AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1998
REGISTRATION NO. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-8
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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HIGHLANDS INSURANCE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 75-2370945
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
STEPHEN J. GREENBERG, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
HIGHLANDS INSURANCE GROUP, INC.
1000 LENOX DRIVE
LAWRENCEVILLE, NEW JERSEY 08648
(609) 896-1921
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive offices)
HIGHLANDS INSURANCE GROUP, INC. EMPLOYEE STOCK PURCHASE PLAN
HIGHLANDS INSURANCE GROUP, INC. EMPLOYEES' RETIREMENT AND SAVINGS PLAN
(Full Titles of Plans)
STEPHEN J. GREENBERG, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
HIGHLANDS INSURANCE GROUP, INC.
1000 LENOX DRIVE
LAWRENCEVILLE, NEW JERSEY 08648
(609) 896-1921
(Name, address, including ZIP code, and telephone number, including area
code, of agent for service)
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Copies to:
ALAN H. LIEBLICH, ESQ.
SCHNADER HARRISON SEGAL & LEWIS LLP
1600 MARKET STREET
SUITE 3600
PHILADELPHIA, PA 19103
(215) 751-2048
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<TABLE>
CALCULATION OF REGISTRATION FEE
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Proposed
Maximum Maximum Amount of
Title of Securities to Be Amount to Be Offering Price Aggregate Offering Registration
Registered Registered(1) per Share(2) Price(2) Fee
- ----------------------------------- -------------------- -------------------- ------------------------ -------------------
Common Stock, par value $.01
per share....... 500,000 $20.000 $10,000,000 $2,950
</TABLE>
(1) In addition, pursuant to Rule 416(c) under the Securities Act of 1933,
as amended, this registration statement also covers an indeterminate
amount of plan interests to be offered or sold pursuant to the
Employees' Retirement and Savings Plan to which this registration
statement relates.
(2) Estimated upon the basis of the average of the high and low prices of
the Common Stock on the New York Stock Exchange on May 28 1998 solely
for purposes of calculating the registration fee pursuant to Rule
457(h) of the Securities Act of 1933, as amended.
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents filed with the Commission by Highlands
Insurance Group, Inc. (the "Company") are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
(b) The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998.
(c) The description of the Common Stock contained in the
Company's Registration Statement on Form 10 filed on October 27, 1995, as such
Registration Statement may be amended from time to time for purposes of
updating, changing or modifying such description.
All documents subsequently filed by the Company with the
Commission pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), prior to the filing of a
post-effective amendment to this Registration Statement which indicates that all
securities offered have been sold or which registers all securities then
remaining unsold, shall be deemed to be incorporated by reference in this
Registration Statement and to be a part hereof from the respective date of
filing of each such document.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law (the
"DGCL") allows a corporation to eliminate the personal liability of directors of
a corporation to the corporation or to any of its stockholders for monetary
damage for a breach of his fiduciary duty as a director, except in the case
where the director breached his duty of loyalty, failed to act in good faith,
engaged in intentional misconduct or knowingly violated a law, authorized the
payment of a dividend or approved a stock repurchase in violation of Delaware
corporate law
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or obtained an improper personal benefit. The Company's Amended and Restated
Certificate of Incorporation contains a provision which, in substance,
eliminates directors' personal liability as set forth above.
Section 145 of the DGCL provides that a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was a director, officer, employee or agent of the corporation or is or was
serving at its request in such capacity in another corporation or business
association against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The Company's Amended and
Restated Certificate of Incorporation contains a provision which, in substance,
provides for indemnification as set forth above.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not applicable.
<TABLE>
ITEM 8. EXHIBITS.
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<S> <C>
4.1 Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to the Company's registration statement on
Form 10 as filed with the Commission on January 4, 1996).
4.2 Form of Amended and Restated Bylaws of the Registrant incorporated by
reference to the Company's registration statement on Form 10 as filed
with the Commission on January 4, 1996).
4.3 Form of Stock Certificate of Common Stock (incorporated by reference
to the Company's registration statement on Form 10 as filed with the
Commission on January 4, 1996).
4.4 Form of 10% Convertible Subordinated Debentures Due December 31, 2005
(incorporated by reference to the Company's registration statement on
Form 10 as filed with the Commission on January 4, 1996).
4.5 Form of Common Stock Subscription Warrant, Series A (incorporated by
reference to the Company's registration statement on Form 10 as filed
with the Commission on January 4, 1996).
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<PAGE>
4.6 Form of Common stock Subscription Warrant, Series B (incorporated by
reference to the Company's registration statement on Form 10 as filed
with the Commission on January 4, 1996).
4.7 Form of 10% Convertible Subordinated Debentures Due December 31, 2005,
Series 2 (incorporated by reference to the Company's registration
statement on Form 10 as filed with the Commission on January 4, 1996).
4.8 Form of Common Stock Subscription Warrant, Series A-2 (incorporated by
reference to the Company's registration statement on Form 10 as filed
with the Commission on January 4, 1996).
4.9 Form of Common Stock Subscription Warrant, Series B-2 (incorporated by
reference to the Company's registration statement on Form 10 as filed
with the Commission on January 4, 1996).
4.10 Stockholders Agreement among Highlands Insurance Group, Inc.,
Insurance Partners, L.P., Insurance Partners Offshore (Bermuda) L.P.,
The Scandinavia Company, Inc., Erik M. Vik and Manoeuvre Ltd.
(incorporated by reference to the Company's current report on Form
8-K/A dated April 30, 1997, Commission File Number 1-14028).
4.11 Form of Amendment Number 1 to 10% Convertible Subordinated Debenture,
Due December 31, 2005 of Highlands Insurance Group, Inc. (incorporated
by reference to the Company's current report on Form 8-K, as amended,
dated April 30, 1997 as filed with the Commission).
4.12 Form of Amendment Number 1 to 10% Convertible Subordinated Debenture,
Series 2, Due December 31, 2005 of Highlands Insurance Group, Inc.
(incorporated by reference to the Company's current report on Form
8-K, as amended, dated April 30, 1997 as filed with the Commission).
4.13 Form of Amendment Number 1 to Common Stock Subscription Warrant,
Series A (incorporated by reference to the Company's current report on
Form 8-K, as amended, dated April 30, 1997 as filed with the
Commission).
4.14 Form of Amendment Number 1 to Common Stock Subscription Warrant,
Series B (incorporated by reference to the Company's
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current report on Form 8-K, as amended, dated April 30, 1997 as filed
with the Commission).
4.15 Form of Amendment Number 1 to Common Stock Subscription Warrant,
Series A-2 (incorporated by reference to the Company's current report
on Form 8-K, as amended, dated April 30, 1997 as filed with the
Commission).
4.16 Form of Amendment Number 1 to Common Stock Subscription Warrant,
Series B-2 (incorporated by reference to the Company's current report
on Form 8-K, as amended, dated April 30, 1997 as filed with the
Commission).
5.1 Opinion and consent of Schnader Harrison Segal & Lewis LLP.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Schnader Harrison Segal & Lewis LLP (included in Exhibit
5.1).
24.1 Powers of Attorney of directors and officers of the registrant (see
page II-5 of this Registration Statement).
99.1 Highlands Insurance Group, Inc. Employee Stock Purchase Plan.
99.2 Highlands Insurance Group, Inc. Employees' Retirement and Savings
Plan.
</TABLE>
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ITEM 9. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement;
provided, however, that paragraph (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by the foregoing paragraphs is
contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act, each
filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act that is incorporated
by reference in the Registration Statement shall be deemed to be
a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
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(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
designates and appoints Richard M. Haverland, Charles J. Bachand, Stephen J.
Greenberg and Stephen L. Kibblehouse, and each of them, as its or his
attorneys-in-fact (the "Attorneys-in-Fact") with full power to act alone, and to
execute in the name and on behalf of the Registrant and each such person,
individually in each capacity stated below, one or more amendments (including
post-effective amendments) to this Registration Statement on Form S-8, which
amendments may make such changes in this Registration Statement on Form S-8 as
any such Attorney-in-Fact deems appropriate, and to file each such amendment to
this Registration Statement on Form S-8 together with all exhibits thereto and
any and all documents in connection therewith.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-8 and has duly caused this Registration
Statement on Form S-8 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas.
Dated: May 29, 1998
Highlands Insurance Group, Inc.
By: /s/Richard M. Haverland
Richard M. Haverland,
Chairman, President and
Chief Executive Officer
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<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-8 has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
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SIGNATURE TITLE DATE
--------- ----- ----
<CAPTION>
<S> <C> <C>
/s/ Richard M. Haverland Chairman, President and May 29, 1998
- ----------------------------
Richard M. Haverland Chief Executive Officer
/s/ Charles J. Bachand Vice President, Treasurer May 29, 1998
- -------------------------------
Charles J. Bachand Principal Accounting Officer
/s/ Robert A. Spass Director May 29, 1998
- --------------------------------
Robert A. Spass
/s/ Bradley E. Cooper Director May 29, 1998
- ------------------------------
Bradley E. Cooper
/s/ W. Bernard Pieper Director May 29, 1998
- ------------------------------
W. Bernard Pieper
/s/ Kenneth S. Crews Director May 29, 1998
- ------------------------------
Kenneth S. Crews
/s/ Philip J. Hawk Director May 29, 1998
- --------------------------------
Philip J. Hawk
/s/ Robert W. Shower Director May 29, 1998
- -----------------------------
Robert W. Shower
</TABLE>
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<TABLE>
EXHIBIT INDEX
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<S> <C>
4.1 Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to the Company's registration statement on
Form 10 as filed with the Commission on January 4, 1996).
4.2 Form of Amended and Restated Bylaws of the Registrant incorporated by
reference to the Company's registration statement on Form 10 as filed
with the Commission on January 4, 1996).
4.3 Form of Stock Certificate of Common Stock (incorporated by reference
to the Company's registration statement on Form 10 as filed with the
Commission on January 4, 1996).
4.4 Form of 10% Convertible Subordinated Debentures Due December 31, 2005
(incorporated by reference to the Company's registration statement on
Form 10 as filed with the Commission on January 4, 1996).
4.5 Form of Common Stock Subscription Warrant, Series A (incorporated by
reference to the Company's registration statement on Form 10 as filed
with the Commission on January 4, 1996).
4.6 Form of Common stock Subscription Warrant, Series B (incorporated by
reference to the Company's registration statement on Form 10 as filed
with the Commission on January 4, 1996).
4.7 Form of 10% Convertible Subordinated Debentures Due December 31, 2005,
Series 2 (incorporated by reference to the Company's registration
statement on Form 10 as filed with the Commission on January 4, 1996).
4.8 Form of Common Stock Subscription Warrant, Series A-2 (incorporated by
reference to the Company's registration statement on Form 10 as filed
with the Commission on January 4, 1996).
4.9 Form of Common Stock Subscription Warrant, Series B-2 (incorporated by
reference to the Company's registration statement on Form 10 as filed
with the Commission on January 4, 1996).
4.10 Stockholders Agreement among Highlands Insurance Group, Inc.,
Insurance Partners, L.P., Insurance Partners Offshore (Bermuda) L.P.,
The Scandinavia Company, Inc., Erik M. Vik and Manoeuvre Ltd.
(incorporated by reference to the Company's current report on
II-9
<PAGE>
Form 8-K/A dated April 30, 1997, Commission File Number
1-14028).
4.11 Form of Amendment Number 1 to 10% Convertible Subordinated Debenture,
Due December 31, 2005 of Highlands Insurance Group, Inc. (incorporated
by reference to the Company's current report on Form 8-K, as amended,
dated April 30, 1997 as filed with the Commission).
4.12 Form of Amendment Number 1 to 10% Convertible Subordinated Debenture,
Series 2, Due December 31, 2005 of Highlands Insurance Group, Inc.
(incorporated by reference to the Company's current report on Form
8-K, as amended, dated April 30, 1997 as filed with the Commission).
4.13 Form of Amendment Number 1 to Common Stock Subscription Warrant,
Series A (incorporated by reference to the Company's current report on
Form 8-K, as amended, dated April 30, 1997 as filed with the
Commission).
4.14 Form of Amendment Number 1 to Common Stock Subscription Warrant,
Series B (incorporated by reference to the Company's current report on
Form 8-K, as amended, dated April 30, 1997 as filed with the
Commission).
4.15 Form of Amendment Number 1 to Common Stock Subscription Warrant,
Series A-2 (incorporated by reference to the Company's current report
on Form 8-K, as amended, dated April 30, 1997 as filed with the
Commission).
4.16 Form of Amendment Number 1 to Common Stock Subscription Warrant,
Series B-2 (incorporated by reference to the Company's current report
on Form 8-K, as amended, dated April 30, 1997 as filed with the
Commission).
5.1 Opinion and consent of Schnader Harrison Segal & Lewis LLP.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Schnader Harrison Segal & Lewis LLP (included in Exhibit
5.1).
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24.1 Powers of Attorney of directors and officers of the registrant (see
page II-5 of this Registration Statement).
99.1 Highlands Insurance Group, Inc. Employee Stock Purchase Plan.
99.2 Highlands Insurance Group, Inc. Employees' Retirement and Savings
Plan.
</TABLE>
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EXHIBIT 5.1
OPINION AND CONSENT OF SCHNADER HARRISON SEGAL & LEWIS LLP
May 29, 1998
The Board of Directors Highlands Insurance Group, Inc.
10370 Richmond Avenue
Houston, Texas 77042
Gentlemen:
We have acted as counsel to Highlands Insurance Group, Inc., a
Delaware corporation (the "Company"), in connection with the preparation and
filing by the Company with the Securities and Exchange Commission of a
Registration Statement on Form S-8, as amended (the "Registration Statement"),
under the Securities Act of 1933, as amended, registering 500,000 shares of
common stock, par value $.01 per share (the "Common Stock"), of the Company,
which shares were issued, or will be issued, by the Company pursuant to the
Highlands Insurance Group, Inc. Employee Stock Purchase Plan and the Highlands
Insurance Group, Inc. Employees' Retirement and Savings Plan.
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records, agreements,
documents and other instruments, and such certificates or comparable documents
of public officials and of officers and representatives of the Company, and have
made such inquiries of such officers and representatives, as we have deemed
relevant and necessary as a basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to all questions of
fact material to this opinion that have not been independently established, we
have relied upon certificates or comparable documents of officers and
representatives of the Company.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
1. The 500,000 shares of Common Stock registered by the Registration
Statement have been duly authorized and are, or will be when
issued, validly issued, fully paid and nonassessable.
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The opinions expressed herein are limited to the corporate laws of the
State of Delaware and we express no opinion as to the effect on the matters
covered by this letter or the laws of any other jurisdiction.
The opinions expressed herein are rendered solely for your benefit in
connection with the transactions described herein. Those opinions may not be
used or relied upon by any other person, nor may this letter or any copies
thereof be furnished to a third party, filed with a governmental agency, quoted,
cited or otherwise referred to without our prior written consent.
We consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/Schnader Harrison Segal & Lewis LLP
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Highlands Insurance Group, Inc.
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm included in this registration statement.
KPMG PEAT MARWICK LLP
Houston, Texas
May 29, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement on Form S-8 pertaining
to the Employee Stock Purchase Plan and the Employees' Retirement and Savings
Plan of Highlands Insurance Group, Inc. of our report dated March 8, 1996
included in Highlands Insurance Group, Inc.'s Form 10-K for the year ended
December 31, 1997 and to all references to our firm included in this
registration statement.
Arthur Andersen LLP
Houston, Texas
May 29, 1998
<PAGE>
EXHIBIT 99.1
HIGHLANDS INSURANCE GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I - PURPOSE
The Highlands Insurance Group, Inc. Employee Stock Purchase Plan is
intended to provide to employees of Highlands Insurance Group, Inc. and its
subsidiaries the opportunity to acquire ownership interests in the Corporation
at a discounted price. The Corporation believes that ownership of its Common
Stock will motivate employees to improve their job performance, and enhance the
financial results of the Corporation. The Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code,
and shall be construed so as to extend and limit participation in a manner
consistent with the requirements thereof.
ARTICLE II - DEFINITIONS
2.01. Account
"Account" shall mean a payroll deduction account maintained pursuant
to Section 5.02.
2.02. Board
"Board" shall mean the Board of Directors of Highlands Insurance
Group, Inc.
2.03. Code
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
2.04. Committee
"Committee" shall mean the individuals described in Article VII.
2.05. Common Stock
"Common Stock" shall mean the Common Stock, par value $.01 per share,
of Highlands Insurance Group, Inc.
1
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2.06. Corporation
"Corporation" shall mean Highlands Insurance Group, Inc., a Delaware
corporation, and its Subsidiary Corporations.
2.07. Employee
"Employee" shall mean any person employed by the Corporation who is
customarily employed by the Corporation for more than 5 months per calendar
year.
2.08. Fair Market Value
Fair Market Value as of any date shall mean
(a) if the Common Stock is listed on a national securities exchange or
traded in the over-the-counter market and sales price are regularly reported for
the Common Stock, the closing or last price of the Common Stock on the Composite
Tape or other comparable reporting system for the trading day immediately
preceding such date;
(b) if the Common Stock is traded on the over-the-counter market, but
sales prices are not regularly reported for the Common Stock, and if bid and
asked prices for the Common Stock are regularly reported, the average of the
mean between the bid and the asked price for the Common Stock at the close of
trading in the over-the-counter market for the 10 consecutive trading days
immediately preceding such date; and
(c) if the Common Stock is neither listed on a national securities
exchange nor traded on the over-the-counter market, such value as the Committee,
in good faith, shall determine.
2.09. Offering
"Offering" shall mean an annual offering of Common Stock pursuant to
Section 4.01.
2.10. Offering Date
"Offering Date" shall mean the date on which an Offering is made.
2
<PAGE>
2.11. Subsidiary Corporation
"Subsidiary Corporation" shall mean any present or future corporation
that is (i) a "subsidiary corporation" of Highlands Insurance Group, Inc. as
that term is defined in Section 424 of the Code and (ii) designated as a
participant in the Plan by the Committee at the effective date or subsequently.
ARTICLE III - ELIGIBILITY AND PARTICIPATION
3.01. Initial Eligibility
Each Employee shall be eligible to participate in Offerings made after
3 months of service with the Corporation.
3.02. Restrictions on Participation
Notwithstanding any provisions of the Plan to the contrary, no
Employee shall participate in an Offering
(a) if, immediately after the Offering Date, such Employee would own
stock, and/or hold outstanding options to purchase stock, possessing 5% or more
of the total combined voting power or value of all classes of stock of the
Corporation (for purposes of this paragraph, the rules of Section 424(d) of the
Code shall apply in determining stock ownership of any Employee); or
(b) to the extent that the Employee's rights to purchase stock under
all employee stock purchase plans under Section 423 of the Code of the
Corporation and any corporate parent or subsidiary thereof accrue at a rate
which exceeds $25,000 in fair market value of the stock (determined at the time
such option is granted) for each calendar year in which such option is
outstanding.
