<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transaction period from_______ to _________
Commission file number 1-14344
----------------------
PATINA OIL & GAS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2629477
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1625 Broadway 80202
Denver, Colorado (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (303) 389-3600
Title of each class Name of each exchange on which registered
- ----------------------------- -----------------------------------------------
Common Stock, $.01 par value New York Stock Exchange
7.125% Convertible Preferred
Stock, $.01 par value New York Stock Exchange
Common Stock Warrants New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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.
[X] Yes [ ] No
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. [X]
The aggregate market value of the 15,049,115 shares of voting stock held by
non-affiliates of the registrant, based upon the closing sale price of the
common stock on February 20, 1998 of $7.00 per share as reported on the New York
Stock Exchange, was $105,343,000. Shares of common stock held by each officer
and director and by each person who owns 5% or more of the outstanding common
stock have been excluded in that such persons may be deemed affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of February 20, 1998, the registrant had 16,221,925 shares of common
stock outstanding.
DOCUMENT INCORPORATED BY REFERENCE
Part III of the report is incorporated by reference to the Registrant's
definitive Proxy Statement relating to its Annual Meeting of Stockholders, which
will be filed with the Commission no later than April 30, 1998
================================================================================
<PAGE>
PATINA OIL & GAS CORPORATION
Annual Report on Form 10-K
December 31, 1997
PART I
ITEM 1. BUSINESS
GENERAL
Patina Oil & Gas Corporation ("Patina" or the "Company") is an independent
energy company engaged in the acquisition, development, exploitation and
production of oil and natural gas in the Wattenberg Field ("Wattenberg" or
"Field") of Colorado's Denver-Julesburg Basin ("D-J Basin"). The Company was
formed in early 1996 to hold the Wattenberg assets of Snyder Oil Corporation
("SOCO") and to facilitate the acquisition of Gerrity Oil & Gas Corporation
("Gerrity" or the "Gerrity Acquisition") in May 1996. After the Gerrity
Acquisition, SOCO owned 14,000,000 or approximately 74% of the Company's common
shares. The amounts and results of operations of the Company for periods prior
to the Gerrity Acquisition include the historical amounts and results of SOCO's
Wattenberg operations.
In October 1997, the Company effectuated a series of transactions which
eliminated SOCO's ownership in the Company. The transactions included: (i) the
sale by SOCO of 10.9 million common shares of its Patina stock to the public in
a secondary offering, (ii) the repurchase and retirement by the Company of
SOCO's remaining common shares, (iii) the sale by the Company of $40.0 million
of 8.50% convertible preferred stock and 160,000 common shares to certain
institutional investors and (iv) the purchase of $3.0 million of common shares
and the grant of 496,250 restricted common shares, net of forfeitures, to
certain officers and key managers of the Company. As a result of these
transactions, SOCO no longer has any ownership in the Company.
From its inception, the Company has focused on consolidating its
properties, developing an efficient organization, reducing costs and improving
operations. During 1997, the Company's revenues were $100.3 million and net cash
provided by operations was $68.6 million. The Company used its operating cash
flow along with proceeds from the preferred stock offering and management stock
purchase in October 1997 to reduce indebtedness by $51.2 million and repurchase
$32.8 million of its equity securities, while investing $17.0 million in the
further development of its properties during the year.
At December 31, 1997, the Company had $376.9 million of assets and 357.5
Bcfe of proved reserves. The reserves had an estimated pretax present value of
$320.0 million based on unescalated prices and costs in effect on that date.
Approximately 72% of the reserves by volume were natural gas and over 98% of the
pretax present value was attributable to proved developed reserves. The Company
operates almost 90% of the roughly 3,500 producing wells in which it holds an
interest, representing 98% of its producing reserves. At December 31, 1997, the
Company had 239 proved undeveloped drilling locations, 487 recompletion and 50
restimulation ("refrac") opportunities included in total proved reserves. During
1997, production averaged 104.6 MMcfe per day. Based on year-end 1997 reserves,
the Company has a reserve life index of 9.4 years.
2
<PAGE>
Patina is one of the largest producers in Wattenberg and currently accounts
for over 30% of the total production from the Field. Wattenberg, a major onshore
producing basin with total cumulative production in excess of three trillion
cubic feet of natural gas equivalents since its discovery in 1970, is located
approximately 35 miles northeast of Denver and stretches over portions of Adams,
Boulder and Weld Counties in Colorado. One of the most attractive features of
Wattenberg is that there are up to eight potentially productive formations
throughout the field ranging in depths from 2,000 to 8,000 feet. Three of the
formations, the Codell, the Niobrara and the J-sand, are "blanket" zones in the
area of the Company's holdings, while other formations, such as the Sussex and
the Shannon are more localized. The existence of several pay sands within the
geological structure allows for multiple completions within a single wellbore,
keeping drilling and operating costs low. In recent years, the Codell and
Niobrara formations have been the primary drilling objective in Wattenberg,
although the Company has successfully recompleted shallower formations such as
the Sussex.
Since 1986, the Company and its predecessors have grown through a series of
acquisitions in combination with the further exploitation and development of its
properties. The Company and its predecessors have completed more than 65
acquisitions having an aggregate purchase price of over $450 million. In the
past five years, the Company has expended approximately $350 million on
development projects including the drilling of 1,400 wells and the recompletion
or refrac of more than 400 wells. During 1997, the Company successfully drilled
28 wells, was in the process of drilling an additional three wells at year-end,
recompleted 81 wells and refraced 21 wells at a total cost of approximately
$17.0 million. Management believes that the Company's sizable asset base and
cash flow, along with its low production costs and efficient operating
structure, provide it with a competitive advantage in Wattenberg and in certain
analogous basins. The Company seeks to maximize the value its oil and natural
gas properties by increasing production and recoverable reserves through the
implementation of operational improvements, workovers, multi-zone recompletions,
refracs and the drilling of new development wells. Given management's expertise
in acquisitions and the advantages set forth above, the Company believes it is
in an excellent position to pursue further consolidation in Wattenberg and to
acquire reserves in other basins where it has or can develop a competitive
advantage.
BUSINESS STRATEGY
The Company plans to increase its reserves, production and cash flows in a
cost-efficient manner primarily through: (i) selectively pursuing consolidation
and acquisition opportunities in existing and future core areas; (ii)
efficiently controlling operating and overhead expenses; (iii) operating its
properties in order to enhance production through well workovers, development
activity and operational improvements; (iv) utilizing improved exploitation and
development techniques to maximize the value of its properties; and (v)
developing a strong financial position that affords the Company the financial
flexibility to execute its business strategy.
The Company intends to pursue further consolidation and exploitation
opportunities in Wattenberg. In addition, management intends to simultaneously
pursue low-risk acquisitions of producing reserves in other U.S. basins where
the Company's economies of scale, focused operations and operating expertise
give it a competitive advantage in pursuing further consolidation and
acquisition opportunities.
3
<PAGE>
PRODUCTION, REVENUE AND PRICE HISTORY
The following table sets forth information regarding net production of oil
and natural gas, revenues and operating expenses attributable to such
production, average sales prices and other production information for each of
the years in the five year period ended December 31, 1997. Note: The financial
and operating information reflect the acquisition of Gerrity by the Company in
May 1996.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(Dollars in thousands, except prices and
per Mcfe information)
<S> <C> <C> <C> <C> <C>
Production
Oil (MBbl)............... 1,224 1,829 1,342 1,688 1,889
Gas (MMcf)............... 21,706 23,893 20,981 23,947 26,863
MMcfe (a)................ 29,050 34,872 29,034 34,074 38,194
Revenues
Oil...................... $19,429 $27,151 $22,049 $ 34,541 $37,197
Gas (b).................. 45,125 40,598 28,024 47,644 62,342
------- ------- ------- -------- --------
Subtotal.............. 64,554 67,749 50,073 82,185 99,539
Other.................... 311 73 29 1,003 794
------- ------- ------- ------- --------
Total................. 64,865 67,822 50,102 83,188 100,333
------- ------- ------- ------- --------
Direct operating expenses
Lease operating expenses. 4,956 3,662 5,387 8,866 11,735
Production taxes......... 3,971 4,448 3,480 5,653 7,055
------- ------- ------- ------- --------
Total................. 8,927 8,110 8,867 14,519 18,790
------- ------- ------- ------- --------
Direct operating margin.... $55,938 $59,712 $41,235 $68,669 $ 81,543
======= ======= ======= ======= ========
Average sales price (c)
Oil (Bbl)................ $ 15.87 $ 14.84 $ 16.43 $ 20.47 $ 19.70
Gas (Mcf) (b)............ 2.08 1.70 1.34 1.99 2.32
Mcfe (a)................. 2.22 1.94 1.73 2.41 2.61
Average direct operating
expense/Mcfe............. 0.31 0.23 0.31 0.43 0.49
Average production
margin/Mcfe.............. 1.91 1.71 1.42 1.99 2.12
- ------------------------------
</TABLE>
(a) Oil production is converted to natural gas equivalents (Mcfe) at the rate
of one barrel to six Mcf.
(b) Sales of natural gas liquids are included in gas revenues.
(c) The Company's average net wellhead prices in December 1997 approximated
$2.35 per Mcf of gas and $17.25 per barrel of oil.
4
<PAGE>
MARKETING
The Company's oil and natural gas production is principally sold to end
users, marketers, refiners and other purchasers having access to natural gas
pipeline facilities near its properties, and the ability to truck oil to local
refineries or oil pipelines. The marketing of oil and natural gas can be
affected by a number of factors that are beyond the Company's control and which
cannot be accurately predicted. The Company does not believe, however, that the
loss of any of its customers would have a long-term material adverse effect on
its operations.
Natural Gas. Wattenberg natural gas is high in heating content (BTUs) and
must be processed in order to strip natural gas liquids ("NGLs") before residue
gas is sold to utilities, independent marketers and end users through both
intrastate and interstate pipelines. The Company utilizes two separate
arrangements to gather, process and market its natural gas production.
Approximately 30% of the Company's natural gas production is sold to Duke Energy
Field Services ("Duke Energy") at the wellhead under percentage of proceeds
contracts. Pursuant to this type of contract, the Company receives a fixed
percentage of the proceeds from the sale of its residue gas and NGLs by Duke
Energy. Substantially all of the Company's remaining natural gas production is
dedicated for gathering to either Duke Energy or KN Front Range Gathering
Company ("KN") and is then processed at plants owned by Duke Energy or Amoco
Production Company ("Amoco"). Under this arrangement, the Company retains the
right to market its share of residue gas at the tailgate of the plant and sells
it under seasonal spot market arrangements along the front range of Colorado or
transports the gas to Midwest markets under transportation agreements. NGLs are
sold by the processor and the Company receives payment net of applicable
processing fees.
A portion of the natural gas gathered by KN is processed by Amoco at the
Wattenberg Processing Plant under a favorable contract that not only provides
payment for a percentage of the NGLs stripped from the natural gas, but also
redelivers to the tailgate the same amount of MMBTU's as was delivered to the
plant under a "keepwhole" arrangement. This agreement remains in effect until
December 2012.
Oil. Oil production is principally sold to refiners, marketers and other
purchasers who truck oil to local refineries or pipelines. The price is
generally based on a local market posting for oil and is adjusted for
transportation costs and quality. Amoco has the right to purchase oil produced
from certain of the Company's properties.
COMPETITION
The oil and natural gas industry is highly competitive. The Company
encounters competition from other oil and natural gas companies in all of its
operations, including the acquisition of drilling prospects and producing
properties. Patina competes for the acquisition of oil and natural gas
properties with numerous entities, including major oil companies, other
independent oil and natural gas concerns and individual producers and operators.
Many competitors have financial and other resources substantially greater than
those of the Company. The ability of the Company to increase reserves in the
future will be dependent on its ability to select and acquire suitable producing
properties and prospects for future development and exploration.
TITLE TO PROPERTIES
Title to the Company's oil and natural gas properties is subject to
royalty, overriding royalty, carried and other similar interests and contractual
arrangements customary in the oil and natural gas industry, to liens incident to
operating agreements and for current taxes not yet due and other comparatively
minor encumbrances.
As is customary in the oil and natural gas industry, only a perfunctory
investigation as to ownership is conducted at the time undeveloped properties
believed to be suitable for drilling are acquired. Prior to the commencement of
drilling on a tract, a detailed title examination is conducted and curative work
is performed with respect to known significant title defects.
5
<PAGE>
REGULATION
Regulation of Drilling and Production. The Company's operations are
affected by political developments, and by federal, state and local laws and
regulations. Legislation and administrative regulations relating to the oil and
natural gas industry are periodically changed for a variety of political,
economic and other reasons. Numerous federal, state and local departments and
agencies issue rules and regulations binding on the oil and natural gas
industry, some of which carry substantial penalties for failure to comply. The
regulatory burden on the oil and natural gas industry increases the Company's
cost of doing business, decreases flexibility in the timing of operations and
may adversely affect the economics of capital projects.
In the past, the federal government has regulated the prices at which oil
and natural gas could be sold. Prices of oil and natural gas sold by the Company
are not currently regulated. In recent years, the Federal Energy Regulatory
Commission ("FERC") has taken significant steps to increase competition in the
sale, purchase, storage and transportation of natural gas. FERC's regulatory
programs allow more accurate and timely price signals from the consumer to the
producer and, on the whole, have helped natural gas become more responsive to
changing market conditions. To date, the Company believes it has not experienced
any material adverse effect as the result of these initiatives. Nonetheless,
increased competition in natural gas markets can and does add to price
volatility and inter-fuel competition, which increases the pressure on the
Company to manage its exposure to changing conditions and position itself to
take advantage of changing market forces.
State statutes govern exploration and production operations, conservation
of oil and natural gas resources, protection of the correlative rights of oil
and natural gas owners and environmental standards. State Commissions implement
their authority by establishing rules and regulations requiring permits for
drilling, reclamation of production sites, plugging bonds, reports and other
matters. Colorado, where the Company's properties are located, amended its
statute concerning oil and natural gas development in 1994 to provide the
Colorado Oil and Gas Conservation Commission (the "COGCC") with enhanced
authority to regulate oil and natural gas activities to protect public health,
safety and welfare, including the environment. Several rule makings pursuant to
these statutory changes have been undertaken by the COGCC concerning groundwater
protection, soil conservation and site reclamation, setbacks in urban areas and
other safety concerns, and financial assurance for industry obligations in these
areas. To date, these rule changes have not adversely affected operations of the
Company, as the COGCC is required to enact cost-effective and technically
feasible regulations, and the Company has been an active participant in their
development. However, there can be no assurance that, in the aggregate, these
and other regulatory developments will not increase the cost of conducting
operations in the future.
In Colorado, a number of city and county governments have enacted oil and
natural gas regulations. These ordinances increase the involvement of local
governments in the permitting of oil and natural gas operations, and require
additional restrictions or conditions on the conduct of operations so as to
reduce their impact on the surrounding community. Accordingly, these local
ordinances have the potential to delay and increase the cost of drilling and
recompletion operations.
Environmental Regulation. Operations of the Company are subject to numerous
laws and regulations governing the discharge of materials into the environment
or otherwise relating to environmental protection. The Company currently owns or
leases numerous properties that have been used for many years for natural gas
and oil production. Although the Company believes that it and previous owners
have utilized operating and disposal practices that were standard in the
industry at the time, hydrocarbons or other wastes may have been disposed of or
released on or under the properties owned or leased by the Company. In
connection with its most significant acquisitions, the Company has performed
environmental assessments and found no material environmental noncompliance or
clean-up liabilities requiring action in the near or intermediate future. Such
environmental assessments have not, however, been performed on all of the
Company's properties.
6
<PAGE>
The Company operates its own exploration and production waste management
facilities, which enable it to treat, bioremediate and otherwise dispose of tank
sludges, contaminated soil and produced water generated from the Company's
operations. There can be no assurance, that these facilities, or other
commercial disposal facilities utilized by the Company from time to time, will
not give rise to environmental liability in the future. To date, expenditures
for the Company's environmental control facilities and for remediation of
production sites have not been significant to Patina. The Company believes,
however, that the trend toward stricter standards in environmental legislation
and regulations will continue and could have a significant adverse impact on the
Company's operating costs, as well as on the oil and natural gas industry in
general.
OFFICE AND OPERATIONS FACILITIES
The Company, a Delaware corporation, leases its principal executive offices
at 1625 Broadway, Denver, Colorado 80202. The lease covers approximately 29,000
square feet and has a remaining term of four years, expiring in November 2001.
The monthly rent is approximately $39,000. The Company also own a 6,000 square
foot production facility in Platteville, Colorado and 6,000 square feet of
office space in Brighton, Colorado. These facilities are used to support the
Company's Wattenberg Field operations. The Company also owns a 15,000 square
foot office building in Evans, Colorado which is currently held for sale.
EMPLOYEES
On December 31, 1997, the Company employed 163 people, including 103 that
work in the Company's various field offices, none of whom are represented by a
labor union. The Company believes its relationship with its employees is
satisfactory.
7
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about the officers and
directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas J. Edelman....... 47 Chairman of the Board, President
and Chief Executive Officer
Brian J. Cree........... 34 Executive Vice President and
Chief Operating Officer, Director
Keith M. Crouch......... 51 Senior Vice President and General
Counsel
Ronald E. Dashner....... 45 Senior Vice President, Operations
David J. Kornder........ 37 Vice President and Chief
Financial Officer
David R. Macosko........ 36 Vice President
Terry L. Ruby........... 39 Vice President
David W. Siple.......... 38 Vice President
Arnold L. Chavkin....... 46 Director
Robert J. Clark......... 53 Director
Jay W. Decker........... 45 Director
Thomas R. Denison....... 37 Director
Elizabeth K. Lanier..... 46 Director
Alexander P. Lynch...... 45 Director
</TABLE>
____________________
THOMAS J. EDELMAN has served as Chairman of the Board, President and Chief
Executive Officer of the Company since its formation. He co-founded SOCO and was
its President from 1981 through February 1997. From 1980 to 1981, he was with
The First Boston Corporation and from 1975 through 1980, with Lehman Brothers
Kuhn Loeb Incorporated. Mr. Edelman received his Bachelor of Arts Degree from
Princeton University and his Masters Degree in Finance from Harvard University's
Graduate School of Business Administration. Mr. Edelman serves as Chairman of
Lomak Petroleum, Inc., and is a Director of Petroleum Heat & Power Co. Inc.,
Star Gas Corporation, Weatherford Enterra, Inc. and Paradise Music &
Entertainment, Inc. Mr. Edelman is also a Trustee of The Hotchkiss School.
BRIAN J. CREE has served as Executive Vice President, Chief Operating
Officer and Director of the Company since May 1996. Prior to the Gerrity
Acquisition, he served as Chief Operating Officer and Director of Gerrity since
1993. From 1992 to 1993, Mr. Cree served as Senior Vice President - Operations
and Chief Accounting Officer of Gerrity. Prior to that, Mr. Cree served as Vice
President of Gerrity and its predecessor since 1989 and served in various
accounting capacities with that company from 1987 to 1990. Prior to that, Mr.
Cree was employed as an accountant with the public accounting firm of Deloitte,
Haskins & Sells. Mr. Cree received his Bachelor of Arts Degree in Accounting
from the University of Northern Iowa.
KEITH M. CROUCH has served as Senior Vice President and General Counsel of
the Company since May 1996. Prior to the Gerrity Acquisition, he was a Vice
President of Gerrity commencing in 1993 and was appointed a Director in 1994.
From 1992 to 1993, Mr. Crouch served as Corporate Counsel to Gerrity. Prior to
joining Gerrity, Mr. Crouch was in private practice with the law firms of
Gorsuch, Kirgis, Campbell, Walker and Grover; Kirkland & Ellis and Pendleton,
Friedberg, Wilson and Hennessey. Mr. Crouch received Bachelor of Arts and Juris
Doctor Degrees from the University of Colorado.
8
<PAGE>
RONALD E. DASHNER has served as Senior Vice President, Operations of the
Company since its formation. He joined SOCO in 1994 and served as Operations
Manager of SOCO's D-J Basin/Greater Green River Unit. In late 1995 he was
appointed Vice President - Rocky Mountain Division. From 1991 to 1994, Mr.
Dashner was Onshore Gulf Coast Operations Manager for Enron Oil & Gas Company.
From 1980 through 1990, Mr. Dashner held various positions with TXO Production
Corp., including Drilling & Production Manager - Rocky Mountain District and
Assistant District Manager - East Texas District. From 1978 to 1980, he was
employed by Davis Oil Company in Engineering and Operations. From 1975 to 1978,
he was employed by Chevron in the Drilling, Production and Construction
Department. Mr. Dashner received his Bachelor of Science Degree in Civil
Engineering from Colorado State University.
DAVID J. KORNDER has served as Vice President and Chief Financial Officer
of the Company since May 1996. Prior to the Gerrity Acquisition, he served as a
Vice President - Finance of Gerrity beginning in early 1993. From 1989 through
1992, Mr. Kornder was an Assistant Vice President for Gillett Group Management,
Inc. Prior to that, Mr. Kornder was an accountant with the independent
accounting firm of Deloitte & Touche for five years. Mr. Kornder received his
Bachelor of Arts Degree in Accounting from Montana State University.
DAVID R. MACOSKO has served as a Vice President of the Company since May
1996. Prior to the Gerrity Acquisition, he served as a Vice President of Gerrity
from 1994. From 1989 to 1992, Mr. Macosko held various accounting positions with
Gerrity and served as Operations Coordinator from 1992 to 1994. From 1985 to
1989, Mr. Macosko was employed by PanCanadian Petroleum Company as the
supervisor of revenue and expenditure accounting. Mr. Macosko received his
Bachelor of Science Degree in Accounting from West Virginia University.
TERRY L. RUBY has served as a Vice President of the Company since May 1996.
Prior to the Gerrity Acquisition, Mr. Ruby served as a senior landman of Gerrity
beginning in 1992 and was appointed Vice President - Land in 1995. Prior to his
employment with Gerrity, Mr. Ruby worked for Apache Corporation from 1990 to
1992, and for Baker Exploration Company from 1982 to 1989. Mr. Ruby received his
Bachelor of Science Degree in Minerals Land Management from the University of
Colorado and his M.B.A. from the University of Denver.
DAVID W. SIPLE has served as a Vice President of the Company since May
1996. He joined SOCO's land department in 1994 and was appointed Land Manager of
SOCO in 1995. From 1990 through May 1994, Mr. Siple was the Land Manager of
Gerrity. From 1981 through 1989, Mr. Siple was employed by PanCanadian Petroleum
Company in the Land Department. Mr. Siple received his Bachelor of Science
Degree in Minerals Land Management from the University of Colorado.
ARNOLD L. CHAVKIN has served as a Director of the Company since October
1997. Mr. Chavkin is a General Partner at Chase Capital Partners. Chase Capital
Partners is a General Partner of Chase Venture Capital Associates, L.P. Before
assuming such position, Mr. Chavkin was a member of Chemical Bank's merchant
banking group and, prior to that, a generalist in its corporate finance group
specializing in mergers and acquisitions and private placements for the energy
industry. Prior to that, Mr. Chavkin worked in corporate development for
Freeport McMoRan, and held various positions with Gulf and Western Industries.
Mr. Chavkin is a Certified Public Accountant. He received his Bachelor of Arts
and M.B.A. degrees from Columbia University. Mr. Chavkin is also a director of
American Radio Systems, Inc., Bell Sports, Reading & Bates Corporation and
Wireless One, Inc.
9
<PAGE>
ROBERT J. CLARK has served as a Director of the Company since May 1996. Mr.
Clark is the President of Bear Paw Energy Inc., a wholly owned subsidiary of
TransMontaigne Oil Company. Mr. Clark formed a predecessor company Bear Paw
Energy Inc. in 1995 and joined TransMontaigne in 1996 when TransMontaigne
acquired a majority interest in the predecessor company. From 1988 to 1995 he
was President of SOCO Gas Systems, Inc. and Vice President - Gas Management for
SOCO. Mr. Clark was Vice President Gas Gathering, Processing and Marketing of
Ladd Petroleum Corporation, an affiliate of General Electric from 1985 to 1988.
Prior to 1985, Mr. Clark held various management positions with NICOR, Inc. and
its affiliate NICOR Exploration, Northern Illinois Gas and Reliance Pipeline
Company. Mr. Clark received his Bachelor of Science Degree from Bradley
University and his M.B.A. from Northern Illinois University.
JAY W. DECKER has served as a Director of the Company since May 1996. Mr.
Decker has been the Executive Vice President and a Director of Hugoton Energy
Corporation, a public independent oil company since 1995. From 1989 until its
merger into Hugoton Energy, Mr. Decker was the President and Chief Executive
Officer of Consolidated Oil & Gas, Inc., a private independent oil company based
in Denver, Colorado and President of a predecessor company. Prior to 1989, Mr.
Decker served as Vice President - Operations for General Atlantic Energy Company
and in various capacities for Peppermill Oil Company, Wainoco Oil & Gas and
Shell Oil Company. Mr. Decker received his Bachelor of Science Degree in
Petroleum Engineering from the University of Wyoming. Mr. Decker also serves as
a Director of FX Energy.
THOMAS R. DENISON has served as a Director of the Company since January
1998. Mr. Denison is a Managing Director and the General Counsel of First
Reserve Corporation. He joined the firm in January 1998 and opened its Denver.
Prior to joining First Reserve, he was a partner in the international law firm
of Gibson, Dunn & Crutcher LLP, a firm which he joined in 1986 as an associate.
Mr. Denison received his Bachelor of Science degree in Business Administration
from the University of Denver and his Juris Doctor from the University of
Virginia. Mr. Denison also serves on the board of directors of Phoenix Energy
Services.
ELIZABETH K. LANIER has served as a Director of the Company since January
1998. Mrs. Lanier has served as Vice President and Chief of Staff of Cinergy
Corp since 1996. She is a member of the Management Committee, Operating
Committee and Strategy Committee and a Cinergy Foundation Trustee. Mrs. Lanier
is responsible for Information Technology, Real Estate, Facilities, Corporate
and Office Services, Technology Integration (R&D), Community Affairs,
Shareholder Relations, Corporate Records and Diversity Performance. Mrs. Lanier
received her Bachelor of Arts Degree with honors from Smith College in 1973 and
her law degree from Columbia Law School in 1977 where she was a Harlan Fiske
Stone Scholar. Mrs. Lanier was awarded an Honorary Doctorate of Technical
Letters by Cincinnati Technical College in 1991 and an Honorary Doctorate of
Letters in 1995 from the College of Mt. St. Joseph. From 1982 to 1996 she was a
Partner in the Corporate and Litigation Departments of Frost & Jacobs a law firm
in Cincinnati, Ohio. From 1977 to 1982 she was with the law firm of Davis Polk
& Wardwell in New York City. She is Chair of the Ohio Board of Regents.
ALEXANDER P. LYNCH has served as a Director of the Company since May 1996.
Mr. Lynch is currently a General Partner of The Beacon Group, a private
investment and financial advisory firm. Mr. Lynch had been Co-President and Co-
Chief Executive Officer of The Bridgeford Group, a financial advisory firm,
since 1995. From 1991 to 1994, he served as Senior Managing Director of
Bridgeford. From 1985 until 1991, Mr. Lynch was a Managing Director of Lehman
Brothers, a division of Shearson Lehman Brothers Inc. Mr. Lynch received his
Bachelor of Arts Degree from the University of Pennsylvania and his M.B.A. from
the Wharton School of Business at the University of Pennsylvania. Mr. Lynch also
serves as a Director of Illinois Central Corporation and Lincoln Snacks Company.
10
<PAGE>
ITEM 2. PROPERTIES
GENERAL
The Company's reserves are concentrated in the Wattenberg Field within the
D-J Basin of north central Colorado. Discovered in 1970, the Field is located
approximately 35 miles northeast of Denver and stretches over portions of Adams,
Boulder and Weld counties in Colorado. One of the most attractive features of
Wattenberg is the presence of several productive formations. In a section only
4,500 feet thick, there are up to eight potentially productive formations. Three
of the formations, the Codell, Niobrara and J-Sand, are considered "blanket"
zones in the area of the Company's holdings, while others, such as the D-Sand,
Dakota and the shallower Shannon, Sussex and Parkman, are more localized.
Although referred to as a "formation" or "sand," many such formations actually
are comprised of more than one rock strata. For example, the Niobrara has three
separate and distinct bodies or "benches" with potential hydrocarbon
development. The presence of several prospective zones tends to reduce the risk
of a dry hole. The following chart lists the formations present in Wattenberg:
PRODUCING FORMATIONS
<TABLE>
<CAPTION>
Approximate
Formation Depth
--------- -----
(feet)
<S> <C>
Parkman................................. 3,600
Sussex.................................. 4,500
Shannon................................. 4,800
Niobrara................................ 7,000
Codell.................................. 7,300
D-Sand.................................. 7,500
J-Sand.................................. 7,800
Dakota.................................. 8,000
</TABLE>
At December 31, 1997, the Company had working interests in 3,305 gross
(2,985 net) producing oil and natural gas wells in the D-J Basin and held
royalty interests in an additional 195 producing wells. As of December 31, 1997,
estimated proved reserves totaled 357.5 Bcfe, including 17.0 million barrels of
oil and 255.6 Bcf of gas.
PROVED RESERVES
The following table sets forth estimated year-end net proved reserves for
the three years ended December 31, 1997.
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Oil (MBbl)
Developed..... 6,955 15,799 14,594
Undeveloped... 466 6,676 2,382
------- ------- -------
Total... 7,421 22,475 16,976
======= ======= =======
Natural gas (MMcf)
Developed..... 133,088 242,777 232,058
Undeveloped... 5,769 53,882 23,577
------- ------- -------
Total... 138,857 296,659 255,635
======= ======= =======
Total MMcfe.......... 183,383 431,509 357,491
======= ======= =======
</TABLE>
11
<PAGE>
The following table sets forth for the year ended December 31, 1997, pretax
future net revenues from the production of proved reserves and the pretax
present value discounted at 10% of such revenues, net of estimated future
capital costs, including estimated costs of $19.5 million in 1998.
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------
Developed Undeveloped Total
--------- ------------ --------
(In thousands)
<S> <C> <C> <C>
1998....................... $ 60,832 $(5,418) $ 55,414
1999....................... 55,926 (2,346) 53,580
2000....................... 51,313 (1,953) 49,360
Remainder.................. 354,696 38,327 393,023
-------- ------- --------
Total................... $522,767 $28,610 $551,377
======== ======= ========
Pretax PW 10% Value (a).... $314,920 $ 5,082 $320,002
======== ======= ========
</TABLE>
- ------------------
(a) The after tax present value discounted at 10% of the proved reserves
totaled $276.3 million at year-end 1997.
The quantities and values in the preceding tables are based on prices in
effect at December 31, 1997, which averaged $17.25 per barrel of oil and $2.35
per Mcf of gas. Price declines decrease reserve values by lowering the future
net revenues attributable to the reserves and reducing the quantities of
reserves that are recoverable on an economic basis. Price increases have the
opposite effect. A significant decline in the prices of oil or natural gas
could have a material adverse effect on the Company's financial condition and
results of operations.
Proved developed reserves are proved reserves that are expected to be
recovered from existing wells with existing equipment and operating methods.
Proved undeveloped reserves are proved reserves that are expected to be
recovered from new wells drilled to known reservoirs on undrilled acreage for
which the existence and recoverability of such reserves can be estimated with
reasonable certainty, or from existing wells where a relatively major
expenditure is required to establish production.
Future prices received from production and future production costs may
vary, perhaps significantly, from the prices and costs assumed for purposes of
these estimates. There can be no assurance that the proved reserves will be
developed within the periods indicated or that prices and costs will remain
constant. There can be no assurance that actual production will equal the
estimated amounts used in the preparation of reserve projections.
The present values shown should not be construed as the current market
value of the reserves. The quantities and values shown in the preceding tables
are based on average oil and natural gas prices in effect on December 31, 1997.
Subsequent to year-end, oil prices have fallen. The value of the Company's
assets is in part dependent on the prices the Company receives for oil and
natural gas, and a significant decline in the price of oil or gas could have a
material adverse effect on the Company's financial condition and results of
operations. The 10% discount factor used to calculate present value, which is
specified by the Securities and Exchange Commission (the "SEC"), is not
necessarily the most appropriate discount rate, and present value, no matter
what discount rate is used, is materially affected by assumptions as to timing
of future production, which may prove to be inaccurate. For properties operated
by the Company, expenses exclude Patina's share of overhead charges. In
addition, the calculation of estimated future net revenues does not take into
account the effect of various cash outlays, including, among other things
general and administrative costs and interest expense.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures. The data in the above tables represent estimates only.
Oil and natural gas reserve engineering must be recognized as a subjective
process of estimating underground accumulations of oil and natural gas that
cannot be measured in an exact way, and estimates of other engineers might
differ materially from those shown above. The accuracy of any reserve estimate
is a function of the quality of available data and engineering and geological
interpretation and judgment. Results of drilling, testing and production after
the date of the estimate may justify revisions. Accordingly, reserve estimates
are often materially different from the quantities of oil and natural gas that
are ultimately recovered.
12
<PAGE>
The proved oil and natural gas reserves and future revenues as of December
31, 1997 were audited by Netherland, Sewell & Associates Inc. ("NSAI"). Since
January 1, 1997, the Company has filed Department of Energy Form EIA-23, "Annual
Survey of Oil and Gas Reserves," as required by operators of domestic oil and
gas properties. There are differences between the reserves as reported on Form
EIA-23 and reserves as reported herein. Form EIA- requires that operators report
on total proved developed reserves for operated wells only and that the reserves
be reported on a gross operated basis rather than on a net interest basis.
PRODUCING WELLS
The following table sets forth certain information at December 31, 1997 relating
to the producing wells in which the Company owned a working interest. The
Company also held royalty interests in 195 producing wells at such date. The
Company had 147 wells (144 net) shut in at December 31, 1997. The Company's
average working interest in all wells was 90%. Wells are classified as oil or
natural gas wells according to their predominant production stream.
<TABLE>
<CAPTION>
Principal Gross Net
Production Stream Wells Wells
----------------- ----- -----
<S> <C> <C>
Oil....................................... 2,698 2,477
Natural gas............................... 607 508
----- -----
Total.............................. 3,305 2,985
===== =====
</TABLE>
DRILLING RESULTS
The following table sets forth information with respect to wells drilled by
the Company during the past three years. All the wells were development wells.
The information should not be considered indicative of future performance, nor
should it be assumed that there is necessarily any correlation between the
number of productive wells drilled, quantities of reserves found or economic
value. Productive wells are those that produce commercial quantities of
hydrocarbons whether or not they produce a reasonable rate of return.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Productive
Gross...................... 25.0 12.0 28.0
Net........................ 24.1 12.0 28.0
Dry
Gross...................... 0.0 0.0 1.0
Net........................ 0.0 0.0 1.0
</TABLE>
At December 31, 1997, 3.0 gross (3.0 net) development wells were in
progress.
ACREAGE
The following table sets forth certain information at December 31, 1997
relating to Wattenberg acreage held by the Company. Undeveloped acreage is
acreage held under lease, permit, contract or option that is not in a spacing
unit for a producing well, including leasehold interests identified for
development or exploratory drilling. Developed acreage is acreage assigned to
producing wells.
<TABLE>
<CAPTION>
Gross Net
----- ---
<S> <C> <C>
Developed.............. 175,000 136,000
======= =======
Undeveloped............ 99,000 86,000
======= =======
</TABLE>
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In March 1996, a complaint was filed in the Court of Chancery for the State
of Delaware against Gerrity and each of its directors, Brickell Partners v.
Gerrity Oil & Gas Corporation, C.A. No. 14888 (Del. Ch.). The complaint alleges
that the "action is brought (a) to restrain defendants from consummating the
Gerrity Acquisition which will benefit the holders of Gerrity's common stock at
the expense of the holders of Gerrity's preferred stock and (b) to obtain a
declaration that the terms of the proposed Gerrity Acquisition constitute a
breach of the contractual rights of the preferred." The complaint sought, among
other things, certification as a class action on behalf of all holders of
Gerrity's preferred stock, a declaration that the defendants have committed an
abuse of trust and have breached their fiduciary and contractual duties, an
injunction enjoining the Gerrity Acquisition and money damages. In April 1996,
the defendants were granted an indefinite extension of time in which to answer
the complaint and no answer had been filed by February 1997. In February 1997,
the attorney for the plaintiff filed a Status Report with the court stating
"Case has been mooted. Plaintiff is preparing an application for counsel fees."
No fee application was filed. In November 1997, the plaintiff filed an amended
complaint. The amended complaint realleges the substance of the original
complaint and includes an allegation that the defendants coerced the holders of
the Gerrity preferred stock into exchanging their stock for the 7.125% Preferred
Stock of the Company. The amended complaint also alleges the defendants
participated in a scheme to eliminate the outstanding Gerrity preferred by
forcing the exchange of those shares for shares of the Company's preferred in
October 1996. The amended complaint seeks rescission of the transactions
described in the complaint or money damages if rescission is impractical. On
January 5, 1998, defendants filed a motion to dismiss the amended complaint. No
further action has been taken with respect to the case. Defendants believe that
the amended complaint is without merit and intend to vigorously defend against
this action. At this time, the Company is unable to estimate the range of
potential loss, if any, from this uncertainty. However, the Company believes the
resolution of this uncertainty should not have a material adverse effect upon
the Company's financial position, although an unfavorable outcome in any
reporting period could have a material adverse effect on results for that
period.
The Company is a party to various other lawsuits incidental to its
business, none of which are anticipated to have a material adverse impact on its
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted for a vote of security holders during
the fourth quarter of 1997:
On October 17, 1997, a Special Meeting of the Company's common stockholders
was held. All four proposals, as summarized below, were voted on and approved
by the shareholders. For a complete description of the proposals and the vote
tabulation, see Item 4 of the Company's Form 10-Q for the quarter ended,
September 30, 1997.
(i) The sale by SOCO of 10.9 million common shares of its Patina stock
to the public in a secondary offering at $9.875 per share.
(ii) The repurchase and retirement by the Company of the remaining 3.0
million common shares from SOCO at $9.332 per share.
(iii) The sale by the Company of $40.0 million of 8.50% convertible
preferred stock and the issuance of 160,000 common shares to certain
institutional investors.
(iv) The purchase of $3.0 million of common shares issued by the Company
at $9.875 per share and the grant of 500,000 restricted common
shares to certain officers and key managers of the Company.
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The Company's Common Stock, $12.50 Warrants and 7.125% Preferred Stock are
listed on the New York Stock Exchange ("NYSE") under the symbols "POG", "POGWT"
and "POGPr", respectively. Such listings became effective in May 1996. The 8.50%
Preferred Stock was privately placed and does not trade publicly. The following
table sets forth the range of high and low closing prices as reported on the
NYSE Composite Tape.
<TABLE>
<CAPTION>
Common Stock Warrants Preferred Stock
-------------- -------------- ------------------
High Low High Low High Low
------ ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
1996
- ----
Second Quarter (from May 3, 1996).. $ 8.25 $6.13 $2.38 $1.25 $24.50 $22.25
Third Quarter...................... 7.38 6.75 1.63 1.00 26.00 23.00
Fourth Quarter..................... 9.50 7.00 2.38 1.00 30.25 25.50
1997
- ----
First Quarter...................... 10.50 8.63 2.88 1.50 31.75 29.50
Second Quarter..................... 9.50 8.00 1.88 1.25 29.75 28.00
Third Quarter...................... 9.94 8.00 2.25 1.13 32.38 27.75
Fourth Quarter..................... 10.31 6.88 2.56 1.25 33.00 27.50
</TABLE>
On February 20, 1998, the closing prices of the Common Stock, Warrants and
the 7.125% Preferred Stock were $7.00, $1.38 and $28.00, respectively. As of
December 31, 1997, there were approximately 160 holders of record of the common
stock and 16.5 million shares outstanding.
Dividend Policy. The Board of Directors of the Company declared its first
quarterly dividend on its common stock in the fourth quarter of 1997 at a rate
of one cent per share payable to holders of record on December 15, 1997. The
dividend was paid on December 31, 1997. Prior to the fourth quarter of 1997, the
Company had not declared dividends on its common stock. The Company currently
plans to continue to declare and pay future dividends on its common stock. The
amounts thereof will depend upon the Company's earnings, financial condition,
capital requirements and other factors deemed relevant by the Board of
Directors. Under the terms of its current bank Credit Agreement, the Company, as
of December 31, 1997, has $15.9 million available for dividends it can declare
on its common stock.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical financial data of the
Company as of or for each of the years in the five year period ended December
31, 1997. Future results may differ substantially from historical results
because of changes in oil and natural gas prices, production declines and other
factors. This information should be read in conjunction with the financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations, presented elsewhere herein.
Note: The financial statements reflect the Gerrity Acquisition by the Company in
May 1996.
<TABLE>
<CAPTION>
As of or for the Year Ended December 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues................................... $ 64,865 $ 67,822 $ 50,102 $ 83,188 $100,333
Expenses
Direct operating.......................... 8,927 8,110 8,867 14,519 18,790
Exploration............................... 573 784 416 224 131
General and administrative................ 6,982 7,484 5,974 6,151 7,154
Interest and other........................ 2,362 3,869 5,476 14,304 16,038
Depletion, depreciation and amortization.. 25,190 43,036 32,591 44,822 49,076
Impairment of oil and gas properties...... - - - - 26,047
-------- -------- -------- -------- --------
Total expenses.......................... 44,034 63,283 53,324 80,020 117,236
-------- -------- -------- -------- --------
Income (loss) before taxes................. 20,831 4,539 (3,222) 3,168 (16,903)
Provision (benefit ) for income taxes..... 7,291 1,589 (1,128) (394) -
-------- -------- -------- -------- --------
Net income (loss).......................... $ 13,540 $ 2,950 $ (2,094) $ 3,562 $(16,903)
======== ======== ======== ======== ========
Net income (loss) per
common share........................ $0.97 $0.21 $(0.15) $0.08 $(1.11)
======== ======== ======== ======== ========
Weighted average shares outstanding........ 14,000 14,000 14,000 17,796 18,324
Cash dividends per common share............ $0.00 $0.00 $0.00 $0.00 $0.01
BALANCE SHEET DATA
Current assets............................ $ 14,725 $ 11,083 $ 9,611 $ 27,587 $ 31,068
Oil and gas properties, net............... 181,170 234,821 214,594 398,640 342,833
Total assets.............................. 195,895 246,686 224,521 430,233 376,875
Current liabilities....................... 23,735 23,838 9,611 26,572 30,297
Debt...................................... 60,857 79,333 75,000 197,594 146,435
Stockholders' equity...................... 92,865 115,846 113,663 196,236 188,441
CASH FLOW DATA
Net cash provided by operations........... $ 38,882 $ 47,690 $ 18,407 $ 52,996 $ 68,645
Net cash used by investing................ (97,573) (96,378) (21,060) (9,796) (18,801)
Net cash realized (used) by financing..... 58,691 48,688 2,653 (38,047) (43,388)
</TABLE>
16
<PAGE>
The following table sets forth unaudited summary financial results on a
quarterly basis for the two most recent years.
<TABLE>
<CAPTION>
1996
--------------------------------------
First Second Third Fourth
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(In thousands, except per share data)
Revenues................................... $10,654 $19,456 $23,097 $ 29,981
Direct operating expenses.................. 1,955 3,446 4,161 4,957
Depletion, depreciation and amortization... 6,967 11,756 13,232 12,867
Net income (loss).......................... (732) (1,129) (669) 6,092
Net income (loss) per common share......... (0.05) (0.10) (0.07) 0.28
1997
--------------------------------------
First Second Third Fourth
-------- -------- -------- --------
(In thousands, except per share data)
Revenues................................... $29,486 $22,854 $21,703 $ 26,290
Direct operating expenses.................. 4,975 4,347 4,185 5,283
Depletion, depreciation and amortization... 12,428 12,348 11,487 12,813
Impairment of oil and gas properties....... - - - 26,047
Net income (loss).......................... 6,256 828 799 (24,786)
Net income (loss) per common share......... 0.29 0.01 0.01 (1.55)
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
In May 1996, the Company acquired Gerrity Oil & Gas Corporation
("Gerrity"). The acquisition was accounted for as a purchase. Accordingly, the
results of operations since the Gerrity Acquisition reflect the impact of the
purchase.
Comparison of 1997 results to 1996. Total revenues for 1997 increased to
$100.3 million from $83.2 million, representing an increase of 21% from the
prior year. The revenue increase was due to the higher production associated
with the Gerrity Acquisition and improved product prices. Exclusive of the
Gerrity Acquisition, revenues would have decreased. The net loss for 1997 was
$16.9 million compared to net income of $3.6 million in 1996. The net loss was
primarily attributed to the $26.0 million impairment of oil and gas properties.
Exclusive of the non-cash impairment, the Company would have recognized $9.1
million of net income in 1997.
Average daily production for 1997 was 5,174 barrels and 73.6 MMcf (104.6
MMcfe), increases of 12% and 12%, respectively. The production increases
resulted solely from the Gerrity Acquisition. Exclusive of the Gerrity
Acquisition, average daily production would have declined due to the Company's
limited development schedule and expected initial declines on the large number
of wells drilled and completed in 1994 and early 1995. However, successful
production enhancement and development programs have substantially reduced the
expected decline in production. There were 28 wells and 102 recompletions and
refracs placed on production in 1997 compared to 12 wells and 90 recompletions
in 1996. In the future, a decrease in production is expected unless development
activity is substantially increased or acquisitions are consummated. The
decision to increase development activity is heavily dependent on the prices
being received for production.
Average oil prices decreased from $20.47 per barrel in 1996 to $19.70 in
1997. Average natural gas prices increased from $1.99 per Mcf in 1996 to $2.32
in 1997. The average oil price includes hedging gains in 1997 of $297,000 or
$.16 per barrel. The increase in average natural gas prices was primarily the
result of the 35% increase in the average CIG index in 1997 from 1996 and the
Company's ability to realize Mid-Continent pricing for a significant portion of
its natural gas production during the winter months. The average natural gas
price for 1997 includes hedging gains of $2.0 million or $.07 per Mcf. Direct
operating expenses totaled $18.8 million or $0.49 per Mcfe in 1997 compared to
$14.5 million or $0.43 per Mcfe in the prior year. The increase in operating
expenses was primarily attributed to focusing more attention on enhancing
production through increased well workovers and more effective production
methods and the increase in production taxes as a result of higher average
product prices.
General and administrative expenses, net of third party reimbursements,
for 1997 totaled $7.2 million, a 16% increase from 1996. The increase was
attributed to the expensing of $2.0 million related to a common stock grant
awarded to the officers and key managers of the Company in October 1997.
Exclusive of the non-cash stock grant expense, general and administrative
expenses declined by $1.0 million or 16%, due to continued efficiencies realized
as a result of the Gerrity Acquisition. Prior to the Gerrity Acquisition, the
Company did not have its own employees. Employees, office space, furniture,
fixtures and equipment were provided by SOCO. SOCO allocated estimated general
and administrative expenses to the Company.
Interest and other expenses were $16.0 million in 1997 compared to $14.3
million in 1996. Interest expense increased as a result of the higher average
outstanding debt levels and interest rates as a result of the Gerrity
Acquisition. The Company's average interest rate for 1997 was 9.6% compared to
9.3% in the prior year. This increase was due primarily to the 11.75% Senior
Subordinated Notes due July 15, 2004 (the "Notes") assumed by the Company in the
Gerrity Acquisition in May 1996. These Notes were outstanding for all of 1997
compared to only eight months of 1996.
18
<PAGE>
Depletion, depreciation and amortization expense for 1997 totaled $49.1
million, an increase of $4.3 million or 9% from 1996. Depletion expense totaled
$46.2 million for 1997 compared to $41.3 million for 1996. The depletion rate
for 1996 and 1997 averaged $1.21 per Mcfe. The increase in expense resulted
from higher oil and natural gas production as a result of the Gerrity
Acquisition. Depreciation and amortization expense for 1997 totaled $2.9
million, or $.08 per Mcfe compared to $3.5 million or $.10 per Mcfe in 1996.
Amortization expense consists primarily of the expensing of a noncompete
agreement entered into as part of the Gerrity Acquisition of $2.6 million in
1996 and $2.5 million in 1997. In the fourth quarter of 1997, management
determined that the noncompete agreement had no remaining value and expensed the
remaining book value.
Impairment of oil and gas properties expense for 1997 totaled $26.0
million. The impairment was the result of applying Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long Lived Assets." In applying this statement, the Company determined that the
estimated future cash flows (undiscounted and without interest charges) expected
to result from use of these assets, largely proven undeveloped drilling
locations, and their disposition was less than the carrying amount (book value)
of these assets and, accordingly, recorded an impairment. The impairment
primarily resulted from lower oil and natural gas prices at year-end.
Comparison of 1996 results to 1995. Total revenues for 1996 were $83.2
million, an increase of $33.1 million from 1995. The amount represents an
increase of 66% as compared to the prior year period. The revenue increase was
due to the effect of the Gerrity Acquisition, improved product prices in 1996
and includes other revenue of $1.0 million primarily attributable to oil
marketing income. Exclusive of the Gerrity Acquisition, revenues would have
decreased by $3.5 million or 7%. Net income for 1996 was $3.6 million compared
to a net loss of $2.1 million in 1995. The increase in net income was primarily
attributed to a significant increase in average oil and natural gas prices
received, offset by an increase in interest expense and depletion, depreciation
and amortization.
Average daily production in 1996 was 4,612 barrels and 65.4 MMcf (or 93.1
MMcfe), increases of 26% and 14%, respectively. The production increases
resulted solely from the Gerrity Acquisition. Exclusive of the Gerrity
Acquisition, average daily production would have declined by 1,165 barrels and
18.3 MMcf due to the Company's reduced capital expenditures and expected
production declines on the large number of wells drilled and completed in 1994
and early 1995. There were 88 wells placed on production in 1995 compared to 12
wells in 1996.
Average oil prices increased to $20.47 per barrel compared to $16.43 in
1995. Average natural gas prices increased from $1.34 per Mcf in 1995 to $1.99
in 1996. The average oil price for 1996 included hedging losses of $841,000 or
$.50 per barrel. The increase in natural gas prices was primarily the result of
prior year production being marketed under term arrangements which were based on
Rocky Mountain region pricing (which was depressed) whereas the 1996 production
benefited from several factors. A portion of these term arrangements expired
during 1996, which allowed the production to be sold at local spot prices which
had increased as a result of higher demand and declining production in the D-J
Basin. In addition, enhanced marketing efforts combined with higher natural gas
liquids prices contributed to the overall price increase. Direct operating
expenses increased to $14.5 million or $0.43 per Mcfe in 1996 compared to $8.9
million or $0.31 in 1995. The increase in operating expenses was primarily
attributed to the Company's focus on enhancing production through performing
well workovers on existing properties and the overall increase in production
taxes as a result of the higher average oil and natural gas prices.
General and administrative expenses, net of third party reimbursements, for
1996 were $6.2 million, a 3% increase over 1995. The increase was the result of
the Gerrity Acquisition partially offset by reductions in allocated costs from
SOCO during the first four months of 1996. Prior to the Gerrity Acquisition, the
Company did not have its own employees. Employees, office space, furniture,
fixtures and equipment were provided by SOCO. SOCO allocated estimated general
and administrative expenses to the Company.
