<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File Number 0-6964
20TH CENTURY INDUSTRIES
- - ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-1935264
- - --------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
Suite 700, 6301 Owensmouth Avenue, Woodland Hills, California 91367
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 704-3700
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
COMMON STOCK, WITHOUT PAR VALUE
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements, incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
--- ---
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the average high and low prices for shares of the
Company's Common Stock on March 12, 1997 as reported by the New York Stock
Exchange, was approximately $916,066,000.
On March 12, 1997, the registrant had outstanding 51,601,361 shares of common
stock, without par value, which is the Company's only class of common stock.
DOCUMENT INCORPORATED BY REFERENCE:
Portions of the definitive proxy statement used in connection with the annual
meeting of shareholders of the registrant, to be held on May 20, 1997, are
incorporated herein by reference into Part III hereof.
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20TH CENTURY INDUSTRIES
1996 FORM 10-K ANNUAL REPORT
Table of Contents
PAGE
PART I
------
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 23
Item 3. Legal Proceedings........................................... 23
Item 4. Submission of Matters to a Vote of Security Holders......... 24
PART II
-------
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters...................................... 25
Item 6. Selected Financial Data..................................... 26
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 30
Item 8. Financial Statements and Supplementary Data................ 41
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 71
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.......... 71
Item 11. Executive Compensation...................................... 71
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................... 71
Item 13. Certain Relationships and Related Transactions.............. 71
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K....................................... 72
Signatures.................................................. 81
2
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PART I
ITEM 1. BUSINESS
GENERAL
20th Century Industries is an insurance holding company founded in 1956
and incorporated in California. The term "Company," unless the context
requires otherwise, refers to 20th Century Industries and its wholly-owned
subsidiaries, 20th Century Insurance Company and 21st Century Casualty
Company, both of which are property and casualty insurance companies licensed
and incorporated in California. The Common Stock of the Company is traded on
the New York Stock Exchange under the trading symbol "TW."
The Company, through its subsidiaries, directly markets and underwrites
private passenger automobile, homeowners and personal excess liability
insurance. As a direct response writer, the Company has gained a reputation
for excellent customer service and being among the most efficient and low
cost providers of personal insurance in the markets it serves.
Historically, the Company's business has been concentrated in Southern
California, principally the greater Los Angeles and Orange County areas. In
the early 1990's, however, the Company began expanding into the San Diego and
Northern California areas. In August 1996, 20th Century Insurance Company of
Arizona ("20th of Arizona") began writing private passenger automobile
insurance in that state. 20th of Arizona is a joint venture between the
Company, which owns a 49% interest, and American International Group, Inc.
("AIG"), which owns a 51% interest. AIG currently owns the largest single
outstanding equity interest in the Company (see Note 16 of Notes to
Consolidated Financial Statements in Item 8 herein). The Company is
considering expanding into other states with large urban markets which seem
most compatible with the Company's demonstrated core competencies.
The Company began providing homeowners insurance in 1982 and condominium
insurance in 1989. Policies issued or renewed prior to July 23, 1994
included optional endorsements for earthquake coverage. In the wake of the
earthquake which occurred in the San Fernando Valley area of Southern
California on January 17, 1994 (the "Northridge Earthquake" - see discussion
in Note 15 of Notes to Consolidated Financial Statements in Item 8 herein),
the Company's writings
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in these lines were significantly reduced in the period 1994 to 1996. In
compliance with an order by the California Department of Insurance ("DOI") in
June 1994, the Company immediately began to non-renew earthquake coverage
endorsements and to cease writing new homeowner and condominium policies.
Effective July 23, 1996, the Company began non-renewing all homeowner and
condominium policies.
In late 1996, the Company obtained permission to renew its remaining
homeowner policies effective February 15, 1997 and expects to request
authority to resume writing new homeowner policies during 1997. However,
there is no assurance this request will be granted. The statutorily required
offer of earthquake coverage on these renewals is being made by an AIG
affiliate; no additional direct earthquake exposure will be borne by the
Company. The condominium program is currently in run-off and will be fully
discontinued by July 23, 1997.
LIMITS OF INSURANCE COVERAGE
The Company offers the following insurance coverages for private passenger
automobiles: bodily injury liability, property damage, medical payments,
uninsured motorist, rental reimbursement, comprehensive and collision. Policies
are written for a six-month term. Various limits of liability are underwritten
with maximum limits of $500,000 per person and $500,000 per accident. The most
frequent bodily injury liability limits purchased are $100,000 per person and
$300,000 per accident.
The homeowners program historically utilized a replacement cost insurance
policy which covered the actual cost of rebuilding the dwelling. Contents were
covered, at replacement cost, up to the stated policy limits. In early 1997,
this policy was replaced with an extended replacement cost policy, thereby
limiting loss to 150% of the amount specified in the contract for Coverage A -
Dwelling and Other Building Structures. Underwriting guidelines provide for a
minimum dwelling amount of $50,000 and a maximum dwelling amount of $500,000.
Personal liability coverage limits of $100,000, $200,000 and $300,000 are
available. The condominium program utilized a replacement cost policy which
covered the condominium unit owner's contents up to the policy limits. Contents
coverage limits were offered between a minimum of $25,000 and a maximum of
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$250,000. Limits for personal liability coverage of $100,000, $200,000 and
$300,000 were also available.
The personal excess liability policy ("PELP") is written by 20th Century
Insurance Company and provides liability coverage with a limit of $1,000,000 in
excess of the underlying automobile and homeowners liability coverage. Minimum
underlying automobile limits of $100,000 per person and $300,000 per accident
are required while homeowners must have a minimum of $100,000 personal liability
coverage. The underlying automobile coverage must be written by the Company.
MARKETING
The Company markets directly to the customer and writes its policies
without utilizing or engaging outside agents or brokers. The Company uses
direct mail, print and radio advertising to market its policies. Quotes may be
obtained by calling the company directly at (800) 211-7283. In 1996, the
Company established a site on the Internet (http:\\www.20thCentIns.com) offering
prospective customers an additional way to request a rate quotation or obtain
other information about the Company.
20th Century was active in advertising in California's four major
metropolitan markets throughout 1996 (Los Angeles and Orange Counties, the Bay
Area, San Diego and Sacramento). Requests for automobile quotations increased
16% over the prior year while the number of vehicles for which applications were
received increased 17.2%.
The Company continues to increase penetration in its newer Sacramento and
Bay Area markets, generating approximately 80% more new business from these two
markets in 1996 than in 1995. Over 40% of all new business written in 1996 came
from outside the Los Angeles/Orange County areas.
5
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UNDERWRITING AND PRICING
The regulatory system in California requires the prior approval of
insurance rates. Within this regulatory framework, the Company establishes
its automobile and homeowners premium rates based on actuarial analysis of
its own historical premium, loss and expense data. These data are compiled
and analyzed to establish overall rate levels as well as classification
differentials. The Company's rates are established at levels intended to
generate underwriting profits and vary for individual policies based on a
number of rating characteristics. The primary characteristics include
driving record, annual mileage, number of years a driver has been licensed,
where the vehicle is garaged, vehicle usage, value of the automobile and
limits and deductibles selected.
The Company is required to offer insurance to any prospect who meets the
statutory definition of a "Good Driver." This definition includes all drivers
who have been licensed more than three years and have had no more than one
violation point count under criteria contained in the California Vehicle Code.
These criteria include a variety of moving violations and certain at fault
accidents.
The Company reviews many of its automobile policies prior to the time of
renewal and as changes occur during the policy period. The customer may contact
the Company to make changes, such as the addition or deletion of drivers or
vehicles, changes in the classification of drivers or usage of vehicles, changes
in garaging location and changes in coverages or limits. Some mid-term changes
may result in premium adjustments and some may result in the policy being
reunderwritten and eventually not renewed because of a substantial increase in
hazard.
With respect to the homeowners renewal program starting February 15, 1997,
underwriting procedures include a review of claims and identification of changes
in circumstances that may warrant premium adjustments or cancellation of
coverage in case of a substantial increase in risk.
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SERVICING OF BUSINESS
The Company has consistently maintained a low expense ratio compared to
industry norms because of its efficient processing of all aspects of customer
service. The Company continues to design and implement effective practices,
fully supported by management information systems, to improve service and
efficiency in the marketing, policy service, underwriting and claims functions.
The Company continues to adapt its technological capabilities in keeping with
its business strategies. The management information systems provide the
information resources and data processing capabilities which support the
business and technical needs of the Company. In addition to providing ongoing
support, the systems provide the strategic capabilities necessary to manage the
Company's business. In January 1997, telephonic capacity was expanded to
include interactive voice response, which allows customers to obtain pertinent
policy information on their own, seven days a week, 6:00 am to midnight.
CLAIMS
Claims operations include the receipt and analysis of initial loss reports,
assignment of legal counsel and management of the settlement process. Whenever
possible, physical damage claims are handled through the use of Company drive-in
claims and vehicle inspection centers. The claims management staff administers
the claims settlement process and directs the legal and adjuster components of
that process. Each claim is carefully analyzed to provide for fair loss
payments, to comply with the Company's contractual obligations and to manage
loss adjustment expenses. Liability and property damage claims are handled by
specialists in each area.
The Company utilizes its legal staff to handle most aspects of claims
litigation, including trial, from offices in Brea, Ontario, Long Beach, San
Diego and Woodland Hills. Staff attorneys handle more than 75% of all lawsuits.
Suits which may involve a conflict of interest are assigned to outside counsel.
Recognizing the need to provide its customers with convenient, local
service, the Company has established eleven Division Service Offices in Los
Angeles, Orange, San Diego and Ventura
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Counties as well as a new office in the San Francisco Bay Area. Each
Division Service Office is a full service center, normally staffed with
between seventy-five and one hundred employees who provide complete claims
services from initial investigation to final conclusion. In addition, the
Company has twelve drive-in claims facilities in Los Angeles, Orange, San
Diego and Ventura Counties. Each drive-in facility is staffed with between
two and five employees.
The Company makes extensive use of its Direct Repair Program ("DRP") to
expedite the repair process. The program involves agreements between the
Company and approximately 95 independent repair facilities throughout
California. The Company agrees to accept the estimate for damages prepared by
the repair facility without the vehicle having to be inspected by staff
adjusters. The facilities selected undergo a screening process before being
accepted, and the Company maintains an aggressive reinspection program to assure
quality results; the Company's reinspection team visits a minimum of 30% of all
repair facilities each month. The customer benefits by getting the repair
process started faster, and the repairs are guaranteed for as long as the
customer owns the vehicle. The Company benefits by not incurring the overhead
expense of a larger staff of appraisers and by negotiating repair rates it
believes are beneficial. Currently, over 25% of all damage repairs are handled
using the DRP method.
The Specialty Division is comprised of three vehicle inspection centers
located in Los Angeles and Orange Counties. Each vehicle inspection center is
staffed with between fifteen and twenty employees who handle total losses, total
thefts and vehicles which are not driveable.
The Claims Services Division employs approximately 100 people who are
responsible for subrogation, medical payment claims and workers' compensation
claims arising under the home-owner policy.
The Company also maintains a Special Investigations Unit with approximately
40 personnel who investigate suspected fraudulent claims. The Company believes
its efforts in this area have been responsible for saving several millions of
dollars annually.
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The Homeowners Division processes all homeowner property claims on a
regional basis and is made up of two units of approximately fifteen employees
each. The units are located in Brea and Woodland Hills.
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
The Company establishes reserves, or liabilities, at each accounting date
for losses and loss adjustment expenses arising from claims, both reported and
unreported, which have been incurred but which remain to be paid. Such reserves
are estimates, as of a particular date, of the amount the Company will
ultimately pay for claims incurred as of the accounting date.
"Case basis" reserves are established for bodily injury liability and
uninsured motorist claims which are either expected to exceed $15,000 or are
older than two years. Such case reserves are based on the specific
circumstances, merits and relevant contractual policy provisions of the claim.
Case reserves for other bodily injury and uninsured motorists claims and
for all other coverages are established by an average case reserve value. These
average values are based on a periodic review of recent claims payments for each
coverage.
The Company supplements the case loss reserve estimates with loss reserves
estimated using actuarial methodologies. These reserves are designed to provide
for claims incurred but not reported to or recorded by the Company as of the
accounting date ("IBNR") and for changes over time in individual case reserve
estimates and loss adjustment expenses which include estimates of both legal and
other administrative and direct costs associated with settling incurred claims.
The reserves are estimated using actuarial techniques and the Company's own
historical loss experience and are reviewed each quarter. The effects of
inflation are implicitly considered in the actuarial estimates of liabilities
for loss and loss adjustment expenses. The Company does not report its loss and
loss adjustment expense reserves at their discounted present value.
Amounts reported are estimates of the ultimate net costs of settlement
which are necessarily subject to the impact of future changes in economic and
social conditions. Management believes
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that, given the inherent variability in any such estimates, the aggregate
reserves are within a reasonable and acceptable range of adequacy. The
methods of making such estimates and for establishing the resulting reserves
are continually reviewed and updated and any adjustments resulting therefrom
are reflected in earnings currently.
A rollforward of loss and loss adjustment expense reserves, including the
effects of reserve changes, loss payments, reinsurance and a reconciliation
between statutory reserves and GAAP reserves for each of the three years in the
period ended December 31, 1996 is presented in Note 7 to the Consolidated
Financial Statements.
The following table presents the development of loss and loss adjustment
expense reserves, net of reinsurance, for the years 1986 through 1996. The top
line of the table shows the reserves at the balance sheet date, net of
reinsurance recoverables, for each of the years indicated. The upper portion of
the table indicates the cumulative amounts paid as of subsequent year-ends with
respect to that reserve liability. The lower portion of the table indicates the
re-estimated amount of the previously recorded reserves based on experience as
of the end of each succeeding year, including cumulative payments made since the
end of the respective year. The estimate changes as more information becomes
known about the frequency and severity of claims for individual years. A
redundancy (deficiency) exists when the original reserve estimate is greater
(less) than the re-estimated reserves at December 31, 1996. The decrease in the
redundancy shown in the 1994 and 1995 columns compared to prior years includes
the additional earthquake losses and loss adjustment expenses recorded
subsequent to 1994, which through December 31, 1996 have amounted to $100
million (see Note 15 of Notes to Consolidated Financial Statements).
Each amount in the following table includes the effects of all changes in
amounts for prior periods. The table does not present accident year or policy
year development data. Conditions and trends that have affected the development
of liabilities in the past may not necessarily occur in the future. Therefore,
it may not be appropriate to extrapolate future deficiencies or redundancies
based on the table.
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<TABLE>
<CAPTION>
AS OF DECEMBER 31,
- - -----------------------------------------------------------------------------------------------------------------------------------
1986 1987 1988 1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserves for
loss and loss
adjustment expenses,
net of reinsurance $206,266 $297,853 $391,748 $472,010 $525,220 $547,098 $554,034 $574,619 $755,101
Paid (cumulative)
as of:
One year later 138,944 180,516 197,555 242,757 300,707 320,264 327,634 344,876 519,969
Two years later 187,448 238,947 271,163 328,606 391,970 401,019 403,434 423,713 635,861
Three years later 211,477 272,955 310,757 366,369 420,853 426,412 425,671 443,055
Four years later 226,550 289,901 326,495 377,980 429,791 433,642 432,086
Five years later 233,287 296,310 330,014 381,507 431,791 436,522
Six years later 235,367 297,764 330,879 382,230 432,975
Seven years later 235,510 298,098 331,433 382,108
Eight years later 235,515 298,649 331,344
Nine years later 235,813 298,583
Ten years later 235,732
Reserves re-
estimated as of:
One year later 227,848 294,504 357,220 402,706 473,974 473,209 491,048 490,166 715,637
Two years later 230,412 302,991 342,365 397,847 449,348 461,343 447,880 465,036 725,098
Three years later 237,587 304,925 340,760 389,559 442,508 440,198 438,726 453,431
Four years later 239,096 302,661 333,432 384,948 433,408 437,350 435,128
Five years later 237,528 298,764 332,100 382,331 432,370 436,929
Six years later 236,026 298,603 331,191 381,996 432,661
Seven years later 235,819 298,319 331,274 381,914
Eight years later 235,698 298,661 331,184
Nine years later 235,842 298,531
Ten years later 235,747
Redundancy
(Deficiency) $(29,481) $(678) $60,564 $90,096 $92,559 $110,169 $118,906 $121,188 $30,003
<CAPTION>
AS OF DECEMBER 31,
- - -----------------------------------------------------------
1995 1996
<S> <C> <C>
Reserves for
loss and loss
adjustment expenses,
net of reinsurance $552,320 $489,033
Paid (cumulative)
as of:
One year later 351,985
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
Reserves re-
estimated as of:
One year later 526,730
Two years later 725,098
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
Redundancy
(Deficiency) $25,590
</TABLE>
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The reserve for gross losses and loss adjustment expenses, as reported
in the consolidated financial statements, is recorded prior to reinsurance
and represents the accumulation for reported losses and IBNR. The table
which follows presents the development of gross losses and loss adjustment
expense reserves for calendar years 1994 through 1996. As in the ten-year
table presented net of reinsurance, each amount in the following table
includes the effects of all changes in amounts for prior periods. The table
does not present accident year or policy year development data and it would
not be appropriate to extrapolate future development based on this table.
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Gross losses and loss adjustment
expenses, December 31 $756,243 $584,834 $543,529
Paid (cumulative) as of:
One year later 523,199 375,895
Two years later 639,870
Gross liability re-estimated as of:
end of year 756,243 584,834 543,529
One year later 719,716 559,259
Two years later 729,209
Redundancy $ 27,034 $ 25,575
</TABLE>
OPERATING RATIOS
Combined Ratios
Underwriting profit margins are a reflection of the extent to which the
combined ratios (loss and loss adjustment expense ("LAE") ratios and
underwriting expense ratios) are less than 100%. Loss and LAE ratios are
traditionally used to interpret the underwriting experience of property and
casualty insurance companies. Losses and loss adjustment expenses are stated as
a percentage of premiums earned because losses may occur over the life of a
particular insurance policy. Underwriting expenses are stated as a percentage
of premiums written for statutory reporting purposes and as a percentage of
earned premiums for reporting under generally accepted accounting principles.
The loss and LAE ratios, underwriting expense ratios (excluding loan interest
and fees),
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and combined ratios for the Company's subsidiaries, on a SAP and GAAP basis,
are shown in the following tables.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
COMPANYWIDE - SAP 1996 1995 1994 1993 1992
----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Loss and LAE Ratio 85.8% 88.7% 173.0% 88.0% 85.9%
Underwriting Expense Ratio 9.4 8.7 9.9 10.5 10.0
----- ----- ------ ----- -----
Combined Ratio 95.2% 97.4% 182.9% 98.5% 95.9%
----- ----- ------ ----- -----
----- ----- ------ ----- -----
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
COMPANYWIDE - GAAP 1996 1995 1994 1993 1992
- - ------------------ ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Loss and LAE Ratio 85.8% 88.4% 176.8% 87.6% 85.3%
Underwriting Expense Ratio 9.3 9.0 9.7 10.7 10.1
----- ----- ------ ----- -----
Combined Ratio 95.1% 97.4% 186.5% 98.3% 95.4%
----- ----- ------ ----- -----
----- ----- ------ ----- -----
</TABLE>
The Northridge Earthquake contributed 85.1, 2.9 and 4.7 percentage
points on both a GAAP and SAP basis to the 1994, 1995 and 1996 combined
ratios, respectively. Weather-related claims contributed less than one
percentage point to the 1996 combined ratio and 1.5 percentage points to the
1995 combined ratio.
Premiums to Surplus Ratio
The following table shows, for the periods indicated, the Company's
statutory ratios of net premiums written to policyholders' surplus. Because
each property and casualty insurance company has different capital needs, an
"appropriate" ratio of net premiums written to policy-holders' surplus for
one company may not be the same as for another company. While there is no
statutory requirement applicable to the Company, guidelines established by
the National
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Association of Insurance Commissioners provide that such ratio generally
should be no greater than 3 to 1 on a statutory basis.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
SAP 1996 1995 1994 1993 1992
- - --- ---- ---- ---- ---- ----
(Amounts in thousands, except ratio)
<S> <C> <C> <C> <C> <C>
Net premiums written $827,993 $958,614 $1,032,737 $1,021,902 $918,443
Policyholders' surplus $436,367 $358,474 $ 207,018 $ 582,176 $500,619
Ratio 1.9:1 2.7:1 4.9:1 1.8:1 1.8:1
</TABLE>
The 1994 and 1995 ratios were high because of the surplus strain caused
by the Northridge Earthquake. Capital infusions in 1994 and a return to
profitable operations in 1995 resulted in improved surplus levels that
reduced the ratio below 3 to 1 in 1995 and below 2 to 1 in 1996.
INVESTMENTS AND INVESTMENT RESULTS
The Company's investment guidelines emphasize buying high-quality fixed
income investments. These guidelines, the portfolio and the investment
results are regularly reviewed by the Investment Committee of the Company's
Board of Directors. Because of the net operating loss ("NOL") carryforwards
available for tax purposes, the bulk of the Company's investment portfolio
has been invested in taxable securities. While the Company does not invest
with a view to achieving realized gains, securities are bought and sold in
order to meet the main objectives of the investment portfolio. These
objectives are to maximize after-tax investment income and total investment
returns while minimizing credit and liquidity risk. The Company currently has
designated all of its portfolio as "available-for-sale."
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The following table summarizes investment results for the most recent five
years:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Average invested assets (at
cost or amortized cost;
includes cash and cash
equivalents) $1,111,396 $1,193,202 $1,259,871 $1,384,926 $1,273,168
Net investment income:
Before income taxes 73,178 81,658 84,761 97,574 94,255
After income taxes 52,038 56,597 68,629 87,915 85,442
Average annual return
on investments:
Before income taxes 6.6% 6.8% 6.7% 7.1% 7.4%
After income taxes 4.7% 4.7% 5.4% 6.3% 6.7%
Net realized investment
gains after income taxes 4,736 6,634 40,010 10,874 7,589
Net increase (decrease) in un-
realized gains on fixed
maturity investments
after income taxes (30,688) 73,286 (134,660) 39,863 12,832
</TABLE>
The decline in the investment portfolio since 1993 resulted largely from
the need to sell investments to generate cash to cover the severe losses and
other ongoing expenses resulting from the Northridge Earthquake. The declining
return on investments is a result of the sale, maturity or early redemption of
older securities with high yields and re-investment in securities with
significantly lower current yields as well as general market conditions. In
addition, in 1994 and 1995, a greater portion of the portfolio was invested in
commercial paper which yielded a lower return than that earned on the fixed
maturity portion.
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The following table sets forth the composition of the Company's
investments and cash and cash equivalents at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
Amortized Fair Amortized Fair Amortized Fair
Type of Security Cost Value Cost Value Cost Value
- - ---------------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities:
U.S. Treasury secur-
itites and obliga-
tions of U.S. Govern-
ment corporations
and agencies $ 11,906 $ 11,885 $ 68,283 $ 69,711 $ 240,690 $ 232,678
Obligations of
states and politi-
cal sub-divisions 287,277 292,127 219,026 222,844 292,723 261,614
Public utilities 164,509 163,674 182,828 191,224 147,241 139,173
Corporate securities 596,346 596,017 604,884 641,769 322,177 307,941
---------- ---------- ---------- ---------- ---------- ----------
Total fixed maturities 1,060,038 1,063,703 1,075,021 1,125,548 1,002,831 941,406
Common stock 250 925 539 1,564 539 768
---------- ---------- ---------- ---------- ---------- ----------
Total investments 1,060,288 1,064,628 1,075,560 1,127,112 1,003,370 942,174
---------- ---------- ---------- ---------- ---------- ----------
Cash and cash
equivalents 18,078 18,078 50,609 50,609 249,834 249,834
---------- ---------- ---------- ---------- ---------- ----------
Total investments
and cash and cash
equivalents $1,078,366 $1,082,706 $1,126,169 $1,177,721 $1,253,204 $1,192,008
----------- ----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ----------- ---------- ----------
</TABLE>
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COMPETITION
The property and casualty insurance market is highly competitive and is
comprised of a large number of well capitalized companies, many of which operate
in a number of states and offer a wide variety of products. Several of these
competitors are larger and have greater financial resources than the Company.
Based on published statistics, the Company is the fifth largest writer of
private passenger automobile insurance in California.
While the Company competes with all private passenger automobile insurers
in the state, the Company is in more direct competition with other major writers
which concentrate on the larger good driver market than with those which
specialize in "non-standard," "high-risk" or other niche market segments.
The Company's marketing and underwriting strategy is to appeal to careful
and responsible drivers who are willing to deal directly with the Company in
order to save significant amounts of money on their insurance premiums. As a
result, the Company is able to maintain policy renewal rates which it believes
are above industry averages.
By selling its products directly to the insured, the Company has eliminated
agent and broker commissions. The Company relies heavily on its centralization
of operations and its computerized information services system to efficiently
service its policyholders and claimants.
Consequently, the Company consistently operates with one of the lowest
underwriting expense ratios in the industry and is able to maintain its rates
among the lowest in the markets it serves while still providing quality service
to its customers.
REINSURANCE
The Company purchases reinsurance to reduce its loss in the event of a
catastrophe or from infrequent, large individual claims and to reduce its
overall risk level. A reinsurance transaction occurs when the Company transfers
or cedes a portion of its exposure from direct business written to a reinsurer
which assumes that exposure for a premium. The reinsurance cession does not
17
<PAGE>
legally discharge the Company from its liability for a covered primary loss, but
provides for reimbursement from the reinsurer to the Company for the ceded
portion.
Each of the Company's insurance subsidiaries have entered into a five-year
quota share reinsurance agreement with an AIG affiliate covering all ongoing
lines of business. Under this contract, which attaches to the Company's
retained risks net of all other reinsurance, 10% of each subsidiary's premiums
earned and losses and loss adjustment expenses incurred in connection with
policies incepted during the period January 1, 1995 through December 31, 1999
are ceded. At the end of the five-year period, the AIG affiliate may elect to
renew the agreement annually for four years at declining coverage percentages.
A ceding commission of 10.8% was earned by the insurance subsidiaries for 1995
and, thereafter, a commission is paid at a rate equal to the actual underwriting
expense ratio. The ceding commission rate for 1996 was 9.13%.
During 1996, the Company's insurance subsidiaries entered into a 100% quota
share reinsurance agreement with F&G Re and Risk Capital Re covering the
homeowner and condominium lines of business. This agreement covers, for a one-
year policy term, all covered business in force as of July 1, 1996 plus renewal
business attaching between July 1, 1996 and July 23, 1996, effectively
terminating with the expiration of the underlying one-year policies. Under this
contract, the Company ceded all of its homeowner and condominium unearned
premiums as of June 30, 1996 to these companies, a total of $33.3 million.
Additionally, 100% of written premiums and incurred losses and allocated loss
adjustment expenses subsequent to June 30, 1996 are ceded under this contract.
The Company's insurance subsidiaries earn a commission on ceded premiums based
on a sliding scale dependent on the incurred loss ratio. In 1996, the Company
earned commissions at a rate of 15.8%. Homeowner policies renewed February 15,
1997 and subsequent are not covered under this contract; the Company expects to
have a catastrophe reinsurance program in place in the second quarter of 1997 to
cover its renewed homeowner policies.
The Company has a quota share reinsurance treaty for the PELP whereby 60%
of premiums and losses are ceded to the reinsurer. After the effect of the 10%
quota share treaty with AIG, the Company effectively retains 36% of the risk for
this line.
18
<PAGE>
REGULATION
The Company and its subsidiaries are subject to regulation and supervision
by the California Department of Insurance ("DOI") which has broad regulatory,
supervisory and administrative powers, such as:
- Licensing of insurance companies and agents
- Prior approval of rates, rules and forms
- Standards of solvency
- Nature of, and limitations on, insurance company investments
- Periodic examinations of the affairs of insurers
- Annual and other periodic reports of the financial condition and
results of operations of insurers
- Establishment of accounting rules
- Issuance of securities by insurers
- Payment of dividends
Regulation by the DOI is designed principally for the benefit of
policyholders. The DOI conducts periodic examinations of the Company's
insurance subsidiaries.
In June 1994, the DOI ordered the Company to immediately begin non-renewing
earthquake coverage endorsements and to cease writing new homeowner and
condominium policies and, effective July 23, 1996, to begin non-renewing all its
remaining homeowner and condominium policies. On December 23, 1996, the DOI
amended its order to permit the Company to resume renewing its remaining
homeowner policies effective February 15, 1997, with the statutorily required
offer of earthquake coverage to be made by an affiliate of AIG. The Company
plans to seek DOI approval to resume writing new homeowner policies during 1997
but there is no assurance the DOI will do so. Inability to write new homeowner
policies hinders the Company's efforts to sell automobile insurance to certain
consumers who prefer the convenience of having both coverages provided by the
same insurer.
19
<PAGE>
As discussed in Note 14 of the Notes to Consolidated Financial Statements
(in Item 8 herein), in January 1995, the Company and the DOI reached a
settlement concerning the Company's Proposition 103 rate rollback liability.
The Company has no remaining liability for rollback rebates.
The operations of the Company are governed by the laws of the State of
California and changes in those laws can affect the revenues and expenses of the
Company. In 1996, the State of California enacted two new laws which have the
potential of impacting the auto insurance industry: Proposition 213 and Assembly
Bill 650 ("AB 650").
Ballot Proposition 213 was approved by an overwhelming majority of
California voters on November 5, 1996. This proposition bars certain drivers
and most uninsured drivers from recovering non-economic damages for injuries
they suffer in vehicle accidents. In December, a lawsuit challenging the
constitutionality of the proposition was filed and a preliminary injunction
barring the enforcement of Proposition 213 was sought.
AB 650, which requires proof of financial responsibility for vehicle
registration renewals, became effective January 1, 1997. It also restores the
right of peace officers to cite drivers for failing to show proof of automobile
liability insurance when stopped for a routine traffic violation. The courts
may impound, under certain conditions, the cars of drivers who are not in
compliance with AB 650, and substantial fines are imposed for violation of
financial responsibility provisions. The Company expects that AB 650 will cause
an increase in the number of policies for previously uninsured motorists and has
seen an increase in the first two months of 1997; however, the persistency rate
of these policies is not known. Previously uninsured motorists, as a whole,
have historically resulted in underwriting losses. Approximately 6% of 1996
gross automobile premiums were from previously uninsured motorists.
Proposition 213 is expected to impact bodily injury loss trends favorably.
However, that may be offset by the adverse effects of previously uninsured
drivers entering the system in large numbers as a result of AB 650.
20
<PAGE>
Meanwhile, the DOI promulgated final regulations in the third quarter of
1996 on the implementation of Proposition 103 and ordered all California
personal auto insurance providers to file new class rating plans by February 18,
1997. Subsequent to the issuance of those regulations, the DOI announced that
these new rating plans must consider the estimated favorable impact of
Proposition 213. In response, the rating plan submitted by the Company would
represent a 3.3% rate level reduction, which considers a variety of factors
including the savings estimated to be attributable to Proposition 213. Because
of the time consuming nature of California's prior approval process and the
possibility of further delays due to the constitutional challenge over
Proposition 213, the Company does not expect its newly filed class rating plan
to be approved before September 1, 1997 at the earliest.
As of this date, there is no legislation pending for 1997 which the Company
believes is likely to materially impact its operations.
The Company is a member of industry organizations which may advocate
legislative and initiative proposals and which provide financial support to
officeholders and candidates for California statewide public offices. The
Company also makes financial contributions to those officeholders and candidates
who, in the opinion of management, have a favorable understanding of the needs
of the property and casualty insurance industry. In 1996, these contributions
were approximately $216,000. The Company believes that such contributions are
important to the future of the property and casualty insurance industry in
California and intends to continue to make such contributions as it determines
to be appropriate.
HOLDING COMPANY ACT
The Company's subsidiaries are also subject to regulation by the California
Department of Insurance pursuant to the provisions of the California Insurance
Holding Company System Regulatory Act (the "Holding Company Act"). Certain
transactions defined to be of an "extraordinary" nature may not be effected
without the prior approval of the California Department of Insurance. Such
transactions include, but are not limited to, sales, purchases, exchanges, loans
and extensions of credit, and investments made within the immediately preceding
12 months involving in the net aggregate, more than the lesser of (i) 5% of the
Company's admitted assets or
21
<PAGE>
(ii) surplus as to policyholders as of the preceding December 31. An
extraordinary transaction also includes a dividend which, together with other
dividends or distributions made within the preceding twelve months, exceeds
the greater of (i) 10% of the insurance company's policyholders' surplus as
of the preceding December 31 or (ii) the insurance company's net income for
the preceding calendar year. The California code further provides that
property and casualty insurers may pay dividends only from earned surplus.
The Holding Company Act generally restricts the ability of any one person to
acquire more than 10% of the Company's voting securities without prior
regulatory approval.
NON-VOLUNTARY BUSINESS
Automobile liability insurers in California are required to participate in
the California Automobile Assigned Risk Plan ("CAARP"). Drivers whose
driving records or other relevant characteristics make them difficult to
insure in the voluntary market may be eligible to apply to CAARP for
placement as "assigned risks." The number of assignments for each insurer is
based on the total applications received by the plan and the insurer's market
share. It is expected that AB 650 will increase the number of drivers applying
to CAARP and thus the Company's number of assignments. The CAARP assignments
have historically produced underwriting losses and, as of December 31, 1996,
represented less than 1% of gross premiums written.
Insurers offering homeowners insurance in California are required to
participate in the California Fair Plan ("Fair Plan"). Fair Plan is a state
administered pool of difficult to insure homeowners. Each participating insurer
is allocated a percentage of the total premiums written and losses incurred by
the pool according to its share of total homeowners direct premiums written in
the state.
EMPLOYEES
The Company had 2,261 full and part-time employees at December 31, 1996.
The Company provides medical, pension and 401(k) savings plan benefits to
eligible employees according to the
22
<PAGE>
provisions of each plan. The Company believes that its relationship with its
employees is excellent, and employee turnover is generally very low.
ITEM 2. PROPERTIES
The Company leases its Home Office building in Woodland Hills,
California, which contains approximately 234,000 square feet of leasable
office space. The lease was amended in October 1994 which extended the lease
term until November 1999. The lease may be renewed for two consecutive
five-year periods.
The Company also leases office space in 24 other locations throughout
California. The Company anticipates no difficulty in extending these leases
or obtaining comparable office facilities in suitable locations.
ITEM 3. LEGAL PROCEEDINGS
On January 16, 1996, a shareholder derivative lawsuit, relating to
damages incurred in the Northridge Earthquake, was filed in Los Angeles
Superior Court against various current and prior directors and officers of
the Company. The Company was named in the lawsuit as a nominal defendant
only. Upon completion of the investigation by separate legal counsel for
both the Company and the directors and officers, and after notice to the
Company's shareholders, the litigation was resolved with the final court
approval entered on November 18, 1996. The settlement included payment of
legal fees to the plaintiff attorneys by the Company's D&O insurer and the
institution of certain remedial acts by the Company. No direct financial
consideration was provided by the Company. Each director and officer was
found to have acted in good faith and in the best interests of the Company.
In the normal course of business, the Company is named as a defendant in
lawsuits related to claim issues. Some of the actions request exemplary or
punitive damages. These actions are vigorously defended unless a reasonable
settlement appears appropriate.
23
<PAGE>
Currently included in this class of litigation are certain actions that
arise out of the Northridge Earthquake. It is believed that a majority of
these actions were filed to resolve claims involving disputed damages or to
contest the applicability of the statute of limitations. One lawsuit,
entitled ESTRADA V. 20TH CENTURY INSURANCE COMPANY, was filed in Los Angeles
Superior Court and, as amended in January 1997, seeks to convert an
individual action to a class action. According to the current Amended
Complaint, the potential class involves those insureds whose claims for
damages from the Northridge Earthquake were first reported to the Company on
or after January 18, 1995 and then denied as untimely. It is too soon to
predict with any accuracy whether the class will ultimately be certified.
While any litigation has an element of uncertainty, the Company does not
believe that the ultimate outcome of any pending actions will have a material
effect on its consolidated financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
24
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
(a) PRICE RANGE OF COMMON STOCK
The stock is currently traded on the New York Stock Exchange under
the trading symbol "TW." The following table sets forth the high and low bid
prices for the common stock for the indicated periods.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1996
Fourth Quarter 18-5/8 14-5/8
Third Quarter 17-7/8 14-1/2
Second Quarter 17-3/8 15-3/8
First Quarter 20-5/8 15-3/4
1995
Fourth Quarter 21-1/4 15-1/4
Third Quarter 16-3/8 11-3/8
Second Quarter 13-1/4 10-3/4
First Quarter 13-7/8 10-3/8
</TABLE>
(b) HOLDERS OF COMMON STOCK
The approximate number of record holders of the common stock on December 31,
1996 was 1,170.
(c) DIVIDENDS
The Company paid regular cash dividends on its common stock each year
since 1973 through the second quarter of 1994. Dividends were paid at the
rate of $.16 per share for each of the first two quarters of 1994. Due to
the adverse impact of the Northridge Earthquake on the financial strength of
the Company, no dividends were paid in the last two quarters of 1994, and no
dividends
25
<PAGE>
were paid on common shares in 1995. In the fourth quarter of 1996, the
Company paid a dividend on common shares at the rate of $.05 per share, which
totaled $2,576,000. 20th Century Industries paid cash dividends on preferred
shares of $14,623,000 and in-kind dividends of $4,950,000 in 1995 and cash
dividends of $20,245,500 in 1996.
The parent company is dependent upon dividends from its subsidiaries to
service debt and pay dividends to its stockholders. Based on 1996 operating
results and earned surplus as of December 31, 1996, the Company believes
dividends in 1997 will not require extraordinary regulatory approval.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below as of the end
of and for each of the years in the five-year period ended December 31, 1996
are derived from the consolidated financial statements of 20th Century
Industries and its subsidiaries. The consolidated financial statements as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996 are included elsewhere in this Form 10-K.
26
<PAGE>
All dollar amounts set forth in the following tables are in thousands, except
per share data.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operations Data:
Net premiums earned $ 856,628 $ 963,797 $1,034,003 $ 989,712 $ 896,353
Net investment income 73,178 81,658 84,761 97,574 94,255
Realized investment gains 7,287 10,207 61,554 16,729 11,498
---------- ---------- ---------- ---------- -----------
Total Revenues 937,093 1,055,662 1,180,318 1,104,015 1,002,106
Net losses and loss
adjustment expenses 734,735 851,602 1,828,346 867,451 764,374
Policy acquisition costs 38,175 38,647 43,409 48,375 41,996
Other operating expenses 41,496 48,311 57,198 57,769 48,486
Proposition 103 expense -- -- 29,124 3,474 3,474
Loan interest and fees expense 14,260 15,897 8,348 -- --
---------- ---------- ---------- ---------- -----------
Total Expenses 828,666 954,457 1,966,425 977,069 858,330
---------- ---------- ---------- ---------- -----------
Income (loss) before
federal income taxes
and cumulative effect
of change in accounting
for income taxes 108,427 101,205 (786,107) 126,946 143,776
Federal income taxes (benefits) 34,370 31,575 (288,087) 18,350 26,309
---------- ---------- ---------- ---------- -----------
Income (loss) before cumulative
effect of change in accounting
for income taxes 74,057 69,630 (498,020) 108,596 117,467
Cumulative effect of change
in accounting for income taxes -- -- -- 3,959 --
---------- ---------- ---------- ---------- -----------
Net Income (Loss) $ 74,057 $ 69,630 $ (498,020) $ 112,555 $ 117,467
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Data:
Primary -
Before cumulative effect
of change in accounting
for income taxes $ .92 $ .88 $ (9.69) $ 2.11 $ 2.29
Cumulative effect of
change in accounting
for income taxes - - - .08 -
------- ------- --------- -------- --------
Net Income (Loss) $ .92 $ .88 $ (9.69) $ 2.19 $ 2.29
------- ------- --------- -------- --------
------- ------- --------- -------- --------
Fully Diluted -
Net Income* $ N/A $ N/A $ N/A
------- ------- ---------
------- ------- ---------
Dividends paid per
common share $ .05 $ - $ .32 $ .64 $ .52
------- ------- --------- -------- --------
------- ------- --------- -------- --------
</TABLE>
* Fully diluted earnings per share are not presented as the results would be
antidilutive.
The Company's financial statements include increases in earthquake reserves
in 1996 of $40 million and in 1995 of $60 million offset partially by a $32
million reduction in the Prop. 103 liability, and in 1994, earthquake-related
losses and expenses of $844.1 million. On an after-tax basis, these additional
charges reduced primary earnings (loss) per share by $0.44, $0.32 and $(10.68)
for 1996, 1995 and 1994, respectively.
28
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total investments $1,064,268 $1,127,112 $ 942,174 $ 1,422,555 $ 1,307,031
Total assets 1,513,755 1,608,886 1,702,810 1,644,670 1,498,330
Unpaid losses and loss
adjustment expenses 543,529 584,834 756,243 577,490 554,541
Unearned premiums 231,141 288,927 298,519 299,941 267,556
Bank loan payable 175,000 175,000 160,000 - -
Claims checks payable 36,445 49,306 70,725 41,535 39,329
Stockholders' equity 487,707 466,585 317,944 655,209 575,674
Book value per common share $ 5.10 $ 4.69 $ 2.29 $ 12.74 $ 11.19
</TABLE>
29
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's financial condition continued to improve in 1996 as shown in
the following table:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Amounts in thousands except per share data)
<S> <C> <C> <C>
Adjusted operating cash flow (1) $ 931 $ (154,645) $ (605,151)
Book value per share $ 5.10 $ 4.69 $ 2.29
Debt to equity ratio (2) 0.36 0.40 0.45
Statutory surplus of
insurance subsidiaries $ 436,367 $ 358,474 $ 207,018
Net written premiums to
surplus ratio 1.9:1 2.7:1 4.9:1
A.M. Best rating B+ B- B-
</TABLE>
(1) For 1996, excludes $29.2 million, net of commissions, in homeowner and
condominium unearned premiums ceded to reinsurers in July 1996.
(2) Equity adjusted to exclude unrealized investment gains or losses.
As indicated in the Notes to Consolidated Financial Statements, the 1994
Northridge Earthquake had a significant adverse effect which required a variety
of measures to be taken to improve the Company's financial condition. In
particular, the statutory surplus strain caused by the earthquake was alleviated
by capital infusions funded through borrowings and the issuance of equity
securities (see Notes 8 and 16 of Notes to Consolidated Financial Statements),
and by suspending dividends from the insurance subsidiaries to the parent and
from the parent to common shareholders. Additionally, the Company's direct
exposure to future earthquake coverage losses was completely eliminated in
1995. The Company's only significant remaining catastrophe exposure is in the
homeowner and condominium lines, primarily relating to potential wild fires and
fire following an earthquake event, which remained adequately protected by
reinsurance.
30
<PAGE>
The number of vehicles in force began growing again in the fourth quarter
of 1996 for the first time in nine quarters. Meanwhile, the Company did not
need to resort to workforce cutbacks or layoffs during this particularly
challenging time to maintain its low expense ratio. As a result, the Company's
most important resources, its dedicated and experienced employees, are in a
unique position to capitalize on the opportunities for growth and improved
customer service that lie ahead.
RESULTS OF OPERATIONS
Units in Force
Units in force for the Company's insurance programs as of December 31
were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Private Passenger Automobile
(Number of vehicles) 1,011,609 1,061,007 1,132,605
Homeowner and Condominium
(Number of policies) 89,010 175,338 206,167
Personal Excess Liability (PELP)
(Number of policies) 10,223 10,499 11,072
--------- --------- ---------
Total 1,110,842 1,246,844 1,349,844
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company maintained average annual unit growth of over 10% during the
ten years prior to 1994. That growth trend was interrupted for nine quarters
starting with the third quarter of 1994, when the surplus strain created by
the Northridge Earthquake caused the Company to reduce its insured exposures.
This was accomplished by a combination of: cessation of advertising and
marketing for new policies in the first quarter of 1994; cessation of
writing new homeowner and condominium policies in June 1994; the non-renewal
of all existing earthquake coverages in July 1994; and, rate increases of 17%
in the homeowner line effective August 1, 1994 and 6% and 3.7% in the
automobile line effective October 7, 1994 and June 15, 1995, respectively.
Information about more recent developments relating to units in force within
each major coverage line follows.
31
<PAGE>
PRIVATE PASSENGER AUTOMOBILE. In 1996, with its financial condition
restored substantially to pre-earthquake levels, the Company was once again able
to focus on the growth of its core automobile business. The Company, in
connection with an aggressive marketing campaign and declining trends in loss
costs and frequency, lowered overall rate levels approximately 11.5% in 1996
(3.2% effective March 15, 1996 in connection with a new auto rating plan; 2.3%
effective June 1, 1996 to implement a new persistency discount; and 6% effective
September 1, 1996 in response to continuing favorable loss trends). These
actions helped to achieve increases in new business production and the rate of
renewals and led to a resumption of growth in the number of vehicles in force
during the fourth quarter of 1996. Vehicles in force grew by 4,940 in the
fourth quarter of 1996, and were up 16,224 in the first two months of 1997,
compared to declines in the comparable year-ago periods of 20,039 and 13,144,
respectively.
Recent legislative changes could cause increases in the number of policies
issued to previously uninsured motorists or drivers eligible to participate in
the California Assigned Risk Plan ("CAARP"). Because both categories
historically have been characterized by underwriting losses, growth in those
areas would dampen future underwriting results; in view of the current political
and regulatory climate, it is difficult to envision that premium rates for such
risk categories could be adjusted to adequate levels in the near future.
Vehicles in force relating to previously uninsured drivers stood at 59,013,
68,256 and 73,518 at December 31, 1996, 1995 and 1994, respectively. Vehicles
in force for this segment of the auto line rose 1,619 (2.7%) in the first two
months of 1997. Vehicles in force for the Assigned Risk segment were 6,847,
8,204 and 7,285 as of December 31, 1996, 1995 and 1994, respectively. In the
first two months of 1997, Assigned Risk vehicles increased by 1,501 units
(21.9%), bringing them generally back to the 1995 level. It is too early to
tell whether these rates of growth will continue.
HOMEOWNER AND CONDOMINIUM. On December 23, 1996, the DOI amended its
previous order to permit the Company to begin renewing homeowner policies
effective February 15, 1997. At that time approximately 68,000 homeowner
policies remained in force. Those renewals will be subject to an overall 6% rate
increase effective April 1, 1997. Unless the Company is granted permission to
resume writing new homeowner policies, the impact of this line on future
underwriting results is likely to remain insignificant.
32
<PAGE>
PELP. The penetration of this coverage has averaged about 1% of the
vehicles in force during the three years ended December 31, 1996, which is not
expected to change significantly in 1997.
Underwriting Results
Premium revenue and underwriting results for the Company's insurance
programs follow. To facilitate comparability, the effects of the earthquake
coverage and the Proposition 103 settlement have been isolated from the core
business in the table below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Gross Premiums Written
Automobile $ 892,287 $ 991,969 $ 991,268
Homeowner and Condominium - excluding
effects of Earthquake and Prop. 103 34,875 69,468 74,004
Personal Excess Liability 2,114 2,146 2,307
---------- ---------- ----------
Subtotal Core Business 929,276 1,063,583 1,067,579
Earthquake and Prop. 103 567 379 11,084
---------- ---------- ----------
Total $ 929,843 $1,063,962 $1,078,663
---------- ---------- ----------
---------- ---------- ----------
Net Premiums Earned
Automobile $ 831,963 $ 920,560 $ 981,893
Homeowner and Condominium - excluding
effects of Earthquake and Prop. 103 23,872 62,890 75,016
Personal Excess Liability 772 843 944
---------- ---------- ----------
Subtotal Core Business 856,607 984,293 1,057,853
Earthquake and Prop. 103 21 (20,496) (23,850)
---------- ---------- ----------
Total $ 856,628 $ 963,797 $1,034,003
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
33
<PAGE>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
Underwriting profit (loss)
Automobile-excluding the
effects of Earthquake and Prop. 103 $ 81,010 $ 73,755 $ 11,261
Homeowner and Condominium - excluding
effects of Earthquake and Prop. 103 (1,394) (438) 337
Personal Excess Liability - excluding the
effects of Earthquake and Prop. 103 917 418 1,120
-------- -------- ---------
Subtotal Core Business 80,533 73,735 12,718
Earthquake and Prop 103 (38,311) (48,498) (936,792)
-------- -------- ---------
Total $ 42,222 $ 25,237 $(924,074)
-------- -------- ---------
-------- -------- ---------
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---- ---- ----
CORE BUSINESS
- - -------------
Loss and Loss Adjustment Expense Ratio 81.3% 83.7% 89.0%
Underwriting Expense Ratio 9.3 8.8 9.8
-------- -------- --------
Combined Ratio 90.6% 92.5% 98.8%
-------- -------- --------
-------- -------- --------
COMPANY TOTALS
- - --------------
Loss and Loss Adjustment Expense Ratio 85.8% 88.4% 176.8%
Underwriting Expense Ratio 9.3 9.0 9.7
-------- -------- --------
Combined Ratio 95.1% 97.4% 186.5%
-------- -------- --------
-------- -------- --------
Automobile
The auto line experienced an $81 million underwriting profit in 1996,
which included an $8 million pre-tax charge for weather-related claims in the
fourth quarter. These results compared favorably to profits in 1995 and 1994
of $73.8 million and $10.1 million, respectively, as adjusted for the effects
of the earthquake and Proposition 103. The 1996 increase in underwriting
profit primarily reflects favorable loss trends while the 1995 increase was
mainly due to the 6% rate increase implemented in October 1994 and the 3.7%
increase implemented in June 1995.
34
<PAGE>
Gross written premiums in 1996 decreased 10% from 1995 reflective of the
4.6% reduction in insured units and, to a lesser extent, the effect of the
three premium rate reductions implemented in 1996 (a total reduction of
11.5%). The impact on gross written premiums of the 1996 rate reductions
will not be fully felt until the end of the first quarter 1997, six months
after the latest reduction was implemented. Net earned premiums also
declined in 1995 reflecting both a reduction in insured vehicles and the
impact of the quota share treaty with the AIG affiliate.
The voluntary automobile insurance business written by the Company is
comprised of "Good Drivers" as defined by California statute. While the
majority of this business would have been acceptable to the Company before
Proposition 103, those who had no prior insurance would have been written at
a higher rate level than those who had been insured prior to being written by
the Company. These drivers have produced automobile underwriting losses of
$15,168,000 in 1996 compared to $26,286,000 in 1995 and $31,134,000 in 1994.
The sharp decline in losses in 1996 is reflective of the continuing effect of
the implementation of 1995 premium rate increases as well as an overall
decline in the number of these vehicles insured. The 1996 combined ratio for
this segment of the business was 129.7%. compared to 143.9% in 1995 and
155.3% in 1994.
Overall automobile underwriting results are also affected by Assigned
Risk. Underwriting losses for Assigned Risk business were $102,000 in 1996,
compared to $3,082,000 in 1995 and $3,800,000 in 1994. Combined ratios for
this business for the same periods were 101.1%, 126.7% and 137.6%,
respectively. The decrease in underwriting losses in 1996 was primarily due
to a 16.5% drop in vehicles in force since 1995 coupled with the effects of a
5.2% rate increase implemented in June 1995. The future effect of the
Assigned Risk plan on the Company cannot be predicted because it depends on
the ability of the state-administered plan to achieve and maintain an
adequate rate level.
Homeowner and Condominium - Excluding Earthquake and Proposition 103 Settlement
Underwriting results for these programs are subject to variability
caused by weather-related claims and by infrequent disasters. In 1996, no
significant losses were incurred. In 1995, the
35
<PAGE>
underwriting loss for this line included first quarter weather-related losses
of $14.2 million and an overall decline in homeowner and condominium premium
volume.
The Company has maintained reinsurance programs to provide coverage
through the planned run-off period of its remaining homeowner policies.
Effective July 1996, the Company entered into a 100% quota share reinsurance
agreement with F&G Re and Risk Capital Re on its remaining homeowners book.
These companies assumed the total liability for related unearned premium
reserves at June 30, 1996 of $33.3 million in exchange for cash payment by
the Company. The Company received commission on the transfer of
approximately $4.2 million, or 12.5%. The total commission rate per the
agreement is subject to ultimate loss and expense ratios experienced, and is
not to exceed 22.5% or to be less than 5.0%.
The 100% quota share agreement covers all written exposures on homeowner
policies renewing on or before July 23, 1996 through the end of their
one-year policy term. These policies do not cover earthquake losses, and the
Company's exposure to fire following an earthquake on these policies is
covered by the agreement. For homeowner policies renewing on and after
February 15, 1997, the Company has no exposure to earthquake losses. As the
number of homeowner policy renewals increase after February 15, 1997, the
Company intends to reduce its exposure to other losses on this line, as
appropriate, through reinsurance. The Company had maintained separate
catastrophe coverage on these lines which expired in June, 1996. Written
premiums ceded for these lines in 1996 totaled $10.7 million (excluding the
$33.3 million portfolio transfer of unearned premium liabilities under the
100% quota share reinsurance agreement), compared to $36.3 million in 1995
and $56.5 million in 1994.
Personal Excess Liability
The personal excess liability program has remained stable over the
three-year period ended December 31, 1996 producing approximately $2 million
in gross written premiums each year. Underwriting profits can vary
significantly with the number of claims which occur infrequently. The
results of this line are considered largely immaterial compared to the
overall results of the Company.
36
<PAGE>
Earthquake and Proposition 103
Although the Company did not write new or renewal earthquake premiums in
1995 or 1996, the Company assumes a small amount of earthquake premium from
the California Fair Plan, a state administered pool of difficult to insure
risks in which insurers are required to participate in proportion to their
share of direct written homeowners coverage in the state. The negative
premiums earned for the Earthquake and Proposition 103 in 1995 and 1994 are
due to the large amounts of reinsurance purchased, primarily in 1994, to
protect the Company until the earthquake endorsements expired in July 1995.
Policy Acquisition and General Operating Expenses
The Company's policy acquisition and general operating expense ratio
continues to be among the most competitive in the industry. The ratio of
underwriting expenses (excluding loan interest and fees) to earned premiums
was 9.3% in 1996, 9.0% in 1995 and 9.7% in 1994. The decline in the ratio
from 1994 to 1996 reflects the impact of the ceding commission earned on the
quota share agreements with an affiliate of AIG and, in 1996, with F&G Re and
Risk Capital Re. Additionally, there was a reduction in general operating
expenses due to the decline in business as well as cost efficiencies. The
Company believes that its ability to write and administer its business in a
cost efficient manner will enable it to regain and maintain price leadership
in the industry and provide for future growth and profitability.
Investment Income
Net pre-tax investment income was $73,178,000 in 1996 compared to
$81,658,000 in 1995 and $84,761,000 in 1994. Average invested assets
decreased 6.9% in 1996, compared to decreases of 5.3% and 9.0% in 1995 and
1994, respectively. The decline in invested assets is the result of the
Company's sale of these investments to meet the payment requirements of both
developing earthquake losses and reinsurance premiums. The average annual
pre-tax yield on invested assets has remained relatively stable over the past
three years; the average yield was 6.6% in 1996, 6.8% in 1995 and 6.7% in
1994.
37
<PAGE>
Realized capital gains on the sales of investments have declined over
the past three years, generally reflective of a change in the mix of taxable
versus non-taxable securities held and an overall decrease in the amount of
investments needed to be sold to cover losses and loss adjustment expenses.
As of December 31, 1996, the Company had a net unrealized gain on fixed
maturity investments of $3,665,000 compared to $50,527,000 in 1995 and an
unrealized loss of $(61,425,000) in 1994. The primary reasons for the
shifts in unrealized gains and losses are twofold. Interest rates rose
sharply in 1994 but fell in 1995 reducing the fair value of the bond
portfolio in 1994 and increasing it in 1995. The decrease in unrealized
gains between 1995 and 1996 resulted largely from a declining bond market
coupled with an overall decline in invested assets. In 1994, the Company
sold practically all appreciated fixed maturity investments to cover
earthquake loss payments.
Of the Company's total investments, $265,163,000 at fair value was
invested in tax-exempt state and municipal bonds and the balance was invested
in taxable government, corporate and municipal securities at December 31,
1996, and the portfolio contained approximately 75% taxable instruments.
Liquidity and Capital Resources
Loss and loss adjustment expense payments are the most significant cash
flow requirements of the Company. The Company continually monitors loss
payments to provide projections of future cash requirements. Additional
cash requirements include servicing the bank debt and paying the quarterly
dividend on preferred shares of $5,061,500. With the anticipated growth of
its core auto business and continued settlement of remaining earthquake
losses, the Company expects that future cash flows from operations will be
sufficient to fund future expenditures. The Company has historically written
its core businesses at an underwriting profit and thus each premium dollar
produces positive cash flow. A significant part of the decline in cash flow
from operations in 1995 and 1996 is due to the decline in the size of the net
book of business during those periods. This
38
<PAGE>
decline would decrease cash flow, even without consideration of Earthquake
losses, until the patterns of cash inflows (premiums) and outflows (claims)
reach equilibrium.
In addition, in 1996 approximately $29.2 million of the $32.5 million
net decrease in cash and cash equivalents was related to the portfolio
transfer of unearned premiums on homeowners business. Cash flows from
operations in 1995 and 1994 were not sufficient to fund underwriting
operations of the Company due to losses from the Northridge Earthquake. In
1994, the Company paid for these losses with cash flow from operations,
investment sales, loan proceeds and equity financing. For 1995, funds needed
to pay these claims as well as Proposition 103 rebates came from normal
operating cash flows, available cash on deposit, additional loan proceeds of
$15 million and preferred stock proceeds of $20 million.
Funds required by 20th Century Industries to pay dividends and meet its
debt obligations are provided by the insurance subsidiaries. Information
regarding the Company's debt service obligation is included in Note 8 to the
Notes to Consolidated Financial Statements. The ability of the insurance
subsidiaries to pay dividends to the holding company is regulated by state
law. Based on the operating results in 1995 and the favorable ratio of
premiums to surplus, the Company was able to resume normal dividends from the
insurance subsidiaries in 1996 to service the parent's debt and preferred
dividend requirements. Based upon 1996 operating results and earned surplus
as of December 31, 1996, the Company believes dividends in 1997 will not
require extraordinary regulatory approval.
The Company expects to have very small cash outlays for income taxes,
specifically alternative minimum tax, for the next two to three years. Until
the net operating losses caused by the Northridge Earthquake are fully
utilized, the Company expects that cash outlays for income taxes will be less
than income tax expense recorded in accordance with generally accepted
accounting principles. The net operating loss carryforwards will expire in
the year 2009.
Risk-Based Capital
The National Association of Insurance Commissioners requires property
and casualty insurance companies to calculate and report information under a
Risk-Based Capital ("RBC")
39
<PAGE>
formula in their annual statements. The RBC requirements are intended to
assist regulators in identifying inadequately capitalized companies. The RBC
calculation is based on the type and mix of risks inherent in the Company's
business and includes components for underwriting, asset, interest rate and
other risks. The Company's insurance subsidiaries exceeded their RBC
statutory surplus standards by considerable margin as of December 31, 1996.
To the extent that the subsidiaries would fall below prescribed levels of
surplus, it would be the parent company's intention to infuse necessary
capital to support that entity.
Home Office Lease
The Company leases its Home Office building in Woodland Hills,
California, which contains approximately 234,000 square feet of leasable
office space. The current lease comes up for renewal in November 1999 and
may be renewed for two consecutive five-year periods.
40
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
20th Century Industries
We have audited the accompanying consolidated balance sheets of 20th
Century Industries and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of 20th Century Industries and subsidiaries at December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
As discussed in Note 2 to the financial statements, in 1994 the Company
changed its method of accounting for investments.
ERNST & YOUNG LLP
Los Angeles, California
February 19, 1997
41
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
(Amounts in thousands)
<S> <C> <C>
Investments, available for sale, at fair value:
Fixed maturities $1,063,703 $1,125,548
Equity securities 925 1,564
---------- ----------
Total investments - Note 3 1,064,628 1,127,112
Cash and cash equivalents 18,078 50,609
Accrued investment income 18,549 19,862
Premiums receivable 71,308 90,835
Reinsurance receivables and recoverables 79,183 48,314
Prepaid reinsurance premiums 33,020 28,823
Deferred income taxes - Note 5 190,857 206,230
Deferred policy acquisition costs - Note 4 9,127 10,481
Other assets 29,005 26,620
---------- ----------
$1,513,755 $1,608,886
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITY AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1995
------------------- --------------------
(Amounts in thousands, except share data)
<S> <C> <C>
Unpaid losses and loss adjustment expenses - Note 7 $ 543,529 $ 584,834
Unearned premiums 231,141 288,927
Bank loan payable - Note 8 175,000 175,000
Claims checks payable 36,445 49,306
Reinsurance payable 19,730 23,176
Other liabilities 20,203 21,058
---------- ----------
Total liabilities 1,026,048 1,142,301
Commitments and Contingencies - Notes 10 and 13
Stockholders' equity - Notes 11 and 16
Capital Stock
Preferred stock, par value $1.00 per share;
authorized 500,000 shares, none issued
Series A convertible preferred stock, stated
value $1,000 per share, authorized 376,126
shares, outstanding 224,950 shares - Note 16 224,950 224,950
Common stock without par value; authorized
110,000,000 shares, outstanding 51,520,006
in 1996 and 51,493,406 in 1995 70,263 69,805
Common stock warrants - Note 16 16,000 16,000
Unrealized investment gains, net - Note 3 2,820 33,508
Retained earnings 173,674 122,322
---------- ----------
Total stockholders' equity 487,707 466,585
---------- ----------
$1,513,755 $1,608,886
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands, except per share data)
<S> <C> <C> <C>
REVENUES
Net premiums earned - Note 9 $ 856,628 $ 963,797 $ 1,034,003
Net investment income - Note 3 73,178 81,658 84,761
Realized investment gains - Note 3 7,287 10,207 61,554
--------- ---------- -----------
937,093 1,055,662 1,180,318
LOSSES AND EXPENSES
Net losses and loss adjustment
expenses - Note 7 734,735 851,602 1,828,346
Policy acquisition costs - Note 4 38,175 38,647 43,409
Other operating expenses 41,496 48,311 57,198
Proposition 103 expense - Note 14 -- -- 29,124
Loan interest and fees expense - Note 8 14,260 15,897 8,348
--------- ---------- -----------
828,666 954,457 1,966,425
--------- ---------- -----------
Income (loss) before federal
income taxes 108,427 101,205 (786,107)
Federal income taxes (benefits) -
Note 5 34,370 31,575 (288,087)
--------- ---------- -----------
NET INCOME (LOSS) $ 74,057 $ 69,630 $ (498,020)
--------- ---------- -----------
--------- ---------- -----------
EARNINGS (LOSS) PER COMMON
SHARE - Note 2 $ .92 $ .88 $ (9.69)
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Convertible
Preferred Common
Stock Stock Unrealized
$1 Par Value Without Common Investment
Per Share Par Value Stock Gains Retained
Amount Amount Warrants (Losses) Earnings
------------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ - $ 68,848 $ - $ 36,757 $ 586,361
Net loss for the year (498,020)
Issuance of Series A
Preferred Stock and
Stock Warrants - Note 16 200,000 16,000
Cash dividends paid on
common stock ($.32 per share) (16,471)
Other 492 (76,534) 511
------------- ------------ --------- ---------- ------------
Balance at December 31, 1994 200,000 69,340 16,000 (39,777) 72,381
Net income for the year 69,630
Issuance of Series A
Preferred Stock - Note 16 24,950 (4,950)
Cash dividends paid on
preferred stock (14,623)
Other 465 73,285 (116)
------------- ------------ --------- ---------- ------------
Balance at December 31, 1995 224,950 69,805 16,000 33,508 122,322
Net income for the year 74,057
Cash dividends paid on common
stock ($.05 per share) (2,576)
Cash dividends paid on
preferred stock (20,245)
Other 458 (30,688) 116
------------- ------------ --------- ---------- ------------
Balance at December 31, 1996 $ 224,950 $ 70,263 $ 16,000 $ 2,820 $ 173,674
------------- ------------ --------- ---------- ------------
------------- ------------ --------- ---------- ------------
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 74,057 $ 69,630 $ (498,020)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Provision for depreciation and amortization 4,679 6,555 7,195
Provision for deferred income taxes 31,835 30,856 (214,522)
Realized gains on sale of investments
and fixed assets (7,292) (10,128) (61,470)
Federal income taxes (1,430) 74,718 (72,668)
Reinsurance balances (38,512) (73,163) (737)
Unpaid losses and loss adjustment expenses (41,305) (171,409) 178,753
Unearned premiums (57,786) (9,592) (1,422)
Claims checks payable (12,861) (21,419) 29,190
Proposition 103 payable - (78,307) 29,122
Other 20,367 27,614 (572)
--------- --------- -----------
NET CASH USED IN
OPERATING ACTIVITIES (28,248) (154,645) (605,151)
</TABLE>
46
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
INVESTING ACTIVITIES:
Investments available-for-sale:
Purchases $(631,428) $(666,203) $ (821,822)
Called or matured 17,190 33,308 27,531
Sales 636,419 570,443 1,275,091
Net purchases of property and
equipment (3,642) (2,505) (3,238)
--------- --------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 18,539 (64,957) 477,562
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock - 20,000 200,000
Issuance of common stock warrants - - 16,000
Proceeds from bank loan - 15,000 160,000
Dividends paid (22,822) (14,623) (16,471)
--------- --------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (22,822) 20,377 359,529
--------- --------- ----------
Net increase (decrease) in cash (32,531) (199,225) 231,940
Cash and cash equivalents, beginning of year 50,609 249,834 17,894
--------- --------- ----------
Cash and cash equivalents, end of year $ 18,078 $ 50,609 $ 249,834
--------- --------- ----------
--------- --------- ----------
</TABLE>
See accompanying notes to financial statements.
47
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
20th Century Industries, through its wholly-owned subsidiaries, 20th
Century Insurance Company and 21st Century Casualty Company (collectively,
the "Company"), is engaged in the sale of private passenger automobile,
homeowners and personal excess liability insurance policies in the State of
California. In accordance with an order from state insurance regulators, no
new homeowner and condominium policies have been written since July 23, 1994
and, beginning July 24, 1996, the Company was required to begin non-renewing
these policies. In December 1996, the Company was granted approval to resume
offering renewals effective February 15, 1997 on existing homeowner policies.
Condominium policies are still in run-off and all policies will expire in
July 1997.
NOTE 2. SUMMARY OF ACCOUNTING POLICIES
Basis of Consolidation and Presentation
The accompanying consolidated financial statements include the accounts
and operations of 20th Century Industries and its wholly-owned subsidiaries.
All material intercompany accounts and transactions have been eliminated.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles which differ from statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from these estimates.
Investments
Effective January 1, 1994, in accordance with a required accounting change,
the Company classified its investment portfolio as available-for-sale and
carries it at fair value with unrealized gains and losses, net of any tax
effect, reported as a separate component of stockholders' equity. The effect
of this change was to increase stockholders equity as of January 1, 1994 by
approximately $36.8 million, net of deferred income taxes of $19.8 million;
the change had no effect on net income.
48
<PAGE>
Fair values for fixed maturity and equity securities are based on quoted
market prices. When investment securities are sold, the cost used to determine
any realized gain or loss is based on specific identification.
The Company's 49% interest in 20th Century Insurance Company of Arizona,
which is a joint venture between the Company and American International
Group, Inc. ("AIG") and which began operations in August 1996, has a carrying
value of $1,784,000 at December 31, 1996, and is included in other assets in
the consolidated balance sheet. The Company's equity in the 1996 net loss of
this venture amounted to $186,000 and is included in investment income in the
consolidated statement of operations.
Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term investments in
demand deposits having a maturity of three months or less at the date of
purchase.
Recognition of Revenues
Insurance premiums are recognized as revenue pro rata over the terms of
the policies. The unearned portion is included in the balance sheet as a
liability for unearned premiums.
Losses and Loss Adjustment Expenses
The estimated liabilities for losses and loss adjustment expenses
include the accumulation of estimates of losses for claims reported prior to
the balance sheet dates, estimates (based upon actuarial analysis of
historical data) of losses for claims incurred but not reported and estimates
of expenses for investigating and adjusting all incurred and unadjusted
claims. Amounts reported are estimates of the ultimate costs of settlement,
net of estimated salvage and subrogation, which are necessarily subject to
the impact of future changes in economic and social conditions. Management
believes that, given the inherent variability in any such estimates, the
aggregate reserves are within a reasonable and acceptable range of adequacy.
The methods of making such estimates and for establishing the resulting
reserves are continually reviewed and updated and any adjustments resulting
therefrom are reflected in current earnings.
49
<PAGE>
Reinsurance
In the normal course of business, the Company seeks to reduce the loss
that may arise from catastrophes and to reduce its overall risk levels by
reinsuring certain areas of exposure with other insurance enterprises or
reinsurers. Reinsurance premiums and reserves on reinsured business are
accounted for on a basis consistent with those used in accounting for the
original policies issued and the terms of the reinsurance contracts. Amounts
applicable to ceded unearned premiums and ceded claim liabilities are
reported as assets in the accompanying balance sheets. The Company believes
that the fair value of its reinsurance recoverables approximates their
carrying amounts.
Policy Acquisition Costs
Policy acquisition costs, principally direct and indirect costs related to
production of business, are deferred and amortized to expense as the related
premiums are earned.
Income Taxes
Deferred income tax assets and liabilities are determined based on the
differences between the financial reporting and the tax bases of assets and
liabilities and are measured using the enacted tax rates and laws.
Earnings (Loss) Per Common Share
Earnings (loss) per common share are computed using the weighted average
number of common share equivalents outstanding during the respective periods
utilizing the modified treasury stock method. The primary weighted average
number of common share equivalents was 58,694,730 for 1996, 57,223,839 for
1995 and 51,387,120 for 1994. The fully diluted weighted average number of
common share equivalents was 78,737,410 for 1996, 79,325,308 for 1995 and
52,122,630 for 1994. The primary and fully diluted earnings (loss) per share
amounts reflect a complex capital structure in which securities exist that
allow for the acquisition of additional common stock through the exercise of
conversion rights in these securities. Fully diluted earnings (loss) per
share amounts for 1994, 1995 and 1996 are not presented as the effect would
be antidilutive.
50
<PAGE>
New Accounting Standard
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting and Disclosure of Stock-Based Compensation," became effective
with fiscal years beginning after December 15, 1995. Stock-based compensation
is accounted for in accordance with the requirements set forth in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Additional financial statement disclosures required by SFAS No. 123 are included
in Note 12.
Reclassifications
The accompanying 1994 and 1995 financial statements have been
reclassified to conform with the 1996 presentations.