ARTICLE IV - GRANTING OF OPTIONS
4.01. Annual Offerings
The Plan shall be implemented by annual offerings of Common Stock
beginning on July 1, 1998 and on the 1st day of July in each subsequent year.
3
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4.02. Number of Option Shares
On each Offering Date, a participating Employee shall be deemed to
have been granted an option to purchase a number of shares of Common Stock equal
to (i) the aggregate amount tendered with respect to the Offering by the
Employee under Section 6.01, divided by (ii) 85% of the Fair Market Value of the
Common Stock on the Offering Date.
4.03. Option Price
The option price of Common Stock purchased in an annual Offering shall
be 85% of the Fair Market Value of Common Stock on the Offering Date.
4.04. Maximum Shares
The maximum number of shares which shall be issued under the Plan,
subject to adjustment upon changes in capitalization of the Corporation as
provided in Section 8.02, shall be 300,000 shares. If the total number of shares
for which options are exercised on any Offering Date, together with the
aggregate number of shares as to which options were exercised on all previous
Offering Dates, exceeds the foregoing maximum number of shares, the Corporation
shall make a pro rata allocation of the shares available for purchase in as
nearly a uniform manner as shall be practicable and as it shall determine to be
equitable, and the balance of the amount tendered by each Employee under Section
6.01 not used to purchase Common Stock shall be returned to him as promptly as
possible.
4.05. Employee's Interest in Option Stock
The Employee shall have no interest in Common Stock covered by an
option until such option has been exercised.
ARTICLE V - PAYROLL DEDUCTIONS
5.01. Amount of Deduction
An Employee may authorize payroll deductions in order to accumulate
funds for any Offering after July 1, 1998, by written notice to the Corporation
in the form provided and in the manner prescribed by the Committee. An
Employee's authorization for payroll deduction shall elect deductions of at
least $300, but not more than $20,000, with respect to each Offering.
4
<PAGE>
5.02. Employee's Account
All payroll deductions made for an Employee shall be credited to a
book account maintained for the Employee under the Plan. An Employee may not
make any separate cash payment into such account. The Corporation shall not
maintain any fund with respect to the Plan or credit any interest on payroll
deductions.
5.03. Changes in Payroll Deductions
An Employee may file a new authorization for payroll deduction with
respect to each successive annual Offering. An Employee may discontinue payroll
deductions under the Plan at any time, but may make no other change with respect
to an Offering and, specifically, may not subsequently alter the amount of
payroll deductions for that Offering.
5.04. Withdrawal
An Employee may withdraw the full amount credited to the Employee's
Account at any time by giving written notice to the Corporation. The balance
credited to the Employee's Account shall be paid to the Employee promptly after
receipt of the notice of withdrawal, and no further deductions shall be made
from the Employee's pay with respect to such Offering.
5.05. Termination of Employment
Upon termination of an Employee's employment for any reason, any
amount credited to the Employee's Account, or otherwise tendered under Section
6.01 but not yet used to purchase Common Stock, shall be returned to the
Employee or, in the case of death, to the Employee's executor or administrator.
ARTICLE VI - EXERCISE OF OPTIONS
6.01. Manner of Exercise
Unless an Employee gives written notice to the Corporation as herein
provided, the Employee's option with respect to any Offering shall be exercised
automatically on the Offering Date, for the number of shares of Common Stock
that may be purchased with the balance standing to the credit of the Employee's
Account. Whether or not a participating Employee has an Account, the Employee
may purchase shares available in any Offering by the delivery to the Corporation
5
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at its principal office of written notice thereof, in the form provided and in
the manner prescribed by the Committee, accompanied by the Employee's check. The
total amount tendered by an Employee by check and payroll deductions with
respect to any offering shall not be less than $300 nor more than $20,000.
6.02. Issuance of Stock
As promptly as practicable after each Offering Date, the Corporation
shall issue to each Employee the Common Stock purchased upon exercise of an
option. Common Stock issued pursuant to the Plan may be either authorized but
unissued shares or shares held in the treasury of the Corporation.
6.03. Registration of Stock
Common Stock to be delivered to an Employee under the Plan shall be
registered in the name of the Employee, or, if the Employee so directs by
written notice to the Corporation prior to the Offering Termination Date
applicable thereto, in the names of the Employee and one such other person as
may be designated by the Employee, as joint tenants with rights of survivorship
or as tenants by the entirety, to the extent permitted by applicable law.
6.04. Withholding
The Corporation shall have the right to withhold from an Employee's
compensation amounts sufficient to satisfy all federal, state and local tax
withholding requirements, and shall have the right to require the Employee to
remit to the Corporation such amounts prior to the delivery of any certificates
for Common Stock.
ARTICLE VII - ADMINISTRATION
7.01. Appointment of Committee
The Board shall appoint a committee to administer the Plan, which
shall consist of no fewer than two members of the Board. Each member of the
Committee shall be a director defined in Rule 16b-3(b)(3) promulgated by the
Securities and Exchange Commission, or any successor definition adopted by the
Securities and Exchange Commission.
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7.02. Authority of Committee
Subject to the express provisions of the Plan, the Committee shall
have plenary authority in its discretion to interpret and construe any and all
provisions of the Plan, to adopt rules and regulations for administering the
Plan, and to make all other determinations deemed necessary or advisable for
administering the Plan. The Committee's determination on the foregoing matters
shall be conclusive.
7.03. Rules Governing Committee
The Board may from time to time appoint members of the Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee may select one of its
members as its Chairman and shall hold its meetings at such times and places as
it shall deem advisable, and may hold telephonic meetings. A majority of its
members shall constitute a quorum. All determinations of the Committee shall be
made by a majority of its members. The Committee may correct any defect or
omission or reconcile any inconsistency in the Plan, in the manner and to the
extent it shall deem desirable. Any decision or determination reduced to writing
and signed by a majority of the members of the Committee shall be as fully
effective as if it had been made by a majority vote at a meeting duly called and
held. The Committee may appoint a secretary and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
7.04. Liability of Committee
No member of the Committee or the Board shall be liable for any action
taken or omitted or any determination made in good faith relating to the Plan,
and the Corporation shall indemnify and hold harmless each member of the
Committee and each other director or employee of the Company to whom any duty or
power relating to the administration or interpretation of the Plan has been
delegated against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the
Committee) arising out of any act or omission in connection with the Plan,
unless arising out of such person's own bad faith.
ARTICLE VIII - MISCELLANEOUS
8.01. Transferability
Neither payroll deductions credited to an Employee's Account nor any
rights with regard to the exercise of an option or to receive Common Stock under
the Plan may be assigned, transferred, pledged, or otherwise disposed of in any
way other than by the laws of descent and distribution, or subject to execution,
attachment or similar process. Any such attempted voluntary or involuntary
7
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disposition shall be without effect, except that the Corporation may treat such
act as an election to withdraw funds in accordance with Section 5.04. Options
granted to an Employee shall be exercisable only by the Employee.
8.02. Adjustment upon Changes in Capitalization
If the outstanding shares of Common Stock have increased, decreased,
changed into, or been exchanged for a different number or kind of shares or
securities of the Corporation through reorganization, recapitalization,
reclassification, stock split, reverse stock split or similar transaction,
appropriate and proportionate adjustments may be made by the Committee in the
number and/or kind of shares which may be offered in the Offerings.
8.03. Amendment and Termination
The Board shall have complete power and authority to terminate or
amend the Plan; provided, however, that the Board shall not, without the
approval of the stockholders of the Corporation, (i) increase the maximum number
of shares which may be issued under the Plan (except pursuant to Section 8.02);
(ii) amend the requirements as to the class of Employees eligible to purchase
Common Stock under the Plan; or (iii) increase the percentage discount from Fair
Market Value under Section 4.03. No termination, modification, or amendment of
the Plan may, without the consent of an Employee, adversely affect the rights of
such Employee as to Common Stock previously purchased.
8.04. Effective Date
The Plan shall become effective as of July 1, 1998, subject to
approval by the holders of a majority of the Common Stock present and
represented at a special or annual meeting of the shareholders held within 12
months after the Plan is adopted by the Board. If the Plan is not so approved,
the Plan shall not become effective, and all Account balances under the Plan
shall be distributed promptly to the contributing Employees.
8.05. No Employment Rights
The Plan does not, directly or indirectly, create in any Employee or
class of Employees any right with respect to continuation of employment by the
Corporation, and it shall not be deemed to interfere in any way with the
Corporation's right to terminate, or otherwise modify, an Employee's employment
at any time.
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8.06. Governing Law
The law of the State of Delaware shall govern all matters relating to
this Plan except to the extent it is inconsistent with the Code.
9
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Exhibit 99.2
HIGHLANDS INSURANCE GROUP
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
As Amended and Restated
Effective July 1, 1998
<PAGE>
HIGHLANDS INSURANCE GROUP
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
W I T N E S S E T H:
WHEREAS, Highlands Insurance Company has heretofore adopted the
Highlands Insurance Company Employees' Retirement and Savings Plan, hereinafter
referred to as the "Plan," for the benefit of its employees; and
WHEREAS, Highlands Insurance Company and American Reliance, Inc. have
taken corporate action to merge the American Reliance Inc. Retirement Plan into
the Plan on July 1, 1998; and
WHEREAS, Highlands Insurance Group, Inc., as parent corporation of
Highlands Insurance Company and American Reliance, Inc., has accepted
sponsorship of the Plan; and
WHEREAS, Highlands Insurance Company desires to restate the Plan to
amend the Plan in several respects, intending thereby to provide an
uninterrupted and continuing program of benefits;
NOW THEREFORE, the Plan is hereby restated in its entirety as follows
with no interruption in time, effective as of July 1, 1998, except as otherwise
indicated herein:
<PAGE>
TABLE OF CONTENTS
PAGE
I. DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . .1
1.1 Definition . . . . . . . . . . . . . . . . . . . . . .1
(1) Account(s). . . . . . . . . . . . . . . . . . . .1
(2) Act . . . . . . . . . . . . . . . . . . . . . . .1
(3) Allocation Percentage . . . . . . . . . . . . . .1
(4) Authorized Leave of Absence . . . . . . . . . . .1
(5) Benefit Commencement Date . . . . . . . . . . . .1
(6) Code. . . . . . . . . . . . . . . . . . . . . . .1
(7) Committee . . . . . . . . . . . . . . . . . . . .1
(8) Company . . . . . . . . . . . . . . . . . . . . .1
(9) Compensation. . . . . . . . . . . . . . . . . . .1
(10) Controlled Entity . . . . . . . . . . . . . . . .2
(11) Direct Rollover . . . . . . . . . . . . . . . . .3
(12) Directors . . . . . . . . . . . . . . . . . . . .3
(13) Distributee . . . . . . . . . . . . . . . . . . .3
(14) Early Retirement Date . . . . . . . . . . . . . .3
(15) Effective Date. . . . . . . . . . . . . . . . . .3
(16) Eligible Employee . . . . . . . . . . . . . . . .3
(17) Eligible Retirement Plan. . . . . . . . . . . . .3
(18) Eligible Rollover Distribution. . . . . . . . . .3
(19) Employee. . . . . . . . . . . . . . . . . . . . .4
(20) Employer. . . . . . . . . . . . . . . . . . . . .4
(21) Employer Contributions. . . . . . . . . . . . . .4
(22) Employer Matching Contributions . . . . . . . . .4
(23) Employer Profit Sharing Contributions . . . . . .4
(24) Employer Safe Harbor Contributions. . . . . . . .4
(25) Employer Stock. . . . . . . . . . . . . . . . . .4
(26) Employer's Contributions Account. . . . . . . . .4
(27) Employment Commencement Date. . . . . . . . . . .4
(28) Excess Compensation . . . . . . . . . . . . . . .4
(29) Highly Compensated Employee . . . . . . . . . . .4
(30) Hour of Service . . . . . . . . . . . . . . . . .5
(31) Integration Level . . . . . . . . . . . . . . . .5
(32) Investment Fund . . . . . . . . . . . . . . . . .5
(33) Leased Employee . . . . . . . . . . . . . . . . .5
(34) Normal Retirement Date. . . . . . . . . . . . . .5
(35) One-Year Break-in-Service . . . . . . . . . . . .5
(36) Participant . . . . . . . . . . . . . . . . . . .6
(37) Participation Service . . . . . . . . . . . . . .6
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(38) Period of Service . . . . . . . . . . . . . . . .6
(39) Period of Severance . . . . . . . . . . . . . . .6
(40) Plan. . . . . . . . . . . . . . . . . . . . . . .6
(41) Plan Administrator. . . . . . . . . . . . . . . .6
(42) Plan Year . . . . . . . . . . . . . . . . . . . .6
(43) Reemployment Commencement Date. . . . . . . . . .6
(44) Regular Savings Account . . . . . . . . . . . . .6
(45) Regular Savings Contributions . . . . . . . . . .6
(46) Retirement. . . . . . . . . . . . . . . . . . . .6
(47) Rollover Account. . . . . . . . . . . . . . . . .7
(48) Rollover Contributions. . . . . . . . . . . . . .7
(49) Service . . . . . . . . . . . . . . . . . . . . .7
(50) Service Computation Period. . . . . . . . . . . .7
(51) Severance from Service Date . . . . . . . . . . .7
(52) Tax Deferred Savings Account. . . . . . . . . . .7
(53) Tax Deferred Savings Contributions. . . . . . . .8
(54) Trust . . . . . . . . . . . . . . . . . . . . . .8
(55) Trust Agreement . . . . . . . . . . . . . . . . .8
(56) Trust Fund. . . . . . . . . . . . . . . . . . . .8
(57) Trustee . . . . . . . . . . . . . . . . . . . . .8
(58) Valuation Dates . . . . . . . . . . . . . . . . .8
(59) Vested Interest . . . . . . . . . . . . . . . . .8
(60) Vesting Service . . . . . . . . . . . . . . . . .8
1.2 Number and Gender. . . . . . . . . . . . . . . . . . .8
1.3 Headings . . . . . . . . . . . . . . . . . . . . . . .8
1.4 Construction . . . . . . . . . . . . . . . . . . . . .8
II. PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . .9
2.1 Effective Date . . . . . . . . . . . . . . . . . . . .9
2.2 Eligibility. . . . . . . . . . . . . . . . . . . . . .9
2.3 Participation Service. . . . . . . . . . . . . . . . .9
III. CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . 10
3.1 Tax Deferred Savings Contributions . . . . . . . . . 10
3.2 Regular Savings Contributions. . . . . . . . . . . . 11
3.3 Employer Matching Contributions. . . . . . . . . . . 12
3.4 Employer Profit Sharing Contributions. . . . . . . . 12
3.5 Employer Safe Harbor Contributions . . . . . . . . . 12
3.6 Restrictions on Employer Contributions and Regular
Savings Contributions . . . . . . . . . . . . . . . 13
3.7 Return of Contributions. . . . . . . . . . . . . . . 13
3.8 Disposition of Excess Deferrals and Excess
Contributions . . . . . . . . . . . . . . . . . . . 13
3.9 Rollover Contributions . . . . . . . . . . . . . . . 15
3.10 Veterans Employment Rights . . . . . . . . . . . . . 15
IV. ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . 15
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4.1 Suspended Amounts. . . . . . . . . . . . . . . . . . 15
4.2 Allocation of Contributions. . . . . . . . . . . . . 16
4.3 Allocation of Forfeitures. . . . . . . . . . . . . . 17
4.4 Allocation of Net Income or Loss and Changes
in Value Among Accounts . . . . . . . . . . . . . . 18
4.5 Limitations and Corrections. . . . . . . . . . . . . 18
V. INVESTMENT FUNDS . . . . . . . . . . . . . . . . . . . . . 21
5.1 Investment Designation . . . . . . . . . . . . . . . 21
5.2 Change of Investment Designation . . . . . . . . . . 21
5.3 Employer Stock Fund. . . . . . . . . . . . . . . . . 21
5.4 Transfer of Investments. . . . . . . . . . . . . . . 21
VI. RETIREMENT BENEFITS . . . . . . . . . . . . . . . . . . . 21
6.1 Retirement Benefits. . . . . . . . . . . . . . . . . 21
VII. DISABILITY BENEFITS. . . . . . . . . . . . . . . . . . . 22
7.1 Disability Benefits. . . . . . . . . . . . . . . . . 22
7.2 Total and Permanent Disability Determined. . . . . . 22
VIII. SEVERANCE BENEFITS AND DETERMINATION OF VESTED INTEREST 22
8.1 No Benefits Unless Herein Set Forth. . . . . . . . . 22
8.2 Severance Benefit. . . . . . . . . . . . . . . . . . 22
8.3 Determination of Vested Interest . . . . . . . . . . 23
8.4 Vesting Service. . . . . . . . . . . . . . . . . . . 23
8.5 Forfeitures. . . . . . . . . . . . . . . . . . . . . 24
IX. DEATH BENEFITS. . . . . . . . . . . . . . . . . . . . . . 26
9.1 Death Benefits . . . . . . . . . . . . . . . . . . . 26
9.2 Designation of Beneficiaries . . . . . . . . . . . . 26
X. TIME AND FORM OF PAYMENT OF BENEFITS . . . . . . . . . . . 27
10.1 Time of Payment. . . . . . . . . . . . . . . . . . . 27
10.2 Alternative Forms of Benefit for Participants. . . . 29
10.3 Alternative Forms of Death Benefit . . . . . . . . . 30
10.4 Cash-Out of Benefit. . . . . . . . . . . . . . . . . 30
10.5 Direct Rollover Election . . . . . . . . . . . . . . 30
10.6 Benefits from Account Balances . . . . . . . . . . . 31
10.7 Commercial Annuities . . . . . . . . . . . . . . . . 31
10.8 Unclaimed Benefits . . . . . . . . . . . . . . . . . 31
10.9 Claims Review. . . . . . . . . . . . . . . . . . . . 31
XI. WITHDRAWALS . . . . . . . . . . . . . . . . . . . . . . . 32
11.1 Withdrawals. . . . . . . . . . . . . . . . . . . . . 32
11.2 Restriction on Withdrawals . . . . . . . . . . . . . 33
-iii-
XII. LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.1 Eligibility for Loan . . . . . . . . . . . . . . . . 33
12.2 Maximum Loan . . . . . . . . . . . . . . . . . . . . 35
XIII. ADMINISTRATION OF THE PLAN. . . . . . . . . . . . . . . 35
13.1 Appointment of Committee . . . . . . . . . . . . . . 35
13.2 Term, Vacancies, Resignation, and Removal. . . . . . 35
13.3 Officers, Records, and Procedures. . . . . . . . . . 36
13.4 Meetings . . . . . . . . . . . . . . . . . . . . . . 36
13.5 Self-Interest of Participants. . . . . . . . . . . . 36
13.6 Compensation and Bonding . . . . . . . . . . . . . . 36
13.7 Committee Powers and Duties. . . . . . . . . . . . . 36
13.8 Employer to Supply Information . . . . . . . . . . . 38
13.9 Indemnification. . . . . . . . . . . . . . . . . . . 38
13.10 Employer Stock Fund . . . . . . . . . . . . . . 38
XIV. TRUSTEE AND ADMINISTRATION OF TRUST FUND . . . . . . . . 39
14.1 Appointment, Resignation, Removal, and Replacement
of Trustee . . . . . . . . . . . . . . . . . . . . . 39
14.2 Trust Agreement. . . . . . . . . . . . . . . . . . . 39
14.3 Payment of Expenses. . . . . . . . . . . . . . . . . 39
14.4 Trust Fund Property. . . . . . . . . . . . . . . . . 39
14.5 Distributions from Participants' Accounts. . . . . . 40
14.6 Payments Solely from Trust Fund. . . . . . . . . . . 40
14.7 No Benefits to the Employer. . . . . . . . . . . . . 40
14.8 Effective Date . . . . . . . . . . . . . . . . . . . 40
XV. FIDUCIARY PROVISIONS. . . . . . . . . . . . . . . . . . . 40
15.1 Article Controls . . . . . . . . . . . . . . . . . . 40
15.2 General Allocation of Fiduciary Duties . . . . . . . 40
15.3 Fiduciary Duty . . . . . . . . . . . . . . . . . . . 41
15.4 Delegation and Allocation of Fiduciary Duties. . . . 41
15.5 Investment Manager . . . . . . . . . . . . . . . . . 41
XVI. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . 42
16.1 Right to Amend . . . . . . . . . . . . . . . . . . . 42
16.2 Limitation on Amendments . . . . . . . . . . . . . . 42
XVII. DISCONTINUANCE OF CONTRIBUTIONS, TERMINATION, PARTIAL
TERMINATION, AND MERGER OR CONSOLIDATION . . . . . . . 42
17.1 Right to Discontinue Contributions, Terminate, or
Partially Terminate . . . . . . . . . . . . . . . . 42
17.2 Procedure in the Event of Discontinuance of
Contributions, Termination, or Partial Termination . 42
17.3 Merger, Consolidation, or Transfer . . . . . . . . . 43
XVIII. ADOPTING EMPLOYERS . . . . . . . . . . . . . . . . . . 43
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18.1 Designation of Other Employers . . . . . . . . . . . 43
18.2 Single Plan. . . . . . . . . . . . . . . . . . . . . 44
XIX. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . 44
19.1 Not Contract of Employment . . . . . . . . . . . . . 44
19.2 Alienation of Interest Forbidden . . . . . . . . . . 45
19.3 Payments to Minors and Incompetents. . . . . . . . . 45
19.4 Participant's Address. . . . . . . . . . . . . . . . 45
19.5 Severability . . . . . . . . . . . . . . . . . . . . 45
19.6 Jurisdiction . . . . . . . . . . . . . . . . . . . . 45
19.7 Plan Changes During Periods of Transition. . . . . . 46
XX. TOP-HEAVY STATUS. . . . . . . . . . . . . . . . . . . . . 46
20.1 Article Controls . . . . . . . . . . . . . . . . . . 46
20.2 Definitions. . . . . . . . . . . . . . . . . . . . . 46
20.3 Top-Heavy Status . . . . . . . . . . . . . . . . . . 48
20.4 Termination of Top-Heavy Status. . . . . . . . . . . 49
20.5 Effect of Article. . . . . . . . . . . . . . . . . . 50
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I. DEFINITIONS AND CONSTRUCTION
1.1 Definition. Where the following words and phrases appear in the Plan,
they shall have the respective meanings set forth below, unless their context
clearly indicates to the contrary.