Interest and other expense was $14.3 million in 1996 compared to $5.5
million in 1995. Interest expense increased as a result of higher average
outstanding debt levels as a result of the Gerrity Acquisition. The Company's
average interest rate for 1996 climbed to 9.3% compared to 7.0% in 1995. This
increase was due primarily to the Notes which were assumed by the Company as
part of the Gerrity Acquisition.
19
<PAGE>
Depletion, depreciation and amortization expense for 1996 totaled $44.8
million, an increase of $12.2 million, or 38% over 1995. The increase resulted
from the higher production and an increased depletion, depreciation and
amortization rate of $1.32 per Mcfe compared to $1.12 in 1995. The primary cause
for the increased rate was a downward revision in reserve quantities due to
proved undeveloped reserves being classified as uneconomic at year-end 1995
prices and the inclusion of the amortization of a noncompete agreement entered
into in conjunction with the Gerrity Acquisition. The amortization of a
noncompete agreement of $2.6 million in 1996 resulted in an increase of $0.08 in
the depletion, depreciation and amortization rate per Mcfe.
DEVELOPMENT, ACQUISITION AND EXPLORATION
During 1997, the Company incurred $19.4 million in capital expenditures.
Development expenditures totaled $17.0 million as the Company has gradually
increased its development activity. During 1997, the Company successfully
drilled 28 wells, was in the process of drilling an additional three wells at
year end, recompleted 81 wells and refraced 21 wells. The Company anticipates
incurring development expenditures of approximately $21.0 million in 1998.
FINANCIAL CONDITION AND CAPITAL RESOURCES
At December 31, 1997, the Company had $376.9 million of assets. Total
capitalization was $334.9 million, of which 56% was represented by stockholders'
equity, 15% by senior debt and 29% by subordinated debt. During 1997, net cash
provided by operations was $68.6 million, as compared to $53.0 million in 1996.
As of December 31, 1997, there were no significant commitments for capital
expenditures. The Company anticipates that 1998 expenditures for development
drilling and recompletion activity will approximate $21.0 million, which, based
on current projections, will allow for a reduction of indebtedness, provide
funds to pursue acquisitions or additional security repurchases. The level of
these and other future expenditures is largely discretionary, and the amount of
funds devoted to any particular activity may increase or decrease significantly,
depending on available opportunities and market conditions. The Company plans
to finance its ongoing development, acquisition and exploration expenditures
using internal cash flow, proceeds from asset sales and borrowings under its
bank Credit Agreement. In addition, joint ventures or future public and private
offerings of debt or equity securities may be utilized.
Prior to May 1996, SOCO financed all of the Company's activities. A portion
of such financing was considered to be an investment by SOCO in the Company with
the remaining portion being considered debt payable to SOCO. In May 1996, the
$75.0 million debt payable to SOCO was repaid in full. The Company does not have
any outstanding debt with SOCO and does not expect SOCO to provide any
additional funding.
The Company entered into an amended Credit Agreement in April 1997. The
Credit Agreement consists of a revolving credit facility in an aggregate amount
up to $140.0 million. The amount available under the revolving credit facility
is adjusted semiannually and equaled $100.0 million at December 31, 1997, with
$49.0 million outstanding at that time.
The Credit Agreement contains certain financial covenants, including but
not limited to, a maximum total debt to capitalization ratio, a maximum total
debt to EBITDA ratio, a minimum current ratio and various other negative
covenants that could limit the Company's ability to incur other debt, consummate
acquisitions, dispose of assets, pay dividends or repurchase securities.
Borrowings under the Credit Agreement mature in 2000, but may be prepaid at
anytime. The Company has periodically negotiated extensions of the Credit
Agreement; however, there is no assurance the Company will be able to do so in
the future. The Company had a restricted payment basket of $15.9 million as of
December 31, 1997, which allows the Company to repurchase common stock,
preferred stock and warrants and pay dividends on its common stock.
The Company had $97.4 million of 11.75% Senior Subordinated Notes due July
15, 2004 outstanding as of December 31, 1997. The Notes have been reflected in
the accompanying financial statements at a book value of 105.875% of their
principal amount ($92.0 million of principal amount outstanding as of December
31, 1997). The Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after July 15, 1999 at 105.875% of their principal
amount. The Notes are unsecured general obligations of the Company and are
subordinated to all senior indebtedness of the Company and to any existing and
future indebtedness of the Company's subsidiaries.
20
<PAGE>
In October 1997, the common shareholders approved each of the proposals to
effectuate a series of transactions which eliminated SOCO's majority ownership
in the Company. The transactions included: (i) the sale by SOCO of 10.9 million
common shares of its Patina stock to the public in a secondary offering at
$9.875 per share, (ii) the repurchase and retirement by the Company of the
remaining 3.0 million common shares from SOCO at $9.332 per share, (iii) the
sale by the Company of $40.0 million of 8.50% convertible preferred stock and
the issuance of 160,000 common shares to certain institutional investors and
(iv) the purchase of $3.0 million of common shares issued by the Company at
$9.875 per share and the grant of 496,250 restricted common shares, net of
forfeitures, to certain officers and key managers of the Company. The stock
grant generally vests over a four year period. As a result of these
transactions, SOCO no longer has any ownership in the Company.
The Company from time to time enters into arrangements to monetize its
Section 29 tax credits. These arrangements result in revenue increases of
approximately $0.40 per Mcf on production volumes from qualified Section 29
properties. As a result of such arrangements, the Company recognized additional
natural gas revenues of $2.0 million, $1.5 million and $1.8 million during 1995,
1996 and 1997, respectively. These arrangements are expected to increase
revenues through 2002.
The Company's primary cash requirements will be to finance acquisitions,
development expenditures, repayment of indebtedness, and general working capital
needs. However, future cash flows are subject to a number of variables,
including the level of production and oil and natural gas prices, and there can
be no assurance that operations and other capital resources will provide cash in
sufficient amounts to maintain planned levels of capital expenditures or that
increased capital expenditures will not be undertaken.
The Company believes that available borrowings under the Credit Agreement
and the Company's cash on hand will be sufficient to cover its working capital,
capital expenditures, planned development activities and debt service
requirements for the next 18 months. In connection with consummating any
significant acquisition, the Company will require additional debt or equity
financing, which may not be available on terms that are acceptable to the
Company.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements that are not historical facts contained in this report are
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ from projected results. Such statements address
activities, events or developments that the Company expects, believes, projects,
intends or anticipates will or may occur, including such matters as future
capital, development and exploration expenditures (including the amount and
nature thereof), drilling of wells, reserve estimates (including estimates of
future net revenues associated with such reserves and the present value of such
future net revenues), future production of oil and natural gas, business
strategies, expansion and growth of the Company's operations, cash flow and
anticipated liquidity, prospect development and property acquisition, obtaining
financial or industry partners for prospect or program development, or marketing
of oil and natural gas. Factors that could cause actual results to differ
materially ("Cautionary Disclosures") are described, among other places, in the
Marketing, Competition, and Regulation sections in this Form 10-K and under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations." Without limiting the Cautionary Disclosures so described,
Cautionary Disclosures include, among others: general economic conditions, the
market price of oil and natural gas, the risks associated with exploration, the
Company's ability to find, acquire, market, develop and produce new properties,
operating hazards attendant to the oil and natural gas business, uncertainties
in the estimation of proved reserves and in the projection of future rates of
production and timing of development expenditures, the strength and financial
resources of the Company's competitors, the Company's ability to find and retain
skilled personnel, climatic conditions, labor relations, availability and cost
of material and equipment, environmental risks, the results of financing
efforts, and regulatory developments. All written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Disclosures. The Company
disclaims any obligation to update or revise any forward-looking statement to
reflect events or circumstances occurring hereafter or to reflect the occurrence
of anticipated or unanticipated events.
21
<PAGE>
YEAR 2000 ISSUES
The Company is aware of the issues associated with the programming code in
many existing computer systems as the millennium approaches. The "Year 2000"
problem is pervasive; virtually every computer operation may be affected in some
way by the rollover of the two digit year value to 00. The risk is that computer
systems will not properly recognize sensitive information when the year changes
to 2000. Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail, resulting in business interruption.
The Company is currently being provided certain computer processing
services by SOCO through September 1998. The Company is in the process of
purchasing and converting to its own upgraded in-house computer system. In
conjunction with this process, the Company is taking steps to identify, correct
or reprogram and test its existing systems for Year 2000 compliance. It is
anticipated that all new systems, upgrades and reprogramming efforts will be
completed by mid 1998, allowing adequate time for testing. As such, management
believes the Year 2000 issues can be mitigated without a significant potential
effect on the Company's financial position. However, given the complexity of the
Year 2000 issue, there can be no assurance that the Company will be able to
address the problem without costs and uncertainties that might affect future
financial results or cause reported financial information not to be necessarily
indicative of future operating results or future financial condition.
INFLATION AND CHANGES IN PRICES
While certain of its costs are affected by the general level of inflation,
factors unique to the oil and natural gas industry result in independent price
fluctuations. Over the past five years, significant fluctuations have occurred
in oil and natural gas prices. Although it is particularly difficult to estimate
future prices of oil and natural gas, price fluctuations have had, and will
continue to have, a material effect on the Company.
The following table indicates the average oil and natural gas prices
received over the last five years and highlights the price fluctuations by
quarter for 1996 and 1997. Average price computations exclude hedging gains and
losses and other nonrecurring items to provide comparability. Average prices per
Mcfe indicate the composite impact of changes in oil and natural gas prices. Oil
production is converted to natural gas equivalents at the rate of one barrel per
six Mcf.
<TABLE>
<CAPTION>
Average Prices
------------------------------------------
Natural Equivalent
Oil Gas Mcf
--------- --------- ----------
(Per Bbl) (Per Mcf) (Per Mcfe)
<S> <C> <C> <C>
Annual
------
1993........... $15.87 $2.08 $2.22
1994........... 14.84 1.70 1.94
1995........... 16.43 1.34 1.73
1996........... 20.47 1.99 2.41
1997........... 19.54 2.25 2.55
Quarterly
---------
1996
----
First.......... $18.31 $1.55 $1.96
Second......... 20.24 1.60 2.13
Third.......... 19.92 1.83 2.29
Fourth......... 22.35 2.78 3.07
1997
----
First.......... $21.79 $2.63 $2.93
Second......... 19.09 1.85 2.26
Third.......... 18.53 1.92 2.26
Fourth......... 18.80 2.61 2.76
</TABLE>
22
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
PATINA OIL & GAS CORPORATION
Report of Independent Public Accountants...................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997.. F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997............................. F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1995, 1996 and 1997......... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997............................. F-6
Notes to Consolidated Financial Statements..................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Patina Oil & Gas Corporation:
We have audited the accompanying consolidated balance sheets of Patina Oil & Gas
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1997, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements 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 financial statements referred to above present fairly, in
all material respects, the financial position of Patina Oil & Gas Corporation
and subsidiaries as of December 31, 1996 and 1997, and results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Fort Worth, Texas, ARTHUR ANDERSEN LLP
February 17, 1998
F-2
<PAGE>
PATINA OIL & GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents $ 6,153 $ 12,609
Accounts receivable 19,977 15,307
Inventory and other 1,457 3,152
--------- ---------
27,587 31,068
--------- ---------
Oil and gas properties, successful efforts method 559,072 575,508
Accumulated depletion, depreciation and amortization (160,432) (232,675)
--------- ---------
398,640 342,833
--------- ---------
Gas facilities and other 6,421 5,930
Accumulated depreciation (4,917) (3,807)
--------- ---------
1,504 2,123
--------- ---------
Other assets, net 2,502 851
--------- ---------
$ 430,233 $ 376,875
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 15,063 $ 20,451
Accrued liabilities 11,509 9,846
--------- ---------
26,572 30,297
--------- ---------
Senior debt 94,500 49,000
Subordinated notes 103,094 97,435
Other noncurrent liabilities 9,831 11,702
Commitments and contingencies
Stockholders' equity
Preferred Stock, $.01 par, 5,000,000 shares
authorized, 1,593,608 and 3,094,363 shares
issued and outstanding 16 31
Common Stock, $.01 par, 40,000,000 shares
authorized, 18,886,932 and 16,450,425 shares
issued and outstanding 189 165
Capital in excess of par value 194,066 208,525
Deferred compensation - (1,828)
Retained earnings (deficit) 1,965 (18,452)
--------- ---------
196,236 188,441
--------- ---------
$ 430,233 $ 376,875
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues
Oil and gas sales $ 50,073 $ 82,185 $ 99,539
Other 29 1,003 794
-------- -------- --------
50,102 83,188 100,333
-------- -------- --------
Expenses
Direct operating 8,867 14,519 18,790
Exploration 416 224 131
General and administrative 5,974 6,151 7,154
Interest and other 5,476 14,304 16,038
Depletion, depreciation and amortization 32,591 44,822 49,076
Impairment of oil and gas properties - - 26,047
-------- -------- --------
Income (loss) before taxes (3,222) 3,168 (16,903)
-------- -------- --------
Provision (benefit) for income taxes
Current - - -
Deferred (1,128) (394) -
-------- -------- --------
(1,128) (394) -
-------- -------- --------
Net income (loss) $ (2,094) $ 3,562 $(16,903)
======== ======== ========
Net income (loss) per common share $ (0.15) $ 0.08 $ (1.11)
======== ======== ========
Weighted average shares outstanding 14,000 17,796 18,324
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Capital in Retained
--------------- --------------- Excess of Investment Deferred Earnings
Shares Amount Shares Amount Par Value By Parent Compensation (Deficit)
------ ------ ------ ------ ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 - $ - 14,000 $ 140 $ - $ 115,706 $ - $ -
Credit in lieu of taxes - - - - - 1,107 - -
Change in investment by parent - - - - - (1,196) - -
Net loss - - - - - (2,094) - -
------ ------ ------ ------ --------- --------- ------------ ---------
Balance, December 31, 1995 - - 14,000 140 - 113,523 - -
Credit in lieu of taxes - - - - - 171 - -
Change in investment by parent - - - - - (7,514) - -
Net loss through the Merger date - - - - - (532) - -
Merger 1,205 12 6,000 60 194,291 (105,648) - -
Issuance of common - - 4 - 27 - - -
Repurchase of common and warrants - - (1,117) (11) (9,722) - - -
Issuance of preferred 389 4 - - 9,470 - - -
Preferred dividends - - - - - - - (2,129)
Net income subsequent to the Merger - - - - - - - 4,094
------ ------ ------ ------ --------- --------- ------------ ---------
Balance, December 31, 1996 1,594 16 18,887 189 194,066 - - 1,965
Repurchase of common and preferred (126) (1) (3,101) (31) (32,723) - - -
Issuance of common - - 664 7 7,958 - (1,828) -
Issuance of preferred 1,600 16 - - 38,516 - - -
Preferred dividends and accretion 26 - - - 708 - - (3,346)
Common dividends - - - - - - - (168)
Net loss - - - - - - - (16,903)
------ ------ ------ ------ --------- --------- ------------ ---------
Balance, December 31, 1997 3,094 $ 31 16,450 $ 165 $ 208,525 $ - $ (1,828) $ (18,452)
====== ====== ====== ====== ========= ========= ============ =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997
-------- ------- ---------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ (2,094) $ 3,562 $ (16,903)
Adjustments to reconcile net income (loss) to net
cash provided by operations
Exploration expense 416 224 131
Depletion, depreciation and amortization 32,591 44,822 49,076
Impairment of oil and gas properties - - 26,047
Deferred compensation expense - - 1,987
Deferred taxes (1,128) (394) -
Amortization of deferred credits (2,025) (605) -
Gain on sale of other assets - - (338)
Changes in current and other assets and liabilities
Decrease (increase) in
Accounts receivable 1,472 (1,057) 4,548
Inventory and other - 338 (213)
Increase (decrease) in
Accounts payable (10,902) (4,249) 5,639
Accrued liabilities 77 4,844 (1,248)
Other liabilities - 5,511 (81)
-------- ------- ---------
Net cash provided by operations 18,407 52,996 68,645
-------- ------- ---------
Investing activities
Acquisition, development and exploration (21,842) (8,532) (19,831)
Gerrity Acquisition expenditures, net of cash acquired - (2,375) -
Sale of oil and gas properties 782 1,111 1,030
-------- ------- ---------
Net cash used by investing (21,060) (9,796) (18,801)
-------- ------- ---------
Financing activities
Increase (decrease) in payable/debt to SOCO 1,011 (80,466) -
Increase (decrease) in indebtedness - 72,863 (51,159)
Deferred credits 2,838 814 2,005
Decrease in investment by SOCO (1,196) (7,514) -
Issuance of preferred stock - - 39,432
Issuance of common stock - - 2,795
Cost of common stock and preferred issuance - (11,882) (900)
Repurchase of common stock and warrants - (9,733) (28,946)
Repurchase of preferred stock - - (3,809)
Preferred dividends - (2,129) (2,638)
Common dividends - - (168)
-------- ------- ---------
Net cash realized (used) by financing 2,653 (38,047) (43,388)
-------- ------- ---------
Increase in cash - 5,153 6,456
Cash and equivalents, beginning of period 1,000 1,000 6,153
-------- ------- ---------
Cash and equivalents, end of period $ 1,000 $ 6,153 $ 12,609
======== ======= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND NATURE OF BUSINESS
Patina Oil & Gas Corporation (the "Company" or "Patina"), a Delaware
corporation, was incorporated in January 1996 to hold the assets and operations
of Snyder Oil Corporation ("SOCO") in the Wattenberg Field and to facilitate the
acquisition of Gerrity Oil & Gas Corporation ("Gerrity"). Previously, SOCO's
Wattenberg operations had been conducted through SOCO or its wholly owned
subsidiary, SOCO Wattenberg Corporation ("SWAT"). On May 2, 1996, SOCO
contributed the balance of its Wattenberg assets to SWAT and transferred all of
the shares of SWAT to the Company in exchange for 14.0 million common shares of
the Company. Immediately thereafter, Gerrity merged into another wholly owned
subsidiary of the Company ("Gerrity Acquisition"). As a result of these
transactions, SWAT and Gerrity became subsidiaries of the Company. In the first
quarter of 1997, Gerrity was merged into the Company. The Company's operations
currently consist of the acquisition, development, exploitation and production
of oil and natural gas properties in the Wattenberg Field of Colorado's D-J
Basin.
The above transactions were accounted for as a purchase of Gerrity. The
amounts and results of operations of the Company for periods prior to the
Gerrity Acquisition reflected in these financial statements include the
historical amounts and results of SOCO's Wattenberg operations. Certain amounts
in the accompanying financial statements have been allocated in a reasonable and
consistent manner in order to depict the historical financial position, results
of operations and cash flows of the Company on a stand-alone basis prior to the
Gerrity Acquisition.
In October 1997, the common shareholders approved each of the proposals to
effectuate a series of transactions which eliminated SOCO's majority ownership
in the Company. The transactions included: (i) the sale by SOCO of 10.9 million
common shares of its Patina stock to the public in a secondary offering at
$9.875 per share, (ii) the repurchase and retirement by the Company of the
remaining 3.0 million common shares from SOCO at $9.332 per share, (iii) the
sale by the Company of $40.0 million of 8.50% convertible preferred stock and
the issuance of 160,000 common shares to certain institutional investors and
(iv) the purchase of $3.0 million of common shares issued by the Company at
$9.875 per share and the grant of 496,250 restricted common shares, net of
forfeitures, to certain officers and key managers of the Company. The stock
grant generally vests over a four year period. As a result of these
transactions, SOCO no longer has any ownership in the Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Producing Activities
The Company utilizes the successful efforts method of accounting for its
oil and natural gas properties. Consequently, leasehold costs are capitalized
when incurred. Unproved properties are assessed periodically within specific
geographic areas and impairments in value are charged to expense. Exploratory
expenses, including geological and geophysical expenses and delay rentals, are
charged to expense as incurred. Exploratory drilling costs are initially
capitalized, but charged to expense if and when the well is determined to be
unsuccessful. Costs of productive wells, unsuccessful developmental wells and
productive leases are capitalized and amortized on a unit-of-production basis
over the life of the remaining proved or proved developed reserves, as
applicable. Oil is converted to natural gas equivalents (Mcfe) at the rate of
one barrel to six Mcf. Amortization of capitalized costs has generally been
provided over the entire Wattenberg Field as the wells are located in the same
reservoirs. No accrual has been provided for estimated future abandonment costs
as management estimates that salvage value will approximate such costs.
F-7
<PAGE>
In 1995, the Company adopted Statement of Financial Accounting Standards
No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets." SFAS
121 requires the Company to assess the need for an impairment of capitalized
costs of oil and gas properties on a field-by-field basis. During 1995 and 1996,
the Company did not provide for any impairments. During 1997, the Company
recorded an impairment of $26.0 million to oil and gas properties based on
discounted cash flows. In applying this statement, the Company determined that
the estimated future cash flows (undiscounted and without interest charges)
expected to result from use of these assets, largely proven undeveloped drilling
locations, and their disposition was less than the carrying amount (book value)
of these assets and accordingly, recorded an impairment. The impairment
primarily resulted from lower year-end oil and natural gas prices. Changes in
the underlying assumptions or the amortization units could result in additional
impairments in the future.
Other Assets
Other assets reflect the value assigned to a noncompete agreement entered
into as part of the Gerrity Acquisition. The value of this noncompete agreement
had been fully amortized at December 31, 1997. Amortization expense for the
years ended December 31, 1996 and 1997 was $2.6 million and $2.5 million,
respectively. In the fourth quarter of 1997, management determined that there
was no remaining value with respect to this noncompete agreement, and
accordingly, amortized the remaining book value. Included in Other assets is
$850,000 of notes receivable from certain officers and key managers of the
Company. See Note (9).
Section 29 Tax Credits
The Company from time to time enters into arrangements to monetize its
Section 29 tax credits. These arrangements result in revenue increases of
approximately $0.40 per Mcf on production volumes from qualified Section 29
properties. As a result of such arrangements, the Company recognized additional
gas revenues of $2.0 million, $1.5 million and $1.8 million during 1995, 1996
and 1997, respectively. These arrangements are expected to increase revenues
through 2002.
Gas Imbalances
The Company uses the sales method to account for gas imbalances. Under this
method, revenue is recognized based on the cash received rather than the
Company's proportionate share of gas produced. Gas imbalances at December 31,
1996 and 1997 were insignificant.
Financial Instruments
The book value and estimated fair value of cash and equivalents was $6.2
million and $12.6 million at December 31, 1996 and 1997. The book value
approximates fair value due to the short maturity of these instruments. The book
value and estimated fair value of the Company's senior debt was $94.5 million
and $49.0 million at December 31, 1996 and 1997. The fair value approximates
book value given its floating rate structure. The book value of the Senior
Subordinated Notes ("Subordinated Notes" or "Notes") was $97.4 million and the
estimated fair value was $100.8 million at December 31, 1997. The fair value of
the Notes is estimated based on their price on the New York Stock Exchange.
From time to time, the Company enters into commodity contracts to hedge the
price risk of a portion of its production. Gains and losses on such contracts
are deferred and recognized in income as an adjustment to oil and gas sales
revenues in the period in which the physical product to which the contracts
relate, is actually sold.
In the fourth quarter of 1997, the Company entered into various swap sales
contracts with a weighted average oil price (NYMEX based) of $21.85 for contract
volumes of 46,500 barrels of oil for January 1998. The unrecognized gain on
these contracts totaled $195,000 based on December 31, 1997 market values. The
Company realized $238,000 of income related to these swap contracts based on
settlements after year end.
F-8
<PAGE>
In the fourth quarter of 1997, the Company entered into various CIG and
PEPL index based swap sales contracts for the first quarter of 1998. The
weighted average natural gas price for the CIG index based contracts is $2.19
for contract volumes of 332,000 MMBtu's of natural gas and for the PEPL index
based contracts is $2.60 for contract volumes of 1,151,000 MMBtu's of natural
gas. The unrecognized gains on these contracts totaled $701,000 based on
December 31, 1997 market values. The Company estimates realizing $658,000 of
income related to these swap contracts based on settlements after year-end and
market values as of February 17, 1998.
In the first quarter of 1998, the Company entered into various additional
CIG and PEPL index based swap sales contracts for March 1998 through August
1998. The weighted average natural gas price for the CIG index based contracts
is $1.70 for contract volumes of 1,840,000 MMBtu's of natural gas and for the
PEPL index based contracts is $2.19 for contract volumes of 1,215,000 MMBtu's of
natural gas.
Stock Options and Awards
The Company accounts for its stock-based compensation plans under the
principles prescribed by the Accounting Principles Board's Opinion No. 25 ("APB
No. 25"), "Accounting for Stock Issued to Employees." Accordingly, stock options
awarded under the Employee Plan and the Non-Employee Directors Plan are
considered to be "noncompensatory" and do not result in recognition of
compensation expense. However, the restricted stock awarded under the Restricted
Stock Plan is considered to be "compensatory" and the Company recognized $2.0
million of non-cash general and administrative expenses in 1997.
Per Share Data
The Company uses the weighted average number of shares outstanding in
calculating earnings per share data. When dilutive, options and warrants are
included as share equivalents using the treasury stock method and are included
in the calculation of diluted per share data. Common stock issuable upon
conversion of convertible preferred securities are also included in the
calculation of diluted per share data if their effect is dilutive.
Supplemental Cash Flow Information
The Company incurred the following significant non-cash items in 1997:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Stock grant awarded to certain officers and key managers........................ $ 3,821
Dividends and accretion - 8.50% preferred stock................................. 708
401(k) profit sharing in common stock........................................... 453
</TABLE>
The Company incurred the following significant non-cash items related to the
Gerrity Acquisition in 1996:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Cash payments made for the acquisition.......................................... $ 14,257
Senior debt assumed............................................................. 19,000
Subordinated debt assumed....................................................... 105,805
Minority interest in Gerrity preferred stock not exchanged at acquisition date.. 9,878
Preferred stock issued.......................................................... 30,122
Common stock and warrants issued................................................ 46,750
Other liabilities assumed....................................................... 12,423
--------
Fair value of assets acquired................................................... $238,235
========
</TABLE>
The above cash payments made include approximately $4.9 million of costs
capitalized and allocated to oil and gas properties. The above cash payments are
reduced in the accompanying consolidated statements of cash flows by $2.1
million for cash acquired in the Gerrity Acquisition.
Gas facilities and other
Depreciation of gas gathering and transportation facilities is provided
using the straight-line method over the estimated useful life of 10 years.
Equipment is depreciated using the straight-line method with estimated useful
lives ranging from three to five years.
F-9
<PAGE>
Risks and Uncertainties
Historically, the market for oil and natural gas has experienced
significant price fluctuations. Prices for natural gas in the Rocky Mountain
region have traditionally been volatile, particularly since 1994. In large part,
the price fluctuations can result from variations in weather, levels of
production in the region and availability of transportation capacity to other
regions of the country. Increases or decreases in prices received could have a
significant impact on the Company's future results of operations.
Other
All liquid investments with an original maturity of three months or less
are considered to be cash equivalents. Certain amounts in prior period
consolidated financial statements have been reclassified to conform with current
classification.
All cash payments for income taxes were made by SOCO during 1995 and
through May 2, 1996, at which point the Company began paying its own taxes. The
Company was charged interest by SOCO on its debt of $5.4 million and $1.6
million during 1995 and through May 2, 1996, which was reflected as an increase
in debt to SOCO.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(3) OIL AND GAS PROPERTIES
The cost of oil and gas properties at December 31, 1995, 1996 and 1997,
includes no significant unevaluated leasehold. Acreage is generally held for
exploration, development or resale and its value, if any, is excluded from
amortization. The following table sets forth costs incurred related to oil and
gas properties:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisition............ $ 650 $218,380 $ 2,225
Development............ 12,141 8,301 17,013
Exploration and other.. 429 224 131
------- -------- -------
$13,220 $226,905 $19,369
======= ======== =======
</TABLE>
In May 1996, the Gerrity Acquisition discussed in Note 1 was consummated.
The following table summarizes the unaudited pro forma effects on the Company's
financial statements assuming that the Gerrity Acquisition and the Original
Exchange Offer had been consummated on January 1, 1995 and 1996. Future results
may differ substantially from pro forma results due to changes in these
assumptions, changes in oil and natural gas prices, production declines and
other factors. Therefore, pro forma statements cannot be considered indicative
of future operations (in thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
-------- --------
<S> <C> <C>
Total revenues................................ $103,962 $100,138
Gross operating margin........................ 85,654 82,420
Depletion, depreciation and amortization...... 63,383 51,662
Net income (loss)............................. (7,338) 3,476
Net income (loss) per common share............ $ (0.51) $ 0.03
Weighted average shares outstanding........... 20,000 19,796
</TABLE>
F-10
<PAGE>
(4) INDEBTEDNESS
The following indebtedness was outstanding on the respective dates:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Bank facilities............... $ 94,500 $49,000
Less current portion.......... - -
-------- -------
Senior debt, net.............. $ 94,500 $49,000
======== =======
Subordinated notes............ $103,094 $97,435
======== =======
</TABLE>
In April 1997, the Company entered into an amended bank Credit Agreement
(the "Credit Agreement"). The Credit Agreement is a revolving credit facility in
an aggregate amount up to $140.0 million. The amount available under the
facility is adjusted semiannually and equaled $100.0 million at December 31,
1997, with $49.0 million outstanding at that time.
The Company may elect that all or a portion of the credit facility bear
interest at a rate equal to: (i) the higher of (a) prime rate plus a margin
equal to 0.25% (the "Applicable Margin") or (b) the Federal Funds Effective Rate
plus .5% plus the Applicable Margin, or (ii) the rate at which Eurodollar
deposits for one, two, three or six months (as selected by the Company) are
offered in the interbank Eurodollar market plus a margin which fluctuates from
0.625% to 1.125%, determined by a debt to EBITDA ratio. During 1997, the average
interest rate under the facility approximated 6.8%.
The Credit Agreement contains certain financial covenants, including but
not limited to, a maximum total debt to capitalization ratio, a maximum total
debt to EBITDA ratio and a minimum current ratio. The Credit Agreement also
contains certain negative covenants, including but not limited to restrictions
on indebtedness; certain liens; guaranties, speculative derivatives and other
similar obligations; asset dispositions; dividends, loans and advances; creation
of subsidiaries; investments; leases; acquisitions; mergers; changes in fiscal
year; transactions with affiliates; changes in business conducted; sale and
leaseback and operating lease transactions; sale of receivables; prepayment of
other indebtedness; amendments to principal documents; negative pledge causes;
issuance of securities; and non-speculative commodity hedging. Borrowings under
the Credit Agreement mature in 2000, but may be prepaid at anytime. The Company
has periodically negotiated extensions of the Credit Agreement; however, there
is no assurance the Company will be able to do so in the future. The Company had
a restricted payment basket of $15.9 million as of December 31, 1997, which
allows the Company to repurchase common stock, preferred stock and warrants and
pay dividends on its common stock.
In conjunction with the Gerrity Acquisition, the Company assumed $100
million of 11.75% Senior Subordinated Notes due July 15, 2004 issued by Gerrity
in 1994. Under purchase accounting, the Notes have been reflected in the
accompanying financial statements at a book value of 105.875% of their principal
amount. Interest is payable each January 15 and July 15. The Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after July 15, 1999, initially at 105.875% of their principal amount, declining
to 102.938% on or after July 15, 2000, and declining to 100% on or after July
15, 2001. Upon a change of control, as defined in the Notes, the Company is
obligated to make an offer to purchase all outstanding Notes at a price of 101%
of the principal amount thereof. In addition, the Company would be obligated,
subject to certain conditions, to make offers to purchase the Notes with the net
cash proceeds of certain asset sales or other dispositions of assets at a price
of 101% of the principal amount thereof. Subsequent to the Gerrity Acquisition,
the Company repurchased and retired $8.0 million of the Notes, resulting in
$92.0 million of principal amount of Notes outstanding, or a book value of $97.4
million in the accompanying financial statements. The Notes are unsecured
general obligations of the Company and are subordinated to all senior
indebtedness of the Company and to any existing and future indebtedness of the
Company's subsidiaries.
F-11
<PAGE>
The Notes contain covenants that, among other things, limit the ability of
the Company to incur additional indebtedness, pay dividends, engage in
transactions with shareholders and affiliates, create liens, sell assets, engage
in mergers and consolidations and make investments in unrestricted subsidiaries.
Specifically, the Notes restrict the Company from incurring indebtedness
(exclusive of the Notes) in excess of approximately $51.0 million, if after
giving effect to the incurrence of such additional indebtedness and the receipt
and application of the proceeds therefrom, the Company's interest coverage ratio
is less than 2.5:1 or adjusted consolidated net tangible assets is less than
150% of the aggregate indebtedness of the Company. The Company currently meets
these ratios and accordingly, is not limited in its ability to incur additional
debt.
Prior to the Gerrity Acquisition, SOCO financed all of the Company's
activities. A portion of such financing was considered to be an investment by
SOCO in the Company with the remaining portion being considered debt payable to
SOCO. The portion considered to be debt to SOCO versus an investment by SOCO
was a discretionary percentage determined by SOCO after consideration of the
Company's internally generated cash flows and level of capital expenditures.
Subsequent to the Gerrity Acquisition, the $75.0 million debt to SOCO was repaid
in full and the Company does not expect SOCO to provide any additional funding.
On the portion of such financing which was considered to be debt to parent,
SOCO charged interest at a rate which approximated the average interest rate
being paid by SOCO under its revolving credit facility ( 7.0% and 6.9% for 1995
and the four month period ended May 2, 1996, respectively).
Scheduled maturities of indebtedness for the next five years are zero for
1998 and 1999 and $49.0 million in 2000, and zero in 2001 and 2002. The long-
term portions of the credit facilities are scheduled to expire in 2000. It is
management's intent to review both the short-term and long-term facilities and
extend the maturities on a regular basis; however, there can be no assurance
that the Company will be able to do so.
There were no cash payments for interest expense in 1995 or in the first
four months of 1996. Cash payments for interest totaled $10.5 million in the
eight months ended December 31, 1996, and $16.5 million in 1997.
(5) STOCKHOLDERS' EQUITY
A total of 40.0 million common shares, $.01 par value, are authorized of
which 16.5 million were issued and outstanding at December 31, 1997. The
Company issued 6.0 million common shares and 3.0 million five year common stock
warrants exercisable at $12.50 (which expire in May 2001), in exchange for all
of the outstanding stock of Gerrity upon consummation of the Gerrity
Acquisition. Subsequent to the acquisition date, the Company has repurchased
4,217,200 shares of common stock (including the 3.0 million common shares
repurchased from SOCO in conjunction with the redistribution of SOCO's majority
ownership in October 1997), 125,682 shares of 7.125% preferred stock, 500,000
warrants issued to Gerrity's former chief executive officer, and 80,549 five
year common stock warrants for total consideration of $42.5 million. Prior to
the fourth quarter of 1997, no dividends had been paid on common stock. A cash
dividend of one cent per common share was declared and paid in December 1997.
A total of 5.0 million preferred shares, $.01 par value, are authorized. At
December 31, 1997, the Company had two separate issues of preferred stock
outstanding consisting of 1,467,926 shares of 7.125% preferred and 1,626,437
shares of 8.50% preferred.
F-12
<PAGE>
In May 1996, 1.2 million shares of the Company's 7.125% preferred stock
were issued to certain Gerrity preferred shareholders electing to exchange their
preferred shares (the "Original Exchange Offer"). Thus there were no proceeds
received related to this issuance. In October 1996, Gerrity's certificate of
incorporation was amended to provide that all shares of Gerrity's preferred
stock not exchanged in the Original Exchange Offer be exchanged for the
Company's 7.125% preferred shares on the same terms as the Original Exchange
Offer. This exchange resulted in the issuance of an additional 389,000 preferred
shares. The stock is convertible into common stock at any time at $8.61 per
share, or 2.9036 common shares. The 7.125% preferred stock pays quarterly cash
dividends, when declared by the Board of Directors, based on an annual rate of
$1.78 per share. The 7.125% preferred stock is redeemable at the option of the
Company at any time after May 2, 1998 if the average closing price of the Patina
common stock for 20 of the 30 days prior to not less than five days preceding
the redemption date is greater than $12.92 per share or at any time after May 2,
1999. The liquidation preference is $25 per share, plus accrued and unpaid
dividends. As of December 31, 1997, there were 1,467,926 preferred shares
outstanding with a liquidation preference of $36.7 million. The 7.125% preferred
stock is listed on the New York Stock Exchange. Holders of the 7.125% preferred
stock are not generally entitled to vote, except with respect to certain limited
matters. The Company paid $2.1 million and $2.6 million ($1.78 per 7.125%
convertible preferred share per annum) in preferred dividends during the years
ended December 31, 1996 and 1997, and had accrued an additional $354,000 and
$327,000 at December 31, 1996 and 1997, respectively, for dividends.
In October 1997, 1.6 million shares of 8.50% preferred stock and 160,000
common shares were issued to a private group of investors for $40.0 million.
Each member of the private group of investors has agreed not to sell, transfer
or dispose of any shares of the 8.50% preferred prior to October 22, 1999. The
stock is convertible into common stock at any time at $9.50 per share or 2.6316
common shares. The 8.50 % preferred stock pays quarterly dividends, when
declared by the Board of Directors, and are payable in-kind ("PIK Dividend")
until the fourth quarter of 1999, and payable in cash thereafter. The 8.50%
preferred stock is redeemable at the option of the Company at any time after
October 22, 2000 at 106% of its stated value declining by 2% per annum
thereafter. The liquidation preference is $25 per share, plus accrued and
unpaid dividends. As of December 31, 1997, there were 1,626,437 preferred
shares outstanding with a liquidation preference of $40.7 million. The 8.50%
preferred is privately held and not listed on a public stock exchange. Holders
of the 8.50% preferred are entitled to vote their shares of preferred stock with
the common stock, based upon the number of shares of common stock into which the
shares of preferred stock are convertible. The Company paid $661,000 in PIK
Dividends (issued 26,400 8.50% preferred shares) during the quarter ended
December 31, 1997.
The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings per Share" during 1997. SFAS 128 specifies computation,
presentation and disclosure requirements for earnings per share for entities
with publicly held common stock or potential common stock. All prior period
earnings per share amounts have been restated in accordance with SFAS 128.
In accordance with SFAS 128, the Company computed the net income (loss) per
share by dividing the net income (loss), less dividends and accretion on
preferred stock, by the weighted average common shares outstanding during the
period. Net income (loss) applicable to common for 1995, 1996, and 1997, was
($2,094,000), $1,433,000 and ($20,249,000), respectively.
Diluted net income (loss) per share was computed by dividing the net income
(loss), less dividends and accretion on preferred stock, by weighted average
common shares outstanding during the period and all dilutive potential shares
outstanding (zero for 1995, 1996, and 1997, respectively). The 7.125% and 8.50%
preferred stock potential common stock equivalents and $12.50 common stock
warrants and stock options were anti-dilutive for all periods presented. Net
income (loss) per common share and diluted net income (loss) per common share
were the same for all periods presented.
F-13
<PAGE>
(6) EMPLOYEE BENEFIT PLANS
401(k) Savings
The Company has a 401(k) profit sharing and savings plan (the "401(k)
Plan"). The initial 401(k) Plan was established in May 1996 and in conjunction
with the sale of SOCO's majority ownership of the Company in October 1997, a new
plan was adopted effective January 1, 1997. Eligible employees may make
voluntary contributions to the 401(k) Plan. The amount of employee contributions
is limited as specified in the 401(k) Plan. The Company may, at its discretion,
make additional matching or profit sharing contributions to the 401(k) Plan. The
Company has historically made profit sharing contributions to the 401(k) Plan,
which totaled $281,000 and $453,000 for 1996 and 1997, respectively. The 1997
profit sharing contribution was made in shares of the Company's common stock
(59,901 shares).
Stock Purchase Plan
In January 1998, the Company adopted a stock purchase plan ("Stock Purchase
Plan"). Pursuant to the Stock Purchase Plan, certain officers, directors and
key managers of the Company are eligible to purchase shares of the Company's
common stock at prices ranging from 50% to 85% of the closing price of the stock
on the trading day prior to the date the stock is purchased ("Closing Price").
In addition, employee participants may be granted the right to purchase shares
pursuant to the Stock Purchase Plan with all or a part of their salary and
bonus. The Stock Purchase Plan has reserved 500,000 shares of common stock for
possible purchase under the plan. The Board of Directors has approved 137,500
common shares available to participants for purchase at 75% of the Closing Price
during the current Plan Year as defined in the Stock Purchase Plan.
Stock Option and Award Plans
In 1996, the shareholders adopted a stock option plan for employees
providing for the issuance of options at prices not less than fair market value.
Options to acquire up to three million shares of common stock may be outstanding
at any given time. The specific terms of grant and exercise are determinable by
a committee of independent members of the Board of Directors. A total of 512,000
options were issued in May 1996, with an exercise price of $7.75 per common
share, and 271,000 options were issued in February 1997, with an exercise price
of $9.25 per common share. The options vest over a three-year period (30%, 60%,
100%) and expire five years from date of grant. In addition, 250,000 fully
vested five year options were granted in October 1997 at an exercise price of
$9.875.
In 1996, the shareholders adopted a stock grant and option plan (the
"Directors' Plan") for nonemployee Directors of the Company. The Directors'
Plan provides for each nonemployee Director to receive common shares having a
market value equal to $2,250 quarterly in payment of one-half their retainer. A
total of 3,632 shares were issued in 1996, and 4,512 shares were issued in
1997. It also provides for 5,000 options to be granted annually to each
nonemployee Director. A total of 20,000 options were issued in May 1996, with
an exercise price of $7.75 per common share and 20,000 options were issued in
May 1997, with an exercise price of $8.625. In addition, 10,000 options were
issued in October 1997 with an exercise price of $10.313. The options vest over
a three-year period (30%, 60%, 100%) and expire five years from date of grant.
In October 1997, the shareholders approved a stock grant and purchase plan
for certain officers and key managers ("Management Investors") of the Company.
The plan, which was amended effective December 31, 1997, provided for the grant
of 496,250 restricted common shares, net of forfeitures, to the Management
Investors. These shares will vest at 25% per year on January 1, 1998, 1999,
2000 and 2001. The Company recognized $2.0 million of non-cash general and
administrative expenses in 1997 with respect to the stock grant. The non-vested
granted common shares have been recorded as Deferred compensation in the equity
section of the accompanying consolidated balance sheets. The Management
Investors also purchased $3.0 million of common shares from the Company at
$9.875 per share (303,797 shares). A portion of this purchase ($850,000) was
financed by the Company. See Note (9).
F-14
<PAGE>
At December 31, 1997, the Company had a fixed stock option compensation
plan, which is described above. The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for the plans. Accordingly, no compensation cost has been recognized
for these fixed stock option plans. Had compensation cost for the Company's
fixed stock option compensation plans been determined consistent with Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-
Based Compensation," the Company's net income (in thousands) and earnings per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
------ --------
<S> <C> <C> <C>
Net income (loss) As Reported $3,562 $(16,903)
Pro forma 3,281 (18,611)
Net income (loss)
per common share As Reported $ 0.08 $ (1.11)
Pro forma 0.06 (1.20)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Sholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1997: dividend yield of 0% and 0%;
expected volatility of 30% and 35%; risk-free interest rate of 6.4% and 6.0%;
and expected life of 4.5 years and 4.5 years, respectively.
A summary of the status of the Company's fixed stock option plan as of
December 31, 1996 and 1997 and changes during the years are presented below:
<TABLE>
<CAPTION>
1996 1997
-------------------------------- ------------------------
Weighted-Average Weighted-Average
Exercise Exercise
Shares Price Shares Price
------- ---------------- ---------------- -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year...... - $ - 503,000 $7.75
Granted............................... 532,000 7.75 551,000 9.53
Exercised............................. - - (12,000) 7.75
Forfeited............................. (29,000) 7.75 (41,000) 8.38
------- ---------
Outstanding at end of year............ 503,000 $ 7.75 1,001,000 $8.70
======= =========
Options exercisable at year-end....... - 389,000
=========
Weighted-average fair value of
options granted during the year...... $ 2.81 $3.84
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- ------------------------------
Number Number
Outstanding at Weighted-Avg. Weighted- Exercisable at Weighted-
December 31, Remaining Average December 31, Average
Exercise Price 1997 Contractual Life Exercise Price 1997 Exercise Price
- -------------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 7.75 to 9.25 741,000 3.6 years $ 8.29 139,000 $ 7.75
9.88 to 10.31 260,000 4.8 years 9.89 250,000 9.88
---------- --------
$ 7.75 to 10.31 1,001,000 3.9 years $ 8.70 389,000 $ 9.11
========== ========
</TABLE>
F-15
<PAGE>
(7) FEDERAL INCOME TAXES
Prior to the Gerrity Acquisition, the Company had been included in the
consolidated tax return of SOCO. Current and deferred income tax provisions
allocated by SOCO were determined as though the Company filed as an independent
company, making the same tax return elections used in SOCO's consolidated
return. Subsequent to the Gerrity Acquisition, the Company is no longer
included in the tax return of SOCO.
A reconciliation of the statutory rate to the Company's effective rate as
they apply to the provision (benefit) for the years ended December 31, 1995,
1996 and 1997 follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate................................... (35%) 35% (35%)
Utilization of net deferred tax asset.................... - (35%) -
Increase in valuation allowance.......................... - - 35%
Tax benefit recognized prior to the Gerrity Acquisition.. - (12%) -
---- ---- ----
Effective income tax rate................................ (35%) (12%) -
==== ==== ====
</TABLE>
For book purposes the components of the net deferred asset and liability at
December 31, 1996 and 1997, respectively, were:
<TABLE>
<CAPTION>
1996 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
NOL carryforwards............................ $24,586 $ 30,497
Production payment receivables and other..... 27,382 25,939
------- --------
51,968 56,436
------- --------
Deferred tax liabilities
Depreciable and depletable property.......... 48,145 44,782
Investments and other........................ - -
------- --------
48,145 44,782
------- --------
Deferred tax assets............................ 3,823 11,654
------- --------
Valuation allowance............................ (3,823) (11,654)
------- --------
Net deferred tax asset......................... $ - $ -
======= ========
</TABLE>
For tax purposes, the Company had regular net operating loss carryforwards
of $87.1 million and alternative minimum tax ("AMT") loss carryforwards of $51.2
million at December 31, 1997. Utilization of the regular and AMT net operating
loss carryfowards will be limited to approximately $12.5 million per year as a
result of the redistribution of SOCO's majority ownership in the Company in
October 1997. In addition, utilization of $31.9 million regular net operating
loss carryforwards and $31.6 million AMT loss carryforwards will be limited to
$5.2 million per year as a result of the Gerrity Acquisition in May 1996. These
carryforwards expire from 2006 through 2011. At December 31, 1997, the Company
had alternative minimum tax credit carryforwards of $447,000 which are available
indefinitely. No cash payments were made by the Company for federal taxes during
1996 and 1997.
F-16
<PAGE>
(8) MAJOR CUSTOMERS
During 1996 and 1997, Duke Energy Field Services, Inc. accounted for 38%
and 41% of revenues. During 1995, 1996 and 1997, Amoco Production Company
accounted for 22%, 19% and 16%, subsidiaries of SOCO accounted for 46%, 0% and
0%, and Total Petroleum accounted for 20%, 10% and 8%, of revenues,
respectively. Management believes that the loss of any individual purchaser
would not have a long-term material adverse impact on the financial position or
results of operations of the Company.
(9) RELATED PARTY
Prior to the Gerrity Acquisition, the Company did not have its own
employees. Employees, certain office space and furniture, fixtures and equipment
were provided by SOCO. SOCO allocated general and administrative expenses to the
Company based on its estimate of expenditures incurred on behalf of the Company.
Subsequent to the Gerrity Acquisition, certain field, administrative and
executive employees of SOCO and Gerrity became employees of the Company. SOCO
will continue to provide certain services to Patina under a corporate services
agreement through September 1998. During 1996 and 1997, the Company paid
approximately $650,000 and $1.5 million to SOCO under the corporate services
agreement.
In conjunction with the transactions entered into with SOCO in October 1997
which redistributed their majority ownership of the Company, certain officers
and key managers purchased $3.0 million of common shares at $9.875 per share
(303,797 shares) from the Company. A portion of this purchase ($850,000) was
financed by the Company through the issuance of 8.50% recourse notes. These
notes are secured by the common stock purchased (101,265 shares) and additional
common shares granted (146,250 shares) to the respective officers and key
managers. Interest is due annually and the notes are scheduled to mature on
January 2, 2001. These notes have been reflected as Other assets in the
accompanying consolidated balance sheets.
F-17
<PAGE>
(10) COMMITMENTS AND CONTINGENCIES
The Company leases office space and certain equipment under non-cancelable
operating leases. Future minimum lease payments under such leases approximate
$500,000 per year from 1998 through 2002.
In March 1996, a complaint was filed in the Court of Chancery for the State
of Delaware against Gerrity and each of its directors, Brickell Partners v.
Gerrity Oil & Gas Corporation, C.A. No. 14888 (Del. Ch.). The complaint alleges
that the "action is brought (a) to restrain defendants from consummating the
Gerrity Acquisition which will benefit the holders of Gerrity's common stock at
the expense of the holders of Gerrity's preferred stock and (b) to obtain a
declaration that the terms of the proposed Gerrity Acquisition constitute a
breach of the contractual rights of the preferred." The complaint sought, among
other things, certification as a class action on behalf of all holders of
Gerrity's preferred stock, a declaration that the defendants have committed an
abuse of trust and have breached their fiduciary and contractual duties, an
injunction enjoining the Gerrity Acquisition and money damages. In April 1996,
the defendants were granted an indefinite extension of time in which to answer
the complaint and no answer had been filed by February 1997. In February 1997,
the attorney for the plaintiff filed a Status Report with the court stating
"Case has been mooted. Plaintiff is preparing an application for counsel fees."
No fee application was filed. In November 1997, the plaintiff filed an amended
complaint. The amended complaint realleges the substance of the original
complaint and includes an allegation that the defendants coerced the holders of
the Gerrity preferred stock into exchanging their stock for the 7.125% Preferred
Stock of the Company. The amended complaint also alleges the defendants
participated in a scheme to eliminate the outstanding Gerrity preferred by
forcing the exchange of those shares for shares of the Company's preferred in
October 1996. The amended complaint seeks rescission of the transactions
described in the complaint or money damages if rescission is impractical. On
January 5, 1998, defendants filed a motion to dismiss the amended complaint. No
further action has been taken with respect to the case. Defendants believe that
the amended complaint is without merit and intend to vigorously defend against
this action. At this time, the Company is unable to estimate the range of
potential loss, if any, from this uncertainty. However, the Company believes
the resolution of this uncertainty should not have a material adverse effect
upon the Company's financial position, although an unfavorable outcome in any
reporting period could have a material adverse effect on results for that
period.
The Company is a party to various other lawsuits incidental to its
business, none of which are anticipated to have a material adverse impact on its
financial position or results of operations.
