<PAGE> 1
UNITED STATES
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, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-21223
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
(Exact name of registrant as specified in its charter)
Michigan 38-3273911
(State of Incorporation) (I.R.S. Employer Identification No.)
4295 Okemos Road, Box 2510
Okemos, Michigan 48805-9510
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (517) 349-6500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
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 number of the registrant's shares of common stock, no par value per share,
outstanding as of March 18, 1997 was 3,505,750.
The aggregate market value of voting shares (based on the closing price of
those shares listed on the Nasdaq National Market tier of the Nasdaq Stock
Market) held by non-affiliates of the registrant as of March 18, 1997 was
$81,358,326.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Notice of 1997 Annual Meeting of Shareholders and
Proxy Statement dated April 16, 1997 are incorporated by reference in Part III
hereof.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I
Item 1. Business............................... 2
General............................... 2
Products and Services................. 2
Marketing............................. 3
Underwriting.......................... 4
Claims Management..................... 5
Reserves and Losses................... 6
Investments........................... 9
Reinsurance........................... 11
Competition........................... 13
Regulation............................ 13
Subsidiaries.......................... 14
Employees............................. 15
Forward-Looking Statements............ 15
Glossary of Selected Insurance Terms.. 19
Item 2. Properties............................. 20
Item 3. Legal Proceedings...................... 21
Item 4. Submission of Matters to a Vote of
Security Holders....................... 21
Executive Officers of Registrant...... 21
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters........ 22
Item 6. Selected Financial Data................ 24
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................... 26
Financial Condition................... 26
Results of Operations................. 28
Liquidity and Capital Resources....... 34
Impact of Inflation and
Changing Prices....................... 37
Reinsurance........................... 37
Regulation............................ 39
Effects of New Accounting
Pronouncements........................ 40
Item 8. Financial Statements and
Supplementary Data..................... 41
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure................... 73
PART III
Item 10. Directors and Executive Officers...... 73
Item 11. Executive Compensation................ 73
Item 12. Security Ownership of Certain
Beneficial Owners and Management...... 73
Item 13. Certain Relationships and Related
Transactions.......................... 73
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K.... 74
Signatures..................................... 78
</TABLE>
<PAGE> 3
PART I.
Item 1. Business
General:
Professionals Insurance Company Management Group ("Professionals Group,"
and together with its direct and indirect subsidiaries, the "Company") is a
Michigan business corporation that functions as an insurance holding company.
The Company had consolidated assets of approximately $357.4 million at December
31, 1996. The Company's principal executive offices are located at 4295 Okemos
Road, Box 2510, Okemos, Michigan 48805-9510, and its telephone number is (517)
349-6500.
Products and Services:
The principal product currently offered by the Company is professional
liability insurance for providers of health care services in Michigan,
Illinois, Indiana and Ohio. Professional liability insurance provides
insurance against the legal liability of an insured (and against loss, damage
or expense incidental to a claim of such liability) arising out of bodily
injury, sickness, disease or death sustained by a patient arising from an act
or omission occurring in the furnishing of health care services to a patient.
The Company currently offers its professional liability insurance products in
Michigan, Illinois, Indiana and Ohio to physicians, hospitals, clinics, other
health care institutions, managed care organizations, and dentists. (The
Company has recently obtained licenses to provide such insurance products in
Iowa and Pennsylvania.) Substantially all of the Company's premiums in each of
the last three years have been derived from the issuance of professional
liability insurance policies to physicians, dentists and related clinics.
The Company has the capacity to insure medical professional liability risks
up to $5,000,000 per incident; however, most policies are issued at lower
limits. In Michigan, the Company generally retains up to $300,000 per risk,
with certain adjustments, and reinsures limits in excess of $300,000. In
Illinois and Ohio, the Company generally retains up to $250,000 per risk, and
reinsures limits in excess of $250,000. In Indiana, the Company retains up to
$100,000 per risk, with certain adjustments, as limits in excess of $100,000
are assigned to a mandatory state fund. The majority of medical professional
liability policies
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issued by the Company are written on a claims-made form, although approximately
13%, 13% and 22% of the Company's direct medical professional liability
premiums were derived from policies written on an occurrence form during 1996,
1995 and 1994, respectively.
In 1994, the Company expanded into other professional liability lines by
providing malpractice coverage to lawyers and law firms in the state of
Michigan. PICOM Insurance Company, a stock insurance company incorporated under
Michigan law in 1980, and a wholly owned subsidiary of Professionals Group
("PICOM") writes primary legal malpractice policies on a claims-made basis and
has capacity to write policy limits of up to $5,000,000 per incident. Direct
written premiums generated from lawyers and law firms was less than two percent
of the Company's total direct written premiums for each of the years ended 1996,
1995 and 1994. In March 1997, PICOM entered into a non-binding letter of intent
with Michigan Lawyers Mutual Insurance Company, a Michigan-domiciled mutual
insurance company ("MLM"), that contemplates MLM's assuming PICOM's lawyers
professional liability insurance policies in Michigan and PICOM's becoming a
reinsurer of MLM effective June 1, 1997. The letter of intent also contemplates
MLM's providing certain insurance support services to enable PICOM to introduce
its lawyers professional liability product into Illinois, Ohio and Indiana
during 1997.
The Company is rated B++ by A.M. Best Company, Inc. ("A.M. Best") and BBB+
by Standard & Poor's Corporation ("Standard & Poor's"). See "Glossary of
Selected Insurance Terms" for descriptions of the rating continuums utilized by
A.M. Best and Standard & Poor's. In developing their respective ratings, A.M.
Best and Standard & Poor's each evaluate a company's financial and operating
performance including a quantitative evaluation of profitability, leverage and
liquidity and a qualitative evaluation of spread of risk, appropriateness of
reinsurance, quality and diversification of assets, adequacy of reserves and
surplus, and management experience. These ratings are based on factors of
concern to policyholders, agents and intermediaries and are not directed
towards the protection of investors.
Marketing:
The Company is licensed to write its insurance products in Michigan,
Illinois, Indiana, Iowa, Ohio and Pennsylvania, and currently markets its
products in Michigan, Illinois, Indiana and Ohio. The Company has branch
offices in Oak Brook, Illinois, Indianapolis, Indiana and Columbus, Ohio, and
intends to expand the
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marketing of its products into Iowa and Pennsylvania in the future. The
Company has applied for licenses in Kansas, Kentucky, Minnesota, Missouri and
Wisconsin. There can be no assurances as to whether or when such licenses
will be granted.
The marketing and sales of the Company's insurance products is carried out
by the Company in cooperation with local independent insurance agencies. The
Company is primarily responsible for general marketing activities such as
advertising, product information, convention participation and relationships
with various professional associations of which the Company's insureds are
members. Such independent insurance agencies are primarily responsible for the
sale of the Company's insurance products by pursuing leads generated by the
Company's marketing activities and through agency-generated leads in their
local communities. For the years ended December 31, 1996, 1995 and 1994, the
Company's top ten agencies accounted for approximately 58%, 57% and 72%,
respectively, of the Company's direct written premiums. In 1996, 1995 and
1994, one agency individually produced approximately 10% of the Company's
direct written premiums.
The Company typically enters into written agreements with those
independent insurance agencies offering the Company's insurance products.
These written agreements typically authorize an insurance agency to act as the
Company's agent for the sale and service of specified insurance products in a
specific State. Such agreements are for a stated duration (typically from one
year to five years) and are terminable only upon prior written notice. Each
insurance agency executing such an agreement acts as an independent contractor
and is responsible for all expenses incurred by it. These agreements also (i)
provide for direct billing and collection of all premiums by the Company, (ii)
provide for specific commissions payable to the insurance agency, (iii) provide
for arbitration in the event of disputes, and (iv) prohibit assignment by the
insurance agency without the prior written consent of the Company.
Underwriting:
All underwriting decisions are made by the Company through its
underwriting staff. Prospective insureds are required to submit an application
for coverage that, among other things, reviews professional training, area and
scope of practice and claims history. The Company's underwriting process
involves an evaluation of the application and, in certain situations,
supplemental on-site
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risk management evaluations. Generally speaking, the Company makes an
assessment of the quality and pricing of the risk with particular emphasis on
loss history and practice specialty.
The Company's insurance policy rates are based upon several factors, the
most important of which are practice specialty and location of practice.
Generally, physicians practicing in surgical specialties, such as neurosurgery,
obstetrics, general surgery, orthopedic surgery and plastic surgery, are
assessed higher premium charges than non-surgeons; and, practices located in
larger metropolitan areas are assessed higher premium charges than those
located in more rural areas. As of December 31, 1996 and 1995, approximately
63% and 68%, respectively, of the Company's direct medical malpractice
written premium was generated from non-surgical risk groups and 37% and 32%,
respectively, was generated from surgical risk groups. As of December 31, 1996
and 1995, approximately 51% and 52%, respectively, of such written premiums
were derived from larger metropolitan areas (such as metropolitan Detroit,
Michigan and metropolitan Chicago, Illinois) and 49% and 48%, respectively,
of such written premiums were derived from more rural areas.
Claims Management:
The Company emphasizes early evaluation and aggressive management of
claims. Claims are generally reported directly to the Company by the insured
after the insured has received a court summons or a pre-suit notice of claim.
The reported claim is logged in by the Company's claims staff, which then
determines whether the potential loss is covered by an insurance policy issued
by the Company. If the claim is covered, it is then assigned to a claims
professional for investigation and analysis. If the claim is in litigation,
the claim is also assigned to one of the Company's selected outside counsel
specializing in the field of professional liability claims. Approximately 72%
of the Company's claims are litigated and ultimately resolved through
settlement, dismissal or trial. Approximately 28% of the Company's claims are
resolved outside of the litigation process through settlement or the
abandonment of the claim by the plaintiff.
The Company's claims staff evaluates and establishes an initial reserve for
each claim within the first 90 days after notification of a claim. During the
life of a claim, reserves are systematically revised thereafter as new
information about the claim develops. For litigated claims, the Company's
claims staff works closely with outside counsel to
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develop case strategies and to foster full communications with the insured.
Medical or other professional experts are retained to assist
in the analysis and defense of claims and a claims committee consisting of
certain experienced Company representatives and outside medical specialists
meets regularly to provide medical insights and input for claims involving
complex cases. The Company's claims staff meets on a weekly basis to review
cases scheduled for trial. The Company's claims staff frequently attends court
settlement conferences along with outside counsel and monitors cases during
trial.
Reserves and Losses:
The Company establishes balance sheet reserves based on its estimates of
the future amounts necessary to pay claims and expenses associated with
investigation and settlement of claims. These estimates include two
components: case reserves and bulk reserves. Case reserves are estimates of
future losses and loss adjustment expenses ("losses and LAE") for reported
claims and are established by the Company's claims department. Bulk reserves,
which include a provision for losses that have occurred but have not been
reported to the Company as well as development on reported claims, are the
difference between (i) the sum of case reserves and paid losses and (ii)
actuarially estimated ultimate incurred losses. Ultimate incurred losses are
an actuarially determined estimate of total losses and LAE necessary for the
ultimate settlement of all reported claims and incurred but not reported claims,
including amounts already paid. The assumptions used by the Company in
establishing reserves are reviewed and updated semi-annually based on then
current circumstances.
As the process of estimating reserves is inherently uncertain and involves
an evaluation of many variables (including social and economic conditions) and
because a significant period of time may elapse between the report of a claim
and the ultimate settlement of that claim, reserve estimates may vary
significantly from the eventual outcome. The inherent uncertainty of
establishing reserves is relatively greater for companies writing long-tail
casualty insurance, including medical malpractice insurance, due primarily to
the longer-term nature of the resolution of claims. There can be no assurance
that the ultimate liability will not exceed the amounts reserved for at the
balance sheet date.
The following table sets forth a reconciliation of beginning and ending
reserves for losses and LAE as shown in the Company's
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consolidated financial statements for the years indicated. See also Note 9 to
the Company's consolidated financial statements.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1996 1995 1994
---------- -------- --------
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $199,605 $188,544 $191,220
Less reinsurance balances
recoverable (14,186) (3,760) (4,040)
---------- -------- --------
Net balance, beginning of
year 185,419 184,784 187,180
---------- -------- --------
Incurred related to:
Current year 65,986 63,027 68,610
Prior years (17,618) (27,469) (23,757)
---------- -------- --------
Total incurred 48,368 35,558 44,853
---------- -------- --------
Effect of change in
accounting method -- 12,310 --
Loss and loss adjustment
expense reserves assumed 4,119 -- --
---------- -------- --------
Paid related to:
Current year 4,352 3,053 4,433
Prior years 32,841 44,180 42,816
---------- -------- --------
Total paid 37,193 47,233 47,249
---------- -------- --------
Net balance, end of year 200,713 185,419 184,784
Plus reinsurance balances
recoverable 19,206 14,186 3,760
---------- -------- --------
Balance, end of year $219,919 $199,605 $188,544
========== ======== ========
</TABLE>
The following table presents the development of the net liability of
undiscounted reserves for losses and LAE for the calendar years 1987 through
1996. (Through 1994, the Company's losses and LAE reserves were discounted.
Effective January 1, 1995, this practice was discontinued). The amounts shown
for each year on the top line of the table present the Company's estimate of its
losses and LAE reserves as originally reported to shareholders. (The losses and
LAE reserves as originally reported are presented net of reinsurance receivables
relating to unpaid losses through 1991, net of losses and LAE reserve discount
through 1994, and gross of such amounts thereafter). The net liability-end of
year line represents the undiscounted estimated amount of unpaid losses and LAE
for claims arising in all prior years that were unpaid at the balance sheet
date, including losses that had been incurred but not yet reported, net of
reinsurance ceded. The portion of the table labeled "cumulative paid as of"
shows the net cumulative payments for losses and LAE made in succeeding years
for losses incurred prior to the balance sheet date. The next portion of the
table shows the re-estimated amount of the previously recorded loss and LAE
reserves based on experience as of the end of each succeeding year, followed by
a line indicating the change from the original estimate to the most current
re-estimate.
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Analysis of Loss and Loss Adjustment Expense Reserve Development
(in thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1987 1988 1989 1990 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loss & LAE Reserves as
originally reported $131,795 $150,745 $162,509 $167,982 $183,603
Less reinsurance recoverable
Add pro forma change to reflect
elimination of discount 39,138 43,637 41,161 32,781 27,839
-------- -------- -------- -------- --------
Net liability - end of year $170,933 $194,382 $203,670 $200,763 $211,442
Cumulative paid as of:
One year later..................... 39,750 44,596 42,611 35,703 43,300
Two years later.................... 83,355 84,376 73,226 69,720 68,512
Three years later.................. 118,865 108,547 99,872 87,375 88,126
Four years later................... 135,454 126,619 110,475 99,051 99,732
Five years later................... 148,437 134,396 118,884 107,379 104,815
Six years later.................... 154,114 141,288 125,012 111,347
Seven years later.................. 160,278 146,704 128,772
Eight years later.................. 165,436 150,016
Nine years later................... 168,474
Re-estimated net liability as of:
End of year......................... 170,933 194,382 203,670 200,763 211,442
One year later...................... 195,574 206,473 198,911 192,046 183,353
Two years later..................... 201,781 202,528 191,402 172,650 167,450
Three years later................... 199,484 191,995 173,376 161,494 151,492
Four years later.................... 192,060 180,919 165,398 146,942 147,193
Five years later.................... 188,621 175,759 155,570 144,384 140,589
Six years later..................... 186,145 169,167 154,533 138,998
Seven years later................... 182,785 170,139 151,591
Eight years later................... 185,280 168,731
Nine years later.................... 184,361
Net cumulative
(deficiency) redundancy (13,428) 25,651 52,079 61,765 70,853
<CAPTION>
December 31,
----------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loss & LAE Reserves as
originally reported $184,758 $191,220 $188,544 $199,605 $219,919
Less reinsurance recoverable (2,403) (4,040) (3,760) (14,186) (19,206)
Add pro forma change to reflect
elimination of discount 16,568 12,616 12,310 - -
-------- -------- -------- -------- --------
Net liability - end of year $198,923 $199,796 $197,094 $185,419 $200,713
Cumulative paid as of:
One year later 36,220 42,816 44,180 32,817
Two years later 65,570 73,183 70,008
Three years later 84,334 88,507
Four years later 92,666
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Re-estimated net liability as of:
End of year 198,923 199,796 197,094 185,419 200,713
One year later 171,318 173,013 169,625 167,778
Two years later 152,998 158,403 158,756
Three years later 145,128 149,654
Four years later 136,749
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Net cumulative
(deficiency) redundancy 62,174 50,142 38,338 17,641
</TABLE>
In evaluating the information in the table above, it should be noted that
each column includes the effects of changes in amounts for prior periods. The
table does not present accident year or policy year development data.
Conditions and trends that have affected the development of liabilities in the
past may not necessarily occur in the future. Accordingly, it may not be
appropriate to extrapolate future redundancies or deficiencies based on this
table.
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From 1980 to 1986 all insurance policies written by the Company were
written on an occurrence basis. Beginning in 1987 the Company has written
medical malpractice insurance on a claims-made basis and on an occurrence basis.
The following table presents a reconciliation of reserves of the Company
in accordance with statutory accounting practices ("SAP") with reserves
reflected in the consolidated financial statements prepared in accordance with
generally accepted accounting principles ("GAAP") as of December 31, 1996 and
1995.
Reconciliation of SAP Reserves with GAAP Reserves
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
-------- --------
<S> <C> <C>
Loss and LAE reserves - SAP basis $190,055 $176,026
Add:
Discount............................ 10,658 9,393
Provision for reinsurance on unpaid
losses.............................. 19,206 14,186
-------- --------
Loss and LAE reserves - GAAP basis $219,919 $199,605
======== ========
</TABLE>
For SAP reporting, loss reserves are discounted at a three percent
discount rate, as permitted by insurance regulatory authorities. For GAAP
reporting, the Company eliminated discounting of reserves effective January 1,
1995. Under SAP, loss and LAE reserves are presented net of the provision for
reinsurance, whereas under GAAP, loss and LAE reserves are presented gross of
reinsurance and amounts due from reinsurers are presented as an asset.
Investments:
The Company invests principally in debt securities such as United States
government obligations, U.S. government agency mortgage-backed securities,
tax-exempt municipal bonds and investment grade corporate bonds. Investment
policy and the performance of investment managers are reviewed quarterly by or
on behalf of Professionals Group's Board of Directors. The current investment
policy establishes a target duration and limits fixed income purchases (absent
specific authorization of Professionals Group's Board of Directors) to
securities rated BBB/Baa or better by
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Moody's Investor Services, Inc. ("Moody's"), Standard & Poor's, Duff & Phelps
Inc. or Fitch Investors Service Inc. The Company's investment manager selects
specific bond issues within these guidelines. The Company's investment policy
limits holdings in common stocks and preferred stocks, cumulatively, to twenty
percent of the Company's statutory surplus.
In general, the investment policy of the Company is to maximize after tax
investment yield, subject to constraints on investment quality, maturity and
liquidity. The Company's investment policy establishes a range for the
appropriate allocation among asset classes. The precise allocation varies
depending on an evaluation of the economic environment and on the Company's tax
position. Currently, the Company's investment portfolio consists primarily of
United States government agency, corporate and municipal bonds. As of December
31, 1996, only one of the rated securities in the Company's fixed income
portfolio was rated below investment grade (carrying value was $807,000). See
Management's Discussion and Analysis of Financial Condition and Results of
Operations herein for additional discussion.
As of December 31, 1996 and 1995, all fixed maturity securities were
classified as available-for-sale and carried at estimated fair value. For
these securities, temporary unrealized gains and losses, net of deferred
federal income taxes, are reported directly through shareholders' equity, and
have no effect on net income. As of December 31, 1996 and 1995, the estimated
fair value of fixed maturity securities exceeded the aggregate amortized cost
by $298,000 and $2,850,000, respectively, and shareholders' equity was
increased by those amounts, reduced by $101,000 and $963,000, respectively, in
deferred federal income taxes. The decrease in unrealized gains was due to
slightly higher interest rates at year end 1996 as compared to year end 1995.
See also Notes 4 and 6 to the Company's consolidated financial statements. The
Company's fixed maturity investment portfolio is sensitive to interest rate
changes. As of December 31, 1996, a one hundred basis point increase in market
interest rates would decrease the value of this portfolio by approximately
three percent, whereas a one hundred basis point decrease in market interest
rates would increase the value of this portfolio by approximately three
percent.
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Reinsurance:
Insurance companies purchase reinsurance to limit risk on individual
exposures, protect against catastrophic losses and increase their capacity to
write insurance. Reinsurance involves an insurance company transferring, or
ceding, all or a portion of its exposure on a given insurance policy to a
reinsurer. The reinsurer assumes the exposure in return for a portion of the
premium received by the insurance company. Reinsurance does not discharge the
insurer from its obligation to its insureds. If the reinsurer fails to meet its
obligations, the ceding insurer remains liable to pay the insured.
The Company cedes a material amount of its business to reinsurers to spread
risk and limit loss per exposure and to protect shareholders' equity from large
or unusual loss activity. As of December 31, 1996, the Company had both excess
of loss reinsurance (i.e., reinsurance in which the Company has ceded to a
reinsurer, and such reinsurer has assumed, all or a portion of losses associated
with a given policy in excess of a specified retention level up to a
predetermined limit) and "errors and omissions" insurance (i.e., insurance
which protects the Company against losses in excess of policy limits claims).
The excess of loss reinsurance programs protects the Company above a
retention of $300,000 in Michigan, with certain adjustments, and $250,000 in
Illinois and Ohio, and subject to certain aggregate maximum recoveries. There is
no reinsurance program for business written in Indiana as risks above $100,000
are assigned to a mandatory state fund. Individual losses are covered by the
excess of loss reinsurance on a per incident basis up to $5 million. The
"errors and omissions" insurance protects the Company against losses in excess
of policy limits claims up to $10 million, subject to a $500,000 retention for
each claim. See also Note 5 to the Company's consolidated financial statements.
The following table identifies the Company's most significant reinsurers,
their percentage participation in the Company's aggregate reinsured risk based
upon premiums paid by the Company and their respective A.M. Best ratings as of
December 31, 1996. No other single reinsurer's percentage participation in 1996
exceeded 3% of total reinsurance premiums:
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<TABLE>
<CAPTION>
1996 Total
Amounts Ceded % of Total
A.M. Best Due From Premiums Ceded Premiums
Rating(1) Reinsurers Written Written
--------- ----------- ------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Underwriters Reinsurance Company.. A+ $ 4,125 $ - -
TIG Reinsurance................... A 6,110 3,975 42.7%
PMA Reinsurance Company........... A+ 2,710 1,777 19.1%
Continental Casualty Company...... A 2,291 1,496 16.1%
Lloyd's of London Syndicates...... Not Rated 709 978 10.5%
Princeton Insurance Company....... A- 591 385 4.1%
Other............................. Not Rated 1,014 696 7.5%
------- ------ -----
$17,550 $9,307 100.0%
======= ====== =====
</TABLE>
- ----------------------
(1) See "Glossary of Selected Insurance Terms" for a description of the
rating continuum utilized by A.M. Best. See also Note 5 to the Company's
consolidated financial statements.
The Company, through its reinsurance intermediary, annually reviews the
financial stability of all of its reinsurers. This review includes a ratings
analysis of each reinsurer participating in a reinsurance contract. On the
basis of such review, as of December 31, 1996 and 1995, the Company concluded
that there was no material exposure to uncollectible reinsurance balances
payable to the Company by its reinsurers. The Company has not experienced any
material difficulties in collecting amounts due from reinsurers (reinsurance
recoverables) and believes (i) that its reinsurance is maintained with
financially stable reinsurers and (ii) that any reinsurance security maintained
is adequate to protect its interests. However, the inability of the Company to
collect on its aggregate reinsurance recoverables, or the inability of the
Company's reinsurers to make payments under the terms of reinsurance treaties
(due to insolvency or otherwise), could have a material adverse effect on the
Company's future results of operations and financial condition.
It should be noted that the reinsurers to which the Company cedes
reinsurance include certain Lloyd's of London syndicates. In recent years,
Lloyd's of London has reported substantial aggregate losses which have had
adverse effects on Lloyd's of London in general and on certain syndicates in
particular. These losses and other adverse developments could affect the
ability of certain Lloyd's of London syndicates to continue to trade and the
ability
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<PAGE> 14
of insureds to continue to place business with particular Lloyd's of
London syndicates. It is not possible to predict what effects the
circumstances described above may have on Lloyd's of London or on the Company's
contractual relationship with Lloyd's of London syndicates in future years.
Prior to 1996, the Company assumed no reinsurance from other insurance
companies. On December 31, 1996, the Company assumed all of the loss and loss
adjustment expense reserves and unearned premiums of American Medical Insurance
Exchange ("AMIE") (see Subsidiaries under Item I herein), which resulted in a
one-time charge to losses and loss adjustment expenses of $613,000. This
one-time charge resulted primarily from the elimination of AMIE's practice of
discounting its loss and loss adjustment expense reserves.
Competition:
The Company competes with numerous national insurance companies as well as
various monoline medical malpractice insurers and self-insurance mechanisms.
Many of these competitors have substantially greater financial resources and
higher A.M. Best or Standard & Poor's ratings than does the Company.
Competition may take several forms, including pricing, underwriting, quality of
claims and policyholder services, operating efficiencies and product
differentiation and availability. Perception of financial strength, as
reflected in the ratings assigned to an insurance company, especially by A.M.
Best, is also a factor in the Company's competitive position. A highly
competitive environment in the property and casualty insurance market has
developed during the past several years due to increased capacity resulting
from growing capital supporting the industry. This competitive environment
could result in lower premiums, reduced profitability and loss of market share.
The success of the Company may also be influenced by general economic
conditions in the geographic markets served by it. No assurance can be given
that favorable economic conditions will exist in such markets.
Regulation:
The Company is subject to regulation and supervision of its insurance
operations in each of the jurisdictions where it conducts business.
Regulations vary between jurisdictions but, generally, they provide regulatory
authorities with broad supervisory, regulatory and administrative powers over
such matters as licenses,
-13-
<PAGE> 15
standards of solvency, premium rates, policy forms, investments, security
deposits, methods of accounting, form and content of financial statements,
reserves for unpaid losses and loss adjustment expenses, reinsurance,
minimum capital and surplus requirements, dividends and other distributions
to shareholders, periodic examinations and annual and other report filings.
These regulations are primarily intended to protect policyholders, not
shareholders. Over the last several years most states have, and continue
to implement, laws which establish standards for current, as well as
continued, state accreditation. In addition, the National Association of
Insurance Commissioners ("NAIC") has adopted risk-based capital rules for
property and casualty insurance companies. Professionals Group's insurance
subsidiaries were adequately capitalized under the NAIC's rules as of December
31, 1996 and 1995. See Management's Discussion and Analysis of Financial
Condition and Results of Operations--Regulation for further discussion.
Under the insolvency or guaranty fund laws of most of the states in which
the Company operates, insurers doing business in those states may be assessed
for policyholder losses of insolvent insurance companies. In addition, from
time to time, states may make special assessments in response to extraordinary
circumstances. No assurance can be given that there will not be such
assessments in the future.
Regulation of the insurance industry is undergoing continuous change and
the ultimate effect of such changes cannot be predicted. Regulations now
affecting the Company may be modified at any time and new regulations affecting
the Company may be enacted. There is no assurance that such modifications will
not adversely affect the business of the Company. See Management's Discussion
and Analysis of Financial Condition and Results of Operations--Regulation for
further discussion.
Subsidiaries:
Professionals Group has four direct wholly-owned subsidiaries and two
indirect wholly-owned subsidiaries. The direct wholly-owned subsidiaries are:
PICOM, PICOM Insurance Agency, Inc. ("PIA"), PICOM Financial Services
Corporation ("PFSC") and American Insurance Management Corporation ("AIMC").
The indirect wholly-owned entities, all of which are wholly-owned subsidiaries
of PICOM, are: PICOM Claims Services Corporation ("PCSC") and PICOM Insurance
Company of Illinois ("PICOM-Illinois").
-14-
<PAGE> 16
PICOM is a stock, property and casualty insurer incorporated under the laws
of the State of Michigan in 1980. PICOM offers professional liability insurance
to providers of health care services in Michigan, Indiana and Ohio and provides
malpractice coverage to lawyers and law firms in Michigan. PIA is an inactive
Michigan insurance agency incorporated under the laws of the State of Michigan
on March 31, 1981. PFSC is an inactive business corporation incorporated
under the laws of the State of Michigan on May 29, 1986. AIMC is an Indiana
corporation that serves as the attorney-in-fact for American Medical Insurance
Exchange, an Indiana interinsurance reciprocal exchange. PCSC provides claims
management services on a fee for service basis and was incorporated under the
laws of the State of Michigan on December 10, 1985. PICOM-Illinois is a stock,
property and casualty insurer incorporated under the laws of the State of
Illinois on December 5, 1994. PICOM-Illinois provides medical malpractice
insurance to physicians and clinics in of Illinois.
Employees:
The Company had 92 full-time employees and four part-time employees as of
December 31, 1996. None of these employees are covered by a collective
bargaining agreement. The Company believes that it enjoys good relations with
its personnel.
Forward-Looking Statements:
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, new products and similar matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking statements. In
order to avail itself of the safe harbor, the Company notes that a variety of
factors could cause its actual results and experience to differ materially from
the anticipated results or other expectations expressed in its forward-looking
statements. The risks and uncertainties that may affect the operations
performance, development and results of the Company's business include those
discussed elsewhere herein (such as competition and regulation) and the
following:
Industry Factors. Virtually all of the Company's insurance premium
revenue is derived from medical malpractice risks. Many factors influence the
financial results of the medical malpractice insurance business, several of
which are beyond the control of the Company. The supply of medical malpractice
insurance, or the industry's underwriting capacity, is determined principally
by the industry's level of capitalization, historical underwriting results,
returns on investment and perceived premium rate adequacy.
-15-
<PAGE> 17
Historically, the financial performance of the medical malpractice
insurance industry has tended to fluctuate in cyclical patterns characterized
by periods of greater competition in pricing and underwriting terms and
conditions (a "soft insurance market") followed by periods of capital
shortage and lesser competition (a "hard insurance market"). For several
years, the medical malpractice insurance industry and the Company have
faced a soft insurance market that has generally resulted in lower
premiums and reduced profitability. In the present soft insurance market
the Company has offered discounts to its published premium rates in order
to retain market share. Although the Company is endeavoring to offset
lower premiums charged through more selective underwriting practices,
there can be no assurance that these practices will be successful. Moreover,
there can be no assurances regarding whether or when market conditions will
improve, or the manner in which, or the extent to which, changes in market
conditions may impact the results of operations of the Company.
Insurance companies rely on the positive performance of their investment
portfolios to offset insurance losses and to enhance profitable results.
Consequently, prevailing economic conditions, particularly changes in market
interest rates, may significantly affect the operations of an insurance company,
such as the Company, that depends on its net investment income. In addition,
changes in interest rates also can affect the value of an insurance company's
interest-earning assets, which are comprised of fixed and adjustable-rate
investment securities. Generally, the value of fixed-rate investment securities
fluctuates inversely with changes in interest rates. Changes in interest rates
also can affect the average life of investment securities. An insurance company
is subject to reinvestment risk to the extent that it is not able to reinvest
prepayments at rates which are comparable to the rates on the maturing
investments. Changes in market interest rates have resulted in significant
changes in the market value of the Company's portfolio of fixed maturity
investments. As of December 31, 1996, such portfolio had a modified duration of
approximately four years and a market value that was $298,000 more than the
$286.0 million amortized cost of such portfolio. A one hundred basis point
increase in market interest rates would decrease the value of this portfolio by
approximately three percent, whereas a one hundred basis point decrease in
market interest rates would increase the value of this portfolio by
approximately three percent.
The success of the Company may also be influenced by general economic and
legal conditions in the geographic markets served by
-16-
<PAGE> 18
its direct and indirect insurance subsidiaries. No assurance can be given
that favorable economic and legal conditions will exist in such markets.
Health Care Industry Consolidation. The Company derives substantially all
of its premium income from physicians and other individual health care
providers, physician groups, and smaller health care facilities. The health
care industry is undergoing rapid market driven change and consolidation which
may negatively impact the medical practice and economic independence of
physicians who are the Company's primary customer base. For example, the
emergence of "managed care" has made it more difficult for physicians to
conduct a traditional fee-for-service practice and has caused some physicians
to leave private practice for employment with medical systems or to join or
contractually affiliate with managed care organizations or practice management
organizations. Such change and consolidation may result in the elimination of,
or a significant decrease in, the role of the physician in the medical
malpractice insurance purchasing decision. It could also result in greater
emphasis on the role of professional managers, who may seek to purchase
insurance on a price competitive basis, and who may favor insurance companies
that are larger and more highly rated than the Company. In addition, such
change and consolidation could reduce medical malpractice premiums available to
the Company as groups of insurance purchasers generally retain more risk by
accepting higher deductibles and self insured retentions or by forming their
own captive insurance mechanisms.
Underwriting Losses and Reserves. The Company collects premiums for the
insurance coverage it provides. Such premiums are based upon certain actuarial
and other assumptions. Although the Company employs actuarial assumptions that
it believes are reasonable, such assumptions are, by their nature, estimates.
To the extent that the actuarial and other assumptions used by the Company
prove to be incorrect, the Company may incur unanticipated underwriting losses
on the risks that it insures. Medical malpractice claims and expenses may be
paid over a period of ten years or more, which is longer than most property and
casualty insurance. Trends in losses may therefore be slow to appear and
accordingly, the Company's reaction in terms of modifying underwriting
practices and changing premium rates may lag underlying loss trends. In
addition, inflation may increase the Company's ultimate loss costs.
-17-
<PAGE> 19
The loss and loss adjustment expense reserves established by the Company
are estimates of amounts needed to pay reported and unreported claims and
related loss adjustment expenses. The estimates are based on assumptions
related to the ultimate cost of settling such claims. If the Company's reserves
are inadequate, the Company will be required to increase its reserves and thus
reduce its net income or shareholders' equity in the period in which the
deficiency is identified. Unanticipated underwriting losses or materially
underestimated reserves could have a material adverse effect on the Company.
Reinsurance. In order to reduce risk and to increase its underwriting
capacity, the Company obtains reinsurance from unaffiliated reinsurers
(including domestic and foreign companies and Lloyd's of London Syndicates),
although it retains a portion of each risk reinsured. The Company is subject to
credit risk with respect to its reinsurers because reinsurance does not relieve
the Company of its original liability to its insureds for the risks ceded to
reinsurers. Although the Company believes that its reinsurance is maintained
with financially stable reinsurers and that any reinsurance security maintained
is adequate to protect its interests, the inability of the Company to collect on
its aggregate reinsurance recoverable, or the inability of the Company's
reinsurers to make payments under the terms of reinsurance treaties (due to
insolvency or otherwise), could have a material adverse effect on the Company's
future results of operations and financial position.
The amount and cost of reinsurance available to companies specializing in
medical professional liability insurance are subject, in large part, to
prevailing market conditions beyond the control of the Company. The Company's
ability to provide professional liability insurance at competitive premium rates
and coverage limits on a continuing basis will depend in part upon its ability
to obtain adequate reinsurance in amounts and at rates that will not adversely
affect its competitive position. Although the Company anticipates that it will
continue to be able to obtain such reinsurance, there can be no assurance that
this will be the case.
Potential Adverse Consequences of Acquisitions or Business Combinations.
The Company has experienced significant growth in premium volume as a result of
an acquisition of a book business (PICOM-Illinois). The Company intends to
continue to pursue acquisitions and other business combinations to the extent
suitable candidates and acceptable terms may be identified. The Company is
unable to
-18-
<PAGE> 20
predict whether or when any prospective acquisition candidate will become
available or the likelihood that any acquisition will be completed. The
Company competes for acquisition and expansion opportunities with many
entities that have substantially greater resources. In addition,
acquisitions may involve difficulties in the retention of personnel,
diversion of management's attention, unexpected legal liabilities, and
tax and accounting issues. There can be no assurance that the Company
will be able to successfully identify suitable acquisition candidates,
complete acquisitions, integrate acquired businesses into its operations,
or expand into new markets. Once integrated, acquisitions may not achieve
comparable levels of revenues, profitability, or productivity as the
existing business of the Company or otherwise perform as expected.
Glossary of Selected Insurance Terms:
A.M. Best Rating. A.M. Best Ratings are divided into "Secure" and
"Vulnerable" rating groups as follows: Secure Ratings: A++,A+ (Superior);
A,A- (Excellent); and B++,B+ (Very Good). Vulnerable Ratings: B,B-
(Adequate); C++,C+ (Fair); C,C- (Marginal); D (Very Vulnerable); E (Under State
Supervision); and F (In Liquidation).
Cede. To transfer to another insurer (the reinsurer) all or part of the
insurance risk underwritten by an insurer.
Combined Ratio. The sum of the expense ratio and the loss and LAE ratio.
Excess of Loss Reinsurance. A form of reinsurance in which the insurer
cedes to a reinsurer, and such reinsurer assumes, all or a portion of losses in
excess of a specified retention level up to a predetermined limit.
Expense Ratio. The ratio of underwriting expenses to net premiums earned.
Incurred But Not Reported. The liability for future payments on losses
which have occurred but have not yet been reported.
Loss Adjustment Expenses (LAE). The expenses of settling claims,
including legal and other fees.
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<PAGE> 21
Loss and LAE Ratio. The ratio of incurred losses and loss adjustment
expenses to premiums earned. Losses include the increase in reserve for
extended reporting period claims.
Net Premiums Written. Premiums retained by an insurer after deducting
premiums on business ceded to others.
Premiums Earned. The portion of net premiums written applicable to the
expired period of policies.
Reinsurance. A procedure whereby an insurer remits or cedes a portion of
the premium to a reinsurer as payment to the reinsurer for assuming a portion
of the risk or liability under the policy. Reinsurance can be effected by
"treaties" under which all risks of a defined category, amount and type for a
primary insurer are covered, or on a "facultative" basis under which risks are
covered on an individual, contract-by-contract basis.
Standard & Poor's Ratings. Standard & Poor's Claims-Paying Ability
Ratings are divided into "Secure Range" and "Vulnerable Range" groupings as
follows. Secure Range: AAA (Superior); AA (Excellent); A (Good); and BBB+
(Adequate). Vulnerable Range: BB (May be Adequate); B (Vulnerable); CCC
(Extremely Vulnerable); and R (Regulatory Action).
Statutory Accounting Practices (SAP). Those practices required by state
law which must be followed by insurers in submitting their financial statements
to state insurance departments.
Statutory Surplus. The amount remaining after all liabilities of an
insurance company are subtracted from all of its admitted assets, applying
statutory accounting practices.
Item 2. Properties
The Company owns its principal executive offices in Okemos, Michigan which
houses the majority of its employees. The Company also owns, primarily for
investment purposes, an office building in Williamston, Michigan. The Company
leases office facilities in Oak Brook, Illinois, Indianapolis, Indiana and
Columbus, Ohio. The Company also leases operating equipment under cancelable
and noncancelable agreements. As of December 31, 1996, the Company has entered
into $5.5 million of commitments to build a new 53,000
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<PAGE> 22
square foot home office facility in Okemos, Michigan and to purchase new
furniture and equipment.
Item 3. Legal Proceedings
There are no material legal proceedings to which Professionals Group or
any of its direct or indirect subsidiaries is a party or to which any of their
property is subject.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of Professionals Group's
shareholders during the fourth quarter of 1996.
Executive officers of registrant:
As of March 17, 1997, the executive officers of Professionals Group
consisted of the persons identified below. Executive officers are elected
annually by, and serve at the pleasure of, Professionals Group's Board of
Directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
W. Peter McCabe, M.D. 57 Chairman
Victor T. Adamo, Esq., CPCU 49 President and Chief Executive Officer
R. Kevin Clinton, FCAS, MAAA 42 Vice President, Treasurer and Chief Financial Officer
Annette E. Flood, Esq., R.N. 38 Secretary
</TABLE>
W. Peter McCabe, M.D. has been the Chairman of the Board and a director of
Professionals Group since 1996. Dr. McCabe has been the Chairman of the Board
and a director of PICOM since 1994 and 1980, respectively. He is board
certified in Plastic Surgery and the current President of the Michigan State
Medical Society. Dr. McCabe is engaged in private practice and serves on the
medical staff of Saint John Hospital, Detroit, Michigan. Dr. McCabe is a
graduate of Harvard College and Cornell University Medical School.
Victor T. Adamo has been the President and Chief Executive Officer and a
director of Professionals Group since 1996. Mr. Adamo has been the President
of PICOM since 1990 and Chief
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<PAGE> 23
Executive Officer and a director of PICOM since 1987. Prior to joining
PICOM, Mr. Adamo was in private legal practice from 1975 to 1985 and
represented PICOM in corporate legal matters. Mr. Adamo is a graduate
of the University of Michigan and New York University School of Law and
is a Chartered Property Casualty Underwriter (CPCU). Mr. Adamo is the only
Director of Professionals Group who is also an employee of Professionals Group
or any subsidiary of Professionals Group.
R. Kevin Clinton has been a Vice President and the Treasurer and Chief
Financial Officer of Professionals Group since 1996. Mr. Clinton has been a
Vice President, Chief Financial Officer and Actuary of PICOM since 1990. Prior
to becoming an officer of PICOM, Mr. Clinton was PICOM's consulting actuary
from 1986 to 1990. He formerly served as the Actuary for the Michigan
Insurance Bureau and Michigan Mutual Insurance Company. Mr. Clinton is a
fellow of the Casualty Actuarial Society and a member of the American Academy
of Actuaries. Mr. Clinton is a graduate of the University of Michigan where he
received a Bachelors degree in business administration and a Masters degree in
actuarial science.
Annette E. Flood has been the Secretary of Professionals Group since 1996.
Ms. Flood is Vice President, Corporate Secretary and Legal Counsel of PICOM.
Prior to joining PICOM in 1992, Ms. Flood was employed by Lansing General
Hospital, Lansing, Michigan, from 1986 to 1992, most recently in the capacity
of Vice President, Legal Services and Quality Management. Prior to joining the
Lansing General Hospital staff, Ms. Flood was in the litigation section of the
law firm of Dykema Gossett, Lansing, Michigan. Ms. Flood has a Bachelors
degree in nursing from the University of Michigan and a law degree from Wayne
State University Law School.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Shares of common stock, no par value per share, of Professionals Group
have been traded in the over-the-counter market and listed for quotation on the
Nasdaq National Market tier of the Nasdaq Stock Market under the symbol "PICM"
since September 3, 1996. Prior to Professionals Group's acquisition of all of
the issued and outstanding shares of PICOM common stock effective August 31,
1996, PICOM common stock was traded in the over-the-
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<PAGE> 24
counter market and was listed for quotation on the Nasdaq National Market
tier of the Nasdaq Stock Market under the symbol "PICM." Although
transactions in common stock, no par value per share, of Professionals
Group have been, and are expected to continue to be, facilitated by
market-makers, there can be no assurance that an established or liquid trading
market will continue.
The table below sets forth (i) for the periods prior to September 3, 1996,
the high and low sale prices for PICOM common stock on the Nasdaq National
Market tier of the Nasdaq Stock Market, and (ii) for the periods since
September 3, 1996, the high and low sale prices for the common stock, no par
value per share, of Professionals Group on the Nasdaq National Market tier of
the Nasdaq Stock Market. In each case the quotations have been adjusted as if
the ten percent stock dividend paid by Professionals Group on December 16, 1996
had occurred prior to such quarters.
<TABLE>
<CAPTION>
Common Stock
------------
High Low
---- ---
<S> <C> <C>
1995
- ----
First Quarter ...... $10.68 $ 9.09
Second Quarter ..... 14.32 10.00
Third Quarter ...... 17.05 12.73
Fourth Quarter ..... 19.77 16.36
1996
- ----
First Quarter ...... $23.41 $18.86
Second Quarter ..... 22.95 19.77
Third Quarter ...... 22.27 19.55
Fourth Quarter ..... 22.00 19.77
</TABLE>
As of March 18, 1997 there were 2,505 registered holders of shares of
common stock, no par value per share, of Professionals Group.
The holders of common stock, no par value per share, of Professionals
Group are entitled to receive such dividends as may be declared from time to
time by the Board of Directors of Professionals Group out of funds legally
available therefor. Professionals Group is not expected to declare cash
dividends on its common stock for the foreseeable future, as it is expected
that earnings of Professionals Group and its subsidiaries will be retained and
used for operations. Any future dividends will depend upon, among other
things, future financial results and requirements
-23-
<PAGE> 25
and contractual restrictions applicable to Professionals Group or its
subsidiaries. Professionals Group declared a 10% stock dividend on November
21, 1996 which was paid on December 16, 1996 to shareholders of record
as of December 4, 1996. No fractional shares of common stock were issued
in payment of the stock dividend. In lieu of fractional shares, cash of
approximately $26,000 was paid to shareholders.
The ability of Professionals Group to fund its operations and to pay
dividends on its common stock will be dependent upon its receipt of dividends,
loans or advances from its insurance company subsidiaries (particularly PICOM).
The ability of those subsidiaries to pay dividends is subject to regulatory
restrictions. Generally, these restrictions limit the amount of dividends such
subsidiaries can pay to their respective parent in any 12-month period to the
greater of statutory net income for the preceding year (excluding realized gains
and losses on sales of investments), or ten percent of policyholders' surplus as
of the end of the preceding year. As of January 1, 1997, approximately $14.9
million of dividends could be paid by Professionals Group's direct insurance
subsidiaries without prior regulatory approval. In 1996, Professionals Group's
insurance subsidiaries paid cash dividends aggregating $3.5 million to
Professionals Group. None of Professionals Group's insurance subsidiaries paid
any cash dividends in either 1995 or 1994. There can be no assurance as to any
future dividends by Professionals Group or any of its subsidiaries (see also
Note 11 to the Company's consolidated financial statements).
Item 6. Selected Financial Data
The following selected financial data are derived from the Company's
consolidated financial statements, except for selected statutory data, which are
presented in accordance with statutory accounting practices. The data should be
read in conjunction with the consolidated financial statements, related notes
and other financial information included elsewhere in this report. (All such
information is in thousands, except per share data.)
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<PAGE> 26
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income Statement Data(1):
Gross premiums written $64,771 $67,727 $51,110 $50,514 $49,549
Net premiums written 55,464 55,151 48,778 48,177 47,476
Net premiums earned 56,687 55,684 48,490 48,192 48,778
Net investment income 15,741 14,729 13,379 12,363 14,338
Total revenues and other income 72,242 70,572 59,867 67,476 70,604
Losses and loss adjustment expenses(2)(4) 48,368 35,558 44,853 44,585 53,511
Total expenses 60,219 46,230 52,669 52,775 64,787
Income before cumulative effect of change in
accounting method 9,585 16,066 5,154 9,866 3,779
Cumulative effect of change in accounting
method(2) -- (8,125) -- -- --
------- ------- ------- ------- -------
Net income $ 9,585 $ 7,941 $ 5,154 $ 9,866 $ 3,779
======= ======= ======= ======= =======
Weighted average shares outstanding(3) 3,487 3,432 3,557 3,557 3,555
======= ======= ======= ======= =======
Earnings per share(3):
Income before cumulative effect of change in
accounting method $ 2.75 $ 4.68 $ 1.45 $ 2.77 $ 1.06
Cumulative effect of change in accounting
method(2) -- (2.37) -- -- --
------- ------- ------- ------- -------
Net income per common share $ 2.75 $ 2.31 $ 1.45 $ 2.77 $ 1.06
======= ======= ======= ======= =======
Cash dividends declared per share $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
<CAPTION>
As of December 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total investments $300,132 $280,607 $249,979 $253,133 $235,091
Total assets 357,382 330,712 297,926 301,106 284,245
Loss and loss adjustment expense reserves(2) 219,919 199,605 188,544 191,221 184,758
Reserve for extended reporting period claims 14,795 14,082 12,738 12,238 11,486
Unearned premiums 21,945 23,122 24,557 24,347 24,305
Shareholders' equity 87,958 78,411 63,142 64,839 54,974
Book value per common share(3) 25.09 22.84 17.75 18.23 15.46
- -------------------------------
Selected Statutory Data:
Loss ratio(4) 85.4% 71.5% 93.5% 94.1% 117.3%
Expense ratio 15.9% 17.3% 15.4% 15.8% 16.0%
-------- -------- -------- -------- --------
Combined ratio 101.3% 88.8% 108.9% 109.9% 133.3%
======== ======== ======== ======== ========
Statutory surplus $ 80,572 $ 67,006 $ 47,149 $ 40,431 $ 27,169
Net premiums written to statutory surplus .74x .82x 1.03x 1.19x 1.75x
Selected GAAP Data:
GAAP combined ratio(4) 106.2% 83.0% 108.6% 109.5% 132.8%
======== ======== ======== ======== ========
Operating income(5) $ 9,962 $ 7,952 $ 6,478 $ 7,292 $ 4,146
======== ======== ======== ======== ========
Operating income per share(3) $ 2.86 $ 2.32 $ 1.82 $ 2.05 $ 1.17
======== ======== ======== ======== ========
Net income per share(3) $ 2.75 $ 2.31 $ 1.45 $ 2.77 $ 1.06
======== ======== ======== ======== ========
</TABLE>
- -------------------
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<PAGE> 27
(1) Effective January 1, 1995, the Company began writing a book of business
previously written by an Illinois insurance company.
(2) The Company discounted loss and loss adjustment expense reserves through
1994. In 1993 and 1992 the Company changed its loss and loss adjustment
expense reserve discount rate from 3.75% to 3% and 5.625% to 3.75%,
respectively. These reductions in reserve discount rate were treated as
changes in accounting estimates and resulted in decreases in net income of
$2.0 million for 1993 and $5.3 million for 1992. The effects of such
changes in the reserve discount rate, which were previously presented as
changes in accounting methods, have been reclassified and presented as
changes in accounting estimates. Effective January 1, 1995, the Company
eliminated its practice of discounting loss and loss adjustment expense
reserves for GAAP reporting purposes, which was treated as a change in
accounting method.
(3) Weighted average shares outstanding are in thousands. Prior period amounts
have been restated for the effects of 10% stock dividends on December 16,
1996 and December 1, 1994 and 1993, respectively.
(4) In 1995 the Company reduced its estimated liability for loss and loss
adjustment expense reserves by $12.3 million for redundancies. The ratio
includes the increase in reserve for extended reporting period claims.
(5) Operating income excludes the after-tax effect of net realized investment
gains and losses, cumulative effect changes in accounting methods and the
after-tax effect of changes in accounting estimates. For 1995, the
after-tax effect of the reserve reduction has also been excluded.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and the notes thereto included elsewhere
in this report.
Financial Condition:
The Company's total assets were $357.4 million and $330.7 million as of
December 31, 1996 and 1995, respectively. The increase in total assets as of
December 31, 1996 was primarily the result of strong cash flows from PICOM's
operations due mainly to a decrease in paid losses and loss adjustment expenses
of $10.0 million as compared to 1995. As of December 31, 1996 and 1995, the
Company had invested assets of $300.1 million and $280.6 million,
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<PAGE> 28
respectively. As of December 31, 1996 and 1995, invested assets represented
approximately 84% and 85%, respectively, of the Company's total assets at
those dates.