(1) Account(s): A Participant's Employer's Contributions Account,
Regular Savings Account, Rollover Account and/or Tax Deferred Savings Account,
including the amounts credited thereto.
(2) Act: The Employee Retirement Income Security Act of 1974, as
amended.
(3) Authorized Leave of Absence: Any Childbirth Leave, or other
absence authorized by the Employer under the Employer's standard personnel
practices, provided that all persons under similar circumstances must be treated
alike in the granting of such authorized absences.
(4) Benefit Commencement Date: With respect to each Participant or
beneficiary, the first day of the first period for which such Participant's or
beneficiary's benefit is payable to him from the Trust Fund.
(5) Childbirth Leave: Absence from Service by reason of an
individual's pregnancy, the birth of a child of the individual, the placement of
a child with the individual in connection with the adoption of such child by the
individual, or for purposes of caring for such child for the period immediately
following such birth or placement.
(6) Code: The Internal Revenue Code of 1986, as amended.
(7) Committee: The administrative committee appointed by the Directors
to administer the Plan.
(8) Company: Highlands Insurance Group, Inc., a Delaware Corporation
(9) Compensation: The total of all wages, salaries, fees for
professional service and other amounts received in cash or in kind by a
Participant for services actually rendered or labor performed for the Employer
while a Participant to the extent such amounts are includable in gross income,
subject to the following adjustments and limitations:
(A) The following shall be excluded:
(i) reimbursements and other expense allowances;
(ii) cash and noncash fringe benefits;
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(iii) moving expenses;
(iv) Employer contributions to or payments from this or any
other deferred compensation program, whether such program is qualified under
section 401(a) of the Code or nonqualified;
(v) severance pay and other welfare benefits;
(vi) amounts realized from the receipt or exercise of a stock
option that is not an incentive stock option within the meaning of section 422
of the Code;
(vii) amounts realized at the time property described in section
83 of the Code is freely transferable or no longer subject to a substantial
risk of forfeiture;
(viii)amounts realized as a result of an election described in
section 83(b) of the Code;
(ix) any amount realized as a result of a disqualifying
disposition within the meaning of section 421(a) of the Code; and
(x) any other amounts that receive special tax benefits under the
Code but are not hereinafter included.
(B) Tax Deferred Savings Contributions and contributions made on a
Participant's behalf by the Employer that are not includable in income under
section 125 of the Code shall be included.
(C) The Compensation of any Participant taken into account for
purposes of the Plan shall be limited to $150,000 for any Plan Year with such
limitation to be:
(i) adjusted automatically to reflect any amendments to section
401(a)(17) of the Code and any cost-of-living increases authorized by section
401(a)(17) of the Code; and
(ii) prorated for a Plan Year of less than twelve months and to
the extent otherwise required by applicable law;
(10) Controlled Entity: Each corporation that is a member of a
controlled group of corporations, within the meaning of section 1563(a)
(determined without regard to sections 1563(a)(4) and 1563(e)(3)(C)) of the
Code, of which the Employer is a member, each trade or business (whether or not
incorporated) with which the Employer is under common control, and each member
of an affiliated service group, within the meaning of section 414(m) of the
Code, of which the Employer is a member.
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(11) Direct Rollover: A payment by the Plan to an Eligible Retirement
Plan designated by a Distributee.
(12) Directors: The Board of Directors of the Company.
(13) Distributee: Each (A) Participant entitled to an Eligible
Rollover Distribution, (B) Participant's surviving spouse with respect to the
interest of such surviving spouse in an Eligible Rollover Distribution, and (C)
former spouse of a Participant who is an alternate payee under a qualified
domestic relations order, as defined in section 414(p) of the Code, with regard
to the interest of such former spouse in an Eligible Rollover Distribution.
(14) Effective Date: July 1, 1998, as to this restatement of the Plan,
except (A) as otherwise indicated in specific provisions of the Plan, and (B)
that provisions of the Plan required to have an earlier effective date by the
Uniformed Services Employment and Reemployment Rights Act of 1994, the Small
Business Jobs Protection Act of 1996 and the Taxpayer Relief Act of 1997, or by
regulations issued pursuant to such Acts, shall be effective as of the required
effective dates in such Acts and/or regulations.
(15) Eligible Employee: Each Employee other than (A) an Employee whose
terms and conditions of employment are governed by a collective bargaining
agreement, unless such agreement provides for his coverage under the Plan, (B) a
nonresident alien who has no United States source income and (C) an Employee who
is a Leased Employee. Notwithstanding any provision of the Plan to the contrary,
no individual who is designated, compensated, or otherwise classified or treated
by the Employer as an independent contractor shall be eligible to become a
Participant of the Plan.
(16) Eligible Retirement Plan: (A) With respect to a Distributee other
than a surviving spouse, 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 plan described in section 401(a) of the Code, which under its
provisions accepts such Distributee's Eligible Rollover Distribution and (B)
with respect to a Distributee who is a surviving spouse, an individual
retirement account described in section 408(a) of the Code or an individual
retirement annuity described in section 408(b) of the Code.
(17) Eligible Rollover Distribution: Any distribution of all or any
portion of the Accounts of a Distributee other than (A) a distribution that is
one of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the Distributee or the
joint lives (or joint life expectancies) of the Distributee and the
Distributee's designated beneficiary or for a specified period of ten years or
more, (B) a distribution to the extent such distribution is required under
section 401(a)(9) of the Code, (C) the portion of a distribution that is not
includable in gross income (determined without regard to the exclusion for net
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unrealized appreciation with respect to employer securities), (D) any corrective
distribution provided in Sections 3.8 and 4.5(b), and (E) any other distribution
so designated by the Internal Revenue Service in revenue rulings, notices, and
other guidance of general applicability.
(18) Employee: Each (A) individual employed by the Employer and (B)
Leased Employee.
(19) Employer: The Company and each eligible organization designated
as an Employer in accordance with the provisions of Article XVIII.
(20) Employer Contributions: The total of Employer Matching
Contributions, Employer Profit Sharing Contributions, and Employer Safe Harbor
Contributions.
(21) Employer Matching Contributions: Contributions made to the Plan
by the Employer pursuant to Section 3.3.
(22) Employer Profit Sharing Contributions: Contributions made to the
Plan by the Employer pursuant to Section 3.4.
(23) Employer Safe Harbor Contributions: Contributions made to the
Plan by the Employer pursuant to Section 3.5.
(24) Employer Stock: Stock issued by the Company.
(25) Employer's Contributions Account: An individual account for each
Participant, which is credited with the sum of (A) the Employer Matching
Contributions, if any, made on such Participant's behalf pursuant to Section
3.3, (B) the Employer Profit Sharing Contributions, if any, made on such
Participant's behalf pursuant to Section 3.4 and (C), the Employer Safe Harbor
Contributions, if any, made on such Participant's behalf pursuant to Section 3.5
to satisfy the restrictions set forth in Section 3.6, and which is credited with
(or debited for) such account's allocation of net income (or net loss) and
changes in value of the Trust Fund.
(26) Employment Commencement Date: The date on which an individual
first performs an Hour of Service.
(27) Highly Compensated Employee: Each Employee who performs services
during the Plan Year for which the determination of who is highly compensated is
being made (the "Determination Year") and who:
(A) is a five-percent owner of the Employer (within the meaning
of section 416(i)(1)(A)(iii) of the Code) at any time during the Determination
Year or the twelve-month period immediately preceding the Determination Year
(the "Look-Back Year"); or
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(B) receives compensation (within the meaning of section
415(c)(3) of the Code, including elective or salary reduction contributions to a
cafeteria plan, cash or deferred arrangement, or tax-sheltered annuity;
"compensation" for purposes of this Paragraph) in excess of $80,000 (with such
amount to be adjusted automatically to reflect any cost-of-living adjustments
authorized by section 414(q)(1) of the Code) during the Look-Back Year.
For purposes of the preceding sentence, (i) all employers aggregated
with the Employer under section 414(b), (c), (m), or (o) of the Code shall be
treated as a single employer, (ii) a former Employee who had a separation year
(generally, the Determination Year such Employee separates from service) prior
to the Determination Year and who was an active Highly Compensated Employee for
either such separation year or any Determination Year ending on or after such
Employee's fifty-fifth birthday shall be deemed to be a Highly Compensated
Employee.
(28) Hour of Service: Each hour for which an individual is directly or
indirectly paid, or entitled to payment, by the Employer or a Controlled Entity
for the performance of duties or for reasons other than the performance of
duties.
(29) Investment Fund: A portion of the Trust Fund that is invested in
a specified manner as described in Article V.
(30) Leased Employee: Each person who is not an employee of the
Employer or a Controlled Entity but who performs services for the Employer or a
Controlled Entity pursuant to an agreement (oral or written) between the
Employer or a Controlled Entity and any leasing organization, provided that such
person has performed such services for the Employer or a Controlled Entity or
for related persons (within the meaning of section 144(a)(3) of the Code) on a
substantially full-time basis for a period of at least one year and such
services are performed under primary direction or control of the Employer or
Controlled Entity.
(31) Normal Retirement Date: The later of (i) the date a Participant
attains the age of sixty-five and (ii) the fifth anniversary of his Employment
Commencement Date.
(32) One-Year Break-in-Service: A Service Computation Period during
which the individual has no more than 500 Hours of Service.
(33) Participant: Each individual who (A) has met the eligibility
requirements for participation in the Plan pursuant to Article II or (B) has
made a Rollover Contribution in accordance with Section 3.9, but only to the
extent provided in Section 3.9.
(34) Participation Service: The measure of service used in determining
an Employee's eligibility to participate in the Plan as determined pursuant to
Section 2.3.
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(35) Period of Service: Each period of an individual's Service
commencing on his Employment Commencement Date or a Reemployment Commencement
Date, if applicable, and ending on a Severance from Service Date.
Notwithstanding the foregoing, a Childbirth Leave shall not constitute a Period
of Service after the first anniversary of the first date of such absence. A
Period of Service shall also include any period required to be credited as a
Period of Service by federal law other than the Act or the Code, but only under
the conditions and to the extent so required by such federal law.
(36) Period of Severance: Each period of time commencing on an
individual's Severance from Service Date and ending on a Reemployment
Commencement Date.
(37) Plan: The Highlands Insurance Group Employees' Retirement and
Savings Plan, as amended from time to time.
(38) Plan Administrator: The individual appointed by the Committee to
supervise the administrative details of the Plan, or, if no such individual is
appointed, the Committee.
(39) Plan Year: The twelve-consecutive month period commencing January
1 of each year.
(40) Reemployment Commencement Date: The first date upon which an
individual performs an Hour of Service following a Severance from Service Date.
(41) Regular Savings Account: An individual account for each
Participant which is credited with his Regular Savings Contributions and which
is credited with (or debited for) such accounts allocation of net income (or net
loss) and changes in value of the Trust Fund.
(42) Regular Savings Contributions: Contributions made to the Plan by
a Participant in accordance with Section 3.2.
(43) Retirement: A Participant's termination of employment on or after
his Normal Retirement Date.
(44) Rollover Account: An individual account for an Eligible Employee,
which is credited with the Rollover Contributions of such Employee and which is
credited with (or debited for) such account's allocation of net income (or net
loss) and changes in value of the Trust Fund.
(45) Rollover Contribution: Contributions made by an Eligible Employee
pursuant to Section 3.9.
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(46) Service: The period of an individual's employment with the
Employer or a Controlled Entity taking into account the following:
(A) Any absence from employment which is not an Authorized Leave
of Absence shall be considered a termination of employment.
(B) If an individual does not return to employment prior to the
expiration of an Authorized Leave of Absence, his employment shall be considered
terminated as of the one-year anniversary of the date on which his Authorized
Leave of Absence commenced; provided, however, that (i) if an individual is
prevented from timely returning to employment because of his death or because of
his total and permanent disability (as defined in Section 7.2), his employment
shall be considered terminated as of the date of such event and (ii) if an
individual is absent from employment due to a military service Authorized Leave
of Absence and fails to return to employment prior to the later of the
expiration of his Authorized Leave of Absence or the expiration of his
reemployment rights under applicable law, his employment shall be considered
terminated as of the date on which his Authorized Leave of Absence commenced.
(C) Employment with an Employer or Controlled Entity before it
became a Controlled Entity with respect to the Company or American Reliance,
Inc. shall be taken into account for purposes of Participation Service and
Vesting Service only to the extent determined by the applicable Employer.
(47) Service Computation Period: The twelve-consecutive month periods
utilized in measuring an individual's years of Service under the provisions of
the Plan as in effect prior to April 1, 1996.
(48) Severance from Service Date: The date on which an individual's
Service ends. Notwithstanding the foregoing, the Severance from Service Date of
an individual who is on a Childbirth Leave shall be the second anniversary of
the first date of such absence.
(49) Tax Deferred Savings Account: An individual account for each
Participant, which is credited with the Tax Deferred Savings Contributions made
by the Employer on such Participant's behalf and the Employer Safe Harbor
Contributions, if any, made on such Participant's behalf pursuant to Section 3.5
to satisfy the restrictions set forth in Section 3.1(e) and which is credited
with (or debited for) such account's allocation of net income (or net loss) and
changes in value of the Trust Fund.
(50) Tax Deferred Savings Contributions: Contributions made to the
Plan by the Employer on a Participant's behalf in accordance with the
Participant's elections to defer Compensation under the Plan's qualified cash or
deferred arrangement as described in Section 3.1.
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(51) Trust: The trust established herein to hold and invest
contributions made under the Plan and income thereon, and from which the
benefits will be distributed.
(52) Trust Agreement: The agreement(s) entered into between the
Company and the Trustee establishing the Trust, as such agreement(s) may be
amended from time to time.
(53) Trustee: The trustee or trustees qualified and acting hereunder
at any time.
(54) Trust Fund: The funds and properties held pursuant to the
provisions hereof for the use and benefit of the Participants, together with all
income, profits and increments thereto.
(55) Valuation Dates: Each and every day of the Plan Year on which the
New York Stock Exchange is open for business.
(56) Vested Interest: The portion of a Participant's Accounts which,
pursuant to the Plan, is nonforfeitable.
(57) Vesting Service: The measure of service used in determining a
Participant's Vested Interest as determined pursuant to Section 8.4.
1.2 Number and Gender. Wherever appropriate herein, words used in the
singular shall be considered to include the plural and words used in the plural
shall be considered to include the singular. The masculine gender, where
appearing in the Plan, shall be deemed to include the feminine gender.
1.3 Headings. The headings of Articles and Sections herein are included
solely for convenience, and if there is any conflict between such headings and
the text of the Plan, the text shall control.
1.4 Construction. It is intended that the Plan be qualified within the
meaning of section 401(a) of the Code and that the Trust be tax exempt under
section 501(a) of the Code, and all provisions herein shall be construed in
accordance with such intent.
II. PARTICIPATION
2.1 Effective Date. The provisions of this Article shall be effective July
1, 1998.
2.2 Eligibility. Each Eligible Employee shall become a Participant upon his
Employment Commencement Date. Notwithstanding the foregoing:
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(a) An Eligible Employee who was a Participant in the Plan on the day
prior to July 1, 1998 shall remain a Participant in this restatement thereof as
of July 1, 1998;
(b) An Employee who has not become a Participant in the Plan because
he was not an Eligible Employee shall be eligible to become a Participant in the
Plan immediately upon becoming an Eligible Employee as a result of a change in
his employment status;
(c) An Eligible Employee who was a Participant in the Plan prior to a
termination of employment shall be reinstated as a Participant upon his
reemployment as an Eligible Employee;
(d) A Participant who ceases to be an Eligible Employee but remains an
Employee shall continue to be a Participant but, on and after the date he ceases
to be an Eligible Employee, he shall no longer be entitled to defer Compensation
hereunder or share in allocations of Employer Contributions and forfeitures or
contribute to the Plan unless and until he shall again become an Eligible
Employee;
(e) A Participant who has not completed one year of Participation
Service shall not be entitled to share in allocations of Employer Matching
Contributions or Employer Profit Sharing Contributions and forfeitures unless
and until he has completed one year of Participation Service. Notwithstanding
the foregoing, a Participant who was sharing in allocations of Employer Matching
Contributions on June 30, 1998 shall continue to share in such allocations
thereafter.