F-18
<PAGE>
(11) UNAUDITED SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION
Independent petroleum consultants directly evaluated total proved reserves
at December 31, 1995 and 1996 and audited total proved reserves at December 31,
1997. All reserve estimates are based on economic and operating conditions at
that time. Future net cash flows as of each year-end were computed by applying
then current prices to estimated future production less estimated future
expenditures (based on current costs) to be incurred in producing and developing
the reserves. All reserves are located onshore in the United States.
Future prices received for production and future production costs may vary,
perhaps significantly, from the prices and costs assumed for purposes of these
estimates. There can be no assurance that the proved reserves will be developed
within the periods indicated or that prices and costs will remain constant.
With respect to certain properties that historically have experienced seasonal
curtailment, the reserve estimates assume that the seasonal pattern of such
curtailment will continue in the future. There can be no assurance that actual
production will equal the estimated amounts used in the preparation of reserve
projections.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures. The data in the tables below represent estimates only.
Oil and gas reserve engineering must be recognized as a subjective process of
estimating underground accumulations of oil and natural gas that cannot be
measured in an exact way, and estimates of other engineers might differ
materially from those shown above. The accuracy of any reserve estimate is a
function of the quality of available data and engineering and geological
interpretation and judgement. Results in drilling, testing and production after
the date of the estimate may justify revisions. Accordingly, reserve estimates
are often materially different from the quantities of oil and gas that are
ultimately recovered.
F-19
<PAGE>
QUANTITIES OF PROVED RESERVES
- -----------------------------
<TABLE>
<CAPTION>
OIL NATURAL GAS
--- -----------
(MBBL) (MMCF)
<S> <C> <C>
Balance, December 31, 1994......................... 12,218 178,703
Revisions....................................... (3,609) (19,618)
Extensions, discoveries and additions........... 154 785
Production...................................... (1,342) (20,981)
Purchases....................................... - -
Sales........................................... - (32)
------ -------
Balance, December 31, 1995......................... 7,421 138,857
Revisions....................................... 720 (1,314)
Extensions, discoveries and additions........... 194 1,342
Production...................................... (1,688) (23,947)
Purchases....................................... 15,834 183,729
Sales........................................... (6) (2,008)
------ -------
Balance, December 31, 1996......................... 22,475 296,659
Revisions (a)................................... (4,418) (27,671)
Extensions, discoveries and additions........... 784 11,162
Production...................................... (1,889) (26,863)
Purchases....................................... 101 3,193
Sales........................................... (77) (845)
------ -------
Balance, December 31, 1997......................... 16,976 255,635
====== =======
</TABLE>
PROVED DEVELOPED RESERVES
<TABLE>
<CAPTION>
OIL NATURAL GAS
--- -----------
(MBBL) (MMCF)
<S> <C> <C>
December 31, 1994..................................... 8,832 147,869
======= =========
December 31, 1995..................................... 6,955 133,088
======= =========
December 31, 1996..................................... 15,799 242,777
======= =========
December 31, 1997..................................... 14,594 232,058
======= =========
</TABLE>
(a) Revisions consist primarily of 4,060 MBbl's and 31,232 MMcf's attributable
to proved undeveloped drilling locations and proved developed non-producing
zones (behind-pipe recompletions) determined to be uneconomic using the lower
oil and natural gas prices in effect at December 31, 1997.
F-20
<PAGE>
STANDARDIZED MEASURE
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1995 1996 1997
-------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash inflows $356,224 $1,668,475 $894,390
Future costs
Production.............................. (100,505) (338,752) (255,599)
Development............................. (13,428) (160,856) (87,414)
-------- ---------- --------
Future net cash flows.................... 242,291 1,168,867 551,377
Undiscounted income taxes............. (29,873) (294,407) (89,094)
-------- ---------- --------
After tax net cash flows.............. 212,418 874,460 462,283
10% discount factor...................... (84,902) (374,524) (185,953)
-------- ---------- --------
Standardized measure..................... $127,516 $ 499,936 $276,330
</TABLE>
CHANGES IN STANDARDIZED MEASURE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure, beginning of year.. $161,481 $127,516 $ 499,936
Revisions:
Prices and costs....................... 2,240 351,724 (312,526)
Quantities............................. (14,230) 501 6,134
Development costs...................... (1,182) (11,024) (14,783)
Accretion of discount.................. 16,148 27,619 49,994
Income taxes........................... 10,963 (129,612) 105,189
Production rates and other............. (21,265) (3,706) (8,433)
-------- -------- --------
Net revisions.......................... (7,326) 235,502 (174,425)
Extensions, discoveries and additions.... 2,064 3,791 11,756
Production............................... (40,877) (67,666) (81,149)
Future development costs incurred........ 12,192 7,906 17,013
Purchases (a)............................ - 193,998 3,900
Sales (b)................................ (18) (1,111) (701)
-------- -------- --------
Standardized measure, end of year........ $127,516 $449,936 $276,330
======== ======== ========
</TABLE>
(a) "Purchases" includes the present value at the end of the period acquired
during the year plus cash flow received on such properties during the period,
rather than their estimated present value at the time of the acquisition.
(b) "Sales" represents the present value at the beginning of the period of
properties sold, less the cash flow received on such properties during the
period.
F-21
<PAGE>
PART IV. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits -
<TABLE>
<CAPTION>
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger dated as of January 16, 1996 as amended and restated as of March 20,
1996 -- incorporated by reference to Exhibit 2.1 to Amendment No. 1 to the Registration Statement on Form S-4 of Patina
Oil & Gas Corporation. (Registration No. 333-572)
4.1 Certificate of Incorporation -- incorporated herein by reference to the Exhibit 3.1 to the Company's Registration
Statement on Form S-4 (Registration No. 333-572)
4.2 Bylaws -- incorporated herein by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-4
(Registration No. 333-572 )
4.3 Certificate of Ownership and Merger of Gerrity Oil & Gas Corporation with and into the Company, effective March 21,
1997. (Incorporated herein by reference to Exhibit 4.3 of the Company's Form 10-Q for the quarter ended March 31,
1997.)
10.1.1 Amended and Restated Credit Agreement dated April 1, 1997 by and among the Company, as Borrower, and Texas Commerce
Bank National Association, as Administrative Agent, and certain commercial lending institutions. (Incorporated herein
by reference to Exhibit 10.1.5 of the Company's Form 10-Q for the quarter ended March 31, 1997.)
10.1.2 First Amendment to the Amended and Restated Credit Agreement effective May 1, 1997 by and among the Company, as
Borrower, and Texas Commerce Bank National Association, as Administrative Agent, and certain commercial lending
institutions. (Incorporated herein by reference to Exhibit 10.1.6 of the Company's Form 10-Q for the quarter ended
March 31, 1997.)
10.1.3 Second Amendment to Amended and Restated Credit Agreement dated as of September 15, 1997 by and among the Company and
Texas Commerce Bank National Association, as Administrative Agent, NationsBank of Texas, N.A. as Documentary Agent,
Wells Fargo Bank, N.A., CIBC, Inc. and Credit Lyonnais New York Branch, as Co-Agents and the financial institutions a
party to the Credit Agreement. (Incorporated herein by reference to Exhibit 10.1.8 of the Company's Form 10-Q for the
quarter ended September 30, 1997.)
10.2.1 Supplemental Indenture dated as of March 31, 1997 among Gerrity Oil & Gas Corporation, the Company and The Chase
Manhattan Bank (formerly known as Chemical Bank) as Trustee. (Incorporated herein by reference to Exhibit 10.1.7 of the
Company's Form 10-Q for the quarter ended March 31, 1997.)
10.3 Patina Oil & Gas Corporation Profit Sharing and Savings Plan and Trust, effective January 1, 1997.*
10.3.1 Deferred Compensation Plan for Selected Employees adopted by the Company effective May 1, 1996. (Incorporated herein by
reference to Exhibit 10.3.1 of the Company's Form 10-K for the year ended December 31, 1996)
10.3.2 Amended and Restated Patina Oil & Gas Corporation Deferred Compensation Plan for Select Employees as adopted May 1,
1996 and amended as of September 30, 1997.*
10.3.3 Patina Oil & Gas Corporation 1998 Stock Purchase Plan.*
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10.4 Sublease Agreement dated as of May 1, 1996 by and between Snyder Oil Corporation, as Sublandlord, and the Company, as
Subtenant. (Incorporated herein by reference to Exhibit 10.4 of the Company's Form 10-Q for the quarter ended June 30,
1996.)
10.4.1 Sublease Agreement dated as of October 7, 1996 by and between Gerrity Oil & Gas Corporation, as Sublandlord, and
Shadownet Technologies, L.L.C. (Incorporated herein by reference to Exhibit 10.4 of the Company's Form 10-Q for the
quarter ended September 30, 1996.)
10.5 Stock Purchase Agreement dated as of July 31, 1997 by and among the Company and the Investors named therein as amended
on September 19, 1997. (Incorporated herein by reference to Exhibit 10.5 of the Company's Form 10-Q for the quarter
ended September 30, 1997.)
10.6 Share Repurchase Agreement dated as of July 31, 1997 by and between the Company and Snyder Oil Corporation as amended
and restated on September 19, 1997 and as amended as of October 15, 1997 and amended by letter agreement dated October
21, 1997. (Incorporated herein by reference to Exhibit 10.6 of the Company's Form 10-Q for the quarter ended September
30, 1997.)
10.7 Employment Agreement dated July 31, 1997 by and between the Company and Thomas J. Edelman. (Incorporated herein by
reference to Exhibit 10.7 of the Company's Form 10-Q for the quarter ended September 30, 1997.)
10.8 Management Stock Purchase Agreement dated as of September 4, 1997 by and among the Company and certain Management
Investors. (Incorporated herein by reference to Exhibit 10.8 of the Company's Form 10-Q for the quarter ended September
30, 1997.)
10.9 Restricted Stock Agreement dated as of September 4, 1997 by and among the Company and certain Management Investors.
(Incorporated herein by reference to Exhibit 10.9 of the Company's Form 10-Q for the quarter ended September 30, 1997.)
10.10 Transition Agreement dated as of October 21, 1997 by and between the Company and Snyder Oil Corporation. (Incorporated
herein by reference to Exhibit 10.10 of the Company's Form 10-Q for the quarter ended September 30, 1997.)
11.1 Computation of Per Share Earnings.*
12 Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends.*
27 Financial Data Schedule.*
</TABLE>
*Filed herewith
(b) No reports on Form 8-K were filed by Registrant during the quarter ended
December 31, 1997.
F-23
<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 undersigned thereunto duly authorized.
/s/ Thomas J. Edelman Chairman of the Board and President February 26, 1998
- --------------------- (Principal Executive Officer)
Thomas J. Edelman
/s/ Brian J. Cree Director, Executive Vice President February 26, 1998
- --------------------- and Chief Operating Officer
Brian J. Cree
/s/ David J. Kornder Vice President and February 26, 1998
- --------------------- Chief Financial Officer
David J. Kornder
/s/ Arnold L. Chavkin Director February 26, 1998
- ---------------------
Arnold Chavkin
/s/ Robert J. Clark Director February 26, 1998
- ---------------------
Robert J. Clark
/s/ Jay W. Decker Director February 26, 1998
- ---------------------
Jay W. Decker
/s/ Thomas R. Denison Director February 26, 1998
- ---------------------
Thomas R. Denison
/s/ Elizabeth K. Lanier Director February 26, 1998
- -----------------------
Elizabeth K. Lanier
/s/ Alexander P. Lynch Director February 26, 1998
- ----------------------
Alexander P. Lynch
F-24
<PAGE>
EXHIBIT 10.3
PATINA OIL & GAS CORPORATION
PROFIT SHARING AND SAVINGS PLAN AND TRUST
PATINA OIL & GAS CORPORATION, a Delaware Corporation, having its principal
office in Denver, Colorado (hereinafter referred to as "Employer"), and KEITH M.
CROUCH ("Initial Trustee") and MERRILL LYNCH TRUST COMPANY OF AMERICA
(hereinafter referred to as "Trustee") make this Agreement.
R E C I T A L S:
- - - - - - - -
A. The Employer has adopted the Snyder Oil Corporation Profit Sharing and
Savings Plan and Trust (the "Prior Plan") for the benefit of its eligible
Employees and their Beneficiaries.
B. The Employer recognizes the lasting contribution made by its Employees
to its successful operation and wants to reward their contribution by continuing
the Profit Sharing and Savings Plan and Trust.
C. The Employer wishes to establish a separate Profit Sharing and Savings
Plan and Trust. The Employer intends to continue its participation in the
Snyder Oil Corporation Profit Sharing and Savings Plan and Trust through
December 31, 1997, but shall make no further Employer Contributions under
Section 5.1(a) of the Snyder Oil Corporation Plan effective for Plan Years after
December 31, 1996.
D. The Employer has authorized the execution of this Agreement intended to
establish a Profit Sharing and Savings Plan and Trust to qualify under Sections
401(a) and 501(a) of the Internal Revenue Code of 1986 as amended and the
regulations promulgated thereunder.
E. As soon as administratively feasible following the close of the Plan
Year ending December 31, 1997, the accounts of all Employees of Patina Oil & Gas
Corporation who are active participants in the Snyder Oil Corporation Profit
Sharing and Savings Plan and Trust, and the trust funds allocable thereto, shall
be transferred to the Patina Oil & Gas Corporation Profit Sharing and Savings
Plan and Trust; shall be reflected in such Participant's separate accounts
established pursuant to Article XVII of the Plan and Trust; and shall be used to
fund benefits under the Plan and Trust as therein provided.
F. If an Employee terminates employment with the Employer prior to the
Effective Date, that Employee shall be entitled to benefits under the terms of
the Snyder Oil Corporation Profit Sharing Plan and Trust as such Plan existed on
the Employee's termination date.
G. The Trustee is willing to act as Trustee under the terms of the Plan
and Trust contained in this Agreement.
NOW, THEREFORE, considering the premises and their mutual covenants, the
Employer and the Trustee agree as follows:
1
<PAGE>
ARTICLE I
---------
Definitions
-----------
The following terms used in this Agreement shall have the meanings set forth in
this Article unless a different meaning is clearly indicated by the context:
1.1. Account Balance
---------------
Account Balance means the amount standing in a Participant's Individual
Account(s) as of any date derived from both Employer Contributions and
Employee Contributions, if any.
1.2. Accounting Date, Valuation Date
-------------------------------
The term Accounting Date means the last day of each Accounting Period and
any other days within the Accounting Period upon which, consistent with
established methods and guidelines, the Trustee applies the valuation
procedures specified in Article IV. The term Valuation Date, unless
otherwise specified, means any business day on which the New York Stock
Exchange is open. The Accounting Date is a Valuation Date.
1.3. Accounting Period
-----------------
Accounting Period means each of the 3-month periods which end on March 31,
June 30, September 30 and December 31.
1.4. Administrator
-------------
Administrator means PATINA OIL & GAS CORPORATION unless Patina Oil & Gas
Corporation designates another person to hold the position of Administrator
by written Employer action. In addition to its other duties, Patina Oil &
Gas Corporation has full responsibility for compliance with the reporting
and disclosure rules under ERISA pertaining to this Agreement.
1.5. Agreement
---------
Agreement means this Plan and Trust Agreement and all amendments or
addendums to this Agreement.
1.6. Alternate Payee
---------------
Alternate Payee means any spouse, former spouse, child, or other dependent
of a Participant who is recognized by a domestic relations order as having
a right to receive all, or a portion of, the benefits payable under the
Plan with respect to such Participant.
1.7. Anniversary Date
----------------
Anniversary Date means DECEMBER 31 of each Plan Year. The Anniversary Date
is an Allocation Date.
1.8. Annual Compensation
-------------------
(a) Annual Compensation, pursuant to the safe harbor definition of Treasury
Regulation Section 1.415-2(d)(11), means wages as defined in Code
Section 3401(a) and all other payments of compensation to an Employee
by the Employer in the course of the Employer's trade or business for
which the Employer is required to furnish the Employee a written
statement under Code Sections 6041(d) and 6051(a)(3). Compensation
must be determined without regard to any rules under Code Section
3401(a) that limit the remuneration included in wages based on the
nature or location of the employment or the services performed such as
the exception for agricultural labor in Code Section 3401(a)(2).
(b) Notwithstanding the foregoing, Compensation received prior to a
Participant's Entry Date shall be excluded.
(c) In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the
annual compensation of each employee taken into account under the Plan
shall not exceed $160,000, as adjusted by the Commissioner for
increases in the cost of living in accordance with Section
401(a)(17)(B) of the Internal Revenue Code (the "Annual Compensation
Limit"). 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 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.
If compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the current
plan year, the compensation for that prior determination period is
subject to the Annual Compensation Limit in effect for that prior
determination period.
2
<PAGE>
(d) For purposes of determining whether the Plan discriminates in favor of
Highly Compensated Employees, Annual Compensation means Annual
Compensation defined in this Section 1.8, except any exclusions from
Annual Compensation other than the exclusions described in clauses
(a)(i), (ii), (iii), (iv), and (v) do not apply. The Employer also may
elect to use an alternate nondiscriminatory definition, under Code
Section 414(s) and the applicable Treasury regulations. In determining
Annual Compensation under this paragraph, the Employer may elect to
include all Elective Contributions made by the Employer on behalf of
the Employees. The Employer's election to include Elective
Contributions must be consistent and uniform for Employees and all
plans of the Employer for any particular Plan Year. The Employer may
make this election to include Elective Contributions for
nondiscrimination testing purposes, whether or not this Section
includes Elective Contributions in the general Annual Compensation
definition of the Plan.
(e) Notwithstanding the foregoing, Annual Compensation for any Self-
Employed Individual means Earned Income.
(f) Notwithstanding the foregoing, Annual Compensation includes, pursuant
to the safe harbor definition of Treasury Regulation Section
1.414.(s)-1(c)(4):
(i) Elective Contributions that are made by the Employer on behalf
of its Employees that are not includable in gross income under
Code Section 125 relating to a cafeteria plan; Code Section
402(a)(8) relating to a Code Section 401(k) arrangement; Code
Section 402(h) relating to a simplified employee pension plan;
Code Section 403(b) relating to a tax sheltered annuity plan;
and Code Section 402(k) relating to simple retirement accounts;
(ii) Compensation deferred under an eligible deferred compensation
plan defined in Code Section 457(b) for state and local
governments and tax-exempt organizations; and
(iii) Employee Contributions under governmental plans described in
Code Section 414(h)(2) picked up by the employing unit and
treated as Employer Contributions.
(g) For purposes of Participant Elective Deferral Contributions, Annual
Compensation shall include bonuses paid to a Participant by the
Employer during the Plan Year.
(h) For purposes of Employer Non-Elective Contributions, Annual
Compensation shall exclude bonuses paid to a Participant by the
Employer during the Plan Year.
1.9. Beneficiary
-----------
Beneficiary means any person or fiduciary designated by a Participant or
Former Participant who is or may become entitled to receive benefits under
Article VII following the death of the Participant or Former Participant.
A Beneficiary who becomes entitled to a benefit under the Plan shall
remain a Beneficiary under the Plan until the Trustee has fully
distributed the benefits to the Beneficiary. A Beneficiary's right to
information or data concerning the Plan, and the respective duties of the
Administrator, the Committee and the Trustee to provide to the Beneficiary
information or data concerning the Plan, shall not arise until the
Beneficiary first becomes entitled to receive a benefit under the Plan.
For purposes of determining whether the Plan is a Top-Heavy Plan, a
Beneficiary of a deceased Participant shall be considered a Key Employee
or a Non-Key Employee in accordance with the applicable Treasury
Regulations.
1.10. Cash Value
----------
Cash Value means the cash surrender value of any Contract acquired under
the Plan, including all dividends or other accumulations remaining with
the Insurance Company as part of such Contract, on the date cash value is
to be determined.
1.11. Code
----
Code means the Internal Revenue Code of 1986, as amended from time to
time. A reference to a Code Section in this Agreement means the provisions
or successor provisions of the particular Code Section, as amended or
replaced from time to time.
1.12. Committee
---------
Committee means the Plan Committee as from time to time constituted
pursuant to Article XII.
1.13. Contract
--------
Contract means any life insurance, annuity, or other contract which may be
issued by an Insurance Company.
1.14. Determination Date
------------------
Determination Date means (a) the last day of the preceding Plan Year or
(b) in the case of the first Plan Year, the last day of the first Plan
Year.
3
<PAGE>
1.15. Disability
----------
Disability means a Participant's total and permanent, mental or physical
disability resulting in termination of employment as evidenced by
presentation of medical evidence satisfactory to the Administrator.
1.16. Early Retirement Date
---------------------
An Early Retirement Date is not provided under this Plan.
1.17. Effective Date
--------------
The Effective Date of this Plan JANUARY 1, 1997.
1.18. Employee
--------
(a) Employee means any individual currently employed by the Employer
maintaining the Plan or of any other Employer required to be
aggregated with the Employer under Code Sections 414(b), (c), (m) or
(o).
(b) The Plan treats any Leased Employee as an Employee of the Employer
unless excluded by an exclusion classification in Section 2.1. A
Leased Employee is an individual, who otherwise is not an Employee of
the Employer, who, pursuant to a leasing agreement between the
Employer and any other person, has performed services for the
Employer (or for the Employer and any persons related to the Employer
within the meaning of Code Section 144(a)(3)) on a substantially full
time basis for at least one (1) year and who performs services
historically performed by Employees in the Employer's business field.
If a Leased Employee is treated as an Employee because of this
Section 1.18, Annual Compensation includes compensation from the
leasing organization which is attributable to services performed for
the Employer.
(c) Notwithstanding the foregoing, the Plan does not treat any Leased
Employee as an Employee of the Employer if the leasing organization
covers the Employee in a safe harbor plan and, prior to the
application of this safe harbor plan exception, twenty percent (20%)
or less of the Employer's Employees (other than Highly Compensated
Employees) are Leased Employees. A safe harbor plan is a money
purchase pension plan providing immediate participation, full and
immediate vesting, and a nonintegrated contribution formula equal to
at least ten percent (10%) of the employee's compensation without
regard to employment by the leasing organization on a specified date.
The safe harbor plan must determine the ten percent (10%)
contribution on the basis of compensation defined in Code Section
415(c)(3) plus salary deferrals.
(d) The Committee must apply this Section 1.18 in a manner consistent
with Code Sections 414(n) and 414(o) and the applicable Treasury
regulations. The Committee will reduce a Leased Employee's allocation
of Employer Contributions under this Plan by the Leased Employee's
allocation under the leasing organization's plan, but only to the
extent that allocation is attributable to the Leased Employee's
service provided to the Employer. The leasing organization's plan
must be a money purchase pension plan which would satisfy the
definition under this Section 1.18 of a safe harbor plan,
irrespective of whether the Employer is able to apply the safe harbor
plan exception.
1.19. Employer
--------
Employer means PATINA OIL & GAS CORPORATION, a Delaware Corporation,
successor in interest to Gerrity Oil and Gas Corporation, or any other
employer who with the written consent of Patina Oil & Gas Corporation
adopts this Plan.
1.20. Employer Securities
-------------------
Employer Securities means:
(i) Common stock issued by the Employer (or by a corporation which is
a member of the same controlled group) which is readily tradeable
on an established securities market; or
(ii) If there is no common stock which meets the requirements of (i)
above, then common stock issued by the Employer (or by a
corporation which is a member of the same controlled group) having
a combination of voting power and dividend rights equal to or in
excess of:
(A) that class of common stock of the Employer (or any other such
corporation) having the greatest voting power; and
(B) that class of common stock of the Employer (or of any other
such corporation) having the greatest dividend rights; or
(iii) Noncallable preferred stock, if such stock is convertible at any
time into stock which meets the requirements of (i) or (ii) above
(whichever is applicable) and if such conversion is at a
conversion price that is reasonable. A preferred stock will be
considered
4
<PAGE>
noncallable if after the call there will be a reasonable opportunity
for a conversion which meets the requirements of the preceding sentence
in accordance with applicable Treasury regulations.
1.21. Entry Date
----------
Entry Date means the Effective Date and every JANUARY 1 and JULY 1 after
the Effective Date. EFFECTIVE JANUARY 1, 1998, Entry Date means every
JANUARY 1, APRIL 1, JULY 1 and OCTOBER 1 of each Plan Year.
1.22. ERISA
-----
ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
1.23. Forfeiture
----------
Forfeiture means the loss, by a Participant or Beneficiary, pursuant to
Section 9.4, of that part of the benefit which the Participant or
Beneficiary otherwise would have received under the Plan at any time
prior to the termination of the Plan or the complete discontinuance of
benefits under the Plan, arising from the Participant's severance of
employment.
1.24. Former Employee
---------------
Former Employee means any individual who is no longer employed by the
Employer.
1.25. Former Participant
------------------
Former Participant means any individual who has been a Participant in the
Plan, but who is either no longer employed by the Employer or is
otherwise no longer eligible to participate and has not yet received the
entire benefit to which the individual is entitled under the Plan.
1.26. Highly Compensated Employee
---------------------------
Highly Compensated Employee means any Participant or Former Participant
who is a Highly Compensated Employee, defined in Code Section 414(q).
Generally, any Participant or Former Participant is considered a Highly
Compensated Employee if, during the Plan Year (the "Determination Year")
or during the twelve month period immediately preceding the Determination
Year or, if the Employer elects, the calendar year ending with or within
the Determination Year (the "Look Back Year"), the Participant or Former
Participant:
(a) was at any time during the Plan Year or during the preceding Plan
Year a Five Percent Owner as defined in Section 1.47(g); or
(b) for the preceding Plan Year (a) had Compensation from the Employer in
excess of $80,000, as adjusted by the Secretary of the Treasury for
the relevant year and (b) if the Employer elects, was in the top-paid
group during the preceding Plan Year.
(c) 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 Annual
Compensation paid during the Plan Year. However, solely for
determining the total number of active Employees for a year, the
following Employees are disregarded:
(i) The Employees described in this subsection (i) are excluded on
the basis of age or Service:
(A) Employees who have not completed six (6) months of Service
by the end of the year. (An Employee's Service in the
immediately preceding year is added to the Employee's
Service in the current year to determine whether the
exclusion applies in the current year.);
(B) Employees who normally work less than 17 1/2 hours per
week. (This determination is made independently for each
year. Weeks during which the Employee did not work are not
considered. An Employee who works less than 17 1/2 hours a
week for fifty percent (50%) or more of the total weeks
worked by the Employee during the year is deemed to
normally work less than 17 1/2 hours per week under this
rule.);
(ii) Employees who are included in a unit of employees covered by an
agreement that the Secretary of Labor finds to be a collective
bargaining agreement between Employee representatives and the
Employer which satisfies Code Section 7701(a)(46) and Temporary
Treasury Regulation Section 301.7701-17T are included in
determining the number of Employees in the top-paid group unless
the following exception applies. If ninety percent (90%) or more
of the Employees of the Employer are covered under collective
bargaining agreements that the Secretary of Labor finds to be
collective bargaining agreements between Employee
representatives and the Employer, which agreements satisfy Code
Section 7701(a)(46) and Temporary Treasury Regulation Section
301.7701-17T, and the Plan covers only Employees who are not
covered under the agreements, then the Employees who are covered
under the agreements are (A) not counted in determining the
number of noncollective bargaining employees who will be
included in the top-paid group in testing the Plan; and (B) not
included in the top-paid group in testing the Plan.
5
<PAGE>
The Committee must make the determination of who is a Highly Compensated
Employee consistent with Code Section 414(q) and regulations issued under
that Code Section. The Employer may make a calendar year election to
determine the Highly Compensated Employees for the Look Back Year, as
prescribed by Treasury regulations. A calendar year election must apply
to all plans and arrangements of the Employer.
A Former Participant who separated from Service, or is deemed to have
separated from Service under applicable Treasury regulations, prior to
the Plan Year, performs no Service for the Employer during the Plan Year
and was a Highly Compensated Employee either for the Separation Year or
any Plan Year ending on or after such Former Participant attained age
fifty-five (55) years is considered a Highly Compensated Employee.
Generally, Separation Year means the Plan Year during which the Employee
separates from Service with the Employer. A Former Participant who
separated from Service prior to January 1, 1987 is considered a Highly
Compensated Employee only if the Former Participant was a Five Percent
Owner or received Compensation in excess of $50,000 during (a) the
Participant's Separation Year or the year preceding the Separation Year
or (b) any year ending on or after such Former Participant attained age
fifty-five (55) years or the last year ending before such Former
Participant attained age fifty-five (55) years.
For purposes of this Section, Compensation means Annual Compensation
defined in Section 1.8, and including deferrals under (a) Code Section
402(a)(8) relating to a Code Section 401(k) arrangement; (b) Code Section
125 relating to a cafeteria plan; (c) Code Section 403(b) relating to a
tax sheltered annuity plan; (d) Code Section 408(h) relating to a
simplified employee pension; and (e) effective JANUARY 1, 1998, Code
Section 402(k) relating to a simple retirement account. Compensation from
each Related Employer shall be taken into account.
1.27. Hour of Service
---------------
(a) Any Employee or Participant who is compensated on an hourly-rated
basis shall be credited with an Hour of Service for:
(i) each hour for which the Employee or Participant is either
directly or indirectly paid or entitled to payment by the
Employer for the performance of duties or for reasons other
than for the performance of duties due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty,
military duty or leave of absence, whether or not the
employment relationship was terminated; and
(ii) each hour for which back pay has been awarded to the Employee
or Participant or agreed to by the Employer, irrespective of
mitigation of damages.
(b) Any Employee or Participant who is compensated on a basis other than
an hourly-rated basis and who, if hourly-rated, would be credited
with one (1) Hour of Service pursuant to the preceding sentence,
shall be credited with the number of Hours of Service as follows:
(i) ten (10) hours of service per day, if compensated on a daily
basis;
(ii) forty-five (45) hours of service per week, if compensated on a
weekly basis;
(iii) ninety (90) hours of service per bi-weekly period, if
compensated on a bi-weekly basis;
(iv) ninety-five (95) hours of service per semi-monthly period, if
compensated on a semi-monthly basis; or
(v) one hundred ninety (190) hours of service per month, if
compensated on a monthly basis.
(c) The number of Hours of Service which shall be credited to an Employee
or Participant for being entitled to payment for reasons other than
for the performance of duties shall be determined under Sections
2530.200b-2(b) and (c) of the Department of Labor Regulations which
are incorporated herein by this reference. The method for crediting
Hours of Service under Section 1.27(b) for each Participant shall be
the same method used for crediting Hours of Service for which the
Participant received compensation. Notwithstanding the foregoing, not
more than five hundred one (501) Hours of Service shall be credited
to any Employee or Participant during any Computation Period for any
single, continuous period during which the Employee or Participant
performs no duties.
(d) An Hour of Service performed for any other entity that is a Related
Employer with respect to the Employer shall be considered an Hour of
Service performed for the Employer.
1.28. Individual Accounts
-------------------
Individual Accounts means accounts or records maintained by the Committee
or its agent indicating the monetary value of the total interest in the
Trust Fund of each Participant, each Former Participant, and each
Beneficiary. The types of Individual Accounts under this Plan are:
(a) Employer Contribution Accounts holding Employer Contributions made to
------------------------------
the Plan under Section 3.1 and attributable earnings. The types of
Employer Contribution Accounts maintained under this Plan are:
6
<PAGE>
(i) Employer Non-Elective Contribution Accounts holding Employer
-------------------------------------------
Contributions made to the Plan for the benefit of an Employee
which the Employee could not have elected to receive in the form
of cash or other taxable benefit.
(b) Participant Contribution Accounts holding Participant Contributions
---------------------------------
made to the Plan and attributable earnings. The types of Participant
Contribution Accounts maintained under this Plan are:
(i) Rollover Accounts holding the Participant's qualified rollover to
-----------------
the Plan pursuant to Article XVII plus amounts transferred from
the Snyder Oil Corporation Profit Sharing and Savings Plan and
Trust Agreement attributable to Rollover Contributions.
(ii) Participant Voluntary After Tax Contribution Accounts holding the
-----------------------------------------------------
after-tax contributions of the Participant accounts transferred
from the Snyder Oil Corporation Profit Sharing and Savings Plan
and Trust.
(iii) Prior Match Accounts holding amounts transferred from the Snyder
--------------------
Oil Corporation Profit Sharing and Savings Plan and Trust
attributable to Matching Contributions and Qualified Non-Elective
Contributions under the Gerrity Oil & Gas Corporation 401(k)
Retirement Plan and amounts transferred from the DelMar Operating
Plan designated as Matching Contributions.
(iv) Salary Deferral Accounts holding the amount contributed by the
------------------------
Employer as the result of an election by a Participant to have
that amount contributed to the Plan rather than paid as cash or
other taxable benefit pursuant to Section 3.1.
1.29. Insurance Company
-----------------
Insurance Company means any legal reserve life insurance company which
may issue a Contract under this Agreement.
1.30. Limitation Year
---------------
Limitation Year means the Plan Year.
1.31. Named Fiduciary
---------------
Named Fiduciary means one or more fiduciaries named in this Agreement who
jointly and severally shall have authority to control or manage the
operation and administration of the Plan. The Committee shall be the
Named Fiduciary unless the Employer designates another person by written
Employer action.
1.32. Nonforfeitable
--------------
Nonforfeitable means a vested interest attained by a Participant or
Beneficiary in that part of the Participant's benefit under the Plan
arising from the Participant's Service, which claim is unconditional and
legally enforceable against the Plan.
1.33. Non-Highly Compensated Employee
-------------------------------
Non-Highly Compensated Employee means an Employee, Former Employee or
Beneficiary who is not a Highly Compensated Employee.
1.34. Normal Retirement Age
---------------------
Normal Retirement Age means, for each Participant, the date the
Participant attains age 59 1/2 years. Notwithstanding the foregoing, any
Participant who attained Normal Retirement Age under the terms of the
Prior Plan on or before the date of adoption of this Plan shall be
considered as having attained Normal Retirement Age.
1.35. Normal Retirement Date
----------------------
Normal Retirement Date means, for each Participant, the first day of the
month coincident with or next following the date the Participant attains
Normal Retirement Age.
1.36. One Year Break in Service
-------------------------
(a) A One Year Break in Service, for purposes of eligibility, means a
Period of Severance of at least twelve (12) consecutive months. A
Period of Severance means a continuous period of time during which an
Employee is not employed by the Employer. Such period shall begin on
the date the Employee retires, quits, is discharged, or dies, or, if
earlier, the twelve (12) month anniversary of the date on which the
Employee was otherwise first absent from work.
7
<PAGE>
(b) A One Year Break in Service, for purposes of vesting, means a
Computation Period described in Section 1.50(b) relating to Year of
Service, during which an Employee has not completed more than five
hundred (500) Hours of Service with the Employer.
(c) An Employee shall not incur a One Year Break in Service for the Plan
Year in which the Employee becomes a Participant, dies, retires or
suffers total and permanent disability.
(d) Further, solely for the purpose of determining whether a Participant
has incurred a One Year Break in Service under (a) or (b) above,
Hours of Service shall be recognized for "authorized leaves of
absence" and "maternity and paternity leaves of absence."
(i) An "authorized leave of absence" means an unpaid temporary
cessation from active employment with the Employer pursuant to
an established nondiscriminatory policy, whether occasioned by
illness, military service or any other reason.
(ii) A "maternity or paternity leave of absence" means an absence
from work for any period because of the Employee's pregnancy,
birth of the Employee's child, placement of a child with the
Employee relating to the adoption of the child, or any absence
for the purpose of caring for the child for a period immediately
following the birth or placement. For purposes of a maternity
and paternity leave of absence, Hours of Service shall be
credited for the Computation Period in which the absence from
work begins, only if the credit is necessary to prevent the
Employee from incurring a One Year Break in Service, or, in any
other case, in the immediately following Computation Period. The
Hours of Service credited for a "maternity or paternity leave of
absence" shall be those which would normally have been credited
but for the absence, or, in any case in which the Administrator
is unable to determine the hours normally credited, eight (8)
Hours of Service per day. The total Hours of Service required to
be credited for a "maternity or paternity leave of absence"
shall not exceed five hundred one (501) hours.
1.37. Owner-Employee
--------------
Owner-Employee means a sole proprietor or a partner who owns more than
ten percent (10%) of either the capital interest or profits interest in
an unincorporated Employer and who receives income from such
unincorporated Employer for personal services.
1.38. Participant
-----------
Participant means an Employee of the Employer who has met the eligibility
requirements of this Plan and who has been enrolled as a Participant in
this Plan.
1.39. Participating Employer
----------------------
Participating Employer means any Related Employer that may elect to adopt
this Plan pursuant to Article XI.
1.40. Plan
----
Plan means the profit sharing and savings plan embodied in this
Agreement, as amended from time to time, designated as the PATINA OIL &
GAS CORPORATION PROFIT SHARING AND SAVINGS PLAN AND TRUST.
1.41. Plan Year
---------
Plan Year means the twelve (12) consecutive month period from JANUARY 1
of each year to the next following DECEMBER 31.
1.42. Predecessor Employer
--------------------
Predecessor Employer means a business organization which has been
acquired by the Employer, whether by merger, stock purchase or
acquisition of the assets and business of the business organization.
1.43. Related Employer
----------------
A related group of employers is a controlled group of corporations
(defined in Code Section 414(b)), trades or businesses (whether or not
incorporated) which are under common control (defined in Code Section
414(c)) or an affiliated service group (defined in Code Section 414(m) or
in Code Section 414(o)). If the Employer is a member of a related group,
the term "Employer" includes the related group members for purposes of
crediting Hours of Service, determining Years of Service and Breaks in
Service under Articles II and IX, applying the participation test of Code
Section 401(a)(26) and the coverage test of Code Section 410(b), applying
the limitations on allocations in Article V, applying the top-heavy rules
and the minimum allocation requirements of Article V, the definitions of
Employee, Highly Compensated Employee, Compensation and Leased Employee,
and for any other purpose required by the applicable Code Section or by a
Plan provision. However, an Employer may contribute to the Plan only by
being a signatory to a Participation Agreement to the Plan. If one or
more of the Employer's related group members become Participating
Employers by executing a Participation Agreement to the Plan, the term
"Employer" includes the participating related group members for all
purposes of the Plan, and Administrator means the
8
<PAGE>
Employer that is the signatory to the Plan. For Plan allocation purposes,
Compensation does not include Compensation received from a Related
Employer that is not participating in this Plan.
1.44. Self-Employed Individual
------------------------
Self-Employed Individual means an individual who has earned income for
the taxable year from the trade or business for which the Plan is
established or an individual who would have had earned income for the
fact that the trade or business had no net profits for the taxable year.
1.45. Service
-------
(a) Service means any period of time the Employee is in the employ of the
-------
Employer. Service in all cases includes periods during which the
Employee is on an "authorized leave of absence" or a "maternity or
paternity leave of absence" defined in Section 1.36(d) relating to
One Year Break in Service. Leaves of absence also shall include
periods of absence in connection with military service during which
the Employee's re-employment rights are legally protected. Except for
absence by reason of military service, leaves of absence shall be for
a maximum period of two (2) years. Leaves of absence shall be granted
on a uniform and nondiscriminatory basis.
(b) If the Employer maintains the plan of a Predecessor Employer, Service
shall include service for the Predecessor Employer. To the extent it
may be required under applicable Treasury regulations under Code
Section 414, Service shall include all service for any Predecessor
Employer.
1.46. Shareholder-Employee
--------------------
Shareholder-Employee means a Participant who owns more than five percent
(5%) of the Employer's outstanding capital stock during any year in which
the Employer elected to be taxed as a Small Business Corporation under
Code Section 1362(a) and who receives income from the Employer for
personal services.
1.47. Top-Heavy Plan Status/Super Top-Heavy Plan Status
-------------------------------------------------
This Plan shall be a Top-Heavy Plan in any Plan Year in which, as of the
Determination Date, (a) the Present Value of Accrued Benefits of Key
Employees, or (b) the sum of the Aggregate Accounts of Key Employees of
any plan of an Aggregation Group, exceeds sixty percent (60%) of the
Present Value of Accrued Benefits or Aggregate Accounts of all
Participants under this Plan and any plan of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year, but the
Participant was a Key Employee for any prior Plan Year, the Participant's
Aggregate Account balance shall not be taken into account in determining
whether this Plan is a Top-Heavy Plan (or whether any Aggregation Group
which includes this Plan is a Top-Heavy Group) as further defined in Code
Section 416(g) and the applicable Treasury regulations.
This Plan shall be a Super Top-Heavy Plan for any Plan Year in which, as
of the Determination Date, (a) the Present Value of Accrued Benefits of
Key Employees, or (b) the sum of the Aggregate Accounts of Key Employees
of any plan of an Aggregation Group, exceeds ninety percent (90%) of the
Present Value of Accrued Benefits and the Aggregate Accounts of all
Participants under this Plan and any plan of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year, but the
Participant was a Key Employee for any prior Plan Year, the Participant's
Aggregate Account balance shall not be taken into account in determining
whether this Plan is a Super Top-Heavy Plan (or whether any Aggregation
Group which includes this Plan is a Top-Heavy Group) as further defined
in Code Section 416(g) and the applicable Treasury regulations.
For purposes of determining Top-Heavy and Super Top-Heavy status, the
following definitions shall apply:
(a) Aggregate Account means, as of the Determination Date, the sum of:
-----------------
(i) the Participant Contribution Account and Employer Contribution
Account balances as of the most recent Valuation Date occurring
within a twelve (12) month period ending on the Determination
Date;
(ii) the contributions that would be allocated as of a date not
later than the Determination Date, even though those amounts
are not yet made or required to be made;
(iii) any plan distributions made during the Determination Period
(However, in the case of distributions made after the Valuation
Date and prior to the Determination Date, such distributions
are not included as distributions for Top-Heavy purposes to the
extent that the distributions are already included in the
Participant's Aggregate Account balance as of the Valuation
Date.); and
9
<PAGE>
(iv) any Employee contributions, whether voluntary or mandatory
(However, amounts attributable to Participant Deductible
Voluntary Contributions shall not be considered to be a part of
the Participant's Aggregate Account balance.).
(v) Regarding unrelated rollovers and plan-to-plan transfers (those
which are (A) initiated by the Employee and (B) made from a plan
maintained by one employer to a plan maintained by another
employer), if this Plan provides for rollovers or plan-to-plan
transfers, an unrelated rollover or plan-to-plan transfer shall
be considered as a distribution for purposes of this Section. If
this Plan is the plan accepting an unrelated rollover or plan-
to-plan transfer, an unrelated rollover or plan-to-plan transfer
accepted after December 31, 1983 shall not be considered as part
of the Participant's Aggregate Account balance. However,
unrelated rollovers or plan-to-plan transfers accepted prior to
January 1, 1984 shall be considered as part of the Participant's
Aggregate Account balance.
(vi) Regarding related rollovers and plan-to-plan transfers (those
either (A) not initiated by the Employee or (B) made to a plan
maintained by the same Employer), if this Plan provides for
rollovers or plan-to-plan transfers, a related rollover or plan-
to-plan transfer shall be considered as a distribution for
purposes of this Section. If this Plan is the plan accepting a
related rollover or plan-to-plan transfer, a related rollover or
plan-to-plan transfer shall be considered as part of the
Participant's Aggregate Account balance, irrespective of the
date on which the related rollover or plan-to-plan transfer is
accepted.
(b) Aggregation Group means either a Required Aggregation Group or a
-----------------
Permissive Aggregation Group as hereinafter determined.
(i) Required Aggregation Group means the group of plans composed of
--------------------------
(A) each plan of the Employer in which a Key Employee is a
participant or participated at any time during the
Determination Period, regardless of whether the plan has
terminated; and (B) each other plan of the Employer which
enables any plan in which a Key Employee participates to meet
the requirements of Code Sections 401(a)(4) or 410, which shall
be aggregated.
In the case of a Required Aggregation Group, each plan in the
group will be considered a Top-Heavy Plan if the Required
Aggregation Group is a Top-Heavy Group. No plan in the Required
Aggregation Group will be considered a Top-Heavy Plan if the
Required Aggregation Group is not a Top-Heavy Group.
(ii) Permissive Aggregation Group means the Required Aggregation
----------------------------
Group plus any other plan not required to be included in the
Required Aggregation Group, provided the resulting group, taken
as a whole, would continue to satisfy Code Sections 401(a)(4)
and 410.
In the case of a Permissive Aggregation Group, only a plan that
is part of the Required Aggregation Group will be considered a
Top-Heavy Plan if the Permissive Aggregation Group is a Top-
Heavy Group. No plan in the Permissive Aggregation Group will
be considered a Top-Heavy Plan if the Permissive Aggregation
Group is not a Top-Heavy Group.
(iii) Only those plans of the Employer in which the Determination
Dates fall within the same calendar year shall be aggregated to
determine whether the plans are Top-Heavy Plans.
(c) Determination Date means for any Plan Year (i) the last day of the
------------------
preceding Plan Year, or (ii) in the case of the first Plan Year of
the Plan, the last day of the first Plan Year.
(d) Determination Period means the five (5) year period ending on the
--------------------
Determination Date.
(e) Employer means the Employer that adopts this Plan. Related Employers
--------
shall be considered a single Employer for purposes of applying the
limitations of these top-heavy rules.
(f) Excluded Employees means any Employee who has not performed any
-------------------
Service for the Employer during the five (5) year period ending on
the Determination Date. Excluded Employees shall be excluded for
purposes of a Top-Heavy determination.
(g) Key Employee means any Employee or Former Employee, or Beneficiary of
------------
the Employee, who, for any Plan Year in the Determination Period is:
(i) An officer of the Employer having Compensation from the
Employer and any Related Employer greater than fifty percent
(50%) of the amount in effect under Code Section 415(b)(1)(A);
(ii) One of the ten (10) Employees having Compensation from the
Employer and any Related Employer 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 Employer;
(iii) A Five Percent Owner of the Employer (Five Percent Owner means
any person owning, or considered as owning within the meaning
of Code Section 318, more than five percent (5%) of the
outstanding stock of the Employer or
10
<PAGE>
stock possessing more than five percent (5%) of the total
combined voting power of all stock of the Employer; or in
the case of an unincorporated business, any person who
owns more than five percent (5%) of the capital or
profits interest in the Employer.); or
(iv) A One Percent Owner of the Employer having Compensation
from the Employer of more than $150,000 (One Percent
Owner means any person having Compensation from the
Employer and any Related Employer in excess of $150,000
and owning, or considered as owning within the meaning of
Code Section 318, more than one percent (1%) of the
outstanding stock of the Employer or stock possessing
more than one percent (1%) of the total combined voting
power of all stock of the Employer; or in the case of an
unincorporated business, any person who owns more than
one percent (1%) of the capital or profits interest in
the Employer.).
(v) Notwithstanding the foregoing, Key Employee shall have
the meaning set forth in Code Section 416(i), as amended.
(vi) For purposes of determining whether an Employee or Former
Employee is an officer under this subsection (g), an
officer of the Employer shall have the meaning set forth
in the regulations under Code Section 416(i).
(vii) For purposes of this Section, Compensation means
Compensation determined under Section 1.26 for the
definition of a Highly Compensated Employee.
(viii) For purposes of determining ownership hereunder,
employers that would otherwise be aggregated as Related
Employers shall be treated as separate employers.
(h) Non-Key Employee means any Employee or Former Employee, or
----------------
Beneficiary of the Employee, who is not a Key Employee.
(i) Present Value of Accrued Benefit. 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 a Top-Heavy Plan, the Accrued Benefit
of a Non-Key Employee shall be determined under (i) the
method, if any, that uniformly applies for accrual
purposes under all plans maintained by the Related
Employers, or (ii) if there is no uniform method, in
accordance with the slowest accrual rate permitted under
the fractional accrual method described in Code Section
411(b)(1)(C). To calculate the Present Value of Accrued
Benefits from a defined benefit plan, the Committee will
use the actuarial assumptions for interest and mortality
only, prescribed by the defined benefit plan(s) to value
benefits for Top-Heavy purposes. If an aggregated plan
does not have a Valuation Date coinciding with the
Determination Date, the Committee must value the Accrued
Benefits in the aggregated plan as of the most recent
Valuation Date falling within the twelve (12) month
period ending on the Determination Date, except as Code
Section 416 and applicable Treasury regulations require
for the first and second plan year of a defined benefit
plan. The Committee will determine whether a plan is Top-
Heavy by referring to Determination Dates that fall
within the same calendar year.
(j) Top-Heavy Group means an Aggregation Group in which, as of the
---------------
Determination Date, the sum of:
(i) the Present Value of Accrued Benefits of Key Employees
under all defined benefit plans included in the group;
and
(ii) the Aggregate Accounts of Key Employees under all defined
contribution plans included in the group exceeds sixty
percent (60%) of a similar sum determined for all
Participants.
(k) For purposes of this Section, Valuation Date means the Determination
--------------
Date defined above.
1.48. Trust Fund
----------
Trust Fund means all assets of any kind and nature from time to time held
by the Trustee or its agent under this Agreement without distinction
between income and principal. This Plan creates a single Trust for all
Employers participating under the PATINA OIL & GAS CORPORATION PROFIT
SHARING AND SAVINGS PLAN AND TRUST. However, the Trustee will maintain
separate records of account to reflect properly each Participant's
Accrued Benefit derived from each Participating Employer.
1.49. Trustee
-------
Trustee means KEITH M. CROUCH until the effective date of acceptance by
MERRILL LYNCH TRUST COMPANY OF AMERICA as Trustee and any successor
Trustee.
1.50. Year of Service
---------------
(a) Four Months of Eligibility Service means the four (4) consecutive
----------------------------------
month period commencing on an Employee's Employment Commencement Date
and ending on the same day of the fourth month following the
Employee's Employment Commencement Date. If an Employee fails to
complete Four Months of Eligibility Service during the initial
Computation Period, the Employee shall be deemed to complete Four
Months of Eligibility Service upon the completion of four (4) months
of Service. An Employee shall receive credit for the aggregate of all
time periods commencing with the first day the Employee is entitled
to credit for an
11
<PAGE>
Hour of Service, including the Re-Employment Commencement Date, and
ending on the date a Break in Service begins. An Employee also shall
receive credit for any Period of Severance of less than four (4)
consecutive months. Fractional periods of a year shall be expressed
in terms of months, with credit for a month of service being given
for each thirty (30) days of Elapsed Time.
(b) Year of Vesting Service means any Plan Year during which the Employee
-----------------------
performs not less than one thousand (1,000) Hours of Service for the
Employer. If (i) an Employee's Eligibility Computation Period for a
Plan requiring One Year of Service for eligibility overlaps two
vesting Computation Periods; and (ii) the Employee completes one
thousand (1,000) Hours of Service in the Eligibility Computation
Period but fails to complete the one thousand (1,000) Hours of
Service in either of the overlapping Vesting Computation Periods; and
(iii) the Employee is admitted to participation in the Plan, then the
Year of Eligibility Service completed shall also be considered a Year
of Vesting Service when the Employee becomes a Participant. In
computing an Employee's Years of Vesting Service, the following rules
shall apply:
(i) For an Employee who terminates employment and is
subsequently re-employed after incurring a One Year Break
in Service, Service prior to the Break in Service shall
not be taken into account until the Employee has
completed a Year of Service after re-employment.
(ii) For a Participant who terminates employment and who
subsequently is re-employed after incurring five (5)
consecutive One Year Breaks in Service, Years of Service
after the Break in Service shall not be taken into
account for purposes of determining the Nonforfeitable
percentage of an Employee's Account Balance derived from
Employer Contributions which accrued before the Break in
Service.