NOTE 3. INVESTMENTS
A summary of net investment income is as follows:
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
Interest and dividends on fixed
maturities $ 71,996 $ 74,286 $ 82,125
Interest on short-term cash
investments (demand deposits) 2,170 8,049 3,210
Other (183) 109 128
---------- ---------- ----------
Total investment income 73,983 82,444 85,463
Investment expense 805 786 702
---------- ---------- ----------
Net investment income $ 73,178 $ 81,658 $ 84,761
---------- ---------- ----------
---------- ---------- ----------
51
<PAGE>
A summary of realized investment gains and losses before income taxes is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Fixed maturities available-for-sale:
Gross realized gains $ 9,608 $ 12,080 $ 65,300
Gross realized losses (2,321) (1,873) (3,746)
--------- --------- ---------
Net realized investment gains $ 7,287 $ 10,207 $ 61,554
--------- --------- ---------
--------- --------- ---------
</TABLE>
The amortized cost, gross unrealized gains and losses, and fair values of
fixed maturities as of December 31, 1996 and 1995, respectively, are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1996 Cost Gains Losses Value
- - ---- ----------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $ 11,906 $ 57 $ 78 $ 11,885
Obligations of states and
political subdivisions 287,277 5,776 926 292,127
Public utilities 164,509 1,330 2,165 163,674
Corporate securities 596,346 6,002 6,331 596,017
---------- ------- ------ ----------
Total fixed maturities $1,060,038 $13,165 $9,500 $1,063,703
---------- ------- ------ ----------
---------- ------- ------ ----------
1995
- - ----
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $ 68,283 $ 1,440 $ 12 $ 69,711
Obligations of states and
political subdivisions 219,026 4,681 863 222,844
Public utilities 182,828 8,396 -- 191,224
Corporate securities 604,884 36,972 87 641,769
---------- ------- ------ ----------
Total fixed maturities $1,075,021 $51,489 $ 962 $1,125,548
---------- ------- ------ ----------
---------- ------- ------ ----------
</TABLE>
52
<PAGE>
The amortized cost and fair value of the Company's fixed maturity
investments at December 31, 1996 are summarized, by contractual maturity, as
follows:
<TABLE>
<CAPTION>
(Amounts in thousands) Available-for-sale
------------------------------
Amortized Fair
Fixed maturities due: Cost Value
-------------- -------------
<S> <C> <C>
1997 $ 7,065 $ 7,192
1998 - 2001 28,872 29,675
2002 - 2006 469,795 466,867
2007 - 2016 553,800 559,429
2017 and after 506 540
-------------- -------------
Total $1,060,038 $1,063,703
-------------- -------------
-------------- -------------
</TABLE>
Expected maturities of the Company's investments may differ from contractual
maturities because certain borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.
The changes in unrealized gains (losses) on investments
available-for-sale for 1996, 1995 and 1994 total $(30,688,000), $73,285,000
and $(76,534,000), net of deferred income taxes (benefits) of $(16,524,000),
$39,461,000 and $(41,211,000) respectively.
NOTE 4. POLICY ACQUISITION COSTS
The following reflects the policy acquisition costs deferred for
amortization against future income and the related amortization charged to
income from operations, excluding certain amounts deferred and amortized in
the same period:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Deferred policy acquisition costs
at beginning of year $ 10,481 $ 14,776 $ 15,712
Acquisition costs deferred 36,821 34,352 42,473
---------- --------- ---------
47,302 49,128 58,185
Acquisition costs amortized and
charged to income during the year 38,175 38,647 43,409
---------- --------- ---------
Deferred policy acquisition costs
at end of year $ 9,127 $ 10,481 $ 14,776
---------- --------- ---------
---------- --------- ---------
</TABLE>
53
<PAGE>
NOTE 5. FEDERAL INCOME TAXES
Federal income tax expense consists of:
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
Current tax expense (credit) $ 2,535 $ 719 $ (73,565)
Deferred tax expense (credit) 31,835 30,856 (214,522)
-------- -------- ----------
$ 34,370 $ 31,575 $ (288,087)
-------- -------- ----------
-------- -------- ----------
The Company's net deferred income tax asset is comprised of:
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995
---- ----
(Amounts in thousands)
Deferred tax assets:
Net operating loss carryforward $ 142,422 $ 181,393
Unearned premiums 16,180 18,207
Unpaid losses and loss adjustment expenses 13,170 14,728
Alternative minimum tax credit 11,200 8,778
Salvage and subrogation 7,506 -
Non-qualified retirement plans 3,063 2,903
Other 2,058 2,868
---------- ----------
195,599 228,877
---------- ----------
---------- ----------
Deferred tax liabilities:
Deferred policy acquisition costs 3,223 3,668
Salvage and subrogation - 936
Unrealized investment gains 1,519 18,043
---------- ----------
4,742 22,647
---------- ----------
Net deferred tax asset $ 190,857 $ 206,230
---------- ----------
---------- ----------
54
<PAGE>
Under normal operations, the Company's principal deferred tax assets
arise from the discounting of loss reserves for tax purposes which delays a
portion of the loss deduction, and from the acceleration of 20% of the
unearned premium reserve into taxable income before it is earned. As of
December 31, 1996, the Company has a net operating loss carryforward of
approximately $407,000,000 for regular tax purposes and $263,000,000 for
alternative minimum tax purposes expiring in the year 2009 and an alternative
minimum tax credit carryforward of $11,200,000. Alternative minimum tax
credits may be carried forward indefinitely to offset future regular tax
liabilities.
The Company is required to establish a "valuation allowance" for any
portion of the deferred tax asset that management believes will not be
realized. In order to realize the net deferred tax asset, the Company must
have the ability to generate sufficient future taxable income to realize the
tax benefits. Taxable income for 1996 and 1995 totaled $137.9 million, and
except for the losses arising from the Northridge Earthquake, the Company has
been profitable for each of the past 10 years. Over the last five years, the
Company's combined ratio has been approximately 98% excluding the Northridge
Earthquake, and investment earnings have averaged approximately $98 million a
year over the same five year period. Historically, the Company has generated
almost all of its profits from its automobile line of business. As of July
23, 1995, the Company was out of the earthquake line of business. This
withdrawal will substantially reduce the Company's exposure to future
earthquake catastrophes. The Company could also increase its future taxable
income by converting the remainder of its investments in tax-exempt
securities, which represented approximately 25% of the portfolio at December
31, 1996, and investing new cash flow into taxable securities.
The Company believes that because of its historically strong earnings
performance, return to profitability in 1995, and the tax planning strategies
available, it is more likely than not that the Company will realize the
benefit of the deferred tax asset, and therefore, no valuation allowance has
been established.
A reconciliation of income tax computed at the federal statutory tax rate,
which was 35% for 1994 through 1996, to total income tax expense follows:
55
<PAGE>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
Federal income taxes (benefits) at
statutory rate $ 37,949 $ 35,422 $(275,138)
Decrease due to:
Tax-exempt income, net (4,472) (3,520) (13,535)
Adjustment of deferred tax for 1%
increase in tax rate - - 1,696
Other 893 (327) (1,110)
--------- --------- ---------
Federal taxes (benefits) on income $ 34,370 $ 31,575 $(288,087)
--------- --------- ---------
--------- --------- ---------
Payments for income taxes were $2,367,500, $65,000 and $-0- for the years
ended December 31, 1996, 1995 and 1994, respectively.
NOTE 6. EMPLOYEE BENEFITS
Pension Plan and Supplemental Executive Retirement Plan
The Company sponsors a non-contributory defined benefit pension plan
which covers essentially all employees who have completed at least one year
of service. The benefits are based on employees' compensation during all
years of service. The Company's funding policy is to make annual
contributions as required by applicable regulations. The pension plan's
assets consist of high-grade fixed income securities and cash equivalents.
The Company also sponsors an unfunded supplemental executive retirement
plan which covers certain key employees designated by the Board of Directors.
The supplemental plan benefits are based on years of service and
compensation during the last three years of employment, and are reduced by
the benefit payable from the pension plan.
The net periodic pension cost for these plans reflected in the 1996,
1995 and 1994 consolidated statements of operations is $3,925,000, $3,147,000
and $3,722,000, respectively. Accrued pension
56
<PAGE>
costs reflected in the consolidated balance sheets at December 31, 1996 and
1995 are $4,073,000 and $5,637,000, respectively.
Savings and Security Plan
The Company sponsors contributory savings and security plans for
eligible employees that permit participants to make pre-tax contributions.
The Company provides matching contributions equal to 75% of the lesser of 6%
of an employee's compensation or the amount contributed by the employee.
Contributions charged against operations were $2,556,000, $2,376,000 and
$2,210,000 in 1996, 1995 and 1994, respectively.
57
<PAGE>
NOTE 7. LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
The following table provides a reconciliation of the beginning and ending
liability for unpaid losses and loss adjustment expenses ("LAE"):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Reserves for losses and LAE, net of reinsurance
recoverables, at beginning of year $552,320 $ 755,101 $ 574,619
Add:
Provision for unpaid losses and LAE for claims
occurring, in the current year,
net of reinsurance 760,325 891,066 1,912,799
Decrease in provision for insured
events of prior years, net of reinsurance (25,590) (39,464) (84,453)
-------- -------- ---------
Total incurred losses and loss adjustment
expenses, net of reinsurance 734,735 851,602 1,828,346
Deduct losses and LAE payments for claims,
net or reinsurance, occurring during:
The current year 446,037 534,414 1,302,988
Prior years 351,985 519,969 344,876
-------- -------- ---------
Total payments, net of reinsurance 798,022 1,054,383 1,647,864
-------- -------- ---------
Reserve for unpaid losses and LAE, net of
reinsurance recoverables, at year end 489,033 552,320 755,101
Reinsurance recoverables on unpaid
losses, at year end 54,496 32,514 1,142
-------- -------- ---------
Reserves for losses and LAE, gross of
reinsurance recoverables on unpaid losses,
at year end $ 543,529 $ 584,834 $ 756,243
-------- -------- ---------
-------- -------- ---------
</TABLE>
As a result of changes in estimates of insured events in prior years, the
provision for losses and loss adjustment expenses decreased by $25,590,000,
$39,464,000 and $84,453,000 in 1996, 1995 and 1994, respectively, due to a
combination of improvements in the claims handling process, unanticipated
decreases in frequency and random fluctuations in severity. The 1996 and 1995
58
<PAGE>
decreases in provisions for insured events of prior years is affected by
increases in losses related to the Northridge Earthquake of $40 million and
$60 million, respectively.
NOTE 8. BANK LOAN PAYABLE
The Company has entered into a revolving credit facility ("the
Facility") that provides an aggregate commitment of $202.5 million at
December 31, 1996. The commitment decreases by $11.25 million on the first
day of each quarter until April 1, 2001. Principal repayments are required
when total outstanding advances exceed the aggregate commitment. The Company
may prepay principal amounts of the advances, as well as voluntarily cause
the aggregate commitment to be reduced at any time during the term of the
Facility.
As of December 31, 1996, the Company's outstanding advances against the
Facility totaled $175 million, which approximates its fair value. Interest
is charged at a variable rate based, at the option of the Company, on either
(1) the contractually defined Alternate Base Rate ("ABR") plus a margin of
0.25% or (2) the Eurodollar Rate plus a margin of 1.00%. Margins are
adjusted in relation to certain financial and operational levels of the
Company. The ABR is defined as a daily rate which is the higher of (a) the
prime rate for such day or (b) the Federal Funds Effective Rate for such day
plus .5% per annum. Interest is payable at the end of each interest period.
The stock of the Company's insurance subsidiaries is pledged as collateral
under the Facility. At December 31, 1996, the annual interest rate for the
specified interest period was approximately 6.7%. Interest paid was
$9,813,000 in 1996, $12,636,000 in 1995 and $7,277,000 in 1994.
NOTE 9. REINSURANCE
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. The Company periodically reviews the financial condition of
its reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. It is the Company's policy to hold collateral under related
reinsurance agreements in the form of letters of credit for unpaid losses for
all reinsurers not licensed to do business in the Company's state of domicile.
59
<PAGE>
The effect of reinsurance on premiums written and earned is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994
-------------------- ---------------------- ----------------------
Written Earned Written Earned Written Earned
--------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gross $ 929,843 $ 987,628 $1,063,962 $1,073,556 $1,078,663 $1,080,086
Ceded (101,850) (131,000) (137,345) (109,759) (45,926) (46,083)
--------- --------- ---------- ---------- ---------- ----------
Net $ 827,993 $ 856,628 $ 926,617 $ 963,797 $1,032,737 $1,034,003
--------- --------- ---------- ---------- ---------- ----------
--------- --------- ---------- ---------- ---------- ----------
</TABLE>
Losses and loss adjustment expenses have been reduced by reinsurance
ceded as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
--------- -------- ----------
<S> <C> <C> <C>
Gross losses and loss
adjustment expenses incurred $ 839,146 $921,104 $1,905,161
Ceded losses and loss
adjustment expenses incurred (104,411) (69,502) (76,815)
--------- -------- ----------
Net losses and loss
adjustment expenses incurred $ 734,735 $851,602 $1,828,346
--------- -------- ----------
--------- -------- ----------
</TABLE>
In connection with an investment agreement executed in 1994 with AIG
(see Note 16), each of the Company's insurance subsidiaries entered into a
five-year quota share reinsurance agreement with an AIG affiliate to provide
coverage for all ongoing lines of business. Under this contract, which
attaches to the Company's retained risks net of all other reinsurance, 10% of
each subsidiary's premiums earned and losses incurred in connection with
policies incepted during the period January 1, 1995 through December 31, 1999
are ceded. The majority of the Company's reinsurance receivables are due
from the AIG affiliate. At the end of the five-year period, the AIG
affiliate may elect to renew the agreement annually at declining coverage
percentages. Ceding commissions of 9.13% and 10.8% were earned by the
insurance subsidiaries for 1996 and 1995, respectively. The ceding
commission is adjusted annually to equal the actual underwriting expense
ratio.
60
<PAGE>
In 1996, the Company's insurance subsidiaries entered into a 100% quota
share reinsurance agreement with F&G Re and Risk Capital Re covering the
homeowner and condominium lines of business. This agreement covers, for a
one-year policy term, all business in force as of July 1, 1996 plus renewal
business attaching between July 1, 1996 and July 23, 1996, effectively
terminating with the expiration of the underlying, one-year policies. Under
this contract, 100% of each subsidiary's homeowner and condominium unearned
premium reserves as of June 30, 1996 were ceded 50/50 to F&G Re and Risk
Capital Re, a total of $33.3 million. Additionally, 100% of written premiums
and incurred losses and allocated loss adjustment expenses subsequent to June
30, 1996, on covered policies, are ceded under this contract. The Company's
insurance subsidiaries earn a commission on ceded premiums based on a sliding
scale dependent on the incurred loss ratio. In 1996, the Company earned
commissions at a rate of 15.8%. Homeowner policies renewed February 15, 1997
and subsequent, which are not covered under this contract, are expected to be
covered by a new reinsurance program currently under negotiation.
The Company had a homeowners excess-of-loss reinsurance treaty with General
Reinsurance Corporation which was canceled May 1, 1996. In this excess treaty,
the reinsurer's limit was $650,000 in excess of the Company's retention of
$300,000 per risk, subject to a maximum reinsurer's limit of $1,300,000 per
occurrence. The Company has a quota share treaty for its Personal Excess
Liability Policy line whereby it cedes 60% of its business.
NOTE 10. LEASE COMMITMENTS
The Company leases office space in a building in Woodland Hills,
California. The lease was amended in October 1994, extending the lease term
until November 1999. The lease may be renewed for two consecutive five-year
periods. The Company also leases office space in several other locations
throughout California, primarily for claims servicing.
61
<PAGE>
Minimum rental commitments under the Company's lease obligations are as
follows:
1997 $10,571,538
1998 $ 9,244,447
1999 $ 8,312,720
2000 $ 2,312,556
2001 $ 1,253,591
Thereafter $ 705,788
Rental expense charges to operations for the years ended December 31, 1996,
1995 and 1994 were $11,243,000, $12,062,000 and $11,694,000, respectively.
NOTE 11. STOCKHOLDERS' EQUITY
The Company's insurance subsidiaries are subject to restriction as to
the amount of dividends which may be paid to the parent company within any
one year without the approval of the California Department of Insurance
("DOI"). The California Insurance Code provides that amounts may be paid as
dividends from earned surplus on an annual, noncumulative basis, without
prior approval by the California Department of Insurance, up to the greater
of (1) net income for the preceding year, or (2) 10% of statutory surplus as
regards policyholders as of the preceding December 31. Earned surplus
available for dividends as of December 31, 1996 was $67.3 million.
Stockholder's equity of the insurance subsidiaries on a statutory basis at
December 31, 1996 and 1995 was $436,367,000 and $358,474,000, respectively.
Statutory net income (loss) for the insurance subsidiaries was $ 121,780,000,
$118,562,000, and $(657,331,000) for the years ended December 31, 1996, 1995 and
1994, respectively.
NOTE 12. STOCK-BASED COMPENSATION
The Company has two separate stock compensation plans: the 1995 Stock
Option Plan, which provides for grants of stock options to key employees and
non-employee directors of the Company, and the Restricted Shares Plan, which
provides for stock grants to key employees.
62
<PAGE>
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its stock-based compensation. Under APB
25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no
compensation expense is recognized; however, SFAS No. 123 requires disclosure
of the pro forma net income and earnings per share as if the Company had
accounted for its employee stock compensation under the fair value method of
that Statement. Under APB 25, the fair value of stock grants made under the
Restricted Shares Plan is amortized to expense over the vesting periods of
the grants. This accounting treatment results in compensation expense being
recorded in a manner consistent with that required under Statement 123 and,
therefore, pro forma net income and earnings per share amounts would be
unchanged from those reported in the financial statements.
1995 Stock Option Plan
The aggregate number of common shares issued and issuable under the Plan
currently is limited to 1,000,000. All options granted have ten year terms and
vest over various future periods.
For disclosure purposes, the fair value of stock options was estimated
at each date of grant using a Black-Scholes option pricing model using the
following assumptions: Risk-free interest rates of 6.5% and 6.6% for 1996 and
1995, respectively; dividend yields ranging from 1.0% to 1.3% in 1996 and
from 1.5% to 1.6% in 1995; volatility factors of the expected market price of
the Company's common stock of .39 and .43 for 1996 and 1995, respectively;
and a weighted average expected life of the options of 10 years. Using the
Black-Scholes valuation model, the estimated weighted average fair value of
options granted during 1996 and 1995, respectively, were $10.04 and $6.62.
Had the accounting for stock-options been based on those values, the pro
forma net income would have been $70.5 million in 1996 and $69.2 million in
1995; pro forma primary earnings per share would have been $.86 in 1996 and
$.87 in 1995, while fully diluted earnings per share would have been
antidilutive in 1996 and equal to the primary figure in 1995.
In management's opinion, existing stock option valuation models do not
provide an entirely reliable measure of the fair value of non-transferable
employee stock options with vesting restrictions.
63
<PAGE>
A summary of the Company's stock option activity and related information
follows:
Weighted-Average
Number of Exercise
Options Price
----------- -----------------
Options outstanding January 1, 1995 -
Granted in 1995 180,000 $12.56
-----------
Options outstanding December 31, 1995 180,000 $12.56
Granted in 1996 396,500 $19.64
Exercised in 1996 (8,000) $12.50
Forfeited in 1996 (27,000) $19.33
-----------
Options outstanding December 31, 1996 541,500 $17.41
-----------
-----------
At December 31, 1996, 116,000 options were exercisable at an average
exercise price of $12.59. No options were exercisable or forfeited in 1995.
Exercise prices for options outstanding at December 31, 1996 ranged from
$12.50 to $19.88. The weighted average remaining contractual life of those
options is 8.9 years.
Restricted Shares Plan
The Restricted Shares Plan currently provides for grants of up to
921,920 shares of common stock to be made available to key employees as
determined by the Key Employee Incentive Committee of the Board of Directors.
At December 31, 1996, 294,874 common shares remain available for future
grants. Upon issuance of grants of common shares under the plan, unearned
compensation equivalent to the market value on the date of grant is charged
to common stock and subsequently amortized in equal monthly installments over
the five-year period of the grant. Amortization of the unearned compensation
was $365,500, $550,000 and $431,000 in 1996, 1995 and 1994, respectively.
The common shares are restricted for five years retroactive to the first day
of the year of grant. Restrictions are removed on 20% of the shares of each
employee on January 1 of each of the five years following the year of grant.
64
<PAGE>
A summary of grants under the plan from 1994 through 1996 follows:
Common Market Price Per
Shares Share on Date of Grant
-------- ----------------------
Outstanding, January 1, 1994 56,715
Granted in 1994 25,000 $27.38
Vested in 1994 (18,543)
Canceled or forfeited -
--------
Outstanding, December 31, 1994 63,172
Granted in 1995 35,813 $11.17
Vested in 1995 (40,224)
Canceled or forfeited (14,878)
--------
Outstanding, December 31, 1995 43,883
Granted in 1996 18,600 $19.63
Vested in 1996 (13,800)
Canceled or forfeited -
--------
Outstanding, December 31, 1996 48,683
--------
--------
NOTE 13. LITIGATION
Lawsuits arising from claims under insurance contracts are provided for
through loss and loss adjustment expense reserves established on an ongoing
basis. From time to time, the Company has been named as a defendant in
lawsuits incident to its business. Some of these actions assert claims for
exemplary or punitive damages which are not insurable under California
judicial decisions. The Company vigorously defends these actions unless a
reasonable settlement appears appropriate. While any litigation has an
element of uncertainty, the Company believes that the ultimate outcome of
pending actions will not have a material adverse effect on its consolidated
financial condition or results of operations.
65
<PAGE>
NOTE 14. PROPOSITION 103
On January 27, 1995, the Company announced it had reached a settlement
with the DOI regarding rebate liabilities associated with Proposition 103,
which was passed by California voters on November 8, 1988, for $78 million.
By the second quarter of 1995, the Company had refunded $46 million to
customers specified in the settlement, which represented an average payment
per household of $80.00, or approximately 7.5% of premiums paid between
November 8, 1988 and November 7, 1989. In accordance with the settlement, the
Company offset a portion of the 1995 increase in earthquake losses associated
with the 1994 Northridge Earthquake (see Note 15) with $32 million in funds
previously set aside for potential Proposition 103 rebates. In addition, as
part of the settlement, the Company contributed $30 million to the surplus of
the insurance subsidiaries with funds obtained from the existing bank credit
facility and from the issuance of 20,000 additional shares of preferred stock
to AIG (see Notes 8 and 16, respectively).
NOTE 15. NORTHRIDGE EARTHQUAKE
The Northridge, California earthquake, which occurred on January 17,
1994, significantly affected the operating results and the financial position
of the Company. Subsequently, the Company and other members of the property
and casualty insurance industry have revised their estimates of claim costs
and related expenses several times.
The Company's estimate of gross losses and loss adjustment expenses for
this catastrophe as of December 31, 1996 is $1.04 billion, of which $40
million and $60 million were recorded in 1996 and 1995, respectively. In
accordance with the terms of a settlement with the California Department of
Insurance, the Company offset a portion of the 1995 increase in earthquake
losses with $32 million in funds previously set aside for potential
Proposition 103 rebates (see Note 14).
NOTE 16. CAPITAL TRANSACTIONS
On December 16, 1994, the Company received $216 million of equity capital
from AIG and in exchange, issued (i) 200,000 shares of Series A 9%
Convertible Preferred Stock, par value $1.00 per
66
<PAGE>
share, at a price and liquidation value of $1,000 per share and convertible
into common shares at a conversion price of $11.33 per share, and (ii)
16,000,000 Series A Warrants to purchase an aggregate 16,000,000 shares of
the Company's Common Stock at $13.50 per share (collectively, the "Investment
Agreement"). In 1995, an additional 20,000 shares of preferred stock were
issued to AIG in exchange for $20,000,000 of equity capital. The Series A
Preferred Stock ranks senior to the Common Stock with respect to dividend
and liquidation rights. Cash dividends of $20,245,500 and $14,622,750 were
paid on the preferred stock in 1996 and 1995, respectively. Preferred stock
dividends in kind of $4,950,000, representing 4,950 additional shares, were
issued on June 26, 1995. The Investment Agreement required the exercise
price of the Series A Warrants to be reduced $.08 per share for each million
dollars of gross losses and allocated loss adjustment expenses in excess of
$945 million with respect to the Northridge Earthquake through December 31,
1995. As the Company's estimate of the gross losses and loss adjustment
expenses for the Northridge Earthquake rose to $1 billion at December 31,
1995, the exercise price of the Series A Warrants declined to $9.10 per share
where it remains. The Common Stock Warrants are generally exercisable from
February 1998 to February 2007.
67
<PAGE>
NOTE 17. UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The summarized unaudited quarterly results of operations were as follows:
QUARTER ENDED
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ----------- ------------ -----------
(Amounts in thousands, except per share data)
1996
- - ----
Net premiums earned $ 232,628 $ 225,068 $ 204,755 $ 194,177
Investment income $ 18,689 $ 18,776 $ 17,770 $ 17,943
Realized gains $ 2,588 $ 1,310 $ 2,642 $ 747
Net income (loss) $ 25,583 $ 31,928 $ 24,345 $ (7,799)
Primary earnings (loss)
per common share $ .35 $ .46 $ .33 $ (.22)
Fully diluted earnings
per common share $ .32 $ .41 $ .31 *
1995
- - ----
Net premiums earned $ 248,737 $ 240,085 $ 237,588 $ 237,387
Investment income $ 21,179 $ 20,634 $ 20,305 $ 19,540
Realized gains $ 185 $ 2,019 $ 3,200 $ 4,803
Net income (loss) $ (1,418) $ 14,611 $ 30,132 $ 26,305
Primary earnings (loss)
per common share $ (.12) $ .18 $ .44 $ .36
Fully diluted earnings
per common share * * $ .39 $ .33
*Fully diluted earnings per common share are not shown as the results are
antidilutive.
The quarterly earnings per share amounts do not add to annual amounts due
to the changing dilutive effect of common stock equivalents as the price of the
common stock fluctuates.
68
<PAGE>
The fourth quarter of 1996 was impacted by pre-tax charges of $40
million in additional reserves related to the 1994 Northridge Earthquake. It
was also adversely affected by weather-related claims amounting to
approximately $8.0 million.
The first quarter 1995 net loss was impacted by $14.2 million in pre-tax
losses resulting from a series of severe storms as well as $6.0 million of
catastrophe reinsurance premiums related to the additional reinsurance
coverage purchased in order to provide reinsurance coverage for the declining
earthquake exposure. The second and fourth quarters of 1995 were adversely
affected by increases in the net pre-tax loss for the Northridge Earthquake
of $18 million and $10 million, respectively.
NOTE 18. RESULTS OF OPERATIONS BY LINE OF BUSINESS
The following table presents premium revenue and underwriting profit
(loss) for the Company's insurance lines on a GAAP basis for the years ended
December 31.
1996
----
Homeowner Personal
(Amounts in thousands) Auto Lines and Condominium Excess Liability
--------------- ----------------- ------------------
Gross premiums written $ 892,287 $ 35,442 $ 2,114
--------------- ----------------- ------------------
--------------- ----------------- ------------------
Premiums earned $ 831,963 $ 23,893 $ 772
--------------- ----------------- ------------------
--------------- ----------------- ------------------
Underwriting profit (loss) $ 81,010 $ (39,705) $ 917
--------------- ----------------- ------------------
--------------- ----------------- ------------------
1995
----
Homeowner Personal
Auto Lines and Condominium Excess Liability
--------------- ----------------- ------------------
Gross premiums written $ 991,969 $ 69,847 $ 2,146
--------------- ----------------- ------------------
--------------- ----------------- ------------------
Premiums earned $ 920,560 $ 42,394 $ 843
--------------- ----------------- ------------------
--------------- ----------------- ------------------
Underwriting profit (loss) $ 103,744 $ (78,976) $ 469
--------------- ----------------- ------------------
--------------- ----------------- ------------------
1994
----
Homeowner Personal
Auto Lines and Condominium Excess Liability
--------------- ----------------- ------------------
Gross premiums written $ 991,268 $ 85,088 $ 2,307
--------------- ----------------- ------------------
--------------- ----------------- ------------------
Premiums earned $ 981,893 $ 51,166 $ 944
--------------- ----------------- ------------------
--------------- ----------------- ------------------
Underwriting profit (loss) $ (45,850) $ (879,221) $ 997
--------------- ----------------- ------------------
--------------- ----------------- ------------------
69
<PAGE>
AUTO. The $22.7 million decline in underwriting profit for the auto lines in
1996 compared to 1995 was caused principally by a $30 million reduction in
1995 of amounts previously set aside for Proposition 103 rebates (see Note
14), and 1996 weather-related claims of approximately $8 million. In 1994
and 1995, excluding earthquake-related claims and expenses, earthquake
reinsurance reinstatements and Proposition 103 rebate adjustments, the
underwriting profit for the auto lines would have been $10.1 million and
$73.8 million, respectively, with the increase in 1995 principally
attributable to the 6% rate increase implemented in the fourth quarter of
1994 and the 3.7% rate increase implemented in the second quarter 1995.
HOMEOWNERS AND CONDOMINIUM. The 1996 and 1995 underwriting losses in these
lines included respective provisions for additional earthquake reserves of
$40 million and $60 million, which was partially offset by a $32 million
reduction in Proposition 103 rebates. Also affecting 1995 were first quarter
weather-related losses of $14.2 million, earthquake-related catastrophe
reinsurance premiums of $24 million and an overall decline in premium volume
resulting from the DOI's order to discontinue writing new policies. The
significant underwriting loss in 1994 was caused by the Northridge Earthquake.
70
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with the Company's independent auditors on
any matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, or any reportable events.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to Item 10 is incorporated by reference from the
Company's definitive proxy statement used in connection with the Company's
1997 Annual Meeting of Shareholders pursuant to Instruction G(3) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to Item 11 is incorporated by reference from the
Company's definitive proxy statement used in connection with the Company's
1997 Annual Meeting of Shareholders pursuant to Instruction G(3) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to Item 12 is incorporated by reference from the
Company's definitive proxy statement used in connection with the Company's
1997 Annual Meeting of Shareholders pursuant to Instruction G(3) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to Item 13 is incorporated by reference from the
Company's definitive proxy statement used in connection with the Company's
1997 Annual Meeting of Shareholders pursuant to
71
<PAGE>
Instruction G(3) of Form 10-K. There were no relationships or related party
transactions which require disclosure.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED WITH THIS REPORT PAGE
----
(1) FINANCIAL STATEMENTS
The following consolidated financial statements of the Company
are filed as a part of this report:
(i) Report of independent auditors; ........................... 41
(ii) Consolidated balance sheets - December 31, 1996 and 1995;.. 42
(iii) Consolidated statements of operations - Years ended
December 31 1996, 1995, and 1994; ........................ 44
(iv) Consolidated statement of changes in stockholders' equity -
Years ended December 31, 1996, 1995 and 1994; ............ 45
(v) Consolidated statements of cash flows - Years ended
December 31, 1996, 1995 and 1994; ........................ 46
(vi) Notes to consolidated financial statements ................ 48
(2) SCHEDULES
The following financial statement schedule required to be filed by
Item 8 and by paragraph (d) of Item 14 of Form 10-K is submitted
as a separate section of this report.
Schedule II - Condensed Financial Information of Registrant ........ 76
Schedules I, III, IV, and VI have been omitted as all required data is
included in the Notes to Consolidated Financial Statements.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
72
<PAGE>
(3) EXHIBITS REQUIRED
The following exhibits required by Item 601 of Regulation S-K and by
paragraph (c) of Item 14 of Form 10-K are listed by number corresponding to
the Exhibit Table of Item 601 of Regulation S-K and are filed herewith or
incorporated by reference as indicated below.
3(a) Articles of Incorporation, as amended, incorporated herein by
reference from the Registrant's Form 10-K for the year ended
December 31, 1994
3(b) By Laws, as amended, filed herewith
The following contract is incorporated herein by reference from the
Registrant's Form 10-K for the year ended December 31, 1985:
10(a) Life Insurance Agreement for key officers (originally filed
as Exhibit 10(b))
The following contracts are incorporated herein by reference from the
Registrant's Form 10-K for the year ended December 31, 1987:
10(b) Amendment to 20th Century Industries Restricted Shares Plan
(originally filed as Exhibit 10(c))
10(c) Split Dollar Insurance Agreement between the Company and Stanley
M. Burke, as trustee of the 1983 Foster Insurance Trust
(originally filed as Exhibit 10(e))
The following contracts are incorporated herein by reference from the
Registrant's Form 10-K for the year ended December 31, 1988:
10(d) Amendment to 20th Century Industries Supplemental Executive
Retirement Plan (originally filed as Exhibit 10(h))
The following contracts are incorporated herein by reference from the
Registrant's Form 8-K dated October 5, 1994:
10(e) Letter of intent between the Company and American International
Group, Inc. (originally filed as Exhibit 10(o))
73
<PAGE>
10(f) Stock Option Agreement between the Company and American
International Group, Inc. (originally filed as Exhibit 10(p))
The following contract is incorporated herein by reference from the
Registrant's Form 10-Q dated November 13, 1994:
10(g) Investment and Strategic Alliance Agreement between the Company
and American International Group, Inc. (originally filed as
Exhibit 10(s))
The following contract is incorporated herein by reference from the
Registrant's Form 10-K for the year ended December 31, 1994:
10(h) Amendment No. 1 to Investment and Strategic Alliance Agreement
between the Company and American International Group, Inc.
(originally filed as Exhibit 10(v))
The following contract is incorporated herein by reference from the
Registrant's Form S-8 dated July 26, 1995:
10(i) 20th Century Industries Stock Option Plan for eligible employees
and non-employee directors (originally filed as Exhibit 10(x))
The following contracts are incorporated herein by reference from the
Registrant's Form 10-K for the year ended December 31, 1995:
10(j) Amended and Restated Credit Agreement among the Company, Union
Bank, The First National Bank of Chicago, et. al. (originally
filed as Exhibit 10(r))
10(k) Quota Share Reinsurance Agreement between the Company and American
International Group, Inc., as amended (originally filed as Exhibit
10(w))
74
<PAGE>
The following contracts are filed herewith:
10(l) Forms of Stock Option Agreements
10(m) Form of Restricted Shares Agreement
10(n) Supplemental 401(k) Plan
10(o) 20th Century Industries Supplemental Executive Retirement Plan, as
amended
10(p) Restated 20th Century Industries Savings and Securities Plan
10(q) 20th Century Industries Pension Plan, 1994 Amendment and
Restatement
10(r) Amendment No. 1 to 20th Century Industries Pension Plan
11 Computation of Earnings Per Common Share, filed herewith
21 Subsidiaries of the Registrant, incorporated herein by reference
from "Item 1. Business" in the Registrant's Form 10-K for the year
ended December 31, 1996
23 Consent of Independent Auditors, filed herewith
28 Information from reports furnished to state regulatory
authorities, filed herewith:
28(a) 20th Century Insurance Company
28(b) 21st Century Casualty Company
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed for the three months ended
December 31, 1996.
75
<PAGE>
SCHEDULE II
20TH CENTURY INDUSTRIES (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1995
---- ----
<S> <C> <C>
(Amounts in thousands, except share data)
Cash $ 14,802 $ 8,699
Prepaid loan fees 5,999 7,794
Other current assets 1,224 1,485
Accounts receivable from subsidiaries, net of payables 3,610 546
Investment in non-consolidated insurance
subsidiaries and affiliates at equity 641,261 624,574
Other assets 12,594 14,068
------------ ------------
$ 679,490 $ 657,166
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 16,783 $ 15,581
Bank loan payable 175,000 175,000
------------ ------------
Total liabilities 191,783 190,581
------------ ------------
Stockholders' equity:
Capital Stock
Preferred stock, par value $1.00 per share;
authorized 500,000 shares, none issued
Series A convertible preferred stock,
stated value $1,000 per share, authorized
376,126 shares, outstanding 224,950 in 1996
and 1995 224,950 224,950
Common stock, without par value; authorized
110,000,000 shares, outstanding 51,520,006
in 1996 and 51,493,406 in 1995 70,263 69,805
Common stock warrants 16,000 16,000
Unrealized investment gains of
insurance subsidiaries - net 2,820 33,508
Retained earnings 173,674 122,322
------------ ------------
Total stockholders' equity 487,707 466,585
------------ ------------
$ 679,490 $ 657,166
------------ ------------
------------ ------------
</TABLE>
See note to condensed financial statements.
76
<PAGE>
SCHEDULE II
20TH CENTURY INDUSTRIES (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
(Amounts in thousands, except per share data)
REVENUES
Dividends received from subsidiaries $ 43,000 $ - $ 16,471
Interest 339 1,390 1,139
Other - 1,269 -
----------- ---------- -----------
Total 43,339 2,659 17,610
EXPENSES
Loan interest and fees 14,260 15,897 8,348
General and administrative 621 544 685
----------- ---------- -----------
Total 14,881 16,441 9,033
Income (loss) before income tax refund 28,458 (13,782) 8,577
Refund of income taxes (7) (4,994) (2,763)
----------- ---------- -----------
Net income (loss) before equity in net
income of insurance subsidiaries 28,465 (8,788) 11,340
Undistributed income (loss) of non-
consolidated insurance subsidiaries 45,592 78,418 (509,360)
----------- ---------- -----------
NET INCOME (LOSS) $ 74,057 $ 69,630 $ (498,020)
----------- ---------- -----------
----------- ---------- -----------
EARNINGS (LOSS) PER COMMON SHARE
Primary $ .92 $ .88 $ (9.69)
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
See note to condensed financial statements.
77
<PAGE>
SCHEDULE II
20TH CENTURY INDUSTRIES (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
-------- -------- -----------
(Amounts in thousands)
OPERATING ACTIVITIES
Net income (loss) $ 74,057 $ 69,630 $(498,020)
Adjustments to reconcile net
income (loss) to net cash provided by
(used in) operating activities:
Undistributed (income) loss of
insurance subsidiaries (88,592) (78,418) 492,889
Reimbursement of depreciation and
amortization by subsidiaries 635 572 550
(Gain) loss on sale of fixed assets (5) 72 42
Effects of common stock issued
under restricted shares plan 458 465 492
Dividends received from
insurance subsidiaries 43,000 - 16,471
Change in other assets, other
liabilities, and accrued income taxes 2,196 (4,116) (43,006)
-------- -------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 31,749 $(11,795) $(30,582)
78
<PAGE>
SCHEDULE II
20TH CENTURY INDUSTRIES (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
-------- -------- -----------
(Amounts in thousands)
INVESTING ACTIVITIES:
Capital contributed to 21st Century
Casualty Company $ - $ - $ (40,841)
Capital contributed to 20th Century
Insurance Company - (30,000) (256,612)
Capital contributed to 20th Century Insurance
Company of Arizona (1,970) - -
Purchase of equipment (1,126) (1,472) (478)
Proceeds from sale of equipment 271 306 144
------- -------- ---------
NET CASH USED IN INVESTING ACTIVITIES (2,825) (31,166) (297,787)
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock - 20,000 200,000
Proceeds from issuance of stock warrants - - 16,000
Proceeds from bank loan - 15,000 160,000
Dividends paid (22,821) (14,623) (16,471)
------- -------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (22,821) 20,377 359,529
------- -------- ---------
Net increase (decrease) in cash 6,103 (22,584) 31,160
Cash, beginning of year 8,699 31,283 123
------- -------- ---------
Cash, end of year $ 14,802 $ 8,699 $ 31,283
------- -------- ---------
------- -------- ---------
Supplemental disclosure of cash flow information:
Interest paid was $9,813,000, $12,636,000, and $7,277,000 for the years ended
December 31, 1996, 1995, and 1994, respectively.
See note to condensed financial statements.
79
<PAGE>
SCHEDULE II
20TH CENTURY INDUSTRIES (PARENT COMPANY)
NOTE TO CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
20th Century Industries and Subsidiaries.
NOTE 1 - DEBT AND OTHER DISCLOSURES
The Company's outstanding advances against its revolving credit facility
("the Facility") totaled $175 million at December 31, 1996. Refer to Note 8
of the Notes to Consolidated Financial Statements for a more detailed
explanation of the Facility.
80
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the under-signed, thereunto duly authorized.
20TH CENTURY INDUSTRIES
(Registrant)
Date: March 24,1997 By:
-------------------------------------
William L. Mellick
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated on the 24th of
March, 1997.
Signature Title
--------- -----
President and Chief Executive Officer
- - ------------------------------ (Principal Executive Officer)
William L. Mellick
Senior Vice President
and Chief Financial Officer
- - ------------------------------ (Principal Financial Officer)
Robert B. Tschudy
Controller
- - ------------------------------ (Principal Accounting Officer)
John M. Lorentz
81
<PAGE>
Signature Title
--------- -----
- - ------------------------------ Chairman of the Board
John B. De Nault
- - ------------------------------ Director
Stanley M. Burke
- - ------------------------------ Director
John B. De Nault, III
- - ------------------------------ Director
R. Scott Foster, M.D.
- - ------------------------------ Director
Rachford Harris
- - ------------------------------ Chief Executive Officer and Director
William L. Mellick
- - ------------------------------ Vice Chairman of the Board
Robert M. Sandler
- - ------------------------------ Director
Gregory M. Shepard
- - ------------------------------ Director
Howard I. Smith
- - ------------------------------ Director
Arthur H. Voss
82
<PAGE>
EXHIBIT 3(b)
AMENDED AND RESTATED
BYLAWS
OF
20th CENTURY INDUSTRIES,
A California Corporation
(As Further Amended Through February 25, 1997)
ARTICLE I. OFFICES
Section 1.01 Principal Executive Office. The principal executive office
of the corporation is hereby fixed at 6301 Owensmouth Avenue, Woodland Hills,
California 91367. The Board of Directors (hereinafter called the "Board") is
hereby granted full power and authority to change said principal office from
one location to another.
Section 1.02 OTHER OFFICES. The corporation may also have an office or
offices at such other place or places, either within or without the State of
California, as the Board may from time to time determine or as the business
of the corporation may require.
ARTICLE II. SHAREHOLDERS
Section 2.01 Annual Meetings. The Annual Meeting of shareholders of the
corporation, for the purpose of electing directors and for the transaction of
such other proper
<PAGE>
business as may come before such meeting, shall be held each year at 10:00
a.m. on the Tuesday of the week in May preceding that in which Memorial Day
falls, or such other date or time as may be fixed by the Board.(1)
Section 2.02 SPECIAL MEETINGS. Special Meetings of shareholders may be
called at any time for any purpose or purposes permitted under California law
by the Board, by the Chairman of the Board, by the President or by holders of
the common stock of the corporation entitled to cast not less than ten
percent (10%) of the votes entitled to be cast at such meeting.
Section 2.03 PLACE OF MEETINGS. All meetings of shareholders shall be
held either at the principal executive office of the corporation or at any
other location within or without the State of California, as shall be
determined from time to tine by the Board of Directors or as specified in the
respective notices or waivers of notice thereof.
- - --------------
(1) Section 2.01, as amended by the Board of Directors on November 19,
1996.
2
<PAGE>
Section 2.04 NOTICE OF MEETINGS.
(a) Written notice of each Annual or Special Meeting of shareholders shall
be given not less than ten (10) nor more than sixty (60) days before the date
of the meeting to each shareholder entitled to vote thereat. Such notice
shall state the place, date, and hour of the meeting, and (i) in the case of
a Special Meeting, the general nature of the business to be transacted; or
(ii) in the case of the Annual Meeting, those matters which the Board, at the
time of the mailing of the notice, intends to present for action by the
shareholders, but any proper matter may be presented at the meeting for such
action. The notice of any meeting at which directors are to be elected shall
include the names of the nominees intended, at the time of the notice, to be
presented by management for election.
(b) Notice of a meeting of shareholders shall be given either personally
or by mail addressed, postage prepaid, to the shareholder at the address of
such shareholder appearing on the authorized record books of the corporation,
or if no such address appears or is given, by publication at least once in a
newspaper of general circulation in the City of Los Angeles,
3
<PAGE>
California. Notice of any meeting of shareholders shall not be required to
be given to any shareholder who shall have waived such notice; and such
notice shall be deemed to be waived by any shareholder who shall attend such
meeting in person or by proxy, except a shareholder who shall attend such
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the grounds that the meeting
has not been lawfully called or convened. An affidavit of mailing of any
notice or report in accordance with the provisions of the California General
Corporation Law, executed by the Secretary, Assistant Secretary or any
transfer agent, shall be prima facie evidence of the giving of notice or
report.
4
<PAGE>
Section 2.05 QUORUM AND VOTE REQUIRED.
(a) At any meeting of shareholders, holders of record of shares of stock
having a majority of the votes entitled to be cast thereat, represented in
person or by proxy, shall constitute a quorum for the transaction of
business. The affirmative vote of the holders of shares of stock having a
majority of the votes so constituting a quorum shall be considered to be the
act of the shareholders, unless the vote of a greater number or voting by
classes is required by the California General Corporation Law or by the
Articles of Incorporation of the corporation.
(b) The shareholders present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment,
notwithstanding withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by holders
of shares of stock having at least a majority of the number of votes required
to constitute a quorum.
5
<PAGE>
Section 2.06 ADJOURNED MEETING AND NOTICE THEREOF.
(a) Any meeting of shareholders, whether or not a quorum is present, may
be adjourned from time to time. In the absence of a quorum
[except as provided in Section 2.05(b) of this Article], no other business
may be transacted at such adjourned meeting.
(b) It shall not be necessary to give any notice of the time and place of
an adjourned meeting or of the business to be transacted thereat, other than
by announcement at the meeting at which such adjournment is taken; provided,
however, that when a meeting of shareholders is adjourned for more than
fifteen (15) days or, if after adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given as in the
case of an original meeting.
Section 2.07 VOTING.
(a) The shareholders entitled to notice of any meeting or to vote at any
such meeting shall be only persons in whose name shares stand on the share
records of the corporation
6
<PAGE>
on the record date determined in accordance with Section 2.08 of this
Article. Persons holding shares of the corporation in a fiduciary capacity
shall be entitled to vote such shares. Persons whose shares are pledged shall
be entitled to vote the pledged shares, unless in the transfer by the
pledgor, the pledgor shall have expressly empowered the pledgee to vote
thereon, in which case only the pledgee, or his proxy, may represent such
shares and vote thereon. Shares having voting power standing of record in
the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or with respect to which two or more persons have the same
fiduciary relationship, shall be voted by any one of the registered holders,
either in person or by proxy.
(b) The vote at any meeting of shareholders on any question need not be by
written ballot unless so directed by the Chairman of the meeting or so
requested by any shareholder at such meeting. On a vote by written ballot,
each ballot shall be signed by the shareholder voting, or by his duly
appointed proxy
7
<PAGE>
if there be such proxy, and it shall state the number of shares voted.
Section 2.08 RECORD DATE.
(a) The Board may fix in advance a record date for the determination of
shareholders entitled to notice of any meeting or to vote or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to rights, or entitled to exercise any rights in respect
to any other lawful action. The record date so fixed shall be not more than
sixty (60) nor less than ten (10) days prior to the date of the meeting, nor
more than sixty (60) days prior to any of the other aforementioned actions.
When a record date is so fixed, only shareholders of record on that date are
entitled to notice of and to vote at the meeting or to receive the dividend,
distribution, or allotment of rights, or to exercise of the rights, as the
case may be, notwithstanding any transfer of shares on the books of the
corporation after the record date. A determination of shareholders of record
entitled to notice of or to vote at a meeting of shareholders shall apply to
any adjournment of the meeting unless the Board fixes a new record
8
<PAGE>
date for the adjourned meeting. The Board shall fix a new record date if the
meeting is adjourned for more than fifteen (15) days from the date set for
the original meeting.
(b) If no record date is fixed by the Board, the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be the close of business on the fifth (5th) business day
next preceding the day on which notice is given or, if notice is waived, at
the close of business on the fifth (5th) business day next preceding the day
on which the meeting is held. If no record date is fixed by the Board, the
record date for determining shareholders for any other purpose shall be at
the close of business on the fifth (5th) business day next preceding the day
on which the Board adopts the resolution relating thereto, or the sixtieth
(60th) day prior to the date of such other action, whichever is later.
Section 2.09 CONSENT OF ABSENTEES. The transactions of any meeting of
shareholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum
is present either in person or by proxy, and if, either before or
9
<PAGE>
after the meeting, each of the persons entitled to vote, not present in
person or by proxy, signs a written waiver of notice or a consent to the
holding of the meeting or an approval of the minutes thereof. All such
waivers, consents, or approvals shall be filed with the corporate records or
be made a part of the minutes of such meeting.
Section 2.10 ACTION WITHOUT MEETING. Any action which, under any
provision of law, may be taken at any Annual or Special Meeting of
shareholders, may be taken without a meeting and without prior notice thereof
if a consent in writing, setting forth the actions so taken, shall be signed
by shareholders having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Unless a record date
for voting purposes be fixed as provided in Section 2.08 of this Article, the
record date for determining shareholders entitled to give consent pursuant to
this Section 2.10, when no prior action by the Board has been taken, shall be
the day on which the first written consent is given.
10
<PAGE>
Section 2.11 PROXIES. Every person entitled to vote shares has the right
to do so either in person or by one or more persons authorized by a written
proxy executed by such shareholder and filed with the Secretary of the
corporation before or at the meeting; provided, however, that no proxy may be
voted or acted upon after eleven (11) months from the date set forth on the
said proxy unless the proxy shall provide therein for a longer period. A
proxy may be revoked by a writing delivered to the Secretary of the
corporation stating that the proxy is revoked, or by a subsequent proxy
executed by the person executing the prior proxy and presented to the
meeting, or, as to any meeting, by actual attendance at such meeting in
person and voting in person by the person executing the proxy.
Section 2.12 CONDUCT OF MEETINGS. The Chairman of the corporation or his
designee (which designee shall be an executive officer of the corporation),
or in the absence of the Chairman and any such designee the Vice Chairman,
shall preside as Chairman at all meetings of shareholders. The Chairman
shall conduct each such meeting in a businesslike and fair manner, but shall
not be obligated to follow any technical, formal or
11
<PAGE>
parliamentary rules or principles of procedure. The Chairman's ruling on
procedural matters shall be conclusive and binding on all shareholders;
unless at the time of such ruling a request for a vote is made by a
shareholder entitled to vote and who is represented in person or by proxy at
the meeting, in which case the decision of shareholders holding a majority of
the votes represented at the meeting and entitled to be cast shall be
conclusive and binding on all Shareholders. Without limiting the generality
of the foregoing, the Chairman shall have all of the powers usually vested in
the chairman of a meeting of Shareholders.
Section 2.13 INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board may appoint inspectors of election to act at the
meeting and any adjournment thereof. If inspectors are not appointed, or if
any persons so appointed fail to appear or refuse to act, the Chairman of
such meeting may appoint inspectors at the meeting. The number of inspectors
shall be either one or three. Each inspector so appointed shall first
subscribe an oath to faithfully execute the duties of an inspector at such
meeting with strict impartiality and according
12
<PAGE>
to the best of his ability. Such inspectors shall have the duties prescribed
by Section 707(b) of the California General Corporation Law and they (i)
shall decide upon the qualification of those entitled to vote, (ii) shall
report the number of shares represented at the meeting and entitled to vote
on the question presented, (iii) shall conduct the balloting and accept the
votes, and (iv) when the voting is completed, shall ascertain and report the
number of votes respectively for and against each question presented.
Reports of the inspectors shall be in writing and subscribed and delivered by
them to the Secretary of the corporation. If there are three inspectors of
election, the decision, act, or certificate of a majority is effective in all
respects as the decision, act or certificate of all.
ARTICLE III. DIRECTORS
Section 3.01 Powers. Subject to any limitation of the Articles of
Incorporation, of these Bylaws, and of actions required by law to be approved
by the shareholders, the business and affairs of the corporation shall be
managed and all corporate powers shall be vested in, and exercised by or
under the direction of the Board of Directors. The Board may, as permitted
13
<PAGE>
by law, delegate the management of the day-to-day operation of the business
of the corporation to a management company or other persons or officers of
the corporation, provided that the business and affairs of the corporation
shall be managed and all corporate powers shall be exercised under the
ultimate direction and policies of the Board.
Section 3.02 NUMBER OF DIRECTORS. The authorized number of directors of
the corporation shall be eleven.(2)
Section 3.03 ELECTION AND TERM OF OFFICE.
(a) Directors will be elected in the manner provided herein at each Annual
Meeting of shareholders, but if such Annual Meeting of shareholders is not
held or the directors are not elected thereat, the directors may be elected
at any Special Meeting of shareholders held for that purpose. Each director,
including a director elected to fill a vacancy, shall hold office until the
next Annual Meeting of shareholders and
- - --------------
(2) Section 3.02, as amended by the Board of Directors on February 25,
1997.
14
<PAGE>
until a successor has been duly elected and qualified, or until he or she
shall resign or shall have been removed.
(b) At each election, the persons receiving the greatest number of votes
from the class of stock entitled to vote therefor, up to the number of
directors then to be elected by such class, shall be the persons then
elected. The election of directors shall be subject to any provisions
contained in the Articles of Incorporation relating thereto, and to any
provisions of California law for cumulative voting in the election of
directors. Nominations of persons to serve as directors shall be submitted
to the Secretary of the corporation at the meeting of shareholders at which
directors will be elected.
Section 3.04 RESIGNATION. Any director may resign at any time by giving
written notice to the Board or to the Chairman of the Board, the President or
the Secretary of the corporation. Any such resignation shall take effect at
the times specified therein or, if the time be not specified, it shall take
effect immediately upon its receipt; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it
effective. If a resignation is to be
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effective at a future time, a successor may be elected to take office when
the resignation becomes effective.
Section 3.05 VACANCIES.
(a) A vacancy or vacancies in the Board shall be deemed to exist in case
of the death, resignation or removal of any director, or if the authorized
number of directors be increased, or if the holders of any class of stock
fail at any Annual or Special Meeting of shareholders at which any directors
are elected to elect the full authorized number of directors to be voted for
by such class at said meeting.
(b) The Board may declare vacant the office of a director who has been
declared of unsound mind by an order of court of duly authorized jurisdiction
or a director who has been convicted of a felony. Except to the extent it
would be contrary to the Articles of Incorporation or law, any director may
be removed at any time, with or without cause, by the affirmative vote of the
holders of a majority of the voting power of the class of stock entitled to
elect such director given at a Special Meeting of shareholders called for
that purpose; provided,
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however, that no director may be removed (unless the entire Board of
Directors is removed) when the votes from the class of stock entitled to
elect such director cast against such removal, or not consenting in writing
to such removal, would be sufficient to elect such director if voted
cumulatively at an election at which the total number of votes entitled to be
cast by such class were cast (or if such action is taken by written consent,
all shares entitled to vote were voted) and the entire number of directors
authorized to be elected by such class at the time of the directors' most
recent election were then being elected.
(c) No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of the director's
term of office.
(d) Except as otherwise provided in the Articles of Incorporation, any
vacancy on the Board, whether because of death, resignation,
disqualification, an increase in the number of directors, or any other cause,
may be filled by the vote of the majority of the remaining directors,
although less than a quorum; provided, however, that a vacancy occurring by
reason of removal of a director by the vote of shareholders entitled to
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remove such director may be filled only by the vote of such shareholders.
The shareholders of a class of stock entitled to elect a director may elect
such director at any time to fill a vacancy not filled by the directors, and
any such election by such shareholders shall require the consent of a
majority of the votes of such shareholders entitled to be cast therefor;
provided, however, that no director shall be elected by written consent to
fill a vacancy created by removal of any director, except by the unanimous
written consent of all shareholders of the class of stock entitled to vote
for the election of such director. Each director chosen to fill a vacancy
shall hold office until the next Annual Meeting of shareholders and until his
successor shall have been elected and qualified or until he shall resign or
shall have been removed.
Section 3.06 PLACE OF MEETINGS. All meetings of the Board shall be held
either at the principal executive office of the corporation or at any other
location within or without the State of California as shall be determined,
from time to time, by the Board of Directors, or as specified in the
respective notices or waivers of notice thereof.
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Section 3.07 FIRST MEETING. Immediately following each Annual Meeting of
shareholders the Board shall meet for the purpose of organization, selection
of a Chairman of the Board, election of officers, and the transaction of any
other proper business. Except as provided by law, notice of such First
Meeting is hereby dispensed with.
Section 3.08 REGULAR MEETINGS. The Board of Directors shall hold Regular
Meetings on the last Tuesday of February and August, and in November on the
Tuesday of the week preceding that in which Thanksgiving falls, at 10:00
a.m., but the Executive Committee of the Board, if any is created, may meet
more often if the Committee deems it necessary or appropriate. Except as
provided by law, notice of Regular Meetings of the Board of Directors is
hereby dispensed with.
Section 3.09 SPECIAL MEETINGS.
(a) Special Meetings of the Board may be called at any time by the
Chairman of the Board, the President, or the Secretary or by any two
directors.
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(b) Special Meetings of the Board shall be held upon at least four days'
written notice or 48 hours' notice given personally or by telephone,
telegraph, telex or other similar means of communication. Any such notice
shall be addressed or delivered to each director at such director's address
as it is shown upon the records of the corporation or as may have been given
to the corporation by the director for purposes of notice.
Section 3.10 QUORUM. The presence of a majority of the authorized number
of directors shall be required to constitute a quorum of the Board of
Directors for the transaction of business at any meeting of the Board, except
to adjourn as hereinafter provided. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board, unless a greater number of
directors is required for any specific action by law, or by these Bylaws, or
by the Articles of Incorporation of the corporation. A meeting at which a
quorum is initially present may continue to transact business notwithstanding
the withdrawal of directors, and every act or
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decision approved by at least a majority of the number of directors required,
as noted above, to constitute a quorum for such meeting shall be regarded as
the act or decision of the Board, unless a greater number of directors is
required by law, by the Bylaws, or by the Articles of Incorporation of the
corporation. The directors shall act only as a Board, and the individual
directors shall have no power as such, unless such power be expressly
conferred upon a director by a duly adopted resolution of the Board.
Section 3.11 PARTICIPATION IN MEETINGS BY COMMUNICATIONS EQUIPMENT.
Members of the Board may participate in a meeting of the Board through use of
telephone conference, electronic video screen communication, or other
communications equipment, but only so long as each member participating can
participate with the others concurrently and each member is provided the
means of participating in all matters before the Board, including the
capacity to propose, or to interpose an objection, to a specific action to be
taken by the corporation. With respect to any member of the Board of
Directors who participates in a meeting of the Board of Directors by
conference
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telephone or other communications equipment, the Chairman of the
Board, the Vice Chairman of the Board, the Chief Executive Officer or other
party duly chairing the meeting shall verify by voice recognition or any
other means reasonably selected at the outset of such meeting (i) the
identity of that member, and (ii) that statements, questions, actions or
votes by members so participation are made by such members and not by persons
who are not permitted to participate as directors.(3)
Section 3.12 WAIVER OF NOTICE. The transactions of any meeting of the
Board, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice if a quorum
be present at such meeting, and if, either before or after the meeting, each
of the directors not present signs a written waiver of notice, and a consent
to the holding of such meeting, or an approval of the minutes thereof. All
such waivers and consents or approvals shall be filed with the corporate
records or be made a part of the minutes of the meeting.
- - --------------
(3) Section 3.11, as amended by the Board of Directors on February 25,
1997.
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Section 3.13 ADJOURNMENT. A majority of the directors present, whether or
not a quorum is present, may adjourn any meeting of directors to another time
and place. If the meeting is adjourned for more than twenty-four (24) hours,
notice of such adjournment to another time or place shall be given prior to
the time of the reconvening of the adjourned meeting to the directors who
were not present at the meeting at the time of the adjournment.
Section 3.14 FEES AND COMPENSATION. Directors and members of committees
may receive such compensation, if any, for their services and such
reimbursement for expenses, as may be fixed or determined by the Board.
Section 3.15 ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board may be taken without a meeting of the Board if all
members of the Board shall individually or collectively consent in writing to
such action. Such unanimous written consent or consents shall have the same
effect as a unanimous vote of the Board, and shall be filed with the minutes
of the proceedings of the Board.
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Section 3.16 COMMITTEES.
(a) The Board may, by resolution passed by a majority of the authorized
number of directors, designate one or more committees of the Board, each
committee to consist of one or more of the directors of the corporation.
Among the committees which may be appointed may be an Executive Committee
which shall have and may exercise all the powers and authority of the Board
in the management of the affairs of the corporation between Regular or
Special meetings of the Board.
(b) All committees shall have and may exercise the powers and authority of
the Board in the management of the business and affairs of the corporation to
the extent provided in the resolution of the Board creating said committees;
but no committee shall have any power or authority in reference to (i) the
approval of any action which requires shareholders' approval or approval of
the outstanding shares; (ii) amending the Articles of Incorporation; (iii)
adopting an agreement of merger or consolidation; (iv) recommending to the
shareholders the sale, lease or exchange of all or substantially all of the
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corporation's properties and assets; (v) recommending to the shareholders a
dissolution of the corporation or a revocation of the dissolution; (vi)
amending or repealing the Bylaws of the corporation; (vii) the filling of
vacancies on the Board or on any committee; (viii) the fixing of compensation
of directors for serving on the Board or on any committee; (ix) amending or
repealing any resolution of the Board which by its express terms is not so
amendable or repealable by the Board; (x) declaring a distribution to
shareholders; and (x) issuing shares.
(c) The Board shall have the power to prescribe the manner in which the
proceedings of any such committee shall be conducted. Unless the Board or
such committee shall otherwise provide, the regular or special meetings and
other actions of any such committee shall be governed by the provisions in
this Article applicable to meetings and actions of the Board. Written
Minutes shall be kept of each meeting of each committee of the Board.
Section 3.17 OFFICERS OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the shareholders (or shall designate an executive
officer of the
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corporation to so preside, as provided in Section 2.12 of these Bylaws) and
at all meetings of the Board. The Board also shall have a Vice-Chairman of
the Board who shall preside at meetings of shareholders (in the absence or
disability of the Chairman and in the absence of a designee of the Chairman
to preside as provided in Section 2.12 of these Bylaws) and the Board of
Directors (in the absence or disability of the Chairman of the Board). The
Chairman and Vice-Chairman shall have such other powers and duties as are
specifically designated by the Board. The Board may appoint individuals to
serve as a Chairman Emeritus or Director Emeritus. A Chairman Emeritus or
Director Emeritus shall have no duties or responsibilities, and shall not be
entitled to vote in their capacity as Chairman Emeritus or Director Emeritus
in connection with any meeting or proceeding of the Board and may be
appointed or removed at the pleasure of the Board. A Chairman Emeritus or
Director Emeritus shall not be deemed to be a member of the Board for any
purpose whatsoever, solely by reason of such designation.
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ARTICLE IV. OFFICERS
Section 4.01 Officers. The officers of the corporation shall be a
Chairman of the Board, a Vice-Chairman of the Board, a Chief Executive
Officer, a President, a Secretary, and a Chief Financial Officer. The
Corporation may also have at the discretion of the Board such other officers,
each to hold office for a period, and have authority to perform such duties
as the Board may from time to time determine.
Section 4.02. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the shareholders (or shall designate an executive
officer of the corporation to so preside, as provided in Section 2.12 of
these Bylaws) and at all meetings of the Board of Directors.
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Section 4.03. VICE-CHAIRMAN OF THE BOARD. The Vice-Chairman of the Board
shall perform the duties of the Chairman, during the Chairman's absence or
disability.
Section 4.04 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
be the General Manager of the corporation and shall have, subject to the
control of the Board, general supervision and direction of the business and
affairs of the corporation.
Section 4.05 PRESIDENT. The President shall have the general powers and
duties of management as are described by the Board.
Section 4.06. SECRETARY. The Secretary shall be responsible for the
maintenance of the corporate records of the Company, such as the Articles of
Incorporation, Bylaws, minutes and list of shareholders. The Secretary shall
be responsible for the maintenance of the list of shareholders which may be
delegated to a transfer agent. The Secretary shall give or cause to be given
notice of all meetings of shareholders and of the Board and any committees of
the Board required by the Bylaws or
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by law to be given. The Secretary shall have other powers and duties as may
be described by the Board.
Section 4.07. CHIEF FINANCIAL OFFICER. The Chief Financial Officer of the
corporation shall maintain or cause to be maintained adequate and correct
accounts of the properties, and financial and business transactions of the
Corporation, and shall send or cause to be sent to the shareholders of the
Corporation such financial statements and reports as are by law and these
Bylaws required to be sent to them.
Section 4.08 APPOINTMENT. The Chairman of the Board, the Vice-Chairman of
the Board, and the Chief Executive Officer, the President and Chief Operating
Officer, the Chief Financial Officer and the Secretary shall be elected by
the Board. Other officers may be elected or appointed and their duties
prescribed by the Board or the Chief Executive Officer. If such appointment
is by the Chief Executive Officer, it shall terminate at the next meeting of
the Board unless the Board affirms the appointment.
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Section 4.09. REMOVAL AND RESIGNATION.
(a) All officers shall serve as officers and employees of the corporation
at the pleasure of the Board and may be removed from office, and their
employment may be terminated with or without cause, and with or without
notice:
(i) by the Board, or
(ii) by the Chief Executive Officer, prior to the affirmation of the
officer's appointment by the Board if such officer was appointed by the
Chief Executive Officer, or
(iii) by the Chief Executive Officer, with the concurrence or
ratification of the Board, or the Executive Committee of the Board.
No officer of the corporation shall have any employment status other than
that of an "at will" employee whose employment can be terminated at any time
pursuant to the procedures set forth in this Section 4.09, unless there is a
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written agreement altering this "at will" employment status, approved by a
resolution of the board before it is binding and effective.
(b) Any officer may resign at any time without prejudice to the rights of
the corporation under any contract to which the corporation is a party by
giving written notice to the Board, or to the Chief Executive Officer or to
the Secretary of the Corporation. Any such resignation shall take effect at
the date of the receipt of such notice or at any later time specified
therein; and unless otherwise provided therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 4.10. VACANCIES. A vacancy of any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed by these Bylaws for the regular appointment to such
office.
Section 4.11 RETIREMENT OF OFFICERS. Provided that the exemption
conditions set forth in applicable Federal and California statutes are
satisfied (e.g. 29 USC Section 631(c); 29 CFR Sections 1625.12 and 1627.17;
Cal. Govt. Code Section
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12942(c) and FEHC Regulation Subsection 7296(c)(2)), each officer elected or
required to be elected by the Board shall retire as of the last day of the
month in which such officer's 65th birthday occurs; however, such officer may
continue to be employed for such additional period of time, and under such
conditions as are specifically authorized by resolution of the Board of
Directors.
ARTICLE V. CONTRACTS, CHECKS,
DRAFTS, BANK ACCOUNTS, ETC.
Section 5.01 EXECUTION OF CONTRACTS. Except as these Bylaws may otherwise
provide, the Board may, by duly adopted resolution, authorize any officer or
agent of the corporation to enter into any contract or execute any instrument
in the name and on behalf of the corporation, and such authority may be
general or confined to specific instances; and unless so authorized by the
Board or by these Bylaws, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or in any amount.
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Section 5.02 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
payment of money, notes or other evidence of indebtedness issued in the name
of or which are payable to the corporation, shall be signed by or endorsed by
such person or persons and in such manner as, from time to time, shall be
determined by resolution of the Board. Each such person shall give such
bond, if any, as the Board may require.
Section 5.03 DEPOSIT. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the Board may select, or as
may be selected by any Board committee, officer, assistant, agent or attorney
of the corporation to whom such power shall have been delegated by the Board.
For the purpose of deposit and for the purpose of collection for the account
of the corporation, the President, Secretary, any Vice-President or the
Treasurer (or any other officer, assistant, agent or attorney of the
corporation who shall from time to time be determined by the Board) may
endorse, assign and deliver checks, drafts and other orders for
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the payment of money which are payable to the order of the corporation.
Section 5.04 GENERAL AND SPECIAL BANK ACCOUNTS. The Board may from time to
time authorize the opening and keeping of general and special bank accounts
with such banks, trust companies or other depositories as the Board may
select or as may be selected by any Board committee, officer, assistant,
agent or attorney of the corporation to whom such power shall have been
delegated by the Board. The Board may make such special rules and
regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
ARTICLE VI. SHARES AND THEIR TRANSFER
Section 6.01 Certificates for Shares.
(a) Every owner of shares of the corporation shall be entitled to have a
certificate or certificates, to be in such form as the Board shall prescribe,
certifying the number and class of shares of the corporation owned by him. The
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certificates representing such shares shall be numbered in the order in
which they shall be issued, and shall be signed in the name of the
corporation by the Chairman of the Board, or by the President and by the
Secretary or Assistant Secretary, or by the duly appointed transfer agent or
registrar of the corporation. Any of the signatures on the certificates may
be a facsimile signature, provided that at least the signature of the
corporation's transfer agent or registrar on the certificate is an original
signature. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon any such certificate shall
thereafter have ceased to be such officer, transfer agent or registrar before
such certificate is issued, such certificate may nevertheless be issued by
the corporation with the same effect as though the person who signed such
certificate, or whose facsimile signature shall have been placed thereupon,
were such officer, transfer agent or registrar at the date of issue.
(b) A record shall be kept of the respective names of the persons, firms
or corporations owning the shares represented by such certificates, the
number and classes of
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shares represented by such certificates, respectively, and the respective
issuance dates thereof, and in case of cancellation, the respective dates of
cancellation. Every certificate surrendered to the corporation for exchange
or transfer shall be cancelled, and no new certificate or certificates shall
be issued in exchange for any existing certificate until such existing
certificate shall have been so cancelled, except in cases provided for in
Section 6.04.
Section 6.02 TRANSFER OF SHARES. Transfers of shares of the corporation
shall be made only on the books of the corporation by the registered holder
thereof, or by his attorney thereunto authorized by written power of attorney
duly executed and filed with the Secretary of the corporation or with a
transfer agent duly appointed as provided in Section 6.03, and upon surrender
of the certificate or certificates for such shares properly endorsed and the
payment of all required taxes thereon. The person in whose name shares of
stock stand on the books of the corporation shall be deemed the owner thereof
for all purposes as regards the corporation. Whenever any transfer of shares
shall be made for collateral security purposes, and not
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absolutely, such fact shall be expressly stated in the entry of transfer if,
when the certificate or certificates shall be presented to the corporation
for transfer, both the transferor and the transferee request the corporation
to do so.
Section 6.03 REGULATIONS. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these Bylaws, concerning the
issue, transfer and registration of certificates for shares of the
corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer agents and one or more registrars, and may require all
certificates for shares to bear the signature or signatures or facsimiles
thereof of any of them.
Section 6.04 LOST, STOLEN, DESTROYED, AND MUTILATED CERTIFICATES. In any
case of loss, theft, destruction, or mutilation of any certificate of shares,
another certificate may be issued in its place upon proof of such loss,
theft, destruction, or mutilation, and upon the giving of a bond of indemnity
to the corporation in such form and in such sum as the Board may direct;
provided, however, that a new certificate may
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be issued without requiring any bond when, in the judgment of the Board, it
is appropriate and proper so to do.
ARTICLE VII. INDEMNIFICATION
Section 7.01 For the purposes of this Article VII, "agent" means any
person who is or was a director, officer, employee or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise, or was a
director, officer, employee or agent of a foreign or domestic corporation
which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation; "proceeding" means
any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative; and "expenses" includes without
limitation attorneys' fees and any expenses of establishing a right to
indemnification under Section 7.04 or Section 7.05(d) of this Article VII.
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Section 7.02 The corporation shall have power to indemnify any person who
was or is a party or is threatened to be made a party to any proceeding
(other than an action by or in the right of the corporation to procure a
judgment in its favor) by reason of the fact that such person is or was an
agent of the corporation, against expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with such
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in the best interests of the corporation and, in
the case of a criminal proceeding, had no reasonable cause to believe the
conduct of such person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or
its equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to
be in the best interests of the corporation or that the person had reasonable
cause to believe that the person's conduct was unlawful.
Section 7.03 The corporation shall have power to indemnify any person who
was or is a party or is threatened to be
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made a party to any threatened,
pending or completed action by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that such person is or was an
agent of the corporation, against expenses actually and reasonably incurred
by such person in connection with the defense or settlement of such action if
such person acted in good faith, in a manner such person believed to be in
the best interests of the corporation and its shareholders.