2.3 Participation Service.
(a) Subject to the remaining Paragraphs of this Section, an individual
shall be credited with Participation Service in an amount equal to his aggregate
Periods of Service whether or not such Periods of Service are completed
consecutively.
(b) Paragraph (a) above notwithstanding, if an individual terminates
his Service (other than during an Authorized Leave of Absence) and subsequently
resumes his Service, if his Reemployment Commencement Date is within twelve
months of his Severance from Service Date, such Period of Severance shall be
treated as a Period of Service for purposes of Paragraph (a) above.
(c) Paragraph (a) above notwithstanding, if an individual terminates
his Service during an Authorized Leave of Absence and subsequently resumes his
Service, if his Reemployment Commencement Date is within twelve months of the
beginning of such Authorized Leave of Absence, such Period of Severance shall be
treated as a Period of Service for purposes of Paragraph (a) above.
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III. CONTRIBUTIONS
3.1 Tax Deferred Savings Contributions.
(a) A Participant may elect to defer an integral percentage of his
Compensation for a Plan Year, which shall not exceed the maximum percentage as
may be prescribed from time to time by the Committee, by having the Employer
contribute the amount so deferred to the Plan. Compensation for a Plan Year not
so deferred by such election shall be received by such Participant in cash. A
Participant's election to defer an amount of his Compensation pursuant to this
Section shall be made by executing a Compensation reduction agreement pursuant
to which the Participant authorizes the Employer to reduce his Compensation in
the elected amount and the Employer, in consideration thereof, agrees to
contribute an equal amount to the Plan. The procedures for executing a
Compensation reduction agreement shall be determined by the Committee. The
reduction in a Participant's Compensation for a Plan Year pursuant to his
election under a Compensation reduction agreement shall be effected by
Compensation reductions as of each payroll period within such Plan Year
following the effective date of such agreement. The amount of Compensation
elected to be deferred by a Participant for a Plan Year pursuant to this Section
shall become a part of the Employee's Tax Deferred Savings Contributions for
such Plan Year.
(b) A Participant's Compensation reduction agreement shall remain in
force and effect for all periods following the date of its execution until
modified or terminated or until such Participant terminates his employment. A
Participant who has elected to defer a portion of his Compensation may change
his deferral election percentage (within the percentage limits set forth in
Paragraph (a) above), effective as of the first day of any payroll period, in
accordance with the procedures and within the time period prescribed by the
Committee.
(c) A Participant may cancel his Compensation reduction agreement,
effective as of the first day of any payroll period, in accordance with the
procedures and within the time period prescribed by the Committee. A Participant
who so cancels his Compensation reduction agreement may resume Compensation
deferrals, effective as of the first day of any payroll period, by executing and
delivering to the Committee a new Compensation reduction agreement within the
time period prescribed by the Committee.
(d) In restriction of the Participants' elections provided in
Paragraphs (a), (b), and (c) above, the Tax Deferred Savings Contributions and
the elective deferrals (within the meaning of section 402(g)(3) of the Code)
under all other plans, contracts, and arrangements of the Employer on behalf of
any Participant for any calendar year shall not exceed $10,000 (with such amount
to be adjusted automatically to reflect any cost-of-living adjustments
authorized by section 402(g)(5) of the Code).
(e) In further restriction of the Participants' elections provided in
Paragraphs (a), (b), and (c) above, it is specifically provided that one of the
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"actual deferral percentage" tests set forth in section 401(k)(3) of
the Code and the Treasury regulations thereunder must be met in each Plan Year.
If multiple use of the alternative limitation (within the meaning of section
401(m)(9) of the Code and Treasury regulation Section 1.401(m)-2(b)) occurs
during a Plan Year, such multiple use shall be corrected in accordance with the
provisions of Treasury regulation Section 1.401(m)-2(c); provided, however, that
if such multiple use is not eliminated by making Employer Safe Harbor
Contributions, then the "actual contribution percentages" of all Highly
Compensated Employees participating in the Plan shall be reduced, and the excess
contributions distributed, in accordance with the provisions of Section 3.8(c)
and applicable Treasury regulations, so that there is no such multiple use.
(f) If the restrictions set forth in Paragraph (d) or (e) above would
not otherwise be met for any Plan Year, the Compensation deferral elections made
pursuant to Paragraphs (a), (b), and (c) above of Participants who are Highly
Compensated Employees may be reduced by the Committee on a temporary and
prospective basis in such manner as the Committee shall determine.
(g) As soon as administratively feasible following the end of each
payroll period, the Employer shall contribute to the Trust, as Tax Deferred
Savings Contributions with respect to each Participant, an amount equal to the
amount of Compensation elected to be deferred, pursuant to Paragraphs (a) and
(b) above (as adjusted pursuant to Paragraph (f) above), by such Participant
during such payroll period. Such contributions, as well as the contributions
made pursuant to Sections 3.3, 3.4, and 3.5, shall be made without regard to
current or accumulated profits of the Employer. Notwithstanding the foregoing,
the Plan is intended to qualify as a profit sharing plan for purposes of
sections 401(a), 402, 412, and 417 of the Code.
3.2 Regular Savings Contributions.
(a) A Participant may contribute to the Plan, as his Regular Savings
Contributions, an integral percentage of his Compensation which shall not exceed
the maximum percentage as may be prescribed from time to time by the Committee.
Regular Savings Contributions shall be made by authorizing the Employer to
withhold such contributions from the Participant's Compensation as of each
payroll period. Each Participant may elect the amount (within the percentage
limits of this Paragraph) of his Regular Savings Contributions by executing and
delivering to the Committee the form prescribed by the Committee within the time
period prescribed by the Committee.
(b) A Participant may suspend his Regular Savings Contributions
effective as of the first day of any payroll period by executing and delivering
to the Committee the form prescribed by the Committee within the time period
prescribed by the Committee. Resumption of suspended Regular Savings
Contributions shall be made effective as of the first day of any subsequent
payroll period by executing and delivering to the Committee the form prescribed
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by the Committee within the time period prescribed by the Committee.
(c) If the restrictions set forth in Section 3.6 would not otherwise
be met for any Plan Year, the Regular Savings Contribution elections made
pursuant to Paragraphs (a), (b), and (c) above of Participants who are Highly
Compensated Employees may be reduced by the Committee on a temporary and
prospective basis in such manner as the Committee shall determine.
(d) As soon as administratively feasible following the end of each
payroll period, the Employer shall contribute to the Trust the Regular Savings
Contributions withheld from the Participants' Compensation during such payroll
period.
3.3 Employer Matching Contributions. For each month, the Employer may
contribute to the Trust as determined in its discretion, Employer Matching
Contributions, in an amount that equals 50% of the Tax Deferred Savings
Contributions that were made during such month pursuant to Section 3.1 on behalf
of each of the Participants who had completed one year of Participation Service
and that were not in excess of 6% of each such Participant's Compensation for
such month. Any Employer Matching Contributions shall be in the form of Employer
Stock, or cash invested in the Investment Fund consisting of Employer Stock.
3.4 Employer Profit Sharing Contributions. For each Plan Year, the Employer
may contribute to the Trust, as an Employer Profit Sharing Contribution, an
additional amount as determined in its discretion.
3.5 Employer Safe Harbor Contributions. In addition to the Employer
Matching Contributions made pursuant to Section 3.3 and the Employer Profit
Sharing Contribution made pursuant to Section 3.4, for each Plan Year, the
Employer, in its discretion, may contribute to the Trust as a "safe harbor
contribution" for such Plan Year the amounts necessary to cause the Plan to
satisfy the restrictions set forth in Section 3.1(e) (with respect to certain
restrictions on Tax Deferred Savings Contributions) and Section 3.6 (with
respect to certain restrictions on Employer Matching Contributions and Regular
Savings Contributions). Amounts contributed in order to satisfy the restrictions
set forth in Section 3.l(e) shall be considered "qualified matching
contributions" (within the meaning of Treasury regulation Section
1.401(k)-l(g)(13)) for purposes of such Section, and amounts contributed in
order to satisfy the restrictions set forth in Section 3.6 shall be considered
Employer Matching Contributions for purposes of such Section. Any amounts
contributed pursuant to this Paragraph shall be allocated in accordance with the
provisions of Sections 4.2(e) and (f).
3.6 Restrictions on Employer Contributions and Regular Savings
Contributions. In restriction of the Employer Matching Contributions and Regular
Savings Contributions hereunder, it is specifically provided that one of the
"actual contribution percentage" tests set forth in section 401(m) of the Code
and the Treasury regulations thereunder must be met in each Plan Year. The
Committee may elect, in accordance with applicable Treasury regulations, to
treat Tax Deferred Savings Contributions to the Plan as Employer Matching
Contributions for purposes of meeting this requirement.
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3.7 Return of Contributions. Anything to the contrary herein
notwithstanding, the Employer's contributions to the Plan are contingent upon
the deductibility of such contributions under section 404 of the Code. To the
extent that a deduction for contributions is disallowed, such contributions
shall, upon the written demand of the Employer, be returned to the Employer by
the Trustee within one year after the date of disallowance, reduced by any net
losses of the Trust Fund attributable thereto but not increased by any net
earnings of the Trust Fund attributable thereto. Moreover, if Employer
contributions are made under a mistake of fact, such contributions shall, upon
the written demand of the Employer, be returned to the Employer by the Trustee
within one year after the payment thereof, reduced by any net losses of the
Trust Fund attributable thereto but not increased by any net earnings of the
Trust Fund attributable thereto.
3.8 Disposition of Excess Deferrals and Excess Contributions.
(a) Anything to the contrary herein notwithstanding, any Tax Deferred
Savings Contributions to the Plan for a calendar year on behalf of a Participant
in excess of the limitations set forth in Section 3.1(d) and any "excess
deferrals" from other plans allocated to the Plan by such Participant no later
than March 1 of the next following calendar year within the meaning of, and
pursuant to the provisions of, section 402(g)(2) of the Code, shall be
distributed to such Participant not later than April 15 of the next following
calendar year.
(b) Anything to the contrary herein notwithstanding, if, for any Plan
Year, the aggregate Tax Deferred Savings Contributions made by the Employer on
behalf of Highly Compensated Employees exceeds the maximum amount of Tax
Deferred Savings Contributions permitted on behalf of such Highly Compensated
Employees pursuant to Section 3.l(e) (determined by reducing Tax Deferred
Savings Contributions on behalf of Highly Compensated Employees in order of the
amounts of Tax Deferred Savings Contributions (beginning with the largest of
such amounts), such excess shall be distributed to the Highly Compensated
Employees on whose behalf such excess was contributed before the end of the next
following Plan Year.
(c) Anything to the contrary herein notwithstanding, if, for any Plan
Year, the sum of the aggregate Employer Matching Contributions and Regular
Savings Contributions allocated to the Accounts of Highly Compensated Employees
exceeds the maximum amount of such Employer Matching Contributions and Regular
Savings Contributions permitted on behalf of such Highly Compensated Employees
pursuant to Section 3.6 (determined by reducing Regular Savings Contributions
made by, and Employer Matching Contributions made on behalf of, Highly
Compensated Employees in order of the amounts of aggregate contributions
beginning with the largest of such contributions), such excess shall be
distributed to the Highly Compensated Employees on whose behalf such excess was
contributed before the end of the next following Plan Year.
(d) In coordinating the disposition of excess deferrals and excess
contributions pursuant to this Section, such excess deferrals and excess
contributions shall be disposed of in the following order:
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(1) First, Tax Deferred Savings Contributions which constitute
excess deferrals described in Paragraph (a) above that are not considered in
determining the amount of Employer Matching Contributions pursuant to Section
3.3 shall be distributed;
(2) Next, excess Tax Deferred Savings Contributions which
constitute excess deferrals described in Paragraph (a) above that are considered
in determining the amount of Employer Matching Contributions pursuant to Section
3.3 shall be distributed, and the Employer Matching Contributions with respect
to such Tax Deferred Savings Contributions shall be forfeited;
(3) Next, excess Tax Deferred Savings Contributions described in
paragraph (b) above that are not considered in determining the amount of
Employer Matching Contributions pursuant to Section 3.3 shall be distributed;
(4) Next, excess Tax Deferred Savings Contributions described in
Paragraph (b) above that are considered in determining the amount of Employer
Matching Contributions pursuant to Section 3.3 shall be distributed, and the
Employer Matching Contributions with respect to such Tax Deferred Savings
Contributions shall be forfeited;
(5) Next, excess Regular Savings Contributions described in Para-
graph (c) above shall be distributed; and
(6) Finally, excess Employer Matching Contributions described in
Paragraph (c) above shall be distributed (or, if forfeitable, forfeited).
(e) Any distribution or forfeiture of excess deferrals or excess
contributions pursuant to the provisions of this Section shall be adjusted for
income or loss allocated thereto in accordance with the provisions of Section
4.4 through the most recent Valuation Date coincident with or next preceding the
date of the distribution or forfeiture. Any forfeiture pursuant to the
provisions of this Section shall be considered to have occurred on the date
which is 2 1/2 months after the end of the Plan Year.
3.9 Rollover Contributions.
(a) Qualified Rollover Contributions may be made to the Plan by any
Eligible Employee of amounts received by such Eligible Employee from an
individual retirement account or annuity or from an employees' trust described
in section 401(a) of the Code, which is exempt from tax under section 501(a) of
the Code, but only if any such Rollover Contribution is made pursuant to and in
accordance with applicable provisions of the Code and Treasury regulations
promulgated thereunder. A Rollover Contribution of amounts that are "eligible
rollover distributions" within the meaning of section 402(f)(2)(A) of the Code
may be made to the Plan irrespective of whether such eligible rollover
distribution was paid to the Eligible Employee or paid to the Plan as a "direct"
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Rollover Contribution. A direct Rollover Contribution to the Plan may be
effectuated only by wire transfer directed to the Trustee or by issuance of a
check made payable to the Trustee, which is negotiable only by the Trustee and
which identifies the Eligible Employee for whose benefit the Rollover
Contribution is being made. Any Eligible Employee desiring to effect a Rollover
Contribution to the Plan must execute and file with the Committee the form
prescribed by the Committee for such purpose. The Committee may require as a
condition to accepting any Rollover Contribution that such Eligible Employee
furnish any evidence that the Committee in its discretion deems satisfactory to
establish that the proposed Rollover Contribution is in fact eligible for
rollover to the Plan and is made pursuant to and in accordance with applicable
provisions of the Code and Treasury regulations. All Rollover Contributions to
the Plan must be made in cash. A Rollover Contribution shall be credited to the
Rollover Account of the Eligible Employee for whose benefit such Rollover
Contribution is being made as soon as administratively feasible after receipt by
the Trustee.
(b) An Eligible Employee who has made a Rollover Contribution in
accordance with this Section, but who has not otherwise become a Participant in
the Plan in accordance with Article II, shall become a Participant coincident
with such Rollover Contribution; provided, however, that such Participant shall
not have Employer Contributions made on his behalf until he has otherwise
satisfied the requirements imposed by Article II.
3.10 Veterans Employment Rights. Notwithstanding any provision of this Plan
to the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Section 414(u) of
the Code.
IV. ALLOCATIONS
4.1 Suspended Amounts. All contributions, forfeitures, and the net income
(or net loss) of the Trust Fund shall be held in suspense until allocated to the
Accounts of the Participants as provided herein.
4.2 Allocation of Contributions.
(a) Tax Deferred Savings Contributions made by the Employer on a
Participant's behalf for each payroll period pursuant to Section 3.1 shall be
allocated to such Participant's Tax Deferred Savings Account when they are
received by the Trustee.
(b) Regular Savings Contributions made by a Participant pursuant to
Section 3.2 shall be allocated to the Regular Savings Account of such
Participant when they are received by the Trustee.
(c) The Employer Matching Contributions for each payroll period
pursuant to Section 3.3(a) shall be allocated to the Employer's Contributions
Accounts of the Participants for whom such contributions were made when they are
received by the Trustee.
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(d) The Employer Profit Sharing Contribution, if any, made pursuant to
Section 3.4 for a Plan Year shall be allocated among the Employer's
Contributions Accounts of the eligible Participants in proportion to their
respective amounts of Compensation for such Plan Year. Compensation received
prior to completion of one year of Service shall be disregarded for this
purpose. A Participant is eligible to share in an Employer Profit Sharing
Contribution for a Plan Year only if he:
(1) is an Eligible Employee on the last day of such Plan Year; or
(2) terminated employment during such Plan Year on or after his
Normal Retirement Date or by reason of total and permanent disability (as
defined in Section 7.2) or death.
(e) The Employer Safe Harbor Contribution, if any, made pursuant to
Section 3.5 for a Plan Year in order to satisfy the restrictions set forth in
Section 3.1(e) shall be allocated as of the last day of such Plan Year to the
Tax Deferred Savings Accounts of Participants who (1) received an allocation of
Tax Deferred Savings Contributions for such Plan Year and (2) were not Highly
Compensated Employees for such Plan Year (each such Participant individually
referred to as an "Eligible Participant" for purposes of this Paragraph). Such
allocation shall be made, first, to the Tax Deferred Savings Account of the
Eligible Participant who received the least amount of Compensation for such Plan
Year until the limitation set forth in Section 4.5 has been reached as to such
Eligible Participant, then to the Tax Deferred Savings Account of the Eligible
Participant who received the next smallest amount of Compensation for such Plan
Year until the limitation set forth in Section 4.5 has been reached as to such
Eligible Participant, and continuing in such manner until the Employer Safe
Harbor Contribution for such Plan Year has been completely allocated or the
limitation set forth in Section 4.5 has been reached as to all Eligible
Participants. Any remaining Employer Safe Harbor Contribution for such Plan Year
shall be allocated among the Tax Deferred Savings Accounts of all Participants
who were Eligible Employees during such Plan Year, with the allocation to each
such Participant's Tax Deferred Savings Account being the portion of such
remaining Employer Safe Harbor Contribution which is in the same proportion that
such Participant's Compensation for such Plan Year bears to the total of all
such Participants' Compensation for such Plan Year.
