits for the indicated periods, in thousands of dollars: Year ended December 31, 1996 1995 1994 Noninterest bearing demand deposits $189,645 $181,177 $191,959 Interest bearing demand deposits 289,698 289,753 244,864 Savings deposits 279,386 283,557 328,644 Time deposits 613,910 537,652 468,804 The following table sets forth the average rates paid on deposits for the indicated periods: Year Ended December 31, 1996 1995 1994 Interest bearing demand deposits 2.88% 3.14% 2.33% Savings deposits 3.05 3.03 2.71 Time deposits 5.76 5.69 4.40 The following table sets forth the maturities of time deposits of $100,000 or more, in thousands of dollars, for the period indicated: Year Ended December 31, 1996 Three months or less $ 66,042 Over three months to six months 42,918 Over six months to twelve months 58,912 Over twelve months 26,087 Total $193,959 RETURN ON EQUITY AND ASSETS GRAND PREMIER FINANCIAL, INC. The following table presents certain ratios relating to the Registrant's equity and assets: Year Ended December 31, 1996 1995 1994 Return on average equity 8.76% 12.15% 10.17% Return on average assets .82 1.11 .92 Dividend payout ratio 43.55 24.05 30.00 Average total shareholders' equity to average total assets 9.39 9.14 9.00 SHORT TERM BORROWINGS GRAND PREMIER FINANCIAL, INC. The following table sets forth a summary of the registrant's short-term borrowings for each of the last three years (dollar figures in thousands): Year Ended December 31 1996 1995 1994 Balance at End of Period: Federal Funds Purchased $ - $ 25,225 $13,975 Securities Sold Under Repurchase Agreements 23,486 49,757 53,638 Notes Payable to Banks - 13,250 15,235 Other - - - TOTAL $23,486 $ 88,232 $82,848 Weighted Average Interest Rate at the end of Period: Federal Funds Purchased - 5.75% 5.75% Securities Sold Under Repurchase Agreements 4.33% 5.30% 5.11% Notes Payable to Banks - 7.43% 8.00% Other - - - Highest Amount Outstanding at Any Month-End: Federal Funds Purchased $42,469 $ 25,735 $ 15,076 Securities Sold Under Repurchase Agreements 54,952 57,293 53,638 Notes Payable to Banks 13,953 17,070 17,580 Other - 3,000 1,000 Average Outstanding During the Year: Federal Funds Purchased $ 10,101 $ 11,671 $5,506 Securities Sold Under Repurchase Agreements 39,550 55,814 58,496 Notes Payable to Banks 11,175 12,355 15,106 Other - 107 201 Weighted Average Interest Rate During the Year: Federal Funds Purchased 5.25% 6.50% 4.80% Securities Sold Under Repurchase Agreements 5.13% 5.54 3.81 Notes Payable to Banks 8.27% 8.02 7.25 Other - 6.25 3.98 PART III Item 10. Directors and Executive Officers of the Registrant Incorporated herein by reference to the Registrant's Proxy Statement dated March 31,1997 in connection with its annual meeting to be held on May 28, 1997. Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16 of the Exchange Act. This disclosure is contained in the Registrant's Proxy Statement dated March 31, 1997 on page 18 under the Section "Compliance with Section 16 (a) of the Exchange Act" and is incorporated herein by reference in this Annual Report on Form 10-K. Item 11. Executive Compensation Incorporated herein by reference to the Registrant's Proxy Statement dated March 31,1997, in connection with its annual meeting to be held on May 28, 1997. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference to the Registrant's Proxy Statement dated March 31,1997, in connection with its annual meeting to be held on May 28, 1997. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference to the Registrant's Proxy Statement dated March 31, 1997 in connection with its annual meeting to be held on May 28, 1997. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 1. The following documents are filed as a part of this report: A. Consolidated Financial Statements of the Company which are included in the annual report of the registrant to its stock- holders for the year ended December 31, 1996 as follows: 1. Consolidated Balance Sheets, December 31, 1996 and 1995 2. Consolidated Statements of Earnings, for the three years ended December 31, 1996. 3. Consolidated Statements of Cash Flows, for the three years ended December 31, 1996. 4. Consolidated Statements of Changes in Stockholders' Equity, for the three years ended December 31, 1996. 5. Independent Auditors' Report. 6. Notes to Consolidated Financial Statements. B. Financial Statement Schedules as follows: 1. Selected Quarterly Financial Information on page 25 of Registrant's 1996 Annual Report. 2. Independent Auditors' Report. The Board of Directors Northern Illinois Financial Corporation We have audited the accompanying consolidated balance sheets of Northern Illinois Financial Corporation and subsidiaries as of December 31, 1995 and the related consolidated statements of income, changes in shareholders equity and cash flows for each of the two years in the period ended December 31, 1995. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above (not presented separately herein) present fairly, in all material respects, the consolidated financial position of Northern Illinois Financial Corporation and subsidiaries as of December 31, 1995 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 1 to the Consolidated Financial Statements, the Company changed its method of accounting for impairment of loans in 1995, to conform to pronouncements of the Financial Accounting Standards Board. Hutton Nelson and McDonald LLP Oakbrook Terrace, Illinois January 31, 1996 C. Exhibits as follows: The following exhibits are filed with, or incorporated by reference in, this report. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report has been marked with an asterisk. 2.1 Agreement and Plan of Merger, dated January 22, 1996, among Northern Illinois Financial Corporation, Premier Financial Services, Inc and the Company (incorporated by referenced to Exhibit 2.1 to the Company's Registration Statement on Form S-4, as amended, File No. 333-03327), as amended by the First Amendment thereto, dated March 18, 1996 (incorporated by reference to Exhibit 2.2 to the Company's Registration Statement on Form S-4, as amended, File No. 333-03327), and the Second Amendment thereto, incorporated by reference to Exhibit 2.3 to the Company's Current Report on Form 8-K, dated August 22, 1996, Commission File No. 0- 20987). 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Appendix F to the final proxy-statement prospectus included in the Company's Registration Statement on Form S-4, as amended, File No. 333-03327). 3.2 By-laws of the Company (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-4, as amended, File No. 333-03327). 4 Rights Agreement, dated as of July 8, 1996, between Grand Premier Financial, Inc. and Premier Trust Services, Inc. (incorporated by reference to the Company's Registration Statement on Form S-4, as amended, File No. 333-03327). 10.1* Form of Change in Control Agreement, dated October (2)/(8), 1996, entered into between the Company and each of Richard L. Geach, David L. Murray, Kenneth A. Urban, Steven E. Flahaven and Scott Dixon (incorporated by reference of Form 10-Q dated September 30, 1996 Commission file No. 0-20987.) 10.2* Form of Change in Control Agreement, dated October (2)/(8), 1996, entered into between the Company and each of Robert Hinman, Alan Emerick, Jack Emerick, Joseph Esposito, William Theobald, Reid French, Larry O'Hara and Ralph Zicco (incorporated by reference on Form 10-Q dated September 30, 1996 Commission file No. 0-20987.) 10.3* Grand Premier Financial, Inc. 1996 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8, File No. 333-11663). 10.4* Premier Financial Services, Inc. 1996 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 4.2 to Post-Effective Amendment No. 1 on Form S-8 to the Company's Registration Statement on Form S-4, File No. 333-03327). 10.5* Premier Financial Services, Inc. 1988 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 4.3 to Post-Effective Amendment No. 1 on Form S-8 to the Company's Registration Statement on For S-4, File No. 333-03327). 10.6* Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan, as amended (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8, File No. 333-11645). 10.7* Consulting Agreement, dated February, 17, 1995, between Howard A. McKee and Grand National Bank (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-4, as amended, File No. 333-03327). 10.8* Grand Premier Financial, Inc. Deferred Compensation Plan 10.9* Grand Premier Financial, Inc. Savings and Stock Plan and Trust 11. Statement re computation of per share earnings (see Note 1 to the Consolidated Financial Statements for the year ended December 31, 1996). 13. Grand Premier Financial, Inc. 1996 Annual Report to Stockholders 21. Subsidiaries of the Registrant 23.1 Consent of KPMG Peat Marwick LLP 23.2 Consent of Hutton, Nelson and McDonald LLP 27. Article 9 Financial Data Schedule for the Fiscal Year Ended December 31, 1996 99a Premier Financial Services, Inc. Stock and Savings Plan Form 11-K Annual Report for the Fiscal Year ended December 31, 1996. 99b. Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan Form 11-K Annual Report for the Fiscal Year ended December 31, 1996. 2. Reports on Form 8-K The registrant has not filed a report on Form 8-K during the quarter ended December 31, 1996. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Grand Premier Financial, Inc. By:/s/ Richard L. Geach Richard L. Geach, Chief Executive Officer Date:February 24, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Robert W. Hinman /s/ D.L. Murray By: Robert W. Hinman, President and By: D. L. Murray, Executive Vice Director President, Chief Financial Officer and Director Date:February 24, 1997 Date:February 24, 1997 /s/ Alan J. Emerick /s/ Jean M. Barry By: Alan J. Emerick By: Jean M. Barry Date:February 24, 1997 Date:February 24, 1997 /s/ Joseph C. Piland /s/ Frank J. Callero By: Joseph C. Piland By: Frank J. Callero Date:February 24, 1997 Date:February 24, 1997 /s/ R. Gerald Fox /s/ Howard A. McKee By: R. Gerald Fox By: Howard A. McKee Date:February 24, 1997 Date:February 24, 1997 SIGNATURES CONTINUED /s/ Stephen J. Schostok /s/ Brenton J. Emerick By: Stephen J. Schostok By: Brenton J. Emerick Date:February 24, 1997 Date:February 24, 1997 /s/ James Esposito /s/ Edward G. Maris By: James Esposito By: Edward G. Maris Date: February 24, 1997 Date: February 24, 1997 EXHIBIT INDEX TO FORM 10-K The following exhibits are filed herewith or incorporated herein by reference. All documents incorporated by reference to prior filings have been filed under Commission File No. 0-20987. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report has been marked with an asterisk. Exhibit No. Description 2.1 Agreement and Plan of Merger, dated January 22, 1996, among Northern Illinios Financial Corporation, Premier Financial Services, Inc. and the Company (incorporated by referenced to Exhibit 2.1 to the Company's Registration Statement on Form S-4, as amended, File No. 333-03327), as amended by the First Amendment thereto, dated March 18, 1996 (incorporated by referenced to Exhibit 2.2 to the Company's Registration Statement on Form S-4, as amended, File No. 333-03327), and the second Amendment thereto, incorporated by reference to Exhibit 2.3 to the Company's Current Report on Form 8-K, dated August 22, 1996, Commission File No. 0-20987. 3.1 Amended and Restated Certificated of Incorporation of the Company (incorporated by reference to Appendix F to the final proxy-statement prospectus included in the Company's Registration Statement on Form S-4, as amended, File No. 333-03327). 3.2 By-laws of the Company (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-4, as amended, File No. 333-03327). 4 Rights Agreement, dated as of July 8, 1996, between Grand Premier Financial, Inc. and Premier Trust Services, Inc. (incorporated by reference to the Company's Registration Statement on Form S-4, as amended, File No.333-03327). 10.1* Form of Change in Control Agreement, dated October (2)/(8), 1996, entered into between the Company and each of Richard L. Geach, David L. Murray, Kenneth A. Urban, Steven E. Flahaven and Scott Dixon (incorporated by reference on Form 10-Q dated September 30, 1996 Commission file No. 0-20987.) 10.2* Form of Change in Control Agreement, dated October (2)/(8), 1996, entered into between the Company and each of Robert Hinman, Alan Emerick, Jack Emerick, Joseph Esposito, William Theobald, Reid French, Larry O'Hara and Ralph Zicco(incorporated by reference on Form 10-Q dated September 30, 1996 Commission file No. 0-20987.) EXHIBIT INDEX TO FORM 10-K CONTINUED 10.3* Grand Premier Financial, Inc. 1996 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8, File No. 333-11663). 10.4* Premier Financial Services, Inc. 1996 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 4.2 to Post-Effective Amendment No. 1 on Form S-8 to the Company's Registration Statement on Form S-4, File No. 333-03327). 10.5* Premier Financial Services, Inc. 1988 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 4.3 to Post-Effective Amendment No. 1 on Form S-8 to the Company's Registration Statement on Form S-4, File No. 333-03327). 10.6* Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan, as amended (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8, File No. 333-11645). 10.7* Consulting Agreement, dated February, 17, 1995, between Howard A. McKee and Grand National Bank (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-4, as amended, File No. 333-03327). 10.8* Grand Premier Financial, Inc. Deferred Compensation Plan. 10.9* Grand Premier Financial, Inc. Savings and Stock Plan and Trust. 11. Statement re computation of per share earnings (see Note 1 to the Consolidated Financial Statements for the year ended December 31, 1996). 13. Grand Premier Financial, Inc. 1996 Annual Report to Stockholders. 21. Subsidiaries of the Registrant. 23.1 Consent of KPMG Peat Marwick LLP. 23.2 Consent of Hutton, Nelson and McDonald LLP. 27. Article 9 Financial Data Schedule for the Fiscal Year Ended December 31, 1996. 99a. Premier Financial Services, Inc. Stock and Savings Plan Form 11-K Annual Report for the Fiscal Year ended December 31,1996. Pursuant to paragraph 232.311 of Regulation S-T, Grand Premier Financial, Inc. is submitting on paper under cover of Form SE the financial statements of the Plan which are included in the annual report of the Plan to its participants for the year ended December 31, 1996. 99b. Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan Form 11-K Annual Report for the Fiscal Year ended December 31, 1996. Pursuant to paragraph 232.311 of Regulation S-T, Grand Premier Financial, Inc. is submitting on paper under cover of Form SE the financial statements of the Plan which are included in the annual report of the Plan to its participants for the year ended December 31, 1996. EX-27 2
9 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 49,441,000 3,114,000 13,400,000 0 535,687,000 0 0 965,482,000 10,116,000 1,642,538,000 1,417,394,000 23,486,000 13,569,000 30,000,000 0 9,250,000 200,000 148,639,000 1,642,538,000 79,816,000 33,656,000 898,000 114,370,000 52,258,000 56,558,000 57,812,000 2,875,000 3,838,000 54,051,000 18,602,000 0 0 0 13,317,000 .62 .62 7.96 4,718,000 1,946,000 510,000 0 9,435,000 2,766,000 572,000 10,116,000 0 0 0
EX-10 3 GRAND PREMIER FINANCIAL, INC. SAVINGS AND STOCK PLAN AND TRUST (As Amended and Restated Effective January 1, 1997) TABLE OF CONTENTS Page ARTICLE I Purpose, Intent and Effective Date 1 1.01 Purpose 1 1.02 Intent. 1 1.03 Effective Date 2 1.04 Participation in the NIFCO Plan 2 ARTICLE II Definitions and Construction 3 2.01 Definitions 3 Accounts 3 Affiliate 3 Annual Valuation Date 3 Beneficiary 3 Board 3 Code 4 Committee 4 Company 4 Company Stock 4 Company Stock Fund 4 Compensation 4 Eligible Rollover Distribution 5 Eligibility Year of Service 6 Employee 6 Employer 6 Employer Discretionary Account 6 Employer Discretionary Contribution 6 Employer Profit Sharing Account 6 Employer Profit Sharing Contribution 7 Employment 7 Entry Date 7 ERISA 7 ESOP Account 7 Extended Break in Service 7 Forfeiture 7 Fund 8 Hour of Service 8 Investment Fund 8 Investment Manager 8 Matching Contribution 9 Maternity Absence 9 Net Gain" or "Net Loss 9 One-Year Break in Service 9 Normal Retirement Date 10 Participant 10 Permanent Disability or Permanently Disabled 10 Plan 10 Plan Year 10 Retirement, Retired or Retires 10 Rollover Account 10 Rollover Contribution 11 Salary Savings Account 11 Salary Savings Contribution 11 Trust 11 Trustee 12 Valuation 12 Valuation Date 12 Voluntary Contribution 12 Voluntary Contribution Account 12 Years of Service 12 2.02 Construction 12 ARTICLE III Eligibility 13 3.01 Participation 13 3.02 Enrollment 13 3.03 Duration 14 ARTICLE IV Contributions 15 4.01 Salary Savings Contributions 15 4.02. Employer Matching Contributions 16 4.03 Employer Profit Sharing Contributions. 16 4.04 Employer Discretionary Contributions 16 4.05 Employers Contribution of Participants Salary Savings Amounts 16 4.06 Voluntary Contributions 16 4.07 Rollover Contributions 17 4.08 Condition on Employer Contributions 18 4.09 Time of Contributions 18 4.10 Form of Contributions 18 4.11 Employer Contribution of Unused Vacation Pay 19 ARTICLE V Accounts 20 5.01 Accounts of Participants 20 5.02 Plan Accounting 21 5.03 Determination of Net Gain or Net Loss 21 5.04 Accounting for Company Stock 21 5.05 Allocation of Contributions. 22 5.06 Participant Statements 22 5.07 Valuation by the Trustee Conclusive 22 5.08 Errors in Valuation 23 ARTICLE VI Company Stock 24 6.01 Voting Company Stock 24 6.02 Contingent Put Option to Sell Company Stock 24 ARTICLE VII Distributions 27 7.01 Distributions upon Termination of Employment 27 7.02 Termination by Death, Retirement or Disability 27 7.03 Termination by Resignation or Dismissal 27 7.04 Treatment of Forfeitures 28 7.05 Re-Employment of Participants Returning Before an Extended Break in Service 29 7.06 Manner of Distribution 29 7.07 Timing of Distribution 30 7.08 Mode of Distribution 32 7.09 Distributions to Qualified Participants 33 7.10 In-Service Withdrawals 33 7.11 Dividend Pass Through 34 7.12 Direct Rollover Option 34 7.13 Designation of Beneficiary 35 7.14 Distributions Pursuant a Domestic Relations Order 36 7.15 Hardship Withdrawals. 37 ARTICLE VIII Loans 40 8.01 Loan Program 40 8.02 Amounts of Loans 40 8.03 Effect on Account Balances 41 8.04 Loan Terms 41 ARTICLE IX Limits on Contributions 42 9.01 Special Definitions 42 9.02 General Limitation on Annual Additions 45 9.03 Combined Limitation on Annual Additions 45 9.04 Excess Annual Additions 46 9.05 Limitation on Elective Deferrals 47 9.06 Limit on Voluntary Contributions and Employer Matching Contributions 48 9.07 Limitation on Multiple Use 50 9.08 Aggregation of Plans 50 9.09 Qualified Nonelective Contributions 51 ARTICLE X Required Top-Heavy Plan Provisions 53 10.01 Special Rules Where Plan Is Top-Heavy 53 10.02 Special Definitions 53 Accrued Benefit 53 Aggregated Plan 54 Determination Date 54 Key Employee 54 Top-Heavy Plan Year 55 Top-Heavy Ratio 55 10.03 Minimum Allocation in Top-Heavy Plan Years 55 ARTICLE XI The Trust and Trustee 57 11.01 The Trust 57 11.02 The Trustee 57 11.03 The Fund 57 11.04 Investment Funds 57 11.05 Participant Investments 58 11.06 Powers of Trustee 59 11.07 Compensation and Expenses 61 11.08 Accounts 61 11.09 Duty of Person Dealing With Trustee 62 11.10 Resignation and Removal of the Trustee 62 11.11 Investment Fund Transition Rules 62 ARTICLE XII Plan Administration 64 12.01 Allocation of Responsibility Among Fiduciaries 64 12.02 Fiduciary Duties 65 12.03 The Committee 65 12.04 Committee Action 66 12.05 Administrative Powers 66 12.06 Investment Direction and Investment Manager 67 12.07 Records and Reports 68 12.08 Information to be Provided 68 ARTICLE XIII Amendment, Merger and Termination 69 13.01 Amendment 69 13.02 Merger 69 13.03 Termination 70 13.04 Partial Termination 70 ARTICLE XIV Miscellaneous 72 14.01 Interest of Participants 72 14.02 Title to Assets 72 14.03 Not a Contract of Employment 72 14.04 Spendthrift Clause 72 14.05 Addresses 73 14.06 Information on Participants 73 14.07 Regularly Kept Records Are Binding 73 14.08 Claims 73 14.09 Indemnification 74 14.10 Payments to Minors. Etc. 75 14.11 Unclaimed Payments 75 14.12 Reversions 76 14.13 Necessary Parties 77 14.14 Company Action 77 14.15 Company as Agent for Employers 77 14.16 Plan Expenses 77 14.17 Agent for Service of Process 78 14.18 Illinois Law to Govern 78 14.19 Special Rules Relating to Veterans Reemployment Rights Under USERRA 78 ARTICLE XV Provisions Applicable to Annuity Distributions 80 15.01 Annuity Forms of Distribution 80 15.02 Determining Optional Form of Distribution; Qualified Elections 80 15.03 Qualified Joint and Survivor Annuity 81 15.04 Qualified Preretirement Survivor Annuity 81 15.05 Election Procedures 81 15.06 Benefit Starting Date 83 15.07 Notice Requirements 83 ARTICLE XVI ESOP Provisions 85 16.01 Special Provisions Applicable When an Exempt Loan Is Outstanding 85 16.02 Form of Contributions 85 16.03 Accounts of Participants 85 16.04 Exempt Loans 86 16.05 Allocation of Contributions. 87 16.06 Loan Suspense Account 87 16.07 Allocation of Company Stock Released from the Loan Suspense Account 88 16.08 Investment in Company Stock 88 16.09 Voting Company Stock 89 16.10 Aggregation of Plans 89 16.11 Dividend Pass Through 90 GRAND PREMIER FINANCIAL, INC. SAVINGS AND STOCK PLAN AND TRUST (As Amended and Restated Effective January 1, 1997) ARTICLE I Purpose, Intent and Effective Date 1.01 Purpose. Prior to January 1, 1997, Premier Financial Services, Inc. ( Premier ) had established and maintained the Premier Financial Services, Inc. Employee Savings and Stock Plan and Trust (the Premier Plan ), the successor by merger to the Premier Financial Services, Inc. Employees Profit-Sharing Plan and Trust and the Premier Financial Services, Inc. Employee Stock Ownership Plan and Trust, and Northern Illinois Financial Corporation ( NIFCO ) had established and maintained the Northern Illinois Financial Corporation Profit-Sharing and 401(k) Savings Plan (the NIFCO Plan ). In connection with the merger of NIFCO into Premier, the NIFCO Plan was merged into the Premier Plan effective December 31, 1996 and, effective January 1, 1997, the Premier Plan was amended and restated in the form of this Grand Premier Financial Services, Inc. Savings and Stock Plan and Trust (the Plan ). Grand Premier Financial, Inc. (the Company ) now maintains the Plan to provide its eligible Employees with a tax deferred savings program and to enable its eligible Employees to acquire an equity ownership in the Company. 1.02 Intent. The Company intends this Plan, as amended from time to time, to be a qualified profit-sharing and stock bonus plan under Section 401(a) of the Code in full compliance with ERISA, with the portion of the Plan comprising ESOP Contributions and ESOP Savings and Matching Contributions being a leveraged employee stock ownership plan under Section 4975(e)(7) of the Code, and the feature of the Plan comprising Salary Savings Contributions being a qualified cash and deferred arrangement under Section 401(k) of the Code; and intends the Trust created hereunder to be exempt from taxation under Section 501(a) of the Code. The Company intends to continue to maintain this Plan for the above purposes indefinitely, subject always, however, to the rights reserved in the Company to amend and terminate the Plan as set forth below. 1.03 Effective Date. Except as otherwise expressly provided herein, the terms of this Plan as herein merged, amended and restated are effective January 1, 1997, for Participants whose Employment terminates on or after that date. The benefits, if any, of participants whose Employment terminated before January 1, 1997, shall be as determined under the terms of the Premier Plan or the NIFCO Plan or both as in effect at the time of such termination. 1.04 Participation in the NIFCO Plan. On and after the December 31, 1996 merger of the NIFCO Plan into the Premier Plan, each Participant s employment, service and compensation under the NIFCO Plan prior to that date shall count as Employment and Compensation under this Plan for all purposes of this Plan. ARTICLE II Definitions and Construction 2.01 Definitions. The following terms, when used in the Plan and initially capitalized as shown below, shall have the following respective meanings, unless expressly otherwise provided: "Accounts" mean all accounts maintained for a Participant hereunder. "Affiliate" means the Company and: (i) any other member of a controlled group of corporations of which the Company is a member, as determined under Sections 414(b) and 1563(a) of the Code (without regard to Sections 1563(a)(4) and (e)(3)(c) of the Code); (ii) any unincorporated trade or business that is under common control with the Company, as determined under Section 414(c) of the Code; (iii) any organization (whether or not incorporated) which is a member of an affiliated service group that includes the Company, as determined under Section 414(m) of the Code; and (iv) any other entity required to be aggregated with the Company by regulations under Section 414(o) of the Code. For purposes of applying this definition and Section 1563(a) and 414(b) and (c) of the Code to Sections 9.02 and 9.03 of this Plan, the phrase "more than 50 percent" shall be substituted for the phrase "at least 80 percent" at each place it appears in Section 1563(a)(1) of the Code. For purposes of this definition, an Affiliate shall be considered an Affiliate only for the time during which it satisfies the above conditions for being an Affiliate. "Annual Valuation Date" means the last day of the Plan Year. "Beneficiary" means the person or persons who become entitled to receive benefits under this Plan by reason of the death of a Participant. "Board" means the Board of Directors of the Company as from time to time constituted. "Code" means the Internal Revenue Code of 1986 as from time to time amended. References to any Section of the Code herein shall include any successor provisions thereto. "Committee" means the Committee appointed to administer the Plan pursuant to Section 12.03. "Company" means GRAND PREMIER FINANCIAL, INC., a Delaware corporation. "Company Stock" means common stock of the Company. "Company Stock Fund" means the Investment Fund invested in Company Stock as provided in Section 11.04. "Compensation" means the total wages or salary, overtime, commissions, bonuses, and any other taxable remuneration reportable on Internal Revenue Service form W-2 paid to an Employee during the Plan Year while a Participant in the Plan, including any amount deferred by a Participant under the terms of a Salary Savings Agreement, but disregarding, for Plan Years beginning on or after January 1, 1989 and prior to January 1, 1994, to the extent required by Section 401(a)(17) of the Code, Compensation at an annual rate in excess of $200,000 (as periodically adjusted pursuant to Section 401(a)(17) of the Code). (a) In addition to 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 of Internal Revenue 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 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual Compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. (b) 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. (c) 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 OBRA '93 annual Compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual Compensation limit is $150,000. "Eligible Rollover Distribution" means any distribution from this Plan (or, where applicable, any other plan qualified under Section 401(a) of the Code) of all or any portion of the balance to the credit of the distributee, except that an Eligible Rollover Distribution does not include: (a) 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 expectancy) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; (b) any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; (c) 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 Company Stock or other employer securities); (d) the return to a Participant of contributions and income or similar corrective distribution under Article IX of this Plan or otherwise described in regulations under Sections 401(k), 401(g), 401(m) or 415 of the Code; (e) dividends on Company Stock paid and distributed currently under Section 7.11 of this Plan or other currently distributed dividends on employer securities as described in Section 404(k) of the Code; (f) a charge against a Participant's Accounts under Section 8.02 of this Plan respecting a loan in default or other deemed distribution under Sections 72 and 402 of the Code arising from default on a loan; and (g) similar items as designated in regulations or other rulings, notices or guidance under Section 401(a)(31) of the Code. "Eligibility Year of Service" of an Employee means: (i) initially, the twelve (12) month period beginning with the date the Employee first performed an Hour of Service in Employment and during which he or she completes at least one thousand (1,000) Hours of Service, and (ii) if the Employee does not complete at least 1,000 Hours of Service during such initial period, the first Plan Year that commences after the Plan Year in which the Employee first performed an Hour of Service and during which he or she completes at least 1,000 Hours of Service. "Employee" means any individual in Employment, but shall not include any "leased employee" within the meaning of Section 414(n) of the Code (who is regarded as an employee for purposes of applying the minimum coverage requirements of the Code) except for purposes of crediting Hours of Service if such individual later enters Employment with an Employer. "Employer" means the Company and any other Affiliate that, with the approval of the Company, adopts the Plan by action of its board of directors. "Employer Discretionary Account" means the record of a Participant's interest in the Fund attributable to Employer Discretionary Contributions from time to time, increased by Net Gains and decreased by Net Losses and by distributions therefrom, all in accordance with the provisions of this Plan. Employer Discretionary Contribution means a discretionary Employer contribution determined by the Board in accordance with Section 4.04. "Employer Profit Sharing Account" means the record of a Participant's interest in the Fund attributable to Profit Sharing Contributions made by the Employer, increased by Net Gains and decreased by Net Losses and by distributions therefrom, all in accordance with the provisions of this Plan. "Employer Profit Sharing Contribution" means an Employer contribution that is based on Company performance in accordance with Section 4.03. "Employment" means service in a common law employee- employer relationship with the Company or any Affiliate; provided that, only individuals who are paid as employees from the Employer payroll and treated by the Employer at all times as Employees shall be deemed to be in Employment for purposes of the Plan. Any person retroactively or in any other way held or found to be a common-law employee shall not be eligible under the Plan for any period during which he or she was not treated as in Employment with the Employer. "Entry Date" means the first day of each calendar month. "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended. References to any Section of ERISA herein shall include any successor provisions thereto. "ESOP Account" means the record of a Participant's interest in the Fund attributable to ESOP Contributions from time to time, increased by Net Gains and decreased by Net Losses and by distributions therefrom, all in accordance with the provisions of this Plan. Participants ESOP Accounts shall be invested in Company Stock, but not in the Company Stock Fund. "Extended Break in Service" of an Employee means a period of at least a One-Year Break in Service ending on or before December 31, 1984, or a period of at least five consecutive One-Year Breaks in Service for such Employee ending after December 31, 1984. "Forfeiture" means that part or all of a Participant's Employer Discretionary Contribution or Profit Sharing Account that is not distributable to the Participant or his or her Beneficiary by reason of Section 7.03 hereof. "Fund" means the trust fund held and maintained for purposes of the Plan under the terms of the Trust established hereunder. "Hour of Service" means each hour for which an Employee is directly or indirectly paid or entitled to payment from the Company or an Affiliate: (a) for the performance of duties; or (b) on account of a period of time for which no duties were performed (whether or not the employment relationship has terminated) such as vacation, holidays, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence), provided, however, that (A) no more than 501 Hours of Service shall be credited under this clause on account of any single period during which the Employee performs no duties and (B) no Hours of Service shall be credited under this clause where the payment is made under a plan maintained solely for the purpose of complying with applicable workmen's compensation or disability laws or where the payment solely reimburses the Employee for medical or medical-related expenses incurred by him or her; and (c) by reason of back pay (irrespective of mitigation of damages) awarded to the Employee or agreed to by the Employer or Affiliate, provided, however, that no duplicate credit for the same Hours of Service shall be given under both clauses (a) and (b) and this clause (c). Hours of Service under clause (i) shall be credited to the Plan Year (or Eligibility Year of Service) during which the duties were performed, and Hours of Service under clauses (ii) and (iii) shall be credited to the Plan Year (or Eligibility Year of Service) in which occurred the period during which no duties were performed in accordance with the rules of Department of Labor regulation 29 C.F.R. 2530.200b-2(b), which is incorporated herein by this reference. "Investment Fund" means any of: (a) the Company Stock Fund, and (b) any other investment fund maintained by the Trustee pursuant to Section 11.04 for purposes of this Plan. "Investment Manager" means any person or organization designated as such by the Committee pursuant to Section 12.06: (a) who has the power to manage, acquire or dispose of any asset in the Fund; (b) who is (i) registered as an investment adviser under the Investment Advisers Act of 1940, (ii) a bank, as defined in that Act, or (iii) an insurance company qualified to perform asset management services under the laws of more than one state; and (c) who has acknowledged in writing that he, she or it is a fiduciary with respect to the Plan. "Matching Contribution" means an additional Employer contribution made with respect to Salary Savings Contributions pursuant to Section 4.02. "Maternity Absence" means the absence of an Employee from service with the Company or an Affiliate if such absence commences on or after January 1, 1985: (a) by reason of the pregnancy of the Employee; (b) by reason of the birth of a child of the Employee; (c) by reason of the placement of a child with the Employee in connection with the adoption of such child by such employee; or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement; provided that the Employee establishes to the satisfaction of the Committee the length of such absence and that such absence was for one of the reasons listed above. "Net Gain" or "Net Loss" means the increase or decrease in the value of the Fund, or of any component Investment Fund, determined in accordance with Section 5.03 hereof. "One-Year Break in Service" of an Employee means Plan Year in which he or she does not complete more than 500 Hours of Service. A One-Year Break in Service shall not be deemed to have occurred if the Employee is absent: (i) on an approved leave of absence granted by the Company or an Affiliate on or after August 5, 1993, pursuant to the Family and Medical Leave Act, if the Employee returns to work for the Company or an Affiliate at the end of such leave of absence; or (ii) from employment with the Company or an Affiliate by reason of service in the uniformed services (as that term is defined in the Uniformed Services Employment and Reemployment Rights Act of 1994 ( USERRA )) for a period during which the Employee s reemployment rights are guaranteed by USERRA, and the Employee is reemployed by the Company or an Affiliate under the terms of Section 4312 of USERRA. "Normal Retirement Date" means a Participant's 65th birthday. "Participant" means an Employee who meets the requirements of Article III for participation in the Plan and a former Employee who is entitled to benefits hereunder. "Permanent Disability" or "Permanently Disabled" means a physical or mental condition that prevents a Participant from performing his or her normal duties for the Employer and that further prevents such Participant from performing any other similar duties for the Employer for which the Participant is qualified by education, training or experience. A Participant shall be deemed Permanently Disabled for purposes of the Plan if such Participant qualifies for disability benefits from Social Security or under the terms of any other formal written long-term disability program maintained by the Employer. "Plan" means the GRAND PREMIER FINANCIAL, INC. SAVINGS AND STOCK PLAN AND TRUST, as herein set forth and as from time to time amended. "Plan Year" means the fiscal year of the Plan, which coincides with the calendar year. "Retirement" "Retired" or "Retires," when used with reference to a Participant, means the termination of such Participant's Employment (for any reason other than death) on or after his or her Normal Retirement Date. "Rollover Account" means the record of the value of an Employee's interest in the Fund resulting from such Employee's Rollover Contribution pursuant to Section 4.07, increased by Net Gains and decreased by Net Losses and by distributions therefrom, all in accordance with the provisions of this Plan. "Rollover Contribution" means a transfer to this Plan of part or all of the amount (or property) distributed to an Employee in an Eligible Rollover Distribution (or in a distribution before 1993 excluded from the distributee's gross income by Section 402(a)(5) of the Code as then in effect) from another employee benefit plan qualified under Section 401(a) of the Code (the "other plan") if the part or all of the distribution is transferred to this Plan: (a) in a direct rollover from the other plan under Section 401(a)(31) of the Code and provisions of the other plan corresponding to Section 7.12 of this Plan; (b) by the Employee within sixty (60) days after its receipt by the Employee from the other plan; or (c) from an individual retirement account (as defined in Section 408 of the Code) ("IRA") that is a conduit IRA if, but only if, such qualified plan distribution had previously been deposited as a valid rollover contribution and as the only contribution into such conduit IRA and is transferred to this Plan either in an Eligible Rollover Distribution from such conduit IRA or by the Employee within sixty (60) days after the Employee's receipt of his or her distribution from the conduit IRA, and includes the earnings thereon. "Salary Savings Account" means the record of a Participant's interest in the Fund attributable to Salary Savings Contributions of the Participant and associated Matching Contributions of the Employer, increased by Net Gains and decreased by Net Losses and by distributions therefrom, all in accordance with the provisions of this Plan. "Salary Savings Contribution" means a contribution made under the terms of a Participant's Salary Savings Agreement pursuant to Section 4.01. "Trust" means the GRAND PREMIER FINANCIAL, INC. SAVINGS AND STOCK TRUST, as set forth in Article XI hereof. "Trustee" means GRAND PREMIER TRUST AND INVESTMENT, INC. or such banking association, corporation, other entity, individual or group of individuals appointed as successor Trustee pursuant to Section 11.10. "Valuation" means the determination of the value of the assets of the Fund, or of any component Investment Fund, in the manner provided in Section 5.03 hereof, as of the Annual Valuation Date for each Plan Year, or each other Valuation Date, and as of any other date on which the Trustee, in its sole discretion, deems it desirable to make such Valuation. "Valuation Date" means each day on which the New York Stock Exchange is open, and as of which a Valuation of the Fund or of any or all component Investment Funds is made or is to be made. "Voluntary Contribution" means a Participant's after- tax contribution made pursuant to Section 4.06. "Voluntary Contribution Account" means the record of a Participant's interest in the Fund attributable to the Voluntary Contributions from time to time, increased by Net Gains and decreased by Net Losses and by distributions therefrom, all in accordance with the provisions of this Plan. "Years of Service" means the number of complete years elapsed since the first date of the Participant s Employment (or since the date of any re-Employment) and during which the Participant was continuously in Employment with the Company or an Affiliate. 