No indemnification shall be made under this Section 7.03 for any of the
following:
(a) In respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation in the performance of such
person's duty to the corporation and its shareholders, unless and only to the
extent that the court in which such proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for expenses
and only to the extent that the court shall determine;
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(b) Of amounts paid in settling or otherwise disposing of a pending action
without court approval; or
(c) Of expenses incurred in defending a pending action which is settled or
otherwise disposed of without court approval.
Section 7.04 To the extent that an agent of the corporation has been
successful on the merits in defense of any proceeding referred to in Section
7.02 or Section 7.03 or in defense of any claim, issue or matter therein, the
agent shall be indemnified against expenses actually and reasonably incurred
by the agent in connection therewith.
Section 7.05 Except as provided in Section 7.04, any indemnification under
this Article VII shall be made by the corporation only if authorized in the
specific case, upon a determination that indemnification of the agent is
proper in the circumstances because the agent has met the applicable standard
of conduct set forth in Section 7.02 or Section 7.03, by any of the following:
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(a) A majority vote of a quorum consisting of directors who are not
parties to such proceeding;
(b) If such a quorum of directors is not obtainable, by independent legal
counsel in a written opinion;
(c) Approval by the affirmative vote of the holders of a majority of the
shares of common stock of the corporation entitled to vote represented at a
duly held meeting at which a quorum is present or by the written consent of
the holders of a majority of the outstanding shares of common stock entitled
to vote. For this purpose, the shares owned by the person to be indemnified
shall not be considered outstanding and shall not be entitled to vote
thereon; or
(d) The court in which such proceeding is or was pending upon application
made by the corporation or the agent or the attorney or other person
rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by the
corporation.
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Section 7.06 Expenses incurred in defending any proceeding may be advanced
by the corporation prior to the final disposition of such proceeding upon
receipt of an undertaking by or on behalf of the agent to repay such amount
if it shall be determined ultimately that the agent is not entitled to be
indemnified as authorized in this Article VII.
Section 7.07 The indemnification provided by this Article VII shall not be
deemed exclusive of any other rights to which those seeking indemnification
may be entitled under these Bylaws or under any agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office, to the extent such additional rights to indemnification are
authorized in the Articles of Incorporation. The rights to indemnity
hereunder shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors and administrators of the person. Nothing contained in this
Article VII shall affect any right to indemnification to which
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persons other than such directors and officers may be entitled by contract or
otherwise.
Section 7.08 No indemnification or advance shall be made under this
Article VII, except as provided in Section 7.04 or Section 7.05(d), in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the Articles of
Incorporation, these Bylaws, a resolution of the shareholders or an agreement
in effect at the time of the accrual of the alleged cause of action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed by
a court in approving a settlement.
Section 7.09 The corporation shall have power to purchase and maintain
insurance on behalf of any agent of the corporation against any liability
asserted against or incurred by
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the agent in such capacity or arising out of the agent's status as such
whether or not the corporation would have the power to indemnify the agent
against such liability under the provisions of this Article VII. The fact
that the corporation owns all or a portion of the shares of the company
issuing a policy of insurance shall not render this Section inapplicable if
either of the following conditions are satisfied:
(a) If the Articles of Incorporation authorize indemnification in excess
of that authorized in this Article VII and the insurance provided by this
Section is limited as indemnification is required to be limited by paragraph
(11) of subdivision (a) of Section 204 of the California Corporations Code; or
(b) (i) The company issuing the insurance policy is organized, licensed
and operated in a manner that complies with the insurance laws and
regulations applicable to its jurisdiction of organization;
(ii) The company issuing the policy provides procedures for processing
claims that do not permit that company
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to be subject to the direct control of the corporation that purchased that
policy; and
(iii) The policy issued provides for some manner of risk sharing between
the issuer and purchaser of the policy, on the one hand, and some
unaffiliated person or persons, on the other, such as by providing for more
than one unaffiliated owner of the company issuing the policy or by providing
that a portion of the coverage furnished will be obtained from some
unaffiliated insurer or reinsurer.
Section 7.10 The provisions of this Article VII do not apply to any
proceeding against any trustee, investment manager or other fiduciary of any
employee benefit plan in such person's capacity as such, even though such
person may also be an agent of the employer corporation as defined in Section
7.01 of this Article VII. The corporation shall have power to indemnify such
a trustee, investment manager or other fiduciary to the extent permitted by
subdivision (f) of Section 207 of the California Corporations Code.
ARTICLE VIII. MISCELLANEOUS
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Section 8.01 Seal. The Board shall provide a corporate seal, which shall
be in the form of a circle and shall bear the name of the corporation and
words and figures showing that the corporation was incorporated in the State
of California and the year of the incorporation.
Section 8.02 WAIVER OF NOTICES. Whenever notice is required to be given
by these Bylaws or the Articles of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or
after the time stated therein, and such waiver shall be deemed equivalent to
notice.
Section 8.03 FISCAL YEAR. The fiscal year of the corporation shall be
that twelve-month period ending on December 31 in each year.
Section 8.04 DIVIDENDS. The Board may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the manner and on
the terms and conditions provided by law, subject to any legal, regulatory or
contractual restrictions to which the corporation is then subject.
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Section 8.05 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman
of the Board or any officer or officers authorized by the Board or by the
Chairman of the Board are each authorized to vote, represent, and exercise on
behalf of the corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of this corporation,
including subsidiaries of the corporation. The authority granted herein may
be exercised either by any such officer in person or by any other person
authorized to do so by proxy or power of attorney duly executed by said
officer.
Section 8.06 INSPECTION OF BYLAWS. The corporation shall keep at its
principal executive office the original or a copy of its Bylaws as amended to
date, which copy shall be open to inspection by shareholders at all
reasonable times during office hours. If the principal executive office of
the corporation is outside the State of California and the corporation has no
principal business office in such state, it shall upon the written notice of
any shareholder furnish to such shareholder a copy of these Bylaws as amended
to date. The
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original or a copy of the Bylaws certified to be a true copy by
the Secretary or an Assistant Secretary of the corporation shall be prima
facie evidence of the adoption of such Bylaws and of the matters stated
therein.
Section 8.07 AMENDMENT OF BYLAWS. Subject to the right of the outstanding
shares to adopt, amend, or repeal Bylaws, these Bylaws may, from time to time
and at any time, be amended or repealed, and new or additional Bylaws
adopted, by approval of the Board; provided, however, that such Bylaws may
not contain any provision in conflict with law or with the Articles of
Incorporation of the corporation. After the issuance of shares, any Bylaw
specifying or changing a fixed number of directors or the maximum or minimum
number or changing from a fixed to a variable Board or vice versa may only be
adopted by approval of the outstanding shares; provided, however, that a
Bylaw or amendment of the Articles of Incorporation reducing a fixed number
or the minimum number of directors to a number less than five cannot be
adopted if the vote cast against its adoption at a meeting, or the shares not
consenting in the case of action
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by written consent, are equal to more than 16 2/3 percent of the votes
entitled to be cast.
Section 8.08 CONSTRUCTION OF BYLAWS. Unless otherwise stated in these
Bylaws or unless the context requires, the definitions contained in the
California General Corporation Law shall govern the construction of these
Bylaws. Without limiting the generality of the foregoing, the masculine
gender includes the feminine and neuter, the singular number includes the
plural and the plural number includes the singular, and the word "person"
includes a corporation or other entity as well as a natural person.
Section 8.09 ANNUAL REPORT TO SHAREHOLDERS. The annual report to
shareholders referred to in Section 1501 of the California General
Corporation Law is expressly dispensed with, but nothing herein shall be
interpreted as prohibiting the Board of Directors from issuing annual or
other periodic reports to the shareholders of the corporation as they
consider to be appropriate.
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Section 8.10 NATIONAL EMERGENCY. In the event of a national emergency as
described in Section 688 of the California Insurance Code, this corporation
shall be considered to have those emergency bylaw provisions which are
provided for by statute in Article 1.7 of Chapter 1 of Part 2 of Division 1
of the California Insurance Code as now in effect or as hereafter may be
amended.
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EXHIBIT 10(l)
AGREEMENT NO. ____-ISO-______
20TH CENTURY INDUSTRIES
INCENTIVE STOCK OPTION AGREEMENT
PURSUANT TO THE
1995 STOCK OPTION PLAN
This Incentive Stock Option Agreement ("Agreement") is made and entered
into as of the Date of Grant indicated below by and between 20th Century
Industries, a California corporation, (the "Company") and the person named below
as Optionee.
WHEREAS, Optionee is an employee of the Company and/or one or more of its
"subsidiary corporations," as such term is defined in Section 424(f), of the
Internal Revenue Code (the "Code"); and
WHEREAS, pursuant to the Company's 1995 Stock Option Plan (the "1995
Plan"), the committee of the Board of Directors of the Company administering the
1995 Plan (the "Committee") has approved the grant to Optionee of an option to
purchase shares of the Common Stock of the Company (the "Common Shares"), on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company hereby
grants to Optionee, and Optionee hereby accepts, as of the Date of Grant
indicated below, an option (the "Option") to purchase the number of Common
Shares indicated below (the "Option Shares") at the Exercise Price per share
indicated below. The Option shall expire at 5:00 p.m., prevailing Pacific Time,
on the Expiration Date indicated below and shall be subject to all of the terms
and conditions set forth in the 1995 Plan and this Agreement.
Optionee: ______________
Date of Grant: ___________, 199__
Numbers of shares purchasable: ________ shares
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Exercise Price per share: $_________
Expiration Date: ___________, 200__
Vesting Rate: ________vesting
2. INCENTIVE STOCK OPTION; INTERNAL REVENUE CODE REQUIREMENTS. The
Option is intended to qualify as an incentive stock option under Section 422 of
the Code.
3. ACCELERATION AND TERMINATION OF OPTION.
(a) TERMINATION OF EMPLOYMENT.
(i) RETIREMENT. In the event that Optionee shall cease to be
an employee of the Company or any "subsidiary corporation", as defined
above, (such event shall be referred to herein as the "Termination of
Employment") by reason of retirement in accordance with the Company's
then-current retirement practices, then the Option shall fully vest with
respect to all Option Shares upon the date of such Termination of
Employment and shall terminate no later than the Expiration Date.
OPTIONEE UNDERSTANDS AND ACKNOWLEDGES THAT, IF SUCH OPTION IS EXERCISED
ON OR AFTER THE THREE MONTH ANNIVERSARY OF SUCH TERMINATION OF
EMPLOYMENT, SUCH OPTION MAY NOT QUALIFY AS AN "INCENTIVE STOCK OPTION"
UNDER SECTION 422 OF THE CODE AND THAT OPTIONEE SHOULD CONSULT HIS OR HER
OWN TAX ADVISOR REGARDING ALL CONSEQUENCES ARISING FROM ANY SUCH
EXERCISE.
(ii) DEATH OR PERMANENT DISABILITY. If the Termination of
Employment occurs by reason of the death or Permanent Disability (as
hereinafter defined) of Optionee, then the Option shall (A) fully vest
with respect to all Option Shares upon the date of such Termination of
Employment, (B) be exercisable by Optionee or, in the event of death, the
person or persons to whom Optionee's rights under the Option shall have
passed by will or by the applicable laws of descent or distribution, and
(C) terminate on the first anniversary of the date of such Termination of
Employment. "Permanent Disability" shall mean the inability to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. The Optionee shall not be deemed to
have a Permanent Disability until proof of the existence thereof shall
have been furnished to the Committee in such form and manner, and at such
times, as the Committee may require. Any determination by the
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Committee that Optionee does or does not have a Permanent Disability shall
be final and binding upon the Company and Optionee.
(iii) OTHER TERMINATION. If the Termination of Employment occurs
for any reason other than those enumerated in (i) through (ii) of this
Section 3(a), then (A) the portion of the Option that has not vested on
or prior to the date of such Termination of Employment shall terminate on
such date and (B) the remaining vested portion of the Option shall
terminate on the earlier of the Expiration Date or the three (3) month
anniversary of the date of such Termination of Employment.
(b) DEATH FOLLOWING TERMINATION OF EMPLOYMENT. Notwithstanding
anything to the contrary in this Agreement, if Optionee shall die at any time
after the Termination of Employment and prior to the Expiration Date, then,
unless the Termination of Employment had occurred for cause, the remaining
vested but unexercised portion of the Option shall terminate on the earlier of
the Expiration Date or the first anniversary of the date of such death.
(c) ACCELERATION OF OPTION. The Option shall become fully exercisable
immediately prior to a Change in Control. A Change in Control shall be deemed
to take place upon the occurrence of any of the following:
(i) Any merger or consolidation of the Company with or into any
other person, as the result of which the holders of the Company's Common
Shares immediately prior to the transaction shall, on the basis of such
holdings prior to such transaction, hold less than 50% of the total
outstanding voting stock of the surviving corporation immediately upon
completion of the transaction.
(ii) Any sale or exchange of all or substantially all of the
property and assets of the Company.
(iii) Any change in a majority of the Board of Directors of the
Company occurring within a period of two years or less, such that a
majority of the Board of Directors is comprised of individuals who are
not "Continuing Directors". For purposes of the foregoing, a "Continuing
Director" shall be a director (A) who was in office at the commencement of
such period of two years or (B) was elected subsequent to the commencement
of such period with the approval of not less than a majority of those
directors referred to in clause (A) who are then in office. Any director
meeting the qualifications of clause (B) of the previous sentence shall,
with respect to further determinations after the date of such director's
election, be deemed a director meeting the qualifications of clause (A) of
the previous sentence.
(iv) Any "person" (as defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall
become the "beneficial
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owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of a majority of the Company's outstanding Common Stock.
(v) the liquidation or dissolution of the Company.
(vi) any other transaction or reorganization similar to the
foregoing which in the opinion of the Committee constitutes a "change of
control" of the nature described in subparagraphs (i) through (v) hereof.
4. ADJUSTMENTS. In the event that the Common Shares are increased,
decreased or exchanged for or converted into cash, property or a different
number or kind of securities, or if cash, property or securities are distributed
in respect of such outstanding Common Shares, in either case as a result of a
reorganization, merger, consolidation, recapitalization, restructuring,
reclassification, partial or complete liquidation, stock split, reverse stock
split or the like, or if substantially all of the property and assets of the
Company are sold, then, unless the terms of such transaction shall provide
otherwise, the Option then outstanding shall thereafter be exercisable (on
substantially the same terms and subject to substantially the same conditions as
were applicable under such Option) for the number of shares or other securities
or cash or other property as the holder of such Option would have been entitled
to receive pursuant to such transaction had such holder exercised such Option in
full immediately prior to such transaction. The Committee shall make
appropriate and proportionate adjustments in the number and type of shares or
other securities or cash or other property that may be acquired upon the
exercise in full of the Option; provided, however, that any such adjustments in
the Option shall be made without changing the aggregate Exercise Price of the
then unexercised portion of the Option; provided further that no adjustment
shall be made to the number of Common Shares that may be acquired to the extent
such adjustment would result in the Option being treated as other than an
Incentive Stock Option.
5. EXERCISE.
(a) IN GENERAL. The Option shall be exercisable during Optionee's
lifetime only by Optionee or by his or her guardian or legal representative, and
after Optionee's death only by the person or entity entitled to do so under
Optionee's last will and testament or applicable intestate law. The Option may
only be exercised by the delivery to the Company of a written notice of such
exercise pursuant to the notice procedures set forth in Section 7 hereof, which
notice shall specify the number of Option Shares to be purchased, which for any
single exercise may not be fewer than 100 Option Shares or, if smaller, the
number of Option Shares then vested and exercisable, (the "Purchased Shares")
and the aggregate Exercise Price for such shares (the "Exercise Price"),
together with payment in full of such aggregate Exercise Price and any
Withholding Liability (as hereinafter defined) in cash. At the discretion of
the Committee, prior to Termination of Employment an Optionee may pay all or a
portion of such aggregate Exercise Price (but not any Withholding Liability) by
borrowing funds from the Company in accordance with such policies and procedures
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as the Committee may from time to time establish.
(b) LIMITATION ON EXERCISE. Notwithstanding any other provision of
this Agreement, Optionee shall not be entitled to benefit from the Option
granted hereunder and shall not be entitled to exercise any rights with respect
to this Option if such grant or exercise would violate any provision of the
charter of the Company. Pursuant to the 1995 Plan, the grant or exercise of an
Option in violation of this Section 5(b) shall be void AB INITIO and shall not
be effective to convey any rights to Optionee. As a condition to exercise of
this Option, Optionee will be required to certify to the Company that the
acquisition of Common Shares pursuant to the exercise of this Option will not
result in a violation of any provision of the charter of the Company. If this
Option (or any portion thereof) is not exercisable by virtue of this Section
5(b), then such exercise shall be deferred until the earlier of such time, if
any, that Optionee becomes entitled to exercise this Option or the Expiration
Date. This Section 5(b) shall not result in an extension of the Expiration
Date.
6. PAYMENT OF WITHHOLDING TAXES. If the Company becomes obligated
to withhold an amount on account of any federal, state, or local income tax
imposed as a result of the exercise of an option granted under this Plan (such
amount shall be referred to herein as the "Withholding Liability"), the Optionee
shall pay the Withholding Liability to the Company in full in cash on the first
date upon which the Company becomes obligated to pay such amount withheld to the
appropriate taxing authority, and the Company may delay issuing the Common
Shares pursuant to such exercise until it receives the Withholding Liability
from the Optionee.
7. NOTICES. Any notice given to the Company shall be addressed to
the Company at 6301 Owensmouth Avenue, Suite 700, Woodland Hills, California
91367, Attention: Corporate Secretary, or at such other address as the Company
may hereafter designate in writing to Optionee. Any notice given to Optionee
shall be sent to the address set forth below Optionee's signature hereto, or at
such other address as Optionee may hereafter designate in writing to the
Company. Any such notice shall be deemed duly given when made by hand delivery,
sent by overnight courier, sent by prepaid certified or registered mail or
transmitted by facsimile.
8. STOCK EXCHANGE REQUIREMENTS; APPLICABLE LAWS. Notwithstanding
anything to the contrary in this Agreement, no shares of stock purchased upon
exercise of the Option, and no certificate representing all or any part of such
shares, shall be issued or delivered if (a) such shares have not been admitted
to listing upon official notice of issuance of each stock exchange upon which
shares of that class are then listed or (b) in the opinion of counsel to the
Company, such issuance or delivery would cause the Company to be in violation of
or to incur liability under any federal, state or other securities law, or any
requirement of any stock exchange listing agreement to which the Company is a
party, or any other requirement of law or of any administrative or regulatory
body having jurisdiction over the Company.
9. NONTRANSFERABILITY. Neither the Option nor any interest therein
may be sold,
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assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in
any manner other than by will or the laws of descent and distribution.
10. 1995 PLAN. THE OPTION IS GRANTED PURSUANT TO THE 1995 PLAN, AS IN
EFFECT ON THE DATE OF GRANT, AND IS SUBJECT TO ALL THE TERMS AND CONDITIONS OF
THE 1995 PLAN, AS THE SAME MAY BE AMENDED FROM TIME TO TIME; PROVIDED, HOWEVER,
THAT NO SUCH AMENDMENT SHALL DEPRIVE OPTIONEE, WITHOUT HIS OR HER CONSENT, OF
THE OPTION OR OF ANY OF OPTIONEE'S RIGHTS UNDER THIS AGREEMENT. THE
INTERPRETATION AND CONSTRUCTION BY THE COMMITTEE OF THE 1995 PLAN, THIS
AGREEMENT, THE OPTION AND SUCH RULES AND REGULATIONS AS MAY BE ADOPTED BY THE
COMMITTEE FOR THE PURPOSE OF ADMINISTERING THE 1995 PLAN SHALL BE FINAL AND
BINDING UPON OPTIONEE. UNTIL THE OPTION SHALL EXPIRE, TERMINATE OR BE EXERCISED
IN FULL, THE COMPANY SHALL, UPON WRITTEN REQUEST, SEND A COPY OF THE 1995 PLAN,
IN ITS THEN CURRENT FORM, TO OPTIONEE OR ANY OTHER PERSON OR ENTITY THEN
ENTITLED TO EXERCISE THE OPTION.
11. FRACTIONAL SHARES. The Company shall not be required to issue a
fraction of a Common Share in connection with the exercise of the Option. In
any case where the Optionee would be entitled to receive a fraction of a Common
Share upon the exercise of the Option, the Company shall instead, upon the
exercise of the Option, issue the largest whole number of Common Shares
purchasable upon exercise of the Option, and pay to the Optionee in cash the
Fair Market Value (as determined by the Committee) of such fraction of a Common
Share at the time of exercise of the Option.
12. STOCKHOLDER RIGHTS. No person or entity shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of any Option
Shares until the Option shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement.
13. EMPLOYMENT RIGHTS. No provision of this Agreement or of the
Option granted hereunder shall (a) confer upon Optionee any right to continue in
the employ of the Company or any of its subsidiaries, (b) affect the right of
the Company and each of its subsidiaries to terminate the employment of
Optionee, with or without cause, or (c) confer upon Optionee any right to
participate in any employee welfare or benefit plan or other program of the
Company or any of its subsidiaries other than the 1995 Plan.
14. GOVERNING LAW. This Agreement and the Option granted hereunder
shall be governed by and construed and enforced in accordance with the laws of
the State of California.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to the matters covered herein and supersedes all
prior written or oral agreements or
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understandings of the parties with respect to the matters covered herein.
Optionee acknowledges that he or she has no right to receive any additional
options unless and until such time, if any, that the Committee, in its sole
discretion, may approve the grant thereof, and that the Company has not made
any representation to the Optionee regarding future or additional option
grants, or any other option related matters. The grant of any options must
be in writing.
IN WITNESS WHEREOF, the Company and Optionee have duly executed this
Agreement as of the Date of Grant.
20TH CENTURY INDUSTRIES OPTIONEE:
By
----------------------------- -----------------------------
William L. Mellick, President Signature
-----------------------------
Street Address
-----------------------------
City, State and Zip Code
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AGREEMENT NO.____-NQO-______
20TH CENTURY INDUSTRIES
NON-QUALIFIED STOCK OPTION AGREEMENT
PURSUANT TO THE
1995 STOCK OPTION PLAN
This Non-Qualified Stock Option Agreement ("Agreement") is made and
entered into as of the Date of Grant indicated below by and between 20th Century
Industries, a California corporation, (the "Company") and the person named below
as Optionee.
WHEREAS, Optionee is an employee of the Company and/or one or more of its
subsidiaries; and
WHEREAS, pursuant to the Company's 1995 Stock Option Plan (the "1995
Plan"), the committee of the Board of Directors of the Company administering the
1995 Plan (the "Committee") has approved the grant to Optionee of an option to
purchase shares of the Common Stock of the Company (the "Common Shares"), on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company hereby
grants to Optionee, and Optionee hereby accepts, as of the Date of Grant
indicated below, an option (the "Option") to purchase the number of Common
Shares indicated below (the "Option Shares") at the Exercise Price per share
indicated below. The Option shall expire at 5:00 p.m., prevailing Pacific Time,
on the Expiration Date indicated below and shall be subject to all of the terms
and conditions set forth in the 1995 Plan and this Agreement.
Optionee: ______________
Date of Grant: _______, 199___
Numbers of shares purchasable: _________shares
Exercise Price per share: $________
Expiration Date: _________, 200___
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Vesting Rate: ___________vesting
2. NON-QUALIFIED STOCK OPTION. The Option is not intended to qualify
as an incentive stock option under Section 422 of the Internal Revenue Code
(the"Code").
3. ACCELERATION AND TERMINATION OF OPTION.
(a) TERMINATION OF EMPLOYMENT.
(i) RETIREMENT. In the event that Optionee shall cease to be
an employee of the Company or any "subsidiary corporation", as defined
above, (such event shall be referred to herein as the "Termination of
Employment") by reason of retirement in accordance with the Company's
then-current retirement practices, then the Option shall fully vest with
respect to all Option Shares upon the date of such Termination of
Employment and shall terminate no later than the Expiration Date.
(ii) DEATH OR PERMANENT DISABILITY. If the Termination of
Employment occurs by reason of the death or Permanent Disability (as
hereinafter defined) of Optionee, then the Option shall (A) fully vest
with respect to all Option Shares upon the date of such Termination of
Employment, (B) be exercisable by Optionee or, in the event of death, the
person or persons to whom Optionee's rights under the Option shall have
passed by will or by the applicable laws of descent or distribution, and
(C) terminate on the first anniversary of the date of such Termination of
Employment. "Permanent Disability" shall mean the inability to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. The Optionee shall not be deemed to
have a Permanent Disability until proof of the existence thereof shall
have been furnished to the Committee in such form and manner, and at such
times, as the Committee may require. Any determination by the Committee
that Optionee does or does not have a Permanent Disability shall be final
and binding upon the Company and Optionee.
(iii) OTHER TERMINATION. If the Termination of Employment occurs
for any reason other than those enumerated in (i) through (ii) of this
Section 3(a), then (A) the portion of the Option that has not vested on
or prior to the date of such Termination of Employment shall terminate on
such date and (B) the remaining vested portion of the Option shall
terminate on the earlier of the Expiration Date or the three (3) month
anniversary of the date of such Termination of Employment.
(b) DEATH FOLLOWING TERMINATION OF EMPLOYMENT. Notwithstanding
anything to the contrary in this Agreement, if Optionee shall die at any time
after the Termination of Employment and prior to the Expiration Date, then,
unless the Termination of Employment had occurred for
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cause, the remaining vested but unexercised portion of the Option shall
terminate on the earlier of the Expiration Date or the first anniversary of
the date of such death.
(c) ACCELERATION OF OPTION. The Option shall become fully exercisable
immediately prior to a Change in Control. A Change in Control shall be deemed
to take place upon the occurrence of any of the following:
(i) Any merger or consolidation of the Company with or into any
other person, as the result of which the holders of the Company's Common
Shares immediately prior to the transaction shall, on the basis of such
holdings prior to such transaction, hold less than 50% of the total
outstanding voting stock of the surviving corporation immediately upon
completion of the transaction.
(ii) Any sale or exchange of all or substantially all of the
property and assets of the Company.
(iii) Any change in a majority of the Board of Directors of the
Company occurring within a period of two years or less, such that a
majority of the Board of directors is comprised of individuals who are
not "Continuing Directors". For purposes of the foregoing, a "
Continuing Director" shall be a director (A) who was in office at the
commencement of such period of two years or (B) was elected subsequent to
the commencement of such period with the approval of not less than a
majority of those directors referred to in clause (A) who are then in
office. Any director meeting the qualifications of clause (B) of the
previous sentence shall, with respect to further determinations after the
date of such director's election, be deemed a director meeting the
qualifications of clause (A) of the previous sentence.
(iv) Any "person" (as defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall
become the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of a majority of the Company's
outstanding Common Stock.
(v) the liquidation or dissolution of the Company.
(vi) any other transaction or reorganization similar to the
foregoing which in the opinion of the Committee constitutes a "change of
control" of the nature described in subparagraphs (i) through (v) hereof.
4. ADJUSTMENTS. In the event that the Common Shares are increased,
decreased or exchanged for or converted into cash, property or a different
number or kind of securities, or if cash, property or securities are distributed
in respect of such outstanding Common Shares, in either case as a result of a
reorganization, merger, consolidation, recapitalization, restructuring,
reclassification,
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partial or complete liquidation, stock split, reverse stock split or the
like, or if substantially all of the property and assets of the Company are
sold, then, unless the terms of such transaction shall provide otherwise, the
Option then outstanding shall thereafter be exercisable (on substantially the
same terms and subject to substantially the same conditions as were
applicable under such Option) for the number of shares or other securities or
cash or other property as the holder of such Option would have been entitled
to receive pursuant to such transaction had such holder exercised such Option
in full immediately prior to such transaction. The Committee shall make
appropriate and proportionate adjustments in the number and type of shares or
other securities or cash or other property that may be acquired upon the
exercise in full of the Option.
5. EXERCISE.
(a) IN GENERAL. The Option shall be exercisable during Optionee's
lifetime only by Optionee or by his or her guardian or legal representative, and
after Optionee's death only by the person or entity entitled to do so under
Optionee's last will and testament or applicable intestate law. The Option may
only be exercised by the delivery to the Company of a written notice of such
exercise pursuant to the notice procedures set forth in Section 7 hereof, which
notice shall specify the number of Option Shares to be purchased, which for any
single exercise may not be fewer than 100 Option Shares or, if smaller, the
number of Option Shares then vested and exercisable, (the "Purchased Shares")
and the aggregate Exercise Price for such shares (the "Exercise Price"),
together with payment in full of such aggregate Exercise Price and any
Withholding Liability (as hereinafter defined) in cash. At the discretion of
the Committee, prior to Termination of Employment an Optionee may pay all or a
portion of such aggregate Exercise Price (but not any Withholding Liability) by
borrowing funds from the Company in accordance with such policies and procedures
as the Committee may from time to time establish.
(b) LIMITATION ON EXERCISE. Notwithstanding any other provision of
this Agreement, Optionee shall not be entitled to benefit from the Option
granted hereunder and shall not be entitled to exercise any rights with respect
to this Option if such grant or exercise would violate any provision of the
charter of the Company. Pursuant to the 1995 Plan, the grant or exercise of an
Option in violation of this Section 5(b) shall be void AB INITIO and shall not
be effective to convey any rights to Optionee. As a condition to exercise of
this Option, Optionee will be required to certify to the Company that the
acquisition of Common Shares pursuant to the exercise of this Option will not
result in a violation of any provision of the charter of the Company. If this
Option (or any portion thereof) is not exercisable by virtue of this Section
5(b), then such exercise shall be deferred until the earlier of such time, if
any, that Optionee becomes entitled to exercise this Option or the Expiration
Date. This Section 5(b) shall not result in an extension of the Expiration
Date.
6. PAYMENT OF WITHHOLDING TAXES. If the Company becomes obligated
to withhold an amount on account of any federal, state, or local income tax
imposed as a result of the exercise of an option granted under this Plan (such
amount shall be referred to herein as the "Withholding Liability"), the Optionee
shall pay the Withholding Liability to the Company in full in cash on the
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first date upon which the Company becomes obligated to pay such amount
withheld to the appropriate taxing authority, and the Company may delay
issuing the Common Shares pursuant to such exercise until it receives the
Withholding Liability from the Optionee.
7. NOTICES. Any notice given to the Company shall be addressed to
the Company at 6301 Owensmouth Avenue, Suite 700, Woodland Hills, California
91367, Attention: Corporate Secretary, or at such other address as the Company
may hereafter designate in writing to Optionee. Any notice given to Optionee
shall be sent to the address set forth below Optionee's signature hereto, or at
such other address as Optionee may hereafter designate in writing to the
Company. Any such notice shall be deemed duly given when made by hand delivery,
sent by overnight courier, sent by prepaid certified or registered mail or
transmitted by facsimile.
8. STOCK EXCHANGE REQUIREMENTS; APPLICABLE LAWS. Notwithstanding
anything to the contrary in this Agreement, no shares of stock purchased upon
exercise of the Option, and no certificate representing all or any part of such
shares, shall be issued or delivered if (a) such shares have not been admitted
to listing upon official notice of issuance of each stock exchange upon which
shares of that class are then listed or (b) in the opinion of counsel to the
Company, such issuance or delivery would cause the Company to be in violation of
or to incur liability under any federal, state or other securities law, or any
requirement of any stock exchange listing agreement to which the Company is a
party, or any other requirement of law or of any administrative or regulatory
body having jurisdiction over the Company.
9. NONTRANSFERABILITY. Neither the Option nor any interest therein
may be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise
transferred in any manner other than by will or the laws of descent and
distribution.
10. 1995 PLAN. THE OPTION IS GRANTED PURSUANT TO THE 1995 PLAN, AS IN
EFFECT ON THE DATE OF GRANT, AND IS SUBJECT TO ALL THE TERMS AND CONDITIONS OF
THE 1995 PLAN, AS THE SAME MAY BE AMENDED FROM TIME TO TIME; PROVIDED, HOWEVER,
THAT NO SUCH AMENDMENT SHALL DEPRIVE OPTIONEE, WITHOUT HIS OR HER CONSENT, OF
THE OPTION OR OF ANY OF OPTIONEE'S RIGHTS UNDER THIS AGREEMENT. THE
INTERPRETATION AND CONSTRUCTION BY THE COMMITTEE OF THE 1995 PLAN, THIS
AGREEMENT, THE OPTION AND SUCH RULES AND REGULATIONS AS MAY BE ADOPTED BY THE
COMMITTEE FOR THE PURPOSE OF ADMINISTERING THE 1995 PLAN SHALL BE FINAL AND
BINDING UPON OPTIONEE. UNTIL THE OPTION SHALL EXPIRE, TERMINATE OR BE EXERCISED
IN FULL, THE COMPANY SHALL, UPON WRITTEN REQUEST, SEND A COPY OF THE 1995 PLAN,
IN ITS THEN CURRENT FORM, TO OPTIONEE OR ANY OTHER PERSON OR ENTITY THEN
ENTITLED TO EXERCISE THE OPTION.
11. FRACTIONAL SHARES. The Company shall not be required to issue a
fraction of a Common Share in connection with the exercise of the Option. In
any case where the Optionee
5
<PAGE>
would be entitled to receive a fraction of a Common Share upon the exercise
of the Option, the Company shall instead, upon the exercise of the Option,
issue the largest whole number of Common Shares purchasable upon exercise of
the Option, and pay to the Optionee in cash the Fair Market Value (as
determined by the Committee) of such fraction of a Common Share at the time
of exercise of the Option.
12. STOCKHOLDER RIGHTS. No person or entity shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of any Option
Shares until the Option shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement.
13. EMPLOYMENT RIGHTS. No provision of this Agreement or of the
Option granted hereunder shall (a) confer upon Optionee any right to continue in
the employ of the Company or any of its subsidiaries, (b) affect the right of
the Company and each of its subsidiaries to terminate the employment of
Optionee, with or without cause, or (c) confer upon Optionee any right to
participate in any employee welfare or benefit plan or other program of the
Company or any of its subsidiaries other than the 1995 Plan.
14. GOVERNING LAW. This Agreement and the Option granted hereunder
shall be governed by and construed and enforced in accordance with the laws of
the State of California.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to the matters covered herein and supersedes all
prior written or oral agreements or understandings of the parties with respect
to the matters covered herein. Optionee acknowledges that he or she has no
right to receive any additional options unless and until such time, if any, that
the Committee, in its sole discretion, may approve the grant thereof, and that
the Company has not made any representation to the Optionee regarding future or
additional option grants, or any other option related matters. The grant of any
options must be in writing.
IN WITNESS WHEREOF, the Company and Optionee have duly executed this
Agreement as of the Date of Grant.
20TH CENTURY INDUSTRIES OPTIONEE:
By
------------------------------ -----------------------------------
William L. Mellick, President Signature
-----------------------------------
Street Address
-----------------------------------
City, State and Zip Code
6
<PAGE>
AGREEMENT NO._______-DIR-__________
20TH CENTURY INDUSTRIES
NONEMPLOYEE DIRECTOR STOCK OPTION AGREEMENT
PURSUANT TO THE
1995 STOCK OPTION PLAN
This Nonemployee Director Stock Option Agreement ("Agreement") is made
and entered into as of the Date of Grant indicated below by and between 20th
Century Industries, a California corporation, (the "Company") and the person
named below as Optionee.
WHEREAS, Optionee is a nonemployee director ("Nonemployee Director") of
the Company; and
WHEREAS, pursuant to the Company's 1995 Stock Option Plan (the "1995
Plan"), an option to purchase shares of the Common Stock of the Company (the
"Common Shares") has been granted to Optionee on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company
hereby grants to Optionee, and Optionee hereby accepts, as of the Date of
Grant indicated below, an option (the "Option") to purchase the number of
Common Shares indicated below (the "Option Shares") at the Exercise Price per
share indicated below. The Option shall expire at 5:00 p.m., prevailing
Pacific Time, on the Expiration Date indicated below and shall be subject to
all of the terms and conditions set forth in the 1995 Plan and this Agreement.
Optionee: ____________________
Date of Grant: _____________, 199__
Numbers of shares purchasable: ______________shares
Exercise Price per share: $_________
Expiration Date: _____________, 200__
Vesting Rate: _________shares on__
1
<PAGE>
2. NONQUALIFIED STOCK OPTION. The Option is not intended to qualify
as an incentive stock option under Section 422 of the Internal Revenue Code (the
"Code").
3. EXPIRATION AND TERMINATION OF OPTION.
(a) EXPIRATION OF OPTION. The Option shall expire upon the first to
occur of the following:
(i) the first anniversary of the date upon which the Optionee
shall cease to be a Nonemployee Director as a result of death or
Permanent Disability;
(ii) the 90th day after the date upon which the Optionee shall
cease to be a Nonemployee Director for any reason other than death or
Permanent Disability;
(iii) the tenth anniversary of the Date of Grant of the Option.
For purposes of this paragraph, "Permanent Disability" shall mean the
inability to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than twelve (12) months. The
Optionee shall not be deemed to have a Permanent Disability until proof
of the existence thereof shall have been furnished to the Committee in
such form and manner, and at such times, as the Committee may require.
Any determination by the Committee that Optionee does or does not have a
Permanent Disability shall be final and binding upon the Company and
Optionee.
(b) TERMINATION OF OPTION. The Option shall terminate upon the first
to occur of the following:
(i) the dissolution or liquidation of the Company;
(ii) A reorganization, merger or consolidation of the Company as
a result of which the outstanding securities of the class then subject to
such outstanding Nonemployee Director Options are exchanged for or
converted into cash, property and securities not issued by the Company
(or any combination thereof) unless the terms of such reorganization,
merger or consolidation provide otherwise; or
(iii) the sale of substantially all of the property and assets of
the Company.
4. ADJUSTMENTS. In the event that the Common Shares are increased,
decreased or exchanged for or converted into cash, property or a different
number or kind of securities, or if cash, property or securities are distributed
in respect of such outstanding Common Shares, in either case as a result of a
reorganization, merger, consolidation, recapitalization, restructuring,
reclassification, partial or complete liquidation, stock split, reverse stock
split or the like, or if substantially all of the
2
<PAGE>
property and assets of the Company are sold, then, unless such event shall
cause the Option to terminate pursuant to this Agreement or the terms of such
transaction shall provide otherwise, the Option then outstanding shall
thereafter be exercisable (on substantially the same terms and subject to
substantially the same conditions as were applicable under such Option) for
the number of shares or other securities or cash or other property as the
holder of such Option would have been entitled to receive pursuant to such
transaction had such holder exercised such Option in full immediately prior
to such transaction. The Committee shall make appropriate and proportionate
adjustments in the number and type of shares or other securities or cash or
other property that may be acquired upon the exercise in full of the Option.
5. EXERCISE.
(a) IN GENERAL. The Option shall be exercisable during Optionee's
lifetime only by Optionee or by his or her guardian or legal representative, and
after Optionee's death only by the person or entity entitled to do so under
Optionee's last will and testament or applicable intestate law. The Option may
only be exercised by the delivery to the Company of a written notice of such
exercise pursuant to the notice procedures set forth in Section 7 hereof, which
notice shall specify the number of Option Shares to be purchased, which for any
single exercise may not be fewer than 100 Option Shares or, if smaller, the
number of Option Shares then vested and exercisable, (the "Purchased Shares")
and the aggregate Exercise Price for such shares (the "Exercise Price"),
together with payment in full of such aggregate Exercise Price and any
Withholding Liability (as hereinafter defined) in cash.
(b) LIMITATION ON EXERCISE. Notwithstanding any other provision of
this Agreement, Optionee shall not be entitled to benefit from the Option
granted hereunder and shall not be entitled to exercise any rights with respect
to this Option if such grant or exercise would violate any provision of the
charter of the Company. Pursuant to the 1995 Plan, the grant or exercise of an
Option in violation of this Section 5(b) shall be void AB INITIO and shall not
be effective to convey any rights to Optionee. As a condition to exercise of
this Option, Optionee will be required to certify to the Company that the
acquisition of Common Shares pursuant to the exercise of this Option will not
result in a violation of any provision of the charter of the Company. If this
Option (or any portion thereof) is not exercisable by virtue of this Section
5(b), then such exercise shall be deferred until the earlier of such time, if
any, that Optionee becomes entitled to exercise this Option or the Expiration
Date. This Section 5(b) shall not result in an extension of the Expiration
Date.
6. PAYMENT OF WITHHOLDING TAXES. If the Company becomes obligated
to withhold an amount on account of any federal, state, or local income tax
imposed as a result of the exercise of an option granted under this Plan (such
amount shall be referred to herein as the "Withholding Liability"), the Optionee
shall pay the Withholding Liability to the Company in full in cash on the first
date upon which the Company becomes obligated to pay such amount withheld to the
appropriate taxing authority, and the Company may delay issuing the Common
Shares pursuant to such exercise until it receives the Withholding Liability
from the Optionee.
3
<PAGE>
7. NOTICES. Any notice given to the Company shall be addressed to
the Company at 6301 Owensmouth Avenue, Suite 700, Woodland Hills, California
91367, Attention: Corporate Secretary, or at such other address as the Company
may hereafter designate in writing to Optionee. Any notice given to Optionee
shall be sent to the address set forth below Optionee's signature hereto, or at
such other address as Optionee may hereafter designate in writing to the
Company. Any such notice shall be deemed duly given when made by hand delivery,
sent by overnight courier, sent by prepaid certified or registered mail or
transmitted by facsimile.
8. STOCK EXCHANGE REQUIREMENTS; APPLICABLE LAWS. Notwithstanding
anything to the contrary in this Agreement, no shares of stock purchased upon
exercise of the Option, and no certificate representing all or any part of such
shares, shall be issued or delivered if (a) such shares have not been admitted
to listing upon official notice of issuance of each stock exchange upon which
shares of that class are then listed or (b) in the opinion of counsel to the
Company, such issuance or delivery would cause the Company to be in violation of
or to incur liability under any federal, state or other securities law, or any
requirement of any stock exchange listing agreement to which the Company is a
party, or any other requirement of law or of any administrative or regulatory
body having jurisdiction over the Company.
9. NONTRANSFERABILITY. Neither the Option nor any interest therein
may be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise
transferred in any manner other than by will or the laws of descent and
distribution.
10. 1995 PLAN. THE OPTION IS GRANTED PURSUANT TO THE 1995 PLAN, AS IN
EFFECT ON THE DATE OF GRANT, AND IS SUBJECT TO ALL THE TERMS AND CONDITIONS OF
THE 1995 PLAN, AS THE SAME MAY BE AMENDED FROM TIME TO TIME; PROVIDED, HOWEVER,
THAT NO SUCH AMENDMENT SHALL DEPRIVE OPTIONEE, WITHOUT HIS OR HER CONSENT, OF
THE OPTION OR OF ANY OF OPTIONEE'S RIGHTS UNDER THIS AGREEMENT. THE
INTERPRETATION AND CONSTRUCTION BY THE COMMITTEE OF THE 1995 PLAN, THIS
AGREEMENT, THE OPTION AND SUCH RULES AND REGULATIONS AS MAY BE ADOPTED BY THE
COMMITTEE FOR THE PURPOSE OF ADMINISTERING THE 1995 PLAN SHALL BE FINAL AND
BINDING UPON OPTIONEE. UNTIL THE OPTION SHALL EXPIRE, TERMINATE OR BE EXERCISED
IN FULL, THE COMPANY SHALL, UPON WRITTEN REQUEST, SEND A COPY OF THE 1995 PLAN,
IN ITS THEN CURRENT FORM, TO OPTIONEE OR ANY OTHER PERSON OR ENTITY THEN
ENTITLED TO EXERCISE THE OPTION.
11. FRACTIONAL SHARES. The Company shall not be required to issue a
fraction of a Common Share in connection with the exercise of the Option. In
any case where the Optionee would be entitled to receive a fraction of a Common
Share upon the exercise of the Option, the Company shall instead, upon the
exercise of the Option, issue the largest whole number of Common Shares
purchasable upon exercise of the Option, and pay to the Optionee in cash the
Fair Market Value (as determined by the Committee) of such fraction of a Common
Share at the time of exercise of the Option.
4
<PAGE>
12. STOCKHOLDER RIGHTS. No person or entity shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of any Option
Shares until the Option shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement.
13. GOVERNING LAW. This Agreement and the Option granted hereunder
shall be governed by, construed and enforced in accordance with the laws of the
State of California.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to the matters covered herein and supersedes all
prior written or oral agreements or understandings of the parties with respect
to the matters covered herein. Optionee acknowledges that he or she has no
right to receive any additional options except as provided in the 1995 Plan.
The grant of any options must be in writing.
IN WITNESS WHEREOF, the Company and Optionee have duly executed this
Agreement as of the Date of Grant.
20TH CENTURY INDUSTRIES OPTIONEE:
By
----------------------------- --------------------------------------
William L. Mellick, President
5
<PAGE>
EXHIBIT 10(m)
RESTRICTED SHARES AGREEMENT BETWEEN
20TH CENTURY INDUSTRIES, A CALIFORNIA CORPORATION
AND , AN EMPLOYEE
OF 20TH CENTURY INDUSTRIES
This Agreement made at Woodland Hills, California, as of the ____ day of
________ 199__, by and between 20th Century Industries, a California
corporation, (the "Company") and , (the "Employee").
RECITAL OF FACTS
1. The Board of Directors of 20th Century Industries at its meeting
held on February 23, 1982 adopted, subject to shareholder approval, the 20th
Century Industries Restricted Shares Plan (the "Plan"). The shareholders of
20th Century Industries at their meeting held on May 25, 1982 approved the
Plan.
2. The Committee of the Board of Directors of 20th Century Industries
designated to administer the Plan (the "Committee") has awarded shares to the
Employee pursuant to the Plan.
THEREFORE, it is agreed by and between the Company and the Employee as
follows:
3. The Company has granted to the Employee of the shares
of the Company without par value. The shares are evidenced by the following
share certificate(s), the restriction with respect to which expires on the
date indicated.
1
<PAGE>
Share Certificate # # of Shares Restriction Expiration Date
-------------------- ------------- ---------------------------
Each of the share certificates will have attached the following restrictions.
The shares evidenced by this certificate are "restricted" pursuant to
the 20th Century Industries Restricted Shares Plan and may not be
transferred or reissued without the consent of 20th Century Industries.
Attached to each share certificate is a stock assignment signed in blank
by the shareholder(s) and the signature of each shareholder is guaranteed by a
bank or a member of a national securities exchange or an officer of the
Company. Such guarantee is undated.
4. During the period of restriction and while subject to forfeiture,
the share certificates shall remain in the possession and custody of the
Company. If shares are forfeited, the Company may exercise the stock
assignment(s) provided for above, but upon delivery to the Employee of a share
certificate, the stock assignment pertaining thereto shall also be delivered
to the Employee.
5. If the Employee has been continuously employed by 20th Century
Industries from the date hereof to the expiration dates of the restrictions,
the share certificate for which the restrictions expire shall be delivered to
the Employee free of all restrictions other than those imposed, or made
necessary by federal and state securities laws. If the employment is
terminated for any reason all shares not free of restrictions shall be
forfeited in favor of the Company.
6. The Employee acknowledges that he or she has received from the
Company the Annual Report to shareholders for the year 1995 of the Company,
the Form 10-K filed with the
2
<PAGE>
United States Securities and Exchange Commission (the "SEC") of the Company
for the year 1995 and the report to shareholders for the third quarter of
1996. The Employee also acknowledges that there have been made available to
him or her for inspection, and copying if he or she so desires, copies of
prior reports to shareholders and filings with the SEC. Such right of
inspection and copying shall terminate if and when the employment of the
Employee terminates.
7. Attached hereto and made a part hereof as though fully set forth
hereto and designated "Annex 1" hereof, is a copy of the 20th Century
Industries Restricted Shares Plan. In the event of any conflict between the
terms and provisions of this Agreement and those of the Plan, the terms and
provisions of the Plan, including without limitation, those with respect to
powers of the Committee, shall prevail and be controlling.
8. If the Employee exercises the election provided for in Section 83(b)
of the Internal Revenue Code and Section 17122.7(b) of the Revenue and
Taxation Code of California, he or she shall promptly notify the Company.
9. Neither the Plan, this Agreement, nor the award of Restricted Shares
shall confer any right to continue in the employ of the Company or interfere
in any way the right of the Company to terminate any employment at any time.
10. The Employee shall furnish to the Company all information requested
at any time or from time to time by the Company to enable it to comply with
any reporting or other requirement imposed upon the Company by or under any
applicable statute or regulation.
11. No shares issued or transferred to an Employee, hereunder, so long
as such shares are subject to a risk of forfeiture imposed hereunder, may be
transferred, assigned, pledged, hypothecated or disposed of in any way
(whether by operation of law or otherwise) except shares
3
<PAGE>
upon forfeiture shall be transferred back to the Company or to another
Employee upon being regranted.
12. Nothing in the Plan on in this Restricted Shares Agreement entered
into pursuant to the Plan shall require the Company to issue or transfer any
shares pursuant to an award if such issuance or transfer would, in the opinion
of the Committee, constitute or result in a violation of any applicable
statute or regulation of any jurisdiction relating to the disposition of
securities.
13. If the Committee shall determine, in its discretion, that the
listing, registration or qualification of shares awarded hereunder upon any
securities exchange or under any applicable statute or regulation of any
jurisdiction relating to securities, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or
in connection with, the issuance or transfer of such shares, nothing in this
Restricted Shares Agreement shall require the Company to issue or transfer
such shares unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
14. In connection with the shares awarded hereunder, it shall be a
condition precedent to the Company's obligation to evidence the removal of any
restrictions or transfer or lapse of any risk of forfeiture that the Employee
make arrangements satisfactory to the Company to insure that the amount of any
federal or other withholding tax required to be withheld with respect to such
sale or transfer on such removal or lapse is made available to the Company for
timely payment of such tax.
15. The Employee represents that he or she is having the shares issued
to him or her for his or her own account and not with a view to or for sale in
connection with any distribution of the shares.
4
<PAGE>
16. Notwithstanding any other provision of this Agreement including,
but not limited to, paragraphs 3, 4, and 5 hereof, all shares which have been
granted pursuant to this Agreement which have not been delivered to the
Employee because of the expiration date of the Restrictions shall vest in the
Employee immediately before a "change of control" of the Company, as defined
herein, free and clear of any restrictions, except the restrictions imposed
by paragraphs 12 through 15 hereof. A "change of control" shall be deemed to
take place upon the occurrence of any of the following:
(i) Any merger or consolidation of the Company with or into any other
person, as the result of which the holders of the Company's Common Shares
immediately prior to the transaction shall, on the basis of such holdings
prior to such transaction, hold less than 50% of the total outstanding voting
stock of the surviving corporation immediately upon completion of the
transaction.
(ii) Any sale or exchange of all or substantially all of the property and
assets of the Company.
(iii) Any change in a majority of the Board of Directors of the Company
occurring within a period of two years or less, such that a majority of the
Board of Directors is comprised of individuals who are not "Continuing
Directors". For purposes of the foregoing, a "Continuing Director" shall be a
director (A) who was in office at the commencement of such period of two
years or (B) was elected subsequent to the commencement of such period with
the approval of not less than a majority of those directors referred to in
clause (A) who are then in office. Any director meeting the qualifications of
clause (B) of the previous sentence shall, with respect to further
determinations after the date of such director's election, be deemed a
director meeting the qualifications of clause (A) of the previous sentence.
5
<PAGE>
(iv) Any "person" (as defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall become
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of a majority of the Company's outstanding Common
Stock.
(v) the liquidation or dissolution of the Company.
(vi) any other transaction or reorganization similar to the foregoing
which in the opinion of the Committee constitutes a "change of control" of the
nature described in subparagraphs (i) through (v) hereof.
Upon the shares vesting in the Employee pursuant to this paragraph, share
certificate(s) shall be delivered to the Employee pursuant to the procedures
set forth in paragraphs 4 and 5 hereof.
Executed at the place and as of the date first above written.
20TH CENTURY INDUSTRIES
By
-------------------------------------
William L. Mellick, President and
Chief Executive Officer
By
-------------------------------------
John R. Bollington, Secretary
-------------------------------------
"Employee"
6
<PAGE>
EXHIBIT 10(n)
20TH CENTURY INDUSTRIES
401(k) SUPPLEMENTAL PLAN
REV 1/30/96
<PAGE>
TABLE OF CONTENTS
ARTICLE I Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III Eligibility and Participation . . . . . . . . . . . . . . . . 2
3.1 Eligibility to Participate. . . . . . . . . . . . . . . . . . . . . 2
3.2 Election of Payment Method. . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV Compensation Deferrals by Participants. . . . . . . . . . . . 4
4.1 Participant Compensation Deferrals. . . . . . . . . . . . . . . . . 4
4.2 Amounts of Participant Compensation Deferrals . . . . . . . . . . . 4
4.3 Provisions of Compensation Deferral Agreement . . . . . . . . . . . 5
ARTICLE V Company Matching Credits. . . . . . . . . . . . . . . . . . . 5
5.1 Matching Credits. . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VI Participant Accounts and Subaccounts. . . . . . . . . . . . . 6
6.1 Participant Accounts and Subaccounts. . . . . . . . . . . . . . . . 6
6.2 Valuation of Account. . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VII Payment of Benefits . . . . . . . . . . . . . . . . . . . . . 7
7.1 Vesting of Benefits . . . . . . . . . . . . . . . . . . . . . . . . 7
7.2 Form and Date of Payment. . . . . . . . . . . . . . . . . . . . . . 7
7.3 Hardship Distributions. . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VIII Death Benefits. . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IX Right to Terminate or Modify Plan . . . . . . . . . . . . . . 8
ARTICLE X No Assignment, Etc. . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE XI The Committee . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE XII Release . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE XIII No Contract of Employment . . . . . . . . . . . . . . . . . . 9
ARTICLE XIV Company's Obligation to Pay Benefits. . . . . . . . . . . . . 10
ARTICLE XV Claim Review Procedure. . . . . . . . . . . . . . . . . . . . 10
ARTICLE XVI Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE XVII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 11
17.1 Successor and Assigns. . . . . . . . . . . . . . . . . . . . . . . 11
17.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
17.3 Limitations on Liability . . . . . . . . . . . . . . . . . . . . . 11
17.4 Certain Small Benefits . . . . . . . . . . . . . . . . . . . . . . 11
17.5 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
i
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20TH CENTURY INDUSTRIES 401(k) SUPPLEMENTAL PLAN
ARTICLE I
PURPOSE
The purpose of the 20th Century Industries 401(k) Supplemental Plan (the
"Plan") is to attract and retain valuable executive employees by making
available certain benefits that otherwise would be unavailable under the
Company's Qualified 401(k) Plan because of limitations imposed under the
Internal Revenue Code.
This Plan is designed to qualify as an unfunded plan of deferred
compensation for a select group of management or highly compensated employees
described in 29 CFR Section 2520.104-23 and Sections 201(a), 301(a)(3) and
401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Further, this Plan is a plan described in Sections 114 and
3121(v)(2)(C) of the Internal Revenue Code ("Code"), established to pay
retirement income after termination of employment, and maintained solely for
the purpose of providing retirement benefits for employees in excess of the
limitations imposed by one or more of Sections 401(a)(17), 401(k), 401(m),
402(g), 403(b), 408(k), or 415 of such Code or any other limitation on
contributions or benefits in such Code on plans to which any of such Sections
apply.
ARTICLE II
DEFINITIONS
The following terms shall have the meanings set forth below in this
Article II, when capitalized:
2.1 "Account" means the Account maintained for a Participant on the books
of the Company to reflect the Participant's interest in this Plan. Such
Account shall consist of the following subaccounts:
(a) A Participant Compensation Deferral Subaccount reflecting the
Participant's Compensation Deferrals in accordance with Article IV, as
adjusted to reflect an investment return as provided in Section 6.2.
(b) A Matching Credits Subaccount reflecting Matching Credits made
on behalf of the Participant in accordance with Article V, as adjusted to
reflect an investment return as provided in Section 6.2.
2.2 "Company" means 20th Century Industries, and shall include any
corporation that is affiliated with 20th Century Industries, within the
meaning of Section 414(b), (c), (m) or (o) of the Code.
2.3 "Compensation" means, for a Plan Year, a Participant's base salary
and bonus prior to reduction by compensation deferrals under the Qualified
401(k) Plan and this Plan. Compensation shall take into account, for any
Participant Compensation Deferral election, only such compensation as is
payable with respect to services rendered after such election and during the
period such election is in effect.
2.4 "Compensation Deferral Agreement" means an agreement to defer
compensation as described herein.
2.5 "Committee" means the committee appointed to administer the Plan in
accordance with Article X.
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2.6 "Effective Date" means January 1, 1996.
2.7 "Eligibility Date" means the first day of the first Plan Year, or the
first day of the portion of such first Plan Year, that an employee is
determined to be an Eligible Employee.
2.8 "Eligible Employee" means, for any Plan Year, any employee of the
Company who satisfies all of the following conditions:
(a) such employee (i) is a Grade 19 or above employee of the Company
for such Plan Year, or (ii) in the sole discretion of the Committee, is
determined by the Committee in writing to be eligible for a Plan Year
prior to the first day of such Plan Year, provided such employee is in a
category of employees described in Article I of the Plan, and
(b) such employee is, in the sole discretion of the Committee,
determined likely to be eligible to make Compensation Deferral
Contributions to the Qualified 401(k) Plan during such Plan Year.
2.9 "Matching Credit" means the matching credit by the Company
determined in accordance with Article V.
2.10 "Participant" means each Eligible Employee who has made an election
to participate in this Plan in accordance with Article III.
2.11 "Participant Compensation Deferrals" means deferrals of compensation
described in Article IV.
2.12 "Plan" means the 20th Century Industries 401(k) Supplemental Plan,
as set forth herein.
2.13 "Plan Administrator" means 20th Century Industries. For purposes of
Section 3(16)(A) of ERISA, 20th Century Industries shall be the "plan
administrator" and shall be responsible for compliance with any applicable
reporting and disclosure requirements imposed by ERISA.
2.14 "Plan Year" means the fiscal period commencing each January 1 and
ending the following December 31.
2.15 "Qualified 401(k) Plan" means the 20th Century Industries Savings
and Security Plan, as in effect from time to time.
2.16 "Separation from Service" means any separation from service of the
Company for any reason, including termination of employment, retirement, death
or disability. In the case of a Participant on disability, Separation from
Service shall be deemed to occur when long term disability coverage commences,
unless otherwise determined by the Committee.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY TO PARTICIPATE
(a) Each Eligible Employee shall become a Participant hereunder upon
delivery to the Committee, such properly completed enrollment forms and
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agreements as the Committee may require, including, but not limited to, a
beneficiary designation form and a form electing the manner in which
distributions will be payable with respect to such Participant's Account
hereunder, as provided in Section 3.2 below.
(b) Commencement or recommencement of active participation following
any Separation from Service or other interruption of employment shall be
on such terms and under such conditions as the Committee may, in its
discretion, provide.
3.2 ELECTION OF PAYMENT METHOD
A Participant's Account shall be payable from the Plan in a lump sum and/
or in twenty (20) quarterly installments, as elected by the Participant prior
to the effective date a of a Compensation Deferral Agreement, but not more
frequently than prior to the first day of a "Fixed Payment Election Period,
as defined below. A Participant's method of payment election shall be subject
to the limitations and restrictions of this Section 3.2 and rules prescribed
by the Committee.
(a) Any Participant's election of a method of payment shall apply to
all amounts attributable Compensation Deferrals and Matching Credits
allocated to his Account during the applicable Fixed Payment Election
Period. A Participant may make new method of payment election prior to
the start of a new Fixed Payment Election Period, which election shall
apply to all amounts attributable to Compensation Deferrals and Matching
Credits allocated to his or her Account during such new following Fixed
Payment Election Period. If a Participant fails to file a new method of
payment election prior to the start of his or her new Fixed Payment
Election Period, to the extent determined by the Committee, the method of
payment election in effect for the prior Fixed Payment Election Period
shall be deemed to remain in effect for the new Fixed Payment Election
Period.
(b) For purposes of this Plan, "Fixed Payment Election Period" for
any Participant shall mean each three (3) consecutive Plan Year period
starting with the Plan Year that includes his or her Eligibility Date,
and each following three (3) consecutive Plan Year period commencing on
the first day of the Plan Year immediately following the end of the prior
Fixed Payment Election Period, regardless of whether he or she elects to
make Compensation Deferrals for any or all such Plan Years.
(c) Any election of payment method applicable to a Fixed Payment
Election Period shall be irrevocable unless the Committee, in its sole
discretion, permits an Eligible Employee to change his or her election of
payment method to a method providing payments over a longer period of
time than originally elected by the Eligible Employee and which will not
reasonably result in any increase in the amount otherwise payable in any
taxable year of the Participant during which payment would have been made
under the method of payment previously elected. No payment option shall
be selected by a Participant which is not among a list of payment options
generally made available to all Participants by the Committee at the time
of such selection. No assurance regarding the tax effects of making such
change is provided to a participant who elects to change a form of
payment.
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ARTICLE IV
COMPENSATION DEFERRALS BY PARTICIPANTS
4.1 PARTICIPANT COMPENSATION DEFERRALS
In order to be eligible to make Participant Compensation Deferrals for
any Plan Year an Eligible Employee must have become a Participant as provided
in Article III, and must have filed with the Committee a properly completed
Compensation Deferral Agreement, subject to the following conditions:
(a) If an Eligible Employee has become a Participant prior to the
first day of the Plan Year, the Compensation Deferral Agreement must be
filed with the Committee prior to the first day of the Plan Year for
which it is to be effective on such date as is prescribed by the
Committee.
(b) If an employee of the Company first becomes an Eligible Employee
during a Plan Year, any Compensation Deferral Agreement for that Plan
Year must be filed with the Committee within thirty (30) days after the
Committee notifies such employee in writing that he or she is an Eligible
Employee.
(c) The Eligible Employee's compensation deferral election under the
Qualified 401(k) Plan as of the effective date of the Compensation
Deferral Agreement (or if later, the date of such Eligible Employee's
first date of eligibility to join the Qualified 401(k) Plan) equals the
maximum level of contribution permitted under the terms of the Qualified
401(k) Plan.
4.2 AMOUNTS OF PARTICIPANT COMPENSATION DEFERRALS
Participant Compensation Deferrals may be any percentage of the
Participant's Compensation that is not in excess of the Maximum Excess
Percentage. The Committee may, in its discretion, require Participant
Compensation Deferrals to be in whole percentages.
For purposes of this Section 4.2, the following terms shall have the
meaning set forth in this Section 4.2:
1. The term "Maximum Excess Percentage" for a Plan Year means the
percentage equal to (a) twelve percent less (b) the Qualified 401(k) Plan
Maximum Percentage for such Plan Year.
2. The term "Qualified 401(k) Plan Maximum Percentage" for a Plan
Year for a Participant means the Percentage of Compensation representing
the maximum anticipated employee deferral under the Qualified 401(k) Plan
for such Participant, determined by dividing (a) the dollar amount of
such maximum anticipated employee deferral under the Qualified 401(k)
Plan by (b) the Participant's Compensation.
Notwithstanding the foregoing, the Committee may modify the
foregoing rules to the extent that it deems necessary to carry out the
purpose and intent of this Plan, provided, however, that in all cases,
deferrals under this Plan shall be consistent with the requirements of
Treas. Reg. Section 1.401(k)-1(e)(6), so that deferrals hereunder are
dependent upon an employee's having made the maximum elective deferrals
or contributions permitted under the Qualified 401(k) Plan.
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4.3 PROVISIONS OF COMPENSATION DEFERRAL AGREEMENT
A Participant Compensation Deferral Agreement under this Plan for a Plan
Year shall be subject to the following conditions as if each of such
conditions were fully set forth in such agreement:
(a) A Participant electing to defer compensation shall be deemed to
have waived any right to effect a hardship withdrawal from the Qualified
401(k) Plan, to the extent determined appropriate by the Committee to
comply with the requirements of Section 401(k) of the Code and federal
income tax rules regarding the deferral of compensation;
(b) A Participant Compensation Deferral Agreement for a Plan Year
shall remain in effect throughout the Plan Year and shall not be subject
to change by the Participant during such year. Not later than the last
day of a Plan Year and in accordance with rules prescribed by the
Committee, a Participant may file a new Compensation Deferral Agreement
or cease Participant Compensation Deferrals, to be effective as of the
first day of the following Plan Year. If a Participant fails to file a
new Compensation Deferral Agreement prior to the first day of a Plan Year
or to notify the Committee of an election to cease future Participant
Compensation Deferrals, to the extent determined by the Committee, the
Participant Compensation Agreement in effect for the prior Plan Year
shall be deemed to remain in effect for the following Plan Year.
(c) Compensation deferrals pursuant to a Participant Compensation
Deferral Agreement may be deducted from a Participant's compensation at
such times throughout the deferral period as are administratively
practicable, as determined by the Committee in its sole discretion;
provided, however, that the Committee may permit a Participant's
Compensation Deferral Agreement to express a preference whether (a)
Participant Compensation Deferrals under this Plan shall be taken from
the Participant's Compensation only after the maximum deferral has been
contributed with respect to such Participant to the Qualified 401(k)
Plan, or (b) Participant Compensation Deferrals shall be taken from the
Participant's Compensation in such manner as to result in total
deductions with respect to this Plan and the Qualified 401(k) Plan being
in approximately equal amounts for each payroll period over the Plan
Year, or (c) Participant Compensation Deferrals under this Plan shall be
taken from the Participant's Compensation in another manner that is
administratively practicable.
(d) To the extent that the value of a Participant's Account is
permitted, at the discretion of the Committee, to be determined by
reference to one or more indices designated by the Participant from time
to time, neither the Company, the Committee nor any person other than
such Participant shall have responsibility or liability for any adverse
economic consequences or loss resulting from the Participant's
designation.
ARTICLE V
COMPANY MATCHING CREDITS
5.1 MATCHING CREDITS
Subject to the requirements and restrictions of this Article V, and
subject also to the amendment or termination of the Plan, as of each date that
a Participant Compensation Deferral is deducted from the Compensation of a
Participant, 20th Century Industries, Inc. shall credit a Matching Credit to
the Matching Credit Subaccount of such Participant in an
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amount equal to seventy-five percent (75%) of the amount by which the sum of
(a) and (b) exceeds (c), where (a) equals such Participant's Compensation
Deferrals under this Plan, (b) equals such Participant's deferrals under the
Qualified 401(k) Plan for such year, and (c) equals matching amounts credited
to the Participant's account for such Plan Year under the Qualified 401(k)
Plan; provided, however, that in no event shall such Matching Credit exceed
seventy-five percent (75%) of the first six percent (6%) of a Participant's
Compensation paid during a period that such Participant is eligible to defer
amounts under the Qualified 401(k) Plan (determining such eligibility without
regard to statutory limitations on compensation or deferrals) less matching
amounts credited to the Participant's Account for such Plan Year under the
Qualified 401(k) Plan.
ARTICLE VI
PARTICIPANT ACCOUNTS AND SUBACCOUNTS
6.1 PARTICIPANT ACCOUNTS AND SUBACCOUNTS
(a) A Participant's Compensation Deferrals shall be credited to the
Participant's Compensation Deferral Subaccount. Such crediting shall
occur as soon as practicable after the payroll period or other period to
which such amounts relate.
(b) Matching Credits with respect to such Participant shall be
credited to such Participant's Matching Credits Subaccount. Such
crediting shall occur as of the date of crediting the Participant
Compensation Deferrals to which such amounts relate.
(c) A Participant's Account under the Plan shall consist of the sum
of the Participant's Compensation Deferral Subaccount and the Participant's
Matching Credits Subaccount, subject to adjustments as provided in
Section 6.2.
6.2 VALUATION OF ACCOUNT
(a) Accounts under this Plan shall, provided in Section 2.1 and
Article XIV, consist solely of bookkeeping entries on the books of the
Company which shall be adjusted not less frequently than the last
business day of each month to reflect the crediting of earnings, gains
and losses. Not less frequently than quarterly, the Committee shall
furnish each Participant with a statement of such Participant's Account,
and each Subaccount therein.
(b) For purposes of determining the value of a Participant s
Account, the Committee may, in its discretion, permit a Participant to
designate one or more indices made available by the Committee as the
applicable investment return measurement. Such indices may, if determined
by the Committee, correspond to investment fund options generally
available under the Qualified 401(k) Plan, but shall not include stock or
other securities issued by the company or an affiliate thereof. In
accordance with rules prescribed by the Committee, a Participant may
change his or her investment fund designation for future Participant
Compensation Deferrals and Matching Credits and/or existing Account
balances once during each calendar quarter. Notwithstanding the
foregoing, neither the Company nor the Committee or any other person
shall have any responsibility or liability to invest assets of the
Company in accordance with any such designation by the Participant, nor
shall the Company or the Committee or any other person have any
responsibility in valuing any Participant's Account to give effect to any
such designation by a Participant, other than on such basis as is
determined to be administratively practicable by the Company.
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ARTICLE VII
PAYMENT OF BENEFITS
7.1 VESTING OF BENEFITS
(a) A Participant's interest in his or her Compensation Deferral
Subaccount shall be fully vested and nonforfeitable at all times.
(b) A Participant's interest in his or her Matching Credits
Subaccount shall become vested and nonforfeitable in accordance with the
provisions of the Qualified 401(k) Plan applicable to vesting in the
value of matching contributions under such Plan (including provisions of
the Qualified 401(k) Plan relating to vesting upon termination, partial
termination or other vesting event under such plan). Notwithstanding
provisions of the preceding provisions of this Section 7.1(b), in the
event of a Participant's Separation of Service following a "Change in
Control" as such term is defined from time to time in the 20th Century
Industries Supplemental Executive Retirement Plan, a Participant's
interest in his or her Matching Credits Subaccount shall become fully
vested and nonforfeitable.
7.2 FORM AND DATE OF PAYMENT
Except as provided in Section 7.3 or Article IX, no portion of a
Participant s Account under this Plan shall be paid to any person prior to a
Participant's Separation from Service. Following Separation from Service
payment of a Participant's vested interest in his or her Account under this
Plan shall be made in accordance with such method payment elections as the
Participant has made in accordance with Article III of this Plan, commencing
as soon as practicable following such Separation from Service, provided,
however, that at the sole discretion of the Committee and notwithstanding any
prior election by the Participant for a lump sum distribution of any portion
of the Participant's Account, distribution of the entire Account balance may
be made in substantially equal quarterly payments over a period of five (5)
years.
For purposes of this Section 7.2, payments shall reflect the valuation of
a Participant's Account as of the end of the most recent complete valuation
date preceding payment, or such other, more recent, valuation date as is
determined by the Committee in its sole discretion, to be administratively
practicable.
7.3 HARDSHIP DISTRIBUTIONS
Upon application submitted to the Committee in such form and manner as
the Committee may prescribe, an amount may be distributable to a Participant
prior to the date of distribution specified in Section 7.2 above, provided
that the Committee determines, in its sole discretion, that the distribution
is on account of an "unforseeable emergency," as defined below in this Section
7.3, and provided further that a determination is made by the Committee that
such distribution will not result in constructive receipt of income by any
Participant for federal income tax purposes, or otherwise affect the federal
income tax treatment of the Plan. In making such determination as to tax
matters, the Committee may engage and rely upon opinions rendered by, tax
experts selected or approved by the Committee.