(iii) For a Participant who terminates employment without any
vested right to the Employer Contribution Account and who
is re-employed after a One Year Break in Service, Service
before the Break in Service shall not be taken into
account if the number of consecutive One Year Breaks in
Service equals or exceeds the greater of (A) five (5), or
(B) the aggregate number of Years of Service before the
Break in Service.
(iv) Years of Service, for purposes of vesting, shall include
all Years of Service of the Employee with GERRITY OIL AND
GAS CORPORATION and SNYDER OIL CORPORATION prior to
January 1, 1998.
(v) Years of Service with the Employer before a Participant
enters the Plan shall be considered for purposes of
vesting.
(c) If the Employer is a member of a group of Related Employers, then
Year of Service for purposes of eligibility and vesting shall include
Service with any Related Employer.
* * * * * * *
12
<PAGE>
ARTICLE II
----------
Eligibility and Participation
-----------------------------
2.1. Eligibility Conditions
----------------------
(a) Each Employee shall be eligible to participate in this Plan on the
Entry Date coincident with or next following the attainment of age
eighteen (18) and the completion of four (4) months of Service with the
Employer.
(b) Notwithstanding the preceding sentence, an Employee who has attained
age eighteen (18) and completed at least four (4) months of Service
with the Employer on the Effective Date of this Plan shall be eligible
to participate in this Plan on the Effective Date.
(c) The following Employees are not eligible to participate in the Plan:
. Collective Bargaining Employees. Each Employee who is a member of
a collective bargaining unit shall not be eligible to participate
in this Plan unless the collective bargaining agreement provides
otherwise. An Employee is a member of a collective bargaining
unit if the Employee is 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 the Employee
representatives and the employer or employers. The term "Employee
representatives" does not include an organization of which more
than one-half ( 1/2) the members are owners, officers, or
executives of the Employer.
. Nonresident aliens who do not receive any earned income (as
defined in Code Section 911(d)(2)) from the Employer which
constitutes United States source income (as defined in Code
Section 861(a)(3)).
. Individuals classified by the Employer as Leased Employees,
whether or not subsequently determined to be Employees of the
Employer for purposes of the Internal Revenue Code.
. Individuals classified by the Employer as Independent Contractors,
whether or not subsequently determined to be Employees of the
Employer for purposes of the Internal Revenue Code.
If a Participant is no longer a member of an eligible class of
Employees and becomes ineligible to participate but has not incurred a
Break in Service, such Employee will participate immediately upon
returning to an eligible class of Employees. If a Participant incurs a
Break in Service, eligibility will be determined under the Break in
Service rules of Section 1.36.
If an Employee who is not a member of an eligible class of Employees
becomes a member of an eligible class, the Employee will participate
immediately if the Employee has satisfied the minimum age and service
requirements and would have otherwise previously become a Participant.
2.2. Participation
-------------
Whenever a new Employee is hired by the Employer, the Employer immediately
shall give notice to the Committee of the employment and shall identify the
new Employee. The Committee shall notify in writing each new Employee of
the pending eligibility as soon as administratively feasible prior to the
date on which the Employee will become eligible and shall furnish the
Employee a copy of this Agreement or any other explanation of the Plan that
the Committee shall provide for that purpose. Each Employee so notified
automatically will become a Participant upon meeting the requirements of
Section 2.1.
2.3. Participant Re-Entry
--------------------
If the employment of a Participant is terminated and the Participant
subsequently is re-employed, the re-employed Employee shall become a
Participant on the date of re-employment. If an Employee terminates
employment prior to satisfying the eligibility requirements of Section 2.1
and subsequently is re-employed, the re-employed Employee shall become a
Participant after meeting the eligibility requirements of Section 2.1, but
shall be credited for Service retroactively to the date of re-employment
for purposes of eligibility and vesting. If an Employee becomes eligible
but terminates employment prior to the first Entry Date, and the Employee
is later re-employed, the Employee shall become a Participant on the date
of re-employment.
* * * * * * *
13
<PAGE>
ARTICLE III
-----------
Contributions and Withdrawals
-----------------------------
3.1. Employer Contributions
----------------------
(a) Employer Elective Contributions and Participant Elective Deferrals.
------------------------------------------------------------------
For each Plan Year beginning on or after JANUARY 1, 1998, the amount of
the Employer Elective Contribution to the Trust Fund will equal the
amount determined under this paragraph. Each Participant may elect to
defer from 1% to 15% of Annual Compensation, as defined in Section 1.8,
modified by 1.8(g), but shall not elect to defer an amount to cause the
Plan to violate the limitations of this Section or Section 5.3, or to
exceed the maximum amount allowable as a deduction to the Employer
under Code Section 404. A Participant may elect to defer Annual
Compensation only in an amount which the Participant otherwise could
elect to receive in cash and which is currently available to the
Participant. Annual Compensation is not currently available to the
Participant if the Participant is not eligible to receive it at the
time of the deferral election. The amounts by which a Participant
elects to reduce Annual Compensation under this Plan shall be that
Participant's Elective Deferrals. The Employer shall contribute to the
Trust Fund the amount of each Participant's Elective Deferrals which
shall be treated as Employer Elective Contributions and credited to
that Participant's Salary Deferral Account.
(i) The Employer and the Committee shall adopt a procedure necessary
to implement the deferral elections.
(ii) The Employer shall permit changes in a Participant's deferral
election on the Entry Date(s) of each Plan Year.
(iii) Elective Deferrals, for purposes of the following clauses (iv)
------------------
through (viii), means for any taxable year the sum of:
(A) any Employer contribution under a qualified cash or deferred
arrangement defined in Code Section 401(k), to the extent not
includable in gross income for the taxable year under Code
Section 402(a)(8), determined without regard to the dollar
limitation under Code Section 402(g);
(B) any Employer contribution under a simplified employee pension
as defined in Code Section 408(k)(6), pursuant to a salary
reduction agreement; and
(C) any Employer contribution toward the purchase of a tax
sheltered annuity contract as defined in Code Section 403(b),
pursuant to a salary reduction agreement.
Elective Deferrals shall not include any deferrals properly
distributed as excess annual additions.
(iv) A Participant's Elective Deferrals shall not exceed the statutory
dollar limitation under Code Section 402(g) for the taxable year
of the Participant. The dollar limitation under Code Section
402(g) is $10,000 in 1998 indexed in subsequent Plan Years for
cost-of-living adjustments under Code Section 415(d) or the
amount of the dollar limitation under Code Section 402(g) in
effect on January 1 of each calendar year, as adjusted annually
by the Secretary of the Treasury.
(v) Excess Elective Deferrals means those Elective Deferrals that are
-------------------------
includable in a Participant's gross income under Code Section
402(g) to the extent the Participant's Elective Deferrals for a
taxable year exceed the dollar limitation under Code Section
402(g). Excess Elective Deferrals shall be treated as Annual
Additions under the Plan, unless such amounts are distributed no
later than the first April 15 following the close of the
Participant's taxable year.
(vi) If the statutory dollar limitation in clause (iv) is exceeded,
the Committee shall direct the Trustee to distribute the Excess
Elective Deferrals, and any income or loss allocable to the
Excess Elective Deferrals, to the Participant not later than the
first April 15 following the close of the Participant's taxable
year. If there is a loss allocable to the Excess Elective
Deferral, the distribution shall in no event be less than the
lesser of the Participant's Salary Deferral Account or the
Participant's Elective Deferrals for the Plan Year. The amount of
Excess Elective Deferrals to be distributed to an Employee for a
taxable year will be reduced by Excess Contributions previously
distributed or recharacterized for the Plan Year beginning in the
taxable year of the Employee.
(vii) If a Participant is also a participant in (A) another qualified
cash or deferred arrangement defined in Code Section 401(k); (B)
a simplified employee pension defined in Code Section 408(k); or
(C) a salary reduction arrangement pursuant to which an employer
purchases a tax sheltered annuity contract defined in Code
Section 403(b), and the Elective Deferrals made under the other
arrangement(s) and this Plan cumulatively exceed $10,000 in 1998
indexed in subsequent Plan Years for cost-of-living adjustments
under Code Section 415(d) or the amount of the dollar limitation
under Code Section 402(g) in effect on January 1 of each calendar
year, as adjusted annually by the Secretary of the Treasury, then
the Participant may, not later than March 1 following the close
of the Participant's taxable year, notify the Administrator in
writing of the excess and request that the Participant's Elective
Deferrals under this Plan be reduced by an amount specified by
the Participant. The specified amount then shall be distributed
14
<PAGE>
in the same manner as provided in clause (vi). A Participant is
deemed to notify the Administrator of any Excess Elective
Deferrals that arise by taking into account only those Elective
Deferrals made to this Plan and any other plans of this
Employer.
(viii) If any of the foregoing provisions of this Section are not in
conformity with applicable Treasury regulations, the
nonconforming provisions may be amended retroactively to assure
conformity.
(b) Employer Non-Elective Contributions. For each Plan Year, the amount of
-----------------------------------
the Employer Non-Elective Contribution to the Trust Fund will equal the
amount, if any, the Employer may from time to time determine and
authorize. Such contribution shall be in cash for the 1997 Plan Year
and may be in either cash or in the form of Employer Securities
(subject to Trustee acceptance) or both, as the Employer, in its
discretion, shall determine in subsequent Plan Years. Any contribution
in the form of Employer Securities shall be credited to each eligible
Participant's Employer Non-Elective Contribution Account and allocated
to the Employer Securities Investment Fund. Although the Employer may
contribute to this Plan whether or not it has net profits, the Employer
intends the Plan to be a profit sharing plan including a qualified cash
or deferred arrangement for all purposes of the Code. The Employer
shall not authorize contributions at such times or in such amounts that
the Plan in operation discriminates in favor of Highly Compensated
Employees. Notwithstanding the foregoing, the Employer Non-Elective
Contribution for any Plan Year shall not exceed the maximum amount
allowable as a deduction to the Employer under Code Section 404. The
Employer Non-Elective Contributions shall be allocated to the
Participant Employer Non-Elective Contribution Accounts under the
formula provided in Section 5.2.
(c) Qualified Non-Elective Contributions. For each Plan Year, the amount
------------------------------------
of the Qualified Non-Elective Contribution to the Trust Fund will equal
the amount, if any, the Employer may from time to time determine and
authorize. The Employer shall not authorize contributions at such
times or in such amounts that the Plan in operation discriminates in
favor of Highly Compensated Employees. Notwithstanding the foregoing,
the Qualified Non-Elective Contribution for any Plan Year shall not
exceed the maximum amount allowable as a deduction to the Employer
under Code Section 404. The Qualified Non-Elective Contributions shall
be allocated to the Participant Employer Non-Elective Contribution
Accounts under the formula provided in Section 5.2.
3.2. Deadline for Employer Contributions
-----------------------------------
(a) The Employer shall pay to the Trustee the Employer Elective
Contribution for the Plan Year no later than thirty (30) days, or
within the time prescribed by applicable Treasury regulations, after
the Plan Year for which they are deemed paid. Notwithstanding the
foregoing, Employer Elective Contributions accumulated through payroll
deductions shall be paid to the Trustee with reasonable promptness and
not later than fifteen (15) business days after the end of the month in
which payroll deductions were made.
(b) The Employer shall pay to the Trustee the Employer Contributions (other
than Elective Contributions) at any time and from time to time; except
that the total Employer Contribution for any Plan Year shall be paid in
full not later than the time prescribed by Code Section 404(a)(6) to
enable the Employer to obtain a deduction on its federal income tax
return for the Employer's taxable year. The total Employer
Contribution for any Plan Year shall be deemed made on the Accounting
Date immediately following the date the contribution was made, except
for contributions made after the end of the Plan Year, but within the
time prescribed by Code Section 404(a)(6), which shall be deemed made
on the last day of the Plan Year.
3.3. Deposit of Employer Contributions
---------------------------------
All Employer Contributions shall be added immediately to and become a part
of the Trust Fund.
3.4. Crediting of Employer Contributions
-----------------------------------
All Employer Elective Contributions shall be credited to the Salary
Deferral Account of each Participant as of each Accounting Date. All
Employer Non-Elective Contributions shall be credited as of each
Anniversary Date as provided in Article V.
3.5. Withdrawal of Employer Contributions Before Separation From Service.
--------------------------------------------------------------------
If the Employer shall permit under a uniform and nondiscriminatory written
policy, a Participant shall have the right, subject to the following
limitations and subject to the spousal consent requirements of Code
Sections 411(a)(11) and 417, if applicable, to request withdrawal of all,
any portion, or a fixed percentage of the following fully vested and
Nonforfeitable Participant Accounts: (1) Participant Voluntary After-Tax
Contribution Account and (2) Rollover Account. Prior to attainment of age
59 1/2, the Participant shall be limited to one (1) withdrawal from his
Participant After-Tax Contribution Account and Rollover Account during a
12-month period. Upon attainment of age 59 1/2, a Participant shall have
the right to request withdrawal of all, any portion, or a fixed percentage
of all amounts credited to his Individual Accounts. There is no
restriction on the number of withdrawals permitted to a Participant after
attainment of age 59 1/2.
15
<PAGE>
All determinations of the amount credited to a Participant's Individual
Accounts shall be made as of the most recent Valuation Date. The written
policy of the Employer shall set forth the criteria for eligibility for
withdrawal and the Account sources and funding order. The Committee shall
establish procedures to verify that a Participant satisfies one or more of
the eligibility criteria. If the Committee determines that the Participant
is eligible to withdraw benefits from the Plan, then the Committee shall
inform the Trustee in writing and shall instruct the Trustee on the amount
to distribute to the Participant. A Participant shall make an election
under this Section on a form prescribed by and delivered to the Committee
at any time during the Plan Year for which the election will be effective.
In the written election, the Participant shall specify the desired
percentage or dollar amount to be distributed by the Trustee to the
Participant. Furthermore, the Participant's election shall relate solely
to the percentage or dollar amount specified in the election form. The
Participant's right to elect to receive an amount, if any, for a particular
Plan Year greater than the dollar amount or percentage specified in the
election form shall terminate on the Anniversary Date. The Trustee shall
distribute to a Participant as elected under this Section within the ninety
(90) day period, or as soon as administratively feasible, after the
Participant files the written election with the Trustee. The Trustee shall
distribute the balance of the Participant's Individual Account not
distributed pursuant to the election(s) according to the option selected
under Article X and subject to the survivor annuity requirements of Article
VI, if applicable, when the Participant separates from Service. The amount
of the distribution and the administrative expenses directly related to the
distribution shall be debited from the applicable Account.
3.6. Participant Voluntary After Tax Contributions
---------------------------------------------
This Plan does not permit nor accept Participant Voluntary After Tax
Contributions.
3.7. Withdrawal of Employer Elective Contributions (Participant Elective
-------------------------------------------------------------------
Deferrals), Employer Qualified Non-Elective Contributions, and Employer
-----------------------------------------------------------------------
Qualified Matching Contributions
--------------------------------
(a) Restrictions on Distributions. Amounts held in the Participant's
-----------------------------
Salary Deferral Account may not be distributable prior to the earliest
of:
(i) separation from Service, total and permanent disability or death;
(ii) attainment of age fifty-nine and one-half (59 1/2) years;
(iii) Plan termination without establishment of another defined
contribution plan, other than an employee stock ownership plan
(as defined in Code Sections 4975(e) or 409) or a simplified
employee pension plan as defined in Code Section 408(k);
(iv) disposition by a corporation to an unrelated corporation of
substantially all of the assets (within the meaning of Code
Section 409(d)(2)) used in a trade or business of the
corporation, if the corporation continues to maintain this Plan
after the disposition, but only with respect to Employees who
continue employment with the corporation acquiring the assets;
(v) disposition by a corporation to an unrelated entity of the
corporation's interest in a subsidiary (within the meaning of
Code Section 409(d)(3)) if the corporation continues to maintain
this Plan, but only with respect to Employees who continue
employment with the subsidiary; or
(vi) proven financial hardship, subject to the following limitations.
All distributions that may be made pursuant to one or more of the
foregoing distributable events are subject to the spousal and
participant consent requirements, if applicable, of Code Sections
401(a)(11) and 417. In addition, distributions that are triggered by
one of the preceding events enumerated as (iii), (iv) or (v) must be
made in a lump sum distribution.
(b) Hardship Distributions. Distribution of Elective Deferrals made
----------------------
pursuant to a Participant's Elective Deferrals, may be made to a
Participant in the event of hardship. For the purposes of this
Section, a hardship distribution is defined as a distribution necessary
to satisfy an immediate and heavy financial need of an Employee who
lacks other available resources. Hardship distributions are subject to
the spousal consent requirements contained in Code Sections 401(a)(11)
and 417.
(i) A distribution will be considered to satisfy an immediate and
heavy need of an Employee if the distribution is for:
(A) expenses incurred for or necessary to obtain medical care,
described in Code Section 213(d), of the Employee, the
Employee's spouse, children, or dependents;
(B) costs directly related to the purchase, excluding mortgage
payments, of a principal residence for the Employee;
(C) payment of tuition and related educational fees for the next
twelve (12) months of post-secondary education for the
Employee, the Employee's spouse, children or dependents; or
16
<PAGE>
(D) payment necessary to prevent the eviction of the Employee
from, or a foreclosure on the mortgage of, the Employee's
principal residence.
(ii) A distribution will be considered necessary to satisfy an
immediate and heavy financial need of an Employee who lacks other
available resources only if:
(A) the Employee has obtained all distributions, other than
hardship distributions, and all nontaxable loans under all
plans maintained by the Employer; and
(B) the distribution is not in excess of the amount of an
immediate and heavy financial need, including amounts
necessary to pay any federal, state or local income taxes or
penalties reasonably anticipated to result from the
distribution.
(iii) In addition to the conditions above:
(A) each plan maintained by the Employer or a legally enforceable
arrangement provide that the Employee's Deferrals and
Employee Contributions will be suspended for twelve (12)
months after the receipt of the hardship distribution; and
(B) each plan maintained by the Employer or a legally enforceable
arrangement prohibit the Employee from making Elective
Deferrals for the Employee's taxable year immediately
following the taxable year of the hardship distribution in
excess of the applicable limit under Code Section 402(g) for
such taxable year less the amount of such Employee's Elective
Deferrals for the taxable year of the hardship distribution.
(C) any hardship withdrawal to a Participant made pursuant to
this Section shall be increased by an amount equal to the
lesser of:
(1) all federal, state, and local income taxes and
associated penalties (including, if applicable, the
additional income tax described in Section 72(t) of the
Internal Revenue Code) imposed with respect to such
hardship withdrawal; or
(2) the amount, if any, in such Participant's Elective
Deferrals Account in excess of such hardship
withdrawal.
3.8. Limitations on Employer Elective Contributions
----------------------------------------------
(a) Actual Deferral Percentage Test. The annual allocation derived from
-------------------------------
Employer Elective Contributions to a Participant's Salary Deferral
Account shall satisfy one of the following tests:
(i) The Average Actual Deferral Percentage for Participants who are
Eligible Highly Compensated Employees for the Plan Year shall not
exceed the Average Actual Deferral Percentage for Participants
who are Eligible Nonhighly Compensated Employees for the Plan
Year multiplied by 1.25; or
(ii) The Average Actual Deferral Percentage for Participants who are
Eligible Highly Compensated Employees for the Plan Year shall not
exceed the Average Actual Deferral Percentage for Participants
who are Eligible Nonhighly Compensated Employees for the Plan
Year multiplied by two (2); provided that the Average Actual
Deferral Percentage for Participants who are Eligible Highly
Compensated Employees for the Plan Year does not exceed the
Average Actual Deferral Percentage for Participants who are
Eligible Nonhighly Compensated Employees for the Plan Year by
more than two (2) percentage points or the amount as may be
prescribed in applicable Treasury regulations to prevent the
multiple use of this alternative limitation for any Highly
Compensated Employee.
(b) Definitions. For the purposes of this Section, the following
-----------
definitions shall apply:
(i) Actual Deferral Percentage means the ratio, expressed as a
--------------------------
percentage, of (A) the amount of Employer Elective Contributions
actually paid to the Trust Fund on behalf of the Eligible
Participant for the Plan Year to (B) the Eligible Participant's
Compensation for the Plan Year, whether or not the Employee was a
Participant for the entire Plan Year. Employer Contributions on
behalf of any Participant shall include: (A) any Employer
Elective Contributions made pursuant to the Eligible
Participant's Elective Deferrals, (including Excess Elective
Deferrals of Highly Compensated Employees), but excluding (1)
Excess Elective Deferrals of Nonhighly Compensated Employees that
arise solely from Elective Deferrals made under the plan or plans
of this Employer, and (2) Employer Elective Contributions that
are taken into account in the Contribution Percentage Test
(provided the Actual Deferral Percentage Test is satisfied both
with and without exclusion of these Employer Elective
Contributions); and (B) at the election of the Employer,
Qualified Non-Elective Contributions and Qualified Matching
Contributions. An Employer Elective Contribution will be taken
into account under the Actual Deferral Percentage Test for a Plan
Year only if it relates to compensation that either would have
been received by the Employee in the Plan Year, but for the
17
<PAGE>
deferral election, or is attributable to services performed by
the Employee in the Plan Year and would have been received by the
Employee within two and one-half (2 1/2) months after the close
of the Plan Year, but for the deferral election. To compute
Actual Deferral Percentages, an Employee who would be a
Participant but for the failure to make Elective Deferrals shall
be treated as a Participant on whose behalf no Employer Elective
Contributions are made.
(ii) Average Actual Deferral Percentage means the average, expressed
----------------------------------
as a percentage, of the Actual Deferral Percentages of the
Eligible Participants in a group.
(iii) Eligible Participant means any Employee of the Employer who is
--------------------
otherwise authorized under the Plan to have Employer Elective
Contributions (or Qualified Non-Elective Contributions or
Qualified Matching Contributions, or both, if treated as Employer
Elective Contributions for the Actual Deferral Percentage Test)
allocated to his or her Salary Deferral Account for the Plan
Year.
(iv) Qualified Non-Elective Contributions means Employer
------------------------------------
Contributions, other than Employer Elective Contributions and
Matching Contributions, allocated to Participants' accounts which
are 100% Nonforfeitable at all times and which are subject to the
distribution restrictions described in Section 3.7(a). Non-
Elective Contributions are not 100% Nonforfeitable at all times
if the Employee has a 100% Nonforfeitable interest because of
Years of Service taken into account under a vesting schedule. Any
Non-Elective Contributions allocated to a Participant's Salary
Deferral Account under the Plan automatically satisfy the
definition of Qualified Non-Elective Contributions.
(v) Qualified Matching Contributions means Employer Matching
--------------------------------
Contributions allocated to Participants' accounts which are 100%
Nonforfeitable at all times and which are subject to the
distribution restrictions described in Section 3.7(a). Matching
Contributions are not 100% Nonforfeitable at all times if the
Employee has a 100% Nonforfeitable interest because of Years of
Service taken into account under a vesting schedule. Any Matching
Contributions allocated to a Participant's Salary Deferral
Account under the Plan automatically satisfy the definition of
Qualified Matching Contributions.
(c) Special Rules
-------------
(i) For purposes of this Section, the Actual Deferral Percentage for
any Participant who is a Highly Compensated Employee for the Plan
Year who is eligible to have Employer Elective Contributions (or
Qualified Non-Elective Contributions or Qualified Matching
Contributions, or both, if treated as Employer Elective
Contributions for the Actual Deferral Percentage Test) allocated
to his or her account under two (2) or more plans or arrangements
described in Code Section 401(k) that are maintained by the
Employer or a Related Employer shall be determined as if all
Employer Elective Contributions (and, if applicable, Qualified
Non-Elective Contributions or Qualified Matching Contribution, or
both) were made under a single arrangement. If a Highly
Compensated Employee participates in two (2) or more cash or
deferred arrangements that have different plan years, all cash or
deferred arrangements ending with or within the same calendar
year shall be treated as a single arrangement. Notwithstanding
the foregoing, certain plans shall be treated as separate if
mandatorily disaggregated under applicable Treasury regulations
pursuant to Code Section 401(k).
(ii) If this Plan satisfies the requirements of Code Sections 401(k),
401(a)(4) or 410(b) only if aggregated with one or more other
plans, or if one or more other plans satisfy the requirements of
the Code Sections only if aggregated with this Plan, then this
Section shall be applied by determining the Actual Deferral
Percentage of Employees as if all such plans were a single plan.
For Plan Years beginning after December 31, 1989, plans may be
aggregated to satisfy Code Section 401(k) only if they have the
same Plan Year.
(iii) To determine the Actual Deferral Percentage Test, Employer
Elective Contributions, Qualified Non-Elective Contributions, and
Qualified Matching Contributions must be made before the last day
of the twelve (12) month period immediately following the Plan
Year to which contributions relate.
(iv) The Employer shall maintain records sufficient to demonstrate
satisfaction of the Actual Deferral Percentage Test and the
amount of Qualified Non-Elective Contributions or Qualified
Matching Contributions, or both, used in the test.
(v) The determination and treatment of the Actual Deferral Percentage
amounts of any Participant shall satisfy other requirements
prescribed by applicable Treasury regulations.
(vi) Other than an organization that is a Related Employer to the Plan
Sponsor, for purposes of this Section, Participants who are
leased employees of a recipient organization under an employee
leasing agreement with the Plan Sponsor shall be treated as
Participants in a separate plan maintained by the recipient
organization, and all contributions on behalf of such
Participants shall be treated as contributed to such separate
plan for purposes of apply the requirements of this Section.
18
<PAGE>
(d) Fail-Safe Provisions
--------------------
If the initial allocations of the Employer Elective Contributions do
not satisfy one of the tests set forth in paragraph (a) of this
Section, the Administrator shall adjust the accounts of the
Participants pursuant to one (1) or more of the following options:
(i) Distribution of Excess Contributions. If the Committee
------------------------------------
determines that the initial allocations of the Employer Elective
Contributions do not satisfy one of the Actual Deferral
Percentage Tests set forth in paragraph (a) of this Section, the
Administrator must distribute the Excess Contributions, as
adjusted for allocable income, during the next Plan Year.
However, the Employer will incur an excise tax equal to 10% of
the amount of Excess Contributions for a Plan Year not
distributed to the appropriate Highly Compensated Employees
during the first 2 1/2 months of the next Plan Year. The Excess
Contributions are the amount of Employer Elective Contributions
made at the election of the Highly Compensated Employees which
causes the Plan to fail to satisfy the Actual Deferral Percentage
Test. The Administrator shall make distributions to each Highly
Compensated Employee of his or her respective share of the Excess
Contributions pursuant to the following steps:
(A) The Administrator shall calculate total Excess Contributions
for the Highly Compensated Employees.
(B) The Administrator shall calculate the total dollar amount by
which the Excess Contributions for the Highly Compensated
Employees must be reduced in order to satisfy the Average
Deferral Percentage Test.
(C) The Administrator shall calculate the total dollar amount of
the Excess Contributions for each Highly Compensated
Employee.
(D) The Administrator shall reduce the Excess Contributions of
the Highly Compensated Employee(s) with the highest dollar
amount of Excess Contributions by refunding such
contributions to such Highly Compensated Employee(s) in the
amount required to cause the dollar amount of such Highly
Compensated Employee(s)' Employer Elective Contributions to
equal the dollar amount of the Employer Elective
Contributions of the Highly Compensated Employee(s) with the
next highest dollar amount of Employer Elective
Contributions.
(E) If the total dollar amount distributed pursuant to (D) above
is less than the total dollar amount of Excess
Contributions, Step (D) shall be applied to the Highly
Compensated Employee(s) with the next highest dollar amount
of Excess Contributions until the total amount of
distributed Excess Contributions equals the total dollar
amount calculated in Step (B).
(F) When calculating the amount of a distribution under Step
(D), if a lessor reduction, when added to any amounts
already distributed under this Section, would equal the
total amount of distributions necessary to permit the Plan
to satisfy the requirements of Section 3.8(a), the lesser
amount shall be distributed from the Plan.
Allocable Income. To determine the amount of the corrective
----------------
distribution required under this Section, the Administrator must
calculate the allocable income for the Plan Year in which the
Excess Contributions arose and for the "gap period" measured from
the beginning of the next Plan Year to the date of the
distribution. The income allocable to Excess Contributions is
equal to the sum of the allocable gain or loss for the Plan Year
and the allocable gain or loss for the gap period.
(A) Method of Allocating Income. The Administrator may use any
---------------------------
reasonable method for computing the income allocable to
Excess Contributions, provided that the method does not
violate Code Section 401(a)(4), is used consistently for all
Participants and for all corrective distributions under the
Plan for the Plan Year, and is used by the Plan for
allocating income to Participants' Accounts.
(B) Alternative Method of Allocating Income. A Plan may
---------------------------------------
allocate income to Excess Contributions by multiplying the
income for the Plan Year and the gap period allocable to
Elective Contributions and amounts treated as Elective
Contributions by a fraction. The numerator of the fraction
is the Excess Contributions for the Employee for the Plan
Year. The denominator of the fraction is equal to the sum
of:
(I) The total account balance of the Employee attributable
to Elective Contributions and amounts treated as
Elective Contributions as of the beginning of the Plan
Year; plus
(II) The Employee's Elective Contributions, and amounts
treated as Elective Contributions for the Plan Year
and for the gap period.
(C) Safe Harbor Method of Allocating Gap Period Income. Under
--------------------------------------------------
the safe harbor method, income or Excess Contributions for
the gap period will equal ten percent (10%) of the income
allocable to Excess Contributions for the Plan Year
(calculated under the method described in paragraph (B) of
this Section), multiplied by the number of calendar months
that have elapsed since the end of the Plan Year. For
19
<PAGE>
purposes of calculating the number of calendar months that
have elapsed under the safe harbor method, a corrective
distribution that is made on or before the fifteenth day of
the month is treated as made on the last day of the preceding
month. A distribution made after the fifteenth day of the
month is treated as made on the first day of the next month.
(ii) Recharacterization of Excess Contributions. If the Plan permits
------------------------------------------
Participant Voluntary After Tax Contributions in Section 3.6, a
Participant may treat his or her Excess Contributions as an
amount distributed to the Participant and then contributed by the
Participant to the Plan. Recharacterized amounts will remain
nonforfeitable and subject to the same distribution requirements
as Elective Deferrals. Amounts may not be recharacterized by a
Highly Compensated Employee to the extent that such amount in
combination with other Employee Contributions made by that
Employee would exceed any stated limit under the Plan on Employee
Contributions. Recharacterization must occur no later than two
and one-half (2 1/2) months after the last day of the Plan Year
in which such Excess Contributions arose, and is deemed to occur
no earlier than the date the last Highly Compensated Employee is
informed in writing of the amount recharacterized and the
consequences thereof. Recharacterized amounts will be taxable to
the Participant for the Participant's tax year in which the
Participant would have received them in cash. The amount of
Excess Contributions to be recharacterized with respect to an
Employee for a Plan Year shall be reduced by any Excess Deferrals
previously distributed to the Employee for the Employee's taxable
year ending with or within the Plan Year.
(iii) Recharacterization of Matching Contributions. A portion of the
--------------------------------------------
Employer's Matching Contribution shall be deemed an Employer
Elective Contribution for purposes of paragraph (a) of this
Section and for vesting and withdrawal purposes. The portion
shall be equal to an amount necessary to satisfy one of the tests
set forth in paragraph (a) of this Section, taking into account
the Administrator's action under any option herein and shall be
reallocated to the Salary Deferral Account. Reallocation of the
Employer's Matching Contribution shall be made on behalf of
Participants who are Nonhighly Compensated Employees.
(iv) Qualified Non-Elective and Qualified Matching Contributions. The
-----------------------------------------------------------
Employer shall make Qualified Non-Elective Contributions or
Qualified Matching Contributions on behalf of Participants who
are Nonhighly Compensated Employees in an amount sufficient to
satisfy one of the tests set forth in paragraph (a) of this
Section, taking into account the Administrator's action under any
option herein. The contribution shall be treated as an Employer
Elective Contribution and shall be allocated to the Salary
Deferral Account of each Participant who is a Nonhighly
Compensated Employee in the same proportion that each Nonhighly
Compensated Employee's Elective Deferrals for the year bears to
the total Elective Deferrals of all Participants who are
Nonhighly Compensated Employees. The Qualified Non-Elective and
Qualified Matching Contributions may be treated as Elective
Contributions provided that each of the following requirements,
to the extent applicable, is satisfied:
(A) The amount of Non-Elective Contributions, including those
Qualified Non-Elective Contributions treated as Elective
Contributions for purposes of the Actual Deferral Percentage
Test, satisfies the requirements of Code Section 401(a)(4).
(B) The amount of Non-Elective Contributions, excluding those
Qualified Non-Elective Contributions treated as Elective
Contributions for purposes of the Actual Deferral Percentage
Test and those Qualified Non-Elective Contributions treated
as Matching Contributions under Treasury Regulations Section
1.401(m)-1(b)(5) for purposes of the Average Contribution
Percentage Test, satisfies the requirements of Code Section
401(a)(4).
(C) The Matching Contributions, including those Qualified
Matching Contributions treated as Elective Contributions for
purposes of the Actual Deferral Percentage Test, satisfy the
requirements of Code Section 401(a)(4).
(D) The Matching Contributions, excluding those Qualified
Matching Contributions treated as Elective Contributions for
purposes of the Actual Deferral Percentage Test, satisfy the
requirements of Code Section 401(a)(4).
(E) The Qualified Non-Elective Contributions and Qualified
Matching Contributions satisfy the requirements of Treasury
Regulations Section 1.401(k)-1(b)(4)(i) for the Plan Year as
if the contributions were Elective Contributions.
(F) The plan that includes the cash or deferred arrangement and
the plan or plans to which the Qualified Non-Elective
Contributions and Qualified Matching Contributions are made
could be aggregated for purposes of Code Section 410(b).
3.9. Limitations on Employee Contributions and Matching Employer Contributions
-------------------------------------------------------------------------
20
<PAGE>
(a) Average Contribution Percentage Test. The annual allocation derived
------------------------------------
from Employee Contributions, Employer Matching Contributions, and
Qualified Matching Contributions to a Participant's Individual Account
shall satisfy one of the following tests:
(i) The Average Contribution Percentage for Participants who are
Eligible Highly Compensated Employees for the Plan Year shall not
exceed the Average Contribution Percentage for Participants who
are Eligible Nonhighly Compensated Employees for the Plan Year
multiplied by 1.25; or
(ii) The Average Contribution Percentage for Participants who are
Eligible Highly Compensated Employees for the Plan Year shall not
exceed the Average Contribution Percentage for Participants who
are Eligible Nonhighly Compensated Employees for the Plan Year
multiplied by two (2); provided that the Average Contribution
Percentage for Participants who are Eligible Highly Compensated
Employees for the Plan Year does not exceed the Average
Contribution Percentage for Participants who are Eligible
Nonhighly Compensated Employees for the Plan Year by more than
two (2) percentage points or the amount prescribed in applicable
Treasury regulations to prevent the multiple use of this
alternative limitation for any Highly Compensated Employee.
(b) Definitions
-----------
(i) Aggregate Limit means the greater of (A) or (B), described as
---------------
follows:
(A) The sum of:
(I) 1.25 multiplied by the greater of the Actual Deferral
Percentage or the Average Contribution Percentage for
Participants who are Eligible Nonhighly Compensated
Employees, and
(II) Two (2) percentage points plus the lesser of Actual
Deferral Percentage or the Average Contribution
Percentage of Participants who are Eligible Nonhighly
Compensated Employees. (In no event shall this amount
exceed twice the lesser of the Actual Deferral
Percentage or Average Contribution Percentage of
Participants who are Eligible Nonhighly Compensated
Employees).
(B) The sum of:
(I) 1.25 multiplied by the lesser of the Actual Deferral
Percentage or the Average Contribution Percentage of
Participants who are Eligible Nonhighly Compensated
Employees, and
(II) Two (2) percentage points plus the greater of Actual
Deferral Percentage or the Average Contribution
Percentage of Participants who are Eligible Nonhighly
Compensated Employees. (In no event shall this amount
exceed twice the greater of the Actual Deferral
Percentage or Average Contribution Percentage of
Participants who are Eligible Nonhighly Compensated
Employees).
(ii) Average Contribution Percentage means the average, expressed as a
-------------------------------
percentage, of the Contribution Percentages of the Eligible
Participants in a group.
(iii) Contribution Percentage means the ratio, expressed as a
-----------------------
percentage, of the sum of the Employee Contributions and Matching
Contributions under the Plan on behalf of the Eligible
Participant for the Plan Year to the Eligible Participant's
Compensation for the Plan Year.
(iv) Contribution Percentage Amounts means the sum of the Employee
-------------------------------
Contributions, Matching Contributions and Qualified Matching
Contributions, to the extent not taken into account for purposes
of the Actual Deferral Percentage Test, made under the Plan on
behalf of the Participant for the Plan Year. Contribution
Percentage Amounts shall include Forfeitures of Excess Aggregate
Contributions or Matching Contributions allocated to the
Participant's Account which shall be taken into account in the
year in which the Forfeiture is allocated. Notwithstanding the
foregoing, Contribution Percentage Amounts shall not include
Matching Contributions that are forfeited either to correct
Excess Aggregate Contributions or because the contributions to
which they relate are Excess Deferrals, Excess Contributions, or
Excess Aggregate Contributions. The Employer may include
Qualified Non-Elective Contributions in the Contribution
Percentage Amounts. The Employer also may elect to use Employer
Elective Contributions in the Contribution Percentage Amount if
the Actual Deferral Percentage Test is met before the Employer
Elective Contributions are used in the Average Contribution
Percentage Test and continues to be met following the exclusion
of those Employer Elective Contributions that are used to meet
the Average Contribution Percentage Test.
(v) Eligible Participant means any Employee who is eligible to make
--------------------
an Employee Contribution, or an Elective Deferral, if the
Employer takes the contributions into account in calculating the
Contribution Percentage, or to receive a Matching Contribution,
including Forfeitures, or a Qualified Matching Contribution. If
an Employee Contribution is
21
<PAGE>
required as a condition of participation in the Plan, any
Employee who would be a Participant in the Plan if the Employee
made a required contribution shall be treated as an Eligible
Participant on behalf of whom no Employee Contributions are
made.
(vi) Employee Contribution means any contribution made to the Plan by
---------------------
or on behalf of a Participant that is included in the
Participant's gross income in the year in which made and that is
maintained under a separate account to which earnings and losses
are allocated. Employer Elective Contributions are not Employee
Contributions.
(vii) Employer Matching Contribution means an Employer Contribution
------------------------------
made to this or any other defined contribution plan on behalf of
a Participant on account of an Employee Contribution made by the
Participant, or on account of a Participant's election to defer
a portion of his or her Annual Compensation under a plan
maintained by the Employer.
(viii) Qualified Non-Elective Contributions means Employer
------------------------------------
Contributions, other than Employer Elective Contributions and
Employer Matching Contributions, allocated to Participants'
accounts which are 100% Nonforfeitable at all times and which
are subject to the distribution restrictions described in
Section 3.7(a). Employer Non-Elective Contributions are not 100%
Nonforfeitable at all times if the Employee has a 100%
Nonforfeitable interest because of Years of Service taken into
account under a vesting schedule. Any Employer Non-Elective
Contributions allocated to a Participant's Salary Deferral
Account under the Plan automatically satisfy the definition of
Qualified Non-Elective Contributions.
(ix) Qualified Matching Contributions means Employer Matching
--------------------------------
Contributions allocated to Participants' accounts which are 100%
Nonforfeitable at all times and which are subject to the
distribution restrictions described in Section 3.7(a). Employer
Matching Contributions are not 100% Nonforfeitable at all times
if the Employee has a 100% Nonforfeitable interest because of
Years of Service taken into account under a vesting schedule.
Any Employer Matching Contributions allocated to a Participant's
Salary Deferral Account under the Plan automatically satisfy the
definition of Qualified Matching Contributions.
(c) Special Rules
-------------
(i) Multiple Use. If one or more Highly Compensated Employees
------------
participate in both a cash or deferred arrangement subject to
Code Section 401(k) and a plan maintained by the Employer
subject to Code Section 401(m) and the sum of the Actual
Deferral Percentage and Average Contribution Percentage of those
Highly Compensated Employees subject to either or both tests
exceeds the Aggregate Limit, then the Average Contribution
Percentage of those Highly Compensated Employees who also
participate in a cash or deferred arrangement will be reduced,
beginning with the Highly Compensated Employee whose Average
Contribution Percentage is the highest, so that the limit is not
exceeded. The amount by which each Highly Compensated Employee's
Contribution Percentage Amount is reduced shall be treated as an
Excess Aggregate Contribution. The Actual Deferral Percentage
and Average Contribution Percentage of the Highly Compensated
Employees are determined after
(A) use of Qualified Non-Elective Contributions and Qualified
Matching Contributions to meet the Actual Deferral
Percentage Test;
(B) use of Qualified Non-Elective Contributions and Elective
Contributions to meet the Actual Deferral Percentage Test;
(C) any corrective distribution or forfeiture of Excess
Deferrals, Excess Contributions or Excess Aggregate
Contributions; and
(D) after any recharacterization of Excess Contributions
required without regard to multiple use of the alternative
limitation.
Multiple use occurs if the Actual Deferral Percentage and
Average Contribution Percentage of the Highly Compensated
Employees exceeds 1.25 multiplied by the Actual Deferral
Percentage and Average Contribution Percentage of the Nonhighly
Compensated Employees.
(ii) For purposes of this Section, the Contribution Percentage for
any Participant who is an Eligible Highly Compensated Employee
for the Plan Year who is eligible to have Contribution
Percentage Amounts allocated under two (2) or more plans
described in Code Section 401(a) or arrangements described in
Code Section 401(k) that are maintained by the Employer or a
Related Employer shall be determined as if the total of the
Contribution Percentage Amounts were made under each plan. If a
Highly Compensated Employee participates in two (2) or more cash
or deferred arrangements that have different plan years, all
cash or deferred arrangements ending with or within the same
calendar year shall be treated as a single arrangement.
Notwithstanding the foregoing, certain plans shall be treated as
separate if mandatorily disaggregated under regulations pursuant
to Code Section 401(m).
22
<PAGE>
(iii) If this Plan satisfies the requirements of Code Sections 401(m),
401(a)(4) or 410(b) only if aggregated with one (1) or more other
plans, or if one (1) or more other plans satisfy the requirements
of the Code Sections only if aggregated with this Plan, then this
Section shall be applied by determining the Contribution
Percentages of Eligible Participants as if all such plans were a
single plan.
(iv) The Employer shall maintain records sufficient to demonstrate
satisfaction of the Average Contribution Percentage Test.
(v) The determination and treatment of the Contribution Percentage of
any Participant shall satisfy other requirements prescribed by
applicable Treasury regulations.
(vi) Other than an organization that is a Related Employer to the Plan
Sponsor, for purposes of this Section, Participants who are
leased employees of a recipient organization under an employee
leasing agreement with the Plan Sponsor shall be treated as
Participants in a separate plan maintained by the recipient
organization, and all contributions on behalf of such
Participants shall be treated as contributed to such separate
plan for purposes of apply the requirements of this Section.
(d) Fail Safe Provisions. If the initial allocations of the Employer
--------------------
Matching Contributions and Employee Contributions do not satisfy one of
the tests set forth in paragraph (a) of this Section, the Administrator
shall adjust the accounts of the Participants pursuant to one (1) or
more of the following options:
(i) Distribution of Excess Aggregate Contributions. The
----------------------------------------------
Administrator will determine Excess Aggregate Contributions after
determining Excess Deferrals under Section 3.1(a)(vi) and Excess
Employer Elective Contributions under Section 3.8(d)(i). If the
Administrator determines that the Plan fails to satisfy the
Average Contribution Percentage Test for a Plan Year, it must
distribute the Excess Aggregate Contributions, as adjusted for
allocable income, during the next Plan Year. However, the
Employer will incur an excise tax equal to 10% of the amount of
Excess Aggregate Contributions for a Plan Year not distributed to
the appropriate Highly Compensated Employees during the first 2
1/2 months of the next Plan Year. The Excess Aggregate
Contributions are the amount of aggregate contributions allocated
on behalf of the Highly Compensated Employees which causes the
Plan to fail to satisfy the Average Contribution Percentage Test.
The Administrator shall make distributions to each Highly
Compensated Employee of his or her respective share of the Excess
Aggregate Contributions in accordance with the following steps:
(A) The Administrator shall calculate total Excess Aggregate
Contributions for the Highly Compensated Employees.
(B) The Administrator shall calculate the total dollar amount by
which the Excess Aggregate Contributions for the Highly
Compensated Employees must be reduced in order to satisfy
the Average Contribution Percentage Test.
(C) The Administrator shall calculate the total dollar amount of
the Excess Aggregate Contributions for each Highly
Compensated Employee.
(D) The Administrator shall reduce the Excess Aggregate
Contributions of the Highly Compensated Employee(s) with the
highest dollar amount of Excess Aggregate Contributions by
refunding such contributions to such Highly Compensated
Employee(s) in the amount required to cause the dollar
amount of such Highly Compensated Employee(s)' Employee
Contributions, Employer Matching Contributions and Qualified
Matching Contributions, on a pro rata basis, to equal the
sum of the Employee Contributions, Employer Matching
Contributions and Qualified Matching Contributions of the
Highly Compensated Employee(s) with the next highest dollar
amount of such contributions.
(E) If the total dollar amount distributed pursuant to (D) above
is less than the total dollar amount of Excess Aggregate
Contributions, Step (D) shall be applied to the Highly
Compensated Employee(s) with the next highest dollar amount
of Excess Aggregate Contributions until the total amount of
distributed Excess Aggregate Contributions equals the total
dollar amount calculated in Step (B).
(F) When calculating the amount of a distribution under Step
(D), if a lessor reduction, when added to any amounts
already distributed under this Section, would equal the
total amount of distributions necessary to permit the Plan
to satisfy the requirements of Section 3.9(a), the lesser
amount shall be distributed from the Plan.
Allocable Income. To determine the amount of the corrective
----------------
distribution required under this Section, the Administrator must
calculate the allocable income for the Plan Year in which the
Excess Contributions arose and for the "gap period" measured from
the beginning of the next Plan Year to the date of the
distribution. The income
23
<PAGE>
allocable to Excess Contributions is equal to the sum of the
allocable gain or loss for the Plan Year and the allocable gain
or loss for the gap period.
Allocable Income. To determine the amount of the corrective
----------------
distribution required under this Section, the Administrator must
calculate the allocable income for the Plan Year in which the
Excess Aggregate Contributions arose and for the "gap period"
measured from the beginning of the next Plan Year to the date of
the distribution. The income allocable to Excess Aggregate
Contributions is equal to the sum of the allocable gain or loss
for the Plan Year and the allocable gain or loss for the gap
period.
(A) Method of Allocating Income. The Administrator may use any
---------------------------
reasonable method for computing the income allocable to
Excess Aggregate Contributions, provided that the method
does not violate Code Section 401(a)(4), is used
consistently for all Participants and for all corrective
distributions under the Plan for the Plan Year, and is used
by the Plan for allocating income to Participants' Accounts.
(B) Alternative Method of Allocating Income. A Plan may
---------------------------------------
allocate income to Excess Aggregate Contributions by
multiplying the income for the Plan Year and the gap period
allocable to Employee Contributions, Employer Matching
Contributions, and amounts treated as Employer Matching
Contributions by a fraction. The numerator of the fraction
is the Excess Aggregate Contributions for the Employee for
the Plan Year. The denominator of the fraction is equal to
the sum of:
(I) The total account balance of the Employee attributable
to Employee Contributions and Employer Matching
Contributions, and amounts treated as Employer
Matching Contributions as of the beginning of the Plan
Year; plus
(II) The Employee Contributions and Employer Matching
Contributions, and amounts treated as Employer
Matching Contributions for the Plan Year and for the
gap period.
(C) Safe Harbor Method of Allocating Gap Period Income. Under
--------------------------------------------------
the safe harbor method, income or Excess Aggregate
Contributions for the gap period will equal ten percent
(10%) of the income allocable to Excess Aggregate
Contributions for the Plan Year (calculated under the method
described in paragraph (B) of this Section), multiplied by
the number of calendar months that have elapsed since the
end of the Plan Year. For purposes of calculating the number
of calendar months that have elapsed under the safe harbor
method, a corrective distribution that is made on or before
the fifteenth day of the month is treated as made on the
last day of the preceding month. A distribution made after
the fifteenth day of the month is treated as made on the
first day of the next month.
(ii) Characterization of Excess Aggregate Contributions. The
--------------------------------------------------
Administrator will treat a Highly Compensated Employee's
allocable share of Excess Aggregate Contributions in the
following priority: (A) first as attributable to his or her
Employee Contributions which are voluntary contributions, if any;
(B) then as Employer Matching Contributions allocable with
respect to Excess Contributions determined under the Actual
Deferral Percentage Test described in Section 3.8(a); (C) then on
a pro rata basis to Employer Matching Contributions and to the
Employer Elective Contributions relating to those Employer
Matching Contributions which the Administrator has included in
the Average Contribution Percentage Test; (D) then on a pro rata
basis to Employee Contributions which are mandatory
contributions, if any, and to the Employer Matching Contributions
allocated on the basis of those mandatory contributions; and (E)
last to Qualified Non-Elective Contributions used in the Average
Contribution Percentage Test. To the extent the Highly
Compensated Employee's Excess Aggregate Contributions are
attributable to Employer Matching Contributions, and he or she is
not 100% vested in the Account Balance attributable to Employer
Matching Contributions, the Administrator will distribute only
the vested portion and forfeit the nonvested portion. The vested
portion of the Highly Compensated Employee's Excess Aggregate
Contributions attributable to Employer Matching Contributions is
the total amount of the Excess Aggregate Contributions (as
adjusted for allocable income) multiplied by his or her vested
percentage (determined as of the last day of the Plan Year for
which the Employer made the Employer Matching Contribution).
(iii) Qualified Non-Elective and Elective Contributions. The Employer
-------------------------------------------------
shall make Qualified Non-Elective Contributions or Elective
Contributions that, in combination with Employee Contributions
and Employer Matching Contributions, satisfy one of the tests set
forth in paragraph (a) of this Section, taking into account the
Administrator's action under any option herein. The contribution
shall be treated as an Employer Elective Contribution and shall
be allocated to the Salary Deferral Account of each Participant
who is a Nonhighly Compensated Employee. The Qualified Non-
Elective and Elective Contributions may be treated as Employer
Matching Contributions provided that each of the following
requirements, to the extent applicable, is satisfied:
(A) The amount of Non-Elective Contributions, including those
Qualified Non-Elective Contributions treated as Employer
Matching Contributions for purposes of the Average
Contribution Percentage Test, satisfies the requirements of
Code Section 401(a)(4).
24
<PAGE>
(B) The amount of Non-Elective Contributions, excluding those
Qualified Non-Elective Contributions treated as Employer
Matching Contributions for purposes of the Average
Contribution Percentage Test and those Qualified Non-Elective
Contributions treated as Elective Contributions under
Treasury Regulations Section 1.401(k)-1(b)(5) for purposes of
the Actual Deferral Percentage Test, satisfies the
requirements of Code Section 401(a)(4).