2.02 Construction. The masculine pronoun whenever used herein shall be construed so as to include the feminine and the neuter, and the singular shall be deemed to include the plural whenever the context so requires. ARTICLE III Eligibility 3.01 Participation. Each Employee of an Employer who was a Participant in the Premier Plan or the NIFCO Plan on December 31, 1996, shall continue as Participant in the Plan from and after January 1, 1997, subject to the terms and provisions of the Plan. Each other Employee of an Employer who is not covered under the terms of a collective bargaining agreement under which retirement benefits have been subject of good faith bargaining (unless such agreement provides for the Employee's participation in the Plan) shall become a Participant in the Plan on January 1, 1997, or the first Entry Date thereafter on which such Employee meets the following respective requirements: (a) With respect to eligibility to participate in Salary Savings Contributions and Matching Contributions: (i) the Employee has attained age twenty-one (21); and (ii) the Employee has completed 12- consecutive months of Employment with the Employer; (b) With respect to eligibility to participate in Employer Discretionary and Profit Sharing Contributions: (i) the Employee has attained age twenty-one (21); and (ii) the Employee has completed one Eligibility Year of Service; provided he or she is an Employee of an Employer on such Entry Date. 3.02 Enrollment. The Committee shall notify eligible Employees of their impending eligibility to participate in the Salary Savings Contributions and Matching Contributions under the Plan as early as practicable before the applicable Entry Date. As part of the notification the Committee shall provide each eligible Employee with a form of Salary Savings Agreement, form of designation of Beneficiary, form for making initial investment elections, and summary plan description. Participants must complete and return such forms to the Committee in the time and manner allowed by the Committee, or follow such other mechanism, such as a telephone access system, as the Committee makes available, in order to obtain the rights and benefits under this Plan to which such forms relate. 3.03 Duration. An Employee who becomes a Participant shall continue to be a Participant until his or her Employment with all Employers terminates. Upon such termination of Employment, he or she thereupon shall cease to be a Participant (except with respect to benefits that were accrued and vested prior to such termination) unless and until he or she thereafter returns to active Employment as an Employee of an Employer. A former Participant who is re- employed by an Employer (and continues to meet the requirement of Section 3.01(b)) shall again become a Participant immediately upon such re-Employment. ARTICLE IV Contributions 4.01 Salary Savings Contributions. A Participant may enter into a Salary Savings Agreement with the Employer authorizing the Employer to withhold a whole percentage of between one and 13 percent of such Participant's Compensation and to deposit such amount as a Salary Savings Contribution to the Plan. Any such Salary Savings Contribution shall be credited to the Participant's Salary Savings Account. A Participant may change his or her Salary Savings Agreement to increase or decrease his or her Salary Savings Contributions or terminate the Salary Savings Agreement by written notice to the Employer at least fourteen (14) days prior to the end of the payroll period for which such change is to be effective. If a Participant has not authorized the Employer to withhold at the maximum rate and desires to increase the total withheld for a Plan Year, such Participant may authorize the Employer to withhold a supplemental amount up to 100% of his or her Compensation for one or more pay periods subject to the foregoing limit. In no event may the sum of the amounts withheld under the Salary Savings Agreement in any calendar year exceed $9,500 (as such amount may be adjusted from time to time pursuant to Section 402(g)(5) of the Code). Notwithstanding the Salary Savings Agreement of any Highly Compensated Employee, the Committee, to the extent it determines is necessary or desirable to meet the requirements of Section 9.05, may in its discretion reduce the level of Salary Savings Contributions by, or terminate the Salary Savings Agreement of, any Highly Compensated Employee, or recharacterize such Salary Savings Contributions as Voluntary Contributions, or return excess Salary Savings Contributions to such Highly Compensated Employee as provided in Section 9.05. 4.02 Employer Matching Contributions. Each Employer shall make a Matching Contribution of twenty-five percent (25%) of the Salary Savings Contributions made for each payroll period by Participants in its Employment during such period. 4.03 Employer Profit Sharing Contributions. Each Employer may make an Employer Profit Sharing Contribution for a Plan Year in an amount determined in the sole discretion of the Board. The Employer Profit Sharing Contribution made for any Plan Year shall be allocated to the Employer Profit Sharing Accounts of Participants in accordance with the provisions of Section 5.05. 4.04 Employer Discretionary Contributions. Each Employer may make an Employer Discretionary Contribution for a Plan Year in an amount determined in the sole discretion of the Board. The Employer Discretionary Contribution made for any Plan Year shall be allocated to the Employer Discretionary Accounts of Participants in accordance with the provisions of Section 5.05. 4.05 Employers Contribution of Participants Salary Savings Amounts. Each Employer shall contribute amounts withheld by it from Participants' Compensation as Salary Savings Contributions under Section 4.01. 4.06 Voluntary Contributions. A Participant may make Voluntary Contributions to the Plan out of after-tax compensation by so characterizing or recharacterizing all or part of his or her Salary Savings Contributions otherwise made pursuant to Section 4.05. The Committee may recharacterize the Salary Savings Contributions of any Highly Compensated Employee to the extent it determines is necessary or desirable to meet the requirements of Section 9.05. Any such characterization or re-characterization made voluntarily by a Participant shall, and any such re- characterization imposed by the Committee shall if practicable, be made not later than two and one-half months after the end of the Plan Year in which the original Salary Savings Contributions were made; and shall in all events be made by the end of the Plan Year following the Plan Year in which the original Salary Savings Contributions were made. Notwithstanding the voluntary characterization or re characterization made by a Participant who is a Highly Compensated Employee, the Committee, to the extent it determines is necessary or desirable to meet the requirements of Section 9.05, may in its discretion reduce the level of Voluntary Contributions by, or terminate the Voluntary Contributions election of, any Highly Compensated Employee, or return such Voluntary Contributions to such Highly Compensated Employee as provided in Section 9.05. In no event shall the Voluntary Contributions by a Participant to all qualified plans of any Affiliate for all years of participation exceed ten percent (10%) of the Participant's aggregate Compensation for all years since becoming a Participant. Except as provided by this Section 4.06, Voluntary Contributions may not be made under this Plan on or after July 1, 1993; but any Voluntary Contributions made prior to that date under the Premier Financial Services, Inc. Employee Savings and Stock Plan and Trust or the Premier Financial Services, Inc. Employee Profit-Sharing Plan and Trust (together with any Voluntary Contributions theeafter made under this Section 4.06), shall be credited to and held in the Participant's Voluntary Contributions Account maintained pursuant to the provisions of this Plan. 4.07 Rollover Contributions. An Employee who meets the requirements of Sections 3.01(a) and (b) above (but whether or not an Entry Date has yet occurred) may make Rollover Contributions to the Plan. Each Employee's Rollover Contribution shall be immediately allocated to his or her Rollover Account. The balance in a Rollover Account shall be nonforfeitable. Prior to accepting such Rollover Contribution the Committee may in accordance with its procedures for Rollover Contributions require such evidence or assurance as it deems desirable from the Participant, or from the administrator of the other plan involved, that such contribution results from an Eligible Rollover Distribution and qualifies as a Rollover Contribution. However, the acceptance of any Rollover Contribution by the Trustee shall not in any manner guarantee the effect under any tax laws of such deposit. 4.08 Condition on Employer Contributions. Unless an Employer's or the Board's instrument making or authorizing a particular contribution expressly provides to the contrary, all Employer contributions to this Plan are hereby expressly conditioned on the deductibility of such contributions for federal income tax purposes under Section 404 of the Code, and notwithstanding any provision of the Plan to the contrary shall not exceed the maximum amount so deductible. 4.09 Time of Contributions. The Employer shall pay Salary Savings Contributions and Voluntary Contributions made by or on behalf of a Participant to the Trustee as of the earliest date on which such Contributions can reasonably be segregated from the Employer s assets; but in no event later than the 15th business day of the month following the month in which the Contributions amounts withheld otherwise would have been paid to the Participants as Compensation, if the Participant had not elected to have such Salary Savings Contributions or Voluntary Contributions made on his or her behalf. The Employer shall pay Matching Contributions, ESOP Contributions and Profit Sharing Contributions to the Trustee by the due date for filing the Employer's federal income tax return for the taxable year to which they relate. For purposes of allocations required under this Plan, all contributions shall be considered a part of the Fund as of the Plan Year to which they relate. 4.10 Form of Contributions. Rollover Contributions may be made in cash, or in such property as may have been distributed in the Eligible Rollover Distribution to the extent such property is acceptable to the Trustee in its discretion to receive for purposes of this Plan, or in a combination thereof. Employer Matching Contributions may be made in the discretion of the Board in Company Stock (whether authorized and previously unissued or previously issued and reacquired), or in cash, or in a combination thereof. All other contributions shall be made in cash. All property received by the Trustee as a contribution to the Fund shall be received at its fair market value on the date of receipt. 4.11 Employer Contribution of Unused Vacation Pay. Subject to the limitations of this Section, for each Plan Year, the Employer shall contribute an amount to the Trust on behalf of each Participant equal to the amount of such Participant s unused vacation pay. The amount of each Participant s unused vacation pay shall be determined by the Employer as of the end of each Plan Year, according to the Employer s vacation policy and records, and contributed as soon as practicable after such time. This contribution amount shall be allocated to the Participant s Employer Discretionary Contribution Account and treated as an Employer Contribution for all purposes of the Plan. Employer Contributions made under this Section 4.5 shall be subject to the limitations of Code Sections 401(a)(4), 404(a) and 415, and any amount of unused vacation pay that cannot be contributed to the Trust on behalf of a Participant due to such limitations shall be treated according to the terms of the Employer s vacation policy. Participants shall not have the option to receive the amount of unused vacation pay in cash. ARTICLE V Accounts 5.01 Accounts of Participants. The Committee shall maintain, or cause the Trustee or Investment Manager to maintain, bookkeeping Accounts for each Participant showing respectively each Participant's interest in the Fund, if any, attributable to: (a) Salary Savings and Matching Contributions, (b) Employer Profit Sharing Contributions, (c) Employer Discretionary Contributions, (d) Voluntary Contributions, (e) ESOP Contributions, and (f) Rollover Contributions, and the Net Gain or Net Loss attributable thereto. Except as provided in Section 9.05 (relating to excess Matching Contributions and excess Voluntary Contributions), Section 8.01 (relating to Plan loans in default), and Section 14.11 (relating to unclaimed payments), the Salary Savings Account, Voluntary Contribution Account, ESOP Account, and Rollover Account of a Participant shall be fully vested and nonforfeitable. The Employer Discretionary Account and Employer Profit Sharing Account of a Participant shall become vested and nonforfeitable in accordance with Section 7.03. The Committee shall maintain, or cause the Trustee or Investment Manager to maintain, subaccounts within each such Account reflecting: (i) the investment of each such Account in the Investment Funds maintained under Section 11.04; (ii) the portion of a Participant s Salary Savings Account that is attributable to Employer Matching Contributions; and (iii) the portion (if any) of a Participant's Salary Savings Account that is attributable to ESOP Savings and Matching Contributions. The Committee or Trustee may maintain, or cause the Investment Manager to maintain, such other accounts and subaccounts as the Committee or Trustee deems necessary or desirable or as the Committee may direct. 5.02 Plan Accounting. As of each Valuation Date there shall be allocated to each Account its proportionate share since the last Valuation Date of the Net Gain or Net Loss of the Investment Funds in which it has been invested. 5.03 Determination of Net Gain or Net Loss. The investments in each Investment Fund, including the Company Stock Fund, shall be maintained in full and fractional shares or units. The Trustee is responsible for determining the number of full and fractional shares or units of each such Fund. To the extent an Investment Fund is comprised of a collective investment fund of the Trustee, the net asset and unit values shall be determined in accordance with the rules governing such collective investment funds, which are incorporated herein by reference. Fees and expenses incurred for the management and maintenance of Investment Funds shall be charged at the Investment Fund level and reflected in the Net Gain or Loss of each Investment Fund. 5.04 Accounting for Company Stock. The following additional rules shall apply to the Company Stock Fund: (a) Shareholder Rights. Shareholder Rights with respect to all Company Stock in an Account shall be exercised by the Trustee in accordance with directions from the Participant pursuant to the procedures of Section 6.01 and the Trust Agreement. (b) Tender Offer. If a tender offer is commenced for Company Stock, the provisions of the Trust Agreement regarding the response to such tender offer, the holding and investment of proceeds derived from such tender offer and the substitution of new securities for such proceeds shall be followed. (c) Dividends and Income. Dividends (whether in cash or in property) and other income received by the Trustee in respect of Company Stock shall be reinvested in Company Stock and shall constitute income and be recognized on an accrual basis as of the record date with respect to such dividend; provided that, with respect to any dividend that is reflected in the market price of the underlying stock, the Company shall direct the Trustee during such trading period to trade such stock the regular way to reflect the value of the dividend, and all Fund transfers and cash distributions shall be transacted accordingly with no accrual of such dividend, other than as reflected in such market price. (d) Transaction Costs. Any brokerage commissions, transfer taxes, transaction charges, and other charges and expenses in connection with the purchase or sale of Company Stock shall be added to the cost thereof in the case of a purchase or deducted from the proceeds thereof in the case of a sale; provided, however, where the purchase or sale of Company Stock is with a "disqualified person" as defined in Section 4975(e)(2) of the Code or a "party in interest" as defined in Section 3(14) of ERISA, no commissions may be charged with respect thereto. 5.05 Allocation of Contributions. Salary Savings Contributions and associated Matching Contributions shall be allocated directly to the Salary Savings Accounts of Participants making the Salary Savings Contributions. Voluntary Contributions and Rollover Contributions shall be allocated directly to the respective Accounts of Participants making such contributions. Employer Profit Sharing and Discretionary Contributions, if any, and Forfeitures becoming available for reallocation under Section 7.04, shall be allocated to the Accounts of Participants employed by an Employer on the last day of the Plan Year who have completed at least 1,000 Hours of Service during such Plan Year, and to the Accounts of Participants who have terminated Employment during the Plan Year as a result of death, Permanent Disability or after attaining of Normal Retirement Age regardless of the number of hours worked, in proportion to each eligible Participant's Compensation earned during the Plan Year while a Participant in the Plan. 5.06 Participant Statements. Upon completing the allocations described above, the Committee shall prepare a statement for each Participant showing the additions to and subtractions from his or her account since the last Valuation Date and the fair market value of his or her Accounts as of the current Valuation Date. 5.07 Valuation by the Trustee Conclusive. In all matters, the determination of the net value of the assets of the Fund made by the Trustee shall be conclusive; provided, however, that the valuation of any Company Stock held in the Fund that is first acquired by the Trust on or after January 1, 1987 and is not at the relevant time readily tradeable on an established securities market shall, for purposes of all activities of the Plan, determined by an independent appraiser meeting the requirements of Section 401(a)(28)(C) of the Code. 5.08 Errors in Valuation. Upon the discovery of any error or miscalculation in the valuation of an Account, the Trustee shall correct the same insofar as, in the Trustee's discretion, the correction is feasible, and any gain or loss resulting therefrom shall be treated as income or expense to be credited or charged to the Fund in the year in which such correction is made, and any correction so made shall not otherwise change the value of any other Participant's Account as such value was determined at the time such error or miscalculation was made. ARTICLE VI Company Stock 6.01 Voting Company Stock. The vote of Company Stock allocated to the Accounts of Participants on the record date for such vote shall be passed through to the Participant (or Beneficiary) to whose Account the Company Stock is allocated. To this end, in the event the Trustee is notified by proxy solicitation or otherwise of any matter to be brought before a meeting of stockholders of the Company, the Trustee shall advise, or cause the Company to advise, each Participant (or Beneficiary) in writing of such matter and request instructions from each such Participant (or Beneficiary) on how the Company Stock allocated to his or her Company Stock Account is to be voted. Such instructions may include an instruction to abstain. All voting Company Stock as to which instructions have been requested and received shall be voted in accordance with such instructions. Voting Company Stock as to which no instructions have been received shall be voted in the same proportion as the Company stock for which voting instructions have been received or, if necessary to comply with ERISA, by the Trustee, in its sole discretion. 6.02 Contingent Put Option to Sell Company Stock. If at any time Company Stock is neither listed on a national securities exchange registered under Section 6 of the Securities Exchange Act of 1934 ("Listed"), nor quoted on a system sponsored by a national securities association registered under Section 15A(b) of the Securities Exchange Act of 1934 ("Quoted"), each Participant or his or her Beneficiary, or his or her legal representatives, heirs or legatees in case of the death of such Participant or Beneficiary (hereinafter called "Selling Stockholder"), shall have the option (hereinafter called the "Put Option") to require the Company to buy the shares of Company Stock distributed to him or her from the Trust on the terms and conditions set forth in this Section 6.02: (a) Term. The initial term during which the Put Option may be exercised shall begin on the date such shares of Company Stock are distributed and end on the 60th day thereafter. If the Put Option is not exercised within that initial term, the Put Option may again be exercised during a second term which shall begin on the date the distributee receives notice of the revaluation prescribed by subsection (b) below and end on the 60th day thereafter. If the Put Option is not exercised during that second term, it shall wholly and completely terminate. (b) Revaluation. Following the valuation of the Company Stock on the Annual Valuation Date as of the last day of the Plan Year in which the initial term prescribed by subsection (a) expired, the Trustees shall notify each distributee who received Company Stock in such distribution but did not exercise the Put Option during the initial term of the value of Company Stock as determined on such Annual Valuation Date. (c) Purchase Price. The purchase price for the Company Stock shall be its value determined pursuant to Section 5.09 as of the last Valuation Date preceding the exercise of the Put Option. (d) Manner of Exercise. The Selling Stockholder shall exercise the Put Option by giving notice (i) in writing, and (ii) mailed by prepaid registered or certified mail to the Company and shall contain (A) the name of the Selling Stockholder exercising the Put Option and his or her address, and (B) the number of shares being offered for sale. (e) Repurchase by Trust or Company. Immediately upon receipt of such notice of exercise, the Company shall advise the Trustee of such notice and the Trustee may purchase all or a portion of the Company Stock. In the event that not all of the shares offered are accepted by the Trustee, the balance of the shares shall be sold to the Company. (f) Payment. The purchase price will be paid by delivering to the Selling Stockholder a promissory note of the purchaser providing for payment in substantially equal annual installments over a period of five (5) years with adequate security and interest at a reasonable rate, provided, however, that the purchaser may prepay such note at any time without penalty. (g) Place and Time of Closing. The sale of Company Stock shall be closed at the office of the purchaser at a time during ordinary business hours fixed by the Selling Stockholder not more than thirty (30) days after the date on which the notice of exercise is served. (h) Delivery of Stock and Closing Documents. Upon the closing of a sale the Selling Stockholder shall deliver to the purchaser in exchange for payment by the purchaser the certificates of stock being sold, endorsed for transfer, and bearing any necessary documentary stamps and such assignments, certificates of authority, tax releases, consents to transfer, Instruments and evidence of the title of the Selling Stockholder as may be reasonably required by counsel for the purchaser. The Put Option provided by this Section 6.02 shall lapse in the event such Company Stock becomes Listed or Quoted; provided, however, that the Put Option shall not lapse so long as the Company Stock may continue to be subject to any restriction under any Federal or state securities law, any regulation thereunder, or any other agreement, which would make such Company Stock not as freely tradeable as stock not subject to such restriction. ARTICLE VII Distributions 7.01 Distributions upon Termination of Employment. Each Participant whose Employment is terminated shall be entitled to a distribution of (i) all of the Participant s Rollover Account; (ii) all of the Participant s Salary Savings Account, (iii) all of the Participant s Voluntary Contribution Account, (iv) all of the Participant s Employer Matching Account, (v) all of the Participant s ESOP Account, and (vi) that portion (which may be all) of the Participant s Employer Discretionary Account and Profit Sharing Account determined in accordance with Section 7.02 and 7.03 hereof. Account balances will be valued for this purpose as of the last Valuation Date preceding actual distribution (reduced by any earlier distributions since the last Valuation Date) and will be payable in accordance with the provisions of this Article. 7.02 Termination by Death, Retirement or Disability. If a Participant's Employment terminates on or after his or her Normal Retirement Date, or by reason of his or her Permanent Disability or death, the Participant (or his or her Beneficiary, as the case may be) shall be entitled to a distribution of the entire balance in his or her Employer Discretionary Account and Profit Sharing Account. 7.03 Termination by Resignation or Dismissal. If a Participant's Employment terminates before the Participant s Normal Retirement Date for a reason other than his or her Permanent Disability or death, such Participant shall be entitled to a distribution of the applicable percentage of his or her Employer Discretionary Account, and Profit Sharing Account based upon the Participant s completed Years of Service (whether or not consecutive) on the date his or her Employment terminates, in accordance with the following table: Completed Years Vested Percentage of Service of Accrued Benefit Less than five 0% Five or more 100% provided, that the Vested Percentage of a Participant shall not be less than the Participant s Vested Percentage in his or her Accounts under the Premier Plan or the NIFCO Plan, as applicable, prior to January 1, 1997. 7.04 Treatment of Forfeitures. That part of a Participant's Employer Discretionary Account and Profit Sharing Account that is not distributable as provided in Section 7.03 hereof shall be a Forfeiture as of the date such Participant s termination of Employment occurs. Forfeiture amounts shall be held in a separate Forfeiture Account that shall not share in Net Gain and Net Loss until the earlier of (i) the date the Participant s Accounts are distributed to him under this Article VII, or (ii) the date as of which the Participant incurs a One-Year Break in Service, after which the Forfeiture Account relating to such Participant shall be reallocated as a part of the Employer contributions as set forth in Section 5.05 for the Plan Year in which such Forfeiture became permanent. If a Participant who has incurred a Forfeiture is re-employed by the Company or an Affiliate after the Forfeiture Account attributable to him has been reallocated, and repays to the play (without interest) before the earlier of (i) 5 years after the first date on which the Participant is re-employed by the Employer, or (ii) the date as of which the Participant incurs a subsequent Extended Break in Service, the amount (if any) distributed to him or her upon such prior termination of Employment, the amount of such Forfeiture shall be reinstated to his or her Employer Discretionary or Profit Sharing Account. 7.05 Re-Employment of Participants Returning Before an Extended Break in Service. In the case of a partially vested Participant whose Employment is terminated and who received a distribution from the Plan but who is re-employed by the Company or an Affiliate prior to incurring an Extended Break in Service, the amount of such Participant's then current Profit Sharing and Employer Discretionary Account balances that are nonforfeitable shall thereafter be computed as follows: Step 1. Add the amount of any distribution made to such Participant from his Employer Profit Sharing and Discretionary Accounts as a result of his or her termination of Employment to the then current balance in his or her Account. Step 2. Multiply such Step 1 sum by the applicable nonforfeitable percentage as set forth in Section 6.03. Step 3. Subtract the amount of the prior distribution from such Step 2 product. 7.06 Manner of Distribution. Any amounts to which a Participant whose Employment terminates is entitled hereunder shall be distributed to such Participant in one or more lump sums representing the full amount distributable at the time of such distribution, unless: (a) on the date of a Participant's termination of Employment the amount distributable from his or her Accounts exceeds $3,500, and (b) the Participant elects to receive distribution of his or her Employer Discretionary and Profit Sharing Accounts in the form of installments, with the consent of his or her spouse in the manner (but subject to the exceptions) specified in Section 7.10 if the Participant is married, by written notice to the Committee in a form acceptable to the Committee before the date on which distribution would otherwise be made under Section 7.07; in which event distribution of his or her Accounts shall be made in substantially equal installments payable not less often than annually over a period not exceeding the joint life expectancy of the Participant and his or her designated Beneficiary. If distribution is made in installments, the minimum distribution to be made each year will be an amount equal to the quotient obtained by dividing the distributable balance of the Participant's Accounts at the beginning of the Plan Year in which payments begin by the period selected. Life expectancies for this purpose shall be computed by the use of the return multiples contained in Section 1.72-9 of the Treasury Regulations. For purposes of this computation, the life expectancy of a Participant, and of the Participant's spouse if he or she is the Participant's Beneficiary, shall be recalculated annually. However, the life expectancy of a non-spouse Beneficiary shall not be recalculated. If the Participant's spouse is not the designated Beneficiary, the method of distribution selected must assume that at least 50% of the present value of the amount available for distribution is paid within the life expectancy of the Participant. Notwithstanding the foregoing, a Participant who was a Participant in the NIFCO Plan prior to January 1, 1997, may elect to have the portion of his Accounts attributable to Company contributions under the NIFCO Plan prior to July 1, 1991 used to purchase an annuity in accordance with Article XV. 7.07 Timing of Distribution. Distribution will be made or begin as soon as practicable after the first Valuation Date following the later of (i) the date the Participant's Employment terminates, or (ii) the date the Committee receives from the Participant a written request for immediate distribution in form and substance satisfactory to the Committee; unless one or both of such requirements is eliminated and the distribution date is specified by one of the following rules: (a) Death. If a Participant has died, whether during his or her employment or after his or her employment has terminated, no written request for immediate distribution shall be required and distribution shall be made as soon as practicable after the Valuation Date that next follows the Participant's death. (b) Age 65. If a Participant has attained age 65, whether during his or her Employment or after his or her Employment has terminated, no written request for immediate distribution shall be required and distribution shall be made as soon as practicable after the Valuation Date that next follows the later of the date the Participant attained age 65 or the date the Participant's Employment terminates. (c) $3,500. If upon a Participant's termination of Employment the amount distributable does not exceed (and has never exceeded) $3,500, no written request for immediate distribution shall be required and distribution shall be made as soon as practicable after the Valuation Date that next follows the Participant's termination of Employment. (d) Age 70 -. If a Participant who attains age 70 - on or after July 1, 1987, and who is a 5% owner of the Company, has not terminated Employment before the last Valuation Date in the calendar year in which he or she attains age 70 -, then neither a written request for immediate distribution nor termination of Employment shall be required. In such event distribution shall be made in all events by April 1 of the calendar year following the calendar year in which he or she attained age 70 -, based on the balance of the Participant's Accounts as of the last Valuation Date in the calendar year in which he or she attained age 70 -. Amounts credited to such Participant's Accounts in any later calendar year by reason of continuing Employment and participation in the Plan shall similarly be distributed by April 1 of the following calendar year, based upon the balance of the Participant's Accounts as of the last Valuation Date in the preceding calendar year. Distribution of benefits shall not be delayed without a Participant's consent (which, however, shall be deemed given by the Participant's failure to submit a written request for immediate distribution pursuant to this Section 7.07) beyond 60 days after the end of the Plan Year in which occurs the latest of the date the Participant attains age 65, the date the Participant's employment terminates, or the tenth anniversary of the date the Participant became a Participant in this Plan. Distributions under this Plan shall be made in accordance with the provisions of Section 401(a)(9) of the Code and regulations thereunder, including the incidental death benefit requirements of those regulations. If a distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the notice required under section 1.411(a)-11(c) of the Income Tax Regulation is given, provided that: (i) the Committee clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option); and (ii) the Participant, after receiving the notice, affirmatively elects a distribution. 7.08 Mode of Distribution. Distributions of Participant s ESOP Accounts and other Accounts, to the extent invested in the Company Stock Fund immediately before distribution, shall be in full shares of Company Stock and negotiable check or other cash equivalent in lieu of fractional shares. Distribution of the balance of a Participant's Accounts shall be payable by negotiable check or other cash equivalent; provided, however, that if: (a) a Qualified Participant (as defined in Section 7.09) has requested distribution pursuant to Section 7.09 and the Qualified Participant has requested distribution in the form of cash; or (b) the Company Stock is not publicly traded, and the Participant has requested distribution in the form of cash; or (c) the charter or bylaws of the Company restrict the ownership of substantially all outstanding stock of such issuer to Employees or to a trust described in Section 401(a) of the Code; all (but not less than all) of a Participant s distribution shall be made in the form of negotiable check or other cash equivalent. To obtain cash for any such distribution the Trustee shall dispose of the Company Stock in the Participant's Accounts for cash in such manner (which may be a sale ratably to the Accounts of all other Participants or a sale to the Company or other Employer) as the Trustee in its sole discretion shall determine. In the event of any such purchase or sale among Participants' Accounts, the price shall be the most recent value of such Company Stock determined pursuant to Section 5.07. In the event of any such purchase or sale between the Trustee and the Company, the price shall be the more favorable to the Trustee of (i) the most recent value of such Company Stock determined pursuant to Section 5.07, or (ii) the fair market value of such Company Stock on the date of such purchase or sale. Nothing in this Section 7.08 shall be construed to require the Company or any Employer to purchase or sell Company Stock without its consent at the demand of the Trustee. 7.09 Distributions to Qualified Participants. A Qualified Participant (defined below) may, within 90 days after the close of each Plan Year in his or her Qualified Election Period (defined below), direct by written election in form and substance satisfactory to the Committee that the Subject Portion (defined below) be distributed to him or her in cash within the 90 day period after such election is filed with the Committee. For purposes of this Section: (a) "Qualified Participant" means a Participant who has attained age 55 and has completed 10 years of participation in this Plan. (b) "Qualified Election Period" means the six Plan Year period beginning with the later of the Plan Year during which a Participant first becomes a Qualified Participant or the first Plan Year beginning after December 31, 1986. (c) "Subject Portion" of a Qualified Participant's Accounts for any Plan Year means 25% of the balance in the Qualified Participant's ESOP Account as of the last day of the preceding Plan Year, to the extent such Accounts are invested in Company Stock acquired on or after January 1, 1987 (and to the extent such amount exceeds the amount to which a prior election under this Section applied); provided, however, that for the last Plan Year with respect to which a Qualified Participant is entitled to a distribution under this Section, 50% shall be substituted for 25% above. 7.10 In-Service Withdrawals. A Participant may withdraw all or any part of the fair market value of his or her Voluntary Contributions Account or Rollover Account upon written request to the Committee. After attaining age 59 - any Participant may withdraw all or any part of his or her Salary Savings Account, ESOP Account, Employer Discretionary Account or Profit Sharing Account without separation from service. Any such distributions shall be made in accordance with Section 7.08 hereof and shall not be eligible for redeposit to the Fund. A withdrawal under this Section shall not prohibit such Participant from sharing in any future Employer contributions in which he or she would otherwise be eligible to share. 