As of December 31, 1996 and 1995, the Company's investment portfolio was
dominated by fixed maturity securities and primarily consisted of U.S.
government and agency bonds, high-quality corporate bonds, mortgage-backed
securities and tax-exempt U.S. municipal bonds. As of December 31, 1996 and
1995, these fixed maturity securities aggregated $286.3 million and $260.0
million, respectively. Approximately $281.3 million, or 98.25% of the fixed
maturity securities held by the Company as of December 31, 1996, were rated
investment grade or better.
The following table provides a profile of the Company's fixed maturity
portfolio by rating as of December 31, 1996:
<TABLE>
<CAPTION>
(Amounts in thousands)
- ----------------------------------------------------------------------------
Fair Value (As Reflected
S&P/Moody's Rating on Balance Sheet) Percent of Portfolio
- ----------------------------------------------------------------------------
<S> <C> <C>
AAA/Aaa (including U.S.
Governments of $51,049) $186,567 65.2%
AA/Aa 56,549 19.8
A/A 35,791 12.5
BBB/Baa 2,363 .8
All other 5,004 1.7
Total -------- -----
$286,274 100.0%
======== =====
</TABLE>
In December 1995, the Company reclassified all of its fixed maturity
securities previously classified as held-to-maturity to available-for-sale, as
permitted by the Special Report, "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities" issued by the
Financial Accounting Standards Board ("FASB"). This one-time reclassification
increased shareholders' equity by $511,000, net of deferred federal income
taxes, as of December 31, 1995. Accordingly, all fixed maturity securities are
classified as
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<PAGE> 29
available-for-sale and are carried at fair value as of December 31, 1996
and 1995.
The Company's fixed maturity investment portfolio is sensitive to interest
rate changes. As of December 31, 1996 and 1995, the fixed maturity portfolio
had unrealized gains of approximately $298,000 and $2.9 million, respectively.
The decrease in unrealized gains was due to slightly higher interest rates at
year end 1996 compared to year end 1995. As of December 31, 1996, the fixed
maturity portfolio had a weighted average modified duration of approximately
four years. A one hundred basis point increase in market interest rates would
decrease the value of this portfolio by approximately three percent, whereas a
one hundred basis point decrease in market interest rates would increase the
value of this portfolio by approximately three percent.
Equity securities as of December 31, 1996 and 1995 consisted primarily of
common stock held in Physicians Insurance Company of Wisconsin, Inc., an
unrelated stock insurance company providing professional liability insurance to
health care providers primarily in Wisconsin. As of December 31, 1996 and
1995, equity securities had unrealized gains of $62,000 and $33,000,
respectively.
Results of Operations -- Year Ended December 31, 1996 Compared to Year Ended
December 31, 1995:
For purposes of the following discussion, the Company's Service Marks are
defined as follows:
CorpCare(sm) - Offers professional liability coverage for group practices;
DoctorCare(sm) - Offers professional liability coverage for individual
physicians, surgeons and dentists;
HealthPro(sm) - Offers professional liability coverage for other health
care specialists such as nurses, psychologists and optometrists;
HealthServices(sm) - Offers professional liability coverage for health
care organizations such as hospitals, clinics, hospices and surgery
centers; and
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<PAGE> 30
LawyerCare(sm) - Offers professional liability coverage for lawyers and
law firms.
Net premiums written in 1996 were $55.5 million, an increase of 0.6%
over 1995 net premiums written of $55.2 million. The increase in net premiums
written resulted from a $2.7 million increase in CorpCare(sm) premiums, a $1.1
million increase due to expansion of business into Indiana and Ohio, a $789,000
increase in HealthServices(sm) and HealthPro(sm) premiums and a $973,000
increase in LawyerCare(sm) and other premiums. These increases were offset by a
decrease in DoctorCare(sm) premiums of $5.3 million that resulted from the
continued consolidation of individual practices into group practices and general
competition in the Michigan and Illinois insurance markets. Of the net premiums
written in 1996, approximately 90.7% was generated by DoctorCare(sm) and
CorpCare(sm) coverages, 4.3% was generated by HealthServices(sm) and
HealthPro(sm) coverages, 1.6% was generated by LawyerCare(sm) coverage and 3.4%
was generated by other types of coverage. Of the net premiums written in 1995,
approximately 93.8% was generated by DoctorCare(sm) and CorpCare(sm) coverages,
2.9% was generated by HealthServices(sm) and HealthProsm coverages, 0.9% was
generated by LawyerCare(sm) coverage and 2.4% was generated by other types of
coverage.
During 1996 and 1995, the Company continued to balance its need for upward
rate adjustments with the goal of maintaining market share in very competitive
environments in Michigan, Illinois, Indiana and Ohio. As a result, the Company
offered discounts to its published premium rates to retain market share and
experienced margin or price reductions as a result of competitive market
conditions in those years. Although the Company has maintained profitability
and is endeavoring to offset lower premiums charged through more selective
underwriting practices, there can be no assurance that these practices will be
successful in the long run.
Net investment income, excluding realized capital gains and losses, was
$15.7 million for 1996, an increase of 6.9%, as compared to net investment
income of $14.7 million for 1995 despite a significant shift in the investment
portfolio towards municipal bonds which, due to their tax-exempt status, offer
lower pre-tax yields. The increase in net investment income was due
principally to increases in invested assets because of positive cash flows from
operations. The weighted average tax equivalent book yield of the fixed
maturity portfolio was 6.7%
-29-
<PAGE> 31
and 6.5% as of December 31, 1996 and 1995, respectively. During 1996, the
Company posted net realized investment losses of $473,000, whereas net
realized investment losses in 1995 were negligible. The 1996 net realized
investment losses resulted from the Company's repositioning of its fixed
maturity portfolio to increase after-tax yield.
Loss and loss adjustment expense reserves are determined on the basis of
individual claims and actuarially determined estimates of future losses based on
the Company's past loss experience and projections as to future claims
frequency, severity, inflationary trends and settlement patterns. Estimating
professional liability reserves is a complex process which is heavily dependent
on judgment and involves many uncertainties. As a result, reserve estimates may
vary significantly from the eventual outcome. The assumptions used in
establishing the Company's reserves are reviewed and updated regularly as new
data becomes available. Any adjustments necessary are generally reflected in
current operations. The loss and loss adjustment expense reserves are
determined by the Company's actuary, who is an officer of the Company and a
Fellow of the Casualty Actuarial Society. Management of the Company believes
that the loss and loss adjustment expense reserves are adequate and are at or
above the actuarial best estimate. At year-end 1994, the Company's loss and
loss adjustment expense reserves were discounted using a three percent interest
rate assumption. Effective January 1, 1995, the practice of discounting
reserves for financial reporting was eliminated and, accordingly, loss and loss
adjustment expense reserves have been established on an undiscounted basis
thereafter (a more conservative accounting practice used by most publicly-traded
insurance companies).
Incurred losses and loss adjustment expenses (including the increase in
reserve for extended reporting period claims) for 1996 totaled $49.1 million,
up 33.0%, as compared to incurred losses and loss adjustment expenses of $36.9
million for 1995. As a percentage of premiums earned, the incurred loss and
loss adjustment expense ratio (including the increase in reserve for extended
reporting period claims) was 86.6% in 1996 compared to 66.3% in 1995. The 1995
loss and loss adjustment expense ratio was favorably impacted by 22.1
percentage points due to the Company's reduction of its reserves by $12.3
million at year-end 1995 because of favorable development of prior years' loss
reserves, as supported by a detailed actuarial study.
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<PAGE> 32
Underwriting expenses were $11.1 million in 1996, a 19.4% increase over
underwriting expenses of $9.3 million in 1995. As a percentage of premiums
earned, the underwriting expense ratio was 19.6% in 1996, up from the
underwriting expense ratio of 16.8% in 1995. The increase in underwriting
expenses in 1996 relative to 1995 is attributable to non-recurring legal,
accounting and related expenses associated with the formation of the
Professionals Group holding company system, a one-time stock bonus paid to
directors, officers and employees in 1996 and start-up expenses associated with
the Company's expansion of business into Indiana and Ohio.
The Company recorded $2.4 million in federal income tax expense in 1996 as
compared to $8.3 million in 1995. The Company's effective federal income tax
rate approximated 20.3% in 1996 compared to 34.0% in 1995. The decrease in the
effective income tax rate is due to the Company's increased holdings in
tax-exempt municipal bonds as well as an adjustment to the prior years' tax
liability.
Net income for 1996 was $9.6 million, or $2.75 per share, on revenues of
$72.2 million. This compares to net income of $7.9 million, or $2.31 per
share, on revenues of $70.6 million in 1995. The favorable 1996 earnings were
attributable to the factors described above. Net income for 1995 was reduced
by $8.1 million (net of deferred federal income taxes), or $2.37 per share, as
a result of a cumulative effect change in accounting method associated with the
elimination of the Company's practice of discounting its loss and loss
adjustment expense reserves during 1995.
Results of Operations -- Year Ended December 31, 1995 Compared to Year Ended
December 31, 1994:
Net premiums written in 1995 were $55.2 million, an increase of 13.1% over
1994 net premiums written of $48.8 million. Of such increase in net premiums
written, approximately $7.9 million resulted from the purchased book of
physicians and surgeons business written by PICOM-Illinois, which began writing
business effective January 1, 1995. In addition, 1995 net premiums written
increased due to a $453,000 increase in HealthServices(sm) and HealthPro(sm)
premiums and a $487,000 increase in LawyerCare(sm) premiums. These increases
were offset by a decrease in DoctorCare(sm) premiums of $2.4 million that
resulted from the
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<PAGE> 33
continued consolidation of individual practices into group practices and
general competition in the Michigan and Illinois insurance markets. Of the
net premiums written in 1995, approximately 93.8% was generated by
DoctorCare(sm) and CorpCare(sm) coverages, 2.9% was generated by
HealthServices(sm) and HealthPro(sm) coverages, 0.9% was generated by
LawyerCare(sm) coverage and 2.4% was generated by other types of coverage. Of
the net premiums written in 1994, approximately 95.0% was generated by
DoctorCare(sm) and CorpCare(sm) coverages, 2.3% was generated by
HealthServices(sm) and HealthPro(sm) coverages, 0.1% was generated by
LawyerCare(sm) coverage and 2.6% was generated by other types of coverage.
During 1995 and 1994, the Company continued to balance its need for upward
rate adjustments with the goal of maintaining market share in a very
competitive environment in both Michigan and Illinois. As a result, the
Company offered discounts to its published premium rates to retain market share
and experienced margin or price reductions as a result of competitive market
conditions in those years. Although the Company has maintained profitability
and is endeavoring to offset lower premiums charged through more selective
underwriting practices, there can be no assurance that these practices will be
successful in the long run.
Net investment income, excluding realized capital gains and losses, was
$14.7 million for 1995, up 10.0%, as compared to net investment income of $13.4
million for 1994. The increase in net investment income was due principally to
increases in invested assets because of positive cash flows from operations.
During 1994, the Company posted net realized investment losses of $2.0 million,
whereas net realized investment losses in 1995 were negligible.
Incurred losses and loss adjustment expenses (including the increase in
reserve for extended reporting period claims) for 1995 totaled $36.9 million,
down 18.6%, as compared to incurred losses and loss adjustment expenses of
$45.4 million for 1994. As a percentage of premiums earned, the incurred loss
and loss adjustment expense ratio (including the increase in reserve for
extended reporting period claims) improved to 66.3% in 1995 from 93.5% in 1994.
The 1995 loss and loss adjustment expense ratio was favorably impacted by 22.1
percentage points due to the Company's reduction of its reserves by $12.3
million at year-end 1995 because of favorable development of prior years' loss
-32-
<PAGE> 34
reserves, as supported by a detailed actuarial study. In addition,
underwriting results for 1995 improved significantly from 1994, when adverse
results arose from a surge in the number of lawsuits filed by the plaintiff bar
in the two week period preceding the April 1, 1994 effective date of Michigan's
tort reform law.
Underwriting expenses were $9.3 million in 1995, a 27.5% increase over
underwriting expenses of $7.3 million in 1994. As a percentage of premiums
earned, the underwriting expense ratio was 16.8% in 1995, up from the
underwriting expense ratio of 15.1% in 1994. The increase in underwriting
expenses in 1995 relative to 1994 is attributable to the Company's purchase in
1995, through PICOM-Illinois, of the right to solicit and write a block of
medical professional liability business in Illinois. Such acquisition resulted
in an $18 million increase in the Company's direct written premiums (before
reinsurance) in 1995. The acquisition and operating expenses associated with
PICOM-Illinois, were partially offset by a non-recurring profit commission of
$336,000 arising from the commutation of a reinsurance contract.
The Company recorded $8.3 million in federal income tax expense in 1995 as
compared to $2.7 million in 1994. The Company's effective federal income tax
rate approximated 34.0% in both 1995 and 1994. Regular tax net operating loss
carryforwards of approximately $23.3 million at December 31, 1994 were fully
utilized by the Company during 1995.
Net income for 1995 was $7.9 million, or $2.31 per share, on revenues of
$70.6 million. This compares to net income of $5.2 million, or $1.45 per
share, on revenues of $59.9 million in 1994. The strong 1995 earnings were
primarily attributable to a significant improvement in underwriting results,
including favorable development of prior years' reserves. Additionally, net
income for 1995 was reduced by $8.1 million (net of deferred federal income
taxes), or $2.37 per share, as a result of a cumulative effect change in
accounting method associated with the elimination of the Company's practice of
discounting its loss and loss adjustment expense reserves during 1995.
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<PAGE> 35
Liquidity and Capital Resources:
Liquidity describes the ability to generate sufficient cash flows to meet
the cash requirements of continuing operations. Liquidity, in the context of
insurance operations, is typically determined by two distinct operations:
underwriting and investing. Net cash flows from underwriting operations are
used to build an investment portfolio, which in turn produces future cash from
investment income. The Company continuously monitors available cash and
short-term investment balances in relation to projected cash needs to maintain
adequate balances for current payments while maximizing cash available for
longer term investment opportunities.
The payment of losses, loss adjustment expenses and operating expenses in
the ordinary course of business represents the Company's principal need for
liquid funds. Payments for losses and loss adjustment expenses are distributed
fairly evenly throughout the year. Payments for reinsurance are made within
thirty days subsequent to the end of each quarter, with adjustments made after
each reinsurance year. Historically, cash used to pay for these items has been
provided by operations. The Company did not borrow any funds in the years
ended December 31, 1996, 1995 and 1994; however, as of December 31, 1996, the
Company has entered into $5.5 million of commitments to build a new home office
facility in Okemos, Michigan and to purchase new furniture and equipment. As
of December 31, 1996, no other material commitments for capital expenditures
existed, and management believes the Company's present liquidity, together with
its expected cash flow from operations, will be sufficient to fund these
commitments for capital expenditures.
In February 1997, the Company entered into an agreement with Michigan
Educational Employees Mutual Insurance Company ("MEEMIC"), a Michigan-domiciled
specialty writer of personal automobile and homeowners coverages for Michigan
teachers and other educational employees. The agreement contemplates a series
of simultaneous transactions which include the Company's purchase of a $21.0
million surplus certificate from MEEMIC, a quota share reinsurance agreement
whereby PICOM will reinsure a portion of MEEMIC's net retained lines, a
management services agreement between the Company and MEEMIC and the election
of Professionals Group's nominees to MEEMIC's Board of Directors. These
transactions are subject to regulatory approval by the Michigan
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<PAGE> 36
Commissioner of Insurance and are projected to close by June 30, 1997.
Professionals Group has obtained a commitment for a seven year, $22.5
million unsecured term loan from a bank, bearing interest at LIBOR plus 75
basis points, and payable monthly. With the proceeds received from this loan,
Professionals Group's Board of Directors has authorized a $20.0 million capital
contribution to PICOM, which will purchase the surplus certificate from MEEMIC.
After consummation of the aforedescribed transactions with MEEMIC, the
Company has agreed to assist MEEMIC in acquiring the net assets of Michigan
Educators Insurance Agency, Inc.("MEIA"). MEIA is an insurance agency that has
the exclusive right to distribute MEEMIC insurance products. Upon its
purchase, MEIA's marketing and sales functions would be consolidated with
MEEMIC's. To fund this purchase, MEEMIC will utilize the proceeds of the
surplus certificate, plus a $20.0 million promissory note to be issued by a
subsidiary of MEEMIC, which will be guaranteed by Professionals Group.
Additionally, Professionals Group will issue warrants for 275,000 shares of its
common stock to MEIA shareholders.
At a future date, Professionals Group and MEEMIC expect to pursue
demutualization of MEEMIC. Such demutualization would be subject to regulatory
approval by the Michigan Commissioner of Insurance and approval of MEEMIC's
policyholders. No specific timetable has been set for this proposed
demutualization and there can be no assurances that MEEMIC will be
demutualized.
The ability of Professionals Group to fund its operations and to pay
dividends on its common stock will be dependent upon its receipt of dividends,
loans or advances from its insurance company subsidiaries (particularly PICOM).
The ability of those subsidiaries to pay dividends is subject to regulatory
restrictions. Generally, these restrictions limit the amount of dividends such
subsidiaries can pay to their respective parent in any 12-month period to the
greater of statutory net income for the preceding year (excluding realized
gains and losses on sales of investments), or ten percent of policyholders'
surplus as of the end of the preceding year. As of January 1, 1997,
approximately $14.9 million of dividends could be paid by Professionals Group's
direct insurance
-35-
<PAGE> 37
subsidiaries without prior regulatory approval. In 1996, Professionals
Group's insurance subsidiaries paid cash dividends aggregating $3.5 million
to Professionals Group. None of Professionals Group's insurance
subsidiaries paid any cash dividends in either 1995 or 1994. There can be no
assurance as to any future dividends by Professionals Group or any of its
subsidiaries (see also Note 11 to the Company's consolidated financial
statements).
Professionals Group was incorporated in January 1996 for the purpose of
serving as the holding company for PICOM and its subsidiaries. Effective
August 31, 1996, Professionals Group acquired all of the issued and outstanding
shares of PICOM common stock through the merger of a wholly-owned insurance
company subsidiary of Professionals Group with and into PICOM (the
"Reorganization"). By virtue of the Reorganization, each issued and
outstanding share of PICOM common stock was converted into one share of common
stock, no par value per share, of Professionals Group and PICOM became a
wholly-owned subsidiary of Professionals Group.
On July 5, 1995, PICOM repurchased 254,823 shares its common stock
(approximately 7.9% of the then issued and outstanding shares of PICOM Common
Stock) owned by Physicians Insurance Company of Ohio at a price of $17 per
share. During 1995, PICOM negotiated a reciprocal stock purchase agreement with
Physicians Insurance Company of Wisconsin, Inc. ("PIC-WIS"). Under the
agreement, PICOM acquired 1,583 shares of PIC-WIS common stock (representing
6.8% of the then outstanding shares of PIC-WIS common stock) for $2.5 million
and PIC-WIS purchased 131,579 shares of PICOM common stock (representing 4.2% of
the then issued and outstanding shares of PICOM common stock) for $2.5 million.
The transaction replaced more than one-half of the equity used to accomplish the
previously reported repurchase of shares of PICOM common stock held by
Physicians Insurance Company of Ohio.
In May 1996, and in a transaction valued at approximately $1.2 million,
PICOM acquired all of the issued and outstanding shares of American Insurance
Management Corporation, a privately held Indiana corporation that serves as the
attorney-in-fact for American Medical Insurance Exchange, an Indiana
interinsurance reciprocal exchange. While the acquisition was accounted for as
a purchase, the effect of the acquisition was not material to the Company's
consolidated results of operations (see also Note 11 to the Company's
consolidated financial statements).
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<PAGE> 38
Impact of Inflation and Changing Prices:
The consolidated financial statements and related data presented herein
have been prepared in accordance with generally accepted accounting principles
which require the measurement of financial position and operating results in
terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation. The primary assets and
liabilities of the Company are monetary in nature. As a result, interest rates
have a more significant impact on the Company's performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the
same direction or magnitude as the cost of paying losses and loss adjustment
expenses. Moreover, increases in market interest rates, which often occur
during periods of high inflation, reduce the fair value of the Company's fixed
maturity securities. Conversely, reductions in market interest rates increase
the fair value of fixed maturity securities.
Inflation increases the costs of settling insurance claims over time.
Because insurance premiums are established before the amount of losses and loss
adjustment expenses, and the extent to which inflation may affect such
expenses, are known, the Company attempts to anticipate the future impact of
inflation when establishing rate levels. The Company may be limited in raising
its premium levels for competitive and regulatory reasons, in which case the
Company, rather than its insureds, would be required to absorb the effects of
inflation. Future economic changes which result in prolonged and increasing
levels of inflation could cause increases in the dollar amount of loss and loss
adjustment expense reserves and thereby adversely affect future reserve
development. To minimize such risk, the Company maintains what management
considers to be strong and adequate reinsurance, conducts regular actuarial
reviews of reserves and maintains adequate asset liquidity.
Reinsurance:
In the normal course of business, the Company seeks to reduce the loss
that may arise from events that cause unfavorable underwriting results, provide
additional capacity for growth and protect shareholders' equity by reinsuring
certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers. At the present time, the Company has both excess of
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<PAGE> 39
loss reinsurance and errors and omissions insurance. Although reinsurance
agreements contractually obligate the Company's reinsurers to reimburse the
Company for their proportionate share of losses, they do not discharge the
primary liability of the Company. The Company is contingently liable for the
ceded amount of reserves for unpaid losses and loss adjustment expenses and
unearned premiums in the event the assuming insurance organizations are unable
to meet their contractual obligations.
For the year ended December 31, 1996, the following table provides certain
information with respect to the Company's reinsurers (see also Note 5 to the
consolidated financial statements for amounts recoverable from the Company's
reinsurers):
<TABLE>
<CAPTION>
(Amounts in thousands)
- -------------------------------------------------------------------------
Reinsurance Premium
Reinsurer Ceded A.M. Best Rating
- -------------------------------------------------------------------------
<S> <C> <C>
TIG Reinsurance $3,975 A
PMA Reinsurance Corporation 1,777 A+
Continental Casualty Company 1,496 A
Lloyd's of London Syndicates 978 Not Rated
Princeton Insurance Company 385 A-
Other 696 Not Rated
------
$9,307
======
</TABLE>
The Company continually reviews its reinsurers, considering a number of
factors, the most critical of which is their financial stability. Based on
these reviews, the Company evaluates its position with its reinsurers with
respect to existing and future reinsurance. To date, the Company has not
experienced any material difficulty in collecting reinsurance recoverables. No
assurance can be given, however, regarding the future ability of any of the
Company's reinsurers to meet their future obligations. Among the insurers to
which the Company cedes reinsurance are certain Lloyd's of London Syndicates.
-38 -
<PAGE> 40
In recent years, Lloyd's has reported substantial losses which have had adverse
effects on Lloyd's in general, and on certain syndicates in particular. The
substantial losses and other adverse developments could affect the ability of
certain syndicates to continue to operate. It is not possible to predict what
effects the circumstances described above may have on Lloyd's and the Company's
contractual relationship with Lloyd's Syndicates in future years.
Regulation:
Certain regulations that affect the Company's insurance subsidiaries are
promulgated by the National Association of Insurance Commissioners ("NAIC"),
which is an association of state insurance commissioners, regulators and
support staff that acts as a coordinating body for the state insurance
regulatory process. The NAIC has established risk-based-capital ("RBC")
requirements to assist regulators in monitoring the financial strength and
stability of property and casualty insurers. Under the NAIC requirements,
regulatory compliance is determined by a ratio of an insurance company's
regulatory total adjusted capital, as defined by the NAIC, to its authorized
control level of RBC, as defined by the NAIC. Companies below specific ratios
are classified within certain levels, each of which requires specific
corrective action. The levels and ratios are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Ratio of Total Adjusted Capital to Authorized Control
Regulatory Event Level RBC (Less Than or Equal To)
- -------------------------------------------------------------------------------
<S> <C>
Company action level 2
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7
- ------------------------------------------------------------------------------
</TABLE>
PICOM and PICOM-Illinois have calculated their ratios of Total Adjusted
Capital to Authorized Control Level RBC and each were in excess of 3:1 at both
December 31, 1996 and 1995.
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<PAGE> 41
The NAIC has proposed a new Model Investment Law that may affect the
statutory carrying values of certain investments. Additionally, the NAIC has
undertaken a project to codify statutory accounting practices, which may affect
the statutory carrying value of assets and liabilities. The codification
project is expected to be completed in 1997 and effective in 1999. It is not
certain, nor is it possible to predict what impact these projects will have on
the Company's insurance subsidiaries, in the event the projects are adopted by
the NAIC.
The purpose of these regulatory efforts is to improve the solvency of
insurers. While the impact of these regulatory efforts on the Company's
insurance operations cannot be quantified until enacted, the Company believes
it will be adequately positioned to compete in an environment of more stringent
regulation.
Effects of New Accounting Pronouncements:
In March 1995, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which is effective for fiscal years
beginning after December 15, 1995. SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used, or disposed
of, by an entity be reviewed for impairment, and be reported at the lower of
the carrying amount or fair value less costs to sell, if applicable. The
adoption of SFAS No. 121 did not have a material effect on the Company's
consolidated results of operations or financial condition during 1996.
In December 1995, the Company reclassified all of its fixed maturity
securities previously classified as held-to-maturity to available-for-sale, as
permitted by the FASB's Special Report, "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities." This
one-time reclassification increased shareholders' equity by $511,000, net of
deferred federal income taxes, as of December 31, 1995. Accordingly, all fixed
maturity securities are classified as available-for-sale and are carried at
fair value as of December 31, 1996 and 1995.
The FASB has issued SFAS No. 123 "Accounting for Stock-Based
Compensation," which is effective for fiscal years beginning
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<PAGE> 42
after December 15, 1995. SFAS No. 123 prescribes a method of accounting for
stock-based compensation that recognizes compensation cost based on the
fair value of the options at grant date. In lieu of applying this fair
value based method, a company may elect to disclose only the proforma effects
of such application in the footnotes to its financial statements. Because
the Company elected the disclosure-only provisions of this standard in 1996,
there was no impact on the Company's consolidated results of operations for
1996.
Item 8. Financial Statements and Supplementary Data
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
(In thousands, except share data)
<S> <C> <C>
Investments (note 4):
Available for sale, at fair value:
Fixed maturities (amortized cost $285,976 and $257,129 in 1996 and
1995, respectively) $286,274 259,979
Equity securities (cost $2,630 and $2,608 in 1996 and 1995,
respectively) 2,692 2,641
Short-term investments, at cost, which approximates fair value 10,711 17,512
Real estate, at cost, net of accumulated depreciation of $69 and $49 in
1996 and 1995, respectively 455 475
-------- -------
Total investments 300,132 280,607
Cash 2,023 1,279
Premiums due from policyholders 7,268 7,618
Amounts due from reinsurers (note 5) 17,550 12,264
Accrued investment income 3,885 3,612
Prepaid reinsurance premiums (note 5) 122 76
Deferred federal income taxes (note 6) 17,301 18,264
Property and equipment, at cost, net of accumulated depreciation (note 7) 2,459 2,341
Deferred policy acquisition costs (note 8) 998 1,092
Other assets (note 15) 5,644 3,559
-------- -------
Total assets $357,382 330,712
======== =======
<CAPTION>
Liabilities and Shareholders' Equity
------------------------------------
<S> <C> <C>
Liabilities:
Loss and loss adjustment expense reserves (note 9) $219,919 199,605
Reserve for extended reporting period claims 14,795 14,082
Unearned premiums 21,945 23,122
Drafts outstanding 2,540 3,445
Payable for securities - 3,205
Balance due on purchased book of business 2,200 2,694
Accrued expenses and other liabilities 8,025 6,148
-------- -------
Total liabilities 269,424 252,301
-------- -------
Shareholders' equity (notes 11 and 13):
Preferred stock, no par value; 5,000,000 shares authorized; no shares
issued and outstanding - -
Common stock, no par value; 25,000,000 shares authorized; 3,505,750 and
3,238,959 shares issued and outstanding in 1996 and 1995, respectively,
including shares in treasury in 1995 3,506 3,239
Additional paid-in capital 14,569 8,417
Retained earnings 69,645 66,994
Net unrealized appreciation on investments, net of deferred federal
income tax expense of $123 and $963 in 1996 and 1995, respectively 238 1,882
-------- -------
87,958 80,532
Less cost of common stock in treasury; 123,244 shares in 1995 (note 11) - (2,121)
-------- -------
Total shareholders' equity 87,958 78,411
-------- -------
Commitments and contingencies (notes 5 and 15)
Total liabilities and shareholders' equity $357,382 330,712
======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE> 43
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C>
Revenues and other income:
Premiums written, including $563 of premiums assumed in 1996 $ 64,771 67,727 51,110
Premiums ceded (9,307) (12,576) (2,332)
--------- --------- ---------
Net premiums written 55,464 55,151 48,778
Decrease (increase) in unearned premiums, net of prepaid
reinsurance premiums 1,223 533 (288)
--------- --------- ---------
Premiums earned 56,687 55,684 48,490
Net investment income (note 4) 15,741 14,729 13,379
Net realized investment losses (note 4) (473) (6) (2,006)
Other 287 165 4
--------- --------- ---------
Total revenues and other income 72,242 70,572 59,867
--------- --------- ---------
Expenses:
Losses and loss adjustment expenses, net (note 9) 48,368 35,558 44,853
Increase in reserve for extended reporting period claims 713 1,344 500
Policy acquisition and other underwriting expenses 11,138 9,328 7,316
--------- --------- ---------
Total expenses 60,219 46,230 52,669
--------- --------- ---------
Income from operations before equity in earnings of
affiliate, federal income taxes and cumulative effect of
change in accounting method 12,023 24,342 7,198
Equity in earnings of affiliate - - 612
--------- --------- ---------
Income before federal income taxes and cumulative
effect of change in accounting method 12,023 24,342 7,810
Federal income taxes (note 6) (2,438) (8,276) (2,656)
--------- --------- ---------
Income before cumulative effect of change in
accounting method 9,585 16,066 5,154
Cumulative effect of change in accounting method - elimination
of loss and loss adjustment expense reserve discount, net of
deferred federal income tax benefit of $4,185 (note 9) - (8,125) -
--------- --------- ---------
Net income (note 13) $ 9,585 7,941 5,154
========= ========= =========
Net income per common share:
Income before cumulative effect of change in
accounting method $ 2.75 4.68 1.45
Cumulative effect of change in accounting method - (2.37) -
--------- --------- ---------
Net income per common share $ 2.75 2.31 1.45
========= ========= =========
Pro forma amounts, assuming the elimination of loss and loss
adjustment expense reserve discounting is applied
retroactively:
Net income $ - 16,066 5,356
========= ========= =========
Net income per common share $ - 4.68 1.51
========= ========= =========
Weighted average shares outstanding (note 11) 3,486,723 3,432,339 3,556,563
========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
-42-
<PAGE> 44
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock
------------------------------
Shares
-------------------- Additional
In Paid-in Retained
Issued Treasury Amount Capital Earnings
------ -------- ------ ---------- --------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1993 2,945,536 - $2,946 4,220 58,170
Net income - - - - 5,154
Issuance of 10% stock dividend 293,423 - 293 3,961 (4,271)
Net depreciation on debt and
equity securities - - - - -
--------- -------- ------ ------ ------
Balances, December 31, 1994 3,238,959 - 3,239 8,181 59,053
Net income - - - - 7,941
Purchase of treasury shares,
at cost (note 11) - 254,823 - - -
Sale of treasury shares (note 4) - (131,579) - 236 -
Net appreciation on debt securities
transferred from held-to-maturity
classification (note 4) - - - - -
Net appreciation on debt and
equity securities - - - - -
--------- -------- ------ ------ ------
Balances, December 31, 1995 3,238,959 123,244 3,239 8,417 66,994
Net income - - - - 9,585
Issuance of common stock (note 1) 1 - - - -
Issuance of treasury shares as
stock bonus (note 11) - (28,430) - 207 -
Issuance of treasury shares in
purchase of subsidiary (note 11) - (44,000) - 178 -
Retirement and cancellation of
treasury shares (note 11) (50,814) (50,814) (51) (823) -
Issuance of 10% stock dividend 317,604 - 318 6,590 (6,934)
Net depreciation on debt and
equity securities - - - - -
--------- -------- ------ ------ ------
Balances, December 31, 1996 3,505,750 -- $3,506 14,569 69,645
========= ======== ====== ====== ======
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
on Investments,
Net of
Deferred
Federal Cost of Total
Income Common Share
Tax Stock in holders'
Effect Treasury Equity
------ -------- ------
(In thousands, except share data)
<S> <C> <C> <C>
Balances, December 31, 1993 (497) - 64,839
Net income - - 5,154
Issuance of 10% stock dividend - - (17)
Net depreciation on debt and
equity securities (6,834) - (6,834)
------- ------ -------
Balances, December 31, 1994 (7,331) - 63,142
Net income - - 7,941
Purchase of treasury shares,
at cost (note 11) - (4,385) (4,385)
Sale of treasury shares (note 4) - 2,264 2,500
Net appreciation on debt securities
transferred from held-to-maturity
classification (note 4) 511 - 511
Net appreciation on debt and
equity securities 8,702 - 8,702
------- ------ -------
Balances, December 31, 1995 1,882 (2,121) 78,411
Net income - - 9,585
Issuance of common stock (note 1) - - -
Issuance of treasury shares as
stock bonus (note 11) - 490 697
Issuance of treasury shares in
purchase of subsidiary (note 11) - 757 935
Retirement and cancellation of
treasury shares (note 11) - 874 -
Issuance of 10% stock dividend - - (26)
Net depreciation on debt and
equity securities (1,644) - (1,644)
------- ------ -------
Balances, December 31, 1996 238 - 87,958
======= ====== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
-43-
<PAGE> 45
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,585 7,941 5,154
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,423 1,056 2,257
Undistributed equity in earnings of affiliate - - (612)
Realized losses on investments 473 6 2,006
Deferred federal income taxes 1,834 5,250 2,306
Stock bonus 697 - -
Changes in assets and liabilities:
Premiums due from policyholders 350 558 185
Amounts due from reinsurers (5,286) (8,809) 346
Accrued investment income (273) (615) (443)
Prepaid reinsurance premiums (46) 902 77
Deferred policy acquisition costs 94 20 (84)
Other assets (1,137) (331) -
Loss and loss adjustment expense reserves 20,314 11,061 (2,677)
Reserve for extended reporting period claims 713 1,344 500
Unearned premiums (1,177) (1,435) 210
Drafts outstanding (905) (18) 388
Accrued expenses and other liabilities 1,877 667 104
--------- -------- --------
Net cash provided by operating activities 29,536 17,597 9,717
--------- -------- --------
Cash flows from investing activities:
Proceeds from sale or maturity of short-term investments 293,643 658,437 239,905
Purchases of short-term investments (286,325) (634,287) (231,308)
Proceeds from maturity of securities available for sale 2,000 43,847 9,265
Proceeds from sale of securities available for sale 97,188 115,684 70,518
Purchases of securities available for sale (130,506) (216,175) (88,189)
Proceeds from maturity of securities held to maturity - 27,686 29,180
Proceeds from sale of securities held to maturity - 758 1,455
Purchases of securities held to maturity - (12,861) (40,852)
Payable for securities (3,205) 3,205 -
Purchases of property and equipment (667) (774) (224)
Payment on liability for purchased book of business (894) (893) -
--------- -------- --------
Net cash used in investing activities (28,766) (15,373) (10,250)
--------- -------- --------
Cash flows from financing activities:
Purchase of treasury shares - (4,385) -
Sale of treasury shares - 2,500 -
Cash paid in lieu of fractional shares (26) - (17)
--------- -------- --------
Net cash used in financing activities (26) (1,885) (17)
--------- -------- --------
Net increase (decrease) in cash 744 339 (550)
Cash, beginning of year 1,279 940 1,490
--------- -------- --------
Cash, end of year $ 2,023 1,279 940
========= ======== ========
Supplemental disclosure of cash flow information - federal income
taxes paid (recovered) $ 1,593 (159) 350
========= ======== ========
Supplemental schedule of noncash investing and financing activities:
Purchase of book of business (note 15):
Intangible assets acquired $ (400) (3,587) -
Amount due 400 3,587 -
Issuance of treasury shares as stock bonus (note 11) 697 - -
Issuance of treasury shares for acquired company (note 11) 935 - -
</TABLE>
See accompanying notes to the consolidated financial statements.
-44-
<PAGE> 46
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) Description of Business
General
Professionals Insurance Company Management Group (Professionals Group) is
an insurance holding company incorporated under Michigan law on January 31,
1996. Professionals Group owns all of the issued and outstanding common
stock of PICOM Insurance Company (PICOM), a stock insurance company
incorporated under Michigan law. Professionals Group and PICOM are
collectively referred to as "the Company."
Effective August 31, 1996, and pursuant to a Reorganization Agreement dated
May 13, 1996 (the Reorganization Agreement), and an Agreement and Plan of
Merger dated May 13, 1996 (Plan of Merger), among Professionals Group,
PICOM Interim Insurance Company, a stock insurance company incorporated
under Michigan law and a wholly owned subsidiary of Professionals Group
(INSCO) and PICOM, Professionals Group acquired all of the outstanding
capital stock of PICOM through the merger of INSCO with and into PICOM (the
Merger). As a result of the Merger: (1) INSCO was merged into PICOM and
INSCO ceased to exist; (2) PICOM, as the surviving corporation, became a
wholly owned subsidiary of Professionals Group; (3) each issued and
outstanding share of common stock of PICOM (representing 3,188,145 shares)
was converted into one share of common stock of Professionals Group, and
(4) all of the issued and outstanding shares of INSCO held by Professionals
Group were converted into shares of common stock of PICOM.
Prior to the Reorganization Agreement and the Plan of Merger, PICOM loaned
$1,500,000 to Professionals Group for the purpose of enabling Professionals
Group to form and capitalize INSCO in accordance with the Michigan
Insurance Code. Professionals Group invested the entire $1,500,000 in
INSCO in exchange for all of the issued and outstanding shares of capital
stock of INSCO. The loan from PICOM to Professionals Group had a stated
interest rate and maturity date and was secured by a pledge of all of the
issued and outstanding shares of INSCO. Subsequent to the Merger, PICOM
declared and paid cash dividends totaling $3,530,334 to Professionals
Group. Professionals Group then used $1,530,334 of the cash dividend to
repay PICOM the outstanding balance plus accrued interest on the loan.
The Merger has been accounted for in a manner similar to a pooling of
interests, whereby Professionals Group has carried forward to its accounts
the assets and liabilities of PICOM at their respective amounts as reported
by PICOM.
PICOM is a Michigan-domiciled property and casualty insurance company
providing professional liability insurance for physicians, surgeons,
dentists, hospitals, other health care providers and lawyers and law firms
in Michigan, Ohio and Indiana. PICOM is also licensed in Illinois, Iowa
and Pennsylvania. PICOM, through a wholly owned insurance subsidiary also
writes business in Illinois (see note 2).
-45-
<PAGE> 47
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Description of Business, Continued
Following is a description of the most significant risks facing
property/casualty insurers and how the Company mitigates those risks:
Legal/Regulatory Risk is the risk that the legal or regulatory environment
in which an insurer operates will change and create additional costs or
expenses not anticipated by the insurer in pricing its products. That is,
regulatory initiatives designed to reduce insurer profits or new legal
theories may create costs for the insurer beyond those recorded in the
financial statements. The Company mitigates this risk through underwriting
and loss adjusting practices which identify and minimize the adverse impact
of this risk.
Credit Risk is the risk that issuers of securities owned by the Company
will default or other parties, including reinsurers, which owe the Company
money will not pay. Also, the Company writes a significant amount of
business under which policyholders reimburse the Company for policy
deductibles. The Company minimizes this risk by adhering to a conservative
investment strategy, by maintaining sound reinsurance and credit and
collection policies and by providing for any amounts deemed uncollectible.
Interest Rate Risk is the risk that interest rates will change and cause a
decrease in the value of an insurer's investments. The Company mitigates
this risk by attempting to match the maturity schedule of its assets with
the expected payout of its liabilities. To the extent that liabilities
come due more quickly than assets mature, an insurer would have to sell
assets prior to maturity and recognize a gain or loss. At December 31,
1996, the estimated market value of the Company's bond portfolio was
greater than its amortized cost.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the dates of the balance sheets and revenues
and expenses for the periods then ended. Actual results may differ from
those estimates.
The most significant estimates that are susceptible to significant change
in the near term relate to the determination of the loss and loss
adjustment expense reserves and the reserve for extended reporting period
claims. Although considerable variability is inherent in these estimates,
management believes that the reserves are adequate. The estimates are
reviewed regularly and adjusted as necessary. Such adjustments are
generally reflected in current operations. Other material estimates that
are susceptible to significant change in the near term relate to the
recoverability of deferred federal income tax assets.
(2) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Professionals Group, its wholly owned subsidiary, PICOM and the following
wholly owned subsidiaries of PICOM:
PICOM Insurance Company of Illinois (PICOM-Illinois) - an
Illinois-domiciled property and casualty insurance company providing
professional liability insurance for physicians and surgeons in the State
of Illinois. PICOM-Illinois was formed in December 1994 to write the book
of business purchased effective January 1, 1995 (see note 15).
PICOM Claims Services Corporation - a provider of claims processing
services to a nonaffiliated professional liability company.
-46-
<PAGE> 48
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Principles of Consolidation, Continued
PICOM Financial Services Corporation - an inactive financial services
company.
PICOM Insurance Agency, Inc. - an inactive insurance agency.
American Insurance Management Corporation - an Indiana Corporation that
serves as the attorney-in-fact for American Medical Insurance Exchange, an
Indiana interinsurance reciprocal exchange.
All significant intercompany transactions and balances have been eliminated
in consolidation.
(3) Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP), which vary in
certain respects from statutory accounting practices followed in
reporting to insurance regulatory authorities (see note 13 for the
effects of such differences).
(b) Investments
Investment securities are classified upon acquisition into one of
three categories: trading, available-for-sale or held-to-maturity.
Trading securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are those
securities the Company has the positive intent and ability to hold
until maturity. At December 31, 1996 and 1995, all of the Company's
securities are classified as available-for-sale and are those
securities that would be available to be sold in response to the
Company's liquidity needs, changes in market interest rates and
asset-liability management strategies, among others.
Available-for-sale securities are recorded at fair value, whereas
held-to-maturity securities are recorded at amortized cost.
Unrealized gains and losses, net of the related income tax effect, on
available-for-sale securities are excluded from income and reported as
a separate component of shareholders' equity. Transfers of securities
between categories are recorded at fair value at the date of transfer.
Unrealized gains and losses associated with transfers of securities
from held-to-maturity to available-for-sale are recorded as a separate
component of shareholders' equity.
A decline in the fair value of an available-for-sale or
held-to-maturity security below cost that is deemed other than
temporary results in a charge to income, resulting in the
establishment of a new cost basis for the security. All declines in
fair values of the Company's investment securities in 1996, 1995 or
1994 were deemed to be temporary.
-47-
<PAGE> 49
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Summary of Significant Accounting Policies, Continued
(b) Investments, Continued
Investments in preferred stock and common stock of nonaffiliates are
stated at fair value. Fair values are based on quoted market prices
or dealer quotes. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
Short-term investments, which consist principally of commercial paper,
money market funds and U.S. government securities, are stated at cost,
which approximates fair value.
Premiums and discounts are amortized or accreted, respectively, over
the life of the related debt security as an adjustment to yield using
the yield-to-maturity method. Dividends and interest income are
recognized when earned. Realized gains and losses are included in
earnings and are derived using the specific-identification method for
determining the cost of securities sold.
(c) Revenue Recognition
Insurance premium income is recognized on a monthly pro rata basis
over the respective terms of the policies in-force and unearned
premiums represent the portion of premiums written which is applicable
to the unexpired terms of the policies in-force.
Reinsurance arrangements are prospective contracts for which prepaid
reinsurance premiums are amortized ratably over the related policy
terms based on the estimated ultimate amounts to be paid.
(d) Loss and Loss Adjustment Expense Reserves
Loss and loss adjustment expense reserves represent the accumulation
of individual case estimates for reported losses and loss adjustment
expenses, bulk adjustments to case estimates and actuarial estimates
for incurred but not reported losses and loss adjustment expenses,
based upon the Company's actual experience, assumptions and
projections as to claims frequency, severity, inflationary trends and
settlement payments. The reserve for loss and loss adjustment
expenses is intended to cover the ultimate net cost of all losses and
loss adjustment expenses incurred but unsettled through the balance
sheet date. The reserve is stated gross of reinsurance ceded.
Through December 31, 1994, the Company discounted loss and loss
adjustment expense reserves to present value. Effective January 1,
1995, the Company eliminated its practice of discounting, a change in
method of accounting (see note 9).
-48-
<PAGE> 50
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Summary of Significant Accounting Policies, Continued
(e) Reserve for Extended Reporting Period Claims
The reserve for extended reporting period claims coverage is recorded
during the term of the original claims-made policy, utilizing the
pure-premium approach, in amounts adequate to pay for estimated future
claims reported subsequent to current policyholders' death, disability
or retirement. Changes in this reserve are charged or credited to
income.
(f) Property and Equipment and Depreciation
Property and equipment are recorded at cost, net of accumulated
depreciation. Depreciation is computed on the straight-line method
over periods ranging from 4 to 25 years. Maintenance, repairs and
minor renewals are charged to expense as incurred.
The cost and related accumulated depreciation of assets sold are
removed from the related accounts and the resulting gain or loss is
reflected in income.
(g) Deferred Policy Acquisition Costs
Policy acquisition costs, specifically commissions, are deferred,
subject to ultimate recoverability from future income, including
investment income and amortized to expense over the period in which
the related premiums are earned.
(h) Federal Income Taxes
Deferred federal income tax assets and liabilities are recognized for
the expected future tax consequences attributable to differences
between the financial statement carrying amount of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which these temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(i) Intangible Assets
Intangible assets are comprised of goodwill, which represents the
excess of cost over the fair value of assets acquired, and the cost of
a purchased book of business (see note 15), both of which are being
amortized on a straight-line basis over ten years. The carrying value
of intangible assets is periodically reviewed by the Company based on
the expected future undiscounted operating cash flows of the related
entity. Based upon its most recent analysis, the Company believes
that no material impairment of intangible assets exists at December
31, 1996.
-49-
<PAGE> 51
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Summary of Significant Accounting Policies, Continued
(j) Stock-Based Compensation
As more fully described in note 12, the Company records compensation
expense for stock options only if the market price of the Company's
stock, on the date of grant, exceeds the amount an individual must pay
to acquire the stock.
(k) Net Income Per Share
Net income per share is computed by dividing net income by the
weighted average number of shares of common stock and common stock
equivalents (stock options) outstanding during each year after giving
effect to stock dividends and treasury shares.
(4) Investments
In November 1995, the Financial Accounting Standards Board issued a "Guide
to Implementation of Statement 115 on Accounting for Certain Investments in
Debt and Equity Securities." This guide allowed companies to reassess the
appropriateness of the classification of securities as of the date of the
implementation guide, but no later than December 31, 1995. As a result,
the Company made a one-time transfer of approximately $77,893,000 in
investment securities previously classified as held-to-maturity to the
available-for-sale classification. The effect of such reclassification
increased shareholders' equity by $511,000, net of deferred federal income
taxes.
A summary of amortized cost, gross unrealized gains and losses and
estimated fair value of investments in securities as of December 31, 1996
and 1995, follows:
<TABLE>
<CAPTION>
1996
-------------------------------------
Gross Unrealized Estimated
Amortized ---------------- Fair
Cost Gains Losses Value
--------- ----- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Fixed maturities available for sale:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 52,065 342 394 52,013
Debt securities issued by states of the United
States and political subdivisions of the
states 95,433 581 258 95,756
Debt securities issued by foreign governments 690 150 - 840
Corporate debt securities 46,356 345 375 46,326
Mortgage-backed securities:
Government 68,752 466 788 68,430
Other 15,684 168 41 15,811
Redeemable preferred stocks 6,996 104 2 7,098
-------- ----- ----- -------
$285,976 2,156 1,858 286,274
======== ===== ===== =======
Equity securities available for sale -
common stocks $ 2,630 67 5 2,692
======== ===== ===== =======
</TABLE>
-50-
<PAGE> 52
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Investments, Continued
<TABLE>
<CAPTION>
1995
------------------------------------------
Gross Unrealized Estimated
Amortized ---------------- Fair
Cost Gains Losses Value
--------- ----- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Fixed maturities available for sale:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 85,716 1,499 35 87,180
Debt securities issued by states of the United
States and political subdivisions of the
states 50,348 489 5 50,832
Debt securities issued by foreign governments 606 88 - 694
Corporate debt securities 35,567 831 61 36,337
Mortgage-backed securities:
Government 67,610 236 481 67,365
Other 17,282 318 29 17,571
-------- ----- --- -------
$257,129 3,461 611 259,979
======== ===== === =======
Equity securities available for sale - common
stocks $ 2,608 66 33 2,641
======== ===== === =======
</TABLE>
The amortized cost and estimated fair value of fixed maturities at December
31, 1996, by contractual maturity, are shown below. Expected maturities on
certain corporate and mortgage-backed securities may differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
--------- -------
(In thousands)
<S> <C> <C>
Due in one year or less $ 4,590 4,608
Due after one year through five years 83,947 83,824
Due after five years through ten years 96,372 96,635
Due after ten years 9,635 9,868
-------- -------
194,544 194,935
Mortgage-backed securities:
Government 68,752 68,430
Other 15,684 15,811
Redeemable preferred stocks 6,996 7,098
-------- -------
$285,976 286,274
======== =======
</TABLE>
-51-
<PAGE> 53
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Investments, Continued
Proceeds and related gross realized gains and gross realized losses on
sales of fixed maturities follow:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Proceeds $97,127 116,441 71,637
======= ======= ======
Gross realized gains $ 319 1,672 887
Gross realized losses (807) (1,345) (3,024)
------- ------- ------
Net realized gains (losses) $ (488) 327 (2,137)
======= ======= ======
</TABLE>
A summary of the sources of net investment income follows:
<TABLE>
Years Ended December 31,
----------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Fixed maturities $15,548 11,920 12,863
Equity securities 32 2 2
Short-term investments and
cash and cash equivalents 860 3,176 1,232
Real estate 87 70 59
Other investment assets 143 477 490
------- ------ ------
Total investment income 16,670 15,645 14,646
Less investment expenses 929 916 1,267
------- ------ ------
Net investment income $15,741 14,729 13,379
======= ====== ======
</TABLE>
Realized gains (losses) and increases (decreases) in net unrealized gains
(losses) follow:
<TABLE>
Years Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net realized losses:
Fixed maturities $ (488) 327 (2,137)
Equity securities 15 (333) 131
------- ------ -------
Net realized losses $ (473) (6) (2,006)
======= ====== =======
Change in net unrealized gains (losses):
Fixed maturities $(2,552) 19,356 (15,506)
Equity securities 29 22 (82)
------- ------ -------
Total change in net unrealized gains
(losses) $(2,523) 19,378 (15,588)
======= ====== =======
</TABLE>
-52-
<PAGE> 54
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Investments, Continued
During 1994, the Company sold all its Federal National Mortgage Association
interest-only strip bonds, having an aggregate amortized cost of
$1,146,255, from its held-to-maturity portfolio for $1,455,032, resulting
in a net gain of $308,777. The sale of these securities resulted from
management's decision to eliminate the interest rate risk associated with
these investments, and accordingly, management does not intend to invest in
this type of security prospectively. Because these investment securities
were unique in the Company's investment portfolio, management's intent to
hold other debt securities until maturity was not affected by these sales.