(C) The Elective Contributions, including those treated as
Qualified Matching Contributions for purposes of the Average
Contribution Percentage Test, satisfy the requirements of
Code Section 401(k)(3) for the Plan Year.
(D) The Qualified Non-Elective Contributions are allocated to the
Employee under the Plan as of a date within the Plan Year,
and the Elective Contributions satisfy the requirements of
Treasury Regulations Section 1.401(k)-1(b)(4)(i) for the Plan
Year.
(E) The plan that takes Qualified Non-Elective Contributions and
Elective Contributions into account in determining whether
Employee Contributions and Employer Matching Contributions
satisfy the requirements of Code Section 401(m)(2)(A), and
the plans to which the Qualified Non-Elective Contributions
and Elective Contributions are made, are or could be
aggregated for purposes of Code Section 410(b).
(iv) Forfeiture of Non-Vested Employer Matching Contributions.
--------------------------------------------------------
Employer Matching Contributions that are not vested may be
forfeited to correct Excess Aggregate Contributions.
Notwithstanding the foregoing sentence, Excess Aggregate
Contributions for a Plan Year may not remain unallocated or be
allocated to a suspense account for allocation to one or more
Employees in any future year. Forfeitures of Employer Matching
Contributions to correct Excess Aggregate Contributions shall be:
(A) Applied to reduce Employer Contributions for the Plan Year in
which the excess arose, but allocated according to the
following paragraph (B), to the extent the excess exceeds
Employer Contributions or the Employer has already
contributed for the Plan Year.
(B) Allocated, after all other Forfeitures under the Plan, to the
Employer Matching Contribution Account of each Nonhighly
Compensated Participant who made Elective Deferrals or
Employee Contributions in the ratio which each such
Participant's Compensation for the Plan Year bears to the
total Compensation of all such Participants for the Plan
Year.
* * * * * * *
25
<PAGE>
ARTICLE IV
----------
Adjustment of Individual Accounts
---------------------------------
4.1. Adjustment Rules
----------------
As of the end of each Accounting Period on the Accounting Date, the Trustee
will determine the fair market value of each Investment Fund being
administered by the Trustee. To determine the gain or loss of the Accounts
in each Investment Fund, the Trustee will first calculate the change in
value of each Investment Fund between the current Accounting Period and the
last preceding Accounting Period. The net gain or loss in each Investment
Fund will be allocated to the accounts of those Participants who are
participating in each Investment Fund on the Accounting Date. The Trustee
will then charge to the prior account balances all previously uncharged
payments or distributions made from the Accounts since the last preceding
Accounting Period. Finally, the Trustee will allocate and credit Employer
Contributions that are to be allocated and credited as of that date in
accordance with Article V.
* * * * * * *
26
<PAGE>
ARTICLE V
---------
Allocation of Employer Contributions to Individual Accounts
-----------------------------------------------------------
5.1. Allocation Rules
----------------
As of each Anniversary Date, but after the adjustment of Individual
Accounts as provided in Article IV, the Employer Non-Elective
Contributions, including any Forfeitures allocated as of the Anniversary
Date, for the Plan Year which ends on the Anniversary Date shall be
allocated and credited to the Employer Non-Elective Contribution Account of
each eligible Participant in the Plan on the Anniversary Date. A
Participant who completes one thousand (1,000) Hours of Service and is
employed by the Employer on the Anniversary Date for the Plan Year will be
allocated Employer Non-Elective Contributions and Participant Forfeitures
under the allocation formula of Section 5.2. A Participant who has failed
to aggregate at least one thousand (1,000) Hours of Service during the Plan
Year for which the contribution was made shall not share in an allocation,
unless the failure to aggregate one thousand (1,000) Hours of Service
occurred because of the Participant's death, disability or retirement. No
Participant, other than one who died, became disabled or retired during the
Plan Year, shall be entitled to have any Employer Non-Elective
Contributions allocated to his or her Individual Account, unless the
Participant shall be employed by the Employer on the Anniversary Date for
the Plan Year.
The Committee will suspend the accrual requirements for Includable
Employees who are Participants, beginning first with the Includable
Employee(s) employed with the Employer on the last day of the Plan Year,
then the Includable Employee(s) who have the latest Separation from Service
during the Plan Year, and continuing to suspend in descending order the
accrual requirements for each Includable Employee who incurred an earlier
Separation from Service, from the latest to the earliest Separation from
Service date, until the Plan satisfies both the Code Section 401(a)(26)
Participation Test and the Code Section 410(b) Coverage Test for the Plan
Year. If two or more Includable Employees have a Separation from Service
on the same day, the Committee will suspend the accrual requirements for
all such Includable Employees, irrespective of whether the Plan can satisfy
the Code Section 401(a)(26) Participation Test and the Code Section 410(b)
Coverage Test by accruing benefits for fewer than all such Includable
Employees. If the Plan suspends the accrual requirements for an Includable
Employee, that Employee will share in the allocation of Employer
contributions and Participant forfeitures, if any, without regard to the
number of Hours of Service he has earned for the Plan Year and without
regard to whether he is employed by the Employer on the last day of the
Plan Year. If the Employer's Plan includes Employer matching contributions
subject to Code Section 401(m), this suspension of accrual requirements
applies separately to the Code Section 401(m) portion of the Plan, and the
Committee will treat an Employee as benefiting under that portion of the
Plan if the Employee is an Eligible Employee for purposes of the Code
Section 401(m) nondiscrimination test. "Includable" Employees are all
Employees other than: (a) those Employees excluded from participating in
the Plan for the entire Plan Year by reason of the collective bargaining
unit exclusion or the nonresident alien exclusion or by reason of the
participation requirements of Section 2.1 and (b) any Employee who incurs a
Separation from Service during the Plan Year and fails to complete at least
501 Hours of Service for the Plan Year.
5.2. Allocation Formula
------------------
Subject to the minimum allocation for Top-Heavy Plans under Section 5.4 and
any restoration allocation required under Section 9.7, the Committee shall
allocate the Employer Non-Elective Contributions and Participant
Forfeitures, if any, to each eligible Participant's Employer Non-Elective
Contribution Account as follows:
(a) The Committee shall make simultaneous allocations of Employer Non-
Elective Contributions and Participant Forfeitures under this
paragraph. The simultaneous allocations must result in an equal
allocation percentage (not exceeding the greater of 5.7% or the
percentage equal to the portion of the rate of tax applicable under
Code Section 3111(a) relating to the Employer's Old Age Insurance Tax,
as defined in Code Section 401(l), in effect at the beginning of the
Plan Year) of each Participant's Annual Compensation and of each
Participant's Excess Compensation. The allocation based on a
Participant's Annual Compensation is in the same ratio that the
Participant's Annual Compensation for the Plan Year bears to the total
Annual Compensation of all Participants for the Plan Year. The
allocation based on a Participant's Excess Compensation is in the same
ratio that the Participant's Excess Compensation for the Plan Year
bears to the total Excess Compensation of all Participants for the Plan
Year.
(b) The Committee shall allocate any remaining portion of the Employer Non-
Elective Contributions and Participant Forfeitures in the same ratio
that each Participant's Annual Compensation for the Plan Year bears to
the total Annual Compensation of all Participants eligible to share in
the allocation for the Plan Year.
(c) The Integration Level shall be the Taxable Wage Base. Excess
Compensation means Annual Compensation in excess of the Taxable Wage
Base. The Taxable Wage Base is the maximum amount of compensation
which may be considered wages for the Plan Year under Code Section
3121(a)(1). For a Participant whose Entry Date is other than the first
day of the Plan Year, the Integration Level of the Participant for the
Plan Year in which the Participant enters the Plan shall be reduced by
a fraction, the numerator of which is the number of days in the Plan
Year remaining on and after the Participant's Entry Date and the
denominator of which is the total number of days in the Plan Year.
(d) For Section 5.2(a), the applicable percentage that is the maximum
allocation percentage for allocations shall be determined under the
following table:
27
<PAGE>
Integration Level
(As a Percentage of the Taxable Wage Base) Applicable Percentage
------------------------------------------ ---------------------
100% 5.7%
More than 80%, but less than 100% 5.4%
More than 20%, (but not less than $10,001)
and not more than 80% 4.3%
20% (or $10,000, if greater) or less 5.7%
(e) For purposes of this Section, Annual Compensation shall be determined
in accordance with Section 1.8, as modified by Section 1.8(h).
Subject to the minimum allocation for Top-Heavy Plans under Section 5.4 and
any restoration allocation required under Section 9.7, the Committee will
allocate a Participant Forfeiture from an Employer Non-Elective
Contribution Account under the allocation formula in this Section, to
reduce the Employer Non-Elective Contribution for the Plan Year in which
the Forfeiture occurs. The Committee will continue to hold the
undistributed, nonvested portion of a terminated Participant's Account
Balance in the Individual Account solely for the benefit of the Participant
until a Forfeiture occurs at the time specified in Section 9.4.
5.3. Limitations on Allocations
--------------------------
(a) Defined Contribution Plan Limits. The amount of Annual Additions which
--------------------------------
the Committee may allocate under this Plan on a Participant's behalf
for a Limitation Year may not exceed the Maximum Permissible Amount.
If the amount the Employer otherwise would contribute to the
Participant's Account would cause the Annual Additions for the
Limitation Year to exceed the Maximum Permissible Amount, the Employer
will reduce the amount of its contribution so the Annual Additions for
the Limitation Year will equal the Maximum Permissible Amount. If an
allocation of Employer Contributions pursuant to Section 5.2 would
result in an Excess Amount (other than an Excess Amount resulting from
the circumstances described in Section 5.3(c)) to the Participant's
Account, the Committee will reallocate the Excess Amount to the
remaining Participants who are eligible for an allocation of Employer
Contributions for the Plan Year in which the Limitation Year ends. The
Committee will make this reallocation on the basis of the allocation
method under the Plan as if the Participant whose Individual Account
otherwise would receive the Excess Amount is not eligible for an
allocation of Employer Contributions.
(b) Estimation. Prior to the determination of the Participant's actual
----------
Annual Compensation for a Limitation Year, the Committee may determine
the Maximum Permissible Amount on the basis of the Participant's
estimated Annual Compensation defined in Section 5.3(f) for the
Limitation Year. The Committee must make this determination on a
reasonable and uniform basis for all Participants similarly situated.
The Committee must reduce any Employer Contributions (including any
allocation of Forfeitures) based on estimated Annual Compensation by
any Excess Amounts carried over from prior years. As soon as
administratively feasible after the end of the Limitation Year, the
Committee will determine the Maximum Permissible Amount for the
Limitation Year based on the Participant's actual Annual Compensation
for the Limitation Year.
(c) Disposition of Excess Amount. If, pursuant to Section 5.3(b) or
----------------------------
because of an allocation of Forfeitures, there is an Excess Amount
attributable to a Participant for a Limitation Year, then the Committee
will dispose of the Excess Amount as follows:
(i) The Committee shall return any nondeductible Participant
Voluntary After Tax Contributions to the Participant to the
extent that the return would reduce the Excess Amount.
(ii) If, after the application of clause (i) an Excess Amount still
exists, and the Plan covers the Participant at the end of the
Limitation Year, then the Committee will use the Excess Amounts
to reduce future Employer Contributions (including any allocation
of Forfeitures) under the Plan for the next Limitation Year and
for each succeeding Limitation Year, as is necessary, for the
Participant. The Participant may elect to limit Compensation for
allocation purposes to the extent necessary to reduce the
allocation for the Limitation Year to the Maximum Permissible
Amount and eliminate the Excess Amount.
(iii) If, after the application of clause (i) an Excess Amount still
exits and the Plan does not cover the Participant at the end of
the Limitation Year, then the Committee shall hold the Excess
Amount in a suspense account and use the Excess Amount to reduce
Employer Contributions on behalf of remaining Participants and
shall allocate and reallocate to the Individual Accounts of
remaining Participants in succeeding Limitation Years to the
extent permissible under the foregoing limitations, prior to any
further Annual Additions to the Plan. If the Plan should be
terminated or contributions should be completely discontinued,
the funds in the suspense account will be allocated to the extent
not prohibited by Code Section 415. Any suspense account shall
not be adjusted for investment gains or losses of the Trust Fund.
(iv) The Committee will not distribute any Excess Amount(s) to
Participants or to Former Participants.
(v) Notwithstanding the foregoing sentence and the foregoing
paragraphs (i), (ii), (iii), and (iv), the Committee may
distribute Elective Deferrals (within the meaning of Code Section
402(g)(3)) or return voluntary or mandatory
28
<PAGE>
Employee Contributions, to the extent the distribution or return
would reduce the excess amounts in the Participant's account.
(d) Multiple Defined Contribution Plan Limits. If the Employer maintains
-----------------------------------------
any other qualified defined contribution plan, the amount of the Annual
Addition which may be allocated to a Participant's Individual Account
in this Plan shall not exceed the Maximum Permissible Amount, reduced
by the amount of Annual Additions to such Participant's accounts for
the same Limitation Year in the other plan(s). The Excess Amount
attributed to this Plan equals the product of:
(i) the total Excess Amount allocated as of such date (including any
amount the Committee would have allocated but for the limitations
of Code Section 415), multiplied by
(ii) the ratio of
(A) the amount allocated to the Participant as of such date under
this Plan, divided by
(B) the total amount allocated as of such date under all
qualified defined contribution plans (determined without
regard to the limitations of Code Section 415).
(e) Defined Benefit Plan Limits. The Employer does not maintain and never
---------------------------
has maintained a defined benefit plan covering any Participant in this
Plan. Accordingly, no special defined benefit plan limitation applies
under this Plan.
(f) Definitions. For purposes of the limitations of Code Section 415 set
-----------
forth in this Section, the following definitions shall apply:
(i) Annual Additions means the sum of the following amounts allocated
----------------
on behalf of a Participant for a Limitation Year:
(A) all Employer Contributions;
(B) all Forfeitures;
(C) all Employee Contributions;
(D) excess contributions described in Code Section 401(k) and
excess aggregate contributions described in Code Section
401(m), irrespective of whether the Plan distributes or
forfeits such Excess Amounts, and excess deferrals described
in Code Section 402(g), unless the excess deferrals are
distributed no later than the first April 15 following the
close of the Participant's taxable year;
(E) Excess Amounts reapplied to reduce Employer Contributions
under this Section 5.3;
(F) amounts allocated after March 31, 1984 to an individual
medical account, as defined in Code Section 415(l)(2),
included as part of a pension or annuity plan maintained by
the Employer;
(G) contributions paid or accrued after December 31, 1985, in
taxable years ending after that date, which are attributable
to post-retirement medical benefits allocated to the separate
account of a Key Employee as defined in Code Section
419A(d)(3), under a welfare benefit fund, as described in
Code Section 419(e), maintained by the Employer; and
(H) allocations under a simplified employee pension plan.
(ii) Annual Compensation means the total amount of salary, wages,
-------------------
commissions, bonuses and overtime, paid or otherwise includable in
the gross income of a Participant during the Limitation Year, but
excluding:
(A) Employer contributions to any deferred compensation plan (to
the extent the contributions are not included in the
Participant's gross income for the taxable year in which
contributed) or simplified employee pension under Code
Section 408(k) (to the extent the contributions are
excludable from the Participant's gross income) except that
for Plan Years beginning after December 31, 1997, Elective
Contributions under Code Section 402(a)(8) relating to a
401(k) arrangement shall not be excluded from the definition
of Annual Compensation.
(B) distributions from any plan of deferred compensation,
regardless of whether such amounts are includable in the
gross income of the Employees when distributed;
(C) amounts realized from the exercise of any nonqualified stock
option, or when restricted stock becomes freely transferrable
or is no longer subject to a substantial risk of forfeiture;
29
<PAGE>
(D) amounts realized from the sale, exchange, or other
disposition of stock acquired under a qualified stock
option described in Part II, Subchapter D, Chapter 1 of the
Code;
(E) premiums paid by the Employer for group term life insurance
(to the extent the premiums are not includable in the
Participant's gross income); contributions by the Employer
to an annuity under Code Section 403(b) (to the extent not
includable in the Participant's gross income); and any
other amounts received under any Employer sponsored fringe
benefit plan (to the extent not includable in the
Participant's gross income);
(F) any contribution for medical benefits, within the meaning
of Code Section 419A(f)(2), after separation from Service
which is otherwise treated as an Annual Addition; and
(G) any amount otherwise treated as an Annual Addition under
Code Section 415(l)(1).
(iii) Average Annual Compensation means the average compensation
---------------------------
during a Participant's highest three (3) consecutive Years of
Service, which period is the three (3) consecutive calendar
years (or the actual number of consecutive years of employment
for those Employees who are employed for less than three (3)
consecutive years with the Employer) during which the
Participant had the greatest aggregate compensation from the
Employer.
(iv) Employer means the Employer that adopts this Plan. All Related
--------
Employers shall be considered a single Employer for purposes of
applying the limitations of this Section.
(v) Excess Amount means the excess of the Participant's Annual
-------------
Additions for the Limitation Year over the Maximum Permissible
Amount, less administrative charges allocable to such Excess
Amount.
(vi) Limitation Year means the Limitation Year specified in the Plan
---------------
or, if none is specified, the calendar year.
(vii) Maximum Permissible Amount means the lesser of:
--------------------------
(A) the Defined Contribution Dollar Limitation, or
(B) twenty-five percent (25%) of the Participant's
Compensation, within the meaning of Code Section 415(c)(3)
for a Limitation Year with respect to any Participant.
Defined Contribution Dollar Limitation means $30,000 or, if
greater, twenty-five percent (25%) of the Defined Benefit Dollar
Limitation set forth in Code Section 415(b)(1)(A) as in effect
for the Limitation Year.
(viii) Projected Annual Benefit means the benefit of the Participant
------------------------
payable annually in the form of a straight life annuity (with no
ancillary benefits) under the terms of a defined benefit plan to
which employees do not contribute and under which no rollover
contributions are made, assuming that the Participant continues
employment until Normal Retirement Age (or current age, if
later), compensation continues at the same rate as in effect in
the Limitation Year under consideration until the date of Normal
Retirement Age, and all other relevant factors used to determine
benefits under the defined benefit plan remain constant as of
the current Limitation Year for all future Limitation Years.
5.4. Top-Heavy Minimum Allocation
----------------------------
(a) Minimum Allocation. Notwithstanding the foregoing, for any Plan Year
------------------
in which the Plan is determined to be Top-Heavy, the amount of Employer
Non-Elective Contributions and Forfeitures allocated to the Individual
Account of each Non-Key Employee shall be equal to the lesser of three
percent (3%) of each Non-Key Employee's Compensation or the highest
contribution rate for the Plan Year made on behalf of any Key Employee.
However, if a defined benefit plan maintained by the Employer which
benefits a Key Employee depends on this Plan to satisfy the
nondiscrimination rules of Code Section 401(a)(4) or the coverage rules
of Code Section 410 (or another plan benefitting the Key Employee so
depends on the defined benefit plan), the top heavy minimum allocation
is three percent (3%) of the Non-Key Employee's Compensation regardless
of the contribution rate for the Key Employee.
(b) Compensation. For purposes of this Section, Compensation means Annual
------------
Compensation defined in Section 1.8 except (i) Compensation does not
include Elective Contributions, and (ii) any exclusions from Annual
Compensation (other than the exclusion of Elective Contributions and
the exclusions described in clauses (i) through (v) of Section 1.8, if
applicable) do not apply. Notwithstanding the definition of Annual
Compensation in Section 1.8, the period preceding a Participant's Entry
Date shall be included in determining the minimum top-heavy allocation
provided by this Section.
(c) Contribution Rate. For purposes of this Section, a Participant's
-----------------
contribution rate is the sum of Employer Contributions (not including
Employer Contributions to Social Security) and Forfeitures allocated to
the Participant's Account for the Plan Year
30
<PAGE>
divided by his or her Compensation for the entire Plan Year. To
determine a Participant's contribution rate, the Committee must treat
all qualified top-heavy defined contribution plans maintained by the
Employer (or by any related Employers described in Section 1.43) as a
single plan. For purposes of this Section, for Plan Years beginning
after 1988, the following rules apply:
(i) Employer Elective Contributions on behalf of Key Employees are
taken into account in determining the minimum required
contribution under Code Section 416(c)(2). However, Employer
Elective Contributions on behalf of Employees other than Key
Employees may not be treated as Employer Contributions for the
minimum contribution or benefit requirement of Code Section 416.
(ii) Employer Matching Contributions allocated to Key Employees are
treated as Employer Contributions for determining the minimum
contribution or benefit under Code Section 416. However, if a
plan utilizes Matching Contributions allocated to Employees other
than Key Employees as Employee Contributions or Elective
Contributions to satisfy the minimum contribution requirement,
the Matching Contributions are not treated as Matching
Contributions for applying the requirements of Code Section
401(k) and 401(m).
(iii) Qualified Non-Elective Contributions described in Code Section
401(m)(4)(C) may be treated as Employer Contributions for the
minimum contribution or benefit requirement of Code Section 416.
(d) Participant Entitled to Top-Heavy Minimum Allocation. The minimum
----------------------------------------------------
allocation under this Section shall be provided to each Non-Key
Employee who is a Participant and is employed by the Employer on the
last day of the Plan Year, whether or not the Participant has been
credited with one thousand (1,000) Hours of Service for the Plan Year.
The minimum allocation under this Section shall not be provided to any
Participant who was not employed by the Employer on the last day of the
Plan Year. The provisions of this Section shall not apply to any
Participant to the extent the Participant is covered under any other
plan or plans of the Employer under which the minimum allocation or
benefit requirements under Code Section 416(c)(1) or (c)(2) are met for
the Participant.
(e) Compliance. The Plan will satisfy the top-heavy minimum allocation
----------
under this Section. The Committee first will allocate the Employer
Contributions (and Participant Forfeitures, if any) for the Plan Year
pursuant to the allocation formula under Section 5.2. The Employer
then will contribute an additional amount for the Individual Account of
any Participant entitled under this Section to a top-heavy minimum
allocation and whose contribution rate for the Plan Year, under this
Plan and any other plan aggregated under this Section, is less than the
top-heavy minimum allocation. The additional amount is the amount
necessary to increase the Participant's contribution rate to the top-
heavy minimum allocation. The Committee will allocate the additional
contribution to the Account of the Participant on whose behalf the
Employer makes the contribution.
31
<PAGE>
5.5. Post-Allocation Adjustments to Accounts
---------------------------------------
After the amount or amounts have been allocated and credited to each
Participant's Employer Non-Elective Contribution Account, as provided in
this Article, the then value of each Employer Non-Elective Contribution
Account shall remain unchanged until the next Anniversary Date.
Notwithstanding the foregoing, the Participant's Employer Contribution
Accounts may be adjusted prior to the next Anniversary Date under:
(a) other provisions in this Agreement authorizing the Committee to reduce
the Participant's Employer Contribution Accounts by disbursements
properly chargeable to them or increased by funds received and credited
to them; or
(b) a special valuation of the Participant's Employer Contribution Account
required under Articles VII, VIII, and IX.
5.6. Employer Contribution Accounts Defined
--------------------------------------
For purposes of this Article, reference to the Employer Contribution
Accounts of Participants shall include the Employer Contribution Accounts
of those Participants who die, become disabled or retire during the Plan
Year considered.
* * * * * * *
32
<PAGE>
ARTICLE VI
----------
Retirement
----------
6.1. Crediting, Adjustment of Accounts Upon Retirement
-------------------------------------------------
At Normal Retirement Age, a Participant shall be fully vested in the
Participant's Individual Accounts and the Trustee shall hold the Individual
Accounts for the Participant's benefit. A Participant has an ongoing
election to receive distribution of normal retirement benefits as stated
hereunder. Upon a Participant's request for distribution after attainment
of Normal Retirement Age, the Committee shall credit and adjust the
Individual Accounts of the Participant, as provided in Articles IV and V,
as of the Valuation Date immediately preceding the date of distribution of
the Participant's vested benefits. A Participant shall be entitled to
benefits under Section 6.3 after attaining Normal Retirement Age or upon
retiring after attaining Normal Retirement Age.
6.2. Early Retirement
----------------
This Plan does not provide for retirement by a Participant prior to the
Normal Retirement Date.
6.3. Payment of Retirement Benefits
------------------------------
As soon as administratively feasible after the Committee has credited and
adjusted a Participant's Individual Accounts as provided in Section 6.1,
the Trustee shall make payments to the Participant pursuant to Article X.
Subject to the mandatory distribution requirements of Section 6.4, the
survivor annuity requirements of Section 6.5, if applicable, and the
immediate cashout provisions of Sections 9.3(b) and 9.3(c), payments shall
begin as soon as administratively feasible after the Participant attains
Normal Retirement Age, whether or not the Participant actually retires or
elects to receive retirement benefit distributions after attaining Normal
Retirement Age. The Committee shall charge each payment to the
Participant's Individual Account and payment shall continue until death
(when Article VII shall control the disposition of the deceased
Participant's Nonforfeitable Account Balance) or until the Nonforfeitable
Account Balance is paid to the Participant in full, whichever event shall
occur first. Unless a Participant elects otherwise, payment of benefits
shall commence as soon as administratively feasible after the end of the
Plan Year in which the latest of the follow events occur: (a) the date on
which the Participant attains the earlier of age sixty-five (65) or Normal
Retirement Age under the Plan; (b) the tenth (10th) anniversary of the year
in which the Participant commenced participation in the Plan; or (c) the
date on which the Participant terminates service with the Employer.
Notwithstanding the foregoing, a Participant may not defer commencement of
benefits or elect a form of installment payment which would result in the
Participant receiving less than fifty-one percent (51%) of the total
benefits to be paid during the Participant's life expectancy.
6.4. Mandatory Distribution of Retirement Benefits
---------------------------------------------
The Committee may not direct the Trustee to distribute the Participant's
Nonforfeitable Account Balance, nor may the Participant elect to make the
Trustee distribute the Nonforfeitable Account Balance under a method of
payment which, as of the Required Beginning Date, does not satisfy the
minimum distribution requirements under Code Section 401(a)(9) and the
applicable Treasury regulations.
(a) Limits on Distribution Periods. As of the first Distribution Calendar
------------------------------
Year, distributions, if not made in a lump sum, may only be made over
one of the following periods or a combination of such periods:
(i) the life of the Participant;
(ii) the life of the Participant and a Designated Beneficiary, subject
to the requirements of Code Section 401(a)(9) and the applicable
Treasury regulations;
(iii) a period certain not extending beyond the life expectancy of the
Participant; or
(iv) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a Designated Beneficiary.
Under no circumstances may a Participant elect payment of benefits in
the form of an annuity. All distributions required under this Article
shall be determined and made under Code Section 401(a)(9) and
applicable Treasury regulations, including the minimum distribution
incidental benefit requirements of Treasury Regulations Section
1.401(a)(9)-2. A mandatory distribution at the Participant's Required
Beginning Date will be in lump sum unless the Participant, pursuant to
this Article, makes a valid election to receive an alternative form of
payment.
(b) Minimum Distribution Amounts
----------------------------
(i) Non-Lump Sum Distribution. If the Participant's entire interest
-------------------------
will be distributed in other than a lump sum, then the minimum
distribution for a calendar year equals the Participant's
Nonforfeitable Account Balance as of the last Valuation Date
preceding the beginning of the calendar year divided by the
Participant's life expectancy or, if
33
<PAGE>
applicable, the joint and last survivor expectancy of the
Participant and his or her Designated Beneficiary, subject to the
requirements of Code Section 401(a)(9) and the applicable Treasury
regulations. The Committee will increase the Participant's
Nonforfeitable Account Balance, as determined on the relevant
Valuation Date, for Contributions or Forfeitures allocated after
the Valuation Date and by December 31 of the Valuation Calendar
Year, and will decrease the valuation by distributions made after
the Valuation Date and by December 31 of the Valuation Calendar
Year. For purposes of this valuation, the Committee will treat any
portion of the minimum distribution for the first Distribution
Calendar Year made after the close of that year as a distribution
occurring in the first Distribution Calendar Year. Life expectancy
and joint and last survivor expectancy must be computed by the use
of the expected return multiples contained in Section 1.72-9 of
the Income Tax Regulations. Unless otherwise elected by the
Participant, or Spouse in the case of distributions described in
this Section 6.4(b), by the time distributions are required to
begin, life expectancies shall be recalculated annually. The
election shall be irrevocable for the Participant, or spouse, and
shall apply to all subsequent years. The life expectancy of a non-
spouse Beneficiary may not be recalculated.
(ii) Non-Spouse Beneficiary. If the Participant's spouse is not the
----------------------
Designated Beneficiary, a method of payment to the Participant may
not provide more than incidental benefits to the Beneficiary. The
Plan must satisfy the minimum distribution incidental benefit
("MDIB") requirements in the applicable Treasury regulations under
Code Section 401(a)(9) for distributions made on or after the
Participant's Required Beginning Date and before the Participant's
death. To satisfy the MDIB requirement, the Committee will
compute the minimum distribution required by this Section 6.4(b)
by substituting the applicable MDIB divisor for the applicable
life expectancy factor, if the MDIB divisor is a lesser number.
Following the Participant's death, the Committee will compute the
minimum distribution required by this Section 6.4(b) solely on the
basis of the applicable life expectancy factor and will disregard
the MDIB factor. For Plan Years beginning prior to January 1,
1989, the Plan satisfies the incidental benefits requirement if
the distributions to the Participant satisfied the MDIB
requirement or if the present value of the retirement benefits
payable solely to the Participant is greater than fifty percent
(50%) of the present value of the total benefits payable to the
Participant and Beneficiaries. The Committee must determine
whether benefits to the Beneficiary are incidental on the date the
Trustee is to commence payment of the retirement benefits to the
Participant, or on the date the Trustee redetermines the payment
period to the Participant.
(c) Commencement of Benefits. The Trustee must distribute or begin to
------------------------
distribute the entire interest of a Participant no later than the
Participant's Required Beginning Date. The minimum distribution for
the first Distribution Calendar Year is due by the Participant's
Required Beginning Date. The minimum distribution for each subsequent
Distribution Calendar Year, including the calendar year of the
Participant's Required Beginning Date, is due by December 31 of that
year. A Participant's "Required Beginning Date" shall be as follows:
(i) For a Participant who is a Five Percent Owner, the Required
Beginning Date shall commence on the first day of April following
the later of:
(a) the calendar year in which the Participant attains age
seventy and one-half (70 1/2) years; or
(b) the earlier of the calendar year with or within which ends
the Plan Year in which the Participant becomes a Five Percent
Owner, or the calendar year in which the Participant retires.
(ii) For a Participant who is not a Five Percent Owner, the Required
Beginning Date is the first day of April of the calendar year
immediately following the later of:
(a) the calendar year in which the Participant attains age
seventy and one-half (70 1/2); or
(b) the calendar year in which the Participant terminates
employment with the Employer.
A Participant is treated as a "Five Percent Owner" for purposes of this
Section if the Participant is a Five Percent Owner as defined in
Section 1.47(g)(iii) and Code Section 416(i) (determined under Code
Section 416 but without regard to whether the Plan is Top-Heavy) at any
time during the Plan Year ending with or within the calendar year in
which the owner attains age sixty-six and one-half (66 1/2) years or
any subsequent Plan Year. Once distributions have begun to a Five
Percent Owner under this Section, they must continue to be distributed,
even if the Participant ceases to be a Five Percent Owner in a
subsequent year.
(d) Definitions
-----------
(i) Applicable Life Expectancy means the life expectancy (or joint and
--------------------------
last survivor expectancy) calculated using the attained age of the
Participant (or Designated Beneficiary) as of the Participant's
(or Designated Beneficiary's) birthday in the applicable calendar
year reduced by one for each calendar year which has elapsed since
the date life expectancy was calculated first. If life expectancy
is being recalculated, the applicable life expectancy shall be the
life expectancy as so recalculated. The applicable calendar year
shall be the first Distribution Calendar Year and, if life
expectancy is being recalculated, the succeeding calendar year.
34
<PAGE>
(ii) Designated Beneficiary means the individual who is designated as
----------------------
the Beneficiary under the Plan in accordance with Code Section
401(a)(9) and the applicable Treasury regulations.
(iii) Distribution Calendar Year means a calendar year for which a
--------------------------
minimum distribution is required. For distributions beginning
before the Participant's death, the first Distribution Calendar
Year is the calendar year immediately preceding the calendar year
which contains the Participant's Required Beginning Date.
(iv) Participant's Nonforfeitable Account Balance means the account
--------------------------------------------
balance as of the last Valuation Date in the calendar year
immediately preceding the Distribution Calendar Year (Valuation
Calendar Year), increased by the amount of any Contributions or
Forfeitures allocated to the account balance as of the dates in
the Valuation Calendar Year after the Valuation Date and
decreased by distributions made in the Valuation Calendar Year
after the Valuation Date. If any portion of the minimum
distribution for the first Distribution Calendar Year is made in
the second Distribution Calendar Year on or before the Required
Beginning Date, the amount of the minimum distribution made in
the second Distribution Calendar Year shall be treated as if it
had been made in the immediately preceding Distribution Calendar
Year.
6.5. Joint and Survivor Annuity Requirements
---------------------------------------
The joint and survivor annuity requirements do not apply to this Plan. The
Plan does not provide any annuity distributions to Participants nor to
surviving spouses. A transfer agreement described in Section 17.2 may not
permit a plan which is subject to Code Section 417 to transfer assets to
this Plan, unless the transfer is an elective transfer as described in
Section 17.3.
* * * * * * *
35
<PAGE>
ARTICLE VII
-----------
Death
-----
7.1. Beneficiary Designation
-----------------------
(a) Each Participant and Former Participant may from time to time select
one or more Beneficiaries to receive benefits under this Article on the
death of the Participant or Former Participant. The selection shall be
made in writing on a form provided by the Committee and shall be filed
with the Committee. Subject to Section 7.1(b), the last selection
filed with the Committee shall control.
A married Participant's Beneficiary designation is not valid unless the
Participant's spouse consents, in writing, to the Beneficiary
designation. The spouse's consent must acknowledge the effect of that
consent and a notary public or the Administrator (or Plan
representative) must witness that consent. The spousal consent
requirements of this paragraph do not apply if:
(i) the Participant and spouse are not married throughout the one
year period ending on the date of the Participant's death;
(ii) the Participant's spouse is the Participant's sole primary
beneficiary;
(iii) the Administrator is not able to locate the Participants'
spouse;
(iv) the Participant is legally separated or has been abandoned
(within the meaning of State law) and the Participant has a court
order to that effect; or
(v) other circumstances exist under which the Secretary of the
Treasury will excuse the consent requirement.
If the Participant's spouse is legally incompetent to give consent, the
spouse's legal guardian (even if the guardian is the Participant) may
give consent. If a Participant fails to name a Beneficiary under this
Section, Section 7.1(b) shall control.
(b) Unless elected in accordance with Section 7.1(c), the Beneficiary of
the death benefit shall be the Participant's spouse, who shall receive
the benefit in the manner prescribed in this Article. Notwithstanding
the foregoing sentence, the Participant may designate a Beneficiary
other than the spouse if:
(i) the Participant has no spouse; or
(ii) the spouse cannot be located.
(c) In the case of a married Participant or Former Participant, the
designation of a non-spouse as Beneficiary shall be valid only if:
(i) the spouse consents in writing to the designation;
(ii) the designation specifies the beneficiary and the method of
payment of benefits and may not be changed without spousal
consent (or the spouse's consent expressly permits designations
by the Participant without any requirement of further spousal
consent); and
(iii) the spouse's consent acknowledges the effect of the election and
the written consent is witnessed by a Plan representative or by a
Notary Public.
(d) If a Participant dies without a spouse or alternative Beneficiary
surviving; if the alternative Beneficiary (other than the spouse) does
not survive until final distribution of the Participant's balance; if a
Participant who is not married dies without having designated a
Beneficiary and/or alternative Beneficiary; or if a Participant who is
not married dies after having made and revoked a designation but prior
to having made a subsequent designation, then the amount remaining in
the deceased Participant's Individual Account shall be payable in the
following descending order to:
(i) the Participant's surviving children, including adopted persons
and their descendants;
(ii) the Participant's other living heirs-at-law determined under the
Texas laws concerning intestate succession;
(iii) the Participant's estate, personal representatives, heirs or
devisees; and
(iv) the estate, personal representatives, heirs or devisees of the
deceased Participant's prior Beneficiary.
36
<PAGE>
The Committee shall determine the applicable person, class of persons,
or legal entity to whom the benefit shall be paid beginning with (i),
in the descending order of (i) to (iv). Each class shall be determined
to be not in existence and, therefore, inapplicable by the Committee
before proceeding to the next class. In determining if a
classification is inapplicable, the Committee shall be required only to
make reasonable inquiry into the existence of the person or persons.
Remaining death benefits shall be payable under Section 7.4 regarding
mandatory distributions. Payment made pursuant to the power conferred
on the Committee in this Section shall operate as a complete discharge
of all obligations under the Plan concerning the share of a deceased
Participant and shall not be subject to review by anyone but shall be
final, binding and conclusive on all persons for all purposes.
7.2. Crediting, Adjusting of Accounts Upon Death
-------------------------------------------
Upon death, a Participant or Former Participant shall be fully vested in
his or her Individual Accounts and the Trustee shall hold the Individual
Accounts for the benefit of the Designated Beneficiary or Beneficiaries.
The Committee shall credit and adjust the Individual Accounts of a deceased
Participant or Former Participant, as provided in Articles IV and V, as of
the Valuation Date immediately preceding the date of distribution of the
Participant's vested benefits. The Designated Beneficiary or Beneficiaries
shall be entitled to benefits under Section 7.3 after the death of the
Participant or Former Participant. At its discretion, the Committee may
conduct a special valuation to establish the value of a deceased
Participant's Individual Accounts as of death, or any other date that is
administratively feasible, in which case payment of death benefits can
commence immediately thereafter.
7.3. Payment of Death Benefits
-------------------------
As soon as administratively feasible after the Committee has credited and
adjusted the Individual Accounts of the deceased Participant or Former
Participant as provided in Section 7.2, the Trustee shall make payments to
the Designated Beneficiary or Beneficiaries pursuant to Article X. Subject
to the survivor annuity requirements of Section 6.5, if applicable, the
mandatory distribution requirements of Section 7.4, and the immediate
cashout provisions of Sections 9.3(b) and 9.3(c), the payments shall begin
as soon as administratively feasible after the Participant dies. The
Committee shall charge each payment to the Participant's or Former
Participant's Individual Account. Payments shall continue until the death
of the last survivor of the Beneficiaries or until the Individual Account
is paid in full, whichever event shall occur first.
7.4. Mandatory Distribution of Death Benefits
----------------------------------------
The Committee may not direct the Trustee to distribute the Participant's
Nonforfeitable Account Balance, to the Beneficiary or Designated
Beneficiary, under a method of payment which, as of the Required Beginning
Date, does not satisfy the minimum distribution requirements under Code
Section 401(a)(9) and the applicable Treasury regulations.
(a) Limits on Distribution Periods
------------------------------
(i) If the Participant or Former Participant dies after distribution
has commenced, the Trustee shall continue to distribute the
remaining portion of the Participant's or Former Participant's
Nonforfeitable Account Balance at least as rapidly as under the
method of distribution used prior to the Participant's death.
(ii) If the Participant or Former Participant dies before distribution
commences, the Trustee shall complete distribution of the
Participant's or Former Participant's Nonforfeitable Account
Balance by December 31 of the calendar year containing the fifth
(5th) anniversary of the Participant's or Former Participant's
death, except to the extent that the Designated Beneficiary elects
to receive distributions under paragraphs (A) or (B) below:
(A) If any portion of the Participant's or Former Participant's
Nonforfeitable Account Balance is payable to a Designated
Beneficiary, the Designated Beneficiary may elect
distributions over the life or over a period certain not
greater than the life expectancy of the Designated
Beneficiary commencing on or before December 31 of the
calendar year immediately following the calendar year in
which the Participant or Former Participant died;
(B) If the Designated Beneficiary is the Participant's Surviving
Spouse, the date distributions must begin under paragraph (A)
above shall not be earlier than the later of: (1) December 31
of the calendar year immediately following the calendar year
in which the Participant or Former Participant died; and (2)
December 31 of the calendar year in which the Participant or
Former Participant would have attained age seventy and one-
half (70 1/2) years. If the Participant has not made an
election pursuant to this Section by the time of death, the
Designated Beneficiary must elect the method of distribution
no later than the earlier of: (1) December 31 of the calendar
year in which distributions must begin under this Section; or
(2) December 31 of the calendar year which contains the fifth
(5th) anniversary of the date of death of the Participant or
Former Participant. If the Participant has no Designated
Beneficiary, or if the Designated Beneficiary does not elect
a method of distribution, distribution of the Nonforfeitable
Account Balance of the Participant or Former Participant must
be completed by December 31 of the calendar year containing
the fifth (5th) anniversary of death.
37
<PAGE>
(C) If the Surviving Spouse is the Beneficiary of any portion of
a deceased Participant's or Former Participant's benefits
under the Plan, the Surviving Spouse shall be permitted to
direct that this distribution of benefits commence at a
reasonable time following the death of the Participant or
Former Participant under applicable Treasury regulations.
(D) If the Surviving Spouse dies after the Participant or Former
Participant, but before payments to the Spouse begin, the
preceding provisions of this Section, with the exception of
paragraph (B), shall be applied as if the Surviving Spouse
had been the Participant.
(b) Minimum Distribution Amounts. If the Trustee will distribute a
----------------------------
Participant's or Former Participant's Nonforfeitable Account Balance in
accordance with the Designated Beneficiary's life expectancy, the
minimum distribution for a calendar year equals the Participant's
Nonforfeitable Account Balance as of the latest Valuation Date
preceding the beginning of the calendar year divided by the Designated
Beneficiary's life expectancy.
For purposes of this Section, payments will be calculated by using the
expected return multiples specified in Tables V and VI of Treasury
Regulations Section 1.72-9. Life expectancy of a Surviving Spouse
shall be recalculated annually; however, in the case of any other
Designated Beneficiary, life expectancy will be calculated when the
first payment commences without further recalculation. For purposes of
this Section, any amount paid to a child of the Participant or Former
Participant will be treated as if it had been paid to the Surviving
Spouse, if the amount becomes payable to the Surviving Spouse when the
child reaches the age of majority.
(c) Commencement of Benefits
------------------------
(i) General Rule. For the purposes of this Section, distribution
------------
of a Participant's or Former Participant's Nonforfeitable Account
Balance is considered to begin on the Participant's or Former
Participant's Required Beginning Date or, if Section
7.4(a)(ii)(D) applies, the date distribution is required to begin
to the Surviving Spouse pursuant to Section 7.4(a)(ii)(A). If
distribution in the form of an annuity irrevocably commences
before the Required Beginning Date, the date distribution is
considered to begin is the date distribution actually commences.
Except as otherwise provided, the Required Beginning Date of a
Participant or Former Participant is the first day of April of
the calendar year following the calendar year in which the
Participant attains age seventy and one-half (70 1/2) years.
(ii) Transitional Rules. The Required Beginning Date of a Participant
------------------
or Former Participant who attains age seventy and one-half (70
1/2) years before January 1, 1988, shall be determined under
paragraphs (A) or (B) below:
(A) Other Than Five Percent Owners. The Required Beginning Date
------------------------------
of a Participant or Former Participant who is not a Five
Percent Owner is the first day of April of the calendar year
following the calendar year in which the later of retirement
or the attainment of age seventy and one-half (70 1/2) years
occurs. The Required Beginning Date of a Participant who is
not a Five Percent Owner who attains age seventy and one-
half (70 1/2) years during 1988 and who has not retired as
of January 1, 1989, is April 1, 1990.
(B) Five Percent Owners. The Required Beginning Date of a
-------------------
Participant or Former Participant who is a Five Percent
Owner during any year beginning after December 31, 1979, is
the first day of April following the later of:
(1) the calendar year in which the Participant attains age
seventy and one-half (70 1/2) years, or
(2) the earlier of the calendar year with or within which
ends the Plan Year in which the Participant becomes a
Five Percent Owner, or the calendar year in which the
Participant retires.
(iii) Five Percent Owner. A Participant is treated as a Five Percent
------------------
Owner for purposes of this Section 7.4 if the Participant is a
Five Percent Owner as defined in Section 1.47(g)(iii) and Code
Section 416(i) (determined under Code Section 416 but without
regard to whether the Plan is Top-Heavy) at any time during the
Plan Year ending with or within the calendar year in which the
owner attains age sixty-six and one-half (66 1/2) years or any
subsequent Plan Year. If distributions have begun to a Five
Percent Owner under this Section, they must continue to be
distributed, even if the Participant ceases to be a Five Percent
Owner in a subsequent year.
(d) Definitions
-----------
(i) Applicable Life Expectancy means the life expectancy calculated
--------------------------
using the attained age of the Designated Beneficiary as of the
Designated Beneficiary's birthday in the applicable calendar year
reduced by one for each calendar year which has elapsed since the
date life expectancy was calculated first. If life expectancy is
being recalculated, the Applicable Life Expectancy shall be the
life expectancy as recalculated. The applicable calendar year
shall be the first Distribution Calendar Year and, if life
expectancy is being recalculated, the succeeding calendar year.
38
<PAGE>
(ii) Designated Beneficiary means the individual who is designated as
----------------------
the Beneficiary under the Plan under Code Section 401(a)(9) and
the applicable Treasury regulations.
(iii) Distribution Calendar Year means a calendar year for which a
--------------------------
minimum distribution is required. For distributions beginning
after the Participant's death, the first Distribution Calendar
Year is the calendar year in which distributions are required to
begin pursuant to this Section.
(iv) Participant's Nonforfeitable Account Balance means the Account
--------------------------------------------
Balance as of the last Valuation Date in the calendar year
immediately preceding the Distribution Calendar Year (Valuation
Calendar Year), increased by the amount of any Contributions or
Forfeitures allocated to the Account Balance as of the dates in
the Valuation Calendar Year after the Valuation Date and
decreased by distributions made in the Valuation Calendar Year
after the Valuation Date. If any portion of the minimum
distribution for the first Distribution Calendar Year is made in
the second Distribution Calendar Year on or before the Required
Beginning Date, the amount of the minimum distribution made in
the second Distribution Calendar Year shall be treated as if it
had been made in the immediately preceding Distribution Calendar
Year.
* * * * * * *
39
<PAGE>
ARTICLE VIII
------------
Disability
----------
8.1. Crediting, Adjusting of Accounts Upon Disability
------------------------------------------------
Upon termination of employment due to disability, a Participant shall be
fully vested in his or her Individual Accounts and the Trustee shall hold
the Individual Accounts for the Participant's benefit. The Committee shall
credit and adjust the Individual Accounts of a disabled Participant, as
provided in Articles IV and V, as of the Valuation Date immediately
preceding the date of distribution of the Participant's vested benefits.
The disabled Participant shall be entitled to benefits under Section 8.2
after the date of disability. At its discretion, the Committee may conduct
a special valuation to establish the value of a disabled Participant's
Individual Accounts as of the date of disability, or any other date that is
administratively feasible, in which case payment of disability benefits can
commence immediately thereafter.
8.2. Payment of Disability Benefits
------------------------------
As soon as administratively feasible after the Committee has credited and
adjusted the Individual Accounts of the disabled Participant as provided in
Section 8.1, the Trustee shall make payments to the disabled Participant
pursuant to Article X. Subject to the mandatory distribution requirements
of Section 6.4, the survivor annuity requirements of Section 6.5, if
applicable, and the immediate cashout provisions of Sections 9.3(b) and
9.3(c), payments shall begin as soon as administratively feasible after the
Participant terminates Service with the Employer. The Committee shall
charge each payment to the disabled Participant's Individual Account, and
payments shall continue until death (when Article VII shall control the
disposition of the deceased Participant's Nonforfeitable Account Balance)
or until the Participant's Nonforfeitable Account Balance is paid to the
disabled Participant in full, whichever event shall occur first.
* * * * * * *
40
<PAGE>
ARTICLE IX
----------
Termination of Employment and Forfeiture
----------------------------------------
9.1. Crediting and Adjusting of Accounts Upon Termination
----------------------------------------------------
If a Participant's employment by the Employer shall terminate for any
reason other than retirement, death or disability, the Participant shall
become vested in his or her Individual Accounts as provided in Section 9.2
and the Trustee shall hold the Participant's Nonforfeitable Account Balance
in the Individual Accounts for the Participant's benefit. The Committee
shall credit and adjust the Individual Accounts of the terminated
Participant, as provided in Articles IV and V, as of the Valuation Date
immediately preceding the date of distribution of the Participant's vested
benefits. The terminated Participant shall be entitled to benefits under
Sections 9.2 and 9.3 after the date of termination. At its discretion, the
Committee may conduct a special valuation to establish the value of the
terminated Participant's Individual Accounts as of the date of termination,
or any other date that is administratively feasible.
9.2. Vesting
-------
(a) A Participant to whom Section 9.1 applies shall be fully vested at all
times in amounts credited to the Participant's After-Tax Contribution
Account, Salary Deferral Account, Rollover Account and Prior Match
Account. In addition, the Participant also shall be entitled to
receive a Nonforfeitable percentage of the balance credited to the
Employer Non-Elective Account, determined under the following vesting
schedule:
Nonforfeitable
--------------
Years of Service Percentage
---------------- ----------
Less than 1 year 0%
At least 1 but less than 2 years 0%
At least 2 but less than 3 years 40%
At least 3 but less than 4 years 80%
At least 4 years 100%
9.3. Payment of Termination Benefits
-------------------------------
(a) The Committee shall combine the Nonforfeitable percentage of the
Individual Accounts of a Participant determined under Section 9.2 with
the Participant Contribution Account into one Individual Account, and
the Trustee shall make payments to the Participant pursuant to Article
X. Subject to the third and fourth sentences of Section 6.3, the
mandatory distribution requirements of Section 6.4 and the survivor
annuity requirements of Section 6.5, if applicable, payments shall
begin as soon as administratively feasible after the Participant
terminates. The Committee shall charge each payment to the
Participant's Individual Account and payment shall continue until death
(when Article VII shall control the disposition of the deceased
Participant's Nonforfeitable Account Balance) or until the
Participant's Nonforfeitable Account Balance is paid to the Participant
in full, whichever event shall occur first.
(b) Notwithstanding the foregoing paragraph, if a Participant separates
from Service with the Employer and the Participant's Nonforfeitable
Account Balance determined under Section 9.2 is $3,500 or less, the
Committee may direct the Trustee to make immediate distribution to the
Participant in the form of a lump sum distribution; provided, however,
the Trustee shall not make a lump sum distribution after benefit
distributions have commenced, without the written consent of the
Participant and spouse. For purposes of this paragraph, if the value
of an Employee's vested Account Balance is zero (0), the Employee shall
be deemed to have received a distribution of his or her vested Account
Balance. Notwithstanding any contrary provision, if the Nonforfeitable
Account Balance of a Participant exceeds $3,500, then the Trustee shall
make no distribution without the Participant's and the spouse's consent
pursuant to Article X until the later of attainment of age sixty-two
(62) years or attainment of Normal Retirement Age. The foregoing
sentence shall not apply after the death of the Participant.
(c) If requested by a Participant and approved by the spouse in writing
after the Participant has separated from Service with the Employer, the
Committee shall direct the Trustee to distribute the Participant's
Nonforfeitable Account Balance determined under Section 9.2 in the form
of a lump sum distribution.