For purposes of this Section 7.3, the term "unforeseeable emergency"
shall mean severe financial hardship to the Participant resulting from a
sudden and unexpected illness or accident of the Participant or of a dependent
(as defined in section 152(a) of the Code) of the Participant, loss of the
Participant's property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the
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control of the Participant. The circumstances that will constitute an
unforeseeable emergency will depend upon the facts of each case, but, in any
case, payment may not be made to the extent that such hardship is or may be
relieved -- (i) through reimbursement or compensation by insurance or
otherwise or (ii) by liquidation of the Participant's assets, to the extent
the liquidation of such assets would not itself cause severe financial
hardship.
ARTICLE VIII
DEATH BENEFITS
In the event of the death of a Participant, the undistributed portion of
the Participant's vested interest in his or her Account shall be payable in a
single lump sum to the beneficiary designated by the Participant for this
purpose. Such payment shall be made as soon as practicable following
verification of death and verification of the proper payee(s). If no
beneficiary is then living, no beneficiary can be located, or none has been
designated, any amount then payable shall be paid to such persons as would be
entitled to payment under provisions of the Qualified 401(k) Plan as then in
effect pertaining to the identity of payees in the event of a failure to
designate a beneficiary under such plan. This Plan shall not be required to
give effect to disclaimers, whether made under state or federal law.
Each Participant shall have the opportunity, from time to time, to
designate one or more beneficiaries, but no such designation shall be
effective unless such designation is made on forms prescribed for such purpose
by the Committee, and such designation is received by the Committee prior to
the date of the Participant's death. It is each Participant's sole
responsibility to obtain such consents, and to take such other actions as may
be necessary or appropriate in connection with participation in this Plan and
in connection with the designation of any beneficiary, including but not
limited to obtaining spousal or other consents, as may be necessary or
appropriate to reflect marital property, support, or other obligations arising
under contract, order or by operation of law.
ARTICLE IX
RIGHT TO TERMINATE OR MODIFY PLAN
By action of the Board of Directors of 20th Century Industries or its
delegate, 20th Century Industries, Inc. may modify or terminate this Plan
without further liability to any Eligible Employee or former employee or any
other person. Notwithstanding the preceding provisions of this Article IX,
except as expressly required by law, this Plan may not be modified or
terminated as to any Participant in a manner that adversely affects the
payment of benefits theretofore accrued by such Participant, except that in
the event of the termination of the Plan as to all Participants, this Plan may
in the sole discretion of the Board or its delegate be modified to accelerate
payment of benefits to Participants.
ARTICLE X
NO ASSIGNMENT, ETC.
Benefits under this Plan may not be assigned or alienated and shall not
be subject to the claims of any creditor. A Participant shall not be permitted
to borrow from an Account under the Plan, nor shall a Participant be permitted
to pledge or otherwise use his Account under the Plan as security for any loan
or other obligation. No payments shall be made to any person or persons other
than expressly provided herein, or on any date or dates other than as
expressly provided herein.
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ARTICLE XI
THE COMMITTEE
(a) The appointment, removal and resignation of members of the
Committee shall be governed by the Board of Directors of 20th Century
Industries, Inc. Subject to change by the said Board, the membership of
the Committee shall be the same as the membership of the Committee of the
Qualified 401(k) Plan.
(b) The Committee shall have authority to oversee the management and
administration of the Plan, and in connection therewith is authorized in
its sole discretion to make, amend and rescind such rules as it deems
necessary for the proper administration of the Plan, to make all other
determinations necessary or advisable for the administration of the Plan
and to correct any defect or supply any omission or reconcile any
inconsistency in the Plan in the manner and to the extent that the
Committee deems desirable to carry the Plan into effect. The powers and
duties of the Committee shall include without limitation, the following:
(i) Resolving all questions relating to the eligibility of
select management and highly compensated employees to become
Participants; and
(ii) Resolving all questions regarding payment of benefits
under the Plan and other questions regarding plan participation.
Any action taken or determination made by the Committee shall be
conclusive on all parties. The exercise of or failure to exercise any
discretion reserved to the Committee to grant or deny any benefit to a
Participant or other person under the Plan shall in no way require the
Committee or any person acting on behalf thereof, to similarly exercise or
fail to exercise such discretion with respect to any other Participant.
ARTICLE XII
RELEASE
As a condition to making any payment under the Plan, or to giving effect
to any beneficiary designation or other election or other action under the
Plan by any Participant or any other person, the Plan Administrator may
require such consents or releases as it determines to be appropriate, and
further may require any such designation, election or other action to be in
writing, in a prescribed form and to be filed with the Committee in a manner
prescribed by the Committee. In the event the Committee determines, in its
discretion, that multiple conflicting claims may be made as to all or a part
of the same Account, the Committee may delay the making of any payment until
such conflict or multiplicity of claims is resolved.
ARTICLE XIII
NO CONTRACT OF EMPLOYMENT
This Plan shall not be deemed to give any employee the right to be
retained in the employ of the Company or to interfere with the right of the
Company to discharge or retire any employee at any time, nor shall this Plan
interfere with the right of the Company to establish the terms and conditions
of employment of any employee.
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ARTICLE XIV
COMPANY'S OBLIGATION TO PAY BENEFITS
Nothing contained in this Plan and no action taken pursuant to the
provisions of this Plan shall create or be construed to create a trust of any
kind, or a fiduciary relationship between the Company, and any Employee, an
Employee's beneficiary(ies) or any other person. Any compensation deferred
under the provisions of this Plan shall continue for ail purposes to be a part
of the general funds of the Company. To the extent that any person acquires a
right to receive payments from the Company under this Plan such right shall be
no greater than the right of any unsecured general creditor of the Company.
Notwithstanding the preceding provisions of this Article XIV, assets may be
transferred by the Company to a trust constituting a "rabbi trust," for the
purpose of providing benefits described herein.
ARTICLE XV
CLAIM REVIEW PROCEDURE
(a) A person who believes that he or she has not received all
payments to which he or she is entitled under the terms of this Plan may
submit a claim therefor. Within ninety (90) days following receipt of a
claim for benefits under this Plan, and all necessary documents and
information, the Committee or its authorized delegate reviewing the claim
shall, if the claim is not approved, furnish the claimant with written
notice of the decision rendered with respect to the application.
(b) The written notice contemplated in (a) above shall set forth:
(i) the specific reasons for the denial, with reference to the
Plan provisions upon which the denial is based;
(ii) a description of any additional information or material
necessary for perfection of the application (together with an
explanation why the material or information is necessary); and
(iii) an explanation of the Plan's claim review procedure.
(c) A claimant who wishes to contest the denial of his claim for
benefits or to contest the amount of benefits payable to him shall follow
the procedures for an appeal of benefits as set forth below, and shall
exhaust such administrative procedures prior to seeking any other form of
relief.
(d) A claimant who does not agree with the decision rendered as
provided above in this Article XV with respect to his application may
appeal the decision to the Committee. The appeal shall be made, in
writing, within sixty (60) days after the date of notice of such decision
with respect to the application. If the application has neither been
approved nor denied within the ninety-day (90) period provided in (a)
above, then the appeal shall be made within sixty (60) days after the
expiration of the ninety-day (90) period.
(e) The claimant may request that his application be given full and
fair review by the Committee. The claimant may review all pertinent
documents and submit issues and comments in writing in connection with
the appeal. The decision of the Committee shall be made promptly, and not
later than sixty (60) days after the Committee's receipt of a request for
review, unless special circumstances require an extension of time for
processing, in which case a decision shall be
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rendered as soon as possible, but not later than one hundred twenty (120)
days after receipt of a request for review. The decision by the
Committee on review shall be in writing and shall include specific
reasons for the decision, written in a manner calculated to be
understood by the claimant with specific reference to the pertinent
Plan provisions upon which the decision is based.
ARTICLE XVI
ARBITRATION
A claimant may contest the Committee s denial of his or her appeal only
by submitting the matter to arbitration. In such event, the claimant and the
Committee shall select an arbitrator from a list of names supplied by the
American Arbitration Association in accordance with such Association's
procedures for selection of arbitrators, and the arbitration shall be
conducted in accordance with the rules of such Association. The arbitrator's
authority shall be limited to the affirmance or reversal of the Committee s
denial of the appeal, and the arbitrator shall have no power to alter, add to
or subtract from any provision of this Plan. Except as otherwise required by
the Employee Retirement Income Security Act of 1974, the arbitrator's decision
shall be final and binding on all parties, if warranted on the record and
reasonably based on applicable law and the provisions of this Plan.
ARTICLE XVII
MISCELLANEOUS
17.1 SUCCESSOR AND ASSIGNS
The Plan shall be binding upon and shall inure to the benefit of the
Company, its successors and assigns, and all Participants.
17.2 NOTICES
Any notice or other communication required or permitted under the Plan
shall be in writing, and if directed to the Company shall be sent to the
Committee or its authorized delegate, and if directed to a Participant shall
be sent to such Participant at his last known address as it appears on the
records of the Company.
17.3 LIMITATIONS ON LIABILITY
(a) The Company does not warrant any tax benefit nor any financial
benefit under the Plan. Without limitation to the foregoing, the Company
and its officers, employees and agents shall be held harmless by the
Participant or Beneficiary from, and shall not be subject to any
liability on account of, the federal or state or local income tax
consequences, or any other consequences of any deferrals or credits with
respect to Participants under the Plan.
(b) The Company, its officers, employees, and agents shall be held
harmless by the Participant from, and shall not be subject to any
liability hereunder for, all acts performed in good faith.
17.4 CERTAIN SMALL BENEFITS
Notwithstanding any other provision of this Plan to the contrary, in the
case of a Participant whose Account hereunder is not in Supplemental of One
Thousand Dollars ($1,000) and who ceases to make Participant Compensation
Deferrals, the Committee
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may, in its sole discretion, distribute the Participant's entire vested
interest in the Account, in lieu of any further benefit under this Plan.
17.5 GOVERNING LAW
This Plan and any Participant Compensation deferral agreement hereunder
are subject, to the laws of the State of California, to the extent not
preempted by ERISA.
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IN WITNESS WHEREOF, 20th Century Industries has caused this instrument to
be executed by its duly authorized officers, effective as of the Effective
Date set forth hereinabove.
20TH CENTURY INDUSTRIES
DATE: January 3, 1996 By: /s/ RICHARD A. ANDRE
---------------------------- ------------------------------
By: /s/ JOHN R. BOLLINGTON
------------------------------
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EXHIBIT 10(o)
20TH CENTURY INDUSTRIES
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
TABLE OF CONTENTS
Page
----
1. Purpose 1
2. Definitions 1
3. Retirement Income Benefits 5
(a) Eligibility to Participate
(b) Normal Retirement
(c) Early Retirement
4. Change in Control 6
(a) Termination of Employment Within Three Years
After a Change in Control
(b) Termination of Employment at any Time After
Change in Control
(c) Legal Fees
5. Death Benefits; Executive's Survivor Benefit 9
6. Additional Provisions 9
(a) Benefit Agreement
(b) Designation of Beneficiary
(c) Exclusion for Suicide or Self-Inflicted Injury
(d) Leave of Absence
(e) Disability
(f) Monthly Payments
(g) Withholding
7. Funding of Benefits 11
8. Administration of the Plan 11
(a) The Committee
(b) Expenses of the Committee
(c) Bonding and Compensation
(d) Information to be Submitted to the Committee
(e) Notices, Statements and Reports
(f) Service of Process
(g) Insurance
(h) Indemnity
(i)
<PAGE>
TABLE OF CONTENTS
(continued)
9. Claims Procedure 14
(a) Filing Claim for Benefits
(b) Appeals Procedure
(c) Arbitration
10. Amendment, Termination or Suspension 16
11. Miscellaneous 17
(a) Participant Rights
(b) Alienation
(c) Partial Invalidity
(d) Choice of Law
(e) Payment to Minors or Persons Under Legal
Disability
(f) Gender, Tense and Headings
(ii)
<PAGE>
20TH CENTURY INDUSTRIES
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
1. PURPOSE
The principal objective of this Supplemental Executive Retirement Plan
(the "Plan") is to ensure the payment of a competitive level of retirement
income in order to attract, retain and motivate selected executives. The
Plan is designed to provide a benefit which, when added to other retirement
income of the executive, will meet the objective described above. The Plan
is intended and designed to constitute an unfunded arrangement, described in
Section 4(b)(5) of the Employee Retirement Income Security Act of 1974,
maintained for the purpose of providing benefits for certain employees in
excess of the limitations on contributions and benefits imposed by Section
415 of the Internal Revenue Code of 1986. Eligibility for participation in
the Plan shall be limited to executives selected by a committee of the Board
of Directors. This instrument represents an amendment and restatement of the
20th Century Industries Executive Financial Security Plan For Executive
Management, as adopted effective ________________________ and amended and
restated effective January 1, 1988.
2. DEFINITIONS
The following definitions, set forth in alphabetical order, are used
throughout the Plan. Whenever words or phrases have initial capital letters
in the Plan, a special definition for those words or phrases is set forth
below.
(a) "Compensation" means base salary and cash bonus.
(b) "Beneficiary" means the person, persons or entity last
designated in accordance with the provisions of Section 6(b) to receive
distribution of survivor benefits under the Plan in the event of the death of
the Executive or Participant, or if there is no properly designated
Beneficiary surviving, the person, persons or entity designated in Section
6(b) to receive the distribution of survivor benefits under the Plan.
(c) "Board of Directors" means the Board of Directors of 20th
Century Industries.
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(d) "Change in Control" means, after the effective date of this
Plan:
(i) There shall be consummated (A) any consolidation or merger of
the Company in which the Company is not the continuing or surviving
corporation or pursuant to which substantially all of the shares
of the Company's common stock would be converted into cash,
securities or other property, other than a merger of the Company in
which the holders of the Company's common stock immediately prior to
the merger have the same proportionate ownership of common stock
of the surviving corporation immediately after the merger, or
(B) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or substantially all,
of the assets of the Company; or
(ii) The stockholders of the Company approve a plan or proposal
for the liquidation or dissolution of the Company; or
(iii) Any "person" (as defined in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
other than a person owned by or directly or indirectly managed
by the Company, shall become the owner, directly, and exclusive
of any unexercised conversion, warrant or option rights of
50 percent or more of the Company's outstanding common stock; or
(iv) During any period of two consecutive years, individuals who
at the beginning of such period constitute the entire Board of
Directors of the Company shall cease for any reason to constitute
a majority thereof unless the election, or the nomination for
election by the Company's stockholders, of each new director was
approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
(e) "Code" means the Internal Revenue Code of 1986, as in effect
on the date of execution of this Plan document and as thereafter amended from
time to time.
(f) "Committee" mean the 20th Century Industries Company
Nonqualified Supplemental Benefit Committee.
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(g) "Company" means 20th Century Industries and any other entity
selected by the Board of Directors for inclusion in the Plan.
(h) "Disabled Participant" means an Executive who the Committee
determines is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment. An individual's
disabled status shall be determined by the Committee, based on such evidence
as the Committee determines to be sufficient, including, but not limited to,
examination at the Company's expense by a physician of the Company's choice.
(i) "Early Retirement Date" means any retirement date following the
Participant's 55th birthday provided that the Participant has at least 10
Years of Service and such retirement date is before the Normal Retirement
Date.
(j) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(k) "Executive" means officers of the Company or management or
highly compensated employees of the Company who have been specifically
designated by the Board of Directors as eligible to become a Participant in
this Plan, such designation not having been revoked. The Board of Directors
shall have the power to make or revoke such designation in its sole
discretion, and any designation or revocation by the Board of Directors shall
be binding and final upon all employees, Beneficiaries and other interested
persons. If an individual's designation as an Executive is revoked, the
individual shall cease to be an Executive for all purposes of this Plan,
without regard to whether such individual may be an executive for any other
purpose relating to his/her employment or other benefits.
(l) "Final Average Compensation" means the average annual
Compensation during the 3 year period preceding retirement or death.
(m) "Normal Retirement Benefit" means the normal retirement
benefit provided under the Qualified Plan.
(n) "Normal Retirement Date" means the first day of the month
coinciding with or next following the Participant's 65th birthday.
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(o) "Participant" means an Executive who has been designated by
the Board of Directors to be eligible to qualify for benefits under this Plan.
(p) "Participant's Survivor Benefit" means the benefit payable to
the Beneficiary of a deceased Participant, as described in Section 5.
(q) "Qualified Plan" means the 20th Century Industries Pension
Plan, as amended from time to time, which is a defined benefit pension plan
qualified under Section 401(a) of the Code.
(r) "Retirement Benefit" means the benefit described in Section 3.
(s) "Social Security Benefit" means the estimated primary old age
insurance benefit the Participant is or would be entitled to receive on
his/her retirement date, based on the provisions of the Social Security Act
as in effect at his/her termination of employment. In the case of retirement
before the earliest date the Participant is eligible to receive a Social
Security benefit, "Social Security Benefit" is the benefit payable as of the
earliest date the Participant will be eligible to receive a Social Security
benefit, assuming he/she has no compensation after his/her termination of
employment. In the case of retirement after the earliest date the
Participant is eligible to receive a Social Security benefit, the "Social
Security Benefit" is the benefit payable as of the Participant's actual
retirement date
In the case of a benefit payable to a Beneficiary, the "Social
Security Benefit" is the benefit that is (or would have been) payable to the
Participant as determined under the preceding paragraph.
However, the benefit as determined in Section 3(a) will not be
reduced by such Social Security Benefit until the Participant attains the
earliest age at which he/she is eligible to receive a Social Security
benefit. In the case of a benefit payable to a Beneficiary, the benefit as
determined in Section 3(a) will not be reduced by such Social Security
Benefit until the date the Beneficiary attains the earliest age at which
he/she is eligible to receive a Social Security benefit.
(t) "Year of Service" means a 12-consecutive month period
commencing on the Executive's date of hire by the Company, subsidiary of the
Company or
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any business entity which became a part of the Company or subsidiary of the
Company.
3. RETIREMENT INCOME BENEFITS
(a) NORMAL RETIREMENT
A Participant who retires on his/her Normal Retirement Date
shall he entitled to a Retirement Income Benefit in the form of a monthly
benefit, payable for one hundred eighty (180) months, commencing at Normal
Retirement Date payable to the Participant or his/her Beneficiary equal to:
(i) 60% of his/her Final Average Compensation provided
such Participant has completed 15 Years of Service. In the event such
Executive has not completed 15 Years of Service, such Retirement Income
Benefit shall be reduced by 5% for each year of Service less than 15 Years of
Service. In no event shall such benefit be less than fifty percent (50%) of
the benefit payable if the Participant had completed 15 Years of Service;
(ii) Reduced by the annual amount of the Participant's
benefit under the Qualified Plan calculated as if payment were made as a
Single Life Annuity as defined in the Qualified Plan.
(iii) Further reduced by 50% of the Participant's Social
Security Benefit.
(b) OPTIONAL FORM OF BENEFIT
A Participant who is entitled to a Retirement Income Benefit
in accordance with Subsection (a) above, may elect to have his/her benefit
payable in a 100 percent joint and survivor annuity which is the actuarial
equivalent of the benefit described in Subsection (a) above. Such election
must be in the form prescribed by the Committee and no later than 90 days
after termination of employment.
(c) EARLY RETIREMENT
A Participant who retires prior to his/her Normal Retirement
Date, but after reaching his/her Early Retirement Date, shall be entitled to
a Retirement Income Benefit payable in the normal form of a monthly benefit,
payable for one hundred eighty (180) months, commencing on his/her Early
Retirement Date payable to the
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Participant equal to the Retirement Income Benefit as calculated under
Sections 3(a)(i), (ii) and (iii), but reduced by five percent (5%) for each
year retirement occurs prior to the Participant attaining age sixty-five (65).
4. CHANGE IN CONTROL
(a) TERMINATION OF EMPLOYMENT WITHIN THREE YEARS AFTER A CHANGE IN
CONTROL
If such Participant's employment terminates for any reason
within three years after a Change in Control but prior to his/her Normal
Retirement Date, such Participant shall be entitled to a Retirement Income
Benefit in the form of a monthly benefit commencing on the first day of the
month following such termination of employment, payable to the Participant
for one hundred eighty months (180) which is calculated in accordance with
Section 3(a) and reduced to reflect early retirement in accordance with
Section 3(c).
(b) TERMINATION OF EMPLOYMENT AT ANY TIME AFTER CHANGE IN CONTROL
If such Executive's employment terminates at any time after a
Change in Control, but prior to his/her Normal Retirement Date, such
Executive shall be entitled to a Retirement Income Benefit payable on the
first day of the month following such termination of employment, in the form
of a lump sum distribution actuarially determined to be the present value of
the amount calculated in accordance with Section 3(a) and reduced to reflect
early retirement in accordance with Section 3(c); unless such termination of
employment is by the Company for Cause, as defined in Paragraph (i) below, or
by the Executive other than for Good Reason, as defined in Paragraph (ii)
below.
(i) Termination by the Company of an Executive's employment
for "Cause" shall mean termination upon (A) the willful and continued failure
by the Executive to substantially perform his/her duties with the Company
(other than any such failure resulting from his/her incapacity due to
physical or mental illness or any such actual or anticipated failure after
the issuance of a notice of termination, by the Executive for Good Reason, as
defined in Paragraph (ii) below), after a written demand for substantial
performance is delivered to the Executive by the Board of Directors, which
demand specifically identifies the manner in which the Board
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believes that the Executive has not substantially performed his/her duties,
or (B) personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order. For purposes of this Paragraph (i), no act, or
failure to act, on the part of an Executive shall be deemed "willful" unless
done, or omitted to be done, by him/her not in good faith and without
reasonable belief that his/her action or omission was in the best interest of
the Company. Notwithstanding the foregoing, the Executive shall not be deemed
to have been terminated for Cause unless and until there shall have been
delivered to him/her a copy of a resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire membership of the
Board of Directors at a meeting of the Board called and held for such purpose
(after reasonable notice to the Executive and an opportunity for the
Executive, together with counsel, to be heard before the Board), finding that
in the good faith opinion of the Board the Executive was guilty of conduct
set forth above in Subparagraph (A) or (B) of the first sentence of this
Paragraph and specifying the particulars thereof in detail.
(ii) An Executive shall be entitled to terminate his/her
employment for Good Reason. For purposes of this Plan Agreement, "Good
Reason" shall mean, without the Executive's express written consent, the
occurrence after a Change in Control of any of the following circumstances
unless, in the case of Subparagraph (A), (E) or (F), such circumstances are
fully corrected prior to the Executive's date of termination notice given in
respect thereof:
(A) the assignment to the Executive of any duties
inconsistent with his/her status as a senior executive officer of the Company
or a substantial adverse alteration in the nature or status of his/her
responsibilities from those in effect immediately prior to the Change in
Control;
(B) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof or as the same may be increased
from time to time except for across-the-board salary reductions similarly
affecting all senior executives of the Company and all senior executives of
any person in control of the Company;
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(C) the Company requiring the Executive to be based
anywhere outside the greater Los Angeles Metropolitan Area other than an
office of the Company within a twenty-five (25) mile radius of the
Executive's principal place of employment by the Company on the date of a
Change in Control, except for required travel on the Company's business to
an extent substantially consistent with the Executive's present business
travel obligations;
(D) the failure by the Company, without the Executive's
consent, to pay to him/her any portion of his/her current compensation except
pursuant to an across-the-board compensation deferral similarly affecting all
senior executives of the Company and all senior executives of any person in
control of the Company, or to pay to him/her any portion of an installment of
deferred compensation under any deferred compensation program of the Company,
within seven (7) days of the date such compensation is due;
(E) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately prior to
the Change in Control which is material to the Executive's total
compensation, including but not limited to this Plan, the Qualified Plan or
any similar plans adopted prior to the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by the Company to continue the
Executive's participation therein (or in such substitute or alternative plan)
on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Change in Control;
(F) the failure by the Company to continue to provide
the Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, life insurance, medical, health
and accident, or disability plans in which he/she was participating at the
time of the Change in Control, the taking of any action by the Company which
would directly or indirectly materially reduce any of such benefits or
deprive the Executive of any material fringe benefit enjoyed by such
Executive at the time of the Change in Control, or the failure by the Company
to provide the Executive with the number of paid vacation days to which the
Executive is entitled in accordance with
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the Company's vacation policy applicable to the Executive at the time of the
Change in Control.
(c) LEGAL FEES
The Company shall pay to the Executive or his/her Beneficiary
legal fees and expenses incurred by such Executive or his/her Beneficiary in
seeking to obtain or enforce as against the Company any right or benefit
provided under this Section 4 of the Plan after a Change in Control.
5. DEATH BENEFITS: PARTICIPANT'S SURVIVOR BENEFIT
The Beneficiary of a Participant who dies while a Participant and who
has reached Normal Retirement Date or Early Retirement Date shall be entitled
to receive a Participant's Survivor Benefit consisting of benefits calculated
in accordance with Section 3(a) if such Participant had reached Normal
Retirement Date prior to his/her death or with Section 3(c) if such
Participant had reached Early Retirement Date prior to his/her death.
6. ADDITIONAL PROVISIONS
(a) BENEFIT AGREEMENT
The Committee shall provide to each Executive within 60 days
of the later of the date of execution of the Plan or the date the employee
first became an Executive a form of benefit agreement, which shall set forth
the Executive's acceptance of the benefits provided hereunder and his/her
agreement to be bound by the terms of the Plan.
(b) DESIGNATION OF BENEFICIARY
(i) A Participant shall designate a primary Beneficiary to
receive any survivor benefits payable under the Plan, and may designate a
contingent Beneficiary to receive any survivor benefits payable under this
Plan in the event of the death of the primary Beneficiary, either before or
after benefits commence to be paid. Notwithstanding the foregoing, a
Participant may authorize a designated Beneficiary to designate a successor
Beneficiary to receive any survivor benefits remaining to be paid to such
Beneficiary under the Plan following the death of such Beneficiary. If a
Participant exercises his/her right to authorize a designated Beneficiary to
designate a successor Beneficiary under the Plan, any prior designation of a
contingent Beneficiary with respect to such benefits shall be invalid.
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(ii) Whenever a Participant designates a Beneficiary to
receive benefits under this Plan or authorizes a Beneficiary to designate a
successor Beneficiary to receive benefits under this Plan, such designation
or authorization shall be made by the execution and delivery to the
Committee, prior to the Participant's death, of an instrument in a form
satisfactory to the Committee. If a Participant with a spouse designates as
a primary Beneficiary a person other than or in addition to that spouse,
unless such spouse shall consent to such designation in writing, the primary
Beneficiary of the Participant shall be such spouse. If a deceased
Participant shall have failed properly to designate a Beneficiary, or if the
Committee shall be unable to locate a designated Beneficiary after reasonable
efforts have been made, or if for any reason such designation shall be
legally ineffective, or if no Beneficiary shall have survived the
Participant, the designated Beneficiary shall be the estate of the
Participant.
The Beneficiary of a Participant who dies shall receive a
Participant's survivor benefit in accordance with the following schedules:
(i) Retired Participant - Payouts to the Beneficiary
shall continue until payments from the plan to the Participant prior to
death and to the Beneficiary after the Participant's death, for a total
of 180 months.
(ii) Participants over age 65 who have not retired -
Payouts shall be made to the Beneficiary for 180 months.
(iii) Participants over age 55 with 10 years of service
who have not reached age 65 - Payouts to the Beneficiary shall be made for
180 months, reduced by 5% for each full year that the Participant's age on
date of death precedes age 65.
(c) EXCLUSION OF SUICIDE OR SELF-INFLICTED INJURY
Notwithstanding any other provision of the Plan, no benefits
shall be paid to any Participant, or spouse or Beneficiary in the event of
the death of the Participant within two years of the later of the date he/she
first became a Participant or the date he/she executed the benefit agreement
referred to in Subsection (a) as the result of suicide or self-inflicted
injury.
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(d) LEAVE OF ABSENCE
A Participant who is on an approved leave of absence with
salary, or on an approved leave of absence without salary for a period of not
more than six months, shall be deemed to be a Participant employed by the
Company during such leave of absence, subject to the approval of the
Committee. A Participant who is on an approved leave of absence without
salary for a period in excess of six months shall be deemed to have
voluntarily terminated his/her employment, for purposes of this Plan, as of
the end of such six-month period.
(e) DISABILITY
A Disabled Participant shall be eligible to receive a
Retirement Income Benefit calculated in accordance with Section 3(a) if such
executive reached Normal Retirement Date or in accordance with Section 3(c)
if such Participant reached Early Retirement Date.
(f) MONTHLY PAYMENTS
Periodic payments hereunder shall be paid in equal monthly
amounts.
(g) WITHHOLDING
Benefit payments hereunder shall be subject to applicable
federal, state or local withholding for taxes.
7. FUNDING OF BENEFITS
The Plan shall be unfunded. All benefits payable under the Plan shall
be paid from the Company's general assets, and nothing contained in the Plan
shall require the Company to set aside or hold in trust any funds for the
benefit of a Participant or his/her Beneficiary, who shall have the status of
a general unsecured creditor with respect to the Company's obligation to make
payments under the Plan. Any funds of the Company available to pay benefits
under the Plan shall be subject to the claims of general creditors of the
Company and may be used for any purpose by the Company.
8. ADMINISTRATION OF THE PLAN
(a) THE COMMITTEE
The appointment, removal and resignation of members of the
Committee shall be governed by the Board of Directors.
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The Committee shall administer the Plan and shall keep a
written record of its action and proceedings regarding the Plan and all
dates, records and documents relating to its administration of the Plan.
The Committee is authorized to interpret the Plan, to make,
amend and rescind such rules as it deems necessary for the proper
administration of the Plan, to make all other determinations necessary or
advisable for the administration of the Plan and to correct any defect or
supply any omission or reconcile any inconsistency in the Plan in the manner
and to the extent that the Committee deems desirable to carry the Plan into
effect. The powers and duties of the Committee shall include without
limitation, the following:
(i) Resolving all questions relating to the eligibility of
Executives to become Participants;
(ii) Determining the amount of benefits payable to
Participants or their Beneficiaries and authorizing and directing the Company
with respect to the payment of benefits under the Plan;
(iii) Construing and interpreting the Plan whenever necessary
to carry out its intention and purpose and making and publishing such rules
for the regulation of the Plan as are not inconsistent with the terms of the
Plan;
(iv) Compiling and maintaining all records it determines to be
necessary, appropriate or convenient in connection with the administration of
the Plan; and
(v) Engaging any administrative, actuarial, legal, medical,
accounting, clerical, or other services it may deem appropriate to effectuate
the Plan.
Any action taken or determination made by the Committee shall, except as
otherwise provided in Section 10 below, be conclusive on all parties. No
members of the Committee shall vote on any matter affecting such member.
(b) EXPENSES OF THE COMMITTEE
The expenses of the Committee properly and actually incurred
in the performance of its duties under the Plan shall be paid by the Company.
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(c) BONDING AND COMPENSATION
The members of the Committee shall serve without bond, and
without compensation for their services as Committee members except as the
Board of Directors may provide in its discretion.
(d) INFORMATION TO BE SUBMITTED TO THE COMMITTEE
To enable the Committee to perform its functions, the Company
shall supply full and timely information to the Committee on all matters
relating to Executives and Participants as the Committee may require, and
shall maintain such other records as the Committee may determine are
necessary in order to determine the benefits due or which may become due to
Participants or their Beneficiaries under the Plan. The Committee may rely
on such records as conclusive with respect to the matters set forth therein.
(e) NOTICES, STATEMENTS AND REPORTS
20th Century shall be the "administrator" of the Plan as
defined in Section 3(16)(A) of ERISA for purposes of the reporting and
disclosure requirements imposed by ERISA and the Code. The Committee shall
assist 20th Century, as requested, in complying with such reporting and
disclosure requirements.
(f) SERVICE OF PROCESS
The Committee may from time to time designate an agent of the
Plan for the service of legal process. The Committee shall cause such agent
to be identified in materials it distributes or causes to be distributed when
such identification is required under applicable law. In the absence of such
a designation, 20th Century shall be the agent of the Plan for the service of
legal process.
(g) INSURANCE
20th Century, in its discretion, may obtain, pay for and keep
current a policy or policies of insurance, insuring the Committee members,
the members of the Board of Directors and other employees to whom any
responsibility with respect to the administration of the Plan has been
delegated against any and all costs, expenses and liabilities (including
attorneys' fees) incurred by such persons as a result of any act, or
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omission to act, in connection with the performance of their duties,
responsibilities and obligations under the Plan and any applicable law.
(h) INDEMNITY
If 20th Century does not obtain, pay for and keep current the
type of insurance policy or policies referred to in Subsection (g), or if
such insurance is provided but any of the parties referred to in Subsection
(g) incur any costs or expenses which are not covered under such policies,
then the Company shall indemnify and hold harmless, to the extent permitted
by law, such parties against any and all costs, expenses and liabilities
(including attorneys' fees) incurred by such parties in performing their
duties and responsibilities under this Plan, provided that such party or
parties were not guilty of wilful misconduct. In the event that such party is
named as a defendant in a lawsuit or proceeding involving the Plan, the party
shall be entitled to receive on a current basis the indemnity payments
provided for in this Subsection, provided however that if the final judgment
entered in the lawsuit or proceeding holds that the party is guilty of wilful
misconduct with respect to the Plan, the party shall be required to refund
the indemnity payments that it has received.
9. CLAIMS PROCEDURE
(a) FILING CLAIM FOR BENEFITS
If a Participant or Beneficiary (hereinafter referred to as the
"Applicant") does not receive the timely payment of the benefits which the
Applicant believes are due under the Plan, the Applicant may make a claim for
benefits in the manner hereinafter provided.
All claims for benefits under the Plan shall be made in writing
and shall be signed by the Applicant. Claims shall be submitted to a
representative designated by the Committee and hereinafter referred to as the
"Claims Coordinator." The Claims Coordinator may, but need not, be a member
of the Committee. If the Applicant does not furnish sufficient information
with the claim for the Claims Coordinator to determine the validity of the
claim, the Claims Coordinator shall indicate to the Applicant any additional
information which is necessary for the Claims Coordinator to determine the
validity of the claim.
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Each claim hereunder shall be acted on and approved or
disapproved by the Claims Coordinator within 90 days following the receipt by
the Claims Coordinator of the information necessary to process the claim.
In the event the Claims Coordinator denies a claim for benefits
in whole or in part, the Claims Coordinator shall notify the Applicant in
writing of the denial of the claim and notify the Applicant of his/her right
to a review of the Claims Coordinator's decision by the Committee. Such
notice by the Claims Coordinator shall also set forth, in a manner calculated
to be understood by the Applicant, the specific reason for such denial, the
specific provisions of the Plan or Agreement on which the denial is based, a
description of any additional material or information necessary to perfect
the claim with an explanation of why such material or information is
necessary, and an explanation of the Plan's appeals procedure as set forth in
this Section.
If no action is taken by the Claims Coordinator on an
Applicant's claim within 90 days after receipt by the Claims Coordinator,
such claim shall be deemed to be denied for purposes of the following appeals
procedure.
(b) APPEALS PROCEDURE
Any Applicant whose claim for benefits is denied in whole or in
part may appeal from such denial to the Committee for a review of the
decision by the Committee. Such appeal must be made within three months after
the Applicant has received actual or constructive notice of the denial as
provided above. An appeal must be submitted in writing within such period
and must:
(i) Request a review by the Committee of the claim for
benefits under the Plan;
(ii) Set forth all of the grounds upon which the Applicant's
request for review is based on and any facts in support thereof; and
(iii) Set forth any issues or comments which the Applicant
deems pertinent to the appeal.
The Committee shall regularly review appeals by Applicants.
The Committee shall act upon each appeal within 60 days after receipt thereof
unless special circumstances require an extension of the time for
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processing, in which case a decision shall be rendered by the Committee as
soon as possible but not later than 120 days after the appeal is received by
the Committee.
The Committee shall make full and fair review of each appeal
and any written materials submitted by the Applicant in connection therewith.
The Committee may require the Applicant to submit such additional facts,
documents or other evidence as the Committee in its discretion deems
necessary or advisable in making its review. The Applicant shall be given
the opportunity to review pertinent documents or materials upon submission of
a written request to the Committee, provided the Committee finds the
requested documents or materials are pertinent to the appeal.
On the basis of its review, the Committee shall make an
independent determination of the Applicant's eligibility for benefits under
the Plan. The decision of the Committee on any claim for benefits shall be
final and conclusive upon all parties thereto.
In the event the Committee denies an appeal in whole or in
part, the Committee shall give written notice of the decision to the
Applicant, which notice shall set forth, in a manner calculated to be
understood by the Applicant, the specific reasons for such denial and which
shall make specific reference to the pertinent provisions of the Plan or
Agreement on which the Committee's decision is based.
(c) ARBITRATION
Any dispute or controversy arising under or in connection with
this Plan shall be settled exclusively by arbitration in Los Angeles,
California in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's
award in any court having jurisdiction; provided, however, that the Executive
or his/her Beneficiary shall be entitled to seek specific performance of
his/her right to be paid benefits under this Plan during the pendency of any
dispute or controversy arising under or in connection with this Plan.
10. AMENDMENT, TERMINATION OR SUSPENSION
(a) The Plan may be amended or terminated by the Board of
Directors at any time. Such amendment or termination may modify or eliminate
any benefit hereunder other than a benefit that is in pay status, or the
vested portion of a benefit that is not in pay status.
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(b) Except in the case of a Change of Control, if the Board of
Directors determines that payments under the Plan would have a material
adverse effect on the Company's ability to carry on its business, the Board
of Directors may suspend such payments temporarily for such time as in its
sole discretion it deems advisable, but in no event for a period in excess of
one year. The Company shall pay such suspended payments immediately upon the
expiration of the period of suspension.
(c) The Plan is intended to provide benefits for "a select group of
management or highly compensated employees" within the meaning of Sections
201, 301 and 401 of ERISA, and therefore to be exempt from the provisions of
Parts 2, 3 and 4 of Title 1 of ERISA. Accordingly, the Plan shall terminate
and, except for benefits in pay status, no further benefits shall be paid
hereunder in the event it is determined by a court of competent jurisdiction
or by an opinion of counsel that the Plan constitutes an employee pension
benefit plan within the meaning of Section 3(2) of ERISA which is not so
exempt. The preceding sentence shall be inoperative after a Change in
Control has occurred.
11. MISCELLANEOUS
(a) PARTICIPANT RIGHTS
Nothing in the Plan shall confer upon a Participant the right
to continue in the employ of the Company or shall limit or restrict the right
of the Company to terminate the employment of a Participant at any time with
or without cause.
(b) ALIENATION
Except as otherwise provided in the Plan, no right or benefit
under the Plan shall be subject to anticipation, alienation, sale,
assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, pledge, encumber or charge such right or benefit
shall be void. No such right or benefit shall in any manner be liable for or
subject to the debts, liability or torts of a Participant or Beneficiary.
(c) PARTIAL INVALIDITY
If any provision in the Plan is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
shall nevertheless
17
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continue to be in full force and effect without being impaired or invalidated
in any way.
(d) CHOICE OF LAW
The Plan shall be construed in accordance with ERISA and the
laws of the State of California.
(e) PAYMENT TO MINORS OR PERSON UNDER LEGAL DISABILITY
If any benefit becomes payable to a minor or to a person under
a legal disability, payment of such benefit shall be made only to the
conservator or the guardian of the estate of such intended recipient
appointed by a court of competent jurisdiction or any other individual or
institution maintaining or having custody of such intended recipient. A
release by such conservator, guardian, individual or institution shall
constitute a legal discharge of the Plan's obligation to the intended
recipient.
(f) GENDER, TENSE AND HEADINGS
Whenever any words are used herein in the masculine gender,
they shall be construed as though they were also used in the feminine gender
in all cases where they would so apply. Whenever any words used herein are
in the singular form, they shall be construed as though they were also used
in the plural form in all cases where they would so apply.
Headings of Sections and subsections as used herein are
inserted solely for convenience and reference and constitute no part of the
Plan.
Executed at Woodland Hills, California this 16TH day of
JANUARY, 1989.
20TH CENTURY INDUSTRIES
By: /s/ NEIL H. ASHLEY
-----------------------------------
By: /s/ A. KOBAYASHI
-----------------------------------
18
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20TH CENTURY INDUSTRIES
SAVINGS AND SECURITY PLAN
AMENDMENT AND RESTATEMENT
<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE I GENERAL ....................................................... 1
1.1 Plan Name and Purpose ......................................... 1
1.2 Effective Date................................................. 1
ARTICLE II DEFINITIONS..................................................... 2
2.1 Accounts....................................................... 2
2.2 Affiliated Company............................................. 2
2.3 Beneficiary.................................................... 3
2.4 Board of Directors............................................. 3
2.5 Code........................................................... 3
2.6 Committee...................................................... 3
2.7 Company........................................................ 3
2.8 Company Stock.................................................. 3
2.9 Compensation................................................... 3
2.10 Compensation Deferral Contributions............................ 5
2.11 Deferral Limitation............................................ 5
2.12 Distributable Benefit.......................................... 6
2.13 Effective Date................................................. 6
2.14 Eligible Employee.............................................. 6
2.15 Employee....................................................... 6
2.16 Employment Commencement Date................................... 7
2.17 ERISA.......................................................... 7
2.18 Hardship....................................................... 7
2.19 Highly Compensated Employee.................................... 8
2.20 Hour of Service................................................ 10
2.21 Investment Fund................................................ 10
2.22 Investment Manager............................................. 11
2.23 Leave of Absence............................................... 11
2.24 Matching Contributions......................................... 11
2.25 Normal Retirement.............................................. 11
2.26 Normal Retirement Date......................................... 11
2.27 Participant.................................................... 11
2.28 Participant Voluntary Contributions............................ 11
2.29 Participation Commencement Date................................ 11
2.30 Participating Employer......................................... 11
2.31 Period of Service.............................................. 12
2.32 Period of Severance............................................ 13
2.33 Plan........................................................... 13
2.34 Plan Administrator............................................. 14
2.35 Plan Year...................................................... 14
2.36 Policy......................................................... 14
2.37 Policyholder................................................... 14
2.38 Postponed Retirement Date...................................... 14
2.39 Spouse ........................................................ 14
2.40 Total and Permanent Disability................................. 14
2.41 Trust and Trust Fund........................................... 14
2.42 Trust Agreement................................................ 15
2.43 Trustee ....................................................... 15
2.44 Valuation Date................................................. 15
2.45 Vested Interest ............................................... 15
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Page
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ARTICLE III ELIGIBILITY AND PARTICIPATION.................................. 16
3.1 Eligibility to Participate...................................... 16
3.2 Date of Commencement of Participation........................... 16
3.3 Termination of Participation.................................... 16
ARTICLE IV TRUST FUND...................................................... 17
4.1 Trust Fund...................................................... 17
4.2 Contributions to the Trust Fund................................. 17
4.3 Investments..................................................... 17
4.4 Company, Committee and Trustee Not Responsible for Adequacy
of Trust Fund................................................ 17
ARTICLE V EMPLOYEE CONTRIBUTIONS........................................... 18
5.1 Employee Compensation Deferral Agreement........................ 18
5.2 Participant Voluntary Contributions............................. 18
5.3 Changes in Compensation Deferral Agreement and Participant
Voluntary Contributions...................................... 19
5.4 Character of Amounts Contributed as Compensation Deferrals...... 19
5.5 Amount Subject to Deferral...................................... 19
5.6 Limitation on Compensation Deferral Contributions............... 19
5.7 Provisions for Return of Annual Compensation Deferral
Contributions in Excess of the Deferral Limitation........... 22
5.8 Provision for Return of Excess Deferrals by Highly Compensated
Employees.................................................... 23
5.9 Limitations on Participant Voluntary Contributions and Matching
Contributions................................................ 24
5.10 Provision for Disposition of Excess Participant Voluntary
Contributions or Matching Company Contributions on Behalf
of Highly Compensated Employees.............................. 26
5.11 Forfeiture of Matching Contributions Attributable to Excess
Deferrals or Contributions................................... 28
5.12 Participant Rollover/Transfer Contributions..................... 28
ARTICLE VI COMPANY CONTRIBUTIONS........................................... 30
6.1 Amount of Contributions......................................... 30
6.2 Insufficient Profits............................................ 30
6.3 Time of Contribution............................................ 31
6.4 Irrevocability.................................................. 31
ARTICLE VII PARTICIPANT ACCOUNTS AND ALLOCATIONS........................... 32
7.1 General......................................................... 32
7.2 Allocation of Participating Employer Contributions.............. 32
7.3 Investment Funds................................................ 32
7.4 Allocation of Contributions to Investment Funds................. 33
7.5 Treatment of Accounts Upon Termination of Employment............ 35
7.6 Accounting Procedures........................................... 35
ARTICLE VIII SPECIAL PROVISIONS CONCERNING COMPANY
STOCK EFFECTIVE AS OF JULY 1, 1993........................................ 36
8.1 Securities Transactions......................................... 36
8.2 Valuation of Company Securities................................. 36
8.3 Allocation of Stock Dividends and Splits........................ 36
8.4 Reinvestment of Dividends....................................... 37
8.5 Voting of Company Stock......................................... 37
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Page
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8.6 Certain Offers for Company Stock................................. 38
8.7 Confidentiality Procedures....................................... 40
8.8 Securities Law Limitation........................................ 40
ARTICLE IX VESTING; PAYMENT OF PLAN BENEFITS............................... 41
9.1 Vesting.......................................................... 41
9.2 Distribution Upon Retirement..................................... 41
9.3 Distribution Upon Death Prior to Commencement of Benefits........ 42
9.4 Distribution Upon Death After Commencement of Benefits........... 42
9.5 Distribution Upon Disability Prior to Retirement Date............ 43
9.6 Termination of Employment Prior to Normal Retirement Date........ 43
9.7 Forms and Methods of Distributions............................... 44
9.8 Election for Direct Rollover of Vested Interest to Eligible
Retirement Plan............................................... 45
9.9 Forfeitures/Repayment............................................ 47
9.10 Withdrawals...................................................... 47
9.11 Designation of Beneficiary....................................... 48
9.12 Facility of Payment.............................................. 50
9.13 Payee Consent.................................................... 50
9.14 Additional Documents............................................. 50
9.15 Loans............................................................ 51
ARTICLE X VALUATION OF ACCOUNTS............................................ 54
ARTICLE XI OPERATION AND ADMINISTRATION OF THE PLAN........................ 56
11.1 Plan Administration.............................................. 56
11.2 Committee Powers................................................. 56
11.3 Investment Manager............................................... 57
11.4 Periodic Review.................................................. 58
11.5 Committee Procedure.............................................. 58
11.6 Compensation of Committee........................................ 58
11.7 Resignation and Removal of Members............................... 59
11.8 Appointment of Successors........................................ 59
11.9 Records.......................................................... 59
11.10 Reliance Upon Documents and Opinions............................. 59
11.11 Requirement of Proof............................................. 60
11.12 Reliance on Committee Memorandum................................. 60
11.13 Multiple Fiduciary Capacity...................................... 60
11.14 Limitation on Liability.......................................... 60
11.15 Indemnification.................................................. 60
11.16 Bonding.......................................................... 61
11.17 Prohibition Against Certain Actions.............................. 61
11.18 Plan Expenses.................................................... 61
ARTICLE XII MERGER OF COMPANY; MERGER OF PLAN.............................. 62
12.1 Effect of Reorganization or Transfer of Assets................... 62
12.2 Merger Restriction............................................... 62
ARTICLE XIII PLAN TERMINATION AND DISCONTINUANCE OF
CONTRIBUTIONS............................................................. 63
13.1 Plan Termination................................................. 63
13.2 Discontinuance of Contributions.................................. 63
13.3 Rights Of Participants........................................... 64
13.4 Trustee's Duties on Termination.................................. 64
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13.5 Partial Termination.............................................. 64
13.6 Failure to Contribute............................................ 65
13.7 Distributions Upon Sale of Assets or Sale of Subsidiary.......... 65
ARTICLE XIV APPLICATION FOR BENEFITS....................................... 66
14.1 Application for Benefits......................................... 66
14.2 Action on Application............................................ 66
14.3 Appeals.......................................................... 66
ARTICLE XV LIMITATIONS ON CONTRIBUTIONS.................................... 68
15.1 General Rule..................................................... 68
15.2 Annual Additions................................................. 68
15.3 Other Defined Contribution Plans................................. 69
15.4 Combined Plan Limitation (Defined Benefit Plan).................. 69
15.5 Adjustments for Excess Annual Additions.......................... 70
15.6 Disposition of Excess Company Contribution Amounts............... 71
15.7 Affiliated Company............................................... 71
ARTICLE XVI RESTRICTION ON ALIENATION...................................... 72
16.1 General Restrictions Against Alienation.......................... 72
16.2 Nonconforming Distributions Under Court Order.................... 72
ARTICLE XVII PLAN AMENDMENTS............................................... 74
17.2 Retroactive Amendments........................................... 74
17.3 Amendment of Vesting Provisions.................................. 74
ARTICLE XVIII MISCELLANEOUS................................................ 75
18.1 No Enlargement of Employee Rights................................ 75
18.2 Mailing of Payments; Lapsed Benefits............................. 75
18.3 Addresses........................................................ 76
18.4 Notices and Communications....................................... 76
18.5 Reporting and Disclosure......................................... 76
18.6 Governing Law.................................................... 77
18.7 Interpretation................................................... 77
18.8 Withholding for Taxes............................................ 77
18.9 Limitation on Company; Committee and Trustee Liability........... 77
18.10 Successors and Assigns........................................... 77
18.11 Counterparts..................................................... 77
ARTICLE XIX TOP-HEAVY PLAN RULES........................................... 78
19.1 Applicability.................................................... 78
19.2 Definitions...................................................... 78
19.3 Top-Heavy Status................................................. 79
19.4 Minimum Contributions............................................ 81
19.5 Maximum Annual Addition.......................................... 82
19.6 Vesting Rules.................................................... 82
19.7 Non-Eligible Employees........................................... 82
iv
<PAGE>
AMENDMENT AND RESTATEMENT OF
20TH CENTURY INDUSTRIES
SAVINGS AND SECURITY PLAN
ARTICLE I
GENERAL
1.1 PLAN NAME AND PURPOSE.
The name of this Plan is the "20th Century Industries Savings and
Security Plan" (the "Plan"). The purpose of this instrument is to amend and
restate the Plan in its entirety.
This Plan is intended to qualify under Code Section 401(a) as a
profit sharing plan and, with respect to the portion hereof intended to qualify
as a qualified cash or deferred arrangement, to satisfy the requirements of Code
Section 401(k).
1.2 EFFECTIVE DATE.
(a) The general effective date of this amendment and
restatement of the Plan shall be January 1, 1989, except as otherwise
expressly provided herein.
(b) The provisions of this amendment and restatement of
the Plan relating to the investment of Participant contributions under the
Plan in Company Stock shall be effective as of July 1, 1993.
<PAGE>
ARTICLE II
DEFINITIONS
2.1 ACCOUNTS.
"Accounts" or "Participant's Accounts" means the following Plan
accounts maintained by the Committee for each Participant as required by
Article VII:
(a) "Compensation Deferral Account" shall mean the account
established and maintained for each Participant under Article VII for
purposes of holding and accounting for amounts held in the Trust Fund which
are attributable to Compensation Deferral Contributions made in accordance
with Section 5.1(a) hereof.
(b) "Participant Voluntary Contribution Account" shall
mean the account established and maintained for each Participant under
Article VII for purposes of holding and accounting for amounts held in the
Trust Fund which are attributable to Participant Voluntary Contributions
in accordance with Section 5.8 hereof.
(c) "Company Contribution Account" shall mean the account
established and maintained for each Participant under Article VII for
purposes of holding and accounting for amounts held in the Trust Fund which
are attributable to Matching Contributions made under Sections 6.1(b) and
(c) hereof and any discretionary contributions made under Section 6.1(d)
hereof.
(d) "Rollover/Transfer Account" shall mean the account
established and maintained under Article V for a Participant to reflect
amounts held in the Trust Fund which are attributable to Participant
rollover or transfer contributions under Section 5.12.
2.2 AFFILIATED COMPANY.
"Affiliated Company" shall mean:
(a) Any corporation that is included in a controlled group
of corporations, within the meaning of Section 414(b) of the Code, that
includes the Company,
(b) Any trade or business that is under common control
with the Company within the meaning of Section 414(c) of the Code,
(c) Any member of an affiliated service group, within the
meaning of Section 414(m) of the Code, that includes the Company, and
(d) Any other entity required to be aggregated with the
Company pursuant to regulations under Section 414(o) of the Code.
2
<PAGE>
2.3 BENEFICIARY.
"Beneficiary" or "Beneficiaries" means the person or persons last
designated by a Participant as set forth in Section 8.10 or, if there is no
designated Beneficiary or surviving Beneficiary, the person or persons
designated in Section 8.10 to receive the interest of a deceased Participant
in such event.
2.4 BOARD OF DIRECTORS.
"Board of Directors" shall mean the Board of Directors of 20th
Century Industries as it may from time to time be constituted or the Executive
Committee of the Board of Directors (if duly authorized to act for and in place
of the Board of Directors).
2.5 CODE
"Code" shall mean the Internal Revenue Code of 1986, as in effect
on the date of execution of this Plan document and as thereafter amended from
time to time.
2.6 COMMITTEE.
"Committee" shall mean the Committee described in Article X
hereof.
2.7 COMPANY.
"Company" shall mean 20th Century Industries.
2.8 COMPANY STOCK.
"Company Stock" shall mean whichever of the following is
applicable:
(a) So long as the Company has only one class of stock,
that class of stock.
(b) In the event the Company at any time has more than
one class of stock, the class (or classes) of the Company's stock
constituting "employer securities" as that term is defined in
Section 409A(1) of the Code.
2.9 COMPENSATION.
(a) "Compensation" shall mean any cash compensation paid by
the Company during a Plan Year by reason of services performed by an
Employee, including overtime pay, bonuses, and special allowances and
compensation, subject, however, to the following special rules and to the
provisions of Subsections 2.9(b) and (c). The following shall not be taken
into account in determining Compensation:
(i) Fringe benefits, and contributions by the Company
to and benefits under any employee benefit plan;
3
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(ii) Amounts paid or payable by reason of services
performed during any period in which an Employee is not a Participant
under this Plan;
(iii) Amounts included in any Employee's gross income
with respect to life insurance as provided by Code Section 79;
(iv) Amounts paid to Employees as special remuneration
based on profits, discretionary judgment bonuses, severance pay or
other special payments;
(b) Solely for purposes of Article XV (relating to certain
limitations on certain annual additions to or benefits from employee
pension benefit plans) and Article XIX of this Plan (relating to special
rules applicable to certain Top-Heavy plans), the term "Compensation"
shall mean
(i) To the extent required under Treas. Reg. Section
1.415-2(d)(2), all of the following:
(A) The Employee's wages, salaries, and fees for
professional services and other amounts includible in the
Employee's gross income during the Plan Year (without regard to
whether or not an amount is received in cash), which amounts
are received for personal services actually rendered in the
course of employment with a Participating Employer (including,
but not limited to commissions paid salespersons, compensation
for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, bonuses, fringe
benefits, reimbursements, and expense allowances under a
nonaccountable plan (as described in Treas. Reg.
Section 1.61-2(c)).
(B) In the case of an Employee who is an Employee
within the meaning of Code Section 401(c)(1) and the regulations
thereunder, the Employee's earned income (as described in Code
Section 401(c)(2) and the regulations thereunder).
(C) Amounts described in Code Sections 104(a)(3),
105(a), and 105(h), but only to the extent that these amounts
are includible in the gross income of the Employee.
(D) Amounts paid or reimbursed by the Employer for
moving expenses incurred by an Employee, but only to the extent
that at the time of the payment it is reasonable to believe that
these amounts are not deductible by the Employee under
Code Section 217.
(E) The value of a non-qualified stock option
granted to an Employee by the Participating Employer, but only
to the extent that the value of the option is includible in the
gross income of the Employee for the taxable year in which
granted.
(F) The amount includible in the gross income
of an Employee upon making the election described in
Code Section 83(b).
(ii) To the extent required by Treas. Reg.
Section 1.415-2(d)(3), none of the following:
4
<PAGE>
(A) Participating Employer contributions to a plan
of deferred compensation which are not includible in the
Employee's gross income for the taxable year in which
contributed, or Participating Employer contributions under a
simplified employee pension plan to the extent such
contributions are deductible by the Employee, or any
distributions from a plan of deferred compensation;
(B) Amounts realized from the exercise of a
non-qualified stock option, or when restricted stock (or
property) held by the Employee either becomes freely
transferable or is no longer subject to a substantial risk
of forfeiture;
(C) Amounts realized from the sale, exchange or
other disposition of stock acquired under a qualified stock
option; and
(D) Other amounts which received special tax
benefits, or contributions made by a Participating Employer
(whether or not under a salary reduction agreement) towards the
purchase of an annuity described in Code Section 403(b)
(whether or not the amounts are actually excludable from
the gross income of the Employee).
For Limitation Years beginning after December 31, 1991, for purposes of
applying the limitations of Article XV, Compensation for a Limitation Year
is the Compensation actually paid or includible in gross income during such
Limitation Year.
(c) Solely for purposes of Sections 5.4 and 5.8
Compensation for any Plan Year is the compensation actually paid or
includible in the Participant's gross income during such year plus salary
deferral contributions for such year.
(d) Effective for Plan Years commencing on and after
January 1, 1989, the "Compensation" of any Employee taken into account
under the Plan for any Plan Year shall not exceed $200,000, as that amount
is adjusted each year by the Secretary of the Treasury at the same time
and in the same manner as under Code Section 415(d). In determining the
Compensation of a Participant for purposes of this limitation, the rules
of Section 414(q)(6) of the Code shall apply, except in applying such
rules, the term "family" shall include only the Spouse of the Participant
and any lineal descendants of the Participant who have not attained age 19
before the close of the year. If, as a result of the application of such
rules the adjusted $200,000 limitation is exceeded, then, the limitation
shall be prorated among the affected individuals in proportion to each
such individual's Compensation as determined under this Subsection (d)
prior to the application of this limitation.
2.10 COMPENSATION DEFERRAL CONTRIBUTIONS.
"Compensation Deferral Contributions" shall mean contributions
described in Section 5.1(a).
2.11 DEFERRAL LIMITATION.
"Deferral Limitation" shall mean the dollar limitation on the
exclusion of elective deferrals from a Participant's gross income under
Section 402(g) of the Code, as in effect with respect to the taxable year of the
Participant.
5
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2.12 DISTRIBUTABLE BENEFIT.
"Distributable Benefit" shall mean the Vested Interest of a
Participant in this Plan which is determined and distributable to the
Participant upon termination of the Participant's employment in accordance with
the provisions of Articles IX and X.
2.13 EFFECTIVE DATE.
"Effective Date" shall mean the effective date of this amendment
and restatement which is January 1, 1989, except as otherwise expressly
provided herein.
2.14 ELIGIBLE EMPLOYEE.
"Eligible Employee" shall include any Employee who is employed by
a Participating Employer excluding, however,
(a) any such Employee with respect to any period of time
during which a Participating Employer is obligated to contribute to any
other employee pension benefit plan with respect to such Employee as a
result of a collective bargaining agreement,
(b) any Employee who is covered by a collective bargaining
agreement to which a Participating Company is a party if there is
evidence that retirement benefits were the subject of good faith
bargaining between the Participating Employer and the collective
bargaining representative, unless the collective bargaining agreement
provides for coverage under this Plan, or
(c) any Employee who is a "leased employee," within the
meaning of Code Section 414(n).
2.15 EMPLOYEE.
(a) "Employee" shall mean each person currently employed in
any capacity by the Company or an Affiliated Company, any portion of
whose Compensation paid by the Company or an Affiliated Company is
subject to withholding of income tax and/or for whom Social Security
contributions are made by the Company or an Affiliated Company;
(b) In addition, "Employee" shall mean "leased employees"
within the meaning of Section 414(n)(2) of the Code. Notwithstanding
the foregoing, if such leased employees constitute less than twenty
percent of the Company's non-highly compensated work force within
the meaning of Section 414(n)(5)(C)(ii) of the Code, the term
"Employee" shall not include those leased employees covered by a plan
described in Section 414(n)(5) of the Code unless otherwise provided by
the terms of this Plan.
(c) Although Eligible Employees are the only class of
Employees eligible to participate in this Plan, the term "Employee" is
used to refer to persons employed in a non-Eligible Employee capacity
as well as Eligible Employee category.
6
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Thus, those provisions of this Plan that are not limited to Eligible
Employees, such as those relating to Hours of Service, apply to both
Eligible and non-Eligible Employees.
2.16 EMPLOYMENT COMMENCEMENT DATE.
"Employment Commencement Date" shall mean each of the following:
(a) The date on which an Employee first performs an Hour of
Service in any capacity for the Company or an Affiliated Company with
respect to which the Employee is compensated or is entitled to cash
remuneration by the Company or the Affiliated Company.
(b) In the case of an Employee whose employment is
terminated and who is reemployed by the Company or an Affiliated Company
after he/she incurs a Period of Severance, the term "Employment
Commencement Date" shall also mean the first day following the termination
of employment on which the Employee performs an Hour of Service for the
Company or an Affiliated Company with respect to which he/she is
compensated or entitled to cash remuneration by the Company or an
Affiliated Company.
2.17 ERISA.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
2.18 HARDSHIP.
"Hardship" shall be determined in accordance with regulations
promulgated under Section 401(k) of the Code. "Hardship" shall be deemed to
exist with respect to a distribution necessary to meet the immediate and heavy
financial needs of the Participant, if the amount required to meet such
financial needs is not readily available to the Participant from other
resources, including a distribution for:
(a) expenses for medical care described in Code Section 213(d) of
Participant and his/her Spouse or dependents,
(b) payment of tuition, fees and other expenses for college or
graduate school education of the Participant or his/her Spouse or
dependents for the next twelve (12) months, or
(c) costs directly related for the purchase of a primary
residence by a Participant or for major alterations to a primary residence
already owned by him.
(d) payments necessary to prevent the eviction of the Participant
from the Participants' principal residence or foreclosure on the mortgage
of such residence.
7
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The existence of a Participant's financial hardship and the amount required to
meet the need created by the hardship shall be determined by the Committee in
accordance with Section 9.10 and rules of uniform application which the
Committee may from time to time prescribe.
2.19 HIGHLY COMPENSATED EMPLOYEE.
(a) "Highly Compensated Employee" shall mean any Employee who,
during the Plan Year, or the preceding Plan Year,
(i) was at any time a Five Percent Owner,
(ii) received Compensation from a Participating Employer in
excess of $75,000, as adjusted by the Secretary of the Treasury at the
same time and in the same manner as under Code Section 415(d),
(iii) received Compensation from a Participating Employer in
excess of $50,000, as adjusted by the Secretary of the Treasury at the
same time and in the same manner as under Code Section 415(d), and was
in the top-paid group of Employees for such Plan Year, or
(iv) was at any time an officer and received Compensation
greater than fifty percent (50%) of the amount in effect under
Section 415(b)(l)(A) of the Code for such Plan Year.
(b) Determination of a Highly Compensated Employee shall be in
accordance with the following special rules:
(i) In the case of the Plan Year for which the relevant
determination is being made, an Employee not described in Paragraph
(ii), (iii), or (iv) of (a) above for the preceding Plan Year
(without regard to Paragraph (i)) shall not be treated as described
in Paragraph (ii), (iii), or (iv) of (a) above unless such Employee
is a member of the group consisting of the 100 Employees paid the
greatest Compensation during the Plan Year for which such
determination is being made.
(ii) An Employee shall be treated as a Five Percent Owner
for any Plan Year if at any time during such Plan Year such Employee
was a Five Percent Owner (as defined in Section 19.2(b)).
(iii) An Employee is in the top-paid group of Employees for
any Plan Year if such Employee is in the group consisting of the top
twenty percent (20%) of the Employees when ranked on the basis of
Compensation paid during such Plan Year.
(iv) For purposes of Paragraph (iv) of Subsection (a) above,
no more than fifty (50) Employees (or, if lesser, the greater of three
(3) Employees or ten percent (10%) of the Employees) shall be treated
as officers. To the extent required by Code Section 414(q), if for
any Plan Year no officer of the Participating Employer is described in
Paragraph (iv) of Subsection (a) above, the highest paid officer of
the Employer for such year shall be treated as described in that
section.
(v) If any individual is a "family member" with respect to a
Five Percent Owner or of a Highly Compensated Employee in the group
consisting of
8
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the ten (10) Highly Compensated Employees paid the greatest
Compensation during the Plan Year, then
(A) such individual shall not be considered a separate
Employee, and
(B) any Compensation paid to such individual (and any
applicable contribution or benefit on behalf of such individual)
shall be treated as if it were paid to (or on behalf of) the Five
Percent Owner or Highly Compensated Employee.
For purposes of this Paragraph (v), the term "family member" means, with
respect to any Employee, such Employee's Spouse and lineal ascendants or
descendants and the spouses of such lineal ascendants or descendants.
(vi) For purposes of this Section, the term "Compensation" means
Compensation as set forth in Section 2.9(b)(i), without regard to the
limitations of Section 2.9(b)(ii); provided, however, the determination
under this Paragraph (vi) shall be made without regard to Sections 125,
402(a)(8), and 401(h)(1)(B), and in the case of Employer contributions
made pursuant to a salary reduction agreement, without regard to
Section 403(b).
(vii) For purposes of determining the number of Employees in the
top-paid group under Paragraph (iii) of Subsection (a) above, the
following Employees shall be excluded:
(A) Employees who have not completed six (6) months of
Service,
(B) Employees who normally work less than 17-1/2 hours
per week,
(C) Employees who normally work not more than six (6)
months during any Plan Year,
(D) Employees who have not attained age 21,
(E) Except to the extent provided in Treasury Regulations,
Employees who are included in a unit of employees covered by an
agreement which the Secretary of Labor finds to be a collective
bargaining agreement between Employee representatives and Employer, and
(F) Employees who are nonresident aliens and who receive
no earned income (within the meaning of Section 911(d)(2) from the
Employer which constitutes income from sources within the United
States (within the meaning of Section 861(a)(3)).
A Participating Employer may elect to apply Subparagraphs (A) through (D)
above by substituting a shorter period of Service, smaller number of hours
or months, or lower age for the period of service, number of hours or
months, or (as the case may be) than as specified in such Subparagraphs.
(viii) A former Employee shall be treated as a Highly Compensated
Employee if:
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(A) such Employee was a Highly Compensated Employee when
such Employee incurred a Severance, or
(B) such Employee was a Highly Compensated Employee at any
time after attaining age fifty-five (55).
(ix) Code Sections 414(b), (c), (m), (n), and (o) shall be applied
before the application of this Section 2.19.
(c) To the extent permissible under Code Section 414(q), the Committee
may determine which Employees shall be categorized as Highly Compensated
Employees by applying a simplified method and calendar year election
prescribed by the Internal Revenue Service.
2.20 HOUR OF SERVICE.
(a) "Hour of Service" of an Employee shall mean the following:
(i) Each hour for which the Employee is paid by the
Participating Employer or an Affiliated Company or entitled to payment for
the performance of services as an Employee.
(ii) Each hour in or attributable to a period of time during
which the Employee performs no duties (irrespective of whether he has
terminated his Employment) due to a vacation, holiday, illness, incapacity
{including pregnancy or disability), layoff, jury duty, military duty or a
Leave of Absence, for which he is so paid or so entitled to payment,
whether direct or indirect. However, no such hours shall be credited to an
Employee if such Employee is directly or indirectly paid or entitled to
payment for such hours and if such payment or entitlement is made or due
under a plan maintained solely for the purpose of complying with applicable
workmen's compensation, unemployment compensation or disability insurance
laws or is a payment which solely reimburses the Employee for medical or
medically related expenses incurred by him.
(iii) Each hour for which he is entitled to back pay,
irrespective of mitigation of damages, whether awarded or agreed to by the
Participating Employer or an Affiliated Company, provided that such
Employee has not previously been credited with an Hour of Service with
respect to such hour under paragraphs (i) or (ii) above.
(b) Hours of Service under Subsections (a)(ii) and (a)(iii) shall
be calculated in accordance with Department of Labor Regulation 29 C.F.R.
Section 2530.200b-2(b). Hours of Service shall be credited to the
appropriate computation period according to the Department of Labor
Regulation Section 2530.200b-2(c). However, an Employee will not be
considered as being entitled to payment until the date when the
Participating Employer or the Affiliated Company would normally make
payment to the Employee for such Hour of Service.
2.21 INVESTMENT FUND.
"Investment Fund" shall mean any of the separate Investment Funds
established by the Committee for purposes of the investment of amounts
contributed to this Plan, as provided in Section 7.3.
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2.22 INVESTMENT MANAGER.
"Investment Manager" means the one or more Investment Managers, if
any, that are appointed pursuant to Section 11.3.
2.23 LEAVE OF ABSENCE.
"Leave of Absence" shall mean any absence without pay authorized by
the Company or an Affiliated Company which employs an Employee under the
standard personnel practices of such Company or Affiliated Company. All
persons under similar circumstances shall be treated alike in the granting of
such Leaves of Absence.
2.24 MATCHING CONTRIBUTIONS.
"Matching Contributions" shall mean contributions described in
Sections 6.1(b) and (c).
2.25 NORMAL RETIREMENT.
"Normal Retirement" shall mean a Participant's termination of
employment on or after attaining the Plan's Normal Retirement Date (other
than by reason of death or Total and Permanent Disability).
2.26 NORMAL RETIREMENT DATE.
"Normal Retirement Date" shall be the first day of the month
coinciding with or next following the Participant s sixty-fifth birthday.
2.27 PARTICIPANT.
"Participant" shall mean any Eligible Employee who has satisfied the
participation requirements set forth in Article III and has begun
participation in this Plan.
2.28 PARTICIPANT VOLUNTARY CONTRIBUTIONS.
"Participant Voluntary Contributions" are after-tax contributions made
pursuant to Section 5.2.
2.29 PARTICIPATION COMMENCEMENT DATE.
"Participation Commencement Date" shall mean the day on which an
Employee's participation in this Plan may commence in accordance with the
provisions of Article III.
2.30 PARTICIPATING EMPLOYER.
"Participating Employer" shall mean each unit, division or other
segment of 20th Century Industries to which this Plan is extended by action
of the Board of Directors, and each unit, division or other segment of an
Affiliated Company (or similar entity), which unit, division or segment has
been granted permission by the Board of Directors to participate in this Plan,
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provided contributions are being made hereunder for Eligible Employees of
such Participating Employer. This permission shall be granted under such
conditions and upon such conditions as the Board of Directors deems
appropriate.
2.31 PERIOD OF SERVICE.
"Period of Service" shall mean a period of time computed under an
"elapsed time" method, as follows:
(a) An Employee shall be credited with a Period of Service equal
to the elapsed time between his/her Employment Commencement Date and the
date on which he/she commences a Period of Severance.
(b) If an Employee incurs a Period of Severance and is subsequently
reemployed by a Participating Employer, he/she shall be credited with a
Period of Service pursuant to the following rules:
(i) An Employee shall receive credit for a Period of Severance
as if it were a Period of Service if such Period of Severance commences
by reason of a quit, discharge or retirement and the Participant is
reemployed by a Participating Employer within 12 months after the
commencement of such Period of Severance.
(ii) An Employee shall receive credit for a Period of Severance
as if it were a Period of Service if such Period of Severance commences
by reason of a quit, discharge or retirement during a time in which such
Employee is absent from service for a reason other than quit, discharge
or retirement and the Employee is reemployed by a Participating Employer
within 12 months after his/her initial absence from service.
(iii) Except as provided in Paragraphs 2.31(b)(i) and (ii)
hereof, the Period of Severance shall not be included in the Employee's
Period of Service and, subject to Subsection 2.31(c) hereof, all of an
Employee's Periods of Service shall be aggregated for purposes of the
Plan.