During 1995, the Company tendered a fixed maturity security having an
amortized cost of $747,146 from its held-to-maturity portfolio for
$757,862, resulting in a gain of $10,716. This security was tendered
because the future creditworthiness of the issuer was not determinable.
On December 28, 1995, under a reciprocal stock purchase agreement with
Physicians Insurance Company of Wisconsin, Inc. (PIC-Wis), the Company
acquired 1,583 shares of PIC-Wis' common stock (representing 6.77 % of
PIC-Wis' outstanding stock) for $2,500,000, and PIC-Wis acquired 131,579
shares of the Company's common stock (representing 4.2 % of the Company's
outstanding stock) for $2,500,000.
At December 31, 1996, U.S. Treasury notes and certificates of deposit with
a carrying value of $3,407,000 were on deposit with regulatory authorities,
as required by law.
(5) Reinsurance
In the normal course of business, the Company seeks to reduce the loss that
may arise from events that cause unfavorable underwriting results by
reinsuring certain levels of risk in various areas of exposure with other
insurance enterprises or reinsurers. Amounts receivable from reinsurers
are estimated in a manner consistent with the claim liability associated
with the reinsured policy. Although reinsurance agreements contractually
obligate the Company's reinsurers to reimburse the Company for their
proportionate share of losses, they do not discharge the primary liability
of the Company. The Company remains liable for the ceded amount of
reserves for unpaid losses and loss adjustment expenses and unearned
premiums in the event the assuming insurance organizations are unable to
meet their contractual obligations.
The Company has various excess of loss and quota share reinsurance
agreements. As of December 31, 1996, PICOM's and PICOM-Illinois' maximum
current net retention, subject to certain adjustments of risk on any single
coverage per claim after reinsurance, follows:
<TABLE>
<CAPTION>
Net
Retention
---------
<S> <C>
PICOM Insurance Company $300,000
PICOM Insurance Company of Illinois 250,000
</TABLE>
-53-
<PAGE> 55
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) Reinsurance, Continued
The Company continually reviews its reinsurers, considering a number of
factors, the most critical of which is their financial stability. Based on
these reviews, the Company evaluates its position with reinsurers with
respect to existing and future reinsurance.
At December 31, 1996, amounts due from and premiums prepaid to reinsurers
follow:
<TABLE>
<CAPTION>
Amounts Prepaid
Due From Reinsurance
Reinsurers Premiums
---------- -----------
(In thousands)
<S> <C> <C>
Underwriters Reinsurance Company $4,125 -
TIG Reinsurance 6,110 37
PMA Reinsurance Corporation 2,710 3
Continental Casualty Company 2,291 9
Lloyd's of London Syndicates 709 27
Princeton Insurance Company 591 4
Other 1,014 42
------- ---
$17,550 122
======= ===
</TABLE>
Amounts due from reinsurers consisted of amounts related to:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Paid losses and loss adjustment expenses $ 41 48
Unpaid losses and loss adjustment expenses 19,206 14,186
Premiums ceded payable (2,059) (2,074)
Other 362 104
------- ------
$17,550 12,264
======= ======
</TABLE>
Premiums earned and losses and loss adjustment expenses are net of the
following reinsurance ceded amounts:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Premiums earned $9,261 13,478 2,409
Losses and loss adjustment expenses 6,356 11,475 1,910
</TABLE>
The increases in ceded premiums and ceded losses and loss adjustment expenses,
beginning in 1995, result from PICOM-Illinois' reinsurance program.
-54-
<PAGE> 56
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) Reinsurance, Continued
On December 31, 1996, the Company assumed all of the loss and loss
adjustment expense reserves and unearned premiums of American Medical
Insurance Exchange (AMIE), which resulted in a one-time charge to losses
and loss adjustment expenses of $613,000. This one-time charge resulted
primarily from the elimination of AMIE's practice of discounting its loss
and loss adjustment expense reserves.
(6) Federal Income Taxes
The Company files a consolidated federal income tax return which includes
PICOM and all of PICOM's subsidiaries. Income tax expense is computed
under the liability method, whereby deferred income taxes reflect the
estimated future tax effects of temporary differences between the carrying
value of assets and liabilities for financial reporting purposes and those
for income tax purposes. A valuation allowance is then required to be
established to reduce a deferred tax asset if it is "more likely than not"
that the related tax benefits will not be realized.
The provision for federal income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current $ 604 (1,159) 350
Deferred 1,834 9,435 2,306
------ ------ -----
$2,438 8,276 2,656
====== ====== =====
</TABLE>
The significant components of federal income tax expense (benefit) are
as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Continuing operations $2,438 8,276 2,656
Accounting changes - (4,185) -
Shareholders' equity (840) 4,740 (3,525)
------ ------ ------
$1,598 8,831 (869)
====== ====== ======
</TABLE>
-55-
<PAGE> 57
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6) Federal Income Taxes, Continued
Actual federal income taxes vary from amounts computed by applying the
current federal income tax rate of 34% to income or loss before federal
income taxes. For the years ended December 31, 1996, 1995 and 1994, the
reasons for these differences, and the tax effects thereof, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Expected tax expense $ 4,088 8,276 2,656
Dividends received deduction (11) - -
Tax-exempt interest (1,000) (65) -
Adjustment to prior years' tax liability (913) - -
Other, net 274 65 -
------- ----- -----
Actual tax expense $ 2,438 8,276 2,656
======= ===== =====
</TABLE>
The tax effects of temporary differences that give rise to deferred federal
income tax assets and deferred federal income tax liabilities follow:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Deferred federal income tax assets arising from:
Loss and loss adjustment expense reserves $14,704 16,655
Unearned premium reserves 1,484 1,567
Alternative minimum tax credits 1,656 1,840
Other, net 194 72
------- ------
Total deferred federal income tax assets 18,038 20,134
------- ------
Deferred federal income tax liabilities arising from:
Deferred policy acquisition costs 339 371
Unrealized gains on investments 123 963
Other 275 536
------- ------
Total deferred federal income tax liabilities 737 1,870
------- ------
Net deferred federal income taxes $17,301 18,264
======= ======
</TABLE>
In assessing the realizability of deferred federal income tax assets,
management considers whether it is more likely than not that some portion
of the deferred federal income tax assets will not be realized. Because of
the carryforward provisions of the Internal Revenue Code, the expectation
that temporary differences will reverse during periods in which taxable
income is generated, and the fact that the Company has not incurred an
operating loss for either financial or federal income tax reporting
purposes since 1987, management believes it is more likely than not that
the Company will fully realize the net deferred federal income tax assets.
Accordingly, no valuation allowance has been established.
-56-
<PAGE> 58
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) Property and Equipment
At December 31, 1996 and 1995, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Real estate $ 1,998 1,813
Data processing equipment, including software 2,008 1,780
Furniture, fixtures and equipment 1,210 1,051
------- ------
5,216 4,644
Accumulated depreciation (2,757) (2,303)
------- ------
Total property and equipment $ 2,459 2,341
======= ======
</TABLE>
(8) Deferred Policy Acquisition Costs
Changes in deferred policy acquisition costs are summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net asset balance, beginning of year $ 1,092 1,112 1,028
------- ------ ------
Amounts deferred:
Commissions to agents 2,873 3,181 2,257
Ceding commission income (1,229) (1,543) (59)
------- ------ ------
Net amounts deferred 1,644 1,638 2,198
------- ------ ------
Net amortization (1,738) (1,658) (2,114)
------- ------ ------
Net asset balance, end of year $ 998 1,092 1,112
======= ====== ======
</TABLE>
(9) Loss and Loss Adjustment Expense Reserves
Prior to 1995, loss and loss adjustment expense reserves were discounted to
reflect anticipated investment income. Discounts were based on historical
payment patterns and assumed an interest rate at or below the Company's
investment yield, which was the same rate used for statutory reporting
purposes.
Effective January 1, 1995, the Company eliminated its practice of
discounting loss and loss adjustment expense reserves for GAAP reporting
purposes, a change in method of accounting. The Company believes it is
preferable not to discount reserves because it is more conservative and is
practiced by most publicly held insurers. This change in method of
accounting resulted in a one-time cumulative charge of $8,125,000, net of
deferred federal income taxes, as of January 1, 1995.
-57-
<PAGE> 59
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(9) Loss and Loss Adjustment Expense Reserves, Continued
Activity in loss and loss adjustment expense reserves is summarized as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Balance, beginning of year $199,605 188,544 191,220
Less reinsurance balances recoverable (14,186) (3,760) (4,040)
-------- ------- -------
Net balance, beginning of year 185,419 184,784 187,180
-------- ------- -------
Incurred related to:
Current year 65,986 63,027 68,610
Prior years (17,618) (27,469) (23,757)
-------- ------- -------
Total incurred 48,368 35,558 44,853
-------- ------- -------
Effect of change in accounting method - 12,310 -
Loss and loss adjustment expense reserves
assumed (see note 5) 4,119 - -
-------- ------- -------
Paid related to:
Current year 4,352 3,053 4,433
Prior years 32,841 44,180 42,816
-------- ------- -------
Total paid 37,193 47,233 47,249
-------- ------- -------
Net balance, end of year 200,713 185,419 184,784
Plus reinsurance balances recoverable 19,206 14,186 3,760
-------- ------- -------
Balance, end of year $219,919 199,605 188,544
======== ======= =======
</TABLE>
The Company establishes conservative reserves for the most recent accident
years and adjusts the reserves as new information becomes available. This
conservative reserving practice has resulted in favorable development in
estimates of prior years' reserves.
Had the elimination of discounting been retroactively applied, total
incurred losses would have been $44,547,000 in 1994.
-58-
<PAGE> 60
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(10) Employee Benefit Plans
The Company currently maintains two defined contribution employee benefit
plans--a 401(k) plan and a money purchase plan--which cover substantially
all employees meeting certain eligibility requirements.
With respect to the 401(k) plan, the Company annually contributes 5% of an
employee's salary and matches employee contributions up to 5% of an
employee's salary. During 1996, 1995 and 1994, the Company's expense under
the 401(k) plan was $295,000, $261,000 and $298,000, respectively.
With respect to the money purchase plan, the Company annually contributes
3% of an employee's salary up to a prescribed maximum, plus 5% of the
excess of an employee's salary over the prescribed maximum. During 1996,
1995 and 1994, the Company's expense under the money purchase plan was
$112,000, $114,000 and $118,000, respectively.
The Company has a stock purchase plan through which employees and directors
of the Company and its wholly owned subsidiaries may purchase the Company's
common stock by means of payroll deduction. Pursuant to this plan, the
Company may elect to match participant purchases, which it is currently
matching at the rate of $1.25 (of which $1.00 is used to purchase the
Company's common stock and $0.25 is applied to income taxes) for each $1.00
of participant purchases up to a maximum participant purchase of $6,000 per
year. In 1996, 1995 and 1994, the Company incurred expenses of $215,000,
$82,000 and $64,000, respectively, under this plan.
(11) Shareholders' Equity
Approximately $317,200,000 of consolidated assets represents assets of the
Company's insurance operations that may not be transferable to the Company
in the form of dividends, loans or advances without prior regulatory
approval. Specifically, the Michigan and Illinois Insurance Codes limit
the amount of dividends that PICOM or PICOM-Illinois can pay to their
respective parent in any 12-month period to the greater of statutory net
income for the preceding year, excluding realized gains (losses) on sales
of investments, or 10% of policyholders' surplus as of the preceding
year-end. As of January 1, 1997, approximately $14,899,000 and $601,000
could be paid without prior regulatory approval by PICOM and
PICOM-Illinois, respectively. In 1996, PICOM paid $3,530,334 in dividends
and PICOM-Illinois paid no dividends. In 1995 and 1994, neither PICOM nor
PICOM-Illinois paid any dividends.
On February 28, 1996, the Company awarded 28,430 shares of common stock
held in treasury to directors, officers and employees of the Company as a
one-time stock bonus. Compensation expense for this stock bonus
approximated $697,000, which was charged to policy acquisition and other
underwriting expenses.
On May 1, 1996, in a transaction approximating $1,244,000, the Company paid
$309,000 and issued 44,000 shares of common stock held in treasury (valued
at $935,000) in exchange for all of the issued and outstanding shares of
American Insurance Management Corporation. The acquisition was accounted
for as a purchase. The effect of the acquisition was not material to the
Company's consolidated results of operations.
-59-
<PAGE> 61
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(11) Shareholders' Equity, Continued
As a result of the merger on August 31, 1996 (see note 1), the remaining
50,814 shares of the Company's common stock held in treasury were
canceled and retired at cost.
Effective July 5, 1995, the Company purchased 254,823 shares of its
common stock (approximately 7.9% of its then-issued and outstanding
shares) from Physicians Insurance Company of Ohio for $4,331,991 ($17 per
share), plus $53,000 for advisory and finder fees. These shares, net of
131,579 shares sold in December 1995 (see note 4), were held as treasury
stock available for resale at December 31, 1995.
On November 21, 1996 and September 22, 1994, the Company declared 10%
stock dividends, issued on December 16, 1996 and December 1, 1994,
respectively, to shareholders of record as of December 4, 1996 and
October 28, 1994, respectively. All per-share information in the
accompanying consolidated financial statements has been adjusted to give
retroactive effect to these stock dividends.
(12) Stock Options and Awards
The Company has established the 1996 Long-Term Stock Incentive Plan
(the "Incentive Plan") under which, subject to adjustment, 300,000 shares
of the Company's common stock are available to grant incentive and
non-qualified stock options, stock appreciation rights (SARs), restricted
stock, restricted stock units, performance awards, dividend equivalents
and other stock-based awards to employees of, including any officer or
officer-director, or consultants to the Company and its subsidiaries.
All terms and conditions of any grants under the Incentive Plan are at
the discretion of the Compensation Committee of the Company's Board of
Directors. As of December 31, 1996, no grants have been made under the
Incentive Plan.
The Company has also established the 1996 Non-Employee Directors Stock
Option Plan (the "Directors Plan") under which, subject to adjustment,
non-qualified options for 50,000 shares of the Company's common stock may
be granted to non-employee directors (maximum of 5,000 shares to one
individual) of the Company. Options are granted at or above the market
price of the Company's common stock on the date of grant. Options become
exercisable one year from the date of grant and expire seven years from
the date of grant. No charges to operations are recorded with respect to
authorization, grant or exercise of options. Proceeds received upon
exercise are credited to shareholders' equity. As of December 31, 1996,
stock options totaling 4,500 shares of the Company's common stock had
been granted under the Directors Plan at an exercise price of $21.63. No
options were exercised or canceled during 1996.
-60-
<PAGE> 62
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(12) Stock Options and Awards, Continued
Information regarding the Directors Plan for 1996 follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- ----------------------
Weighted
Weighted Average Number Weighted
Average Remaining Exercisable Average
Exercise Contractual At December Exercise
Shares Price Life 31, 1996 Price
------ -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year - $ - - - $ -
Options granted 4,500 21.63 - - -
------- ------
Options outstanding,
end of year 4,500 $21.63 7 years - $ -
======= ====== ====== =====
Range of exercise prices
for options outstanding,
end of year $ 21.63
=======
Options available for
grant, end of year 45,500
=======
Weighted average fair value
of options granted during
the year $ 10.35
=======
</TABLE>
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based
Compensation," which is effective for fiscal years beginning after December
15, 1995. This standard prescribes a method of accounting for stock-based
compensation that recognizes compensation cost based on the fair value of
options at grant date. In lieu of applying this fair value based method, a
company may elect to disclose only the proforma effects of such application
in the footnotes to its financial statements.
The Company has elected the disclosure-only provisions of SFAS No. 123.
Accordingly, had compensation cost for the Directors Plan been based on
the fair value of options at grant date, the Company's 1996 net income (in
thousands) and net income per common share would have been reduced to the
proforma amounts below:
<TABLE>
<S> <C>
Net income:
As reported $9,585
Proforma 9,548
Net income per common share:
As reported $2.75
Proforma 2.74
</TABLE>
-61-
<PAGE> 63
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(12) Stock Options and Awards, Continued
The fair value of options at date of grant was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996: dividend yield of 0%; expected
volatility of 30.4%; risk free interest rate of 6.75%; and expected lives
of 7 years. The proforma effect on net income for 1996 is not
representative of the proforma effect on net income for future years
because additional stock option awards could be made in future years.
(13) Statutory Insurance Accounting Practices
PICOM and PICOM-Illinois are required to file financial statements prepared
in accordance with statutory insurance accounting practices (SAP)
prescribed or permitted by Michigan and Illinois with their respective
domiciliary states. The only material statutory accounting method utilized
by PICOM that is permitted rather than prescribed is PICOM's discounting of
its loss and loss adjustment expense reserves through December 31, 1994 and
discounting of loss reserves only thereafter. The impact of such permitted
practice is to increase the statutory policyholders' surplus of PICOM by
$10,658,000 and $9,393,000 at December 31, 1996 and 1995, respectively.
PICOM-Illinois does not utilize any permitted accounting practices.
Accounting practices used to prepare statutory-basis financial statements
differ in some respects from GAAP. A reconciliation of statutory capital
and surplus at December 31, 1996 and 1995, and statutory net income for the
years ended December 31, 1996, 1995 and 1994, of PICOM and PICOM-Illinois,
as applicable (as filed with their respective insurance regulatory
authorities), to the amounts shown in the accompanying consolidated
financial statements follows:
<TABLE>
<CAPTION>
December 31,
-------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Statutory capital and surplus $ 80,572 67,006
Net unrealized appreciation on securities available for sale 293 2,832
Deferred policy acquisition costs capitalized for GAAP 998 1,092
Deferred federal income taxes recorded for GAAP 17,301 18,264
Assets non-admitted for SAP 813 640
Loss and loss adjustment expense reserve discount (10,658) (9,393)
Liabilities for GAAP in excess of SAP (2,700) (2,700)
Liabilities required for SAP in excess of those required
for GAAP 524 572
Intercompany dividends eliminated for GAAP 2,000 -
Net loss attributable to Professionals Group (1,287) -
Other 102 98
-------- ------
Total shareholders' equity per accompanying consolidated
balance sheets $ 87,958 78,411
======== ======
</TABLE>
-62-
<PAGE> 64
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(13) Statutory Insurance Accounting Practices, Continued
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Statutory net income $14,238 22,201 6,537
Deferred federal income tax expense recorded for
GAAP (1,834) (9,435) (2,306)
Change in loss and loss adjustment expense reserve
discount (1,265) 1,925 -
Change in liabilities for GAAP in excess of SAP - 1,000 -
Cumulative effect of change in accounting method - (8,125) -
Other (245) 371 926
------- ------ ------
Combined net income of insurance companies based on
GAAP 10,894 7,937 5,157
Net income (loss) attributable to non-insurance
subsidiaries (22) 4 (3)
Net loss attributable to Professionals Group (1,287) - -
------- ------ ------
Net income per accompanying consolidated statements
of income $ 9,585 7,941 5,154
======= ====== ======
</TABLE>
Certain regulations that affect PICOM, PICOM-Illinois and the insurance
industry are promulgated by the National Association of Insurance
Commissioners (NAIC), which is an association of state insurance
commissioners, regulators and support staff that acts as a coordinating
body for the state insurance regulatory process. The NAIC has established
risk-based capital (RBC) requirements to assist regulators in monitoring
the financial strength and stability of property and casualty insurers.
Under the NAIC requirements, each insurer must maintain its total capital
and surplus above a calculated minimum threshold or take corrective
measures to achieve that threshold. PICOM and PICOM-Illinois have
calculated their RBC levels based on these requirements and have
determined that they passed the RBC test and have capital and surplus in
excess of the minimum threshold.
(14) Concentrations and Credit Risk
The Company writes approximately 80% of its premiums through approximately
55 independent agents and approximately 20% of its premiums directly. In
1996, 1995 and 1994, respectively, one agent individually produced
approximately 10% of the Company's direct premiums written. In 1996, 1995
and 1994, nine agents, in aggregate, produced approximately 55%, 54%, and
68%, respectively, of the Company's direct premiums written.
-63-
<PAGE> 65
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(14) Concentrations and Credit Risk, Continued
All premiums are directly billed to policyholders and premiums due are
secured by the related unearned premiums. When insureds fail to pay their
premiums, coverage is canceled. The Company generally requires
policyholders to remit a minimum of 40% of the premium at policy
origination date. Subsequent scheduled payments are monitored to prevent
the Company from providing coverage beyond the date for which payment has
been received. In the opinion of management, the amounts carried on the
accompanying consolidated balance sheets are collectible.
(15) Commitments
Effective January 1, 1995, PICOM purchased the right to solicit and write
medical professional liability insurance in Illinois that was formerly
written by another Illinois insurance company. The purchase price, which
is a percentage of annualized gross premiums written through 1999, will be
a minimum of $3,452,954, plus $134,000 attributable to a non-compete
covenant. The aggregate minimum purchase price of $3,586,954, net of
accumulated amortization approximating $717,400 and $358,700, was recorded
as an intangible asset at December 31, 1996 and 1995, respectively. To the
extent the ultimate purchase price exceeds the minimum, such excess will be
capitalized. During 1996, it was determined that the actual purchase price
is expected to exceed the minimum. As a result, an additional $400,000 was
capitalized in 1996.
As of December 31, 1996, the Company has entered into $5.5 million of
commitments to build a new home office facility and to purchase new
furniture and equipment. No other material commitments for capital
expenditures exist.
(16) Quarterly Financial Data (Unaudited)
The unaudited operating results by quarter for 1996 and 1995, are
summarized below:
<TABLE>
<CAPTION>
Total Income Net
Revenues Before Income Per
and Other Income Net Common
Income Taxes Income Share
--------- ------ ------ ----------
(In thousands, except per-share data)
<S> <C> <C> <C> <C>
1996:
First Quarter $18,275 3,166 2,328 .68
Second Quarter 17,649 2,761 2,158 .62
Third Quarter 17,925 3,251 2,396 .68
Fourth Quarter 18,393 2,845 2,703 .77
------- ------ ----- ===
Year $72,242 12,023 9,585
======= ====== =====
</TABLE>
-64-
<PAGE> 66
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(16) Quarterly Financial Data (Unaudited), Continued
<TABLE>
<CAPTION>
Income Before Pretax
Total Income Taxes and Effect of Net
Revenues Cumulative Effect Change in Income Per
and Other of Change in Accounting Net Common
Income Accounting Method Method Income Share
-------- ----------------- ---------- ------ ----------
(In thousands, except per-share data)
<S> <C> <C> <C> <C> <C>
1995:
First quarter $ 17,019 1,255 (12,310) (7,295) (2.05)
Second quarter 17,294 3,593 - 2,371 .67
Third quarter 18,110 3,861 - 2,548 .77
Fourth quarter 18,149 15,633 - 10,317 3.12
-------- ------ ------- ------ =====
Year $ 70,572 24,342 (12,310) 7,941
======== ====== ======= ======
</TABLE>
Net income per common share amounts for the first three quarters of 1996
and all four quarters of 1995 have been restated from those originally
reported to reflect the 10% stock dividend declared in 1996 (see note 11).
The sum of quarterly net income per share data for 1995 does not equal the
annual amount due to changes in the weighted average number of common
shares outstanding during the respective periods.
(17) Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosures of fair-value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable
to estimate the value. In situations where quoted market prices are not
available, fair values are to be based on estimates using present value or
other valuation techniques. SFAS No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements.
Under SFAS No. 107, the Company's investment securities, cash, short-term
investments, drafts outstanding and balance due on purchased book of
business constitute financial instruments. The carrying amounts of all
financial instruments--other than investment securities, which are
presented in note 4--approximated their fair values at December 31, 1996
and 1995.
-65-
<PAGE> 67
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(18) Subsequent Events
In February 1997, the Company entered into an agreement with Michigan
Educational Employees Mutual Insurance Company (MEEMIC), a
Michigan-domiciled mutual insurance company, which contemplates a series of
simultaneous transactions that include the purchase of a $21 million
surplus certificate from MEEMIC, a quota share reinsurance agreement
whereby PICOM will reinsure a portion of MEEMIC's net retained lines, a
management services agreement between the Company and MEEMIC and the
election of Professionals Group's nominees to MEEMIC's Board of Directors.
These transactions, subject to regulatory approval by the Michigan
Commissioner of Insurance, are projected to close by June 30, 1997.
Professionals Group has obtained a commitment for a seven year, $22.5
million unsecured term loan from a bank, bearing interest at LIBOR plus 75
basis points and payable monthly. With the proceeds received from this
loan, Professionals Group's Board of Directors has authorized a $20 million
capital contribution to PICOM, which will purchase the surplus certificate
from MEEMIC.
After consummation of the aforedescribed transactions with MEEMIC, the
Company has agreed to assist MEEMIC in acquiring the net assets of Michigan
Educators Insurance Agency, Inc. (MEIA). MEIA is an insurance agency that
has the exclusive right to distribute MEEMIC's insurance products. Upon
its purchase, MEIA's marketing and sales functions would be consolidated
with MEEMIC's. To fund this purchase, MEEMIC will utilize the proceeds of
the surplus certificate, plus a $20 million promissory note to be issued by
a MEEMIC subsidiary which will be guaranteed by the Company. Additionally,
Professionals Group will issue warrants for 275,000 shares of its common
stock to MEIA shareholders.
At a future date, the Company and MEEMIC expect to pursue demutualization
of MEEMIC. Such demutualization would be subject to regulatory approval by
the Michigan Commissioner of Insurance and approval of MEEMIC's
policyholders. No specific timetable has been set for this proposed
demutalization.
-66-
<PAGE> 68
Independent Auditors' Report
The Board of Directors and Shareholders
Professionals Insurance Company Management Group:
We have audited the accompanying consolidated balance sheets of Professionals
Insurance Company Management Group (formerly PICOM Insurance Company) and
subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for the years then
ended. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule as of and for
the period ended December 31, 1996. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Professionals
Insurance Company Management Group and subsidiary as of December 31, 1996 and
1995, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. Also
in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in notes 3 and 9 to the consolidated financial statements, the
Company changed its method of accounting for loss and loss adjustment expense
reserves to eliminate discounting of such reserves in 1995.
KPMG Peat Marwick LLP
East Lansing, Michigan
February 26, 1997
67
<PAGE> 69
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Professionals Insurance Company Management Group and Subsidiary
We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Professionals Insurance Company
Management Group and Subsidiary (formerly, PICOM Insurance Company and
Subsidiaries) for the year ended December 31, 1994. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects the consolidated results of its operations and its cash
flows of Professionals Insurance Company Management Group and Subsidiary as of
December 31, 1994 and for the year ended December 31, 1994 in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Columbus, Ohio
February 17, 1995
-68-
<PAGE> 70
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP (PARENT COMPANY)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1996
(In thousands)
<S> <C>
Assets
Investment in subsidiary $87,271
Short-term investments, at cost, which
approximates fair value 2,030
Cash -
-------
Total assets $89,300
=======
Liabilities and Shareholders' Equity
Liabilities - accrued expenses and other liabilities $1,343
-------
Shareholders' Equity
Preferred stock, no par value; 5,000,000 shares
authorized; no shares issued and outstanding -
Common stock, no par value; 25,000,000 shares
authorized; 3,505,750 shares issued and
outstanding 3,506
Additional paid-in capital 14,569
Retained earnings 69,645
Net unrealized appreciation on investments,
net of deferred taxes 238
-------
Total shareholders' equity 87,958
-------
Total liabilities and shareholders' equity $89,300
=======
</TABLE>
These condensed financial statements should be read in conjunction with
the accompanying consolidated financial statements and notes thereto of
Professionals Insurance Company Management Group and subsidiary.
See accompanying notes to the condensed financial information of registrant.
-69-
<PAGE> 71
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT, CONTINUED
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP (PARENT COMPANY)
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Period Ended December 31, 1996
(In thousands)
<S> <C>
Revenues
Dividend income from subsidiary $3,530
Investment income 30
------
Total revenues 3,560
------
Expenses
Operating and administrative 1,317
Interest expense 30
------
Total expenses 1,347
------
Income before federal income taxes and
equity in undistributed income of subsidiary 2,213
Federal income taxes 0
------
Income before equity in undistributed income
of subsidiary 2,213
Equity in undistributed income of subsidiary 4,823
------
Net income $7,036
======
</TABLE>
These condensed financial statements should be read in conjunction with
the accompanying consolidated financial statements and notes thereto of
Professionals Insurance Company Management Group and subsidiary.
See accompanying notes to the condensed financial information of registrant.
-70-
<PAGE> 72
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT, CONTINUED
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP (PARENT COMPANY)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period Ended December 31, 1996
(In thousands)
<S> <C>
Cash flows from operating activities
Net income $7,036
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiary (4,823)
Increase in accrued expenses and other
liabilities 1,343
------
Net cash provided by operating activities 3,556
------
Cash flows from investing activities
Proceeds from sale or maturity of short-term
investments 6,048
Purchases of short-term investments (8,078)
Capital contribution to consolidated
subsidiary (1,500)
------
Net cash used in investing activities (3,530)
------
Cash flows from financing activities
Cash paid in lieu of fractional shares (26)
Proceeds from issuance of note payable 1,500
Payments on note payable (1,500)
------
Net cash used in financing activities (26)
------
Net change in cash -
Cash, beginning of year -
------
Cash, end of year $ -
======
</TABLE>
These condensed financial statements should be read in conjunction with
the accompanying consolidated financial statements and notes thereto of
Professionals Insurance Company Management Group and subsidiary.
See accompanying notes to the condensed financial information of registrant.
-71-
<PAGE> 73
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT, CONTINUED
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Period Ended December 31, 1996
(1) Description of Business
Professionals Insurance Company Management Group (Professionals Group) is
an insurance holding company incorporated under Michigan law on January
31, 1996. Accordingly, condensed financial information for Professionals
Group is only being presented from the period January 31, 1996 (date of
inception) through December 31, 1996. Professionals Group owns all of
the issued and outstanding common stock of PICOM Insurance Company, a
stock insurance company incorporated under Michigan law.
(2) Federal Income Taxes
Under terms of Professionals Group's tax sharing agreement with its
direct and indirect subsidiaries, income tax provisions for the
individual companies are computed on a separate company basis.
-72-
<PAGE> 74
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
At a meeting of the Board of Directors of PICOM Insurance Company held on
September 21, 1995 and after recommendation by the Audit Committee of the Board
of Directors of PICOM, the accounting firm of KPMG Peat Marwick LLP was engaged
by PICOM to perform future independent audits of PICOM commencing with calendar
year 1995. KPMG Peat Marwick LLP thereby replaced Coopers & Lybrand LLP as
PICOM's independent auditors. The change in accountants resulted from PICOM's
putting its audit work out to bid and did not reflect any dissatisfaction or
disagreement with Coopers & Lybrand LLP. Coopers & Lybrand LLP participated in
the bidding process. In a letter dated October 3, 1995, Coopers Lybrand LLP
confirmed that the change in certifying accountants did not result from
disagreement on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope of procedure. During their two most
recent fiscal years neither Professionals Group nor PICOM engaged any
independent accountants other than KPMG Peat Marwick LLP and Coopers & Lybrand
LLP to audit the financial statements of Professionals Group, PICOM or any
significant subsidiary of Professionals Group or PICOM.
PART III
Item 10. Directors and Executive Officers
The information called for by this item with respect to the directors of
Professionals Group is reported under the caption "Proposal I-- Election of
Directors" of the Professionals Insurance Company Management Group Notice of
1997 Annual Meeting of Shareholders and Proxy Statement dated April 16, 1997,
which pages and information are herein incorporated by reference.
Information regarding the executive officers of Professionals Group is
reported in Part I on this Annual Report on Form 10-K pursuant to General
Instruction G to Form 10-K.
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 Annual Report on Form 10-K or any amendment to
this Annual Report on Form 10-K.
Item 11. Executive Compensation
The information called for by this item is reported under the captions
"Management Remuneration" and "Employment Severance Compensation Plans" of
the Professionals Insurance Company Management Group Notice of 1997 Annual
Meeting of Shareholders and Proxy Statement dated April 16, 1997, which pages
and information are herein incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by this item is reported under the caption
"Voting Securities and Principal Holders" of the Professionals Insurance Company
Management Group Notice of 1997 Annual Meeting of Shareholders and Proxy
Statement dated April 16, 1997, which pages and information are herein
incorporated by reference.
Item 13. Certain Relationships and Related Transactions
The information called for by this item is reported under the captions
"Compensation Committee Interlocks and Inside Participation" and "Directors
Compensation and Benefits" of the Professionals Insurance Company Management
Group Notice of 1997 Annual Meeting of Shareholders and Proxy Statement dated
April 16, 1997, which pages and information are herein incorporated by
reference.
-73-
<PAGE> 75
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Exhibits:
<TABLE>
<CAPTION>
Item 601
Regulation S-K
Exhibit Reference
Number Exhibit Description
- ----------------- -------------------
<S> <C>
(3)(a)/(4)(a) First Amended and Restated Articles of Incorporation of
Professionals Insurance Company Management Group and all
amendments thereto (incorporated by reference to Exhibit
(3)(a)/(4)(a) of the initial filing of the registrant's
Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission on April 3, 1996
(registration no. 333-3138)).
(3)(b)/(4)(b) By-laws of Professionals Insurance Company Management Group
(incorporated by reference to Exhibit (3)(b)/(4)(b) of the
initial filing of the registrant's Registration Statement on
Form S-4 as filed with the Securities and Exchange
Commission on April 3, 1996 (registration no. 333-3138)).
(4)(c) Specimen certificate for Professionals Insurance Company
Management Group's common stock (incorporated by reference
to Exhibit 4(c) of the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1996 as filed with the
Securities and Exchange Commission on November 12, 1996
(file no. 0-21223)).
</TABLE>
-74-
<PAGE> 76
<TABLE>
<CAPTION>
Item 601
Regulation S-K
Exhibit Reference
Number Exhibit Description
- ----------------- -------------------
<S> <C>
(4)(d) Specimen stock option issued under the Professionals
Insurance Company Management Group 1996 Non-Employee
Directors Stock Option Plan (incorporated by reference to
Exhibit 4(d) of the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1996 filed with the
Securities and Exchange Commission on November 12, 1996
(file no. 0-21223)).
(10)(a) Professionals Insurance Company Management Group 1996 Long
Term Incentive Plan (incorporated by reference to Exhibit
10(c) of Amendment No. 1 to the registrant's Registration
Statement on Form S-4 as filed with the Securities and
Exchange Commission on June 11, 1996 (registration no.
333-3138)).
(10)(b) Professionals Insurance Company Management Group 1996
Non-Employee Directors Stock Option Plan (incorporated by
reference to Exhibit 10(d) of Amendment No. 1 to the
registrant's Registration Statement on Form S-4 as filed
with the Securities and Exchange Commission on June 11, 1996
(registration no. 333-3138)).
(10)(c) Professionals Insurance Company Management Group Stock
Purchase Plan (incorporated by reference to Exhibit 10(e) of
the initial filing of the registrant's Registration
Statement on Form S-4 as filed with the Securities and
Exchange Commission on April 3, 1996 (registration no.
333-3138)).
(10)(d) PICOM Insurance Company Employees' Savings and Retirement
Plan.*
(10)(e) PICOM Insurance Company Pension Plan.*
</TABLE>
-75-
<PAGE> 77
<TABLE>
<CAPTION>
Item 601
Regulation S-K
Exhibit Reference
Number Exhibit Description
- ----------------- -------------------
<S> <C>
(11) No statement re computation of per share earnings is
required to be filed because the computations can be clearly
determined from the materials contained herein.
(16) Letter of Coopers & Lybrand, L.L.P., independent certified
public accountants, regarding change in accountants
(incorporated by reference to Exhibit 16 of Amendment No. 1
to the registrant's Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission on June 11,
1996 (registration no. 333-3138)).
(21) List of subsidiaries of registrant.*
(24) Powers of attorney.*
(27) Financial Data Schedule of registrant.*
</TABLE>
- -----------------
* Filed herewith.
Management contracts and compensatory plans or arrangements:
The management contracts and compensatory plans or arrangements required
to be filed as exhibits and included in such list of exhibits are as follows:
Exhibit (10)(a) Professionals Insurance Company Management Group 1996
Long-Term Incentive Plan.
Exhibit (10)(b) Professionals Insurance Company Management Group 1996
Non-Employee Directors Stock Option Plan.
Exhibit (10)(c) Professionals Insurance Company Management Group Stock
Purchase Plan.
Exhibit (10)(d) PICOM Insurance Company Employees' Savings and Retirement
Plan.
Exhibit (10)(e) PICOM Insurance Company Pension Plan.
-76-
<PAGE> 78
Index to Financial Statements and Financial Statement Schedules:
<TABLE>
<CAPTION>
10-K
Report
page(s)
-------
<S> <C>
Financial Statements:
Consolidated balance sheets as of December 31, 1996 and 1995............. 41
Consolidated statements of income for each of the years ended December
31, 1996, 1995 and 1994.................................................. 42
Consolidated statements of shareholders' equity for each of the years
ended December 31, 1996, 1995 and 1994................................... 43
Consolidated statements of cash flows for each of the years ended
December 31, 1996, 1995 and 1994......................................... 44
Notes to consolidated financial statements............................... 45
Reports of independent auditors.......................................... 67
Financial Statement Schedules:
II. Condensed financial information of registrant....................... 69
</TABLE>
- -----------------
All other schedules for which provision is made in Regulation S-X either (i)
are not required under the related instructions or are inapplicable and,
therefore, have been omitted, or (ii) the information required is included in
the consolidated financial statements or the notes thereto that are a part
hereof.
Reports on Form 8-K:
None.
-77-
<PAGE> 79
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.
Professionals Insurance Company
Management Group
Date: March 26, 1997 By: /s/ Victor T. Adamo
----------------------------
Victor T. Adamo
President and
Chief Executive Officer
-78-
<PAGE> 80
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
President and Chief
/s/ Victor T. Adamo Executive Officer
- ---------------------- (Principal Executive March 26, 1997
Victor T. Adamo Officer)
/s/ R. Kevin Clinton Vice President,
- ---------------------- Treasurer and Chief March 26, 1997
R. Kevin Clinton Financial Officer
(Principal Financial
Officer)
Jerry D. Campbell*
- ---------------------- Director March 26, 1997
Jerry D. Campbell
John F. Dodge, Jr.*
- ---------------------- Director March 26, 1997
John F. Dodge, Jr.
H. Harvey Gass*
- ---------------------- Director March 26, 1997
H. Harvey Gass
W. Peter McCabe*
- ---------------------- Director March 26, 1997
W. Peter McCabe
John F. McCaffrey*
- ---------------------- Director March 26, 1997
John F. McCaffrey
Isaac J. Powell*
- ---------------------- Director March 26, 1997
Isaac J. Powell
Ann F. Putallaz*
- ---------------------- Director March 26, 1997
Ann F. Putallaz
Donald S. Young*
- ---------------------- Director March 26, 1997
Donald S. Young
William H. Woodhams*
- ---------------------- Director March 26, 1997
William H. Woodhams
*By: /s/ Victor T. Adamo
-------------------
Victor T. Adamo, as attorney-in-fact for the persons indicated
-79-
<PAGE> 81
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
(3)(a)/(4)(a) First Amended and Restated Articles of Incorporation of
Professionals Insurance Company Management Group and all
amendments thereto (incorporated by reference to Exhibit
(3)(a)/(4)(a) of the initial filing of the registrant's
Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission on April 3, 1996
(registration no. 333-3138)).
(3)(b)/(4)(b) By-laws of Professionals Insurance Company Management Group
(incorporated by reference to Exhibit (3)(b)/(4)(b) of the
initial filing of the registrant's Registration Statement on
Form S-4 as filed with the Securities and Exchange
Commission on April 3, 1996 (registration no. 333-3138)).
(4)(c) Specimen certificate for Professionals Insurance Company
Management Group's common stock (incorporated by reference
to Exhibit 4(c) of the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1996 as filed with the
Securities and Exchange Commission on November 12, 1996
(file no. 0-21223)).
(4)(d) Specimen stock option issued under the Professionals
Insurance Company Management Group 1996 Non-Employee
Directors Stock Option Plan (incorporated by reference to
Exhibit 4(d) of the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1996 filed with the
Securities and Exchange Commission on November 12, 1996
(file no. 0-21223)).
(10)(a) Professionals Insurance Company Management Group 1996 Long
Term Incentive Plan (incorporated by reference to Exhibit
10(c) of Amendment No. 1 to the registrant's Registration
Statement on Form S-4 as filed with the Securities and
Exchange Commission on June 11, 1996 (registration no.
333-3138)).
(10)(b) Professionals Insurance Company Management Group 1996
Non-Employee Directors Stock Option Plan (incorporated by
reference to Exhibit 10(d) of Amendment No. 1 to the
registrant's Registration Statement on Form S-4 as filed
with the Securities and Exchange Commission on June 11, 1996
(registration no. 333-3138)).
(10)(c) Professionals Insurance Company Management Group Stock
Purchase Plan (incorporated by reference to Exhibit 10(e) of
the initial filing of the registrant's Registration
Statement on Form S-4 as filed with the Securities and
Exchange Commission on April 3, 1996 (registration no.
333-3138)).
(10)(d) PICOM Insurance Company Employees' Savings and Retirement
Plan.*
(10)(e) PICOM Insurance Company Pension Plan.*
(11) No statement re computation of per share earnings is
required to be filed because the computations can be clearly
determined from the materials contained herein.
(16) Letter of Coopers & Lybrand, L.L.P., independent certified
public accountants, regarding change in accountants
(incorporated by reference to Exhibit 16 of Amendment No. 1
to the registrant's Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission on June 11,
1996 (registration no. 333-3138)).
(21) List of subsidiaries of registrant.*
(24) Powers of attorney.*
(27) Financial Data Schedule of registrant.*
</TABLE>
- -----------------
* Filed herewith.
<PAGE> 1
EXHIBIT 10(d)
NONSTANDARDIZED
ADOPTION AGREEMENT
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN #002
AND TRUST/CUSTODIAL ACCOUNT
SPONSORED BY
COMERICA BANK
The Employer named below hereby establishes a Cash or Deferred
Profit-Sharing Plan for eligible Employees as provided in this
Adoption Agreement and the accompanying Basic Prototype Plan and
Trust/Custodial Account Basic Plan Document #05. The Sponsor
recommends that the Employer contact an attorney or tax advisor
regarding tax ramifications before executing this Adoption Agreement.
1. EMPLOYER INFORMATION
NOTE: If multiple Employers are adopting the Plan, complete this
section based on the lead Employer. Additional Employers may adopt
this Plan by attaching executed signature pages to the back of the
Employer's Adoption Agreement.
(a) NAME AND ADDRESS: PICOM Insurance Company
4295 Okemos Road, Box 2510
Okemos, MI 48805-9510
(b) TELEPHONE NUMBER: (517) 349-6500
(c) EMPLOYER TAX ID NUMBER: 38-2317569
TRUST TAX ID NUMBER: 38-2801911
(d) FORM OF BUSINESS:
[ ] (i) Sole Proprietor
[ ] (ii) Partnership
[X] (iii) Corporation
[ ] (iv) "S" Corporation (formerly known as Subchapter
S)
[ ] (v) Other: _____________________________________
(e) NAME OF INDIVIDUAL AUTHORIZED TO ISSUE INSTRUCTIONS TO
THE TRUSTEE/CUSTODIAN: Victor T. Adamo and Ann E. Flood,
R.N., J.D.
(f) NAME OF PLAN: PICOM Insurance Company Employees' Savings and
Retirement Plan
(g) THREE DIGIT PLAN NUMBER FOR ANNUAL RETURN/REPORT: 003
2. EFFECTIVE DATE
(a) This is a new Plan having an effective date of _____________
(b) This is an amended Plan.
The effective date of the original Plan was January 1, 1987.
<PAGE> 2
The effective date of the amended Plan is July 1, 1996 with
the exception of Sections 7(f), 7(g) and 12 herein which shall
be effective as of the first day of the 1989 Plan Year.
(c) If different from above, the Effective Date for the Plan's
Elective Deferral provisions shall be _______________________.
(d) The effective date of Trustee or Custodian appointment: July
1, 1996.
To the extent the effective date of the appointment of the
Trustee or the Custodian is later than the effective date of
the amended Plan, the Trustee or the Custodian will have no
liability for the acts or the omissions of the prior Trustee
or prior Custodian. The Employer shall hold the Trustee or
the Custodian harmless with respect to prior acts or omissions
of the prior Trustee or prior Custodian.
3. DEFINITIONS
(a) "Compensation"
Compensation shall be determined on the basis of the following
definition of Compensation:
[ ] (i) Code Section 6041 and 6051 Compensation,
[X] (ii) Code Section 3401(a) Compensation, or
[ ] (iii) Code Section 415 Compensation.
Compensation shall be determined on the basis of the:
[X] (i) Plan Year.
[ ] (ii) Employer's Taxable Year.
[ ] (iii) Calendar Year.
Compensation [X] shall [ ] shall not include Employer
contributions made pursuant to a Salary Savings Agreement
which are not includable in the gross income of the Employee
for the reasons indicated in the definition of Compensation at
1.12 of the Basic Plan Document #05.
If the Employer chooses an non-integrated allocation formula,
Compensation will exclude:
[ ] overtime
[ ] bonuses
[ ] commissions
[ ] other: ______________________________________________
_____________________________________________________
NOTE: Any exclusion of Compensation must satisfy the
requirements of Section 1.401(a)(4) of the Income Tax
Regulations and Code Section 414(s) and the regulations
thereunder.
For purposes of the Plan, Compensation shall be limited to
$______, the maximum amount which will be considered for Plan
purposes. [If an amount is specified, it will limit the
amount of contributions allowed on behalf of higher
compensated Employees. Completion of this section is not
intended to
<PAGE> 3
coordinate with the $200,000 of Code Section 415(d), thus the
amount should be less than $200,000 as adjusted for cost-of-
living increases.]
(b) "Entry Date"
[ ] (i) The first day of the Plan Year nearest the
date on which an Employee meets the
eligibility requirements.
[X] (ii) The earlier of the first day of the Plan Year
or the first day of the seventh month of the
Plan Year coinciding with or following the
date on which an Employee meets the
eligibility requirements.
[ ] (iii) The first day of the Plan Year following the
date on which the Employee meets the
eligibility requirements. If this election
is made, the Service requirements at 4(a)(ii)
may not exceed 1/2 year and the age
requirement at 4(b)(ii) may not exceed
20-1/2.
[ ] (iv) The first day of the month coinciding with or
following the date on which an Employee meets
the eligibility requirements.
[ ] (v) The first day of the Plan Year, or the first
day of the fourth month, or the first day of
the seventh month or the first day of the
tenth month, of the Plan Year coinciding with
or following the date on which an Employee
meets the eligibility requirements.
(c) "Hours of Service" shall be determined on the basis of the
method selected below. Only one method may be selected. The
method selected shall be applied to all Employees covered
under the Plan as follows:
[X] (i) On the basis of actual hours for which an
Employee is paid or entitled to payment.
[ ] (ii) On the basis of days worked.
An Employee shall be credited with ten (10)
Hours of Service if under paragraph 1.42 of
the Basic Plan Document #05 such Employee
would be credited with at least one (1) Hour
of Service during the day.
[ ] (iii) On the basis of weeks worked.
An Employee shall be credited with forty-five
(45) Hours of Service if under paragraph 1.42
of the Basic Plan Document #05 such Employee
would be credited with at least one (1) Hour
of Service during the week.
[ ] (iv) On the basis of semi-monthly payroll periods.
An Employee shall be credited with
ninety-five (95) Hours of Service if under
paragraph 1.42 of the Basic Plan Document #05
such Employee would be credited with at least
one (1) Hour of Service during the semi-
monthly payroll period.
<PAGE> 4
[ ] (v) On the basis of months worked.
An Employee shall be credited with
one-hundred-ninety (190) Hours of Service if
under paragraph 1.42 of the Basic Plan
Document #05 such Employee would be credited
with at least one (1) Hour of Service during
the month.
(d) "Limitation Year" The 12-consecutive month period commencing
on January 1 and ending on December 31.
(e) "Net Profit"
[X] (i) Not applicable (profits will not be required
for any contributions to the Plan).
[ ] (ii) As defined in paragraph 1.49 of the Basic
Plan Document #05.
[ ] (iii) Shall be defined as: ________________________
_____________________________________________
(Only use if definition in paragraph 1.49 of
the Basic Plan Document #05 is to be
superseded.)
(f) "Plan Year" The 12-consecutive month period commencing on
January 1 and ending on December 31. If applicable, the first
Plan Year will be a short Plan Year commencing on
_____________________ and ending on ___________. Thereafter,
the Plan Year shall be as above.
(g) "Qualified Early Retirement Age" For purposes of making
distributions under the provisions of a Qualified Domestic
Relations Order, the Plan's Qualified Early Retirement Age
with regard to the Participant against whom the order is
entered [X] shall [ ] shall not be the date the order is
determined to be qualified. If "shall" is elected, this will
only allow payout to the alternate payee(s).
(h) "Qualified Joint and Survivor Annuity" The safe-harbor
provisions of paragraph 8.7 of the Basic Plan Document #05 [X]
are [ ] are not applicable. If not applicable, the survivor
annuity shall be ____% (50%, 66-2/3%, 75% or 100%) of the
annuity payable during the lives of the Participant and
Spouse. If no answer is specified, 50% will be used.
(i) "Taxable Wage Base"
[X] (i) Not Applicable - Plan is not integrated with
Social Security.
[ ] (ii) The maximum earnings considered wages for
such Plan Year under Code Section 3121(a).
[ ] (iii) ______% (not more than 100%) of the amount
considered wages for such Plan Year under
Code Section 3121(a).
[ ] (iv) $___________, provided that such amount is
not in excess of the amount determined under
paragraph 3(i)(ii) above.
<PAGE> 5
[ ] (v) For the 1989 Plan Year $10,000. For all
subsequent Plan Years, 20% of the maximum
earnings considered wages for such Plan Year
under Code Section 3121(a).
NOTE: Using less than the maximum at (ii) may result in a
change in the allocation formula in Section 7.