(f) The Employer Safe Harbor Contribution, if any, made pursuant to
Section 3.5 for a Plan Year in order to satisfy the restrictions set forth in
Section 3.6 shall be allocated as of the last day of such Plan Year to the
Employer's Contributions Accounts of Participants who (1) received an allocation
of Employer Matching Contributions for such Plan Year and (2) were not Highly
Compensated Employees for such Plan Year (each such Participant individually
referred to as an "Eligible Participant" for purposes of this Paragraph). Such
allocation shall be made, first, to the Employer's Contributions Account of the
Eligible Participant who received the least amount of Compensation for such Plan
Year until the limitation set forth in Section 4.5 has been reached as to such
Eligible Participant, then to the Employer's Contributions Account of the
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Eligible Participant who received the next smallest amount of Compensation for
such Plan Year until the limitation set forth in Section 4.5 has been reached as
to such Eligible Participant, and continuing in such manner until the Employer
Safe Harbor Contribution for such Plan Year has been completely allocated or the
limitation set forth in Section 4.5 has been reached as to all Eligible
Participants. Any remaining Employer Safe Harbor Contribution for such Plan Year
shall be allocated among the Employer's Contributions Accounts of all
Participants who were Eligible Employees during such Plan Year, with the
allocation to each such Participant's Employer's Contributions Account being the
portion of such remaining Employer Safe Harbor Contribution which is in the same
proportion that such Participant's Compensation for such Plan Year bears to the
total of all such Participants' Compensation for such Plan Year.
(g) If an Employer Safe Harbor Contribution is made in order to
satisfy the restrictions set forth in both Section 3.1(e) and Section 3.5 for
the same Plan Year, the Employer Safe Harbor Contribution made in order to
satisfy the restrictions set forth in Section 3.1(e) shall be allocated pursuant
to Paragraph (f) above prior to allocating the Employer Safe Harbor Contribution
made in order to satisfy the restrictions set forth in Section 3.5. In
determining the application of the limitations set forth in Section 4.5 to the
allocation of Employer Safe Harbor Contributions, all Annual Additions (as such
term is defined in Section 4.5) to a Participant's Accounts other than Employer
Safe Harbor Contributions shall be considered allocated prior to Employer Safe
Harbor Contributions.
4.3 Allocation of Forfeitures. Any amounts that are forfeited under any
provision hereof during a Plan Year shall be applied to restore forfeited
amounts under Section 8.5(b) and any remaining amount shall be applied to reduce
future Employer Matching Contributions or Employer Profit Sharing Contributions.
4.4 Allocation of Net Income or Loss and Changes in Value Among Accounts.
(a) As of each Valuation Date, the Trustee shall determine the fair
market value of the Trust Fund assets and the net income (or net loss) of the
Trust Fund. The net income (or net loss) of each Investment Fund within the
Trust Fund since the next preceding Valuation Date shall be ascertained by the
Trustee, including any net increase or net decrease in the value of the assets
of each such Investment Fund since the next preceding Valuation Date.
Notwithstanding the foregoing, if a Fund is invested in shares of an open-end
mutual fund, the procedure set forth in this Paragraph shall be adjusted to the
extent necessary to correspond with such mutual fund's net income (or net loss)
allocation procedure. As soon as is practical after the end of each month, the
Trustee shall deliver to the Committee a written statement of such determination
as of the last Valuation Date in the month.
(b) For purposes of allocations of net income (or net loss) of the
Trust Fund, each Participant's Accounts (or subaccounts) shall be divided into
subaccounts to reflect such Participant's investment designation in a particular
Investment Fund or Investment Funds pursuant to Article V. As of each Valuation
Date, the net income (or net loss) of each Investment Fund, separately and
respectively, shall be allocated among the corresponding subaccounts of the
Participants who had such corresponding subaccounts on the next preceding
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Valuation Date, and each such corresponding subaccount shall be credited with
(or debited for) that portion of such net income (or net loss) that the value of
each such corresponding subaccount on such next preceding Valuation Date was of
the value of all such corresponding subaccounts on such date; provided, however,
that the value of such subaccounts as of the next preceding Valuation Date shall
be reduced by the amount of any withdrawals or distributions made therefrom
since the next preceding Valuation Date.
(c) So long as there is any balance in any Account (including an
Account payable to a designated beneficiary of a Participant or an alternate
payee under a qualified domestic relations order, as defined in section
414(p)(8) of the Code), such Account shall continue to receive allocations
pursuant to this Section.
4.5 Limitations and Corrections.
(a) For purposes of this Section, the following terms and phrases
shall have these respective meanings:
(1) "Annual Additions" of a Participant for any Limitation Year
shall mean the total of (A) the Employer Contributions, Tax Deferred Savings
Contributions, and forfeitures, if any, allocated to such Participant's Accounts
for such year, (B) Participant's contributions, if any, (excluding any Rollover
Contributions) for such year, and (C) amounts referred to in sections 415(l)(1)
and 419A(d)(2) of the Code.
(2) "Limitation Year" shall mean the Plan Year.
(3) "Maximum Annual Additions" of a Participant for any
Limitation Year shall mean the lesser of (A) $30,000 (adjusted automatically to
reflect any cost-of-living increase authorized in section 415(d) of the Code for
such Limitation Year) or (B) 25% of such Participant's compensation, within the
meaning of section 415(c)(3) of the Code and applicable Treasury regulations
thereunder, during such year except that the limitation in this Clause (B) shall
not apply to any contribution for medical benefits (within the meaning of
section 419A(f)(2) of the Code) after separation from service with the Employer
or a Controlled Entity which is otherwise treated as an Annual Addition or to
any amount otherwise treated as an Annual Addition under section 415(l)(1) of
the Code.
(b) Contrary Plan provisions notwithstanding, in no event shall the
Annual Additions credited to a Participant's Accounts for any Limitation Year
exceed the Maximum Annual Additions for such Participant for such year. If as a
result of allocation of forfeitures, a reasonable error in estimating a
Participant's compensation, a reasonable error in determining the amount of
elective deferrals (within the meaning of section 402(g)(3) of the Code) that
may be made with respect to any individual under the limits of section 415 of
the Code, or because of other related facts and circumstances, the Annual
Additions that would be credited to a Participant's Accounts for a Limitation
Year would nonetheless exceed the Maximum Annual Additions for such Participant
for such year, the excess Annual Additions which, but for this Section, would
have been allocated to such Participant's Accounts shall be disposed of as
follows:
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(1) First, by returning to such Participant his Regular Savings
Contributions, adjusted for income or loss allocated thereto;
(2) Next, any such excess Annual Additions in the form of Tax
Deferred Savings Contributions on behalf of such Participant that would not have
been considered in determining the amount of Employer Matching Contributions
allocated to such Participant's Accounts pursuant to Section 4.2 shall be
distributed to such Participant, adjusted for income or loss allocated thereto;
(3) Next, any such excess Annual Additions in the form of Tax
Deferred Savings Contributions on behalf of such Participant that would have
been considered in determining the amount of Employer Matching Contributions
allocated to such Participant's Accounts pursuant to Section 4.2 shall be
distributed to such Participant, adjusted for income or loss allocated thereto,
and the Employer Matching Contributions that would have been allocated to such
Participant's Accounts based upon such distributed Tax Deferred Savings
Contributions shall, to the extent such amounts would have otherwise been
allocated to such Participant's Accounts, be allocated to a suspense account and
shall be held therein until allocated to Participants' Employer's Contributions
Accounts in the same manner as a forfeiture;
(4) Finally, any such excess Annual Additions in the form of
Employer Profit Sharing Contributions and forfeitures shall, to the extent such
amounts would otherwise have been allocated to such Participant's Employer's
Contributions Accounts, be allocated to a suspense account and shall be held
therein until allocated to Participants' Employer's Contributions Accounts in
the same manner as a forfeiture.
(c) If a suspense account is in existence at any time during a
Limitation Year pursuant to this Section, it will participate in allocations of
the net income (or net loss) of the Trust Fund.
(d) For purposes of determining whether the Annual Additions under
this Plan exceed the limitations herein provided, all defined contribution plans
of the Employer are to be treated as one defined contribution plan. In addition,
all defined contribution plans of Controlled Entities shall be aggregated for
this purpose. For purposes of this Section only, a "Controlled Entity" (other
than an affiliated service group member within the meaning of section 414(m) of
the Code) shall be determined by application of a more than 50% control standard
in lieu of an 80% control standard. If the Annual Additions credited to a
Participant's Accounts for any Limitation Year under this Plan plus the
additions credited on his behalf under other defined contribution plans required
to be aggregated pursuant to this Paragraph would exceed the Maximum Annual
Additions for such Participant for such Limitation Year, the Annual Additions
under this Plan and the additions under such other plans shall be reduced on a
pro rata basis and allocated, reallocated, or returned in accordance with
applicable plan provisions regarding Annual Additions in excess of Maximum
Annual Additions.
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(e) Prior to year 2000, In the case of a Participant who also
participated in a defined benefit plan of the Employer or a Controlled Entity
(as defined in Paragraph (d) above), the Employer shall reduce the Annual
Additions credited to the Accounts of such Participant under this Plan pursuant
to the provisions of Paragraph (b) to the extent necessary to prevent the
limitation set forth in section 415(e) of the Code from being exceeded.
Notwithstanding the foregoing, the provisions of this Paragraph shall apply only
if such defined benefit plan does not provide for a reduction of benefits
thereunder to ensure that the limitation set forth in section 415(e) of the Code
is not exceeded.
(f) If the limitations set forth in this Section would not otherwise
be met for any Limitation Year, the Compensation deferral elections pursuant to
Section 3.1 and/or Regular Savings Contribution elections pursuant to Section
3.2 of affected Participants may be reduced by the Committee on a temporary and
prospective basis in such manner as the Committee shall determine.
V. INVESTMENT FUNDS
5.1 Investment Designation. Each Participant shall designate, in accordance
with the procedures established from time to time by the Committee, the manner
in which the amounts allocated to each of his Accounts shall be invested from
among the Investment Funds made available from time to time by the Committee.
With respect to each of a Participant's Accounts, such Participant may designate
one of such Investment Funds for all the amounts allocated to such Account or he
may split the investment of the amounts allocated to such Account between such
Investment Funds in such increments as the Committee may prescribe. If a
Participant fails to make a designation, then his Accounts shall be invested in
the Investment Fund or Funds designated by the Committee from time to time in a
uniform and nondiscriminatory manner.
5.2 Change of Investment Designation. A Participant may change his
investment designation for future contributions to be allocated to any one or
all of his Accounts. Any such change shall be made in accordance with the
procedures established by the Committee, and the frequency of such changes may
be limited by the Committee.
5.3 Employer Stock Fund. One of the Investment Funds shall be invested in
Employer Stock, and Participants' investment designations under Sections 5.1 and
5.2 shall not apply to Employer Matching Contributions.
5.4 Transfer of Investments. A Participant may elect to reallocate among
the Investment Funds the amounts already allocated to one or more of his
Accounts. Any such reallocation shall be made in accordance with the procedures
established by the Committee, and the frequency of such reallocations may be
limited by the Committee.
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VI. RETIREMENT BENEFITS
6.1 Retirement Benefits. A Participant who terminates his employment by
reason of his Retirement shall be entitled to a retirement benefit, payable at
the time and in the form provided in Article X equal in value to the sum of:
(a) The amount in his Accounts as of the most recent Valuation Date
coincident with or next preceding his Benefit Commencement Date; and
(b) If the most recent Valuation Date coincident with or next
preceding such Participant's Benefit Commencement Date occurs prior to the close
of the Plan Year during which his termination of employment occurred, the amount
of such Participant's allocation of Employer Contributions for such Plan Year.
VII. DISABILITY BENEFITS
7.1 Disability Benefits. In the event a Participant's employment is
terminated due to total and permanent disability, as of the Committee's
determination thereof as provided in Section 7.2, such Participant shall be
entitled to a disability benefit, payable at the time and in the form provided
in Article X, equal in value to the sum of:
(a) The amount in his Accounts as of the most recent Valuation Date
coincident with or next preceding his Benefit Commencement Date; and
(b) If the most recent Valuation Date coincident with or next
preceding such Participant's Benefit Commencement Date occurs prior to the close
of the Plan Year during which such disability was determined, the amount of such
Participant's allocation of Employer Contributions for such Plan Year.
7.2 Total and Permanent Disability Determined. The Committee shall
determine whether a Participant has become totally and permanently disabled and
shall so notify such Participant. A Participant shall be considered totally and
permanently disabled if the Committee determines that such Participant is
physically or mentally incapable of performing either the Participant's usual
duties as an Employee or any other duties as an Employee that the Employer
reasonably makes available and is likely to remain so disabled continuously and
permanently. A Participant must be disabled for five consecutive months before
the Committee may make a determination of disability, and the Employer may
require proof of disability in such form as the Committee shall decide,
including the certificate of a duly licensed physician selected by the
Committee.
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VIII. SEVERANCE BENEFITS AND DETERMINATION OF VESTED INTEREST
8.1 No Benefits Unless Herein Set Forth. Except as set forth in this
Article, upon termination of employment of a Participant for any reason other
than Retirement, total and permanent disability, or death, such Participant
shall acquire no right to any benefit from the Plan or the Trust Fund.
8.2 Severance Benefit. Each Participant whose employment is terminated for
any reason other than Retirement, total and permanent disability or death shall
be entitled to a severance benefit, payable at the time and in the form provided
in Article X, equal in value to the sum of:
(a) His Vested Interest in the amount in his Accounts as of the most
recent Valuation Date coincident with or next preceding his Benefit Commencement
Date; and
(b) If the most recent Valuation Date coincident with or next
preceding such Participant's Benefit Commencement Date occurs prior to the close
of the Plan Year during which his termination of employment occurred, the amount
of such Participant's Vested Interest in his allocation of Employer Safe Harbor
Contributions for such Plan Year, if any.
8.3 Determination of Vested Interest.
(a) A Participant shall have a 100% Vested Interest in his Regular
Savings Account, Rollover Account, and Tax Deferred Savings Account at all
times.
(b) A Participant's Vested Interest in his Employer's Contributions
Account shall be determined by such Participant's years of Vesting Service in
accordance with the following schedule:
Years of Vesting Service Vested Interest
Less than 3 years 0%
3 years 33%
4 years 66%
5 years 100%
(c) Paragraph (b) above notwithstanding, a Participant employed by
Highlands Insurance Company who on the Effective Date has at least 3 years of
Vesting Service or has attained age 65 shall have a 100% Vested Interest in his
Employer's Contributions Account upon his attainment of age fifty-five or any
later age while employed by the Employer.
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8.4 Vesting Service.
(a) For the period preceding April 1, 1996, subject to the provisions
of Paragraphs (e) and (f) below, an individual shall be credited with Vesting
Service in an amount equal to all Service credited to him for vesting purposes
under the Plan as it existed on March 31, 1996.
(b) On and after April 1, 1996, subject to the remaining Paragraphs of
this Section, an individual shall be credited with Vesting Service in an amount
equal to his aggregate Periods of Service whether or not such Periods of Service
are completed consecutively.
(c) Paragraph (b) above notwithstanding, if an individual terminates
his Service (at a time other than during an Authorized Leave of Absence) and
subsequently resumes his Service, if his Reemployment Commencement Date is
within twelve months of his Severance from Service Date, such Period of
Severance shall be treated as a Period of Service for purposes of Paragraph (b)
above.
(d) Paragraph (b) above notwithstanding, if an individual terminates
his Service during an Authorized Leave of Absence and subsequently resumes his
Service, if his Reemployment Commencement Date is within twelve months of the
beginning of such Authorized Leave of Absence, such Period of Severance shall be
treated as a Period of Service for purposes of Paragraph (b) above.
(e) In the case of a Participant who incurs a Period of Severance of
five consecutive years, such Participant's years of Vesting Service completed
after such Period of Severance shall be disregarded in determining such
Participant's Vested Interest in any Plan benefits derived from Employer
Contributions on his behalf prior to such Period of Severance.
(f) In the case of an individual who terminates employment at a time
when he does not have any Vested Interest in his Employer Contribution Account
and who then incurs a Period of Severance that equals or exceeds the greater of
(1) five years or (2) his aggregate Period of Service before such Period of
Severance, such individual's Period of Service completed before such Period of
Severance shall be disregarded in determining his years of Vesting Service.
8.5 Forfeitures.
(a) With respect to a Participant who terminates employment with the
Employer with a Vested Interest in his Employer's Contributions Account that is
less than 100% and either is not entitled to a distribution from the Plan or
receives a distribution from the Plan of the balance of his Vested Interest in
his Accounts in the form of a lump sum distribution by the close of the second
Plan Year following the Plan Year in which his employment is terminated, the
forfeitable amount credited to the terminated Participant's Employer's
Contributions Account as of the Valuation Date next preceding his Benefit
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Commencement Date shall become a forfeiture as of his Benefit Commencement Date
(or as of his date of termination of employment if no amount is payable from the
Trust Fund on behalf of such Participant with such Participant being considered
to have received a distribution of zero dollars on his date of termination of
employment).
(b) In the event that an amount credited to a terminated Participant's
Employer's Contributions Account becomes a forfeiture pursuant to Paragraph (a)
above, the terminated Participant shall, upon subsequent reemployment with the
Employer prior to incurring a Period of Severance of five consecutive years,
have the forfeited amount restored to such Participant's Employer's
Contributions Account, unadjusted by any subsequent gains or losses of the Trust
Fund; provided, however, that such restoration shall be made only if such
Participant repays in cash an amount equal to the amount so distributed to him
pursuant to Paragraph (a) above from his Employer's Contributions Account within
five years from the date the Participant is reemployed. A reemployed Participant
who was not entitled to a distribution from the Plan on his date of termination
of employment shall be considered to have repaid a distribution of zero dollars
on the date of his reemployment. Any such restoration shall be made as of the
Valuation Date coincident with or next succeeding the date of repayment.
Notwithstanding anything to the contrary in the Plan, forfeited amounts to be
restored by the Employer pursuant to this Paragraph shall be charged against and
deducted from forfeitures for the Plan Year in which such amounts are restored
that would otherwise be available in accordance with Section 4.3. If such
forfeitures otherwise available are not sufficient to provide such restoration,
the portion of such restoration not provided by forfeitures shall be charged
against and deducted from Employer Profit Sharing Contributions otherwise
available for allocation to other Participants in accordance with Section
4.2(d), and any additional amount needed to restore such forfeited amounts shall
be a minimum required Employer Profit Sharing Contribution (without regard to
current or accumulated earnings and profits).
(c) With respect to a Participant whose Vested Interest in his
Employer's Contributions Account is less than 100% and who makes a withdrawal
from or receives a termination distribution from his Employer's Contributions
Account other than a lump sum distribution by the close of the second Plan Year
following the Plan Year in which his employment is terminated, any amount
remaining in his Employer's Contributions Account shall continue to be
maintained as a separate account. At any relevant time, such Participant's
nonforfeitable portion of his separate account shall be determined in accordance
with the following formula:
X=P(AB + (R x D)) - (R x D)
For purposes of applying the formula: X is the nonforfeitable portion of such
separate account at the relevant time; P is the Participant's Vested Interest in
his Employer's Contributions Account at the relevant time; AB is the balance of
such separate account at the relevant time; R is the ratio of the balance of
such separate account at the relevant time to the balance of such separate
account after the withdrawal or distribution; and D is the amount of the
withdrawal or distribution. For all other purposes of the Plan, a Participant's
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separate account shall be treated as an Employer's Contributions Account. Upon
his incurring a Period of Severance of five consecutive years, the forfeitable
portion of a terminated Participant's separate account and Employer's
Contributions Account shall be forfeited as of the end of the Plan Year during
which the terminated Participant completes such Period of Severance.