9.4. Forfeitures
-----------
A Participant to whom this Article applies shall forfeit that portion of
the amount of the Individual Account to which the Participant is not
entitled under Section 9.2 on the earlier of the date on which the
Participant incurs five (5) consecutive One Year Breaks in Service or the
date on which the Participant receives a Cashout Distribution (the
Forfeiture Event). A Cashout Distribution means a lump sum
41
<PAGE>
distribution pursuant to Sections 9.3(b) and 9.3(c), that occurs no later
than the last day of the second Plan Year following the Plan Year in which
the Participant separates from Service. For purposes of this Section, a
Participant who separates from Service without a Nonforfeitable percentage
in the Participant's Employer Contribution Account shall be deemed to have
received a distribution of the Nonforfeitable Account Balance on the date
of separation from Service. The amount forfeited under this Section shall
remain in the Trust Fund and shall be applied to restore the Individual
Accounts of Former Participants pursuant to Sections 9.7 or 10.7, pay Plan
fees and expenses, or reduce the Employer Non-Elective Contribution for the
Plan Year during which the Forfeiture Event occurred. If any amounts remain
unallocated, the additional amounts shall be allocated under Article V
among the Individual Accounts of the remaining Participants as of the
Anniversary Date coincident with or next following the Forfeiture Event.
9.5. Determination of Amount of Vested Undistributed Account, Forfeiture
-------------------------------------------------------------------
If the Trustee pays any amount outstanding to the credit of a Participant
in the Participant's Individual Account while the Participant is not fully
vested in the Individual Account, other than a Cashout Distribution defined
in Section 9.4, and prior to the Anniversary Date on which the Participant
shall incur five (5) consecutive One Year Breaks in Service, the value of
his or her vested and undistributed Account shall be held in a separate
account and shall be determined at any time prior to and including the
Anniversary Date on which the Participant shall incur five (5) consecutive
One Year Breaks in Service under the following formula:
X = P(AB + (RxD)) - (RxD).
For this formula, the variables represent the following factors:
X is the value of the vested portion of the Participant's Account;
P is the Participant's Nonforfeitable percentage at the relevant time;
AB is the Account Balance at the relevant time;
D is the amount of the distribution; and
R is the ratio of the Account Balance at the relevant time to the Account
Balance after the distribution.
The nonvested portion of the Participant's Individual Account shall be
forfeited on the Anniversary Date on which the Participant incurs five (5)
consecutive One Year Breaks in Service.
9.6. Crediting Years of Vesting Service
----------------------------------
(a) If a Participant's Service with the Employer is terminated and the
Former Participant receives a distribution from the Trustee and
subsequently re-enters the Service of the Employer after incurring five
(5) consecutive One Year Breaks in Service, the reemployed
Participant's Years of Service after the break need not be taken into
account to determine the Nonforfeitable percentage of the Participant's
Account Balance derived from Employer Contributions which accrued
before the Break in Service. Notwithstanding the foregoing sentence,
any reemployed Participant's Years of Service prior to the Break in
Service must be taken into account to determine the Nonforfeitable
percentage of the Participant's Account Balance derived from Employer
Contributions which accrued after the Break in Service; provided that,
for vesting purposes, the pre-break Service shall not be taken into
account until the Participant completes a Year of Service measured on a
twelve (12) month Computation Period commencing with the date of re-
employment of the Participant.
(b) If a Participant's Service with the Employer is terminated and the
Participant is reemployed by the Employer prior to incurring five (5)
consecutive One Year Breaks in Service, the reemployed Participant
shall continue to vest at the level in the vesting schedule in Section
9.2 that the Participant had attained prior to termination in both the
pre-separation and post-separation Account Balance.
9.7. Restoration of Account Balance
------------------------------
If a partially vested Participant is reemployed after termination of
employment, but prior to incurring five (5) consecutive One Year Breaks in
Service, the Participant shall have the right to repay the amount
previously distributed pursuant to Sections 9.3(b) or 9.3(c). If the
Participant repays the entire amount previously distributed prior to the
earlier of (a) incurring five (5) consecutive One Year Breaks in Service
commencing after the withdrawal, or (b) five years after the first date on
which the Participant is subsequently reemployed by the Employer, then the
Committee shall restore to the Participant's Individual Account an amount
equal to the amount forfeited under Section 9.4. The Committee will treat
a non-vested Participant who is deemed to have received a distribution on
the date of separation from Service of the Participant's Nonforfeitable
Account Balance as having repaid the deemed distribution on the first date
of the Participant's reemployment with the Employer. Restoration of the
Participant's Account Balance includes restoration of all Code Section
411(d)(6) protected benefits pertaining to that restored Account under
applicable Treasury regulations.
* * * * * * *
42
<PAGE>
ARTICLE X
---------
Optional Forms of Benefit
-------------------------
10.1. Optional Forms of Payment of Benefits
-------------------------------------
(a) Whenever a Participant, Former Participant or Beneficiary is entitled
to receive a distribution of benefits, he or she may elect that
benefits be paid in any one (1) or more of the following forms:
(i) A lump sum, payable in cash, in kind or partly in cash and partly
in kind, at the fair market value when distributed;
(ii) A transfer or rollover to:
(A) another plan qualified under Code Section 401(a);
(B) an individual retirement account defined in Code Section
408(a); or
(C) an individual retirement annuity defined in Code Section
408(b).
(iii) Periodic installments over the periods of time and in the amounts
the Committee shall determine. The total payments for each year
shall not be less than an amount sufficient to cause the
Participant's Employer Contribution Account to be paid in full
not later than the end of a period measured by the joint life
expectancy of the Participant and Spouse. Notwithstanding the
foregoing, the annual amount payable under this paragraph shall
be at least as large as would be provided under a life annuity
with a period certain extending to age eighty-five (85) years.
Under no circumstances shall benefits be paid in the form of a
life annuity. If the Trustee pays the Individual Account of a
Participant, Former Participant or Beneficiary under an
installment method prescribed in this paragraph, the Trustee
shall invest and reinvest the entire unpaid balance remaining in
the Individual Account from time to time and shall credit and
charge the Individual Account its proportionate share of gains
and losses of the Trust Fund under Article V until the entire
Individual Account is paid pursuant to this Article.
(b) The Participant shall be limited in the optional forms of payment of
benefits to those which will result in the payment of greater than
fifty percent (50%) of the anticipated benefits over the Participant's
life expectancy. The purpose of this limitation is to ensure that
death benefits will be incidental to retirement benefits under Revenue
Ruling 72-241.
(c) If the Participant so requests, the Committee may direct the Trustee
to distribute any Contract, other than an annuity contract held for
the Participant, to that Participant, provided that under no
circumstances may the Trustee continue to pay premiums on the
Contracts after the actual separation from Service of a Participant.
(d) Notwithstanding the foregoing, a distribution made pursuant to this
Section shall be subject to the immediate cashout provisions of
Sections 9.3(b) and 9.3(c).
10.2. Direct Rollover Optional Form of Benefit
----------------------------------------
(a) Direct Rollover. Notwithstanding any provision of the Plan to the
---------------
contrary that would otherwise limit a distributee's election under
this Section, a distributee may elect, at the time and in the manner
prescribed by the Plan Administrator, to have any portion of an
eligible rollover distribution paid directly to an eligible retirement
plan specified by the distributee in a direct rollover.
(b) Definitions
-----------
(i) Eligible Rollover Distribution. An eligible rollover
------------------------------
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is
one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under
Section 401(a)(9) of the Code; and the portion of any
distribution that is not includable in gross income (determined
without regard to the exclusion for net unrealized appreciation
with respect to Employer Securities).
(ii) Eligible Retirement Plan. An eligible retirement plan is an
------------------------
individual retirement account described in Section 408(a) of the
Code, an individual retirement annuity described in Section
408(b) of the Code, an annuity plan described in Section 403(a)
of the Code, or a qualified trust described in Section 401(a) of
the Code, that accepts the distributee's
43
<PAGE>
eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account or
individual retirement annuity.
(iii) Distributee. A distributee includes an employee or former
-----------
employee. In addition, the employee's or former employee's
surviving spouse and the employee's or former employee's spouse
or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the
Code, are distributees with regard to the interest of the spouse
or former spouse.
(iv) Direct Rollover. A direct rollover is a payment by the plan to
---------------
the eligible retirement plan specified by the distributee.
10.3. Election to Defer Receipt of Benefits
-------------------------------------
Notwithstanding the foregoing, a Participant who leaves the employment of
the Employer before his or her Normal Retirement Date or Early Retirement
Date may elect to leave his or her Nonforfeitable Account Balance under
the management of the Trustee until Normal Retirement Date or Early
Retirement Date. The Trustee shall invest and reinvest and shall credit
and charge the Individual Account with its proportionate share of gains
and losses of the Trust Fund pursuant to Article V until the
Nonforfeitable Account Balance is paid out to the Former Participant under
this Article. Any election made under this Section shall be irrevocable
and shall be made no later than fourteen (14) days before the electing
Participant becomes entitled to receive his or her Nonforfeitable Account
Balance in the Plan. Notwithstanding the foregoing, a Participant who has
elected to leave his or her Nonforfeitable Account Balance under the
management of the Trustee may later elect to have the Account Balance
transferred to any pension or profit sharing plan maintained by another
Employer in which the Participant has, at the time of the later election,
become a participant under the transferee plan.
10.4. Election of Form of Payment of Benefits
---------------------------------------
(a) The Participant, Former Participant, or Beneficiary shall elect the
form or forms of payment of benefits permitted in Section 10.1 which
the Committee and Trustee shall implement. Not earlier than ninety
(90) days, but not later than thirty (30) days, before the
Participant's Annuity Starting Date, the Committee must provide a
benefit notice to a Participant who is eligible to make an election
under this Section. The Participant's Annuity Starting Date means the
first day of the first period for which an amount is paid as an
annuity or any other form. The benefit notice must explain the
optional forms of benefit in the Plan, including the material features
and relative values of those options, and the Participant's right to
defer distribution until he or she attains the later of Normal
Retirement Age or age 62.
(b) If a distribution is one to which Code Sections 401(a)(11) and 417 do
not apply, such distribution may commence less than thirty (30) days
after the notice required under Section 1.411(a)-11(c) of the Income
Tax Regulations is given, provided that:
(i) the Plan Administrator clearly informs the Participant that he or
she has a right to a period of at least thirty (30) days after
receiving the notice to consider the decision of whether or not
to elect a distribution (and, if applicable, a particular
distribution option), and
(ii) the Participant, after receiving the notice, affirmatively elects
a distribution.
(c) If a Participant, Former Participant, or Beneficiary makes an election
prescribed by this Section, the Committee will direct the Trustee to
distribute the Participant's Nonforfeitable Account Balance pursuant
to that election. Any election under this Section is subject to the
mandatory distribution requirements of Sections 6.4 and 7.4 and the
survivor annuity requirements of Section 6.5, if applicable. The
Participant, Former Participant or Beneficiary must make an election
under this Section by filing an election form with the Committee at
any time before the Trustee otherwise would commence to pay a
Participant's Account Balance under the applicable requirements of
Articles VI, VII, VIII, IX, and X.
10.5. Minority or Disability
----------------------
During the minority or disability of an individual entitled to receive
benefits under this Plan, the Participant may elect to have the Committee
instruct the Trustee to make payments due the individual directly to the
individual or to the spouse or a relative or to any individual or
institution having custody of the individual. Neither the Committee nor
the Trustee shall be required to cause or to verify the application of any
payments so made, and the receipt of the payee, including the endorsement
of a check or checks, shall be conclusive to all interested parties.
10.6. Commencement of Payment of Benefits
-----------------------------------
Unless a Participant elects otherwise, payment of benefits shall commence
not later than sixty (60) days after the end of the Plan Year in which the
latest of the following events occur:
(a) the day the Participant attains the earlier of age sixty-five (65)
years or Normal Retirement Age;
(b) the tenth (10th) anniversary of the year in which the Participant
commenced participation in the Plan; or
44
<PAGE>
(c) the day the Participant terminates employment with the Employer.
10.7. Unclaimed Account Procedure
---------------------------
The Plan does not require either the Trustee or the Committee to search
for, or to ascertain the whereabouts of, any Participant or Beneficiary.
At the time the Participant's or Beneficiary's benefit becomes
distributable under Articles VI, VII, VIII or IX, the Committee, by
certified or registered mail addressed to his or her last known address of
record with the Committee or the Employer, must notify any Participant, or
Beneficiary, that he or she is entitled to a distribution under this Plan.
The notice must quote the provisions of this Section and otherwise must
comply with the applicable notice requirements of Article VI. If the
Participant, or Beneficiary, fails to claim his or her distributive share
or make his or her whereabouts known in writing to the Committee within
(6) months from the date of mailing of the notice, the Committee will
treat the Participant's or Beneficiary's unclaimed payable Accrued Benefit
as forfeited and will reallocate the unclaimed payable Accrued Benefit to
reduce the Employer's contribution for the Plan Year in which the
forfeiture occurs. A forfeiture under this paragraph will occur at the end
of the notice period or, if later, the earliest date applicable Treasury
Regulations would permit the forfeiture. Pending forfeiture, the
Committee, following the expiration of the notice period, may direct the
Trustee to segregate the Nonforfeitable Accrued Benefit in a segregated
Account and to invest that segregated Account in Federally insured
interest bearing savings accounts or time deposits (or in combination or
both), or in other fixed income investments.
If a Participant or Beneficiary who has incurred a forfeiture of his or
her Accrued Benefit under the provisions of the first paragraph of this
Section makes a claim, at any time, for the forfeited Accrued Benefit, the
Committee must restore the Participant's or Beneficiary's forfeited
Accrued Benefit to the same dollar amount as the dollar amount of the
Accrued Benefit forfeited, unadjusted for any gains or losses occurring
subsequent to the date of the forfeiture. The Committee will make the
restoration during the Plan Year in which the Participant or Beneficiary
makes the claim, first from the amount, if any, of Participant forfeitures
the Committee otherwise would allocate for the Plan Year, then from the
amount, if any, of the Trust Fund net income or gain for the Plan Year,
then from the amount, or additional amount, the Employer contributes to
enable the Committee to make the required restoration. The Committee must
direct the Trustee to distribute the Participant's or Beneficiary's
restored Accrued Benefit not later than 60 days after the close of the
Plan Year in which the Committee restores the forfeited Accrued Benefit.
The forfeiture provisions of this Section apply solely to the
Participant's or the Beneficiary's Accrued Benefit derived from Employer
Contributions.
Upon termination of the Plan, in lieu of the unclaimed account procedure
set forth in this Section, Section 18.6 shall apply.
* * * * * * *
45
<PAGE>
ARTICLE XI
----------
The Employer
------------
11.1. Employer Action
---------------
Whenever the Employer is permitted or required to do or perform any act
under this Agreement, it shall be done and performed by a person duly
authorized to do or perform the act by its legally constituted authority.
The legally constituted authority of a corporation shall be the Board of
Directors.
11.2. Plan Amendment
--------------
(a) At any time the Employer, by formal written action, may amend or
modify this Agreement in any manner it deems necessary or desirable,
retroactively or prospectively, subject to the following provisions of
this Article.
(b) The Employer must make all amendments in writing, signed by duly
authorized persons with the legally constituted authority of the
Employer and with the consent or approval, if any, as provided in this
Section. An amendment shall become effective upon its delivery to the
Trustee. Each amendment must state the date on which it is either
retroactively or prospectively effective.
(c) Unless it is made to secure the approval of the Commissioner of the
Internal Revenue Service or other governmental bureau or agency, no
amendment or modification of this Agreement by the Employer shall:
(i) operate retroactively to reduce or divest the then vested
interest in any Individual Account or to reduce or divest any
benefit then payable hereunder unless all Participants, Former
Participants and Beneficiaries then having Individual Accounts
or benefit payments affected thereby shall consent to the
amendments or modifications;
(ii) directly or indirectly affect any Participant's Nonforfeitable
percentage outside the protection of Treasury Regulations
Section 1.411(a)(8);
(iii) decrease a Participant's accrued benefit, except to the extent
permitted under Code Section 412(c)(8), and reduce or eliminate
Code Section 411(d)(6) protected benefits determined immediately
prior to the adoption date (or, if later, the effective date) of
the amendment, except as permitted by applicable Treasury
regulations (An amendment reduces or eliminates Code Section
411(d)(6) protected benefits if the amendment has the effect of
either: (A) eliminating or reducing an early retirement benefit
or a retirement-type subsidy (as defined in applicable Treasury
regulations); or (B) except as provided by applicable Treasury
regulations, eliminating an optional form of benefit. The
Committee must disregard an amendment to the extent application
of the amendment would fail to satisfy this paragraph. If the
Committee must disregard an amendment because the amendment
would violate clause (A) or clause (B), the Committee must
maintain a schedule of the early retirement option or other
optional forms of benefit the Plan must continue for the
affected Participant.); or
(iv) affect the rights, duties or responsibilities of the Trustees,
the Plan Administrator or the Committee without the written
consent or approval of the Trustee, Administrator, or affected
Committee member.
(d) If the vesting schedule described in Section 9.2 is amended, a
Participant's vested interest in any contribution to which the vesting
schedule in Section 9.2 applied, shall not be less than the
Nonforfeitable percentage determined as of the later of the effective
date of the amendment or the date of its adoption. A Participant with
at least three (3) Years of Service on the last day of the election
period described in this paragraph, may elect to have the
Nonforfeitable percentage of the Employer Contribution Accounts
determined without regard to the amendment. For Participants who do
not have at least one (1) Hour of Service in any Plan Year beginning
after December 31, 1988, the preceding sentence shall be applied by
substituting "five (5) Years of Service" for "three (3) Years of
Service" where the language appears. If a Participant fails to make an
election, then the Participant shall be subject to the new vesting
schedule. The election period shall commence on the date the amendment
is adopted or deemed to be made and shall end sixty (60) days after
the latest of:
(i) the date of the adoption of the amendment;
(ii) the effective date of the amendment; or
(iii) the date the Participant receives written notice of the
amendment from the Employer or Administrator.
11.3. Discontinuance, Termination of Plan
-----------------------------------
46
<PAGE>
(a) The Employer has the right, at any time, to suspend or discontinue its
contributions under the Plan to the Trust Fund, and to terminate, at
any time, the Plan and the Trust created under this Agreement. The
Plan will terminate on the first to occur of the following events:
(i) the date the Plan is terminated by action of the Employer;
(ii) the date the Employer is judicially declared bankrupt or
insolvent, unless the proceeding authorized continued
maintenance of the Plan; or
(iii) the dissolution, merger, consolidation or reorganization of the
Employer or the sale by the Employer of all or substantially all
of its assets, unless the successor or purchaser elects and
makes provision to continue the Plan, in which event the
successor or purchaser will substitute itself as the Employer
under this Plan.
(b) Upon either full or partial termination of the Plan, or, if
applicable, upon complete discontinuance of contributions to the Plan,
the Individual Accounts of all Participants, Former Participants and
Beneficiaries shall be and become fully vested and Nonforfeitable,
notwithstanding the Nonforfeitable percentage which otherwise would
apply under Article IX. The Trustee, in its discretion, may convert
some or all of the Trust Fund to cash and shall deduct therefrom all
unpaid charges and expenses, except as the same may be paid by the
Employer. The Committee then shall adjust the balance of all
Individual Accounts on the basis of the net cash balance and fair
market value of all property in the Trust Fund. Thereafter, the
Trustee shall distribute the amount to the credit of each Participant,
Former Participant and Beneficiary in cash, in kind, or partly in cash
and partly in kind, as the Committee shall direct. Notwithstanding the
foregoing, a distribution made because of a termination of the Plan
shall be subject to the mandatory distribution requirements of
Sections 6.4 and 7.4, the survivor annuity requirements of Section
6.5, if applicable, and the immediate cashout distribution provisions
of Sections 9.3(b) and 9.3(c).
11.4. Prohibition Against Reversion to Employer
-----------------------------------------
Under no circumstances or conditions, other than those specifically
provided herein, shall the Trust Fund or any portion thereof revert to the
Employer or be used for or diverted to purposes other than the exclusive
benefit of the Participants, Former Participants and Beneficiaries. No
amendment or revocation by the Employer of this Section may cause or
permit any portion of the Trust Fund to revert to or become a property of
the Employer.
11.5. Adoption by Related Employer
----------------------------
Notwithstanding any contrary provision contained in this Agreement, with
the written consent of the Plan Sponsor, any other association,
corporation, or other business organization, which is a Related Employer
may adopt this Plan and Trust in its entirety, participate herein and be
known as a Participating Employer, by executing a properly authorized
document evidencing the intent and will of the Participating Employer.
Unless the context of this Agreement clearly indicates the contrary, the
term "Employer" shall be deemed to include each Participating Employer
relating to its adoption of the Plan.
11.6. Requirements for Adoption by Related Employer
---------------------------------------------
The following requirements shall apply to any Participating Employer who
elects to adopt this Plan pursuant to this Article:
(a) Each Participating Employer shall be required to use the same Trustee
as provided in this Agreement.
(b) The Trustee may, but shall not be required to, commingle, hold and
invest as one (1) Trust Fund all contributions made by Participating
Employers and all increments thereof.
(c) The transfer of any Participant from or to any corporation
participating in this Plan, whether the Participant is an Employee of
the Plan Sponsor or a Participating Employer, shall not affect the
Participant's rights under the Plan; all amounts credited to the
Participant's Individual Account, all accumulated service with the
transferor or Predecessor Employer, and the length of participation in
the Plan shall continue to the Participant's credit.
(d) All rights and values forfeited by termination of employment shall
inure only to the benefit of the Employees and Participants of the
Participating Employer which employed the forfeiting Participant,
except, if the Forfeiture is for an Employee whose Employer is a
Related Employer, then the Forfeiture shall be allocated based on
Annual Compensation to all Individual Accounts of Participating
Employers who are Related Employers. Should an Employee of one
("First") Employer be transferred to a Related ("Second") Employer the
transfer shall not cause the Employee's Account Balance, generated
while an Employee of the First Employer, in any manner or by any
amount, to be forfeited. The Employee's Account Balance for all
purposes of the Plan, including length of service, shall be considered
as though the Employee had always been employed by the Second Employer
and as such had received contributions, forfeitures, earnings or
losses, and appreciation or depreciation in value of assets totaling
the amount so transferred.
(e) Upon an Employee's transfer between Participating Employers, the
Employee involved shall carry accumulated Years of Service for
eligibility and vesting. No transfer shall effect a termination of
employment under this Agreement and the Participating
47
<PAGE>
Employer to which the Employee transfers shall thereupon become
obligated under this Agreement to the Employee in the same manner as
the Participating Employer from whom the Employee transfers.
(f) Any expenses of the Plan and Trust which are to be paid by the
Employer or borne by the Trust Fund shall be paid by each
Participating Employer in the same proportion that the total amount
standing to the credit of all Participants employed by the
Participating Employer bears to the total amount standing to the
credit of all Participants.
(g) Any contributions made by a Participating Employer under this Plan,
shall be paid to and held by the Trustee for the exclusive benefit of
the Employees of the Participating Employer and the Beneficiaries of
the Employees, subject to all the terms and conditions of this
Agreement.
(h) Based on information furnished by the Administrator, the Committee
and the Trustee shall keep separate books and records concerning the
affairs of each Participating Employer and of the Account Balances of
the Participants of each Participating Employer. The Trustee may, but
need not, register Contracts to evidence that a particular
Participating Employer is the interested Employer under this
Agreement, but upon an Employee's transfer from one Participating
Employer to another, the employing Employer shall immediately notify
the Trustee of the transfer.
11.7. Plan Sponsor as Agent of Participating Employer
-----------------------------------------------
Each Participating Employer shall be deemed to be a part of this Plan;
however, each Participating Employer shall be deemed to have designated
irrevocably the Plan Sponsor as its agent in all of its relations with
the Trustee, the Committee and the Administrator under this Agreement.
11.8. Participating Employer Contributions
------------------------------------
(a) All contributions provided for in this Plan made by each
Participating Employer who is a member of the same controlled group
and/or affiliated service group shall be combined and allocated among
the eligible Participants as if made by a single employer. The
Participating Employers shall pay the contributions to the Trustee
who shall hold the contribution for the exclusive benefit of the
Employees (and their Beneficiaries) of the Participating Employers
who are members of the same controlled group and/or affiliated
service group, subject to all of the terms and conditions of this
Plan.
(b) All contributions made by a Participating Employer who is not a
member of a controlled group and/or affiliated service group provided
for in this Plan shall be determined separately on the basis of its
net profit and total Annual Compensation paid. The Participating
Employer shall pay the contributions to the Trustee who shall hold
the contribution for the exclusive benefit of the Employees of the
Participating Employer and the Beneficiaries of the Employees,
subject to all of the terms and conditions of this Plan.
11.9. Amendment by Plan Sponsor, Participating Employers
--------------------------------------------------
Amendment of this Plan by the Plan Sponsor at any time when there shall
be a Participating Employer under this Agreement shall be effective only
upon the written action of each and every Participating Employer and with
the consent of the Trustee where the consent is necessary under this
Agreement.
11.10. Revocation of Participation by Participating Employer
-----------------------------------------------------
Any Participating Employer shall be permitted to discontinue or revoke
its participation in this Plan. Upon any discontinuance or revocation,
satisfactory evidence thereof and of any applicable conditions imposed
shall be delivered to the Trustee. The Trustee shall thereafter transfer,
deliver and assign Contracts and other Trust Fund assets allocable to the
Participants of the Participating Employer to the new plan as shall have
been designated by the Participating Employer, if it has established a
separate employee benefit pension plan for its employees. If no successor
plan is designated, the Trustee shall retain the assets for the Employees
of the Participating Employer under Article X. No part of the corpus or
income of the Trust Fund relating to the Participating Employer shall be
used for or diverted to purposes other than the exclusive benefit of the
Employees of the Participating Employer and the Beneficiaries of the
Employees.
11.11. Authority of Administrator over Participating Employers
-------------------------------------------------------
The Administrator shall have the authority to make any and all necessary
rules or regulations binding on all Participating Employers and all
Participants and Beneficiaries to effectuate the purposes of this
Article.
48
<PAGE>
11.12. Deficiency of Earnings or Profits
---------------------------------
If any Participating Employer is prevented in whole or in part from
making a contribution to the Trust Fund which it otherwise would have
made under the Plan because of having no current or accumulated earnings
or profits, or because the earnings or profits are less than the
contribution which it otherwise would have made, then so much of the
contribution which the Participating Employer was prevented from making
may be made for the benefit of the participating Employees of the
Participating Employer by the other Participating Employers who are
Related Employers. The contribution by each other Participating Employer
shall be limited to the proportion of its total current and accumulated
earnings or profits remaining after adjustment for its contribution to
the Plan made without regard to this Section, which the total prevented
contribution bears to the total current and accumulated earnings or
profits of all the Participating Employers remaining after adjustment for
all contributions made to the Plan without regard to this Section. A
Participating Employer on behalf of whose Employees a contribution is
made under this Section shall not reimburse the contributing
Participating Employer unless it has otherwise agreed to do so in
writing.
* * * * * * *
ARTICLE XII
-----------
The Committee
-------------
12.1. Committee Appointment
---------------------
The Employer shall appoint a Committee consisting of one (1) or more
members. The Employer may remove any member of the Committee at any time
and a member may resign by written notice to the Employer. Any vacancy in
the membership of the Committee shall be filled by appointment made by
the Employer, but pending the filling of any vacancy, the then members of
the Committee may act under this Agreement as though they alone
constitute the full Committee. The Employer shall notify the Trustee
promptly of the appointment of the original Committee and of any change
in the membership of the Committee.
12.2. Committee Action and Procedure
------------------------------
(a) Any and all acts and decisions of the Committee shall be by at least
a majority of the then members. The Committee may delegate to any one
or more of its members the authority to sign notices or other
documents on its behalf or to perform ministerial acts for it, in
which event the Trustee and any other person may accept the notice,
document or act without question as having been authorized by the
Committee.
(b) The Committee may, but need not, call or hold formal meetings, and
any decisions made or actions taken pursuant to written approval of a
majority of the then members shall be sufficient.
(c) The Committee shall maintain adequate records of its decisions, which
records shall be subject to inspection by the Employer and by any
Participant, Former Participant, or Beneficiary, but only to the
extent that they apply to the individuals.
(d) The Committee may designate one (1) of its members as Chairman and
one (1) of its members as Secretary and may establish policies and
procedures governing it if they are consistent with this Agreement.
12.3. Committee Powers and Duties
---------------------------
The Committee shall perform the duties and may exercise the powers and
discretion given to it in this Agreement, and its decisions and actions
shall be final and conclusive regarding all persons affected thereby. The
Committee shall exercise its discretion at all times in a
nondiscriminatory manner. Subject to any limitations stated in this
Agreement, the Committee is authorized and empowered with the following
powers, rights, and duties:
(a) To select a Secretary, who need not be a member of the Committee;
(b) To determine the rights of eligibility of an Employee to participate
in the Plan, the value of a Participant's Account Balance and the
Nonforfeitable percentage of each Participant's Accrued Benefit;
(c) To adopt rules of procedure and regulations necessary for the proper
and efficient administration of the Plan provided the rules are
consistent with the terms of this Agreement;
(d) To construe and enforce the terms of the Plan and the rules and
regulations it adopts, including interpretation of the Plan documents
and documents related to the Plan's operation;
(e) To direct the Trustee concerning the crediting and distribution of
the Trust;
49
<PAGE>
(f) To review and render decisions respecting a claim for, or denial of a
claim for, a benefit under the Plan;
(g) To furnish the Employer with information which the Employer may
require for tax or other purposes;
(h) To engage the service of agents whom it may deem advisable to assist
it with the performance of its duties;
(i) To engage the services of an Investment Manager or Managers (as
defined in ERISA Section 3(38)), each of whom will have full power
and authority to manage, acquire or dispose, or direct the Trustee
with respect to acquisition or disposition, of any Plan asset under
its control;
(j) To establish, in its sole discretion, a nondiscriminatory policy,
pursuant to this Section, which the Trustee must observe in making
loans, if any, to Participants and Beneficiaries; and
(k) To establish and maintain a funding standard account and to make
credits and charges to the account to the extent required by and in
accordance with applicable Code provisions.
The Committee must exercise all of its powers, duties, and discretion
under the Plan in a uniform and nondiscriminatory manner.
12.4. Committee Reliance
------------------
The Trustee may rely without question on any notices or other documents
received from the Committee. The Employer shall furnish the Committee
with all data and information available to the Employer, which the
Committee may reasonably require to perform its functions under this
Agreement. The Committee may rely without question on any data or
information furnished by the Employer.
12.5. Committee Authority
-------------------
Any and all disputes which may arise involving Participants, Former
Participants, Beneficiaries and/or the Trustee shall be referred to the
Committee, and its decisions shall be final and conclusive regarding all
affected persons. Furthermore, if any issue arises concerning the
meaning, interpretation or application of any provisions of this
Agreement, the decision of the Committee on any issue shall be final.
12.6. Conflicts in Interest
---------------------
Notwithstanding any other provisions of this Agreement, no member of the
Committee shall vote or act on any matter involving the Committee
member's rights, benefits or other participation under this Agreement.
12.7. Appointment of Agent and Legal Counsel
--------------------------------------
The Committee may engage agents to assist it and may engage legal counsel
who may be counsel for the Employer. The Committee shall not be
responsible for any action taken or omitted to be taken on the advice of
counsel. All reasonable expenses incurred by the Committee shall be paid
by the Employer.
12.8. Appointment of Investment Manager
---------------------------------
The Committee may delegate investment management authority pertaining to
all or a portion of the Plan assets by appointing an Investment
Manager(s) and may authorize payment of the fees and expenses of the
Investment Manager(s) from the Plan assets. For purposes of this
Agreement, any Investment Manager so appointed shall, during the period
of appointment, possess fully and absolutely those powers, rights and
duties of the Trustee (to the extent delegated by the Committee)
regarding the investment or reinvestment of that portion of the Plan
assets over which the Investment Manager has investment management
authority. An Investment Manager must be one (1) of the following:
(a) an Investment Advisor registered under the Investment Advisors Act of
1949;
(b) a bank, as defined in the Investment Advisors Act of 1940; or
(c) an insurance company qualified to manage, acquire, or dispose of Plan
assets under the laws of more than one (1) state.
Any Investment Manager shall acknowledge in writing to the party making
the appointment and to the Trustee that it is a fiduciary respecting the
Plan. During any period when the Investment Manager is appointed and
serving, and regarding those assets in the Plan over which the Investment
Manager exercises investment management authority, the Trustee's
responsibility shall be limited to holding assets as a custodian,
providing accounting services, disbursing benefits as authorized, and
executing investment instructions only as directed by the Investment
Manager. Any certificates or other instrument duly signed by the
Investment Manager (or the authorized representative of the Investment
Manager), purporting to evidence any instruction, direction or order of
the Investment Manager regarding the investment of those assets of the
Plan over which the Investment Manager has investment management
authority, shall be accepted by the Trustee as conclusive proof thereof.
The Trustee also shall be fully protected in acting in good faith on any
notice, instruction, direction, order,
50
<PAGE>
certificate, opinion, letter, telegram or other document believed by the
Trustee to be genuine and to be from the Investment Manager (or the
authorized representative of the Investment Manager). The Trustee shall
not be liable for any action taken or omitted by the Investment Manager
or for any mistakes of judgment or other action made, taken or omitted
by the Trustee in good faith on direction of the Investment Manager.
12.9. Quarterly Accounting
--------------------
As soon as administratively feasible after the Accounting Date of each
Plan Year, but within the time prescribed by ERISA and the applicable
Labor regulations and at least annually, the Committee shall advise each
Participant, Former Participant and Beneficiary for whom Individual
Accounts are held under this Plan of the then balance in the
Participant's Individual Accounts and the other information ERISA
requires to be furnished. No Participant except a member of the
Committee shall have the right to inspect the records reflecting the
Individual Accounts of any other Participant.
12.10. Funding Policy
--------------
The Committee will review, not less often than annually, all pertinent
Employee information and Plan data to establish the funding policy of
the Plan and to determine the appropriate methods of carrying out the
Plan's objectives. The Committee must communicate periodically, as it
deems appropriate, to the Trustee and to any Plan Investment Manager the
Plan's short-term and long-term financial needs so investment policy can
be coordinated with Plan financial requirements.
* * * * * *
51
<PAGE>
ARTICLE XIII
------------
Administration
--------------
13.1. Administrator Appointment
-------------------------
The Employer shall be the Administrator of this Plan and shall be
responsible for filing all reporting and disclosure documents required by
the Department of Labor and the Internal Revenue Service in accordance
with ERISA, the Code and the respective regulations. The Employer may
delegate any of its duties and responsibilities as Administrator to the
Committee. Service of process on the Plan or Trust may be obtained by
personal service on the Employer or any Committee member.
13.2. Summary Plan Description
------------------------
The Administrator shall furnish a summary plan description to each
Participant within ninety (90) days after becoming a Participant and to
each Beneficiary receiving benefits under the Plan within ninety (90)
days after beginning to receive benefits. Every fifth (5th) year after
the Effective Date of the Plan, the Administrator shall furnish an
updated summary plan description, which integrates all amendments made
within the five (5) year period, to each Participant and Beneficiary
receiving benefits. If no amendments have been made within the five (5)
year period, the Administrator shall furnish the updated summary plan
description only every tenth (10th) year. If there is a modification or
change in the Plan, the Administrator shall furnish to each Participant
and each Beneficiary who is receiving benefits, a summary description of
the change or modification not later than two hundred ten (210) days
after the end of the Plan Year in which the change is adopted.
13.3. Summary Annual Report
---------------------
The Administrator shall furnish to each Participant and each Beneficiary
receiving benefits a summary of the Annual Return/Report of the Plan
containing a statement of the Plan assets and liabilities, receipts and
disbursements and other information fairly summarizing the Plan's
financial statement within two hundred ten (210) days after the close of
each Plan Year, or an extended period as may be permitted by the
Secretary of Labor.
13.4. Individual Benefit Statements
-----------------------------
The Administrator shall furnish to any Participant or Beneficiary
receiving benefits, who requests in writing, a statement reporting the
total benefits accrued and the Nonforfeitable benefits, if any, which
have accrued or the earliest date on which benefits will become
Nonforfeitable. In no event shall a Participant or Beneficiary be
entitled to receive the report described in this Section more than once
in every twelve (12) month period.
13.5. Copies of Additional Documents
------------------------------
Upon written request from a Participant or Beneficiary receiving
benefits, the Administrator shall furnish a copy of any one (1) or all of
the following documents: the latest updated summary plan description, the
latest annual report, any terminal report, Trust agreement, contract or
other instruments under which the Plan was established or is operated.
The Administrator may make a reasonable charge to cover the cost of
furnishing complete copies.
13.6. Documents Available for Examination
-----------------------------------
Copies of the Plan description and the latest annual report, Trust
agreement, contract or other instruments under which the Plan was
established or is operated shall be available for examination at the
principal office of the Employer by any Participant or Beneficiary
receiving benefits. Examination may be made during reasonable hours in
person or by agent, accountant or attorney.
13.7. Notice of Participant Rights under ERISA
----------------------------------------
The Committee shall furnish to each Participant and to each Beneficiary
receiving benefits information on their rights under the Plan and how the
rights may be protected by law.
13.8. Notice to Participant on Participant Termination
------------------------------------------------
The Administrator shall furnish a statement to a Participant who
terminated Service with the Employer for any of the reasons set forth in
Articles VI through IX, describing the nature, amount and form of the
Nonforfeitable Account Balance, if any, to which the Participant is
entitled as soon as administratively feasible after the close of the Plan
Year in which the Participant terminated Service.
13.9. Notice to Trustee on Participant Termination
--------------------------------------------
52
<PAGE>
(a) As soon as practicable after a Participant terminates Service with
the Employer for any of the reasons set forth in Articles VI through
IX, the Committee shall give written notice to the Trustee,
including the following information and directions which may be
necessary or advisable under the circumstances:
(i) name and address of the Participant;
(ii) reason the Participant terminated Service with the Employer;
(iii) name and address of the Beneficiary or Beneficiaries of a
deceased Participant;
(iv) Nonforfeitable percentage or amount to which the Participant
is entitled on termination of employment pursuant to Article
IX; and
(v) time, manner and amount of payment to be made pursuant to the
Participant's election under Article X.
If a Former Participant or Beneficiary dies, the Committee shall
give like notice to the Trustee, but only if the Committee learns of
the death.
(b) At any time and from time to time after giving the notice provided
under this Section, the Committee may modify the original notice or
any subsequent notice by a further written notice or notices to the
Trustee, but any action taken or payments made by the Trustee
pursuant to a prior notice shall not be affected by a subsequent
notice.
(c) A copy of each notice provided under this Section shall be mailed by
the Committee to the Participant, Former Participant or Beneficiary
involved, but the failure to send or receive the copy shall not
affect the validity of any action taken or payment made pursuant
thereto.
(d) Upon receipt of any notice provided under this Section, the Trustee
shall promptly take any action and make any payments directed in the
notice. The Trustee may rely on the information and directions in
the notice absolutely and without question. However, the Trustee may
inform the Committee of any error or oversight which the Trustee
believes to exist in any notice.
13.10. Claim for Benefits
------------------
Normally, whenever a Participant or Beneficiary becomes entitled to
benefits under this Agreement, the Committee and the Trustee will
automatically initiate procedures to provide for the payment of the
benefits. If a Participant or Beneficiary believes that he or she is
entitled to the payment of benefits under this Agreement and no action
is forthcoming from the Committee or the Trustee, then the Participant
or Beneficiary may file a written claim for benefits with the Committee
or the Trustee.
13.11. Appeal for Decision of Committee
--------------------------------
(a) If any Participant or Beneficiary files a claim for benefits under
this Plan ("Claimant") and the claim is denied in whole or in part,
the Administrator shall give notice of the decision to the Claimant
in writing setting forth:
(i) the specific reasons for the denial;
(ii) a specific reference to pertinent provisions of the Plan, if
any, upon which the denial is based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim with an
explanation of the necessity therefor; and
(iv) that any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Committee within
seventy-five (75) days after receipt of the Administrator's
notice of denial of benefits. The Administrator's notice must
further advise the Claimant that failure to appeal the action
to the Committee in writing within the seventy-five (75) day
period will render the Committee's determination final,
binding and conclusive.
(b) The written notice shall be given to the Claimant as soon as
administratively feasible after the decision is made, but not later
than sixty (60) days after the claim is filed. The Claimant shall
have the right to be represented, to review pertinent documents and
to present written and oral evidence.
(c) If the Claimant should appeal to the Committee, the Claimant or the
duly authorized representative, may submit, in writing, issues and
comments the Claimant or the duly authorized representative
considers pertinent. The Committee shall render the decision on the
review and shall set forth the specific reasons for the decision
with specific references to pertinent provisions. The Committee
shall render the decision in writing within sixty (60) days after
receipt of the request for review unless special circumstances, such
as the need for a hearing, require an extension which shall not
exceed an additional sixty (60) days.
53
<PAGE>
* * * * * * *
54
<PAGE>
ARTICLE XIV
-----------
The Trustee
-----------
14.1. Acceptance of Trust
-------------------
The Trustee accepts the Trust created under this Agreement and agrees to
perform the obligations imposed.
14.2. General Trustee Duties
----------------------
The Trustee is accountable to the Employer for the funds contributed to
the Trust Fund by the Employer but does not have any duty to ascertain
that the contributions received comply with Plan provisions. The Trustee
shall maintain adequate books and records reflecting all transactions
affecting the Trust Fund, which books and records shall be open at all
reasonable times for the inspection of the Employer and the Committee or
their authorized representatives. Furthermore, the Trustee shall furnish
the Committee, at least annually, statements showing the assets then held
in the Trust Fund and showing all transactions in the Trust Fund since
the last preceding statement. Each statement shall be conclusive and
final as between the Trustee and all interested parties unless the
Committee delivers written objections to the statement to the Trustee
within sixty (60) days after receipt of such statement.
14.3. Bonding
-------
Any Trustee shall comply with the fiduciary bonding requirements of ERISA
Section 412 unless specifically exempt.
14.4. Compensation
------------
The Trustee shall be paid reasonable compensation commensurate with the
services and responsibilities involved under this Agreement from time to
time. The Employer shall pay the Trustee's compensation, but, if not so
paid, the Trustee may pay itself from the Trust Fund. No Trustee who
already receives full-time pay from the Employer shall receive any
compensation except as provided in the following Section.
14.5. Payment of Expenses
-------------------
The Trustee may employ counsel, brokers or agents and may pay for their
services and any other reasonable expenses incurred by the Trustee from
the Trust Fund.
14.6. Investment Powers
-----------------
The Employer designates the Trustee to administer the Trust as a
nondiscretionary Trustee. The Trustee will not have any discretion or
authority regarding investment of the Trust Fund, but must act solely as
a directed trustee of the funds contributed to it. Subject to any
limitations stated in this Agreement, the Trustee is authorized and
empowered, but not by way of limitation, with the following powers,
rights and duties, each of which the nondiscretionary Trustee exercises
solely as a directed trustee according to the written direction of the
Named Fiduciary (except to the extent a Plan asset is subject to the
control and management of a properly appointed Investment Manager or
subject to Committee or Participant direction of investment):
(a) To hold, manage, control, collect, and use the Trust Fund pursuant to
the terms of this Agreement under the direction of the Named
Fiduciary;
(b) To invest, reinvest, pay, expend or otherwise apply the Trust Fund
for any purpose, in any manner, and in any kind of property, real,
personal or mixed, wherever situated, whether or not productive of
income or whether consisting of wasting assets, of any description
whatsoever (including without limitation, oil, gas and other mineral
leases, royalties, overriding royalties, and other interests, stocks,
common or preferred, securities, bonds, notes and debentures,
convertible stock and securities [including securities and stock of
the Trustee or an affiliate to the extent consistent with Section
113.055 of the Texas Trust Code], or any other interest in any
corporation, leaseholds, mortgages [including, without limitation,
any collective or part interest in any bond and mortgages, or note
and mortgages], certificates of deposit or time deposits [including
any deposit with any bank serving as Trustee, or an affiliate,
hereunder if the deposits bear a reasonable rate of interest], shares
of investment trusts or companies and mutual funds, interests in
partnerships and trusts, interests or shares of "Massachusetts
Business Trusts," and contracts), and to make any other investments
the Named Fiduciary deems appropriate. As the Named Fiduciary directs
in writing, the Trustee may make or hold investments of any part of
the Trust Fund in common or undivided interests with other persons or
entities, including an undivided interest in any property in which
the Trustee, individually or otherwise, may hold an undivided
interest, and may buy, sell and deal with any person or entity
regardless of any relationship of the Trustee or an Employee to the
person or entity unless the action would constitute a prohibited
transaction under ERISA or the Code. Except as required by ERISA, the
investment powers shall not be restricted to any class of investments
which fiduciaries under any character of trust are permitted by law
or any regulation to make, and may be exercised without any regard to
any requirements of diversification of kind or amount;
55
<PAGE>
(c) To invest in insurance contracts at the direction of the Committee or
Participants subject to the limitations contained in this Article
regarding individual direction of investment and Article XV regarding
Contracts. To the extent directed by the Committee, the Trustee may
buy investment insurance contracts, and may buy ordinary, group, and
term life insurance contracts (and shall be the sole and exclusive
beneficiary under the contracts) on the life of any officer or Employee
of the Employer, which insurance, and including proceeds, dividends or
refunds thereof, shall be treated as any other investment of the Trust
Fund;
(d) To assume indebtedness, lend or borrow money in any manner, including
by joint and several obligations, with or without security, under the
terms, regardless of the duration of the Trust created by this
instrument, and to mortgage (including the making of purchase money
mortgages), pledge, or in any other manner encumber all or any part of
the Trust Fund, as the Named Fiduciary may deem advisable;
(e) To exchange, sell, partition or lease (including leases for terms
exceeding the duration of the Trust created by this instrument) for
cash, property or credit, on the terms and conditions, all or any part
of the assets of the Trust Fund as the Named Fiduciary directs in
writing;
(f) To partition any property or interest held as part of the Trust Fund,
and to pay or receive money or property necessary or advisable to
equalize differences; to credit the Trust and to make any distribution
from the Trust Fund in cash or in kind (including an undivided interest
in any property), or both, as directed by the Committee, and to value
any property belonging to the Trust Fund;
(g) To execute lease, pooling or unitization agreements (including
agreements extending beyond the terms of the Trust created by this
instrument) regarding any mineral or royalty interests held or acquired
by the Trust Fund; to drill or contract for the drilling of wells for
oil, gas or other minerals; to make dry hole or bottom hole
contributions; to enter into any operating agreements regarding any
mineral leases or properties held or acquired by the Trust Fund as the
Named Fiduciary directs in writing; and generally, regarding oil, gas
and other mineral properties and operations, to enter into the
agreements and to do all other things (whether or not presently
recognized as common or proper practice) as the Named Fiduciary may
deem to be advantageous;
(h) To vote in person or by proxy, with or without power of substitution,
any stocks, bonds or other securities held by it; to exercise any
options appurtenant to any stocks, bonds or other securities for the
conversion thereof into other stocks, bonds or securities, or to
exercise any rights to subscribe for additional stocks, bonds or other
securities and to make any and all necessary payments thereof, if the
exercise of any of these powers is at the direction of the Named
Fiduciary;
(i) To hold uninvested, in cash, without liability for interest thereon,
any reasonable amount of money until it shall be reinvested or
distributed from the Trust, and to deposit any cash held in the Trust
Fund in a bank account at reasonable interest as the Named Fiduciary
directs in writing;
(j) To cause any investment to be registered and held in the name of the
nondiscretionary Trustee one or more of its nominees, or in the nominee
of any system for the centralized handling of securities, or in bearer
or Federal Reserve Book-Entry form, without any increase or decrease of
liability as the Named Fiduciary may deem best, with or without
disclosing the custodial relationship;
(k) To combine into a single trust (i) the assets of the Trust Fund and
(ii) the assets of any other trusts having trust provisions
substantially identical to the trust provisions in this Plan, if each
other trust is a "qualified trust" under Code Section 401(a) and is
maintained for another plan of the Employer; or to administer jointly
the Trust Fund and the assets of any other trusts if deemed desirable
by the Trustee;
(l) To begin, join in, maintain, defend, compromise, submit to arbitration,
settle, or abandon any litigation, claim, obligation or controversy in
favor of or against the Trust Fund, all in the name of the Named
Fiduciary and without the joinder of any Participant except that the
Trustee is not obliged or required to do so unless indemnified to its
satisfaction;
(m) To retain any funds or property subject to any dispute without
liability for the payment of interest, and to decline to make payment
or delivery of the funds or property until final adjudication is made
by a court of competent jurisdiction as the Named Fiduciary directs in
writing;
(n) To file all tax returns required of the Trustee;
(o) To furnish to the Named Fiduciary, the Employer, the Administrator, and
the Committee an annual statement of account showing the condition of
the Trust Fund and all investments, receipts, disbursements, and other
transactions effected by the Trustee during the Plan Year covered by
the statement and also stating the assets of the Trust held at the end
of the Plan Year, which accounts are conclusive on all persons,
including the Named Fiduciary, the Employer, the Administrator and the
Committee, except for any act or transaction concerning which the Named
Fiduciary, the Employer, the Administrator or the Committee files with
the Trustee written exceptions or objections within ninety (90) days
after the receipt of the accounts or for which ERISA authorizes a
longer period within which to object;
56
<PAGE>
(p) To perform any and all other acts in its judgment the Named Fiduciary
deems necessary or appropriate for the proper and advantageous
management, investment and distribution of the Trust;
(q) To employ accountants, lawyers, brokers, banks, investment counsel or
other agents or employees and to delegate to them the duties, rights,
and powers of the Trustee (including the power to vote shares of
stock) that the Named Fiduciary deems advisable in administering the
Trust Fund;
(r) To appoint any person or corporation in any state of the United States
to act as Ancillary Trustee for any portion of the Trust Fund as the
Named Fiduciary directs in writing. Any Ancillary Trustee shall have
the rights, powers, duties and discretions delegated to it by the
Named Fiduciary, but shall exercise the same subject to the
limitations or further directions of the Named Fiduciary as shall be
specified in the instrument evidencing its appointment. Any Ancillary
Trustee shall be accountable solely to the Named Fiduciary and shall
be entitled to reasonable compensation;
(s) To exercise all the rights, powers, options, and privileges now or
hereafter granted to trustees under the Texas Trust Code, and any
amendments thereto, except those which conflict with the terms of this
Agreement or ERISA, provided the exercise of any powers is at the
direction of the Named Fiduciary.
(t) To acquire or hold qualifying employer securities, defined in ERISA
Section 407(d)(5), or qualifying employer real property, defined in
ERISA Section 407(d)(4), of an Employer not to exceed a stated
percentage, if any, of the Trust Fund and such additional authority as
enumerated above under the description of the Trustee's authority, to
the extent necessary and convenient to carry out its duties.
14.7. Investment of Employer Non-Elective Contribution
------------------------------------------------
Such portion of the Employer Non-Elective Contributions in cash, to the
extent directed by the Board of Directors of the Employer, shall be
invested by the Trustee in Employer Securities, as defined in Section
1.20, as soon as administratively feasible after receipt.