(c) If an Employee who has earned no vested interest in his/her
Accounts has a Period of Severance equal to the greater of (i) five years,
or (ii) the aggregate number of years of his/her Period of Service
before such Period of Severance, then his/her prior Periods of Service
shall be disregarded for all purposes of the Plan. Otherwise an Employee's
total Period of Service shall be determined by aggregating all of the
Employee's individual Periods of Service; however, no Periods of Service
shall be included that are not required to be taken into account under Code
Section 411(a)(6).
(d) Notwithstanding any other provision of this Plan, service
performed by Employees for an Affiliated Company (or a unit or division of
such company or the Company) prior to the date as of which such entity
becomes an Affiliated Company (or a unit or division of such company or the
Company) shall not be taken into account in
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computing Periods of Service for any purpose of this Plan, except to the
extent and in the manner determined by resolution of the Board of Directors.
2.32 PERIOD OF SEVERANCE.
"Period of Severance" means:
(a) The period of time commencing on the earlier of
(i) the date on which an Employee quits, retires, is discharged,
or dies; or
(ii) the first anniversary of the first date of a period in which
an Employee remains absent from service (with or without pay) with the
Company and all Affiliated Companies for any reason other than quit,
retirement, discharge or death (such as vacation, holiday, sickness,
disability, leave of absence or layoff), and continuing until the first
day, if any, on which the Participant completes one or more hours of
service for which he/she is directly or indirectly paid by the Company or
an Affiliated Company for the performance of duties as an Employee.
(b) In the case of an Employee who is absent from work for maternity
or paternity reasons, no Period of Severance shall commence until the second
anniversary of the first date of such leave of absence. The period between
the date of commencement of an absence for maternity or paternity reasons
and the first anniversary thereof shall be considered a Period of Service;
the period between the first and second anniversaries of the commencement
of such absence shall be considered neither a Period of Service nor a Period
of Severance. For purposes of this Subsection 2.32(b), an absence from work
for maternity or paternity reasons means an absence
(i) By reason of pregnancy of the Employee,
(ii) By reason of the birth of a child of the Employee,
(iii) By reason of the placement of a child with the employee
in connection with the adoption of such child by such employee or
(iv) For purposes of caring for such child for a period beginning
immediately following such birth or placement.
2.33 PLAN.
"Plan" shall mean the 20th Century Industries Savings and Security
Plan herein set forth, and as it may be amended from time to time.
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2.34 PLAN ADMINISTRATOR.
"Plan Administrator" shall mean the administrator of the Plan, within
the meaning of Section 3(16)(A) of ERISA. The Plan Administrator shall be
20th Century Industries.
2.35 PLAN YEAR.
"Plan Year" shall mean the twelve month period beginning each January
1 and ending on the following December 31.
2.36 POLICY.
"Policy" shall mean the group investment contract issued by an
insurance company in which the assets of the Plan are invested.
2.37 POLICYHOLDER.
"Policyholder" shall mean the Company or Affiliated Company to whom
the Policy is issued.
2.38 POSTPONED RETIREMENT DATE.
"Postponed Retirement Date" shall mean the first day of any month
following a Participant's Normal Retirement Date on which such Participant's
termination of employment occurs.
2.39 SPOUSE.
"Spouse" shall mean the person to whom a Participant is legally
married as of the date of the payment of all or a portion of the
Participant's Distributable Benefit, or in the case of a payment after the
Participant's death, the person to whom the Participant is legally married as
of the date of the Participant's death. To the extent required under a
qualified domestic relations order, a former spouse shall be treated as a
Spouse.
2.40 TOTAL AND PERMANENT DISABILITY.
An individual shall be considered to be suffering from a "Total and
Permanent Disability" if the Committee determines that he/she is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment. An individual's disabled status
shall be determined by the Committee, based on such evidence as the Committee
determines to be sufficient, including, but not limited to, examination at
the Company's expense by a physician of the Company s choice.
2.41 TRUST AND TRUST FUND.
"Trust" or "Trust Fund" shall mean the assets of the trust established
under the trust agreement pursuant to Article IV.
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2.42 TRUST AGREEMENt.
"Trust Agreement" shall mean the one or more trust agreements entered
into by the Company in accordance with the provisions of Article IV for the
purpose of holding contributions and earnings under this Plan.
2.43 TRUSTEE.
"Trustee" shall mean the corporation or person or persons duly
appointed pursuant to the terms of the Trust Agreement to act as trustee of
all or a portion of the assets of the Trust Fund.
2.44 VALUATION DATE.
"Valuation Date" shall mean the last day of each month during the Plan
Year, as of which dates the value of the Trust Fund and of Participants'
Accounts shall be determined.
2.45 VESTED INTEREST.
"Vested Interest" or "Vested Right" shall mean the interest of a
Participant in his/her Accounts which is vested and nonforfeitable pursuant
to the provisions of Article IX of this Plan.
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ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY TO PARTICIPATE.
(a) Every Eligible Employee who was a Participant in the Plan on
December 31, 1988 shall automatically continue as a Participant on January
1, 1989, and shall so continue until his/her participation terminates in
accordance with Section 3.3 below.
(b) Every Eligible Employee who is not eligible to participate
in this Plan under Subsection 3.1(a) above shall become eligible to
participate in this Plan on the first day of the month following the later
of (i) the date he/she attains age twenty (20) or (ii) the date he/she
first completes a one year Period of Service.
(c) If an Eligible Employee ceases to be an Eligible Employee
he/she shall again become eligible to participate in the Plan on the
later of (i) the date he/she again becomes an Eligible Employee, or (ii)
the date he/she satisfies the service requirement set forth in Section
3.1(b).
(d) Notwithstanding the preceding rules of this Section 3.1, the
actual date upon which an Employee will commence participation will be
determined pursuant to the rules of Section 3.2 below.
3.2 DATE OF COMMENCEMENT OF PARTICIPATION.
Every Eligible Employee who has satisfied the requirements of Section
3.1 for participation in the Plan shall become a Participant in the Plan by
entering into a Compensation deferral agreement as set forth in Section 5.1.
The Committee may prescribe such rules as it deems appropriate in connection
with such Compensation deferral agreements.
3.3 TERMINATION OF PARTICIPATION.
A vested Participant or a non-vested Participant whose Period of
Service cannot be disregarded under Section 2.32(c) whose employment terminates
and who is reemployed after a Period of Severance shall be eligible to
participate immediately as of his/her subsequent Employment Commencement Date
as an Eligible Employee.
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ARTICLE IV
TRUST FUND
4.1 TRUST FUND.
To carry out the purposes of this Plan, the Company shall enter into
a Trust Agreement providing that funds received by the Trustee as contributions
under the Plan shall be held for the benefit of Participants or their
Beneficiaries and managed, invested and distributed in accordance with the
Plan. In addition, funds may be held under an insurance company contract that
meets the requirements of Code Section 401(f).
4.2 CONTRIBUTIONS TO THE TRUST FUND.
The Company shall transfer to the Trustee all contributions made
under the terms of this Plan as soon as is practicable after such contributions
are made.
4.3 INVESTMENTS.
The Trust Fund is authorized to invest in Company Stock and such
other assets as the Committee or the Investment Manager (if applicable) may
direct. To the extent provided in Section 7.3, Participants may direct the
investment of the assets in their Accounts in the Trust Fund from among the
Investment Funds which the Committee may from time to time make available.
4.4 COMPANY, COMMITTEE AND TRUSTEE NOT RESPONSIBLE FOR ADEQUACY OF TRUST FUND.
The Company, Committee and Trustee shall not be liable or responsible
for the adequacy of the Trust Fund to meet and discharge any or all payments
and liabilities hereunder. All Plan benefits will be paid only from the Trust
assets, and neither the Company, the Committee nor the Trustee shall have any
duty or liability to furnish the Trust with any funds, securities or other
assets except as expressly provided in the Plan. Except as required under the
Plan or Trust or under Part 4 of Title I of ERISA, the Company shall not be
responsible for any decision, act or omission of the Trustee, the Committee, or
the Investment Manager (if applicable), and shall not be responsible for the
application of any moneys, securities, investments or other property paid or
delivered to the Trustee.
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ARTICLE V
EMPLOYEE CONTRIBUTIONS
5.1 EMPLOYEE COMPENSATION DEFERRAL AGREEMENT.
(a) Each Employee who is eligible to join the Plan and who
desires to become a Participant shall enter into a Compensation deferral
agreement pursuant to Section 3.2 to have a percentage of his/her
Compensation deferred for each payroll period for which such Compensation
deferral agreement is in effect, except that the Committee shall determine
the frequency of payroll deductions for a Participant whose Compensation
is paid less frequently than monthly. The Participant may defer from one
percent (1%) to twelve percent (12%) of his/her Compensation in whole
multiples of one percent (1%).
(b) The Compensation deferral agreement shall remain in effect
throughout the Plan Year in which it is entered and all subsequent Plan
Years until such agreement is revoked pursuant to Section 5.11 or the
Participant terminates his/her employment; except that no Compensation
deferral will be made for the pay period immediately preceding the date
the Participant's employment with the Company or an Affiliated Company
terminates. A Participant who revokes his/her Compensation deferral
agreement pursuant to Section 5.11 may enter into a new Compensation
deferral agreement in accordance with such rules and procedures as the
Committee may prescribe from time to time. A Compensation deferral
agreement shall be made in such form and manner as the Committee shall
prescribe or approve.
5.2 PARTICIPANT VOLUNTARY CONTRIBUTIONS.
Each Participant may elect to make monthly Participant Voluntary
Contributions to the Plan, subject to the following provisions:
(a) The Participant Voluntary Contribution shall be, in whole
multiples of one percent (1%), a designated amount from one percent (1%)
to five percent (5%) of his/her total Compensation during each pay period,
except that no Participant Voluntary Contribution will be made for the pay
period immediately preceding the date the Participant's employment with
the Company or an Affiliated Company terminates.
(b) In no event may any Participant make monthly Participant
Voluntary Contributions to this Plan which, when aggregated with voluntary
after-tax contributions made by the Participant to any other qualified
plan sponsored by the Company or an Affiliated Company, would exceed five
percent (5%) of the Participant's monthly Compensation.
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5.3 CHANGES IN COMPENSATION DEFERRAL AGREEMENT AND PARTICIPANT VOLUNTARY
CONTRIBUTIONS.
A Participant may change his/her Compensation deferral agreement and
amount of Participant Voluntary Contributions at any time during the Plan Year,
but not more than twice each Plan Year, by delivering to the Committee written
notice. The Committee may require up to 30 days notice prior to such change.
Such change shall remain in effect until subsequently changed pursuant to this
Section 5.3. The Committee may prescribe such rules as it deems necessary or
appropriate to carry out the provisions of this Section 5.3.
A Participant who elects to terminate his/her participation in the
Plan under this agreement may become a Participant again, provided he/she is
otherwise eligible, but subject to the provisions of Article III.
5.4 CHARACTER OF AMOUNTS CONTRIBUTED AS COMPENSATION DEFERRALS.
Amounts deferred pursuant to the Compensation deferral agreement
described above in Section 5.1 (and which qualify for treatment under Code
Section 401(k) and are contributed to the Trust Fund pursuant to Article IV)
shall be treated, for federal and state income tax purposes, as Company
contributions.
5.5 AMOUNT SUBJECT TO DEFERRAL.
(a) Solely for purposes of satisfying one of the tests
prescribed under Section 5.6, the Committee may prescribe such rules as it
deems necessary or appropriate regarding the maximum amount that a
Participant may defer under Section 5.1(a) and the timing of such an
election. These rules may provide that the maximum percentage of
Compensation that a Participant may defer will be a lower percentage of
his/her Compensation above a certain dollar amount of Compensation than
the maximum deferral percentage below that dollar amount of Compensation.
These rules shall apply to all individuals eligible to enter into a
Compensation deferral agreement described in Section 5.1, except to the
extent that the Committee prescribes special or more stringent rules
applicable only to Highly Compensated Employees.
(b) No Participant shall be permitted to make Compensation
Deferral Contributions under this Plan in excess of the Deferral
Limitation. In the event a Participant's Compensation Deferral
Contributions exceed the Deferral Limitation, excess contributions shall
be subject to the provisions of Section 5.7. No Participant shall be
entitled to Matching Contributions attributable to any Compensation
Deferral Contributions in excess of the Deferral Limitation.
5.6 LIMITATION ON COMPENSATION DEFERRAL CONTRIBUTIONS.
With respect to each Plan Year, Participant Compensation Deferral
Contributions under the Plan for the Plan Year shall not exceed the limitations
on contributions by or on behalf of Highly Compensated Employees under Code
Section 401(k), as provided in this Section. In the event that Compensation
Deferral Contributions under this Plan by or on behalf of Highly
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Compensated Employees for any Plan Year exceed the limitations of this Section
for any reason, such excess contributions and any income allocable thereto
shall be returned to the Participant, as provided in Section 5.8.
(a) The Compensation Deferral Contributions by a Participant for
a Plan Year shall satisfy one of the following tests:
(i) The Compensation Deferral Contributions by a
Participant for a Plan Year shall satisfy the Average Deferral
Percentage test set forth in (i)(A) below, or the alternative Average
Deferral Percentage test set forth in (i)(B) below, and to the extent
required by regulations under Code Section 401(m), also shall satisfy
the test identified in (ii) below:
(i) (A) The "Actual Deferral Percentage" for Eligible
Employees who are Highly Compensated Employees shall not be more
than the "Actual Deferral Percentage" of all other Eligible
Employees multiplied by 1.25, or
(i) (B) The excess of the "Actual Deferral Percentage" for
Eligible Employees who are Highly Compensated Employees over the
"Actual Deferral Percentage" for all other Eligible Employees
shall not be more than two percentage points, and the "Actual
Deferral Percentage" for Highly Compensated Employees shall not
be more than the "Actual Deferral Percentage" of all other
Eligible Employees multiplied by 2.00.
(ii) Average Contribution Percentage for Highly Compensated
Employees eligible to participate in this Plan and a plan of the
Company or an Affiliated Company that is subject to the limitations
of Section 401(m) of the Code including, if applicable, this Plan,
shall be reduced in accordance with Section 6.4, to the extent
necessary to satisfy the requirements of Treasury Regulations Section
1.401(m)-2.
(b) For the purposes of the limitations of this Section 5.6, the
following definitions shall apply:
(i) "Actual Deferral Percentage" means, with respect to
Eligible Employees who are Highly Compensated Employees and all other
Eligible Employees for a Plan Year, the average of the ratios,
calculated separately for each Eligible Employee in such group, of
the amount of Compensation Deferral Contributions under the Plan
allocated to each Eligible Employee for such Plan Year to such
Employee's "Compensation" for such Plan Year. An Eligible Employee's
Compensation Deferral Contributions may be taken into account for
purposes of determining his Actual Deferral Percentage for a
particular Plan Year only if such Compensation Deferral Contributions
are allocated to the Eligible Employee as of a date within that Plan
Year. For purposes of this rule, an Eligible Employee's Compensation
Deferral Contributions shall be considered allocated as of a date
within a Plan Year only if (A) the allocation is not contingent upon
the Eligible Employee's participation in the Plan or performance of
services on any date subsequent to that date, and (B) the
Compensation Deferral Contribution is actually paid to the Trust no
later than the end of the twelve month period immediately following
the Plan Year to which the contribution relates. To the extent
determined by the Committee and in accordance with regulations issued
by the Secretary of the Treasury, contributions on behalf of an
Eligible Employee that
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satisfy the requirements of Code Section 401(k)(3)(C)(ii) may also be
taken into account for the purpose of determining the Actual Deferral
Percentage of such Eligible Employee.
(ii) "Compensation" means Compensation determined by the
Committee in accordance with the requirements of Section 414(s) of
the Code, including, to the extent elected by the Committee, amounts
deducted from an Employee's wages or salary that are excludable from
income under Sections 125, 129, or 402(a)(8) of the Code.
(c) In the event that as of the last day of a Plan Year this Plan
satisfies the requirements of Section 401(a)(4) or 410(b) of the Code only
if aggregated with one or more other plans which include arrangements
under Code Section 401(k), then this Section 5.6 shall be applied by
determining the Actual Deferral Percentages of Eligible Employees as if
all such plans were a single plan, in accordance with regulations
prescribed by the Secretary of the Treasury under Section 401(k) of the
Code.
(d) For the purposes of this Section, the Actual Deferral Percentage
for any Highly Compensated Employee who is a participant under two or more
Code Section 401(k) arrangements of the Company or an Affiliated Company
shall be determined by taking into account the Highly Compensated
Employee's Compensation under each such arrangement and contributions
under each such arrangement which qualify for treatment under Code Section
401(k), in accordance with regulations prescribed by the Secretary of the
Treasury under Section 401(k) of the Code.
(e) If an Eligible Employee (who is also a Highly Compensated
Employee) is subject to the family aggregation rules in Section
2.19(b)(vi), the combined Actual Deferral Percentage for the family group
(which is treated as one Highly Compensated Employee) shall be the Actual
Deferral Percentage determined by combining the Compensation Deferral
Contributions, amounts treated as Compensation Deferral Contributions
under Code Section 401(k)(3)(D)(ii), and Compensation of all eligible
family members.
(f) For purposes of this Section, the amount of Compensation Deferral
Contributions by a Participant who is not a Highly Compensated Employee
for a Plan Year shall be reduced by any Compensation Deferral
Contributions in excess of the Deferral Limitation which have been
distributed to the Participant under Section 5.8, in accordance with
regulations prescribed by the Secretary of the Treasury under Section
401(k) of the Code.
(g) The determination of the Actual Deferral Percentage of any
Participant shall be made after applying the provisions of Section 14.5
relating to certain limits on Annual Additions under Section 415 of the
Code.
(h) The determination and treatment of Compensation Deferral
Contributions and the Actual Deferral Percentage of any Participant shall
satisfy such other requirements as may be prescribed by the Secretary of
the Treasury.
(i) The Committee shall keep or cause to have kept such records as
are necessary to demonstrate that the Plan satisfies the requirements of
Code Section 401(k) and the regulations thereunder, in accordance with
regulations prescribed by the Secretary of the Treasury.
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5.7 PROVISIONS FOR RETURN OF ANNUAL COMPENSATION DEFERRAL CONTRIBUTIONS IN
EXCESS OF THE DEFERRAL LIMITATION.
(a) In the event that due to error or otherwise, a Participant's
Compensation Deferral Contributions under this Plan exceed the Deferral
Limitation for any calendar year (but without regard to amounts of
compensation deferred under any other plan), the excess Compensation
Deferral Contributions for the Plan Year, if any, together with income
allocable to such amount shall be distributed to the Participant on or
before the first April 15 following the close of the calendar year in
which such excess contribution is made. The amount of excess Compensation
Deferral Contributions that may be distributed to a Participant under this
Section for any taxable year shall be reduced by any excess Compensation
Deferral Contributions previously distributed in accordance with Section
5.6 for the Plan Year beginning with or within such taxable year.
(b) Income allocable to a Participant's excess Compensation Deferral
Contributions shall be determined in accordance with any reasonable method
used by the Plan for allocating income to Participant Accounts, provided
such method does not discriminate in favor of Highly Compensated Employees
and is consistently applied to all Participants for all corrective
distributions under the Plan for a Plan Year. The Committee shall not be
liable to any Participant (or his Beneficiary, if applicable) for any
losses caused by misestimating the amount of any Compensation Deferral
Contributions in excess of the limitations of this Article V and any
income allocable to such excess.
(c) If in any calendar year a Participant makes Compensation Deferral
Contributions under this Plan and additional elective deferrals, within
the meaning of Code Section 402(g)(3), under any other plan maintained by
the Company or an Affiliated Company, and the total amount of the
Participant's elective deferrals under this Plan and all such other plans
exceed the Deferral Limitation, the Company and each Affiliated Company
maintaining a plan under which the Participant made any elective deferrals
shall notify the affected plans in writing, and corrective distributions
of the excess elective deferrals, and any income allocable thereto, shall
be made from one or more such plans, to the extent determined by the
Company and each Affiliated Company. The determination of the amount of a
Participant's elective deferrals for any calendar year shall be made after
applying the provisions of Section 15.5 relating to certain limits on
Annual Additions under Section 415 of the Code. All corrective
distributions of excess elective deferrals shall be made on or before the
first April 15 following the close of the calendar year in which the
excess elective deferrals were made.
(d) In accordance with rules and procedures as may be established by
the Committee, a Participant may submit a claim to the Committee in which
he certifies in writing the specific amount of his Compensation Deferral
Contributions for the preceding calendar year which, when added to amounts
deferred for such calendar year under any other plans or arrangements
described in Section 401(k), 408(k) or 403(b) of the Code (other than a
plan maintained by the Company or an Affiliated Company), will cause the
Participant to exceed the Deferral Limitation for the calendar year in
which the deferral occurred. Any such claim must be submitted to the
Committee no later than the March 1 of the calendar year following the
calendar year of deferral. To the extent the amount specified by the
Participant does not exceed the amount of the Participant's Compensation
Deferral Contributions under the Plan for the applicable calendar year,
the Committee shall treat the amount specified by the Participant in his
claim as a Compensation Deferral Contribution in excess of the Deferral
Limitation for such calendar year and return such excess and any income
allocable thereto to the Participant, as provided in (a) above. In the
event that for any reason such Participant's Compensation Deferral
Contributions in excess of the Deferral Limitation for any calendar year
are not distributed to the Participant by the
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time prescribed in (a) above, such excess shall be held in the
Participant's Compensation Deferral Contribution Account until
distribution can be made in accordance with the provisions of this Plan.
(e) To the extent required by regulations under Section 402(g) or 415
of the Code, Compensation Deferral Contributions with respect to a
Participant in excess of the Deferral Limitation shall be treated as
Annual Additions under Article XV for the Plan Year for which the excess
contributions were made, notwithstanding the distribution of such excess
in accordance with the provisions of this Section.
5.8 PROVISION FOR RETURN OF EXCESS DEFERRALS BY HIGHLY COMPENSATED EMPLOYEES.
The provisions of this Section 5.8 shall be applied after implementation
of the provisions of Section 5.7.
(a) The Committee shall determine in accordance with the procedures
set forth in Section 5.6, as soon as is reasonably possible prior to the
close of each Plan Year, the extent (if any) to which deferral treatment
under Code Section 401(k) may not be available for Compensation Deferral
Contributions on behalf of any Highly Compensated Employee. If, pursuant
to these determinations by the Committee, a Highly Compensated Employee's
Compensation Deferral Contributions may not be eligible for deferral
treatment, then any excess deferrals together with income allocable to
such amount (or income reasonably estimated to be allocable to such
amount) shall be returned to the Highly Compensated Employee (after
withholding applicable federal, state, and local taxes due on such
amounts). Such return shall be made within the first two and one-half
(2-1/2) months following the Plan Year for which such excess deferrals
were made, provided however, that if any excess deferrals or income
thereon is, due to error or otherwise, not returned by such date, such
amounts as are required to be returned shall be returned not later than
the end of the first Plan Year following the Plan Year for which such
excess deferrals were made.
(b) For purposes of this Section, the amount of excess Compensation
Deferral Contributions to be distributed to a Participant for a Plan Year
shall be reduced by the amount of any Compensation Deferral Contributions
in excess of the Deferral Limitation (for the Participant's taxable year
that ends with or within the Plan Year) which have been distributed to the
Participant under Section 5.7, in accordance with regulations prescribed
by the Secretary of the Treasury under Section 401(k) of the Code.
(c) The Committee shall determine the amount of any excess
Compensation Deferral Contributions by Highly Compensated Employees for a
Plan Year by application of the leveling method set forth in Treasury
Regulation Section 1.401(k)-1(f)(2) under which the Deferral Percentage of
the Highly Compensated Employee who has the highest such percentage for
such Plan Year is reduced to the extent required (i) to enable the Plan to
satisfy the Actual Deferral Percentage test, or (ii) to cause such Highly
Compensated Employee's Deferral Percentage to equal the Deferral
Percentage of the Highly Compensated Employee with the next highest
Deferral Percentage. This process shall be repeated until the Plan
satisfies the Actual Deferral Percentage test. For each Highly Compensated
Employee, the amount of excess Compensation Deferral Contributions shall
be equal to the total Compensation Deferral Contributions (plus any
amounts treated as Compensation Deferral Contributions) made or deemed to
be made by
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such Highly Compensated Employee (determined prior to the application of
the foregoing provisions of this Subsection (c)) minus the amount
determined by multiplying the Highly Compensated Employee's Deferral
Percentage (determined after application of the foregoing provisions of
this Subsection (c)) by his Compensation.
(d) The determination and correction of excess Compensation Deferral
Contributions of a Highly Compensated Employee whose Actual Deferral
Percentage is determined under the family aggregation rules in Section
2.19(b)(vi) shall be accomplished by reducing the Actual Deferral
Percentage as required under Subsections (a) and (b) above and allocating
the excess Compensation Deferral Contributions for the family unit among
family members in proportion to the Compensation Deferral Contributions of
each family member that are combined to determine the Actual Deferral
Percentage.
(e) For purposes of satisfying the Actual Deferral Percentage test,
income allocable to a Participant's excess Compensation Deferral
Contributions shall be determined in accordance with any reasonable method
used by the Plan for allocating income to Participant Accounts, provided
such method does not discriminate in favor of Highly Compensated Employees
and is consistently applied to all Participants for all corrective
distributions under the Plan for a Plan Year. The Committee shall not be
liable to any Participant (or his Beneficiary, if applicable) for any
losses caused by misestimating the amount of any Compensation Deferral
Contributions in excess of the limitations of this Article V and any
income allocable to such excess.
(f) To the extent required by regulations under Section 401(k) or 415
of the Code, any excess Compensation Deferral Contributions with respect
to a Highly Compensated Employee shall be treated as Annual Additions
under Article XV for the Plan Year for which the excess Compensation
Deferral Contributions were made, notwithstanding the distribution of such
excess in accordance with the provisions of this Section.
5.9 LIMITATIONS ON PARTICIPANT VOLUNTARY CONTRIBUTIONS AND MATCHING
CONTRIBUTIONS.
With respect to each Plan Year, Participant Voluntary Contributions and
Matching Contributions under the Plan for the Plan Year shall not exceed the
limitations on contributions by or on behalf of Highly Compensated Employees
under Section 401(m) of the Code, as provided in this Section 5.9. In the event
that Participant Voluntary Contributions and Matching Contributions under the
Plan by or on behalf of Highly Compensated Employees for any Plan Year exceed
the limitations of this Section 5.9 for any reason, such excess Participant
Voluntary Contributions and Matching Contributions and any income allocable
thereto shall be disposed of in accordance with Section 5.10.
(a) The Participant Voluntary Contributions and Matching
Contributions for a Plan Year shall satisfy the Average Contribution
Percentage test set forth in (i)(A) below, or the Average Contribution
Percentage test set forth in (i)(B) below:
(i) (A) The "Average Contribution Percentage" for Eligible
Employees who are Highly Compensated Employees shall not be more
than the "Average Contribution Percentage" of all other Eligible
Employees multiplied by 1.25, or
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(i) (B) The excess of the "Average Contribution Percentage"
for Eligible Employees who are Highly Compensated Employees over
the "Average Contribution Percentage" for the other Eligible
Employees shall not be more than two (2) percentage points, and
the "Average Contribution Percentage" for Eligible Employees who
are Highly Compensated Employees shall not be more than the
"Average Contribution Percentage" of all other Eligible
Employees multiplied by 2.00.
(ii) The Average Contribution Percentage for Highly
Compensated Employees eligible to participate in this Plan and a plan
of the Company or an Affiliated Company that satisfies the
requirements of Section 401(k) of the Code, including, if applicable,
this Plan, shall be reduced to the extent necessary to satisfy the
requirements of Treasury Regulations Section 1.401(m)-2 or similar
such rule.
(b) For purposes of Sections 5.9 and 5.10 the following definitions
shall apply:
(i) "Average Contribution Percentage" means, with respect to a
group of Eligible Employees for a Plan Year, the average of the
"Contribution Percentages," in such group.
(ii) The "Contribution Percentage" for any Eligible Employee is
determined by dividing the sum of The Eligible Employee's Participant
Voluntary Contributions and Matching Contributions under the Plan on
behalf of each such Eligible Employee for such Plan Year, by such
Eligible Employee's Compensation for such Plan Year. "Matching
Contributions" for purposes of the Average Contribution Percentage
test shall include a Matching Contribution only if it is allocated to
the Participant's Matching Contributions Account during the Plan Year
and is paid to the Trust Fund by the end of the twelfth month
following the close of the Plan Year. To the extent determined by the
Committee and in accordance with regulations issued by the Secretary
of the Treasury under Code Section 401(m)(3), the Compensation
Deferral Contributions on behalf of an Eligible Employee and any
"qualified nonelective contributions," within the meaning of Code
Section 401(m)(4)(c), on behalf of an Eligible Employee may also be
taken into account for purposes of calculating the Contribution
Percentage of such Eligible Employee, but shall not otherwise be
taken into account. However, any Matching Contributions taken into
account for purposes of determining the Actual Deferral Percentage of
an Eligible Employee under Section 5.6(a) shall not be taken into
account under this Section 5.9.
(c) In the event that as of the last day of a Plan Year this Plan
satisfies the requirements of Section 410(b) of the Code only if
aggregated with one or more other plans, or if one or more other plans
satisfy the requirements of Section 410(b) of the Code only if aggregated
with this Plan, then this Section 5.9 shall be applied by determining the
Contribution Percentages of Eligible Employees as if all such plans were a
single plan, in accordance with regulations prescribed by the Secretary of
the Treasury under Section 401(m) of the Code.
(d) For the purposes of this Section 5.9, the Contribution Percentage
for any Eligible Employee who is a Highly Compensated Employee under two
or more Code Section 401(a) plans of the Company or an Affiliated Company
shall to the extent required
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by Code Section 401(m), be determined in a manner taking into account the
participant voluntary contributions and matching Company contributions for
such Eligible Employee under each of such plans.
(e) For purposes of determining the Contribution Percentage of an
Eligible Employee who is a Highly Compensated Employee, the Participant
Voluntary Contributions, Matching Contributions and Compensation of such
Eligible Employee shall include the Participant Voluntary Contributions,
Matching Contributions and Compensation of "family members," as such
individuals are described in Section 414(q)(6)(B) of the Code, and such
"family members" shall be disregarded in determining the Contribution
Percentage for Eligible Participants who are not Highly Compensated
Employees.
(f) The determination of the Contribution Percentage of any
Participant shall be made after first applying the provisions of Section
15.5 relating to certain limits on Annual Additions under Section 415 of
the Code, then applying the provisions of Section 5.7 relating to the
return of Compensation Deferral Contributions in excess of the Deferral
Limitation, then applying the provisions of Section 5.8 relating to
certain limits under Section 401(k) of the Code imposed on Compensation
Deferral Contributions of Highly Compensated Employees, and last, applying
the provisions of Section 6.5 relating to the forfeiture of Matching
Contributions attributable to excess Compensation Deferral or Participant
Voluntary Contributions.
(g) The determination and treatment of the Contribution Percentage of
any Participant shall satisfy such other requirements as may be prescribed
by the Secretary of the Treasury.
(h) The Committee shall keep or cause to have kept such records as
are necessary to demonstrate that the Plan satisfies the requirements of
Code Section 401(m) and the regulations thereunder, in accordance with
regulations prescribed by the Secretary of the Treasury.
(i) If pursuant to estimations by the Committee, Participant
Voluntary Contributions by Highly Compensated Employees for a Plan Year
can reasonably be expected to exceed the limitations of this Section 5.9,
solely for purposes of satisfying these limitations, the Committee may
establish a maximum percentage of Compensation that a Highly Compensated
Employee may contribute as Participant Voluntary Contributions for any
Plan Year.
5.10 PROVISION FOR DISPOSITION OF EXCESS PARTICIPANT VOLUNTARY CONTRIBUTIONS OR
MATCHING COMPANY CONTRIBUTIONS ON BEHALF OF HIGHLY COMPENSATED EMPLOYEES.
After application of the provisions of Sections 5.7 and 5.8, the following
provisions shall be implemented:
(a) The Committee shall determine, as soon as is reasonably possible
following the close of each Plan Year, the extent (if any) to which
contributions by or on behalf of Highly Compensated Employees may cause
the Plan to exceed the limitations of Section 5.8 for such Plan Year. If,
pursuant to the determination by the Committee,
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contributions by or on behalf of a Highly Compensated Employee may cause
the Plan to exceed such limitations, then the Committee shall take the
following steps:
(i) First, any excess Participant Voluntary Contributions,
together with income allocable to such amount (determined in
accordance with (b) below) shall be returned to the Highly
Compensated Employee; provided that such amounts as are required to
be returned shall be returned within two and one-half (2-1/2) months
following the close of the Plan Year for which such excess
Participant Voluntary Contributions were made, but in no event later
than the end of the first Plan Year following the Plan Year for which
such excess contributions were made.
(ii) Second, if after the return of all Participant Voluntary
Contributions by the Highly Compensated Employee, and income
allocable thereto, an excess remains, any excess Matching Company
Contributions with respect to the Highly Compensated Employee shall
be forfeited, to the extent forfeitable under the Plan. Amounts of
excess Matching Company Contributions forfeited by Highly Compensated
Employees under this Section 5.10, including any income allocable
thereto shall be applied to reduce Matching Contributions by the
Participating Employer that made the Matching Company Contribution on
behalf of the Highly Compensated Employee for the Plan Year for which
the excess contribution was made.
(iii) If any excess remains after the provisions of (i) and (ii)
above are applied, any excess Matching Contributions which are
nonforfeitable under the Plan, and any income allocable thereto,
shall be distributed to the Highly Compensated Employee within two
and one-half (2-1/2) months following the close of the Plan Year for
which the excess Matching Contribution was made, but in no event
later than the end of the first Plan Year following the Plan Year for
which the excess Matching Contribution was made, notwithstanding any
other provision in this Plan.
(b) The Committee shall determine the amount of any excess
Participant Voluntary Contributions and Matching Contributions made by or
on behalf of Highly Compensated Employees for a Plan Year by application
of the leveling method set forth in Proposed Treasury Regulation Section
1.401(m)-1(e)(2) under which the Contribution Percentage of the Highly
Compensated Employee who has the highest such percentage for such Plan
Year is reduced, to the extent required (i) to enable the Plan to satisfy
the Average Contribution Percentage test, or (ii) to cause such Highly
Compensated Employee's Contribution Percentage to equal the Contribution
Percentage of the Highly Compensated Employee with the next highest
Contribution Percentage. This process shall be repeated until the Plan
satisfies the Average Contribution Percentage test. For each Highly
Compensated Employee, the amount of excess Participant Voluntary and
Matching Contributions shall be equal to the total Participant Voluntary
and Matching Contributions (plus any amounts treated as Matching
Contributions) made on behalf of such Highly Compensated Employee
(determined prior to the application of the foregoing provisions of this
Subsection (b)) minus the amount determined by multiplying the Highly
Compensated Employee's Contribution Percentage (determined after the
application of the foregoing provisions of this Subsection (b)) by his
Compensation.
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(c) The determination and correction of excess Participant Voluntary
and Matching Contributions made by and on behalf of a Highly Compensated
Employee whose Average Contribution Percentage is determined under the
family aggregation rules in Section 2.19(b)(vi) shall be accomplished by
reducing the Average Contribution Percentage of the Highly Compensated
Employee as required under Subsections (a) and (b) above and allocating
the excess Participant Voluntary and Matching Contributions for the family
unit among the family members in proportion to the Participant Voluntary
and Matching Contributions of each family member that are combined to
determine the Average Contribution Percentage.
(d) For purposes of satisfying the Average Contribution Percentage
test, income allocable to a Participant's excess Participant Voluntary
Contributions or Matching Contributions, as determined under (b) above,
shall be determined by applying procedures comparable to those provided
under Section 5.8.
(e) To the extent required by regulations under Section 414(m) or 415
of the Code, any excess Participant Voluntary Contributions or Matching
Contribution forfeited by or distributed to a Highly Compensated Employee
in accordance with this Section shall be treated as an Annual Addition
under Article XV for the Plan Year for which the excess contribution was
made, notwithstanding such forfeiture or distribution.
5.11 FORFEITURE OF MATCHING CONTRIBUTIONS ATTRIBUTABLE TO EXCESS DEFERRALS OR
CONTRIBUTIONS.
To the extent any Matching Contributions allocated to a Participant's
Company Contributions Account are attributable to excess Compensation Deferral
Contributions required to be distributed to the Participant in accordance with
Section 5.7 or 5.8, such Matching Contributions, including any income allocable
thereto, shall be forfeited, notwithstanding that such Matching Contributions
may otherwise be nonforfeitable under the terms of the Plan. Any Matching
Contributions forfeited by a Participant in accordance with this Section 5.11
shall be applied to reduce future Matching Contributions by Participating
Employers.
5.12 PARTICIPANT ROLLOVER/TRANSFER CONTRIBUTIONS.
(a) Effective as of an Eligible Employee's Employment Commencement
Date, or such later date as may be determined by the Committee, the
account, if any, of such Participant held in trust under another plan that
satisfies the requirements of Code Section 401(a), or in an individual
retirement account which is attributable solely to a rollover contribution
within the meaning of Code Section 408(d)(3), may be rolled over to this
Plan and credited to the Participant's Rollover/Transfer Account in
accordance with rules which the Committee shall prescribe from time to
time; provided, however, the Committee determines that the continued
qualification of this Plan would not be adversely affected by such
rollover or would cause this Plan to become a "transferee plan," within
the meaning of Code Section 401(a)(11). If a Participant's account under a
Plan of an Affiliated Company is transferred to this Plan, such transfer
shall be made directly from the trustee of the plan of such Affiliated
Company to the Trustee of this Plan and shall be in cash. Amounts rolled
over or transferred to the Plan pursuant to this Section 5.12 shall not be
subject to withdrawal by a Participant prior to his/her termination of
employment
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with the Company and all Affiliated Companies. Nothing in this Section
5.12, however, shall be construed to permit an Eligible Employee to
commence participation in this Plan solely by reason of such rollover or
transfer. Further, nothing in this Section 5.12 shall be construed to
permit an Eligible Employee to be an active Participant in this Plan
solely by reason of a rollover or transfer pursuant to the provisions
hereof.
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ARTICLE VI
COMPANY CONTRIBUTIONS
6.1 AMOUNT OF CONTRIBUTIONS.
Subject to the requirements and restrictions of Article V, this Article
VI, and Article XIV, and subject also to the amendment or termination of the
Plan or the suspension or discontinuance of contributions as provided herein,
Participating Employers shall make contributions to the Plan as follows:
(a) For each month in which a Participant has elected pursuant to
Section 5.1 to make a Compensation Deferral Contribution, the Company
shall contribute an amount equal to such Compensation Deferral
Contribution to the Trust Fund, to be allocated to the Participant's
Compensation Deferral Account.
(b) For each month in which a Participant makes a Compensation
Deferral Contribution, the Company shall pay into the Trust Fund an amount
equal to seventy-five percent (75%) of the Participant's Compensation
Deferral Contributions, up to a maximum of six percent (6%) of such
Participant's total Compensation for the same period. Amounts contributed
to the Trust Fund under this Subsection (b) shall be allocated as set
forth in Subsection (a) above.
The Company may change the amount of such Matching Contributions from time
to time by resolution of the Board of Directors. Amounts contributed to
the Trust Fund under this Section 6.1(b) shall be allocated to the Company
Contribution Accounts of Participants as provided in Article VII.
(c) In addition to the contribution described above, the Company in
its sole discretion may make a contribution for each fiscal year in an
amount determined by the Board of Directors. Such contributions shall be
allocated to the Company Contribution Accounts of Participants as provided
in Article VII.
6.2 INSUFFICIENT PROFITS.
Contributions authorized by Subsection 6.1(d) shall be made only to the
extent that net profits are available. If any Participating employer is
prevented from making a contribution which it would otherwise have made under
the Plan, by reason of having no current or accumulated earnings or profits or
because such earnings or profits are less than the contributions which it would
otherwise have made, then so much of the contribution which such Participating
Employer was so prevented from making may be made, for the benefit of the
employees of such Participating Employer, by the other Participating Employer,
to the extent of current or accumulated earnings or profits, except that such
contribution by each such other Participating Employer shall be limited, where
all Participating Employers do not file a consolidated return, to that
proportion of its total current and accumulated earnings or profits reaming
after adjustment for its contribution deductible without regard to this Section
6.2 which the total prevented
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contribution bears to the total current and accumulated earnings or profits of
all the Participating Employers remaining after adjustment for all
contributions deductible without regard to this Section 6.2.
To the extent net profits are insufficient to permit Company contributions
to be made pursuant to the provisions of Section 6.1(d), Compensation Deferral
Contributions nevertheless may be made by Participants and contributions may
nevertheless be made by the Company in respect of Compensation Deferral
Contributions pursuant to Section 5.1(a).
6.3 TIME OF CONTRIBUTION.
A Compensation Deferral Contribution on behalf of a Participant for a Plan
Year shall in no event be made later than thirty (30) days following the last
day of such Plan Year. In no event shall contributions made under Section 6.1
above for any Plan Year be made later than the time prescribed by law for the
deduction of such contribution for purposes of the Company's Federal income
tax, as determined by the applicable provisions of the Internal Revenue Code.
6.4 IRREVOCABILITY.
The Company shall have no right or title to, nor interest in, the
contributions made to the Trust Fund, and no part of the Trust Fund shall
revert to the Company except that on and after the Effective Date funds may be
returned to the Company as follows:
(a) In the case of a Company contribution which is made by a mistake
of fact, that contribution (and any income allocable to such contribution)
may be returned to the Company within one (1) year after it is made. A
Company contribution which is made by a mistake of fact shall include any
Compensation Deferral Contributions on behalf of a Participant which are
not eligible for tax-deferred treatment under Code Section 401(k) and any
Matching Contributions attributable thereto.
(b) All Company contributions are hereby conditioned upon the Plan
initially satisfying all of the requirements of Code Section 401(a) and
Section 401(k). If the Plan does not initially qualify, at the Company's
written election the Plan or any portion thereof may be revoked and any or
all such contributions with respect to the portion revoked may be returned
to the Company within one year after the date of IRS denial of the initial
qualification of the Plan. Upon such a revocation the affairs of the Plan
and Trust shall be terminated and wound up as the Company shall direct.
(c) All contributions to the Trust Fund are conditioned on
deductibility under Code Section 404. In the event a deduction is
disallowed for any such contribution such contribution may be returned to
the Company.
(d) To the extent authorized pursuant to Section 5.7 or 5.8, excess
Compensation Deferral Contributions may be returned to the Company for
purposes of withholding any federal, state, or local taxes that may be due
on such amounts; provided that thereafter, the Company pays to the
Participant all remaining amounts.
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ARTICLE VII
PARTICIPANT ACCOUNTS AND ALLOCATIONS
7.1 GENERAL.
(a) In order to account for the allocated interest of each
Participant in the Trust Fund, there shall be established and maintained
the Accounts described in Section 2.1.
(b) The fair market value of the Trust Fund shall be determined as of
the monthly Valuation Dates and such other Valuation Dates as the
Committee may determine.
(c) All gains, losses, dividends and other property acquisitions
and/or transfers that occur with respect to the Trust Fund shall be held,
charged, credited, debited or otherwise accounted for under said Fund on
an unallocated basis until allocated to Participants' Accounts as of the
applicable Valuation Date as provided under this Plan or otherwise used or
applied in accordance with the provisions of this Plan.
7.2 ALLOCATION OF PARTICIPATING EMPLOYER CONTRIBUTIONS.
(a) The Compensation Deferral Account of each Participant shall be
credited with Compensation Deferral Contributions made in accordance with
Section 5.1(a).
(b) The Company Contributions Account of each Participant shall be
credited with Matching Contributions made in accordance with Sections
6.1(b) and (c), and any discretionary contributions under Section 6.1(d),
if applicable.
(c) For the purpose of the allocation among the Plan Participants of
the Participating Employer's discretionary contribution for a Plan Year,
the Participating Employers' contribution shall be allocated as of the
last day of the Plan Year to the Participants on that date (excluding any
Participants whose service has terminated or who have retired or died, or
who became disabled prior to such Plan Year ending) in the ratio that each
Participant's Compensation Deferral Contributions during the Plan Year
bears to the total Compensation Deferral Contributions during the Plan
Year of all Participants.
7.3 INVESTMENT FUNDS.
Contributions by and on behalf of a Participant shall be invested in
accordance with the Participant's investment designations in one or more
Investment Funds established by the Committee for this purpose. As of July 1,
1993, the following Investment Funds shall be available for investment of
contributions by and on behalf of a Participant; provided, however, the
Committee, in its discretion, may from time to time establish Investment Funds
in addition to or in place of these funds:
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(a) FIDELITY MONEY MARKET FUND. This Fund is invested in high-quality
U.S. Dollar-denominated money market instruments of U.S. and foreign
issuers. Investments include short-term corporate obligations, U.S.
Government obligations and certificates of deposit. This Fund is intended
to offer stability and carry the least risk of any of the Funds, since it
concentrates on preserving the value of Participants' savings, while
providing income. It is not intended to offer the growth potential of
stock funds.
(b) PACIFIC MUTUAL FIXED INCOME FUND. This Fund is invested in
high-quality bonds and mortgage loans, and is intended to provide
consistent income at a fixed interest rate, thereby incurring low risk. It
is expected that this Fund will be useful to Participants who are near
retirement and need regular income rather than growth in the value of
their Accounts.
(c) FIDELITY EQUITY-INCOME FUND. This is a balanced Fund that invests
Participants' contributions in a diversified portfolio of stocks, bonds
and convertible securities. It is a growth and income Fund that is
intended to provide long-term growth while earning income. It is expected
to offer a good return with less risk than a Fund that invests only in
growth stocks.
(d) FIDELITY MAGELLAN (EQUITY) FUND. This Fund is invested in an
aggressive stock portfolio that combines stocks from both well-known and
lesser-known companies. The risks of this Fund will parallel those of the
stock market. Although the Fund contains higher risks, its potential for
income is expected to be greater over time. It is intended to be useful
for Participants with long-term investment goals.
(e) COMPANY STOCK FUND. This fund is invested primarily in Company
Stock.
Investment Funds may, from time to time, hold cash or cash equivalent
investments (including interests in any fund maintained by the Trustee as
provided in the Trust Agreement) resulting from investment transactions
relating to the property of said Fund; provided, however, that neither the
Committee, the Company, the Participating Employer, the Trustee or any other
person shall have any duty or responsibility to cause such Funds to be held in
cash or cash equivalent investments for investment purposes. In the case of any
Investment Fund under the management and control of an Investment Manager
appointed by the Committee in accordance with Section 11.3, neither the
Committee, the Company, the Participating Employer, the Trustee, nor any other
person shall have any responsibility or liability for investment decisions made
by such Investment Manager.
7.4 ALLOCATION OF CONTRIBUTIONS TO INVESTMENT FUNDS.
In accordance with rules of uniform application which the Committee may
from time to time adopt and subject to any limitations set forth below in this
Section, each Participant shall have the right to designate one or more of the
Investment Funds described in Section 7.3
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above for the investment of his Accounts and for the investment of
contributions under the Plan, in accordance with the following rules:
(a) Investment of contributions by and on behalf of a Participant in
any Investment Fund and transfer of a Participant's Account balances
between Investment Funds shall be made in increments of ten percent (10%).
(b) During an election period at the end of each calendar quarter
Participants shall be entitled to make investment designations. Each
election period shall begin on the day which is fifteen days before the
end of the calendar quarter and shall end on the day which is five days
before the end of the calendar quarter.
(c) Subject to the limitations of Paragraph (a) above, a Participant
may make a separate investment designation with respect to the amount
standing to the Participant's credit in all of his/her Accounts under the
Plan as of the last day of the relevant calendar quarter ("Existing
Account Balances"), and future contributions to his/her Accounts ("Future
Contributions"), as follows:
(i) Investment designations with respect to Existing Account
Balances shall apply to all of the Participant's Accounts (i.e., an
investment designation may not be made with respect to one or more of
the Participant's Accounts but fewer than all of the Participant's
Accounts) and shall be effective as of the last day of the calendar
quarter for which the designation is made.
(ii) Investment designations with respect to Future
Contributions shall apply to all Future Contributions (i.e., both
Company and Participant, including repayments of an outstanding
loan), and shall be effective as of the first day of the first
payroll period commencing on or after the first day of the calendar
quarter beginning after the designation is made. For purposes of the
allocation of Future Contributions to Participants' Company Stock
Fund subaccounts as of any Valuation Date after July 1, 1993, the
number of shares of Company Stock to be allocated as of such
Valuation Date shall be based on the average price paid by the
Trustee for all shares it purchased during the month ending on such
Valuation Date.
(d) Notwithstanding the foregoing, a Participant may not make an
investment designation as to Existing Account Balances which (i) directs a
transfer from the Pacific Mutual Fixed Income Fund directly to the
Fidelity Money Market Fund; (ii) directs a transfer from Existing Account
Balances to the Company Stock Fund. This restriction does not apply to an
investment designation pertaining to Future Contributions. Amounts in a
Participant's Rollover/Transfer Account may, if the Participant so
designates, be invested in the Company Stock Fund immediately after the
receipt of such funds by this Plan.
(e) Any investment designation shall be a continuing investment
designation until the Committee actually receives a completed investment
designation form satisfactory to the Committee requiring a change. In all
cases it shall be the responsibility
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of each Participant to verify that his or her investment designation is
being implemented and that such investment designation is appropriate to
the Participant's circumstances.
(f) Any election or direction made under this Plan by an individual
who is or may become subject to liability under Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), may be
conditioned upon such restrictions as are necessary or appropriate to
qualify for an applicable exemption under Section 16) of the Exchange
Act, or any rule promulgated thereunder. To the extent required by Section
401(a)(4) of the Code, the rules under this Section 7.4(g) shall be
administered in a nondiscriminatory manner.
7.5 TREATMENT OF ACCOUNTS UPON TERMINATION OF EMPLOYMENT.
Upon a Participant's termination of employment, pending distribution of
the Participant's Distributable Benefit pursuant to the provisions of Articles
IX and X below, the vested value of a Participant's Accounts shall be
determined and that amount shall be transferred to the Pacific Mutual Fixed
Income Fund, where it shall be maintained until it is distributed to the
Participant.
7.6 ACCOUNTING PROCEDURES.
The Committee and the Trustee shall establish accounting procedures for
the purpose of making the allocations, valuations and adjustments to
Participants' Accounts provided for in this Article VII and Articles IX and X.
From time to time the Committee and Trustee may modify such accounting
procedures for the purpose of achieving equitable, nondiscriminatory, and
administratively feasible allocations among the Accounts of Participants in
accordance with the general concepts of the Plan and the provisions of this
Article VII and Article VIII.
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ARTICLE VIII
SPECIAL PROVISIONS
CONCERNING COMPANY STOCK
EFFECTIVE AS OF JULY 1, 1993
8.1 SECURITIES TRANSACTIONS.
(a) The Trustee shall acquire Company Stock in the open
market or from the Company or any other person, including a party in
interest, pursuant to a Participant's election to invest any Company
contributions on his behalf (including Compensation Deferral
Contributions), or Participant Voluntary Contributions, or amounts in his
Rollover/Transfer Account in the Company Stock Fund established by the
Committee in accordance with Section 7.3, or to transfer amounts held in
other Investment Funds to such Company Stock Fund. No commission will be
paid in connection with the Trustee's acquisition of Company Stock from a
party in interest.
(b) Pending acquisition of Company Stock pursuant to a
Participant's investment election, elected amounts may be allocated to the
Participant's Company Stock Fund subaccount in cash and may be invested in
any short-term interest fund of the Trustee.
(c) Neither the Company, nor the Committee, nor any Trustee
have any responsibility or duty to time any transaction involving Company
Stock in order to anticipate market conditions or changes in Company Stock
value. Neither the Company, nor the Committee nor any Trustee have any
responsibility or duty to sell Company Stock held in the Trust Fund in
order to maximize return or minimize loss.
8.2 VALUATION OF COMPANY SECURITIES.
When it is necessary to value Company Stock held by the Plan, the
value will be the current fair market value of the Company Stock, determined
in accordance with this Section 8.2 and applicable legal requirements. In the
case of a transaction between the Plan and a party in interest, the fair
market value of the Company Stock must be determined as of the date of the
transaction rather than as of some other Valuation Date occurring before or
after the transaction. If the Company Stock is publicly traded, fair market
value will be based on the closing price in public trading on the relevant
date, as reported in THE WALL STREET JOURNAL or any other publication of
general circulation designated by the Committee, unless another method of
valuation is required by the standards applicable to prudent fiduciaries. If
the Company Stock cannot be valued on the basis of its closing price in
public trading on a relevant date, fair market value will be determined by
the Company in good faith based on all relevant factors for determining the
fair market value of securities. Relevant factors include an independent
appraisal by a person who customarily makes such appraisals, if an appraisal
of the fair market value of the Company Stock as of the relevant date was
obtained.
8.3 ALLOCATION OF STOCK DIVIDENDS AND SPLITS.
Company Stock received by the Trust as a result of a Company Stock
split or Company Stock dividend on Company Stock held in Participants'
Company Stock Fund subaccounts will be allocated as of the Valuation Date
coincident with or following the date of such split or dividend, to each
Participant who has such a subaccount. The amount allocated will
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bear substantially the same proportion to the total number of shares received
as the number of shares in the Participant's Company Stock Fund subaccount
bears to the total number of shares allocated to such subaccounts of all
Participants immediately before the allocation. The shares will be allocated
to the nearest thousandth of a share.
8.4 REINVESTMENT OF DIVIDENDS.
Upon direction of the Committee, cash dividends may be reinvested
as soon as practicable by the Trustee in shares of Company Stock for
Participants' Company Stock Fund subaccounts. Cash dividends may be
reinvested in Company Stock purchased as provided in this Article VIII.
8.5 VOTING OF COMPANY STOCK.
The Trustee shall have no discretion or authority to vote Company
Stock held in the Trust on any matter presented for a vote by the
stockholders of the Company except in accordance with timely directions
received by the Trustee from Participants.
(a) Each Participant shall be entitled to direct the
Trustee as to the voting of all Company Stock allocated and credited to
his Company Stock Fund subaccount.
(b) All Participants entitled to direct such voting shall be
notified by the Company, pursuant to its normal communications with
shareholders, of each occasion for the exercise of such voting rights
within a reasonable time before such rights are to be exercised. Such
notification shall include all information distributed to shareholders
either by the Company or any other party regarding the exercise of such
rights. If a Participant shall fail to direct the Trustee as to the
exercise of voting rights arising under any Company Stock credited to his
Company Stock Fund subaccounts, or if any Company Stock held in the Plan
has not been allocated to Participants' Company Stock Fund subaccounts,
the Trustee shall not be required to vote such Company Stock. The Trustee
shall maintain confidentiality with respect to the voting directions of
all Participants.
(c) No Participant shall be a "fiduciary" (as that term is
defined in ERISA Section 3(21)) with respect to Company Stock for which
he/she has the right to direct the voting under the Plan for the purpose
of exercising voting rights pursuant to this Section 8.5 or tender rights
pursuant to Section 8.6.
(d) In the event a court of competent jurisdiction shall
issue an opinion or order to the Plan, the Company or the Trustee, which
shall, in the opinion of counsel to the Company or the Trustee, invalidate
under ERISA, in all circumstances or in any particular circumstances, any
provision or provisions of this Section regarding the manner in which
Company Stock held in the trust shall be voted or cause any such provision
or provisions to conflict with ERISA, then, upon notice thereof to the
Company or the Trustee, as the case may be, such invalid or conflicting
provisions of this Section shall be given no further force or effect. In
such circumstances the Trustee shall nevertheless have no discretion to
vote Company Stock held in the Trust unless required under such order or
opinion but shall follow instructions received from Participants, to the
extent such instructions have not been invalidated. To the extent required
to exercise any residual fiduciary responsibility with respect to voting,
the Trustee shall take into account in exercising its fiduciary judgment,
unless it is clearly imprudent to do so, directions timely received from
Participants, as such directions are most indicative of what is in the
best interests of Participants.
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8.6 CERTAIN OFFERS FOR COMPANY STOCK.
Notwithstanding any other provision of this Plan to the contrary,
in the event an offer shall be received by the Trustee (including, but not
limited to, a tender offer or exchange offer within the meaning of the
Securities Exchange Act of 1934, as from time to time amended and in effect),
to acquire any or all shares of Company Stock held by the Trust (an "Offer"),
whether or not such stock is allocated to Participants' Company Stock Fund
subaccounts, the discretion or authority to sell, exchange or transfer any of
such shares shall be determined in accordance with the following rules:
(a) The Trustee shall have no discretion or authority to
sell, exchange or transfer any of such stock pursuant to such Offer except
to the extent, and only to the extent that the Trustee is timely directed
to do so in writing with respect to any Company Stock held by the Trustee
subject to such Offer and allocated to the Company Stock Fund subaccount
of any Participant, by each Participant to whose Company Stock Fund
subaccount any of such shares are allocated. Upon timely receipt of such
instructions, the Trustee shall, subject to the provisions of Subsections
(c) and (k), sell, exchange or transfer pursuant to such Offer, only such
shares as to which such instructions were given. The Trustee shall use its
best efforts to communicate or cause to be communicated to each
Participant the consequences of any failure to provide timely instructions
to the Trustee. In the event, under the terms of an Offer or otherwise,
any shares of Company Stock tendered for sale, exchange or transfer
pursuant to such Offer may be withdrawn from such Offer, the Trustee shall
follow such instructions respecting the withdrawal of such securities from
such Offer in the same manner as shall be timely received by the Trustee
from the Participants entitled under this Subsection to give instructions
as to the sale, exchange or transfer of securities pursuant to such Offer.
(b) In the event that an Offer for fewer than all of the
shares of Company Stock held by the Trustee in the Trust shall be received
by the Trustee, each Participant shall be entitled to direct the Trustee
as to the acceptance or rejection of such Offer (as provided by Subsection
(a) above) with respect to the largest portion of such Company stock as
may be possible given the total number of amount of shares of Company
Stock the Plan may sell, exchange or transfer pursuant to the Offer based
upon the instructions received by the Trustee from all other Participants
who shall timely instruct the Trustee pursuant to this Section to sell,
exchange or transfer such shares pursuant to such Offer, each on a PRO
RATA basis in accordance with the maximum number of shares each such
Participant would have been permitted to direct under Subsection (a) above
had the Offer been for all shares of Company Stock held in the trust.
(c) In the event an Offer shall be received by the Trustee
and instructions shall be solicited from Participants in the Plan pursuant
to Subsection (a) above regarding such Offer, and prior to termination of
such Offer, another Offer is received by the Trustee for the securities
subject to the first Offer, the Trustee shall use its best efforts under
the circumstances to solicit instructions from the Participants to the
Trustee (i) with respect to securities tendered for sale, exchange or
transfer pursuant to the first Offer, whether to withdraw such tender, if
possible, and, if withdrawn, whether to tender any securities so withdrawn
for sale, exchange or transfer pursuant to the second Offer, and (ii) with
respect to securities not tendered for sale, exchange or transfer pursuant
to the first Offer, whether to tender or not to tender such securities for
sale, exchange or transfer pursuant to the second Offer. The Trustee shall
follow all such instructions received in a timely manner from Participants
in the same manner as provided in Subsection (a) above. With respect to
any further Offer for any Company Stock received by the Trustee and
subject to any earlier Offer (including successive Offers from one or more
existing offerors), the Trustee shall act in the same manner as described
above.
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(d) With respect to any Offer received by the Trustee, the
Trustee shall distribute, at the Company's expense, copies of all relevant
material, including, but not limited to, material filed with the
Securities and Exchange Commission with such Offer or regarding such
Offer, and shall seek confidential written instructions from each
Participant who is entitled to respond to such Offer pursuant to
Subsection (a) or (b) above. The identities of Participants, the amount of
Company Stock allocated to their Company Stock Fund subaccounts, and the
value of such account shall be determined from the list of Participants
delivered to the Trustee by the Recordkeeper (as defined below). The
Recordkeeper shall take all reasonable steps necessary to provide the
Trustee with the latest possible information. For purposes of this
Section, the "Recordkeeper" shall mean such person or entity appointed by
the Committee to receive Participant designations and instructions
pursuant to the provisions of this Plan and to carry out such other
administrative duties and responsibilities under the Plan as shall be
agreed to by the Committee and the Recordkeeper.
(e) The Trustee shall distribute and/or make available to
each Participant who is entitled to respond to an Offer pursuant to
Subsection (a) or (b) above an instruction form to be used by each such
Participant who wishes to instruct the Trustee. The instruction form shall
state that (i) if the Participant fails to return an instruction form to
the Trustee by the indicated deadline, the Company Stock for which he is
entitled to give instructions will not be sold, exchanged or transferred
pursuant to such Offer, (ii) the Participant will be a Named Fiduciary (as
described in Subsection (j) below) with respect to all shares for which he
is entitled to give instructions, and (iii) the Company acknowledges and
agrees to honor the confidentiality of the Participant's instructions to
the Trustee.
(f) Each Participant may choose to instruct the Trustee in
one of the following two ways: (i) not to sell, exchange or transfer any
shares of Company Stock for which he is entitled to give instructions, or
(ii) to sell, exchange or transfer all Company Stock for which he is
entitled to give instructions. The Trustee shall follow up with additional
mailings and postings of bulletins, as reasonable under the time
constraints then prevailing, to obtain instructions from Participants not
otherwise responding to such requests for instructions. The Trustee shall
then sell, exchange or transfer shares according to instructions from
Participants, and shares for which no instructions are received shall not
be sold, exchanged or transferred.
(g) The Company shall furnish former Participants who have
received distributions of Company Stock so recently as to not be
shareholders of record with the information given to Participants pursuant
to Subsections (d), (e) and (f) of this Plan. The Trustee is hereby
authorized to sell, exchange or transfer pursuant to an Offer any Company
Stock it may receive from such former Participants in accordance with
appropriate instructions from them.
(h) Neither the Committee nor the Trustee shall express any
opinion or give any advice or recommendation to any Participant concerning
the Offer, nor shall they have any authority or responsibility to do so.
The Trustee has no duty to monitor or police the party making the Offer;
provided, however, that if the Trustee becomes aware of activity which on
its face reasonably appears to the Trustee to be materially false,
misleading, or coercive, the Trustee shall demand promptly that the
offending party take appropriate corrective action. If the offending party
fails or refuses to take appropriate corrective action, the Trustee shall
communicate with affected Participants in such manner as it deems
advisable.
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(i) The Trustee shall not reveal or release a Participant's
instructions to the Company, its officers, directors, employees, or
representatives. If some, but not all, Company Stock held by the Trust is
sold, exchanged, or transferred pursuant to an Offer, the Company, with
the Trustee's cooperation, shall take such action as is necessary to
maintain the confidentiality of Participant's records, including, without
limitation, establishment of a security system and procedures which
restrict access to Participant records and retention of an independent
agent to maintain such records. If an independent record keeping agent is
retained, such agent must agree, as a condition of its retention by the
Company, not to disclose the composition of any Participant Accounts to
the Company, its officers, directors, employees, or representatives. The
Company acknowledges and agrees to honor the confidentiality of
Participants' instructions to the Trustee.
(j) Each Participant shall be a Named Fiduciary (as that
term is defined in ERISA Section 402(a)(2)) with respect to Company Stock
allocated to his Company Stock Fund subaccount under the Plan for which he
is entitled to issue instructions in accordance with Subsection (a) above
solely for purposes of exercising the rights of a shareholder with respect
to an Offer pursuant to this Section 8.6 and voting rights pursuant to
Section 8.5.
(k) In the event a court of competent jurisdiction shall issue
to the Plan, the Company or the Trustee an opinion or order, which shall,
in the opinion of counsel to the Company or the Trustee, invalidate, in
all circumstances or in any particular circumstances, any provision or
provisions of this Section regarding the determination to be made as to
whether or not Company Stock held by the Trustee shall be sold, exchanged
or transferred pursuant to an Offer or cause any such provision or
provisions to conflict with securities laws, then, upon notice thereof to
the Company or the Trustee, as the case may be, such invalid or
conflicting provisions of this Section shall be given no further force or
effect. In such circumstances the Trustee shall have no discretion as to
whether or not the Company Stock held in the Trust shall be sold,
exchanged, or transferred unless required under such order or opinion, but
shall follow instructions received from Participants, to the extent such
instructions have not been invalidated by such order or opinion. To the
extent required to exercise any residual fiduciary responsibility with
respect to such sale, exchange or transfer, the Trustee shall take into
account in exercising its fiduciary judgment, unless it is clearly
imprudent to do so, directions timely received from Participants, as such
directions are most indicative of what action is in the best interests of
Participants.
8.7 CONFIDENTIALITY PROCEDURES.
The Committee shall establish procedures intended to ensure the
confidentiality of information relating to Participant transactions involving
Company Stock, including the exercise of voting, tender and similar rights.
The Committee shall also be responsible for ensuring the adequacy of the
confidentiality procedures and monitoring compliance with such procedures.
The Committee may, in its sole discretion, appoint an independent fiduciary
to carry out any activities that it determines involve a potential for undue
Company influence on Participants with respect to the exercise of their
rights as shareholders.
8.8 SECURITIES LAW LIMITATION.
Neither the Committee nor the Trustee shall be required to engage
in any transaction, including, without limitation, directing the purchase or
sale of Company Stock, which it determines in its sole discretion might tend
to subject itself, its members, the Plan, the Company, or any Participant or
Beneficiary to a liability under federal or state securities laws.
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ARTICLE IX
VESTING; PAYMENT OF PLAN BENEFITS
9.1 VESTING.
(a) Each Participant shall at all times be one hundred percent
(100%) vested in his/her Accounts under the Plan other than his/her Company
Contribution Account. Each Participant shall become vested in his/her
Company Contribution Account according to the table set forth below:
Number of One-Year
Periods of Service Vested Interest
------------------ ---------------
Less than two 0%
Two but less than three 20%
Three but less than four 40%
Four but less than five 60%
Five but less than six 80%
Six or more 100%
(b) Notwithstanding the foregoing, a Participant shall become one
hundred percent (100%) vested in his/her Company Contribution Account upon
the occurrence of the following while he/she is employed by the Company or
an Affiliated Company: his/her attainment of age 65, his/her death, or
his/her termination of employment as a result of Total and Permanent
Disability.
9.2 DISTRIBUTION UPON RETIREMENT.
(a) A Participant may retire from the employment of the Company on
his/her Normal Retirement Date. If the Participant continues in the service
of the Company beyond his/her Normal Retirement Date, he/she shall continue
to participate in the Plan in the same manner as Participants who have not
reached their Normal Retirement Dates. At the subsequent termination of the
Participant's employment on his/her Postponed Retirement Date, his/her
Distributable Benefit shall be based upon the Vested Interest of his/her
Accounts as of the applicable Valuation Date determined with reference to
the date of his/her subsequent termination of employment. After a
Participant has reached his/her Normal Retirement Date, any termination of
the Participant's employment (other than by reason of death) shall be
deemed a Normal Retirement.
(b) Distribution as provided in Section 9.2(a) shall be made or
commence not later than sixty (60) days after the later of
(i) the close of the Plan Year in which occurs the
Participant's Normal Retirement Date or
(ii) the date the Participant's employment with the Company and
all Affiliated Companies terminates.
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(c) Notwithstanding the foregoing, effective for Plan Years
commencing on and after January 1, 1989, distribution of a Participant's
Distributable Benefit shall be made or commence not later than the
Participant's "Required Beginning Date" as determined in accordance with
this Subsection:
(i) Except as provided in (ii) below, a Participant's "Required
Beginning Date" shall mean the April 1 following the calendar year in
which the Participant attains age 70-1/2, whether or not such
Participant has incurred a Severance or whether or not the Participant
consents to the distribution. To the extent required under Code Section
401(a)(9), the Participant's Vested Interest in his/her Accounts
determined as of the December 31 of the calendar year in which occurs
his Required Beginning Date and the December 31 of each subsequent
calendar year shall be distributed no later than the December 31 of the
next following calendar year.
(ii) Except in the case of a Participant who is a "5-percent
owner" within the meaning of Section 401(a)(9) of the Code, "Required
Beginning Date" for a Participant who attained age 70-1/2 prior to
January 1, 1988 shall mean the April 1 following the later of the
calendar year in which the Participant attains age 70-1/2, or the
calendar year in which the Participant incurs a severance.
9.3 DISTRIBUTION UPON DEATH PRIOR TO COMMENCEMENT OF BENEFITS.
(a) Upon the death of a Participant prior to the commencement of
his/her benefits under this Plan, the Committee shall direct the Trustee to
make a distribution of the Participant's Distributable Benefit in the Trust
Fund in a lump sum (provided that his/her entire Distributable Benefit
shall be distributed within five (5) years of such Participant's death)
to the Beneficiary designated by the deceased Participant, except as
provided in Section 9.10.
(b) Distribution as provided in Section 9.3(a) shall be made or
commence to be made not later than sixty (60) days after the close of the
Plan Year in which all facts required by the Committee to be established as
a condition of payment shall have been established to the satisfaction of
the Committee.
9.4 DISTRIBUTION UPON DEATH AFTER COMMENCEMENT OF BENEFITS.
(a) Upon the death of a Participant after commencement of his/her
benefits but prior to the distribution of his/her entire Distributable
Benefit in the Trust Fund to which he/she is entitled, the Committee shall
direct the Trustee to make a distribution of the balance to which the
deceased Participant was entitled, to the Beneficiary designated by the
deceased Participant, except as provided in Section 9.10.
(b) Distributions as provided in Section 9.4(a) shall be made or
commence to be made not later than sixty (60) days after the close of the
Plan Year in which all facts required by the Committee to be established as
a condition of payment shall have been established to the satisfaction of
the Committee, and such distributions shall be paid for the remainder of
the period over which distributions were being made prior to the
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Participant's death, unless the Committee determines in its discretion to
accelerate such payments.
9.5 DISTRIBUTION UPON DISABILITY PRIOR TO RETIREMENT DATE.
(a) Upon the termination of employment of a Participant as a result
of Total and Permanent Disability, which shall be certified by a physician
designated or approved by the Committee, his/her Distributable Benefit in
the Trust Fund shall be distributed to him/her in the manner provided in
Section 9.7.
(b) Subject to Section 9.6(d), distribution as provided in Section
9.5(a) shall be made or commence to be made not later than sixty (60) days
after the close of the Plan Year in which all facts required by the
Committee to be established as a condition of payment shall have been
established to the satisfaction of the Committee.
9.6 TERMINATION OF EMPLOYMENT PRIOR TO NORMAL RETIREMENT DATE.
(a) Subject to the provisions of Section 9.6(b) below, if a
Participant's employment for the Participating Employer and all Affiliated
Companies terminates prior to age 65, payment of his/her Distributable
Benefit shall be made or commence as soon as administratively feasible
following age 65 in accordance with Section 9.7, or prior to age 65 in
accordance with Subsection 9.6(b). Unless the Participant's Distributable
Benefit is payable prior to age 65 in accordance with (b), the Participant
shall be deemed to have elected to defer distribution until age 65. In no
event shall such distribution be later than sixty (60) days after the
close of the Plan Year in which occurs the Participant's age 65.
(b) If the Participant makes a valid written election in accordance
with (c) below (and without regard to any such election if the distribution
is not more than $3,500), payment of his/her Distributable Benefit in
accordance with Section 9.7 may be made or commence on an earlier date
which is not later than sixty (60) days after the close of the Plan Year
in which occurs the Participant's termination of employment with the
Participating Employer and all Affiliated Companies, to the extent
administratively feasible.