(j) "Valuation Date(s)" Allocations to Participant Accounts will
be done in accordance with Article V of the Basic Plan
Document #05:
[X] (i) Daily
[ ] (ii) Monthly
[ ] (iii) Quarterly
[ ] (iv) Semi-Annually
[ ] (v) Annually
(k) "Year of Service"
(i) For Eligibility Purposes: The 12-consecutive month
period during which an Employee is credited with
1,000 (not more than 1,000) Hours of Service.
(ii) For Allocation Accrual Purposes: The 12-consecutive
month period during which an Employee is credited
with 1,000 (not more than 1,000) Hours of Service.
(iii) For Vesting Purposes: The 12-consecutive month
period during which an Employee is credited with
1,000 (not more than 1,000) Hours of Service.
4. ELIGIBILITY REQUIREMENTS
(a) Service:
[ ] (i) The Plan shall have no service requirement.
[X] (ii) The Plan shall cover only Employees having
completed at least six months [not more than
three (3)] of Service. If more than one (1)
is specified, for Plan Years beginning in
1989 and later, the answer will be deemed to
be one (1).
NOTE: If the eligibility period selected is less than one
year, an Employee will not be required to complete any
specified number of Hours of Service to receive credit for
such period.
(b) Age:
[ ] (i) The Plan shall have no minimum age
requirement.
[X] (ii) The Plan shall cover only Employees having
attained age 21 (not more than age 21).
(c) Classification:
The Plan shall cover all Employees who have met the age and
service requirements with the following exceptions:
[ ] (i) No exceptions.
[X] (ii) The Plan shall exclude Employees included in
a unit of Employees covered by a collective
bargaining agreement between the Employer and
Employee Representatives, if retirement
benefits were the subject of good faith
bargaining. For this purpose, the term
"Employee Representative" does not include
any organization more
<PAGE> 6
than half of whose members are Employees who
are owners, officers, or executives of the
Employer.
[ ] (iii) The Plan shall exclude Employees who are
nonresident aliens and who receive no earned
income from the Employer which constitutes
income from sources within the United States.
[ ] (iv) The Plan shall exclude from participation any
nondiscriminatory classification of Employees
determined as follows:
_____________________________________________
_____________________________________________
_____________________________________________
(d) Employees on Effective Date:
[ ] (i) Employees employed on the Plan's Effective
Date do not have to satisfy the Service
requirements specified above.
[ ] (ii) Employees employed on the Plan's Effective
Date do not have to satisfy the age
requirements specified above.
5. RETIREMENT AGES
(a) Normal Retirement Age:
If the Employer imposes a requirement that Employees retire
upon reaching a specified age, the Normal Retirement Age
selected below may not exceed the Employer imposed mandatory
retirement age.
[X] (i) Normal Retirement Age shall be 65 (not to
exceed age 65).
[ ] (ii) Normal Retirement Age shall be the later of
attaining age ______ (not to exceed age 65)
or the ______ (not to exceed the 5th)
anniversary of the first day of the first
Plan Year in which the Participant commenced
participation in the Plan.
(b) Early Retirement Age:
[ ] (i) Not Applicable.
[X] (ii) The Plan shall have an Early Retirement Age
of 55 (not less than 55) and completion of 7
Years of Service.
6. EMPLOYEE CONTRIBUTIONS
[X] (a) Participants shall be permitted to make Elective
Deferrals in any amount from 1% up to 8% of their
Compensation.
If (a) is applicable, Participants shall be permitted
to amend their Salary Savings Agreements to change
the contribution percentage as provided below:
[ ] (i) On the Anniversary Date of the Plan.
[X] (ii) On the Anniversary Date of the Plan
and on the first day of the seventh
month of the Plan Year.
[ ] (iii) On the Anniversary Date of the Plan
and on the first day following any
Valuation Date, or
[ ] (iv) Upon 30 days notice to the Employer.
[ ] (b) Participants shall be permitted to make after tax
Voluntary Contributions.
<PAGE> 7
[ ] (c) If necessary to pass the Average Deferral Percentage
Test, Participants [ ] may [ ] may not have Elective
Deferrals recharacterized as Voluntary Contributions.
NOTE: The Average Deferral Percentage Test will apply to
contributions under (a) above. The Average Contribution
Percentage Test will apply to contributions under (b) above,
and may apply to (a).
7. EMPLOYER CONTRIBUTIONS AND ALLOCATION THEREOF
NOTE: The Employer shall make contributions to the Plan in accordance
with the formula or formulas selected below. The Employer's
contribution shall be subject to the limitations contained in Articles
III and X. For this purpose, a contribution for a Plan Year shall be
limited for the Limitation Year which ends with or within such Plan
Year. Also, the integrated allocation formulas below are for Plan
Years beginning in 1989 and later. The Employer's allocation for
earlier years shall be as specified in its Plan prior to amendment for
the Tax Reform Act of 1986.
(a) Profits Requirement:
(i) Current or Accumulated Net Profits are required for:
[ ] (A) Matching Contributions.
[ ] (B) Qualified Non-Elective Contributions.
[ ] (C) Discretionary Contributions.
(ii) No Net Profits are required for:
[X] (A) Matching Contributions.
[X] (B) Qualified Non-Elective Contributions.
[X] (C) Discretionary Contributions.
NOTE: Elective Deferrals can always be contributed regardless
of profits.
[ ] (b) Salary Savings Agreement:
The Employer shall contribute and allocate to each
Participant's account an amount equal to the amount withheld
from the Compensation of such Participant pursuant to his or
her Salary Savings Agreement. If applicable, the maximum
percentage is specified in Section 6 above.
An Employee who has terminated his or her election under the
Salary Savings Agreement other than for hardship reasons may
not make another Elective Deferral:
[ ] (i) until the first day of the next Plan Year.
[ ] (ii) until the first day of the next valuation
period.
[ ] (iii) for a period of ______ month(s) (not to
exceed 12 months).
[X] (c) Matching Employer Contribution [See paragraphs (h) and (i)]:
[ ] (i) Percentage Match: The Employer shall contribute and
allocate to each eligible Participant's account an
amount equal to ____% of the amount contributed and
allocated in accordance with paragraph 7(b) above and
(if checked) ____% of [ ] the amount of Voluntary
Contributions made in accordance with paragraph 4.1
of the Basic Plan Document
<PAGE> 8
#05. The Employer shall not match Participant
Elective Deferrals as provided above in excess of
$_____ or in excess of ____% of the Participant's
Compensation or if applicable, Voluntary
Contributions in excess of $____ or in excess of
____% of the Participant's Compensation. In no event
will the match on both Elective Deferrals and
Voluntary Contributions exceed a combined amount of
$_____ or ____%.
[X] (ii) Discretionary Match: The Employer shall contribute
and allocate to each eligible Participant's account a
percentage of the Participant's Elective Deferrals
contributed and allocated in accordance with
paragraph 7(b) above. The Employer shall set such
percentage prior to the end of the Plan Year. The
Employer shall not match Participant Elective
Deferrals in excess of $_____ or in excess of ____%
of the Participant's Compensation.
[ ] (iii) Tiered Match: The Employer shall contribute and
allocate to each Participant's account an amount
equal to ____% of the first ____% of the
Participant's Compensation to the extent deferred,
____% of the next ____% of the Participant's
Compensation to the extent deferred, ____% of the
next ____% of the Participant's Compensation to the
extent deferred.
NOTE: Percentages specified in (iii) above may not increase as the
percentage of Participant's Elective Deferrals Increase.
[ ] (iv) Flat Dollar Match: The Employer shall contribute and
allocate to each Participant's account $_____ if the
Participant defers at least 1% of Compensation.
[ ] (v) Percentage of Compensation Match: The Employer
shall contribute and allocate to each Participant's
account ____% of Compensation if the Participant
defers at least 1% of Compensation.
[ ] (vi) Proportionate Compensation Match: The Employer shall
contribute and allocate to each Participant who
defers at least 1% of Compensation, an amount
determined by multiplying such Employer Matching
Contribution by a fraction the numerator of which is
the Participant's Compensation and the denominator of
which is the Compensation of all Participants
eligible to receive such an allocation.
[X] (vii) Qualified Match: Employer Matching Contributions
will be treated as Qualified Matching Contributions
to the extent specified below:
[ ] (A) All Matching Contributions.
[ ] (B) None.
[ ] (C) ____% of the Employer's Matching
Contribution.
[ ] (D) Up to ____% of each Participant's
Compensation.
<PAGE> 9
[X] (E) The amount necessary to meet the [ ]
Average Deferral Percentage (ADP)
Test, [ ] Average Contribution
Percentage (ACP) Test, [X] Both the
ADP and ACP Tests.
(viii) Eligibility for Match: Employer Matching
Contributions, whether or not Qualified, will only be
made on Employee Contributions not withdrawn prior to
the end of the [ ] valuation period [ ] Plan Year.
[X] (d) Qualified Non-Elective Employer Contribution - [See paragraphs
(h) and (i)] These contributions are fully vested when
contributed.
The Employer shall have the right to make an additional
discretionary contribution which shall be allocated to each
eligible Employee in proportion to his or her Compensation as
a percentage of the Compensation of all eligible Employees.
This part of the Employer's contribution and the allocation
thereof shall be unrelated to any Employee contributions made
hereunder. The amount of Qualified non-Elective Contributions
taken into account for purposes of meeting the ADP or ACP test
requirements is:
[ ] (i) All such Qualified non-Elective Contributions.
[X] (ii) The amount necessary to meet [ ] the ADP
test, [ ] the ACP test, [X] Both the ADP and
ACP tests.
Qualified non-Elective Contributions will be made to:
[ ] (iii) All Employees eligible to participate.
[X] (iv) Only non-Highly Compensated Employees
eligible to participate.
[X] (e) Additional Employer Contribution Other Than Qualified
Non-Elective Contributions - Non-Integrated [See paragraphs
(h) and (i)] The Employer shall have the right to make an
additional discretionary contribution which shall be allocated
to each eligible Employee in proportion to his or her
Compensation as a percentage of the Compensation of all
eligible Employees. This part of the Employer's contribution
and the allocation thereof shall be unrelated to any Employee
contributions made hereunder.
[ ] (f) Additional Employer Contribution - Integrated Allocation
Formula [ See paragraphs (h) and (i)] The Employer shall have
the right to make an additional discretionary contribution.
The Employer's contribution for the Plan Year plus any
forfeitures shall be allocated to the accounts of eligible
Participants as follows:
(i) First, to the extent contributions and forfeitures
are sufficient, all Participants will receive an
allocation equal to 3% of their Compensation.
(ii) Next, any remaining Employer Contributions and
forfeitures will be allocated to Participants who
have Compensation in excess of the Taxable Wage Base
(excess Compensation). Each such Participant will
receive an allocation in the
<PAGE> 10
ratio that his or her excess compensation bears to
the excess Compensation of all Participants.
Participants may only receive an allocation of 3% of
excess Compensation.
(iii) Next, any remaining Employer contributions and
forfeitures will be allocated to all Participants in
the ratio that their Compensation plus excess
Compensation bears to the total Compensation plus
excess Compensation of all Participants.
Participants may only receive an allocation of up to
2.7% of their Compensation plus excess Compensation,
under this allocation method. If the Taxable Wage
Base defined at Section 3(j) is less than or equal to
the greater of $10,000 or 20% of the maximum, the
2.7% need not be reduced. If the amount specified is
greater than the greater of $10,000 or 20% of the
maximum Taxable Wage Base, but not more than 80%,
2.7% must be reduced to 1.3%. If the amount
specified is greater than 80% but less than 100% of
the maximum Taxable Wage Base, the 2.7% must be
reduced to 2.4%.
NOTE: If the Plan is not Top-Heavy or if the Top-Heavy minimum
contribution or benefit is provided under another Plan [see Section
11(c)(ii)] covering the same Employees, subparagraphs (i) and (ii)
above may be disregarded and 5.7%, 4.3% or 5.4% may be substituted for
2.7%, 1.3% or 2.4% where it appears in (iii) above.
(iv) Next, any remaining Employer contributions and
forfeitures will be allocated to all Participants
(whether or not they received an allocation under the
preceding paragraphs) in the ratio that each
Participant's Compensation bears to all Participants'
Compensation.
[ ] (g) Additional Employer Contribution-Alternative Integrated
Allocation Formula [See paragraph (h) and (i)] The Employer
shall have the right to make an additional discretionary
contribution. To the extent that such contributions are
sufficient, they shall be allocated as follows:
____% of each eligible Participant's Compensation plus ____%
of Compensation in excess of the Taxable Wage Base defined at
Section 3(i) hereof. The percentage on excess compensation
may not exceed the lesser of (i) the amount first specified in
this paragraph or (ii) the greater of 5.7% or the percentage
rate of tax under Code Section 3111(a) as in effect on the
first day of the Plan Year attributable to the Old Age (OA)
portion of the OASDD provisions of the Social Security Act.
If the Employer specifies a Taxable Wage Base in Section 3(i)
which is lower than the Taxable Wage Base for Social Security
purposes (SSTWB) in effect as of the first day of the Plan
Year, the percentage contributed with respect to excess
Compensation must be adjusted. If the Plan's Taxable Wage
Base is greater than the larger of $10,000 or 20% of the SSTWB
but not more than 80% of the SSTWB, the excess percentage is
4.3%. If the Plan's Taxable Wage Base is greater than 80% of
the SSTWB but less than 100% of the SSTWB, the excess
percentage is 5.4%.
<PAGE> 11
NOTE: Only one plan maintained by the Employer may be integrated with
Social Security.
(h) Allocation of Excess Amounts (Annual Additions)
In the event that the allocation formula above results in an
Excess Amount, such excess shall be:
[X] (i) placed in a suspense account accruing no
gains or losses for the benefit of the
Participant.
[ ] (ii) reallocated as additional Employer
contributions to all other Participants to
the extent that they do not have any Excess
Amount.
(i) Minimum Employer Contribution Under Top-Heavy Plans:
For any Plan Year during which the Plan is Top-Heavy, the sum
of the contributions and forfeitures as allocated to eligible
Employees under paragraphs 7(d), 7(e), 7(f), 7(g) and 9 of
this Adoption Agreement shall not be less than the amount
required under paragraph 14.2 of the Basic Plan document #05.
Top-Heavy minimums will be allocated to:
[ ] (i) all eligible Participants.
[X] (ii) only eligible non-Key Employees who are
Participants.
(j) Return of Excess Contributions and/or Excess Aggregate
Contributions:
In the event that one or more Highly Compensated Employees is
subject to both the ADP and ACP tests and the sum of such
tests exceeds the Aggregate Limit, the limit will be satisfied
by reducing:
[ ] (i) the ADP of the affected Highly Compensated
Employees.
[ ] (ii) the ACP of the affected Highly Compensated
Employees.
[X] (iii) either the ADP and/or the ACP of the affected
Highly Compensated Employees.
8. ALLOCATIONS TO TERMINATED EMPLOYEES
[ ] (a) The Employer will not allocate Employer related
contributions to Employees who terminate during a
Plan Year, unless required to satisfy the
requirements of Code Section 401(a)(26) and 410(b).
(These requirements are effective for 1989 and
subsequent Plan Years.)
[X] (b) The Employer will allocate Employer matching and
other related contributions as indicated below to
Employees who terminate during the Plan Year as a
result of:
Matching Other
-------- -----
[X] [X] (i) Retirement.
[X] [X] (ii) Disability.
[X] [X] (iii) Death.
[X] [X] (iv) Other termination of
employment provided that
the Participant has
completed a Year
of Service as defined for
Allocation Accrual
Purposes.
[X] [ ] (v) Other termination of
employment even though the
Participant has not
completed a Year of Service.
9. ALLOCATION OF FORFEITURES
<PAGE> 12
NOTE: Subsections (a), (b) and (c) below apply to forfeitures of
amounts other than Excess Aggregate Contributions.
(a) Allocation Alternatives:
[X] (i) Forfeitures shall be allocated to
Participants in the same manner as the
Employer's contribution.
If allocation to other Participants is
selected, the allocation shall be as follows:
[1] Amount attributable to Employer
discretionary contributions and
Top-Heavy minimums will be allocated to:
[ ] all eligible Participants under
the Plan.
[X] only those Participants
eligible for an allocation of
Employer contributions in the
current year.
[ ] only those Participants
eligible for an allocation of
matching contributions in the
current year.
[2] Amounts attributable to Employer
Matching contributions will be
allocated to:
[ ] all eligible Participants.
[ ] only those Participants
eligible for allocations of
matching contributions in the
current year.
[ ] (ii) Forfeitures shall be applied to reduce the
Employer's contribution for such Plan Year.
[ ] (iii) Forfeitures shall be applied to offset
administrative expenses of the Plan. If
forfeitures excess these expenses, (ii) above
shall apply.
(b) Date for Reallocation:
NOTE: If no distribution has been made to a former
Participant, sub-section (i) below will apply to such
Participant even if the Employer elects (ii) or (iii) below as
its normal administrative policy.
[ ] (i) Forfeitures shall be reallocated at the end
of the Plan Year during which the former
Participant incurs his or her fifth
consecutive one year Break in Service.
[ ] (ii) Forfeitures will be reallocated immediately
(as of the next Valuation Date).
[ ] (iii) Forfeitures shall be reallocated at the end
of the Plan Year during which the former
Employee incurs his or her ___________ (1st,
2nd, 3rd, or 4th) consecutive one year Break
in Service.
[X] (iv) Forfeitures will be reallocated immediately
(as of the Plan Year end).
(c) Restoration of Forfeitures:
If amounts are forfeited prior to five consecutive 1-year
Breaks in Service, the Funds for restoration of account
balances will
<PAGE> 13
be obtained from the following resources in the order
indicated (fill in the appropriate number):
[X] (i) Current year's forfeitures. (1)
[X] (ii) Additional Employer contribution. (3)
[X] (iii) Income or gain to the Plan. (2)
(d) Forfeitures of Excess Aggregate Contributions shall be:
[ ] (i) Applied to reduce Employer contributions.
[X] (ii) Allocated, after all other forfeitures under
the Plan, to the Matching Contribution
account of each non- highly compensated
Participant who made Elective Deferrals or
Voluntary Contributions in the ratio which
each such Participant's Compensation for the
Plan Year bears to the total Compensation of
all Participants for such Plan Year. Such
forfeitures cannot be allocated to the
account of any Highly Compensated Employee.
Forfeitures of Excess Aggregate Contributions will be so
applied at the end of the Plan Year in which they occur.
10. CASH OPTION
[X] (a) The Employer may permit a Participant to elect to
defer to the Plan, an amount not to exceed 8% of any
Employer paid cash bonus made for such Participant
for any year. A Participant must file an election to
defer such contribution at least fifteen (15) days
prior to the end of the Plan Year. If the Employer
fails to make such an election, the entire Employer
paid cash bonus to which the Participant would be
entitled shall be paid as cash and not to the Plan.
Amounts deferred under this section shall be treated
for all purposes as Elective Deferrals.
Notwithstanding the above, the election to defer must
be made before the bonus is made available to the
Participant.
[ ] (b) Not Applicable.
11. LIMITATIONS ON ALLOCATIONS
[ ] This is the only Plan the Employer maintains or ever
maintained, therefore, this section is not applicable.
[X] The Employer does maintain or has maintained another Plan
(including a Welfare Benefit Fund or an individual medical
account (as defined in Code Section 415(1)(2)), under which
amounts are treated as Annual Additions) and has completed the
proper sections below.
Complete (a), (b) and (c) only if the Employer maintains or
ever maintained another qualified plan, including a Welfare
Benefit Fund or an individual medical account [as defined in
Code Section 415(1)(2)], in which any Participant in this Plan
is (or was) a participant or could possibly become a
participant.
(a) If the Participant is covered under another qualified Defined
Contribution Plan maintained by the Employer, other than a
Master or Prototype Plan:
<PAGE> 14
[X] (i) The provisions of Article X of the Basic Plan
Document #05 will apply, as if the other plan
were a Master or Prototype Plan.
[ ] (ii) Attach provisions stating the method under
which the plans will limit total Annual
Additions to the Maximum Permissible Amount,
and will properly reduce any Excess Amounts,
in a manner that precludes Employer
discretion.
(b) If a Participant is or ever has been a participant in a
Defined Benefit Plan maintained by the Employer: Attach
provisions which will satisfy the 1.0 limitation of Code
Section 415(e). Such language must preclude Employer
discretion. The Employer must also specify the interest and
mortality assumptions used in determining Present Value in the
Defined Benefit Plan.
(c) The minimum contribution or benefit required under Code
Section 416 relating to Top-Heavy Plans shall be satisfied by:
[ ] (i) this Plan.
[ ] (ii) _____________________________________________
_____________________________________________
(Name of other qualified plan of the Employer.)
[ ] (iii) Attach provisions stating the method under
which the minimum contribution and benefit
provisions of Code Section 416 will be
satisfied. If a Defined Benefit Plan is or
was maintained, an attachment must be
provided showing interest and mortality
assumptions used in the Top-Heavy Ratio.
12. VESTING
Employees shall have a fully vested and nonforfeitable interest in any
Employer contribution and the investment earnings thereon made in
accordance with paragraphs (select one or more options) [X] 7(c), [ ]
7(e), [ ] 7(f), [ ] 7(g) and [ ] 7(i) hereof. Contributions under
paragraph 7(b), 7(c)(vii) and 7(d) are always fully vested. If one or
more of the foregoing options are selected, such Employer
contributions shall be subject to the vesting table selected by the
Employer.
Each Participant shall acquire a vested and nonforfeitable percentage
in his or her account balance attributable to Employer contributions
and the earnings thereon under the procedures selected below except
with respect to any Plan Year during which the Plan is Top-Heavy, in
which case the Two-twenty vesting schedule [Option (b)(iv)] shall
automatically apply unless the Employer has already elected a faster
vesting schedule. If the Plan is switched to option (b)(iv), because
of its Top-Heavy status, that vesting schedule will remain in effect
even if the Plan later becomes non-Top-Heavy until the Employer
executes an amendment of this Adoption Agreement indicating otherwise.
(a) Computation Period:
The computation period for purposes of determining Years of
Service and Breaks in Service for purposes of computing a
Participant's nonforfeitable right to his or her account
balance derived from Employer contributions:
<PAGE> 15
[ ] (i) shall not be applicable since Participants
are always fully vested,
[ ] (ii) shall commence on the date on which an
Employee first performs an Hour of Service
for the Employer and each subsequent
12-consecutive month period shall commence on
the anniversary thereof, or
[X] (iii) shall commence on the first day of the Plan
Year during which an Employee first performs
an Hour of Service for the Employer and each
subsequent 12-consecutive month period shall
commence on the anniversary thereof.
A Participant shall receive credit for a Year of Service if he or she
completes at least 1,000 Hours of Service [or if lesser, the number of
hours specified at 3(k)(iii) of this Adoption Agreement] at any time
during the 12-consecutive month computation period. Consequently, a
Year of Service may be earned prior to the end of the 12-consecutive
month computation period and the Participant need not be employed at
the end of the 12-consecutive month computation period to receive
credit for a Year of Service.
(b) Vesting Schedules:
NOTE: The vesting schedules below only apply to a Participant
who has at least one Hour of Service during or after the 1989
Plan Year. If applicable, Participants who separated from
Service prior to the 1989 Plan Year will remain under the
vesting schedule as in effect in the Plan prior to amendment
for the Tax Reform Act of 1986.
[X] (i) Full and immediate Vesting. Only in the
event the Employer is acquired by merger,
consolidation or otherwise, where more than
50% of its shares of stock are acquired
within one 12 month period by one or more
related persons (within the meaning of Code
Section 1563), or in the event the Employer
otherwise ceases to function as an ongoing
business concern. In the event that the
Employer becomes a part of a holding company
system whereby the shareholders of the
Employer become the shareholders of the
holding company: (1) the provisions of this
paragraph shall not apply upon the transfer
of shares as a part of the establishment of
the holding company system by the Employer;
and (2) the provisions of this paragraph
shall apply to the share ownership of the
holding company established by the Employer.
<TABLE>
<CAPTION>
Years of Service
---------------------------------------------------------------
1 2 3 4 5 6 7
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(ii) __% 100%
(iii) __% __% 100%
(iv) __% 20% 40% 60% 80% 100%
(v) 0% 0% 20% 40% 60% 80% 100%
(vi) 10% 20% 30% 40% 60% 80% 100%
(vii) __% __% __% __% 100%
(viii) __% __% __% __% __% __% 100%
</TABLE>
<PAGE> 16
NOTE: The percentages selected for schedule (viii) may not be less
for any year than the percentages shown at schedule (v).
[X] All contributions other than those which are fully vested when
contributed will vest under schedule v above.
[ ] Contributions other than those which are fully vested when
contributed will vest as provided below:
<TABLE>
<CAPTION>
Vesting
Option Selected Type of Employer Contribution
--------------- -----------------------------------------
<S> <C>
__________________ 7(c) Employer Match on Salary Savings
__________________ 7(c) Employer Match on Employee Voluntary
__________________ 7(c) Employer Discretionary
__________________ 7(f)&(g) Employer Discretion - Integrated
</TABLE>
(c) Service disregarded for Vesting:
[ ] (i) Service prior to the Effective Date of this
Plan or a predecessor plan shall be
disregarded when computing a Participant's
vested and nonforfeitable interest.
[ ] (ii) Service prior to a Participant having
attained age 18 shall be disregarded when
computing a Participant's vested and
nonforfeitable interest.
13. SERVICE WITH PREDECESSOR ORGANIZATION
For purposes of satisfying the Service requirements for eligibility,
Hours of Service shall include Service with the following predecessor
organization(s): (These hours will also be used for vesting
purposes.) The method of crediting Years of Service for purposes of
vesting and eligibility for any entity not included as an Employer as
of January 1, 1996 shall be determined pursuant to and recorded in the
Administrative Procedures of the Plan.
14. ROLLOVER/TRANSFER CONTRIBUTIONS
(a) Rollover Contributions, as described at paragraph 4.3 of the
Basic Plan Document #05, [X] shall [ ] shall not be permitted.
If permitted, Employees [X] may [ ] may not make Rollover
Contributions prior to meeting the eligibility requirements
for participation in the Plan.
(b) Transfer Contributions, as described at paragraph 4.4 of the
Basic Plan Document #05 [X] shall [ ] shall not be permitted.
If permitted, Employees [X] may [ ] may not make Transfer
Contributions prior to meeting the eligibility requirements
for participation in the Plan.
NOTE: Even if available, the Employer may refuse to accept
such contributions if its Plan meets the safe-harbor rules of
paragraph 8.7 of the Basic Plan Document #05.
15. HARDSHIP WITHDRAWALS
Hardship withdrawals, as provided for in paragraph 6.9 of the Basic
Plan Document #05, [ ] are [X] are not permitted.
16. PARTICIPANT LOANS
Participant loans, as provided for in paragraph 13.5 of the Basic Plan
Document #05, [X] are [ ] are not permitted. If permitted, repayments
<PAGE> 17
of principal and interest shall be repaid to [X] the Participant's
segregated account or [ ] the general Fund.
17. INSURANCE POLICIES
The insurance provisions of paragraph 13.6 of the Basic Plan Document
#05 [X] shall [ ] shall not be applicable only with regard to policies
held by the Plan prior to this restatement. No new insurance policies
shall be acquired.
18. EMPLOYER INVESTMENT DIRECTION
The Employer investment direction provisions, as set forth in
paragraph 13.7 of the Basic Plan Document #05, [ ] shall [X] shall not
be applicable.
19. EMPLOYEE INVESTMENT DIRECTION
(a) The Employee investment direction provisions, as set forth in
paragraph 13.8 of the Basic Plan Document #05, [X] shall [ ]
shall not be applicable.
If applicable, Participants may direct their investments:
[X] (i) among funds offered by the Trustee.
[ ] (ii) among any allowable investments.
(b) Participants may direct the following kinds of contributions
and the earnings thereon (check all applicable):
[X] (i) All Contributions
[ ] (ii) Elective Deferrals
[ ] (iii) Employee Voluntary Contributions (after-tax)
[ ] (iv) Employee Mandatory Contributions (after-tax)
[ ] (v) Employer Qualified Matching Contributions
[ ] (vi) Other Employer Matching Contributions
[ ] (vii) Employer Qualified Non-Elective Contributions
[ ] (viii) Employer Discretionary Contributions
[ ] (ix) Rollover Contributions
[ ] (x) Transfer Contributions
[ ] (xi) All of above which are checked, but only to
the extent that the Participant is vested in
those contributions.
NOTE: To the extent that Employee investment direction was
previously allowed, it shall continue to be allowed on those
amounts and the earnings thereon.
20. EARLY PAYMENT OPTION
(a) A Participant who separates from Service prior to retirement,
death or Disability [X] may [ ] may not make application to
the Employer requesting an early payment of his or her vested
account balance.
(b) A Participant who has not separated from Service [ ] may [X]
may not obtain a distribution of his or her vested Employer
contributions. Distribution can only be made if the
Participant is 100% vested.
(c) A Participant who has attained the Plan's Normal Retirement
Age and who has not separated from Service [ ] may [X] may not
receive a distribution of his or her vested account balance.
<PAGE> 18
NOTE: If the Participant has had the right to withdraw his or
her account balance in the past, this right may not be taken
away. Notwithstanding the above, to the contrary, required
minimum distributions will be paid. For timing of
distributions, see item 21(a) below.
21. DISTRIBUTION OPTIONS
(a) Timing of Distributions:
In cases of termination for other than death, Disability or
retirement, benefits shall be paid:
[X] (i) As soon as administratively feasible
following the close of the [ ] Plan Year/[X]
Valuation Period during which a distribution
is requested or is otherwise payable.
[ ] (ii) As soon as administratively feasible,
following the date on which a distribution is
requested or is otherwise payable.
[ ] (iii) As soon as administratively feasible, after
the close of the Plan Year during which the
Participant incurs ____________ consecutive
one-year Breaks in Service.
[ ] (iv) Only after the Participant has achieved the
Plan's Normal Retirement Age, or Early
Retirement Age, if applicable.
In cases of death, Disability or retirement, benefits shall be
paid:
[X] (v) As soon as administratively feasible
following the close of the [ ] Plan Year/[X]
Valuation Period during which a distribution
is requested or is otherwise payable.
[ ] (vi) As soon as administratively feasible,
following the date on which a distribution is
requested or is otherwise payable.
[ ] (vii) As soon as administratively feasible, after
the close of the Plan Year during which the
Participant incurs ____________ consecutive
one-year Breaks in Service.
[ ] (viii) Only after the Participant has achieved the
Plan's Normal Retirement Age, or Early
Retirement Age, if applicable.
(b) Optional Forms of Payment:
[X] (i) Lump Sum.
[ ] (ii) Installment Payments.
[ ] (iii) Life Annuity*.
[ ] (iv) Life Annuity Term Certain*.
Life Annuity with payments guaranteed for
______ period (not to exceed 20 years, specify
all applicable).
[ ] (v) Joint and [ ] 50%, [ ] 66-2/3%, [ ] 75%, or
[ ] 100% survivor annuity* (specify all
applicable).
[ ] (vi) Other form(s) specified: _____________
*Not available in Plan meeting provisions of paragraph 8.7 of Basic
Plan Document #05.
(c) Recalculation of Life Expectancy:
<PAGE> 19
In determining required distributions under the Plan,
Participants and/or their Spouse (Surviving Spouse) [X] shall
[ ] shall not have the right to have their life expectancy
recalculated annually.
If "shall",
[ ] only the Participant shall be recalculated.
[X] both the Participant and Spouse shall be
recalculated.
[ ] who is recalculated shall be determined by the
Participant.
22. PROTECTED BENEFITS UNDER INTERNAL REVENUE CODE SECTION 411(d)(6)
[X] The Employer is attaching to this Adoption Agreement a list of
Section 411(d)(6) protected benefits from a prior plan
document which this Plan amends.
[ ] Not applicable.
23. SPONSOR CONTACT
The Employer should direct questions concerning the language contained
in and qualifications of the Prototype to its Trust Administrator at
Comerica Bank.
(Name of Trust Administrator) Janice G. Veenstra
(Phone No.) (313) 222-5268
In the event that the Sponsor amends, discontinues or abandons this
Prototype Plan, notification will be provided to the Employer's
address provided on the first page of this Agreement.
24. SIGNATURES
Due to the significant tax ramifications, the Sponsor recommends that
before you execute this Adoption Agreement, you contact your attorney
or tax advisor.
(a) EMPLOYER:
Name and address of Employer if different than specified in
Section 1 above.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
This agreement and the corresponding provisions of the Plan
and Trust/Custodial Account Basic Plan Document #04 were
adopted by the Employer the 5th day of June, 1996.
Signed for the Employer by: Victor T. Adamo
Title: President
Signature: _______________________________
The Employer understands that its failure to properly complete
the Adoption Agreement may result in disqualification of its
Plan.
Employer's Reliance: The adopting Employer may not rely on an
opinion letter issued by the National Office of the Internal
Revenue Service as evidence that the Plan is qualified under
Code Section 401. In order to obtain reliance with respect to
Plan qualification, the Employer must apply to the appropriate
Key District Office for a determination letter.
<PAGE> 20
This Adoption Agreement may only be used in conjunction with
Basic Plan Document #05.
(b) TRUSTEE:
Name of Trustee: Comerica Bank
The assets of the Fund shall be invested in accordance with
paragraphs 13.3 of the Basic Plan Document #05 as a Trust. As
such, the Employer's Plan as contained herein was accepted by
the Trustee the 11th day of June, 1996.
Signed for the Trustee by: Janice G. Veenstra
Title: Vice President
Signature: _______________________________
(c) CUSTODIAN:
Name of Custodian:
_____________________________________________________________
_____________________________________________________________
The assets of the Fund shall be invested in accordance with
paragraph 13.4 of the Basic Plan Document #05 as a Custodial
Account. As such, the Employer's Plan as contained herein was
accepted by the Custodian the _____ day of __________________,
19____.
Signed for the Custodian by: _______________________________
Title: _______________________________
Signature: _______________________________
(d) SPONSOR:
The Employer's agreement and the corresponding provisions of
the Plan and Trust/Custodial Account Basic Plan Document #05
were accepted by the Sponsor (Comerica Bank) the 11th day of
June, 1996.
Signed for the Sponsor by: Janice G. Veenstra
Title: Vice President
Signature: _______________________________
(e) ATTORNEY CONTACT:
Name: Stephen J. Lowney
Firm Name: Foster, Swift, Collins & Smith, P.C.
Address: 313 S. Washington Square
Lansing, Michigan 48933-2193
Telephone No.: (517) 371-8272
<PAGE> 21
INSTITUTIONAL TRUST & INVESTMENT MANAGEMENT
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN AND
TRUST/CUSTODIAL ACCOUNT
SPONSORED BY
COMERICA BANK
BASIC PLAN DOCUMENT #05
JANUARY 1993
<PAGE> 22
INSTITUTIONAL TRUST & INVESTMENT MANAGEMENT
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN
AND TRUST/CUSTODIAL ACCOUNT
Sponsored by
COMERICA BANK
BASIC PLAN DOCUMENT #05
THIS DOCUMENT IS COPYRIGHTED UNDER THE LAWS OF THE UNITED STATES. ITS USE,
DUPLICATION OR REPRODUCTION, INCLUDING THE USE OF ELECTRONIC MEANS, IS
PROHIBITED BY LAW WITHOUT THE EXPRESS CONSENT OF THE AUTHOR.
TABLE OF CONTENTS
PARAGRAPH PAGE
- --------- ----
ARTICLE I
DEFINITIONS
1.1 Actual Deferral Percentage . . . . . . . . . . . . . . . . . . . . 1
1.2 Adoption Agreement . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Aggregate Limit . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Annual Additions . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Annuity Starting Date . . . . . . . . . . . . . . . . . . . . . . 1
1.6 Applicable Calendar Year . . . . . . . . . . . . . . . . . . . . . 1
1.7 Applicable Life Expectancy . . . . . . . . . . . . . . . . . . . . 1
1.8 Average Contribution Percentage (ACP) . . . . . . . . . . . . . . 1
1.9 Average Deferral Percentage (ADP) . . . . . . . . . . . . . . . . 2
1.10 Break In Service . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.13 Contribution Percentage . . . . . . . . . . . . . . . . . . . . . 3
1.14 Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.15 Defined Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . 3
1.16 Defined Benefit (Plan) Fraction . . . . . . . . . . . . . . . . . 3
1.17 Defined Contribution Dollar Limitation . . . . . . . . . . . . . . 3
1.18 Defined Contribution Plan . . . . . . . . . . . . . . . . . . . . 3
1.19 Defined Contribution (Plan) Fraction . . . . . . . . . . . . . . . 3
1.20 Designated Beneficiary . . . . . . . . . . . . . . . . . . . . . . 3
1.21 Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.22 Distribution, Calendar Year . . . . . . . . . . . . . . . . . . . 4
1.23 Early Retirement Age . . . . . . . . . . . . . . . . . . . . . . . 4
1.24 Earned Income . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.25 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.26 Election Period . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.27 Elective Deferral . . . . . . . . . . . . . . . . . . . . . . . . 4
1.28 Eligible Participant . . . . . . . . . . . . . . . . . . . . . . . 4
1.29 Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.30 Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.31 Entry Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.32 Excess Aggregate Contributions . . . . . . . . . . . . . . . . . . 4
1.33 Excess Amount . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.34 Excess Contribution . . . . . . . . . . . . . . . . . . . . . . . 4
1.35 Excess Elective Deferrals . . . . . . . . . . . . . . . . . . . . 5
<PAGE> 23
PARAGRAPH PAGE
- --------- ----
1.36 Family Member . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.37 First Distribution Calendar Year . . . . . . . . . . . . . . . . . 5
1.38 Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.39 Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.40 Highest Average Compensation . . . . . . . . . . . . . . . . . . . 5
1.41 Highly Compensated Employee . . . . . . . . . . . . . . . . . . . 5
1.42 Hour Of Service . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.43 Key Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.44 Leased Employee . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.45 Limitation Year . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.46 Master Or Prototype Plan . . . . . . . . . . . . . . . . . . . . . 6
1.47 Matching Contribution . . . . . . . . . . . . . . . . . . . . . . 6
1.48 Maximum Permissible Amount . . . . . . . . . . . . . . . . . . . . 6
1.49 Net Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.50 Normal Retirement Age . . . . . . . . . . . . . . . . . . . . . . 6
1.51 Owner-Employee . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.52 Paired Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.53 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.54 Participant's Benefit . . . . . . . . . . . . . . . . . . . . . . 6
1.55 Permissive Aggregation Croup . . . . . . . . . . . . . . . . . . . 6
1.56 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.57 Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . 6
1.58 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.59 Present Value . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.60 Projected Annual Benefit . . . . . . . . . . . . . . . . . . . . . 7
1.61 Qualified Deferred Compensation Plan . . . . . . . . . . . . . . . 7
1.62 Qualified Domestic Relations Order . . . . . . . . . . . . . . . . 7
1.63 Qualified Early Retirement Age . . . . . . . . . . . . . . . . . . 7
1.64 Qualified Joint And Survivor Annuity . . . . . . . . . . . . . . . 7
1.65 Qualified Voluntary Contribution . . . . . . . . . . . . . . . . . 7
1.66 Qualified Non-Elective Contributions . . . . . . . . . . . . . . . 7
1.67 Qualified Voluntary Contribution . . . . . . . . . . . . . . . . . 7
1.68 Required Aggregation Group . . . . . . . . . . . . . . . . . . . . 7
1.69 Required Beginning Date . . . . . . . . . . . . . . . . . . . . . 7
1.70 Rollover Contribution . . . . . . . . . . . . . . . . . . . . . . 7
1.71 Salary Savings Agreement . . . . . . . . . . . . . . . . . . . . . 7
1.72 Self-Employed Individual . . . . . . . . . . . . . . . . . . . . . 8
1.73 Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.74 Shareholder Employee . . . . . . . . . . . . . . . . . . . . . . . 8
1.75 Simplified Employee Pension Plan . . . . . . . . . . . . . . . . . 8
1.76 Sponsor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.77 Spouse (Surviving Spouse) . . . . . . . . . . . . . . . . . . . . 8
1.78 Super Top-Heavy Plan . . . . . . . . . . . . . . . . . . . . . . . 8
1.79 Taxable Wage Base . . . . . . . . . . . . . . . . . . . . . . . . 8
1.80 Top-Heavy Determination Date . . . . . . . . . . . . . . . . . . . 8
1.81 Top-Heavy Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.82 Top-Heavy Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.83 Top-Paid Group . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.84 Transfer Contribution . . . . . . . . . . . . . . . . . . . . . . 9
1.85 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.86 Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.87 Vested Account Balance . . . . . . . . . . . . . . . . . . . . . . 9
1.88 Voluntary Contribution . . . . . . . . . . . . . . . . . . . . . . 9
<PAGE> 24
PARAGRAPH PAGE
- --------- ----
1.89 Welfare Benefit Fund . . . . . . . . . . . . . . . . . . . . . . . 9
1.90 Year Of Service . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE II
ELIGIBILITY REQUIREMENTS
2.1 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 Change In Classification Of Employment . . . . . . . . . . . . . . 9
2.3 Computation Period . . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 Employment Rights . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5 Service With Controlled Groups . . . . . . . . . . . . . . . . . . 10
2.6 Owner-Employees . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.7 Leased Employees . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.8 Thrift Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
EMPLOYER CONTRIBUTIONS
3.1 Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Expenses And Fees . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3 Responsibility For Contributions . . . . . . . . . . . . . . . . . 10
3.4 Return Of Contributions . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV
EMPLOYEE CONTRIBUTIONS
4.1 Voluntary Contributions . . . . . . . . . . . . . . . . . . . . . 11
4.2 Qualified Voluntary Contributions . . . . . . . . . . . . . . . . 11
4.3 Rollover Contribution . . . . . . . . . . . . . . . . . . . . . . 11
4.4 Transfer Contribution . . . . . . . . . . . . . . . . . . . . . . 11
4.5 Employer Approval Of Transfer Contributions . . . . . . . . . . . 11
4.6 Elective Deferrals . . . . . . . . . . . . . . . . . . . . . . . . 11
4.7 Required Voluntary Contributions . . . . . . . . . . . . . . . . . 12
4.8 Direct Rollover of Benefits . . . . . . . . . . . . . . . . . . . 12
ARTICLE V
PARTICIPANT ACCOUNTS
5.1 Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Adjustments To Participant Accounts . . . . . . . . . . . . . . . 12
5.3 Allocating Employer Contributions . . . . . . . . . . . . . . . . 13
5.4 Allocating Investment Earnings And Losses . . . . . . . . . . . . 13
5.5 Participant Statements . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V
RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 Normal Retirement Benefits . . . . . . . . . . . . . . . . . . . . 13
6.2 Early Retirement Benefits . . . . . . . . . . . . . . . . . . . . 13
6.3 Benefits On Termination Of Employment . . . . . . . . . . . . . . 13
6.4 Restrictions On Immediate Distributions . . . . . . . . . . . . . 14
6.5 Normal Form Of Payment . . . . . . . . . . . . . . . . . . . . . . 14
6.6 Commencement Of Benefits . . . . . . . . . . . . . . . . . . . . . 15
<PAGE> 25
PARAGRAPH PAGE
- --------- ----
6.7 Claims Procedures . . . . . . . . . . . . . . . . . . . . . . . . 15
6.8 In-Service Withdrawals . . . . . . . . . . . . . . . . . . . . . . 15
6.9 Hardship Withdrawals . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VII
DISTRIBUTION REQUIREMENTS
7.1 Joint And Survivor Annuity Requirements . . . . . . . . . . . . . 16
7.2 Minimum Distribution Requirements . . . . . . . . . . . . . . . . 16
7.3 Limits On Distribution Periods . . . . . . . . . . . . . . . . . . 16
7.4 Required Distributions On Or After
The Required Beginning Date . . . . . . . . . . . . . . . . . . 16
7.5 Required Beginning Date . . . . . . . . . . . . . . . . . . . . . 17
7.6 Transitional Rule . . . . . . . . . . . . . . . . . . . . . . . . 17
7.7 Designation Of Beneficiary For Death Benefit . . . . . . . . . . . 17
7.8 Nonexistence Of Beneficiary . . . . . . . . . . . . . . . . . . . 18
7.9 Distribution Beginning Before Death . . . . . . . . . . . . . . . 18
7.10 Distribution Beginning After Death . . . . . . . . . . . . . . . . 19
7.11 Distribution Of Excess Elective Deferrals . . . . . . . . . . . . 19
7.12 Distributions Of Excess Contributions . . . . . . . . . . . . . . 19
7.13 Distribution Of Excess Aggregate Contributions . . . . . . . . . . 19
7.14 Escheat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VIII
JOINT AND SURVIVOR ANNUITY
REQUIREMENTS
8.1 Applicability Of Provisions . . . . . . . . . . . . . . . . . . . 20
8.2 Payment Of Qualified Joint And Survivor
Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.3 Payment of Qualified Pre-Retirement
Survivor Annuity . . . . . . . . . . . . . . . . . . . . . . . . 20
8.4 Qualified Election . . . . . . . . . . . . . . . . . . . . . . . . 20
8.5 Notice Requirements For Qualified Joint
And Survivor Annuity . . . . . . . . . . . . . . . . . . . . . . 20
8.6 Notice Requirements For Qualified
PreRetirement Survivor Annuity . . . . . . . . . . . . . . . . . 21
8.7 Special Safe-Harbor Exception For
Certain Profit-Sharing Plans . . . . . . . . . . . . . . . . . . 21
8.8 Transitional Joint And Survivor
Annuity Rules . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.9 Automatic Joint And Survivor Annuity
And Early Survivor Annuity . . . . . . . . . . . . . . . . . . . 21
8.10 Annuity Contracts . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IX
VESTING
9.1 Employee Contributions . . . . . . . . . . . . . . . . . . . . . . 22
9.2 Employer Contributions . . . . . . . . . . . . . . . . . . . . . . 22
9.3 Computation Period . . . . . . . . . . . . . . . . . . . . . . . . 22
9.4 Requalification Prior To Five Consecutive
One-Year Breaks In Service . . . . . . . . . . . . . . . . . . . 22
<PAGE> 26
PARAGRAPH PAGE
- --------- ----
9.5 Requalification After Five Consecutive
One-Year Breaks In Service . . . . . . . . . . . . . . . . . . . 22
9.6 Calculating Vested Interest . . . . . . . . . . . . . . . . . . . 22
9.7 Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.8 Amendment Of Vesting Schedule . . . . . . . . . . . . . . . . . . 22
9.9 Service With Controlled Groups . . . . . . . . . . . . . . . . . . 23
ARTICLE X
LIMITATIONS ON ALLOCATIONS
10.1 Participation In This Plan Only . . . . . . . . . . . . . . . . . 23
10.2 Disposition Of Excess Annual Additions . . . . . . . . . . . . . . 23
10.3 Participation In This Plan And Another
Prototype Defined Contribution Plan, Welfare
Benefit Fund, Individual Medical Account
Maintained By The Employer . . . . . . . . . . . . . . . . . . . 24
10.4 Disposition Of Excess Annual Additions
Under Two Plans . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.5 Participation In This Plan And Another
Defined Contribution Plan Which Is Not
A Master Or Prototype Plan . . . . . . . . . . . . . . . . . . . 24
10.6 Participation In This Plan And A Defined
Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.7 Average Deferral Percentage (ADP) Test . . . . . . . . . . . . . . 25
10.8 Special Rules Relating to Application of ADP Test . . . . . . . . 25
10.9 Recharacterization . . . . . . . . . . . . . . . . . . . . . . . . 25
10.10 Average Contribution Percentage (ACP) Test . . . . . . . . . . . . 25
10.11 Special Rules Relating to Application Of ACP Test. . . . . . . . . 25
ARTICLE XI
ADMINISTRATION
11.1 Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . 26
11.2 Trustee/Custodian . . . . . . . . . . . . . . . . . . . . . . . . 26
11.3 Administrative Fees And Expenses . . . . . . . . . . . . . . . . . 27
11.4 Division Of Duties And Indemnification . . . . . . . . . . . . . . 27
ARTICLE XII
TRUST FUND/CUSTODIAL ACCOUNT
12.1 The Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.2 Control Of Plan Assets . . . . . . . . . . . . . . . . . . . . . . 27
12.3 Exclusive Benefit Rules . . . . . . . . . . . . . . . . . . . . . 28
12.4 Assignment And Alienation Of Benefits . . . . . . . . . . . . . . 28
12.5 Determination Of Qualified Domestic
Relations Order (QDRO) . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE XIII
INVESTMENTS
13.1 Fiduciary Standards . . . . . . . . . . . . . . . . . . . . . . . 28
13.2 Funding Arrangement . . . . . . . . . . . . . . . . . . . . . . . 28
13.3 Investment Alternatives Of The Trustee . . . . . . . . . . . . . . 28
<PAGE> 27
PARAGRAPH PAGE
- --------- ----
13.4 Investment Alternatives Of The Custodian . . . . . . . . . . . . . 29
13.5 Participant Loans . . . . . . . . . . . . . . . . . . . . . . . . 29
13.6 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . 30
13.7 Employer Investment Direction . . . . . . . . . . . . . . . . . . 31
13.8 Employee Investment Direction . . . . . . . . . . . . . . . . . . 31
ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 Applicability Of Rules . . . . . . . . . . . . . . . . . . . . . . 32
14.2 Minimum Contribution . . . . . . . . . . . . . . . . . . . . . . . 32
14.3 Minimum Vesting . . . . . . . . . . . . . . . . . . . . . . . . . 32
14.4 Limitations On Allocations . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XV
AMENDMENT AND TERMINATION
15.1 Amendment By Sponsor . . . . . . . . . . . . . . . . . . . . . . . 32
15.2 Amendment By Employer . . . . . . . . . . . . . . . . . . . . . . 32
15.3 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.4 Qualification Of Employer's Plan . . . . . . . . . . . . . . . . . 32
15.5 Mergers And Consolidations . . . . . . . . . . . . . . . . . . . . 33
15.6 Resignation And Removal . . . . . . . . . . . . . . . . . . . . . 33
15.7 Qualification Of Prototype . . . . . . . . . . . . . . . . . . . . 33
ARTICLE XVI
GOVERNING LAW . . . . . . . . . . . . . . .33
<PAGE> 28
INSTITUTIONAL TRUST & INVESTMENT MANAGEMENT
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN
AND TRUST/CUSTODIAL ACCOUNT
SPONSORED BY
COMERICA BANK
The Sponsor hereby establishes the following Prototype Retirement Plan and
Trust/Custodial Account for use by those of its customers who qualify and wish
to adopt a qualified retirement program. Any Plan and Trust/Custodial Account
established hereunder shall be administered for the exclusive benefit of
Participants and their beneficiaries under the following terms and conditions:
ARTICLE I
DEFINITIONS
1.1 ACTUAL DEFERRAL PERCENTAGE. The ratio (expressed as a percentage and
calculated separately for each Participant) of:
(a) the amount of Employer contributions [as defined at (c) and (d)]
actually paid over to the Fund on behalf of such Participant for the
Plan Year to
(b) the Participant's Compensation for such Plan Year. Compensation will
only include amounts for the period during which the Employee was
eligible to participate.