14.8. Appointment of Custodian/Nondiscretionary Trustee
-------------------------------------------------
(a) Appointment. The Employer may appoint a Custodian under the Plan, the
-----------
acceptance by the Custodian indicated on the execution page of this
Agreement. A Custodian has the same powers, rights, and duties as a
nondiscretionary Trustee, described in Section 14.6. The Custodian
accepts the terms of the Plan and Trust by executing the Agreement.
Any reference in the Plan to a Trustee also is a reference to a
Custodian where the context of the Plan dictates. A limitation of the
Trustee's liability by Plan provision also acts as a limitation of the
Custodian's liability. Any action taken by the Custodian at the
discretionary Trustee's direction satisfies any provision in the Plan
referring to the Trustee's taking that action.
(b) Modification of Powers/Limited Responsibility. The Employer and the
---------------------------------------------
Custodian or nondiscretionary Trustee, by letter agreement, may limit
the powers of the Custodian or nondiscretionary Trustee to any
combination of powers listed within Section 14.6. If there is a
Custodian or a nondiscretionary Trustee under the Employer's Plan,
then the Employer, in adopting this Plan acknowledges the Custodian or
nondiscretionary Trustee has no discretion concerning the investment
or re-investment of the Trust Fund and that the Custodian or
nondiscretionary Trustee is acting solely as custodian or as directed
trustee with respect to the assets comprising the Trust Fund.
(c) Limitation of Powers of Certain Custodians. If a Custodian is a bank
------------------------------------------
which, under its governing state law, does not possess trust powers,
then paragraphs (b), (c), (d), (e), (g), (h), and (k) of Section 14.6
do not apply to that bank and that bank only has the power and
authority to exercise the remaining powers, rights and duties under
Section 14.6.
(d) Named Fiduciary/Limitation of Liability of Nondiscretionary Trustee or
----------------------------------------------------------------------
Custodian. Under a nondiscretionary Trustee designation, the Named
---------
Fiduciary under the Employer's Plan has the sole responsibility for
the management and control of the Employer's Trust Fund, except
regarding a Plan asset under the control or direction of a properly
appointed Investment Manager or regarding a Plan asset properly
subject to Participant or Committee direction of investment. If the
Employer appoints a Custodian, the Named Fiduciary is the
discretionary Trustee. Under a nondiscretionary Trustee designation,
unless the Employer designates in writing another person or persons to
serve as Named Fiduciary, the Named Fiduciary under the Plan is the
president of a corporate Employer, the managing partner of a
partnership Employer or the sole proprietor, as appropriate. The Named
Fiduciary will exercise its management and control of the Trust Fund
through its written direction to the nondiscretionary Trustee or to
the Custodian, whichever applies to the Employer's Plan.
The nondiscretionary Trustee or Custodian has no duty to review or to
make recommendations regarding investments made at the written
direction of the Named Fiduciary. The nondiscretionary Trustee or
Custodian must retain any investment obtained at the written direction
of the Named Fiduciary until further directed in writing by the Named
Fiduciary to dispose of the investment. The nondiscretionary Trustee
or Custodian is not liable in any manner or for any reason for making,
retaining or disposing of any investment pursuant to any written
direction described in this paragraph. Furthermore, the Employer
agrees to indemnify and to hold the nondiscretionary Trustee or
Custodian harmless from any damages, costs or expenses, including
reasonable counsel fees, which the nondiscretionary Trustee or
Custodian may incur as a result of any claim asserted against the
nondiscretionary Trustee,
57
<PAGE>
the Custodian or the Trust arising out of the nondiscretionary
Trustee's or Custodian's compliance with any written direction
described in this paragraph.
14.9. Investment in Common Trust Fund and Group Trust Fund
----------------------------------------------------
The Trustee is authorized, pursuant to written directions of the Named
Fiduciary, to invest all or any portion of the assets comprising the
Trust Fund in any common trust fund which at the time of the investment
provides for the pooling of the assets of plans qualified under Code
Section 401(a). The authorization applies solely to a common trust fund
the Trustee, any affiliate, or its agent, maintains and only if the
common trust fund: (a) is exempt from taxation under Code Section 584 or
under Code Section 501(a); (b) expressly limits participation to pension
and profit sharing trusts which are exempt under Code Section 501(a) for
qualifying under Code Section 401(a); (c) prohibits that part of its
corpus or income which equitably belongs to any participant trust from
being used for or diverted to any purposes other than for the exclusive
benefit of the Employees or their Beneficiaries who are entitled to
benefits under such participating trust; (d) prohibits assignment by
participating trust of any part of its equity or interest in the group
trust; and (e) the sponsor of the group trust created or organized the
group trust in the United States and maintains the group trust at all
times as a domestic trust in the United States. The provisions of the
common trust fund agreement, as amended by the Trustee from time to
time, are by this reference incorporated within this Agreement. The
provisions of the common trust fund shall govern any investment of Plan
assets in that fund. In addition, the Trustee shall have the power,
pursuant to written directions of the Named Fiduciary, to invest all or
any part of the Trust Fund in any single, collective, or common trust
fund permitted for employee benefit plans qualified under Code Section
401(a), as amended, maintained by the Trustee or its affiliates.
Specifically, the Trustee may invest and reinvest the assets transferred
to it in an interest in any group trust fund that has been or shall be
created and maintained by the Trustee or its affiliates as trustee for
the collective investment of funds of trust for employee benefit plans
qualified under Code Section 401(a), as amended, and to the extent
required by Revenue Ruling 81-100 and further to the extent consistent
with this Agreement, the instrument creating such trust fund, together
with any amendments thereto, is hereby incorporated and made a part of
this Agreement.
14.10. Reliance by Trustee
-------------------
The Trustee may rely on any notice, certificate, letter, telegram,
facsimile or other paper or document believed by it to be genuine or on
any evidence believed by it to be sufficient in making any payment or in
taking any action whatsoever under this Agreement.
14.11. Delegation of Authority Among Trustees
--------------------------------------
At any time and from time to time, the Trustee is authorized to delegate
to any Co-Trustee the exercise of any or all powers or duties,
discretionary or otherwise, and to revoke any delegation at will. The
delegation of any power, and also the revocation of any delegation,
shall be evidenced by an instrument in writing, executed and
acknowledged and delivered to the Co-Trustee to whom the power or duty
may have been delegated. So long as any delegation is in effect, any of
the powers or duties, discretionary or otherwise, thereby granted and so
delegated may be exercised or carried out and action may be taken by the
Co-Trustee with the same force and effect as if the Trustee joined in
the exercise of the power and/or taking of the action. Any person or
corporation dealing with the Trustee may rely on the certification of
the Co-Trustee to whom the power or duty has been delegated that the Co-
Trustee has full authority to act.
14.12. Appointment of Ancillary Trustee
--------------------------------
Whenever and as often as the Named Fiduciary deems such action
desirable, the Trustee may appoint, by written instrument, pursuant to
written directions of the Named Fiduciary, any person or corporation in
any state of the United States to act as Ancillary Trustee with respect
to any portion of the Trust Fund assets then held or about to be
acquired on behalf of the Trustee. Each Ancillary Trustee shall have the
rights, duties and discretionary powers delegated to it by the Trustee,
but shall exercise them subject to the limitations or further directions
of the Trustee as shall be specified in the instrument evidencing its
appointment. The Ancillary Trustee may resign or may be removed by the
Trustee, as directed by the Named Fiduciary, regarding all or any
portion of the assets so held at any time or from time to time, by
written instrument delivered one to the other, and the Trustee may
thereupon appoint another Ancillary Trustee or successor, as directed by
the Named Fiduciary, to whom the assets shall be transferred, or may
itself receive the assets in termination of the ancillary trusteeship to
that extent. The Ancillary Trustee shall be accountable solely to the
Trustee and shall be entitled to reasonable compensation.
14.13. Removal or Resignation of Trustee
---------------------------------
The Employer may remove any Trustee at any time by sixty (60) days
written notice to the Trustee, and any Trustee may resign at any time by
sixty (60) days written notice to the Employer. Upon the removal or
resignation of the Trustee, the Employer shall appoint a Successor
Trustee. The receipt by the Successor Trustee of all securities,
property and money then held hereunder shall be a full and complete
acquittance and discharge of the Trustee who has been removed or
resigned.
14.14. Multiple Trustees
-----------------
58
<PAGE>
If more than two persons act as Trustee, a decision of the majority of
such persons controls with respect to any decision regarding the
administration or investment of the Trust Fund, or any portion of the
Trust Fund with respect to which such persons act as Trustee. However,
the signature of only one Trustee is necessary to effect any transaction
on behalf of the Trust.
14.15. Separate Investment Funds
-------------------------
(a) The Plan Committee will select the Investment Funds available under
the Plan in a separate written Investment Policy and is delegated
the authority to direct the Trustee to invest Trust assets in one or
more of such Investment Funds. The Committee shall maintain such
Investment Funds in accordance with the Employer's written
Investment Policy. The Investment Funds selected by the Committee
shall be communicated to Participants in writing. The number and
composition of the Investment Funds may be changed from time to
time. The Trustee may establish reasonable limits on the number of
Investment Funds as well as the acceptable assets for any such
Investment Fund. Each of the Investment Funds may be comprised of
any of the following:
(i) shares of a registered investment company, whether or not the
Trustee or any of its affiliates is an advisor to, or other
service provider to, such company;
(ii) collective investment funds maintained by the Trustee, or any
other fiduciary to the Plan, which are available for
investment by trusts which are qualified under Code Sections
401(a) and 501(a);
(iii) individual equity and fixed income securities which are
readily tradeable on the open market;
(iv) guaranteed investment contracts issued by a bank or insurance
company;
(v) Employer Securities.
All Individual Accounts shall be allocated by the Committee to the
Plan's Investment Funds specified in a separate written Investment
Policy. Dividends, interest and other distributions shall be
reinvested in the same Investment Fund from which received.
Except as provided hereafter in this Section, the assets of each
such Investment Fund shall be invested exclusively in shares of the
registered investment company designated by the Board, provided that
such shares constitute securities described in ERISA Section
401(b)(1). Amounts in any such Investment Fund in amounts estimated
by the Trustee to be needed for cash withdrawals, or in amounts too
small to be reasonably invested, or in amounts which the Trustee
deems to be in the best interest of the Participants, may be
retained by the Trustee in cash or invested temporarily.
(b) Each Participant shall by written or telephonic direction to the
Committee, direct that the contributions made to his or her accounts
for which the Participant may direct investments be invested in one
or more of the Investment Funds chosen by the Employer in a separate
written Investment Policy as investment vehicles for the Trust Fund.
The Participant's direction shall include the percentage of his or
her accounts to be invested pro rata in each such Investment Fund.
(c) A Participant may change an investment direction with respect to
future contributions. A Participant may elect to transfer all or a
portion of such Participant's interest in each Investment Fund
(based on the value of such interest on the date immediately
preceding such election) to any other of the Investment Funds
selected by the Employer.
14.16. Composition and Maximum Permitted Investment in Employer Securities
-------------------------------------------------------------------
The Employer Securities Fund shall be comprised of Employer Securities
and sufficient deposit or money market type assets to handle the Fund's
liquidity and disbursement needs. The Fund may be as large as necessary
to comply with Participants' and Beneficiaries' investment elections.
14.17. Individual Direction of Investment
----------------------------------
A Participant may elect to have all or any portion of his Individual
Accounts invested in one or more Investment Funds established hereunder;
provided, however, that such election shall apply either equally to
existing Individual Accounts, or current contributions made on behalf of
or by Participants or both, as the Participant shall so direct. Such
election shall be expressed in terms of the percentage amount of the
Individual Accounts to be allocated pro rata to each Investment Fund. To
the extent a Participant fails to direct the investment of all or any
portion of his account, it shall be invested in the Investment Fund or
Funds selected by the Committee. Upon a Participant's termination of
employment or cessation of participation for any reason, including
death, total and permanent disability or retirement, if payment of such
Participant's Individual Accounts is to be deferred, such Participant
shall no longer have the right to direct the investment of his
Individual Accounts. Individual Accounts shall be invested in the
Investment Fund(s) selected by the Committee.
14.18. Change of Investment Designation
--------------------------------
A Participant may change telephonically such Participant's designation
of the manner for investment of such Participant's existing Individual
Accounts or current contributions made on behalf of or by the
Participant or both to any other manner permitted hereunder.
59
<PAGE>
The change shall be applicable to contributions made after the date the
change was entered in the voice response system, or to the interest of
the Participant in each Investment Fund, as of the date the application
for change shall have become effective, as the case may be. In order to
comply with applicable federal or state securities laws, the Committee
may establish such rules with respect to the change of investment
designation by participants as it shall deem necessary or advisable to
prevent possible violations of such laws.
14.19. Valuation of Investment Funds and Individual Accounts
-----------------------------------------------------
(a) As of each Accounting Period ending on the Accounting Date, the
Committee shall determine the fair market value of each Investment
Fund being administered by the Trustee. With respect to each such
Investment Fund, the Committee shall determine (a) the change in
value between the current Accounting Period and the then last
preceding Accounting Period, (b) the net gain or loss resulting from
expenses paid (including fees and expenses, if any, which are to be
charged to such Fund) and (c) realized and unrealized gains and
losses.
The transfer of funds to or from an Investment Fund pursuant to
Section 14.17 and payments, distributions and withdrawals from an
Investment Fund to provide benefits under the Plan for Participants
or Beneficiaries shall not be deemed to be gains, expenses or losses
of an Investment Fund.
After each Accounting Period, the Committee shall allocate the net
gain or loss of each Investment Fund on the Accounting Date to the
accounts of Participants participating in such Investment Fund on
such Accounting Date. Contributions and rollovers received and
credited to Participants' accounts as of such Accounting Date, or as
of an earlier date since the last preceding Accounting Period shall
not be considered in allocating gains or losses allocated to
Participants' accounts.
(b) The reasonable and equitable decision of the Committee as to the
value of each Investment Fund, and of any Individual Account as of
each Accounting Period shall be conclusive and binding upon all
persons having any interest, direct or indirect, in the Investment
Funds or in any account.
14.20. Indemnification of Officer/Director Trustee
-------------------------------------------
The Employer shall indemnify and save harmless any Trustee who is an
Officer or Director of the Employer ("Officer/Director Trustee") from
and against any and all loss resulting from liability to which the
Trustee may be subjected by reason of any act or conduct (except willful
misconduct or gross negligence unless done with knowledge and consent or
at the direction of the Board of Directors of the Employer) in its
official capacity in the administration of the Plan and Trust, including
all court costs and other expenses reasonably incurred in the
Officer/Director Trustee's defense, in the event that the Employer fails
to provide such defense. The indemnification provisions of this Section
do not relieve the Trustee from any liability under ERISA that may
result from breach of a fiduciary duty. The indemnification provisions
of this Section do not relieve the Officer/Director Trustee from any
liability determined by a court of competent jurisdiction from which no
appeal can be taken pursuant to a final judgment that the actions or
omissions were the result of gross negligence or willful misconduct,
unless such actions or omissions were done with the knowledge and
consent or at the direction of the Board of Directors of the Employer.
The Officer/Director Trustee and the Employer may execute a letter
agreement further delineating the indemnification agreement of this
Section, provided that the letter agreement is consistent with and does
not violate ERISA and Texas law.
* * * * * * *
60
<PAGE>
ARTICLE XV
----------
Insurance Contracts
-------------------
15.1. Investment in Insurance Contracts for the Benefit of the Trust Fund
-------------------------------------------------------------------
At the written direction of the Committee, the Trustee shall have the
right to apply for and pay premiums on Contracts for the benefit of the
Trust Fund as a whole. The Contracts may be on the lives of any persons
in whom there is an insurable interest, including Participants. The
Employer shall direct the Trustee regarding the insurance company and
insurance agent through which the Trustee shall purchase the Contracts,
the amount of the coverage and the applicable dividend plan.
15.2. Ownership of Contracts for the Benefit of the Trust Fund
--------------------------------------------------------
(a) Each application for a policy, and the policies themselves, must
designate the Trustee as sole owner, with the right reserved to the
Trustee to exercise any right or option contained in the policies,
subject to the terms and provisions of this Agreement. The Trustee
must be the named beneficiary of the insured for the Trust Fund.
(b) All Contracts owned by the Trustee for the benefit of the Trust Fund
as a whole shall be treated as investments of the Trust Fund. The
cash value of the Contracts shall be used in valuing the Trust Fund,
and all premiums paid thereon by the Trustee shall be charged to the
Trust Fund and shall not be charged to any Individual Accounts. All
dividends, death benefits and other payments actually received by the
Trustee under the Contracts shall be credited to the Trust Fund, the
same as proceeds derived from the sale of an asset held under this
Agreement.
15.3. Investment in Insurance Contracts for the Benefit of the Participant
--------------------------------------------------------------------
If the Employer shall permit, each Participant shall have the right to
request that the Committee direct the Trustee to purchase one (1) or more
Contracts for the benefit of an Individual Account of the Participant,
subject to the following restrictions:
(a) If only ordinary life insurance contracts are purchased, the
aggregate premiums payable thereon in the case of each Participant
shall not exceed forty-nine percent (49%) of the total contributions
allocated to the Individual Account of the Participant.
(b) If only term life, accident and/or health insurance contracts
(including hospitalization, major medical or similar types of
insurance) are purchased, the aggregate premiums payable thereon in
the case of each Participant shall not exceed twenty-five percent
(25%) of the total Contributions allocated to the Individual Account
of the Participant.
(c) If both ordinary life and term life, accident and/or health insurance
contracts are purchased, the amount expended for the term life,
accident and/or health insurance premiums plus one-half ( 1/2) of the
amount expended for the ordinary life insurance premiums shall not
exceed, in the aggregate, twenty-five percent (25%) of the total
Contributions allocated to the Individual Account of the Participant.
(d) The payment of the premiums thereon shall be reasonably assured,
taking into consideration the then credit balance in the
Participant's Individual Account and the probable sums to be credited
thereto in the future.
(e) Any Contract which provides primarily life insurance protection shall
be one which can be converted at or before retirement of the
Participant to provide periodic income payable to him on retirement,
but provided that the periodic income cannot be paid in the form of a
life annuity. When a Contract is obtained, the Trustee shall be
required to convert the entire value of the Contract at or before
retirement into cash, or to provide periodic income so that no
portion of the value may be used to continue life insurance
protection beyond retirement; or the Trustee may, at the option of
the Participant, distribute the entire Contract to the Participant.
(f) Any Contract may contain a waiver of premium benefit if and when the
insured becomes disabled. The cost of the benefits may be paid either
by the Participant or by the Trustee, but if the cost will be paid by
the Trustee, the requirements of paragraphs (a), (b) and (c) of this
Section shall remain fully applicable, and no cost of the waiver of
premium benefit shall be paid by the Trustee which would violate the
restrictions.
(g) The incidental insurance benefits requirement does not apply to the
Plan if the Plan purchases life insurance benefits only from Employer
Contributions accumulated in the Participant's Individual Account for
at least two years measured from the Allocation Date.
15.4. Ownership of Contracts for the Benefit of a Participant
-------------------------------------------------------
(a) Each application for a policy, and the policies themselves, must
designate the Trustee as sole owner, with the right reserved to the
Trustee to exercise any right or option contained in the policies,
subject to the terms and provisions of this Agreement. The Trustee
must be the named beneficiary for the Individual Account of the
insured Participant.
61
<PAGE>
(b) All Contracts owned by the Trustee for the individual benefit of a
Participant shall be noted on the Participant's Individual Accounts,
but so long as the individual remains a Participant, the Contracts
shall be treated as having no value for the Individual Accounts. All
dividends and other payments actually received by the Trustee on any
Contract shall be credited to the Individual Account of the
Participant for whose individual benefit the Contract is held.
Contracts for the individual benefit of Participants may be continued
after Normal Retirement Date during the period of continued
employment of a Participant who elects not to retire, if the
preceding limitations on the protection of funds so expendable are
applied.
(c) All premiums paid by the Trustee on Contracts held under this
Agreement for the individual benefit of Participants shall be charged
against the Individual Account of the respective Participants for
whom the Contracts are held; however, the Trustee shall not pay a
premium unless the balance in the Individual Account to be charged is
sufficient to pay the premium. The premium first shall be charged
against the Participant Contribution Account until the Account is
reduced to zero (0), and thereafter against the Employer Contribution
Account of the Participant. If the balance is not sufficient to pay a
premium when due, the Trustee shall notify the Committee of that fact
and shall take the action on the Contract that the Committee shall
direct.
(d) Proceeds of Contracts paid to the Participant's Individual Account
under this Article are subject to the distribution requirements of
Articles VI, VII, VIII, IX and X. The Trustee will not retain any
proceeds for the benefit of the Trust.
15.5. Payment of Insurance Premiums
-----------------------------
The Trustee shall take the action regarding all Contracts held under the
Plan that the Committee may from time to time direct in writing. Unless
the Committee directs otherwise, the Trustee may pay the net premium due
on any Contract by applying any available dividend to reduce the premium.
15.6. Duties of Insurance Company
---------------------------
(a) No insurance company is a party to this Agreement nor shall any
insurance company be responsible for the validity of this Agreement.
No insurance company is required to examine the terms of this
Agreement nor be responsible for any action taken by the Trustee.
(b) Any Insurance Company issuing a Contract or Contracts under this
Agreement shall be fully protected in dealing with the Trustee and
shall not be required to ascertain whether the Trustee is acting
pursuant to this Agreement. For the purpose of making application to
an insurance company and in the exercise of any right or option
contained in any policy, the insurance company may rely on the
signature of the Trustee and shall be saved harmless and completely
discharged in acting at the direction and authorization of the
Trustee. An insurance company shall be discharged from all liability
for any amount paid to the Trustee or paid pursuant to the direction
of the Trustee, and it shall not be obliged to see to the
distribution or further application of any monies it so pays.
15.7. Execution of Contracts
----------------------
For convenience of administration, the Trustee and the Committee,
respectively, may designate one of their number to sign all applications
and other forms required by any Insurance Company issuing Contracts under
this Agreement, and the signature of any individual Trustee or Committee
member in regard to the Insurance Company applications and forms shall be
binding on the Trust and may be relied on by the Insurance Company.
* * * * * * *
62
<PAGE>
ARTICLE XVI
-----------
Participant Loans
-----------------
16.1. Participant Loan Program
------------------------
This Plan authorizes the Trustee to make loans on a nondiscriminatory
basis to a Participant or Beneficiary in accordance with the loan policy
established by the Committee, provided (a) the loan policy satisfies the
requirements of Section 12.3; (b) loans are available to all Participants
and Beneficiaries on a reasonably equivalent basis and are not available
in a greater amount for Highly Compensated Employees than for other
Employees; (c) any loan is adequately secured and bears a reasonable rate
of interest; (d) the loan provides for repayment within a specified time;
(e) the default provisions of the note prohibit offset of the
Participant's Nonforfeitable Accrued Benefit prior to the time the
Trustee otherwise would distribute the Participant's Nonforfeitable
Accrued Benefit; (f) the amount of the loan does not exceed (at the time
the Plan extends the loan) the present value of the Participant's
Nonforfeitable Accrued Benefit; and (g) the loan otherwise conforms to
the exemption provided by Code Section 4975(d)(1). If the joint and
survivor requirements of Article VI apply to the Participant, the
Participant may not pledge any portion of his or her Accrued Benefit as
security for a loan made after August 18, 1985, unless, within the 90-day
period ending on the date the pledge becomes effective, the Participant's
spouse, if any, consents (in a manner described in Section 6.5 other than
the requirement relating to the consent of a subsequent spouse) to the
security or, by separate consent, to an increase in the amount of
security. If the Employer is an unincorporated trade or business, a
Participant who is an Owner-Employee may not receive a loan from the
Plan, unless he or she has obtained a prohibited transaction exemption
from the Department of Labor. If the Employer is an "S Corporation," a
Participant who is a shareholder-employee (an employee or an officer)
who, at any time during the Employer's taxable year, owns more than 5%,
either directly or by attribution under Code Section 318(a)(1), of the
Employer's outstanding stock may not receive a loan from the Plan, unless
he has obtained a prohibited transaction exemption from the Department of
Labor. If the Employer is not an unincorporated trade or business nor an
"S Corporation," this Section does not impose any restrictions on the
class of Participants eligible for a loan from the Plan.
16.2. Loan Application
----------------
(a) Applicants. Any Plan Participant may apply for a loan from the Plan.
----------
For purposes of this Section, "Participant" means any Participant,
Former Participant or Beneficiary who is a party in interest,
determined under ERISA Section 3(14) with respect to the Plan.
Notwithstanding the immediately preceding sentence, an Owner-Employee
or Shareholder-Employee, as these terms are defined in Article I, or
a member of the family of the Owner-Employee or Shareholder-Employee,
shall not be eligible to apply for or receive a Participant loan,
unless an administrative exemption from the Prohibited Transaction
Rules under ERISA has been granted in advance of the loan and only
under the terms and conditions of the written administrative
exemption issued by the U. S. Department of Labor. For purposes of
this paragraph, "member of the family" means the individual's
brothers and sisters (whether by whole or half blood), spouse,
ancestors and lineal descendants under Code Section 267(c)(4).
(b) Application Form. All Participants shall have equal rights to
----------------
obtain a Participant loan, and the Committee shall not favor
Participants who are officers, shareholders or Highly Compensated
Employees. A Participant must apply for each loan in writing on an
application form provided by the Committee which specifies the
desired amount, requested duration and security for the loan.
16.3. Loan Approval
-------------
The Committee shall review each loan application and, if the Participant
satisfies all conditions established by this Article, the Committee shall
approve the loan. The Committee shall not approve any loan if, based on
the information at its disposal, it is reasonably likely that the
Participant will not repay the loan under its terms.
16.4. Limitation on Type of Loan
--------------------------
A Participant loan may be approved for one (1) or any combination of the
following purposes:
(a) expenses incurred for or necessary to obtain medical care, described
in Code Section 213(d), of the Employee, the Employee's spouse,
children, or dependents;
(b) costs directly related to the purchase, excluding mortgage payments,
of a principal residence for the Employee;
(c) payment of tuition and related educational fees for the next twelve
(12) months of post-secondary education for the Employee, the
Employee's spouse, children or dependents; or
(d) payment necessary to prevent the eviction of the Employee from, or a
foreclosure on the mortgage of, the Employee's principal residence.
16.5. Limitation on Amount of Loan
----------------------------
63
<PAGE>
The Committee will approve a Participant loan only if the loan, plus the
current outstanding balance of all other outstanding loans to the
Participant, does not exceed fifty percent (50%) of the Participant's
vested Account Balance on the date of the loan. The maximum aggregate
dollar amount of loans outstanding to any Participant may not exceed
$50,000, considering all Participant loans from other employer qualified
plans, reduced by the excess of the Participant's highest outstanding
Participant loan balance during the twelve (12) month period ending on
the date of the loan over the Participant's current outstanding
Participant loan balance on the date of the loan. The minimum loan
amount that the Committee may approve is $1,000.00.
16.6. Limitation on Number of Outstanding Loans
-----------------------------------------
A Participant may have no more than two (2) loans outstanding at any
time.
16.7. Evidence of Loan
----------------
The Committee shall document every loan in the form of a promissory note
signed by the Participant for the face amount of the loan bearing a
commercially reasonable rate of interest.
16.8. Terms of Loan
-------------
(a) Interest Rate. The Committee will determine the applicable interest
-------------
rate by obtaining at least one (1) quote from a financial
institution, chosen by the Committee, that is in the business of
lending money. The quote must address the term of the loan, the
security on the loan, the Participant's creditworthiness; whether
the interest rate is adjustable during the term of the loan, and the
intended use of the loan proceeds. The quote must reflect a
commercially reasonable rate for the geographical region in which
the Participant lives. The Committee must reevaluate interest rates
for loans made more than one (1) month since the most recent
Participant loan made by the Committee. The interest rate may be
fixed or adjustable, as negotiated between the Committee and the
Participant. The Committee will determine whether the interest rate
is commercially reasonable when it approves the loan and at each
scheduled adjustment, if any.
(b) Payment. The loan must provide for at least quarterly payments
-------
under a level amortization schedule.
(c) Term. The term for repayment of the loan will be fixed by the
----
Committee. The term shall not be greater than five (5) years unless
the loan is a home loan. A home loan may be repaid over a term not
exceeding a period that is commercially reasonable. A home loan is a
Participant loan used to acquire a dwelling which, within a
reasonable time, the Participant will use as a principal residence.
(d) Loan Renewal. The Trustee may renew any loan against a vested
------------
Account Balance except that for purposes of the limitations
contained in Section 16.5, the outstanding balance of any loan which
is renegotiated, extended, renewed, or revised shall be treated as
an amount received as a loan on the date of the renegotiation,
extension, renewal, or revision.
16.9. Security for Loan
-----------------
(a) Form
----
(i) A Participant must secure each loan with an irrevocable pledge
and assignment of the Participant's Account Balance in the form
provided by the Committee; and
(ii) A Participant shall, as the Committee may require, secure each
loan with additional security the Committee accepts as
adequate.
(b) Additional Collateral. The Committee subsequently may request the
---------------------
Participant to secure each loan with additional collateral or
substitute collateral if the original collateral is determined to be
inadequate.
16.10. Default Events
--------------
The Committee shall treat a Participant loan in default:
(a) if any scheduled payment remains unpaid more than ninety (90) days;
(b) upon the making or furnishing of any representation or statement to
the Plan by or on behalf of the Participant which proves to have
been false in any material respect when made or furnished;
(c) upon the loss, theft, damage, destruction, sale or encumbrance to or
of any of the collateral, or the making of any levy seizure or
attachment thereof or thereon; or
64
<PAGE>
(d) upon the insolvency, business failure, appointment of receiver of
any part of the property of, assignment for the benefit of creditors
by, or the commencement of any proceeding under any bankruptcy or
insolvency laws of, by or against the Participant, unless the
Participant provides reasonable assurance to the Plan Committee that
the ability of the Participant to repay the loan has not been
substantially impaired and the obligation of the Participant to
repay the loan will not be affected by any proceeding under
applicable bankruptcy law.
The Participant will make the opportunity to repay the loan, restore the
loan to current status by paying any delinquent payments plus interest
or, request distribution of the note, if and when the Participant is
entitled to a Plan distribution. If the loan remains in default, the
Committee may foreclose on other security or offset the Participant's
vested account balance by the outstanding balance of the loan, if and
when the Participant is entitled to a Plan distribution. If the amount
of any payment or distribution is inadequate to repay the remaining
balance of the note, the Participant shall be liable for any unpaid
principal and accrued interest payment on the balance due.
Notwithstanding the provisions of Articles VI through IX, if a
Participant shall be in default under the terms of any Participant loans
held by the Plan, then, for purposes of the Trustee's ability to
foreclose, the Participant's Account, to the extent of such default,
shall be considered immediately distributable at any time after the
Participant's separation from Service with the Employer.
16.11. Participant Directed Investment
-------------------------------
The Committee shall administer any Participant loan as a Participant
directed investment of that portion of the Participant's vested Account
Balance equal to the outstanding principal balance of the loan. The Plan
will credit that portion of the Participant's interest with the interest
earned on the note and with principal payments received. The Plan will
charge that portion of the Participant's Account Balance with expenses
directly related to the loan application, investigation of the
Participant's credit, maintenance and collection of the note.
16.12. Procedure on Benefit Distribution
---------------------------------
When a Participant's vested benefits are distributable, the Trustee
first shall offset any amount to which a Participant or Beneficiary
otherwise shall be entitled by the outstanding balance of any loan made
by the Participant.
* * * * * * *
65
<PAGE>
ARTICLE XVII
------------
Rollovers, Mergers, Direct Transfers
------------------------------------
17.1. Participant Rollover Contributions
----------------------------------
Any Participant who has the Employer's written consent and who has filed
with the Trustee the form prescribed by the Committee may contribute cash
or other property to the Trust other than as a voluntary contribution if
the contribution is a Rollover Contribution which the Code permits an
Employee to transfer either directly or indirectly from one qualified
plan to another qualified plan. Before accepting a Rollover Contribution,
the Employer or Trustee may require an Employee to furnish satisfactory
evidence that the proposed transfer is in fact a Rollover Contribution
which the Code permits an Employee to make to a qualified plan. A
Rollover Contribution is not an Annual Addition.
An eligible Employee, prior to satisfying the Plan's conditions, may make
a Rollover Contribution to the Trust to the same extent and in the same
manner as a Participant. If an Employee makes a Rollover Contribution to
the Trust prior to satisfying the Plan's eligibility conditions, the
Committee and Trustee must treat the Employee as a Participant for all
purposes of the Plan except the Employee is not a Participant for
purposes of sharing in Employer Contributions or Participant Forfeitures
under the Plan until the Employee actually becomes a Participant in the
Plan. If the Employee has a separation from Service prior to becoming a
Participant, the Trustee will distribute the Rollover Account to the
Participant as if it were an Employer Contribution Account.
For any Rollover Contribution, the following requirements shall be met:
(a) The Committee shall maintain a Participant's Rollover Contributions
in a separate Rollover Account;
(b) The Employer will direct the Trustee to invest the Rollover
Contribution in a segregated investment Rollover Account for the
Participant's sole benefit unless the Employer directs the Trustee to
invest the Rollover Contribution as part of the Trust Fund. The
Trustee will not have any investment responsibility for a
Participant's segregated Rollover Account. The Participant, however,
from time to time, may direct the Trustee in writing as to the
investment of the segregated Rollover Account in property, or
property interests, of any kind, real, personal or mixed; provided
however, the Participant may not direct the Trustee to make loans to
the Employer. A Participant's segregated Rollover Account alone will
bear any extraordinary expenses resulting from investments made at
the direction of the Participant. As of the Accounting Date, or other
Valuation Date, for each Plan Year, the Committee will allocate and
credit the net income or charge the net loss from a Participant's
segregated Rollover Account and credit or charge respectively the
increase or decrease in the fair market value of the assets of a
segregated Rollover Account solely to that Rollover Account. The
Trustee is not liable nor responsible for any loss resulting to any
Beneficiary, nor to any Participant, because of any sale or
investment made or other action taken pursuant to and in accordance
with the direction of the Participant. In all other respects, the
Trustee will hold, administer and distribute a Rollover Contribution
in the same manner as any Employer Contribution made to the Trust
Fund.
(c) A Participant's Rollover Contributions shall not be forfeitable nor
reduce in any way the obligations of the Employer under this
Agreement.
17.2. Merger and Direct Transfer
--------------------------
The Employer possesses the specific authority to enter into merger
agreements or direct transfer of assets agreements with the trustees of
other retirement plans described in Code Section 401(a), including an
Elective Transfer defined in Section 17.3, and to accept the direct
transfer of plan assets or to transfer plan assets, as a party to any
agreement. Further, the Employer may permit the transfer of plan assets
to an individual retirement account or an individual retirement annuity.
However, the Employer, before any merger or direct transfer is
consummated, shall be satisfied that the holding of any transferred
assets is permitted by the transferee trusts. When the Trustee is so
satisfied, the Trustee shall accept the direct transfer of plan assets or
shall cause to be transferred the assets directed to be transferred and
as appropriate shall direct the insurance company to transfer any
Contracts held by it to the new Trustee. The Employer may direct the
Trustee to accept a direct transfer of plan assets on behalf of an
Employee prior to the date the Employee satisfies the Plan's eligibility
conditions. If the Employer directs the Trustee to accept a direct
transfer of plan assets, the Committee and Trustee must treat the
Employee as a Participant for all purposes of the Plan except that the
Employee is not a Participant for purposes of sharing in Employer
Contributions or Participant Forfeitures under the Plan until the
Employee actually becomes a Participant in the Plan.
The Employer may not consent to, or be a party to, any merger or
consolidation with another plan or to a transfer of assets and
liabilities to another plan, unless, immediately after the merger,
consolidation or transfer the surviving plan provides each Participant a
benefit equal to or greater than the benefit each Participant would have
received had the plan terminated immediately before the merger,
consolidation or transfer.
17.3. Certain Rollovers, Mergers and Direct Transfers Prohibited
----------------------------------------------------------
66
<PAGE>
Notwithstanding any contrary provision, neither the Employer nor the
Trustee, after August 9, 1988, may consent to or be a party to a rollover,
merger, consolidation or transfer of assets from a qualified plan which is
required to provide benefits in the form of a joint and survivor annuity
under Code Section 417, except with respect to an Elective Transfer, or
unless the transferred benefits are in the form of paid-up individual
annuity contracts guaranteeing the payment of the transferred benefits
under the terms of the transferor plan and in a manner consistent with the
Code and ERISA. The Employer will direct the Trustee to hold, administer
and distribute the transferred assets as a part of the Trust Fund and to
maintain a separate Employer Contribution Account for the benefit of the
Employee on whose behalf the Trustee accepted the transfer to reflect the
value of the transferred assets.
Unless a transfer of assets to this Plan is an Elective Transfer, the Plan
will preserve all Code Section 411(d)(6) protected benefits with respect to
those transferred assets, in the manner described in Section 11.2(c)(iii).
A transfer is an Elective Transfer if: (a) the transfer satisfies Section
17.2; (b) the transfer is voluntary, under a fully informed election by the
Participant; (c) the Participant has an alternative that retains his or her
Code Section 411(d)(6) protected benefits, including an option to leave the
benefit in the transferor plan, if that plan is not terminating; (d) the
transfer satisfies the applicable spousal consent requirements of the Code;
(e) the transferor plan satisfies the joint and survivor notice
requirements of the Code, if the Participant's transferred benefit is
subject to those requirements; (f) the Participant has a right to immediate
distribution from the transferor plan, in lieu of the Elective Transfer;
(g) the transferred benefit is at least the greater of the single sum
distribution provided by the transferor plan for which the Participant is
eligible or the present value of the Participant's Accrued Benefit under
the transferor plan payable at that plan's normal retirement age; (h) the
Participant has a one hundred percent (100%) Nonforfeitable interest in the
transferred benefit; and (i) the transfer otherwise satisfies applicable
Treasury regulations. An Elective Transfer may occur between qualified
plans of any type.
If the Plan receives a direct transfer, by merger or otherwise, of Elective
Contributions, or amounts treated as Elective Contributions, under a Plan
with a Code Section 401(k) arrangement, the distribution restrictions of
Code Sections 401(k)(2) and 401(k)(10) continue to apply to those
transferred Elective Contributions.
* * * * * * *
67
<PAGE>
ARTICLE XVIII
-------------
Exclusive Benefit
-----------------
18.1. Exclusive Benefit
-----------------
Except as provided under this Article and Article III, the Employer has
no beneficial interest in any asset of the Trust and no part of any asset
in the Trust may ever revert to or be repaid to an Employer, either
directly or indirectly. Further, prior to the satisfaction of all
liabilities with respect to the Participants and their Beneficiaries
under the Plan, no part of the corpus or income of the Trust Fund, or any
asset of the Trust, may be used for, or diverted to, purposes other than
the exclusive benefit of the Participants or their Beneficiaries. No
amendment or revocation by the Employer of this Section may cause or
permit any portion of the Trust Fund to revert to or become a property of
the Employer.
18.2. Denial of Request for Initial Approval
--------------------------------------
Any contribution to the Trust Fund associated with this Plan is
conditioned on initial qualification of the Plan under applicable Code
Sections 401(a), 403(a) or 405(a) and of the exemption of the Trust
created under the Plan under Code Section 501(a). If the Commissioner of
the Internal Revenue Service, upon the Employer's request for initial
approval of this Plan and Trust, determines that the Plan is not
qualified or the Trust is not exempt, then the Trustee may return to the
Employer, within one (1) year after the date of final disposition of the
Employer's request for initial approval, any contribution made by the
Employer, and any increment attributable to the contribution.
18.3. Mistake of Fact
---------------
Notwithstanding any contrary provision in this Agreement, if a
contribution is made by an Employer by a mistake of fact, the
contribution may be returned to the Employer within one (1) year after
the payment of the contribution. The amount of the mistaken contribution
is equal to the excess of (a) the amount contributed over (b) the amount
that would have been contributed had there not occurred a mistake of
fact. Earnings attributable to mistaken contributions may not be returned
to the Employer, but losses attributable thereto shall reduce the amount
to be returned.
18.4. Disallowance of Deduction
-------------------------
Notwithstanding any contrary provision in this Agreement, any
contributions by the Employer to the Plan and Trust are conditioned on
the deductibility of the contribution by the Employer under the Code. To
the extent any deduction is disallowed, the Employer, within one (1) year
following a final determination of the disallowance, whether by agreement
with the Internal Revenue Service or by final decision in a court of
competent jurisdiction, may demand repayment of the disallowed
contribution, and the Trustee shall return the contribution within one
(1) year following the disallowance. Earnings attributable to excess
contributions may not be returned to the Employer, but losses
attributable thereto shall reduce the amount to be returned.
18.5. Spendthrift Clause
------------------
Except as provided below, no Participant, Former Participant or
Beneficiary shall have the right to anticipate, assign or alienate any
benefit provided under the Plan and the Trustee will not recognize any
anticipation, assignment or alienation. Furthermore, a benefit under the
Plan is not subject to attachment, garnishment, levy, execution or other
legal or equitable process. All provisions of this Agreement shall be for
the exclusive benefit of those designated herein. These restrictions
shall not apply in the following case(s):
. Participant Loans. If a Participant, Former Participant or
-----------------
Beneficiary who has become entitled to receive payment of benefits
under this Agreement is indebted to the Trustee, by virtue of a
Participant Loan, the Committee may direct the Trustee to pay the
indebtedness and charge it against the Individual Account of the
Participant, Former Participant or Beneficiary; provided that in the
case of a married Participant, the Participant's spouse must consent
in writing to the application of the Participant's benefits toward
the repayment and discharge of the Participant Loan.
. Distributions Pursuant to Qualified Domestic Relations Orders. The
-------------------------------------------------------------
Committee may direct the Trustee under the nondiscriminatory policy
adopted by the Committee to pay an Alternate Payee designated under a
Qualified Domestic Relations Order as defined in Code Section 414(p)
or any domestic relations order entered before January 1, 1985 if
payment of benefits pursuant to the order has commenced as of that
date. To the extent provided under a Qualified Domestic Relations
Order, a former spouse of a Participant shall be treated as the
spouse or surviving spouse for all purposes of the Plan.
. Distributions Under Domestic Relations Orders. Nothing contained in
---------------------------------------------
this Plan prevents the Trustee, under the direction of the Committee,
from complying with the provisions of a qualified domestic relations
order, as defined in Code Section 414(p) ("QDRO"). This Plan
specifically permits distribution to an Alternate Payee under a QDRO
at any time, whether or not the Participant has attained the earliest
retirement age (as defined under Code Section 414(p)) under the Plan.
A distribution to an Alternate Payee prior to the Participant's
attainment of earliest retirement age is available only if: (1) the
order specifies
68
<PAGE>
distribution at that time or permits an agreement between the Plan and
the Alternate Payee to authorize an earlier distribution; and (2) if
the present value of the Alternate Payee's benefits under the Plan
exceeds $3,500, and the order requires, the Alternate Payee's consent
to any distribution occurring prior to the Participant's attainment of
earliest retirement age. Nothing in this Section gives a Participant a
right to receive distribution at a time otherwise not permitted under
the Plan nor does it permit the Alternate Payee to receive a form of
payment not otherwise permitted under the Plan.
The Committee must establish reasonable procedures to determine the
qualified status of a domestic relations order. Upon receiving a
domestic relations order, the Committee promptly will notify the
Participant and any Alternate Payee named in the order, in writing, of
the receipt of the order and the Plan's procedures for determining the
qualified status of the order. Within a reasonable period of time after
receiving the domestic relations order, the Committee must determine
the qualified status of the order and must notify the Participant and
each Alternate Payee, in writing, of its determination. The Committee
must provide notice under this paragraph by mailing to the individual's
address specified in the domestic relations order, or in a manner
consistent with Department of Labor regulations.
If any portion of the Participant's Nonforfeitable Accrued Benefit is
payable during the period the Committee is making its determination of
the qualified status of the domestic relations order, the Committee
must make a separate accounting of the amounts payable. If the
Committee determines the order is a QDRO within eighteen (18) months of
the date amounts first are payable following receipt of the order, the
Committee will direct the Trustee to distribute the payable amounts
pursuant to the order. If the Committee does not make its determination
of the qualified status of the order within the eighteen (18) month
determination period, the Committee will direct the Trustee to
distribute the payable amounts in the manner the Plan would distribute
if the order did not exist and will apply the order prospectively if
the Committee later determines the order is a QDRO.
To the extent it is consistent with the provisions of the QDRO, the
Committee may direct the Trustee to invest any partitioned amount in a
segregated subaccount or separate account and to invest the account in
Federally insured, interest-bearing savings account(s) or time
deposit(s) (or a combination of both), or in other fixed income
investments. A segregated subaccount remains a part of the Trust, but
it alone shares in any income it earns, and it alone bears any expense
or loss it incurs. The Trustee will make any payments or distributions
required under this Section by separate benefit checks or other
separate distribution to the Alternate Payee(s).
18.6. Termination
-----------
Upon termination of the Plan, in lieu of the distribution provisions of
Article X, the Committee will direct the Trustee to distribute each
Participant's Nonforfeitable Account Balance, in a single sum, as soon
as administratively feasible after the later of the termination of the
Plan or the receipt of a favorable determination letter from the Office
of the Key District Director, if an application is filed, irrespective
of the present value of the Participant's Nonforfeitable Account
Balance and whether the Participant consents to that distribution. This
paragraph applies only if:
(a) the Plan does not provide an annuity option;
(b) the Plan is a profit sharing plan on its termination date; and
(c) as of the period between the Plan termination date and the final
distribution of assets, the Employer does not maintain any other
defined contribution plan (other than an employee stock ownership
plan).
For Participants or Beneficiaries who cannot be located upon Plan
termination, and whose Nonforfeitable Account Balance exceeds $3,500,
to liquidate the Trust, the Committee will purchase a deferred annuity
contract, distribute the benefits to an individual retirement account,
or transfer the account to an ongoing qualified plan of a Related
Employer. If the Committee distributes the lost Participant's or
Beneficiary's benefits to an individual retirement account or purchases
an annuity, and the Participant's or Beneficiary's whereabouts remain
unknown for the duration of the escheat period, the benefits will
ultimately escheat to the state under applicable state law.
69
<PAGE>
18.7. Employees in Qualified Military Service
---------------------------------------
Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credits with respect to qualified
military service will be provided in accordance with Section 414(u) of
the Internal Revenue Code.
* * * * * * *
70
<PAGE>
ARTICLE XIX
-----------
Construction
------------
19.1. Headings
--------
The headings in this Agreement are for convenience only and shall not be
considered in construing this Agreement.
19.2. Context
-------
In this Agreement, wherever the context of the Plan dictates, words used
in the masculine may be construed in the feminine, the plural includes
the singular and the singular includes the plural.
19.3. Employment Not Guaranteed
-------------------------
Nothing contained in this Agreement, or regarding the establishment of
the Plan or Trust, or any modification or amendment to the Agreement,
Plan or Trust, or in the creation of any Individual Account, or the
payment of any benefit, shall be construed as giving any Employee,
Participant or Beneficiary whomsoever any right to continue in the
Service of the Employer, any legal or equitable right against the
Committee, against the Employer, its stockholders, officers or directors
or against the Trustee, except as expressly provided by the Agreement,
the Plan, the Trust, ERISA or by separate agreement. Employment of all
persons by the Employer shall remain subject to termination by the
Employer to the same extent as if this Agreement had never been executed.
19.4. State Law
---------
This Agreement and each of its provisions shall be construed and their
validity determined by the laws of the State of Texas and applicable
Federal law to the extent Federal statute supersedes Texas law.
19.5. Parties Bound
-------------
This Agreement shall be binding on all persons entitled to benefits under
the Plan, their respective heirs and legal representatives, on the
Employer, its successors and assigns, and on the Trustee, the Committee
and their successors.
* * * * * * *
71
<PAGE>
ARTICLE XX
----------
Provisions Relating to Employer Securities
------------------------------------------
20.1. Investment in Employer Securities
---------------------------------
(a) The Trustee may invest Participant Accounts in Employer Securities.
The Employer Securities may be Treasury Stock which has been
purchased by the Employer; stock which has been authorized, but never
issued by the Employer; Employer Securities traded on a public
market; or Employer Securities owned by shareholders of the Employer.
(b) Purchase Price. For the purchase of Employer Securities from the
--------------
Employer or from a shareholder of the Employer, the Trustee shall not
pay more than fair market value as determined by the current market
price of the Employer Securities. For the purchase of Company Stock
from a Disqualified Person, the value of the Company Stock must be
determined as of the date of the transaction. For any other purchase,
the value shall be at the discretion of the Trustee, based on a
current valuation or based upon the price fixed as of the most recent
Valuation Date. Notwithstanding the preceding provisions of this
Section, the Trustee may purchase Employer Securities at a price
lower than that determined in accordance with the preceding
provisions of this Section from any source whatsoever. If a public
market is made for the Employer Securities, the Trustee shall
purchase the Employer Securities at the public trading price
determined at the time of the purchase regardless of whether such
stock is purchased from the Employer or on the open market.
20.2. Voting Rights
-------------
Regarding the Employer Securities held in the Trust Fund, the Trustee may
vote the same in person or by proxy; may join in any merger,
reorganization of capital adjustment; may exercise or sell any
conversion, subscription, or similar rights; and may hold any assets in
the name of its nominee or unregistered agent. A majority vote of the
Trustees shall control the vote of the Employer Securities.
Notwithstanding the foregoing, if the Employer has a registration-type
class of securities defined in Code Section 409(e)(4), each Participant
or Beneficiary in the Plan shall be entitled to direct the Trustee as to
the manner in which his or her allocable share of the Employer Securities
held in the Trust Fund will be voted. If the Employer does not have a
registration-type class of securities defined in Code Section 409(e)(4),
each Participant or Beneficiary shall be entitled to direct the Trustee
as to the manner in which the voting rights under securities of the
Employer which are allocated to his or her account are to be exercised
regarding any corporate matter involving the voting of the shares with
respect to the approval or disapproval of any corporate merger or
consolidation, recapitalization, reclassification, liquidation,
dissolution, sale of substantially all assets of a trade or business, or
any similar transaction which the Secretary may prescribe in regulations.
20.3. Tender Offers
-------------
Each Participant, or, in the event of his death, his Beneficiary, shall
have the right, to the extent of the number of full shares of Employer
Securities in his account, to direct the Trustee in writing as to the
manner in which to respond to a tender or exchange offer with respect to
shares of such Employer Securities.
The Employer shall utilize its best efforts to timely distribute or cause
to be distributed to each Participant (or Beneficiary) such information
as will be distributed to shareholders of the Employer in connection with
any such tender or exchange offer.
The Trustee shall, with respect to all Employer Securities held in the
Trust Fund, accept or reject the terms of any tender offer and,
accordingly, tender Employer Securities held by the Trustee in the Trust
Fund in accordance with the terms and provisions of any tender offer, or
not tender such Employer Securities, as directed by the respective
Participants (or Beneficiaries). With respect to shares of Employer
Securities which are allocated to Participants who have not given
directions, the Trustee shall not tender any shares of Employer
Securities with respect to which such Participants (or Beneficiaries)
have the right of direction.