(c) Any written election by a Participant to receive payment of
his/her Distributable Benefit prior to age 65 shall not be valid unless
such election is made both (A) after the Participant receives a written
notice advising him/her of his/her right to defer payment to age 65, and
(B) within the ninety (90) day period ending on the Participant's
"Benefit Starting Date." The notice to the Participant advising him/her of
his/her right to defer payment shall be given no less than thirty (30) nor
more than ninety (90) days prior to the Participant's Benefit Starting
Date or such fewer days prescribed by regulations issued under Code Section
411(a)(11). For purposes of this Subsection(c), "Benefit Starting Date"
shall mean the first day of the first period for which the Participant's
Distributable Benefit is paid.
(d) In the event a Participant is not 100% vested in his/her
Company Contributions Account under the Plan, the portion of such Account
which is not vested shall be forfeited as of the earlier of (i) the date
such Account is distributed to him/her (or, if the distribution is made in
periodic payments, on the date the first such payment is made) or (ii) the
date he/she incurs five (5) consecutive one-year Periods of Severance.
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(e) Subject to the requirements of Section 13.7, if a Participant
ceases to be an Employee by reason of the disposition by the Participating
Employer or an Affiliated Company of either (i) substantially all of the
assets used by the Company or an Affiliated Company, as the case may be,
in a trade or business, or (ii) the interest of the Participating Employer
or an Affiliated Company, as the case may be, in a subsidiary, such
Participant shall be entitled to payment of his/her Distributable Benefit
as if, for purposes of this Plan only, such event constitutes a
termination of employment.
9.7 FORMS AND METHODS OF DISTRIBUTIONS.
(a) Distributions from the Plan shall be in cash, except that
effective as of July 1, 1993, any portion of a Participant's Distributable
Benefit held in the Company Stock Fund following the Participant's
termination of employment with the Company and all Affiliated Companies may
be paid in shares of Company Stock if the Participant elects in writing in
accordance with this Section 9.7(a) and such other procedures established
by the Committee, to have such payment made in shares of Company Stock in
lieu of cash (which election may apply to the payment of a direct rollover
in accordance with Section 9.8). Any fractional shares allocated to a
Participant's Company Stock Fund subaccount shall be distributable only in
cash.
(i) If the distribution is paid in cash, the Committee shall
direct the Trustee to sell such Company Stock as soon as
administratively practicable at the then prevailing purchase price.
The amount of a cash distribution to a Participant pursuant to the
sale of any shares of Company Stock allocated to a Participant's
Company Stock Fund subaccount shall be based on the actual proceeds
from the sale of such shares of Company Stock. Neither the Company,
the Committee, nor the Trustee shall be required to time the
distribution or sale of Company Stock to anticipate fluctuations in
the purchase price.
(ii) Within a reasonable period of time (at least thirty (30)
days) prior to the date such Participant's Participant's Distributable
Benefit is to be paid, the Committee shall notify the Participant of
his/her right to elect to have payment of the portion of his/her
Distributable Benefit held in the Company Stock Fund made in the form
of a Company Stock distribution in lieu of cash (with the value of
fractional shares paid in cash).
(iii) Upon being so notified, the Participant shall have a
reasonable time (ninety (90) days) in which to file a written election
to have such payment made in cash.
(iv) If, within ninety (90) days after receiving notification
of his/her right to elect the form of payment of the portion of
his/her Distributable Benefit held in the Company Stock Fund, the
Participant fails to file a written election as to the form of such
payment, payment shall be made in cash.
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(b) Distributions under Sections 9.2, 9.5 and 9.6 shall be made by
one of the following methods, as the Participant may elect, within 60 days
after the date of the Participant's termination of service; or, in the case
of distributions under Section 9.3 or 9.4, as the Beneficiary may elect, if
the Participant has not previously designated the method of distribution:
(i) A lump sum as soon as is practicable after the amount
thereof is determined;
(ii) Monthly installments over a period certain only of equal
monthly payments on the first day of each month, commencing on the
applicable commencement date and ending with the last payment of the
period certain (sixty (60), one hundred twenty (120) or one hundred
eighty (180), whichever number the Participant elects);
(c) Payment of his/her Distributable Benefit in equal monthly
installments in accordance with Subsection (b) above may be made in monthly
installments, provided, however, that the amount to be distributed each
year must be at least an amount equal to the quotient obtained by dividing
the Participant's Distributable Benefit by the life expectancy of the
Participant or the joint and last survivor expectancy of the Participant
and designated Beneficiary. Life expectancy and joint and last survivor
expectancy are computed by the use of the return multiples contained in
Treasury Regulations Section 1.72-9. For purposes of this computation, a
Participant's life expectancy shall be recalculated no more frequently
than annually; provided, however, the life expectancy of a non-spouse
Beneficiary shall not be recalculated. If the Participant's Spouse is not
the designated Beneficiary, the method of distribution selected must
assure that at least 50 percent of the present value of the Participant's
Distributable Benefit is paid within the life expectancy of the
Participant.
9.8 ELECTION FOR DIRECT ROLLOVER OF VESTED INTEREST TO ELIGIBLE RETIREMENT PLAN.
(a) To the extent required by Section 401(a)(31) of the Code,
effective for Plan Years commencing on and after January 1, 1993, a
Participant whose Distributable Benefit becomes payable in an "eligible
rollover distribution" as defined in (b)(i) below, shall be entitled to
make a written election for a direct rollover of all or a portion of the
taxable portion of his/her Distributable Benefit to an "eligible
retirement plan," as defined in (b)(ii) below. Any non-taxable portion of
a Participant's Distributable Benefit shall be payable to the Participant,
as provided in 9.7 above. For purposes of this Article, a Participant who
makes a direct rollover election in accordance with this Section 9.8 shall
be deemed to have received payment of his/her Distributable Benefit as of
the date payment is made from the Plan.
(b) For purposes of this Section,
(i) an "eligible rollover distribution" shall mean any
distribution of all or any portion of the Participant's
Distributable Benefit, except that an eligible rollover
distribution does not include: any distribution that is one of a
series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
Participant or the joint lives (or joint life
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expectancies) of the Participant and the Participants designated
Beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Section
401(a)(9) of the Code; and the portion of any distribution that is not
includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to employer
securities), and
(ii) an "eligible retirement plan" shall mean any plan
described in Code Section 402(c)(8)(B), except that such plan must be
a defined contribution plan, the terms of which permit the acceptance
of a direct rollover from a qualified plan.
(c) A Participant's direct rollover election under this Section
shall be made in accordance with rules and procedures established by the
Committee and shall specify the dollar or percentage amount of the direct
rollover, the name and address of the eligible retirement plan selected by
the Participant and such additional information as the Committee deems
necessary of appropriate in order to implement the Participant's election.
It shall be the Participant's responsibility to confirm that the eligible
retirement plan designated in the direct rollover election will accept the
direct rollover of the taxable portion of his/her Distributable Benefit.
The Committee shall be entitled to direct the rollover based on its
reasonable reliance on information provided by the Participant, and shall
not be required to independently verify such information, unless it is
clearly unreasonable not to do so.
(d) At least thirty (30) days, but nor more than ninety (90) days,
prior to the date a Participant's Distributable Benefit becomes payable, or
as otherwise required under Code Section 402(g), the Participant shall be
given written notice of any right he/she may have to elect a direct
rollover of the taxable portion of his/her Distributable Benefit to an
eligible retirement plan; provided, however, a Participant who attained
age 65 or whose Vested Interest in his/her Accounts does not exceed $3,500
may waive any thirty (30) day notice requirement by making an affirmative
election to make or not to make a direct rollover of all or a portion of
his/her Distributable Benefit.
(e) If a Participant who attained age 65 or whose Distributable
Benefit does not exceed $3,500 fails to file a properly completed direct
rollover election with the Committee within ninety (90) days after such
notice is given, or if the Committee is unable to effect the rollover
within a reasonable time after the election is filed with the Committee
due to the failure of the Participant to take such actions as may be
required by the eligible retirement plan before it will accept the
rollover, the Participant's Distributable Benefit shall be paid in
accordance with Section 9.7, after withholding any applicable income
taxes.
(f) If the transferee plan specified by the Participant will not
accept a direct transfer of any Company Stock includible in the taxable
portion of the Participant's Distributable Benefit, such Company Stock
will be distributed to the Participant.
(g) To the extent required by Section 401(a)(31) of the Code, if all
or a portion of a Participant's Distributable Benefit is payable in a
single sum distribution to the Participant's surviving Spouse, or to a
former Spouse in accordance with a "qualified domestic relations order,"
such surviving Spouse or former Spouse shall be entitled to elect a direct
rollover of all or a portion of such distribution to an individual
retirement account or an individual retirement annuity in accordance
with the provisions of this Section.
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9.9 FORFEITURES/REPAYMENT.
(a) Amounts forfeited in accordance with Section 9.6(d) shall be
applied as soon as practicable to reduce future Matching Contributions.
(b) A Participant who elects to receive a distribution pursuant
to Subsection 9.6(b) may, in the case of his reemployment as an Eligible
Employee, repay the total amount distributed and shall in such case be
fully restored in amounts forfeited in accordance with Section 9.6(d);
provided, however, that no such repayment shall be permitted unless such
repayment is made prior to the date the Participant incurs five (5)
consecutive one-year Periods of Severance and prior to the fifth
anniversary of his Employment Commencement Date following the Period of
Severance.
9.10 WITHDRAWALS.
Except as provided in this Section 9.10, no amounts may be withdrawn by a
Participant prior to his/her termination of employment.
(a) Each Participant may twice each Plan Year make a withdrawal
from his/her Participant Voluntary Contribution Account for any reason by
written request to the Committee.
(b) Each Participant may once in each Plan Year make a
withdrawal from his/her Compensation Deferral Account in an amount
determined by the Committee after considering a written request by such
Participant and finding that the withdrawal is necessary to relieve
Hardship to the Participant or his/her family. For purposes of this
Section 9.10(b), a withdrawal may be considered to be necessary on account
of a Hardship of the Participant if the Committee determines that the
amount required to meet such Hardship is not readily available to the
Participant from other resources, in accordance with regulations prescribed
by the Secretary of the Treasury under Section 401(k) of the Code. A
distribution generally may be treated as necessary on account of a Hardship
of a Participant if the Committee reasonably relies on the Participant's
representations to the Committee, unless the Committee has actual knowledge
to the contrary, that the Hardship cannot be relieved
(i) through reimbursement or compensation by insurance or
otherwise,
(ii) by reasonable liquidation of assets, if such
liquidation would not itself cause an immediate and heavy financial
need,
(iii) by the cessation of Participant Compensation Deferral
Contributions to the Plan, or
(iv) by other distributions or non-taxable loans from plans
of the Company or any other employer, or by borrowing from commercial
sources on
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reasonable commercial terms, unless the obligation to repay the loan
would be inconsistent with the purpose of the withdrawal.
For purposes of this Section 9.10(b), a Participant's resources shall be
deemed to include those assets of his spouse and minor children that are
reasonably available to the Participant.
(d) The amount of the Participant's Compensation Deferral
Contributions available for withdrawal under Section 9.10(b) shall be the
lesser of (i) the total of such Compensation Deferral Contributions, less
any such amounts previously withdrawn or (ii) the value of the
Participant's Compensation Deferral Contributions as of the Valuation Date
immediately preceding the Committee's determination authorizing such
withdrawal, subject to adjustment in accordance with the provisions of
Article X, paragraph (d). Withdrawals under Section 9.10(b) shall be
considered as made from the most recent contributions by Participants.
Payment of a withdrawal shall be made only in cash and shall be allocated
pro rata among the Participant's Investment Fund subaccounts, including any
Company Stock Fund subaccount. The amount of a cash distribution to a
Participant pursuant to the sale of any shares of Company Stock allocated
to a Participant's Company Stock Fund subaccount after July 1, 1993 shall
be based on the actual proceeds from the sale of such shares of Company
Stock. At the election of the Participant, the amount so withdrawn may be
paid to the Participant in a cash lump sum.
(e) A withdrawal from the Participant's Compensation Deferral
Contributions Account shall result in a 90-day suspension of any Matching
Contributions that would have otherwise been made on behalf of the
Participant. Matching Contributions, if applicable, shall recommence on the
first day of the month next following the 90-day suspension.
(f) While still an Employee, a Participant who has attained at
least age fifty-nine and one-half (59-1/2) may, upon at least thirty (30)
days written notice to the Committee, make an election to withdraw all or a
portion of his/her Accounts, to the extent he/she is vested in such
Accounts. The amount so withdrawn shall be paid to the Participant as
provided in (d) above, except that such payment shall be in a lump sum
only.
9.11 DESIGNATION OF BENEFICIARY.
(a) Subject to the provisions of Subsection 9.11(b) below, each
Participant shall have the right to designate a Beneficiary or
Beneficiaries to receive his/her interest in the Trust Fund in the event of
his/her death before receipt of his/her entire interest in the Trust Fund.
This designation is to be made on the form prescribed by and delivered to
the Committee. Subject to the provisions of Subsection 9.11(b) below,
a Participant shall have the right to change or revoke any such designation
by filing a new designation or notice of revocation with the Committee, and
no notice to any Beneficiary nor consent by any Beneficiary shall be
required to effect any such change or revocation.
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(b) If a Participant designates a Beneficiary and on the date of
his/her death has a Spouse who is not such Beneficiary, no effect shall be
given to such designation unless such Spouse has consented or thereafter
consents in writing to such designation and such consent is witnessed by
a notary public. A Spouse's consent to a Beneficiary designation is not
required under the following circumstances:
(i) if it is established to the satisfaction of the
Committee that there is no Spouse; or
(ii) if the Participant's Spouse cannot be located; or
(iii) because of other circumstances under which a Spouse's
consent is not required in accordance with applicable Treasury or
Department of Labor Regulations.
The Committee shall have absolute discretion as to whether the consent of
a Spouse shall be required. The provisions of this Section 9.11 shall not
be construed to place upon the Company or the Committee any duty or
obligation to require the consent of a Spouse for the purpose of protecting
the rights or interests of present or former Spouses of Participants,
except to the extent required to comply with Code Section 401(a)(11) or
Section 205 of ERISA.
(c) If a deceased Participant shall have failed to designate a
Beneficiary, or if the Committee shall be unable to locate a designated
Beneficiary after reasonable efforts have been made, or if for any reason
(including but not limited to application of the rules in Subsection
9.11(b)) the designation shall be legally ineffective, or if the
Beneficiary shall have predeceased the Participant or dies within 30 days
of the death of the Participant without effectively designating a successor
Beneficiary, any distribution required to be made under the provisions of
this Plan shall commence within one (1) year after the Participant's death
to the person or persons included in the highest priority category among
the following, in order of priority:
(i) The Participant's surviving Spouse;
(ii) The Participant's surviving children, including adopted
children;
(iii) The Participant's surviving parents; or
(iv) The Participant's estate.
The determination by the Committee as to which persons, if any, qualify
within the foregoing categories shall be final and conclusive upon all
persons. Notwithstanding the preceding provisions of this Section 9.11(c),
distribution made pursuant to this Subsection 9.11(c) shall be made to
the Participant s estate if the Committee so determines in its discretion.
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(d) In the event that the deceased Participant was not a
resident of California at the date of his/her death, the Committee, in its
discretion, may require the establishment of ancillary administration in
California. In the event that a Participant shall predecease his/her
Beneficiary and on the subsequent death of the Beneficiary a remaining
distribution is payable under the applicable provisions of this Plan, the
distribution shall be payable in the same order of priority categories as
set forth above but determined with respect to the Beneficiary, subject
to the same provisions concerning non-California residency, the
unavailability of an estate representative and/or the absence of
administration of the Beneficiary's estate as are applicable on the death
of the Participant.
(e) The Committee shall not be required to authorize any payment
to be made to any person following a Participant's death, whether or not
such person has been designated by the Participant as a Beneficiary, if the
Committee determines that the Plan may be subject to conflicting claims in
respect of said payment for any reason, including, without limitation, the
designation or continuation of a designation of a Beneficiary other than
the Participant's Spouse without the consent of such Spouse to the extent
such consent is required by Section 401(a)(11) of the Code. In the event
the Committee determines in accordance with this Section 9.11(e) not to
make payment to a designated Beneficiary, the Committee shall take such
steps as it determines appropriate to resolve such potential conflict.
9.12 FACILITY OF PAYMENT.
If any payee under the Plan is a minor or if the Committee
reasonably believes that any payee is legally incapable of giving a valid
receipt and discharge for any payment due him, the Committee may have the
payment, or any part thereof, made to the person (or persons or institution)
whom it reasonably believes is caring for or supporting the payee, unless it
has received due notice of claim therefor from a duly appointed guardian or
committee of the payee. Any payment shall be a payment from the Accounts of
the payee and shall, to the extent thereof, be a complete discharge of any
liability under the Plan to the payee.
9.13 PAYEE CONSENT.
A Participant's Accounts may not be distributed prior to
his/her attainment of age 65 without his/her written consent if his/her
Distributable Benefit exceeds $3,500.
9.14 ADDITIONAL DOCUMENTS.
(a) The Committee or Trustee, or both, may require the execution
and delivery of such documents, papers and receipts as the Committee or
Trustee may determine necessary or appropriate in order to establish the
fact of death of the deceased Participant and of the right and identity of
any Beneficiary or other person or persons claiming any benefits under
this Article IX.
(b) The Committee or the Trustee, or both, may, as a condition
precedent to the payment of death benefits hereunder, require an
inheritance tax release
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and/or such security as the Committee or Trustee, or both, may deem
appropriate as protection against possible liability for state or federal
death taxes attributable to any death benefits.
9.15 LOANS.
(a) From time to time, the Committee may adopt procedures
whereby a Participant may borrow from his/her Accounts. In addition to such
other requirements as may be imposed by applicable law, any such loan shall
bear a reasonable rate of interest, shall be adequately secured by
proper collateral, and shall be repaid within a specified period of time
according to a written repayment schedule executed by the Participant and
Trustee under the Plan.
(b) In connection with the requirements set forth in (a) above,
the Committee shall establish the applicable interest rate at an annual
percentage rate. For loans certified by the Participant to be used for the
purchase of the Participant's principal residence, such interest rate shall
be equal to the prime rate for home loans as published in the WALL STREET
JOURNAL as of the first working day of the month (at the time the loan is
approved). For all other loans, such interest rate shall be equal to the
prime rate for home loans as published in the WALL STREET JOURNAL as of the
first working day of the month (at the time the loan is approved) plus two
percent (2%). Any loan shall by its terms require repayment within five
(5) years in substantially level payments made not less frequently than
quarterly, except that the repayment period may in the discretion of the
Committee be up to a maximum of fifteen (15) years in the case of a loan
certified by the Participant to be used in connection with the purchase of
any dwelling unit which within a reasonable time is to be used (determined
at the time the loan is made) as a principal residence of the Participant.
Without prejudice to the right of any Participant and the Trustee to enter
into other appropriate arrangements to secure repayment of a loan, a loan
to a Participant hereunder may be secured by an interest in such
Participant's Accounts.
(c) In no event shall the principal amount of a loan hereunder,
at the time the loan is made, together with the outstanding balance of all
other loans to the Participant under this Plan, exceed the lesser of:
(i) fifty percent (50%) of the value of the Participant's
Accounts under this Plan, determined as of the applicable Valuation Date
for each Investment Fund preceding the date on which the Participant's
loan application is completed in form satisfactory to the Committee
(provided, however, that notwithstanding the fifty percent (50%) limit,
a Participant's loan may not be greater than (A) fifty percent (50%) of
the value of all such Accounts of the Participant, or (B) ten thousand
dollars ($10,000)), or
(ii) fifty thousand dollars ($50,000) reduced by the excess
of the Participant's highest loan balance during the preceding 12-month
period, over the Participant s outstanding loan balance as of the date
of the new loan.
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No loan less than five hundred dollars ($500) will be made. Unless
otherwise determined by the Committee, no Participant may have more than
one loan outstanding under this Plan on any date.
(d) Each Participant desiring to enter into a loan arrangement
pursuant to this Section 9.15 shall apply for a loan by filing a properly
completed application with the Committee. The Committee shall notify the
Participant within a reasonable time whether the application is approved or
denied. Upon approval of the application by the Committee, the Participant
shall enter into a loan agreement with the Trustee and the Company to make
payroll deductions to repay loan amount. Such a Participant shall execute
such further written agreements as may be necessary or appropriate to
establish a bona fide debtor-creditor relationship between such Participant
and the Trustee and to protect against the impairment of any security for
said loan.
(e) Any loan made to a Participant shall be secured by a
hierarchical portion of his vested Investment Fund subaccounts, including
any Company Stock Fund subaccount, as specified by the Committee and
explained in loan rules furnished to Participants. For purposes of
funding a loan to a Participant, if any shares of Company Stock allocated
to a Participant's Company Stock Fund subaccount after July 1, 1993 are
liquidated to fund such loan, the price per share of such Company Stock
shall be the closing price on the day the loan is processed. The Committee
may establish a monthly processing date for approved loan applications.
Repayments of a loan by a Participant shall be invested among the
Participant's Investment Fund subaccounts in accordance with the
Participant's Future Contributions investment election then in effect, as
provided in Section 7.4(c)(ii).
(f) Loans shall be repaid in accordance with the repayment
schedule provided under the terms of the loan agreement. Notwithstanding
the repayment schedule provided in a loan agreement, however, the amount of
any outstanding loan shall be due and payable upon the Participant's
termination of employment for any reason, including death. Upon a
Participant's termination of employment, the Participant's Distributable
Benefit shall be reduced by any outstanding loan amount which has become
due and payable under the foregoing rule or otherwise, and which is secured
by the Participant's Distributable Benefit, and such loan amount shall be
treated as distributed from the Plan to the Participant, or his
Beneficiary, if applicable. Notwithstanding the foregoing, upon a
Participant's termination of employment, the Participant may continue to
repay the loan by mailing a personal check or a money order to the Company
in accordance with the repayment schedule
(g) An existing loan may be reamortized one time, provided that
the other requirements of this Section 9.15 are satisfied at the time of
the reamortization. Except in the case of a loan used for the purchase of
the Participant's principal residence, at least one year must have elapse
after the date the original loan is funded before the loan is reamortized.
The reamortized loan must be repaid within five years of the date the
original loan was made, except that in the case of a loan used for the
purchase of the Participant s principal residence, the repayment period may
extend for up to fifteen years after the date the original loan was made.
(h) In the event a Participant fails to repay a loan in
accordance with the terms of a loan agreement, such loan shall be treated
as in default. The date of the enforcement of the security interest due to
a loan in default shall be determined by the Committee, provided no loss of
principal or income shall result due to any delay in the enforcement of the
security interest due to the default. As of the date of the Participant's
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termination of employment for any reason, the Participant's Distributable
Benefit shall be reduced by the outstanding amount of a loan which is then
in default, including any accrued interest thereon, that is secured by the
Participant's Distributable Benefit. Any reasonable costs related to
collection of a loan made hereunder shall be borne by the Participant.
(h) To the extent required to comply with the requirements of
Section 401(a)(4) of the Internal Revenue Code, loans hereunder shall be
made in a uniform and nondiscriminatory manner.
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ARTICLE X
VALUATION OF ACCOUNTS
For purposes of this Plan, the value of a Participant's Accounts shall
be determined in accordance with rules prescribed by the Committee, subject,
however, to the following provisions:
(a) Subject to adjustments in accordance with Subsection (d) below,
in the case of Normal Retirement or other termination of employment
other than death, the value of a Participant's Accounts under the Plan
shall be determined by reference to the Valuation Date coinciding with
or most recently preceding the date on which distribution of such
Participant's Accounts is made.
(b) Subject to adjustments in accordance with Subsection (d)
below, in the case of a Participant's death, the value of a
Participant's Accounts under the Plan shall be determined by
reference to the Valuation Date coinciding with or most recently
preceding the date on which the Committee has been furnished with
all documents and information (including but not limited to proof
of death, facts demonstrating the identity and entitlement of any
Beneficiary or other payee, and any and all releases) necessary to
distribute such Participant's Accounts.
(c) Subject to adjustments in accordance with Subsection (d)
below, in the case of any withdrawal, the value of a Participant's
Accounts under the Plan shall be determined by reference to the
Valuation Date coinciding with or most recently preceding the date
on which the Participant completes a request for such withdrawal in
form satisfactory to the Committee.
(d) For purposes of the payment of all or a portion of the
value of a Participant's Accounts under the Plan, determined by
reference to the applicable Valuation Date, the value of a
Participant's Accounts as of such Valuation Date shall be adjusted
(i) for any contributions, withdrawals or distributions
properly allocable under the terms of this Plan to his/her
Accounts that occurred on or after the applicable Valuation Date
or which, for any other reason were not otherwise reflected in
the valuation of his/her Accounts on such Valuation Date, and
(ii) effective as of July 1, 1993, for the proceeds from the
sale by the Trustee of any Company Stock held in the
Participant's Company Stock Fund subaccount as of the applicable
Valuation Date, if the value of such Company Stock is to be
distributed in cash, as provided in Article IX.
Neither the Committee, the Company, nor the Trustee shall have any
responsibility for any increase or decrease in the value of a Participant's
Accounts as a result of any valuation made under the terms of this Plan after
the date of his/her termination of employment and before the date of the
distribution of his/her Accounts to him. Also, neither the Committee, the
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Company, nor the Trustee shall have any responsibility for failing to make
any interim valuation of a Participant's Accounts between the date of
distribution to the Participant of his/her Accounts and the applicable
Valuation Date, even though the Plan assets may have been revalued in that
interim for a purpose other than to revalue the Accounts under this Plan.
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ARTICLE XI
OPERATION AND ADMINISTRATION OF THE PLAN
11.1 PLAN ADMINISTRATION.
(a) Authority to control and manage the operation and
administration of the Plan shall be vested in a committee
("Committee") as provided in this Article XI.
(b) The members of the Committee (the number of which shall be
determined by the Board of Directors) shall be appointed by the
Board of Directors and shall hold office until resignation, death
or removal by the Board of Directors. Members of the Committee may,
but need not be, appointed by appropriate designation of a
Committee heretofore constituted pursuant to the provisions of
another employee benefit plan maintained by the Company.
(c) For purposes of ERISA Section 402(a), the members of the
Committee shall be the Named Fiduciaries of this Plan.
(d) Notwithstanding the foregoing, a Trustee with whom Plan
assets have been placed in trust or an Investment Manager appointed
pursuant to Section 11.3 may be granted exclusive authority and
discretion to manage and control all or any portion of the assets
of the Plan.
11.2 COMMITTEE POWERS.
The Committee shall have all powers necessary to supervise the
administration of the Plan and control its operations. In addition to any
powers and authority conferred on the Committee elsewhere in the Plan or by
law, the Committee shall have, by way of illustration but not by way of
limitation, the following powers and authority:
(a) To allocate fiduciary responsibilities (other than trustee
responsibilities) among the Named Fiduciaries and to designate one
or more other persons to carry out fiduciary responsibilities
(other than trustee responsibilities). However, no allocation or
delegation under this Section 11.2(a) shall be effective until the
person or persons to whom the responsibilities have been allocated
or delegated agree to assume the responsibilities. The term
"trustee responsibilities" as used herein shall have the meaning
set forth in Section 405(c) of ERISA. The preceding provisions of
this Section 11.2(a) shall not limit the authority of the Committee
to appoint one or more Investment Managers in accordance with
Section 11.3.
(b) To designate agents to carry out responsibilities relating
to the Plan, other than fiduciary responsibilities.
(c) To employ such legal, actuarial, medical, accounting,
clerical and other assistance as it may deem appropriate in
carrying out the provisions of this Plan,
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including one or more persons to render advice with regard to any
responsibility any Named Fiduciary or any other fiduciary may have
under the Plan.
(d) To establish rules and regulations from time to time for
the conduct of the Committee's business and the administration and
effectuation of this Plan.
(e) To administer, interpret, construe and apply this Plan and
to decide all questions which may arise or which may be raised
under this Plan by any Employee, Participant, former Participant,
Beneficiary or other person whatsoever, including but not limited
to all questions relating to eligibility to participate in the
Plan, the amount of service of any Participant, and the amount of
benefits to which any Participant or his/her Beneficiary may be
entitled.
(f) To determine the manner in which the assets of this Plan,
or any part thereof, shall be disbursed.
(g) To direct the Trustee, in writing, from time to time, to
invest and reinvest the Trust Fund, or any part thereof, or to
purchase, exchange, or lease any property, real or personal, which
the Committee may designate. This shall include the right to direct
the investment of all or any part of the Trust in any one security
or any one type of securities permitted hereunder. Among the
securities which the Committee may direct the Trustee to purchase
are "employer securities" as defined in Code Section 409(l) or any
successor statute thereto or "qualifying employer securities"
within the meaning of Section 407 of ERISA.
(h) To perform or cause to be performed such further acts as
it may deem to be necessary, appropriate or convenient in the
efficient administration of the Plan.
Any action taken in good faith by the Committee in the exercise of
authority conferred upon it by this Plan shall be conclusive and binding upon
the Participants and their Beneficiaries. All discretionary powers conferred
upon the Committee shall be absolute. However, all discretionary powers shall
be exercised in a uniform and nondiscriminatory manner.
11.3 INVESTMENT MANAGER.
(a) The Committee, by action reflected in the minutes thereof,
may appoint one or more Investment Managers, as defined in Section
3(38) of ERISA, to manage all or a portion of the assets of the
Plan.
(b) An Investment Manager shall discharge its duties in
accordance with applicable law and in particular in accordance with
Section 404(a)(1) of ERISA.
(c) An Investment Manager, when appointed, shall have full
power to manage the assets of the Plan for which it has
responsibility, and neither the Company nor the Committee shall
thereafter have any responsibility for the management of those
assets.
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11.4 PERIODIC REVIEW.
(a) At periodic intervals, not less frequently than annually,
the Committee shall review the long-run and short-run financial
needs of the Plan and shall determine a funding policy for the Plan
consistent with the objectives of the Plan and the minimum funding
standards of ERISA, if applicable. In determining the funding
policy the Committee shall take into account, at a minimum, not
only the long-term investment objectives of the Trust Fund
consistent with the prudent management of the assets thereof, but
also the short-run needs of the Plan to pay benefits.
(b) All actions taken by the Committee with respect to the
funding policy of the Plan, including the reasons therefor, shall
be fully reflected in the minutes of the Committee.
11.5 COMMITTEE PROCEDURE.
(a) A majority of the members of the Committee as constituted
at any time shall constitute a quorum, and any action by a majority
of the members present at any meeting, or authorized by a majority
of the members in writing without a meeting, shall constitute the
action of the Committee.
(b) The Committee may designate certain of its members as
authorized to execute any document or documents on behalf of the
Committee, in which event the Committee shall notify the Trustee of
this action and the name or names of the designated members. The
Trustee, Company, Participants, Beneficiaries, and any other party
dealing with the Committee may accept and rely upon any document
executed by the designated members as representing action by the
Committee until the Committee shall file with the Trustee a written
revocation of the authorization of the designated members.
11.6 COMPENSATION OF COMMITTEE.
(a) Members of the Committee shall serve without compensation
unless the Board of Directors shall otherwise determine. However,
in no event shall any member of the Committee who is an Employee
receive compensation from the Plan for his/her services as a member
of the Committee.
(b) All members shall be reimbursed for any necessary or
appropriate expenditures incurred in the discharge of duties as
members of the Committee.
(c) The compensation or fees, as the case may be, of all
officers, agents, counsel, the Trustee, or other persons retained
or employed by the Committee shall be fixed by the Committee.
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11.7 RESIGNATION AND REMOVAL OF MEMBERS.
Any member of the Committee may resign at any time by giving written
notice to the other members and to the Board of Directors effective as
therein stated. Any member of the Committee may, at any time, be removed by
the Board of Directors.
11.8 APPOINTMENT OF SUCCESSORS.
(a) Upon the death, resignation, or removal of any Committee
member, the Board of Directors may appoint a successor.
(b) Notice of appointment of a successor member shall be given
by the Secretary of the Company in writing to the Trustee and to
the members of the Committee.
(c) Upon termination, for any reason, of a Committee member's
status as a member of the Committee, the member's status as a Named
Fiduciary shall concurrently be terminated, and upon the
appointment of a successor Committee member the successor shall
assume the status of a Named Fiduciary as provided in Section 11.1.
11.9 RECORDS.
(a) The Committee shall keep a record of all its proceedings
and shall keep, or cause to be kept, all such books, accounts,
records or other data as may be necessary or advisable in its
judgment for the administration of the Plan and to properly reflect
the affairs thereof.
(b) However, nothing in this Section 11.9 shall require the
Committee or any member thereof to perform any act which, pursuant
to law or the provisions of this Plan, is the responsibility of the
Plan Administrator, nor shall this Section 11.9 relieve the Plan
Administrator from such responsibility.
11.10 RELIANCE UPON DOCUMENTS AND OPINIONS.
(a) The members of the Committee, the Board of Directors, the
Company and any person delegated under the provisions hereof to
carry out any fiduciary responsibilities under the Plan ("delegated
fiduciary"), shall be entitled to rely upon any tables, valuations,
computations, estimates, certificates and reports furnished by any
consultant, or firm or corporation which employs one or more
consultants, upon any opinions furnished by legal counsel, and upon
any reports furnished by the Trustee. The members of the Committee,
the Board of Directors, the Company and any delegated fiduciary
shall be fully protected and shall not be liable in any manner
whatsoever for anything done or action taken or suffered in
reliance upon any such consultant or firm or corporation which
employs one or more consultants, Trustee, or counsel.
(b) Any and all such things done or actions taken or suffered
by the Committee, the Board of Directors, the Company and any
delegated fiduciary shall be
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conclusive and binding on all Employees, Participants,
Beneficiaries, and any other persons whomsoever, except as
otherwise provided by law.
(c) The Committee and any delegated fiduciary may, but are not
required to, rely upon all records of the Company with respect to
any matter or thing whatsoever, and may likewise treat those
records as conclusive with respect to all Employees, Participants,
Beneficiaries, and any other persons whomsoever, except as
otherwise provided by law.
11.11 REQUIREMENT OF PROOF.
The Committee or the Company may require satisfactory proof of any
matter under this Plan from or with respect to any Employee, Participant, or
Beneficiary, and no person shall acquire any rights or be entitled to receive
any benefits under this Plan until the required proof shall be furnished.
11.12 RELIANCE ON COMMITTEE MEMORANDUM.
Any person dealing with the Committee may rely on and shall be fully
protected in relying on a certificate or memorandum in writing signed by any
Committee member or other person so authorized, or by the majority of the
members of the Committee, as constituted as of the date of the certificate or
memorandum, as evidence of any action taken or resolution adopted by the
Committee.
11.13 MULTIPLE FIDUCIARY CAPACITY.
Any person or group of persons may serve in more than one fiduciary
capacity with respect to the Plan.
11.14 LIMITATION ON LIABILITY.
(a) Except as provided in Part 4 of Title I of ERISA, no
person shall be subject to any liability with respect to his/her
duties under the Plan unless he/she acts fraudulently or in bad
faith.
(b) No person shall be liable for any breach of fiduciary
responsibility resulting from the act or omission of any other
fiduciary or any person to whom fiduciary responsibilities have
been allocated or delegated, except as provided in Part 4 of Title
I of ERISA.
(c) No action or responsibility shall be deemed to be a
fiduciary action or responsibility except to the extent required by
ERISA.
11.15 INDEMNIFICATION.
(a) To the extent permitted by law, the Company shall
indemnify each member of the Board of Directors and the Committee,
and any other Employee of the Company with duties under the Plan,
against expenses (including any amount paid in
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settlement) reasonably incurred by him in connection with any
claims against him by reason of his/her conduct in the performance
of his/her duties under the Plan, except in relation to matters as
to which he/she acted fraudulently or in bad faith in the
performance of such duties. The preceding right of indemnification
shall pass to the estate of such a person.
(b) The preceding right of indemnification shall be in
addition to any other right to which the Board member or Committee
member or other person may be entitled as a matter of law or
otherwise.
11.16 BONDING.
(a) Except as is prescribed by the Board of Directors, as
provided in Section 412 of ERISA, or as may be required under any
other applicable law, no bond or other security shall be required
by any member of the Committee, or any other fiduciary under this
Plan.
(b) Notwithstanding the foregoing, for purposes of satisfying
its indemnity obligations under Section 11.15, the Company may (but
need not) purchase and pay premiums for one or more policies of
insurance. However, this insurance shall not release the Company of
its liability under the indemnification provisions.
11.17 PROHIBITION AGAINST CERTAIN ACTIONS.
(a) To the extent prohibited by law, in administering this
Plan the Committee shall not discriminate in favor of any class of
Employees and particularly it shall not discriminate in favor of
highly compensated Employees, or Employees who are officers or
shareholders of the Company.
(b) The Committee shall not cause the Plan to engage in any
transaction that constitutes a nonexempt prohibited transaction
under Section 4975(c) of the Code or Section 406(a) of ERISA.
(c) All individuals who are fiduciaries with respect to the
Plan (as defined in Section 3(21) of ERISA) shall discharge their
fiduciary duties in accordance with applicable law, and in
particular, in accordance with the standards of conduct contained
in Section 404 of ERISA.
11.18 PLAN EXPENSES.
All expenses incurred in the establishment, administration and operation
of the Plan, including but not limited to the expenses incurred by the
members of the Committee in exercising their duties, shall be charged to the
Trust Fund and allocated to Participants' Accounts as determined by the
Committee, but shall be paid by the Company if not paid by the Trust Fund.
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ARTICLE XII
MERGER OF COMPANY; MERGER OF PLAN
12.1 EFFECT OF REORGANIZATION OR TRANSFER OF ASSETS.
In the event of a consolidation, merger, sale, liquidation, or other
transfer of the operating assets of the Company to any other company, the
ultimate successor or successors to the business of the Company shall
automatically be deemed to have elected to continue this Plan in full force
and effect, in the same manner as if the Plan had been adopted by resolution
of its board of directors, unless the successor(s), by resolution of its
board of directors, shall elect not to so continue this Plan in effect, in
which case the Plan shall automatically be deemed terminated as of the
applicable effective date set forth in the board resolution.
12.2 MERGER RESTRICTION.
Notwithstanding any other provision in this Article, this Plan shall not
in whole or in part merge or consolidate with, or transfer its assets or
liabilities to any other plan unless each affected Participant in this Plan
would receive a benefit immediately after the merger, consolidation, or
transfer (if the Plan then terminated) which is equal to or greater than the
benefit he/she would have been entitled to receive immediately before the
merger, consolidation, or transfer (if the Plan had then terminated).
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ARTICLE XIII
PLAN TERMINATION AND
DISCONTINUANCE OF CONTRIBUTIONS
13.1 PLAN TERMINATION.
(a) (i) Subject to the following provisions of this Section 13.1,
the Company may terminate the Plan and the Trust Agreements at any
time by an instrument in writing executed in the name of the
Company by an officer or officers duly authorized to execute such
an instrument, and delivered to the Trustee.
(ii) The Plan and Trust Agreements may terminate if the Company
merges into any other corporation, if as the result of the merger the
entity of the Company ceases, and the Plan is terminated pursuant to
the rules of Section 12.1.
(b) Upon and after the effective date of the termination, the
Company shall not make any further contributions under the Plan and
no contributions need be made by the Company applicable to the Plan
Year in which the termination occurs, except as may otherwise be
required by law.
(c) The rights of all affected Participants to benefits accrued to
the date of termination of the Plan, to the extent funded as of the
date of termination, shall automatically become fully vested as of
that date.
13.2 DISCONTINUANCE OF CONTRIBUTIONS.
(a) In the event the Company decides it is impossible or
inadvisable for business reasons to continue to make Company
contributions under the Plan, the Company by resolution of its
Board of Directors may discontinue contributions to the Plan. Upon
and after the effective date of this discontinuance, the Company
shall not make any further Company contributions under the Plan and
no Company contributions need be made by the Company with respect
to the Plan Year in which the discontinuance occurs, except as may
otherwise be required by law.
(b) The discontinuance of Company contributions on the part of the
Company shall not terminate the Plan as to the funds and assets
then held by the Trustee, or operate to accelerate any payments of
distributions to or for the benefit of Participants or
Beneficiaries, and the Trustee shall continue to administer the
Trust Fund in accordance with the provisions of the Plan until all
of the obligations under the Plan shall have been discharged and
satisfied.
(c) However, if this discontinuance of Company contributions shall
cause the Plan to lose its status as a qualified plan under Code
Section 401(a), the Plan shall be terminated in accordance with the
provisions of this Article XIII.
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(d) On and after the effective date of a discontinuance of Company
contributions, the rights of all affected Participants to benefits
accrued to that date, to the extent funded as of that date, shall
automatically become fully vested as of that date.
13.3 RIGHTS OF PARTICIPANTS.
In the event of the termination of the Plan, for any cause
whatsoever, ail assets of the Plan, after payment of expenses, shall be used
for the exclusive benefit of Participants and their Beneficiaries and no part
thereof shall be returned to the Company, except as provided in Section 6.3
of this Plan.
13.4 TRUSTEE'S DUTIES ON TERMINATION.
(a) On or before the effective date of termination of this Plan, the
Trustee shall proceed as soon as possible, but in any event within six
months from the effective date, to reduce all of the assets of the
Trust Fund to cash and/or common stock and other securities in such
proportions as the Committee shall determine (after approval by the
Internal Revenue Service, if necessary or desirable, with respect to
any portion of the assets of the Trust Fund held in common stock or
securities of the Company).
(b) After first deducting the estimated expenses for liquidation and
distribution chargeable to the Trust Fund, and after setting aside a
reasonable reserve for expenses and liabilities (absolute or
contingent) of the Trust, the Committee shall make required
allocations of items of income and expense to the Accounts.
(c) Following these allocations, the Trustee shall promptly, after
receipt of appropriate instructions from the Committee, distribute in
accordance with Section 9.7 to each former Participant a benefit equal
to the amount credited to his/her Accounts as of the date of
completion of the liquidation.
(d) The Trustee and the Committee shall continue to function as such
for such period of time as may be necessary for the winding up of this
Plan and for the making of distributions in accordance with the
provisions of this Plan.
(e) Notwithstanding the foregoing, distributions to Participants upon
Plan termination in accordance with this Section 13.4 shall not be
made if the Company establishes or maintains a "successor plan" as
defined in regulations issued under Section 401(k)(10) of the Code. In
the event benefits are not distributable upon the termination of the
Plan, the Committee shall direct the Trustee to hold the assets until
benefits become distributable under the Plan, or to transfer such
benefits to the "successor plan" in accordance with regulations
prescribed by the Secretary of the Treasury.
13.5 PARTIAL TERMINATION.
(a) In the event of a partial termination of the Plan within the
meaning of Code Section 411(d)(3), the interests of affected
Participants in the Trust Fund, as of the date of the partial
termination, shall become nonforfeitable as of that date.
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(b) That portion of the assets of the Plan affected by the partial
termination shall be used exclusively for the benefit of the affected
Participants and their Beneficiaries, and no part thereof shall
otherwise be applied.
(c) With respect to Plan assets and Participants affected by a partial
termination, the Committee and the Trustee shall follow the same
procedures and take the same actions prescribed in this Article XIII
in the case of a total termination of the Plan.
13.6 FAILURE TO CONTRIBUTE.
The failure of the Company to contribute to the Trust in any year, if
contributions are not required under the Plan for that year, shall not
constitute a complete discontinuance of contributions to the Plan.
13.7 DISTRIBUTIONS UPON SALE OF ASSETS OR SALE OF SUBSIDIARY.
(a) Subject to the requirements of (b) below, upon the sale, to an
entity that is not an Affiliated Company with respect to the
Participating Employer, of either
(i) substantially all of the assets used by the Participating
Employer in the trade or business in which the Participant is
employed, or
(ii) the incorporated Participating Employer's interest in a
subsidiary that is also a Participating Employer,
a Participant shall be entitled to payment of his Distributable
Benefit in accordance with Article IX.
(b) Payment of a Participant's Distributable Benefit upon a
Participating Employer's sale of assets or subsidiary that satisfies
the requirements of (a) above may only be made if
(i) the Participating Employer continues to maintain the Plan
after the sale and the purchaser does not adopt the Plan;
(ii) the Participant continues employment with the purchaser; and
(iii) payment is made by the end of the second calendar year after
the calendar year in which the sale occurred.
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ARTICLE XIV
APPLICATION FOR BENEFITS
14.1 APPLICATION FOR BENEFITS.
The Committee may require any person claiming benefits under the Plan to
submit an application therefor, together with such documents and information
as the Committee may require. In the case of any person suffering from a
disability which prevents the claimant from making personal application for
benefits, the Committee may, in its discretion, permit another person acting
on his/her behalf to submit the application.
14.2 ACTION ON APPLICATION.
(a) Within ninety days following receipt of an application and all
necessary documents and information, the Committee's authorized
delegate reviewing the claim shall furnish the claimant with
written notice of the decision rendered with respect to the
application.
(b) In the case of a denial of the claimant's application, the
written notice shall set forth:
(i) The specific reasons for the denial, with reference to the
Plan provisions upon which the denial is based;
(ii) A description of any additional information or material
necessary for perfection of the application (together with an
explanation why the material or information is necessary); and
(iii) An explanation of the Plan's claim review procedure.
(c) A claimant who wishes to contest the denial of his/her
application for benefits or to contest the amount of benefits
payable to him shall follow the procedures for an appeal of
benefits as set forth in Section 14.3 below, and shall exhaust such
administrative procedures prior to seeking any other form of relief.
14.3 APPEALS.
(a) (i) A claimant who does not agree with the decision rendered
with respect to his/her application may appeal the decision to the
Committee.
(ii) The appeal shall be made, in writing, within sixty-five days
after the date of notice of the decision with respect to the
application.
(iii) If the application has neither been approved nor denied
within the ninety day period provided in Section 14.2 above, then
the appeal shall be made within sixty-five days after the
expiration of the ninety day period.
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(b) The claimant may request that his/her application be given full
and fair review by the Committee. The claimant may review all
pertinent documents and submit issues and comments in writing in
connection with the appeal.
(c) The decision of the Committee shall be made promptly, and not
later than sixty days after the Committee's receipt of a request
for review, unless special circumstances require an extension of
time for processing, in which case a decision shall be rendered as
soon as possible, but not later than one hundred twenty days after
receipt of a request for review.
(d) The decision on review shall be in writing and shall include
specific reasons for the decision, written in a manner calculated
to be understood by the claimant with specific reference to the
pertinent Plan provisions upon which the decision is based.
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ARTICLE XV
LIMITATIONS ON CONTRIBUTIONS
15.1 GENERAL RULE.
(a) Notwithstanding anything to the contrary contained in this
Plan, and except as provided in paragraph (b) below, the total
Annual Additions under this Plan to a Participant's Plan Accounts
for any Plan Year shall not exceed the lesser of:
(i) the Defined Contribution Dollar Limitation; or
(ii) Twenty-five percent of the Participant s total Compensation
(within the meaning of Section 415(c)(3) of the Code) from the
Company and any Affiliated Companies for the Limitation Year.
(b) For purposes of Section 15.1, "Defined Contribution Dollar
Limitation" shall mean Thirty Thousand Dollars ($30,000) or, if
greater, one-fourth (1/4) of the defined benefit dollar limitation
set forth in Section 415(b)(1) of the Code as in effect for the
Limitation Year.
(c) For purposes of this Article XV, the Company has elected a
"Limitation Year" corresponding to the Plan Year.
(d) The compensation limitation referred to in Section 15.1(a)(ii)
shall not apply to:
(i) any contribution for medical benefits (within the meaning of
Section 419A(f)(2) of the Code) after separation from service which
is otherwise treated as an Annual Addition; or
(ii) any amount otherwise treated as an Annual Addition under
Section 415(1)(1) of the Code.
15.2 ANNUAL ADDITIONS.
For purposes of Section 15.1, the term "Annual Additions" shall mean the
amount allocated to a Participant's Account under the Plan during the
Limitation Year that constitutes (a) Company contributions, (b) Employee
contributions, (c) forfeitures, and (d) amounts described in Sections
415(1)(1) and 419A(d)(2) of the Code. The term "Employee Contributions," for
purposes of the preceding sentence, shall mean amounts considered contributed
by the Employee and which do not qualify for tax deferral treatment under
Section 401(k) of the Code. The Annual Addition for any Limitation Year
beginning before January 1, 1987 shall not be recomputed to treat all
Employee contributions as an Annual Addition.
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15.3 OTHER DEFINED CONTRIBUTION PLANS.
If the Company or an Affiliated Company is contributing to any other
defined contribution plan (as defined in Section 415(i) of the Code) for its
Employees, some or all of whom may be Participants in this Plan, then
contributions to the other plan shall be aggregated with contributions under
this Plan for the purposes of applying the limitations of Section 15.1.
15.4 COMBINED PLAN LIMITATION (DEFINED BENEFIT PLAN}.
In the event a Participant hereunder also is a participant in any
qualified defined benefit plan (within the meaning of Section 415(k) of the
Internal Revenue Code) of the Company or an Affiliated Company, then the
benefit payable under such other defined benefit plan, or any of them, shall
be reduced for so long and to the extent necessary to provide that the sum of
the "defined benefit fraction" as defined in subsection (a) below and the
"defined contribution fraction" as defined in subsection (b) below, for any
Plan Year shall not exceed 1.
(a) "Defined Benefit Fraction" shall be a fraction, the numerator
of which is the projected benefit of a Participant under all
qualified defined benefit plans adopted by the Company or an
Affiliated Company expressed as either an annual straight life
annuity or a qualified joint and survivor annuity providing the
maximum permissible survivor benefit (determined as of the close of
the Plan Year), and the denominator of which is the lesser of (i)
the maximum dollar amount otherwise allowable for such Plan Year
under applicable law times 1.25 or (ii) the Percentage of
compensation limit for such Plan Year times 1.4.
(b) "Defined Contribution Fraction" shall be a fraction, the
numerator of which is the sum of the annual addition of the
Participant s account under this Plan and any other defined
contribution plans adopted by the Company or an Affiliated Company
for each Plan Year, and the denominator of which is the lesser for
each such Plan Year of (i) maximum Annual Addition which could have
been made under this Plan and. any other defined contribution plans
adopted by the Company or an Affiliated Company for such Plan Year
and for each prior Plan Year of service with the Company or an
Affiliated Company times 1.25 or (ii) the amount determined under
the percentage of compensation limit for such Plan Year times 1.4.
Notwithstanding anything to the contrary in this Plan, in the case of a
Participant who was also a participant before January 1, 1982 in a defined
benefit plan which was in existence on July 1, 1982, and with respect to
which the requirements of Section 415(b) of the Internal Revenue Code had
been met for all Plan Years, if such Participant's current accrued benefit
under such plan exceeds the limitation of Section 415(b) of the Internal
Revenue Code for Plan Years commencing after January 1, 1983, then for
purposes of that plan and for purposes of this Section 15.4, the limitations
of Section 415(b) and (c) of Internal Revenue Code with respect to such
individual shall be equal to the Participant's current accrued benefit under
said plan. Solely for purposes of determining the amount of such limitation,
the term "current accrued benefit" shall mean the Participant's accrued
benefit under the defined benefit plan as of the close of the last Plan Year
beginning before January 1, 1983 when expressed as an annual benefit, within
the
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meaning of Section 415(b)(2) of the Internal Revenue Code as in effect for
such Plan Years; provided, however, that such Participant's current accrued
benefit is not changed after July 1, 1982, and no cost of living adjustment
occurring after July 1, 1982 is taken into account.
In applying the provisions of this Section 15.4 in the case of a defined
benefit plan which satisfied the requirements of Section 415 of the Internal
Revenue Code for the last Plan Year commencing prior to January 1, 1983, any
reduction in a Participant's benefit shall be in accordance with Section
415(e) of the Internal Revenue Code, and any regulations promulgated
thereunder by the Secretary of the Treasury. The reduction of a Participant's
benefit due from qualified defined benefit plans shall be made in accordance
with uniform rules adopted jointly by the parties responsible for the control
and management of the operation and administration of such plans.
If the Plan satisfied the applicable requirements of Section 415 of the
Code as in effect for all Limitation Years beginning before January 1, 1987,
an amount shall be subtracted from the numerator of the Defined Contribution
Fraction (not exceeding the numerator) as prescribed by the Secretary of the
Treasury so that the sum of the Defined Benefit Fraction and Defined
Contribution Fraction computed under Section 415(e)(1) of the Code does not
exceed 1.0 for such Limitation Year.
15.5 ADJUSTMENTS FOR EXCESS ANNUAL ADDITIONS.
In general, Annual Additions for any Plan Year under this Plan and any
other defined contribution plan (as defined in Code Section 414(i)) or
defined benefit plan (as defined in Code Section 414(j)) maintained by the
Company or an Affiliated Company will be determined so as to avoid Annual
Additions in excess of the limitations set forth in Sections 15.1 through
15.4. However, if as a result of a reasonable error in estimating the amount
of the Annual Additions to a Participant's Accounts under this Plan, such
Annual Additions (after giving effect to the maximum permissible adjustments
under the other plans) exceed the applicable limitations described in
Sections 15.1 through 15.4, for Plan Years commencing on and after January 1,
1993, such excess Annual Additions shall be corrected as follows:
(a) If the Participant made any voluntary after-tax contributions to
this or any other defined contribution plan that is maintained by the
Company or an Affiliated Company, which after-tax contributions were
not matched by matching contributions, within the meaning of Code
Section 401(m), such after-tax contributions shall be returned to the
Participant, to the extent of any excess Annual Additions.
(b) If excess Annual Additions remain after the application of the
above rule, if the Participant made any Compensation Deferral
Contributions to this or any other defined contribution plan that is
maintained by the Company or an Affiliated Company, which Compensation
Deferral Contributions were not matched by matching contributions,
within the meaning of Code Section 401(m), such Compensation Deferral
Contributions shall be returned to the Participant, to the extent of
any excess Annual Additions.
(c) If excess Annual Additions remain after the application of the
above rule, if the Participant made any after-tax contributions to
this or any other defined contribution plan that is maintained by the
Company or an Affiliated Company, which after-tax contributions were
matched by matching contributions, within the meaning of Code Section
401(m), any such after-tax contributions shall be returned to the
Participant
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and any matching contributions attributable thereto shall be reduced,
to the extent necessary to eliminate any remaining excess Annual
Additions.
(d) If excess Annual Additions remain after the application of the
above rule, if the Participant made any Compensation Deferral
Contributions to this or any other defined contribution plan that is
maintained by the Company or an Affiliated Company, which Compensation
Deferral Contributions were matched by matching contributions, within
the meaning of Code Section 401(m), any such Compensation Deferral
Contributions shall be returned to the Participant and any matching
contributions attributable thereto shall be reduced, to the extent
necessary to eliminate any remaining excess Annual Additions.
(e) If excess Annual Additions remain after the application of the
above rule, any other Company contributions shall be reduced to the
extent necessary to eliminate any remaining excess Annual Additions.
15.6 DISPOSITION OF EXCESS COMPANY CONTRIBUTION AMOUNTS.
Any excess Annual Additions attributable to Company contributions on
behalf of a Participant for any Plan Year, other than Compensation Deferral
Contributions returned to the Participant in accordance with Section 15.5,
shall be held unallocated in a suspense account for the Plan Year and applied
to reduce the Company contributions for the succeeding Plan Year, or Years,
if necessary. No investment gains or losses shall be allocated to a suspense
account established for this purpose.
15.7 AFFILIATED COMPANY.
For purposes of this Article XV, the status of an entity as an
Affiliated Company shall be determined by reference to the percentage tests
set forth in Code Section 415(h).
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ARTICLE XVI
RESTRICTION ON ALIENATION
16.1 GENERAL RESTRICTIONS AGAINST ALIENATION.
(a) The interest of any Participant or Beneficiary in the income,
benefits, payments, claims or rights hereunder, or in the Trust Fund
shall not in any event be subject to sale, assignment, hypothecation,
or transfer. Each Participant and Beneficiary is prohibited from
anticipating, encumbering, assigning, or in any manner alienating his
or her interest under the Trust Fund, and is without power to do so,
except as may otherwise be provided for in the Trust Agreement. The
interest of any Participant or Beneficiary shall not be liable or
subject to his/her debts, liabilities, or obligations, now contracted,
or which may be subsequently contracted. The interest of any
Participant or Beneficiary shall be free from all claims, liabilities,
bankruptcy proceedings, or other legal process now or hereafter
incurred or arising; and the interest or any part thereof, shall not
be subject to any judgment rendered against the Participant or
Beneficiary.
(b) In the event any person attempts to take any action contrary to
this Article XVI, that action shall be void and the Company, the
Committee, the Trustees and all Participants and their Beneficiaries,
may disregard that action and are not in any manner bound thereby, and
they, and each of them separately, shall suffer no liability for any
disregard of that action, and shall be reimbursed on demand out of the
Trust Fund for the amount of any loss, cost or expense incurred as a
result of disregarding or of acting in disregard of that action.
(c) The preceding provisions of this Section 16.1 shall be interpreted
and applied by the Committee in accordance with the requirements of
Code Section 401(a)(13) as construed and interpreted by authoritative
judicial and administrative rulings and regulations.
16.2 NONCONFORMING DISTRIBUTIONS UNDER COURT ORDER.
(a) In the event that a court with jurisdiction over the Plan and the
Trust Fund shall issue an order or render a judgment requiring that
all or part of a Participant's interest under the Plan and in the
Trust Fund be paid to a spouse, former spouse and/or children of the
Participant by reason of or in connection with the marital dissolution
and/or marital separation of the Participant and the spouse, and/or
some other similar proceeding involving marital rights and property
interests, then notwithstanding the provisions of Section 16.1 the
Committee may, in its absolute discretion, direct the applicable
Trustee to comply with that court order or judgment and distribute
assets of the Trust Fund in accordance therewith.
(b) The Committee's decision with respect to compliance with any such
court order or judgment shall be made in its absolute discretion and
shall be binding upon the Trustee and all Participants and their
Beneficiaries, provided, however, that the
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Committee in the exercise of its discretion shall not make payments in
accordance with the terms of an order which is not a qualified
domestic relations order as defined in Code Section 414(p) or which
the Committee determines would jeopardize the continued qualification
of the Plan and Trust under Section 401 of the Code.
(c) Neither the Plan, the Company, the Committee nor the Trustee shall
be liable in any manner to any person, including any Participant or
Beneficiary, for complying with any such court order or judgment.
(d) Nothing in this Section 16.2 shall be interpreted as placing upon
the Company, the Committee or any Trustee any duty or obligation to
comply with any such court order or judgment. The Committee may, if in
its absolute discretion it deems it to be in the best interests of the
Plan and the Participants, determine that any such court order or
judgment shall be resisted by means of judicial appeal or other
available judicial remedy, and in that event the Trustee shall act in
accordance with the Committee s directions.
(e) The Committee shall adopt procedures and provide notifications to
a Participant and alternate payees in connection with a qualified
domestic relations order, to the extent required under Code Section
414(p).
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ARTICLE XVII
PLAN AMENDMENTS
17.1 AMENDMENTS. The Board of Directors may at any time, and from
time to time, amend the Plan by an instrument in writing executed in the name
of the Company by an officer or officers duly authorized to execute such
instrument, and delivered to the applicable Trustee. However, no amendment
shall be made at any time, the effect of which would be:
(a) To cause any assets of the Trust Fund to be used for or
diverted to purposes other than providing benefits to the Participants
and their Beneficiaries, and defraying reasonable expenses of
administering the Plan (except as provided in Section 6.3);
(b) To have any retroactive effect so as to deprive any
Participant or Beneficiary of any accrued benefit to which he/she
would be entitled under this Plan if his/her employment were
terminated immediately before the amendment, to the extent so doing
would contravne Code Section 411(d)(6);
(c) To eliminate or reduce a subsidy or early retirement
benefit or an optional form of benefit to the extent so doing would
contravene Code Section 411(d)(6); or
(d) To increase the responsibilities or liabilities of a
Trustee or an Investment Manager without his/her written consent.
17.2 RETROACTIVE AMENDMENTS.
Notwithsanding any provisions of this Article XVII to the
contrary, the Plan may be amended prospectively or retroactively (as
provided in Section 401(b) of the Code) to make the Plan conform to any
provision of ERISA, any Code provisions dealing with tax-qualified employees'
trusts, or any regulation under either.
17.3 AMENDMENT OF VESTING PROVISIONS.
If the Plan is amended in any way that directly or indirectly
affects the computation of a Participant's Distributable Benefit, each
Participant who has completed at least three (3) one-year Periods of Service
may elect, within a reasonable time after the adoption of the amendment, to
continue to have his/her vested interest computed under the Plan without
regard to such amendment. The period during which the election may be made
shall commence when the date of the amendment is adopted and shall end on the
latest of: (i) 60 days after the amendment is adopted; (ii) 60 days after
the amendment is effective; or (iii) 60 days after the Participant is issued
written notice of the amendment.
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ARTICLE XVIII
MISCELLANEOUS
18.1 NO ENLARGEMENT OF EMPLOYEE RIGHTS.
(a) This Plan is strictly a voluntary undertaking on
the part of the Company and shall not be deemed to constitute a
contract between the Company and any Employee, or to be consideration
for, or an inducement to, or a condition of, the employment of any
Employee.
(b) Nothing contained in this Plan or the Trust shall
be deemed to give any Employee the right to be retained in the employ
of the Company or to interfere with the right of the Company to
discharge or retire any Employee at any time.
(c) No Employee, nor any other person, shall have any
right to or interest in any portion of the Trust Fund other than as
specifically provided in this Plan.
18.2 MAILING OF PAYMENTS: LAPSED BENEFITS.
(a) All payments under the Plan shall be delivered in
person or mailed to the last address of the Participant (or, in the
case of the death of the Participant, to the last address of any
other person entitled to such payments under the terms of the Plan)
furnished pursuant to Section 18.3 below.
(b) In the event that a benefit is payable under this
Plan to a Participant or any other person and after reasonable
efforts such person cannot be located for the purpose of paying the
benefit for a period of seven (7) consecutive years, the person
conclusively shall be presumed dead and upon the termination of such
seven (7) year period the benefit shall be forfeited and as soon
thereafter as practicable shall be allocated, on a per capita basis,
among the Matching Accounts of all Participants for whom such
Accounts are maintained on the date of such allocation.
(c) For purposes of this Section 18.2, the term
"Beneficiary" shall include any person entitled under Section 9.9 to
receive the interest of a deceased Participant or deceased designated
Beneficiary. It is the intention of this provision that the benefit
will be distributed to an eligible Beneficiary in a lower priority
category under Section 9.9 if no eligible Beneficiary in a higher
priority category can be located by the Committee after reasonable
efforts have been made.
(d) The Accounts of a Participant shall continue to be
maintained until the amounts in the Accounts are paid to the
Participant or his/her Beneficiary. Notwithstanding the foregoing,
in the event that the Plan is terminated, the following rules shall
apply:
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(i) All Participants (including Participants who have not
previously claimed their benefits under the Plan) shall be
notified of their right to receive a distribution of their
interests in the Plan;
(ii) All Participants shall be given a reasonable length of
time, which shall be specified in the notice, in which to claim
their benefits;
(iii) All Participants (and their Beneficiaries) who do not
claim their benefits within the designated time period shall be
presumed to be dead. The Accounts of such Participants shall be
forfeited at such time. These forfeitures shall be disposed of
according to rules prescribed by the Committee, which rules shall
be consistent with applicable law.
(iv) The Committee shall prescribe such rules as it may deem
necessary or appropriate with respect to the notice and forfeiture
rules stated above.
(e) Should it be determined that the preceding rules relating to
forfeiture of benefits upon Plan termination are inconsistent with any of
the provisions of the Code and/or ERISA, these provisions shall become
inoperative without the need for a Plan amendment and the Committee shall
prescribe rules that are consistent with the applicable provisions of the
Code and/or ERISA.
18.3 ADDRESSES.
Each Participant shall be responsible for furnishing the
Committee with his/her correct current address and the correct current name
and address of his/her Beneficiary or Beneficiaries.
18.4 NOTICES AND COMMUNICATIONS.
(a) All applications, notices, designations,
elections, and other communications from Participants shall be in
writing, on forms prescribed by the Committee and shall be mailed or
delivered to the office designated by the Committee, and shall be
deemed to have been given when received by that office.
(b) Each notice, report, remittance, statement and
other communication directed to a Participant or Beneficiary shall be
in writing and may be delivered in person or by mail. An item shall
be deemed to have been delivered and received by the Participant when
it is deposited in the United States Mail with postage prepaid,
addressed to the Participant-or Beneficiary at his/her last address
of record with the Committee.
18.5 REPORTING AND DISCLOSURE.
The Plan Administrator shall be responsible for the reporting and
disclosure of information required to be reported or disclosed by the Plan
Administrator pursuant to ERISA or any other applicable law.
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18.6 GOVERNING LAW.
All legal questions pertaining to the Plan shall be determined
in accordance with the laws of the State of California to the extent not
superseded by ERISA. All contributions made hereunder shall be deemed to have
been made in California.
18.7 INTERPRETATION.
(a) Article and Section headings are for convenient
reference only and shall not be deemed to be part of the substance of
this instrument or in any way to enlarge or limit the contents of any
Article or Section. Unless the context clearly indicates otherwise,
masculine gender shall include the feminine, and the singular shall
include the plural and the plural the singular.
(b) The provisions of this Plan shall in all cases be
interpreted in a manner that is consistent with this Plan satisfying
the requirements (of Code Sections 401(a) and 401(k) and related
statutes) for qualification as a qualified cash or deferred
arrangement.
18.8 WITHHOLDING FOR TAXES.
Any payments out of the Trust Fund may be subject to withholding
for taxes as may be required by any applicable federal or state law.
18.9 LIMITATION ON COMPANY; COMMITTEE AND TRUSTEE LIABILITY.
Any benefits payable under this Plan shall be paid or provided
for solely from the Trust Fund and neither the Company, the Committee nor the
Trustee assume any responsibility for the sufficiency of the assets of the
Trust to provide the benefits payable hereunder.
18.10 SUCCESSORS AND ASSIGNS.
This Plan and the Trust established hereunder shall inure to
the benefit of, and be binding upon, the parties hereto and their successors
and assigns.
18.11 COUNTERPARTS.
This Plan document may be executed in any number of identical
counterparts, each of which shall be deemed a complete original in itself and
may be introduced in evidence or used for any other purpose without the
production of any other counterparts.
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ARTICLE XIX
TOP-HEAVY PLAN RULES
19.1 APPLICABILITY.
(a) Notwithstanding any provision in this Plan to the
contrary, the provisions of this Article XIX shall apply in the case
of any Plan Year in which the Plan is determined to be a Top-Heavy
Plan under the rules of Section 19.3.
(b) Except as is expressly provided to the contrary,
the rules of this Article XIX shall be applied after the application
of the Affiliated Company rules of Section 2.2.
19.2 DEFINITIONS.
(a) For purposes of this Article XIX, the term "Key
Employee" shall mean any Employee or former Employee who, at any time
during the Plan Year or any of the four (4) preceding Plan Years, is
or was --
(i) An officer of the Company having an
annual compensation greater than one hundred fifty percent
(150%) of the amount in effect under Code Section 415(c)(1)(A)
for this Plan Year. However, no more than fifty (50) Employees
(or, if lesser, the greater of three (3) or ten percent (10%)
of the Employees) shall be treated as officers;
(ii) One of the ten (10) employees having
annual compensation from the Company of more than the
limitation in effect under Code Section 415(c)(1)(A) and
owning (or considered as owning within the meaning of Code
Section 318) the largest interests in the Company. For this
purpose, if two (2) Employees have the same interest in the
Company, the employee having greater annual compensation from
the Company shall be treated as having a larger interest;
(iii) A Five Percent Owner of the Company; or
(iv) A One Percent Owner of the Company
having an annual compensation from the Company of more than
one hundred fifty thousand dollars ($150,000).
(b) For purposes of this Section 19.2, the term "Five
Percent Owner" means any person who owns (or is considered as owning
within the meaning of Code Section 318) more than five percent (5%)
of the outstanding stock of the Company or stock possessing more than
five percent (5%) of the total combined voting power of all stock of
the Company. The rules of Subsections (b), (c), and (m) of Code
Section 414 shall not apply for purposes of applying these ownership
rules. Thus, this ownership test shall be applied separately with
respect to every Affiliated Company.
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(c) For purposes of this Section 19.2, the term "One
Percent Owner" means any person who would be described in Paragraph
(b) if "one percent (1%)" were substituted for "five percent (5%)"
each place where it appears therein.
(d) For purposes of this Section 19.2, the rules of
Code Section 318(a)(2)(C) shall be applied by substituting "five
percent (5%)" for "fifty percent (50%)."
(e) For purposes of this Article XIX, the term
"Non-Key Employee" shall mean any Employee who is not a Key Employee.
(f) For purposes of this Article XIX, the terms "Key
Employee" and "Non-Key Employee" include their Beneficiaries.
19.3 TOP-HEAVY STATUS.
(a) The term "Top-Heavy Plan" means, with respect to
any Plan Year --
(i) Any defined benefit plan if, as of
the Determination Date, the present value of the cumulative
accrued benefits under the Plan for Key Employees exceeds
sixty percent (60%) of the present value of the cumulative
accrued benefits under the plan for all Employees, and
(ii) Any defined contribution plan if, as
of the Determination Date, the aggregate of the account
balances of Key Employees under the Plan exceeds sixty percent
(60%) of the present value of the aggregate of the account
balances of all Employees under the plan.
For purposes of this Paragraph (a), the term "Determination
Date" means, with respect to any Plan Year, the last day of the preceding
Plan Year. In the case of the first Plan Year of any plan, the term
"Determination Date" shall mean the last day of that Plan Year.
The present value of account balances under a defined
contribution plan shall be determined as of the most recent valuation date
that falls within or ends on the Determination Date. The present value of
accrued benefits under a defined benefit plan shall be determined as of the
same valuation date used for computing plan costs for minimum funding.
(b) Each plan maintained by the Company required to be included
in an Aggregation Group shall be treated as a Top-Heavy Plan if the
Aggregation Group is a Top-Heavy Group. If the Aggregation Group is not a
Top-Heavy Group no plan in such group shall be a Top-Heavy Plan.
(i) The term "Aggregation Group" means --
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(A) Each Plan of the Company in which a Key Employee is
a Participant, and
(B) Each other plan of the Company which enables any
plan described in Subdivision (A) to meet the requirements of
Code Sections 401(a)(4) or 410.
Also, any plan not required to be included in an Aggregation Group
under the preceding rules may be treated as being part of such group
if the group would continue to meet the requirements of Code Sections
401(a)(4) and 410 with the plan being taken into account.
(ii) The term "Top-Heavy Group" means any Aggregation Group
if the sum (as of the Determination Date) of --
(A) The present value of the cumulative accrued
benefits for Key Employees under all defined benefit plans
included in the group, and
(B) The aggregate of the account balances of Key
Employees under all defined contribution plans included in the
group exceeds sixty percent (60%) of a similar sum determined
for all Employees.
(iii) For purposes of determining --
(A) The present value of the cumulative accrued benefit
of any Employee, or
(B) The amount of the account balance of any Employee,
such present value or amount shall be increased by the aggregate
distributions made with respect to the Employee under the plan during
the five (5) year period ending on the Determination Date. The
preceding rule shall also apply to distributions under a terminated
plan which, if it had not been terminated, would have been required
to be included in an Aggregation Group. Also, any rollover
contribution or similar transfer initiated by the Employee and made
after December 31, 1983 to a plan shall not be taken into account
with respect to the transferee plan for purposes of determining
whether such plan is a Top-Heavy Plan (or whether any Aggregation
Group which includes such plan is a Top-Heavy Group).