7.11 Dividend Pass Through. Cash dividends paid on shares of Company Stock allocated to the ESOP Accounts of Participants shall be distributed to Participants not later than 90 days following the close of the Plan Year. Cash dividends paid on shares of Company Stock held in the Company Stock Fund shall be paid to the Company Stock Fund allocated to Participants in proportion to their account balance invested in the Company Stock Fund and shall be distributed to such Participants not later than 90 days following the close of the Plan Year. Cash dividends on all other Company Stock shall be held in the relevant Account and reinvested pursuant to Section 6.01. 7.12 Direct Rollover Option. Notwithstanding any other provision of this Plan to the contrary that would otherwise limit a distributee's elections under this Section 7.12, a distributee may elect, in writing, at a time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an eligible retirement plan, specified by the distributee, which will accept such rollover, in a direct rollover. For purposes of the direct rollover option: (a) an "eligible retirement plan" is an individual retirement account described in Section 408(a) of the Code, an Individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, 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 only an individual retirement account or an individual retirement annuity; (b) A "distributee" is any Participant; and a Participant's Beneficiary who is his or her a surviving spouse, and the Participant's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with respect to the Interest of the spouse or former spouse; and (c) a "direct rollover" is a payment by the Plan to the eligible retirement plan specified by the distributee. 7.13 Designation of Beneficiary. If, prior to receiving all the distributions to which he or she is entitled, a Participant dies, the remainder thereof shall be paid to such person, persons or organizations, and in such proportions as may be designated by an instrument in writing, and in a form acceptable to the Committee, executed by such Participant and filed with the Committee during his or her lifetime. The Participant (with the consent of his or her spouse, where applicable) may revoke or modify such designation from time to time by filing a new designation of Beneficiary in like manner). No such designation of a Beneficiary shall be effective in the case of a Participant who is survived by his or her spouse unless: (a) the Participant's sole primary designated Beneficiary is the Participant's surviving spouse, or (b) the Participant's designation of another individual or individuals as Beneficiary or Beneficiaries has been consented to in writing by the Participant's surviving spouse, and such consent acknowledges the effect of the designation and is notarized, or (c) the Participant establishes to the satisfaction of the Committee that such consent cannot be obtained because his or her spouse cannot be located, or because of such other acceptable circumstances as the Secretary of the Treasury may by regulations prescribe. The consent of a spouse given respecting another Beneficiary shall apply only if that spouse is the surviving spouse, but shall be irrevocable unless and until the Participant revokes a modifies his or her designation of Beneficiary. If no such designation is effective, or if no designated Beneficiary is then living, then the remaining distributions shall be paid to the Participant's spouse, or, if the Participant has no surviving spouse, to the estate of such Participant. 7.14 Distributions Pursuant a Domestic Relations Order. Distribution shall be made from the Plan to an alternate payee pursuant to a domestic relations order if, but only if, the Committee determines the order to be a "qualified domestic relations order" as such term is defined under Section 206(d) of ERISA and Section 414(p) of the Code. Upon receipt of a domestic relations order, the Committee shall promptly notify any Participant and alternative payee named in a domestic relations order of the receipt of such order and the procedures of this Section 7.14 for determining the qualified status of domestic relations orders. An alternate payee shall be permitted to designate a representative to receive copies of notices that are sent to the alternate payee with respect to a domestic relations order. Within a reasonable period after receipt of a domestic relations order, the Committee shall determine whether such order is a qualified domestic relations order as such term is defined under Section 206(d) of ERISA and Section 414(p) of the Code. In making such a determination, the Committee may consult outside counsel and may request additional information from the Participant and alternate payee with regard to the subject domestic relations order. Under no circumstances shall an order be determined to be a qualified domestic relations order if it calls for payments to be made to an alternate payee before the earliest date for such payments as specified in ERISA and the Code, provided, however, that a payment may be made to an alternate payee of the Participant prior to the date the Participant attains his earliest retirement age (as defined in Section 206(d) of ERISA and Section 414(p) of the Code) if such payment is made pursuant to the terms of the qualified domestic relations order. During any period in which benefits appearing to be subject to a domestic relations order are or become payable to a Participant while the issue of whether the order constitutes a qualified domestic relations order is being determined the Committee shall segregate the amounts which would have been payable to the alternate payee during such period in the manner specified by Section 206(d) of ERISA and Section 414(p) of the Code. If the Committee is able to make a preliminary determination that a domestic relations order is a qualified domestic relations order, it shall notify any Participant and alternate payee named in the domestic relations order of its preliminary decision that such order constitutes a qualified domestic relations order and shall require such Participant and alternate payee to confirm in writing the Committee's interpretation of the impact of the domestic relations order on the Plan and distributions under the Plan. Upon receipt of such executed confirmation by the Committee, the Committee's preliminary determination shall become final, and the Plan shall make distributions to any alternate payee named in a qualified domestic relations order pursuant to the terms of such order and in the manner specified by Section 206(d) of ERISA and Section 414(p) of the Code. If the Committee determines that a domestic relations order is not a qualified domestic relations order, it shall notify any Participant and alternate payee named in the domestic relations order of such decision. 7.15 Hardship Withdrawals. The Committee may, in its sole discretion, upon the request of a Participant at any time prior to his or her termination of employment, direct the Trustee to make a lump sum distribution of a portion of the balance of the Participant's Salary Savings Account, for the purposes set forth below, subject to the following rules: (a) Each request for a distribution must be made by written application to the Committee supported by such evidence as the Committee may require. (b) The amount distributed to a Participant in accordance with this Section 7.15 shall not exceed that portion of the Adjusted Balance of his or her Salary Savings Account that (i) is not derived from Voluntary Contributions under Section 4.06 and (ii) is not being used as security for a loan made under Article VIII, determined as of the Valuation Date coinciding with or immediately following the date a request is made hereunder, less earnings allocated to the Participant's Salary Savings Account on or after December 31, 1988. However, in no event shall the amount available for distribution pursuant to this Section 7.15 be less than the Adjusted Balance of the Participant's Salary Savings Account on December 31, 1988, less the amount being used as security for a loan made under Article VIII, determined as of the Valuation Date coinciding with or immediately following the date a request is made hereunder. (c) The Committee shall direct the Trustee to make a distribution to a Participant in accordance with this Section 7.15 only in the event of the Participant's hardship. For purposes of this Section, a hardship shall be limited to: (i) Medical expenses described in Code Section 213(d) previously incurred by the Participant, the Participant's spouse, or any dependents of the Participant (as defined in Code Section 152) or necessary for any of these persons to obtain medical care described in Code Section 213(d); (ii) Purchase (excluding mortgage payments) of a principal residence for the Participant; (iii) Payment of tuition and related educational fees and room and board for the next twelve months of post-secondary education for the Participant, his or her spouse, children or dependents; (iv) The need to prevent eviction of the Participant from his or her principal residence or foreclosure on the mortgage of the Participant's principal residence; and (v) Funeral expenses of a family member of the Participant. (d) The amount distributed shall not be in excess of the immediate and heavy financial need of the Participant, which need shall be deemed to include any amounts reasonably anticipated by the Participant to be necessary to pay federal, state or local income taxes and penalties incurred as a result of the distribution; (e) The Participant shall first obtain all distributions, other than those on account of hardship, and all nontaxable loans available under the Plan and all other plans maintained by the Company. (f) The Participant's Salary Savings Contributions and Voluntary Contributions under the Plan, and elective contributions and employee contributions (as defined in Treasury Regulation Section 1.401(k)) under all other deferred compensation plans maintained by the Company, shall be suspended for twelve (12) months after receipt of the hardship distribution. (g) The Participant may not make Salary Savings Contributions under the Plan, or elective contributions under any other plan maintained by the Company, for the Participant's taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Section 402(g) of the Code for such next taxable year, decreased by the Salary Savings Contributions to the Plan and elective contributions to such other plans for the taxable year of the hardship distribution. (h) Any distribution made pursuant to this Section shall be made in a manner that is consistent with and satisfies the provision of Section 7.08 and the notice and consent requirements of Code Sections 417 and 411(a)(11). If a Participant is married at the time of the distribution, the Participant must provide to the Committee written evidence of spousal consent to the distribution. ARTICLE VIII Loans 8.01 Loan Program. A Participant may borrow against the vested balance of his or her Salary Savings Account under the Plan in accordance with a loan program maintained under procedures (the "Loan Procedures") adopted by the Committee, which the Committee may amend or modify in its discretion from time to time, subject to the specific terms of this Article VIII and any other applicable provisions of this Plan. The Loan Procedures may provide for application forms, permitted purposes for a loan, repayment procedures, interest, security, the occurrence and consequences of a default, and such other terms and procedures as the Committee deems desirable. Nothing in Sections 5.01, 7.01, 13.03 or 13.04 of the Plan (relating to vesting), or in Section 14.04 of the Plan (relating to alienation of benefits) shall preclude such Loan Procedures from requiring the pledge of a Participant's Accounts as security for a loan, providing for the foreclosure of such security interest upon default under a Loan, or providing for the discharge of such loan by payment out of a Participant's Accounts upon default or otherwise. 8.02 Amounts of Loans. The aggregate amount of all loans from the Fund and any other qualified employer plans (as defined in Section 72(p)(4) of the Code) maintained by the Company or any Affiliate to a Participant shall in no event exceed the lesser of: (a) $50,000 reduced by the excess (if any) of (i) the highest outstanding balance of loans from such plans to such Participant during the one (1) year period ending on the day before the date on which such loan is made, over (ii) the outstanding balance of loans from the plan on the date on which the loan was made; or (b) fifty percent (50%) of the balance of the Participant's Salary Savings Account. 8.03 Effect on Account Balances. Any funds loaned to a Participant shall be investment of the Investment Fund to which such loan is attributed with principal and interest paid by a Participant on his or her loan credited to such Investment Fund in the same manner as for any other investment. 8.04 Loan Terms. Loans to Participants shall be made according to the following terms: (a) Each loan shall bear interest at a rate that is one percentage point above the prime rate quoted in The Wall Street Journal on the first business day of the month in which the loan is made; (b) A Participant may have no more than two loans outstanding at any time; (c) Payments of principal and interest by a Participant shall be made through payroll deductions, which deductions shall be irrevocably authorized by the borrowing Participant in writing on a form supplied by the Committee at the time the loan is made to him, and such payroll deductions shall be sufficient to amortize the principal and interest payable pursuant to the loan during the term thereof on a substantially level basis in equal quarterly (or more frequent) installments; (d) The Committee may charge a borrowing Participant or Former Participant such reasonable administrative fees with respect to each loan as the Committee shall, in its discretion, decide; and (e) All loans made under this Article shall mature and be payable in full within five years after the date such loan is made, except that a loan to a Participant used to acquire any dwelling unit that within a reasonable time after the loan is made is to be used (determined at the time the loan is made) as the principal residence of the Participant shall mature and be payable in full within ten years after the date such loan is made. The Committee may impose such additional uniform and nondiscriminatory requirements upon Participants and Former Participants applying for loans as the Committee may determine. ARTICLE IX Limits on Contributions 9.01 Special Definitions. For purposes of this Article IX (and Article X), the following terms shall have the following respective meanings: (a) "Aggregate Compensation" means the entire wages, salary, and other amounts actually paid by all Affiliates to an Employee for the relevant period for personal services actually rendered in the course of employment; including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, and bonuses; provided, however, that Aggregate Compensation does not include: (i) Affiliate contributions to or distributions from this Plan or any other pension, profit sharing, thrift or other plan of deferred compensation (other than amounts the Employee received and included in his or her gross income under the Code pursuant to an unfunded nonqualified plan not entitled to any special tax benefits); (ii) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified or incentive stock option; (iii) Amounts realized from the exercise of a nonqualified stock option and income arising at any time other than the time of transfer attributable to the transfer of property in connection with the performance of services; and (iv) Other amounts which receive special tax benefits. Solely for the purposes of determining whether an Employee of an Affiliate is a Highly Compensated Employee, for determining an eligible Employee's Average Deferral Percentage and Average Contribution Percentage, and for determining the amount contributed on behalf of a key Employee in computing top heavy minimum benefits under Section 10.03 such Employee's Aggregate Compensation shall be increased by such employee's Salary Savings Contributions and all other before-tax contributions made on behalf of such Employee pursuant to any qualified cash or deferred arrangement which is part of any other defined contribution plan maintained by an Affiliate, and by amounts deferred by such Employee under any cafeteria plan maintained by an Affiliate which are excludable from such Employee's taxable income under Section 125 of the Code for such Plan Year. An Employee's Aggregate Compensation for any Plan Year commencing on and after January 1, 1989 and prior to January 1, 1994 in excess of $200,000 (as adjusted from time to time pursuant to Code Section 401(a)(17)), and an Employee's Aggregate Compensation for any Plan Year commencing on and after January 1, 1994 in excess of $150,000 (as adjusted from one time pursuant to Code Section 401(a)(17)) shall be disregarded to the extent required by Code Section 401(a)(17). (b) "Annual Addition" means the sum, for any Participant, of: (i) the Employer contributions under this Plan and Affiliate contributions under any other defined contribution plans on behalf of a Participant for the Limitation Year; (ii) Forfeitures allocated to a Participant under any defined contribution plans maintained by Affiliates for the Limitation Year; (iii) the Participant's after-tax contributions to any defined contribution plans maintained by Affiliates for the Limitation Year; (iv) any amounts allocated to an individual medical account, as defined in Section 415 of the Code, that is part of a defined benefit plan maintained by an Affiliate; and (v) any amounts attributable to post- retirement medical benefits allocated to the separate account of a Key Employee under a welfare benefit fund, as defined in Section 419(e) of the Code, maintained by an Affiliate; For purposes of this Plan, Annual Additions under (i) above shall be determined, in the event Employer contributions are made hereunder to enable the Trustee to repay an Exempt Loan, as if such contributions were directly allocated to a Participant's Account in cash and not on the basis of the value of the stock released from the Suspense Account and actually allocated to his or her Account. Notwithstanding (i) and (ii) above, in any Limitation Year in which no more than one-third of Employer contributions are allocated to Highly Compensated Employees, Annual Additions shall not include ESOP Contributions or ESOP Savings and Matching Contributions applied to the repayment of interest on an Exempt Loan, deductible for the Limitation Year under Section 404(a)(9) of the Code, and charged against the Participant's Account. Annual Additions shall be determined for any Participant by treating as one plan all defined contributions plans maintained by any Affiliate in which he or she participates. (c) "Annual Benefit" means the annual benefit payable to a Participant in the form of a straight life annuity (figured as if such straight life annuity commenced on the date he or she attains age 55 if such benefit actually commences prior to such time) which is the actuarial equivalent of the Affiliate-contributed benefit payable on account of such Participant's participation in any qualified defined benefit pension plan maintained by the Company or any Affiliate, (considered as one plan), excluding, however: (i) the value of qualified joint and survivor annuity provided by such plan(s) to the extent that such value exceeds the sum of (A) the value of straight life annuity beginning on the same date and (B) the value of any post-retirement death benefits which would be payable even if the annuity were not in the form of a qualified joint and survivor annuity; (ii) the amount of any benefits attributable to rollover contributions (as defined in Sections 402(b)(4), 403(a)(4), 408(d)(3) and 409(b)(3) and 409(b)(3)(C) of the Code); and (iii) any ancillary benefits (such as pre- retirement death and disability benefits and post- retirement medical benefits). (d) "Average Contribution Percentage" for a specified group of Eligible Employees for a given Plan Year means the average of the ratios, calculated separately for each Eligible Employee in such group and after the application of Sections 9.02, 9.03 and 9.05, of (i) the sum of Employer Matching Contributions and Voluntary Contributions, and, to the extent designated by the Committee and permitted pursuant to regulations under Section 401(m)(3) of the Code, Salary Savings Contributions, if any, attributable to such Eligible Employee for such Plan Year, to (ii) the Eligible Employee's Aggregate Compensation for such Plan Year. (e) "Average Deferral Percentage" for a specified group of Eligible Employees for a given Plan Year means the average of the ratios, calculated separately for each Eligible Employee in such group and after application of Sections 9.02 and 9.03, of (i) the sum of the Salary Reduction Contributions, if any, attributable to such Eligible Employee for the Plan Year, to (ii) the Eligible Employee's Aggregate Compensation for such Plan Year. (f) "Eligible Employee" or "Eligible Highly Compensated Employee" means an Employee or a Highly Compensated Employee who is eligible to make Salary Savings Contributions or Voluntary Contributions under the Plan for all or a portion of the Plan Year. (g) "Highly Compensated Employee," when used in reference to an Employee for the current Plan Year, means an Employee who: (i) during the current Plan Year or preceding Plan Year was at any time a 5% owner of any Affiliate, determined after applying the attribution rules of Section 318 of the Code; or (ii) during the preceding Plan Year received Aggregate Compensation from all Affiliates in excess of $80,000 (as periodically adjusted pursuant to Section 414(q)(l) of the Code) and, if elected by the Company, is a member of the group consisting of the top 20% of the Employees when ranked on the basis of Aggregate Compensation paid during such Plan Year. A former Employee who was a Highly Compensated Employee when he or she separated from service with all Affiliates or at any time after attaining age 55 shall be treated as a Highly Compensated Employee hereunder to the extent required by Section 4 14(q)(9) of the Code. (h) "Limitation Year" means the calendar year. (i) "Projected Annual Benefit" of a Participant means the Annual Benefit determined under the terms of such plan(s) on the assumption that such Participant continues employment until his or her normal retirement age under such plan(s) (or the Participant's current age, if later), that his or her covered compensation under such plan(s) continues at the same rate as in effect in the Limitation Year under consideration until the date he or she reaches such age, and that other relevant factors used to determine benefits under such plan(s) remain constant as of the current year for all future years. 9.02 General Limitation on Annual Additions. Notwithstanding anything in this Plan to the contrary, the Annual Additions allocated to any one Participant's Accounts in any one Limitation Year shall not exceed the lesser of: (a) $30,000, or, if greater, one quarter of the dollar limitation in effect under Section 415(b)(1)(A) of the Code on annual benefits under defined benefit plans (as such amount may be adjusted annually by the Commissioner of Internal Revenue as of January 1 of each calendar year for limitation years ending with or within that calendar year), or (b) 25% of such Participant's Aggregate Compensation from all Affiliates for such Limitation Year; The limit on Annual Additions shall be applied for any Participant by treating as one plan all tax qualified defined contribution plans maintained by any Affiliate in which he or she participates. In the event a Participant participates in more than one tax qualified defined contribution plan of an Affiliate, Annual Additions to such other plan shall be reduced to the full extent required to comply with the foregoing limitation before any Annual Additions under this Plan are reduced. 9.03 Combined Limitation on Annual Additions. If a Participant also participated at any time in any tax qualified defined benefit pension plan or plans maintained by an Affiliate, then before first giving any effect to any reduction in benefits under such defined benefit plan(s) to comply with Section 415 of the Code, the Annual Additions under this Plan shall be reduced so that the sum of the defined benefit fraction and the defined contribution fraction (both as defined in Section 415(e) of the Code) do not exceed 1.0. 9.04 Excess Annual Additions. If any Participant's Annual Additions would otherwise exceed the limitation of Section 9.02 or 9.03, then Voluntary Contributions under Section 4.03 for such Plan Year shall be returned to the Participant to the extent necessary to eliminate such excess, and any excess remaining after all such Participant's Voluntary Contributions for such Plan Year shall then be used to reduce Employer contributions (with such reduction applied in order until exhausted to (i) Matching Contributions; (ii) Profit-Sharing Contributions; (iii) Discretionary Contributions; (iv) ESOP Contributions; and (v) Salary Savings Contributions) for the next Limitation Year (and succeeding Limitation Years, if necessary) for the Participant if that Participant is covered by the Plan as of the end of the next or succeeding Limitation Year. If the Participant is not covered by the Plan as of the end of such next or succeeding Limitation Year, such excess amounts shall be held unallocated in a suspense account for such Limitation Year and allocated to the corresponding Accounts of the other Participants for such Limitation Year in the same manner as Employer Discretionary and Profit-Sharing Contributions under Section 5.05 until the Annual Addition to the Accounts of each Participant reaches such maximum limitation. Any amounts which may not be allocated to the Accounts of Participants at such time because the Annual Addition to the Accounts of each such Participant has reached the limitation of Section 9.02 or 9.03 shall be held in a suspense account within the Fund and, when permissible under such limitations, allocated, on a first-in-first-out basis, in succeeding Limitation Years to the Accounts of Participants in the manner specified above. If any Participant does not receive the full amount otherwise allocable to his or her Accounts for a Limitation Year because of the restrictions of Section 9.02 and 9.03, no other amount may be allocated for such Participant under any other defined contribution plan maintained b an Affiliate. 9.05 Limitation on Elective Deferrals. Notwithstanding anything to the contrary in the Plan or contained in any Salary Savings Agreement made pursuant to Section 3.02 or 4.02, all Participant Salary Savings Contribution elections made with respect to any Plan Year shall be valid only to the extent that, after first applying any reduction required by Sections 9.02 and 9.03, the Average Deferral Percentage for such Plan Year of the group of Eligible Highly Compensated Employees shall bear a relationship to the Average Deferral Percentage for the Plan Year immediately preceding such Plan Year of the group of all other Eligible Employees that satisfies either of the following tests: (a) the Average Deferral Percentage of the group of Eligible Highly Compensated Employees is not more than the Average Deferral Percentage of the group of all other Eligible Employees multiplied by 1.25; or (b) the Average Deferral Percentage of the group of Eligible Highly Compensated Employees is not more than the Average Deferral Percentage of the group of all other Eligible Employees multiplied by 2.0 and the excess of the Average Deferral Percentage of the group of Eligible Highly Compensated Employees over that of the group of all other Eligible Employees is not more than two percentage points. If neither of those tests is satisfied for a Plan Year, then Salary Savings Contribution elections for such Plan Year by Participants who are Highly Compensated Employees shall be reduced, to the extent necessary to satisfy one of those tests, in accordance with the following procedure: The Average Deferral Percentage (i.e., the amount described in Section 9.01(e)(i) divided by the amount described in Section 9.01(e)(ii) with respect to each such Highly Compensated Employee) of the Highly Compensated Employee with the highest amount of Salary Savings Contributions shall be reduced to the extent necessary to cause such Highly Compensated Employee s Average Deferral Percentage to equal the Average Deferral Percentage of the Highly Compensated Employee with the next highest amount of Salary Savings Contribution for the Plan Year. This process shall be repeated until the Plan satisfies one of the tests set forth in (a) or (b) above. Salary Savings Contributions reduced under this Section 9.05 (adjusted for earnings, gains and losses allocable thereto) shall be returned to each affected Highly Compensated Employee within two and one-half months following the close of such Plan Year. Any Employer Matching Contributions attributable to Salary Savings Contributions returned pursuant to this Section shall be paid to the affected Highly Compensated Employee at the same time as such Salary Savings Contributions are returned. Salary Savings Agreements made by all Participants who are not Highly Compensated Employees shall remain be valid and Salary Savings Contributions and Employer Matching Contributions for such Participants hereunder shall not be changed. Notwithstanding the foregoing, the Employer may elect to make a qualified nonelective contribution to any Plan Year in order to satisfy the tests in clause (a) or (b), including as such tests may be modified by Section 9.06. 9.06 Limit on Voluntary Contributions and Employer Matching Contributions. Notwithstanding anything to the contrary in the Plan or contained in any Participant election made pursuant to Section 4.03, all Participant Voluntary Contribution elections made with respect to any Plan Year shall be valid only to the extent that, alter first applying any reduction required by Sections 9.02, 9.03 and 9.05, the Average Contribution Percentage for such Plan Year of the group of Eligible Highly Compensated Employees shall bear a relationship to the Average Contribution Percentage for the Plan Year immediately preceding such Plan Year of the group of all other Eligible Employees that satisfies either one of the tests set forth in Section 9.05, with the term "Average Contribution Percentage" substituted for the term "Average Deferral Percentage" wherever such latter term appears Section 9.05. If neither of those tests is satisfied for a Plan Year, then Voluntary Contribution elections for such Plan Year by Participants who are Highly Compensated Employees shall be valid only to the extent permitted by either of those tests and the Voluntary Contributions and Employer Matching Contributions of Highly Compensated Employees shall be reduced, together with any Employer contributions attributable thereto, to the extent necessary to satisfy one of those tests, in accordance with the following procedure: The Average Contribution Percentage (i.e., the amount described in Section 9.01(d)(i) divided by the amount described in Section 9.01(d)(ii) with respect to each such Highly Compensated Employee) of the Highly Compensated Employee with the highest amount of Voluntary or Employer Matching Contributions shall be reduced to the extent necessary to cause such Highly Compensated Employee s Average Contribution Percentage to equal the Average Contribution Percentage of the Highly Compensated Employee with the next highest amount of Voluntary or Employer Matching Contribution for the Plan Year. This process shall be repeated until the Plan satsfies one of the tests set forth in Section 9.05(a) or (b) above. A Highly Compensated Employee's Voluntary Contributions shall be reduced to the extent necessary before any required reduction in Employer Matching Contributions made on his or her behalf. Employee Voluntary Contributions thereby reduced (adjusted for earnings, gains and losses allocable thereto) shall be returned to each affected Highly Compensated Employee within two and one-half months after the close of such Plan Year. Employer Matching Contributions thereby reduced shall be a forfeited. Employee Voluntary Contribution elections made by all Participants who are not Highly Compensated Employees shall be valid, and Employer contributions and all other contributions for such Participants hereunder shall not be changed. 9.07 Limitation on Multiple Use. Notwithstanding anything to the contrary in the Plan the sum of the Actual Deferral Percentage for the group of eligible Highly Compensated Employees for a Plan Year and the Actual Contribution Percentage for the group of Eligible Highly Compensated Employees for the Plan Year may not exceed the sum of: (a) 125% of the greater of (A) the Actual Deferral Percentage for the group of Eligible Employees who are not Highly Compensated Employees for the Plan Year, or (B) the Actual Contribution Percentage for the group of Eligible Employees for the Plan Year, and (b) two percentage points plus the lesser of (A) the Actual Deferral Percentage for the group of Eligible Employees who are not Highly Compensated Employees for the Plan Year, or (B) the Actual Contribution Percentage for the group of Eligible Employees who are not Highly Compensated Employees for the Plan Year. In no event, however, shall the amount determined under this subparagraph (ii) exceed 200% of the lesser of (ii)(A) or (ii)(B) above. If the sum of the Actual Deferral Percentage and the Actual Contribution Percentage for the group of eligible Highly Contribution Employees for a Plan Year exceeds such aggregate limit for the Plan Year, then the Actual Contribution Percentage for the group of Eligible Highly Compensated Employees for the Plan Year shall be reduced to the extent necessary in the manner described in Section 9.06 above. The test in this Section 9.07 may be modified to the extent permitted by regulations under Section 401(m)(9) of the Code. 9.08 Aggregation of Plans. The Committee may direct that any plan maintained by an Affiliate, qualifying under Section 401(a) of the Code, and providing for salary savings contributions, voluntary employee contributions or matching contributions, be aggregated with this Plan for purposes of Sections 9.05 and 9.06; provided that the plans meet the requirements of Sections 401(a)(4) and 410(b) of the Code and (after applying any reduction required by Section 9.05 or 9.06 or comparable provisions of the aggregated plans) satisfy the tests of Section 9.05 and 9.06 on an aggregate basis. In the event that any plan maintained by an Affiliate must be aggregated with this Plan for purposes of enabling such plan to meet the requirements of Section 401(a)(4) or 410 of the Code, salary deferral contributions, voluntary employee contributions and matching contributions under such other plan or plans, if any, shall be aggregated with Salary Savings Contributions, Voluntary Contributions and Matching Contributions under this Plan in applying the tests of Sections 9.05 and 9.06. Notwithstanding the absence of any such aggregation, if an Eligible Highly Compensated Employee is in fact eligible to make salary reduction contributions, voluntary employee contributions or to receive employer matching contributions under any other plan maintained by an Affiliate, such contributions shall be aggregated with Salary Reduction Contributions, Voluntary Contributions and Employer Matching Contributions under this Plan in determining such Highly Compensated Employee's Average Contribution Percentage and Average Deferral Percentage for purposes of this Plan. In the event of any permissive or mandatory aggregation of plans under this Section 9.08, contributions under this Plan shall not be reduced and returned or otherwise applied under Sections 9.05 and 9.06 of this Plan until full effect has been given to the comparable provisions for reduction, return or other application of contributions in all other aggregated plans. 9.09 Qualified Nonelective Contributions. The Employer may elect to make a qualified nonelective contribution to any Plan Year. "Qualified nonelective contributions" means Employer contributions that are fully vested at all times and subject to the restrictions on distribution applicable to Salary Savings Contributions under code Section 401(k)(2) and Article VII of the Plan. Qualified nonelective contributions may be made on behalf of all Eligible Employees who are not Highly Compensated Employees, or on behalf of all Eligible Employees, in the discretion of the Employer. Qualified nonelective contributions shall be allocated according to each Eligible Employee's Compensation for the Plan year as a Participant. The qualified nonelective contributions, if any, credited to a Participant's accounts for a Plan Year, shall be counted as Salary Savings Contributions for purposes of calculating the Average Deferral Percentage under Section 9.05 and 9.07 of the Plan. ARTICLE X Required Top-Heavy Plan Provisions 10.01 Special Rules Where Plan Is Top-Heavy. Notwithstanding any other provision of his Plan to the contrary, this Article X shall apply in any Top-Heavy Plan Year. 10.02 Special Definitions. For purposes of this Article X (and Article IX), the following terms shall have the following respective meanings: (a) "Accrued Benefit" when used in reference to the interest of an Employee, former Employee or Beneficiary under any defined benefit Aggregated Plan maintained by an Affiliate means the actuarial equivalent of such individual's benefit commencing at normal retirement age, and when used in reference to the interest of an Employee, former Employee or Beneficiary under this Plan or any other defined contribution Aggregated Plan maintained by an Affiliate, means the balance in the accounts maintained for such individual, increased by amounts distributed during the five-year period ending on the Determination Date; provided, however, that: (i) Any distribution which is still counted towards computing such individual's account balance or annual benefit commencing at normal retirement age for the purpose of determining whether the most recent Plan Year is a Top-Heavy Plan Year shall not be treated as a distribution; (ii) Amounts attributable to any tax deductible employee contribution shall not be taken into account; (iii) Amounts attributable to any rollover contribution accepted after December 31, 1983 shall not be taken into account by the accepting plan if such rollover contribution is initiated by the employee and is between plans which are not maintained by Affiliates; (iv) Any rollover contribution which is not initiated by the employee or which is made between plans maintained by Affiliates shall not be treated as a distribution by the transferring plan; and (v) An individual's Accrued Benefits under all defined benefit Aggregated Plans (treated as one plan) shall be determined under a uniform actuarial method (or the fractional rule of Section 411(b)(1)(C) if there is no such uniform method) and identical actuarial assumptions as specified in such plans (or the fractional rule of Section 411(b)(1)(C) if there is no such uniform method) and identical actuarial assumptions as specified in such plans, considering non-proportional subsidies but ignoring proportional subsidies; and (vi) An individual's Accrued Benefit under a defined contribution Aggregated Plans shall be adjusted to reflect contributions made, required to be made, or allocated under such plan after such Accrued Benefit is determined and before the date specified pursuant to regulations under Section 416 of the Code. (b) "Aggregated Plan" means: (i) any other qualified plan maintained by an Affiliate in which any Key Employee participates; (ii) any other qualified plan of an Affiliate which enables a plan in which a Key Employee participates to meet the requirements of Section 401(a)(4) or Section 410 of the Code; and (iii) any other qualified plan of an Affiliate designated by the Company as an "aggregated plan" and which satisfies the requirements of Section 401(a)(4) or Section 410 of the Code, when considered together with the group of plans described in (i) and (ii) above. (c) "Determination Date" means, for this Plan for the first Plan Year, the last day of such Plan Year; and for this Plan for any succeeding Plan Year, the last day of the preceding Plan Year. (d) "Key Employee" means an Employee or former Employee who, at any time during a Plan Year or any of the four preceding Plan Years, is (or was): (i) among the 50 highest paid officers of all Affiliates when ranked on the basis of Aggregate Compensation having annual Aggregate Compensation (while an officer) of more than $45,000 (as adjusted for cost of living increases pursuant to Section 415(d) of the Code); provided, however, that no more than 10% of all Employees of all Affiliates shall be treated as Key Employees under this subsection (i); (ii) one of the 10 Employees who own both more than 1/2% in value and the largest percentage ownership interests in value of any Affiliate and who has annual Aggregate Compensation from all Affiliates of more than $30,000 (as adjusted from time to time for cost of living increases pursuant to Section 415(d) of the Code); (iii) an owner of more than 5% of an Affiliate; or (iv) an owner of more than 1% of any Affiliate who has annual Aggregate Compensation from an Affiliate of more than $150,000. Ownership for purposes of subsections (ii), (iii) and (iv) above shall be determined after application of the attribution rules of Section 318 of the Code. For purposes of this definition, the Beneficiary of a Key Employee shall be treated as a Key Employee. (e) "Top-Heavy Plan Year" means any Plan Year for which the present value of cumulative accrued benefits under this Plan and any Aggregated Plan for Key Employees exceeds 60% of the cumulative accrued benefits under this Plan and all Aggregated Plans for all Employees. (f) "Top-Heavy Ratio" means a fraction computed as of each Determination Date in accordance with Section 416 of the Code, the numerator of which is the sum for all Key Employees of account balances under this Plan and any other defined contribution plan maintained by an Affiliate plus the present value of Accrued Benefits for all Key Employees under any defined benefit plans maintained by an Affiliate, and the denominator of which is the sum of such account balances plus such Accrued Benefits for all Participants. Both the numerator and denominator of the Top-Heavy Ratio shall be adjusted for any distribution of an account balance or an Accrued Benefit within the five-year period ending on the Determination Date and any contributions due but unpaid as of the Determination Date. The account balances and accrued benefits of a Participant who has not performed services for an Affiliate within the five-year period ending on the Determination Date, or who is not a Key Employee but who was a Key Employee in a prior year, will be disregarded. For purposes of computing the Top-Heavy Ratio, 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 twelve-month period ending on the Determination Date. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates under such plans that fall within the same calendar year. 10.03 Minimum Allocation in Top-Heavy Plan Years. The Employer shall make a minimum contribution in any Top- Heavy Plan Year to be allocated on behalf of each Participant (without regard to whether such Participant is an active Participant) who is not a Key Employee and who is an Employee on the last day of such Top-Heavy Plan Year, and who does not in such Top-Heavy Plan Year receive the minimum benefit required by Section 416(c)(1) of the Code under any defined benefit plan(s) maintained by an Affiliate, so that each such Participant receives an allocation of Employer contributions equal to at least 4% of such Participant's Aggregate Compensation for the Plan Year; provided, however, that: (a) If the Participant is also a participant in a defined benefit plan or plans maintained by an Affiliate (without receiving such minimum benefit under such plan(s)), the minimum contribution shall be 7-1/2% rather than 4% of such Participant's Aggregate Compensation; and (b) The minimum contribution required under this Plan shall be reduced by the amount, if any, allocated to the account of such Participant under any other defined contribution Aggregated Plan (before applying any comparable minimum contribution rule in such other plan); and (c) In no event, however, shall the minimum contribution exceed the percentage of Compensation (including in Compensation for such purpose any amounts a Key Employee elects to defer under any arrangement qualified under Section 401(k) of the Code) at which Employer contributions are made (or required to be made) under the Plan for the Key Employee for whom such percentage is the highest. The minimum allocation applies even though under other Plan provisions the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the year because the Participant fails to make mandatory contributions to the Plan, the Participant's Compensation is less than a stated amount, or the Participant fails to complete 1,000 Hours of Service during the Plan Year. In no event shall the Compensation or Aggregate Compensation of a Participant taken into account under the Plan for purposes of Article X for any Plan Year commencing on and after January 1, 1989 and prior to January 1, 1994 exceed $200,000, or such greater amount provided pursuant to Section 401(a)(17) of the Code. The Compensation of a Participant taken into account for purposes of Article X for Plan Years commencing on and after January 1, 1994 shall be limited in accordance with the provisions of subsections (a) through (c) set forth in the definition of Compensation in Section 2.01. ARTICLE XI The Trust and Trustee 11.01 The Trust. A Trust, known as the GRAND PREMIER FINANCIAL, INC. SAVINGS AND STOCK TRUST is hereby established for the purposes of the Plan and the assets thereof shall be held, invested and disposed of by the Trustee acting in accordance with this Article XI and other applicable provisions of the Plan. 11.02 The Trustee. GRAND PREMIER TRUST AND INVESTMENT, INC. is hereby continued as Trustee of the Trust and hereby agrees to accept the terms of the Trust as herein amended and restated and to perform the duties created hereunder. 11.03 The Fund. The Fund shall be held by the Trustee in trust and dealt with in accordance with the provisions of the Plan and Trust hereby established. All contributions received by the Trustee under the Plan shall be credited to and thereafter held as a part of the Fund. The Trustee shall not be under any duty to require payment of any contributions to the Fund, or to see that any payment made to it is computed in accordance with the provisions of the Plan, or otherwise be responsible for the adequacy of the Fund to meet and discharge any liabilities under the Plan. The Fund shall be used and applied only in accordance with the Plan and Trust and no part of the principal or income of the Fund shall be used for or diverted to purposes other than for the exclusive benefit of Participants and their Beneficiaries and for the payment of expenses and taxes in accordance with the provisions of the Plan, and the Employers shall have no right, title or interest in the Fund or any part thereof and none of the contributions made thereto shall revert to the Employers, except as expressly permitted under Section 14.12. 11.04 Investment Funds. The Company or the Committee shall direct the Trustee to maintain, or cause an Investment Manager to maintain, the following Investment Funds: (a) a Company Stock Fund, which shall be invested in Company stock to the extent shares are available for purchase; and (b) such other Investment Funds as the Company or the Committee deems advisable. The Company may change the number or composition of the Investment Funds, subject to the terms and conditions agreed to with the Trustee. In addition, the Committee may, from time to time, in its discretion: (c) limit investments in or transfers from an Investment Fund; or (d) liquidate, consolidate or otherwise reorganize an existing Investment Fund. 11.05 Participant Investments. Except as provided in Section 7.09, all amounts held in this ESOP Account on January 1, 1997, shall remain in the ESOP Account on and after that date. Participants shall be given the option to direct the investment of all contributions made on their behalf into any one or more of the Investment Funds. Such Investment Funds shall be under the full control and management of the Committee and the Trustee or Investment Manager. In this connection, a Participant's right to direct the investment of any contribution shall apply only to selection of the desired Investment Fund. The following rules shall apply to the administration of such Investment Funds: (a) Each Participant may make an election to invest the Contributions made on his or her behalf and posted to his or her Accounts in whole multiples of one percent (1%) in one or more Investment Funds. Such Participant must notify the Committee in writing on the appropriate form (or by such other method, such as a telephone access system, as may be made available by the Committee) of his or her investment election at least 15 days before the Participant s initial Entry Date or all Contributions made on the Participant s behalf shall be invested in all the Investment Fund that is a money market fund (or that most nearly bears the investment characteristics of a money market fund if no Investment Fund is a money market fund.). (b) A Participant may direct the investment of any new Contributions made on his or her behalf or redirect the investment of his or her existing Account balances (other than his or her ESOP Account) in whole multiples of one percent (1%), by completing a form furnished by the Committee or by such other method, such as a telephone access system, as may be made available by the Committee. (c) A Participant's initial investment election and any change in such investment election will be effective with respect to an Investment Fund on the business day following the day on which the investment election is received pursuant to procedures specified by the Committee. A Participant's investment election shall continue in effect, notwithstanding any change in his or her Compensation or his or her Salary Savings Agreement, until the effective date of a new investment election. A Participant may change his or her investment election as to future Contributions at any time. (d) If the Participant elects to invest, or change investment of, his or her Account balance in more than one Investment Fund, he or she must designate in whole multiples of one percent (1%) what percentage of his or her Accounts is to be invested in each Investment Fund. A Participant or Beneficiary may make an Investment Election to change the allocation of his or her Account Balance among the Investment Funds at any time. (e) An investment election to change a Participant's investment of his or her Account balance in one Investment Fund to another Investment Fund shall be effective at the end of the business day following the day on which the election is received pursuant to procedures specified by the Committee. Notwithstanding the foregoing, the amount of any permissible investment election may be reduced or the effective date of any investment election may be delayed to the extent required by the provisions of any Investment Fund, the availability of an Investment Fund, the ability to purchase Company Stock or such other circumstances as the Committee may determine. Notwithstanding the provisions of this Section 11.05 and Section 11.04, the Company Stock Fund shall not be available as an investment option for Participants, both as to new contributions and existing aggregate Account balances, until such time as a Registration Statement is filed with the U.S. Securities Exchange Commission registering the offer and sale of additional shares of Company Stock under the Plan. 11.06 Powers of Trustee. So long as his, her or its action is consistent with ERISA and Section 401 of the Code and amendments to ERISA and the Code, the Trustee is authorized and empowered, but not by way of limitation: (a) To invest and reinvest the principal and income of the Fund and keep the Fund invested, without distinction between principal and income, in such stocks, bonds, notes or other securities or in such other property, real or personal (and may invest the entire Fund in securities of the Company or any Affiliate pursuant to Section 6.01), or in any fund created and administered for the collective investment of money or property of employee benefit trusts then qualified under Sections 401(a) and 501(a) of the Code (in which case the provisions of the documents governing such collective investment fund shall govern any investment therein, and are hereby made a part of this Trust) as the Trustee may deem proper without being limited by any statute or rule of law regarding investments by trustees other than ERISA. The Trust may be invested, maintained and reinvested in any such property even though the Trustee, in its individual or any other capacity, shall have invested, or may thereafter invest, its own or other funds in the same or similar property the interest, principal or other avails of which may be payable at different rates or times or may have different ranks or priorities. The Trustee, in its discretion, may keep such portion of the Fund in cash or cash balances in a banking institution (which may but need not be the Trustee if the Trustee is a banking institution) or in a savings and loan association as the Trustee may from time to time deem to be in the best interests of the Fund. (b) To sell, exchange, convey, transfer or otherwise dispose of any property held by him or her by private contract or at public auction, and no persons dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency or propriety of any such sale or other disposition. (c) To borrow money for the benefit of the Fund and to secure such loan by a pledge or mortgage of all or part of the Fund, and to renew loans at any time. (d) To vote upon any stocks, bonds or other securities (subject to Section 6.02 in the case of Company Stock); to give general or special proxies or powers of attorney with or without powers of substitution; to exercise any conversion privileges, subscription rights or other options and to make any payments incidental thereto; to consent to or otherwise participate in corporate reorganizations or other changes affecting corporate securities, to delegate discretionary powers and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of any owner with respect to stocks, bonds, securities, insurance contracts or other property held in the Fund. (e) To make, execute, acknowledge and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted. (f) To register any investment held in the Fund in his, her or its own name or in the name of a nominee and to hold any investment in bearer form, but the books and records of the Fund. (g) To employ such agents, custodians, brokers, assistants, actuaries, and counsel as the Trustee may deem necessary for the proper administration of the Trust, unless such persons are provided by the Company, and to be fully protected in action upon the advice of said counsel, who may, but need not be, counsel for the Company. The Trustee shall, at no time, be obliged to institute, or become a party to, any legal action unless indemnified to his, her or its satisfaction for any fees, costs and expenses to be incurred in connection therewith. (h) To pay from the Fund all reasonable and necessary expenses, including. but not by way of limitation, taxes of any kind, fees for agents, attorneys, or other counsel, incurred in connection with the collection, administration, management, investment, protection and distribution of the Fund to the extent that they are not paid by the Company; and (i) To do all acts whether or not expressly authorized, which he or she may deem necessary or proper for the protection of the property held hereunder. 11.07 Compensation and Expenses. A corporate Trustee shall be entitled to compensation for services hereunder as agreed between the Company and the Trustee and the Company or the Employers shall reimburse the Trustee for any and all necessary expenses incurred in the administration of the Plan, to the extent such expenses are not paid by the Trust in accordance with Section 14.16. The Company may provide the Trustee with clerical, bookkeeping and stenographic help and facilities that may be necessary to enable the Trustee to perform his, her or its functions hereunder and may appoint consultants, accountants, or other assistants, to perform any nondiscretionary function of the Trustee under the supervision and direction of the Trustee. 11.08 Accounts. The Trustee shall keep accurate and detailed accounts of all investments, receipts, disbursements and other transactions hereunder, and all accounts, books and records relating thereto shall be open to inspection and audit at all reasonable times by any persons designated by the Company. As of the close of each calendar year, or as of the close of such other fiscal period as the Company may, from time to time, designate, or as of the date of the removal or resignation of the Trustee, as provided in Section 11.10 hereof, the Trustee shall file with the Company a written account setting forth all investments, receipts, disbursements and other transactions effected by the Trustee during the period from the date of the last such account. 11.09 Duty of Person Dealing With Trustee. No person dealing with the Trustee shall be under any obligation to inquire into the validity or propriety of any action by the Trustee, the application of any property delivered to him or her or the exercise by him or her of any of the powers conferred upon him or her by this agreement. The execution by the Trustee of any instrument, document or paper in connection with the exercise of any of the powers enumerated herein shall, of itself, be conclusive evidence to all persons of the authority of the Trustee to execute the same and to exercise all powers incident thereto. 11.10 Resignation and Removal of the Trustee. The Company may remove the Trustee at any time upon thirty (30) days' notice in writing to the Trustee. The Trustee may resign at any time upon thirty (30) days' notice in writing to the Company. Such notice of removal or resignation may be waived by the party entitled thereto provided a successor Trustee shall have been appointed and accepted his, her or its appointment in writing. Upon such removal or resignation of the Trustee, the Company shall appoint a successor Trustee, who shall have the same powers and duties as those conferred upon the Trustee hereunder. 11.11 Investment Fund Transition Rules. Effective as of the date any Investment Fund is added or deleted, each Participant shall have the opportunity to make new investment elections. The Committee and Trustee may use any reasonable accounting methods in performing their respective duties during the period of transition from one Investment Fund to another, including, but not limited to: (a) designating into which Investment Fund a Participant's Account balance will be invested if the Participant fails to submit a proper investment election; (b) the method for allocating net investment gains or losses and the extent, if any, to which amounts received by and distributions paid from the Trust during this period share in such allocation; and (c) investing all or a portion of the Trust's assets in a short-term, interest-bearing Fund during such transition period. ARTICLE XII Plan Administration 12.01 Allocation of Responsibility Among Fiduciaries. The Company, the other Employers, the Trustee and the members of the Committee each shall have only those specific powers, duties, responsibilities and obligations as are specifically given them under this Plan and the Trust. In general, the Company through the Board and each Employer through its board of directors (or through its Board of behalf of Employers other than the Company pursuant to Section 14.15) shall have the sole responsibility for making Employer contributions to the Fund in accordance with Article IV hereof. The Company through the Board shall have the sole responsibility to amend or terminate the Plan, in whole or in part, in accordance with Article XIII hereof, and sole responsibility to appoint and remove the Trustee and the members of the Committee. The Committee shall be responsible for the administration of the Plan as provided herein. The Trustee shall be responsible for the administration of the Trust and the custody and management of the assets held under the Trust. Each of the Company, the members of the Committee, and the Trustee, shall be a fiduciary ("Fiduciary") of the Plan to, but only to, the extent he, she or it (i) exercises any discretionary authority or discretionary control respecting the management of the Plan or exercises any authority or control respecting management of its assets, (ii) renders investment advice for a fee or other compensation, direct or indirect, with respect to the Fund or has any authority or responsibility to do so, or (iii) has any discretionary authority or discretionary responsibility in the administration of the Plan. Each Fiduciary may rely upon any direction, information or action of another Fiduciary as being proper under the Plan, and it is not required under the Plan to inquire into the propriety of any such direction, information or action. It is intended under this Plan that each Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obliations under this Plan and shall not be responsible for any act or failure to act of another Fiduciary. No Fiduciary guarantees the Fund in any manner against investment loss or depreciation in asset value. 12.02 Fiduciary Duties. All Fiduciaries shall discharge their duties as Fiduciaries solely in the interest of the Participants and Beneficiaries and for the exclusive purpose of providing benefits to Participants and their Beneficiaries and defraying reasonable expenses of administering the Plan. They shall discharge such duties with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. They shall not maintain the indicia of ownership of any assets of the Plan outside the jurisdiction of the district courts of the United States. The Fiduciaries shall not do any action prohibited under or in violation of Part 4 of Title I of ERISA, or which would subject any person or the Company to imposition of a tax under Section 4975 of the Code. 12.03 The Committee. The Plan will be administered by a Committee composed of at least three persons who are officers, directors, or employees of an Affiliate. Each member of the Committee shall be appointed by the Company and shall thereafter serve until death, resignation, or removal by the Company or until he or she ceases to be an officer, director, or employee of an Affiliate. Any member of the Committee may resign at any time upon at least 15 days notice in writing to the Company. The Company may remove any member of the Committee at any time upon giving notice in writing to such member. Upon such resignation, or removal, or upon the death of a member of the Committee, or his or her ceasing to be an officer, director, or employee of an Affiliate, the Company may, and if the membership of the Committee would otherwise be less than three shall, promptly appoint a successor member who shall have the same powers and duties as those conferred upon his or her predecessor. The Committee shall elect one of its members as chairman, and any document required to be filed with, or any notice required to be given to, the Plan or the Committee will be properly filed or given if mailed or delivered, to the chairman. 12.04 Committee Action. The Committee shall act with or without a meeting by the vote or concurrence of a majority of its members; provided, however, that no member of the Committee who is a Participant in the Plan shall take part in any action having particular reference to his or her own benefits hereunder. All written directions by the Committee may be made over the signatures of a majority of its members and all persons shall be protected in relying on such written directions. 12.05 Administrative Powers. In its sole discretion the Committee shall have the administrative powers and duties specified in this instrument, which shall include but not be limited to the following powers and duties: (a) Determinations of Fact. To determine all questions relating to the administration of the Plan, including the power to determine whether a Participant has resigned or has been dismissed or is Retired or is married or Permanently Disabled or dead, the date of any such resignation, dismissal, Retirement, Permanent Disability or death, or as to the age or identity of a Participant or Beneficiary or whether a Beneficiary is living or dead, and to resolve all other questions of fact relating to the rights or eligibility of Employees and Participants and their Beneficiaries, and the amounts of their respective interests; and its determinations shall be final and binding on all persons whomsoever; (b) Construction of the Plan. To construe and interpret the terms and provisions of the Plan and resolve in its discretion any ambiguities in the application of the Plan; and its determinations shall be final and binding on all persons whomsoever; (c) Direction. To direct the Trustee with respect to payment from the Fund; (d) Procedures and Forms. To establish uniform and nondiscriminatory procedures and requirements, consistent with the terms and purposes of this Plan, for the time and manner of making Salary Savings Contributions (including the form of Salary Savings Agreement), Voluntary Contributions, and Rollover Contributions, the making of investment elections by Participants and directing transfers to and from the various Investment Funds, the payment of distributions to Participants and Beneficiaries, the designation of Beneficiaries, and like matters; (e) Rules. To adopt such rules and regulations as the Committee may deem reasonably necessary for the proper and efficient administration of the Plan and consistent with its purposes; (f) Enforcement. To enforce the Plan in accordance with Its terms and with the Committee's own procedures, rules and regulations and to settle and discharge disputes arising thereunder; (g) Records. To maintain the account records of all Participants; (h) Loans. To administer the loan program established by Article VIII; (i) Retention of Services. To retain counsel, employ agents and provide for such clerical, accounting, actuarial and consulting services as may be required in carrying out the provisions of the Plan. The Committee shall be entitled to rely conclusively upon, and shall be fully protected in any action taken by it in good faith in relying upon, any opinions or reports that shall be furnished to it by any such counsel, agents or other persons; and (j) Additional Powers. To do all other acts in the Committee's opinion necessary or desirable for the proper and advantageous administration of the Plan. 12.06 Investment Direction and Investment Manager. The Committee, by written notice to the Trustee, may assume the right to direct the Trustee with respect to the investment of all or of any designated portion of the Fund or may by written notice to the Trustee advise the Trustee of the appointment of an Investment Manager to manage all or any designated portion of the Fund. Any Investment Manager shall be appointed by the Committee and shall serve pursuant to written Agreement with the Committee at the pleasure of the Committee. Any notice to the Trustee shall remain in force until revoked or amended by further written notice to the Trustee. To the extent the Committee assumes or appoints an Investment Manager to assume such responsibilities, the Committee or the Investment Manager shall give instructions to the Trustees for the purchase, sale, exchange or other acquisition or disposition of securities, or an Investment Manager may directly make any such purchase, sale, exchange or other acquisition or disposition of securities, on behalf of and for the Account of the Fund. The Trustee shall follow the instructions of the Committee or the Investment Manager and shall be under no obligation to make any investment review or to consider the propriety of holding or selling any securities or property of the Fund subject to the management of the Committee or an Investment Manager. The Trustee shall not be liable or responsible for any loss resulting to the Fund by reason of its following such instructions of the Committee or the Investment Manager or by reason of its failure to take any action with respect to any investment which was acquired pursuant to any such Instructions in the absence of further Instructions of the Committee or the Investment Manager. 12.07 Records and Reports. The Committee shall have the responsibility to meet the reporting and disclosure requirements with respect to the Plan, including filing the annual reports with the Internal Revenue Service. The Committee shall exercise such authority and responsibility as it deems appropriate in order to comply with ERISA and governmental regulations issued thereunder relating to records of Participants' service and Accounts. 12.08 Information to be Provided. The Committee shall furnish and make available to Participants and Beneficiaries and to the Secretary of Labor or his or her delegate, and to the Secretary of the Treasury or his or her delegate such plan descriptions, summaries, reports, registration statements, notifications and other documents as may be required by ERISA and the Code and regulations thereunder, and the Committee shall retain such records for such periods as may be required by such laws and regulations. ARTICLE XIII Amendment, Merger and Termination 13.01 Amendment. The Company reserves the right, at any time or times to amend this Plan and the Trust established hereunder to any extent and in any manner that it may deem advisable and all Participants and persons claiming any interest hereunder shall be bound thereby; provided, however, that no amendment may be adopted the effect of which would be: (a) to divest any Participant or Beneficiary of his or her then vested interest in the Fund, the vested interest of a Participant who is still an Employee being the benefit to which he or she would have been entitled had he or she then resigned; (b) except as permitted by regulations under Section 411(d) of the Code, to eliminate or reduce, with respect to the aggregate Account balances of any Participant or Beneficiary as of the later of the date such amendment is adopted or effective, any early retirement subsidy that continues alter retirement, or an optional form of benefit; (iii) except as provided by Section 14.12, to cause any part of the Fund or its income to be used for, or diverted to, any purpose other than the exclusive benefit of Participants or their Beneficiaries; or (iv) to materially increase the duties and responsibilities of the Trustee without its consent. Notwithstanding the foregoing provisions of this Section, however, this Plan may be amended in any manner whatsoever, with prospective or retroactive effect, for the purpose of qualifying it under Section 401 of the Code or complying with any provision of ERISA. Any amendment of the Plan shall be by written instrument adopted by the Board of Directors, or by such committee to whom the Board of Directors has expressly delegated the power and authority to amend the Plan. 13.02 Merger. The Company may direct a merger or combination of this Plan with, or a transfer of part or all of its assets and liabilities to, any other plan or trust qualified under Section 401(a) of the Code ("other plan"). In the event of any such merger, consolidation or assets or liabilities, each Participant in the Plan whose interests were so merged, consolidated or transferred into, with, or to the other plan must be entitled to receive a benefit immediately thereafter (if the other plan then terminated) which would be equal to or greater than the benefit he or she would have been entitled to receive immediately theretofore (if the Plan had then terminated). 13.03 Termination. Anything to the contrary herein notwithstanding, this Plan and the Trust established hereunder may be terminated (in whole or in part) by the Company by a duly adopted resolution of the Board or further contributions hereunder may be discontinued by any Employer by a duly adopted resolution of its board of directors. In the event of termination (whether in whole or in part) and notwithstanding anything herein to the contrary, the interests of all affected Participants shall be fully vested and no part of any such Participant's Accounts shall thereafter be forfeited for any reason whatsoever except as provided in Section 8.01 and 14.11. Upon such termination or discontinuance, the assets of the Fund shall be held and administered by the Trustee for the benefit of the Participants in the same manner and with the same powers, rights, duties and privileges herein prescribed, until the Fund has been fully distributed pursuant to the provisions of Article VII hereof, provided, however, that subject to Section 411(a)(11) of the Code, in the case of a termination of the Plan (in whole or in part), the Board may direct the Trustee to make distribution of the Accounts as soon as practicable in accordance with the provisions of Article VII hereof to each affected Participant as if he or she were Retiring on the date of such termination. 13.04 Partial Termination. In the event of any partial termination of the Plan under Section 13.03 an appropriate portion of the assets of the Fund attributable to the Participants and Beneficiaries subject to such partial termination shall be segregated, held and administered by the Trustee for the benefit of such Participants and Beneficiaries as provided in Section 13.03; and the interests (including the ESOP Account, Employer Discretionary Account and Profit Sharing Accounts of each affected Participant) shall, notwithstanding Section 7.03, thereafter be fully vested and nonforfeitable except as provided in Sections 8.01 and 14.11. ARTICLE XIV Miscellaneous 14.01 Interest of Participants. No Participant or Beneficiary shall have any right to, or interest in, any part of the Fund, except as expressly provided in this Plan. Any person claiming benefits under this Plan will look solely to the Fund for payment. 14.02 Title to Assets. No Participant or Beneficiary shall have any title or claim in or to any specific assets in the Fund but shall have only a proportionate interest in the Fund as a whole. 14.03 Not a Contract of Employment. This Plan shall not be deemed to be a contract of Employment between the Company or any Affiliate and any Employee. Nothing contained herein shall be deemed to give to any Employee the right to be retained in Employment or to interfere with the right of the Company or Affiliate to discharge any Employee at any time. Nothing contained herein shall be deemed to give the Company or Affiliate the right to require any Employee to remain employed, or to interfere with the Employee's right to terminate his or. her Employment at any time. 14.04 Spendthrift Clause. Except as otherwise provided in Sections 7.14, 8.01 and 14.10, amounts payable under this Plan to a Participant or Beneficiary shall be paid only to him or her and upon his or her personal receipt. No benefit payable under the provisions hereof shall be assigned or alienated or be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge. Any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber or charge shall be void, nor shall the Fund be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the persons entitled to any benefit payment. 14.05 Addresses. Each person entitled to benefits hereunder shall file with the Committee from time to time in writing his or her complete mailing address and change of mailing address. Any check representing payment hereunder and any communication addressed to a Participant or to any other person at his or her last address so filed (or if no such address has been filed, then at his or her last address indicated on the records of the Company or any Affiliate) shall be deemed to have been received by such person for all purposes of the Plan, and neither the Committee, Trustee nor the Company or any Affiliate shall be obliged to search for or ascertain the location of any such persons. 14.06 Information on Participants. Participants shall furnish promptly to the Committee such Information as the Committee reasonably considers necessary or desirable for the purpose of administering the Plan. If such information is not submitted, or shows that such information previously has been misstated on the records of the Plan, the Committee will make such corrections and adjustments in accordance with the available facts as it considers appropriate. 14.07 Regularly Kept Records Are Binding. The regularly kept records of the Company or Affiliate shall be conclusive and binding upon all persons with respect to the nature and length of Employment, the type and amount of compensation paid and the manner of payment thereof, the type and length of absence from work and all other matters contained therein relating to employees. 14.08 Claims. Any claim for benefits not received or received in an improper amount shall be made in writing to the Committee. The Committee shall consider such claim and shall either approve it or deny It within 90 days, unless within 90 days the Committee determines that special circumstances require an extension of time in processing the claim and so notifies the claimant in writing of such extension, the special circumstances justifying the extension, and the date by which the Committee expects to render a final decision. In no event shall extension exceed a further period of 90 days. Each denial shall be in writing, setting forth the specific reasons for such denial and be written in a manner calculated to be understood by the Participant or Beneficiary. Within 60 days after the receipt from the Committee of any written denial of a claim for benefits, or within 60 days from the end of the period (after any applicable extension) for initial consideration of claims if no decision has been rendered by that date (which shall be deemed a denial of such claim), a Participant (or Beneficiary) whose claim is denied (or deemed denied) may request, by written application to the Committee, a review by the Committee of the decision denying the payment of benefits. In connection with such review, such Participant (or Beneficiary) shall be entitled to review any and all documents pertinent to the claim or its denial and shall also be entitled to submit issues and comments in writing. The decision of the Committee upon such review shall be made promptly and not later than 60 days after the receipt of such request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but no later than 120 days alter the Committee's receipt of a request for review. The decision on review shall be written in a manner calculated to be understood by the Participant (or Beneficiary), shall include specific reasons for the decision and specific refernces to the pertinent Plan provisions on which the decision is based, and shall be final. 14.09 Indemnification. Except as otherwise provided in ERISA, the Company, any Affiliate, their directors, officers, employees and agents, the Trustee, the members of the Committee or any of them, shall not incur any personal liability for the breach of any responsibility, obligation, or duty in connection with any act done or omitted to be done in good faith in the management and administration of the Plan and Trust established hereunder and the Investment and handling of the Fund and shall be indemnified and held harmless by the Employers from and against any such personal liability including all expenses reasonably incurred in its or their defense in case the Employers fail to provide such defense. 