The Committee may establish such rules and guidelines as it deems
appropriate to properly effect the provisions of this Section.
20.4. Shareholder Agreements
----------------------
The Trustee may enter into agreements with shareholders to purchase
shares of Employer Securities under which the Trustee is granted an
option to purchase all or a portion of the shares of Employer Securities
owned by the shareholders on the death of the shareholder or
shareholders. To provide for the funding of the purchase of shares of
Employer Securities, the Trustee may apply for and pay premiums on
contracts of life insurance on the life of such shareholder for the
benefit of the Trust Fund as a whole, provided, however, that if this
Plan invests in Leveraged Employer Securities the Trustee may not enter
into any agreement which would obligate the Plan and Trust to purchase
Employer Securities from a particular shareholder at an indefinite time
determined upon the happening of an event such as the death of the
shareholder.
20.5. Special Provisions Applicable to Employer Securities
----------------------------------------------------
72
<PAGE>
In accordance with Rule 16(b)-3 adopted by the Securities and
Exchange Commission, the following provisions shall apply with
respect to purchases, sales and allocations to Participant accounts
of Employer Securities, notwithstanding anything else to the contrary
in this Plan or in any rules adopted hereunder:
(a) Annual Limit on Shares Acquired or Awarded
------------------------------------------
The Plan shall not acquire or award to Participants in any fiscal
year of the Plan more than 2% of the outstanding shares of Employer
Securities of the Corporation based on the number of such shares
outstanding as of the beginning of each such fiscal year; and
(b) Fiduciary Duties with regard to Prices and Values
-------------------------------------------------
The Trustee and other Plan Fiduciaries shall act in accordance with
their fiduciary duties in determining the prices at which the Trustee
shall purchase Employer Securities and in determining the value used
in allocating such securities to Participant Accounts.
20.6. Limitation with Respect to an Electing Estate or Shareholder
------------------------------------------------------------
(a) If the executor of the estate of a deceased shareholder sells
Employer Securities to the Trust and elects (with the consent of the
Corporation) an estate tax deduction pursuant to Section 2057(a) of
the Code, or if a shareholder sells Employer Securities to the Trust
and elects (with the consent of the Corporation) favorable tax
treatment under Section 1042 of the Code, then no portion of the
Trust Assets attributable to (or allocable in lieu of) the Employer
Securities acquired by the Trust in such transaction may be allocated
(directly or indirectly):
(i) During the "nonallocation period", to the Accounts of the
decedent whose estate makes such sale; or to the shareholder
who makes the sale;
(ii) During the "nonallocation period" to the Accounts of any
person related to the decedent or shareholder (within the
meaning of Section 267(b) of the Code; or
(iii) To the Accounts of any shareholder owning (as determined under
Section 318(a) of the Code, at any time described in Code
Section 409(n)(3)(B), more than 25% (in value or in number of
shares) of any class of outstanding stock of the Company.
(b) For purposes of this Section, the "nonallocation period" is the ten-
year period beginning on the later of:
(i) the date on which the Employer Securities held by the estate
or shareholder are sold to the Plan, or
(ii) if such Employer Securities are acquired with the proceeds of
an exempt loan, the date of allocation of the shares of
Employer Securities released from the suspense account with
respect to the final payment on such exempt loan.
* * * * * * *
73
<PAGE>
IN WITNESS WHEREOF, the Employer, PATINA OIL & GAS CORPORATION, and the
Trustee, MERRILL LYNCH TRUST COMPANY OF AMERICA, have caused this instrument to
be executed on this _________________ day of December, 1997.
EMPLOYER:
PATINA OIL & GAS CORPORATION
By:_______________________________ President
INITIAL TRUSTEE
By:_______________________________ Keith M.
Crouch
TRUSTEE:
MERRILL LYNCH TRUST COMPANY OF AMERICA
By:_______________________________
74
<PAGE>
EXHIBIT 10.3.2
AMENDED AND RESTATED PATINA OIL & GAS CORPORATION
DEFERRED COMPENSATION PLAN
FOR SELECT EMPLOYEES
AS ADOPTED MAY 1, 1996 AND AMENDED AS OF SEPTEMBER 30, 1997
1 - INTRODUCTION
1.1 PURPOSE OF THE PLAN
The Employer has adopted the Plan set forth herein to provide a means by which
certain employees may elect to defer receipt of designated percentages or
amounts of their Compensation and to provide a means for certain other deferrals
of compensation.
1.2 STATUS OF PLAN
The Plan is intended to be a "plan which is unfunded and is maintained by an
employer primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees" within the meaning
of Sections 201(2) and 301(a)(3) of the Employee Retirement Income Security Act
of 1974 ("ERISA"), and shall be interpreted and administered to the extent
possible in a manner consistent with that intent.
2 - DEFINITIONS
Whenever used herein, the following terms have the meanings set forth below,
unless a different meaning is clearly required by the context:
2.1 ACCOUNT means, for each Participant, the account established for his or
her benefit under Section 5.1.
2.2 CHANGE OF CONTROL means (a) the purchase or other acquisition in one or
more transactions other than from the Employer, by an individual, entity or
group of persons within the meaning of Section 13(d)(3) or 14(d) of the
Securities Exchange Act of 1934 or any comparable successor provisions, of
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act) of 50 percent or more of either that outstanding shares of common
stock or the combined voting power of Employer's then outstanding voting
securities entitled to vote generally or (b) in connection or as a result of any
tender offer, exchange offer, merger or other business combination or proxy
contest the directors prior to such event no longer constitute a majority of the
directors of Employer, or (c) the approval by stockholders of the Employer of a
reorganization, merger, consolidation or other business combination, in each
case, with respect to which persons who were stockholders of the Employer
immediately prior to such event do not immediately thereafter own more than 50%
of the combined voting power of the reorganized, merged, consolidated or
combined Employer's then outstanding securities that are entitled to vote
generally in the election of directors or (d) the liquidation or dissolution of
Employer or sale of all
<PAGE>
2
or substantially all of the Employer's assets.
2.3 CODE means the Internal Revenue Code of 1986, as amended, from time to
time. Reference to any section or subsection of the Code included reference to
any comparable or succeeding provisions of any legislation which amends,
supplements or replaces such section or subsection.
2.4 COMPENSATION means the regular or base salary and cash bonuses payable by
the Employer or an Affiliate to an individual. For purposes of the Plan,
Compensation will be determined before giving effect to Elective Deferrals and
other salary reduction amounts which are not included in the Participant's gross
income under Sections 125, 401(k), 402(h) or 403(b) of the Code.
For purposes of the Plan, bonuses shall be deemed to have been earned during the
Plan Year in which the Employer accrues such bonuses for federal income tax
reporting purposes. Under the Employer's present method of federal income tax
reporting, regular bonuses paid in March of a given year are accrued ratably
during the prior year. Regular salary and special bonuses, as designated by the
Board of Directors or the Compensation Committee of the Board of Directors of
Employer, are included in Compensation at the time paid to the employee. Thus,
for example, Compensation for the Plan Year ending December 31, 1995 includes
regular salary paid during 1995 and any regular bonus paid during March 1996.
As a result an Elective Deferral to defer, say, 10% of a Participant's 1995
Compensation will result in the deferral hereunder of 10% of the Participant's
1995 salary and 10% of any regular bonus paid to the Participant in March 1996
(any regular bonus payable in March 1995 would not be affected by an election to
defer a portion of 1995 Compensation, since such bonus would be included in 1994
Compensation).
2.5 DISABILITY means a Participant's total and permanent mental or physical
disability resulting in termination of employment as evidenced by presentation
of medical evidence satisfactory to the Administrator.
2.6 EFFECTIVE DATE means July 1, 1996.
2.7 ELECTION FORM means the participation election form as approved and
prescribed by the Plan Administrator.
2.8 ELECTIVE DEFERRAL means the portion of Compensation during a Plan Year
which is deferred by a Participant under Section 4.1.
2.9 ELIGIBLE EMPLOYEE means, on the Effective Date or on any Entry Date
thereafter, those employees of the Employer selected by the Compensation
Committee of the Board of Directors of Employer or by such persons as the
Compensation Committee may authorize to select employees entitled to participate
in the Plan.
2.10 ENTRY DATE means, for each Participant, the date deferrals commence in
accordance with Section 4.1.
2.10
<PAGE>
3
2.11 EMPLOYER means Patina Oil & Gas Corporation, any successor to all or a
major portion of its assets or business which assumes the obligations of
Employer, and each other entity that is affiliated with the Employer that adopts
the Plan with the consent of the Employer, provided that Patina Oil & Gas
Corporation shall have the sole power to amend this Plan and shall be the Plan
Administrator if no other person or entity is so serving at any time.
2.12 ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Reference to any section or subsection of ERISA
includes reference to any comparable or succeeding provisions of any legislation
which amends, supplements or replaces such section or subsection.
2.13 INCENTIVE CONTRIBUTION means a discretionary additional contribution
made by Employer as described in Section 4.3.
2.14 INSOLVENT means either (1) the Employer is unable to pay its debts as
they become due or (2) the Employer is subject to a pending proceeding as a
debtor under the United States Bankruptcy Code.
2.15 MATCHING DEFERRAL means a deferral for the benefit of a Participant as
described in Section 4.2. A Matching Deferral may be made in cash, securities
of the Employer or a combination thereof in ratios to be established from time
to time by the Board of Directors of the Employer or the Compensation Committee
of the Employer.
2.16 MATCHING DEFERRAL LIMITATION means, with respect to Elective Deferrals
of Compensation for any Plan Year made by any Participant, 10% of such
Participant's base salary during such Plan Year. The Compensation Committee may
change the Matching Deferral Limitation for any Participant or all Participants
at any time, provided that the Matching Deferral Limitation applicable to
Elective Deferrals of Compensation for any Plan Year made by any Participant may
not be reduced unless the Plan Administrator has given written notice of such
reduction to the Participant not less than 10 days prior to the commencement of
such Plan Year. The foregoing shall not limit the Employer's rights to decrease
the salary or Compensation of, or terminate the employment of, any Participant
at any time, with or without cause and with or without prior notice, without
regard to the effect such discharge would have on the Participant's interest in
the Plan.
2.17 MATCHING DEFERRAL RATE means, with respect to Elective Deferrals of
Compensation for any Plan Year made by any Participant, 100%. The Compensation
Committee may change the Matching Deferral Rate for any Participant or all
Participants at any time, provided that the Matching Deferral Rate applicable to
Elective Deferrals of Compensation for any Plan Year made by any Participant may
not be reduced unless the Plan Administrator has given written notice of such
reduction to the Participant not less than 10 days prior to the commencement of
such Plan Year.
2.18 PARTICIPANT means any individual who participates in the Plan in
accordance with Article 3.
2.18
<PAGE>
4
2.19 PLAN means the Amended and Restated Patina Oil & Gas Corporation
Deferred Compensation Plan for Select Employees as amended from time to time.
2.20 PLAN ADMINISTRATOR means the person, persons, or entity designated by
the Employer to administer the Plan and to serve as agent for the Employer with
respect to the Trust. If no such person or entity is serving as Plan
Administrator at any time, the Employer shall be Plan Administrator.
2.21 PLAN YEAR means, in the case of the first Plan Year, the period from the
Effective Date through December 31, 1996 and, for each Plan Year thereafter, the
12-month period ending December 31.
2.22 PATINA STOCK means Patina Oil & Gas Corporation common stock, par value
$.01 per share.
2.23 PATINA STOCK DEFERRAL means the portion of a Participant's Compensation
which is Patina Stock during a Plan Year which is deferred by a Participant
under Section 4.4.
2.24 PATINA STOCK ELECTION FORM means the participation election form for
Patina Stock as approved and prescribed by the Plan Administrator.
2.25 PATINA STOCK SUBACCOUNT has the meaning described in Section 5.1.
2.26 RETIREMENT AGE means the age of 55 or such other age as shall be
determined as the normal retirement age for purposes of the Employer's welfare
and retirement plans as determined by the Employer's Board of Directors or the
Compensation Committee thereof. No determination to increase the Retirement Age
shall be effective with respect to amounts credited to the Account of a
Participant with respect to Plan Years commencing prior to the time of such
determination.
2.27 TRUST means the rabbi trust or trusts established by the Employer that
identifies the Plan as a plan with respect to which assets are to be held by the
Trustee.
2.28 TRUSTEE means the trustee or trustees under the Trust.
3 - PARTICIPATION
3.1 COMMENCEMENT OF PARTICIPATION
Any Eligible Employee who elects to defer part of his or her Compensation in
accordance with Section 4.1 or 4.4 shall become a participant in the Plan as of
the date such deferrals commence in accordance with Section 4.1 or 4.4. Any
individual who is not already a Participant and whose account is credited with
an Incentive Contribution shall become a Participant as of the date such amount
is credited.
<PAGE>
5
3.2 CONTINUED PARTICIPATION
A Participant in the Plan shall continue to be a Participant so long as any
amount remains credited to his or her Account.
4 - DEFERRALS AND INCENTIVE CONTRIBUTIONS
4.1 ELECTIVE DEFERRALS
Any Eligible Employee may elect to defer a percentage or dollar amount of one or
more payments of Compensation for the next succeeding Plan Year, on such terms
as the Plan Administrator may permit, by completing an Election Form and filing
it with the Plan Administrator prior to the first day of such succeeding Plan
Year (or any such earlier date as the Plan Administrator may prescribe),
provided that (1) an individual who is an Eligible Employee on the Effective
Date may, by completing an Election Form and filing it with the Plan
Administrator within 30 days following the Effective Date, elect to defer a
percentage or dollar amount of one or more payments of Compensation for the 1996
Plan Year, on such terms as the Plan Administrator may permit, which are payable
to the Participant after the date on which the Eligible Employee files the
Election Form and (2) an Eligible Employee who is a new employee of Employer
may, by completing an Election Form and filing it with the Plan Administrator
within 30 days of the date such employment commences, elect to defer a
percentage or dollar amount of one or more payments of Compensation for the Plan
Year in which such employment commences, on such terms as the Plan Administrator
may permit, which are payable to the Participant after the date on which the
Eligible Employee files the Election Form.
An election to defer a percentage or dollar amount of Compensation for any Plan
Year shall apply only to that Plan Year, unless the Participant elects otherwise
on the Election Form.
A Participant's Compensation shall be reduced in accordance with the
Participant's election hereunder and amounts deferred hereunder shall be paid by
the Employer to the Trust as soon as administratively feasible and credited to
the Participant's Accounts as of the date the amounts are received by the
Trustee.
4.2 MATCHING DEFERRALS
After each payroll period, the Employer shall contribute to the Trust Matching
Deferrals equal to the Matching Deferral Rate multiplied by the amount of the
Elective Deferrals credited to the Participants' Accounts for such period under
Section 4.1. Each Matching Deferral will be credited as of the date it is
received by the Trustee pro rata in accordance with the amount of Elective
Deferrals of each Participant which are taken into account in calculating the
Matching Deferral. The amount of Matching Contributions credited to the Account
of any Participant with respect to Elective Deferrals of Compensation for any
Plan Year may not exceed the Matching Deferral Limitation applicable to that
Participant for such Plan Year.
Notwithstanding the foregoing or anything in Section 7.1, if the amount of
"Employee Deferral
<PAGE>
6
Contributions" (as defined in the Employer's 401(k) Plan) made by a Participant
during a Plan Year is less than the maximum amount of Employee Elective
Deferrals the Participant is permitted to make to the Employer's 401(k) Plan
(after taking into account the employer's contribution allocated to the
Participant's account and any limitations imposed by the 401(k) Plan or the
Code), all Matching Deferrals, and any income and gain thereon, credited to the
Account of the Participant with respect to Elective Deferrals of Compensation
for such Plan Year shall be forfeited and applied as provided in Section 7.8,
unless the Plan Administrator, in its sole discretion determines that the
failure to contribute such maximum amount to the Employer's 401(k) Plan is the
result of an administrative error by the Employer or other reasons beyond the
Control of the Participant.
4.3 INCENTIVE CONTRIBUTIONS
In addition to other contributions provided for under the Plan, the Employer
may, in its sole discretion, select one or more Eligible Employees to receive an
Incentive Contribution to his or her account on such terms as the Employer shall
specify at the time it makes the contribution. For example, the Employer may
contribute an amount to the Participant's Account and condition the payment of
such amount and accrued earnings thereon upon the Participant's remaining
employed by the Employer for an additional specified period of time. The terms
specified by the Employer shall supersede any other provision of this Plan as
regards Incentive Contributions and earnings with respect thereto, provided that
if the Employer does not specify (a) the terms on which such Incentive
Contribution will vest, the Incentive Contribution and earnings thereon will
vest in the same manner as Matching Deferrals or (b) a method of distribution,
the Incentive Contribution and earnings thereon will be distributed in a manner
consistent with the election last made by the Participant prior to the Plan Year
in which the Incentive Contribution is made. The Employer, in its discretion,
may permit the Participant to designate a distribution schedule for a particular
Incentive Contribution provided the designation is made before the Employer
finally determines that the Participant will receive the Incentive Contribution.
4.4 PATINA STOCK DEFERRAL
Any Eligible Employee may elect to defer a percentage or number of shares of a
grant of Patina Stock, on such terms as the Plan Administrator may permit, by
completing a Patina Stock Election Form and filing it with the Plan
Administrator prior to any grant of Patina Stock. Any election to defer a
percentage or number of shares of Patina Stock shall apply only to that grant of
Patina Stock, unless the Participant elects otherwise on the Patina Stock
Election Form. Any such deferral shall be entered by the Plan Administrator as
credited to the Patina Stock Subaccount for that Participant.
5 - ACCOUNTS
5.1 Accounts
The Plan Administrator shall establish an Account for each Participant
reflecting Elective Deferrals, Matching Deferrals, Incentive Contributions, and
Patina Stock Deferrals made for the Participant's benefit together with any
adjustments for income, gain or loss and any payments
<PAGE>
7
from the Account. The Plan Administrator shall establish sub-accounts for each
Participant that has more than one election in effect under Section 7.1 and such
other sub-accounts as are necessary for the proper administration of the Plan;
provided, however, each Participant that has deferred Patina Stock shall be
- -------- -------
deferred into one or more separate subaccounts (where each subaccount shall be a
"Patina Stock Subaccount"). As of the last business day of each calendar
quarter, the Plan Administrator shall provide the Participant with a statement
of his or her Account reflecting the income, gains and losses (realized and
unrealized), amounts of deferrals and distributions of such Account since the
prior statement.
5.2 INVESTMENTS
a. Each Participant shall designate, in accordance with the
procedures established from time to time by the Plan Administrator, the
manner in which the amounts allocated to his or her Account shall be deemed
to be invested from among the Funds (as such term is hereafter defined) made
available from time to time for such purpose by the Plan Administrator. Such
Participant may designate one of such Funds for the deemed investment of all
the amounts allocated to his or her account or such Participant may split the
deemed investment of the amounts allocated to his or her Account between such
Funds in such increments as the Plan administrator may prescribe. If a
Participant fails to make a proper designation, then his or her Account shall
be deemed to be invested in the Fund or Funds designated by the Plan
Administrator from time to time in a uniform and nondiscriminatory manner.
For purposes of the Section 5.2 and Section 7.9 the term "Funds" shall mean
the investment funds designated from time to time by the Loan Administrator
for the deemed investment of Accounts pursuant to this Section 5.2.
b. A Participant may change his or her deemed investment
designation for future amounts to be allocated to such Participant's Account.
Any such change shall be made in accordance with the procedures established
by the Plan Administrator, and the frequency of such changes may be limited
by the Plan Administrator.
c. A Participant may elect to convert his or her deemed
investment designation with respect to the amounts already allocated to such
Participant's Account. Any such conversion shall be made in accordance with
the procedures established by the Plan Administrator, and the frequency of
such conversions may be limited by the Plan Administrator.
d. The preceding provisions of the Section 5.2 notwithstanding,
the Plan Administrator may, in its sole discretion, permit a Participant to
designate that all or a portion of his or her Account (with such portion to
be determined by the Plan Administrator) shall be deemed to be invested in
assets other than the Funds including, but not limited to, securities issued
by the Employer; provided, however, that in no event may a Participant
-------- -------
designate to have any portion of the Patina Stock Subaccount which has not
yet become vested allocated to any other Fund or assets. If a portion of a
Participant's Account is deemed to be invested in an asset other than the
Funds (a "Deemed Asset"), then such Participant may at any time request, in
accordance with the procedures prescribed by the Plan Administrator, that
such deemed investment in such Deemed Asset
<PAGE>
8
be converted into a deemed investment in one or more of the Funds; provided,
however, that if the Deemed Asset is an asset actually held by the Trust at
the time such conversion request is made, then such conversion shall be
permitted only at the times and to the extent that such Deemed Asset may be
sold or otherwise disposed of by the Trustee in compliance with all
applicable laws. The Accounts that are deemed to be invested in a Deemed
Asset shall be reduced by the aggregate amount of the costs and expenses
incurred by the Plan, the Employer, the Plan Administrator, the Trust, and/or
the Trustee in connection with such Deemed Asset, including, without
limitation, the costs and expenses associated with the acquisition,
maintenance, and sale or exchange of such Deemed Asset.
e. The Plan Administrator shall forward to the Record Keeper all
designations and changes thereto made by any Participant with respect to the
manner in which the amounts allocated to his or her Account shall be deemed
to be invested from among the Funds or in a Deemed Asset. All assets of the
Trust shall be invested in the Funds or Deemed Assets as directed by the Plan
Administrator, on behalf of the Participant, in the Plan Administrator's sole
discretion.
f. All deemed investments under the Plan shall be valued at the
times and in the manner determined by the Trustee in its sole discretion.
None of the Plan, the Employer, the Plan Administrator, the Trust, or the
Trustee shall be responsible or liable for any loss resulting from (1) a
Participant's exercise of any control or discretion over the deemed
investment or his or her Account and/or (2) any actions taken by the Plan
Administrator and the Trustee pursuant to this Section 5.2.
6 - VESTING
6.1 GENERAL
A Participant will be immediately vested in, i.e., shall have a nonforfeitable
right to, all Elective Deferrals, and to all income and gain attributable
thereto, credited to his or her Account. Subject to earlier vesting in
accordance with this Article 6, a Participant shall become vested in the portion
of his or her Account attributable to Matching Deferrals made with respect to
Elective Deferrals of Compensation for a given Plan Year as follows:
(a) 33-1/3% at the end of the Plan Year with respect to which the Matching
Deferrals are made;
(b) 33-1/3% at the end of the first Plan Year following the Plan Year with
respect to which the Matching Deferrals are made; and
(c) 33-1/3% at the end of the second Plan Year with respect to which the
Matching Deferrals are made.
Any portion of a Participant's Account that has not vested on the date that a
Participant's employment with Employer terminates shall, except as provided in
this Article 6, shall be forfeited
<PAGE>
9
and applied as provided in Section 7.8.
6.2 PATINA STOCK SUBACCOUNTS
a. If the Plan Administrator, in its sole discretion, permits a
Participant to designate all or a portion of his or her Account to be deemed to
be invested in securities of the Employer pursuant to Section 5.2 of this Plan,
such securities in the Patina Stock Subaccount will be subject to the terms of
this Plan that are applicable to the Funds and Deemed Assets for the calendar
year applicable thereto.
b. For any deferral of securities of the Employer made by a Participant
pursuant to Section 4.4 of this Plan, such securities will vest on such terms as
the Plan Administrator may permit. With respect to the grant of shares of
common stock of the Employer made in connection with the transactions described
in the Employer's Proxy Statement dated September 19, 1997, a Participant shall
become vested in that Patina Stock Subaccount at the rate of 20% for each
deferral commencing on January 1 of the year following each grant and on January
1 thereafter until the Participant is vested in that Patina Stock Subaccount (or
until termination of employment if sooner). If a Participant's employment were
to terminate by reason of the Company's failure to renew an expiring employment
agreement, then the Participant shall be vested as to an additional 20% of that
Patina Stock Subaccount attributable to each such deferral and the portion of a
Participant's Patina Stock Subaccount that has not vested on the date that the
Participant's employment with Employer terminates shall, except as provided in
this Article 6, be forfeited and applied as provided in Section 7.8.
c. If all or any portion of the Employer's Trust Matching Deferrals made
pursuant to Section 4.2 consists of securities of the Employer, that Patina
Stock Subaccount will become vested pursuant to the terms of Section 6.1.
6.3 CHANGE OF CONTROL
A Participant shall become fully vested in his or her Account, and the Patina
Stock Subaccount, if any, immediately prior to a Change of Control of the
Employer.
6.4 DEATH, RETIREMENT OR DISABILITY
A Participant shall become fully vested in his or her Account (including the
Patina Stock Subaccount) immediately prior to termination of the Participant's
employment by reason of Participant's death, retirement at or after the
attainment of the Retirement Age or Disability. Whether a Participant's
termination of employment is by reason of Participant's Disability or retirement
shall be determined by the Plan Administrator in its sole discretion.
6.5 DISCRETIONARY VESTING
The Employer may, in its sole discretion, accelerate the vesting of all or any
portion of the Accounts, and/or the Patina Stock Subaccounts, of any Participant
or all Participants.
<PAGE>
10
INSOLVENCY
A Participant shall become fully vested in his or her Account immediately prior
to the Employer's becoming Insolvent, in which case the Participant will have
the same rights as a general creditor of the Employer with respect to his or her
Account Balance.
7 - PAYMENTS
7.1 ELECTION AS TO TIME AND FORM OF PAYMENT
A Participant shall elect (on the Election Form used to elect to defer
Compensation under Section 4.1) the date at which the Elective Deferrals and
vested Matching Deferrals (including any earnings attributable thereto) will
commence to be paid to the Participant. The Participant shall also elect
thereon for payments to be paid in either:
a. a single lump-sum payment; or
b. annual or monthly installments over a period elected by the Participant
up to 10 years, the amount of each installment to equal the balance of
his or her Account immediately prior to the installment divided by the
number of installments remaining to be paid.
Each such election will be effective for the Plan Year for which it is made and
succeeding Plan years, unless changed by the Participant. Any change will be
effective only for Elective Deferrals and Matching Deferrals made for the first
Plan Year beginning after the date on which the Election Form containing the
change is filed with the Plan Administrator. Except as provided in Sections
7.2, 7.3, 7.4, or 7.5, payment of a Participant's Account shall be made in
accordance with the Participant's elections under this Section 7.1.
7.2 ELECTION AS TO TIME OF PAYMENT FOR PATINA STOCK SUBACCOUNT
A Participant shall elect (on the Patina Stock Election Form used to elect to
defer Compensation under Section 4.4) the date on which his or her vested Patina
Stock Subaccount will be paid to the Participant. Within 30 days from the date
elected by the Participant, the Participant shall receive one share of Patina
Stock for each vested share held in his or her Patina Stock Subaccount. In
addition, upon the occurrence of any event in which a Participant's Account is
paid out pursuant to this Article 7, the Participant's Patina Stock Subaccount,
if any, shall be paid out within 30 days following such event.
7.3 CHANGE OF CONTROL
A Participant may elect on the Election Form or the Patina Stock Election Form
that, in the event of a Change of Control, the Participant's entire Account
balance (including any amount vested pursuant to Section 6.3) will either (a) be
paid to the Participant in a single lump sum as soon as possible following any
Change of Control of the Employer or (b) be paid to the Participant in a single
lump sum as soon as possible following a Change of Control of the Employer
unless, prior
<PAGE>
11
to the Change of Control, a majority of the members of the Board of Directors of
the Employer who are not Participants in the Plan determines that the Change of
Control would not reasonably be expected to increase materially the economic
risk of Participants who remain in the Plan or (c) be paid in accordance with
the other provisions of the Plan without regard to any Change of Control. Unless
the Participant shall have elected otherwise on the Election Form, as soon as
possible following a Change of Control of the Employer, each Participant shall
be paid his or her entire Account balance (including any amount vested pursuant
to Section 6.3) in a single lump sum. Notwithstanding any other provision of
this Section 7.3, in the event that Patina Stock ceases to exist or be publicly
traded, the Participant shall receive the same benefit at the time of the
payment for each share reflected in the Patina Stock Subaccount as a Patina
Stock holder received for each share he or she held in the Change of Control.
7.4 TERMINATION OF EMPLOYMENT
Unless the Plan Administrator, in its sole discretion, determines otherwise,
upon termination of a Participant's employment for any reason other than death,
Disability and retirement after attainment of the Retirement Age, the vested
portion of the Participant's Account shall be paid to the Participant in a
single lump sum as soon as practicable following the date of such termination.
If the Plan Administrator does determine not to make a lump sum payment to a
Participant under this Section, the Plan Administrator may, in its sole
discretion, determine to pay the vested portion of such Participant's Account in
a single lump sum at any time thereafter.
7.5 DISABILITY
If the Participant's employment terminates by the reason of the Participant's
Disability, the amounts credited to a Participant's Account with respect to any
Plan Year shall be paid out in accordance with the election made in accordance
with Section 7.1 unless the Plan Administrator, in its sole discretion,
determines to pay such amounts in one lump sum or the Participant shall have
elected in such Election Form to receive payment of the remaining balance of
such amounts in one lump sum if his or her employment terminates by reason of
Disability.
7.6 DEATH
If a Participant dies prior to the complete distribution of his or her Account,
the balance of the Account shall be paid as soon as practicable to the
Participant's designated beneficiary or beneficiaries, in the form elected by
the Participant under either of the following options:
a. a single lump-sum payment; or
b. annual or monthly installments over a period elected by the
Participant up to 10 years, the amount of each installment to equal
the balance of the Account immediately prior to the installment
divided by the number of installments remaining to be paid.
Any designation of beneficiary and form of payment to such beneficiary shall be
made by the Participant on an Election Form filed with the Plan Administrator
and may be changed by the
<PAGE>
12
Participant at any time by filing another Election Form containing the revised
instructions. If no beneficiary is designated or no designated beneficiary
survives the Participant, payment shall be made to the Participant's surviving
spouse or, if none, to his or her issue per stirpes, in a single payment. If no
spouse or issue survives the Participant, payment shall be made in a single lump
sum to the Participant's estate.
7.7 UNFORESEEN EMERGENCY
If a Participant suffers an unforeseen emergency, as defined herein, the Plan
Administrator, in its sole discretion, may pay to the Participant only that
portion, if any, of the vested portion of his or her Account which the Plan
Administrator determines is necessary to satisfy the emergency need, including
any amounts necessary to pay any federal, state or local income taxes reasonably
anticipated to result from the distribution. A Participant requesting an
emergency payment shall apply for the payment in writing in a form approved by
the Plan Administrator and shall provide such additional information as the Plan
Administrator may require. For purposes of this paragraph, "unforeseen
emergency" means an immediate and heavy financial need resulting from either of
the following:
a. expenses which are not covered by insurance and which the Participant or
his or her spouse or dependent has incurred as a result of, or is required
to incur in order to receive, medical care; or
b. any circumstance that is determined by the Plan Administrator in its sole
discretion to constitute an unforeseen emergency which is not covered by
insurance and which cannot reasonably be relieved by the liquidation of the
Participant's assets.
7.8 FORFEITURE OF NON-VESTED AMOUNTS
To the extent that any amounts credited to a Participant's Account are not
vested at the time such amounts are otherwise payable under Section 7.1 or 7.3,
such amounts shall be forfeited and shall, at the option of the Employer, either
be paid to the Employer or used to satisfy the Employer's obligation to make
contributions to the Trust under the Plan.
7.9 TAXES
All federal or state taxes that the Plan Administrator determines are required
to be withheld from any payments made pursuant to this Article 7 shall be
withheld.
7.10 FORM OF DISTRIBUTIONS
The Plan Administrator shall determine in its sole discretion the extent to
which any distribution under the Plan (whether payable in a single lump sum or
installments) shall be paid in cash, in kind, or both in cash and in kind.
Without limiting the scope of the Plan Administrator's discretion pursuant to
the preceding sentence, the Plan Administrator may in its sole discretion direct
that all or any portion of a Participant's Account be distributed in kind to
such Participant or such Participant's designated beneficiaries based upon the
Funds and/or assets in which such
<PAGE>
13
Account is deemed to be invested pursuant to Section 5.2 immediately prior to
the date of such distribution. No participant or beneficiary of a Participant
shall have the right to demand a distribution in cash, in kind, or any
combination thereof.
8 - PLAN ADMINISTRATOR
8.1 PLAN ADMINISTRATION AND INTERPRETATION
The Plan Administrator shall oversee the administration of the Plan. The Plan
Administrator shall have complete control and authority to determine the rights
and all claims, demands and actions arising out of the provisions of the Plan of
any Participant, beneficiary, deceased Participant, or other person having or
claiming to have any interest under the Plan. The Plan Administrator shall have
complete discretion to interpret the Plan to decide all matters under the Plan.
Such interpretation and decision shall be final, conclusive and binding on all
Participants and any person claiming under or through any Participant, in the
absence of clear and convincing evidence that the Plan Administrator acted
arbitrarily and capriciously. Any individual(s) serving as Plan Administrator
who is a Participant will not vote or act on any matter relating solely to
himself or herself. When making a determination or calculation, the Plan
Administrator shall be entitled to rely on information furnished by a
Participant, a beneficiary, the Employer or the Trustee. The Plan Administrator
shall have the responsibility for complying with any reporting and disclosure
requirements or ERISA.
8.2 POWERS, DUTIES, PROCEDURES, ETC.
The Plan Administrator shall have such powers and duties, may adopt such rules
and tables, may act in accordance with such procedures, may appoint such
officers or agents, may delegate such powers and duties, may receive such
reimbursements and compensation, and shall follow such claims and appeal
procedures with respect to the Plan as it may establish.
8.3 INFORMATION
To enable the Plan Administrator to perform its functions, the Employer shall
supply full and timely information to the Plan Administrator on all matters
relating to the Compensation of Participants, their employment, retirement,
death, termination or employment, and such other pertinent facts as the Plan
Administrator may require.
8.4 INDEMNIFICATION OF PLAN ADMINISTRATOR
The Employer agrees to indemnify and to defend to the fullest extent permitted
by law any officer(s) or employee(s) who serve as Plan Administrator (including
any such individual who formerly served as Plan Administrator) against all
liabilities, damages, costs and expenses (including attorney's fees and amounts
paid in settlement of any claims approved by the Employer) occasioned by any act
or omission to act in connection with the Plan, if such act or omission is in
good faith.
<PAGE>
14
9 - AMENDMENT AND TERMINATION
9.1 AMENDMENTS
The Employer, upon action of its Board of Directors or an authorized committee
thereof, shall have the right to amend the Plan from time to time, subject to
Section 9.3, by an instrument in writing which has been executed on the
Employer's behalf by its duly authorized officer.
9.2 TERMINATION OF PLAN
This Plan is strictly a voluntary undertaking on the part of the Employer and
shall not be deemed to constitute a contract between the Employer and any
Eligible Employee (or any other employee) or a consideration for, or an
inducement or condition of employment for, the performance of the services by
any Eligible Employee (or other employee). The Employer reserves the right to
terminate the Plan at any time, subject to Section 9.3, by an instrument in
writing which has been executed on the Employer's behalf by its duly authorized
officer. Upon termination, the Employer may (a) elect to continue to maintain
the Trust to pay benefits hereunder as they become due as if the Plan had not
terminated or (b) direct the Trustee to pay promptly to Participants (or their
beneficiaries) the vested balance of their Accounts. For purposes of the
preceding sentence, in the event the Employer chooses to implement clause (b),
the Account balances of all Participants who are in the employ of the Employer
at the time the Trustee is directed to pay such balances shall become fully
vested and nonforfeitable. After Participants and their beneficiaries are paid
all Plan benefits to which they are entitled, all remaining assets of the Trust
attributable to Participants who terminated employment with the Employer prior
to termination of the Plan who were not fully vested in their Accounts under
Article 6 at that time, shall be returned to the Employer.
9.3 EXISTING RIGHTS
No amendment or termination of the Plan shall adversely affect the rights of any
Participant with respect to amounts that have been credited to his or her
Account prior to the date of such amendment or termination.
10 - MISCELLANEOUS
10.1 NO FUNDING
The Plan constitutes a mere promise by the Employer to make payments in
accordance with the terms of the Plan and Participants and beneficiaries shall
have the status of general unsecured creditors of the Employer. Nothing in the
Plan will be construed to give any employee or any other person rights to any
specific assets of the Employer or of any other person. In all events, it is
the intent of the Employer that the Plan be treated as unfunded for tax purposes
and for purposes of Title 1 of ERISA.
<PAGE>
15
NON-ASSIGNABILITY
None of the benefits, payments, proceeds or claims of any Participant or
beneficiary shall be subject to any claim of any creditor of any Participant or
beneficiary and, in particular, the same shall not be subject to attachment or
garnishment or other legal process by any creditor of such Participant or
beneficiary, nor shall any Participant or beneficiary have any right to
alienate, anticipate, commute, pledge, encumber or assign any of the benefits or
payments or proceeds which he or she may expect to receive, contingently or
otherwise, under the Plan.
10.3 LIMITATION OF PARTICIPANTS' RIGHTS
Nothing contained in the Plan shall confer upon any person a right to be
employed or to continue in the employ of the Employer, or interfere in any way
with the right of the Employer to terminate the employment of an Participant in
the Plan any time, with or without cause.
10.4 PARTICIPANTS BOUND
Any action with respect to the Plan taken by the Plan Administrator or the
Employer or the Trustee or any action authorized by or taken at the direction of
the Plan Administrator, the Employer or the Trustee shall be conclusive upon all
Participants and beneficiaries entitled to benefits under the Plan.
10.5 RECEIPT AND RELEASE
Any payment to any Participant or beneficiary in accordance with the provisions
of the Plan shall, to the extent thereof, be in full satisfaction of all claims
against the Employer, the Plan Administrator and the Trustee under the Plan, and
the Plan Administrator may require such Participant or beneficiary, as a
condition precedent to such payment, to execute a receipt and release to such
effect. If any Participant or beneficiary is determined by the Plan
Administrator to be incompetent by reason or physical or mental disability
(including minority) to give a valid receipt and release, the Plan Administrator
may cause the payment or payments becoming due to such person to be made to
another person for his or her benefit without responsibility on the part of the
Plan Administrator, the Employer or the Trustee to follow the application of
such funds.
10.6 PLAN DOES NOT AFFECT EMPLOYMENT RIGHTS
The Plan does not provide any employment rights to any Eligible Employee or
Participant. The Employer expressly reserves the right to discharge an Employee
or to increase or decrease the salary or Compensation of an Employee at any
time, with or without cause and with or without prior notice, without regard to
the effect such discharge would have on the Employee's interest in the Plan.
<PAGE>
16
GOVERNING LAW
The Plan shall be construed, administered, and governed in all respects under
and by the laws of the state of Colorado. If any provision shall be held by a
court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions hereof shall continue to be fully effective.
10.8 HEADINGS AND SUBHEADINGS
Headings and subheadings in this Plan are inserted for convenience only and are
not to be considered in the construction of the provisions hereof.
<PAGE>
EXHIBIT 10.3.3
PATINA OIL & GAS CORPORATION
1998 STOCK PURCHASE PLAN
ARTICLE I
Purpose
-------
The purpose of the Plan is to provide Eligible Persons, as defined herein,
of Patina Oil & Gas Corporation (the "Company") with an opportunity and an
inducement to purchase Common Stock of the Company and thereby participate in
the growth and future prospects of the Company as well as to better align the
interests of such Eligible Persons with the stockholders. Each Eligible Person
will be entitled to purchase up to a specified number of shares or a specified
dollar amount of restricted Common Stock at prices ranging from fifty percent
(50%) to ninety percent (90%) of the closing price of the Common Stock on the
trading day prior to the day an Eligible Person elects to purchase such stock.
In addition, Eligible Persons who are employees of the Company may be granted
the right to purchase shares of Common Stock pursuant to the Plan with all or a
portion of their salary and bonus. Notwithstanding any restrictions or
exemptions to the contrary under the Securities Act of 1933 or any other
applicable law, rule or regulation, an Eligible Person who purchases shares of
Common Stock pursuant to the Plan may not sell such shares for a period of one
year from the date of purchase. The Plan is not intended to comply with the
provisions of Section 423 of the Internal Revenue Code of 1986, as amended.
ARTICLE II
Definitions
-----------
The following terms, when capitalized, shall have the meanings specified
below unless the context clearly indicates to the contrary.
2.1 "Board of Directors" shall mean the Board of Directors of the Company.
2.2 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
2.3 "Committee" or "Stock Purchase Plan Committee" shall mean the
Compensation Committee of the Board of Directors, the members of which shall be
non-employee directors within the meaning of Paragraph (b) (3) of Rule 16 b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
2.4 "Committee Member" shall mean any member of the Committee.
2.5 "Common Stock" shall mean the Common Stock, $0.1 par value per share,
of the Company.
2.6 "Company" shall mean Patina Oil & Gas Corporation, a Delaware
corporation.
<PAGE>
2.7 "Effective Date" shall mean the date the Plan is declared operative by
the Board of Directors.
2.8 "Eligible Person" shall mean those persons who are officers,
directors, key employees of, or consultants or advisors to, the Company
determined to be eligible from time to time in the sole discretion of the
Committee.
2.9 "Plan" shall mean the Patina Oil & Gas Corporation 1998 Stock Purchase
Plan.
2.10 "Plan Year" shall mean initially, the period of time between the
Effective Date and the date of the 1998 annual meeting of the Company and,
thereafter, the period of time between successive annual meetings of the
Company.
The masculine gender, whenever used in this Plan, includes the feminine,
the singular includes the plural and the plural includes the singular unless the
context otherwise requires.
ARTICLE III
Administration of Plan
----------------------
The Plan shall be administered by the Committee. Members of the Committee
may be removed at any time by the Board of Directors and the Board of Directors
shall have the power to fill any vacancy which may occur in the Committee. The
Committee shall have full and final authority to make rules and regulations,
subject to the express provisions of the Plan, for the administration of the
Plan and to settle any disputes which may arise under the terms of the Plan.
The Committee's interpretations and decisions with regard to the provisions of
the Plan and any rules or regulations promulgated thereunder shall be final and
conclusive. A majority of the Committee shall constitute a quorum, and acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee, shall be deemed the
acts of the Committee
ARTICLE IV
Shares
------
There shall be 500,000 shares of Common Stock reserved under the Plan,
subject to adjustment in accordance with Article IX hereof. The shares of
Common Stock subject to the Plan shall be shares of authorized but unissued
Common Stock.
ARTICLE V
Purchase of and Payment for Shares
----------------------------------
Prior to the commencement of any Plan Year, the Committee shall identify
Eligible Persons for the Plan Year, determine the number of shares and/or the
dollar amount as well as the discount from the market value of such shares that
any Eligible Person is entitled to purchase during any Plan Year. The Committee
2
<PAGE>
may at any time, in its sole discretion, add or eliminate Eligible Persons,
change the discount applicable to the purchase of shares of Common Stock or the
number of shares an Eligible Person may purchase pursuant to this Plan. Any
Eligible Person may purchase all or any portion of the shares allocated to him
by giving a written notice to the Chief Financial Officer of the Company that
specifies the whole number of shares being purchased. Within ten (10) days of
giving such notice, the Eligible Person shall pay to the Company the purchase
price for the shares of Common Stock purchased. The purchase price for such
shares shall be the closing price of a share of Common Stock on the New York
Stock Exchange on the last business day preceding the date of the notice,
multiplied by the number of shares specified in the notice and then reduced by
the applicable discount. No share of the Company's Common Stock may be issued
to an Eligible Person until such time as the share has been fully paid for as
above provided. At the determination of the Company, the Company may require as
a condition to the purchase of shares of Common Stock pursuant to the Plan, the
making of such payments by an Eligible Person as the Company deems necessary to
satisfy any income tax withholding requirements of an Eligible Person with
respect to such purchase.
ARTICLE VI
Issuance of Shares; Stock Certificates
--------------------------------------
The shares of Common Stock purchased by an Eligible Person shall, for all
purposes, be deemed to have been issued and sold on the date of the notice given
pursuant to Article V. Prior to that time, none of the rights or privileges of
a stockholder of the Company shall exist with respect to such shares.
As soon as practicable after any purchase of shares of Common Stock by an
Eligible Person, a certificate representing the Common Stock purchased pursuant
to the Plan will be issued in the name of the Eligible Person, unless the
Eligible Person shall otherwise instruct the Committee. With respect to shares
of Common Stock purchased by an Eligible Person, the Eligible Person shall be
entitled to vote or to consent as a stockholder to any action with respect to
which other stockholders of the Company are entitled to vote or give consent.
Unless the shares of Common Stock have been registered under the Securities Act
of 1933, as amended, such shares will be restricted and will bear a legend
evidencing such restrictions.
ARTICLE VII
Termination of Employment or Agency Relationship
------------------------------------------------
In the event of termination of the employment or retention relationship
between an Eligible Person and the Company, for any reason, including death or
permanent disability, the Plan shall terminate automatically as to the shares of
Common Stock that remain unpurchased five (5) days following the date the
employment or retention relationship was terminated.
ARTICLE VIII
Rights Transferable
-------------------
The right of any Eligible Person to purchase shares of Common Stock under
the Plan may be assigned by such Eligible Person to members of his immediate
family, a trust or other legal entity of which
3
<PAGE>
the Eligible Person or a member of his immediate family is a trustee, a
beneficiary or a beneficial owner. Transfers to any other person or entity are
prohibited unless approved by the Committee.
ARTICLE IX
Recapitalization; Effect of Certain Transactions
------------------------------------------------
The aggregate number of shares of Common Stock reserved for purchase under
the Plan as provided in Article IV hereof shall be appropriately adjusted by the
Board of Directors to reflect a stock dividend, stock split-up, share
combination, exchange of shares, recapitalization, merger, consolidation,
liquidation or other similar changes or transactions by the Company.
ARTICLE X
Termination and Amendment of the Plan
-------------------------------------
The Plan shall continue in effect through January 1, 2008, unless
terminated prior thereto by the Board of Directors. The Board of Directors
shall have the right to modify, amend or terminate the Plan at any time provided
that Eligible Persons are given five (5) business days notice in writing of such
amendment, modification or termination. During such five (5) day period,
Eligible Persons may purchase allocated but unpurchased shares of Common Stock
for the Plan Year in which the amendment, modification or termination is to
occur by giving the notice provided for in Article V. Upon the expiration or
termination of the Plan pursuant to this Article, the right of any Eligible
Person to purchase allocated, but unpurchased shares of Common Stock for the
Plan Year in which such expiration or termination occurs, shall cease and
terminate automatically. Other than as expressly set forth herein, the Board of
Directors may not amend the Plan if such amendment would materially increase the
cost of the Plan to the Company without the approval of the stockholders of the
Company.
ARTICLE XI
Indemnification of Committee
----------------------------
In addition to such other rights of indemnification as they may have as
directors or officers of the Company, past and current Committee Members shall
be indemnified by the Company against the reasonable expenses, including
attorney's fees actually and necessarily incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan and against all amounts paid
by them in settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjusted in such action, suit or
proceeding that such Committee Member is liable for willful misconduct in the
performance of his duties.
4
<PAGE>
ARTICLE XII
Regulatory Matters
------------------
The purchase of shares of Common Stock by Eligible Persons pursuant to the
Plan, the issuance of Common Stock to the Eligible Persons pursuant to the Plan
and the transfer of shares of Common Stock by Eligible Persons acquired pursuant
to the Plan shall be subject to compliance with the requirements of the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder, the requirements of any stock
exchange upon which the shares of Common Stock may then be listed and shall be
subject to prior approval by the Company's legal counsel with respect to all
legal matters in connection therewith.
Specifically, the purchase, issuance and transfer of such shares are each
subject to a decision by the Chief Financial Officer of the Company, who acting
with the Company's legal counsel with respect to legal matters, to refuse a
request to purchase, issue or transfer any of such shares if such purchase,
issue or transfer would, or may, in the Chief Financial Officer's opinion, be in
violation of any such law, rule, regulation or requirement. The decision of the
Chief Financial Officer shall be final and binding on the Eligible Person so
affected.
ARTICLE XIII
Construction
------------
This Plan shall be construed and enforced in accordance with the laws of
the State of Delaware.
5
<PAGE>
EXHIBIT 11.1
PATINA OIL & GAS CORPORATION
COMPUTATION OF NET INCOME PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
BASIC NET INCOME (LOSS) PER SHARE:
Net income (loss) $(2,094) $ 3,562 $(16,903)
Dividends on preferred stock - (2,129) (3,346)
------- ------- --------
Net income (loss) available to common $(2,094) $ 1,433 $(20,249)
Weighted average shares outstanding 14,000 17,796 18,324
Net income (loss) available to common $ (0.15) $ 0.08 $ (1.11)
======= ======= ========
DILUTED NET INCOME (LOSS) PER SHARE:
Net income (loss) $(2,094) $ 3,562 $(16,903)
Dividends on preferred stock (see note) - - (3,346)
------- ------- --------
Net income (loss) available to common $(2,094) $ 3,562 $(20,249)
Weigthed average shares outstanding (see note) 14,000 17,796 18,324
Net income (loss) available to common $ (0.15) $ 0.08 $ (1.11)
======= ======= ========
</TABLE>
Note: The common stock options, common stock grants, $12.50 common stock
warrants, 7.125% convertible preferred stock and 8.50% convertible preferred
stock were anti-dilutive for all periods presented.
<PAGE>
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
(UNAUDITED)
(dollars in thousands, except ratio's)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net income (loss) before taxes $20,831 $4,539 $(3,222) $ 3,168 $(16,903)
Interest expense 2,362 3,869 5,409 14,275 15,939
------- ------ ------- ------- --------
Earnings before fixed charges 23,193 8,408 2,187 17,443 (964)
======= ====== ======= ======= ========
Preferred dividends - - - 2,129 3,346
Ratio of pretax income to net income 1.54 1.54 1.54 0.89 1.00
------- ------ ------- ------- --------
Preferred dividend factor - - - 1,895 3,346
Fixed charges:
Interest expense 2,362 3,869 5,409 14,275 15,939
Preferred dividend factor - - - 1,895 3,346
------- ------ ------- ------- --------
Total fixed charges and preferred 2,362 3,869 5,409 16,170 19,285
dividend ======= ====== ======= ======= ========
Ratio of earnings to combined
fixed charges and preferred dividends 9.82 2.17 0.40 1.08 (0.05)
======= ====== ======= ======= ========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,609
<SECURITIES> 0
<RECEIVABLES> 15,630
<ALLOWANCES> (323)
<INVENTORY> 2,537
<CURRENT-ASSETS> 31,068
<PP&E> 581,438
<DEPRECIATION> 236,482
<TOTAL-ASSETS> 376,875
<CURRENT-LIABILITIES> 30,297
<BONDS> 146,435
0
31
<COMMON> 165
<OTHER-SE> 188,245
<TOTAL-LIABILITY-AND-EQUITY> 376,875
<SALES> 99,539
<TOTAL-REVENUES> 100,333
<CGS> 60,811
<TOTAL-COSTS> 75,020
<OTHER-EXPENSES> 131
<LOSS-PROVISION> 26,047
<INTEREST-EXPENSE> 15,939
<INCOME-PRETAX> (16,903)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,903)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,903)
<EPS-PRIMARY> (1.11)
<EPS-DILUTED> (1.11)
</TABLE>