Employer contributions on behalf of any Participant shall include:
(c) any Elective Deferrals made pursuant to the Participant's deferral
election, including Excess Elective Deferrals, but excluding Elective
Deferrals that are either taken into account in the Contribution
Percentage test (provided the ADP test is satisfied both with and
without exclusion of these Elective Deferrals) or are returned as
excess Annual Additions; and
(d) at the election of the Employer, Qualified Non-Elective Contributions
and Qualified Matching Contributions.
For purposes of computing 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 Elective Deferrals are made.
1.2 ADOPTION AGREEMENT. The document attached to this Plan by which an
Employer elects to establish a qualified retirement plan and trust/custodial
account under the terms of this Prototype Plan and Trust/Custodial Account.
1.3 AGGREGATE LIMIT. The sum of:
(a) 125 percent of the greater of the ADP of the non-Highly Compensated
Employees for the Plan Year or the ACP of non-Highly Compensated
Employees under the Plan subject to Code Section 401 (m) for the Plan
Year beginning with or within the Plan Year of the cash or deferred
<PAGE> 29
arrangement as described in Code Section 401(k) or Code Section
402(h)(1)(B), and
(b) the lesser of 200% or two percent plus the lesser of such ADP or ACP.
Alternatively, the aggregate limit can be determined by substituting "the
lesser of 200% or 2 percent plus" for "125% of" in (a) above, and substituting
"125% of" for "the lesser of 200% or 2 percent plus" in (b) above.
1.4 ANNUAL ADDITIONS. The sum of the following amounts credited to a
Participant's account for the Limitation Year:
(a) Employer Contributions,
(b) Employee Contributions (under Article IV),
(c) forfeitures,
(d) amounts allocated after March 31, 1984 to an individual medical
account, as defined in Code Section 415(l)(2), which is part of a
pension or annuity plan maintained by the Employer (these amounts are
treated as Annual Additions to a Defined Contribution Plan though they
arise under a Defined Benefit Plan), and
(e) amounts derived from contributions paid or accrued after 1985, in
taxable years ending after 1985, which are either attributable to
post-retirement medical benefits allocated to the account of a Key
Employee, or to a Welfare Benefit Fund maintained by the Employer, are
also treated as Annual Additions to a Defined Contribution Plan. For
purposes of this paragraph, an Employee is a Key Employee if he or she
meets the requirements of paragraph 1.43 at any time during the Plan
Year or any preceding Plan Year. Welfare Benefit Fund is defined at
paragraph 1.89.
Excess amounts applied in a Limitation Year to reduce Employer contributions
will be considered Annual Additions for such Limitation Year, pursuant to the
provisions of Article X.
1.5 ANNUITY STARTING DATE. The first day of the first period for which an
amount is paid as an annuity or in any other form.
1.6 APPLICABLE CALENDAR YEAR. The First Distribution Calendar Year, and in
the event of the recalculation of life expectancy, such succeeding calendar
year. If payments commence in accordance with paragraph 7.4(e) before the
Required Beginning Date, the Applicable Calendar Year is the year such payments
commence. If distribution is in the form of an immediate annuity purchased
after the Participant's death with the Participant's remaining interest, the
Applicable Calendar Year is the year of purchase.
1.7 APPLICABLE LIFE EXPECTANCY. Used in determining the required minimum
distribution. 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
<PAGE> 30
in the Applicable Calendar Year reduced by one for each calendar year which has
elapsed since the date life expectancy was first calculated. If life
expectancy is being recalculated, the Applicable Life Expectancy shall be the
life expectancy as so recalculated. The life expectancy of a non-Spouse
Beneficiary may not be recalculated.
1.8 AVERAGE CONTRIBUTION PERCENTAGE (ACP). The average of the Contribution
Percentages for each Highly Compensated Employee and for each non-Highly
Compensated Employee.
1.9 AVERAGE DEFERRAL PERCENTAGE (ADP). The average of the Actual Deferral
Percentages for each Highly Compensated Employee and for each non-Highly
Compensated Employee.
1.10 BREAK IN SERVICE. A 12-consecutive month period during which an Employee
fails to complete more than 500 Hours of Service.
1.11 CODE. The Internal Revenue Code of 1986, including any amendments.
1.12 COMPENSATION. The Employer may select one of the following three
safe-harbor definitions of compensation in the Adoption Agreement.
Compensation shall only include amounts earned while a Participant if Plan Year
is chosen as the applicable computation period.
(a) Code Section 3401(a) Wages. Compensation is defined as wages within
the meaning of Code Section 3401 (a) for the purposes of Federal
income tax withholding at the source but determined without regard to
any rules 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) Code Section 6041 and 6051 Wages. Compensation is defined as 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 Section 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)].
(c) Code Section 415 Compensation. For purposes of applying the
limitations of Article X and Top-Heavy Minimums, the definition of
Compensation shall be Code Section 415 Compensation as follows: a
Participant's Earned Income, wages, salaries, and fees for
professional services and other amounts received (without regard to
whether or not an amount is paid in cash) for personal services
actually rendered in the course of employment with the Employer
maintaining the Plan to the extent that the amounts are includible in
gross income [including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a percentage of
profits, commissions on insurance premiums, tips, bonuses, fringe
benefits and reimbursements or other expense allowances under a
<PAGE> 31
nonaccountable plan (as described in Regulation 1.62-2(c)], and
excluding the following:
1. Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for
the taxable year in which contributed, or Employer
contributions under a Simplified Employee Pension Plan or any
distributions from a plan of deferred compensation,
2. Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the
Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture,
3. Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option; and
4. other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of an annuity
contract described in Code Section 403(b) (whether or not the
contributions are actually excludible from the gross income of
the Employee).
For purposes of applying the limitations of Article X, Compensation for a
Limitation Year is the Compensation actually paid or made available during such
Limitation Year. Notwithstanding the preceding sentence, Compensation for a
Participant in a defined contribution plan who is permanently and totally
disabled [as defined in Code Section 22(e)(3)] is the Compensation such
Participant would have received for the Limitation Year if the Participant had
been paid at the rate of Compensation paid immediately before becoming
permanently and totally disabled. Such imputed Compensation for the disabled
Participant may be taken into account only if the participant is not a Highly
Compensated Employee [as defined in Code Section 414(q)] and contributions made
on behalf of such Participant are nonforfeitable when made.
If the Employer fails to pick the applicable period in the Adoption Agreement,
the Plan Year shall be used. Unless otherwise specified by the Employer in the
Adoption Agreement, Compensation shall be determined as provided in 1.12(c).
Beginning with 1989 Plan Years, the annual Compensation of each Participant
which may be taken into account for determining all benefits provided under the
Plan (including benefits under Article XIV) for any year shall not exceed
$200,000, as adjusted under Code Section 415(d). In determining the
Compensation of a Participant for purposes of this limitation, the rules of
Code Section 414(q)(6) shall apply, except in applying such rules, the term
"family" shall include only the spouse of the Participant and any lineal
descendants of the Participant who have not attained age 19 before the end of
the Plan year. If, as a result of the application of such rules the adjusted
$200,000 limitation is exceeded, then (except for purposes of determining the
portion of Compensation up to the integration level if this Plan provides for
permitted disparity), the limitation shall be prorated among the affected
individuals in proportion to each such individual's
<PAGE> 32
Compensation as determined under this section prior to the application of this
limitation.
If a Plan has a Plan Year that contains fewer than 12 Calendar Months, then the
annual compensation limit for that period is an amount equal to the $200,000 as
adjusted for the calendar year in which the compensation period begins,
multiplied by a fraction the numerator of which is the number of full months in
the Short Plan Year and the denominator of which is 12. If compensation for
any prior plan year is taken into account in determining an employee's
contributions or benefits for the current year, the compensation for such prior
year is subject to the applicable annual compensation limit in effect for that
prior year For this purpose, for years beginning before January 1, 1990, the
applicable annual compensation limit is $200,000.
Compensation shall not include deferred compensation other than contributions
through a salary reduction agreement to a cash or deferred plan under Code
Section 401(k), a Simplified Employee Pension Plan under Code Section
402(h)(1)(B), a cafeteria plan under Code Section 125 or a tax-deferred annuity
under Code Section 403(b). Unless elected otherwise by the Employer in the
Adoption Agreement, these deferred amounts will be considered as Compensation
for Plan purposes. These deferred amounts are not counted as Compensation for
purposes of Articles X and XIV. When applicable to a Self-Employed Individual,
Compensation shall mean Earned Income.
1.13 CONTRIBUTION PERCENTAGE. The ratio (expressed as a percentage and
calculated separately for each Participant) of:
(a) the Participant's Contribution Percentage Amounts [as defined at
(c)-(f)] for the Plan Year, to
(b) the Participant's Compensation for the Plan Year. Compensation will
only include amounts for the period during which the Employee was
eligible to participate.
Contribution Percentage Amounts on behalf of any Participant shall include:
(c) the amount of Employee Voluntary Contributions, Matching
Contributions, and Qualified Matching Contributions (to the extent not
taken into account for purposes of the ADP test) made under the Plan
on behalf of the Participant for the Plan Year,
(d) 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 such forfeiture is allocated,
(e) at the election of the Employer, Qualified Non-Elective Contributions,
and
(f) the Employer also may elect to use Elective Deferrals in the
Contribution Percentage Amounts so long as the ADP test is met before
the Elective Deferrals are used in the ACP test and continues to be
met following the exclusion of those Elective Deferrals that are used
to meet the ACP test.
<PAGE> 33
Contribution Percentage Amounts shall not include Matching Contributions,
whether or not Qualified, 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.
1.14 CUSTODIAN. The Sponsor of this Prototype, or, if applicable, an
affiliate or successor, shall serve as Custodian if a Custodian is appointed in
the Adoption Agreement.
1.15 DEFINED BENEFIT PLAN. A Plan under which a Participant's benefit is
determined by a formula contained in the Plan and no individual accounts are
maintained for Participants.
1.16 DEFINED BENEFIT (PLAN) FRACTION. A fraction, the numerator of which is
the sum of the Participant's Projected Annual Benefits under all the Defined
Benefit Plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125 percent of the dollar limitation
determined for the Limitation Year under Code Sections 415(b) and (d) or 140
percent of the Highest Average Compensation, including any adjustments under
Code Section 415(b).
Notwithstanding the above, if the Participant was a Participant as of the first
day of the first Limitation Year beginning after 1986, in one or more Defined
Benefit Plans maintained by the Employer which were in existence on May 6,
1986, the denominator of this fraction will not be less than 125 percent of the
sum of the annual benefits under such plans which the Participant had accrued
as of the close of the last Limitation Year beginning before 1987, disregarding
any changes in the terms and conditions of the plan after May 5, 1986. The
preceding sentence applies only if the Defined Benefit Plans individually and
in the aggregate satisfied the requirements of Section 415 for all Limitation
Years beginning before 1987.
1.17 DEFINED CONTRIBUTION DOLLAR LIMITATION. Thirty thousand dollars ($30,000)
or if greater, one-fourth of the defined benefit dollar limitation set forth in
Code Section 415(b)(1) as in effect for the Limitation Year.
1.18 DEFINED CONTRIBUTION PLAN. A Plan under which individual accounts are
maintained for each Participant to which all contributions, forfeitures,
investment income and gains or losses, and expenses are credited or deducted.
A Participant's benefit under such Plan is based solely on the fair market
value of his or her account balance.
1.19 DEFINED CONTRIBUTION (PLAN) FRACTION. A Fraction, the numerator of which
is the sum of the Annual Additions to the Participant's account under all the
Defined Contribution Plans (whether or not terminated) maintained by the
Employer for the current and all prior Limitation Years (including the Annual
Additions attributable to the Participant's nondeductible Employee
contributions to all Defined Benefit Plans, whether or not terminated,
maintained by the Employer, and the Annual Additions attributable to all
Welfare Benefit Funds, as deemed in paragraph 1.89 and individual medical
accounts, as defined in Code Section 415(l)(2), maintained by the Employer),
and the denominator of which is the sum of the maximum aggregate amounts for
the current and all prior Limitation Years
<PAGE> 34
of Service with the Employer (regardless of whether a Defined Contribution Plan
was maintained by the Employer). The maximum aggregate amount in the
Limitation Year is the lesser of 125 percent of the dollar limitation
determined under Code Sections 415(b) and (d) in effect under Code Section
415(c)(1)(A) or 35 percent of the Participant's Compensation for such year.
If the Employee was a Participant as of the end of the first day of the first
Limitation Year beginning after 1986, in one or more Defined Contribution Plans
maintained by the Employer which were in existence on May 6, 1986, the
numerator of this fraction will be adjusted if the sum of this fraction and the
Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this
Plan. Under the adjustment, an amount equal to the product of (1) the excess
of the sum of the fractions over 1.0 times (2) the denominator of this fraction
will be permanently subtracted from the numerator of this fraction. The
adjustment is calculated using the fractions as they would be computed as of
the end of the last Limitation Year beginning before 1987, and disregarding any
changes in the terms and conditions of the Plan made after May 6,1986, but
using the Section 415 limitation applicable to the first Limitation Year
beginning on or after January 1, 1987. The Annual Addition for any Limitation
Year beginning before 1987, shall not be re-computed to treat all Employee
Contributions as Annual Additions.
1.20 DESIGNATED BENEFICIARY. The individual who is designated as the
beneficiary under the Plan in accordance with Code Section 401(a)(9) and the
regulations thereunder.
1.21 DISABILITY. An illness or injury of a potentially permanent nature,
expected to last for a continuous period of not less than 12 months, certified
by a physician selected by or satisfactory to the Employer, which prevents the
Employee from engaging in any occupation for wage or profit for which the
Employee is reasonably fitted by training, education or experience.
1.22 DISTRIBUTION CALENDAR YEAR. A calendar year for which a minimum
distribution is required.
1.23 EARLY RETIREMENT AGE. The age set by the Employer in the Adoption
Agreement (but not less than 55), which is the earliest age at which a
Participant may retire and receive his or her benefits under the Plan.
1.24 EARNED INCOME. Net earnings from self-employment in the trade or
business with respect to which the Plan is established, determined without
regard to items not included in gross income and the deductions allocable to
such items, provided that personal services of the individual are a material
income-producing factor. Earned income shall be reduced by contributions made
by an Employer to a qualified plan to the extent deductible under Code Section
404. For tax years beginning after 1989, net earnings shall be determined
taking into account the deduction for one-half of self-employment taxes allowed
to the Employer under Code Section 164(f) to the extent deductible.
1.25 EFFECTIVE DATE. The date on which the Employer's retirement plan or
amendment to such plan becomes effective.
<PAGE> 35
1.26 ELECTION PERIOD. The period which begins on the first day of the Plan
Year in which the Participant attains age 35 and ends on the date of the
Participant's death. If a Participant separates from service prior to the
first day of the Plan Year in which age 35 is attained, the Election Period
shall begin on the date of separation, with respect to the account balance as
of the date of separation.
1.27 ELECTIVE DEFERRAL. Employer contributions made to the Plan at the
election of the Participant, in lieu of cash Compensation. Elective Deferrals
shall also include contributions made pursuant to a Salary Savings Agreement or
other deferral mechanism, such as a cash option contribution. With respect to
any taxable year, a Participant's Elective Deferral is the sum of all Employer
contributions made on behalf of such Participant pursuant to an election to
defer under any qualified cash or deferred arrangement as described in Code
Section 401(k), any simplified employee pension cash or deferred arrangement as
described in Code Section 402(h)(1)(B), any eligible deferred compensation plan
under Code Section 457, any plan as described under Code Section 501(c)(18),
and any Employer contributions made on the behalf of a Participant for the
purchase of an annuity contract under Code Section 403(b) pursuant to a Salary
Savings Agreement. Elective Deferrals shall not include any deferrals properly
distributed as Excess Annual Additions.
1.28 ELIGIBLE PARTICIPANT. Any Employee who is eligible to make a Voluntary
Contribution, or an Elective Deferral (if the Employer takes such contributions
into account in the calculation of the Contribution Percentage), or to receive
a Matching Contribution (including forfeitures) or a Qualified Matching
Contribution. If a Voluntary Contribution or Elective Deferral is required as
a condition of participation in the Plan, any Employee who would be a
Participant in the Plan if such Employee made such a contribution shall be
treated as an Eligible Participant even though no Voluntary Contributions or
Elective Deferrals are made.
1.29 EMPLOYEE. Any person employed by the Employer (including Self-Employed
Individuals and partners), all Employees of a member of an affiliated service
group [as defined in Code Section 414(m)], Employees of a controlled group of
corporations [as defined in Code Section 414(b)], all Employees of any
incorporated or unincorporated trade or business which is under common control
[as defined in Code Section 414(c)], Leased Employees [as defined in Code
Section 414(n)] and any Employee required to be aggregated by Code Section
414(o). All such Employees shall be treated as employed by a single Employer.
1.30 EMPLOYER. The Self-Employed Individual, partnership, corporation or
other organization which adopts this Plan including any firm that succeeds the
Employer and adopts this Plan. For purposes of Article X, Limitations on
Allocations, Employer shall mean the Employer that adopts this Plan, and all
members of a controlled group of corporations [as defined in Code Section
414(b) as modified by Code Section 415(h)], all commonly controlled trades or
businesses [as defined in Code Section 414(c) as modified by Code Section
415(h)] or affiliated service groups [as defined in Code Section 414(m)] of
which the adopting Employer is a part, and any other entity required to be
aggregated with the Employer pursuant to regulations under Code Section 414(o).
<PAGE> 36
1.31 ENTRY DATE. The date on which an Employee commences participation in the
Plan as determined by the Employer in the Adoption Agreement.
1.32 EXCESS AGGREGATE CONTRIBUTIONS. The excess, with respect to any Plan
Year, of:
(a) The aggregate Contribution Percentage Amounts taken into account in
computing the numerator of the Contribution Percentage actually made
on behalf of Highly Compensated Employees for such Plan Year, over
(b) The maximum Contribution Percentage Amounts permitted by the ACP test
(determined by reducing contributions made on behalf of Highly
Compensated Employees in order of their Contribution Percentages
beginning with the highest of such percentages).
Such determination shall be made after first determining Excess Elective
Deferrals pursuant to paragraph 1.35 and then determining Excess Contributions
pursuant to paragraph 1.34.
1.33 EXCESS AMOUNT. The excess of the Participant's Annual Additions for the
Limitation Year over the Maximum Permissible Amount.
1.34 EXCESS CONTRIBUTION. With respect to any Plan Year, the excess of:
(a) The aggregate amount of Employer contributions actually taken into
account in computing the ADP of Highly Compensated Employees for such
Plan Year, over
(b) The maximum amount of such contributions permitted by the ADP test
(determined by reducing contributions made on behalf of Highly
Compensated Employees in order of the ADPs, beginning with the highest
of such percentages).
1.35 EXCESS ELECTIVE DEFERRALS. Those Elective Deferrals that are includible
in a Participant's gross income under Code Section 402(g) to the extent such
Participant's Elective Deferrals for a taxable year exceed the dollar
limitation under such Code Section. Excess Elective Deferrals shall be treated
as Annual Additions under the Plan, unless such amounts are distributed no
later than the first April 15th following the close of the Participant's
taxable year.
1.36 FAMILY MEMBER. The Employee's Spouse, any lineal descendants and
ascendants and the Spouse of such lineal descendants and ascendants.
1.37 FIRST DISTRIBUTION CALENDAR YEAR. 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. 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 paragraph 7.10.
1.38 FUND. All contributions received by the Trustee/Custodian under this
Plan and Trust/Custodial Account, investments thereof and earnings and
appreciation thereon.
<PAGE> 37
1.39 HARDSHIP. An immediate and heavy financial need of the Employee where
such Employee lacks other available resources.
1.40 HIGHEST AVERAGE COMPENSATION. The average Compensation for the three
consecutive Years of Service with the Employer that produces the highest
average. A Year of Service with the Employer is the 12-consecutive month
period defined in the Adoption Agreement.
1.41 HIGHLY COMPENSATED EMPLOYEE. Any Employee who performs service for the
Employer during the determination year and who, during the immediate prior
year:
(a) received Compensation from the Employer in excess of $75,000 [as
adjusted pursuant to Code Section 415(d)]; or
(b) received Compensation from the Employer in excess of $50,000 [as
adjusted pursuant to Code Section 415(d)] and was a member of the
Top-Paid Group for such year; or
(c) was an officer of the Employer and received Compensation during such
year that is greater than 50 percent of the dollar limitation in
effect under Code Section 415(b)(1)(A).
Notwithstanding (a), (b) and (c), an Employee who was not Highly Compensated
during the preceding Plan Year shall not be treated as a Highly Compensated
Employee with respect to the current Plan Year unless such Employee is a member
of the 100 Employees paid the greatest Compensation during the year for which
such determination is being made.
(d) Employees who are five percent (5%) Owners at any time during the
immediate prior year or determination year.
Highly Compensated Employee includes Highly Compensated active Employees and
Highly Compensated former Employees.
1.42 HOUR OF SERVICE.
(a) Each hour for which an Employee is paid, or entitled to payment, for
the performance of duties for the Employer. These hours shall be
credited to the Employee for the computation period in which the
duties are performed; and
(b) Each hour for which an Employee is paid, or entitled to payment, by
the Employer on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence. No
more than 501 Hours of Service shall be credited under this paragraph
for any single continuous period (whether or not such period occurs in
a single computation period). Hours under this paragraph shall be
calculated and credited pursuant to Section 2530.200b-2 of the
Department of Labor Regulations which are incorporated herein by this
reference; and
<PAGE> 38
(c) Each hour for which back pay, irrespective of mitigation of damages,
is either awarded or agreed to by the Employer. The same Hours of
Service shall not be credited both under paragraph (a) or paragraph
(b), as the case may be, and under this paragraph (c). These hours
shall be credited to the Employee for the computation period or
periods to which the award or agreement pertains rather than the
computation period in which the award, agreement or payment is made.
(d) Hours of Service shall be credited for employment with the Employer
and with other members of an affiliated service group [as defined in
Code Section 414(m)], a controlled group of corporations [as defined
in Code Section 414(b)], or a group of trades or businesses under
common control [as defined in Code Section 414(c)] of which the
adopting Employer is a member, and any other entity required to be
aggregated with the Employer pursuant to Code Section 414(o) and the
regulations thereunder. Hours of Service shall also be credited for
any individual considered an Employee for purposes of this Plan under
Code Section 414(n) or Code Section 414(o) and the regulations
thereunder.
(e) Solely for purposes of determining whether a Break in Service, as
defined in paragraph 1.10, for participation and vesting purposes has
occurred in a computation period, an individual who is absent from
work for maternity or paternity reasons shall receive credit for the
Hours of Service which would otherwise have been credited to such
individual but for such absence, or in any case in which such hours
cannot be determined, 8 Hours of Service per day of such absence. For
purposes of this paragraph, an absence from work for maternity or
paternity reasons means an absence by reason of the pregnancy of the
individual, by reason of a birth of a child of the individual, by
reason of the placement of a child with the individual in connection
with the adoption of such child by such individual, or for purposes of
caring for such child for a period beginning immediately following
such birth or placement. The Hours of Service credited under this
paragraph shall be credited in the computation period in which the
absence begins if the crediting is necessary to prevent a Break in
Service in that period, or in all other cases, in the following
computation period. No more than 501 hours will be credited under
this paragraph.
(f) Hours of Service shall be determined on the basis of the method
selected in the Adoption Agreement.
1.43 KEY EMPLOYEE. Any Employee or former Employee (and the beneficiaries of
such employee) who at any time during the determination period was an officer
of the Employer if such individual's annual compensation exceeds 50% of the
dollar limitation under Code Section 415(b)(1)(A) (the defined benefit maximum
annual benefit), an owner (or considered an owner under Code Section 318) of
one of the ten largest interests in the employer if such individual's
compensation exceeds 100% of the dollar limitation under Code Section
415(c)(1)(A), a 5% owner of the Employer, or a 1 % owner of the Employer who
has an annual compensation of more than $150,000. For purposes of determining
who is a Key Employee, annual compensation shall mean Compensation as defined
for Article X, but including amounts deferred through a salary reduction
agreement to a cash or deferred plan under Code
<PAGE> 39
Section 401(k), a Simplified Employee Pension Plan under Code Section 408(k), a
cafeteria plan under Code Section 125 or a tax-deferred annuity under Code
Section 403(b). The determination period is the Plan Year containing the
Determination Date and the four preceding Plan Years. The determination of who
is a Key Employee will be made in accordance with Code Section 416(i)(1) and
the regulations thereunder.
1.44 LEASED EMPLOYEE. Any person (other than an Employee of the recipient)
who, pursuant to an agreement between the recipient and any other person
("leasing organization"), has performed services for the recipient [or for the
recipient and related persons determined in accordance with Code Section
414(n)(6)] on a substantially full-time basis for a period of at least one
year, and such services are of a type historically performed by Employees in
the business field of the recipient Employer.
1.45 LIMITATION YEAR. The calendar year or such other 12-consecutive month
period designated by the Employer in the Adoption Agreement for purposes of
determining the maximum Annual Addition to a Participant's account. All
qualified plans maintained by the Employer must use the same Limitation Year.
If the Limitation Year is amended to a different 12-consecutive month period,
the new Limitation Year must begin on a date within the Limitation Year in
which the amendment is made.
1.46 MASTER OR PROTOTYPE PLAN. A plan, the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
1.47 MATCHING CONTRIBUTION. An Employer contribution made to this or any other
defined contribution plan on behalf of a Participant on account of an Employee
Voluntary Contribution made by such Participant, or on account of a
Participant's Elective Deferral, under a Plan maintained by the Employer.
1.48 MAXIMUM PERMISSIBLE AMOUNT. The maximum Annual Addition that may be
contributed or allocated to a Participant's account under the plan for any
Limitation Year shall not exceed the lesser of:
(a) the Defined Contribution Dollar Limitation, or
(b) 25% of the Participant's Compensation for the Limitation Year.
The compensation limitation referred to in (b) shall not apply to any
contribution for medical benefits [within the meaning of Code Section 401(h) or
Code Section 419A(f)(2)] which is otherwise treated as an Annual Addition under
Code Section 415(l)(1) or 419(d)(2). If a short Limitation Year is created
because of an amendment changing the Limitation Year to a different
12-consecutive month period, the Maximum Permissible Amount will not exceed the
Defined Contribution Dollar Limitation multiplied by the following fraction:
Number of months in the short Limitation Year divided by 12.
1.49 NET PROFIT. The current and accumulated operating earnings of the
Employer before Federal and State income taxes, excluding nonrecurring or
unusual items of income, and before contributions to this and any other
<PAGE> 40
qualified plan of the Employer. Alternatively, the Employer may fix another
definition in the Adoption Agreement.
1.50 NORMAL RETIREMENT AGE. The age, set by the Employer in the Adoption
Agreement, at which a Participant may retire and receive his or her benefits
under the Plan.
1.51 OWNER-EMPLOYEE. A sole proprietor, or a partner owning more than 10% of
either the capital or profits interest of the partnership.
1.52 PAIRED PLANS. Two or more Plans maintained by the Sponsor designed so
that a single or any combination of Plans adopted by an Employer will meet the
antidiscrimination rules, the contribution and benefit limitations, and the
Top-Heavy provisions of the Code.
1.53 PARTICIPANT. Any Employee who has met the eligibility requirements and
is participating in the Plan.
1.54 PARTICIPANT'S BENEFIT. 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. A special exception
exists for the second distribution Calendar Year. For purposes of this
paragraph, 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.
1.55 PERMISSIVE AGGREGATION GROUP. Used for Top-Heavy testing purposes, it is
the Required Aggregation Group of plans plus any other plan or plans of the
Employer which, when considered as a group with the Required Aggregation Group,
would continue to satisfy the requirements of Code Sections 401(a)(4) and 410.
1.56 PLAN. The Employer's retirement plan as embodied herein and in the
Adoption Agreement.
1.57 PLAN ADMINISTRATOR. The Employer.
1.58 PLAN YEAR. The 12-consecutive month period designated by the Employer in
the Adoption Agreement.
1.59 PRESENT VALUE. Used for Top-Heavy test and determination purposes, when
determining the Present Value of accrued benefits, with respect to any Defined
Benefit Plan maintained by the Employer, interest and mortality rates shall be
determined in accordance with the provisions of the respective plan. If
applicable, interest and mortality assumptions will be specified in Section 11
of the Adoption Agreement.
1.60 PROJECTED ANNUAL BENEFIT. Used to test the maximum benefit which may be
obtained from a combination of retirement plans, it is the annual
<PAGE> 41
retirement benefit (adjusted to an actuarial equivalent straight life annuity
if such benefit is expressed in a form other than a straight life annuity or
Qualified Joint and Survivor Annuity) to which the Participant would be
entitled under the terms of a Defined Benefit Plan or plans, assuming:
(a) the Participant will continue employment until Normal Retirement Age
under the plan (or current age, if later), and
(b) the Participant's Compensation for the current Limitation Year and all
other relevant factors used to determine benefits under the plan will
remain constant for all future Limitation Years.
1.61 QUALIFIED DEFERRED COMPENSATION PLAN. Any pension, profit-sharing, stock
bonus, or other plan which meets the requirements of Code Section 401 and
includes a trust exempt from tax under Code Section 501(a) and any annuity plan
described in Code Section 403(a).
An Eligible Retirement Plan is an individual retirement account (IRA) as
described in section 408(a) of the Code, an individual retirement annuity (IRA)
as described in section 408(b) of the Code, an annuity plan as described in
section 403(a) of the Code, or a qualified trust, as described in section
401(a) of the Code, which accepts Eligible Rollover Distributions. However in
the case of an Eligible Rollover Distribution to a Surviving Spouse, an
Eligible Retirement Plan is an individual retirement account or individual
retirement annuity.
1.62 QUALIFIED DOMESTIC RELATIONS ORDER. A QDRO is a signed Domestic
Relations Order issued by a State Court which creates, recognizes or assigns to
an alternate payee(s) the right to receive all or part of a Participant's Plan
benefit and which meets the requirements of Code Section 414(p). An alternate
payee is a Spouse, former Spouse, child, or other dependent who is treated as a
beneficiary under the Plan as a result of the QDRO.
1.63 QUALIFIED EARLY RETIREMENT AGE. For purposes of paragraph 8.9, Qualified
Early Retirement Age is the latest of:
(a) the earliest date, under the Plan, on which the Participant may elect
to receive retirement benefits, or
(b) the first day of the 120th month beginning before the Participant
reaches Normal Retirement Age, or
(c) the date the Participant begins participation.
1.64 QUALIFIED JOINT AND SURVIVOR ANNUITY. An immediate annuity for the life
of the Participant with a survivor annuity for the life of the Participant's
Spouse which is at least one-half of but not more than the amount of the
annuity payable during the joint lives of the Participant and the Participant's
Spouse. The exact amount of the Survivor Annuity is to be specified by the
Employer in the Adoption Agreement. If not designated by the Employer, the
Survivor Annuity will be 1/2 of the amount paid to the Participant during his
or her lifetime. The Qualified Joint and Survivor
<PAGE> 42
Annuity will be the amount of benefit which can be provided by the
Participant's Vested Account Balance.
1.65 QUALIFIED MATCHING CONTRIBUTION. Matching Contributions which when made
are subject to the distribution and nonforfeitability requirements under Code
Section 401(k).
1.66 QUALIFIED NON-ELECTIVE CONTRIBUTIONS. Contributions (other than Matching
Contributions or Qualified Matching Contributions) made by the Employer and
allocated to Participants' accounts that the Participants may not elect to
receive in cash until distributed from the Plan; that are nonforfeitable when
made; and that are distributable only in accordance with the distribution
provisions that are applicable to Elective Deferrals and Qualified Matching
Contributions.
1.67 QUALIFIED VOLUNTARY CONTRIBUTION. A tax-deductible voluntary Employee
contribution. These contributions may no longer be made to the Plan.
1.68 REQUIRED AGGREGATION GROUP. Used for Top-Heavy testing purposes, it
consists of:
(a) each qualified plan of the Employer in which at least one Key Employee
participates or participated at any time during the determination
period (regardless of whether the plan has terminated), and
(b) any other qualified plan of the Employer which enables a plan
described in (a) to meet the requirements of Code Sections 401(a)(4)
or 410.
1.69 REQUIRED BEGINNING DATE. The date on which a Participant is required to
take his or her first minimum distribution under the Plan. The rules are set
forth at paragraph 7.5.
1.70 ROLLOVER CONTRIBUTION. A contribution made by a Participant of an amount
distributed to such Participant from another Qualified Deferred Compensation
Plan in accordance with Code Sections 402(a)(5), (6), and (7).
An Eligible Rollover Distribution is any distribution of all or any portion of
the balance to the credit of the Participant except that an Eligible Rollover
Distribution does not include:
(a) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the
life (or life expectancy) of the Participant or the joint lives (or
joint life expectancies) of the Participant and the Participant's
Designated Beneficiary, or for a specified period of ten years or
more;
(b) any distribution to the extent such distribution is required under
section 401(a)(9) of the Code; and
(c) the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
<PAGE> 43
A Direct Rollover is a payment by the plan to the Eligible Retirement Plan
specified by the Participant.
1.71 SALARY SAVINGS AGREEMENT. An agreement between the Employer and a
participating Employee where the Employee authorizes the Employer to withhold a
specified percentage of his or her Compensation for deposit to the Plan on
behalf of such Employee.
1.72 SELF-EMPLOYED INDIVIDUAL. An individual who has Earned Income for the
taxable year from the trade or business for which the Plan is established
including an individual who would have had Earned Income but for the fact that
the trade or business had no Net Profit for the taxable year.
1.73 SERVICE. The period of current or prior employment with the Employer.
If the Employer maintains a plan of a predecessor employer, Service for such
predecessor shall be treated as Service for the Employer.
1.74 SHAREHOLDER EMPLOYEE. An Employee or Officer who owns [or is considered
as owning within the meaning of Code Section 318(a)(1)], on any day during the
taxable year of an electing small business corporation (S Corporation), more
than 5% of such corporation's outstanding stock.
1.75 SIMPLIFIED EMPLOYEE PENSION PLAN. An individual retirement account which
meets the requirements of Code Section 408(k), and to which the Employer makes
contributions pursuant to a written formula. These plans are considered for
contribution limitation and Top-Heavy testing purposes.
1.76 SPONSOR. Comerica Bank.
1.77 SPOUSE (SURVIVING SPOUSE). The Spouse or Surviving Spouse of the
Participant, provided that a former Spouse will be treated as the Spouse or
Surviving Spouse and a current Spouse will not be treated as the Spouse or
Surviving Spouse to the extent provided under a Qualified Domestic Relations
Order as described in Code Section 414(p).
1.78 SUPER TOP-HEAVY PLAN. A Plan described at paragraph 1.81 under which the
Top-Heavy Ratio [as defined at paragraph 1.82] exceeds 90%.
1.79 TAXABLE WAGE BASE. For plans with an allocation formula which takes into
account the Employer's contribution under the Federal Insurance Contributions
Act (FICA), the maximum amount of earnings which may be considered wages for
such Plan Year under the Social Security Act [Code Section 3121(a)(1)], or the
amount elected by the Employer in the Adoption Agreement.
1.80 TOP-HEAVY DETERMINATION DATE. For any Plan Year subsequent to the first
Plan Year, the last day of the preceding Plan Year. For the first Plan Year of
the Plan, the last day of that year.
1.81 TOP-HEAVY PLAN. For any Plan Year beginning after 1983, the Employer's
Plan is top-heavy if any of the following conditions exist:
<PAGE> 44
(a) If the Top-Heavy Ratio for the Employer's Plan exceeds 60% and this
Plan is not part of any required Aggregation Group or Permissive
Aggregation Group of Plans.
(b) If the Employer's plan is a part of a Required Aggregation Group of
plans but not part of a Permissive Aggregation Group and the Top-Heavy
Ratio for the group of plans exceeds 60%.
(c) If the Employer's plan is a part of a Required Aggregation Group and
part of a Permissive Aggregation Croup of plans and the Top-Heavy
Ratio for the Permissive Aggregation Group exceeds 60%.
1.82 TOP-HEAVY RATIO.
(a) If the Employer maintains one or more Defined Contribution plans
(including any Simplified Employee Pension Plan) and the Employer has
not maintained any Defined Benefit Plan which during the 5-year period
ending on the Determination Date(s) has or has had accrued benefits,
the Top-Heavy Ratio for this Plan alone, or for the Required or
Permissive Aggregation Group as appropriate, is a fraction,
(1) the numerator of which is the sum of the account balances of
all Key Employees as of the Determination Date(s) [including
any past of any account balance distributed in the 5-year
period ending on the Determination Date(s)], and
(2) the denominator of which is the sum of all account balances
[including any part of any account balance distributed in the
5-year period ending on the Determination Date(s)], both
computed in accordance with Code Section 416 and the
regulations thereunder.
Both the numerator and denominator of the Top-Heavy Ratio are
increased to reflect any contribution not actually made as of the
Determination Date, but which is required to be taken into account on
that date under Code Section 416 and the regulations thereunder.
(b) If the Employer maintains one or more Defined Contribution Plans
(including any Simplified Employee Pension Plan) and the Employer
maintains or has maintained one or more Defined Benefit Plans which
during the 5-year period ending on the Determination Date(s) has or
has had any accrued benefits, the Top-Heavy Ratio for any Required or
Permissive Aggregation Group as appropriate is a fraction, the
numerator of which is the sum of account balances under the aggregated
Defined Contribution Plan or Plans for all Key Employees, determined
in accordance with (a) above, and the Present Value of accrued
benefits under the aggregated Defined Benefit Plan or Plans for all
Key Employees as of the Determination Date(s), and the denominator of
which is the sum of the account balances under the aggregated Defined
Contribution Plan or Plans for all Participants, determined in
accordance with (a) above, and the Present Value of accrued benefits
under the Defined Benefit Plan or Plans for all Participants as of the
Determination Date(s), all determined in accordance with Code Section
416 and the regulations thereunder. The accrued benefits under a
Defined Benefit Plan in both the numerator and denominator of the
<PAGE> 45
Top-Heavy Ratio are increased for any distribution of an accrued
benefit made in the 5-year period ending on the Determination Date.
(c) For purposes of (a) and (b) above, the value of account balances and
the Present Value of accrued benefits will be determined as of the
most recent Valuation Date that falls within or ends with the 12-month
period ending on the Determination Date, except as provided in Code
Section 416 and the regulations thereunder for the first and second
plan years of a Defined Benefit Plan. The account balances and
accrued benefits of a participant (1) who is not a Key Employee but
who was a Key Employee in a prior year, or (2) who has not been
credited with at least one hour of service with any Employer
maintaining the Plan at any time during the 5-year period ending on
the Determination Date, will be disregarded. The calculation of the
Top-Heavy Ratio, and the extent to which distributions, rollovers, and
transfers are taken into account will be made in accordance with Code
Section 416 and the regulations thereunder. Qualified Voluntary
Employee Contributions will not be taken into account for purposes of
computing the Top-Heavy Ratio. When aggregating plans the value of
account balances and accrued benefits will be calculated with
reference to the Determination Dates that fall within the same
calendar year. The accrued benefit of a Participant other than a Key
Employee shall be determined under (1) the method, if any, that
uniformly applies for accrual purposes under all Defined Benefit Plans
maintained by the Employer, or (2) if there is no such method, as if
such benefit accrued not more rapidly than the slowest accrual rate
permitted under the fractional rule of Code Section 411(b)(1)(C).
1.83 TOP-PAID GROUP. The group consisting of the top 20% of Employees when
ranked on the basis of Compensation paid during such year. For purposes of
determining the number of Employees in the group (but not who is in it), the
following Employees shall be excluded:
(a) Employees who have not completed 6 months of Service.
(b) Employees who normally work less than 17-1/2 hours per week.
(c) Employees who normally do not work more than 6 months during any year.
(d) Employees who have not attained age 21.
(e) Employees included in a collective bargaining unit, covered by an
agreement between employee representatives and the Employer, where
retirement benefits were the subject of good faith bargaining and
provided that 90% or more of the Employer's Employees are covered by
the agreement.
(f) Employees who are nonresident aliens and who receive no earned income
which constitutes income from sources within the United States.
1.84 TRANSFER CONTRIBUTION. A non-taxable transfer of a Participant's benefit
directly from a Qualified Deferred Compensation Plan to this Plan.
1.85 TRUSTEE. The individual(s) or institution appointed by the Employer to
invest the Fund.
<PAGE> 46
1.86 VALUATION DATE. The last day of the Plan Year or such other date as
agreed to by the Employer and the Trustee/Custodian on which Participant
accounts are revalued in accordance with Article V hereof. For Top-Heavy
purposes, the date selected by the Employer as of which the Top-Heavy Ratio is
calculated.
1.87 VESTED ACCOUNT BALANCE. The aggregate value of the Participant's Vested
Account Balances derived from Employer and Employee contributions (including
Rollovers), whether vested before or upon death, including the proceeds of
insurance contracts, if any, on the Participant's life. The provisions of
Article VIII shall apply to a Participant who is vested in amounts attributable
to Employer contributions, Employee contributions (or both) at the time of
death or distribution.
1.88 VOLUNTARY CONTRIBUTION. An Employee 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.
1.89 WELFARE BENEFIT FUND. Any fund that is part of a plan of the Employer,
or has the effect of a plan, through which the Employer provides welfare
benefits to Employees or their beneficiaries. For these purposes, Welfare
Benefits means any benefit other than those with respect to which Code Section
83(h) (relating to transfers of property in connection with the performance of
services), Code Section 404 (relating to deductions for contributions to an
Employee's trust or annuity and Compensation under a deferred payment plan),
Code Section 404A (relating to certain foreign deferred compensation plans)
apply. A "Fund" is any social club, voluntary employee benefit association,
supplemental unemployment benefit trust or qualified group legal service
organization described in Code Section 501(c)(7), (9), (17) or (20); any trust,
corporation, or other organization not exempt from income tax, or to the extent
provided in regulations, any account held for an Employer by any person.
1.90 YEAR OF SERVICE. A 12 consecutive month period during which an Employee
is credited with not less than 1,000 (or such lesser number as specified by the
Employer in the Adoption Agreement) Hours of Service.
ARTICLE II
ELIGIBILITY REQUIREMENTS
2.1 PARTICIPATION. Employees who meet the eligibility requirements in the
Adoption Agreement on the Effective Date of the Plan shall become Participants
as of the Effective Date of the Plan. If so elected in the Adoption Agreement,
all Employees employed on the Effective Date of the Plan may participate, even
if they have not satisfied the Plan's specified eligibility requirements.
Other Employees shall become Participants on the Entry Date coinciding with or
immediately following the date on which they meet the eligibility requirements.
The Employee must satisfy the eligibility requirements specified in the
Adoption Agreement and be employed on the Entry Date to become a Participant in
the Plan. In the event an Employee who is not a member of the eligible class
of Employees becomes a member of the eligible class, such Employee shall
participate immediately if such Employee has satisfied the minimum age and
service requirements and would have previously become a Participant had he or
she
<PAGE> 47
been in the eligible class. A former Participant shall again become a
Participant upon returning to the employ of the Employer as of the next Entry
Date or if earlier, the next Valuation Date.
2.2 CHANGE IN CLASSIFICATION OF EMPLOYMENT. In the event a Participant
becomes ineligible to participate because he or she is no longer a member of an
eligible class of Employees, such Employee shall participate upon his or her
return to an eligible class of Employees.
2.3 COMPUTATION PERIOD. To determine Years of Service and Breaks in Service
for purposes of eligibility, the 12-consecutive month period shall commence on
the date on which an Employee first performs an Hour of Service for the
Employer and each anniversary thereof, such that the succeeding 12-consecutive
month period commences with the employee's first anniversary of employment and
so on.
2.4 EMPLOYMENT RIGHTS. Participation in the Plan shall not confer upon a
Participant any employment rights, nor shall it interfere with the Employer's
right to terminate the employment of any Employee at any time.
2.5 SERVICE WITH CONTROLLED GROUPS. All Years of Service with other members
of a controlled group of corporations [as defined in Code Section 414(b)],
trades or businesses under common control [as defined in Code Section 414(c)],
or members of an affiliated service group [as defined in Code Section 414(m)]
shall be credited for purposes of determining an Employee's eligibility to
participate.
2.6 OWNER-EMPLOYEES. If this Plan provides contributions or benefits for one
or more Owner-Employees who control both the business for which this Plan is
established and one or more other trades or businesses, this Plan and the Plan
established for other trades or businesses must, when looked at as a single
Plan, satisfy Code Sections 401(a) and (d) for the Employees of this and all
other trades or businesses.
If the Plan provides contributions or benefits for one or more Owner-Employees
who control one or more other trades or businesses, the Employees of the other
trades or businesses must be included in a Plan which satisfies Code Sections
401(a) and (d) and which provides contributions and benefits not less favorable
than provided for Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of two or more
trades or businesses which are not controlled, and the individual controls a
trade or business, then the contributions or benefits of the Employees under
the plan of the trades or businesses which are controlled must be as favorable
as those provided for him or her under the most favorable plan of the trade or
business which is not controlled.
For purposes of the preceding sentences, an Owner-Employee, or two or more
Owner-Employees, will be considered to control a trade or business if the
Owner-Employee, or two or more Owner-Employees together:
(a) own the entire interest in an unincorporated trade or business, or
<PAGE> 48
(b) in the case of a partnership, own more than 50% of either the capital
interest or the profits interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more
Owner-Employees shall be treated as owning any interest in a partnership which
is owned, directly or indirectly, by a partnership which such Owner-Employee,
or such two or more Owner-Employees, are considered to control within the
meaning of the preceding sentence.
2.7 LEASED EMPLOYEES. Any Leased Employee shall be treated as an Employee of
the recipient Employer; however, contributions or benefits provided by the
leasing organization which are attributable to services performed for the
recipient Employer shall be treated as provided by the recipient Employer. A
Leased Employee shall not be considered an Employee of the recipient if such
Employee is covered by a money purchase pension plan providing:
(a) a non-integrated Employer contribution rate of at least 10% of
Compensation, [as defined in Code Section 415(c)(3) but including
amounts contributed by the Employer pursuant to a salary reduction
agreement, which are excludable from the Employee's gross income under
a cafeteria plan covered by Code Section 125, a cash or deferred
profit-sharing plan under Section 401(k) of the Code, a Simplified
Employee Pension Plan under Code Section 402(h)(1)(B ) and a
tax-sheltered annuity under Code Section 403(b)],
(b) immediate participation, and
(c) full and immediate vesting.
This exclusion is only available if Leased Employees do not constitute more
than twenty percent (20%) of the recipient's non-highly compensated work force.
2.8 THRIFT PLANS. If the Employer makes an election in the Adoption Agreement
to require Voluntary Contributions to participate in this Plan, the Employer
shall notify each eligible Employee in writing of his or her eligibility for
participation at least 30 days prior to the appropriate Entry Date. The
Employee shall indicate his or her intention to join the Plan by authorizing
the Employer to withhold a percentage of his or her Compensation as provided in
the Plan. Such authorization shall be returned to the Employer at least 10
days prior to the Employee's Entry Date. The Employee may decline
participation by so indicating on the enrollment form or by failure to return
the enrollment form to the Employer prior to the Employee's Entry Date. If the
Employee declines to participate, such Employee shall be given the opportunity
to join the Plan on the next Entry Date. The taking of a Hardship Withdrawal
under the provisions of paragraph 6.9 will impact the Participant's ability to
make these contributions.
ARTICLE III
EMPLOYER CONTRIBUTIONS
3.1 AMOUNT. The Employer intends to make periodic contributions to the Plan in
accordance with the formula or formulas selected in the Adoption
<PAGE> 49
Agreement. However, the Employer's contribution for any Plan Year shall be
subject to the limitations on allocations contained in Article X.
3.2 EXPENSES AND FEES. The Employer shall also be authorized to reimburse the
Fund for all expenses and fees incurred in the administration of the Plan or
Trust/Custodial Account and paid out of the assets of the Fund. Such expenses
shall include, but shall not be limited to, fees for professional services,
printing and postage. Brokerage commissions may not be reimbursed.
3.3 RESPONSIBILITY FOR CONTRIBUTIONS. Neither the Trustee/Custodian nor the
Sponsor shall be required to determine if the Employer has made a contribution
or if the amount contributed is in accordance with the Adoption Agreement or
the Code. The Employer shall have sole responsibility in this regard. The
Trustee/Custodian shall be accountable solely for contributions actually
received by it, within the limits of Article XI.
3.4 RETURN OF CONTRIBUTIONS. Contributions made to the Fund by the Employer
shall be irrevocable except as provided below:
(a) Any contribution forwarded to the Trustee/Custodian because of a
mistake of fact, provided that the contribution is returned to the
Employer within one year of the contribution.
(b) In the event that the Commissioner of Internal Revenue determines that
the Plan is not initially qualified under the Internal Revenue Code,
any contribution made incident to that initial qualification by the
Employer must be returned to the Employer within one year after the
date the initial qualification is denied, but only if the application
for the qualification is made by the time prescribed by law for filing
the Employer's return for the taxable year in which the Plan is
adopted, or such later date as the Secretary of the Treasury may
prescribe.
(c) Contributions forwarded to the Trustee/Custodian are presumed to be
deductible and are conditioned on their deductibility. Contributions
which are determined to not be deductible will be returned to the
Employer.
ARTICLE IV
EMPLOYEE CONTRIBUTIONS
4.1 VOLUNTARY CONTRIBUTIONS. An Employee may make Voluntary Contributions to
the Plan established hereunder if so authorized by the Employer in a uniform
and nondiscriminatory manner. Such contributions are subject to the
limitations on Annual Additions and are subject to antidiscrimination testing.
4.2 QUALIFIED VOLUNTARY CONTRIBUTIONS. A Participant may no longer make
Qualified Voluntary Contributions to the Plan. Amounts already contributed may
remain in the Trust Fund/Custodial Account until distributed to the
Participant. Such amounts will be maintained in a separate account which will
be nonforfeitable at all times. The account will share in the gains and losses
of the Trust in the same manner as described at paragraph 5.4
<PAGE> 50
of the Plan. No part of the Qualified Voluntary Contribution account will be
used to purchase life insurance. Subject to Article VIII, Joint and Survivor
Annuity Requirements (if applicable), the Participant may withdraw any part of
the Qualified Voluntary Contribution account by making a written application to
the Plan Administrator.
4.3 ROLLOVER CONTRIBUTION. Unless provided otherwise in the Adoption
Agreement, a Participant may make a Rollover Contribution to any Defined
Contribution Plan established hereunder of all or any part of an amount
distributed or distributable to him or her from a Qualified Deferred
Compensation Plan provided:
(a) the amount distributed to the Participant is deposited to the Plan no
later than the sixtieth day after such distribution was received by
the Participant,
(b) the amount distributed is not one of a series of substantially equal
periodic payments made for the life (or life expectancy) of the
Participant or the joint lives (or joint life expectancies) of the
Participant and the Participant's Designated Beneficiary, or for a
specified period of ten years or more,
(c) the amount distributed is not required under section 401(a)(9) of the
Code,
(d) if the amount distributed included property such property is rolled
over, or if sold the proceeds of such property may be rolled over,
(e) the amount distributed is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
In addition, if the Adoption Agreement allows Rollover Contributions, the Plan
will also accept any Eligible Rollover Distribution (as defined at paragraph
1.55) directly to the Plan.