14.10 Payments to Minors. Etc. In the event any portion of the Fund becomes distributable under the terms hereof to a minor or other person under a legal disability, the Committee, in its sole discretion, may direct that such distribution shall be made in any one or more of the following ways: (a) directly to said minor or other person; (b) to the legal guardian or conservator of said minor or other person; or (c) to the spouse, parent, brother, sister, child or other relative of said minor or other person for the use of said minor or other person. The Committee shall not be required to see to the application of any distributions so made to any of said persons, but the receipt therefor shall be a full discharge of the liability of the Trustee and the Fund to such minor or other person. 14.11 Unclaimed Payments. If any check or other instrument in payment of a benefit hereunder, which was mailed by regular United States mail to the address of the payee furnished the Committee or Trustee by the payee or the Company or an Affiliate is returned unclaimed, the Trustee shall notify the Committee and shall discontinue further payments to such payee until the Committee or Trustee receives further information and instructions from such payee or the Company or an Affiliate. Such discontinuance shall not be treated as a forfeiture of any unclaimed or future payment, provided, however, that where the Committee or Trustee is unable to locate a payee and an amount has been distributable and unclaimed for three (3) years following the date distribution was to be made or commenced, or upon the termination of the Plan if earlier, the entire distribution payable to such payee shall be forfeited and used to pay current or reasonably anticipated expenses of the Plan or the Trust; or if there are no such current or anticipated expenses, treated as a Profit Sharing Contribution and allocated as set forth in Section 5.05 hereof. Any amounts so treated shall again become payable to such payee as an administrative expense of the Plan upon his or her filing a written claim for benefits under the Plan with the Committee containing his or her complete mailing address and such evidence that he or she is entitled to such benefits as the Committee may require. 14.12 Reversions. In no event shall any of the assets of the Fund revert to the Employers except the sum, if any, remaining in the Fund after all liabilities under the Plan to Participants and Beneficiaries have been fully satisfied and discharged; provided, however, that there shall be returned to the Employers: (a) contributions made by a mistake of fact, within one (1) year after the payment of such contributions; (b) contributions conditioned upon their deductibility under Section 404 of the Code to the extent the deduction is disallowed, within one (1) year alter the disallowance of the deduction; and (c) any amounts remaining in the suspense account for excess annual additions maintained under Section 9.04 upon termination of the Plan, as soon as practicable after all liabilities of the Plan to Participants and their Beneficiaries have been satisfied. The amount of any contribution that may be returned to any Employer pursuant to subparagraph (i) above shall be reduced by any portion thereof previously distributed from the Fund and by any losses of the Fund allocable thereto, and in no event shall the return of such contribution cause the balance of any Participant's Accounts to be less than the amount of the such balance had the contribution not been made. 14.13 Necessary Parties. Necessary parties to any accounting, litigation or other proceedings shall include only the Trustee, Committee and the Company, and the settlement or judgment in any such cases in which the Company is duly served or cited shall be binding upon all members of the Plan, Participants and their Beneficiaries and estates and all persons claiming by, through or under them. 14.14 Company Action. Any action this Plan requires or permits the Company to take shall be duly and properly taken if done by written resolution of the Board; or, except where otherwise expressly provided in this Plan, in writing by an individual authorized generally by the by-laws of the Company or specifically by such written resolution of the Board to take actions of such kind respecting this Plan. 14.15 Company as Agent for Employers. In the event an Affiliate other than the Company becomes an Employer hereunder by adopting this Plan with the consent of the Company for the benefit of its eligible employees, such Employer irrevocably appoints the Company as its agent to do all acts and things respecting the Plan on its behalf; to the end that the Trustee, Committee, Participants and Beneficiaries and all other persons may deal with the Company respecting this Plan as if it were the only Employer under this Plan. 14.16 Plan Expenses. All taxes of any kind upon or in respect of the Fund or its income, including income taxes upon Participants or Beneficiaries respecting distributions from the Fund and required by the Code or any other federal, state or local revenue law to be withheld at the source, but excepting only any federal excise taxes respecting the Plan or its operation that the Code specifically imposes on the Company or other persons and not on the Fund, shall be paid by the Trustee from the Fund. All other expenses incurred in the management or administration of the Plan and the Trust may, in the discretion of the Company, be paid by the Company, but if for any reason not paid by the Company shall be paid by the Trustee from the Fund unless the Company has affirmatively directed the Trustee in writing not to pay such expenses; in which event the Company shall indemnify the Trustee and the Fund from and against such expenses and all other costs and charges (including attorneys fees and costs of collection imposed on the Trustees or the Fund) respecting such expenses. 14.17 Agent for Service of Process. The agent for service of process under the Plan shall be the Secretary of the Company. 14.18 Illinois Law to Govern. This Plan and the Trust established hereunder shall be administered, construed and regulated and its validity and effect and the rights hereunder of all parties interested shall at all times be determined in accordance with the laws of the State of Illinois subject, however, to applicable provisions of ERISA and the Code. 14.19 Special Rules Relating to Veterans Reemployment Rights Under USERRA. Effective on and after December 12, 1994, the following special provisions of this Section shall apply to an Employee or Participant who is reemployed in accordance with the reemployment provisions of USERRA following a period of qualifying military service (as determined under USERRA): (a) Each period of qualifying military service served by an Employee or Participant shall, upon such reemployment, be deemed to constitute Employment with the Employer for all purposes of the Plan, including determining the Participant s vested percentage in his Employer Discretionary and Profit Sharing Accounts. (b) The Participant shall be permitted to make up Salary Savings Contributions missed during the period of qualifying military service. The Participant shall have a period of time beginning on the date of the Participant s reemployment with the Employer following his period of qualifying military service and extending over the lesser of (i) the product of three and the Participant s period of qualifying military service, and (ii) five years, to make up such missed Salary Savings Contributions. (c) If the reemployed Participant elects to make up Salary Savings Contributions in accordance with paragraph (b) above, the Employer shall make any Matching Contributions that would have been made on behalf of such Participant had the Participant made such Salary Savings Contributions during the period of qualifying military service. (d) If the Employer made any Employer Discretionary or Profit Sharing Contributions to the Plan during the period of qualifying military service, it shall make an Employer Discretionary and Profit Sharing Contribution on behalf of the Participant upon the Participant s reemployment following his period of qualifying military service, in the amount that would have been made on behalf of such Participant had the Participant been employed during the period of qualifying military service. (e) The Plan shall not (i) credit earnings to a Participant s Accounts with respect to any Salary Savings, Matching, Discretionary or Profit Sharing Contribution before such Contribution is actually made, or (ii) make up any allocation of forfeitures, with respect to the period of qualifying military service. (f) A reemployed Participant shall be entitled to accrued benefits attributable to Salary Savings Contributions only if such Contributions are actually made. (g) For all purposes under the Plan, including the Employer s liability for making contributions on behalf of a reemployed Participant as described above, the Participant shall be treated as having received Compensation from the Employer based on the rate of Compensation the Participant would have received during the period of qualifying military service, or if that rate is not reasonably certain, on the basis of the Participant s average rate of Compensation during the 12-month period immediately preceding such period. (h) If a Participant makes a Salary Savings Contribution or the Employer makes a Matching, Discretionary or Profit Sharing Contribution in accordance with the foregoing provisions of this Section 14.19: (i) such Contributions shall not be subject to any otherwise applicable limitation under Code Sections 402(g), 404(a) or 415, and shall not be taken into account in applying such limitations to other Participant or Employer Contributions under the Plan or any other plan, with respect to the year in which such Contributions are made, and such Contributions shall be subject to these limitations only with respect to the year to which such Contributions relate and only in accordance with regulations prescribed by the Internal Revenue Service; and (ii) the Plan shall not be treated as failing to meet the requirements of Code Sections 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12), 401(m), 410(b) or 416 by reason of such Contributions. ARTICLE XV Provisions Applicable to Annuity Distributions 15.01 Annuity Forms of Distribution. A Participant who elects the annuity form of distribution in accordance with Section 7.06 shall receive a distribution of his Accounts in the form of a Qualified Joint and Survivor Annuity, unless such Participant elects one of the optional annuity forms specified below. The optional forms of retirement benefit are: (a) a Qualified Joint and Survivor Annuity; (b) a straight life annuity; (c) a single life annuity with a period certain of ten or fifteen years guaranteed; (d) a survivorship life annuity with survivorship percentage of 100%; and (e) a fixed period annuity for any period of whole months that is not less than sixty and does not exceed the life expectancy of the Participant and the named Beneficiary as provided in Section 15.06. 15.02 Determining Optional Form of Distribution; Qualified Elections. Unless a qualified election of an optional form of benefit distribution (other than a Qualified Joint and Survivor Annuity) is made pursuant to the qualified election provisions of subsection 15.05, the form of retirement benefit for a Participant who elects to receive the annuity form of benefit in Section 7.06 shall be determined as follows: (a) for a Participant who does not die before his Benefit Starting Date, a Qualified Joint and Survivor Annuity; and (b) for a Participant who dies before his Benefit Starting Date, either: (i) a Qualified Preretirement Survivor Annuity under which the spouse may elect to start receiving the death benefit on any first day of the month after the date the Participant dies and before the date the Participant would have been age seventy and one-half (70-); provided, however, that if the spouse dies before benefits start, the Participant's vested Account balance, determined as of the date of the spouse's death, shall be paid to the spouse's Beneficiary; or (ii) a lump sum payment to the Participant's Beneficiary for a Participant who does not have a spouse who is entitled to a Qualified Preretirement Survivor Annuity. 15.03 Qualified Joint and Survivor Annuity. For a Participant who has a spouse, an immediate survivorship life annuity where the survivorship percentage is 50% and the Beneficiary is the Participant's spouse. A former spouse will be treated as the spouse to the extent provided under a qualified domestic relations order as described in Code Section 414(p). If a Participant does not have a spouse, the Qualified Joint and Survivor Annuity means a single life annuity. The amount of benefit payable under the Qualified Joint and Survivor Annuity shall be the amount of benefit that may be provided by the Participant's vested Account. 15.04 Qualified Preretirement Survivor Annuity. A single life annuity payable to the surviving spouse of a Participant who: (i) elects to receive a Qualified Joint and Survivor Annuity form of benefit; and (ii) dies before his Benefit Starting Date. A former spouse will be treated as the surviving spouse to the extent provided under a qualified domestic relations order as described in Code Section 414(p). 15.05 Election Procedures. The Participant or spouse shall make any election under this Section 15.05 in writing. The Committee may require such individual to complete and sign any necessary documents as to the provisions to be made. Any election permitted under subsection (a) or (b) below shall be subject to the qualified election provisions of subsection (c) below: (a) Retirement Benefits. A Participant may elect one of the annuity forms described in subsection 15.01. (b) Death Benefits. If a Participant dies before his Benefit Starting Date, death benefits shall be distributed as follows: (i) If the Participant has a surviving spouse Beneficiary and elected to receive his benefit in the form of a Qualified Joint and Survivor Annuity, the surviving spouse shall receive distribution of the Participant's Account in the form of a Qualified Preretirement Survivor Annuity. The spouse may waive the Qualified Preretirement Survivor Annuity by electing to have the Account distributed in a lump sum. (ii) If the Participant's Beneficiary is not his spouse, any election of an optional form of benefit made by the Participant before the Participant's death shall be revoked, and the Participant's Beneficiary shall receive a distribution of the Participant's Account in a lump sum. (c) Qualified Election. (i) The Participant or spouse may make an election at any time during the election period. The Participant or spouse may revoke the election made (or make a new election) at any time and any number of times during the election period. An election is effective only if it meets the consent requirements below. (ii) The election period as to retirement benefits is the ninety (90) day period ending on the Benefit Starting Date. An election to waive the Qualified Joint and Survivor Annuity by a Participant who has elected an optional form of retirement benefit may not be made before the date he is provided with the notice of the ability to waive the Qualified Joint and Survivor Annuity. If the Participant elects the series of installments, he may elect on any later date to have the balance of his vested Account paid under any of the optional forms of retirement benefit available under the Plan. His election period for this election is the ninety (90) day period ending on the Benefit Starting Date for the optional form of retirement benefit elected. (iii) A Participant may make an election as to death benefits at any time before he dies. The spouse's election period begins on the date the Participant dies and ends ninety (90) days after the Participant's date of death. A Participant may not elect to waive the Qualified Preretirement Survivor Annuity. (iv) If the Participant has elected one of the optional forms of distribution described in subsection 7.06 and the present value of the Participant's vested Account exceeds $3,500, any benefit that is payable in a form other than a Qualified Joint and Survivor Annuity or a Qualified Preretirement Survivor Annuity requires the consent of the Participant's spouse. The consent, to be effective, must satisfy the following criteria: (A) The spouse's consent shall be witnessed by a plan representative or notary public. (B) The spouse's consent must acknowledge the effect of the election, including that the spouse had the right to limit consent only to a specific Beneficiary or a specific form of benefit, if applicable, and that the relinquishment of one or both such rights was voluntary. Unless the consent of the spouse expressly permits designations by the Participant without a requirement of further consent by the spouse, the spouse's consent must be limited to the form of benefit, if applicable, and the Beneficiary, class of Beneficiaries, or contingent Beneficiary named in the election. (C) Spousal consent is not required if the Participant establishes to the satisfaction of the plan representative that the consent of the spouse cannot be obtained because there is no spouse or the spouse cannot be located. (D) A spouse's consent under this Section shall not be valid with respect to any other spouse. (E) A Participant may revoke a prior election without the consent of the spouse. Any new election will require a new spousal consent, unless the consent of the spouse expressly permits such election by the Participant without further consent by the spouse. (F) A spouse's consent may be revoked at any time within the Participant's election period. 15.06 Benefit Starting Date. For a Participant who has elected the annuity form of distribution, the first day of the first period for which an amount is payable as an annuity. 15.07 Notice Requirements. If the Participant elects the annuity form of benefit, the Committee shall furnish no less than thirty (30) days and no more than ninety (90) days before the Benefit Starting Date to the Participant a written explanation of all the methods of retirement benefit distribution available under the Plan. The written explanation shall address each of the following: (a) With respect to the Qualified Joint and Survivor Annuity, the Committee shall furnish to the Participant a written explanation of the following: (A) the terms and conditions of the Qualified Joint and Survivor Annuity; (B) the Participant's right to make, and the effect of, an election to waive the Qualified Joint and Survivor Annuity; (C) the rights of the Participant's spouse; and (D) the right to revoke an election and the effect of such a revocation. The Committee shall furnish the written explanation by a method reasonably calculated to reach the attention of the Participant no less than thirty (30) days and no more than ninety (90) days before the Benefit Starting Date. After the written explanation is given, a Participant or spouse may make written request for additional information. The written explanation must be personally delivered or mailed (first class mail, postage prepaid) to the Participant or spouse within thirty days from the date of the written request. The Committee does not need to comply with more than one such request by a Participant or spouse. The Committee's explanation shall be written in nontechnical language and will explain the terms and conditions of the Qualified Joint and Survivor Annuity and the financial effect upon the Participant's benefit (in terms of dollars per benefit payment) of electing not to have benefits distributed in accordance with the Qualified Joint and Survivor Annuity. (b) All other methods of distribution. The Committee shall furnish to the Participant a written explanation of the material features and relative values of these methods of distribution, including the automatic method of distribution described in Section 7.06, and the Participant's right to defer distribution until Normal Retirement Age. The Committee shall furnish the written explanation by a method reasonably calculated to reach the attention of the Participant no more than thirty (30) days after the Participant's Date of Separation and no more than ninety (90) days before the Benefit Starting Date. ARTICLE XVI ESOP Provisions 16.01 Special Provisions Applicable When an Exempt Loan Is Outstanding. The provisions of this Article XVI shall be applicable at any time there is an Exempt Loan outstanding with respect to the Plan. For purposes of this Article, the following terms shall have the following respective meanings: "Exempt Loan" means a loan to the Trust, to enable the Trust to acquire Company Stock, that is made or guaranteed by the Company or an Affiliate or by another person that is a "disqualified person" with respect to the Plan under Section 4975(e)(2) of the Code, and that is intended to meet the exemption requirements of Section 4975(d)(3) of the Code and regulations thereunder. "ESOP Contributions" means any Employer Contribution determined by the Board that is applied pursuant to Section 16.05 to the repayment of an Exempt Loan. "ESOP Savings and Matching Contributions" means that portion, if any, of Salary Savings Contributions and Matching Contributions that is applied pursuant to Section 16.05 to the repayment of an Exempt Loan. "Loan Suspense Account" means the account for unallocated Company Stock acquired with the proceeds of an Exempt Loan as provided in Section 16.06. 16.02 Form of Contributions. ESOP Contributions shall be made in cash to the extent of the portion of the ESOP Contribution required under Section 16.05 of the Plan to enable the Trustee to make payment of debt service on any Exempt Loan. 16.03 Accounts of Participants. In the event the Trustee acquires Company Stock with the proceeds of an Exempt Loan, such Company Stock and earnings thereon shall be added to and maintained in a Loan Suspense Account until released as provided in Section 16.06. The Trustee shall separately account for contributions made to meet the obligations of the Trust under the Exempt Loan, earnings on such contributions, and earnings on the Loan Suspense Account. Notwithstanding Section 11.05, all ESOP Contributions and ESOP Savings and Matching Contributions shall be invested in the Company Stock Fund. 16.04 Exempt Loans. The Trustee may, but need not, enter into an Exempt Loan. Any Exempt Loan to the Trust shall be subject to the following conditions: (i) the rate of Interest charged to the Trust must be reasonable; (ii) any collateral pledged to the creditor by the Trust shall consist only of Company Stock purchased with the proceeds of such Exempt Loan (or with the proceeds of a prior Exempt Loan repaid with the proceeds of such current Exempt Loan) and earnings thereon, if any; (iii) the creditor shall have no recourse against the Trust except as to such pledged Company Stock held in the Loan Suspense Account and to earnings thereon, if any; (iv) repayment of the Exempt Loan may be made only from Employer contributions (including ESOP Contributions and ESOP Savings and Matching Contributions) made to enable the Trustee to repay the Exempt Loan, earnings on Company Stock acquired with the proceeds of the Loan and held in the Loan Suspense Account, and from other dividends on Company Stock to the extent permitted by ERISA or the Code; (v) in the event of default upon an Exempt Loan, the value of Plan assets transferred in satisfaction of the Exempt Loan shall not exceed the amount of default; and if the lender is a disqualified person (within the meaning of Section 4975(e)(2) of the Code) the Exempt Loan must provide for a transfer of Plan assets upon default only upon and to the extent of the failure of the Plan to meet the repayment schedule of the Exempt Loan; (vi) except as provided by Section 6.02 or as otherwise required by applicable law, no security acquired with the proceeds of an Exempt Loan may be subject to a put, call or other option, or buy-sell or similar arrangement, while held by and when distributed from the Exempt Loan has been repaid or Plan, whether or not the Plan is then a leveraged employee stock ownership plan; and (vii) upon the payment of any portion of the balance due on the Exempt Loan, Company Stock originally pledged as collateral for such portion shall be released from the Loan Suspense Account in accordance with Section 16.06. 16.05 Allocation of Contributions. So long as any Exempt Loan is outstanding. ESOP Contributions shall be applied to the payment of debt service on such Exempt Loan (or Loans) to the extent required (after taking into consideration dividends paid on Company Stock held in the Suspense Account pursuant to Section 16.11 and any other funds available to the Trustee for that purpose) or permitted (without prepayment penalty) under the payment schedule of such Exempt Loan (or Loans). If such ESOP Contributions are insufficient to enable the Trustee to make payments required under the payment schedule of such Exempt Loan (or Loans), there shall then be applied to the payment of required debt service on such Exempt Loan (or Loans), in order until exhausted: (i) Matching Contributions, and then (ii) Salary Savings Contributions. Stock released from the Suspense Account as a result of such Exempt Loan repayment shall be allocated to Accounts in accordance with Section 16.07. 16.06 Loan Suspense Account. In the event the Trustee purchases Company Stock with the proceeds of an Exempt Loan, such Company Stock will be held initially in a Loan Suspense Account. For each Plan Year during the term of the Exempt Loan, Company Stock released from the Loan Suspense Account shall equal the Company Stock (including stock dividends in Company Stock thereon) held in the Loan Suspense Account immediately before such release multiplied by a fraction, the numerator of which is the amount of principal paid on the Exempt Loan for the current year, and the denominator of which is the sum of the numerator plus the amount of principal to be paid for all future years; provided, however, that if the Exempt Loan provides for annual payments of principal and interest at a cumulative rate that is less rapid at any time than level annual payments of such amounts for ten years, or provides for interest to be included in any payment that would not be deemed interest under standard loan amortization tables, or by reason of renewal, extension or refinancing has an expected total (past and future) term exceeding ten years, the release fraction for any Plan Year will be determined on the basis of combined principal and interest payments (applying, in the case of a variable interest rate, the rate applicable as of the end of the Plan Year) in accordance with regulations under Section 4975(d)(3) and (e)(7) of the Code. 16.07 Allocation of Company Stock Released from the Loan Suspense Account. Company Stock released from the Loan Suspense Account under Section 16.06 first shall be allocated to Participants who have made Salary Savings Contributions with respect to a Plan Year, but only to the extent such contributions and associated Employer Matching Contributions are ESOP Savings and Matching Contributions until the fair market value of the shares so allocated is equal to such Participant's ESOP Savings and Matching Contributions. The balance of shares released with respect to such Plan Year shall be allocated to Participants employed by the Employer on the last day of the Plan Year who have completed at least 1,000 Hours of Service during such Plan Year and to Participants who have terminated employment during the Plan Year as a result of death, Disability or attainment of Normal Retirement Age regardless of the number of hours worked, in proportion to each eligible Participant's Compensation earned during the Plan Year while a Participant in the Plan. 16.08 Investment in Company Stock. ESOP Contributions and ESOP Savings and Matching Contributions as determined under Section 16.05, all earnings on the Loan Suspense Account, and any other cash received by the Trust in the Company Stock Fund, other than cash borrowed specifically for the purchase of Company Stock by the Trust, will first be used to the extent required or permitted (without prepayment penalty) to pay debt service on any Exempt Loan or other outstanding obligations of the Trust. The Trustee shall use any excess to buy Company Stock available either from holders of outstanding stock or newly issued stock from the Company. However, such purchases of Company Stock will only be made at a price, or at prices, which in the judgment of the Trustees, or when required by Section 5.07 of an independent appraiser, do not exceed the fair market value for such shares of Company Stock. So long as no current obligations of the Trust are outstanding and unpaid and in the event the Trustee shall for any reason determine that Company Stock is not available for purchase, or shall determine to hold cash in the Company Stock Fund of the Trust pending the making of loans, transfers or cash distributions or paying the expenses of the administering the Plan and the Trust, the Trustee may invest such funds within the Company Stock Fund in savings accounts, bank certificates of deposit, securities, bonds, or other investments deemed by the Trustee to be desirable for the Trust, or such funds may be held temporarily in cash. 16.09 Voting Company Stock. All Company Stock in the Loan Suspense Account shall be voted by the Trustee in such manner (which may be an abstention) as it in its sole discretion deems to be in the best interests of Participants and their Beneficiaries. 16.10 Aggregation of Plans. The limitations of Sections 9.05 and 9.06 shall be applied separately to (i) ESOP Savings and Matching Contributions, and (ii) the remaining Salary Savings Contributions and Matching Contributions, to the extent required by regulations under Section 401(k) and 401(m) of the Code. The Committee may direct that any plan maintained by an Affiliate, qualifying under Section 401(a) of the Code, and providing for salary savings contributions, voluntary employee contributions or matching contributions, be aggregated with this Plan for purposes of Sections 9.05 and 9.06; provided that the plans meet the requirements of Sections 401(a)(4) and 410(b) of the Code and (after applying any reduction required by Section 9.05 or 9.06 or comparable provisions of the aggregated plans) satisfy the tests of Section 9.05 and 9.06 on an aggregate basis; and further provided that only a plan (or portion thereof) that is an employee stock ownership plan within the meaning of Section 4975(e)(7) of the Code shall be aggregated with this Plan in applying Sections 9.05 or 9.06 to ESOP Savings and Matching Contributions and such plan (or portion thereof) shall not be aggregated in applying Sections 9.05 or 9.06 to remaining Salary Savings Contributions and Matching Contributions to the extent such aggregation is forbidden by Sections 401(k) and 401(m) of the Code. 16.11 Dividend Pass Through. Cash dividends paid on shares of Company Stock held in the Suspense Account shall first be used to repay any Exempt Loan incurred to purchase the Company Stock on which such dividends were paid and any remaining cash dividends shall be allocated to Participants in proportion to their Account balance attributable to ESOP Contributions and shall be distributed to such Participants not later than 90 days following the close of the Plan Year. Cash dividends on all other Company Stock shall be allocated and paid or reinvested in accordance with Section 7.11. IN WITNESS WHEREOF, the Company has amended and restated the Plan and the Trust established herein and the Trustee hereby accepts the terms of the Trust and agrees to perform the duties created herein, this _____ day of December, 1996. GRAND PREMIER TRUST AND GRAND PREMIER FINANCIAL, INC. INVESTMENT, INC. as Trustee By: By: Its: Executive Vice President CHI3:74856.4 03.20.97 12.3 EX-10 4 GRAND PREMIER FINANCIAL, INC. DEFERRED COMPENSATION PLAN (As Amended and Restated Effective January 1, 1997) CERTIFICATE I, , Secretary of Grand Premier Financial, Inc., hereby certify that the attached document is a correct copy of Grand Premier Financial, Inc. Deferred Compensation Plan, as amended and restated effective January 1, 1997. Dated this day of December, 1996. As Secretary as Aforesaid (Seal) GRAND PREMIER FINANCIAL, INC. DEFERRED COMPENSATION PLAN (As Amended and Restated Effective January 1, 1997) Premier Financial Services, Inc. ( Premier ) established the Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan (the Premier Plan ) effective August 1, 1994, for the eligible highly compensated employees and members of the Board of Directors of Premier. Northern Illinois Financial Corporation ( NIFCO ) established the NIFCO Execuflex Plan (the NIFCO Plan ) effective July 1, 1991, for a select group of management employees and members of the Board of Directors of NIFCO. Pursuant to the merger of NIFCO into Premier to form Grand Premier Financial, Inc. (the Company), the NIFCO Plan was merged into the Premier Plan, and the Premier Plan was amended and restated, and renamed as this Grand Premier Financial, Inc. Deferred Compensation Plan, as amended and restated effective January 1, 1997 (the Plan ). The purpose of the Plan is to permit Eligible Employees and Directors of the Company to contribute a portion of their Compensation on a pre-tax basis toward retirement benefits, enhance the overall effectiveness of the Company s executive compensation program and to attract, retain and motivate such individuals. ARTICLE I DEFINITIONS Wherever used herein the following terms shall have the meanings hereinafter set forth: 1.1. "Account" or "Accounts" means the account or accounts maintained under the Plan by the Company in the Participant's name, including the Participant's Employer Contribution Account and Compensation Deferral Account, and the Sub-Accounts listed in Section 4.1 of the Plan. 1.2 Beneficiary means the person, persons, trust or other entity that a Participant designates by written, revocable designation filed with the Company to receive payments in the event of the Participant s death. If a Participant has not designated a Beneficiary under the Plan, or if no designated Beneficiary is living on the date of distribution hereunder, amounts distributable pursuant to the Plan shall be distributed to those persons or entities entitled to receive distributions of the Participant's accounts under the Qualified Savings Plan. 1.3. "Board" means the Board of Directors of the Company. 1.4. "Bonus" means the additional cash remuneration payable to a Participant annually pursuant to an Employer's performance compensation program or any other plan, program or arrangement under which an Employer pays an amount of cash remuneration to a Participant above such Participant's Base Salary. 1.5. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any regulations relating thereto. 1.6. "Company" means Grand Premier Financial, Inc., a Delaware corporation, or, to the extent provided in Section 8.8 below, any successor corporation or other entity resulting from a merger or consolidation into or with the Company or a transfer or sale of substantially all of the assets of the Company. 1.7. "Company Stock" means the common stock of the Company. 1.8. "Compensation" means a Participant's Salary, Bonus or Director's Fees payable in any calendar year. Compensation deferrals elected under this Plan shall not affect the determination of compensation or earnings for purposes of any other plan, policy or program (including, but not limited to, the Qualified Savings Plan and any other non-qualified plan) maintained by an Employer. 1.9. "Compensation Deferral Account" means the account or accounts maintained under the Plan by the Company in the Participant's name to which the Participant's Compensation Deferral Contributions are credited in accordance with the Plan. A Participant shall be fully vested in the amount in his Compensation Deferral Account at all times. 1.10. "Compensation Deferral Contribution" means the amount of Compensation a Participant elects to defer under Section 2.1 of the Plan. 1.11. "Director" means an individual who is a member of the Board. 1.12. "Director's Fees" means the annual and periodic fees paid to the Director by the Company for service on the Board. 1.13. "Disability" means a Participant is permanently and totally disabled as determined in the sole discretion of the Company. 1.14. "Eligible Employee" means each employee of an Employer who is designated as eligible to participate in this Plan by the Chief Executive Officer of the Company and approved by the Board. 1.15. "Employer" means the Company and any Affiliated Company that adopts the Plan with the Company's consent. "Affiliated Company" means a business entity that is a member of a controlled group of corporations (as such term is defined in the Code) that includes the Company. An Affiliated Company may adopt the Plan on behalf of its Eligible Employees, by resolution of its Board of Directors, approved in writing by the Company. 1.16. "Employer Contribution Account" means the account or accounts maintained under the Plan by the Company in the Participant's name to which Employer Matching Contributions are credited in accordance with the Plan. 1.17. "Employer Matching Contribution" means the contribution made by each Employer under the Plan based on a Participant's Compensation Deferral Contributions, according to Section 2.2 of the Plan. 1.18. "Employment Termination" means the date of (i) an Eligible Employee's termination of employment with the Employer; or (ii) a Director's termination of service on the Board, and shall include such termination for any reason, unless expressly indicated otherwise. 1.19. "Investment Fund" or Fund means the investments described in Section 4.3 which serve as a means to measure value increases or decreases with respect to a Participant s Accounts. 1.20. "Participant" means any (i) Eligible Employee or (ii) Director, who has completed the election and enrollment forms provided by the Company. A Participant who is removed from status as an Eligible Employee by the Chief Executive Officer will continue as a Participant as to his existing Accounts, but shall not be eligible to make further Compensation Deferral Contributions or receive Employer Matching Contributions. Each individual who was a participant in the NIFCO Plan or the Premier Plan on December 31, 1996, shall continue as a Participant in this Plan on and after that date, subject to the terms and provisions of this Plan. 1.21. "Plan" means the Grand Premier Financial, Inc. Deferred Compensation Plan, as amended and restated effective January 1, 1997, as set forth herein and as hereinafter amended from time to time. 1.22. "Plan Year" means the calendar year, which is the Company's fiscal year. 1.23. "Qualified Savings Plan" means the Grand Premier Financial, Inc. Savings and Stock Plan and Trust, as amended from time to time, and each successor or replacement plan. 1.24. "Retirement Date" means the first day of the calendar month coincident with or next following the date on which a Participant has: (i) attained age 55 years and completed at least 10 Years of Service; or (ii) attained age 60 years. 1.25. "Salary" means a Participant's annual base salary rate for the Plan Year, as specified by an Employer prior to each Plan Year, but including a Participant's variable compensation. 