(d) With respect to a Participant who terminates employment with the
Employer with a Vested Interest in his Employer's Contributions Account greater
than 0% but less than 100% and who is not otherwise subject to the forfeiture
provisions of Paragraph (a) or Paragraph (c) above, the forfeitable portion of
his Employer's Contributions Account shall be forfeited as of the end of the
Plan Year during which the terminated Participant completes a Period of
Severance of five consecutive years or, if earlier, the end of the Plan Year
during which the death of such terminated Participant occurs if such Participant
was not re-employed by the Company between the date of his termination of
employment and the date of his death.
(e) Any forfeitures occurring pursuant to Paragraphs (a), (c), or (d)
above shall be held in a suspense account until applied pursuant to Section 4.3.
For all Valuation Dates prior to such application, forfeited amounts held in the
suspense account shall receive allocations of net income (or net loss) pursuant
to Section 4.4.
(f) Distributions of benefits described in this Section shall be
subject to the time of payment requirements of Section 10.1.
IX. DEATH BENEFITS
9.1 Death Benefits. Upon the death of a Participant while an Employee, the
Participant's designated beneficiary shall be entitled to a death benefit
payable at the time and in the form provided in Article X, equal in value to the
sum of:
(a) The amount in his Accounts as of the most recent Valuation Date
coincident with or next preceding his Benefit Commencement Date; and
(b) If the most recent Valuation Date coincident with or next
preceding such Participant's Benefit Commencement Date occurs prior to the close
of the Plan Year during which his death occurred, the amount of such
Participant's allocation of Employer Contributions for such Plan Year.
9.2 Designation of Beneficiaries.
(a) Each Participant shall have the right to designate the beneficiary
or beneficiaries to receive payment of his benefit in the event of his death.
Each such designation shall be made by executing the beneficiary designation
form prescribed by the Committee and filing such form with the Committee. Any
such designation may be changed at any time by such Participant by execution of
a new designation in accordance with this Section. Notwithstanding the
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foregoing, if a Participant who is married on the date of his death designates
an individual or entity other than his surviving spouse as his beneficiary, such
designation shall not be effective unless (1) such spouse has consented thereto
in writing and such consent (A) acknowledges the effect of such specific
designation, (B) either consents to the specific designated beneficiary (which
designation may not subsequently be changed by the Participant without spousal
consent) or expressly permits such designation by the Participant without the
requirement of further consent by the spouse, and (C) is witnessed by a Plan
representative (other than the Participant) or a notary public or (2) the
consent of such spouse cannot be obtained because such spouse cannot be located
or because of other circumstances described by applicable Treasury regulations.
Any such consent by such surviving spouse shall be irrevocable.
(b) If no beneficiary designation is on file with the Committee at the
time of the death of the Participant or if such designation is not effective for
any reason as determined by the Committee, the designated beneficiary or
beneficiaries to receive such death benefit shall be the first named
beneficiary, or class of beneficiaries, of the following successive preference
beneficiaries who shall survive the Participant (except as otherwise hereinafter
provided):
(1) The Participant's spouse;
(2) The Participant's child or children, equally;
(3) The Participant's father and mother, equally, or to the
survivor;
(4) The Participant's executor or administrator, or to his
heirs at law if there is no administration of such Participant's estate.
The terms "child" and "children," as used in the preceding sentence, shall
include surviving lineal descendants of a deceased child, who, by right of
representation, shall take the same share, if any, as their parent would have
taken if living.
X. TIME AND FORM OF PAYMENT OF BENEFITS
10.1 Time of Payment.
(a) Subject to the provisions of the remaining Paragraphs of this
Section, a Participant's Benefit Commencement Date shall be as soon as
administratively feasible after the Valuation Date coincident with or next
succeeding the date the Participant or his beneficiary becomes entitled to a
benefit pursuant to Article VI, VII, VIII, or IX.
(b) Unless a Participant (1) has attained age sixty-five or died or
(2) consents to a distribution pursuant to Paragraph (a) within the ninety-day
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period ending on the date payment of his benefit hereunder is to commence
pursuant to Paragraph (a), his Benefit Commencement Date shall be deferred to
the date which is as soon as administratively feasible after the Valuation Date
coincident with or next succeeding the earlier of the date the Participant
attains age sixty-five or the Participant's date of death, or such earlier
Valuation Date as the Participant may elect by written notice to the Committee
prior to such Valuation Date. The Committee shall furnish information pertinent
to his consent to each Participant no less than thirty days (unless such
thirty-day period is waived by an affirmative election in accordance with
applicable Treasury regulations) and no more than ninety days before his Benefit
Commencement Date, and the furnished information shall include a general
description of the material features of, and an explanation of the relative
values of, the alternative forms of benefit available under the Plan and must
inform the Participant of his right to defer his Benefit Commencement Date and
of his Direct Rollover right pursuant to Section 10.5 below, if applicable.
(c) A Participant's Benefit Commencement Date shall in no event be
later than the sixtieth day following the close of the Plan Year during which
such Participant attains, or would have attained, his Normal Retirement Date or,
if later, terminates his employment with the Employer or a Controlled Entity.
(d) A Participant's Benefit Commencement Date shall be in compliance
with the provisions of section 401(a)(9) of the Code and applicable Treasury
regulations thereunder and shall in no event be later than:
(1) Except as provided in (2) and (3) below, April 1 following
the later of (A) the calendar year in which such Participant attains the age of
seventy and one-half or (B) the calendar year in which such Participant
terminates his employment with the Employer, or if such Participant becomes a
"five-percent owner" (within the meaning of section 416(i) of the Code) after
attaining the age of seventy and one-half, April 1 of the calendar year
following the calendar year in which such Participant becomes a " five-percent
owner";
(2) In the case of a Participant who is a "five-percent owner"
(within the meaning of section 416(i) of the Code) at any time during the five
Plan Year period ending in the calendar year in which such Participant attains
the age of seventy and one-half, April 1 of the calendar year following the
calendar year in which such Participant attains the age of seventy and one-half;
and
(3) In the case of a Participant who attains the age of seventy
and one-half after 1987 and prior to 1999, and is not described in (2), above,
(A) the date not earlier than the date in (1)(A), above, elected by such
Participant or (B) the date in (1)(B), above, whichever is earlier.
(4) In the case of a benefit payable pursuant to Article IX, (A)
if payable to other than the Participant's spouse, the last day of the one-year
period following the death of such Participant or (B) if payable to the
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Participant's spouse, after the date upon which such Participant would have
attained the age of seventy and one-half, unless such surviving spouse dies
before payments commence, in which case the Benefit Commencement Date may not be
deferred beyond the last day of the one-year period following the death of such
surviving spouse.
The preceding provisions of this Section notwithstanding, a Participant may not
elect to defer the receipt of his benefit hereunder to the extent that such
deferral creates a death benefit that is more than incidental within the meaning
of section 401(a)(9)(G) of the Code and applicable Treasury regulations
thereunder.
(e) Subject to the provisions of Paragraph (d), a Participant's
Benefit Commencement Date shall not occur while the Participant is employed by
the Employer or any Controlled Entity.
(f) Paragraphs (a), (b), and (c) above notwithstanding, a Participant
may elect to defer his Benefit Commencement Date beyond the date specified in
such Paragraphs, subject to the provisions of Paragraph (d), by submitting to
the Committee a written statement signed by the Participant or spouse, which
describes the benefit and designates the date on which the payment of such
benefit shall commence.
(g) Benefits shall be paid (or transferred pursuant to Section 10.5)
in cash; provided, however, that any interest of a Participant in the Investment
Fund invested in Employer Stock at his Benefit Commencement Date shall be
distributed in the form of whole shares of Employer Stock and cash in lieu of
any fractional share.
10.2 Alternative Forms of Benefit for Participants.
(a) For purposes of Article VI or VII, the benefit of any Participant
shall be paid in one of the following alternative forms to be selected by the
Participant or, in the absence of such selection, by the Committee; provided,
however, that the period and method of payment of any such form shall be in
compliance with the provisions of section 401(a)(9) of the Code and applicable
Treasury regulations thereunder:
(1) A lump sum.
(2) Monthly, quarterly, semi-annual or annual installment
payments of any fixed dollar amount or for any term certain to such Participant,
or, in the event of such Participant's death before such installment payments
have been completed, to his beneficiary designated in accordance with the
provisions of Section 9.2. Upon the death of a designated beneficiary who is
receiving installment payments under this Paragraph, the remaining balance in
the Participant's Accounts shall be paid as soon as administratively feasible,
in one lump sum cash payment, as provided in Section 9.2.
(3) In accordance with Section 10.7, a commercial annuity
providing for periodic installment payments for any term certain not to exceed
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the life expectancy of the Participant or the joint life expectancies of the
Participant and his designated beneficiary, or in the event of such
Participant's (and beneficiary's, if applicable) death before the end of such
term certain, to the Participant or beneficiary's designated beneficiary as
provided in Section 9.2.
(b) For purposes of Article VIII, the benefit of any Participant shall
be paid in one lump sum payment.
(c) If a Participant, who terminated his employment under
circumstances such that he was entitled to a benefit pursuant to Article VI,
VII, or VIII, dies prior to the time that any funds from his Accounts have been
paid, or irrevocably committed to be paid, to provide a benefit pursuant to this
Section, the amount of the benefit to which he was entitled shall be paid
pursuant to Section 10.3 just as if such Participant had died while employed by
the Employer except that his Vested Interest shall be determined pursuant to
Article VI, VII or VIII, whichever is applicable.
10.3 Alternative Forms of Death Benefit. For purposes of Article IX, the
death benefit for a deceased Participant shall be paid to his beneficiary
designated in accordance with the provisions of Section 9.2 in a lump sum or, if
(a) the Participant terminated his employment under circumstances such that he
was entitled to a benefit pursuant to Article VI or VII or (b) died while an
Employee, one of the following alternative forms to be selected by the
Participant's designated beneficiary or, in the absence of such selection, by
the Committee; provided, however, that the period and method of payment of any
such form shall be in compliance with the provisions of section 401(a)(9) of the
Code and applicable Treasury regulations thereunder:
(a) A lump sum.
(b) Monthly, quarterly, semi-annual or annual installment payments of
any fixed dollar amount or for any term certain to such designated beneficiary.
Upon the death of a designated beneficiary who is receiving installment payments
under this Paragraph, the remaining balance in the Participant's Accounts shall
be paid as soon as administratively feasible, in one lump sum cash payment, to
such beneficiary's designated beneficiary in accordance with the provisions of
Section 9.2.
(c) In accordance with Section 10.7, a commercial annuity providing
for periodic installment payments for any term certain not to exceed the life
expectancy of the designated beneficiary, or in the event of the designated
beneficiary's death before the end of such term certain, to such beneficiary's
designated beneficiary in accordance with the provisions of Section 9.2.
10.4 Cash-Out of Benefit. If a Participant terminates his employment and
his Vested Interest in his Accounts is not in excess of $5,000, such
Participant's benefit shall be paid in one lump sum payment in lieu of any other
form of benefit herein provided. Any such payment shall be made at the time
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specified in Section 10.1(a) without regard to the consent restrictions of
Section 10.1(b). The provisions of this Section shall not be applicable to a
Participant following his Benefit Commencement Date.
10.5 Direct Rollover Election. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a Distributee's election under this
Section, a Distributee may elect, at the time and in the manner prescribed by
the Committee, to have all or any portion of an Eligible Rollover Distribution
paid directly to an Eligible Retirement Plan (other than any portion
attributable to the offset of an outstanding loan balance of such Participant
pursuant to the Plan's loan procedures) specified by the Distributee in a Direct
Rollover. Prior to any Direct Rollover pursuant to this Section, the Committee
may require the Distributee to furnish the Committee with a statement from the
plan, account, or annuity to which the benefit is to be transferred verifying
that such plan, account, or annuity is, or is intended to be, an Eligible
Retirement Plan.
10.6 Benefits from Account Balances. With respect to any benefit payable in
any form pursuant to the Plan, such benefit shall be provided from the Account
balance(s) to which the particular Participant or beneficiary is entitled.
10.7 Commercial Annuities. At the direction of the Committee, the Trustee
may pay any form of benefit provided hereunder other than a lump sum payment or
a Direct Rollover pursuant to Section 10.5 by the purchase of a commercial
annuity contract and the distribution of such contract to the Participant, or
beneficiary. Thereupon, the Plan shall have no further liability with respect to
the amount used to purchase the annuity contract and such Participant or
beneficiary shall look solely to the company issuing such contract for such
annuity payments. All certificates for commercial annuity benefits shall be
nontransferable, except for surrender to the issuing company, and no benefit
thereunder may be sold, assigned, discounted, or pledged (other than as
collateral for a loan from the company issuing same). Notwithstanding the
foregoing, the terms of any such commercial annuity contract shall conform with
the time of payment, form of payment, and consent provisions of Sections 10.1,
10.2, and 10.3.
10.8 Unclaimed Benefits. In the case of a benefit payable on behalf of a
Participant, if the Committee is unable to locate the Participant or beneficiary
to whom such benefit is payable, upon the Committee's determination thereof,
such benefit shall be forfeited, held in a suspense account, and available for
allocation to the Accounts of the eligible Participants pursuant to Section 4.3
as of the end of the Plan Year in which the forfeiture occurred. For all
Valuation Dates prior to such allocation, forfeited amounts held in the suspense
account shall participate in allocations of the net income (or net loss) of the
Trust Fund. Notwithstanding the foregoing, if subsequent to any such forfeiture
the Participant or beneficiary to whom such benefit is payable makes a valid
claim for such benefit such forfeited benefit shall be restored to the Plan in
the manner provided in Section 8.5(b).
10.9 Claims Review. In any case in which a claim for Plan benefits of a
Participant or beneficiary is denied or modified, the Committee shall furnish
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written notice to the claimant within ninety days (or within 180 days if
additional information requested by the Committee necessitates an extension of
the ninety-day period), which notice shall:
(a) State the specific reason or reasons for the denial or
modification;
(b) Provide specific reference to pertinent Plan provisions on which
the denial or modification is based;
(c) Provide a description of any additional material or information
necessary for the Participant, his beneficiary, or representative to perfect the
claim and an explanation of why such material or information is necessary; and
(d) Explain the Plan's claim review procedure as contained herein.
In the event a claim for Plan benefits is denied or modified, if the
Participant, his beneficiary, or a representative of such Participant or
beneficiary desires to have such denial or modification reviewed, he must,
within sixty days following receipt of the notice of such denial or
modification, submit a written request for review by the Committee of its
initial decision. In connection with such request, the Participant, his
beneficiary, or the representative of such Participant or beneficiary may review
any pertinent documents upon which such denial or modification was based and may
submit issues and comments in writing. Within sixty days following such request
for review the Committee shall, after providing a full and fair review, render
its final decision in writing to the Participant, his beneficiary or the
representative of such Participant or beneficiary stating specific reasons for
such decision and making specific references to pertinent Plan provisions upon
which the decision is based. If special circumstances require an extension of
such sixty-day period, the Committee's decision shall be rendered as soon as
possible, but not later than 120 days after receipt of the request for review.
If an extension of time for review is required, written notice of the extension
shall be furnished to the Participant, beneficiary, or the representative of
such Participant or beneficiary prior to the commencement of the extension
period.
XI. WITHDRAWALS
11.1 Withdrawals.
(a) A Participant may withdraw from his Regular Savings Account any or
all amounts held in such Account. Such a withdrawal shall be made first against
Regular Savings Contributions made prior to 1987, then pro-rata against Regular
Savings Contributions made after 1986 and the earnings thereon, and finally
against the earnings attributable to Regular Savings Contributions made prior to
1987.
(b) Subject to the express approval of the Committee, a Participant on
an Authorized Leave of Absence for medical reasons may withdraw from his Regular
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Savings Account and/or Employer's Contributions Account an amount not to exceed
such Participant's Vested Interest in such Accounts if he demonstrates financial
hardship beyond his control. Such a withdrawal shall be made first against
Regular Savings Contributions made prior to 1987, then pro-rata against Regular
Savings Contributions made after 1986 and the earnings thereon, then against the
earnings attributable to Regular Savings Contributions made prior to 1987, and
finally against the Employer's Contributions Account. The decision of the
Committee shall be final and binding, provided that all Participants similarly
situated shall be treated in a uniform and nondiscriminatory manner.
(c) (1) Subject to such uniform and nondiscriminatory rules as may be
promulgated from time to time by the Committee, a Participant may, by an
instrument in writing executed and delivered to the Committee prior to the date
he ceases to be an Employee, apply for a withdrawal from his Tax Deferred
Savings Account. A Participant may apply not more frequently than once during
any 12-month period for a hardship withdrawal of all or any part of the amount
credited thereto, but (i) not less than $500, and (ii) not more than his Tax
Deferred Savings Contributions not previously withdrawn.
(2) The withdrawal must be for an immediate and heavy financial
need of the Participant for which funds are not reasonably available from other
resources of the Participant (including reasonable liquidation of the
Participant's assets to the extent such liquidation would not itself cause an
immediate and heavy financial need), which may include
(A) medical expenses described in section 213(d) of the Code
incurred by the Participant, the Participant's spouse, or any dependents of the
Participant (as defined in section 152 of the Code);
(B) purchase (excluding mortgage payments) of a principal
residence for the Participant;
(C) payment of tuition for the next 12 months of post-secondary
education for the Participant or his spouse, children or dependents;
(D) the need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the Participant's
principal residence; and
(E) federal, state and local income taxes or penalties reasonably
anticipated to result from the withdrawal.
If approved by the Committee, such withdrawal shall not exceed the amount
required to meet the need created by the hardship. Funds shall be considered not
reasonably available from other resources if:
(i) the Participant has obtained any other distributions and
all nontaxable loans currently available under all plans maintained by the
Employer;
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(ii) the Participant's Tax Deferred Savings Contributions
and all other elective deferrals pursuant to cash or deferred elections
("aggregate elective contributions"), and Employee contributions, under all
qualified and nonqualified deferred compensation plans and stock option and
stock purchase plans maintained by the Employer are suspended for 12 months
after receipt of the hardship distribution; and
(iii) the Participant agrees not to make aggregate elective
contributions for the calendar year immediately following the calendar year of
the hardship distribution in excess of (I) the dollar limit under Section 3.1
for such year less (II) the amount of the Participant's aggregate elective
contributions for the calendar year of the hardship distribution.