Rollover Contributions, which relate to distributions prior to January 1,1993,
must be made in accordance with paragraphs (a) through (e) and additionally
meet the requirements of paragraph (f):
(f) The distribution from the Qualified Deferred Compensation Plan
constituted the Participant's entire interest in such Plan and was
distributed within one taxable year to the Participant:
(1) on account of separation from Service, a Plan termination, or
in the case of a profit-sharing or stock bonus plan, a
complete discontinuance of contributions under such plan
within the meaning of Section 402(a)(6)(A) of the Code, or
(2) in one or more distributions which constitute a qualified lump
sum distribution within the meaning of Code Section
402(e)(4)(A), determined without reference to subparagraphs
(B) and (H).
<PAGE> 51
Such Rollover Contribution may also be made through an Individual Retirement
Account qualified under Code Section 408 where the IRA was used as a conduit
from the Qualified Deferred Compensation Plan, the Rollover Contribution is
made in accordance with the rules provided under paragraphs (a) through (e) and
the Rollover Contribution does not include any regular IRA contributions, or
earnings thereon, which the Participant may have made to the IRA. Rollover
Contributions, which relate to distributions prior to January 1, 1993, may be
made through an IRA in accordance with paragraphs (a) through (f) and
additional requirements as provided in the previous sentence. The
Trustee/Custodian shall not be held responsible for determining the tax-free
status of any Rollover Contribution made under this Plan.
4.4 TRANSFER CONTRIBUTION. Unless provided otherwise in the Adoption
Agreement a Participant may, subject to the provisions of paragraph 4.5, also
arrange for the direct transfer of his or her benefit from a Qualified Deferred
Compensation Plan to this Plan. For accounting and record keeping purposes,
Transfer Contributions shall be treated in the same manner as Rollover
Contributions.
4.5 EMPLOYER APPROVAL OF TRANSFER CONTRIBUTIONS. The Employer maintaining a
Safe-Harbor Profit-Sharing Plan in accordance with the provisions of paragraph
8.7, acting in a nondiscriminatory manner, may in its sole discretion refuse to
allow Transfer Contributions to its profit-sharing plan, if such contributions
are directly or indirectly being transferred from a defined benefit plan, a
money purchase pension plan (including a target benefit plan), a stock bonus
plan, or another profit-sharing plan which would otherwise provide for a life
annuity form of payment to the Participant.
4.6 ELECTIVE DEFERRALS. A Participant may enter into a Salary Savings
Agreement with the Employer authorizing the Employer to withhold a portion of
such Participant's Compensation not to exceed $7,000 per calendar year as
adjusted under Code Section 415(d) or, if lesser, the percentage of
Compensation specified in the Adoption Agreement and to deposit such amount to
the Plan. No Participant shall be permitted to have Elective Deferrals made
under this Plan or any other qualified plan maintained by the Employer, during
any taxable year, in excess of the dollar limitation contained in Code Section
402(g) in effect at the beginning of such taxable year. Thus, the $7,000 limit
may be reduced if a Participant contributes pre-tax contributions to qualified
plans of this or other Employers. Any such contribution shall be credited to
the Employee's Salary Savings Account. Unless otherwise specified in the
Adoption Agreement, a Participant may amend his or her Salary Savings Agreement
to increase, decrease or terminate the percentage upon 30 days written notice
to the Employer. If a Participant terminates his or her agreement, such
Participant shall not be permitted to put a new Salary Savings Agreement into
effect until the first pay period in the next Plan Year, unless otherwise
stated in the Adoption Agreement. The Employer may also amend or terminate
said agreement on written notice to the Participant. If a Participant has not
authorized the Employer to withhold at the maximum rate and desires to increase
the total withheld for a Plan Year, such Participant may authorize the Employer
upon 30 days notice to withhold a supplemental amount If p to 100% of his or
her Compensation for one or more pay periods. In no event may the sum of the
amounts withheld under the
<PAGE> 52
Salary Savings Agreement plus the supplemental withholding exceed 25% of a
Participant's Compensation for a Plan Year. The Employer may also
recharacterize as after-tax Voluntary Contributions all or any portion of
amounts previously withheld under any Salary Savings Agreement within the Plan
Year as provided for at paragraph 10.9. This may be done to insure that the
Plan will meet one of the antidiscrimination tests under Code Section 401(k).
Elective Deferrals shall be deposited in the Trust within 30 days after being
withheld from the Participant's pay.
4.7 REQUIRED VOLUNTARY CONTRIBUTIONS. If the Employer makes a thrift election
in the Adoption Agreement, each eligible Participant shall be required to make
Voluntary Contributions to the Plan for credit to his or her account as
provided in the Adoption Agreement. Such Voluntary Contributions shall be
withheld from the Employee's Compensation and shall be transmitted by the
Employer to the Trustee/Custodian as agreed between the Employer and
Trustee/Custodian. A Participant may discontinue participation or change his
or her Voluntary Contribution percentage by so advising the Employer at least
10 days prior to the date on which such discontinuance or change is to be
effective. If a Participant discontinues his or her Voluntary Contributions,
such Participant may not again authorize Voluntary Contributions for a period
of one year from the date of discontinuance. A Participant may voluntarily
change his or her Voluntary Contribution percentage once during any Plan Year
and may also agree to have a reduction in his or her contribution, if required
to satisfy the requirements of the ACP test.
4.8 DIRECT ROLLOVER OF BENEFITS. Notwithstanding any provision of the plan to
the contrary that would otherwise limit a Participant's election under this
Paragraph, for distributions made on or after January 1, 1993, a Participant
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 Participant in a Direct Rollover.
Any portion of a distribution which is not paid directly to an Eligible
Retirement Plan shall be distributed to the Participant. For purposes of this
Paragraph, a Surviving Spouse or a spouse or former spouse who is an alternate
payee under a Qualified Domestic Relations Order as defined in section 414(p)
of the Code, will be permitted to elect to have any Eligible Rollover
Distribution paid directly to an individual retirement account (IRA) or an
individual retirement annuity (IRA).
The plan provisions otherwise applicable to distributions continue to apply to
Rollover and Transfer Contributions.
ARTICLE V
PARTICIPANT ACCOUNTS
5.1 SEPARATE ACCOUNTS. The Employer shall establish a separate bookkeeping
account for each Participant showing the total value of his or her interest in
the Fund. Each Participant's account shall be separated for bookkeeping
purposes into the following sub-accounts:
(a) Employer contributions.
(1) Matching Contributions.
<PAGE> 53
(2) Qualified Matching Contributions.
(3) Qualified Non-Elective Contributions.
(4) Discretionary Contributions.
(5) Elective Deferrals.
(b) Voluntary Contributions (and additional amounts including required
contributions and, if applicable, either repayments of loans
previously defaulted on and treated as "deemed distributions" on which
a tax report has been issued, and amounts paid out upon a separation
from service which have been included in income and which are repaid
after being re-hired by the Employer).
(c) Qualified Voluntary Contributions (if the Plan previously accepted
these).
(d) Rollover Contributions and Transfer Contributions.
5.2 ADJUSTMENTS TO PARTICIPANT ACCOUNTS. As of each Valuation Date of the
Plan, the Employer shall add to each account:
(a) the Participant's share of the Employer's contribution and forfeitures
as determined in the Adoption Agreement,
(b) any Elective Deferrals, Voluntary, Rollover or Transfer Contributions
made by the Participant,
(c) any repayment of amounts previously paid out to a Participant upon a
separation from Service and repaid by the Participant since the last
Valuation Date, and
(d) the Participant's proportionate share of any investment earnings and
increase in the fair market value of the Fund since the last Valuation
Date, as determined at paragraph 5.4.
The Employer shall deduct from each account:
(e) any withdrawals or payments made from the Participant's account since
the last Valuation Date, and
(f) the Participant's proportionate share of any decrease in the fair
market value of the Fund since the last Valuation Date, as determined
at paragraph 5.4.
5.3 ALLOCATING EMPLOYER CONTRIBUTIONS. The Employer's contribution shall be
allocated to Participants in accordance with the allocation formula selected by
the Employer in the Adoption Agreement, and the minimum contribution and
allocation requirements for Top-Heavy Plans. Beginning with the 1990 Plan Year
and thereafter, for plans on Standardized Adoption Agreement 001, Participants
who are credited with more than 500 Hours of Service or are employed on the
last day of the Plan Year must receive a full allocation of Employer
contributions. In Nonstandardized Adoption Agreement 002, Employer
contributions shall be allocated to the accounts
<PAGE> 54
of Participants employed by the Employer on the last day of the Plan Year
unless indicated otherwise in the Adoption Agreement. In the case of a
non-Top-Heavy, Nonstandardized Plan, Participants must also have completed a
Year of Service unless otherwise specified in the Adoption Agreement. For
Nonstandardized Adoption Agreement 002, the Employer may only apply the last
day of the Plan Year and Year of Service requirements if the Plan satisfies the
requirements of Code Sections 401(a)(26) and 410(b) and the regulations
thereunder including the exception for 401(k) plans. If, when applying the
last day and Year of Service requirements, the Plan fails to satisfy the
aforementioned requirements, additional Participants will be eligible to
receive an allocation of Employer Contributions until the requirements are
satisfied. Participants who are credited with a Year of Service, but not
employed at Plan Year end, are the first category of additional Participants
eligible to receive an allocation. If the requirements are still not
satisfied, Participants credited with more than 500 Hours of Service and
employed at Plan Year end are the next category of Participants eligible to
receive an allocation. Finally, if necessary to satisfy the said requirements,
any Participant credited with more than 500 Hours of Service will be eligible
for an allocation of Employer Contributions. The Service requirement is not
applicable with respect to any Plan Year during which the Employer's Plan is
Top-Heavy.
5.4 ALLOCATING INVESTMENT EARNINGS AND LOSSES. A Participant's share of
investment earnings and any increase or decrease in the fair market value of
the Fund shall be based on the proportionate value of all active accounts
(other than accounts with segregated investments) as of the last Valuation Date
minus withdrawals, minus fees, plus/minus transfers, and plus the average
balance, as defined by the Plan Administrator, of the current period's
contributions and loan payments except for Employer contributions made on an
annual basis after the end of the Plan Year since the last Valuation Date.
Account balances not yet forfeited shall receive an allocation of earnings
and/or losses. Accounts with segregated investments shall receive only the
income or loss on such segregated investments.
Alternatively, at the Plan Administrator's option, all financial activity will
be credited with an allocation of the actual investment earnings and gains and
losses from the actual date of deposit of each such activity until the end of
the period. Accounts with segregated investments shall receive only the income
or loss on such segregated investments. In no event shall the selection of a
method of allocating gains and losses be used to discriminate in favor of the
Highly Compensated Employees.
5.5 PARTICIPANT STATEMENTS. Upon completing the allocations described above
for the Valuation Date coinciding with the end of the Plan Year, the Employer
shall prepare a statement for each Participant showing the additions to and
subtractions from his or her account since the last such statement and the fair
market value of his or her account as of the current Valuation Date. Employers
so choosing may prepare Participant statements for each Valuation Date.
ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
<PAGE> 55
6.1 NORMAL RETIREMENT BENEFITS. A Participant shall be entitled to receive
the balance held in his or her account from Employer contributions upon
attaining Normal Retirement Age or at such earlier dates as the provisions of
this Article VI may allow. If the Participant elects to continue working past
his or her Normal Retirement Age, he or she will continue as an active Plan
Participant and no distribution shall be made to such Participant until his or
her actual retirement date unless the employer elects otherwise in the Adoption
Agreement, or a minimum distribution is required by law. Settlement shall be
made in the normal form, or if elected, in one of the optional forms of payment
provided below.
6.2 EARLY BENEFITS. If the Employer so provides in the Adoption Agreement, an
early retirement benefit will be available to individuals who meet the age and
Service requirements. An individual who meets the Early Retirement Age
requirements and separates from Service, will become fully vested, regardless
of any vesting schedule which otherwise might apply. If a Participant
separates from Service before satisfying the age requirements, but after having
satisfied the Service requirement, the Participant will be entitled to elect an
Early Retirement benefit upon satisfaction of the age requirement.
6.3 BENEFITS ON TERMINATION OF EMPLOYMENT.
(a) If a Participant terminates employment prior to Normal Retirement Age,
such Participant shall be entitled to receive the vested balance held
in his or her account payable at Normal Retirement Age in the normal
form, or if elected, in one of the optional forms of payment provided
hereunder. If applicable, the Early Retirement Benefit provisions may
be elected. Notwithstanding the preceding sentence, a former
Participant may, if allowed in the Adoption Agreement, make
application to the Employer requesting early payment of any deferred
vested and nonforfeitable benefit due.
(b) If a Participant terminates employment, and the value of that
Participant's vested account balance derived from Employer and
Employee contributions is not greater than $3,500, the Participant
will receive a lump sum distribution of the value of the entire vested
portion of such account balance and the non-vested portion will be
treated as a forfeiture. For purposes of this Article, if the value
of a Participant's vested account balance is zero, the Participant
shall be deemed to have received a distribution of such vested account
balance. For Plan Years beginning prior to 1989, a Participant's
Vested Account Balance shall not include Qualified Voluntary
Contributions. Notwithstanding the above, if the Employer maintains
or has maintained a policy of not distributing any amounts until the
Participant's Normal Retirement Age, the Employer can continue to
uniformly apply such policy.
(c) If a Participant terminates employment with a vested account balance
derived from Employer and Employee contributions in excess of $3,500,
and elects (with his or her Spouse's consent, if required) to receive
100% of the value of his or her vested account balance in a lump sum,
the non-vested portion will be treated as a forfeiture. The
Participant (and his or her Spouse, if required) must consent to any
<PAGE> 56
distribution, when the vested account balance described above exceeds
$3,500 or if at the time of any prior distribution it exceeded $3,500.
For purposes of this paragraph, for Plan Years beginning prior to
1989, a Participant's Vested Account Balance shall not include
Qualified Voluntary Contributions.
(d) Distribution of less than 100% of the Participant's vested account
balance shall only be permitted if the Participant is fully vested
upon termination of employment.
(e) If a Participant who is not 100% vested receives or is deemed to
receive a distribution pursuant to this paragraph and resumes
employment covered under this Plan, the Participant shall have the
right to repay to the Plan the full amount of the distribution
attributable to Employer contributions on or before the earlier of the
date that the Participant incurs 5 consecutive 1-year Breaks in
Service following the date of distribution or five years after the
first date on which the Participant is subsequently reemployed. In
such event, the Participant's account shall be restored to the value
thereof at the time the distribution was made and may further be
increased by the Plan's income and investment gains and/or losses on
the undistributed amount from the date of distribution to the date of
repayment.
(f) A Participant shall also have the option, to postpone payment of his
or her Plan benefits until the first day of April following the
calendar year in which he or she attains age 70-1/2. Any balance of a
Participant's account resulting from his or her Employee contributions
not previously withdrawn, if any, may be withdrawn by the Participant
immediately following separation from Service.
(g) If a Participant ceases to be an active Employee as a result of a
Disability as defined at paragraph 1.21, such Participant shall be
able to make an application for a disability retirement benefit
payment. The Participant's account balance will be deemed
"immediately distributable" as set forth in paragraph 6.4, and will be
fully vested pursuant to paragraph 9.2.
6.4 RESTRICTIONS ON IMMEDIATE DISTRIBUTIONS.
(a) An account balance is immediately distributable if any part of the
account balance could be distributed to the Participant (or Surviving
Spouse) before the Participant attains (or would have attained if not
deceased) the later of the Normal Retirement Age or age 62.
(b) If the value of a Participant's vested account balance derived from
Employer and Employee Contributions exceeds (or at the time of any
prior distribution exceeded) $3,500, and the account balance is
immediately distributable, the Participant and his or her Spouse (or
where either the Participant or the Spouse has died, the survivor)
must consent to any distribution of such account balance. The consent
of the Participant and the Spouse shall be obtained in writing within
the 90-day period ending on the annuity starting date, which is the
first day of the first period for which an amount is paid as an
annuity or any other form. The Plan Administrator shall notify the
<PAGE> 57
Participant and the Participant's Spouse of the right to defer any
distribution until the Participant's account balance is no longer
immediately distributable. Such notification shall include a general
description of the material features, and an explanation of the
relative values of, the optional forms of benefit available under the
plan in a manner that would satisfy the notice requirements of Code
Section 417(a)(3), and shall be provided no less than 30 days and no
more than 90 days prior to the annuity starting date.
(c) Notwithstanding the foregoing, only the Participant need consent to
the commencement of a distribution in the form of a qualified Joint
and Survivor Annuity while the account balance is immediately
distributable. Furthermore, if payment in the form of a Qualified
Joint and Survivor Annuity is not required with respect to the
Participant pursuant to paragraph 8.7 of the Plan, only the
Participant need consent to the distribution of an account balance
that is immediately distributable. Neither the consent of the
Participant nor the Participant's Spouse shall be required to the
extent that a distribution is required to satisfy Code Section
401(a)(9) or Code Section 415. In addition, upon termination of this
Plan if the Plan does not offer an annuity option (purchased from a
commercial provider), the Participant's account balance may, without
the Participant's consent, be distributed to the Participant or
transferred to another Defined Contribution Plan [other than an
employee stock ownership plan as defined in Code Section 4975(e)(7)]
within the same controlled group.
(d) For purposes of determining the applicability of the foregoing consent
requirements to distributions made before the first day of the first
Plan Year beginning after 1988, the Participant's vested account
balance shall not include amounts attributable to Qualified Voluntary
Contributions.
6.5 NORMAL FORM OF PAYMENT. The normal form of payment for a profit-sharing
plan satisfying the requirements of paragraph 8.7 hereof shall be a lump sum
with no option for annuity payments. For all other plans, the normal form of
payment hereunder shall be a Qualified Joint and Survivor Annuity as provided
under Article VIII. A Participant whose vested account balance derived from
Employer and Employee contributions exceeds $3,500, or if at the time of any
prior distribution it exceeded $3,500, shall (with the consent of his or her
Spouse) have the right to receive his or her benefit in a lump sum or in
monthly, quarterly, semi-annual or annual payments from the Fund over any
period not extending beyond the life expectancy of the Participant and his or
her Beneficiary. For purposes of this paragraph, for Plan Years prior to 1989,
a Participant's Vested Account Balance shall not include Qualified Voluntary
Contributions. The normal form of payment shall be automatic, unless the
Participant files a written request with the Employer prior to the date on
which the benefit is automatically payable, electing a lump sum or installment
payment option. No amendment to the Plan may eliminate one of the optional
distribution forms listed above.
6.6 COMMENCEMENT OF BENEFITS.
<PAGE> 58
(a) Unless the Participant elects otherwise, distribution of benefits will
begin no later than the 60th day after the close of the Plan Year in
which the latest of the following events occurs:
(1) the Participant attains age 65 (or normal retirement age if
earlier),
(2) the 10th anniversary of the year in which the Participant
commenced participation in the Plan, or
(3) the Participant terminates Service with the Employer.
(b) Notwithstanding the foregoing, the failure of a Participant and Spouse
(if necessary) to consent to a distribution while a benefit is
immediately distributable, within the meaning of paragraph 6.4 hereof,
shall be deemed an election to defer commencement of payment of any
benefit sufficient to satisfy this paragraph.
6.7 CLAIMS PROCEDURES. Upon retirement, death, or other severance of
employment, the Participant or his or her representative may make application
to the Employer requesting payment of benefits due and the manner of payment.
If no application for benefits is made, the Employer shall automatically pay
any vested benefit due hereunder in the normal form at the time prescribed at
paragraph 6.4. If an application for benefits is made, the Employer shall
accept, reject, or modify such request and shall notify the Participant in
writing setting forth the response of the Employer and in the case of a denial
or modification the Employer shall:
(a) state the specific reason or reasons for the denial,
(b) provide specific reference to pertinent Plan provisions on which the
denial is based,
(c) provide a description of any additional material or information
necessary for the Participant or his representative to perfect the
claim and an explanation of why such material or information is
necessary, and
(d) explain the Plan's claim review procedure as contained in this Plan.
In the event the request is rejected or modified, the Participant or his or her
representative may within 60 days following receipt by the Participant or
representative of such rejection or modification submit a written request for
review by the Employer of its initial decision. Within 60 days following such
request for review, the Employer shall render its final decision in writing to
the Participant or representative stating specific reasons for such decision.
If the Participant or representative is not satisfied with the Employer's final
decision, the Participant or representative can institute an action in a
federal court of competent jurisdiction; for this purpose, process would be
served on the Employer.
6.8 IN-SERVICE WITHDRAWALS. An Employee may withdraw all or any part of the
fair market value of his or her Mandatory Contributions, Voluntary
Contributions, Qualified Voluntary Contributions or Rollover Contributions,
upon written request to the Employer. Transfer Contributions, which
<PAGE> 59
originate from a Plan meeting the safe-harbor provisions of paragraph 8.7, may
also be withdrawn, by an Employee, upon written request to the Employer.
Transfer Contributions not meeting the safe-harbor provisions may only be
withdrawn upon retirement, death disability, termination or termination of the
Plan, and will be subject to Spousal consent requirements contained in Code
Sections 411(a)(11) and 417. Such request shall include the Participant's
address, social security number, birthdate, and amount of the withdrawal. If
at the time a distribution of Qualified Voluntary Contributions is received the
Participant has not attained age 59-1/2 and is not disabled, as defined at Code
Section 22(e)(3), the Participant will be subject to a federal income tax
penalty, unless the distribution is rolled over to a qualified plan or
individual retirement plan within 60 days of the date of distribution. A
Participant may withdraw all or any part of the fair market value of his or her
pre-1987 Voluntary Contributions with or without withdrawing the earnings
attributable thereto. Post-1986 Voluntary Contributions may only be withdrawn
along with a portion of the earnings thereon. The amount of the earnings to be
withdrawn is determined by using the formula: DA[1-(V / V + E)], where DA is
the distribution amount, V is the amount of Voluntary Contributions and V + E
is the amount of Voluntary Contributions plus the earnings attributable
thereto. A Participant withdrawing his or her other contributions prior to
attaining age 59-1/2, will be subject to a federal tax penalty to the extent
that the withdrawn amounts are includible in income. Unless the Employer
provides otherwise in the Adoption Agreement, any Participant in a
profit-sharing plan who is 100% fully vested in his or her Employer
contributions may withdraw all or any part of the fair market value of any of
such contributions that have been in the account at least two years, plus the
investment earnings thereon, without separation from Service. Such
distributions shall not be eligible for redeposit to the Fund. A withdrawal
under this paragraph shall not prohibit such Participant from sharing in any
future Employer Contribution he or she would otherwise be eligible to share in.
A request to withdraw amounts pursuant to this paragraph must if applicable, be
consented to by the Participant's Spouse. The consent shall comply with the
requirements of paragraph 6.4 relating to immediate distributions. Elective
Deferrals, Qualified Non-elective Contributions, and Qualified Matching
Contributions, and income allocable to each are not distributable to a
Participant or his or her Beneficiary or Beneficiaries, in accordance with such
Participant's or Beneficiary's or Beneficiaries' election, earlier than upon
separation from Service, death, or Disability. Such amounts may also be
distributed upon:
(a) Termination of the Plan without the establishment of another Defined
Contribution Plan.
(b) The 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 such corporation if such
corporation continues to maintain this Plan after the disposition, but
only with respect to Employees who continue employment with the
corporation acquiring such assets.
(c) The disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary [within the meaning of Code
Section 409(d)(3)] if such corporation continues to maintain this
<PAGE> 60
plan, but only with respect to Employees who continue employment with
such subsidiary.
(d) The attainment of age 59-1/2.
(e) The Hardship of the Participant as described in paragraph 6.9.
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, contained in Code Sections 401(a)(11) and 417.
6.9 HARDSHIP WITHDRAWAL. If permitted by the Trustee/Custodian and the
Employer in the Adoption Agreement, a Participant may request a Hardship
withdrawal prior to attaining age 59-1/2. If the Participant has not attained
age 59-1/2, the Participant may be subject to a federal income tax penalty.
Such request shall be in writing to the Employer who shall have sole authority
to authorize a hardship withdrawal, pursuant to the rules below. Hardship
withdrawals may include Elective Deferrals regardless of when contributed and
any earnings accrued and credited thereon as of the last day of the Plan Year
ending before July 1, 1989 and Employer related contributions plus the
investment earnings thereon to the extent vested. Qualified Matching
Contributions, Qualified Non-Elective Contributions and Elective Deferrals
reclassified as Voluntary Contributions plus the investment earnings thereon
are only available for hardship withdrawal prior to age 59-1/2 to the extent
that they were credited to the Participant's Account as of the last day of the
Plan Year ending prior to July 1, 1989. The Plan Administrator may limit
withdrawals to Elective Deferrals and the earnings thereon as stipulated above.
Hardship withdrawals are subject to the Spousal consent requirements contained
in Code Sections 401(a)(11) and 417. Only the following reasons are valid to
obtain hardship withdrawal:
(a) medical expenses [within the meaning of Code Section 213(d)], incurred
or necessary for the medical care of the Participant, his or her
Spouse, children and other dependents,
(b) the purchase (excluding mortgage payments) of the principal residence
for the Participant,
(c) payment of tuition and related educational expenses for the next
twelve (12) months of post-secondary education for the Participant,
his or her Spouse, children or other dependents, or
(d) the need to prevent eviction of the Employee from or a foreclosure on
the mortgage of, the Employee's principal residence.
Furthermore, the following conditions must be met in order for a withdrawal to
be authorized:
(e) the Participant has obtained all distributions, other than hardship
distributions, and all nontaxable loans under all plans maintained by
the Employer,
(f) all plans maintained by the Employer, other than flexible benefit
plans under Code Section 125 providing for current benefits, provide
<PAGE> 61
that the Employee's Elective Deferrals and Voluntary Contributions
will be suspended for twelve months after the receipt of the Hardship
distribution,
(g) the distribution is not in excess of the amount of the immediate and
heavy financial need [(a) through (d) above], including amounts
necessary to pay any federal, state or local income tax or penalties
reasonably anticipated to result from the distribution, and
(h) all plans maintained by the Employer provide that an Employee may not
make 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 pre-tax contributions for the
taxable year of the hardship distribution.
If a distribution is made at a time when a Participant has a nonforfeitable
right to less than 100% of the account balance derived from Employer
contributions and the Participant may increase the nonforfeitable percentage in
the account:
(a) A separate account will be established for the Participant's interest
in the Plan as of the time of the distribution, and
(b) At any relevant time the Participant's nonforfeitable portion of the
separate account will be equal to an amount ("X") determined by the
formula:
X = P [AB + (R X D)] -(R X D)
For purposes of applying the formula: "P" is the 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 distribution.
ARTICLE VII
DISTRIBUTION REQUIREMENTS
7.1 JOINT AND SURVIVOR ANNUITY REQUIREMENTS. All distributions made under the
terms of this Plan must comply with the provisions of Article VIII including,
if applicable, the safe harbor provisions thereunder.
7.2 MINIMUM DISTRIBUTION REQUIREMENTS. All distributions required under this
Article shall be determined and made in accordance with the minimum
distribution requirements of Code Section 401 (a)(9) and the regulations
thereunder, including the minimum distribution incidental benefit rules found
at Regulations Section 1.401(a)(9)-2. The entire interest of a Participant
must be distributed or begin to be distributed no later than the Participant's
Required Beginning Date. Life expectancy and joint and last survivor life
expectancy are computed by using the expected return multiples found in Tables
V and VI of Regulations Section 1.72-9.
7.3 LIMITS ON DISTRIBUTION PERIODS. As of the First Distribution Calendar
Year, distributions if not made in a single-sum, may only be made over one of
the following periods (or a combination thereof):
<PAGE> 62
(a) the life of the Participant,
(b) the life of the Participant and a Designated Beneficiary,
(c) a period certain not extending beyond the life expectancy of the
participant, or
(d) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a designated beneficiary.
7.4 REQUIRED DISTRIBUTIONS ON OR AFTER THE REQUIRED BEGINNING DATE
(a) If a participant's benefit is to be distributed over (1) a period not
extending beyond the life expectancy of the Participant or the joint
life and last survivor expectancy of the Participant and the
Participant's Designated Beneficiary or(2) a period not extending
beyond the life expectancy of the Designated Beneficiary, the amount
required to be distributed for each calendar year, beginning with
distributions for the First Distribution Calendar Year, must at least
equal the quotient obtained by dividing the Participant's benefit by
the Applicable Life Expectancy.
(b) For calendar years beginning before 1989, if the Participant's Spouse
is not the Designated Beneficiary, the method of distribution selected
must have assured that at least 50% of the Present Value of the amount
available for distribution was to be paid within the life expectancy
of the Participant.
(c) For calendar years beginning after 1988, the amount to be distributed
each year, beginning with distributions for the First Distribution
Calendar Year shall not be less than the quotient obtained by dividing
the Participant's benefit by the lesser of (1) the Applicable Life
Expectancy or (2) if the Participant's Spouse is not the Designated
Beneficiary, the applicable divisor determined from the table set
forth in Q&A-4 of Regulations Section 1.401(a)(9)-2. Distributions
after the death of the Participant shall be distributed using the
Applicable Life Expectancy as the relevant divisor without regard to
Regulations Section 1.401(a)(9)-2.
(d) The minimum distribution required for the Participant's First
Distribution Calendar Year must be made on or before the Participant's
Required Beginning Date. The minimum distribution for other calendar
years, including the minimum distribution for the Distribution
Calendar Year in which the Participant's Required Beginning Date
occurs, must be made on or before December 31 of that Distribution
Calendar Year.
(e) If the Participant's benefit is distributed in the form of an annuity
purchased from an insurance company, distributions thereunder shall be
made in accordance with the requirements of Code Section 401(a)(9) and
the Regulations thereunder.
(f) For purposes of determining the amount of the required distribution
for each Distribution Calendar Year, the account balance to be used is
the account balance determined as of the last valuation preceding
<PAGE> 63
the Distribution Calendar Year. This balance will be increased by the
amount of any contributions or forfeitures allocated to the account
balance after the valuation date in such preceding calendar year.
Such balance will also be decreased by distributions made after the
Valuation Date in such preceding Calendar Year.
(g) For purposes of subparagraph 7.4(f), 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.
7.5 REQUIRED BEGINNING DATE.
(a) General Rule. The Required Beginning Date of a Participant is the
first day of April of the calendar year following the calendar year in
which the Participant attains age 70-l/2.
(b) Transitional Rules. The Required Beginning Date of a Participant who
attains age 70-1/2 before 1988, shall be determined in accordance with
(l) or (2) below:
(1) Non-5-percent owners. The Required Beginning Date of a
Participant who is not a 5-percent owner is the first day of
April of the calendar year following the calendar year in
which the later of retirement or attainment of age 70-1/2
occurs. In the case of a Participant who is not a 5-percent
owner who attains age 70-1/2 during 1988 and who has not
retired as of January 1, 1989, the Required Beginning Date is
April 1, 1990.
(2) 5-percent owners. The Required Beginning Date of a
Participant who is a 5-percent owner during any year beginning
after 1979, is the first day of April following the later of:
(i) the calendar year in which the Participant attains
age 70-1/2, or
(ii) the earlier of the calendar year with or within which
ends the plan year in which the Participant becomes a
5-percent owner, or the calendar year in which the
Participant retires.
(c) A Participant is treated as a 5-percent owner for purposes of this
Paragraph if such Participant is a 5-percent owner as defined in Code
Section 416(i) (determined in accordance with 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 such
Owner attains age 66-1/2 or any subsequent Plan Year.
(d) Once distributions have begun to a 5-percent owner under this
paragraph, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
7.6 TRANSITIONAL RULE.
<PAGE> 64
(a) Notwithstanding the other requirements of this Article and subject to
the requirements of Article VIII, Joint and Survivor Annuity
Requirements, distribution on behalf of any Employee, including a
5-percent owner, may be made in accordance with all of the following
requirements (regardless of when such distribution commences):
(1) The distribution by the Trust is one which would not have
disqualified such Trust under Code Section 401(a)(9) as in
effect prior to amendment by the Deficit Reduction Act of
1984.
(2) The distribution is in accordance with a method of
distribution designated by the Employee whose interest in the
Trust is being distributed or, if the Employee is deceased, by
a beneficiary of such Employee.
(3) Such designation was in writing, was signed by the Employee or
the beneficiary, and was made before 1984.
(4) The Employee had accrued a benefit under the Plan as of
December 31, 1983.
(5) The method of distribution designated by the Employee or the
beneficiary specifies the time at which distribution will
commence, the period over which distributions will be made,
and in the case of any distribution upon the Employee's death,
the beneficiaries of the Employee listed in order of priority.
(b) A distribution upon death will not be covered by this transitional
rule unless the information in the designation contains the required
information described above with respect to the distributions to be
made upon the death of the Employee.
(c) For any distribution which commences before 1984, but continues after
1983, the Employee or the beneficiary, to whom such distribution is
being made, will be presumed to have designated the method of
distribution under which the distribution is being made if the method
of distribution was specified in writing and the distribution
satisfies the requirements in subparagraphs (a)(1) and (5) above.
(d) If a designation is revoked, any subsequent distribution must satisfy
the requirements of Code Section 401(a)(9) and the regulations
thereunder. If a designation is revoked subsequent to the date
distributions are required to begin, the Trust must distribute by the
end of the calendar year following the calendar year in which the
revocation occurs the total amount not yet distributed which would
have been required to have been distributed to satisfy Code Section
401(a)(9) and the regulations thereunder, but for the section
242(b)(2) election of the Tax Equity and Fiscal Responsibility Act of
1982. For calendar years beginning after 1988, such distributions
must meet the minimum distribution incidental benefit requirements in
section 1.401(a)(9)-2 of the Income Tax Regulations. Any changes in
the designation will be considered to be a revocation of the
designation. However, the mere substitution or addition of another
beneficiary (one not named in the designation) under the designation
will not be considered to be a revocation of the designation, so long
<PAGE> 65
as such substitution or addition does not alter the period over which
distributions are to be made under the designation, directly or
indirectly (for example, by altering the relevant measuring life). In
the case in which an amount is transferred or rolled over from one
plan to another plan, the rules in Q&A J-2 and Q&A J-3 of the
regulations shall apply.
7.7 DESIGNATION OF BENEFICIARY FOR DEATH BENEFIT. Each Participant shall file
a written designation of beneficiary with the Employer upon qualifying for
participation in this Plan. Such designation shall remain in force until
revoked by the Participant by filing a new beneficiary form with the Employer.
The Participant may elect to have a portion of his or her account balance
invested in an insurance contract. If an insurance contract is purchased under
the Plan, the Trustee must be named as Beneficiary under the terms of the
contract. However, the Participant shall designate a Beneficiary to receive
the proceeds of the contract after settlement is received by the Trustee.
Under a profit-sharing plan satisfying the requirements of paragraph 8.7, the
Designated Beneficiary shall be the Participant's Surviving Spouse, if any,
unless such Spouse properly consents otherwise.
7.8 NONEXISTENCE OF BENEFICIARY. Any portion of the amount payable hereunder
which is not disposed of because of the Participant's or former Participant's
failure to designate a beneficiary, or because all of the Designated
Beneficiaries predeceased the Participant, shall be paid to his or her Spouse.
If the Participant had no Spouse at the time of death, payment shall be made to
the personal representative of his or her estate in a lump sum.
7.9 DISTRIBUTION BEGINNING BEFORE DEATH. If the Participant dies after
distribution of his or her interest has begun, the remaining portion of such
interest will continue to be distributed at least as rapidly as under the
method of distribution being used prior to the Participant's death.
7.10 DISTRIBUTION BEGINNING AFTER DEATH. If the Participant dies before
distribution of his or her interest begins, distribution of the Participant's
entire interest shall be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death except to the
extent that an election is made to receive distributions in accordance with (a)
or (b) below:
(a) If any portion of the Participant's interest is payable to a
Designated Beneficiary, distributions may be made 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 died;
(b) If the Designated Beneficiary is the Participant's surviving Spouse,
the date distributions are required to begin in accordance with (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 died or (2) December 31 of the calendar year in which the
Participant would have attained age 70-1/2.
<PAGE> 66
If the Participant has not made an election pursuant to this paragraph 7.10 by
the time of his or her death, the Participant's Designated Beneficiary must
elect the method of distribution no later than the earlier of (1) December 31
of the calendar year in which distributions would be required to begin under
this section, or (2) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the participant. If the Participant has no
Designated Beneficiary, or if the Designated Beneficiary does not elect a
method of distribution, then distribution of the Participant's entire interest
must be completed by December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
For purposes of this paragraph if the Surviving Spouse dies after the
Participant, but before payments to such Spouse begin, the provisions of this
paragraph with the exception of paragraph (b) therein, shall be applied as if
the Surviving Spouse were the Participant. For the purposes of this paragraph
and paragraph 7.9, distribution of a Participant's interest is considered to
begin on the Participant's Required Beginning Date (or, if the preceding
sentence is applicable, the date distribution is required to begin to the
Surviving Spouse). If distribution in the form of an annuity described in
paragraph 7.4(e) irrevocably commences to the Participant before the Required
Beginning Date, the date distribution is considered to begin is the date
distribution actually commences.
For purposes of paragraph 7.9 and this paragraph, any amount paid to a child of
the 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 attains
the age of majority.
7.11 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS.
(a) Notwithstanding any other provision of the Plan, Excess Elective
Deferrals plus any income and minus any loss allocable thereto, shall
be distributed no later than April 15, 1988, and each April 15
thereafter, to Participants to whose accounts Excess Elective
Deferrals were allocated for the preceding taxable year, and who claim
Excess Elective Deferrals for such taxable year. Excess Elective
Deferrals shall be treated as Annual Additions under the plan, unless
such amounts are distributed no later than the first April 15th
following the close of the Participant's taxable year. A Participant
is deemed to notify the Plan 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.
(b) Furthermore, a Participant who participates in another plan allowing
Elective Deferrals may assign to this Plan any Excess Elective
Deferrals made during a taxable year of the Participant, by notifying
the Plan Administrator of the amount of the Excess Elective Deferrals
to be assigned. The Participant's claim shall be in writing; shall be
submitted to the Plan Administrator not later than March 1 of each
year; shall specify the amount of the Participant's Excess Elective
Deferrals for the preceding taxable year; and shall be accompanied by
the Participant's written statement that if such amounts are not
distributed, such Excess Elective Deferrals, when added to amounts
deferred under other plans or arrangements described in Code Sections
401(k), 408(k) [Simplified Employee Pensions], or 403(b) [annuity
<PAGE> 67
programs for public schools and charitable organizations] will exceed
the $7,000 limit as adjusted under Code Section 415(d) imposed on the
Participant by Code Section 402(g) for the year in which the deferral
occurred.
(c) Excess Elective Deferrals shall be adjusted for any income or loss up
to the end of the taxable year, during which such excess was deferred.
Income or loss will be calculated under the method used to calculate
investment earnings and losses elsewhere in the Plan.
(d) If the Participant receives a return of his or her Elective Deferrals,
the amount of such contributions which are returned must be brought
into the Employee's taxable income.
7.12 DISTRIBUTIONS OF EXCESS CONTRIBUTIONS.
(a) Notwithstanding any other provision of this Plan, Excess
Contributions, plus any income and minus any loss allocable thereto,
shall be distributed no later than the last day of each Plan Year to
Participants to whose accounts such Excess Contributions were
allocated for the preceding Plan Year. If such excess amounts are
distributed more than 2-1/2 months after the last day of the Plan Year
in which such excess amounts arose, a ten (10) percent excise tax will
be imposed on the Employer maintaining the Plan with respect to such
amounts. Such distributions shall be made to Highly Compensated
Employees on the basis of the respective portions of the Excess
Contributions attributable to each of such Employees. Excess
Contributions of Participants who are subject to the Family Member
aggregation rules of Code Section 414(q)(6) shall be allocated among
the Family Members in proportion to the Elective Deferrals (and
amounts treated as Elective Deferrals) of each Family Member that is
combined to determine the Average Deferral Percentage.
(b) Excess Contributions (including the amounts recharacterized) shall be
treated as Annual Additions under the Plan.
(c) Excess Contributions shall be adjusted for any income or loss up to
the end of the Plan Year. Income or loss will be calculated under the
method used to calculate investment earnings and losses elsewhere in
the Plan.
(d) Excess Contributions shall be distributed from the Participant's
Elective Deferral account and Qualified Matching Contribution account
(if applicable) in proportion to the Participant's Elective Deferrals
and Qualified Matching Contributions (to the extent used in the ADP
test) for the Plan Year. Excess Contributions shall be distributed
from the Participant's Qualified Non-Elective Contribution account
only to the extent that such Excess Contributions exceed the balance
in the Participant's Elective Deferral account and Qualified Matching
Contribution account.
7.13 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS.
(a) Notwithstanding any other provision of this Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto,
<PAGE> 68
shall be forfeited, if forfeitable, or if not forfeitable, distributed
no later than the last day of each Plan Year to Participants to whose
accounts such Excess Aggregate Contributions were allocated for the
preceding Plan Year. Excess Aggregate Contributions shall be
allocated to Participants who are subject to the Family Member
aggregation rules of Code Section 414(q)(6) in the manner prescribed
by the regulations. If such Excess Aggregate Contributions are
distributed more than 2-1/2 months after the last day of the Plan Year
in which such excess amounts arose, a ten (10) percent excise tax will
be imposed on the Employer maintaining the Plan with respect to those
amounts. Excess Aggregate Contributions shall be treated as Annual
Additions under the plan.
(b) Excess Aggregate Contributions shall be adjusted for any income or
loss up to the end of the Plan Year. The income or loss allocable to
Excess Aggregate Contributions is the sum of income or loss for the
Plan Year allocable to the Participant's Voluntary Contribution
account, Matching Contribution account (if any, and if all amounts
herein are not used in the ADP test) and, if applicable, Qualified
Non-Elective Contribution account and Elective Deferral account Income
or loss will be calculated under the method used to calculate
investment earnings and losses elsewhere in the Plan.
(c) Forfeitures of Excess Aggregate Contributions may either be
reallocated to the accounts of non-Highly Compensated Employees or
applied to reduce Employer contributions, as elected by the employer
in the Adoption Agreement.
(d) Excess Aggregate Contributions shall be forfeited if such amount is
not vested. If vested, such excess shall be distributed on a pro-rata
basis from the Participant's Voluntary Contribution account (and, if
applicable, the Participant's Qualified Non-Elective Contribution
account, Matching Contribution account, Qualified Matching
Contribution account, or Elective Deferral account, or both).
7.14 ESCHEAT. In the event any vested account balance is unclaimed and the
Plan Administrator is unable to determine the whereabouts of the Participant,
beneficiary or any other person whose benefits from the Plan are due, within
three years from the date such benefit would otherwise be payable, such vested
account balance shall be forfeited and revert to and become part of the Trust
upon written direction of the Plan Administrator; provided, however, such
unclaimed benefits shall be reinstated from earnings and forfeitures, and
Employer Contributions designated for that purpose if the claimant to whom such
benefit is due and owing subsequently makes written application to the Plan
Administrator. The Plan Administrator also reserves the right, with the
consent of the Trustee/Custodian, to direct the Trustee/Custodian to dispose of
any unclaimed benefits under the escheat statutes of the applicable state law,
as defined in Article XVI.
ARTICLE VIII
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
8.1 APPLICABILITY OF PROVISIONS. The provisions of this Article shall apply
to any Participant who is credited with at least one Hour of Service
<PAGE> 69
with the Employer on or after August 23,1984 and such other Participants as
provided in paragraph 8.8.
8.2 PAYMENT OF QUALIFIED JOINT AND SURVIVOR ANNUITY. Unless an optional form
of benefit is selected pursuant to a Qualified Election within the 90-day
period ending on the Annuity Starting Date, a married Participant's Vested
Account Balance will be paid in the form of a Qualified Joint and Survivor
Annuity and an unmarried Participant's Vested Account Balance will be paid in
the form of a life annuity. The Participant may elect to have such annuity
distributed upon attainment of the Early Retirement Age under the Plan.
8.3 PAYMENT OF QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY. Unless an optional
form of benefit has been selected within the Election Period pursuant to a
Qualified Election, if a Participant dies before benefits have commenced then
the Participant's vested account balance shall be paid in the form of an
annuity for the life of the Surviving Spouse. The Surviving Spouse may elect
to have such annuity distributed within a reasonable period after the
Participant's death.
A Participant who does not meet the age 35 requirement set forth in the
Election Period as of the end of any current Plan Year may make a special
qualified election to waive the qualified Pre-retirement Survivor Annuity for
the period beginning on the date of such election and ending on the first day
of the Plan Year in which the Participant will attain age 35. Such election
shall not be valid unless the Participant receives a written explanation of the
Qualified Pre-retirement Survivor Annuity in such terms as are comparable to
the explanation required under paragraph 8.5. Qualified Pre-retirement
Survivor Annuity coverage will be automatically reinstated as of the first day
of the Plan Year in which the Participant attains age 35. Any new waiver on or
after such date shall be subject to the full requirements of this Article.
8.4 QUALIFIED ELECTION. A Qualified Election is an election to either waive a
Qualified Joint and Survivor Annuity or a qualified pre-retirement survivor
annuity. Any such election shall not be effective unless:
(a) the Participant's Spouse consents in writing to the election;
(b) the election designates a specific beneficiary, including any class of
beneficiaries or any contingent beneficiaries, which may not be
changed without spousal consent (or the Spouse expressly permits
designations by the Participant without any further spousal consent);
(c) the Spouse's consent acknowledges the effect of the election; and
(d) the Spouse's consent is witnessed by a Plan representative or notary
public.
Additionally, a Participant's waiver of the Qualified Joint and Survivor
Annuity shall not be effective unless the election designates a form of benefit
payment which may not be changed without spousal consent (or the Spouse
expressly permits designations by the Participant without any further spousal
consent). If it is established to the satisfaction of the Plan Administrator
that there is no Spouse or that the Spouse cannot be
<PAGE> 70
located, a waiver will be deemed a Qualified Election. Any consent by a Spouse
obtained under this provision (or establishment that the consent of a Spouse
may not be obtained) shall be effective only with respect to such Spouse. A
consent that permits designations by the Participant without any requirement of
further consent by such Spouse must acknowledge that the Spouse has the right
to limit consent to a specific beneficiary, and a specific form of benefit
where applicable, and that the Spouse voluntarily elects to relinquish either
or both of such rights. A revocation of a prior waiver may be made by a
Participant without the consent of the Spouse at any time before the
commencement of benefits. The number of revocations shall not be limited. No
consent obtained under this provision shall be valid unless the Participant has
received notice as provided in paragraphs 8.5 and 8.6 below.
8.5 NOTICE REQUIREMENTS FOR QUALIFIED JOINT AND SURVIVOR ANNUITY. In the case
of a Qualified Joint and Survivor Annuity, the Plan Administrator shall, no
less than 30 days and no more than 90 days prior to the Annuity Starting date,
provide each Participant a written explanation of:
(a) the terms and conditions of a Qualified Joint and Survivor Annuity;
(b) the Participant's right to make and the effect of an election to waive
the Qualified Joint and Survivor Annuity form of benefit;
(c) the rights of a Participant's Spouse; and
(d) the right to make, and the effect of, a revocation of a previous
election to waive the Qualified Joint and Survivor Annuity.
8.6 NOTICE REQUIREMENTS FOR QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY. In the
case of a qualified pre-retirement survivor annuity as described in paragraph
8.3, the Plan Administrator shall provide each Participant within the
applicable period for such Participant a written explanation of the qualified
pre-retirement survivor annuity in such terms and in such manner as would be
comparable to the explanation provided for meeting the requirements of
paragraph 8.5 applicable to a Qualified Joint and Survivor Annuity. The
applicable period for a Participant is whichever of the following periods ends
last:
(a) the period beginning with the first day of the Plan Year in which the
Participant attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age 35;
(b) a reasonable period ending after the individual becomes a Participant;
(c) a reasonable period ending after this Article first applies to the
Participant. Notwithstanding the foregoing, notice must be provided
within a reasonable period ending after separation from Service in the
case of a Participant who separates from Service before attaining age
35.
For purposes of applying the preceding paragraph, a reasonable period ending
after the events described in (b) and (c) is the end of the two-year period
beginning one-year prior to the date the applicable event occurs, and ending
one-year after that date. In the case of a Participant who
<PAGE> 71
separates from Service before the Plan Year in which age 35 is attained, notice
shall be provided within the two-year period beginning one year prior to
separation and ending one year after separation. If such a Participant
subsequently returns to employment with the Employer, the applicable period for
such Participant shall be re-determined.
8.7 SPECIAL SAFE-HARBOR EXCEPTION FOR CERTAIN PROFIT-SHARING PLANS.
(a) This paragraph shall apply to a Participant in a profit-sharing plan,
and to any distribution, made on or after the first day of the first
plan year beginning after 1988, from or under a separate account
attributable solely to Qualified Voluntary contributions, as
maintained on behalf of a Participant in a money purchase pension
plan, (including a target benefit plan) if the following conditions
are satisfied:
(1) the Participant does not or cannot elect payments in the form of a life
annuity; and
(2) on the death of a Participant, the Participant's Vested Account Balance
will be paid to the Participant's Surviving Spouse, but if there is no
Surviving Spouse, or if the Surviving Spouse has consented in a manner
conforming to a Qualified Election, then to the Participant's Designated
Beneficiary.
The Surviving Spouse may elect to have distribution of the Vested Account
Balance commence within the 90-day period following the date of the
Participant's death.
The account balance shall be adjusted for gains or losses occurring after the
Participant's death in accordance with the provisions of the Plan governing the
adjustment of account balances for other types of distributions. These
safe-harbor rules shall not be operative with respect to a Participant in a
profit-sharing plan if that plan is a direct or indirect transferee of a
Defined Benefit Plan, money purchase plan, a target benefit plan, stock bonus
plan, or profit-sharing plan which is subject to the survivor annuity
requirements of Code Section 401 (a)(11) and Code Section 417, and would
therefore have a Qualified Joint and Survivor Annuity as its normal form of
benefit.
(b) The Participant may waive the spousal death benefit described in this
paragraph at any time provided that no such waiver shall be effective
unless it satisfies the conditions (described in paragraph 8.4) that
would apply to the Participant's waiver of the Qualified
Pre-Retirement Survivor Annuity.
(c) If this paragraph 8.7 is operative, then all other provisions of this
Article other than paragraph 8.8 are inoperative.
8.8 TRANSITIONAL JOINT AND SURVIVOR ANNUITY RULES. Special transition rules
apply to Participants who were not receiving benefits on August 23, 1984.
(a) Any living Participant not receiving benefits on August 23, 1984, who
would otherwise not receive the benefits prescribed by the previous
<PAGE> 72
paragraphs of this Article, must be given the opportunity to elect to
have the prior paragraphs of this Article apply if such Participant is
credited with at least one Hour of Service under this Plan or a
predecessor Plan in a Plan Year beginning on or after January 1, 1976
and such Participant had at least 10 Years of Service for vesting
purposes when he or she separated from Service.