(c) If any individual is not a Non-Key Employee with respect
to any plan for any Plan Year, but the individual was a Key Employee with
respect to the plan for any prior Plan Year, any accrued benefit for the
individual (and the account balance of the individual) shall not be taken
into account for purposes of this Section 19.3.
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(d) If any individual has not received any Compensation
from the Company (other than benefits under the Plan) or has not
performed any services for the Company at any time during the
five (5) year period ending on the Determination Date, any accrued
benefit for such individual (and the account balance of the
individual) shall not be taken into account for purposes of this
Section 19.3. If such individual returns after the five (5) year
period, such Employee's total accrued benefit shall be included in
determining whether the Plan is Top-Heavy.
19.4 MINIMUM CONTRIBUTIONS.
For each Plan Year in which the Plan is Top-Heavy, the minimum
contributions for that year shall be determined in accordance with the rules of
this Section 19.4.
(a) Except as provided in (b) below, the minimum contribution
for each Non-Key Employee who has not separated from service as of
the last day of the Plan Year (excluding amounts deferred under a cash
or deferred arrangement under Section 401(k) of the Code and any
employer contributions taken into account under Section 401(k)(3) or
401(m)(3) of the Code) shall be not less than three percent (3%) of
his/her Compensation, regardless of whether the Non-Key Employee has
less than 1,000 Hours of Service during such Plan Year, his/her level
of Compensation, or elected to make Compensation Deferral Contributions
to the Plan Year for such year.
(b) Subject to the following rules of this Paragraph (b),
the percentage set forth in Paragraph (a) above shall not be required
to exceed the percentage at which contributions (including amounts
deferred under a cash or deferred arrangement under Section 401(k)
of the Code and any employer contributions taken into account under
Section 401(k)(3) or 401(m)(3) of the Code) are made (or are required
to be made) under the Plan for the year for the Key Employee for whom
the percentage is the highest for the year. This determination shall be
made by dividing the contributions for each Key Employee by so much of
his/her total compensation for the year as does not exceed two hundred
thousand dollars ($200,000), as adjusted in the same time and in the
same manner as under Section 415(d) of the Code. For purposes of this
Paragraph (b), all defined contribution plans required to be included
in an Aggregation Group shall be treated as one plan. However, the rules
of this Paragraph (b) shall not apply to any plan required to be included
if an Aggregation Group if the plan enables a defined benefit plan to
meet the requirements of Code Section 401(a)(4) or 410.
(c) The requirements of this Section 19.4 must be
satisfied without taking into account contributions under chapters 2
or 21 of the Code, Title II of the Social Security Act, or any other
Federal or State law.
(d) In the event a Participant is covered by both a
defined contribution and a defined benefit plan maintained by the
Company, both of which are determined to be Top-Heavy Plans, the
defined benefit minimum, offset by the benefits provided under the
defined contribution plan, shall be provided under the defined
benefit plan.
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(e) In no instance may the Plan take into account an
Employee's compensation in excess of the first two hundred thousand
dollars ($200,000), as adjusted in the same time and in the same
manner as under Section 415(d) of the Code. For purposes of this
Section 19.4, an Employee's Compensation shall be as defined in
Section 2.9(b) for purposes of this Article XIX.
19.5 MAXIMUM ANNUAL ADDITION.
(a) Except as set forth below, in the case of any
Top-Heavy Plan the rules of Code Section 415(e)(2)(B) and (3)(B)
shall be applied by substituting "1.0" for "1.25."
(b) The rule set forth in Paragraph (a) above shall
not apply if the requirements of both Subparagraphs (i) and (ii),
below, are satisfied.
(i) The requirements of this Subparagraph (i)
are satisfied if the rules of Section 18.4(a) above would be
satisfied after substituting "four percent (4%)" for "three
percent (3%)" where it appears therein with respect to
Participants covered only under a defined contribution plan.
(ii) The requirements of this Subparagraph (ii)
are satisfied if the Plan would not be a Top-Heavy Plan if
"ninety percent (90%)" were substituted for "sixty percent
(60%)" each place it appears in Section 18.3(a)(ii).
(c) The rules of Paragraph (a) shall not apply with respect
to any Employee as long as there are no --
(i) Company Contributions, forfeitures, or
voluntary nondeductible contributions allocated to the
Employee under a defined contribution plan maintained by the
Company, or
(ii) Accruals by the Employee under a defined benefit plan
maintained by the Company.
19.6 VESTING RULES.
The Plan at all times satisfies the minimum vesting
requirements of Section 416 of the Code.
19.7 NON-ELIGIBLE EMPLOYEES.
The rules of this Article XIX shall not apply to any Employee
included in a unit of employees covered by an agreement which the Secretary
of Labor finds to be a collective bargaining agreement between employee
representatives and one or more employers if there is evidence that
retirement benefits were the subject of good faith bargaining between such
employee representatives and the employer or employers.
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IN WITNESS WHEREOF, in order to record the adoption of this
Plan, 20th Century Industries Has caused this instrument to be executed by
its duly authorized officers this 27TH day of OCTOBER, 1993 effective,
however, as of January 1, 1989 except as otherwise expressly provided herein.
20TH CENTURY INDUSTRIES
By: /s/ RICHARD A. ANDRE
----------------------------------
By: /s/ CHARLES I. PETIT
----------------------------------
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20TH CENTURY INDUSTRIES
PENSION PLAN
1994 AMENDMENT AND RESTATEMENT
<PAGE>
CONTENTS
ARTICLE I NAME AND EFFECTIVE DATE ............................................ 1
ARTICLE II DEFINITIONS........................................................ 1
2.1 Actuarial Equivalent or Equivalent Actuarial Value ................... 1
2.2 Affiliated Company.................................................... 1
2.3 Annuity Starting Date ................................................ 1
2.4 Beneficiary........................................................... 1
2.5 Board of Directors ................................................... 2
2.6 Code ................................................................. 2
2.7 Committee............................................................. 2
2.8 Company .............................................................. 2
2.9 Compensation.......................................................... 2
2.10 Early Retirement Date................................................ 3
2.11 Effective Date ...................................................... 4
2.12 Election Period ..................................................... 4
2.13 Employee............................................................. 4
2.14 Employment Commencement Date......................................... 4
2.15 Entry Date........................................................... 4
2.16 ERISA ............................................................... 4
2.17 Funding Agreement.................................................... 4
2.17A Highly Compensated Employee......................................... 4
2.18 Investment Fund...................................................... 7
2.19 Investment Manager .................................................. 7
2.20 Late Retirement Date................................................. 7
2.21 Normal Retirement Age................................................ 7
2.22 Participant.......................................................... 7
2.23 Participating Employee............................................... 7
2.24 Pension Fund ........................................................ 7
2.25 Period of Service.................................................... 7
2.26 Period of Severance.................................................. 8
2.27 Plan................................................................. 9
2.28 Plan Administrator................................................... 9
2.29 Plan Year............................................................ 9
2.30 Qualified Election................................................... 9
2.31 Qualified Joint and Survivor Annuity ............................... 10
2.32 Qualified Preretirement Survivor Annuity............................ 10
2.33 Retirement Date .................................................... 10
2.34 Spouse ............................................................. 10
2.35 Total and Permanent Disability ..................................... 10
2.36 Trust Agreement .................................................... 10
2.37 Trust or Trust Fund................................................. 11
2.38 Trustee............................................................. 11
ARTICLE III ELIGIBILITY AND PARTICIPATION ................................... 11
3.1 Eligibility To Participate........................................... 11
3.2 Commencement of Participation ....................................... 11
3.3 Eligibility of Former Employees...................................... 11
ARTICLE IV COMPANY CONTRIBUTIONS ............................................ 11
4.1 Pension Fund and Funding Agreement .................................. 11
4.2 Contributions........................................................ 11
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4.3 Irrevocability ...................................................... 12
4.4 Company Not Obligated to Continue Contributions ..................... 12
4.5 Employee Contributions............................................... 12
ARTICLE V RETIREMENT BENEFITS................................................ 12
5.1 Normal Retirement Benefit ........................................... 12
5.2 Postponed Retirement Benefit......................................... 13
5.3 Early Retirement Benefit............................................. 13
5.4 Suspension of Benefits Upon Re-Employment On or After Normal
Retirement Date...................................................... 13
ARTICLE VI PAYMENT OF BENEFITS .............................................. 14
6.1 Commencement of Benefits ............................................ 14
6.2 Form of Benefits Provided............................................ 15
6.3 Lump Sum Distributions .............................................. 16
6.4 Payment of Small Benefits............................................ 17
6.5 Facility of Payment.................................................. 17
6.6 Designation of Beneficiary........................................... 17
6.7 In-Service Payment of Benefits on or After Required Benefit
Commencement Date.................................................... 17
6.8 Election for Direct Rollover to Eligible Retirement Plan ............ 18
ARTICLE VII SEVERANCE BENEFITS .............................................. 19
7.1 Normal Severance Benefit ............................................ 19
7.2 Payment Before Normal Retirement Age................................. 19
7.3 Coordination With Qualified Annuity Provisions ...................... 19
ARTICLE VIII VESTING......................................................... 19
8.1 No Vested Rights Except as Herein Specified ......................... 19
8.2 Vesting in Benefits.................................................. 20
ARTICLE IX DISABILITY PROVISIONS............................................. 20
9.1 Disability Retirement Benefit........................................ 20
ARTICLE X DEATH BENEFITS .................................................... 20
10.1 General Limitation on Death Benefits................................. 20
10.2 Pre-Retirement Death Benefit ........................................ 20
ARTICLE XI RESTRICTIONS ON CERTAIN DISTRIBUTIONS ............................ 20
11.1 Restrictions on Benefits at Plan Termination for Plan Years Beginning
Prior to January 1, 1994 ............................................ 20
11.2 Restrictions on Benefits at Plan Termination for Plan Years Beginning
On or After January 1, 1994 ......................................... 23
ARTICLE XII OPERATION AND ADMINISTRATION OF THE PLAN ........................ 24
12.1 Plan Administration.................................................. 24
12.2 Committee Powers..................................................... 24
12.3 Investment Manager .................................................. 26
12.4 Periodic Review...................................................... 26
12.5 Committee Procedure.................................................. 26
12.6 Compensation of Committee............................................ 26
12.8 Appointment of Successors ........................................... 27
12.9 Records.............................................................. 27
12.10 Reliance Upon Documents and Opinions ............................... 27
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12.11 Requirement of Proof................................................ 28
12.12 Reliance on Committee Memorandum.................................... 28
12.13 Multiple Fiduciary Capacity......................................... 28
12.14 Limitation on Liability ............................................ 28
12.15 Indemnification..................................................... 28
12.16 Bonding............................................................. 28
12.17 Prohibition Against Certain Actions................................. 29
12.18 Plan Expenses ...................................................... 29
ARTICLE XIII PLAN AMENDMENTS................................................. 29
13.1 Amendments .......................................................... 29
13.2 Retroactive Amendments............................................... 30
ARTICLE XIV MERGER OF COMPANY; MERGER OF PLAN................................ 30
14.1 Effect of Reorganization or Transfer of Assets....................... 30
14.2 Merger Restriction .................................................. 30
ARTICLE XV PLAN TERMINATION AND DISCONTINUANCE OF
CONTRIBUTIONS............................................................. 30
15.1 Plan Termination..................................................... 30
15.2 Discontinuance of Contributions...................................... 31
15.3 Rights of Participants............................................... 31
15.4 Allocation and Payment Priority...................................... 31
15.5 Continuation of the Funding Agreements, Etc.......................... 32
15.6 Plan Termination Date ............................................... 32
15.7 Partial Termination ................................................. 33
15.8 Failure to Contribute ............................................... 33
ARTICLE XVI APPLICATION FOR BENEFITS ........................................ 33
16.1 Application for Benefits............................................. 33
16.2 Action on Application ............................................... 33
16.3 Appeals ............................................................. 34
ARTICLE XVII LIMITATION ON BENEFITS ......................................... 34
17.1 Basic Limitation..................................................... 34
17.2 Annual Additions..................................................... 35
17.3 Membership in Other Defined Benefit Plans............................ 35
17.4 Membership in Defined Contribution Plans............................. 35
17.5 Adjustments in the Limitation........................................ 37
17.6 Benefits Not in Excess of $10,000 ................................... 39
17.7 Adjustment of Limitation for Years of Service or Participation....... 39
17.8 Affiliated Company .................................................. 39
ARTICLE XVIII RESTRICTION ON ALIENATION...................................... 39
18.1 General Restrictions Against Alienation ............................. 39
18.2 Nonconforming Distributions Under Court Order ....................... 40
ARTICLE XIX TOP-HEAVY PLAN RULES ............................................ 40
19.1 Purpose ............................................................. 40
19.2 Applicability ....................................................... 41
19.3 Definitions ......................................................... 41
19.4 Top-Heavy Status .................................................... 42
19.5 Minimum Benefits .................................................... 43
19.6 Compensation Limitation ............................................. 44
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19.7 Maximum Benefit Limitations ......................................... 44
19.8 Vesting Rules........................................................ 45
19.9 Non-Eligible Employees .............................................. 45
ARTICLE XX MISCELLANEOUS..................................................... 45
20.1 No Enlargement of Employee Rights ................................... 45
20.2 Addresses............................................................ 45
20.3 Notices and Communications........................................... 46
20.4 Reporting and Disclosure ............................................ 46
20.5 Governing Law........................................................ 46
20.6 Interpretation ...................................................... 46
20.7 Withholding for Taxes ............................................... 46
20.8 Limitation on Company, Committee and Trustee Liability .............. 46
20.9 Successors and Assigns............................................... 46
20.10 Counterparts ....................................................... 46
20.11 Application of Forfeitures ......................................... 46
20.12 Mailing of Payments; Lapsed Benefits................................ 46
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ARTICLE I
NAME AND EFFECTIVE DATE
The Plan established and adopted hereunder is known as the "20th Century
Industries Pension Plan" (hereinafter referred to as the "Plan") and was
originally effective January 1, 1988. This 1994 Amendment and Restatement
incorporates changes required to comply with the requirements of the Tax
Reform Act of 1986 and subsequent related legislation, and, except as
otherwise specifically noted herein, shall be effective as of January 1, 1989.
This Plan evidences the terms and conditions of a defined benefit
pension plan for the benefit of the covered Employees of 20th Century
Industries and any Affiliated Company that may participate in maintaining
this Plan pursuant to the provisions set forth hereinbelow. The Plan, which
is intended to constitute a qualified pension plan for purposes of Internal
Revenue Code ("Code") Sections 401(a) and 501(a), shall be maintained and
administered for the exclusive benefit of Plan Participants and their
Beneficiaries.
ARTICLE II
DEFINITIONS
2.1 ACTUARIAL EQUIVALENT OR EQUIVALENT ACTUARIAL VALUE. "Actuarial
Equivalent" or "Equivalent Actuarial Value" shall mean an equivalent or
equivalent value determined by reference to the dollar value of any benefit
(except for benefits paid in a lump sum) on a specified date, computed on the
basis of an 8% per annum rate of interest and utilizing the mortality rates
in Appendix I. The dollar value of a single sum benefit shall be computed
using the interest rate in effect on the first day of the Plan Year of the
distribution that the Pension Benefit Guaranty Corporation ("PBGC") would use
for determining present values upon a plan termination.
2.2 AFFILIATED COMPANY. "Affiliated Company" shall mean
(a) Any corporation which is included in a controlled group of
corporations, within the meaning of Section 414(b) of the Code, of which
group 20th Century Industries is also a member,
(b) Any trade or business which is under common control with 20th
Century Industries within the meaning of Section 414(c) of the Code,
(c) Any member of an affiliated service group, within the meaning of
Section 414(m) of the Code, that includes 20th Century Industries, and
(d) Any other entity required to be aggregated with 20th Century
Industries pursuant to regulations under Code Section 414(o).
2.3 ANNUITY STARTING DATE. "Annuity Starting Date" shall mean the first
day of the first period for which an amount is payable as an annuity or in
any other form.
2.4 BENEFICIARY. "Beneficiary" shall mean the person or persons last
designated as such by a Participant in accordance with the provisions of
Section 6.6 and entitled to benefits hereunder upon the death of such
Participant, or if there is no such properly
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designated Beneficiary surviving, the person or persons designated in Section
6.6 to receive the interest of a deceased Participant in such event.
2.5 BOARD OF DIRECTORS. "Board of Directors" or "Board" shall mean the
Board of Directors of 20th Century Industries.
2.6 CODE. "Code" shall mean the Internal Revenue Code of 1986, as in
effect on the date of execution of this Plan document and as thereafter
amended from time to time.
2.7 COMMITTEE. "Committee" shall mean the Committee described in Article
XII of this Plan.
2.8 COMPANY. "Company" shall, unless the context indicates otherwise,
mean 20th Century Industries or that part of any Affiliated Companies of 20th
Century Industries that, as a whole or only with respect to certain units or
divisions thereof, has been granted permission by the Board of Directors to
participate in the Plan and provided that Company contributions are being
made hereunder.
2.9 COMPENSATION.
(a) "Compensation" shall mean any cash compensation paid by the
Company during a Plan Year by reason of services performed by an Employee,
including overtime pay, bonuses, and compensation, subject, however, to the
following special rules and to the provisions of Section 2.9(b). The
following shall not be taken into account in determining Compensation:
(i) Fringe benefits, and contributions by the Company to and
benefits under any employee benefit plan;
(ii) Amounts included in any Employee's gross income with
respect to life insurance as provided by Code Section 79;
(iii) Amounts paid to Employees as special remuneration based on
profits, discretionary judgment bonuses, severance pay or other special
payments;
(b) Solely for purposes of Article XVII (relating to certain
limitations on certain annual additions to or benefits from employee pension
benefit plans) and Article XIX of this Plan (relating to special rules
applicable to certain Top-Heavy plans), the term "Compensation" shall mean
all wages, salaries, and fees for professional services and other amounts
received for personal services actually rendered in the course of employment
with the Company, and excluding the following:
(i) Company contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for the taxable year
in which contributed, or Company contributions under a simplified employee
pension plan to the extent such contributions are deductible by the Employee,
or any distributions from a plan of deferred compensation;
(ii) Amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by the Employee either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture;
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(iii) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(iv) Other amounts which received special tax benefits, or
contributions made by the Company (whether or not under a salary reduction
agreement) towards the purchase of an annuity described in Code Section
403(b) (whether or not the amounts are actually excludable from the gross
income of the Employee).
For purposes of this Subsection (b), "Compensation" for any Plan Year is the
compensation actually paid or includible in the Participant's gross income
during such a year.
(c) For Plan Years beginning prior to January 1, 1994, the annual
Compensation of each Participant taken into account under this Section 2.9
for any Plan Year shall not exceed $200,000, as adjusted by the Secretary of
the Treasury at the same time and in the same manner as under Section 415(d)
of the Code. In determining the Compensation of a Participant for purposes of
this limitation, the rules of Section 414(q)(6) of the Code shall apply,
except in applying such rules, the term "family" shall include only the
Spouse of the Participant and any lineal descendants of the Participant who
have not attained age 19 before the close of the year. If, as a result of the
application of such rules, the adjusted $200,000 limitation is exceeded, then
the limitation shall be prorated among the affected individuals in proportion
to each such individual's Compensation as determined under this Section prior
to the application of this limitation.
(d) In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the contrary,
for Plan Years beginning on or after January 1, 1994, the annual Compensation
of each Employee taken into account under the Plan shall not exceed the "OBRA
'93 annual compensation limit." The OBRA '93 annual compensation limit is
$150,000, as adjusted for the Commissioner of the Internal Revenue for
increases in the cost of living in accordance with Code Section
401(a)(17)(B). The cost-of-living adjustment in effect for a calendar year
applies to any period, not exceeding 12 months, over which Compensation is
determined ("determination period") beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA '93 annual
compensation limit will be multiplied by a fraction, the numerator of which
is the number of months in the determination period, and the denominator of
which is 12. For Plan Years beginning on or after January 1, 1994, any
reference in the Plan to the limitation under Code Section 401(a)(17) shall
mean the OBRA '93 annual compensation limit set forth in this provision. If
Compensation for any prior determination period is taken into account in
determining an employee's benefits accruing in the current Plan Year, the
Compensation for that determination period is subject to the OBRA '93 annual
compensation limit in effect for that prior determination period. For this
purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
2.10 EARLY RETIREMENT DATE. Any Participant who has attained age
fifty-five (55) and completed ten (10) one-year Periods of Service may elect
to retire on an Early Retirement Date selected by such Participant in
accordance with the Participant's Qualified Election, which may be made at
any time after the Participant is eligible for an early retirement benefit
pursuant to Section 7.2. Such Early Retirement Date may be the first (1st)
day of any month which is after satisfaction of such requirement and prior to
such Participant's Normal Retirement Age.
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2.11 EFFECTIVE DATE. "Effective Date" shall mean the effective date of
this Plan, which is January 1, 1989.
2.12 ELECTION PERIOD. "Election Period" shall mean, with respect to a
Qualified Election, the 90-day period ending on the Annuity Starting Date.
2.13 EMPLOYEE.
(a) "Employee" shall mean each person currently employed in any
capacity by the Company or an Affiliated Company, any portion of whose
Compensation paid by the Company or an Affiliated Company is subject to
withholding of income tax and/or for whom Social Security contributions are
made by the Company or an Affiliated Company;
(b) In addition, "Employee" shall mean leased employees within the
meaning of Section 414(n)(2) of the Code. Notwithstanding the foregoing, if
such leased employees constitute less than twenty percent of the Company's
nonhighly compensated work force within the meaning of Section
414(n)(5)(C)(ii) of the Code, the term "Employee" shall not include those
leased employees covered by a plan described in Section 414(n)(5) of the Code
unless otherwise provided by the terms of this Plan.
2.14 EMPLOYMENT COMMENCEMENT DATE. "Employment Commencement Date" shall
mean each of the following:
(a) The date on which an Employee first performs an hour of service
in any capacity for the Company or an Affiliated Company with respect to
which the Employee is compensated or is entitled to cash remuneration by the
Company or the Affiliated Company.
(b) In the case of an Employee whose employment is terminated and
who is reemployed by the Company or an Affiliated Company after he/she incurs
a Period of Severance, the term "Employment Commencement Date" shall also
mean the first day following the termination of employment on which the
Employee performs an hour of service for the Company or an Affiliated Company
with respect to which he/she is compensated or entitled to cash remuneration
by the Company or an Affiliated Company.
2.15 ENTRY DATE. "Entry Date" shall mean the first day of the next month
following the Employee's attainment of age twenty (20) and completion of
one-year Period of Service.
2.16 ERISA. "ERISA" shall mean the Employee Retirement Income Security
Act of 1974 and all amendments thereto and regulations thereunder.
2.17 FUNDING AGREEMENT. "Funding Agreement" shall mean the one or more
trust agreements, entered into by the Company in accordance with the
provisions of Article IV for the purpose of funding benefits provided under
this Plan.
2.17A HIGHLY COMPENSATED EMPLOYEE. "Highly Compensated Employee"
shall mean:
(a) Any Employee who, during the "determination year" (the current
Plan Year), or the "look-back year" (the 12-month period preceding such Plan
Year),
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(i) was at any time a five percent owner (as defined in Code
Section 416),
(ii) received Compensation from the Company in excess of
$75,000, as adjusted by the Secretary of the Treasury at the same time and
in the same manner as under Code Section 415(d),
(iii) received Compensation from the Company in excess of
$50,000, as adjusted by the Secretary of the Treasury at the same time and
in the same manner as under Code Section 415(d), and was in the top-paid
group of Employees for such Plan Year, or
(iv) was at any time an officer and received Compensation
greater than 50% of the amount in effect under Section 415(b)(1)(A) of the
Code for such Plan Year.
(b) Determination of a Highly Compensated Employee shall be in
accordance with the following special rules:
(i) In the case of the Plan Year for which the relevant
determination is being made, an Employee not described in Paragraph (ii),
(iii), or (iv) of (a) above for the preceding Plan Year (without regard to
Paragraph (i)) shall not be treated as described in Paragraph (ii), (iii), or
(iv) of (a) above unless such Employee is a member of the group consisting of
the 100 Employees paid the greatest Compensation during the Plan Year for
which such determination is being made.
(ii) An Employee shall be treated as a five percent owner for
any Plan Year if at any time during such Plan Year such Employee was a five
percent owner (as defined in Section 20.6(b)(iii)).
(iii) An Employee is in the top-paid group of Employees for any
Plan Year if such Employee is in the group consisting of the top 20% of the
Employees when ranked on the basis of Compensation paid during such Plan Year.
(iv) For purposes of Paragraph (iv) of Subsection (a) above, no
more than 50 Employees (or, if lesser, the greater of three Employees or ten
percent of the Employees) shall be treated as officers. To the extent
required by Code Section 414(q), if for any Plan Year no officer of the
Company is described in Paragraph (iv) of Subsection (a) above, the highest
paid officer of the Company for such year shall be treated as described in
that section.
(v) If any individual is a "family member" with respect to a
five percent owner or of a Highly Compensated Employee in the group
consisting of the ten Highly Compensated Employees paid the greatest
Compensation during the Plan Year, then
(A) such individual shall not be considered a separate
Employee, and
(B) any Compensation paid to such individual (and any
applicable contribution or benefit on behalf of such individual) shall be
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treated as if it were paid to (or on behalf of) the five percent owner or
Highly Compensated Employee.
For purposes of this Paragraph (v), the term "family member" means, with
respect to any Employee, such Employee s spouse and lineal ascendants or
descendants and the spouses of such lineal ascendants or descendants.
(vi) For purposes of this Section, the term "Compensation"
means Compensation as set forth in Section 2.8; provided, however, the
determination under this Paragraph (vi) shall be made without regard to Code
Sections 125, 402(a)(8), and 401(h)(1)(B), and in the case of Company
contributions made pursuant to a salary reduction agreement, without regard
to Section 403(b).
(vii) For purposes of determining the number of Employees in
the top-paid group under Paragraph (iii) of Subsection (a) above, the
following Employees shall be excluded:
(A) Employees who have not completed six months of
service,
(B) Employees who normally work less than 17-1/2 hours
per week,
(C) Employees who normally work not more than six months
during any Plan Year,
(D) Employees who have not attained age 21,
(E) Except to the extent provided in Treasury
Regulations, Employees who are included in a unit of employees covered by an
agreement which the Secretary of Labor finds to be a collective bargaining
agreement between Employee representatives and Company, and
(F) Employees who are nonresident aliens and who receive
no earned income (within the meaning of Code Section 911(d)(2)) from the
Company that constitutes income from sources within the United States (within
the meaning of Code Section 861(a)(3)).
The Company may elect to apply Subparagraphs (A) through (D) above by
substituting a shorter period of service, smaller number of hours or months,
or lower age for the period of service, number of hours or months, or (as the
case may be) than as specified in such Subparagraphs.
(viii) A former Employee shall be treated as a Highly
Compensated Employee if:
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(A) such Employee was a Highly Compensated Employee when
the employment of such Employee with the Company and all Affiliated Companys
terminated, or
(B) such Employee was a Highly Compensated Employee at any
time after attaining age 55.
(ix) Code Sections 414(b), (c), (m), (n), and (o) shall be
applied before the application of this Section 2.17A.
(c) To the extent permissible under Code Section 414(q), the
Committee may determine which Employees shall be categorized as Highly
Compensated Employees by applying a simplified method prescribed by the
Internal Revenue Service.
2.18 INVESTMENT FUND. "Investment Fund" shall mean all assets of the
Pension Fund.
2.19 INVESTMENT MANAGER. "Investment Manager" shall mean the one or more
Investment Managers, if any, that are appointed pursuant to the provisions of
Section 12.3.
2.20 LATE RETIREMENT DATE. In the event that a Participant shall
continue to be employed by the Company beyond his/her Normal Retirement Age,
the retirement date of such a Participant will be postponed until the first
day of the month coincident with or next following the date on which he/she
actually retires. Any such Participant shall be entitled to retire at any
date beyond his/her Normal Retirement Age, or he/she may be retired by the
Company on any such Late Retirement Date, subject, however, to the
requirements of any applicable federal or state laws governing compulsory
retirements.
2.21 NORMAL RETIREMENT AGE. "Normal Retirement Age" shall mean the date
the Participant attains age sixty-five (65).
2.22 PARTICIPANT. "Participant" shall mean any Employee of the Company
who meets the eligibility requirements of this Plan.
2.23 PARTICIPATING EMPLOYER. "Participating Employer" shall mean each
unit, division or other segment of 20th Century Industries to which this Plan
is extended by action of the Board of Directors, and each unit, division or
other segment of an Affiliated Company (or similar entity), which unit,
division or segment has been granted permission by the Board of Directors to
participate in this Plan, provided contributions are being made hereunder for
Eligible Employees of such Participating Employer. This permission shall be
granted under such conditions and upon such conditions as the Board of
Directors deems appropriate.
2.24 PENSION FUND. "Pension Fund" shall mean all cash, securities and
other assets of whatsoever nature deposited with or acquired by any Trustee
selected by the Committee for the purpose of funding the benefits provided
under this Plan.
2.25 PERIOD OF SERVICE. "Period of Service" shall mean a period of time
computed under an "elapsed time" method, as follows:
(a) An Employee shall be credited with a Period of Service equal to
the elapsed time between his/her Employment Commencement Date and the date on
which he/she commences a Period of Severance.
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(b) If an Employee incurs a Period of Severance and is subsequently
reemployed by a Participating Employer, he/she shall be credited with a
Period of Service pursuant to the following rules:
(i) An Employee shall receive credit for a Period of Severance
as if it were a Period of Service if such Period of Severance commences by
reason of a quit, discharge or retirement and the Participant is reemployed
by a Participating Employer within 12 months after the commencement of such
Period of Severance.
(ii) An Employee shall receive credit for a Period of Severance
as if it were a Period of Service if such Period of Severance commences by
reason of a quit, discharge or retirement during a time in which such
Employee is absent from service for a reason other than quit, discharge or
retirement and the Employee is reemployed by a Participating Employer within
12 months after his/her initial absence from service.
(iii) Except as provided in Sections 2.25(b)(i) and (ii)
hereof, the Period of Severance shall not be included in the Employee s
Period of Service and, subject to Section 2.25(c) hereof, all of an
Employee's Periods of Service shall be aggregated for purposes of the Plan.
(c) If an Employee has a Period of Severance equal to the greater of
(i) five years, or (ii) the aggregate number of years of his/her Period of
Service before such Period of Severance, then his/her prior Periods of
Service shall be disregarded for all purposes of the Plan. Otherwise an
Employee's total Period of Service shall be determined by aggregating all of
the Employee's individual Periods of Service; however, no Periods of Service
shall be included that are not required to be taken into account under Code
Section 401(a)(5).
(d) Notwithstanding any other provision of this Plan, service
performed by Employees for an Affiliated Company (or a unit or division of
such company or the Company) prior to the date as of which such entity
becomes an Affiliated Company (or a unit or division of such company or the
Company) shall not be taken into account in computing Periods of Service for
any purpose of this Plan, except to the extent and in the manner determined
by resolution of the Board of Directors.
2.26 PERIOD OF SEVERANCE. "Period of Severance" means:
(a) The period of time commencing on the earlier of (i) the date on
which an Employee quits, retires, is discharged, or dies; or (ii) the first
anniversary of the first date of a period in which an Employee remains absent
from service (with or without pay) with the Company and all Affiliated
Companies for any reason other than quit, retirement, discharge or death
(such as vacation, holiday, sickness, disability, leave of absence or
layoff), and continuing until the first day, if any, on which the Participant
completes one or more hours of service for which he/she is directly or
indirectly paid by the Company or an Affiliated Company for the performance
of duties as an Employee.
(b) In the case of an Employee who is absent from work for maternity
or paternity reasons, no Period of Severance shall commence until the second
anniversary of the first date of such leave of absence. The period between
the date of commencement of an absence for maternity or paternity reasons and
the first anniversary thereof shall be considered a Period of Service; the
period between the first and second anniversaries of the commencement of such
absence shall be considered neither a Period
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of Service nor a Period of Severance. For purposes of this Section 2.26(b),
an absence from work for maternity or paternity reasons means an absence:
(i) by reason of pregnancy of the Employee,
(ii) by reason of the birth of a child of the Employee,
(iii) by reason of the placement of a child with the Employee
in connection with the adoption of such child by such Employee, or
(iv) for purposes of caring for such child for a period
beginning immediately following such birth or placement.
2.27 PLAN. "Plan" shall mean the 20th Century Industries Pension Plan
described herein, as it may be amended from time to time.
2.28 PLAN ADMINISTRATOR. "Plan Administrator" shall mean the
administrator of the Plan within the meaning of Section 3(16)(A) of ERISA.
The Plan Administrator shall be 20th Century Industries.
2.29 PLAN YEAR. "Plan Year" shall mean the twelve (12) month period
beginning on January 1 and ending on the following December 31.
2.30 QUALIFIED ELECTION. "Qualified Election" shall mean any Participant
election relating to a waiver of the Qualified Joint and Survivor Annuity and
election of an optional form, a designation of a Beneficiary, or a consent to
an Annuity Starting Date which is prior to his/her Normal Retirement Age,
which election acknowledges the effect of such election and is made during
the applicable Election Period in accordance with the requirements of this
Section 2.30 and in the manner and form as prescribed by the Committee.
(a) To the extent required under Section 417 of the Code, no
election by a Participant shall be deemed to be a Qualified Election unless
the Spouse, if any, of the Participant consents in writing to (i) the
designation of any Beneficiary in addition to or other than the Spouse, (ii)
the specified optional form of benefit elected by the Participant (including
remaining benefits that the Beneficiary may receive), and (iii) if the
Annuity Starting Date is prior to the Participant's Normal Retirement Age and
benefits are not paid as a Qualified Joint and Survivor Annuity, the Annuity
Starting Date. The consent of the Spouse shall acknowledge the effect of such
consent and shall be witnessed by a Plan Representative or a notary public.
(b) Notwithstanding the requirement for the consent of a Spouse, if
the Participant warrants to the Committee that such written consent may not
be obtained because there is no Spouse or the Spouse cannot be located or for
any other reason as the Committee determines to be consistent with the
requirements of Section 417 of the Code, a Participant's election without
spousal consent may be deemed a Qualified Election; provided, however, that
the Committee may require the Participant in such case to produce such
evidence of the Spouse's unavailability or other circumstances as the
Committee deems to be appropriate.
(c) A Qualified Election under this provision will be valid only
with respect to the Spouse who consented to the Qualified Election, or in the
event of a Qualified Election in which the Spouse's consent has not been
obtained, with respect to a designated Spouse (e.g., that Spouse who cannot
be located).
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(d) Any election by a Participant to change a Qualified Election
shall be subject to the spousal consent requirements of this Section 2.30.
Subject to the foregoing (relating to a change by a Participant), the consent
by a Spouse to a Qualified Election shall be irrevocable. The number of
changes in a Qualified Election by a Participant shall not be limited during
any applicable Election Period.
(e) An election by a Participant which, by reason of a failure to
obtain required spousal consent could not be given effect when made, may
later be given effect if at the relevant date the Participant has no Spouse
or is not then otherwise required to have spousal consent.
2.31 QUALIFIED JOINT AND SURVIVOR ANNUITY. "Qualified Joint and Survivor
Annuity" means an annuity for the life of the Participant with a fifty
percent (50%) survivor annuity for the life of his/her Spouse, and which is
the Actuarial Equivalent of a single life annuity for the life of the
Participant.
2.32 QUALIFIED PRERETIREMENT SURVIVOR ANNUITY. "Qualified Preretirement
Survivor Annuity" means a survivor annuity for the life of the surviving
Spouse of the Participant under which the periodic payments to the surviving
Spouse are not less than the periodic payments that would be payable under
the Qualified Joint and Survivor Annuity (or the Actuarial Equivalent
thereof) if --
(a) In the case of a Participant who dies after reaching the earlier
of Early Retirement Date or Normal Retirement Age, the Participant had
retired with an immediate Qualified Joint and Survivor Annuity on the day
before his/her death, or
(b) In the case of a Participant who dies on or before the date on
which he/she would have attained the earlier of Early Retirement Date or
Normal Retirement Age, the Participant had separated from service on the date
of death, survived to the earlier of Early Retirement Date or Normal
Retirement Age, commenced to receive payments under an immediate Qualified
Joint and Survivor Annuity at his/her earlier of Early Retirement Date or
Normal Retirement Age, and died on the day after the day on which he/she
would have attained the earlier of Early Retirement Date or Normal Retirement
Age.
2.33 RETIREMENT DATE. "Retirement Date" shall mean a Participant's Early
Retirement Date, the date he/she attains his/her Normal Retirement Age or
his/her Late Retirement Date, whichever is applicable.
2.34 SPOUSE. "Spouse" shall mean the person to whom a Participant is
married as of the date such Participant's benefits commence or, in the case
of a deceased Participant, the person to whom such deceased Participant is
married on the date of his/her death.
2.35 TOTAL AND PERMANENT DISABILITY. An individual shall be considered
to be suffering from a Total and Permanent Disability if the Committee
determines that he/she is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment. An individual's disabled status shall be determined by the
Committee, based on such evidence as the Committee determines to be
sufficient, including, but not limited to, examination at the Company's
expense by a physician of the Company s choice.
2.36 TRUST AGREEMENT. "Trust Agreement" shall mean the Agreement between
the Company and the one or more persons serving as Trustee hereunder, under
which
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the Trustee agrees to hold, administer, and dispose of the assets of the Plan
(or any successor Trust Agreement adopted by the Company).
2.37 TRUST FUND OR TRUST. "Trust Fund" or "Trust" shall mean the assets
(contributions and income earned thereon) of the Plan held under the Trust
Agreement.
2.38 TRUSTEE. "Trustee" shall mean the person(s) or corporation (or
successor(s) thereto) who acts as Trustee as provided in the Trust Agreement
and who signifies acceptance of this responsibility as a fiduciary of the
Plan by joining in the execution of the documents creating or amending the
Trust Agreement.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY TO PARTICIPATE. Each Employee who has as of January 1,
1988 (a) completed a one (1) year Period of Service, and (b) attained age
twenty (20) shall commence participation in the Plan on January 1, 1988. Each
Employee who is not otherwise a Participant under this Plan on January 1,
1988 shall become eligible to participate in the Plan on the date he/she (a)
completes a one (1) year Period of Service, and (b) attains age twenty (20)
while an Employee.
3.2 COMMENCEMENT OF PARTICIPATION. Each eligible Employee who does not
become a Participant on January 1, 1988 shall be entitled to commence
participation in this Plan on the first day of the month following his/her
completion of the requirements set forth in Section 3.1.
3.3 ELIGIBILITY OF FORMER EMPLOYEES. A vested Participant or a
non-vested Participant, whose Period of Service cannot be disregarded under
Section 2.25(c), whose employment terminates and who is re-employed after a
Period of Severance shall be eligible to participate on his/her subsequent
Employment Commencement Date as an Employee. A re-employed former Employee
who was not previously a Participant shall become a Participant in accordance
with the requirements of Section 3.1.
ARTICLE IV
COMPANY CONTRIBUTIONS
4.1 PENSION FUND AND FUNDING AGREEMENT. The Committee will establish a
Pension Fund pursuant to one or more Funding Agreements. Any Funding
Agreement may permit a trustee or trustees to manage and operate a trust fund
and to receive, hold, invest and disburse such contributions, interest and
other income as may be necessary to carry out this Plan. The Committee will,
pursuant to such a Funding Agreement, establish the authority of such a
trustee and such other provisions as are necessary or desirable to accomplish
the purposes of such a trust. The Committee may modify any Funding Agreement
from time to time to accomplish the purposes of this Plan.
4.2 CONTRIBUTIONS. The Company intends that this Plan shall constitute a
qualified pension plan under Code Section 401, or any amendments thereto, and
all Company contributions to the Pension Fund are conditioned upon the
deductibility thereof under Code Section 404, or any amendments thereto;
provided, however, that such contributions may be returned to the Company
only in accordance with the provisions of Section 4.3.
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4.3 IRREVOCABILITY. The Company shall have no right or title to, nor
interest in, the Company contributions made to the Pension Fund, and no part
of the Pension Fund shall revert to the Company, except that on and after the
Effective Date funds may be returned to the Company as follows:
(a) In the case of a contribution which is made by a mistake of
fact, such contribution may be returned to the Company within one (1) year
after it is made.
(b) In the case of a contribution conditioned on the deductibility
thereof under Code Section 404 (or any successor statute thereto), such
contribution may, to the extent such deduction is disallowed, be returned to
the Company within one (1) year after such disallowance.
(c) In the case of any residual assets remaining after satisfaction
of all liabilities of this Plan, a distribution may be made of such residual
assets in accordance with the provisions of Article XV.
4.4 COMPANY NOT OBLIGATED TO CONTINUE CONTRIBUTIONS.
(a) The Company contemplates making such contributions to the Fund
for the purposes of providing benefits under the Plan as shall maintain the
Pension Fund at an amount at least equal to the amount necessary to meet the
objectives of the Plan and to satisfy the minimum funding requirements of
ERISA, if any be applicable.
(b) Nothing contained in this Plan shall, at any time or under any
circumstances, be deemed to impose any obligation or liability on the Company
to make any contributions either to the Pension Fund or to any person
whatever. Except as is provided under Subtitle D of Title IV of ERISA,
neither the Company, the Committee, nor any funding agent shall be liable in
any manner if the Pension Fund shall at any time be insufficient for the
payment of any of the benefits provided for under this Plan. Such benefits
are to be payable only from the Pension Fund to the extent that it shall
suffice therefor.
(c) The Company shall not be required to make any contribution for
any year that is not deductible for income tax purposes by the Company in
such year.
4.5 EMPLOYEE CONTRIBUTIONS. No contributions from Participants shall be
required or permitted under this Plan.
ARTICLE V
RETIREMENT BENEFITS
5.1 NORMAL RETIREMENT BENEFIT.
(a) Upon retirement at his/her Normal Retirement Age, a Participant
shall be entitled to receive an annual pension which, when expressed as a
single life annuity commencing at the Participant's Normal Retirement Age, is
equal to the sum of Paragraphs (i), (ii) and (iii) as follows:
(i) One and one-fourth percent (1-1/4%) of his/her "1987
Adjusted Compensation" not in excess of $30,000 and one and three-fourths
percent (1-3/4%) of his/her "1987 Adjusted Compensation" in excess of $30,000,
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multiplied by the number of full or partial calendar years beginning
on the Participant's Employment Commencement Date and ending on
January 1, 1988;
(ii) For the Period of Service commencing on or after
January 1, 1988, each Participant shall be entitled to receive one and
one-fourth percent (1-1/4%) of the his/her Compensation not in excess
of $30,000 and one and three-fourths percent (1-3/4%) of his/her
Compensation in excess of $30,000. The $30,000 amount will be adjusted
to reflect an annual increase of 6% effective for the Plan Years
beginning after 1988.
(iii) For each year of Period of Service beginning on the
Effective Date, each Participant shall be entitled to receive one and
one-fourth percent (1-1/4%) of his/her Compensation not in excess of
$25,200, and one and seven-tenths percent (1-7/10%) of his/her
Compensation in excess of $25,200.
(b) For purposes of this Section 5.1, "1987 Adjusted
Compensation" shall mean the Compensation received by the Participant in
1987 except that, solely for purposes of this Section 5.1(b), "bonus" shall
mean the average bonus received by the Participant for the calendar years
1985, 1986 and 1987.
5.2 POSTPONED RETIREMENT BENEFIT. If a Participant continues
his/her employment beyond his/her Normal Retirement Age, he/she defers
his/her benefits until his/her actual termination of employment. In the case
of a Participant who defers his/her benefits until his/her actual termination
of employment, such Participant shall continue to accrue benefits pursuant to
Section 5.1(b).
5.3 EARLY RETIREMENT BENEFIT.
(a) If a Participant shall, for any reason except death,
terminate after his/her Early Retirement Date but prior to his/her Normal
Retirement Age, he/she shall be entitled to receive a benefit at Normal
Retirement Age in an amount calculated pursuant to Section 5.1, based upon
his/her benefits accrued at his/her date of termination of employment.
(b) However, a Participant who, for any reason except death,
terminates on or after his/her Early Retirement Date but prior to his/her
Normal Retirement Age, may elect to have benefit payments commence prior
to his/her Normal Retirement Age on the first day of any month on or after
his/her Early Retirement Date by sending notice of such election to the
Plan Administrator. In such event, the Participant's monthly pension
otherwise payable shall be reduced 5/12ths of one percent for each month
that his/her Early Retirement Date precedes his/her Normal Retirement Age.
Such election shall be in writing, in form satisfactory to the Committee,
and accompanied by consent of the Participant's Spouse if the Committee
determines that such consent is required by Code Section 417. Unless the
provisions of Section 6.3(a) apply, the failure by a Participant to
consent to the distribution of his/her retirement benefit prior to Normal
Retirement Age shall be deemed to be an election to defer payment to Normal
Retirement Age.
5.4 SUSPENSION OF BENEFITS UPON RE-EMPLOYMENT ON OR AFTER
NORMAL RETIREMENT DATE.
(a) If any Participant or former Participant again becomes an
Employee and completes at least forty (40) Hours of Service in any month
(hereinafter "Full Time Postretirement Service") after his/her Early,
Normal or Late Retirement
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Date, all benefit payments under this Article V shall cease. Similarly,
for a Participant who continues to be employed in Full Time Postretirement
Service after his/her Normal Retirement Date, the actuarial value of
benefits which commence later than Normal Retirement Date will be computed
without regard to amounts which would have been suspended under the
preceding sentence had the Participant been receiving benefits since his
Normal Retirement Date.
(b) If benefit payments have been suspended, payments shall
resume no later than the first day of the third calendar month after the
calendar month in which the Participant ceases to be employed in Full Time
Postretirement Service. The initial payment upon resumption shall include
the payment scheduled to occur in the calendar month when payments resume
and any amounts withheld during the period between the cessation of Full
Time Postretirement Service and the resumption of payments. Such
Participant or his Beneficiary or contingent annuitant shall be entitled
to the benefits provided under this Article, reduced by the Actuarial
Equivalent of benefits or payments paid under this Article before such
re-employment. For purposes of this Section, a Participant shall continue
to accrue benefits during the period of suspension.
(c) No benefit payment shall be withheld by the Plan pursuant
to this section unless the Plan notifies the Employee by personal delivery
or first class mail during the calendar month or payroll period in which
the Plan withholds payments that his benefits are suspended. Such
notifications shall contain a description of the specific reasons why
benefit payments are being suspended, a general description of the Plan
provision relating to the suspension of payments, a copy of such provisions,
and a statement to the effect that applicable Department of Labor
regulations may be found in Section 2530.203-3 of the Code of Federal
Regulations. In addition, the notice shall inform the Participant of the
Plan's procedures for affording a review of the suspension of benefits in
accordance with the claims procedure under this Plan.
(d) The amount of benefits suspended shall be the amount of the
Participant's accrued benefit derived from Company contributions.
ARTICLE VI
PAYMENT OF BENEFITS
6.1 COMMENCEMENT OF BENEFITS.
(a) Provided that a Participant has applied for retirement
benefits in accordance with the provisions of Article XVI, the retirement
income payable under this Plan to a retiring Participant pursuant to the
provisions of Article V shall commence on the earlier of the dates
described in Paragraphs (i) and (ii) hereinbelow (the "Required Benefit
Commencement Date"):
(i) The 60th day after the close of the Plan Year in which
the latest of the following events occurs: (A) the Participant's
Normal Retirement Age; or (B) the Participant's termination of
employment.
(ii) April 1 of the calendar year following the calendar
year in which the Participant attains age 70-1/2 without regard to
whether the Participant has terminated employment or whether or not
the Participant (and Spouse if applicable) consents to the
distribution. Notwithstanding the foregoing; if a Participant
attained age 70-1/2 before January 1, 1988 and was not a five
percent owner (as defined in Code Section 414(i) at any time
during the Plan Year ending
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with or within the calendar year in which such Participant attained
age 66-1/2 or any subsequent Plan Year, then distribution shall
commence not later than April 1 of the calendar year in which the
Participant (i) attains age 70-1/2 or (ii) retires, whichever is
later.
To the extent permissible under Code Sections 401(a)(9) and
401(a)(14), and regulations prescribed by the Secretary of the
Treasury thereunder, if the amount of the Participant's benefit
cannot be calculated without additional information from the
Participant, or because the Committee is unable to locate the
Participant after making reasonable efforts to do so, the payment
shall be made as soon as is administratively possible (but not more
than 60 days) after the earliest date on which the Participant (or
Beneficiary) can be located and the amount of the distributable
benefit can be ascertained. In such event the retirement benefit
shall be paid retroactively to the applicable Required Benefit
Commencement Date (if earlier than the actual date of commencement
of payments).
(b) Except as provided in Section 6.6, in no event shall any
benefits be paid to a Participant prior to the Participant's Normal
Retirement Age unless the Participant makes a Qualified Election during the
applicable Election Period to commence benefits on an Early Retirement Date.
The failure of the Participant who has attained his Early Retirement Date to
make a Qualified Election to commence payment of retirement benefits on an
Early Retirement Date shall be deemed to be an election to defer payment to
his Normal Retirement Age.
(c) Notwithstanding any provision to the contrary in this Plan,
all distributions under this Plan shall be made in accordance with Section
401(a)(9) of the Code and the regulations issued thereunder, which
provisions shall override any distribution options under this Plan which
may be inconsistent with Code Section 401(a)(9). The Committee in its sole
discretion shall determine if distributions satisfy the requirements of Code
Section 401(a)(9).
6.2 FORM OF BENEFITS PROVIDED.
(a) The normal form of benefits for a Participant
who retires and who has a Spouse is a Qualified Joint and Survivor
Annuity.
(b) The normal form of benefit for a Participant who does not
have a Spouse is a single life annuity payable for the lifetime of the
Participant and ceasing upon his/her death.
(c) The Company shall provide each Participant,
within the period beginning not more than 90 days and ending not
less than 30 days prior to the commencement of benefits, with a
written explanation of: (i) the terms and conditions of a Qualified
Joint and Survivor Annuity; (ii) the Participant's right to make
and the effect of an election to waive the Qualified Joint and
Survivor form of benefit; (iii) the rights of a Participant's
Spouse; and (iv) the right to make, and the effect of, a revocation
of a previous election to waive the Qualified Joint and Survivor
Annuity. A Participant who wishes to have his/her retirement
benefit payable in a form other than the forms provided in Section
6.2(a) or (b), whether single or married, may make a Qualified
Election during the applicable Election Period to waive the
Qualified Joint and Survivor Annuity or single life annuity
(whichever may be applicable), elect any optional form of benefit
described below in Paragraph (i) or (ii), designate a Beneficiary
to receive any benefits payable after the Participant's death,
commence to receive benefits on an Early Retirement Date (if
applicable), and change any such Qualified Election. Such optional
form of retirement benefit to be paid to the Participant in
accordance with
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any of the following shall be the Actuarial Equivalent of the benefit to
which he/she is entitled:
(i) JOINT AND SURVIVOR ANNUITY - A monthly pension payable
to and during the lifetime of the retired Participant with the
provision that after his/her death, a pension of 50% or 100% of
his/her pension shall then be paid to and during the lifetime of
his/her Beneficiary.
(ii) TEN - YEAR CERTAIN AND LIFE ANNUITY - A monthly pension
paid during the lifetime of the retired Participant with a guarantee
of a minimum of one hundred twenty (120) monthly payments to the
Participant and/or his/her Beneficiary. If the Participant's death
occurs before such guaranteed monthly payments have been made,
the Beneficiary may elect to receive the commuted value of the
balance of the guaranteed monthly payments. Upon the subsequent
death of the Beneficiary prior to the payment of the guaranteed
payments, the lump sum value of the balance of such guaranteed
payments shall be paid to the estate of the Beneficiary.
Notwithstanding anything herein to the contrary, no optional method
of payment shall be permitted which would call for the payments
under the option to extend beyond the life expectancy of the
Participant (or a period not extending beyond the life expectancy
of the Participant); or the life expectancy of the Participant and
a Beneficiary (or a period not extending beyond the life
expectancies of the Participant and the Beneficiary). Further, the
expected payments to the Participant made under this settlement
mode must be more than fifty percent (50%) of the total payments to
be made to both the Participant and the Beneficiary unless the
benefit is payable in the form of a Qualified Joint and Survivor
Annuity or the Beneficiary is the Participant's Spouse. If
distribution of a Participant's retirement benefit has begun and
the Participant dies before his/her entire benefit is distributed,
the method of distributing the remaining portion of his/her benefit
shall be at least as rapid as that in effect as of the date of
his/her death. If the Participant dies before distribution
commences, any remaining portion of the Participant's retirement
benefit that is not payable to a Beneficiary designated by the
Participant will be distributed within five (5) years after such
Participant's death, or any remaining portion of the Participant's
interest that is payable to a Beneficiary designated by the
Participant will be distributed over the life of such Beneficiary,
commencing not later than one year after the Participant's death
(or, if the designated Beneficiary is the Participant s Spouse,
distribution shall begin no earlier than the date on which the
Participant would have attained age seventy and one-half (70-1/2)).
6.3 LUMP SUM DISTRIBUTIONS.
(a) Notwithstanding the preceding provisions of this Article VI, if
the present value of the Participant's benefit (payable in either
the Qualified Joint and Survivor Annuity or in the Qualified
Preretirement Survivor Annuity) does not exceed and has never
exceeded thirty-five hundred dollars ($3,500), the benefit may be
paid in a single lump sum without the consent of the Participant
(or the Participant's Spouse). However, no such lump sum benefit
shall be paid after commencement of benefits to the Participant,
unless the Participant and his/her Spouse (or where the Participant
has died, the surviving Spouse) consent in writing to such
distribution.
(b) For purposes of this Section 6.3, the present value of a
Qualified Joint and Survivor Annuity or a Qualified Preretirement
Survivor Annuity shall be determined as of the date of distribution
by using the interest rate that would be used (as of the date of
the distribution) by the Pension Benefit Guaranty Corporation for
purposes
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of determining the present value of a lump sum distribution upon a
termination of the Plan.
6.4 PAYMENT OF SMALL BENEFITS. Notwithstanding any provision in
this Plan for the payment of monthly benefits, if such monthly benefit is
less than two hundred dollars ($200.00) the Committee may authorize the
payment of such benefits on a quarterly, semiannual or annual basis.
6.5 FACILITY OF PAYMENT. If any payee under the Plan is a minor,
or if the Committee reasonably believes that any payee is legally incapable
of giving a valid receipt and discharge for any payment due him, the
Committee may have such payment, or any part thereof, made to the person (or
persons or institution) whom it reasonably believes is caring for or
supporting such payee, unless it has received due notice of claim therefor
from a duly appointed guardian or conservator of such payee. Any such payment
shall be a payment for the account of such payee and shall, to the extent
thereof, be a complete discharge of any liability under the Plan to such
payee.
6.6 DESIGNATION OF BENEFICIARY. Whenever a Participant may be
permitted to designate a Beneficiary to receive benefits under this Plan,
such designation shall be made by the execution and delivery to the Committee
of an instrument in a form satisfactory to the Committee. To the extent
required by Code Section 417, such designation shall be in the form of a
Qualified Election. Subject to the requirements for a Qualified Election, a
Participant shall have the right to change or revoke any such Beneficiary
designation by filing a new designation or notice of revocation with the
Committee and no notice to any Beneficiary nor consent by any Beneficiary
shall be required to effect any such change or revocation. If a deceased
Participant shall have failed properly to designate a Beneficiary, or if the
Committee shall be unable to locate a designated Beneficiary after reasonable
efforts have been made, or if for any reason such designation shall be
legally ineffective, or if such Beneficiary shall have pre-deceased the
Participant, the Participant's designated Beneficiary shall be the person or
persons in the first of the following classes then living: (a) spouse,
(b) children, (c) parents, and (d) estate of the Participant.
6.7 IN-SERVICE PAYMENT OF BENEFITS ON OR AFTER REQUIRED BENEFIT
COMMENCEMENT DATE. In the case of a Participant who is an Employee of the
Company on or after his Required Benefit Commencement Date, as defined in
Section 6.1, benefits shall be paid or commence to be paid in accordance with
this Section 6.7.
(a) If the single sum Actuarial Equivalent Value of
the Participant's retirement benefit (payable as a Qualified Joint
and Survivor Annuity) exceeds $3500 as of the Required Benefit
Commencement Date, the Participant's Annuity Starting Date shall be
the Required Benefit Commencement Date, and benefits accrued as of
such Annuity Starting Date and any subsequent accruals shall be
paid in the form determined under Section 6.2(a) or (b), or an
optional form determined under Section 6.2(c) pursuant to a
Qualified Election by the Participant during the applicable
Election Period.
(b) If the single sum Actuarial Equivalent Value of the
Participant's Vested Interest (payable as a Qualified Joint and
Survivor Annuity) does not exceed $3500 as of the Required Benefit
Commencement Date, such Participant's Annuity Starting Date shall
be the Required Benefit Commencement Date and each subsequent
December 31. If the single sum Actuarial Equivalent Value of such
Participant's retirement benefit does not exceed $3500 as of any
Annuity Starting Date coinciding with or following the Required
Benefit Commencement Date, such retirement benefit shall be paid in
a single lump sum without the consent of the Participant (or the
Participant's Spouse). If the single sum Actuarial Equivalent Value
of such Participant's
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retirement benefit exceeds $3500 as of any subsequent Annuity
Starting Date, benefits accrued as of such Annuity Starting Date,
and any subsequent accruals, shall be paid in accordance with (a)
above.
(c) The amount of the late retirement benefit
payable to the Participant in each Plan Year including and
subsequent to the Plan Year in which occurs the Required Benefit
Commencement Date shall be calculated as provided in Section 5.2,
but shall be offset by the value of any benefit distributions made
to the Participant by the close of the prior Plan Year.
6.8 ELECTION FOR DIRECT ROLLOVER TO ELIGIBLE RETIREMENT PLAN. To
the extent required by Code Section 401(a)(31), a Participant whose
distributable benefit becomes payable in an "eligible rollover distribution,"
as defined in (a)(i) below, shall be entitled to elect a direct rollover of
all or a portion of the taxable portion of his distributable benefit to an
"eligible retirement plan," as defined in (a)(ii) below.
(a) For purposes of this Section,
(i) an "eligible rollover distribution" shall
mean any distribution of all or any portion of a Participant's
distributable benefit, except that an eligible rollover
distribution shall not include any distribution that is one of a
series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of
the Participant or the joint lives (or joint life expectancies) of
the Participant and the Participant's designated Beneficiary, or
for a specified period of ten years or more; any distribution to
the extent such distribution is required under Section 401(a)(9) of
the Code; and the portion of any distribution that is not
includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to employer
securities; and
(ii) an "eligible retirement plan" shall mean
any plan described in Code Section 402(c)(8)(B), the terms of which
permit the acceptance of a direct rollover from a qualified plan.
(b) A Participant's direct rollover election under
this Section shall be made in accordance with rules and procedures
established by the Committee and shall specify the percentage or
dollar amount to be rolled over, the name and address of the
eligible retirement plan selected by the Participant and such
additional information as the Committee deems necessary or
appropriate in order to implement the Participant's direct rollover
election. It shall be the Participant's responsibility to confirm
that the eligible retirement plan designated in the direct rollover
election will accept the eligible rollover distribution. The
Committee shall be entitled to effect the direct rollover based on
its reasonable reliance on information provided by the Participant,
and shall not be required to independently verify such information,
unless it is clearly reasonable to do so.
(c) At least 30 days but not more than 90 days prior
to the date a Participant's distributable benefit becomes payable
from the Plan, the Participant shall be given written notice of any
right he may have to elect a direct rollover of all or a portion of
a eligible rollover distribution; provided, however, a Participant
who attained his Normal Retirement Date or whose distributable
benefit does not exceed (and has never exceeded) $3,500 may waive
the 30 day notice requirement by making an affirmative election to
make or not to make a direct rollover.
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(d) If a Participant fails to file a properly completed direct
rollover election with the Committee within a reasonable time after such
notice is given, or if the Committee is unable to effect the rollover
within a reasonable time after the election is filed with the Committee due
the failure of the Participant to take such actions as may be required by
the eligible retirement plan before it will accept the rollover, the
Participant's distributable benefit shall be paid to him in accordance
with the applicable provisions of this Article VI, after withholding
applicable income taxes.
(e) To the extent required by Section 401(a)(31) of the Code, if
all or a portion of a Participant's distributable benefit is payable to
his surviving Spouse in an eligible rollover distribution, or to a former
Spouse in accordance with a "qualified domestic relations order," such
surviving Spouse or former Spouse shall be entitled to elect a direct
rollover of all or a portion of such distribution in accordance with the
provisions of this Section.
ARTICLE VII
SEVERANCE BENEFITS
7.1 NORMAL SEVERANCE BENEFIT. In the event that a Participant who has
earned a vested right to his benefit as provided in Section 8.2(a) terminates
employment with the Company and all Affiliated Companies terminates for any
reason other than his/her death, disability or retirement, and at the time of
such termination such Participant has not satisfied the requirements to
retire either at his/her Normal Retirement Age or on an Early Retirement Date
a terminated Participant shall be deemed to have elected to have his/her
benefit paid pursuant to Section 6.2(a) or (b), as appropriate, commencing at
his/her Normal Retirement Age, unless a valid written election of an
alternative option is filed with the Committee.
7.2 PAYMENT BEFORE NORMAL RETIREMENT AGE. In lieu of commencing
benefits at Normal Retirement Age, a Participant whose employment terminated
prior to attaining either his/her Normal Retirement Age or Early Retirement
Date and who has satisfied the service requirement for Early Retirement may
elect to have a reduced benefit (such reduction to be determined in
accordance with Table I in Appendix I) commence on the first day of any month
following his/her fifty-fifth (55th) birthday (such commencement date to be
determined by the Participant by notice to the Plan Administrator in
accordance with rules adopted by the Plan Administrator). Such election shall
be in writing, in form satisfactory to the Committee, and accompanied by
consent of the Participant's Spouse if the Committee determines that such
consent is required by Code Section 417.
7.3 COORDINATION WITH QUALIFIED ANNUITY PROVISIONS. The foregoing
provisions of this Article VII shall be applied after first taking into
consideration and applying, to the extent they are applicable, the provisions
of Article VI which require that the retirement benefits of certain married
Participants and/or their Spouses be paid in the form of a Qualified Joint
and Survivor Annuity (unless waived pursuant to a Qualified Election).
ARTICLE VIII
VESTING
8.1 NO VESTED RIGHTS EXCEPT AS HEREIN SPECIFIED. No Participant shall
have any vested right or interest in, nor any right to payment of, any assets
of the Pension Fund except as provided in this Plan.
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8.2 VESTING IN BENEFITS.
(a) A Participant shall be one hundred percent (100%) vested in
the Plan upon the completion of five (5) one-year Periods of Service or
his/her attainment of his/her sixty-fifth (65th) birthday. A
Participant's Periods of Service completed prior to January 1, 1988 of
the Plan will be counted for purposes of determining vesting pursuant to
this Section 8.2.
(b) If the vesting schedule under the Plan is amended or if the
Plan is amended in any way that directly or indirectly affects the
computation of a Participant's vested interest, each Participant who has
completed at least three one-year Periods of Service may elect, within a
reasonable time after the adoption of the amendment, to continue to have
his/her vested interest computed under the Plan without regard to such
amendment. The period during which the election may be made shall
commence with the date the amendment is adopted and shall end on the
latest of: (i) 60 days after the amendment is adopted; (ii) 60 days after
the amendment is effective; or (iii) 60 days after the Participant is
issued written notice of the amendment.
ARTICLE IX
DISABILITY PROVISIONS
9.1 DISABILITY RETIREMENT BENEFIT. If, while employed by the Company
prior to his/her Normal Retirement Age, a Participant is suffering from a
Total and Permanent Disability, such Participant shall continue to accrue
benefits in the manner set forth in Section 5.1(a); provided, that if such
Participant becomes disabled prior to the end of a Plan Year, such
Participant's benefit accrual formula for the Plan Year in which he/she
becomes disabled shall be calculated using such Participant's Compensation
for the previous Plan Year. The disabled Participant's Compensation shall not
be adjusted to reflect any change in the benefit formula pursuant to Section
5.1(a)(ii) after such Participant becomes disabled. Such Participant shall
also be entitled to receive his/her benefit upon attaining his/her Normal
Retirement Age as if he/she retired on such date.
ARTICLE X
DEATH BENEFITS
10.1 GENERAL LIMITATION ON DEATH BENEFITS. Except for retirement
benefits expressly made payable to a Spouse or other Beneficiary in
accordance with the provisions of this Article X, or in accordance with the
express provisions of a form of benefit described in Article VI under which
payments have commenced, no benefits shall be paid under this Plan by reason
of the death of a Participant.
10.2 PRE-RETIREMENT DEATH BENEFIT. The Spouse of a vested Participant
who dies before benefits commence will be entitled to a Qualified
Preretirement Survivor Annuity.
ARTICLE XI
RESTRICTIONS ON CERTAIN DISTRIBUTIONS
11.1 RESTRICTIONS ON BENEFITS AT PLAN TERMINATION FOR PLAN YEARS
BEGINNING PRIOR TO JANUARY 1, 1994. This Section 11.1 sets forth limitations
required by the Internal Revenue Service on the benefits payable to certain
Participants in the event of Plan termination in any Plan Year beginning
prior to January 1, 1994. Notwithstanding any other provision in
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this Plan to the contrary, the restrictions contained in this Article XI
shall govern the maximum Plan benefits attributable to Company contributions
that may be paid to the Participants who are subject to the limitations
contained in this Section.
(a) The restrictions contained in this Article XI apply to
Participants (including retired Participants) who are:
(i) Among the twenty-five (25) most highly compensated
Participants on the relevant Commencement Date, and
(ii) Whose anticipated retirement benefits under the Plan
exceed one thousand five hundred dollars ($1,500) per year.
(b) "Commencement Date" for the purposes of this Article XI
shall mean the date of establishment of the Plan and the effective date
of any amendment to this Plan that substantially increases the benefits
provided under the Plan.
(c) The restrictions contained in this Article XI shall become
effective, as to the Participants described in Subsection (a), upon the
occurrence of either of the following events:
(i) Termination of the Plan within ten (10) years following a
Commencement Date; or
(ii) The benefits of a Participant described in Subsection
(a) become payable within ten (10) years after a Commencement Date
and before the Plan is terminated. In this case, the restrictions of
this Article XI shall continue to apply until the later of ten (10)
years after the Commencement Date or the date the full current costs
are met for the first time.
(d) For the purposes of this Article XI, the term "benefits"
includes any periodic income, any withdrawal values payable to a living
Employee, and the cost of any death benefits that may be payable after
retirement on behalf of an Employee, but does not include the cost of any
death benefits with respect to an Employee before retirement nor the
amount of any death benefits actually payable after the death of an
Employee whether such death occurs before or after retirement.
(e) The maximum amount of Company contributions that may be used
to provide benefits for a Participant described in Subsection (a) after the
occurrence of an event listed in Subsection (c) is the greater of:
(i) Twenty thousand dollars ($20,000.00); or
(ii) Twenty percent (20%) of the Participant's annual
compensation multiplied by the number of years between the date of
the establishment of the Plan and whichever of the following is
applicable:
(A) The date of termination of the Plan, or
(B) In the case of a Participant described in
Subsection (c)(ii), the date the benefits become payable to the
Participant.
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(f) In the event that by reason of a Plan amendment a new
Commencement Date ("Second Commencement Date") occurs more than ten (10)
years after the immediately preceding Commencement Date ("First
Commencement Date") and the full current costs have not been paid for the
ten (10) years following the First Commencement Date, the maximum amount
of Company contributions that may be used to provide benefits for a
Participant described in Subsection (a) upon the occurrence of an event
described in Subsection (c) following the Second Commencement Date is the
greater of:
(i) Twenty Thousand Dollars ($20,000.00); or
(ii) The sum of:
(A) The Company contributions (or the funds attributable
thereto) that could have been used to provide retirement benefits to
the Participant had the Plan been discontinued on the day
immediately preceding the Second Commencement Date; and
(B) Twenty percent (20%) of the first Fifty Thousand Dollars
($50,000.00) of the Participant's annual compensation multiplied by
the number of years following the Second Commencement Date.
(g) For the purpose of this Article XI, the term "annual
compensation" shall mean the Participant's average compensation during
his/her last five (5) years of employment.
(h) The restrictions contained in this Article XI may be
exceeded: (i) for the purpose of providing current retirement income
payments (as opposed to lump sum distributions) to retired individuals
who would otherwise be subject to the restrictions, provided the full
current costs of the plan are satisfied at the time the payments are
made; (ii) in the event of the termination of the Plan, to the extent
permitted under Revenue Ruling 80-229, 1980-2 C.B. 133, as such Ruling
may be amended from time to time; and (iii) as may otherwise be permitted
pursuant to applicable regulations.
(i) If the benefits of any person shall have been suspended in
part in accordance with the restrictions contained in this Article XI and
such restrictions shall later become inapplicable, the full amount of
such benefits shall be resumed and the part of any such benefits which
shall have been suspended shall then be paid in full with such payment
actuarially increased to reflect the later commencement of benefits. The
timing of the payments shall be determined by the Committee in accordance
with any applicable Treasury Regulations.
(j) Any amounts that cannot be paid to a Participant because of
the restrictions imposed by this Article XI shall be used (to the extent
necessary) to pay the benefits due to other Participants.
(k) The provisions of this Subsection (k) shall apply if it is
determined that the Plan is covered by Section 4021(a) of ERISA.
(i) The maximum Company contributions that may be used for
the benefit of a Participant described in Subsection (a) above who
is a Substantial Owner (as defined in Section 4022(b)(5) of ERISA)
shall not exceed the greatest of:
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(A) The dollar amount described in Subsection (e) above;
(B) A dollar amount which equals the present value of the
benefit guaranteed for the Participant under Section 4022 of ERISA;
or
(C) If the Plan has not terminated, the present value of the
benefit that would be guaranteed (if the Plan terminated on the date
the benefit commences) determined in accordance with regulations of
the Pension Benefit Guaranty Corporation ("PBGC").
(ii) In the case of a Participant other than those described in
Paragraph (i) above, the maximum Company contributions that may be used
for the benefit of the Participant shall not exceed the greater of:
(A) The dollar amount described in Subsection (e) above,
or
(B) A dollar amount which equals the present value of the
maximum benefit described in Section 4022(b)(3)(B) of ERISA
(determined on the date the Plan terminates or the date benefits
commence, whichever is earlier), determined in accordance with
regulations of PBGC, but without regard to any other limitations in
Section 4022 of ERISA.
(l) In the event that it should subsequently be determined by
statute, court decision, ruling by the Internal Revenue Service, or
otherwise, that the provisions of this Article XI, or any part thereof,
are no longer necessary to qualify the Plan under the Internal Revenue
Code, then this Article XI, or such part, shall be ineffective without
the necessity of amending the Plan.
(m) In the event the limitations of this Article XI should no
longer be needed to prevent discrimination in favor of Employees who are
officers, shareholders, or highly compensated, these limitations shall no
longer apply.
(n) In the event that the limits on the maximum benefit payable
to a Participant subject to the restrictions of this Article XI become
capable of being raised, by reason of an amendment to the Income Tax
Regulations or otherwise, the limits of this Section shall be automatically
raised to the maximum amount permissible, without the necessity of an
amendment to the Plan.