(d) A Participant who has terminated his employment by reason of his
Retirement, a spouse beneficiary of a Participant who died while an Employee or
after having terminated his employment by reason of his Retirement, and an
alternate payee under a qualified domestic relations order with respect to the
Accounts of a Participant who is eligible for Retirement or has terminated his
employment by reason of his Retirement, may withdraw from his Accounts an amount
not exceeding the then value of his Accounts. Any such withdrawal shall be
considered to come first from the Participant's Regular Savings Account pursuant
to the provisions of Paragraph (a) above and then pro rata from each of such
Participant's Accounts other than his Regular Savings Account.
11.2 Restriction on Withdrawals.
(a) All withdrawals pursuant to this Article shall be made by
executing and filing with the Committee the form prescribed by the Committee in
accordance with the procedures and within the time period prescribed by the
Committee.
(b) If a Participant's Account from which a withdrawal is made is
invested in more than one Investment Fund, the withdrawal shall be made pro rata
from each Investment Fund in which such Account is invested.
(c) All withdrawals under this Article shall be paid as described in
Section 10.1(g);
(d) Any withdrawal hereunder shall be subject to the Direct Rollover
election described in Section 10.5.
XII. LOANS
12.1 Eligibility for Loan. Upon application by (1) any Participant who is
an Employee or (2) any Participant no longer employed by the Employer, a
beneficiary of a deceased Participant or an alternate payee under a qualified
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domestic relations order, as defined in section 414(p)(8) of the Code, who
retains an Account balance under the Plan and who is a party-in-interest, as
that term is defined in section 3(14) of the Act, as to the Plan (an individual
who is eligible to apply for a loan under this Article being hereinafter
referred to as a "Participant" for purposes of this Article), the Committee may
in its discretion direct the Trustee to make a loan or loans to such
Participant. Such loans shall be made pursuant to the provisions of the
Committee's written loan procedure, which procedure is hereby incorporated by
reference as a part of the Plan.
12.2 Maximum Loan.
(a) A loan to a Participant may not exceed 50% of the then value of
such Participant's Vested Interest in his Accounts.
(b) Paragraph (a) above to the contrary notwithstanding, the amount of
a loan made to a Participant under this Article shall not exceed an amount equal
to the difference between:
(1) The lesser of $50,000 (reduced by the highest outstanding
balance of loans from the Plan during the one-year period ending on the day
before the date on which the loan is made) or one-half of the present value of
the Participant's total nonforfeitable accrued benefit under all qualified plans
of the Employer or a Controlled Entity; minus
(2) The total outstanding loan balance of the Participant under
all other loans from all qualified plans of the Employer or a Controlled Entity.
XIII. ADMINISTRATION OF THE PLAN
13.1 Appointment of Committee. The general administration of the Plan shall
be vested in the Committee which shall be appointed by the Directors and shall
consist of three or more persons. Any individual, whether or not an Employee, is
eligible to become a member of the Committee. For purposes of the Act, the
Committee shall be the "named fiduciary" with respect to the general
administration of the Plan (except as to the investment of the assets of the
Trust Fund) and, unless a Plan Administrator is appointed pursuant to the
provisions of Section 13.7(j), shall be the Plan Administrator.
13.2 Term, Vacancies, Resignation, and Removal. Each member of the
Committee shall serve until he resigns, dies, or is removed by the Directors. At
any time during his term of office, a member of the Committee may resign by
giving written notice to the Directors and the Committee, such resignation to
become effective upon the appointment of a substitute member or, if earlier, the
lapse of thirty days after such notice is given as herein provided. At any time
during his term of office, and for any reason, a member of the Committee may be
removed by the Directors with or without cause, and the Directors may in their
discretion fill any vacancy that may result therefrom. Any member of the
Committee who is an Employee shall automatically cease to be a member of the
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Committee as of the date he ceases to be employed by the Employer or a
Controlled Entity.
13.3 Officers, Records, and Procedures. The Committee may select officers
and may appoint a secretary who need not be a member of the Committee. The
Committee shall keep appropriate records of its proceedings and the
administration of the Plan and shall make available for examination during
business hours to any Participant or beneficiary such records as pertain to that
individual's interest in the Plan. The Committee shall designate the person or
persons who shall be authorized to sign for the Committee and, upon such
designation, the signature of such person or persons shall bind the Committee.
13.4 Meetings. The Committee shall hold meetings upon such notice and at
such time and place as it may from time to time determine. Notice to a member
shall not be required if waived in writing by that member. A majority of the
members of the Committee duly appointed shall constitute a quorum for the
transaction of business. All resolutions or other actions taken by the Committee
at any meeting where a quorum is present shall be by vote of a majority of those
present at such meeting and entitled to vote. Resolutions may be adopted or
other action taken without a meeting upon written consent signed by all of the
members of the Committee.
13.5 Self-Interest of Participants. No member of the Committee shall have
any right to vote or decide upon any matter relating solely to himself under the
Plan or to vote in any case in which his individual right to claim any benefit
under the Plan is particularly involved. In any case in which a Committee member
is so disqualified to act and the remaining members cannot agree, the Directors
shall appoint a temporary substitute member to exercise all the powers of the
disqualified member concerning the matter in which he is disqualified.
13.6 Compensation and Bonding. The members of the Committee and the Plan
Administrator shall not receive compensation with respect to their services for
the Committee. To the extent required by the Act or other applicable law, or
required by the Company, members of the Committee shall furnish bond or security
for the performance of their duties hereunder.
13.7 Committee Powers and Duties. The Committee shall supervise the
administration and enforcement of the Plan according to the terms and provisions
hereof and shall have all powers necessary to accomplish these purposes,
including, but not by way of limitation, the right, power, authority, and duty:
(a) To make rules, regulations, and bylaws for the administration of
the Plan that are not inconsistent with the terms and provisions hereof,
provided such rules, regulations, and bylaws are evidenced in writing and copies
thereof are delivered to the Trustee and to the Company, and to enforce the
terms of the Plan and the rules and regulations promulgated thereunder by the
Committee;
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(b) To construe in its discretion all terms, provisions, conditions,
and limitations of the Plan. In all cases, the construction necessary for the
Plan to qualify under the applicable provisions of the Code shall control;
(c) To correct any defect or to supply any omission or to reconcile
any inconsistency that may appear in the Plan in such manner and to such extent
as it shall deem in its discretion expedient to effectuate the purposes of the
Plan;
(d) To employ and compensate such accountants, attorneys, investment
advisors, and other agents, employees, and independent contractors as the
Committee may deem necessary or advisable for the proper and efficient
administration of the Plan;
(e) To determine in its discretion all questions relating to
eligibility;
(f) To make a determination in its discretion as to the right of any
person to a benefit under the Plan and to prescribe procedures to be followed by
distributees in obtaining benefits hereunder;
(g) To prepare, file, and distribute, in such manner as the Committee
determines to be appropriate, such information and material as is required by
the reporting and disclosure requirements of the Act;
(h) To furnish the Employer any information necessary for the
preparation of such Employee's tax return or other information that the
Committee determines in its discretion is necessary for a legitimate purpose;
(i) To require and obtain from the Employer and the Participants any
information or data that the Committee determines is necessary for the proper
administration of the Plan;
(j) To appoint a Plan Administrator to supervise the administrative
details of the Plan who may, but need not, be a member of the Committee;
(k) To instruct the Trustee as to the loans to Participants pursuant
to the provisions of Article XII;
(l) to instruct the Trustee as to the management, investment, and
reinvestment of the Trust Fund;
(m) To appoint investment managers pursuant to Section 15.5;
(n) To receive and review reports from the Trustee and the investment
managers as to the financial condition of the Trust Fund, including its receipts
and disbursements;
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(o) To review periodically the Plan's short-term and long-term
investment needs and goals and to communicate such needs and goals to the
Trustee and any investment manager as frequently as the Committee, in its
discretion, deems necessary for the proper administration of the Plan and Trust;
and
(p) To establish or designate Investment Funds as investment options
as provided in Article V.
13.8 Employer to Supply Information. The Employer shall supply full and
timely information to the Committee, including, but not limited to, information
relating to each Participant's Compensation, age, Retirement, death, or other
cause of termination of employment and such other pertinent facts as the
Committee may require. The Employer shall advise the Trustee of such of the
foregoing facts as are deemed necessary for the Trustee to carry out the
Trustee's duties under the Plan. When making a determination in connection with
the Plan, the Committee shall be entitled to rely upon the aforesaid information
furnished by the Employer.
13.9 Indemnification. The Company shall indemnify and hold harmless each
member of the Committee against any and all expenses and liabilities arising out
of his administrative functions or fiduciary responsibilities, including any
expenses and liabilities that are caused by or result from an act or omission
constituting the negligence of such member in the performance of such functions
or responsibilities, but excluding expenses and liabilities that are caused by
or result from such member's own gross negligence or willful misconduct.
Expenses against which such member shall be indemnified hereunder shall include,
without limitation, the amounts of any settlement or judgment, costs, counsel
fees, and related charges reasonably incurred in connection with a claim
asserted or a proceeding brought or settlement thereof.
13.10 Employer Stock Fund. The Committee shall provide to each Participant
the information provided to shareholders of Employer Stock. Participants and
beneficiaries of deceased Participants shall be entitled to all voting, tender,
and similar rights with respect to their interests in the Investment Fund
invested in Employer Stock. The Plan Administrator is responsible for insuring
that information relating to the purchase, holding and sale of Employer Stock,
and the exercise of voting, tender, and similar rights with respect to Employer
Stock by Participants and beneficiaries, is maintained in accordance with
procedures designed to safeguard the confidentiality of such information, except
to the extent necessary to comply with federal laws or state laws not preempted
by the Act. The Trustee is appointed to carry out activities relating to any
situations that the Plan Administrator determines involve a potential for undue
Employer influence upon Participants and beneficiaries with regard to the direct
or indirect exercise of shareholder rights.
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XIV. TRUSTEE AND ADMINISTRATION OF TRUST FUND
14.1 Appointment, Resignation, Removal, and Replacement of Trustee.
(a) The Trustee shall be appointed, removed, and replaced by and in
the sole discretion of the Directors. The Trustee shall be the "named fiduciary"
with respect to investment of the Trust Fund's assets.
(b) Any Trustee may resign at any time by giving at least thirty days'
written notice of such resignation to the Directors. Any Trustee may be removed,
with or without cause, by the Directors on written notice of such removal to
such Trustee. The Directors may appoint a successor Trustee by written
designation, a copy of which shall be delivered to the Committee and the former
Trustee. If there would be no other Trustee then acting, the actual appointment
and qualification of a successor Trustee to whom the Trust Fund may be
transferred are conditions which must be fulfilled before the resignation or
removal of a Trustee shall become effective. The Directors may by resolution
increase or decrease the number of Trustees at any time acting hereunder.
14.2 Trust Agreement. As a means of administering the assets of the Plan,
the Company has entered into a Trust Agreement with the Trustee. The
administration of the assets of the Plan and the duties, obligations, and
responsibilities of the Trustee shall be governed by the Trust Agreement. The
Trust Agreement may be amended from time to time as the Company deems advisable
in order to effectuate the purposes of the Plan. The Trust Agreement is
incorporated herein by reference and thereby made a part of the Plan.
14.3 Payment of Expenses. All expenses incident to the administration of
the Plan and Trust, including but not limited to, legal, accounting, Trustee
fees, expenses of the Committee, and the cost of furnishing any bond or security
required of the Committee shall be paid by the Trustee from the Trust Fund, and,
until paid, shall constitute a claim against the Trust Fund which is paramount
to the claims of Participants and beneficiaries; provided, however, that (a) the
obligation of the Trustee to pay such expenses from the Trust Fund shall cease
to exist to the extent such expenses are paid by the Employer and (b) in the
event the Trustee's compensation is to be paid, pursuant to this Section, from
the Trust Fund, any individual serving as Trustee who already receives full-time
pay from an employer or an association of employers whose employees are
participants in the Plan, or from an employee organization whose Participants
are participants in the Plan, shall not receive any additional compensation for
serving as Trustee. This Section shall be deemed to be a part of any contract to
provide for expenses of Plan and Trust administration, whether or not the
signatory to such contract is, as a matter of convenience, the Employer.
14.4 Trust Fund Property. All income, profits, recoveries, contributions,
forfeitures, and any and all moneys, securities, and properties of any kind at
any time received or held by the Trustee hereunder shall be held for investment
purposes as a commingled Trust Fund. The Committee shall maintain Accounts in
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the name of each Participant, but the maintenance of an Account designated as
the Account of a Participant shall not mean that such Participant shall have a
greater or lesser interest than that due him by operation of the Plan and shall
not be considered as segregating any funds or property from any other funds or
property contained in the commingled fund. No Participant shall have any title
to any specific asset in the Trust Fund.
14.5 Distributions from Participants' Accounts. Distributions from a
Participant's Accounts shall be made by the Trustee only if, when, and in the
amount and manner directed in writing by the Committee. Any distribution made to
a Participant or for his benefit shall be debited to such Participant's Account
or Accounts. All distributions hereunder shall be made in cash except as
otherwise specifically provided herein.
14.6 Payments Solely from Trust Fund. All benefits payable under the Plan
shall be paid or provided for solely from the Trust Fund, and neither the
Employer nor the Trustee assumes any liability or responsibility for the
adequacy thereof. The Committee or the Trustee may require execution and
delivery of such instruments as are deemed necessary to assure proper payment of
any benefits.
14.7 No Benefits to the Employer. No part of the corpus or income of the
Trust Fund shall be used for any purpose other than the exclusive purpose of
providing benefits for the Participants and their beneficiaries and of defraying
reasonable expenses of administering the Plan. Anything to the contrary herein
notwithstanding, the Plan shall not be construed to vest any rights in the
Employer other than those specifically given hereunder.
XV. FIDUCIARY PROVISIONS
15.1 Article Controls. This Article shall control over any contrary,
inconsistent or ambiguous provisions contained in the Plan.
15.2 General Allocation of Fiduciary Duties. Each fiduciary with respect to
the Plan shall have only those specific powers, duties, responsibilities and
obligations as are specifically given him under the Plan. The Directors shall
have the sole authority to appoint and remove the Trustee and members of the
Committee. Except as otherwise specifically provided herein, the Committee shall
have the sole responsibility for the administration of the Plan, which
responsibility is specifically described herein. Except as otherwise
specifically provided herein, the Trustee shall have the sole responsibility for
the administration, investment, and management of the assets held under the
Plan. It is intended under the Plan that each fiduciary shall be responsible for
the proper exercise of his own powers, duties, responsibilities, and obligations
hereunder and shall not be responsible for any act or failure to act of another
fiduciary except to the extent provided by law or as specifically provided
herein.
15.3 Fiduciary Duty. Each fiduciary under the Plan, including, but not
limited to, the Committee and the Trustee as "named fiduciaries," shall
discharge his duties and responsibilities with respect to the Plan:
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(a) Solely in the interest of the Participants, for the exclusive
purpose of providing benefits to Participants and their beneficiaries and of
defraying reasonable expenses of administering the Plan;
(b) 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;
(c) By diversifying the investments of the Plan so as to minimize the
risk of large losses, unless under the circumstances it is prudent not to do so;
and
(d) In accordance with the documents and instruments governing the
Plan insofar as such documents and instruments are consistent with applicable
law.
No fiduciary shall cause the Plan or Trust Fund to enter into a "prohibited
transaction" as provided in section 4975 of the Code or section 406 of the Act.
15.4 Delegation and Allocation of Fiduciary Duties. The Committee may
appoint subcommittees, individuals or any other agents as it deems advisable and
may delegate to any of such appointees any or all of the powers and duties of
the Committee. Such appointment and delegation must be in writing, specifying
the powers or duties being delegated, and must be accepted in writing by the
delegatee. Upon such appointment, delegation and acceptance, the delegating
Committee members shall have no liability for the acts or omissions of any such
delegatee, as long as the delegating Committee members do not violate any
fiduciary responsibility in making or continuing such delegation.
15.5 Investment Manager. The Committee may, in its sole discretion, appoint
an "investment manager," with power to manage, acquire or dispose of any asset
of the Plan and to direct the Trustee in this regard, so long as:
(a) The investment manager is (1) registered as an investment adviser
under the Investment Advisers Act of 1940, (2) a bank, as defined in the
Investment Advisers Act of 1940, or (3) an insurance company qualified to do
business under the laws of more than one state; and
(b) Such investment manager acknowledges in writing that he is a
fiduciary with respect to the Plan.
Upon such appointment, the Committee shall not be liable for the acts of the
investment manager, as long as the Committee members do not violate any
fiduciary responsibility in making or continuing such appointment. The Trustee
shall follow the directions of such investment manager and shall not be liable
for the acts or omissions of such investment manager. The investment manager may
be removed by the Committee at any time and within its sole discretion.
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XVI. AMENDMENTS
16.1 Right to Amend. Subject to Section 16.2 and any other limitations
contained in the Act or the Code, the Directors may from time to time amend, in
whole or in part, any or all of the provisions of the Plan on behalf of the
Company and all Employers. Specifically, but not by way of limitation, the
Directors may make any amendment necessary to acquire and maintain a qualified
status for the Plan under the Code, whether or not retroactive.
16.2 Limitation on Amendments. No amendment of the Plan shall be made that
would vest in the Employer, directly or indirectly, any interest in or control
of the Trust Fund. No amendment shall be made that would vary the Plan's
exclusive purpose of providing benefits to Participants and their beneficiaries
and of defraying reasonable expenses of administering the Plan or that would
permit the diversion of any part of the Trust Fund from that exclusive purpose.
No amendment shall be made that would reduce any then nonforfeitable interest of
a Participant. No amendment shall increase the duties or responsibilities of the
Trustee unless the Trustee consents thereto in writing.
XVII. DISCONTINUANCE OF CONTRIBUTIONS, TERMINATION,
PARTIAL TERMINATION, AND MERGER OR CONSOLIDATION
17.1 Right to Discontinue Contributions, Terminate, or Partially Terminate.
The Employer has established the Plan with the bona fide intention and
expectation that from year to year it will be able to, and will deem it
advisable to, make its contributions as herein provided. However, the Directors
realize that circumstances not now foreseen, or circumstances beyond its
control, may make it either impossible or inadvisable for the Employer to
continue to make its contributions to the Plan. Therefore, the Directors shall
have the power to discontinue contributions to the Plan, terminate the Plan, or
partially terminate the Plan at any time hereafter. Each member of the Committee
and the Trustee shall be notified of such discontinuance, termination, or
partial termination.
17.2 Procedure in the Event of Discontinuance of Contributions,
Termination, or Partial Termination.
(a) If the Plan is amended so as to permanently discontinue Employer
contributions, or if Employer contributions are in fact permanently
discontinued, the Vested Interest of each affected Participant shall be 100%,
effective as of the date of discontinuance. In case of such discontinuance, the
Committee shall remain in existence and all other provisions of the Plan that
are necessary, in the opinion of the Committee, for equitable operation of the
Plan shall remain in force.
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(b) If the Plan is terminated or partially terminated, the Vested
Interest of each affected Participant shall be 100%, effective as of the
termination date or partial termination date, as applicable. Unless the Plan is
otherwise amended prior to dissolution of the Company, the Plan shall terminate
as of the date of dissolution of the Company.