(b) Any living Participant not receiving benefits on August 23, 1984, who
was credited with at least one Hour of Service under this Plan or a
predecessor Plan on or after September 2, 1974, and who is not
otherwise credited with any Service in a Plan Year beginning on or
after January 1, 1976, must be given the opportunity to have his or
her benefits paid in accordance with paragraph 8.9.
(c) The respective opportunities to elect [as described in (a) and (b)
above] must be afforded to the appropriate Participants during the
period commencing on August 23, 1984 and ending on the date benefits
would otherwise commence to said Participants.
8.9 AUTOMATIC JOINT AND SURVIVOR ANNUITY AND EARLY SURVIVOR ANNUITY. Any
Participant who has elected pursuant to paragraph 8.8(b) and any Participant
who does not elect under paragraph 8.8(a) or who meets the requirements of
paragraph 8.8(a), except that such Participant does not have at least 10 years
of vesting Service when he or she separates from Service, shall have his or her
benefits distributed in accordance with all of the following requirements if
benefits would have been payable in the form of a life annuity.
(a) Automatic Joint and Survivor Annuity. If benefits in the form of a
life annuity become payable to a married Participant who:
(1) begins to receive payments under the Plan on or after Normal
Retirement Age, or
(2) dies on or after Normal Retirement Age while still working for
the Employer, or
(3) begins to receive payments on or after the Qualified Early
Retirement Age, or
(4) separates from Service on or after attaining Normal Retirement
(or the Qualified Early Retirement Age) and after satisfying
the eligibility requirements for the payment of benefits under
the Plan and thereafter dies before beginning to receive such
benefits, then such benefits will be received under this Plan
in the form of a Qualified Joint and Survivor Annuity, unless
the Participant has elected otherwise during the Election
Period. The Election Period must begin at least 6 months
before the Participant attains Qualified Early Retirement Age
and end not more than 90 days before the commencement of
benefits. Any election will be in writing and may be changed
by the Participant at any time.
(b) Election of Early Survivor Annuity. A Participant who is employed
after attaining the Qualified Early Retirement Age will be given the
<PAGE> 73
opportunity to elect, during the Election Period, to have a survivor
annuity payable on death. If the Participant elects the survivor
annuity, payments under such annuity must not be less than the
payments which would have been made to the Spouse under the Qualified
Joint and Survivor Annuity if the Participant had retired on the day
before his or her death. Any election under this provision will be in
writing and may be changed by the Participant at any time. The
Election Period begins on the later of:
(1) the 90th day before the Participant attains the Qualified Early Retirement
Age, or
(2) the date on which participation begins, and ends on the date the
Participant terminates employment.
8.10 ANNUITY CONTRACTS. Any annuity contract distributed under this Plan must
be nontransferable. The terms of any annuity contract purchased and
distributed by the Plan to a Participant or Spouse shall comply with the
requirements of this Plan.
ARTICLE IX
VESTING
9.1 EMPLOYEE CONTRIBUTIONS. A Participant shall always have a 100% vested and
nonforfeitable interest in his or her Elective Deferrals, Voluntary
Contributions, Qualified Voluntary Contributions, Rollover Contributions, and
Transfer Contributions plus the earnings thereon. No forfeiture of Employer
related contributions (including any minimum contributions made under paragraph
14.2) will occur solely as a result of an Employee's withdrawal of any Employee
contributions.
9.2 EMPLOYER CONTRIBUTIONS. A Participant shall acquire a vested and
nonforfeitable interest in his or her account attributable to Employer
contributions in accordance with the table selected in the Adoption Agreement,
provided that if a Participant is not already fully vested, he or she shall
become so upon attaining Normal Retirement Age, Early Retirement Age, on death
prior to normal retirement, on retirement due to Disability, or on termination
of the Plan.
9.3 COMPUTATION PERIOD. The computation period for purposes of determining
Years of Service and Breaks in Service for purposes of computing a
Participant's nonforfeitable right to his or her account balance derived from
Employer contributions shall be determined by the Employer in the Adoption
Agreement. In the event a former Participant with no vested interest in his or
her Employer contribution account requalifies for participation in the Plan
after incurring a Break in Service, such Participant shall be credited for
vesting with all pre-break and post-break Service.
9.4 REQUALIFICATION PRIOR TO FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE. The
account balance of such Participant shall consist of any undistributed amount
in his or her account as of the date of re-employment plus any future
contributions added to such account plus the investment earnings on the
account. The vested account balance of such Participant shall be determined by
multiplying the Participant's account balance (adjusted to
<PAGE> 74
include any distribution or redeposit made under paragraph 6.3) by such
Participant's vested percentage. All Service of the Participant, both prior to
and following the break, shall be counted when computing the Participant's
vested percentage.
9.5 REQUALIFICATION AFTER FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE. If
such Participant is not fully vested upon re-employment, a new account shall be
established for such Participant to separate his or her deferred vested and
nonforfeitable account, if any, from the account to which new allocations will
be made. The Participant's deferred account to the extent remaining shall be
fully vested and shall continue to share in earnings and losses of the Fund.
When computing the Participant's vested portion of the new account, all
pre-break and post-break Service shall be counted. However, notwithstanding
this provision, no such former Participant who has had five consecutive
one-year Breaks in Service shall acquire a larger vested and nonforfeitable
interest in his or her prior account balance as a result of requalification
hereunder.
9.6 CALCULATING VESTED INTEREST. A Participant's vested and nonforfeitable
interest shall be calculated by multiplying the fair market value of his or her
account attributable to Employer contributions on the Valuation Date preceding
distribution by the decimal equivalent of the vested percentage as of his or
her termination date. The amount attributable to Employer contributions for
purposes of the calculation includes amounts previously paid out pursuant to
paragraph 6.3 and not repaid. The Participant's vested and nonforfeitable
interest, once calculated above, shall be reduced to reflect those amounts
previously paid out to the Participant and not repaid by the Participant. The
Participant's vested and nonforfeitable interest so determined shall continue
to share in the investment earnings and any increase or decrease in the fair
market value of the Fund up to the Valuation Date preceding or coinciding with
payment.
9.7 FORFEITURES. Any balance in the account of a Participant who has
separated from Service to which he or she is not entitled under the foregoing
provisions, shall be forfeited and applied as provided in the Adoption
Agreement. A forfeiture may only occur if the Participant has received a
distribution from the Plan or if the Participant has incurred five consecutive
1-year Breaks in Service. Furthermore, a Highly Compensated Employee's
Matching Contributions may be forfeited, even if vested, if the contributions
to which they relate are Excess Deferrals, Excess Contributions or Excess
Aggregate Contributions.
9.8 AMENDMENT OF VESTING SCHEDULE. No amendment to the Plan shall have the
effect of decreasing a Participant's vested interest determined without regard
to such amendment as of the later of the date such amendment is adopted or the
date it becomes effective. Further, if the vesting schedule of the Plan is
amended, or the Plan is amended in any way that directly or indirectly affects
the computation of any Participant's nonforfeitable percentage or if the Plan
is deemed amended by an automatic change to or from a Top-Heavy vesting
schedule, each Participant with at least three Years of Service with the
Employer may elect, within a reasonable period after the adoption of the
amendment, to have his or her nonforfeitable percentage computed under the Plan
without regard to such amendment. For Participants who do not have at least
one Hour of Service in any Plan Year
<PAGE> 75
beginning after 1988, the preceding sentence shall be applied by substituting
"Five Years of Service" for "Three Years of Service" where such language
appears. The period during which the election may be made shall commence with
the date the amendment is adopted and shall end on the later of:
(a) 60 days after the amendment is adopted;
(b) 60 days after the amendment becomes effective; or
(c) 60 days after the Participant is issued written notice of the
amendment by the Employer or the Trustee/Custodian. If the
Trustee/Custodian is asked to so notify, the Fund will be charged for
the costs thereof.
No amendment to the Plan shall be effective to the extent that it has the
effect of decreasing a Participant's accrued benefit. Notwithstanding the
preceding sentence, a Participant's account balance may be reduced to the
extent permitted under section 412(c)(8) of the Code (relating to financial
hardships). For purposes of this paragraph, a Plan amendment which has the
effect of decreasing a Participant's account balance or eliminating an optional
form of benefit, with respect to benefits attributable to service before the
amendment, shall be treated as reducing an accrued benefit.
9.9 SERVICE WITH CONTROLLED GROUPS. All Years of Service with other members
of a controlled group of corporations [as defined in Code Section 414(b)],
trades or businesses under common control [as defined in Code Section 414(c)],
or members of an affiliated service group [as defined in Code Section 414(m)]
shall be considered for purposes of determining a Participant's nonforfeitable
percentage.
ARTICLE X
LIMITATIONS ON ALLOCATIONS
AND ANTIDISCRIMINATION TESTING
10.1 PARTICIPATION IN THIS PLAN ONLY. If the Participant does not participate
in and has never participated in another qualified plan, a Welfare Benefit Fund
(as defined in paragraph 1.89) or an individual medical account, as defined in
Code Section 415(l)(2), maintained by the adopting Employer, which provides an
Annual Addition as defined in paragraph 1.4, the amount of Annual Additions
which may be credited to the Participant's account for any Limitation Year will
not exceed the lesser of the Maximum Permissible Amount or any other limitation
contained in this Plan. If the Employer contribution that would otherwise be
contributed or allocated to the Participant's account would cause the Annual
Additions for the Limitation Year to exceed the Maximum Permissible Amount, the
amount contributed or allocated will be reduced so that the Annual Additions
for the Limitation Year will equal the Maximum Permissible Amount. Prior to
determining the Participant's actual Compensation for the Limitation Year, the
Employer may determine the Maximum Permissible Amount fora Participant on the
basis of a reasonable estimate of the Participant's Compensation for the
Limitation Year, uniformly determined for all Participants similarly situated.
As soon as is administratively feasible after the end of the Limitation Year,
the Maximum Permissible Amount for the Limitation Year
<PAGE> 76
will be determined on the basis of the Participant's actual Compensation for
the Limitation Year.
10.2 DISPOSITION OF EXCESS ANNUAL ADDITIONS. If, pursuant to paragraph 10.1
or as a result of the allocation of forfeitures there is an Excess Amount, the
excess will be disposed of under one of the following methods as determined in
the Adoption Agreement. If no election is made in the Adoption Agreement then
method "(a)" below shall apply.
(a) Suspense Account Method
(1) Any nondeductible Employee Voluntary, Required Voluntary
Contributions and unmatched Elective Deferrals, to the extent
they would reduce the Excess Amount, will be returned to the
Participant. To the extent necessary to reduce the Excess
Amount, non-Highly Compensated Employees will have all
Elective Deferrals returned whether or not there was a
corresponding match.
(2) If after the application of paragraph (1) an Excess Amount
still exists, and the Participant is covered by the Plan at
the end of the Limitation Year, the Excess Amount in the
Participant's account will be used to reduce Employer
contributions (including any allocation of forfeitures) for
such Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary;
(3) If after the application of paragraph (1) an Excess Amount
still exists, and the Participant is not covered by the Plan
at the end of the Limitation Year, the Excess Amount will be
held unallocated in a suspense account. The suspense account
will be applied to reduce future Employer contributions
(including allocation of any forfeitures) for all remaining
Participants in the next Limitation Year, and each succeeding
Limitation Year if necessary;
(4) If a suspense account is in existence at any time during the
Limitation Year pursuant to this paragraph, it will not
participate in the allocation of investment gains and losses.
If a suspense account is in existence at any time during a
particular Limitation Year, all amounts in the suspense
account must be allocated and reallocated to Participants'
accounts before any Employer contributions or any Employee
Contributions may be made to the Plan for that Limitation
Year. Excess amounts may not be distributed to Participants
or former Participants.
(b) Spillover Method
(1) Any nondeductible Employee Voluntary, Required Voluntary
Contributions and unmatched Elective Deferrals, to the extent
they would reduce the Excess Amount, will be returned to the
Participant. To the extent necessary to reduce the Excess
Amount, non-Highly Compensated Employees will have all
Elective
<PAGE> 77
Deferrals returned whether or not there was a corresponding
match.
(2) Any Excess Amount which would be allocated to the account of
an individual Participant under the Plan's allocation formula
will be reallocated to other Participants in the same manner
as other Employer contributions. No such reallocation shall
be made to the extent that it will result in an Excess Amount
being created in such Participant's own account.
(3) To the extent that amounts cannot be reallocated under (1)
above, the suspense account provisions of (a) above will
apply.
10.3 PARTICIPATION IN THIS PLAN AND ANOTHER MASTER AND PROTOTYPE DEFINED
CONTRIBUTION PLAN, WELFARE BENEFIT FUND OR INDIVIDUAL MEDICAL ACCOUNT
MAINTAINED BY THE EMPLOYER. The Annual Additions which may be credited to a
Participant's account under this Plan for any Limitation Year will not exceed
the Maximum Permissible Amount reduced by the Annual Additions credited to a
Participant's account under the other Master or Prototype Defined Contribution
Plans, Welfare Benefit Funds, and individual medical accounts as defined in
Code Section 415(l)(2), maintained by the Employer, which provide an Annual
Addition as defined in paragraph 1.4 for the same Limitation Year. If the
Annual Additions, with respect to the Participant under other Defined
Contribution Plans and Welfare Benefit Funds maintained by the Employer, are
less than the Maximum Permissible Amount and the Employer contribution that
would otherwise be contributed or allocated to the Participant's account under
this Plan would cause the Annual Additions for the Limitation Year to exceed
this limitation, the amount contributed or allocated will be reduced so that
the Annual Additions under all such plans and funds for the Limitation Year
will equal the Maximum Permissible Amount. If the Annual Additions with
respect to the Participant under such other Defined Contribution Plans and
Welfare Benefit Funds in the aggregate are equal to or greater than the Maximum
Permissible Amount, no amount will be contributed or allocated to the
Participant's account under this Plan for the Limitation Year. Prior to
determining the Participant's actual Compensation for the Limitation Year, the
Employer may determine the Maximum Permissible Amount for a Participant in the
manner described in paragraph 10.1. As soon as administratively feasible after
the end of the Limitation Year, the Maximum Permissible Amount for the
Limitation Year will be determined on the basis of the Participant's actual
Compensation for the Limitation Year.
10.4 DISPOSITION OF EXCESS ANNUAL ADDITIONS UNDER TWO PLANS. If, pursuant to
paragraph 10.3 or as a result of forfeitures, a Participant's Annual Additions
under this Plan and such other plans would result in an Excess Amount for a
Limitation Year, the Excess Amount will be deemed to consist of the Annual
Additions last allocated except that Annual Additions attributable to a Welfare
Benefit Fund or Individual Medical Account as defined in Code Section 415(l)(2)
will be deemed to have been allocated first regardless of the actual allocation
date. If an Excess Amount was allocated to a Participant on an allocation date
of this Plan which coincides with an allocation date of another plan, the
Excess Amount attributed to this Plan will be the product of:
(a) the total Excess Amount allocated as of such date, times
<PAGE> 78
(b) the ratio of:
(1) the Annual Additions allocated to the Participant for the
Limitation Year as of such date under the Plan, to
(2) the total Annual Additions allocated to the Participant for
the Limitation Year as of such date under this and all the
other qualified Master or Prototype Defined Contribution
Plans.
Any Excess Amount attributed to this Plan will be disposed of in the manner
described in paragraph 10.2.
10.5 PARTICIPATION IN THIS PLAN AND ANOTHER DEFINED CONTRIBUTION PLAN WHICH IS
NOT A MASTER OR PROTOTYPE PLAN. If the Participant is covered under another
qualified Defined Contribution Plan maintained by the Employer which is not a
Master or Prototype Plan, Annual Additions which may be credited to the
Participant's account under this Plan for any Limitation Year will be limited
in accordance with paragraphs 10.3 and 10.4 as though the other plan were a
Master or Prototype Plan, unless the Employer provides other limitations in the
Adoption Agreement.
10.6 PARTICIPATION IN THIS PLAN AND A DEFINED BENEFIT PLAN. If the Employer
maintains, or at any time maintained, a qualified Defined Benefit Plan covering
any Participant in this Plan, the sum of the Participant's Defined Benefit Plan
Fraction and Defined Contribution Plan Fraction will not exceed 1.0 in any
Limitation Year. For any Plan Year during which the Plan is Top-Heavy, the
Defined Benefit and Defined Contribution Plan Fractions shall be calculated in
accordance with Code Section 416(h). The Annual Additions which may be
credited to the Participant's account under this Plan for any Limitation Year
will be limited in accordance with the provisions set forth in the Adoption
Agreement.
10.7 AVERAGE DEFERRAL PERCENTAGE (ADP) TEST. With respect to any Plan Year,
the Average Deferral Percentage for Participants who are Highly Compensated
Employees and the Average Deferral Percentage for Participants who are
non-Highly Compensated Employees must satisfy one of the following tests:
(a) Basic Test-The Average Deferral Percentage for Participants who are
Highly Compensated Employees for the Plan Year is not more than 1.25
times the Average Deferral Percentage for Participants who are
non-Highly Compensated Employees for the same Plan Year, or
(b) Alternative Test-The Average Deferral Percentage for Participants who
are Highly Compensated Employees for the Plan Year does not exceed the
Average Deferral Percentage for Participants who are non-Highly
Compensated Employees for the same Plan Year by more than 2 percentage
points provided that the Average Deferral Percentage for Participants
who are Highly Compensated Employees is not more than 2.0 times the
Average Deferral Percentage for Participants who are non-Highly
Compensated Employees.
10.8 SPECIAL RULES RELATING TO APPLICATION OF ADP TEST.
<PAGE> 79
(a) The Actual Deferral Percentage for any Participant who is a Highly
Compensated Employee for the Plan Year and who is eligible to have
Elective Deferrals (and Qualified Non-Elective Contributions or
Qualified Matching Contributions, or both, if treated as Elective
Deferrals for purposes of the ADP test) allocated to his or her
accounts under two or more arrangements described in Code Section
401(k), that are maintained by the Employer, shall be determined as if
such Elective Deferrals (and, if applicable, such Qualified
Non-Elective Contributions or Qualified Matching Contributions, or
both) were made under a single arrangement. If a Highly Compensated
Employee participates in two 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.
(b) In the event that 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 such 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 1989, plans may be aggregated in order to
satisfy Code Section 401(k) only if they have the same Plan Year.
(c) For purposes of determining the Actual Deferral Percentage of a
Participant who is a 5-percent owner or one of the ten most
highly-paid Highly Compensated Employees, the Elective Deferrals (and
Qualified Non-Elective Contributions or Qualified Matching
Contributions, or both, if treated as Elective Deferrals for purposes
of the ADP test) and Compensation of such Participant shall include
the Elective Deferrals (and, if applicable, Qualified Non-Elective
Contributions and Qualified Matching Contributions, or both) and
Compensation for the Plan Year of Family Members as defined in
paragraph 1.36 of this Plan. Family Members, with respect to such
Highly Compensated Employees, shall be disregarded as separate
Employees in determining the ADP both for Participants who are
non-Highly Compensated Employees and for Participants who are Highly
Compensated Employees. In the event of repeal of the family
aggregation rules under Code Section 414(q)(6), all applications of
such rules under this Plan will cease as of the effective date of such
repeal.
(d) For purposes of determining the ADP test, Elective Deferrals,
Qualified Non-Elective Contributions and Qualified Matching
Contributions must be made before the last day of the twelve-month
period immediately following the Plan Year to which contributions
relate.
(e) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ADP test and the amount of Qualified Non-Elective
Contributions or Qualified Matching Contributions, or both, used in
such test.
<PAGE> 80
(f) The determination and treatment of the Actual Deferral Percentage
amounts of any Participant shall satisfy such other requirements as
may be prescribed by the Secretary of the Treasury.
10.9 RECHARACTERIZATION. If the Employer allows for Voluntary Contributions
in the Adoption Agreement, 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 Voluntary
Contributions. Recharacterization must occur no later than two and one-half
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.
10.10 AVERAGE CONTRIBUTION PERCENTAGE (ACP) TEST. If the Employer makes
Matching Contributions or if the Plan allows Employees to make Voluntary
Contributions the Plan must meet additional nondiscrimination requirements
provided under Code Section 401(m). If Employee Contributions (including any
Elective Deferrals recharacterized as Voluntary Contributions) are made
pursuant to this Plan, then in addition to the ADP test referenced in paragraph
10.7, the Average Contribution Percentage test is also applicable. The Average
Contribution Percentage for Participants who are Highly Compensated Employees
for each Plan Year and the Average Contribution Percentage for Participants who
are Non-Highly Compensated Employees for the same Plan Year must satisfy one of
the following tests:
(a) Basic Test-The Average Contribution Percentage for Participants who
are Highly Compensated Employees for the Plan Year shall not exceed
the Average Contribution Percentage for Participants who are
non-Highly Compensated Employees for the same Plan Year multiplied by
1.25; or
(b) Alternative Test-The ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the Average Contribution
Percentage for Participants who are non-Highly Compensated Employees
for the same Plan Year multiplied by two (2), provided that the
Average Contribution Percentage for Participants who are Highly
Compensated Employees does not exceed the Average Contribution
Percentage for Participants who are non-Highly Compensated Employees
by more than two (2) percentage points.
10.11 SPECIAL RULES RELATING TO APPLICATION OF ACP TEST.
(a) If one or more Highly Compensated Employees participate in both a cash
or deferred arrangement and a plan subject to the ACP test maintained
by the Employer and the sum of the ADP and ACP of those Highly
Compensated Employees subject to either or both tests exceeds the
Aggregate Limit, then the ADP or ACP of those Highly Compensated
<PAGE> 81
Employees who also participate in a cash or deferred arrangement will
be reduced (beginning with such Highly Compensated Employee whose ADP
or ACP is the highest) as set forth in the Adoption Agreement so that
the limit is not exceeded. The amount by which each Highly
Compensated Employee's Contribution Percentage Amounts is reduced
shall be treated as an Excess Aggregate Contribution. The ADP and ACP
of the Highly Compensated Employees are determined after any
corrections required to meet the ADP and ACP tests. Multiple use does
not occur if both the ADP and ACP of the Highly Compensated Employees
does not exceed 1.25 multiplied by the ADP and ACP of the non-Highly
Compensated Employees.
(b) For purposes of this Article, the Contribution Percentage for any
Participant who is a Highly Compensated Employee and who is eligible
to have Contribution Percentage Amounts allocated to his or her
account under two or more plans described in Code Section 401 (a), or
arrangements described in Code Section 401(k) that are maintained by
the Employer, shall be determined as if the total of such Contribution
Percentage Amounts was made under each Plan. If a Highly Compensated
Employee participates in two 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.
(c) In the event that this Plan satisfies the requirements of Code
Sections 401(a)(4), 401(m), or 410(b) only if aggregated with one or
more other plans, or if one or more other plans satisfy the
requirements of such Code Sections only if aggregated with this Plan,
then this Section shall be applied by determining the Contribution
Percentage of Employees as if all such plans were a single plan. For
plan years beginning after 1989, plans may be aggregated in order to
satisfy Code Section 401 (m) only if the aggregated plans have the
same Plan Year.
(d) For purposes of determining the Contribution percentage of a
Participant who is a five-percent owner or one of the ten most
highly-paid, Highly Compensated Employees, the Contribution Percentage
Amounts and Compensation of such Participant shall include the
Contribution Percentage Amounts and Compensation for the Plan Year of
Family Members as defined in Paragraph 1.36 of this Plan. Family
Members, with respect to Highly Compensated Employees, shall be
disregarded as separate Employees in determining the Contribution
Percentage both for Participants who are non-Highly Compensated
Employees and for Participants who are Highly Compensated Employees.
In the event of repeal of the family aggregation rules under Code
Section 414(q)(6), all applications of such rules under this Plan will
cease as of the effective date of such repeal.
(e) For purposes of determining the Contribution Percentage test, Employee
Contributions are considered to have been made in the Plan Year in
which contributed to the trust. Matching Contributions and Qualified
Non-Elective Contributions will be considered made for a Plan Year if
made no later than the end of the twelve-month period beginning on the
day after the close of the Plan Year.
<PAGE> 82
(f) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ACP test and the amount of Qualified Non-Elective
Contributions or Qualified Matching Contributions, or both, used in
such test.
(g) The determination and treatment of the Contribution Percentage of any
Participant shall satisfy such other requirements as may be prescribed
by the Secretary of the Treasury.
(h) Qualified Matching Contributions and Qualified Non-Elective
Contributions used to satisfy the ADP test may not be used to satisfy
the ACP test.
ARTICLE XI
ADMINISTRATION
11.1 PLAN ADMINISTRATOR. The Employer shall be the named fiduciary and Plan
Administrator. These duties shall include:
(a) appointing the Plan's attorney, accountant, actuary, or any other
party needed to administer the Plan,
(b) directing the Trustee/Custodian with respect to payments from the
Fund,
(c) communicating with Employees regarding their participation and
benefits under the Plan, including the administration of all claims
procedures,
(d) filing any returns and reports with the Internal Revenue Service,
Department of Labor, or any other governmental agency,
(e) reviewing and approving any financial reports, investment reviews, or
other reports prepared by any party appointed by the Employer under
paragraph (a),
(f) establishing a funding policy and investment objectives consistent
with the purposes of the Plan and the Employee Retirement Income
Security Act of 1974, and
(g) construing and resolving any question of Plan interpretation. The
Plan Administrator's interpretation of Plan provisions including
eligibility and benefits under the Plan is final, and unless it can be
shown to be arbitrary and capricious will not be subject to "de novo"
review.
11.2 TRUSTEE/CUSTODIAN. The Trustee/Custodian shall be responsible for the
administration of investments held in the Fund. These duties shall include:
(a) receiving contributions under the terms of the Plan,
(b) making distributions from the Fund in accordance with written
instructions received from an authorized representative of the
Employer, and
<PAGE> 83
(c) keeping accurate records reflecting its administration of the Fund and
making such records available to the Employer for review and audit.
Within 90 days after each Plan Year, and within 90 days after its
removal or resignation, the Trustee/Custodian shall file with the
Employer an accounting of its administration of the Fund during such
year or from the end of the preceding Plan Year to the date of removal
or resignation. Such accounting shall include a statement of cash
receipts and disbursements since the date of its last accounting and
shall contain an asset list showing the fair market value of
investments held in the Fund as of the end of the Plan Year. The
value of marketable investments shall be determined using the most
recent price quoted on a national securities exchange or over the
counter market. The value of non-marketable investments shall be
determined in the sole judgement of the Trustee/Custodian which
determination shall be binding and conclusive. The value of
investments in securities or obligations of the Employer in which
there is no market shall be determined in the sole judgement of the
Employer, and the Trustee/Custodian shall have no responsibility with
respect to the valuation of such assets. The Employer shall review
the Trustee/Custodian 's accounting and notify the Trustee/Custodian
in the event of its disapproval of the report within 90 days,
providing the Trustee/Custodian with a written description of the
items in question. The Trustee/Custodian shall have 60 days to
provide the Employer with a written explanation of the items in
question. If the Employer again disapproves, the Trustee/Custodian
may file its accounting in a court of competent jurisdiction for audit
and adjudication.
(d) employing such agents, including but not limited to an investment
advisor which may or may not be a subsidiary or an affiliate of the
Trustee, attorneys or other professionals as the Trustee may deem
necessary or advisable in the performance of its duties.
The Trustee's/Custodian's duties shall be limited to those described above.
The Employer shall be responsible for any other administrative duties required
under the Plan or by applicable law.
11.3 ADMINISTRATIVE FEES AND EXPENSES. All reasonable costs, charges and
expenses incurred by the Trustee/Custodian in connection with the
administration of the Fund and all reasonable costs, charges and expenses
incurred by the Plan Administrator in connection with the administration of the
Plan (including fees for legal services rendered to the Trustee/Custodian or
Plan Administrator) may be paid by the Employer, but if not paid by the
Employer when due, shall be paid from the Fund. Such reasonable compensation
to the Trustee/Custodian as may be agreed upon from time to time between the
Employer and the Trustee/Custodian and such reasonable compensation to the Plan
Administrator as may be agreed upon from time to time between the Employer and
Plan Administrator may be paid by the Employer, but if not paid by the Employer
when due shall be paid by the Fund. The Trustee/Custodian shall have the right
to liquidate trust assets to cover its fees. Notwithstanding the foregoing, no
compensation other than reimbursement for expenses shall be paid to a Plan
Administrator or a Trustee/Custodian who is the Employer or a full-time
Employee of the Employer. In the event any part of the Trust/Custodial Account
becomes
<PAGE> 84
subject to tax, all taxes incurred will be paid from the Fund unless the Plan
Administrator advises the Trustee/Custodian not to pay such tax.
11.4 DIVISION OF DUTIES AND INDEMNIFICATION.
(a) The Trustee/Custodian shall have the authority and discretion to
manage and govern the Fund to the extent provided in this instrument,
but does not guarantee the Fund in any manner against investment loss
or depreciation in asset value, or guarantee the adequacy of the Fund
to meet and discharge all or any liabilities of the Plan.
(b) The Trustee/Custodian shall not be liable for the making, retention or
sale of any investment or reinvestment made by it, as herein provided,
or for any loss to, or diminution of the Fund, or for any other loss
or damage which may result from the discharge of its duties hereunder
except to the extent it is judicially determined that the
Trustee/Custodian has failed to exercise the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent
person acting in a like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character with like
aims.
(c) The Employer warrants that all directions issued to the
Trustee/Custodian by it, the Plan Administrator, an investment manager
appointed pursuant to Section 13.7, or any other authorized person,
will be in accordance with the terms of the Plan and not contrary to
the provisions of the Employee Retirement Income Security Act of 1974
and regulations issued thereunder.
(d) The Trustee/Custodian shall not be answerable for any action taken
pursuant to any direction, consent, certificate or other paper or
document on the belief that the same is genuine and signed by the
proper person. All directions by the Employer, Participant or the
Plan Administrator shall be in writing. The Employer shall deliver to
the Trustee/Custodian certificates evidencing the individual or
individuals authorized to act as set forth in the Adoption Agreement
or as the Employer may subsequently inform the Trustee/Custodian in
writing and shall deliver to the Trustee/Custodian specimens of their
signatures.
(e) The duties and obligations of the Trustee/Custodian shall be limited
to those expressly imposed upon it by this instrument or subsequently
agreed upon by the parties. Responsibility for administrative duties
required under the Plan or applicable law not expressly imposed upon
or agreed to by the Trustee/Custodian, shall rest solely with the
Employer.
(f) The Trustee/Custodian shall be indemnified and saved harmless by the
Employer from and against any and all liability to which the
Trustee/Custodian may be subjected, including all expenses reasonably
incurred in its defense, for any action or failure to act resulting
from compliance with the instructions of the Employer, the employees
or agents of the Employer, the Plan Administrator, or any other
fiduciary to the Plan, and for any liability arising from the actions
<PAGE> 85
or non-actions of any predecessor Trustee/Custodian or fiduciary or
other fiduciaries of the Plan.
(g) The Trustee/Custodian shall not be responsible in any way for the
application of any payments it is directed to make or for the adequacy
of the Fund to meet and discharge any and all liabilities under the
Plan.
ARTICLE XII
TRUST FUND/CUSTODIAL ACCOUNT
12.1 THE FUND. The Fund shall consist of all contributions made under Article
III and Article IV of the Plan and the investment thereof and earnings thereon.
All contributions and the earnings thereon less payments made under the terms
of the Plan, shall constitute the Fund. The Fund shall be administered as
provided in this document.
12.2 CONTROL OF PLAN ASSETS. The assets of the Fund or evidence of ownership
shall be held by the Trustee/Custodian under the terms of the Plan and
Trust/Custodial Account. If the assets represent amounts transferred from
another trustee/ custodian under a former plan, the Trustee/Custodian named
hereunder shall not be responsible for the propriety of any investment under
the former plan.
12.3 EXCLUSIVE BENEFIT RULES. No part of the Fund shall be used for, or
diverted to, purposes other than for the exclusive benefit of Participants,
former Participants with a vested interest, and the beneficiary or
beneficiaries of deceased Participants having a vested interest in the Fund at
death.
12.4 ASSIGNMENT AND ALIENATION OF BENEFITS. No right or claim to, or interest
in, any part of the Fund, or any payment from the Fund, shall be assignable,
transferable, or subject to sale, mortgage, pledge, hypothecation, commutation,
anticipation, garnishment, attachment, execution, or levy of any kind. The
Trustee/Custodian shall not recognize any attempt to assign, transfer, sell,
mortgage, pledge, hypothecate, commute, or anticipate the same, except to the
extent required by law. The preceding sentences shall also apply to the
creation, assignment, or recognition of a right to any benefit payable with
respect to a Participant pursuant to a domestic relations order, unless such
order is determined to be a qualified domestic relations order, as defined in
Code Section 414(p), or any domestic relations order entered before January 1,
1985 which the Plan attorney and Plan Administrator deem to be qualified.
12.5 DETERMINATION OF QUALIFIED DOMESTIC RELATIONS ORDER (QDRO). A Domestic
Relations Order shall specifically state all of the following in order to be
deemed a Qualified Domestic Relations Order ("QDRO"):
(a) The name and last known mailing address (if any) of the Participant
and of each alternate payee covered by the QDRO. However, if the QDRO
does not specify the current mailing address of the alternate payee,
but the Plan Administrator has independent knowledge of that address,
the QDRO will still be valid.
<PAGE> 86
(b) The dollar amount or percentage of the Participant's benefit to be
paid by the Plan to each alternate payee, or the manner in which the
amount or percentage will be determined.
(c) The number of payments or period for which the order applies.
(d) The specific plan (by name) to which the Domestic Relations Order
applies.
The Domestic Relations Order shall not be deemed a QDRO if it requires the Plan
to provide:
(e) any type or form of benefit, or any option not already provided for in
the Plan;
(f) increased benefits, or benefits in excess of the Participant's vested
rights;
(g) payment of a benefit earlier than allowed by the Plan's earliest
retirement provisions or in the case of a profit sharing plan, prior
to the allowability of in-service withdrawals, or
(h) payment of benefits to an alternate payee which are required to be
paid to another alternate payee under another QDRO.
Promptly, upon receipt of a Domestic Relations Order ("Order") which may or may
not be "Qualified", the Plan Administrator shall notify the Participant and any
alternate payee(s) named in the Order of such receipt, and include a copy of
this paragraph 12.5. The Plan Administrator shall then forward the Order to
the Plan's legal counsel for an opinion as to whether or not the Order is in
fact "Qualified" as defined in Code Section 414(p). Within a reasonable time
after receipt of the Order, not to exceed 60 days, the Plan's legal counsel
shall make a determination as to its "Qualified" status and the Participant and
any alternate payee(s) shall be promptly notified in writing of the
determination.
If the "Qualified" status of the Order is in question, there will be a delay in
any payout to any payee including the Participant, until the status is
resolved. In such event, the Plan Administrator shall segregate the amount
that would have been payable to the alternate payee(s) if the Order had been
deemed a QDRO. If the Order is not Qualified, or the status is not resolved
(for example, it has been sent back to the Court for clarification or
modification) within 18 months beginning with the date the first payment would
have to be made under the Order, the Plan Administrator shall pay the
segregated amounts plus interest to the person(s) who would have been entitled
to the benefits had there been no Order. If a determination as to the
Qualified status of the Order is made after the 18-month period described
above, then the Order shall only be applied on a prospective basis. If the
Order is determined to be a QDRO, the Participant and alternate payee(s) shall
again be notified promptly after such determination. Once an Order is deemed a
QDRO, the Plan Administrator shall pay to the alternate payee(s) all the
amounts due under the QDRO, including segregated amounts plus interest which
may have accrued during a dispute as to the Order's qualification.
<PAGE> 87
Unless specified otherwise in the Adoption Agreement, the earliest retirement
age with regard to the Participant against whom the order is entered shall be
the date the order is determined to be qualified. This will only allow payouts
to alternate payee(s) and not the Participant.
ARTICLE XIII
INVESTMENTS
13.1 FIDUCIARY STANDARDS. The Trustee shall invest and reinvest principal
and income in the same Fund in accordance with the investment objectives
established by the Employer, provided that:
(a) such investments are prudent under the Employee Retirement Income
Security Act of 1974 and the regulations thereunder,
(b) such investments are sufficiently diversified or otherwise insured or
guaranteed to minimize the risk of large losses, and
(c) such investments are similar to those which would be purchased by
another professional money manager for a like plan with similar
investment objectives.
13.2 FUNDING ARRANGEMENT. The Employer shall, in the Adoption Agreement,
appoint a Trustee to administer the Fund and/or a Custodian to have custody of
the Fund. The Trustee shall invest the Fund in any of the alternatives
available under paragraph 13.3. If a Custodian is appointed, the Fund shall be
invested as provided in paragraph 13.4.
13.3 INVESTMENT ALTERNATIVES OF THE TRUSTEE. The Trustee shall implement an
investment program based on the Employer's investment objectives and the
Employee Retirement Income Security Act of 1974. In addition to powers given
by law, the Trustee may:
(a) invest the Fund in any form of property, including common and
preferred stocks, exchange traded put and call options, bonds, money
market instruments, mutual funds(including funds for which the
Trustee/Custodian or its subsidiaries or its affiliates serve as
investment advisor), savings accounts, certificates of deposit,
Treasury bills, insurance policies and contracts, or in any other
property, real or personal, having a ready market including securities
issued by the Trustee and/or affiliates of the Trustee. The Trustee
may also make loans to Plan Participants in accordance with paragraph
13.5 hereof. The Trustee may invest in its own deposits and, if
applicable, those of affiliates, which bear a reasonable interest
rate. No portion of any Qualified Voluntary Contribution, or the
earnings thereon, may be invested in life insurance contracts or, as
with any Participant-directed investment, in tangible personal
property characterized by the IRS as a collectible,
(b) transfer any assets of the Fund to a group or collective trust
established to permit the pooling of funds of separate pension and
profit-sharing trusts, provided such group or collective trust is
qualified under Code Section 401(a)and exempt under Code Section
501(a) (or the applicable corresponding provision of any other Revenue
Act) or to any other common, collective, or commingled trust fund
<PAGE> 88
which has been or may hereafter be established and maintained by the
Trustee/Custodian and/or affiliates of the Trustee/Custodian. Such
commingling of assets of the Fund with assets of other qualified
trusts is specifically authorized, and to the extent of the investment
of the Fund in such a group or collective trust, the terms of the
instrument establishing the group or collective trust shall be a part
hereof as though set forth herein. The terms of said instrument(s)
may authorize the Trustee of the group or collective trust to engage
in securities lending transactions where fees may be deducted from the
group or collective trust's loan income,
(c) invest the Fund in the common stock, debt obligations, or any other
security issued by the Employer or by an affiliate of the Employer
within the limitations provided under Sections 406, 407, and 408 of
the Employee Retirement Income Security Act of 1974 and further
provided that such investment does not constitute a prohibited
transaction under Code Section 4975. Any such investment in Employer
securities shall only be made upon written direction of the Employer
who shall be solely responsible for propriety of such investment,
(d) hold cash uninvested and deposit same with any banking or savings
institution, including its own banking department,
(e) join in or oppose the reorganization, recapitalization, consolidation,
sale or merger of corporations or properties, including those in which
it is interested as Trustee, upon such terms as it deems wise,
(f) hold investments in nominee or bearer form,
(g) vote proxies and, if appropriate, pass them on to any investment
manager which may have directed the investment in the equity giving
rise to the proxy,
(h) exercise all ownership rights with respect to assets held in the Fund.
13.4 INVESTMENT ALTERNATIVES OF THE CUSTODIAN. The Custodian shall be
depository of all or part of the Fund and shall, at the written direction of
the Trustee hold any assets received from the Trustee or its agents. The
Custodian may rely upon any order, certificate, notice, direction or other
written directive issued by the Trustee or its agents. The Custodian shall
receive and deliver assets as instructed by the Trustee or its agents, or an
investment manager appointed pursuant to Section 13.7 through written
direction. To the extent that the Custodian holds title to Plan assets and
such ownership requires action on the part of the registered owner, such action
will be taken by the Custodian only upon receipt of specific written
instructions from the Trustee or its agents or an investment manager. Proxies
shall be voted by or pursuant to the express direction of the Trustee or
authorized agent of the Trustee. The Custodian shall not give any investment
advice, including any opinion on the prudence of directed investments. The
Employer and Trustee and the agents thereof assume all responsibility for
adherence to fiduciary standards under the Employee Retirement Income Security
Act of 1974 (ERISA) and all amendments thereof, and regulations thereunder.
<PAGE> 89
13.5 PARTICIPANT LOANS. If agreed upon by the Trustee and permitted by the
Employer in the Adoption Agreement, a Plan Participant may make application to
the Employer requesting a loan from the Fund. The Employer shall have the sole
right to approve or disapprove a Participant's application provided that loans
shall be made available to all Participants on a reasonably equivalent basis.
Loans shall not be made available to Highly Compensated Employees [as defined
in Code Section 414(q)] in an amount greater than the amount made available to
other Employees. Any loan granted under the Plan shall be made subject to the
following rules:
(a) No loan shall exceed the lesser of (i) $50,000 reduced by the excess,
if any, of the highest outstanding balance of loans during the one
year period ending on the day before the loan is made, over the
outstanding balance of loans from the Plan on the date the loan is
made or (ii) one-half of the fair market value of a Participant's
vested account balance built up from Employer Contributions, Voluntary
Contributions, and Rollover Contributions. If the Participant's
vested account balance is $20,000 or less, the maximum loan shall not
exceed the lesser of $10,000 or 100% of the Participant's vested
account balance For the purpose of the above limitation, all loans
from all plans of the Employer and other members of a group of
employers described in Code Sections 414(b), 414(c), and 414(m) are
aggregated. An assignment or pledge of any portion of the
Participant's interest in the Plan and a loan, pledge, or assignment
with respect to any insurance contract purchased under the Plan, will
be treated as a loan under this paragraph.
(b) All applications must be made on forms provided by the Employer and
must be signed by the Participant.
(c) Any loan shall bear interest at a rate reasonable at the time of
application, considering the purpose of the loan and the rate being
charged by representative commercial banks in the local area for a
similar loan unless the Employer sets forth a different method for
determining loan interest rates in its loan procedures. The loan
agreement shall also provide that the payment of principal and
interest be amortized in level payments not less than quarterly.
(d) The term of such loan shall not exceed five years except in the case
of a loan for the purpose of acquiring any house, apartment,
condominium, or mobile home (not used on a transient basis) which is
used or is to be used within a reasonable time as the principal
residence of the Participant. The term of such loan shall be
determined by the Employer considering the maturity dates quoted by
representative commercial banks in the local area for a similar loan.
(e) The principal and interest paid by a Participant on his or her loan
shall be credited to the Fund in the same manner as for any other Plan
investment. If elected in the Adoption Agreement, loans may be
treated as segregated investments of the individual Participants.
This provision is not available if its election will result in
discrimination in operation of the Plan.
(f) If a Participant's loan application is approved by the Employer, such
Participant shall be required to sign a note, loan agreement, and
<PAGE> 90
assignment of 50% of his or her interest in the Fund as collateral for
the loan. The Participant, except in the case of a profit-sharing
plan satisfying the requirements of paragraph 8.7 must obtain the
consent of his or her Spouse, if any, within the 90 day period before
the time his or her account balance is used as security for the loan.
A new consent is required if the account balance is used for any
renegotiation, extension, renewal or other revision of the loan,
including an increase in the amount thereof. The consent must be
written, must acknowledge the effect of the loan, and must be
witnessed by a plan representative or notary public. Such consent
shall subsequently be binding with respect to the consenting Spouse or
any subsequent Spouse.
(g) If a valid Spousal consent has been obtained, then, notwithstanding
any other provision of this Plan, the portion of the Participant's
vested account balance used as a security interest held by the Plan by
reason of a loan outstanding to the Participant shall be taken into
account for purposes of determining the amount of the account balance
payable at the time of death or distribution, but only if the
reduction is used as repayment of the loan. If less than 100% of the
Participant's vested account balance (determined without regard to the
preceding sentence) is payable to the Surviving Spouse, then the
account balance shall be adjusted by first reducing the vested account
balance by the amount of the security used as repayment of the loan,
and then determining the benefit payable to the Surviving Spouse.
(h) The Employer may also require additional collateral in order to
adequately secure the loan.
(i) A Participant's loan shall immediately become due and payable if such
Participant terminates employment for any reason or fails to make a
principal and/or interest payment as provided in the loan agreement.
If such Participant terminates employment, the Employer shall
immediately request payment of principal and interest on the loan. If
the Participant refuses payment following termination, the Employer
shall reduce the Participant's vested account balance by the remaining
principal and interest on his or her loan. If the Participant's
vested account balance is less than the amount due, the Employer shall
take whatever steps are necessary to collect the balance due directly
from the Participant. However, no foreclosure on the Participant's
note or attachment of the Participant's account balance will occur
until a distributable event occurs in the Plan.
(j) No loans will be made to Owner-Employees (as defined in paragraph
1.51) or Shareholder-Employees (as defined in paragraph 1.74), unless
the Employer obtains a prohibited transaction exemption from the
Department of Labor.
13.6 INSURANCE POLICIES. If agreed upon by the Trustee and permitted by the
Employer in the Adoption Agreement, Employees may elect the purchase of life
insurance policies under the Plan. If elected, the maximum annual premium for
a whole life policy shall not exceed 50% of the aggregate Employer
contributions allocated to the account of a Participant. For profit-sharing
plans the 50% test need only be applied against Employer contributions
allocated in the last two years. Whole life policies are
<PAGE> 91
policies with both nondecreasing death benefits and nonincreasing premiums.
The maximum annual premium for term contracts or universal life policies and
all other policies which are not whole life shall not exceed 25% of aggregate
Employer contributions allocated to the account of a Participant. The two-year
rule for profit-sharing plans again applies. The maximum annual premiums for a
Participant with both a whole life and a term contract or universal life
policies shall be limited to one-half of the whole life premium plus the term
premium, but shall not exceed 25% of the aggregate Employer contributions
allocated to the account of a Participant, subject to the two year rule for
profit-sharing plans. Any policies purchased under this Plan shall be held
subject to the following rules:
(a) The Trustee shall be applicant and owner of any policies issued.
(b) All policies or contracts purchased hereunder, shall be endorsed as
nontransferable, and must provide that proceeds will be payable to the
Trustee; however, the Trustee shall be required to pay over all
proceeds of the contracts to the Participant's Designated Beneficiary
in accordance with the distribution provisions of this Plan. Under no
circumstances shall the Trust retain any part of the proceeds.
(c) Each Participant shall be entitled to designate a beneficiary under
the terms of any contract issued; however, such designation will be
given to the Trustee which must be the named beneficiary on any
policy. Such designation shall remain in force, until revoked by the
Participant, by filing a new beneficiary form with the Trustee. A
Participant's Spouse will be the Designated Beneficiary of the
proceeds in all circumstances unless a Qualified Election has been
made in accordance with paragraph 8.4. The beneficiary of a deceased
Participant shall receive, in addition to the proceeds of the
Participant's policy or policies, the amount credited to such
Participant's investment account.
(d) A Participant who is uninsurable or insurable at substandard rates,
may elect to receive a reduced amount of insurance, if available, or
may waive the purchase of any insurance.
(e) All dividends or other returns received on any policy purchased shall
be applied to reduce the next premium due on such policy, or if no
further premium is due, such amount shall be credited to the Fund as
part of the account of the Participant for whom the policy is held.
(f) If Employer contributions are inadequate to pay all premiums on all
insurance policies, the Trustee may, at the option of the Employer,
utilize other amounts remaining in each Participant's account to pay
the premiums on his or her respective policy or policies, allow the
policies to lapse, reduce the policies to a level at which they may be
maintained, or borrow against the policies on a prorated basis,
provided that the borrowing does not discriminate in favor of the
policies on the lives of Officers, Shareholders, and highly
compensated Employees.
(g) On retirement or termination of employment of a Participant, the
Employer shall direct the Trustee to cash surrender the Participant's
policy and credit the proceeds to his or her account for distribution
<PAGE> 92
under the terms of the Plan. However, before so doing, the Trustee
may first offer to transfer ownership of the policy to the Participant
in exchange for payment by the Participant of the cash value of the
policy at the time of transfer. Such payment shall be credited to the
Participant's account for distribution under the terms of the Plan.
All distributions resulting from the application of this paragraph
shall be subject to the Joint and Survivor Annuity Rules of Article
VIII, if applicable.
(h) The Employer shall be solely responsible to see that these insurance
provisions are administered properly and that if there is any conflict
between the provisions of this Plan and any insurance contracts issued
that the terms of this Plan will control.
13.7 EMPLOYER INVESTMENT DIRECTION. If agreed upon by the Trustee and
approved by the Employer in the Adoption Agreement, the Employer shall have the
right to direct the Trustee with respect to investments of the Fund, may
appoint an investment manager (registered as an investment advisor under the
Investment Advisors Act of 1940) to direct investments, or may give the Trustee
investment management responsibility. The Employer may purchase and sell
interests in a registered investment company (i.e., mutual funds) for which the
Sponsor, its parent, affiliates, subsidiaries, or successors, may serve as
investment advisor and receive compensation from the registered investment
company for its services as investment advisor. The Employer shall advise the
Trustee in writing regarding the retention of investment powers, the
appointment of an investment manager, or the delegation of investment powers to
the Trustee. The Trustee may rely upon any order, certificate, notice,
direction or other written directive issued by the Employer, investment manager
or any other authorized party which the Trustee believes to be genuine. In the
absence of such written directive, the Trustee may invest the available cash in
its discretion in an appropriate interim investment until specific investment
directions are received and shall not be responsible for a resulting loss.
Such instructions regarding the delegation of investment responsibility shall
remain in force until revoked or amended in writing. The Employer must provide
the Trustee with written notice of the termination of the appointment of an
investment manager. The Trustee shall not be responsible for the propriety of
any directed investment made and shall not be required to consult with or
advise the Employer regarding the investment quality of any directed investment
held hereunder. The Trustee shall not be responsible for any loss resulting to
the Fund by reason of any sale or investment made pursuant to the direction of
the Employer or an investment manager. Notwithstanding anything in this Plan
to the contrary, the Trustee shall be indemnified and saved harmless by the
Employer from any and all personal liability to which the Trustee may be
subjected by carrying out any directions of the Employer or an investment
manager, including all expenses reasonably incurred in its defense in the event
the Employer fails to provide such; provided, however, the Trustee shall not be
so indemnified if it participates knowingly in, or knowingly undertakes to
conceal, an act or omission of an investment manager, having actual knowledge
that such is a breach of a fiduciary duty. The Trustee shall not be deemed to
have knowingly participated in or knowingly undertaken to conceal an act or
omission of an investment manager with knowledge that such act or omission was
a breach of fiduciary duty by merely complying with directions of an investment
manager, or for failure to act in the
<PAGE> 93
absence of directions of an investment manager, or by reason of maintaining
accounting records. If the Employer fails to designate an investment manager,
the Trustee shall have full investment authority. If the Employer does not
issue investment directions, the Trustee shall have authority to invest the
Fund in its sole discretion. While the Employer may direct the Trustee with
respect to Plan investments, the Employer may not:
(a) borrow from the Fund or pledge any of the assets of the Fund as
security for a loan,
(b) buy property or assets from or sell property or assets to the Fund,
(c) charge any fee for services rendered to the Fund, or
(d) receive any services from the Fund on a preferential basis.