1.26. "Trust" means the trust agreement entered into by the Company under which the Employers agree to contribute to a Trust for the purpose of accumulating assets to assist the Employers in fulfilling their obligations to Participants hereunder. Such Trust Agreement shall be substantially in the form of the model trust agreement set forth in Internal Revenue Service Revenue Procedure 92-64, or any subsequent Internal Revenue Service Revenue Procedure, and shall include provisions required in such model trust agreement that all assets of the Trust shall be subject to the creditors of the Employers in the event of insolvency. 1.27. "Years of Service" means the number of consecutive 12-month periods of the Participant's employment with an Employer (including years of employment prior to the date on which an Employer became an Affiliated Company). No credit shall be given for partial years of employment or periods of employment preceding an Employment Termination and return to work. Each Participant in the Plan who was an employee of NIFCO or a participant in the NIFCO Plan as of the date of the merger of NIFCO into Premier, shall be credited with Years of Service under this Plan for comparable periods of employment with NIFCO. 1.28. Words in the masculine gender shall include the feminine and the singular shall include the plural, and vice versa, unless qualified by the context. Any headings used herein are included for ease of reference only and are not to be construed so as to alter the terms hereof. ARTICLE II COMPENSATION DEFERRAL CONTRIBUTIONS EMPLOYER MATCHING CONTRIBUTIONS 2.1. Compensation Deferral Elections. Any Eligible Employee or Director may elect to become a Participant under the Plan by completing the election form provided by the Company. A Participant may elect to defer annually the receipt of a portion of the Compensation otherwise payable to him by an Employer in any Plan Year. The amount of Compensation deferred by a Participant shall be a fixed amount or percentage of such Compensation, but shall not exceed: (i) fifty percent (50%) of such Participant's Base Salary; (ii) one hundred percent (100%) of such Participant's Annual Bonus; (iii) and one hundred percent (100%) of such Participant's Director's Fees. The election by which a Participant elects to defer compensation as provided in this Plan shall be in writing, signed by the Participant, and delivered to the Company prior to January 1 of the Plan Year in which the Compensation to be deferred is otherwise payable to the Participant; except that, in the year in which a Participant first becomes eligible to participate in the Plan, such Participant may make an election to defer Compensation for services to be performed within 30 days after the date the Participant becomes eligible. Notwithstanding the foregoing, a Participant may not make contributions to this Plan during any period for which contributions must be suspended in accordance with regulation section 1.401(k)-1(d)(2)(iii)(B)(3) of the Code, as a condition of the Participant s receipt of a hardship withdrawal from the Qualified Savings Plan. Any deferral election made by the Participant shall be irrevocable with respect to the Compensation covered by such election. 2.2. Employer Matching Contributions. Each Employer shall make a matching contribution on behalf of Participants in its employ who have elected to make Compensation Deferral Contributions. The Company shall make a matching contribution on behalf of Participants who are Directors and who elect to make Compensation Deferral Contributions. The amount of Employer Matching Contribution made on behalf of each Participant shall equal twenty-five percent (25%) of such Participant's Compensation Deferral Contributions made under this Plan. Employer Matching Contributions required under this Section shall be made at least quarterly. 2.3. Cessation of Deferrals. All Compensation Deferral Contributions and Employer Matching Contributions shall cease upon a Participant's Employment Termination. 2.4. Cessation of Participation. If the U.S. Department of Labor (the DOL ) issues regulations or any other official notice specifically defining the group of employees that may participate in a plan of this type and any active Participants do not meet the criteria set forth in such regulations or notice, such Participants shall become inactive Participants as of the later of the (i) effective date, or (ii) publication date, of such regulations or notice, provided that such regulations or notice include a grandfather provision for such Participants with respect to their Account balances on such date. If such a grandfather provision is not provided, the Accounts of such Participants shall be immediately distributed in accordance with Section 5.1(a). ARTICLE III VESTING OF PARTICIPANTS' ACCOUNTS 3.1. Vesting of Participants' Accounts. A Participant shall be fully vested in the amount in his Compensation Deferral Account at all times. A Participant shall be vested in his Employer Matching Contributions Account at a rate of twenty percent (20%) per Year of Service, beginning at the end of a Participant s second Year of Service with an Employer, as illustrated by the following schedule: Years of Service Vested Percentage Less than 2 years 0% 2 full years 20% 3 full years 40% 4 full years 60% 5 full years 80% 6 or more full years 100% Notwithstanding the foregoing, a Participant shall be fully vested in his Employer Matching Contribution Account upon: (i) the date of the Participant's Employment Termination on account of death or Disability; or (iii) the Participant's Retirement Date. A Participant whose Employment Termination occurs prior to his Retirement Date and for a reason other than death or Disability, shall forfeit the portion of his Employer Matching Contribution Account that is not vested. A Participant covered by Section 3.2 below shall forfeit the full amount of his Employer Matching Contribution Account. 3.2. Forfeiture Due to Competition or Confidentiality Breach. A Participant may not, except with the express prior written consent of the Company, for a period of two (2) years after the Participant's Employment Termination (the "Restrictive Period"), directly or indirectly compete with the business of the Employers, including, but not by way of limitation, by directly or indirectly owning, managing, operating, controlling, financing, or by directly or indirectly serving as an employee, officer or director of or consultant to, or by soliciting or inducing, or attempting to solicit or induce, any employee or agent of an Employer to terminate employment with the Employer, and become employed by any person, firm, partnership, corporation, trust or other entity which owns or operates, a bank, savings and loan association, credit union or similar financial institution (a "Financial Institution") within a twenty-five (25) mile radius of (i) an Employer's main office or (ii) the office of any Employer's Affiliated Companies (the "Restrictive Covenant"). The foregoing Restrictive Covenant shall not prohibit a Participant from owning directly or indirectly capital stock or similar securities which are listed on a securities exchange or quoted on the National Association of Securities Dealers Automated Quotation System which do not represent more than one percent (1%) of the outstanding capital stock of any Financial Institution. At all times during and after employment with an Employer or service on the Board, a Participant shall keep secret and inviolate all knowledge or information of a confidential nature relating to the business and financial affairs of the Employers, including, without limitation, all unpublished matters relating to the business, properties, accounts, books, records, customers, trade secrets and contracts of the Employers (the "Confidentiality Clause"). If a Participant violates the Restrictive Covenant or the Confidentiality Clause all amounts in the Participant's Employer Contribution Accounts shall be forfeited; except that this Section 3.2 shall become ineffective upon a Change in Control of the Company, with respect to Participants Accounts as of the Change in Control. 3.3. Full Vesting Upon Change in Control. A Participant shall become fully vested in all Employer Matching Contributions made on his behalf in any Plan Year upon the occurrence of a Change in Control of the Company. For purposes of this Plan, a "Change in Control" of the Company shall be deemed to have occurred if: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except that a person shall be deemed to be the "beneficial owner" of all shares that any such person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants, options or otherwise, without regard to the sixty day period referred to in such Rule), directly or indirectly, of securities representing 25% or more of the combined voting power of the Company's then outstanding securities; provided, however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; or (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company; or (b) at any time during any period of two consecutive years (not including any period prior to January 1, 1997) individuals who at the beginning of such period constituted the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to such date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 or Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board. ARTICLE IV PARTICIPANTS' SUB-ACCOUNTS 4.1. Establishment of Sub-Accounts. The following Sub-Accounts may be established with respect to each Participant: (a) Retirement Sub-Account, (b) Education Sub-Account, (c) Fixed Period Sub-Account, and (d) Preretirement Survivor Income Sub-Account. 4.2. Benefit Allocation Election. Each Participant shall elect in writing the form and timing of the distribution of his Accounts, at the time the Participant elects Compensation Deferral Contributions under Section 2.1 above, by specifying the allocation of Contributions among his Sub- Accounts. A Participant s Compensation Deferral Contributions from Bonus, and his Employer Matching Contributions, may only be allocated to Sub-Accounts specified in Sections 4.1(a) through (c). A Participant may not modify, alter, amend or revoke his allocation for a Plan Year after such Plan Year begins. The Company may establish uniform rules that limit a Participant s eligibility to allocate contributions to any Sub-Account based on such other factors the Company deems appropriate. If a Participant allocates a portion of his anticipated contributions to his Education Sub- Account, the Participant may further allocate among subaccounts on behalf of any of the Participant s dependent children. Any such allocation election shall apply uniformly to each subaccount. 4.3. Investment of Participants' Accounts. Participants' Compensation Deferral Contributions and Employer Matching Contributions may be contributed by the Employers to, and held and invested under, the Trust. A Participant may direct by written instruction delivered to the Company that his Accounts and Sub-Accounts be valued as if they were invested, in multiples of five percent (5%), in Company Stock or one or more of the Investment Funds designated by the Company for such purpose. A Participant may make a separate selection with respect to each Sub-Account. Such election, which must be in writing, shall be effective as soon as administratively possible following timely delivery to the Company and shall apply to new Contributions and previous accumulations as the Participant specifies. If any Participant fails to file a selection the Participant shall be deemed to have selected the most conservative fund (e.g. fixed income or money market fund). (a) The selection of the Investment Funds that will be in effect for a Plan Year, in addition to Company Stock, shall be elected by the Company and announced to the Participants prior to the beginning of such Plan Year. The Company may from time to time change the Investment Funds, provided such change is evidenced by a written resolution executed by the Company and the Participants are given timely notice of such change. (b) The valuation of Participants Accounts shall reflect the net asset value expressed per share of the designated Investment Fund(s). The fair market value of an Investment Fund shall be determined by the Company. It shall represent the fair market value of all securities or other property held for the respective Fund, plus cash and accrued earnings, less accrued expenses and proper charges against the Fund. The Company shall provide each Participant with a written statement of his Accounts at least annually. (c) All Compensation Deferral and Employer Matching Contributions shall be credited to a Participant's Accounts and invested as soon as practicable following the date such contributions are received by the trustee, allowing for such factors as the availability of an investment fund as of the time of the contribution and the availability of shares of Company Stock for purchase by the trustee. Any amount in a Participant's Account that is forfeited according to Sections 3.1, 3.2, 5.5 or 5.6 shall be applied toward Employer Matching Contributions required for that month under Section 2.2. (d) The trustee under the Trust shall purchase shares of Company Stock in the market on or as soon as practicable after the date it receives any Participants' Compensation Deferral Contributions or Employer Matching Contributions that are to be invested in Company Stock, allowing for such factors as the availability of shares of Company Stock for purchase by the trustee. Dividends on shares of Company Stock held in Participants' Accounts shall be credited to such Accounts. Cash dividends shall be reinvested in Company Stock as soon as practicable. Notwithstanding the provisions of this Article IV, investments in Company Stock shall not be available, either as to new Contributions and existing aggregate Account balances, until such time as a Registration Statement is filed with the U.S. Securities Exchange Commission registering the offer and sale of additional shares of Company Stock under the Plan. If a Participant s Employment Termination occurs at a time when all or a portion of his Accounts are invested in Company Stock, that portion of the Participant's Accounts may be distributed in cash or Company Stock, in the discretion of the Company. 4.4. Special Rules for Preretirement Survivor Income Sub-Account. Each Participant s Preretirement Survivor Income Sub-Accounts, shall be valued as if utilized to provide benefits by purchase of an appropriate insurance policy designated by the Company. (a) While a Participant is an employee of the Employer, this Sub-Account shall be immediately debited with that portion of the Contributions made by him or on his behalf as is necessary to provide the benefits the Participant selected pursuant to Section 4.2. (b) If the amount a Participant allocates to such a Sub-Account exceeds the amount necessary to provide currently elected benefits, then the excess portion of such Sub- Account shall be valued as if it were invested in a manner designated by the Company from time to time. If a Participant terminates employment for any reason, including death, any amounts accumulated in excess of that allocated to the provision of benefits shall be distributed as if accumulated in Participant s Retirement Sub-Account. (c) The required allocation for each such Sub-Account shall be determined by the Company in a uniform manner. The amounts required are subject to change at the Company s discretion at any time. 4.5. New Elections Under Merged Plan. Prior to 1997, each Participant in the Premier Plan and the NIFCO Plan had elected in writing the form and timing of the distribution of his Accounts, at the time the Participant elected Compensation Deferral Contributions. In connection with the merger of the NIFCO Plan into the Premier Plan and the amendment and restatement of the Premier Plan in the form of this Plan, each Participant in the Premier Plan and the NIFCO Plan shall make a special benefit allocation election under this Article IV prior to January 1, 1997, with respect to his Accounts in the Premier Plan and the NIFCO Plan as of December 31, 1996. ARTICLE V DISTRIBUTION OF PARTICIPANTS' ACCOUNTS 5.1. Distribution of Participant s Retirement Sub-Account. Upon a Participant s Employment Termination for any reason, including death, the vested portion of the Participant's Retirement Sub-Account shall be distributed to the Participant at the time and in the form described below. If the Participant is deceased, the benefit shall be paid to his Beneficiary. (a) All benefits payable under the Plan shall commence as soon as administratively practicable following the date on which the Participant s Employment Termination occurs. Notwithstanding the foregoing, if an individual ceases to be a Participant in accordance with Section 2.4 and the circumstances described in the last sentence of such Section apply, the total value of his Retirement Sub-Account shall be distributed as soon as administratively practicable following the later of the effective date or publication date of the DOL regulations or notice. (b) Distribution of a Participant s Retirement Sub-Account shall be in one of the following forms at the Participant s election, subject to the rules set forth in (d) below: (i) A single lump sum. (ii) Substantially equal annual installments over a period of not less than 2 nor more than 10 full years. Notwithstanding any provision to the contrary, if the Participant s Retirement Sub-Account has a value less than $10,000 at the time benefits are to commence, then the Participant s benefit shall be paid as a lump sum as soon as administratively feasible following the Participant s Employment Termination. (c) In the event that the Participant elects to have his benefits distributed in a lump sum, the Participant shall receive a single lump sum equal to the total vested value of his Retirement Sub-Account determined as of the date such benefits are processed for payment. In the event that the Participant elects to have his benefits distributed in installments: (i) the amount of the first payment shall be determined by multiplying the vested value of the Participant s Retirement Sub-Account as of the date such benefits are processed for payment by a fraction, the denominator of which equals the number of years over which the benefits are paid, and the numerator of which is one. (ii) the amounts of the payments for each succeeding year shall be determined by multiplying the vested value of the Participant s Account as of the applicable anniversary of his first payment date by a fraction, the denominator of which equals the number of remaining years over which the benefits are to be paid, and the numerator of which is one. (d) A Participant shall elect the form in which his benefits are payable in accordance with Section 5.1(b). Separate elections may be made with respect to the form in which benefits shall be distributed upon the occurrence of the following events: (i) voluntary termination, including Retirement; (ii) involuntary termination, excluding Disability and death; (iii) Disability; and (iv) death. Such elections must be made when the Participant makes his initial election to participate in the Plan in accordance with Article II. Any election made pursuant to this Section shall be made on forms and in the manner prescribed by the Company and shall be irrevocable, except as provided in Section 5.5 below. 5.2. Distribution of Participant s Education Sub-Account. If a Participant remains continuously employed by an Employer until the first day of the calendar year in which an eligible dependent of the Participant attains age 18, the Plan shall pay to the Participant a benefit during that year and each of the next three calendar years determined as follows: Percentage of Calendar Year Dependent s Subaccount 1 25% 2 33-1/3% 3 50% 4 100% On or after the first day of each calendar year in which a benefit is to be paid to him under this Section, the Participant may specify the date in such year (but in no event later than September 1 of the year) as of which the benefit is to be paid, to the extent administratively practical. A Participant may establish subaccounts under his Education Sub-Account, with separate payments for each eligible dependent. A Participant may have a maximum of five subaccounts at any time. (a) If a Participant still has a balance in his Education Sub-Account upon his Employment Termination for any reason, the vested portion of the balance shall be transferred to his Retirement Sub-Account and distributed in accordance with Section 5.1. Notwithstanding the preceding sentence, a Participant who still has a balance in his Education Sub-Account upon his Employment Termination may elect to have such Sub- Account paid in the manner described in the body of this Section 5.2, provided he files a written notification of such election with the Company at least one full calendar year prior to such Employment Termination. (b) Notwithstanding any provision to the contrary, if on the January 1 of the calendar year in which an eligible dependent of a Participant attains age 18 the eligible dependent s subaccount has a balance of less than $1,000, then the balance shall be paid to the Participant in one lump sum. (c) If any portion of an Education Sub-Account is not vested on the date such portion is to be paid, distribution will be postponed until the January 1 following the date it is vested. 5.3. Distribution of Participant s Fixed Period Sub-Account. A benefit equal to the lump sum value of the vested portion of a Participant s Fixed Period Sub-Account shall be paid to him as soon as administratively practicable after the date specified by the Participant in the payment year specified by the Participant (which shall be at least 4 years from the date of initial deferral to such Fixed Period Sub-Account). On or after the first day of any calendar year in which a benefit is to be paid to him under this Section, the Participant may specify the date in such year (but in no event later than September 1 of the year). Nonvested amounts will be paid as soon as administratively practicable after April 1 following the year the Participant becomes vested. A Participant may establish subaccounts under his Fixed Period Sub-Account, with separate payment years for each. A Participant may have a maximum of five subaccounts at any time. If a Participant incurs an Employment Termination (for any reason) and the Participant has a balance in his Fixed Period Sub- Account, the vested portion of his balance shall be transferred to his Retirement Sub-Account and be distributed in accordance with Section 5.1; provided that, a Participant who still has a balance in his Fixed Period Sub-Account upon his Employment Termination may elect to have such balance paid in accordance with his original election, provided the Participant files a written notification of such election with the Company at least one full calendar year prior to such Employment Termination. 5.4. Distribution of Participant s Preretirement Survivor Income Sub-Account. If a Participant dies while an active employee of an Employer, the Participant s Beneficiary shall be paid a benefit in equal monthly installments, commencing the first day of the first month following the date of the Participant s death, and continuing uninterrupted throughout a payout as selected by the Participant at the time he establishes his Preretirement Survivor Income Sub-Account. The amount of supplemental benefit payable hereunder shall be determined in accordance with Section 4.2 within administrative guidelines established by the Company. (a) A benefit shall be payable under this Section 5.4 only if a Participant dies in a Plan Year for which he has allocated a portion of Contributions to the Preretirement Survivor Income Sub-Account. (b) All rights of a Participant under this Section 5.4 shall terminate on the date he terminates employment. (c) In the event a Participant s death occurs as a result of suicide prior to completing twenty-five (25) months of continuous allocation to his Preretirement Survivor Income Sub-Account, then the Company may elect to reduce the benefits payable under this Section to an amount equal to the aggregate contributions allocated to the Participant s Preretirement Survivor Income Sub-Account. For the purpose of the preceding sentence, an election to increase the Participant s annual benefit or to lengthen the payout period shall be considered a new benefit election, and the first month of the Plan Year in which the enhanced benefits become effective shall be treated as the first month of a separate twenty-five (25) month period with respect to such enhanced benefits. 5.5. Change in Distribution Election. The Company may permit a Participant to change his election as to the form, period or commencement of distribution of his Accounts. A Participant may request such change by writing filed with the Company. In the event a Participant changes his election as to form, period or commencement of distribution within 12 months prior to his Retirement Date or other Employment Termination for a reason other than death, Disability or involuntary termination, the amount distributable from such Participant's Accounts will be reduced by 10 percent. This reduction will be forfeited. This reduction is intended to discourage Participants from changing their elections as to distribution and prevent Participants from being deemed in constructive receipt of their Accounts upon their Employment Termination. 5.6. Unscheduled Withdrawal Right. A Participant may request an unscheduled withdrawal of all or any portion of the his Accounts (to the extent vested) before or after his Employment Termination by written notice to the Company; provided that, the amount distributable from such Participant's Accounts will be reduced by 10 percent. This reduction will be forfeited. If a Participant elects an unscheduled withdrawal under this Section prior to Employment Termination, the Participant would not be permitted to elect Compensation Deferral Contributions for a period of thirty-six months following the date of such withdrawal. This reduction and ineligibility period is intended to discourage Participants from requesting withdrawals (other than on account of an unforeseeable emergency) and prevent Participants from being deemed in constructive receipt of their Accounts. 5.7. Hardship Distribution. A Participant may request, by writing filed with the Company, that a distribution be made to him of all or part of the amount then credited to his Accounts (to the extent vested) on account of a severe financial hardship. The Company will approve such a distribution to the Participant only in the event of an unforeseeable emergency. An "unforeseeable emergency" is an unanticipated emergency that is caused by an event beyond the control of the Participant and that would result in severe financial hardship to such Participant if early withdrawal were not permitted. An unforeseeable emergency that results in severe financial hardship is an unexpected illness or accident of the Participant or a dependent, loss of a Participant's property due to casualty, or other similar, extraordinary, unforeseeable circumstances beyond the control of the Participant. The severe financial hardship may not be relieved by an early distribution under this Plan to the extent it might otherwise be relieved through reimbursement or compensation by insurance or otherwise, by liquidation of a Participant's assets, or by cessation of Compensation deferrals under the Plan. Any hardship distribution under this Section will be limited to the amount necessary to meet the emergency. 5.8. Limitation on Distribution. Notwithstanding the foregoing provisions of the Plan relating to distribution of Participant's Accounts, if distribution of a Participant's Accounts in any calendar year would not be deductible by an Employer because of the limitations of Code Section 162(m), such distribution shall be postponed in whole or in part, in the sole discretion of the Company, until the first calendar year in which such distribution would not be limited as to deductibility by Code Section 162(m). ARTICLE VI ADMINISTRATION OF THE PLAN 6.1. Administration by the Company. The Company shall be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof. 6.2. Powers and Duties of Company. The Company shall administer the Plan in accordance with its terms and shall have all powers necessary to carry out the provisions of the Plan. The Company shall interpret the Plan and shall determine all questions arising in the administration, interpretation, and application of the Plan, including but not limited to, questions of eligibility and the status and rights of employees, Participants and other persons. Any such determination by the Company shall be conclusive and binding on all persons. The regularly kept records of the Company shall be conclusive and binding upon all persons with respect to a Participant's date and length of employment, Years of Service, time and amount of Compensation and the manner of payment thereof, type and length of any absence from work and all other matters contained therein relating to Participants. To the extent not inconsistent with this Plan, all terms and provisions set forth in the Qualified Savings Plan with respect to the administrative powers and duties of the Company, expenses of administration, and procedures for filing claims, also shall be applicable with respect to this Plan. ARTICLE VII AMENDMENT OR TERMINATION 7.1. Amendment or Termination. The Company intends the Plan to be permanent but reserves the right to amend or terminate the Plan, or terminate the Plan as it applies to any Employer. Any such amendment or termination shall be made pursuant to a written resolution of the Board and shall be effective as of the date of such resolution. 7.2. Effect of Amendment or Termination. No amendment or termination of the Plan shall divest any Participant or Beneficiary of the amount in the Participant's Accounts, or of any rights to which the Participant would have been entitled if the Plan had been terminated immediately prior to the effective date of such amendment or termination. Upon termination of the Plan, all Participants shall become fully vested in the amounts in their Accounts and distribution of Participants' Accounts shall be made to Participants or their beneficiaries in the manner elected by such Participants, unless the Company determines to distribute all Accounts in lump sums. No Compensation Deferral or Employer Matching Contributions shall be permitted after termination of the Plan. ARTICLE VIII GENERAL PROVISIONS 8.1. Participants' Rights Unsecured. Except as set forth in Section 4.1, the Plan at all times shall be entirely unfunded and no provision shall at any time be made with respect to segregating any assets of an Employer for payment of any benefits hereunder. The right of a Participant or the Participant's Beneficiary to receive a distribution of the Participant's Accounts hereunder shall be an unsecured claim against the general assets of the Employers, and neither the Participant nor a Beneficiary shall have any rights in or against any specific assets of the Employers. 8.2. General Conditions. Any benefit payable under the Qualified Savings Plan shall be paid solely in accordance with the terms and conditions of the Qualified Savings Plan, and nothing in this Plan shall operate or be construed in any way to modify, amend or affect the terms and provisions of the Qualified Savings Plan. 8.3. No Guaranty of Benefits. Nothing contained in the Plan shall constitute a guaranty by the Employers or any other person or entity that the assets of the Employers will be sufficient to pay any benefit hereunder. No Participant or other person shall have any right to receive a benefit or a distribution of Accounts under the Plan except in accordance with the terms of the Plan. 8.4. No Enlargement of Employee Rights. Establishment of the Plan shall not be construed to give any Participant the right to be retained in the service of an Employer. 8.5. Spendthrift Provision. No interest of any person or entity in, or right to receive a distribution under, the Plan shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive a distribution be taken, either voluntarily or involuntarily for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings. 8.6. Applicable Law. The Plan shall be construed and administered under the laws of the State of Illinois except to the extent preempted by federal law. 8.7. Incapacity of Recipient. Subject to applicable state law, if any person entitled to a payment under the Plan is deemed by the Company to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until claim therefor shall have been made by a duly appointed guardian or other legal representative of such person, the Company may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and a complete discharge of any liability of the Company and the Plan therefor. 8.8. Corporate Successors. The Plan shall not be automatically terminated by a transfer or sale of assets of the Company, or by the merger or consolidation of the Company into or with any other corporation or other entity, but the Plan shall be continued after such sale, merger or consolidation only if and to the extent that the transferee, purchaser or successor entity agrees to continue the Plan. In the event that the Plan is not continued by the transferee, purchaser or successor entity, the Plan shall terminate subject to the provisions of Section 5.2. 8.9. Unclaimed Benefit. Each Participant or Beneficiary shall keep the Company informed of his or her current address. The Company shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Company within three years after the date on which payment of the Participant's benefits under the Plan may first be made, payment may be made as though the Participant had died at the end of the three-year period. If, within one additional year after such three-year period has elapsed, or, within three years after the actual death of a Participant, the Company is unable to locate any Beneficiary of the Participant, then the Company shall have no further obligation to pay any benefit hereunder to such Participant or Beneficiary or any other person and such benefit shall be irrevocably forfeited. 