11.2 RESTRICTIONS ON BENEFITS AT PLAN TERMINATION FOR PLAN YEARS
BEGINNING ON OR AFTER JANUARY 1, 1994. In the event the Plan is terminated in
any Plan Year beginning on or after January 1, 1994, the benefit of any
Highly Compensated Employee (and any Highly Compensated former Employee)
shall be limited to a benefit that is nondiscriminatory under Section
401(a)(4) of the Code and shall be determined in accordance with this Section
11.2.
(a) In the event of a Plan termination, the annual payments to a
Participant described in Section 11.2(b) below shall be restricted to an
amount equal to the payments that would be made on behalf of the Participant
under a single life annuity that is the Actuarial Equivalent of the sum of
the Participant's accrued benefit and any other benefits available to
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the Participant under the Plan. The restrictions in this Subsection (a) shall
not apply, however, if:
(i) After payment to a Participant described in Section
11.2(c) below of all benefits described in Subsection 11.2(b)
below, the value of Plan assets equals or exceeds one hundred
ten percent (110%) of the value of current Plan liabilities, as
defined in Section 412(1)(7) of the Code, or
(ii) The value of the benefits described in Subsection
11.2(b) below for a Participant described in Subsection 11.2(c)
below is less than one percent (1%) of the value of current
Plan liabilities.
For purposes of applying the limitations of this Section 11.2, Participants
whose benefits are restricted on distribution include all Highly Compensated
Employees and Highly Compensated former Employees; provided, however, in any
Plan Year, the total number of Participants whose benefits are subject to
restriction under this Article XI shall be limited by the Plan to the group
of twenty-five (25) Highly Compensated Employees and Highly Compensated
former Employees consisting of those Highly Compensated Employees and Highly
Compensated former Employees with the greatest Compensation.
(b) For purposes of applying the limitations of this Section 11.2,
the term "benefit" includes loans in excess of the amounts set forth in
Section 72(p)(2)(A), any periodic income, any withdrawal values payable to a
living employee, and any death benefits not provided for by insurance on the
Participant's life.
ARTICLE XII
OPERATION AND ADMINISTRATION OF THE PLAN
12.1 PLAN ADMINISTRATION.
(a) Authority to control and manage the operation and
administration of the Plan shall be vested in the Committee as provided
in this Article XII.
(b) The members of the Committee (the number of which shall
be determined by the Board of Directors) shall be appointed by the Board
of Directors and shall hold office until resignation, death or removal by
the Board of Directors. Members of the Committee may, but need not, be
appointed by appropriate designation of a Committee heretofore
constituted pursuant to the provisions of another employee benefit plan
maintained by the Company.
(c) For purposes of ERISA Section 402(a), the members of
the Committee shall be the Named Fiduciaries of this Plan.
(d) Notwithstanding the foregoing, a Trustee with whom Plan
assets have been placed in trust or an Investment Manager appointed
pursuant to Section 12.3 may be granted exclusive authority and
discretion to manage and control all or any portion of the assets of the
Plan.
12.2 COMMITTEE POWERS. The Committee shall have all powers
necessary to supervise the administration of the Plan and control its
operations. In addition to any powers and authority conferred on the
Committee elsewhere in the Plan or by law, the Committee
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shall have, by way of illustration but not by way of limitation, the
following powers and authority:
(a) To allocate fiduciary responsibilities (other than trustee
responsibilities) among the Named Fiduciaries and to designate one or
more other persons to carry out fiduciary responsibilities (other than
trustee responsibilities). However, no allocation or delegation under
this Section 12.2(a) shall be effective until the person or persons to
whom the responsibilities have been allocated or delegated agree to
assume the responsibilities. The term "trustee responsibilities" as used
herein shall have the meaning set forth in Section 405(c) of ERISA. The
preceding provisions of this Section 12.2(a) shall not limit the
authority of the Committee to appoint one or more Investment Managers in
accordance with Section 12.3.
(b) To designate agents to carry out responsibilities relating
to the Plan, other than fiduciary responsibilities.
(c) To employ such legal, actuarial, medical, accounting,
clerical and other assistance as it may deem appropriate in carrying out
the provisions of this Plan, including one or more persons to render
advice with regard to any responsibility any Named Fiduciary or any other
fiduciary may have under the Plan.
(d) To establish rules and regulations from time to time for the
conduct of the Committee's business and the administration and
effectuation of this Plan.
(e) To administer, interpret, construe and apply this Plan and
to decide all questions which may arise or which may be raised under this
Plan, by any Employee, Participant, former Participant, Beneficiary or
other person whatsoever, including but not limited to all questions
relating to eligibility to participate in the Plan, the amount of service
of any Participant, and the amount of benefits to which any Participant
or his/her Beneficiary may be entitled.
(f) To determine the manner in which the assets of this Plan, or
any part thereof, shall be disbursed.
(g) To direct the Trustee, in writing, from time to time, to
invest and reinvest the Trust Fund, or any part thereof, or to purchase,
exchange, or lease any property, real or personal, which the Committee
may designate. This shall include the right to direct the investment of
all or any part of the Trust in any one security or any one type of
securities permitted hereunder. Among the securities which the Committee
may direct the Trustee to purchase are "employer securities" as defined
in Code Section 409A(l) or any successor statute thereto.
(h) To perform or cause to be performed such further acts as it
may deem to be necessary, appropriate or convenient in the efficient
administration of the Plan.
Any action taken in good faith by the Committee in the exercise of
authority conferred upon it by this Plan shall be conclusive and binding upon
the Participants and their Beneficiaries. All discretionary powers conferred
upon the Committee shall be absolute. However, all discretionary powers shall
be exercised in a uniform and nondiscriminatory manner.
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12.3 INVESTMENT MANAGER.
(a) The Committee, by action reflected in the minutes thereof, may
appoint one or more Investment Managers, as defined in Section 3(38) of
ERISA, to manage all or a portion of the assets of the Plan.
(b) An Investment Manager shall discharge its duties in accordance
with applicable law and in particular in accordance with Section 404(a)(1) of
ERISA.
(c) An Investment Manager, when appointed, shall have full power to
manage the assets of the Plan for which it has responsibility, and neither
the Company nor the Committee shall thereafter have any responsibility for
the management of those assets.
12.4 PERIODIC REVIEW.
(a) At periodic intervals, not less frequently than annually, the
Committee shall review the long-run and short-run financial needs of the Plan
and shall determine a funding policy for the Plan consistent with the
objectives of the Plan and the minimum funding standards of ERISA, if
applicable. In determining the funding policy the Committee shall take into
account, at a minimum, not only the long-term investment objectives of the
Trust Fund consistent with the prudent management of the assets thereof, but
also the short-run needs of the Plan to pay benefits.
(b) All actions taken by the Committee with respect to the funding
policy of the Plan, including the reasons therefor, shall be fully reflected
in the minutes of the Committee.
12.5 COMMITTEE PROCEDURE.
(a) A majority of the members of the Committee as constituted at
any time shall constitute a quorum, and any action by a majority of the
members present at any meeting, or authorized by a majority of the members in
writing without a meeting, shall constitute the action of the Committee.
(b) The Committee may designate certain of its members as
authorized to execute any document or documents on behalf of the Committee,
in which event the Committee shall notify the Trustee of this action and the
name or names of the designated members. The Trustee, Company, Participants,
Beneficiaries, and any other party dealing with the Committee may accept and
rely upon any document executed by the designated members as representing
action by the Committee until the Committee shall file with the Trustee a
written revocation of the authorization of the designated members.
12.6 COMPENSATION OF COMMITTEE.
(a) Members of the Committee shall serve without compensation
unless the Board of Directors shall otherwise determine. However, in no event
shall any member of the Committee who is an Employee receive compensation
from the Plan for his/her services as a member of the Committee.
(b) All members shall be reimbursed for any necessary or
appropriate expenditures incurred in the discharge of duties as members of
the Committee.
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(c) The compensation or fees, as the case may be, of all officers,
agents, counsel, the Trustee, or other persons retained or employed by the
Committee shall be fixed by the Committee.
12.7 RESIGNATION AND REMOVAL OF MEMBERS. Any member of the Committee may
resign at any time by giving written notice to the other members and to the
Board of Directors effective as therein stated. Any member of the Committee
may, at any time, be removed by the Board of Directors.
12.8 APPOINTMENT OF SUCCESSORS.
(a) Upon the death, resignation, or removal of any Committee
member, the Board of Directors may appoint a successor.
(b) Notice of appointment of a successor member shall be given by
the Secretary of the Company in writing to the Trustee and to the members of
the Committee.
(c) Upon termination, for any reason, of a Committee member's
status as a member of the Committee, the member's status as a Named Fiduciary
shall concurrently be terminated, and upon the appointment of a successor
Committee member the successor shall assume the status of a Named Fiduciary
as provided in Section 12.1.
12.9 RECORDS.
(a) The Committee shall keep a record of all its proceedings and
shall keep, or cause to be kept, all such books, accounts, records or other
data as may be necessary or advisable in its judgment for the administration
of the Plan and to properly reflect the affairs thereof.
(b) However, nothing in this Section 12.9 shall require the
Committee or any member thereof to perform any act which, pursuant to law or
the provisions of this Plan, is the responsibility of the Plan Administrator,
nor shall this Section relieve the Plan Administrator from such
responsibility.
12.10 RELIANCE UPON DOCUMENTS AND OPINIONS.
(a) The members of the Committee, the Board of Directors, the
Company and any person delegated under the provisions hereof to carry out any
fiduciary responsibilities under the Plan ("delegated fiduciary") shall be
entitled to rely upon any tables, valuations, computations, estimates,
certificates and reports furnished by any consultant, or firm or corporation
which employs one or more consultants, upon any opinions furnished by legal
counsel, and upon any reports furnished by the Trustee. The members of the
Committee, the Board of Directors, the Company and any delegated fiduciary
shall be fully protected and shall not be liable in any manner whatsoever for
anything done or action taken or suffered in reliance upon any such
consultant or firm or corporation which employs one or more consultants,
Trustee, or counsel.
(b) Any and all such things done or actions taken or suffered by
the Committee, the Board of Directors, the Company and any delegated
fiduciary shall be conclusive and binding on all Employees, Participants,
Beneficiaries, and any other persons whomsoever, except as otherwise provided
by law.
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(c) The Committee and any delegated fiduciary may, but are not
required to, rely upon all records of the Company with respect to any matter
or thing whatsoever, and may likewise treat those records as conclusive with
respect to all Employees, Participants, Beneficiaries, and any other persons
whomsoever, except as otherwise provided by law.
12.11 REQUIREMENT OF PROOF. The Committee or the Company may require
satisfactory proof of any matter under this Plan from or with respect to any
Employee, Participant, or Beneficiary, and no person shall acquire any rights
or be entitled to receive any benefits under this Plan until the required
proof shall be furnished.
12.12 RELIANCE ON COMMITTEE MEMORANDUM. Any person dealing with the
Committee may rely on and shall be fully protected in relying on a
certificate or memorandum in writing signed by any Committee member or other
person so authorized, or by the majority of the members of the Committee, as
constituted as of the date of the certificate or memorandum, as evidence of
any action taken or resolution adopted by the Committee.
12.13 MULTIPLE FIDUCIARY CAPACITY. Any person or group of persons may
serve in more than one fiduciary capacity with respect to the Plan.
12.14 LIMITATION ON LIABILITY.
(a) Except as provided in Part 4 of Title I of ERISA, no person
shall be subject to any liability with respect to his/her duties under the
Plan unless he/she acts fraudulently or in bad faith.
(b) No person shall be liable for any breach of fiduciary
responsibility resulting from the act or omission of any other fiduciary or
any person to whom fiduciary responsibilities have been allocated or
delegated, except as provided in Part 4 of Title I of ERISA.
(c) No action or responsibility shall be deemed to be a fiduciary
action or responsibility except to the extent required by ERISA.
12.15 INDEMNIFICATION.
(a) To the extent permitted by law, the Company shall indemnify
each member of the Board of Directors and the Committee, and any other
Employee of the Company with duties under the Plan, against expenses
(including any amount paid in settlement) reasonably incurred by him/her in
connection with any claims against him/her by reason of his/her conduct in
the performance of his/her duties under the Plan, except in relation to
matters as to which he/she acted fraudulently or in bad faith in the
performance of such duties. The preceding right of indemnification shall pass
to the estate of such a person.
(b) The preceding right of indemnification shall be in addition to
any other right to which the Board member or Committee member or other person
may be entitled as a matter of law or otherwise.
12.16 BONDING.
(a) Except as is prescribed by the Board of Directors, as provided
in Section 412 of ERISA, or as may be required under any other applicable
law, no bond
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or other security shall be required by any member of the Committee, or any
other fiduciary under this Plan.
(b) Notwithstanding the foregoing, for purposes of satisfying its
indemnity obligations under Section 12.15, the Company may (but need not)
purchase and pay premiums for one or more policies of insurance. However,
this insurance shall not release the Company of its liability under the
indemnification provisions.
12.17 PROHIBITION AGAINST CERTAIN ACTIONS.
(a) To the extent prohibited by law, in administering this Plan the
Committee shall not discriminate in favor of any class of Employees and
particularly it shall not discriminate in favor of highly compensated
Employees (within the meaning of Code Section 414(q)).
(b) The Committee shall not cause the Plan to engage in any
transaction that constitutes a nonexempt prohibited transaction under Section
4975(c) of the Code or Section 406(a) of ERISA.
(c) All individuals who are fiduciaries with respect to the Plan
(as defined in Section 3(21) of ERISA) shall discharge their fiduciary duties
in accordance with applicable law, and in particular, in accordance with the
standards of conduct contained in Section 404 of ERISA.
12.18 PLAN EXPENSES. All expenses incurred in the establishment,
administration and operation of the Plan, including but not limited to the
expenses incurred by the members of the Committee in exercising their duties,
shall be charged to the Trust Fund, but shall be paid by the Company if not
paid by the Trust Fund.
ARTICLE XIII
PLAN AMENDMENTS
13.1 AMENDMENTS. The Board of Directors may at any time, and from time
to time, amend the Plan and any Funding Agreement by an instrument in writing
executed in the name of 20th Century Industries by an officer(s) duly
authorized to execute the instrument and filed with the Trustee. No such
amendment, however, shall be made at any time, the effect of which would be:
(a) To cause any assets of the Plan, at any time prior to the
satisfaction of all liabilities with respect to Participants and their
Beneficiaries, to be used for or diverted to purposes other than providing
benefits to Participants and their Beneficiaries, and defraying reasonable
expenses of administering the Plan, except as otherwise permitted by law;
(b) To increase the responsibilities or liabilities of the Trustees
without their written consent; or
(c) To decrease a Participant's accrued benefit (within the meaning
of Section 411(d)(6) of the Code) with respect to service performed prior to
the effective date of the amendment.
For purposes of this provision, an amendment shall be treated as
reducing accrued benefits if it (1) unfavorably changes the actuarial basis
for determining
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benefits, (2) reduces or eliminates an early retirement benefit or
retirement-type subsidy, or (3) eliminates an optional form of benefit with
respect to benefits attributable to service performed before the amendment
became effective. However, the restriction on affecting retirement-type
subsidies applies only with respect to Participants who satisfy (either
before or after the amendment) the preamendment conditions for entitlement to
the subsidy. For purposes of this provision, a "retirement-type subsidy"
shall have the meaning ascribed to such terms by Section 411(d)(6) of the
Code.
(d) No amendment shall adversely change the vesting schedule with
respect to the future accrual of benefits for any Participant unless each
Participant with five (5) or more one-year Periods of Service is permitted to
elect to have the vesting schedule which was in effect before the amendment
used to determine his/her vested benefit.
13.2 RETROACTIVE AMENDMENTS. Notwithstanding any provisions of this
Article XIII to the contrary, to the extent allowable under applicable law
the Plan may be amended prospectively or retroactively (as provided in
Section 401(b) of the Code as amended by Section 1023 of ERISA) to make the
Plan conform to any provision of ERISA, the Code provisions dealing with
employees' trusts, or any regulation under either of such statutes.
ARTICLE XIV
MERGER OF COMPANY; MERGER OF PLAN
14.1 EFFECT OF REORGANIZATION OR TRANSFER OF ASSETS. In the event of a
consolidation, merger, sale, liquidation, or other transfer of the operating
assets of the Company to any other company, the ultimate successor or
successors to the business of the Company shall automatically be deemed to
have elected to continue this Plan in full force and effect in the same
manner as if the Plan had been adopted by resolution of its board of
directors unless the successor(s), by resolution of its board of directors,
shall elect not to so continue this Plan in effect, in which case the Plan
shall automatically be deemed terminated as of the applicable effective date
set forth in the board resolution.
14.2 MERGER RESTRICTION. Notwithstanding any other provision in this
Article, this Plan shall not in whole or in part merge or consolidate with,
or transfer its assets or liabilities to, any other plan unless each affected
Participant in this Plan would receive a benefit immediately after the
merger, consolidation, or transfer (if the Plan then terminated) which is
equal to or greater than the benefit he/she would have been entitled to
receive immediately before the merger, consolidation, or transfer (if the
Plan had then terminated).
ARTICLE XV
PLAN TERMINATION AND DISCONTINUANCE OF CONTRIBUTIONS
15.1 PLAN TERMINATION.
(a) (i) Subject to the following provisions of this Section 15.1,
20th Century Industries may terminate the Plan and the Trust Agreement at any
time by an instrument in writing executed in the name of 20th Century
Industries by an officer or officers duly authorized to execute such an
instrument, and delivered to the Trustee.
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(ii) The Plan and Trust Agreement may terminate if 20th
Century Industries merges into any other corporation, if as the result of the
merger the entity of 20th Century Industries ceases, and the Plan is
terminated pursuant to the rules of Section 14.1.
(b) Upon and after the effective date of the termination, the
Company shall not make any further contributions under the Plan and no
contributions need be made by the Company applicable to the Plan Year in
which the termination occurs, except as may otherwise be required by law.
(c) The rights of all affected Participants to benefits accrued to
the date of termination of the Plan, to the extent funded as of the date of
termination, shall automatically become fully vested as of that date.
15.2 DISCONTINUANCE OF CONTRIBUTIONS.
(a) In the event the Company decides it is impossible or
inadvisable for business reasons to continue to make Company contributions
under the Plan, the Board of Directors may discontinue contributions to the
Plan. Upon and after the effective date of this discontinuance, the Company
shall not make any further Company contributions under the Plan and no
Company contributions need be made by the Company with respect to the Plan
Year in which the discontinuance occurs, except as may otherwise be required
by law.
(b) The discontinuance of Company contributions on the part of the
Company shall not terminate the Plan as to the funds and assets then held by
the Trustee, or operate to accelerate any payments of distributions to or for
the benefit of Participants or Beneficiaries, and the Trustee shall continue
to administer the Trust Fund in accordance with the provisions of the Plan
until all of the obligations under the Plan shall have been discharged and
satisfied.
(c) However, if this discontinuance of Company contributions shall
cause the Plan to lose its status as a qualified plan under Code Section
401(a), the Plan shall be terminated in accordance with the provisions of
this Article XV.
(d) On and after the effective date of a discontinuance of Company
contributions, the rights of all affected Participants to benefits accrued to
that date, to the extent funded as of that date, shall automatically become
fully vested as of that date.
15.3 RIGHTS OF PARTICIPANTS. In the event of the termination of the
Plan, for any cause whatsoever, all assets of the Plan, after payment of
expenses, shall be used for the exclusive benefit of Participants and their
Beneficiaries and no part thereof shall be returned to the Company, except as
provided in Section 4.3 of this Plan.
15.4 ALLOCATION AND PAYMENT PRIORITY. Upon termination of the Plan, the
assets of the Plan, to the extent that they are sufficient after the payment
of liabilities and expenses and reasonable reserves for expenses and
liabilities (absolute or contingent) of the funding agents, shall be
allocated for the purpose of paying benefits to Participants in the following
order of precedence:
(a) First, in payment of all benefits of Participants or their
Beneficiaries provided for under this Plan which (i) were in pay status as of
the beginning of the three (3) year period ending on the Plan Termination
Date or (ii) would have been in pay status as of the beginning of such three
(3) year period if the
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Participant had retired prior to the beginning of the three (3) year period
and if his/her benefits had commenced as of the beginning of such period;
provided, however, that the amount of benefits entitled to priority under
this Section 15.4(a) shall be the lowest amount payable under the provisions
of the Plan in effect at any time during the five (5) year period ending on
the Plan Termination Date; and provided further, that for the purposes of (i)
above, the lowest benefit in pay status during said three (3) year period
prior to the Plan Termination Date shall be considered the benefit in pay
status for such period.
(b) Second, in payment of all benefits provided for under the Plan
which (i) are guaranteed under Title IV of ERISA, or (ii) would be so
guaranteed if the provisions of Sections 4022(b)(5) and 4022(b)(6) of ERISA
were not applicable.
(c) Third, in payment of all benefits provided for under the Plan
which were vested and nonforfeitable on the Plan Termination Date, but
excluding those benefits which became vested and nonforfeitable solely by
reason of the termination of the Plan.
(d) Fourth, to all other benefits under the Plan.
(e) Fifth, to return to the Company any assets remaining after the
satisfaction of all liabilities for benefits under the Plan to Participants
and their Beneficiaries.
The assets of the Plan shall be used to provide benefits under the above
subsections in the order in which they appear before any benefits are
provided under the following subsection. Should the assets be insufficient to
provide full benefits under any subsection in the order of precedence, the
benefit for each Participant in the group for which the assets are
insufficient shall be reduced in the proportion that the available assets
bear to the present value of the full benefits for all Participants in the
group; provided, however, that with respect to Section 15.4(c) above, if any
such proration is necessary the assets available shall first be used to
provide benefits based upon the Plan as in effect five (5) years prior to the
Plan Termination Date, and if the assets available are insufficient to
provide in full for such benefits, then the benefits based upon the most
recent Plan amendment under which the assets available are sufficient to
satisfy in full the benefits provided thereby shall be used, with the
remaining assets prorated on the basis of the benefits provided under the
terms of the next most recent Plan amendment. The interpretation and
application of this Section 15.4 shall be in conformity with any regulations
issued under Section 4044 of ERISA by the Secretary of Labor.
15.5 CONTINUATION OF THE FUNDING AGREEMENTS, ETC. The allocation and
provision for the benefits described in Sections 15.4(a) through (d),
inclusive, shall be accomplished through either continuance of the Funding
Agreements, the creation of new Funding Agreements, or the purchase of
annuity contracts; provided, however, that the Committee, upon finding that
it is not practicable or desirable under the circumstances to do any of the
foregoing with respect to one or more of the groups listed in Section 15.4,
may, with the consent of the Board of Directors, provide some other means,
including cash payments, but no change shall be effected in the order of
precedence and the basis of allocation established therein.
15.6 PLAN TERMINATION DATE. The Plan Termination Date, as used in this
Article XV, shall be:
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(a) The date established by the Committee and agreed to by the
Pension Benefit Guaranty Corporation, if the Plan is terminated in accordance
with Section 4041 of ERISA;
(b) The date established by the Pension Benefit Guaranty
Corporation and agreed to by the Committee, if the Plan is terminated by the
Pension Benefit Guaranty Corporation in accordance with Section 4042 of
ERISA; or
(c) The date established by a court of competent jurisdiction if
the Plan is terminated in accordance with either of the foregoing sections of
ERISA but no agreement is reached between the Committee and the Pension
Benefit Guaranty Corporation or a judicially appointed trustee.
15.7 PARTIAL TERMINATION.
(a) In the event of a partial termination of the Plan within the
meaning of Code Section 411(d)(3), the interests of affected Participants in
the Trust Fund, as of the date of the partial termination, shall become
nonforfeitable as of that date.
(b) That portion of the assets of the Plan affected by the partial
termination shall be used exclusively for the benefit of the affected
Participants and their Beneficiaries, and no part thereof shall otherwise be
applied.
(c) With respect to Plan assets and Participants affected by a
partial termination, the Committee and the Trustee shall follow the same
procedures and take the same actions prescribed in this Article XV in the
case of a total termination of the Plan.
15.8 FAILURE TO CONTRIBUTE. The failure of the Company to contribute to
the Trust in any year, if contributions are not required under the Plan for
that year, shall not constitute a complete discontinuance of contributions to
the Plan.
ARTICLE XVI
APPLICATION FOR BENEFITS
16.1 APPLICATION FOR BENEFITS. The Committee may require any person
claiming benefits under the Plan to submit an application therefor, together
with such documents and information as the Committee may require. In the case
of any person suffering from a disability which prevents the claimant from
making personal application for benefits, the Committee may, in its
discretion, permit another person acting on his/her behalf to submit the
application.
16.2 ACTION ON APPLICATION.
(a) Within ninety (90) days following receipt of an application and
all necessary documents and information, the Committee's authorized delegate
reviewing the claim shall furnish the claimant with written notice of the
decision rendered with respect to the application.
(b) In the case of a denial of the claimant's application, the
written notice shall set forth:
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(i) The specific reasons for the denial, with reference to the
Plan provisions upon which the denial is based;
(ii) A description of any additional information or material
necessary for perfection of the application (together with an explanation why
the material or information is necessary); and
(iii) An explanation of the Plan's claim review procedure.
(c) A claimant who wishes to contest the denial of his/her
application for benefits or to contest the amount of benefits payable to
him/her shall follow the procedures for an appeal of benefits as set forth in
Section 16.3 below, and shall exhaust such administrative procedures prior to
seeking any other form of relief.
16.3 APPEALS.
(a) (i) A claimant who does not agree with the decision rendered
with respect to his/her application may appeal the decision to the Committee.
(ii) The appeal shall be made, in writing, within sixty-five
(65) days after the date of notice of the decision with respect to the
application.
(iii) If the application has neither been approved nor denied
within the ninety (90) day period provided in Section 16.2 above, then the
appeal shall be made within sixty-five (65) days after the expiration of the
ninety (90) day period.
(b) The claimant may request that his/her application be given full
and fair review by the Committee. The claimant may review all pertinent
documents and submit issues and comments in writing in connection with the
appeal.
(c) The decision of the Committee shall be made promptly, and not
later than sixty (60) days after the Committee's receipt of a request for
review, unless special circumstances require an extension of time for
processing, in which case a decision shall be rendered as soon as possible,
but not later than one hundred twenty (120) days after receipt of a request
for review.
(d) The decision on review shall be in writing and shall include
specific reasons for the decision, written in a manner calculated to be
understood by the claimant with specific reference to the pertinent Plan
provisions upon which the decision is based.
ARTICLE XVII
LIMITATION ON BENEFITS
17.1 BASIC LIMITATION.
(a) Notwithstanding anything to the contrary contained in this
Plan, and subject to the adjustments set forth below in this Article, the
maximum annual amount of retirement income payable to a Participant under
this Plan (the "Defined Benefit Dollar Limitation") shall not exceed the
lesser of:
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(i) The Specific Dollar Limitation (as defined hereinbelow); or
(ii) 100% of the Participant's average compensation for the
three consecutive calendar years during which he had the greatest aggregate
compensation.
As used herein the term "Specific Dollar Limitation" shall mean
$90,000.
(b) In determining a Participant's Compensation (as defined in
Section 2.9(b)) for any Limitation Year, there shall be taken into account
only the compensation that is actually paid to or includable in the gross
income of the Participant during such Limitation Year. In all cases this
Subsection (b) shall be interpreted and applied in compliance with the
provisions of Treasury Regulations Section 1.415-2(d) or any successor
thereto.
(c) For purposes of applying the limitations of this Article, a
Limitation Year corresponding to the Plan Year has been adopted. The Specific
Dollar Limitation referred to in Subsection (a)(i) shall be adjusted annually
for increases in the cost of living which are authorized under Code Section
415, effective as of January 1 of the year for which the adjustment is made,
with such adjustment to apply to the Limitation Year ending with or within
the calendar year of adjustment.
17.2 ANNUAL ADDITIONS. The term "Annual Additions" means, for any
Limitation Year, the sum of the following amounts credited to a Participant:
(a) The amount credited to the Participant's accounts under all
defined contribution plans from contributions by the Company or an Affiliated
Company (including amounts deferred under a cash or deferred arrangement
under Section 401(k) of the Code);
(b) The Participant's contributions to such plans;
(c) Forfeitures; and
(d) Amounts described in Sections 415(l)(1) and 419A(d)(2) of the
Code.
17.3 MEMBERSHIP IN OTHER DEFINED BENEFIT PLANS. The limitations of this
Article with respect to any Participant who at any time is or has been a
participant in any other defined benefit plan, as defined in Section 414(j)
of the Code (whether or not the plan has been terminated), maintained by the
Company or an Affiliated Company shall be applied as if the total benefits
payable under all such defined benefit plans in which the Participant has
been a participant were payable from one plan.
17.4 MEMBERSHIP IN DEFINED CONTRIBUTION PLANS. If a Participant in this
Plan is or was also a participant in a defined contribution plan, as defined
in Section 414(i) of the Code (whether or not the plan has been terminated),
to which contributions are made by the Company or an Affiliated Company
(whether or not the plan has been terminated), then in addition to the
Defined Benefit Dollar Limitation contained in Section 17.1 of this Plan, the
"Combined Plan Fraction" shall not exceed 1.0.
(a) The provisions of this Section 17.4 shall apply to any
Participant (herein a "Combined Plan Participant") in this Plan who is or was
also a participant in a
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defined contribution plan, as defined in Section 414(i) of the Code, to which
contributions are or were made by the Company or an Affiliated Company
(whether or not the plan has been terminated). In addition to the limitation
contained in Section 17.1 of this Plan, for any Limitation Year the Combined
Plan Fraction for any Combined Plan Participant shall not exceed 1.0. As used
herein the term Combined Plan Fraction means, with respect to any Combined
Plan Participant, a fraction equal to the sum of the Defined Contribution
Plan Fraction and the Defined Benefit Plan Fraction for such Participant. In
all cases the calculation of such Combined Plan Fraction shall be made in
accordance with the provisions of Code Section 415(e) and the following rules
of this Section.
(b) "Defined Contribution Plan Fraction" means a fraction
determined in accordance with the provisions of Code Section 415(e) and the
following rules with respect to the combined participation by a Participant
in all defined contribution plans of the Company and all Affiliated Companies:
(i) The numerator of such fraction is the sum (as determined
as of the end of the applicable Limitation Year) of all "Annual Additions" to
the Participant's accounts under all such plans for all of his years of
participation in such plans.
(ii) The denominator of the fraction is the sum of the lesser
of the following amounts determined separately with respect to each
Limitation Year and each year of service:
(A) The product of 1.25 multiplied by the dollar
limitation under Code Section 415(c)(1)(A) (determined without regard to
Subsection (c)(6) thereof) in effect for the applicable Limitation Year; or
(B) The product of 1.4 multiplied by an amount equal to
the percentage of compensation limitation under Code Section 415(c)(l)(B) (or
Subsection (c)(7) thereof, if applicable) that applies with respect to the
Participant for the applicable Limitation Year.
(iii) Solely in the case of a defined contribution plan in
existence on July 1, 1982, at the election of the Plan Administrator, in
applying the above rules with respect to any year ending after December 31,
1982, the denominator with respect to each Participant for all years ending
before January 1, 1983, shall be an amount equal to the product of the
denominator for the year ending in 1982 (determined using the rules in effect
under Code Section 415(e)(3)(B) at that time) multiplied by the "Transition
Fraction." The "Transition Fraction" is a fraction the numerator of which is
the lesser of $51,875, or 1.4 multiplied by 25% of the compensation of the
Participant for the year ending in 1981, and the denominator of which is the
lesser of $41,500, or 25% of the compensation of the Participant for the year
ending in 1981.
(c) "Defined Benefit Plan Fraction" means a fraction determined in
accordance with the provisions of Code Section 415(e) and the following rules
with respect to the combined participation by a Participant in all defined
benefit plans of the Company and all Affiliated Companies:
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(i) The numerator of such fraction is the projected annual
benefit of the Participant under all such plans (determined as of the
close of the applicable Limitation Year). For purposes of this
Paragraph, a Participant's projected annual benefit shall be
determined in accordance with Treasury Regulations Section
1.415-7(b)(3).
(ii) The denominator of such fraction is the lesser of (A) the
product of 1.25 multiplied by the dollar limitation under Code
Section 415(b)(l)(A) for the applicable Limitation Year; or (B) the
product of 1.4 multiplied by the percentage of compensation
limitation under Code Section 415(b)(1)(3) with respect to the
Participant for the applicable Limitation Year.
(d) In the case of any Combined Plan Participant with respect to whom
the Combined Plan Fraction for any Limitation Year would exceed 1.0, the
following corrective action shall be taken:
(i) First, the Committee or Plan Administrator shall make such
elections under Code Section 415 as may be available (if any) which
would allow the Plan to satisfy the Combined Plan Fraction
requirements of Code Section 415(e) without causing any reduction in
the benefits of participants under this Plan or any defined
contribution plan included in the calculation of the Combined Plan
Fraction (herein an "Included Defined Contribution Plan").
(ii) Second, to the maximum extent permissible under the
applicable provisions of Code Sections 401 through 415, the benefits
payable with respect to such Combined Plan Participant under the
Included Defined Benefit Plans shall be reduced or otherwise adjusted
so as to allow the Combined Plan Participant to satisfy the Combined
Plan Fraction requirements of Code Section 415(e) for the applicable
Limitation Year.
(iii) After reducing or otherwise adjusting the benefits under
Included Defined Contribution Plans to the maximum permissible extent
as provided under Paragraph (ii) above, to the extent necessary to
achieve compliance with the Combined Plan Fraction requirements of
Code Section 415(e) the Committee shall then implement reductions in
the Accrued Benefits otherwise payable under this Plan to such
Combined Plan Participant.
17.5 ADJUSTMENTS IN THE LIMITATION. In applying the Defined Benefit
Dollar Limitation on the maximum amount of annual retirement income permitted
under Section 17.1 above, the following special rules and adjustments shall be
applied:
(a) The Defined Benefit Dollar Limitation shall only apply to
benefits attributable to Company contributions, and any benefits payable
at any time under this Plan attributable to Participant contributions
shall be paid in addition to the maximum permitted benefit attributable to
Company contributions (subject, however, to applicable limitations under
Code Section 415 upon the payment of benefits attributable to employee
contributions under a defined benefit plan).
(b) If the retirement benefit of a Participant commences before the
Participant's Social Security Retirement Age, the Defined Benefit Dollar
Limitation shall be adjusted so that it is the actuarial equivalent of an
annual benefit of $90,000, multiplied by the Adjustment Factor, as
prescribed by the Secretary of the Treasury,
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beginning at the Social Security Retirement Age. The adjustment provided
for in the preceding sentence shall be made as follows:
(i) in the case of a Participant whose Social Security
Retirement Age is age sixty-five (65), the Specific Dollar Limitation
shall be reduced by 5/9 of 1% for each month by which benefits
commence before the month in which the Participant attains age
sixty-five (65),
(ii) in the case of a Participant whose Social Security
Retirement Age is greater than age sixty-five (65), the Specific
Dollar Limitation shall be reduced by 5/9 of 1% for each of the first
thirty-six (36) months and 5/12 of 1% for each of the additional
months (up to twenty-four (24)) by which benefits commence before the
month in which the Participant attains Social Security Retirement
Age, and
(iii) if the benefit begins before age sixty-two (62), the
benefit must be limited to the Actuarial Equivalent of the
Participant's Specific Dollar Limitation for benefits commencing at
age sixty-two (62), with the reduced dollar limitation for such
benefits further reduced for each month by which benefits commence
before the month in which the Participant attains age sixty-two (62).
(c) If the retirement benefit of a Participant commences after the
Participant's Social Security Retirement Age, the Defined Benefit Dollar
Limitation shall be adjusted so that it is the actuarial equivalent of a
benefit of $90,000 beginning at the Social Security Retirement Age,
multiplied by the Adjustment Factor as provided by the Secretary of the
Treasury, based on the lesser of the interest rate assumption under the
Plan or on an assumption of five percent (5%) per year.
(d) In the event that all or any portion of a Participant's
retirement income is payable in a form other than a single life annuity
for the life of the Participant or a Qualified Joint and Survivor Annuity
under Article VI, for purposes of applying the Defined Benefit Dollar
Limitation such other plan benefit shall be adjusted to a straight life
annuity (commencing at the same age) which is the Actuarial Equivalent
Value of such other plan benefit.
(e) For purposes of making the actuarial adjustments to the Defined
Benefit Dollar Limitation or to Plan benefits as provided under Subsection
(d), the interest rate assumption used shall be the greater of (i) 5%, or
(ii) the rate used under this Plan for determining Actuarial Equivalent
Values.
(f) In all cases the adjustments described hereinabove shall be made
in accordance with and to the extent required by the Regulations and
applicable Internal Revenue Service rules issued under Code Section
415(b)(2) and other applicable provisions of Code Section 415.
(g) "Social Security Retirement Age" means the age used as the
retirement age for the Participant under Section 216(1) of the Social
Security Act, except that such section shall be applied without regard to
the age increase factor, and as if the early retirement age under Section
216(1)(2) of such Act were 62. "Social Security Retirement Age" shall mean
age sixty-five (65) if the Participant was born before January 1, 1938,
age sixty-six (66) if the Participant was born before January 1, 1955, and
age sixty-seven (67) if the Participant was born after December 31, 1954.
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17.6 BENEFITS NOT IN EXCESS OF $10,000. The foregoing provisions of this
Article shall not apply to any Participant who has not at any time participated
in any defined contribution plan maintained by the Company if his total annual
benefit in any year under this Plan and any other defined benefit plans
maintained by the Company is not in excess of $10,000 in the aggregate.
17.7 ADJUSTMENT OF LIMITATION FOR YEARS OF SERVICE OR PARTICIPATION.
(a) If a Participant has completed less than ten years of
participation, the Participant's Accrued Benefit shall not exceed the
Defined Benefit Dollar Limitation as adjusted by multiplying such amount
by a fraction, the numerator of which is the Participant's number of years
(or part thereof) of participation in the Plan, and the denominator of
which is ten.
(b) If a Participant has completed less than ten years of service
with the Affiliated Companies, the limitations described in Sections
415(b)(1)(B) and 415(b)(4) of the Code shall be adjusted by multiplying
such amounts by a fraction, the numerator of which is the Participant's
number of years of service (or part thereof), and the denominator of which
is ten.
(c) In no event shall Sections 17.7(a) and (b) reduce the limitations
provided under Sections 415(b)(1) and (4) of the Code to an amount less
than one-tenth of the applicable limitation (as determined without regard
to this Section 17.7).
(d) To the extent provided by the Secretary of the Treasury, this
Section 17.7 shall be applied separately with respect to each change in
the benefit structure of the plan.
17.8 AFFILIATED COMPANY. For purposes of this Article, the determination
of whether a company is an Affiliated Company shall be made after applying the
modifications required by Code Section 415(h) to the percentage tests of Code
Section 414(b) and (c).
ARTICLE XVIII
RESTRICTION ON ALIENATION
18.1 GENERAL RESTRICTIONS AGAINST ALIENATION.
(a) The interest of any Participant or Beneficiary in the income,
benefits, payments, claims or rights hereunder, or in the Trust Fund shall
not in any event be subject to sale, assignment, hypothecation, or
transfer. Each Participant and Beneficiary is prohibited from
anticipating, encumbering, assigning, or in any manner alienating his/her
interest under the Trust Fund, and is without power to do so, except as
may otherwise be provided for in the Trust Agreement. The interest of any
Participant or Beneficiary shall not be liable or subject to his/her
debts, liabilities, or obligations, now contracted, or which may be
subsequently contracted. The interest of any Participant or Beneficiary
shall be free from all claims, liabilities, bankruptcy proceedings, or
other legal process now or hereafter incurred or arising; and the
interest, or any part thereof, shall not be subject to any judgment
rendered against the Participant or Beneficiary.
(b) In the event any person attempts to take any action contrary to
this Article XVIII, that action shall be void and the Company, the
Committee, the Trustees and all Participants and their Beneficiaries may
disregard that action and are not
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in any manner bound thereby, and they, and each of them separately, shall
suffer no liability for any disregard of that action, and shall be
reimbursed on demand out of the Trust Fund for the amount of any loss,
cost or expense incurred as a result of disregarding or of acting in
disregard of that action.
(c) The preceding provisions of this Section 18.1 shall be
interpreted and applied by the Committee in accordance with the
requirements of Code Section 401(a)(13) as construed and interpreted by
authoritative judicial and administrative rulings and regulations.
18.2 NONCONFORMING DISTRIBUTIONS UNDER COURT ORDER.
(a) In the event that a court with jurisdiction over the Plan shall
issue an order or render a judgment requiring that all or part of a
Participant's interest under the Plan be paid to a Spouse, former Spouse
and/or children of the Participant by reason of or in connection with the
marital dissolution and/or marital separation of the Participant and the
Spouse, and/or some other similar proceeding involving marital rights and
property interests, then the Committee may, in its absolute discretion,
direct the applicable Trustees to comply with that court order or judgment
and distribute assets of the Plan in accordance therewith.
(b) The Committee's decision with respect to compliance with any such
court order or judgment shall be made in its absolute discretion and shall
be binding upon the Trustees and all Participants and their Beneficiaries,
provided, however, that the Committee in the exercise of its discretion
shall not make payments in accordance with the terms of an order which is
not a qualified domestic relations order or which the Committee determines
would jeopardize the continued qualification of the Plan under Section 401
of the Code.
(c) Neither the Plan, the Company, the Committee nor the Trustees
shall be liable in any manner to any person, including any Participant or
Beneficiary, for complying with any such court order or judgment.
(d) Nothing in this Section 18.2 shall be interpreted as placing upon
the Company, the Committee or any Trustees any duty or obligation to
comply with any such court order or judgment. The Committee may, if in its
absolute discretion it deems it to be in the best interests of the Plan
and the Participants, determine that any such court order or judgment
shall be resisted by means of judicial appeal or other available judicial
remedy, and in that event the Trustees shall act in accordance with the
Committee's directions.
ARTICLE XIX
TOP-HEAVY PLAN RULES
19.1 PURPOSE. The purpose of this Article is to ensure that the Plan
conforms to the requirements of Code Section 401(a)(10)(B), through the
adjustments required herein, should the Plan become a Top-Heavy Plan within the
meaning of Code Section 416 or become subject to the application of the
provisions of Code Section 416 by reason of its inclusion in an Aggregation
Group within the meaning of Code Section 416(g). The provisions of this Article
shall be administered and interpreted strictly for the purposes of satisfying
the applicable minimum requirements of the Code.
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19.2 APPLICABILITY. Notwithstanding any provision in this Plan to the
contrary, and subject to the limitations set forth in Section 19.9, the
requirements of Sections 19.5, 19.6, 19.7 and 19.8 shall apply under this Plan
in the case of any Plan Year in which the Plan is determined to be a Top-Heavy
Plan under the rules of Section 19.4. Except as is expressly provided to the
contrary, the rules of this Article shall be applied after the application of
the Affiliated Company rules of Section 2.2.
19.3 DEFINITIONS. For purposes of this Article, the following special
definitions and definitional rules shall apply:
(a) The term "Key Employee" means any Employee or former Employee
who, at any time during the Plan Year or any of the four preceding Plan
Years, is or was:
(i) An officer of the Company having an annual compensation
greater than 50% of the amount in effect under Code Section
415(b)(1)(A) for the Plan Year; provided, however, for such purposes
no more than 50 Employees (or, if lesser, the greater of three or 10%
of the Employees) shall be treated as officers;
(ii) One of the ten Employees having annual compensation from
the Company of more than the limitation in effect under Code Section
415(c)(1)(A) and owning (or considered as owning within the meaning
of Code Section 318) both more than a one-half percent (1/2%)
interest in the Company and the largest interests in the Company. For
this purpose, if two Employees have the same interest in the Company,
the Employee having greater annual compensation from the Company
shall be treated as having a larger interest;
(iii) A Five Percent Owner of the Company; or
(iv) A One Percent Owner of the Company having an annual
compensation from the Company of more than $150,000.
(b) The term "Five Percent Owner" means any person who owns (or is
considered as owning within the meaning of Code Section 318) more than 5%
of the outstanding stock of the Company or stock possessing more than 5%
of the total combined voting power of all stock of the Company.
(c) The term "One Percent Owner" means any person who would be
described in Subsection (b) if "1%" were substituted for "5%" each place
where it appears therein.
(d) The term "Non-Key Employee" means any Employee who is not a Key
Employee.
(e) The term "Determination Date" means, with respect to any plan
year, the last day of the preceding plan year. In the case of the first
plan year of any plan, the term "Determination Date" shall mean the last
day of that plan year.
(f) The term "Aggregation Group" means (i) each plan of the Company
in which a Key Employee is a Participant, and (ii) each other plan of the
Company which enables any plan described in clause (i) to meet the
requirements of Code Sections 401(a)(4) or 410. Any plan not required to
be included in an Aggregation Group under the preceding rules may be
treated as being part of such group if the group
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would continue to meet the requirements of Code Sections 401(a)(4) and 410
with the plan being taken into account.
(g) For purposes of determining ownership under Subsections (a), (b)
and (c) above, the following special rules shall apply: (i) Code Section
318(a)(2)(C) shall be applied by substituting "5%" for "50%," and (ii) the
aggregation rules of Subsections (b), (c) and (m) of Code Section 414
shall not apply, with the result that the ownership tests of this Section
shall apply separately with respect to each Affiliated Company.
(h) For purposes of this Article XIX, the terms "Key Employee" and
"Non-Key Employee" shall apply to a Beneficiary of such Key Employee or
Non-Key Employee and such Beneficiary will acquire the character of the
Participant. Any inherited benefits payable to a deceased Participant's
Beneficiary shall retain the character of the benefits payable to the
Participant.
(i) For purposes of this Article, an Employee's compensation shall be
determined in accordance with the rules of Code Section 415.
19.4 TOP-HEAVY STATUS.
(a) The term "Top-Heavy Plan" means, with respect to any Plan Year:
(i) Any defined benefit plan if, as of the Determination Date,
the Actuarial Equivalent Value of the cumulative accrued benefits
under the plan for Key Employees exceeds 60% of the Actuarial
Equivalent Value of the cumulative accrued benefits under the plan
for all Employees; and
(ii) Any defined contribution plan if, as of the Determination
Date, the aggregate of the account balances of Key Employees under
the plan exceeds 60% of the Actuarial Equivalent Value of the
aggregate of the account balances of all Employees under the plan.
In applying the foregoing provisions of this Subsection (a), the
valuation date to be used in valuing Plan assets shall be (A) in the case
of a defined benefit plan, the same date which is used for computing costs
for minimum funding purposes, and (B) in the case of a defined
contribution plan, the most recent valuation date within a 12-month period
ending on the applicable Determination Date.
(b) Each plan maintained by the Company required to be included in an
Aggregation Group shall be treated as a Top-Heavy Plan if the Aggregation
Group is a Top-Heavy Group.
(c) The term "Top-Heavy Group" means any Aggregation Group if the sum
(as of the Determination Date) of (i) the Actuarial Equivalent Value of
the cumulative accrued benefits for Key Employees under all defined
benefit plans included in the group, and (ii) the aggregate of the account
balances of Key Employees under all defined contribution plans included in
the group exceeds 60% of a similar sum determined for all Employees. For
purposes of determining the Actuarial Equivalent Value of the cumulative
accrued benefit of any Employee, or the amount of the account balance of
any Employee, such Actuarial Equivalent Value or amount shall be increased
by the aggregate distributions made with respect to the Employee under the
plan during the five year period ending on the Determination Date. The
preceding prior distribution
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rule shall also apply to distributions under a terminated plan that, if it
had not been terminated, would have been required to be included in an
Aggregation Group; provided, however, any rollover contribution or similar
transfer initiated by the Employee and made after December 31, 1983, to a
plan shall not be taken into account with respect to the transferee plan
for purposes of determining whether such plan is a Top-Heavy Plan (or
whether any Aggregation Group which includes such plan is a Top-Heavy
Group).
(d) If any individual is a Non-Key Employee with respect to any plan
for any plan year, but the individual was a Key Employee with respect to
the plan for any prior plan year, any accrued benefit for the individual
(and the account balance of the individual) shall not be taken into
account for purposes of this Section.
(e) If any individual has not performed any services for the Company
or received any compensation from the Company (other than benefits under
the Plan) at any time during the five year period ending on the
Determination Date, any accrued benefit for such individual (and the
account balance of the individual) shall not be taken into account for
purposes of this Section. If any individual returns after the five (5)
year period, such individuals total accrued benefit shall be included in
determining the top heavy ratio.
(f) In applying the foregoing provisions of this Section, for
purposes of determining the Actuarial Equivalent Value of accrued benefits
under a defined benefit plan the following rules shall apply: (i) the
actuarial factors to be used shall be those as specified in Section 2.1 of
this Plan; and (ii) proportional subsidies shall be ignored and
nonproportional subsidies shall be considered in accordance with the
requirements of applicable regulations under Code Section 416.
(g) For all purposes of this Article, the provisions of this Section
shall be applied and interpreted in a manner consistent with the
provisions of Code Section 416(g) and the regulations thereunder.
(h) Solely for the purpose of determining if the Plan, or any other
plan included in a required aggregation group of which this plan is a
part, is top-heavy (within the meaning of Section 416(g) of the Code) the
accrued benefit of an Employee other than a key employee (within the
meaning of Section 416(i)(1) of the Code) shall be determined under (a)
the method, if any, that uniformly applies for accrued purposes under all
plans maintained by the Affiliated Employers, or (b) if there is no such
method, as if such benefit accrued not more rapidly than the slowest
accrual rate permitted under the fractional accrual rate of Section
411(b)(1)(C) of the Code.
19.5 MINIMUM BENEFITS.
(a) For any Plan Year in which the Plan is determined to be a
Top-Heavy Plan, the Plan shall provide a minimum benefit (provided solely
by Company contributions) for each Participant who is Non-Key Employee and
who is credited with a Year of Service for the Plan Year, regardless of
such Participant's level of compensation or whether the Participant is
employed by the Company as of the last day of the Plan Year. This minimum
benefit, when expressed as an annual retirement benefit payable in the
form of a single life annuity beginning at the Participant's Normal
Retirement Age, shall be the greater of (i) the normal benefit accrued by
such a Participant for such a Plan Year under the benefit accrual
provisions of this Plan, or (ii) the lesser of (A) or (B) where: (A) is
the product derived by multiplying the Participant's average annual
compensation during the "testing period" by 20% minus the benefit
(expressed as a
43
<PAGE>
percentage of such average annual compensation) accrued by the Participant
under this Plan prior to such Top-Heavy Plan Year, and (B) is the product
derived by multiplying such average annual compensation by the product of
2% multiplied by the Participant's years of service determined under the
rules of Subsection (b) below. As used herein the term "testing period"
shall mean the period of consecutive years (not exceeding 5) during which
the Participant had the greatest aggregate Compensation from the Company.
(b) For purposes of clause (ii)(B) of Subsection (a) above, years of
service shall be determined under the rules of paragraphs (4), (5) and (6)
of Code Section 411(a), subject, however, to the following special rules:
(i) a year of service shall not be taken into account if either (A) the
Plan was not a Top-Heavy Plan for the Plan Year ending with or within such
year of service, or (B) the year of service was completed in a Plan Year
beginning prior to January 1, 1984; and (ii) if service for vesting
purposes under the Plan is determined under the elapsed time method, then
such method shall be used (in lieu of the hours of service method
referenced in Section 411(a)(5) of the Code) in determining years of
service for purposes of clause (ii)(B) of Subsection (a).
(c) The Participant's minimum benefit determined under this Section
shall be calculated without regard to any Social Security benefits payable
to the Participant.
(d) In the event a Participant is covered by both a defined
contribution and a defined benefit plan maintained by the participating
Company, both of which are determined to be Top-Heavy Plans, the defined
benefit minimum shall be provided under the defined benefit plan, but
shall be offset by the benefits provided under the defined contribution
plan.
19.6 COMPENSATION LIMITATION. For any Plan Year in which the Plan is
determined to be a Top-Heavy Plan, the Plan shall not take into account an
Employee's Compensation in excess of the first $200,000 (or such other amount
as may be permitted pursuant to Code Sections 416(d)(2) or 401(a)(17), as
applicable). For Plan Years beginning on and after January 1, 1994, an
Employee's Compensation in excess of the "OBRA '93 annual compensation limit"
as defined in Section 2.9(d) shall not be taken into account.
19.7 MAXIMUM BENEFIT LIMITATIONS.
(a) Except as set forth below, for any Plan Year in which the Plan is
determined to be a Top-Heavy Plan, the rules of Code Sections 415(e)(2)(B)
and 415(e)(3)(B) shall be applied by substituting "1.0" for "1.25."
(b) The rule set forth in Subsection (a) above shall not apply if the
requirements of both Paragraphs (i) and (ii), below, are satisfied.
(i) The requirements of this Paragraph (i) are satisfied if the
rules of Section 19.5(a) above would be satisfied after substituting
"3%" for "2%" where it appears therein.
(ii) The requirements of this Paragraph (ii) are satisfied if
the Plan would not be a Top-Heavy Plan if "90%" were substituted for
"60%" each place it appears in Section 19.4(a)(ii).
(c) The rules of Subsection (a) shall not apply with respect to any
Employee as long as there are no (i) Company Contributions (including
amounts
44
<PAGE>
deferred under a cash or deferred arrangement under Section 401(k) of the
Code), forfeitures, or voluntary nondeductible contributions allocated to
the Employee under a defined contribution plan maintained by the Company,
or (ii) accruals by the Employee under a defined benefit plan maintained
by the Company.
(d) In the case where the Plan is subject to the rules of Subsection
(a) above, the rules of Code Section 415(e)(6)(B)(i) shall be applied by
substituting "$41,500" for "$51,875."
19.8 VESTING RULES.
(a) In the event that the Plan is determined to be Top-Heavy in
accordance with the rules of Section 19.4, then a Participant who has
completed at least three (3) one-year Periods of Service with the Company
or an Affiliated Company shall be one hundred percent (100%) vested in the
Plan.
(b) If the Plan ceases to be a Top-Heavy Plan, the vesting schedule
of the Plan shall (for such Plan Years as the Plan is not a Top-Heavy
Plan) revert to that provided in Section 8.2(a) (the "Regular Vesting
Schedule"). If such reversion to the Regular Vesting Schedule is deemed to
constitute a vesting schedule change that is attributable to a Plan
amendment (within the meaning of Code Section 411(a)(10)), then such
reversion to said Regular Vesting Schedule shall be subject to the
requirements of Section 8.2(b) of this Plan. For such purposes, the date
of the adoption of such deemed amendment shall be the Determination Date
as of which it is determined that the Plan has ceased to be a Top-Heavy
Plan.
19.9 NON-ELIGIBLE EMPLOYEES. The rules of this Article shall not apply to
any Employee included in a unit of employees covered by a collective bargaining
agreement between employee representatives and one or more employers if
retirement benefits were the subject of good faith bargaining between such
employee representatives and the employer or employers.
ARTICLE XX
MISCELLANEOUS
20.1 NO ENLARGEMENT OF EMPLOYEE RIGHTS.
(a) This Plan is strictly a voluntary undertaking on the part of the
Company and shall not be deemed to constitute a contract between the
Company and any Employee, or to be consideration for, or an inducement to,
or a condition of, the employment of any Employee.
(b) Nothing contained in this Plan or the Trust shall be deemed to
give any Employee the right to be retained in the employ of the Company or
to interfere with the right of the Company to discharge or retire any
Employee at any time.
(c) No Employee, nor any other person, shall have any right to or
interest in any portion of the Trust Fund other than as specifically
provided in this Plan.
20.2 ADDRESSES. Each Participant shall be responsible for furnishing the
Committee with his/her correct current address and the correct current name and
address of his/her Beneficiary or Beneficiaries.
45
<PAGE>
20.3 NOTICES AND COMMUNICATIONS.
(a) All applications, notices, designations, elections, and other
communications from Participants shall be in writing, on forms prescribed
by the Committee and shall be mailed or delivered to the office designated
by the Committee, and shall be deemed to have been given when received by
that office.
(b) Each notice, report, remittance, statement and other
communication directed to a Participant or Beneficiary shall be in writing
and may be delivered in person or by mail. An item shall be deemed to have
been delivered and received by the Participant when it is deposited in the
United States mail with postage prepaid, addressed to the Participant or
Beneficiary at his/her last address of record with the Committee.
20.4 REPORTING AND DISCLOSURE. The Plan Administrator shall be responsible
for the reporting and disclosure of information required to be reported or
disclosed by the Plan Administrator pursuant to ERISA or any other applicable
law.
20.5 GOVERNING LAW. All legal questions pertaining to the Plan shall be
determined in accordance with the provisions of ERISA and the laws of the State
of California. All contributions made hereunder shall be deemed to have been
made in California.
20.6 INTERPRETATION. Article and Section headings are for convenient
reference only and shall not be deemed to be part of the substance of this
instrument or in any way to enlarge or limit the contents of any Article or
Section. Unless the context clearly indicates otherwise, masculine gender shall
include the feminine, and the singular shall include the plural and the plural
the singular.
20.7 WITHHOLDING FOR TAXES. Any payments out of the Trust Fund may be
subject to withholding for taxes as may be required by any applicable federal
or state law.
20.8 LIMITATION ON COMPANY. COMMITTEE AND TRUSTEE LIABILITY. Any benefits
payable under this Plan shall be paid or provided for solely from the Trust
Fund and neither the Company, the Committee nor the Trustee assume any
responsibility for the sufficiency of the assets of the Trust to provide the
benefits payable hereunder.
20.9 SUCCESSORS AND ASSIGNS. This Plan and the Trust established hereunder
shall inure to the benefit of, and be binding upon, the parties hereto and
their successors and assigns.
20.10 COUNTERPARTS. This Plan document may be executed in any number of
identical counterparts, each of which shall be deemed a complete original in
itself and may be introduced in evidence or used for any other purpose without
the production of any other counterparts.
20.11 APPLICATION OF FORFEITURES. Any forfeiture of benefits arising from
a Participant's termination of employment, whether by reason of his/her death
or otherwise, prior to the termination of the Plan or the complete
discontinuance of contributions, will be used as soon as possible to reduce the
Company contributions otherwise payable under the Plan, and will not be used to
increase the benefits of Participants.
20.12 MAILING OF PAYMENTS: LAPSED BENEFITS. All payments under the Plan
shall be delivered in person or mailed to the last address of the Participant
(or, in the case of the death of the Participant, to that of any other person
entitled to such payments under the
46
<PAGE>
terms of the Plan) furnished pursuant to Section 20.2 above. In the event that
a retirement benefit is payable under this Plan to a Participant or his/her
Beneficiary (including any person or entity entitled under Section 6.6 to
receive the interest of a deceased Participant or deceased designated
Beneficiary), and such Participant or eligible Beneficiary cannot be located
for the purpose of effecting payment of such benefit during a period of two
consecutive years, such benefit shall, upon the termination of such two year
period, be forfeited and applied in accordance with the provisions of Section
20.11. Notwithstanding the foregoing, if after such a forfeiture the
Participant or an eligible Beneficiary shall claim such forfeited benefit, said
forfeited benefit shall be reinstated and paid to such claimant in accordance
with all applicable provisions of this Plan.
IN WITNESS WHEREOF, 20th Century Industries, a California corporation, has
caused this instrument to be executed by its duly authorized officer this ___
day of __________, 19___, effective, however, as of January 1, 1989 except as
otherwise expressly provided herein.
20TH CENTURY INDUSTRIES
By:__________________________________
By:__________________________________
47
<PAGE>
20TH CENTURY INSURANCE
EARLY RETIREMENT FACTORS
<TABLE>
<CAPTION>
Percentage of Benefit Payable
-----------------------------
Age at Section 5.3 Section 7.2
Retirement (Note 2) (Note 3)
---------- -------- --------
<S> <C> <C>
55 50% 37.4%
56 55 41.0
57 60 45.0
58 65 49.5
59 70 54.4
60 75 60.0
61 80 66.2
62 85 73.2
63 90 81.1
64 95 89.9
65 100 100.0
</TABLE>
Note 1: Percentages should be prorated to reflect age at retirement in
years and months.
Note 2: Factors to be used for immediate early retirements (Section 5.3).
Reduction equal 5% for each year (5/12% for each month) that retirement
precedes age 65.
Note 3: Factors to be used for early retirement for terminated vested
participants (Section 7.2). True actuarial equivalent factors based on 8%
interest, 1983 Group Annuity Mortality Table (35% males, 65% females).
i
<PAGE>
APPENDIX I
MORTALITY RATES FOR ACTUARIAL EQUIVALENCE
<TABLE>
<CAPTION>
Mortality Mortality
Age Rate Age Rate
--- ---- --- ----
<S> <C> <C> <C>
5 0.000231 60 0.005962
6 0.000202 61 0.006579
7 0.000182 62 0.007283
8 0.000170 63 0.008087
9 0.000165 64 0.009004
10 0.000165 65 0.010049
11 0.000172 66 0.011234
12 0.000180 67 0.012574
13 0.000187 68 0.014086
14 0.000196 69 0.015785
15 0.000205 70 0.017686
16 0.000213 71 0.019807
17 0.000223 72 0.022183
18 0.000233 73 0.024851
19 0.000244 74 0.027845
20 0.000255 75 0.031204
21 0.000268 76 0.034955
22 0.000281 77 0.039102
23 0.000295 78 0.043636
24 0.000310 79 0.048551
25 0.000327 80 0.053839
26 0.000345 81 0.059495
27 0.000363 82 0.065511
28 0.000385 83 0.071880
29 0.000408 84 0.078591
30 0.000435 85 0.085639
31 0.000462 86 0.093230
32 0.000493 87 0.101753
33 0.000526 88 0.110183
34 0.000563 89 0.120081
35 0.000610 90 0.130845
36 0.000644 91 0.142374
37 0.000686 92 0.154821
38 0.000736 93 0.168277
39 0.000796 94 0.183583
40 0.000866 95 0.200502
</TABLE>
ii
<PAGE>
APPENDIX I
MORTALITY RATES FOR ACTUARIAL EQUIVALENCE
<TABLE>
<CAPTION>
Mortality Mortality
Age Rate Age Rate
--- ---- --- ----
<S> <C> <C> <C>
41 0.000945 96 0.218095
42 0.001038 97 0.236712
43 0.001147 98 0.256815
44 0.001274 99 0.279024
45 0.001421 100 0.303586
46 0.001591 101 0.330776
47 0.001781 102 0.361051
48 0.001986 103 0.394883
49 0.002208 104 0.434473
50 0.002439 105 0.481416
51 0.002679 106 0.537507
52 0.002930 107 0.604582
53 0.003197 108 0.684518
54 0.003486 109 0.779233
55 0.003798 110 1.000000
56 0.004138
57 0.004516
58 0.004939
59 0.005418
</TABLE>
1983 Group Annuity Mortality Table (35% males, 65% females)
iii
<PAGE>
EXHIBIT 10(r)
AMENDMENT NO. 1 TO
20TH CENTURY INDUSTRIES PENSION PLAN
The 20th Century Industries Pension Plan hereby is amended as follows:
1. Section 2.11 is amended to read in its entirety as follows:
2.11 EFFECTIVE DATE. "Effective Date" shall mean the original
effective date of this Plan, which is January 1, 1988.
This amendment is effective as of January 1, 1989.
2. Section 5.1 is amended to read in its entirety as follows:
5.1 NORMAL RETIREMENT BENEFIT. Upon retirement at his/her
Normal Retirement Age, a Participant shall be entitled to receive an
annual pension which, when expressed as a single life annuity
commencing at the Participant's Normal Retirement Age, is equal to the
sum of Paragraphs (a), (b) and (c) as follows:
(a) One and one-fourth percent (1-1/4%) of his/her "1987
Adjusted Compensation" not in excess of $30,000 and one and
three-fourths percent (1-3/4%) of his/her "1987 Adjusted
Compensation" in excess of $30,000, multiplied by the number of
full or partial calendar years beginning on the Participant's
Employment Commencement Date and ending on January 1, 1988. "1987
Adjusted Compensation" shall mean the Compensation received by
the Participant in 1987 except that, solely for purposes of this
Section 5.1(a), "bonus" shall mean the average bonus received by
the Participant for the calendar years 1985, 1986 and 1987.
(b) For the Period of Service commencing on January 1,
1988 and ending on December 31, 1988, each Participant shall be
entitled to receive one and one-fourth percent (1-1/4%) of
his/her Compensation for such period not in excess of $30,000 and
one and three-fourths percent (1-3/4%) of his/her Compensation
for such period in excess of $30,000.
(c) For each calendar year or portion thereof commencing
on or after January 1, 1989 and included in a Participant's
Period of Service, such Participant shall accrue a benefit under
this Section 5.1(c), determined as follows:
(i) For each such calendar year, such Participant
shall earn an increment of benefit equal to the sum of
(A) one and one-fourth percent (1-1/4%) of
his/her Compensation for such period to the
extent that such Compensation does not exceed
the "Break Point" plus
<PAGE>
(B) for each such calendar year up to
thirty-five (35) one and seven-tenths percent
(1-7/10%) of his/her Compensation for such
period in excess of the "Break Point," and
(C) for each such calendar year in excess of
thirty-five (35), one and one-fourth percent
(1-1/4%) of his/her Compensation for such period
to the extent that such Compensation exceeds the
"Break Point.".
(ii) For any such calendar year, the term "Break
Point" shall mean 150% of the Covered Compensation (as
defined in Code Section 401(l)(5)(E) and Treasury
Regulation Section 1.401(l)-1(c)(7)(ii)), rounded as
provided in accordance with tables provided by the
Commissioner of the Internal Revenue Service, of a
Participant who reaches Social Security Retirement Age (as
defined in Code Section 401(l)(5)(E)(iii)) in such calendar
year.
(iii) It is intended that the benefit described in
this Section 5.1(c) shall be treated as the benefit of a
Plan qualifying as an "Accumulation Plan" within the
meaning of Treas. Reg. Section 1.401(l)-1(c)(1).
This amendment shall be effective January 1, 1989.
3. Section 5.2 is amended to read in its entirety as follows:
5.2 POSTPONED RETIREMENT BENEFIT. If a Participant continues
his/her employment beyond his/her Normal Retirement Age, he/she defers
his/her benefits until his/her actual termination of employment. In
the case of a Participant who defers his/her benefits until his/her
actual termination of employment, such Participant shall continue to
accrue benefits pursuant to Section 5.1.
This amendment shall be effective January 1, 1989.
4. Section 9.1 is amended to read in its entirety as follows:
9.1 DISABILITY RETIREMENT BENEFIT. If, while employed by the
Company prior to his/her Normal Retirement Age, a Participant is
suffering from a Total and Permanent Disability, such Participant
shall continue to accrue benefits in the manner set forth in Section
5.1 during the continuation of such Total and Permanent Disability,
but not beyond the date determined from the table below:
AGE AT DISABILITY MAXIMUM ACCRUAL PERIOD
Less than age 60 To age 65 but not less than 60 months
60 60 months
2
<PAGE>
61 48 months
62 42 months
63 36 months
64 30 months
65 24 months
66 21 months
67 18 months
68 15 months
68 and over 12 months
If such Participant becomes disabled prior to the end of a Plan Year,
such Participant's benefit accrual formula for the Plan Year in which
he/she becomes disabled shall be calculated using such Participant's
Compensation for the previous Plan Year. The disabled Participant's
Compensation shall not be adjusted to reflect any change in the
benefit formula pursuant to Section 5.1 after such Participant becomes
disabled. Such Participant shall also be entitled to receive his/her
benefit upon attaining his/her Normal Retirement Age as if he/she
retired on such date.
This amendment shall be effective January 1, 1989.
IN WITNESS WHEREOF, this amendment is enacted on the date indicated
below by authority of the Board of Directors of 20th Century Industries, Inc.
20TH CENTURY INDUSTRIES, INC.
Date: 1-15-96 By: /s/ RICHARD A. ANDRE
------------------------- -------------------------------------
3
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
EXHIBIT 11: COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
(Amounts in thousands, except per share data)
<S> <C> <C> <C>
Primary:
Average shares outstanding 51,466 51,440 51,387
Net effect of dilutive stock
warrants and options based
on the modified treasury
stock method using average
market price 7,228 5,784 -
-------- -------- ---------
Totals 58,694 57,224 51,387
-------- -------- ---------
-------- -------- ---------
Net income (loss) $ 74,057 $ 69,630 $(498,020)
Dividends on preferred stock (20,245) (19,573) -
Net interest expense reduction - 317 -
-------- -------- ---------
Net income (loss) available
to common stock $ 53,812 $ 50,374 $(498,020)
-------- -------- ---------
-------- -------- ---------
Per share amount $ 0.92 $ 0.88 $ (9.69)
-------- -------- ---------
-------- -------- ---------
</TABLE>
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
EXHIBIT 11: COMPUTATION OF EARNINGS PER COMMON SHARE (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
(Amounts in thousands, except per share data)
<S> <C> <C> <C>
Fully diluted:
Average shares outstanding 51,466 51,440 51,387
Net effect of dilutive stock
warrants and options based
on the modified treasury
stock method using average
market price 7,417 8,645 -
Assuming conversion of
convertible preferred stock 19,854 19,240 736
-------- -------- ---------
Totals 78,737 79,325 52,123
-------- -------- ---------
-------- -------- ---------
Net income (loss) available
to common stock $ 74,057 $ 69,630 $(498,020)
-------- -------- ---------
-------- -------- ---------
Per share amount $ 0.94* $ 0.88* $ (9.55)*
-------- -------- ---------
-------- -------- ---------
</TABLE>
* Fully diluted earnings (loss) per share is antidilutive.
<PAGE>
EXHIBIT 23: CONSENT OF INDEPENDENT AUDITORS
Board of Directors
20th Century Industries
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-80180 and Form S-8 No. 33-61355) pertaining to the 20th
Century Industries Savings and Security Plan and the 20th Century Industries
Stock Option Plan, respectively, of our report dated February 19, 1997, with
respect to the consolidated financial statements and schedule of 20th Century
Industries, included in this Annual Report (Form 10-K) for the year ended
December 31, 1996.
ERNST & YOUNG LLP
Los Angeles, California
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 1,063,703
<DEBT-CARRYING-VALUE> 1,063,703
<DEBT-MARKET-VALUE> 1,063,703
<EQUITIES> 925
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,064,268
<CASH> 18,078
<RECOVER-REINSURE> 79,183
<DEFERRED-ACQUISITION> 9,127
<TOTAL-ASSETS> 1,513,755
<POLICY-LOSSES> 543,529
<UNEARNED-PREMIUMS> 231,141
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
224,950
<COMMON> 70,263
<OTHER-SE> 192,494
<TOTAL-LIABILITY-AND-EQUITY> 1,513,755
856,628
<INVESTMENT-INCOME> 73,178
<INVESTMENT-GAINS> 7,287
<OTHER-INCOME> 0
<BENEFITS> 734,735
<UNDERWRITING-AMORTIZATION> 38,175
<UNDERWRITING-OTHER> 41,496
<INCOME-PRETAX> 108,427
<INCOME-TAX> 34,370
<INCOME-CONTINUING> 74,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,057
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
<RESERVE-OPEN> 552,320
<PROVISION-CURRENT> 760,325
<PROVISION-PRIOR> (25,590)
<PAYMENTS-CURRENT> 446,037
<PAYMENTS-PRIOR> 351,985
<RESERVE-CLOSE> 489,033
<CUMULATIVE-DEFICIENCY> (25,590)
</TABLE>