(c) Upon discontinuance, termination, or partial termination, any
previously unallocated contributions, forfeitures, and net income (or net loss)
shall be allocated among the Accounts of the Participants on such date of
discontinuance, termination, or partial termination according to the provisions
of Article IV, as if such date of discontinuance, termination, or partial
termination were a Valuation Date. Thereafter, the net income (or net loss)
shall continue to be allocated to the Accounts of the Participants until the
balances of the Accounts are distributed. In the event of termination, the date
of the final distribution shall be treated as a Valuation Date.
(d) In the case of a termination or partial termination of the Plan,
and in the absence of a Plan amendment to the contrary, the Trustee shall pay
the balance of the Accounts of a Participant for whom the Plan is so terminated,
or who is affected by such partial termination, to such Participant, subject to
the time of payment, form of payment, and consent provisions of Article X.
17.3 Merger, Consolidation, or Transfer. This Plan and Trust Fund may not
merge or consolidate with, or transfer its assets or liabilities to, any other
plan, unless immediately thereafter each Participant would, in the event such
other plan terminated, be entitled to a benefit which is equal to or greater
than the benefit to which he would have been entitled if the Plan were
terminated immediately before the merger, consolidation, or transfer.
XVIII. ADOPTING EMPLOYERS
18.1 Designation of Other Employers.
(a) The Plan Administrator may designate any entity or organization
eligible by law to participate in the Plan as an Employer by written instrument
delivered to the Secretary of the Company and the designated Employer. Such
written instrument shall specify the effective date of such designated
participation, may incorporate specific provisions relating to the operation of
the Plan which apply to the designated Employer only and shall become, as to
such designated Employer and its Employees, a part of the Plan.
(b) Each designated Employer shall be conclusively presumed to have
consented to its designation and to have agreed to be bound by the terms of the
Plan and any and all amendments thereto upon its submission of information to
the Plan Administrator required by the terms of or with respect to the Plan or
upon making a contribution to the Trust Fund pursuant to the terms of the Plan;
provided, however, that the terms of the Plan may be modified so as to increase
the obligations of an Employer only with the consent of such Employer, which
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consent shall be conclusively presumed to have been given by such Employer upon
its submission of any information to the Plan Administrator required by the
terms of or with respect to the Plan or upon making a contribution to the Trust
Fund pursuant to the terms of the Plan following notice of such modification.
(c) The provisions of the Plan shall apply separately and equally to
each Employer and its Employees in the same manner as is expressly provided for
the Company and its Employees, except that (1) the power to appoint or otherwise
affect the Committee or the Trustee and the power to amend or terminate the Plan
shall be exercised by the Company alone and (2) in the case of Employers that
are Controlled Entities, forfeitures to be allocated pursuant to Section 4.3 and
Employer Profit Sharing Contributions to be allocated pursuant to Section 4.2(d)
and (e) shall be allocated on an aggregate basis among the Participants employed
by all Employers; provided, however, that each Employer shall contribute to the
Trust Fund its share of the total Employer Profit Sharing Contribution for a
Plan Year based on the Participants in its employ on the last day of such Plan
Year.
(d) Transfer of employment among Employers shall not be considered a
termination of employment hereunder, and an Hour of Service with one shall be
considered as an Hour of Service with all others.
(e) Any Employer may, by appropriate action of its Board of Directors
or noncorporate counterpart that is communicated in writing to the Secretary of
the Company and to the Plan Administrator, terminate its participation in the
Plan. Moreover, the Plan Administrator may, in its discretion, terminate an
Employer's Plan participation at any time by written instrument delivered to the
Secretary of the Company and the designated Employer.
18.2 Single Plan. For purposes of the Code and the Act, the Plan as adopted
by the Employers shall constitute a single plan rather than a separate plan of
each Employer. All assets in the Trust Fund shall be available to pay benefits
to all Participants and their beneficiaries.
XIX. MISCELLANEOUS PROVISIONS
19.1 Not Contract of Employment. The adoption and maintenance of the Plan
shall not be deemed to be a contract between the Employer and any person or to
be consideration for the employment of any person. Nothing herein contained
shall be deemed to give any person the right to be retained in the employ of the
Employer or to restrict the right of the Employer to discharge any person at any
time nor shall the Plan be deemed to give the Employer the right to require any
person to remain in the employ of the Employer or to restrict any person's right
to terminate his employment at any time.
19.2 Alienation of Interest Forbidden. Except as otherwise provided with
respect to "qualified domestic relations orders" pursuant to section 206(d) of
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the Act and sections 401(a)(13) and 414(p) of the Code and except as otherwise
provided under other applicable law, no right or interest of any kind in any
benefit shall be transferable or assignable by any Participant or any
beneficiary or be subject to anticipation, adjustment, alienation, encumbrance,
garnishment, attachment, execution, or levy of any kind. Plan provisions to the
contrary notwithstanding, the Committee shall comply with the terms and
provisions of any "qualified domestic relations order," including an order that
requires distributions to an alternate payee prior to a Participant's "earliest
retirement age" as such term is defined in section 206(d)(3)(E)(ii) of the Act
and section 414(p)(4)(B) of the Code, and shall establish appropriate procedures
to effect the same.
19.3 Payments to Minors and Incompetents. If a Participant or beneficiary
entitled to receive a benefit under the Plan is a minor or is determined by the
Committee in its discretion to be incompetent or is adjudged by a court of
competent jurisdiction to be legally incapable of giving valid receipt and
discharge for a benefit provided under the Plan, the Committee may pay such
benefit to the duly appointed guardian or conservator of such Participant or
beneficiary or to any third party who is eligible to receive such benefit for
the account of such Participant or beneficiary. Such payment shall operate as a
full discharge of all liabilities and obligations of the Committee, the Trustee,
the Employer, and any fiduciary of the Plan with respect to such benefit.
19.4 Participant's Address. It shall be the affirmative duty of each
Participant to inform the Committee of, and to keep on file with the Committee,
his current mailing address and the current mailing address of his designated
beneficiary. If a Participant fails to keep the Committee informed of his
current mailing address and the current mailing address of his designated
beneficiary, neither the Committee, the Trustee, the Employer, nor any fiduciary
under the Plan shall be responsible for any late or lost payment of a benefit or
for failure of any notice to be provided timely under the terms of the Plan.
19.5 Severability. If any provision of this Plan shall be held illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions hereof, instead, each provision shall be fully severable
and the Plan shall be construed and enforced as if said illegal or invalid
provision had never been included herein.
19.6 Jurisdiction. The situs of the Plan hereby created is Delaware. All
provisions of the Plan shall be construed in accordance with the laws of
Delaware except to the extent preempted by federal law.
19.7 Plan Changes During Periods of Transition. Anything to the contrary
herein notwithstanding, the Committee may in its discretion provide that, during
and for the duration of any period of transition as a result of a change of
Trustees and as necessary to ensure an orderly transition, (1) no distributions,
withdrawals, loans, execution of, change to, or revocation of a Compensation
reduction agreement, change of investment designation of future contributions or
transfer of amounts in Accounts from one Fund to another Fund, or other Plan
activity shall be permitted, or (2) any such Plan activity shall be limited or
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restricted; provided that any such temporary cessation, limitation, or
restriction of Plan activity shall be in compliance with all applicable law. The
provisions of this section shall be effective January 1, 1996.
XX. TOP-HEAVY STATUS
20.1 Article Controls. Any Plan provisions to the contrary notwithstanding,
the provisions of this Article shall control to the extent required to cause the
Plan to comply with the requirements imposed under section 416 of the Code.
20.2 Definitions. For purposes of this Article, the following terms and
phrases shall have these respective meanings:
(a) Account Balance: As of any Valuation Date, the aggregate amount
credited to an individual's account or accounts under a qualified defined
contribution plan maintained by the Employer or a Controlled Entity (excluding
employee contributions that were deductible within the meaning of section 219 of
the Code and rollover or transfer contributions made after December 31, 1983, by
or on behalf of such individual to such plan from another qualified plan
sponsored by an entity other than the Employer or a Controlled Entity),
increased by (1) the aggregate distributions made to such individual from such
plan during a five-year period ending on the Determination Date and (2) the
amount of any contributions due as of the Determination Date immediately
following such Valuation Date.
(b) Accrued Benefit: As of any Valuation Date, the present value
(computed on the basis of the Assumptions) of the cumulative accrued benefit
(excluding the portion thereof that is attributable to employee contributions
which were deductible pursuant to section 219 of the Code, to rollover or
transfer contributions made after December 31, 1983, by or on behalf of such
individual to such plan from another qualified plan sponsored by an entity other
than the Employer or a Controlled Entity, to proportional subsidies or to
ancillary benefits) of an individual under a qualified defined benefit plan
maintained by the Employer or a Controlled Entity increased by (1) the aggregate
distributions made to such individual from such plan during a five-year period
ending on the Determination Date and (2) the estimated benefit accrued by such
individual between such Valuation Date and the Determination Date immediately
following such Valuation Date. Solely for the purpose of determining top-heavy
status, the Accrued Benefit of an individual shall be determined under (1) the
method, if any, that uniformly applies for accrual purposes under all qualified
defined benefit plans maintained by the Employer and the Controlled Entities or
(2) if there is no such method, as if such benefit accrued not more rapidly than
under the slowest accrual rate permitted under section 411(b)(1)(C) of the Code.
(c) Aggregation Group: The group of qualified plans maintained by the
Employer and each Controlled Entity consisting of (1) each plan in which a Key
Employee participates and each other plan that enables a plan in which a Key
Employee participates to meet the requirements of section 401(a)(4) or 410 of
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the Code or (2) each plan in which a Key Employee participates, each other plan
that enables a plan in which a Key Employee participates to meet the
requirements of section 401(a)(4) or 410 of the Code and any other plan that the
Employer elects to include as a part of such group; provided, however, that the
Employer may elect to include a plan in such group only if the group will
continue to meet the requirements of sections 401(a)(4) and 410 of the Code with
such plan being taken into account.
(d) Assumptions: The interest rate and mortality assumptions specified
for top-heavy status determination purposes in any defined benefit plan included
in the Aggregation Group which includes the Plan.
(e) Determination Date: For the first Plan Year of any plan, the last
day of such Plan Year and for each subsequent Plan Year of such plan, the last
day of the preceding Plan Year.
(f) Key Employee: A "key employee" as defined in section 416(i) of the
Code and the Treasury regulations thereunder.
(g) Plan Year: With respect to any plan, the annual accounting period
used by such plan for annual reporting purposes.
(h) Remuneration: Compensation within the meaning of section 415(c)(3)
of the Code, as limited by section 401(a)(17) of the Code.
(i) Valuation Date: With respect to any Plan Year of any defined
contribution plan, the most recent date within the twelve-month period ending on
a Determination Date as of which the trust fund established under such plan was
valued and the net income (or loss) thereof allocated to participants' accounts.
With respect to any Plan Year of any defined benefit plan, the most recent date
within a twelve-month period ending on a Determination Date as of which the plan
assets were valued for purposes of computing plan costs for purposes of the
requirements imposed under section 412 of the Code.
20.3 Top-Heavy Status.
(a) The Plan shall be deemed to be top-heavy for a Plan Year if, as of
the Determination Date for such Plan Year, (1) the sum of Account Balances of
Participants who are Key Employees exceeds 60% of the sum of Account Balances of
all Participants unless an Aggregation Group including the Plan is not top-heavy
or (2) an Aggregation Group including the Plan is top-heavy. An Aggregation
Group shall be deemed to be top-heavy as of a Determination Date if the sum
(computed in accordance with section 416(g)(2)(B) of the Code and the Treasury
regulations promulgated thereunder) of (1) the Account Balances of Key Employees
under all defined contribution plans included in the Aggregation Group and (2)
the Accrued Benefits of Key Employees under all defined benefit plans included
in the Aggregation Group exceeds 60% of the sum of the Account Balances and the
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Accrued Benefits of all individuals under such plans. Notwithstanding the
foregoing, the Account Balances and Accrued Benefits of individuals who are not
Key Employees in any Plan Year but who were Key Employees in any prior Plan Year
shall not be considered in determining the top-heavy status of the Plan for such
Plan Year. Further, notwithstanding the foregoing, the Account Balances and
Accrued Benefits of individuals who have not performed services for the Employer
or any Controlled Entity at any time during the five-year period ending on the
applicable Determination Date shall not be considered.
(b) If the Plan is determined to be top-heavy for a Plan Year, the
Vested Interest in the Employer's Contributions Account of each Participant who
is credited with an Hour of Service during such Plan Year shall be determined in
accordance with the following schedule:
Years of
Vesting Service Vested Interest
Less than 2 years 0%
2 years 20%
3 years 40%
4 years 66%
5 years 100%
(c) If the Plan is determined to be top-heavy for a Plan Year, the
Employer shall contribute to the Plan for such Plan Year on behalf of each
Participant who is not a Key Employee and who has not terminated his employment
as of the last day of such Plan Year an amount equal to:
(1) The lesser of (A) 3% of such Participant's Remuneration for
such Plan Year or (B) a percent of such Participant's Remuneration for such Plan
Year equal to the greatest percent determined by dividing for each Key Employee
the amounts allocated to such Key Employee's Tax Deferred Savings Account and
Employer's Contributions Account for
such Plan Year by such Key Employee's Remuneration; reduced by
(2) The amount of Employer Profit Sharing Contributions
allocated to such Participant's Accounts for such Plan Year.
The minimum contribution required to be made for a Plan Year pursuant to this
Paragraph for a Participant employed on the last day of such Plan Year shall be
made regardless of whether such Participant is otherwise ineligible to receive
an allocation of the Employer's contributions for such Plan Year.
Notwithstanding the foregoing, if the Plan is deemed to be top-heavy for a Plan
Year, the Employer's contribution for such Plan Year pursuant to this Paragraph
shall be increased by substituting "4%" in lieu of "3%" in Clause (1) hereof to
the extent that the Directors determine to so increase such contribution to
comply with the provisions of section 416(h)(2) of the Code. Notwithstanding the
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foregoing, no contribution shall be made pursuant to this Paragraph for a Plan
Year with respect to a Participant who is a participant in another defined
contribution plan sponsored by the Employer or a Controlled Entity if such
Participant receives under such other defined contribution plan (for the plan
year of such plan ending with or within the Plan Year of the Plan) a
contribution which is equal to or greater than the minimum contribution required
by section 416(c)(2) of the Code. Notwithstanding the foregoing, no contribution
shall be made pursuant to this Paragraph for a Plan Year with respect to a
Participant who is a participant in a defined benefit plan sponsored by the
Employer or a Controlled Entity if such Participant accrues under such defined
benefit plan (for the plan year of such plan ending with or within the Plan Year
of this Plan) a benefit that is at least equal to the benefit described in
section 416(c)(1) of the Code. If the preceding sentence is not applicable, the
requirements of this Paragraph shall be met by providing a minimum benefit under
such defined benefit plan which, when considered with the benefit provided under
the Plan as an offset, is at least equal to the benefit described in section
416(c)(1) of the Code.
20.4 Termination of Top-Heavy Status. If the Plan has been deemed to be
top-heavy for one or more Plan Years and thereafter ceases to be top-heavy, the
provisions of this Article shall cease to apply to the Plan effective as of the
Determination Date on which it is determined no longer to be top-heavy.
Notwithstanding the foregoing, the Vested Interest of each Participant as of
such Determination Date shall not be reduced and, with respect to each
Participant who has three or more years of Vesting Service on such Determination
Date, the Vested Interest of each such Participant shall continue to be
determined in accordance with the schedule set forth in Section 20.3(b).
20.5 Effect of Article. Notwithstanding anything contained herein to the
contrary, the provisions of this Article shall automatically become inoperative
and of no effect to the extent not required by the Code or the Act.
EXECUTED this ______ day of ___________________, 19___.
HIGHLANDS INSURANCE COMPANY
By:_________________________________
HIGHLANDS INSURANCE GROUP, INC.
By:_________________________________
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APPENDIX A
HIGHLANDS INSURANCE GROUP, INC.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
This Appendix A shall apply to each Employee and vested former
Employee participating in the American Reliance, Inc. Retirement Plan (the "ARI
Plan") who becomes a Participant on July 1, 1998 and each former Employee of
American Reliance, Inc. and its subsidiaries who terminated employment after
March 31 and before July 1, 1998 with no vested rights (an "ARI Participant").
1. Annuity Option. Each ARI Participant may elect to have his Vested
Interest paid in the form of a commercial annuity, in accordance with Section
10.7, providing for monthly payments for the life of the Participant. If the
Participant is married at the time monthly payments begin, payments shall be
made in the form of a qualified joint and survivor annuity, unless the
Participant elects a different form of benefit and his spouse consents in the
manner provided below. A qualified joint and survivor annuity provides reduced
monthly payments to the Participant for life, with payments continuing to the
spouse to whom the Participant was married when benefits commenced, equal to 50%
of the monthly amount payable to the Participant. Payments for the life of a
married participant under a commercial annuity can be made in a form other than
a qualified joint and survivor annuity only if the Participant so elects and his
spouse consents in a writing that describes the alternate form and any
beneficiary who could receive payments after the Participant's death,
acknowledges the effect of the spouse's consent, and is witnessed by a Plan
representative or notary public. Any such election by a Participant and consent
by the Participant's spouse must be made within the 90-day period ending on the
date benefits under the commercial annuity commence. The insurer shall provide
to each Participant, at least 30 days before commencement of benefits under the
commercial annuity, a written explanation of (i) the terms and conditions of the
qualified joint and survivor annuity, (ii) the Participant's right to make an
election to waive such annuity, (iii) the right of the Participant's spouse to
consent to such waiver and (iv) the right of the Participant to revoke an
election to waive such benefit.
2. Surviving Spouse Annuity. Notwithstanding any other provisions of
the Plan, a beneficiary who has been married to a deceased ARI Participant
throughout the one-year period ending on the date of the Participant's death may
elect to receive a commercial annuity in accordance with Section 10.7 providing
for periodic payments for the surviving spouse's lifetime. At the time of the
Participant's death, the Committee shall provide a surviving spouse eligible for
this benefit a written explanation of (i) the periodic payments for the
surviving spouse's lifetime, (ii) the right of the surviving spouse to elect
such lifetime benefit and (iii) the right of the surviving spouse to revoke an
election.
3. Vesting. (a) The Vested Interest of an ARI Participant who had at
least three years of service for vesting purposes under the ARI Plan as of June
30, 1998 shall not be less that the Vested Interest the Participant would have
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had under the provisions of the ARI Plan as then constituted. The Vested
Interest of an ARI Participant who does not have an Hour of Service after March
31, 1998 shall be governed by the terms of the ARI Plan at the time his
employment terminated.
(b) The Vested Interest of an ARI Participant who terminated
employment with American Reliance, Inc. and its subsidiaries after March 31 and
before July 1, 1998 with no vested rights shall be determined under the
provisions of the Highlands Insurance Company Employees' Retirement and Savings
Plan as then constituted.