8.10. Limitations on Liability. Notwithstanding any of the preceding provisions of the Plan, none of the Employers nor any individual acting as an employee or agent of an Employer, shall be liable to any Participant, former Participant or any Beneficiary or other person for any claim, loss, liability or expense incurred in connection with the Plan. 8.11. Claims Procedure. In the event that a Participant's claim for benefits under the Plan is denied in whole or in part by the Company, the Company will notify the Participant (or Beneficiary) of the denial. Such notification will be made in writing, within 90 days of the date the claim is received by the Company. The notification will include: (i) the specific reasons for the denial; (ii) specific reference to the Plan provisions upon which the denial is based; (iii) a description of any additional information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (iv) an explanation of the applicable review procedures. The Participant (or Beneficiary) has 60 days from the date he receive notice of a claim denial to file a written request for review of the denial with the Company. The Company will review the claim denial and inform the Participant (or Beneficiary) in writing of its decision within 60 days of the date the claim review request is received by the Company. This decision will be final. CHI3:88293.2 03.20.97 12.7 EX-21 5 EXHIBIT 21 Subsidiaries of the Registrant The following subsidiaries are 100% owned by Grand Premier Financial, Inc. Grand National Bank First National Bank of Northbrook First Bank North First Bank South First Security Bank of Cary Grove Grand Premier Trust and Investment Services, Inc. Grand Premier Operating Systems, Inc. Grand Premier Insurance Services American Suburban Mortgage Corporation (inactive) EX-23 6 EXHIBIT 23.1 Independent Auditor's Consent The Board of Directors Grand Premier Financial, Inc. We consent to the incorporation by reference in the Registration Statement Nos. 333-0327, 333-11635, 333-11645 and 333-11663 on Form S-8 of Grand Premier Financial, Inc. of our report dated January 29, 1997, relating to the consolidated balance sheet of Grand Premier Financial, Inc. and subsidiaries as of December 31, 1996, and the related consolidated statements of earnings, changes in stockholders equity, and cash flows for the year then ended, which report is incorporated by reference in the December 31, 1996 annual report on Form 10-K of Grand Premier Financial, Inc. KPMG Peat Marwick LLP Chicago, Illinois March 24, 1997 EX-23 7 EXHIBIT 23.2 Independent Auditor's Consent We consent to the incorporation by reference in the previously filed Registration Statements, file Nos. 333-0327, 333-11635, 333-11645 and 333-11663 of Grand Premier Financial, Inc. of our report dated January 31, 1996 included in this Annual Report on Form 10-K for the year ended December 31, 1996. Hutton, Nelson & McDonald LLP Oakbrook Terrace, Illinois March 24, 1997 EX-99 8 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 11-K ANNUAL REPORT Pursuant to Section 15 (d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1996 PREMIER FINANCIAL SERVICES, INC. EMPLOYEE SAVINGS AND STOCK PLAN AND TRUST (Full title of the plan) GRAND PREMIER FINANCIAL, INC. 486 WEST LIBERTY ST. WAUCONDA, IL 60084 (Name of issuer of the Securities held pursuant to the Plan and the address of principal executive offices, including Zip Code) Required Information Financial Statements The following financial statements are filed as part of this report: (a) Financial Statements of the Plan which are included in the annual report of the Plan to its Participants for the year ended December 31, 1996 as follows: Independent Auditors' Report Statements of Net Assets Available for Plan Benefits for the two years ended December 31, 1996 Statements of Changes in Net Assets Available for Plan Benefits for the two years ended December 31, 1996 Notes to Financial Statements Schedule I - Assets Held for Investment Purposes Schedule II - Reportable Transactions (b) Exhibit 23. Consents of Experts and Counsel Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. Premier Financial Services, Inc. Employeee Savings and Stock Plan and Trust March 25, 1997 By: /s/s David L Murray David L. Murray, Executive Vice President, Chief Financial Officer and Director EX-99 9 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 11-K ANNUAL REPORT Pursuant to Section 15 (d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1996 PREMIER FINANCIAL SERVICES, INC. SENIOR LEADERSHIP AND DIRECTORS DEFERRED COMPENSATION PLAN (Full title of the plan) GRAND PREMIER FINANCIAL, INC. 486 WEST LIBERTY ST. WAUCONDA, IL 60084 (Name of issuer of the Securities held pursuant to the Plan and the address of principal executive offices, including Zip Code) Required Information Financial Statements The following financial statements are filed as part of this report: (a) Financial Statements of the Plan which are included in the annual report of the Plan to its Participants for the year ended December 31, 1996 as follows: Independent Auditors' Report Statements of Net Assets Available for Plan Benefits December 31, 1996 and 1995 Statements of Changes in Net Assets Available for Plan Benefits for the year ended December 31, 1996 and December 31, 1995 Notes to Financial Statements (b) Exhibit 23. Consents of Experts and Counsel Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan March 25, 1997 By: /s/ David L Murray David L. Murray, Executive Vice President, Chief Financial Officer and Director EX-13 10 1996 Annual Report Grand Premier Financial, Inc. Contents Corporte Message to the shareholders 2 Consolidated Balance Sheets 4 Consolidated Statements of Earnings 5 Consolidated Statements of Cash Flows 6 Consolidated Statements of Changes in Stockholders Equity 8 Independent Auditors Report 9 Notes to Consolidated Financial Statements 10 Management s Discussion and Analysis of Financial Condition and Results of Operations 26 Supplementary Business and Stock Information 33 Five Year Summary of Selected Financial Data 34 Board of Directors 35 Executive Officers 36 1996 was an interesting year in many ways. The most significant happening was certainly the fact that two fine companies merged in August to form Grand Premier Financial, Inc. The merger brought many good people and good markets together. A great deal of time and effort went into this project and we have been working diligently ever since August to craft the very best performing company that we can out of all of those pieces. Usually in this letter we spend some considerable time discussing the financial results of the past year. This year, though, we will touch only upon a few topics directly but we urge you to read Management s Discussion and Analysis of Financial Condition and Results of Operations later in this report for a more in depth review of what we have done and where we are headed. Total loans rose by $90,049,000, which represents an increase of 10.41% while deposits grew by 4.87%. We expect the resulting improvement in our loan to deposit ratio to lay the groundwork for increased earnings in 1997. Salaries rose by a larger than usual amount, which requires some explanation. The Northern Illinois Financial banks were combined into a single charter, called Grand National Bank, in February. When that happened, the staff was reduced and separation packages were paid to those who left us. With the combination of Northern Illinois and Premier Financial, we once again found overlapping functions which we began eliminating and redundant staff which we are paring, causing an expense for additional separation packages. We expect to begin realizing benefits from those actions in 1997. There were also other items which adversely affected our performance in 1996, most notably expenses related to the organization and formation of Grand Premier Financial, Inc., which were in excess of one million dollars and the write down of some real estate holdings. We feel that we have successfully identified and recorded all major expense items which should permit our 1997 performance to begin reaching desired levels. Our first order of business in 1997 will be to convert all of our offices to one data processing system. This will happen in the first half of the year and we plan to merge all of our remaining bank charters into the Grand National Bank charter at the same time. The result will be one bank charter, one consistent product set and thirty locations capable of serving all of our clients with higher quality and lower overhead. At the same time, we are developing various other vehicles to deliver products and services to our clients such as a Telephone Banking Center, PC Banking products and many more. This process has been difficult and expensive in both time and money and it is not yet finished but we are convinced that it was the right thing to do. We believe that the combination of locations and talent which we have created and the financial strength which this company possesses will allow us to keep pace with the ever increasing desires of a sophisticated and demanding marketplace and to create better and better value for you. Thank you for your support in the past. We promise to keep working to merit your continued confidence in us. Richard L. Geach, Chairman of the Board and Chief Executive Officer Robert W. Hinman, President and Chief operating Officer David L. Murray, Senior Executive Vice President and Chief Financial Officer Howard A. McKee, Chairman of the Executive Committee Consolidated Balance Sheets December 31, 1996 and 1995 (000's) omitted except per share data) 1996 1995 Assets Cash & non-interest bearing deposits $49,441 $65,279 Interest bearing deposits 3,114 5,524 Federal funds sold 13,400 6,500 Cash and cash equivalents 65,955 77,303 Securities available for sale at fair value 535,687 598,570 Securities purchased under agreement to resell 4,405 - Loans 966,324 876,333 Less: Unearned discount ( 842) ( 1,581) Allowance for possible loan losses (10,116) ( 9,435) Net loans 955,366 865,317 Bank premises & equipment 33,321 36,676 Excess cost over fair value of net assets acquired 18,489 20,227 Accrued interest receivable 12,264 13,698 Other assets 17,051 12,882 Total assets $1,642,538 $1,624,673 Liabilities & stockholders' equity Non-interest bearing deposits $211,015 $196,534 Interest bearing deposits 1,206,379 1,155,123 Deposits 1,417,394 1,351,657 Short-term borrowings 23,486 88,232 Long-term borrowings 30,000 11,588 Other liabilities 13,569 17,193 Liabilities $1,484,449 $1,468,670 Stockholders' equity Preferred stock - $1 par value, 2,000,000 shares authorized: Series A perpetual, $1,000 stated value, 8.25%, 7,000 shares authorized, 5,000 shares issued and outstanding at 12/31/95 - 5,000 Series B convertible, $1,000 stated value, 8.00%, 7,250 shares authorized, issued and outstanding 7,250 7,250 Series C perpetual, $1,000 stated value, 8.00%, 2,000 shares authorized, issued and outstanding at 12/31/96 2,000 - Series D perpetual, $1,000 stated value, 7.50%, 3,300 shares authorized, 2,000 shares issued and outstanding at 12/31/95 - 2,000 Common stock - $.01 par value No. of Shares 1996 1995 Authorized 30,000,000 30,000,000 Issued 19,983,679 19,869,823 Outstanding 19,983,679 19,869,823 200 199 Surplus 49,670 49,345 Retained earnings 89,154 82,159 Unrealized gain on securities available for sale, net of tax 9,815 10,050 Stockholders' Equity $158,089 $156,003 Total liabilities & stockholders' equity $1,642,538 $1,624,673 See accompanying notes to consolidated financial statements. Consolidated Statements of Earnings Years ended December 31, 1996, 1995 and 1994 (000's omitted except per share data) Interest income 1996 1995 1994 Interest & fees on loans $79,816 $73,108 $61,719 Interest & dividends on investment securities: Taxable 26,514 27,680 21,897 Exempt from federal income tax 7,142 6,880 7,230 Other interest income 898 1,114 1,320 Interest income 114,370 108,782 92,166 Interest expense Interest on deposits 52,258 48,248 35,199 Interest on borrowings 4,300 5,293 3,729 Interest expense 56,558 53,541 38,928 Net interest income 57,812 55,241 53,238 Provision for possible loan losses 2,875 1,435 555 Net interest income after provision for possible loan losses 54,937 53,806 52,683 Other income Service charges on deposits 6,439 5,322 5,004 Trust fees 3,222 2,928 2,741 Investment securities gains, net 3,838 4,046 1,365 Other operating income 4,217 4,879 4,033 Other income 17,716 17,175 13,143 Other expenses Salaries 21,972 19,424 18,637 Pension, profit sharing & other employee benefits 4,643 4,674 4,577 Net occupancy of bank premises 4,676 4,544 4,007 Furniture & equipment 3,050 2,773 2,950 Federal deposit insurance premiums 95 1,455 2,792 Write-down of real estate held for development 2,506 - - Other 17,109 14,926 14,970 Other expenses 54,051 47,796 47,933 Earnings before income taxes 18,602 23,185 17,893 Income tax expense 5,285 6,156 4,549 Net earnings $13,317 $17,029 $13,344 Earnings per share (On weighted average common and common equivalent shares outstanding of 20,103,661 in 1996, 20,097,319 in 1995 and 20,233,748 in 1994) $.62 $.79 $.60 See accompanying notes to consolidated financial statements. Consolidated Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 Cash flows from operating activities: Net earnings $13,317 $17,029 $13,344 Adjustments to reconcile net earnings to net cash from operating activities: Amortization net, related to: Investment securities 1,260 2,212 5,522 Excess of cost over net assets acquired 1,738 1,592 1,592 Other ( 133) 357 248 Depreciation 3,059 3,197 2,964 Provision for possible loan losses 2,875 1,435 555 Write-down of real-estate held for development 2,506 - - Provision for write down of securities - - 85 Gain on sale related to: Investment securities (3,838) (4,046) (1,365) Loans sold to secondary market ( 185) ( 222) ( 257) Loans originated for sale (38,163) (26,565) (24,930) Loans sold to secondary market 38,163 26,565 24,930 Deferred income tax expense (5,165) (5,478) 2,878 Change in: Other assets ( 932) (2,054) ( 289) Other liabilities 1,473 1,453 (1,471) Net cash from operating activities 15,975 15,475 23,806 Cash flows from investing activities: Purchase of securities held to maturity - (8,888) (14,571) Purchase of securities available for sale (304,580) (342,354) (224,341) Proceeds from: Maturities of securities held to maturity - 11,550 24,275 Maturities of securities available for sale 227,389 164,060 114,976 Sales of securities available for sale 142,485 178,984 41,511 Net increase in loans ( 92,395) (114,298) 3,405 Purchase of bank premises & equipment( 4,224) ( 2,576) ( 125) Securities under resale agreement ( 4,405) - - Other net - 27 ( 152) Net cash from investing activities ( 35,730) (113,495) ( 55,022) Cash flows from financing activities: Net increase (decrease) in: Deposits 65,737 86,262 18,137 Short term borrowings ( 64,746) 5,385 4,531 Long term borrowings 18,412 5,850 5,350 Purchase of treasury stock - ( 1,374) ( 600) Reissuance of treasury stock - 149 59 Exercised stock options 330 51 19 Redemption of preferred stock ( 5,000) - ( 1,950) Cash paid out for fractional shares ( 4) - - Cash dividends paid ( 6,322) ( 4,864) ( 4,640) Net cash from financing activities 8,407 91,459 20,906 Decrease in cash and cash equivalents ( 11,348) (6,561) (10,310) Cash and cash equivalents, beginning of year 77,303 83,864 94,174 Cash and cash equivalents, end of year $65,955 $77,303 $83,864 Supplemental disclosure of cash flow information Cash paid during the year for: Interest $56,926 $51,572 $37,908 Income taxes 10,526 10,858 2,036 Purchase of bank subsidiaries and branch Fair value of assets acquired - - 91 Cash received - - 10,037 Deposit premium - - 1,123 Fair value of liabilities assumed - - 11,251 Non-cash activities: Investment securities transferred to securities available for sale - 111,356 143,821 Loans transferred to (from) other real estate owned 988 438 (48) Conversion of preferred stock - - 1,300 Land transferred to other assets 1,803 - - See notes to consolidated financial statements Consolidated Statements of Changes in Stockholders' Equity Years ended December 31, 1996, 1995 and 1994 Unrealized Gain
(loss) on securities Preferred Common Retained Available for Sale, Treasury Total Stock Stock Surplus Earnings Net of Tax Stock Balance January 1, 1994 $16,200 $153 $51,295 $61,418 $4,117 ($208) $132,975 Net earnings 13,344 13,344 Cash dividends common stock (3,578) (3,578) Cash dividends preferred stock (1,205) (1,205) Three-for-one stock split 49 - (49) Redemption of Series C perpetual preferred stock (1,950) (1,950) Exercised stock options 19 19 Change in unrealized gain (loss) on securities available for sale, net of tax (11,930) (11,930) Purchase and retirement of common stock (1) (600) (599) Treasury stock reissuance 59 59 Balance December 31, 1994 14,250 201 50,666 69,979 (7,813) (149) 127,134 Net earnings 17,029 17,029 Cash dividends common stock (3,743) (3,743) Cash dividends preferred stock (1,106) (1,106) Exercised stock options 51 51 Change in unrealized gain (loss) on securities available for sale, net of tax 17,863 17,863 Purchase and retirement of common stock (2) (1,374) (1,372) Treasury stock reissuance 149 149 Balance December 31, 1995 14,250 199 49,345 82,159 10,050 0 156,003 Net earnings 13,317 13,317 Cash dividends common stock (5,382) (5,382) Cash dividends preferred stock (940) (940) Exercised stock options 1 329 330 Change in unrealized gain (loss) on securities available for sale, net of tax (235) (235) Redemption of Series A preferred stock (5,000) (5,000) Cash paid out for fractional shares (4) (4) Balance December 31, 1996 $9,250 $200 $49,670 $ 89,154 $9,815 $0 $158,089
See accompanying notes to consolidated financial statements. Independent Auditors' Report The Board of Directors Grand Premier Financial, Inc. We have audited the accompanying consolidated balance sheet of Grand Premier Financial, Inc. and subsidiaries as of December 31, 1996 and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Grand Premier Financial, Inc. and subsidiaries at December 31, 1996 and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. We previously audited and reported on the consolidated balance sheet of Premier Financial Services, Inc. and subsidiaries as of December 31, 1995 and the related consolidated statements of earnings, changes in stockholders equity and cash flows for the years ended December 31, 1995 and 1994, prior to their restatement for the 1996 pooling of interests. The contribution of Premier Financial Services, Inc. and subsidiaries to total assets, stockholders equity, interest income and net income represented 41.3%, 39.8%, 40.8%, and 36.8% of the respective restated totals as of and for the year ended December 31, 1995 and the contribution of Premier Financial Services, Inc. and subsidiaries to total stockholders equity, interest income and net income represented 41.3%, 39.6%, and 42.8% of the respective restated totals as of and for the year ended December 31, 1994. Separate consolidated financial statements of the other company included in the December 31, 1995 restated consolidated balance sheet and the restated consolidated statements of earnings, changes in stockholders equity and cash flows for the years ending December 31, 1995 and 1994 were audited separately by other auditors whose report thereon dated January 31, 1996, expressed an unqualified opinion on those statements. We also audited the combination of the accompanying consolidated balance sheet as of December 31, 1995, and the consolidated statements of earnings, changes in stockholders equity and cash flows for the years ended December 31, 1995 and 1994, after restatement for the 1996 pooling of interests; in our opinion, such consolidated statements have been properly combined on the basis described in Note 2 of the notes to the consolidated financial statements. KPMG Peat Marwick LLP Chicago, Illinois January 29, 1997 Notes to Consolidated Financial Statements December 31, 1996, 1995 and 1994 1. Summary of significant accounting policies Nature of operations Grand Premier Financial, Inc. (the Company ) is a registered bank holding company organized in 1996 under Delaware law. The operations of the Company and its subsidiaries consist primarily of those financial activities, including trust and investment services, common to the commercial banking industry. The Company's markets are throughout northern Illinois. Principals of presentation The accompanying consolidated financial statements conform to generally accepted accounting principles and to general practices within the banking industry. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates. The accompanying consolidated financial statements include the financial information of the Company and its subsidiaries, all of which are wholly owned. Significant intercompany balances and transactions have been eliminated. Securities available for sale Securities classified as securities available for sale are carried at fair value with unrealized gains and losses, net of income taxes excluded from earnings and reported as a separate component of stockholders' equity. Gains or losses on sale of securities are determined on the basis of specific identification. Investments held-to-maturity Investments held-to-maturity are stated at cost adjusted for amortization of premiums and accretion of discounts on the level yield method over the life of the security. Management has the positive intent and ability to hold these investment securities to maturity. On November 30, 1995, the Company transferred all securities classified as held-to-maturity to securities available for sale under the provisions of the SFAS No. 115 implementation guide. Loans Loans are stated at face value less unearned discounts. Interest income on loans not discounted is computed on the principal balance outstanding. Interest income on discounted loans is computed on a basis which results in an approximate level rate of return over the term of the loan. Accrual of interest is discontinued on a loan when management believes that the borrower's financial condition is such that collection of interest is doubtful. Impaired loans Effective January 1, 1995, the Company adopted Statements of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114), and No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" (SFAS 118). In accordance with SFAS 114, impaired loans are measured and reported based on the present value of expected cash flows discounted at the loan's effective interest rate, or at the fair value of the loan's collateral if the loan is deemed "collateral dependent." A valuation allowance is required to the extent that the measure of the impaired loans is less than the recorded investment. Impaired loans are loans for which it is probable that the creditor will be unable to collect all amounts due according to the terms of the loan agreement. The specific factors that influence management's judgment in determining when a loan is impaired include evaluation of the financial strength of the borrower and the fair value of the collateral. A loan is not impaired during a period of "minimum delay" in payment, regardless of the amount of shortfall, if the ultimate collectibility of all amounts due is expected. The Company defines "minimum delay" as past due less than 90 days. SFAS 114 does not apply to larger groups of homogeneous loans such as real estate-residential and other loans which are collectively evaluated for impairment. The Company applies the measurement methods described above to loans on a loan-by-loan basis. The Company's impaired loans are nonaccrual loans, as generally loans are placed on nonaccrual status on the earlier of the date that principal or interest amounts are 90 days or more past due or the date that collection of such amounts is judged uncertain based on evaluation of the financial strength of the borrower and the fair market value of the collateral. Restructured loans are impaired loans in the year of restructuring; thereafter, such loans are subject to management's evaluation of impairment based on the restructured terms. The Company's charge-off policy for impaired loans is consistent with its policy for loan charge-offs to the allowance: impaired loans are charged-off when an impaired loan, or a portion thereof, is considered uncollectible or is transferred to foreclosed properties. SFAS 118 allows a creditor to use existing methods for recognizing interest income on an impaired loan. Consistent with the Company's method for nonaccrual loans, interest receipts on impaired loans are recognized as interest income or are applied to principal when the ultimate collectibility of principal is in doubt. In accordance with SFAS 114 and SFAS 118, no retroactive application of these provisions have been made to the consolidated financial statements for periods prior to January 1, 1995. Allowance for possible loan losses The allowance for possible loan losses is increased by provisions charged to expense and recoveries on loans previously charged off, and reduced by loans charged off in the period. The allowance is based on past loan loss experience, management's evaluation of the loan portfolio considering current economic conditions and such other factors, which, in management's best judgement, deserve current recognition in estimating loan losses. Regulatory examiners may require the Company to recognize additions to the allowances based upon their judgments about information available to them at the time of their examination. Bank premises and equipment Bank premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense is computed by the straight line method for furniture and equipment and both the straight line method and the declining balance method for buildings based on the estimated useful lives of the assets. Rates of depreciation are based on the following: buildings 31-40 years and equipment 3-15 years. Cost of major additions and improvements are capitalized. Expenditures for maintenance and repairs are reflected as expense when incurred. Excess cost over fair value of net assets acquired The excess cost over fair value of net assets acquired is being amortized over 25 years for acquisitions prior to 1985, and over 15 years for acquisitions subsequent to that date using the straight line method. Income taxes The Company and its subsidiaries file consolidated federal and state income tax returns. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Stock Option Plan Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ( APB ) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-based Compensation ( SFAS No. 123"). SFAS No. 123 permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Earnings per share Earnings per share is computed by dividing net income (less preferred stock dividends) by the total of the average number of common shares outstanding and the additional dilutive effect of stock options outstanding during the respective period. The dilutive effect of stock options is computed using the average market price of the Company's common stock for the period. Cash and noninterest bearing deposits Cash and noninterest bearing deposits includes reserve balances that the Company's subsidiary banks are required to maintain with the Federal Reserve Bank of Chicago. These required reserves are based principally on deposits outstanding. The average reserves required for the years ended December 31, 1996 and 1995 were $5,327,000 and $4,315,000, respectively. 2. Merger The merger of Northern Illinois Financial Corporation ("Northern Illinois") and Premier Financial Services, Inc. ("Premier") with and into the Company was consummated on August 22, 1996 and was accounted for as a pooling of interests. Each outstanding share of Northern Illinois and Premier common stock was converted into 4.25 shares and 1.116 shares of the Company common stock, respectively. Total shares issued of the Company s common stock was 19,940,181. Each of the 7,250 shares of Premier Series B Preferred Stock was converted into one share of Grand Premier Series B Preferred Stock, and each of the 2,000 shares of Premier Series D Preferred Stock was converted into one share of Grand Premier Series C Preferred Stock. All financial statements and information have been restated to reflect the merger. The table below reconciles total assets, net income and net income per common share previously reported by Northern Illinois and Premier to the data reported in the restated consolidated statements. December 31 Total assets (in thousands): 1995 1994 Northern Illinois Financial Corporation $ 954,454 $ 872,563 Premier Financial Services, Inc. 670,219 620,504 Restated $ 1,624,673 $ 1,493,067 Net Income (in thousands): Northern Illinois Financial Corporation $ 10,767 $ 7,634 Premier Financial Services, Inc. 6,262 5,710 Restated $ 17,029 $ 13,344 Net Income per common share: Northern Illinois Financial Corporation $ 3.62 $ 2.53 Premier Financial Services, Inc. .77 .68 Restated $ .79 $ .60 3. Securities available for sale The amortized cost and approximate fair value of securities available for sale at December 31, 1996 and 1995 are as follows (in thousands): 1995 1996
Gross Gross Approx. Amortized Gross Gross Approx. Amortized Unrealized Unrealized Fair Cost Unrealized Unrealized Fair Cost Gains Losses Value Gains Losses Value U.S. Treasury obligations $79,067 $256 ($419) $78,904 $98,717 $ 467 ($ 477) $ 98,707 U.S. Government agencies 55,495 177 ( 702) 54,970 137,998 986 (581) 138,403 Obligations of state & political subdivisions 132,223 3,234 (824) 134,633 133,886 4,144 (855) 137,175 Debt securities issued by foreign institutions 5 - - 5 2,010 - - 2,010 Corporate debt securities 14,817 34 (40) 14,811 37,956 132 (29) 38,059 Mortgage-backed securities 215,655 1,217 (1,869) 215,003 146,722 1,803 (379) 148,146 Equity securities 22,332 15,029 - 37,361 25,021 11,049 - 36,070 $519,594 $19,9 47 ($3,854) $535,687 $582,310 $18,581 ($ 2,321) $598,570
The amortized cost and fair value of securities available for sale as of December 31, 1996 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. (In thousands) Approximate Amortized Fair Cost Value Due in one year or less $49,692 $49,193 Due after one year through five years 97,901 98,954 Due after five years through ten years 59,198 60,025 Due after ten years 74,816 75,151 Mortgage-backed and equity securities 237,987 252,364 $519,594 $535,687 During 1996, proceeds from sales of securities available for sale were $142,485,000. Gross gains of $4,389,000 and gross losses of $551,000 were realized on those sales. Proceeds from sales of securities available for sale during 1995 were $178,984,000. Gross gains of $4,766,000 and gross losses of $720,000 were realized on those sales. During 1994, proceeds from sales of investment securities were $41,511,000. Gross gains of $1,460,000 and gross losses of $95,000 were realized on those sales. On December 31, 1996 securities with a carrying value of approximately $241,171,000 were pledged to secure funds and trust deposits and for other purposes as required or permitted by law. 4. Loans The following is a summary of loans by major classification as of December 31, 1996 and 1995 (in thousands): 1996 1995 Commercial, financial and agricultural loans $ 229,700 $ 229,589 Real estate-construction loans 42,772 45,098 Real estate-mortgage loans 625,364 530,636 Loans to individuals 68,488 71,010 $ 966,324 $ 876,333 The Company serviced loans for others totaling $87,983,000, $127,747,000, and $128,271,000 as of December 31, 1996, 1995 and 1994, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing and included in demand deposits were approximately $87,000 and $1,094,000 at December 31, 1996 and 1995, respectively. A summary of changes in the allowance for possible loan losses for the three years ended December 31 is as follows (in thousands): 1996 1995 1994 Balance beginning of year $9,435 $9,738 $10,595 Recoveries 572 1,116 926 Provision for possible loan losses 2,875 1,435 555 12,882 12,289 12,076 Less:loans charged off 2,766 2,854 2,338 Balance end of year $10,116 $9,435 $9,738 The recorded investment in collateral-dependent loans for which an impairment has been recognized at December 31, 1996 and 1995 was $4,718,000 and $6,118,000, respectively. The recorded investment in loans for which an impairment has been recognized was $4,718,000 and $3,748,000 and the related allowance for possible loan losses was $917,000 and $1,199,000 at December 31, 1996 and 1995, respectively. The average recorded investment in impaired loans during 1996 and 1995 was $5,475,000 and $6,927,000, respectively. Interest income recognized on impaired loans during 1996 and 1995 was $188,000 and $284,000, respectively. As of December 31, 1996, 1995 and 1994, the outstanding balance of nonaccrual loans was approximately $4,718,000, $6,118,000 and $8,911,000, respectively. Had interest on such loans been accrued, interest and fees on loans in the accompanying consolidated statements of earnings would have been greater by approximately $369,000, $643,000 and $1,011,000 in 1996, 1995 and 1994, respectively. The Company's subsidiary banks make loans to their executive officers, directors, principal holders of the Company's equity securities and to associates of such persons. These loans were made in the ordinary course of business on the same terms and conditions, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and do not involve more than a normal risk. The following is a summary of activity with respect to such loans for the latest fiscal year (in thousands): Balance, January 1, 1996 $10,630 New loans 9,957 Repayments 5,038 Balance, December 31, 1996 $15,549 5. Bank premises and equipment Bank premises and equipment are recorded at cost less accumulated depreciation as follows (in thousands): 1996 1995 Land, buildings and improvements $41,030 $42,679 Furniture, fixtures and equipment 17,798 16,596 58,828 59,275 Less accumulated depreciation 25,507 22,599 $33,321 $36,676 6. Short-term borrowings and securities sold under agreements to repurchase Following is a summary of short-term borrowings and securities sold under agreements to repurchase at December 31, 1996 and 1995 (in thousands): 1996 1995 Federal funds purchased and FHLB advances $ - $25,225 Notes payable to banks - 13,250 Securities sold under agreements to repurchase 23,486 49,757 $23,486 $88,232 The notes payable to banks totaling $13,250,000 at December 31, 1995 were draws on revolving lines of credit due on demand with variable interest (7.43% at December 31, 1995) and were secured by the Company's common stock holdings in its subsidiaries. At December 31, 1996, the Company had unused lines of credit of $4,500,000 maturing May 1997 and $20,000,000 maturing January, 1999. The lines bear interest at the option of the Company of prime rate floating or fixed at one month, two month, three month or six month periods at LIBOR plus 1 3/4%. The note agreements contain certain restrictive covenants. The Company was in compliance with such covenants at December 31, 1996. At December 31, 1996 and 1995 there were no material amounts of assets at risk with any one customer under agreements to repurchase securities sold. At December 31, 1996 and 1995 securities sold under agreements to repurchase are summarized as follows (in thousands): Weighted Average Collateral Repurchase Interest Collatera Market 1996 Liability Rate Book Value Value Demand $16,857 3.83% $12,370 $12,333 Term 6,629 5.61% 7,496 7,543 $23,486 4.33% $19,866 $19,876 1995 Demand $12,637 4.07% $16,772 $16,919 Term 37,120 5.72% 38,779 38,980 $49,757 5.30% $55,551 $55,899 7. Long-Term Borrowings At December 31, 1996 and 1995 long-term borrowings consisted of the following (in thousands): 1996 1995 Securities sold under agreements to repurchase bearing interest at 6% to 7% with final maturity at June 19, 1997 $ - $3,588 FHLB advances with interest at 6.92%, repaid in 1996 - 3,000 FHLB advances, 5.85%, interest payable monthly, due December 20, 1999 5,000 5,000 FHLB advances, 6.54%, interest payable monthly, due August 23, 2000 5,000 - FHLB advances, 6.75%, interest payable monthly, due July 2, 2001 5,000 - FHLB advances, 6.24%, interest payable monthly, due November 6, 2001 15,000 - $30,000 $11,588 8. Employee benefit plans Effective July 1, 1994 the Company froze the benefits accumulating to participants in a defined benefit pension plan covering substantially all Premier Financial Services, Inc.'s employees. Accrued benefits as of that date were fully funded. The net pension income for 1995 and 1994 was $142,000 and $177,000, respectively. No income or expense was recorded in 1996. The Company has a savings and stock plan for officers and employees. Company contributions to the plan are discretionary. The plan includes provisions for employee contributions which are considered tax-deferred under Section 401(k) of the Internal Revenue Code. Total expense was $886,000 for 1996 $880,000 for 1995, and $791,000 for 1994. The Company has a stock option plan for key employees. Options are granted at the fair market value of the stock at the grant date. Options vest at the rate of 20% of granted shares at the end of each year in the succeeding five year period after the grant date, with the exception of 120,000 options granted in 1996 which vest ratably over a three year period beginning September 23, 1997. The plan provides for adjusting the total number of shares of common stock that may be available for options under the Plan on January 1, of each calendar year, so that the total number of shares of common stock that may be issued and sold under the Plan as of January 1, of each calendar year to be equal to four percent (4%) of the outstanding shares of common stock of the Company on such date; provided, however, that no such adjustment will reduce the total number of shares of common stock that may be issued and sold under the plan below 400,000. The Company applies APB Opinion 25 and related Interpretations in accounting for its plan. Accordingly, no compensation cost has been recognized for its stock options plans. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method contained in SFAS No.123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: 1996 1995 Net Income As reported $13,317 $17,029 Pro forma $13,244 $17,018 Earnings per share As reported $.62 $.79 Pro forma $.61 $.79 The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for 1995 and 1996, respectively; risk-free interest rates of 5.8% and 5.9%; dividend yield of 3.0% for both years; expected lives of 4 and 5 years; and volatility of 25% and 30%. The weighted fair value of the options granted in 1995 and 1996 was $1.28 and $2.57, respectively. A summary of the status of the Company's stock option plan as of and for each of the years in the three year period ended December 31, 1996 is presented below. Option Amount Exercise price Outstanding at January 1, 1994 396,802 $2.23 to $6.42 Granted - Exercised (8,524) 2.23 Forfeited - - Outstanding at December 31, 1994 388,278 2.23 to 6.42 Granted 75,888 6.16 Exercised (20,222) 2.23 to 4.08 Forfeited - - Outstanding at December 31, 1995 443,944 2.23 to 6.42 Granted 216,280 10.75 Exercised (114,380) 2.23 to 6.42 Forfeited (10,892) 2.23 to 6.42 Outstanding at December 31, 1996 534,952 $2.23 to $10.75 The number of options exercisable at December 31, 1996, 1995 and 1994 were 247,599, 330,068 and 347,221, respectively. The following table summarizes information about stock options outstanding at December 31, 1996. Number Remaining Exercise of Contractual Number Price Shares Life Exercisable 2.23 29,837 1.5 years 29,837 2.83 104,595 2.5 years 104,595 2.46 45,721 4 years 45,721 4.08 32,807 5 years 32,807 6.42 40,672 6.5 years 23,167 6.16 65,040 8 years 11,472 10.75 120,000 3 years - 10.75 96,280 9 years - 534,952 247,599 The Company adopted a Deferred Compensation Plan January 1, 1997 for Directors and employees designated as Senior Leadership Employees by the Board of Directors. Participants may elect to defer up to 50% of salary, 100% of any bonus or 100% of director fees under the Plan. The Company makes a 25% matching contribution. Seventy-five thousand shares are registered for purchased by the Plan. Participants' deferral amounts are 100% vested on the earlier of 1) the end of the sixth year following the year in which deferrals are made, 2) normal retirement, or 3) employment termination due to death or disability. Prior to the merger, Northern Illinois and Premier each had a deferred Compensation Plan for their key employees. Total expense was approximately $329,000 in 1996, $167,000 in 1995, and $170,000 in 1994. 9. Stockholders' equity On April 28, 1994, the Board of Directors of Premier Financial Services, Inc. declared a three-for-one stock split in the form of a stock dividend, payable July 1, 1994 to stockholders of record on June 8, 1994. The stock split resulted in the issuance of 4,849,830 additional shares of common stock from authorized but unissued shares. The issuance of authorized but unissued shares resulted in the transfer of $48,498 from surplus to common stock, representing the par value of the shares issued. In 1994, Premier Financial Services, Inc. redeemed all of the outstanding Premier Series C Preferred Stock for $1,950,000 and converted 1,300 shares of Premier Series D Preferred Stock to Premier Series B convertible Preferred Stock at stated value. In 1996, Premier Financial Services, Inc. redeemed all of the outstanding Premier Series A Preferred Perpetual Stock for $5,000,000. Under the Company's shareholder rights plan each share of common stock entitles its holder to one right. Under certain conditions, each right entitles the holder to purchase one one-hundredth of a share of Junior Preferred Stock at a price of $27.25 per share, subject to adjustment. The rights will only be exercisable if a person or group has acquired, or announced an intention to acquire 15% or more of the outstanding shares of Company common stock or any person or group would be the beneficial owner of 30% or more of the voting power of the Company. Under certain circumstances, including the existence of a 15% acquiring party, each holder of a right, other than the acquiring party, will be entitled to purchase at the exercise price Company common stock having a market value of two times the exercise price. The rights may be redeemed at a price of $.01 per right prior to the existence of a 15% acquiring party, and thereafter, may be exchanged for one common share per right to the existence of a 50% acquiring party. The rights will expire on June 30, 2006. The rights do not have voting or dividend rights and until they become exercisable, have no dilutive effect on the earnings of the Company. 10. Regulatory Matters The Company and its banking subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its banking subsidiaries must meet specific capital guidelines that involve quantitative measures of each entities' assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's and its banking subsidiaries capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and its banking subsidiaries to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 1996 the Company and its banking subsidiaries met all capital adequacy requirements which they are subject. As of December 31, 1996, the Company and it s banking subsidiaries were all categorized as well capitalized under the regulatory framework. There are no conditions or events since year end that management believes have changed the Company and it s banking subsidiaries category. (Amounts in thousands) As of December 31, 1996: To Be Well
Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions: Amount Ratio Amount Ratio Amount Ratio Total Capital (to risk weighted assets): Grand Premier Financial, Inc. 139,010 12.61% 88,193 8.00% 110,241 10.00% Grand National Bank 79,080 11.35 55,728 8.00 69,660 10.00 First Bank North 16,845 11.40 11,818 8.00 14,772 10.00 First Bank South 9,572 11.27 6,795 8.00 8,493 10.00 First National Bank of Northbrook 17,424 13.83 10,075 8.00 12,594 10.00 First Security Bank of Cary Grove 6,040 15.70 3,078 8.00 3,847 10.00 Tier 1 Capital (to risk weighted assets): Grand Premier Financial, Inc. 128,894 11.69 44,096 4.00 66,145 6.00 Grand National Bank 72,726 10.44 27,864 4.00 41,796 6.00 First Bank North 15,445 10.46 5,909 4.00 8,863 6.00 First Bank South 8,849 10.42 3,397 4.00 5,096 6.00 First National Bank of Northbrook 16,062 12.75 7,908 4.00 7,557 6.00 First Security Bank of Cary Grove 5,764 14.98 1,539 4.00 2,308 6.00 Tier 1 Capital (to average assets): Grand Premier Financial, Inc. 128,894 7.94 64,926 4.00 81,158 5.00 Grand National Bank 72,726 7.60 38,293 4.00 47,866 5.00 First Bank North 15,445 6.50 9,507 4.00 11,884 5.00 First Bank South 8,849 5.63 6,284 4.00 7,855 5.00 First National Bank of Northbrook 16,062 8.12 7,908 4.00 9,885 5.00 First Security Bank of Cary Grove 5,764 7.63 3,022 4.00 3,777 5.00 As of December 31, 1995: Total Capital (to risk weighted assets): Grand Premier Financial, Inc. 134,159 12.89 83,290 8.00 104,112 10.00 Grand National Bank 82,073 12.58 52,185 8.00 65,231 10.00 First Bank North 16,521 11.54 11,458 8.00 14,322 10.00 First Bank South 9,288 11.57 6,423 8.00 8,029 10.00 First National Bank of Northbrook 17,134 15.10 9,075 8.00 11,343 10.00 First Security Bank of Cary Grove 5,630 16.67 2,702 8.00 3,377 10.00 Tier 1 Capital (to risk weighted assets): Grand Premier Financial, Inc. 124,724 11.98 41,645 4.00 62,467 6.00 Grand National Bank 76,467 11.72 26,093 4.00 39,139 6.00 First Bank North 15,283 10.67 5,729 4.00 8,593 6.00 First Bank South 8,557 10.66 3,212 4.00 4,817 6.00 First National Bank of Northbrook 15,716 13.85 4,537 4.00 6,806 6.00 First Security Bank of Cary Grove 5,318 15.75 1,351 4.00 2,026 6.00 Tier 1 Capital (to average assets): Grand Premier Financial, Inc. 124,724 7.81 63,856 4.00 79,820 5.00 Grand National Bank 76,467 8.14 37,558 4.00 46,947 5.00 First Bank North 15,283 6.67 9,169 4.00 11,462 5.00 First Bank South 8,557 5.61 6,106 4.00 7,632 5.00 First National Bank of Northbrook 15,716 7.88 7,976 4.00 9,970 5.00 First Security Bank of Cary Grove 5,318 8.20 2,594 4.00 3,242 5.00
11. Income Taxes The components of the consolidated income tax expense (benefit)for the years ended December 31, 1996, 1995, and 1994 are as follows (in thousands): 1996 1995 1994 Current $10,450 $11,634 $1,671 Deferred (5,165) (5,478) 2,878 Total income tax expense $5,285 $6,156 $4,549 The actual tax expense differs from the expected tax expense computed by applying the Federal Corporate tax rate of 34% to earnings before income taxes as follows (in thousands):
1996 1995 1994 Federal income tax expense at statutory rate $7,278 $7,882 $6,083 Tax-exempt interest income, net of disallowed interest deduction (2,650) (2,271) (2,495) State income tax expense (benefit), net of federal income tax 1,369 398 (88) Nondeductible expenses - 430 609 Adjustment of prior year - - (96) Valuation allowance on state NOLs (763) - - Other, net 51 (283) 536 Total income tax expense $5,285 $6,156 $4,549
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 are presented below (in thousands): 1996 1995 Deferred tax assets Securities, sections 475 and 481 adjustments $5,105 $2,743 Other real estate owned - 32 Net operating loss carry forwards 832 910 Loans, principally due to allowance for losses 4,142 3,199 Deferred loan fees - 32 Land write-down 994 - Other 1,378 1,318 Total gross deferred tax assets 12,451 8,234 Less: Valuation allowance - (763) Net deferred tax assets $12,451 $7,471 Deferred tax liabilities: 1996 1995 Security accretion $ 129 $ 165 Tax depreciation in excess of book depreciation 51 300 Difference between tax and book basis of assets acquired 1,147 1,322 Deferred loan fees 274 109 Other 136 26 Total gross deferred tax liabilities 1,737 1,922 Net deferred tax asset 10,714 5,549 Unrealized gain on securities available for sale (6,305) (6,210) Net deferred tax asset (liability) $ 4,409 $ ( 661) At December 31, 1996 and 1995, the Company had net operating loss carryforwards for Illinois state income tax purposes of approximately $17.8 million and $19.6 million respectively. These carryforwards will expire at various dates through the year 2007. 12. Financial instruments with off-balance sheet risk and contingencies The company utilizes various financial instruments with off-balance sheet risk to meet the financing needs of its customers, to generate profits and to reduce its own exposure to fluctuations in interest rates. These financial instruments, many of which are so-called "off-balance sheet" transactions, involve to varying degrees, credit and interest rate risk in excess of the amount recognized as either an asset or liability in the consolidated balance sheets. Credit risk is the possibility that a loss may occur because a party to a transaction failed to perform according to the terms of the contract. Interest rate risk is the possibility that future changes in market interest rates will cause a financial instrument to be less valuable or more onerous. The Company controls the credit risk arising from these instruments through its credit approval process and through the use of risk control limits and monitoring procedures. The Company uses the same credit policies when entering into financial instruments with off-balance sheet risk as it does for on-balance sheet instruments. At December 31, 1996 and 1995, such commitments and off-balance sheet financial instruments are as follows (in thousands). 1996 1995 Letters of credit $14,018 $18,928 Lines of credit and other loan commitments 256,654 237,826 $270,672 $256,754 Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. There are various claims pending against the Company and its subsidiaries arising in the normal course of business. Management believes, based upon the opinion of counsel, that liabilities arising from these proceedings, if any, will not be material to the Company's financial position. 13. Disclosures about fair value of financial instruments The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practical to estimate that value: Securities - For U.S. Treasury and U.S. Government Agency securities, fair values are based on market prices or dealer quotes. For other investment securities, fair value equals quoted market price if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Loans - The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Deposits - The fair value of demand deposits, savings accounts, NOW and money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Short-term and Long-term Borrowings - The fair value of short-term and long-term borrowings is estimated by discounting the future cash flows using the current interest rates at which similar borrowings could be made for the same maturities. Commitments to Extend Credit and Standby Letters of Credit - The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counter parties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counter parties at the reporting date. The estimated fair value of the Company's financial instruments at December31,1996 follows (in thousands): 1996 1995 Carrying Fair Carrying Fair Amount Value Amount Value Financial Assets: Cash $ 49,441 $ 49,441 $ 65,279 $65,279 Interest Bearing Deposits 3,114 3,114 5,524 5,524 Securities 535,687 535,687 598,570 598,570 Federal Funds Sold and Securities purchased under agreement to resell 17,805 17,805 6,500 6,500 Loans 965,482 963,907 874,752 870,827 Less Allowance for possible loan losses (10,116) - (9,435) - Financial Liabilities: Deposits 1,417,394 1,420,663 1,351,657 1,358,654 Short-term borrowings 23,486 23,506 88,232 88,338 Long-term debt 30,000 29,589 11,588 11,611 Off Balance Sheet Items: Commitments to extend credit - * - * Standby letters of credit - * - * * Amount is not material. 14. Condensed financial information (Parent Company only) The following is a summary of condensed financial information for the Parent Company only (in thousands): Condensed balance sheets December 31, 1996 1995 Assets Investment in subsidiaries $147,887 $151,517 Cash & interest bearing deposits 751 482 Securities available for sale 7,590 10,423 Premises and equipment 1,866 5,722 Other assets 7,406 6,987 Total assets $165,500 $175,131 Liabilities and stockholders' equity Short-term borrowings $ - $13,250 Other liabilities 7,411 5,878 Total liabilities 7,411 19,128 Stockholders' equity 158,089 156,003 Total liabilities and stockholders' $165,500 $175,131 equity Condensed statements of earnings For the years ended December 31, 1996 1995 1994 Income: Dividends from subsidiaries $ 22,285 $14,913 $10,795 Investment security gains, net 2,513 2,183 1,382 Other 8,504 6,482 4,572 33,302 23,578 16,749 Expenses: Interest on borrowings 924 1,102 1,099 Salaries 7,372 5,536 5,136 Other 9,757 4,767 3,565 18,053 11,405 9,800 Earnings before income tax benefit and equity in undistributed earnings of 15,249 12,173 6,949 subsidiaries Income tax benefit 2,298 987 1,114 Earnings before equity in undistributed earnings of subsidiaries 17,547 13,160 8,063 Equity in undistributed earnings of subsidiaries (4,230) 3,869 5,281 Net earnings $ 13,317 $ 17,029 $13,344 Condensed statements of cash flows For the years ended December 31, 1996 1995 1994 Operating activities: Net cash provided by operating activities $19,276 9,909 $ 6,372 Investing activities: Sale of securities available for sale 7,077 5,432 2,317 Maturity of securities available for sale - 525 - Purchase of securities available for sale (3,459) (7,349) (2,643) Purchase of bank premises and equipment (894) (247) (746) Net cash provided by (used in) investing activities 2,724 (1,639) (1,072) Financing activities: Increase (decrease) in short-term debt (13,250) (1,985) 625 Redemption of preferred stock (5,000) - (1,950) Purchase of treasury stock - (1,374) (600) Reissuance of treasury stock - 149 59 Dividends paid (6,322) (4,864) (4,640) Other 2,841 (43) 443 Net cash used in financing activities (21,731) (8,117) (6,063) Increase (decrease) in cash $ 269 $153 $(763) Cash paid (received) for: Interest $ 985 $ 769 $966 Income taxes (1,453) (3,821) (2,332) 15. Quarterly Financial Information (unaudited) First Second Third Fourth 1996 Quarter Quarter Quarter Quarter Interest income $28,047 $28,255 $28,994 $29,074 Interest expense 13,893 13,761 14,378 14,526 Net interest income 14,154 14,494 14,616 14,548 Provision for loan losses 406 514 1,505 450 Other operating income 3,415 4,215 3,878 6,208 Other operating expense 12,239 12,921 16,359 12,532 Income before income taxes 4,924 5,274 630 7,774 Provision for income taxes 1,393 1424 35 2,433 Net income $3,531 43,850 $595 $5,341 Net income per share $.16 $.18 $.02 $.26 First Second Third Fourth 1995 Quarter Quarter Quarter Quarter Interest income $25,632 $26,930 $27,985 $28,235 Interest expense 12,087 13,342 13,945 14,167 Net interest income 13,545 13,588 14,040 14,068 Provision for loan losses 115 81 394 845 Other operating income 3,342 4,025 4,052 5,756 Other operating expense 12,132 12,463 11,511 11,690 Income before income taxes 4,640 5,069 6,187 7,289 Provision for income taxes 1,173 1,216 1,475 2,292 Net income $3,467 $3,853 $4,712 $4,997 Net income per share $.16 $.18 $.22 $.23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The discussion presented below provides an analysis of the Company's financial condition and results of operations for the past three years, and is intended to cover significant factors affecting the Company's overall performance during that time. It is designed to provide shareholders with a more comprehensive review of the operating results and financial condition than could be obtained from an examination of the financial statements alone, and should be read in conjunction with the consolidated financial statements, accompanying notes and other financial information presented in the 1996 Annual report to shareholders. All financial statements and information have been restated to reflect the merger of Northern Illinois Financial Corporation and Premier Financial Services, Inc. with and into Grand Premier Financial, Inc. consummated on August 22, 1996. The merger was accounted for as a pooling of interests. Results of Operations Net earnings in 1996 totaled $13.3 million, or $.62 per share, as compared to slightly over $17.0 million, or $.79 per share, in 1995. Current year earnings were affected significantly by a number of non-recurring items, many of them related to the Company s formation and organization as a result of the merger. Included were charges for contract and lease terminations, severance benefits related to staff reductions, and investment banking and professional fees. In addition, the Company recorded a write-down on a parcel of real estate which had previously been held for future development. In total, these non-recurring items reduced 1996 net earnings by approximately $4.1 million, or $.20 per share. The year-to-year increase in net earnings from 1994 to 1995 was primarily due to increases in net interest income after provision for possible loan losses and net gains from sales of investment securities. Net Interest Income Tax equivalent net interest income totaled $61.7 million for 1996, up $2.7 million (4.6%) from $59.0 million in 1995 and $4.6 million (8.1%) from $57.1 million in 1994. The year-to-year increases were primarily the result of growth in earning assets. Average earning assets totaled $1.49 billion in 1996 versus $1.40 billion and $1.32 billion in 1995 and 1994, respectively. Earning assets as a percentage of total average assets at December 31, 1996, 1995 and 1994 were 91.9%, 91.3% and 90.8%, respectively. Average loans, which are generally the highest yielding component of earning assets, increased by $215.9 million over the three year period and represented 61.1% of total earning assets at December 31, 1996, 57.6% of average earning assets at December 31, 1995 and 55.8% of average earning assets at December 31, 1994. Average investments and other short-term earning assets (interest bearing deposits, federal funds sold and securities purchased under agreements to resell) as a percentage of total average earning assets declined from 44.2% in 1994 to 42.4% in 1995 and 38.9% in 1996. Grand Premier s net interest margin was 4.14% at December 31, 1996, reflecting a decline from 4.21% at December 31, 1995 and eighteen basis points lower than the 4.32% at December 31, 1994. The compression on net interest margin from 1995 to 1996 was primarily the result of yields on average earning assets declining from 8.03% in 1995 to 7.94% in 1996, while cost of funds declined only two basis points, from 3.82% at December 31, 1995 to 3.80% at December 31, 1996. The yield decline on average earning assets was essentially due to lower overall market rates in 1996 as compared to 1995, whereas the minimal decrease in cost of funds reflected a shift toward longer-term funding sources as the Company took steps during the year to moderate interest rate risk and increase general liquidity. The decrease in net interest margin from 1994 to 1995 was the result of market reactions to 1994 monetary policy implemented by the Federal Reserve Board of Governors wherein interest rates were raised repeatedly in order to slow economic activity and inflationary trends. From 1994 to 1995, Grand Premier experienced a 76 basis point increase in the average yield on earning assets while the average cost of funds increased 87 basis points. Management anticipates that the Company s net interest margin will continue to be influenced by competitive and market pressures in the future. Interest Rate Risk Management One of the Company s primary objectives is to manage the volatility in net interest income resulting from changes in interest rates. This is accomplished by actively managing the repricing characteristics of its interest earning assets and interest bearing liabilities in a dynamic environment. Grand Premier uses simulation modeling to analyze the effect of predicted or assumed changes in interest rates on balances and subsequently net interest income. The model provides for simultaneously comparing three different interest rate scenarios and their impact on net interest income over a two year horizon. A "rising" and a "declining" rate scenario are used to identify the potential impact of rapid changes, up or down, from current rates. The third scenario, i.e. the "base" or flat rate" simulation, (more traditionally known as "gap measurement") is used as a control to quantify the effect of changes in net interest income caused solely by repricing existing balances at market rates as they mature. Changes in balances reflecting repayment risk, likely changes in customer behavior under different interest rate environments and other "what if" assumptions are also simulated under each scenario. Interest sensitivity, i.e., the Company s exposure to changes in net interest income is measured over a rolling 12 month period under the rising and declining rate scenarios and compared to the base case forecast. Generally, Grand Premier s policy is to maximize net interest income while limiting negative interest sensitivity ( i.e., a decline in net interest income) to no more than 10% of after tax earnings under any interest rate scenario. In January, 1997, the simulation model indicated minimal rate sensitivity (i.e., less than a 2.00% change in net interest income) in either a rising or declining rate environment. The following table shows the Company s base or flat rate measurement (i.e., "gap position") as of December 31, 1996: Volumes Subject to Repricing within within within over 90 days 1 year 5 years 5 years ($ in thousands) Loans (net of unearned income) .................... $372,381 $116,527 $372,869 $103,705 Investment securities ....... 65,307 55,596 236,857 177,927 Other earning assets ........ 28,498 - - - Total earning assets ...... 466,186 172,123 609,726 281,632 Transaction accounts......... 24,215 24,215 - 145,293 Savings accounts............. 75,273 40,793 - 244,765 Time deposit accounts ....... 186,809 279,436 186,034 10,419 Short-term borrowing ....... 19,199 4,287 - - Long-term borrowing......... - - 30,000 - Total interest-bearing liabilities ............... 305,496 348,731 216,034 400,477 Asset (liability) gap...... 160,690 (176,608) 393,692 (118,845) Cumulative asset (liability) gap..................... $160,690 ($ 15,918) $377,774 $258,929 In reviewing the table, it should be noted that the balances are shown for a specific point in time and because the interest sensitivity position is dynamic, it can change significantly over time. Furthermore, the balances reflect both contractual repricing of deposits and management's repricing assumptions on certain deposits where discretion is permitted. Seventy five percent (75.0%) of core demand deposit accounts and regular savings accounts have been classified as repricing beyond one year. While these accounts are subject to immediate withdrawal, experience indicates they are relatively rate insensitive. Provision for Possible Loan Losses The amount of the provision for possible loan losses is based on periodic (but no less than quarterly) evaluations by management. In these evaluations, numerous factors are considered including, but not limited to, current economic conditions, loan portfolio composition, prior loan loss experience, and an estimation of potential losses. Each loan in the portfolio is graded according to specific financial, risk and repayment criteria. The aggregate required reserve balance for the entire portfolio is maintained through earnings provisions as required. The provision for loan losses in 1996 totaled $2.9 million as compared to $1.4 million and $555,000 in 1995 and 1994, respectively. The increased year-to-year provisions are primarily the result of loan portfolio growth. Loans, net of unearned discount, totaled $965.5 million, $874.8 million and $762.7 million at year end 1996, 1995 and 1994 respectively. At December 31, 1996 the allowance for possible loan losses totaled $10.1 million (1.05% of gross loans), compared to $9.4 million (1.08% of gross loans) at December 31, 1995 and $9.7 million (1.27% of gross loans) at December 31, 1994. Net charge- offs as a percentage of average loans were .24% in 1996, compared with .22% and .19% in 1995 and 1994, respectively. Although management believes that the present level of the Allowance for Possible Loan Losses is a conservative assessment of the risk inherent in the loan portfolio, there can be no assurance that significant provisions for losses will not be required in the future based on factors such as portfolio growth, deterioration of market conditions, major changes in borrowers' financial conditions, delinquencies and defaults. Future provisions will continue to be determined in relation to overall asset quality as well as other factors mentioned previously. Other Income Other income (excluding net gains from sales of investment securities) increased $749,000, or 5.7%, in 1996 over 1995 following a $1.4 million, or 11.5%, increase in 1995 over 1994. Service charges on deposits and trust fees continue to be the primary components of Non-Interest income. Revenue from other fee- based services and products also increased modestly. Service charges on deposit accounts, which represents Grand Premier s largest fee-based source of income totaled $6.4 million, $5.3 million and $5.0 million in 1996, 1995 and 1994, respectively. The $1.1 million increase from 1995 to 1996 was primarily due to standardization of fee schedules among four subsidiary banks which were merged into a single charter in February, 1996. Trust fees totaled $3.2 million in 1996, a 10.0% increase over 1995. This increase followed revenue growth of 6.8% in 1994. The growth in 1996 and 1995 was primarily due to favorable performance of trust assets under administration and an increasing customer base. Trust fees are based on providing fiduciary, investment management, custodial and related services to corporate and personal clients. As of December 31, 1996, the market value of total managed assets approximated $.65 billion. Management anticipates continued growth in relationships and fees in 1997. Net investment security gains were $3.8 million in 1996 as compared to $4.0 million in 1995 and $1.4 million in 1994. Securities available for sale are utilized to manage interest rate risk, to provide liquidity, and as an important contributor to earnings. As conditions change over time, overall interest rate risk, liquidity demands and return on the investment security portfolio will vary. The Company will continue to use its securities available for sale portfolio to manage interest rate risk, meet liquidity needs and optimize overall investment returns. Other operating income in 1996 decreased $662,000 as compared to 1995, following an increase of $846,000 in 1995 from 1994. The decline from 1995 to 1996 was due to reduced revenues associated with residential mortgage originations and mortgage servicing. Contributing to the 1995 increase were fees from mortgage origination, loan servicing, credit card processing and safe deposit box rental. Other Expenses Total other expenses in 1996 increased by $6.3 million, or 13.1% over 1995. Increases of approximately $7.7 million were partially offset by a $1.4 million reduction in FDIC insurance premiums. In 1994 other expenses totaled $47.9 million. Salaries and benefits, the largest component of other expense, totaled $26.6 million in 1996, an increase of $2.5 million (10.4%) over $24.1 million in 1995, following a $884,000 increase (3.8%) in 1995 over 1994. In 1996, $350,000 in severance benefits were paid to employees whose positions were eliminated as a result of merging four subsidiary banks into one charter in February, 1996 and $614,000 was recorded as an expense in recognition of the Company s liability for earned vacation pay as of December 31, 1996. In addition, Grand Premier accrued an expense of $700,000 for anticipated severance payments to employees whose positions will be eliminated as the Company completes consolidating its operations in early 1997. Three employee groups, including officials and managers, technicians, and office and clerical totaling 46 employees are included in the restructuring plan. Management expects to complete the consolidation plan during the first half of 1997. No payments were made against the severance liability in 1996. The increase from 1994 to 1995 reflects higher incentive payments and increased costs associated with medical insurance premiums. Employee benefits were 21.10% of compensation expense in 1996 compared with 24.06% in 1995 and 24.56% in 1994. At December 31, 1996, full-time equivalent employees totaled 642, as compared to 711 and 696 at year end 1995 and 1994, respectively. Combined net occupancy and furniture and fixture expense increased $409,000 and $360,000 in 1996 and 1995, respectively. The increase in 1996 over 1995 was primarily the result of relocating the Company's operating subsidiary to its new facility in Vernon Hills, Illinois during the fourth quarter, 1996 as a part of the Company s plans to consolidate and centralize back-office servicing. The increase in combined net occupancy and furniture and fixture expense in 1995 was the result of opening three new financial service offices. In 1996, Grand Premier s subsidiary banks paid $95,000 for federal deposit (FDIC) insurance as compared to $1.5 million in 1995 and $2.8 million in 1994. The year-to-year decreases reflect the fully funded position of the Bank Insurance Fund ( BIF ) in 1995. The FDIC insurance premium expense in 1996 reflects a one time charge of $59,000 on OAKAR deposits (i.e., deposits acquired by the Company from a savings association through a branch acquisition) by the Company for recapitalization of the Savings and Loan ( SAIF ) insurance fund. The Company owns 5.5 acres of property in Riverwoods, Illinois which it acquired in 1993 for possible future expansion. In October, 1996, Grand Premier decided that developing the property was no longer consistent with its long-term plans. The Company recorded a $2.5 million charge to 1996 pre-tax earnings reflecting the write-down of the property to approximate fair value. The property is currently being marketed for sale. Other expenses increased by $2.2 million in 1996 over 1995 and 1994. A major portion of the increase (just under $2.0 million) was the result of several non- recurring items; 1) expenses of approximately $750,000 for contract and lease terminations, and 2) $1.2 million in investment banking, professional expenses and other organizational start up costs associated with the merger. Miscellaneous expenses such as forms reprinting, marketing, establishing inter- company communications systems, etc. were primarily responsible for the remainder of the year-to-year increase. Income Taxes Income taxes for 1996 totaled $5.3 million as compared to $6.2 million in 1995 and $4.5 million in 1994. The decrease in the tax provision from 1995 to 1996 is due to lower taxable earnings. Grand Premier s effective tax rate was 28.4% in 1996, 26.5% in 1995 and 25.4% in 1994. Financial Condition At December 31, 1996, Grand Premier had total assets of $1.64 billion, an increase of $17.9 million as compared to $1.62 billion at December 31, 1995. Average total assets for 1996 increased $85.6 million, or 5.6%, over 1995. Although asset growth was modest from year end 1995 to 1996, balance sheet composition changed significantly. Loans, which totaled $876.3 million as of December 31, 1995, grew by $90.0 million to just over $966.3 million at year end 1996. The change in asset mix is reflected in securities available for sale, which declined by $62.8 million and a $15.8 million decrease in cash and non- interest bearing deposits. The mix of funding sources also changed, with deposits increasing $65.8 million, to $1.42 billion at December 31, 1996, and long-term borrowings rising by $18.4 million, offset by a $64.7 million decrease in short-term borrowings. Securities Grand Premier s securities available for sale portfolio is used by the Company as an integral part of its interest rate risk management, earnings and tax planning strategies. The portfolio consists of debt and equity securities, any of which may be sold in response to changes in interest rates, for liquidity, or for tax purposes. At December 31, 1996, $535.7 million was invested in securities available for sale, compared to $598.6 million at year end 1995. The decline occurred as proceeds from maturing securities were used to fund loans instead of being reinvested in the portfolio. At December 31, 1996, approximately 25% of the total carrying value of securities available for sale consisted of U. S. Treasury and U.S. government agency securities, 25% of obligations of states and political subdivisions, 40% of mortgage-backed securities, 3% of corporate and foreign debt securities, and 7% of equity securities. Of the 40% of mortgage-backed securities the Company had $118.4 million invested in collateralized mortgage obligations ("CMO's") and $97.0 million in other mortgage-backed securities. A CMO is a mortgage-backed security that consists of classes of bonds created by prioritizing the cash flows from the underlying mortgage pool to meet different investors objectives. Other mortgage-backed securities depend on an underlying pool of mortgage loans to provide a cash flow "pass through" of principal and interest, without prioritization by class. The CMO s held by the Company are primarily shorter- maturity class bonds structured to provide more predictable cash flows by being less sensitive to prepayments during periods of changing interest rates. At December 31, 1996, substantially all of the mortgage-backed securities held by the Company were issued or backed by U.S. Federal Government Agencies. Loans The Company s lending strategy stresses quality growth, diversified by product, geography and industry. Loans represent the largest component of Grand Premier s earning assets. At December 31, 1996, loans outstanding totaled $966.3 million, a $90.0 million (10.26%) increase as compared to year end 1995. The growth was primarily in the commercial real estate portfolio, which represented 38.5% of loans at year end. At December 31, 1996, the loan portfolio consisted of 23.7% commercial, 4.4% construction, 38.5% commercial real estate, 26.3% residential real estate, and 7.1% to individuals. Management anticipates that growth in total loans will continue in 1997. Asset Quality Over the past several years, aggressive collection actions combined with a healthy local and national economy have improved asset quality significantly. At year end 1996, non-performing assets declined to $9.4 million, or .57% of total assets, down from $10.9 million, or .67% of total assets at December 31, 1995. Non-performing assets consist of loans 90 days or more past due, loans and investments not accruing interest, loans with renegotiated credit terms, and other real estate owned. Non-accruing loans decreased from $6.1 million at year end 1995 to $4.7 million at December 31, 1996, loans past due 90 days or more and still accruing increased from $539,000 at year end 1995 to $1.9 million at December 31, 1996, and renegotiated loans decreased from $551,000 at year end 1995 to $510,000 at December 31, 1996. Other real estate owned totaled $2.2 million and $3.1 million at December 31, 1996 and 1995, respectively. Sources of Funds The Company considers core deposits, which include transaction accounts, savings deposit accounts, and consumer time deposits less than $100,000 as our most stable source of funding. These core deposits are supplemented by time deposits from governmental entities, time deposits greater than $100,000 and securities sold under agreements to repurchase. Other short-term borrowings and stockholders' equity comprise the remainder of the Company s funding sources. Total deposits increased $65.8 million, (4.9%) to $1.42 billion at December 31, 1996 compared with $1.35 billion at December 31, 1995. Non-interest bearing deposits were 14.9% and 14.5% of total deposits at December 31, 1996 and 1995, respectively. Total short-term borrowings, including repurchase agreements, were $23.5 million at December 31, 1996 compared with $88.2 million at December 31, 1995. The $64.7 million decline from year end 1995 is a result of the Company taking steps to lengthen its interest-bearing liabilities to moderate interest rate risk. The Company also paid off its short-term lines of credit with unaffiliated banks, encouraged holders of securities sold under agreements to repurchase to reinvest proceeds in interest bearing time deposits and replaced short-term advances from the Federal Home Loan Bank with long-term advances. Long-term borrowings increased from $11.6 million at December 31, 1995 to $30.0 million at December 31, 1996, reflecting an increase of $18.4 million in advances from the Federal Home Loan Bank as compared to year end 1995. Liquidity Grand Premier defines liquidity as having funds available to meet cash flow requirements. Effective management of balance sheet liquidity is necessary to fund growth in earning assets, to pay liabilities, to satisfy depositors' withdrawal requirements and to accommodate changes in balance sheet mix. The Company has three major sources for generating cash other than through operations: 1) primary and secondary market deposits, 2) securities available for sale, and 3) lines of credit from unaffiliated banks. Liquid assets are compared to the potential needs for funds on an ongoing basis to determine if the Company has sufficient coverage for future liquidity needs. Management maintains a primary and total liquidity position that provides for a minimum 100% coverage relative to the anticipated likelihood of potential events taking place. At year end, our liquidity coverage exceeded this position. Stockholders' Equity Stockholders' equity increased by $2.1 million during 1996, from $156.0 million at December 31, 1995 to $158.1 million in 1996. The increase was primarily due to retained net earnings of $7.0 million (net income of $13.3 million less total common and preferred stock dividends of $6.3 million) offset by redemption of $5.0 million Series A Preferred stock. The Federal Reserve Board currently specifies three capital measurements under their risk-based capital guidelines: 1) "tier 1 capital" (i.e., stockholders' equity less goodwill to risk-adjusted assets), 2) "total risk based capital" (i.e., tier 1 capital plus the lesser of 1.25% of risk-adjusted assets or the allowance for possible loan losses to risk-adjusted assets), and 3) "tier 1 leverage ratio" (i.e., stockholders' equity less goodwill to total assets less goodwill). Bank holding companies are required to maintain minimum risk-based capital ratios of 4% for "tier 1 capital", 8% for "total risk based capital," and a "Tier 1 leverage ratio of 3% or greater. At December 31, 1996, Grand Premier s "tier 1 capital" ratio was 11.69%, well above the regulatory minimum. The Company s "total risk based capital" and tier 1 leverage ratios were 12.61% and 7.94% respectively, also considerably better than required. All of the Company s banking subsidiaries met the definition of "well-capitalized" under the FDIC's risk related premium system at December 31, 1996. Current Accounting Developments In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 125, among other things, applies a financial-components approach that focuses on control, whereby an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes assets when control has been surrendered, and derecognizes liabilities when extinguished. SFAS No, 125 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS No. 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. The Company does not expect this pronouncement to have a significant impact on its consolidated financial condition or results of operations. Overview 1996 was a year of significant change for Grand Premier Financial; that change will continue, and accelerate, in 1997. An aggressive schedule has been established for converting the Company to one data processing system, completing the centralization of operational processes and combining Grand Premier s catalogue of products and services. Management anticipates improvements in service level and earnings as these tasks are completed. Supplementary Business Information GRAND PREMIER FINANCIAL, INC. is a registered bank holding company and was established under Delaware Law. The operations of Grand Premier and its subsidiaries consist primarily of financial activities common to the commercial banking industry, as well as trust and investment services, data processing and electronic banking services and insurance. Services are extended to individuals, businesses, local government units and institutional customers throughout Northern Illinois. Stock information The Company s common stock is traded on the NASDAQ National Over-the-Counter market and is listed under the symbol GPFI. As of December 31, 1996 there were 1,231 shareholders of record. A two-year record, by quarter, of high and low bid prices, as well as cash dividends declared, is as follows: 1996 1995 Cash Cash Quarter High Low Dividend Quarter High Low Dividend 1st 10.25 8.25 .045 1st 7.50 6.50 .0425 2nd 10.75 9.50 .045 2nd 8.25 7.25 .0425 3rd 13.00 10.25 .10 3rd 8.00 6.75 .0425 4th 11.50 9.00 .08 4th 9.75 7.75 .0625 Total .27 Total .19 A three-for-one stock split in the form of a 200% stock dividend was declared and distributed as follows: 1994 Declaration date April 28, 1994 Record date June 8, 1994 Payable date July 1, 1994 10K notice The Annual Report to the Securities and Exchange Commission, Form 10-K, may be obtained by shareholders free of charge upon written request to Alan J. Emerick, Secretary of the Corporation, Grand Premier Financial, Inc., 486 West Liberty Street, Wauconda, Illinois 60084. Five Year Summary of Selected Financial Data Earnings 1996 1995 1994 1993 1992 Interest income $114,370 $108,782 $92,166 $84,801 $86,422 Interest expense 56,558 53,541 38,928 37,059 42,185 Net interest income 57,812 53,241 53,238 47,742 44,238 Provision for possible loan losses 2,875 1,435 555 2,982 4,499 Earnings before income taxes and cumulative effect of change in accounting for income taxes 18,602 23,185 17,893 13,862 13,401 Earnings before cumulative effect of change in accounting for income taxes 13,317 17,029 13,344 11,398 10,600 Cumulative effect of change in accounting for income taxes - - - 898 - Net earnings 13,317 17,029 13,344 12,296 10,600 Net earnings available to common shareholders $12,378 $15,923 $12,140 $11,704 $10,600 Per common share statistics* 1996 1995 1994 1993 1992 Net earnings before cumulative effect of change in accounting for income taxes $.62 $.79 $ .60 $ .54 $ .53 Cumulative effect of change in accounting for income taxes - - - .05 - Net earnings .62 .79 .60 .59 .53 Cash dividend declared .27 .19 .18 .16 .15 Book Value 7.45 7.13 5.63 5.80 5.13 1996 1995 1994 1993 1992 Common shares outstanding - -year end 19,983,679 19,869,823 20,036,969 20,118,626 19,419,295 1996 1995 1994 1993 1992 Rate earned on beginning stockholders' equity 8.54% 13.39% 10.03% 12.34% 11.41% Financial position - year end 1996 1995 1994 1993 1992 Securities held- to-maturity $ - $ - $114,174 $129,661 $361,736 Securities available for sale 535,687 598,570 457,161 403,487 77,521 Loans, net 955,366 865,317 752,973 756,821 613,520 Allowance for possible loan losses 10,116 9,435 9,738 10,595 8,160 Excess cost over fair value of net assets acquired 18,489 20,227 21,601 23,193 3,010 Noninterest bearing deposits 211,015 196,534 198,659 214,161 151,147 Interest bearing deposits 1,206,379 1,155,123 1,066,735 1,033,096 857,459 Total deposits 1,417,394 1,351,657 1,265,394 1,247,257 1,008,606 Short-term borrowings - 38,475 29,210 22,785 12,377 Securities sold under agreements to repurchase 23,486 49,757 53,638 55,532 43,974 Long-term borrowing 30,000 11,588 5,650 300 153 Stockholders' equity 158,089 156,003 127,136 132,976 99,679 Total assets $1,642,538 $1,624,673 $1,493,067 $1,470,393 $1,174,347 * Per share statistics have been adjusted to reflect a 10% stock dividend to shareholders of record February 28, 1992, and a three-for-one stock split in the form of a 200% stock dividend to shareholders of record June 8, 1994. Board of Directors Jean M. Barry Senior Investment Officer Donald E. Bitz Retired Chairman of the Board and CEO Harry J. Bystricky President BIWAX Corporation Chemical Manufacturer Frank J. Callero Partner, Callero and Callero LLP, CPA Alan J. Emerick EVP and Chief Administrative Officer Brenton J. Emerick Senior Vice President, Grand National Bank James Esposito Executive Vice President, Grand National Bank R. Gerald Fox President and CEO, F.I.A. Publishing Company Richard L. Geach Chairman of the Board and CEO Robert J. Hinman President and Chief Operating Officer Edward G. Maris Private Investor Howard A. McKee Attorney at Law David L. Murray Senior Executive Vice President and CFO H. Barry Musgrove Chairman of the Board and President, Franz Manufacturing Company Joseph C. Piland Educational Consultant and retired President Highland Community College Stephen J. Schostock Attorney and Partner Dimonte Schostock & Lizak, Attorneys at Law Executive Officers Richard L. Geach Chairman of the Board and Chief Executive Officer Robert W. Hinman President and Chief Operating Officer David L. Murray Senior Executive Vice President and CFO Alan J. Emerick Executive Vice President and Chief Administrative Officer William T. Theobald Senior Vice President and Chief Credit Officer Larry W. O Hara Senior Vice President and Director of Marketing Kenneth A. Urban President, Grand Premier Trust and Investment, Inc. Jack J. Emerick Regional President Ralph M. Zicco Regional President Reid L. French Regional President Joseph E. Esposito Regional President Scott Dixon Regional President -----END PRIVACY-ENHANCED MESSAGE-----