13.8 EMPLOYEE INVESTMENT DIRECTION. If agreed to by the Trustee and approved
by the Employer in the Adoption Agreement, Participants shall be given the
option to direct the investment of their personal contributions and their share
of the Employer's contribution among alternative investment funds established
as part of the overall Fund. Unless otherwise specified by the Employer in the
Adoption Agreement, such investment funds shall be under the full control of
the management of the Trustee/Custodian. If investments outside the
Trustee/Custodian's control are allowed, Participants may not direct that
investments be made in collectibles, other than U.S. Government or State
issued gold and silver coins. In this connection, a Participant's right to
direct the investment of any contribution shall apply only to selection of the
desired fund. The following rules shall apply to the administration of such
funds.
(a) At the time an Employee becomes eligible for the Plan, he or she shall
complete an investment designation form stating the percentage of his
or her contributions to be invested in the available funds.
(b) A Participant may change his or her election with respect to future
contributions by filing a new investment designation form with the
Employer in accordance with the procedures established by the Plan
Administrators.
(c) A Participant may elect to transfer all or part of his or her balance
from one investment fund to another by filing an investment
designation form with the Employer in accordance with the procedures
established by the Plan Administrators.
(d) The Employer shall be responsible when transmitting Employee and
Employer contributions to show the dollar amount to be credited to
each investment fund for each Employee.
(e) Except as otherwise provided in the Plan, neither the Trustee, nor the
Custodian, nor the Employer, nor any fiduciary of the Plan shall be
liable to the Participant or any of his or her beneficiaries for any
loss resulting from action taken at the direction of the Participant
and shall be indemnified and held harmless.
ARTICLE XIV
<PAGE> 94
TOP-HEAVY PROVISIONS
14.1 APPLICABILITY OF RULES. If the Plan is or becomes Top-Heavy in any Plan
Year beginning after 1983, the provisions of this Article will supersede any
conflicting provisions in the Plan or Adoption Agreement.
14.2 MINIMUM CONTRIBUTION. Notwithstanding any other provision in the
Employer's Plan, for any Plan Year in which the Plan is Top-Heavy or Super
Top-Heavy, the aggregate Employer contributions and forfeitures allocated on
behalf of any Participant (without regard to any Social Security contribution)
under this Plan and any other Defined Contribution Plan of the Employer shall
be lesser of 3% of such Participant's Compensation or the largest percentage of
Employer contributions and forfeitures, as a percentage of the first $200,000
of the Key Employee's Compensation, allocated on behalf of any Key Employee for
that year.
Each Participant who is employed by the Employer on the last day of the Plan
Year shall be entitled to receive an allocation of the Employer's minimum
contribution for such Plan Year. The minimum allocation applies even though
under other Plan provisions the Participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation for the year
because the Participant fails to make Mandatory Contributions to the Plan, the
Participant's Compensation is less than a stated amount, or the Participant
fails to complete l,000 Hours of Service (or such lesser number designated by
the Employer in the Adoption Agreement) during the Plan Year. A Paired
profit-sharing plan designated to provide the minimum Top-Heavy contribution
must do so regardless of profits. An Employer may make the minimum Top-Heavy
contribution available to all Participants or just non-Key Employees.
For purposes of computing the minimum allocation Compensation shall mean
Compensation as defined in the second paragraph of paragraph 1.12 of the Plan.
The Top-Heavy minimum contribution does not apply to any Participant to the
extent the Participant is covered under any other plan(s) of the Employer and
the Employer has provided in Section 11 of the Adoption Agreement that the
minimum allocation or benefit requirements applicable to Top-Heavy Plans will
be met in the other plan(s).
If a Key Employee makes an Elective Deferral or has an allocation of Matching
Contributions made to his or her account, a Top-Heavy minimum will be required
for non-Key Employees who are Participants, however, neither Elective Deferrals
by nor Matching Contributions to non-Key Employees may be taken into account
for purposes of satisfying the top-heavy Minimum Contribution requirement.
14.3 MINIMUM VESTING. For any Plan Year in which this Plan is Top-Heavy, the
minimum vesting schedule elected by the Employer in the Adoption Agreement will
automatically apply to the Plan. If the vesting schedule selected by the
Employer in the Adoption Agreement is less liberal than the allowable schedule,
the schedule will automatically be modified. If the vesting schedule under the
Employer's Plan shifts in or out of the Top-Heavy schedule for any Plan Year,
such shift is an amendment to the vesting schedule and the election in
paragraph 9.8 of the Plan applies.
<PAGE> 95
The minimum vesting schedule applies to all accrued benefits within the meaning
of Code Section 411 (a)(7) except those attributable to Employee contributions,
including benefits accrued before the effective date of Code Section 416 and
benefits accrued before the Plan became Top-Heavy. Further, no reduction in
vested benefits may occur in the event the Plan's status as Top-Heavy changes
for any Plan Year.
However, this paragraph does not apply to the account balances of any Employee
who does not have an Hour of Service after the Plan initially becomes Top-Heavy
and such Employee's account balance attributable to Employer contributions and
forfeitures will be determined without regard to this paragraph.
14.4 LIMITATIONS ON ALLOCATIONS. In any Plan Year in which the Top-Heavy
Ratio exceeds 90% (i.e., the Plan becomes Super Top-Heavy), the denominators of
the Defined Benefit Fraction (as defined in paragraph 1.16) and Defined
Contribution Fraction (as defined in paragraph 1.19) shall be computed using
100% of the dollar limitation instead of 125%.
ARTICLE XV
AMENDMENT AND TERMINATION
15.1 AMENDMENT BY SPONSOR. The Sponsor may amend any or all provisions of
this Plan and Trust/Custodial Account at any time without obtaining the
approval or consent of any Employer which has adopted this Plan and
Trust/Custodial Account provided that no amendment shall authorize or permit
any part of the corpus or income of the Fund to be used for or diverted to
purposes other than for the exclusive benefit of Participants and their
beneficiaries, or eliminate an optional form of distribution. In the case of a
mass-submitted plan, the mass-submitter shall amend the Plan on behalf of the
Sponsor.
15.2 AMENDMENT BY EMPLOYER. The Employer may amend any option in the Adoption
Agreement, and may include language as permitted in the Adoption Agreement,
(a) to satisfy Code Section 415, or
(b) to avoid duplication of minimums under Code Section 416 because of the
required aggregation of multiple plans.
The Employer may add certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause the Plan
to be treated as an individually designed plan for which the Employer must
obtain a separate determination letter.
If the Employer amends the Plan and Trust/Custodial Account other than as
provided above, the Employer's Plan shall no longer participate in this
Prototype Plan and will be considered an individually designed plan.
15.3 TERMINATION. The Employer shall have the right to terminate the Plan
upon 60 days notice in writing to the Trustee/Custodian. If the Plan is
terminated, partially terminated, or if there is a complete discontinuance of
contributions under a profit-sharing plan maintained by the Employer, all
amounts credited to the accounts of Participants shall vest and become
<PAGE> 96
nonforfeitable. In the event of a partial termination, only those who separate
from Service shall be fully vested. In the event of termination, the Employer
shall direct the Trustee/Custodian with respect to the distribution of accounts
to or for the exclusive benefit of Participants or their beneficiaries. The
Trustee/Custodian shall dispose of the Fund in accordance with the written
directions of the Plan Administrator, provided that no liquidation of assets
and payment of benefits, (or provision therefor), shall actually be made by the
Trustee/Custodian until after it is established by the Employer in a manner
satisfactory to the Trustee/Custodian, that the applicable requirements, if
any, of the Employee Retirement Income Security Act of 1974 and the Internal
Revenue Code governing the termination of employee benefit plans, have been or
are being, complied with, or that appropriate authorizations, waivers,
exemptions, or variances have been, or are being obtained. The
Trustee/Custodian shall not be obliged to distribute the Fund until it receives
notice of a favorable ruling from the Internal Revenue Service upon the
Employer's application for determination as to the effect of termination.
15.4 QUALIFICATION OF EMPLOYER'S PLAN. If the adopting Employer fails to
attain or retain Internal Revenue Service qualification, such Employer's Plan
shall no longer participate in this Prototype Plan and will be considered an
individually designed plan.
15.5 MERGERS AND CONSOLIDATIONS.
(a) In the case of any merger or consolidation of the Employer's Plan
with, or transfer of assets or liabilities of the Employer's Plan to,
any other plan, Participants in the Employer's Plan shall be entitled
to receive benefits immediately after the merger, consolidation, or
transfer which are equal to or greater than the benefits they would
have been entitled to receive immediately before the merger,
consolidation, or transfer if the Plan had then terminated.
(b) Any corporation into which the Trustee/Custodian or any successor
trustee/custodian may be merged or with which it may be consolidated,
or any corporation resulting from any merger or consolidation to which
the Trustee/Custodian or any successor trustee/custodian may be a
party, or any corporation to which all or substantially all the trust
business of the Trustee/Custodian or any successor trustee/ custodian
may be transferred, shall be the successor of such Trustee/Custodian
without the filing of any instrument or performance of any further
act, before any court.
15.6 RESIGNATION AND REMOVAL. The Trustee/Custodian may resign by written
notice to the Employer which shall be effective 60 days after delivery. The
Employer may discontinue its participation in this Prototype Plan and
Trust/Custodial Account effective upon 60 days written notice to the Sponsor.
In such event the Employer shall, prior to the effective date thereof amend the
Plan to eliminate any reference to this Prototype Plan and Trust/Custodial
Account and appoint a successor trustee or custodian or arrange for another
funding agent. The Trustee/Custodian shall deliver the Fund to its successor
on the effective date of the resignation or removal, or as soon thereafter as
practicable, provided that this shall not waive any lien the Trustee/Custodian
may have upon the Fund for its
<PAGE> 97
compensation or expenses. If the Employer fails to amend the Plan and appoint
a successor trustee, custodian, or other funding agent within the said 60 days,
or such longer period as the Trustee/Custodian may specify in writing, the Plan
shall be deemed individually designed and the Employer shall be deemed the
successor trustee/custodian. The Employer must then obtain its own
determination letter.
15.7 QUALIFICATION OF PROTOTYPE. The Sponsor intends that this Prototype Plan
will meet the requirements of the Code as a qualified Prototype Retirement Plan
and Trust/Custodial Account. Should the Commissioner of Internal Revenue or
any delegate of the Commissioner at any time determine that the Plan and
Trust/Custodial Account fails to meet the requirements of the Code, the Sponsor
will amend the Plan and Trust/Custodial Account to maintain its qualified
status.
ARTICLE XVI
GOVERNING LAW
Construction, validity and administration of the Prototype Plan and
Trust/Custodial Account, and any Employer Plan and Trust/Custodial Account as
embodied in the Prototype document and accompanying Adoption Agreement, shall
be governed by Federal law to the extent applicable and to the extent not
applicable by the laws of the State/Commonwealth in which the principal office
of the Sponsor or its affiliate which is designated as Trustee or Custodian in
the Adoption Agreement, is located.
<PAGE> 1
EXHIBIT 10(e)
NONSTANDARDIZED
ADOPTION AGREEMENT
PROTOTYPE MONEY PURCHASE PLAN #004
AND TRUST/CUSTODIAL ACCOUNT
SPONSORED BY
COMERICA BANK
The Employer named below hereby establishes a Money Purchase Pension
Plan for eligible Employees as provided in this Adoption Agreement and
the accompanying Prototype Plan and Trust/Custodial Account Basic Plan
Document #04. The Sponsor recommends that the Employer contact an
attorney or tax advisor regarding tax ramifications before executing
this Adoption Agreement.
1. EMPLOYER INFORMATION
NOTE: If multiple Employers are adopting the Plan, complete this
section based on the lead Employer. Additional Employers may adopt
this Plan by attaching executed signature pages to the back of the
Employer's Adoption Agreement.
(a) NAME AND ADDRESS: PICOM Insurance Company
4295 Okemos Road, Box 2510
Okemos, MI 48805-9510
(b) TELEPHONE NUMBER: 517-349-6500
(c) EMPLOYER TAX ID NUMBER: 38-2317569
TRUST TAX ID NUMBER: 38-2860494
(d) FORM OF BUSINESS:
[ ] (i) Sole Proprietor
[ ] (ii) Partnership
[X] (iii) Corporation
[ ] (iv) "S" Corporation (formerly known as Subchapter S)
[ ] (v) Other: __________________________________________
(e) NAME(S) OF INDIVIDUAL(S) AUTHORIZED TO ISSUE INSTRUCTIONS TO
THE TRUSTEE/CUSTODIAN: Victor T. Adamo and Ann E. Flood,
R.N., J.D.
(f) NAME OF PLAN: PICOM Insurance Company Pension Plan
(g) THREE DIGIT PLAN NUMBER FOR ANNUAL RETURN/REPORT: 004
2. EFFECTIVE DATE
(a) This is a new Plan having an effective date of _____________
(b) This is an amended Plan.
The effective date of the original Plan was January 1, 1988.
The effective date of the amended Plan is July 1, 1996 with
the exception of Sections 6(b), 6(c) and 11 herein which shall
be effective as of the first day of the 1989 Plan Year.
<PAGE> 2
(c) The effective date of Trustee or Custodian appointment: July
1, 1996.
To the extent the effective date of the appointment of the
Trustee or the Custodian is later than the effective date of
the amended Plan, the Trustee or the Custodian will have no
liability for the acts or the omissions of the prior Trustee
or prior Custodian. The Employer shall hold the Trustee or
the Custodian harmless with respect to prior acts or omissions
of the prior Trustee or prior Custodian.
3. DEFINITIONS
(a) "Compensation"
Compensation shall be determined on the basis of the following
definition of Compensation:
[ ] (i) Code Section 6041 and 6051 Compensation,
[X] (ii) Code Section 3401(a) Compensation, or
[ ] (iii) Code Section 415 Compensation.
Compensation shall be determined on the basis of the:
[X] (i) Plan Year.
[ ] (ii) Employer's Taxable Year: __________
[ ] (iii) Calendar Year.
Compensation [X] shall [ ] shall not include Employer
contributions made pursuant to a Salary Savings Agreement
which are not includable in the gross income of the Employee
for the reasons indicated in the definition of Compensation at
1.8 of the Basic Plan Document #04.
If the Employer chooses an non-integrated allocation formula,
Compensation will exclude:
[ ] overtime
[ ] bonuses
[ ] commissions
[ ] other: _____________________________________________
____________________________________________________
____________________________________________________
NOTE: Any exclusion of Compensation must satisfy the requirements of
Section 1.40(a)(4) of the Income Tax Regulations and Code Section
414(s) and the regulations thereunder.
For purposes of the Plan, Compensation shall be limited to $______,
the maximum amount which will be considered for Plan purposes. [If an
amount is specified, it will limit the amount of contributions allowed
on behalf of higher compensated Employees. Completion of this section
is not intended to coordinate with the $200,000 of Code Section
415(d), thus the amount should be less than $200,000 as adjusted for
cost-of-living increases.]
(b) "Entry Date"
[ ] (i) The first day of the Plan Year during which
an Employee meets the eligibility requirements.
[ ] (ii) The first day of the Plan Year nearest the
date on which an Employee meets the eligibility
requirements.
<PAGE> 3
[ ] (iii) The first day of the month coinciding with or
following the date on which an Employee meets
the eligibility requirements.
[X] (iv) The earlier of the first day of the Plan Year
or the first day of the seventh month of the
Plan Year coinciding with or following the
date on which an Employee meets the
eligibility requirements.
[ ] (v) The first day of the Plan Year following the
date on which the Employee meets the
eligibility requirements. If this election
is made, the Service requirement at 4(a)(ii)
may not exceed 1/2 year and the age
requirement at 4(b)(ii) may not exceed 20-1/2.
(c) "Hours of Service" shall be determined on the basis of the
method selected below. Only one method may be selected. The
method selected shall be applied to all Employees covered by
the Plan as follows:
[X] (i) On the basis of actual hours for which an
Employee is paid or entitled to payment.
[ ] (ii) On the basis of days worked.
An Employee shall be credited with ten (10)
Hours of Service if under paragraph 1.29 of
the Basic Plan Document #04 such Employee
would be credited with at least one (1) Hour
of Service during the day.
[ ] (iii) On the basis of weeks worked.
An Employee shall be credited with forty-five
(45) Hours of Service if under paragraph 1.29
of the Basic Plan Document #04 such Employee
would be credited with at least one (1) Hour
of Service during the week.
[ ] (iv) On the basis of semi-monthly payroll periods.
An Employee shall be credited with
ninety-five (95) Hours of Service if under
paragraph 1.29 of the Basic Plan Document #04
such Employee would be credited with at least
one (1) Hour of Service during the semi-
monthly payroll period.
[ ] (v) On the basis of months worked.
An Employee shall be credited with
one-hundred-ninety (190) Hours of Service if under
paragraph 1.29 of the Basic Plan Document #04 such
Employee would be credited with at least one (1)
Hour of Service during the month.
(d) "Limitation Year" - The 12-consecutive month period commencing
on January 1 and ending on December 31.
(e) "Plan Year" - The 12-consecutive month period commencing on
January 1 and ending on December 31. If applicable, the first
Plan Year will be a short Plan Year commencing on
_____________________ and ending on ___________. Thereafter,
the Plan Year shall be as above.
(f) "Qualified Early Retirement Age" - For purposes of making
distributions under the provisions of a Qualified Domestic
Relations Order, the Plan's Qualified Early Retirement Age
with regard to the Participant against whom the order is
entered [X]
<PAGE> 4
shall [ ] shall not be the date the order is determined to be
qualified. If "shall" is elected, this will only allow payout
to the alternate payee(s).
(g) "Qualified Joint and Survivor Annuity" - The survivor annuity
shall be 50% (50%, 66-2/3%, 75% or 100%) of the annuity
payable during the lives of the Participant and Spouse. If no
answer is specified, 50% will be used.
(h) "Taxable Wage Base"
[ ] (i) Not Applicable - Plan is not integrated with
Social Security.
[ ] (ii) The maximum earnings considered wages for
such Plan Year under Code Section 3121(a).
[ ] (iii) ______% (not more than 100%) of the amount
considered wages for such Plan Year under
Code Section 3121(a).
[X] (iv) $24,000, provided that such amount is not in
excess of the amount determined under
paragraph 3(b)(ii) above. For each fiscal
year commencing on or after January 1, 1989,
this figure shall be adjusted by the
percentage change in the Consumer Price Index
published by the U.S. Bureau of Labor
Statistics, but not to exceed a 5% change in
any one year.
[ ] (v) For the 1989 Plan Year $10,000. For all
subsequent Plan Years, 20% of the maximum
earnings considered wages for such Plan Year
under Code Section 3121(a).
NOTE: Using less than the maximum may result in a change in the
allocation formula in Section 6 hereof.
(i) "Valuation Date(s)" - Allocations to Participant Accounts will
be done in accordance with Article V of the Basic Plan
Document #04:
[X] (i) Daily
[ ] (ii) Monthly
[ ] (iii) Quarterly
[ ] (iv) Semi-Annually
[ ] (v) Annually
(j) "Year of Service"
(i) For Eligibility Purposes: The 12-consecutive month
period during which an Employee is credited with
1,000 (not more than 1,000) Hours of Service.
(ii) For Allocation Accrual Purposes: The 12-consecutive
month period during which an Employee is credited
with 1,000 (not more than 1,000) Hours of Service.
(iii) For Vesting Purposes: The 12-consecutive month
period during which an Employee is credited with
1,000 (not more than 1,000) Hours of Service.
4. ELIGIBILITY REQUIREMENTS
(a) Service:
[ ] (i) The Plan shall have no service requirement.
[X] (ii) The Plan shall cover only Employees having
completed at least six months [not more than
three (3)] of
<PAGE> 5
Service. If three is specified, it will
automatically be deemed to be 2 for all Plan
Years beginning in 1989 and later.
NOTE: If the eligibility period exceeds one (1) Year of Service, the
vesting provisions at Section 11 herein must be completed to provide a
100% vested and nonforfeitable benefit upon participation. If the
Year(s) of Service selected is or includes a fractional year, an
Employee will not be required to complete any specified number of
Hours of Service to receive credit for such fractional year.
(b) Age:
[ ] (i) The Plan shall have no minimum age
requirement.
[X] (ii) The Plan shall cover only Employees having
attained age 21 (not more than age 21).
(c) Classification:
The Plan shall cover all Employees who have met the age and
service requirements with the following exceptions:
[ ] (i) No exceptions.
[X] (ii) The Plan shall exclude Employees included in a
unit of Employees covered by a collective
bargaining agreement between the Employer and
Employee Representatives, if retirement benefits
were the subject of good faith bargaining. For
this purpose, the term "Employee Representative"
does not include any organization more than half
of whose members are Employees who are owners,
officers, or executives of the Employer.
[ ] (iii) The Plan shall exclude Employees who are
nonresident aliens and who receive no earned
income from the Employer which constitutes
income from sources within the United States.
[ ] (iv) The Plan shall exclude from participation any
nondiscriminatory classification of Employees
determined as follows:
_____________________________________________
_____________________________________________
_____________________________________________
(d) Employees on Effective Date:
[ ] (i) Employees employed on the Plan's Effective
Date do not have to satisfy the Service
requirements specified above.
[ ] (ii) Employees employed on the Plan's Effective
Date do not have to satisfy the age
requirements specified above.
5. RETIREMENT AGES
(a) Normal Retirement Age:
If the Employer imposes a requirement that Employees retire
upon reaching a specified age, the Normal Retirement Age
selected below may not exceed the Employer imposed mandatory
retirement age.
[X] (i) Normal Retirement Age shall be 65 (not to
exceed age 65).
<PAGE> 6
[ ] (ii) Normal Retirement Age shall be the later of
attaining age ______ (not to exceed age 65)
or the ______ (not to exceed the 5th)
anniversary of the first day of the first
Plan Year in which the Participant commenced
participation in the Plan.
(b) Early Retirement Age:
[ ] (i) Not Applicable.
[X] (ii) The Plan shall have an Early Retirement Age
of 55 (not less than 55) and completion of 7
Years of Service.
6. EMPLOYER CONTRIBUTIONS
NOTE: The integrated allocation formulas below are for Plan Years
beginning in 1989 and later. The Employer's allocation for earlier
years shall be as specified in its Plan prior to Amendment for the Tax
Reform Act of 1986.
Employer Contributions will be allocated in accordance with the method
selected below. If in Section 9 herein, the Employer elects to
allocate forfeitures, they will be treated as additional Employer
Contributions and allocated accordingly.
[ ] (a) Non-Integrated Contribution and Allocation Formula
(See Minimum Contributions under Top-Heavy Plans at
Section 7).
The Employer shall contribute and allocate to the
account of each eligible Participant ______% (not
more than 25%) of such Participant's Compensation
plus any forfeitures (only if they are reallocated to
Participants under Section 9), in such Plan Year.
[ ] (b) Integrated Contribution and Allocation Formula (See
Minimum Contributions under Top-Heavy Plans at
Section 7).
The Employer shall contribute _____% of each
Participant's Compensation for the Plan Year.
Contributions plus any forfeitures (only if they are
reallocated to Participants under Section 9) will be
allocated to each Participant's account as follows:
(i) First, to the extent contributions and
forfeitures are sufficient, all Participants
will receive an allocation equal to 3% of
their Compensation.
(ii) Next, any remaining Employer Contributions
and forfeitures will be allocated to
Participants who have Compensation in excess
of the Taxable Wage Base (excess
Compensation). Each such Participant will
receive an allocation in the ratio that his
or her excess compensation bears to the
excess Compensation of all Participants.
Participants may only receive an allocation
of 3% of excess Compensation.
(iii) Next, any remaining Employer contributions
and forfeitures will be allocated to all
Participants in
<PAGE> 7
the ratio that their Compensation plus excess
Compensation bears to the total Compensation plus
excess Compensation of all Participants. Participants
may only receive an allocation of up to 2.7% of their
Compensation plus excess Compensation, under this
allocation method. If the Taxable Wage Base is
defined at Section 3(h) above is less than the
maximum, but more than the greater of $10,000 or 20%
of the maximum, then the 2.7% must be reduced. If the
amount specified is greater than 80% but less than
100% of the maximum Taxable Wage Base, the 2.7% must
be reduced to 2.4%. If the amount specified is
greater than the greater of $10,000 or 20% of the
maximum Taxable Wage Base, but not more than 80%,
2.7% must be reduced to 1.3%.
NOTE: If the Plan is not Top-Heavy, subparagraphs (i) and
(ii) above may be disregarded and 5.7%, 5.4% or 4.3% may be
substituted for 2.7%, 2.4% or 1.3% where it appears in (iii)
above.
(iv) Next, any remaining Employer contributions and
forfeitures will be allocated to all Participants
(whether or not they received an allocation under the
preceding paragraphs) in the ratio that each
Participant's Compensation bears to all Participants'
Compensation.
[ ] (c) Alternative Integrated Allocation Formula (See
Minimum Contributions Under Top-Heavy Plans at
Section 7)
The Employer shall contribute and allocate to the account
of each eligible Participant 3% of each eligible
Participant's Compensation (not in excess of the Taxable
Wage Base defined at Section 3(h) hereof) plus 5% of
Compensation in excess of the Taxable Wage Base defined
at Section 3(h) hereof. The percentage on excess
compensation may not exceed the lesser of (i) the amount
first specified in this paragraph or (ii) the
greater of 5.7% or the percentage rate of tax under Code
Section 3111(a) as in effect on the first day of the Plan
Year attributable to the Old Age (OA) portion of the
OASDI provisions of the Social Security Act. If this
allocation formula is used for Top-Heavy Plans, the first
blank may not be less than 3%. If the Employer specifies
a Taxable Wage Base in Section 3(h) which is lower than
the Taxable Wage Base for Social Security purposes
(SSTWB) in effect as of the first day of the Plan Year,
the percentage contributed with respect to excess
Compensation must be adjusted. If the Plan's Taxable
Wage Base is greater than the larger of $10,000 or 20% of
the SSTWB but not more than 80% of the SSTWB, the excess
percentage is 4.3%. If the Plan's Taxable Wage Base is
greater than 80% of the SSTWB but less than 100% of the
SSTWB, the excess percentage is 5.4%.
<PAGE> 8
If forfeitures are reallocated pursuant to Section 9,
they will be allocated pro-rata based on the
Participant's Compensation as a percentage of the
Compensation of all Participants.
NOTE: Only one plan maintained by the Employer may be integrated with
Social Security.
(d) Allocation of Excess Amounts (Annual Additions)
In the event that the allocation formula above results in an
Excess Amount, such excess shall be:
[X] (i) placed in a suspense account accruing no
gains or losses for the benefit of the
Participant.
[ ] (ii) reallocated as additional Employer
contributions to all other Participants to
the extent that they do not have an Excess
Amount.
If no answer is specified, the suspense account method will be
used.
7. MINIMUM CONTRIBUTIONS UNDER TOP-HEAVY PLANS
Notwithstanding any other provision herein, the Employer shall make a
minimum contribution for each eligible Participant with respect to any
Plan Year for which the Plan is Top-Heavy. The minimum contribution
shall be determined in accordance with paragraph 14.2 of Basic Plan
Document #04 for:
[ ] (a) all eligible Participants.
[X] (b) only eligible non-key Employees who are Participants.
8. ALLOCATIONS TO TERMINATED EMPLOYEES
[ ] (a) The Employer will not allocate Employer related
contributions to Employees who terminate during a
Plan Year, unless required to satisfy the
requirements of Code Section 401(a)(26) and 410(b).
(The requirements are effective for 1989 and
subsequent Plan Years.)
[X] (b) The Employer will allocate Employer related
contributions to Employees who terminate during the
Plan Year as a result of:
[X] (i) Retirement.
[X] (ii) Disability.
[X] (iii) Death.
[X] (iv) Other termination of employment
provided that the Participant has
completed a Year of Service as
defined for Allocation Accrual
purposes.
[ ] (v) Other termination of employment even
though the Participant has not
completed a Year of Service.
9. ALLOCATION OF FORFEITURES
(a) Allocation Alternatives:
[X] (i) Forfeitures shall be allocated to
Participants in the same manner as the
Employer's contribution.
[ ] (ii) Forfeitures shall be applied to reduce the
Employer's contribution for such Plan Year.
<PAGE> 9
[ ] (iii) Forfeitures shall be applied to offset
administrative expenses of the Plan. If
forfeitures exceed these expenses, (ii) above
shall apply.
(b) Date for Reallocation:
NOTE: If no distribution has been made to a former Participant,
subsection (i) below will apply to such Participant even if the
Employer elects (ii) or (iii) below as its normal administrative
policy.
[ ] (i) Forfeitures shall be reallocated at the end
of the Plan Year during which the former
Participant incurs his or her fifth
consecutive one year Break in Service.
[X] (ii) Forfeitures will be reallocated immediately
(as of the next Valuation Date)(year end).
[ ] (iii) Forfeitures shall be reallocated at the end
of the Plan Year during which the former
Employee incurs his or her _______ (1st, 2nd,
3rd, or 4th) consecutive one year Break in
Service.
(c) Restoration of Forfeitures:
If amounts are forfeited prior to five consecutive 1-year
Breaks in Service, the Funds for restoration of account
balances will be obtained from the following resources in the
order indicated (fill in the appropriate number):
[X] (i) Current year's forfeitures. (1)
[X] (ii) Additional Employer contribution. (3)
[X] (iii) Income or gain to the Plan. (2)
10. LIMITATIONS ON ALLOCATIONS
[ ] This is the only Plan the Employer maintains or ever
maintained, therefore, this section is not applicable.
[X] The Employer does maintain or has maintained another Plan
(including a Welfare Benefit Fund or an individual medical
account [as defined in Code Section 415(1)(2)], under which
amounts are treated as Annual Additions) and has completed the
proper sections below.
Complete (a), (b) and (c) only if you maintain or ever maintained
another qualified plan including a Welfare Benefit Fund or an
individual medical account [as defined in Code Section 415(1)(2)], in
which any Participant in this Plan is (or was) a participant or could
possibly become a participant.
(a) If the Participant is covered under another qualified Defined
Contribution Plan maintained by the Employer, other than a
Master or Prototype Plan:
[X] (i) The provisions of Article X of the Basic Plan
Document #04 will apply, as if the other plan
were a Master or Prototype Plan.
[ ] (ii) Attach provisions stating the method under
which the plans will limit total Annual
Additions to the Maximum Permissible Amount,
and will properly reduce any Excess Amounts,
in a manner that precludes Employer
discretion.
(b) If a Participant is or ever has been a participant in a
Defined Benefit Plan maintained by the Employer: Attach
provisions which will satisfy the 1.0 limitation of Code
Section 415(e). Such language must preclude Employer
<PAGE> 10
discretion. The Employer must also specify the interest and
mortality assumptions used in determining Present Value in the
Defined Benefit Plan.
(c) The minimum contribution or benefit required under Code
Section 416 relating to Top-Heavy Plans shall be satisfied by:
[X] (i) this Plan.
[ ] (ii) ____________________________________________
____________________________________________
(Name of other qualified plan of the
Employer.)
[ ] (iii) Attach provisions stating the method under
which the minimum contribution and benefit
provisions of Code Section 416 will be
satisfied. If a Defined Benefit Plan is or
was maintained, an attachment must be
provided showing interest and mortality
assumptions used in determining the Top-Heavy
Ratio.
11. VESTING
Each Participant shall acquire a vested and nonforfeitable percentage
in his or her account balance attributable to Employer contributions
and the earnings thereon under the procedures selected below except
with respect to any Plan Year during which the Plan is Top-Heavy, in
which case the Two-twenty vesting schedule [Option (b)(iv)] shall
automatically apply unless the Employer has already elected a faster
vesting schedule. If the Plan is switched to option (b)(iv), because
of its Top-Heavy status, that vesting schedule will remain in effect
even if the Plan later becomes non-Top-Heavy until the Employer
executes an amendment of this Adoption Agreement indicating otherwise.
(a) Computation Period:
The computation period for purposes of determining Years of
Service and Breaks in Service for purposes of computing a
Participant's nonforfeitable right to his or her account
balance derived from Employer contributions: [ ] (i)
shall not be applicable since Participants are always fully
vested,
[ ] (ii) shall commence on the date on which an
Employee first performs an Hour of Service
for the Employer and each subsequent
12-consecutive month period shall commence on
the anniversary thereof, or
[X] (iii) shall commence on the first day o the Plan
Year during which an Employee first performs
an Hour of Service for the Employer and each
subsequent 12-consecutive month period shall
commence on the anniversary thereof.
A Participant shall receive credit for a Year of Service if he or she
completes at least 1,000 Hours of Service [or if lesser, the number of
hours specified at 3(j)(iii) of this Adoption Agreement] at any time
during the 12-consecutive month computation period. Consequently a Year
of Service may be earned prior to the end of the 12-consecutive month
period and the Participant need not be employed at the end of the
12-consecutive month computation period to receive credit for a Year of
Service.
(b) Vesting Schedules:
NOTE: The vesting schedules below only apply to a Participant who has
at least one Hour of Service during or after the 1989 Plan Year. If
<PAGE> 11
applicable, Participants who separated from Service prior to the 1989
Plan Year will remain under the vesting schedule as in effect in the
Plan prior to amendment for the Tax Reform Act of 1986.
[X] (i) Full and immediate Vesting. Only in the
event the Employer is acquired by merger,
consolidation or otherwise, where more than
50% of its shares of stock are acquired
within one 12-month period by one or more
related persons (within the meaning of Code
Section 1563), or in the event the Employer
otherwise ceases to function as an ongoing
business concern. In the event that the
Employer becomes a part of a holding company
system whereby the shareholders of the
Employer become the shareholders of the
holding company: (1) the provisions of this
paragraph shall not apply upon the transfer
of shares as a part of the establishment of
the holding company system by the Employer;
and (2) the provisions of this paragraph
shall apply to the share ownership of the
holding company established by the Employer.
<TABLE>
<CAPTION>
Years of Service
----------------------------------------------------------------
1 2 3 4 5 6 7
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[ ] (ii) __% 100%
[ ] (iii) __% __% 100%
[ ] (iv) --% 20% 40% 60% 80% 100%
[X] (v) 0% 0% 20% 40% 60% 80% 100%
[ ] (vi) 10% 20% 30% 40% 60% 80% 100%
[ ] (vii) __% __% __% __% 100%
[ ] (viii) __% __% __% __% __% __% 100%
</TABLE>
NOTE: The percentages selected for schedule (viii) may not be less
for any year than the percentages shown at schedule (v).
(c) Service disregarded for Vesting:
[ ] (i) Service prior to the Effective Date of this
Plan or a predecessor plan shall be
disregarded when computing a Participant's
vested and nonforfeitable interest.
[ ] (ii) Service prior to a Participant having
attained age 18 shall be disregarded when
computing a Participant's vested and
nonforfeitable interest.
12. SERVICE WITH PREDECESSOR ORGANIZATION
For purposes of satisfying the Service requirements for eligibility,
Hours of Service shall include Service with the following predecessor
organization(s): (These hours will also be used for vesting
purposes.) The method of crediting Years of Service for purposes of
vesting and eligibility for any entity not included as an Employer as
of January 1, 1996 shall be determined pursuant to and recorded in the
Administrative Procedures of the Plan.
13. ROLLOVER/TRANSFER CONTRIBUTIONS
(a) Rollover Contributions, as described at paragraph 4.3 of the
Basic Plan Document #04, [X] shall [ ] shall not be permitted.
If permitted, Employees [X] may [ ] may not make Rollover
<PAGE> 12
Contributions prior to meeting the eligibility requirements
for participation in the Plan.
(b) Transfer Contributions, as described at paragraph 4.4 of the
Basic Plan Document #04 [X] shall [ ] shall not be permitted.
If permitted, Employees [X] may [ ] may not make Transfer
Contributions prior to meeting the eligibility requirements
for participation in the Plan.
14. HARDSHIP WITHDRAWALS
Hardship withdrawals, as provided for in paragraph 6.9 of the Basic
Plan Document #04 are not permitted.
15. PARTICIPANT LOANS
Participant loans, as provided for in paragraph 13.5 of the Basic Plan
Document #04, [ ] are [X] are not permitted. If permitted, repayments
of principal and interest shall be repaid to [ ] the Participant's
segregated account or [ ] the general Fund.
16. INSURANCE POLICIES
The insurance provisions of paragraph 13.6 of the Basic Plan Document
#04 [X] shall [ ] shall not be applicable only with regard to policies
held by the Plan prior to this restatement. No insurance policies
shall be acquired.
17. EMPLOYER INVESTMENT DIRECTION
The Employer investment direction provisions, as set forth in
paragraph 13.7 of the Basic Plan Document #04, [ ] shall [X] shall not
be applicable.
18. EMPLOYEE INVESTMENT DIRECTION
The Employee investment direction provisions, as set forth in
paragraph 13.8 of the Basic Plan Document #04, [X] shall [ ] shall not
be applicable.
If applicable, Participants may direct their investments:
[X] (i) among funds controlled by the Trustee.
[ ] (ii) among any allowable investments.
Participants may direct the following kinds of contributions and the
earnings thereon (check all applicable):
[X] (i) All Contributions.
[ ] (ii) Employer Contributions.
[ ] (iii) Voluntary Contributions.
[ ] (iv) Mandatory Contributions.
[ ] (v) Rollover Contributions.
[ ] (vi) Transfer Contributions.
[ ] (vii) All above which are checked, but only to the extent
that Participant is vested in those contributions.
NOTE: To the extent that Employee investment direction was previously
allowed, it shall continue to be allowed on those amounts and the
earnings thereon.
19. EARLY PAYMENT OPTION
(a) A Participant who separates from Service prior to retirement,
death or Disability [X] may [ ] may not make application to the
<PAGE> 13
Employer requesting an early payment of his or her vested
account balance.
(b) A Participant who has attained the Plan's Normal Retirement
Age and who has not separated from Service [ ] may [X] may not
receive a distribution of his or her vested account balance.
NOTE: If the Participant has had the right to withdraw his or her
account balance in the past, this right may not be taken away.
Notwithstanding the above, to the contrary, required minimum
distributions will be paid. For timing of distributions, see item 20
below.
20. DISTRIBUTION OPTIONS
(a) Timing of Distributions:
In cases of termination for other than death, Disability or
retirement, benefits shall be paid:
[ ] (i) As soon as administratively feasible
following the close of the Plan Year during
which a distribution is requested or is
otherwise payable.
[X] (ii) As soon as administratively feasible after
quarterly valuation, following the date on
which a distribution is requested or is
otherwise payable.
[ ] (iii) As soon as administratively feasible, after
the close of the Plan Year during which the
Participant incurs ____________ consecutive
one-year Breaks in Service.
[ ] (iv) Only after the Participant has achieved the
Plan's Normal Retirement Age, or Early
Retirement Age, if applicable.
In cases of death, Disability or retirement, benefits shall be
paid:
[ ] (v) As soon as administratively feasible
following the close of the Plan Year during
which a distribution is requested or is
otherwise payable.
[X] (vi) As soon as administratively feasible after
quarterly valuation, following the date on
which a distribution is requested or is
otherwise payable.
[ ] (vii) As soon as administratively feasible, after
the close of the Plan Year during which the
Participant incurs ____________ consecutive
one-year Breaks in Service.
[ ] (viii) Only after the Participant has achieved the
Plan's Normal Retirement Age, or Early
Retirement Age, if applicable.
(b) Optional Forms of Payment:
[X] (i) Lump Sum.
[ ] (ii) Installment Payments.
[ ] (iii) Life Annuity.
[ ] (iv) Life Annuity Term Certain.
Life Annuity with payments guaranteed for
______ period (not to exceed 20 years, specify
all applicable).
[ ] (v) Joint and [ ] 50%, [ ] 66-2/3%,
[ ] 75%, or [ ] 100% survivor annuity (specify
all applicable).
[ ] (vi) Other form(s) specified: _____________
<PAGE> 14
(c) Recalculation of Life Expectancy:
In determining required distributions under the Plan,
Participants and/or their Spouse (Surviving Spouse) [X] shall
[ ] shall not have the right to have their life expectancy
recalculated annually.
If "shall",
[ ] only the Participant shall be recalculated.
[X] both the Participant and Spouse shall be
recalculated.
[ ] who is recalculated shall be determined by the
Participant.
21. PROTECTED BENEFITS UNDER INTERNAL REVENUE CODE SECTION 411(d)(6)
[X] The Employer is attaching to this Adoption Agreement a list of
Section 411(d)(6) protected benefits from a prior plan
document which this Plan amends.
[ ] Not applicable.
22. SPONSOR CONTACT
The Employer should direct questions concerning the language contained
in and qualification of the Prototype to its Trust Administrator at
Comerica Bank.
(Name of Trust Administrator) Janice G. Veenstra
(Phone No.) (313) 222-5268
In the event that the Sponsor amends, discontinues or abandons this
Prototype Plan, notification will be provided to the Employer's
address provided on the first page of this Agreement.
23. SIGNATURES
Due to the significant tax ramifications, the Sponsor recommends that
before you execute this Adoption Agreement, you contact your attorney
or tax advisor.
(a) EMPLOYER:
Name and address of Employer if different than specified in
Section 1 above.
____________________________________________________________
____________________________________________________________
____________________________________________________________
This agreement and the corresponding provisions of the Plan
and Trust/Custodial Account Basic Plan Document #04 were
adopted by the Employer the 5th day of June, 1996.
Signed for the Employer by: Victor T. Adamo
Title: President
Signature: _______________________________
The Employer understands that its failure to properly complete
the Adoption Agreement may result in disqualification of its
Plan.
Employer's Reliance: The adopting Employer may not rely on an
opinion letter issued by the National Office of the Internal
Revenue Service as evidence that the Plan is qualified under
Code Section 401. In order to obtain reliance with respect to
<PAGE> 15
Plan qualification, the Employer must apply to the appropriate
Key District Office for a determination letter.
This Adoption Agreement may only be used in conjunction with
Basic Plan Document #04.
(b) TRUSTEE:
Name of Trustee: Comerica Bank
The assets of the Fund shall be invested in accordance with
paragraph 13.3 of the Basic Plan Document #04 as a Trust. As
such, the Employer's Plan as contained herein was accepted by
the Trustee the 11th day of June, 1996.
Signed for the Trustee by: Janice G. Veenstra
Title: Vice President
Signature: _______________________________
(c) CUSTODIAN:
Name of Custodian:
_____________________________________________________________
_____________________________________________________________
The assets of the Fund shall be invested in accordance with
paragraph 13.4 of the Basic Plan Document #04 as a Custodial
Account. As such, the Employer's Plan as contained herein was
accepted by the Custodian the _____ day of __________________,
19____.
Signed for the Custodian by: _______________________________
Title: _______________________________
Signature: _______________________________
(d) SPONSOR:
The Employer's agreement and the corresponding provisions of
the Plan and Trust/Custodial Account Basic Plan Document #04
were accepted by the Sponsor (Comerica Bank) the 11th day of
June, 1996.
Signed for the Sponsor by: Janice G. Veenstra
Title: Vice President
Signature: _______________________________
(e) ATTORNEY CONTACT:
Name: Stephen J. Lowney
Firm Name: Foster, Swift, Collins & Smith, P.C.
Address: 313 S. Washington Square
Lansing, Michigan 48933-2193
Telephone No.: (517) 371-8272
<PAGE> 16
INSTITUTIONAL TRUST & INVESTMENT MANAGEMENT
PROTOTYPE DEFINED CONTRIBUTION PLAN AND
TRUST/CUSTODIAL ACCOUNT
SPONSORED BY
COMERICA BANK
BASIC PLAN DOCUMENT #04
JANUARY 1993
<PAGE> 17
INSTITUTIONAL TRUST & INVESTMENT MANAGEMENT
PROTOTYPE DEFINED CONTRIBUTION PLAN
AND TRUST/CUSTODIAL ACCOUNT
Sponsored by
COMERICA BANK
BASIC PLAN DOCUMENT #04
THIS DOCUMENT IS COPYRIGHTED UNDER THE LAWS OF THE UNITED STATES. ITS USE,
DUPLICATION OR REPRODUCTION, INCLUDING THE USE OF ELECTRONIC MEANS, IS
PROHIBITED BY LAW WITHOUT THE EXPRESS CONSENT OF THE AUTHOR.
TABLE OF CONTENTS
PARAGRAPH PAGE
- --------- ----
ARTICLE I
DEFINITIONS
1.1 Adoption Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Annual Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Annuity Starting Date . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Applicable Calendar Year . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Applicable Life Expectancy . . . . . . . . . . . . . . . . . . . . . . 1
1.6 Break In Service . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.7 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.8 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.9 Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Defined Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 Defined Benefit (Plan) Fraction . . . . . . . . . . . . . . . . . . . 2
1.12 Defined Contribution Dollar Limitation . . . . . . . . . . . . . . . . 2
1.13 Defined Contribution Plan . . . . . . . . . . . . . . . . . . . . . . 2
1.14 Defined Contribution (Plan) Fraction . . . . . . . . . . . . . . . . . 3
1.15 Designated Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . 3
1.16 Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.17 Distribution Calendar Year . . . . . . . . . . . . . . . . . . . . . . 3
1.18 Early Retirement Age . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.19 Earned Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.20 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.21 Election Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.22 Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.23 Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.24 Entry Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.25 Excess Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.26 First Distribution Calendar Year . . . . . . . . . . . . . . . . . . . 3
1.27 Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.28 Highest Average Compensation . . . . . . . . . . . . . . . . . . . . . 4
1.29 Hour Of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.30 Key Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.31 Leased Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.32 Limitation Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.33 Mandatory Contribution . . . . . . . . . . . . . . . . . . . . . . . . 4
1.34 Master Or Prototype Plan . . . . . . . . . . . . . . . . . . . . . . . 4
1.35 Maximum Permissible Amount . . . . . . . . . . . . . . . . . . . . . . 5
1.36 Net Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
<PAGE> 18
PARAGRAPH PAGE
- --------- ----
1.37 Normal Retirement Age . . . . . . . . . . . . . . . . . . . . . . . . 5
1.38 Owner-Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.39 Paired Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.40 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.41 Participant's Benefit . . . . . . . . . . . . . . . . . . . . . . . . 5
1.42 Permissive Aggregation Group . . . . . . . . . . . . . . . . . . . . . 5
1.43 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.44 Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.45 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.46 Present Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.47 Projected Annual Benefit . . . . . . . . . . . . . . . . . . . . . . . 5
1.48 Qualified Deferred Compensation Plan . . . . . . . . . . . . . . . . . 5
1.49 Qualified Domestic Relations Order . . . . . . . . . . . . . . . . . . 5
1.50 Qualified Early Retirement Age . . . . . . . . . . . . . . . . . . . . 5
1.51 Qualified Joint And Survivor Annuity . . . . . . . . . . . . . . . . . 6
1.52 Qualified Voluntary Contribution . . . . . . . . . . . . . . . . . . . 6
1.53 Required Aggregation Group . . . . . . . . . . . . . . . . . . . . . . 6
1.54 Required Beginning Date . . . . . . . . . . . . . . . . . . . . . . . 6
1.55 Rollover Contribution . . . . . . . . . . . . . . . . . . . . . . . . 6
1.56 Self-Employed Individual . . . . . . . . . . . . . . . . . . . . . . . 6
1.57 Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.58 Shareholder Employee . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.59 Simplified Employee Pension Plan . . . . . . . . . . . . . . . . . . . 6
1.60 Sponsor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.61 Spouse (Surviving Spouse) . . . . . . . . . . . . . . . . . . . . . . 6
1.62 Super Top-Heavy Plan . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.63 Taxable Wage Base . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.64 Top-Heavy Determination Date . . . . . . . . . . . . . . . . . . . . . 6
1.65 Top-Heavy Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.66 Top-Heavy Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.67 Transfer Contribution . . . . . . . . . . . . . . . . . . . . . . . . 7
1.68 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.69 Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.70 Vested Account Balance . . . . . . . . . . . . . . . . . . . . . . . . 7
1.71 Voluntary Contribution . . . . . . . . . . . . . . . . . . . . . . . . 7
1.72 Welfare Benefit Fund . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.73 Year Of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE II
ELIGIBILITY REQUIREMENTS
2.1 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Change In Classification Of Employment . . . . . . . . . . . . . . . . 8
2.3 Computation Period . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.4 Employment Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.5 Service With Controlled Groups . . . . . . . . . . . . . . . . . . . . 8
2.6 Owner-Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.7 Leased Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE> 19
ARTICLE III
EMPLOYER CONTRIBUTIONS
PARAGRAPH PAGE
- --------- ----
3.1 Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Expenses And Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Responsibility For Contributions . . . . . . . . . . . . . . . . . . . 9
3.4 Return Of Contributions . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
EMPLOYEE CONTRIBUTIONS
4.1 Voluntary Contributions . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Qualified Voluntary Contributions . . . . . . . . . . . . . . . . . . . 9
4.3 Rollover Contribution . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.4 Transfer Contribution . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 Employer Approval Of Transfer Contributions . . . . . . . . . . . . . . 10
4.6 Direct Rollover of Benefits . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE V
PARTICIPANT ACCOUNTS
5.1 Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Adjustments To Participant Accounts . . . . . . . . . . . . . . . . . 10
5.3 Allocating Employer Contributions . . . . . . . . . . . . . . . . . . 10
5.4 Allocating Investment Earnings And Losses . . . . . . . . . . . . . . 10
5.5 Participant Statements . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 Normal Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . 11
6.2 Early Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . 11
6.3 Benefits On Termination Of Employment . . . . . . . . . . . . . . . . . 11
6.4 Restrictions On Immediate Distributions . . . . . . . . . . . . . . . . 11
6.5 Normal Form Of Payment . . . . . . . . . . . . . . . . . . . . . . . . 12
6.6 Commencement Of Benefits . . . . . . . . . . . . . . . . . . . . . . . 12
6.7 Claims Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.8 In-Service Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . 12
6.9 Hardship Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VII
DISTRIBUTION REQUIREMENTS
7.1 Joint And Survivor Annuity Requirements . . . . . . . . . . . . . . . . 13
7.2 Minimum Distribution Requirements . . . . . . . . . . . . . . . . . . . 13
7.3 Limits On Distribution Periods . . . . . . . . . . . . . . . . . . . . 13
7.4 Required Distributions On Or After
The Required Beginning Date . . . . . . . . . . . . . . . . . . . 14
7.5 Required Beginning Date . . . . . . . . . . . . . . . . . . . . . . . . 14
7.6 Transitional Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.7 Designation Of Beneficiary For Death Benefit . . . . . . . . . . . . . 15
7.8 Nonexistence Of Beneficiary . . . . . . . . . . . . . . . . . . . . . . 15
7.9 Distribution Beginning Before Death . . . . . . . . . . . . . . . . . . 15
<PAGE> 20
PARAGRAPH PAGE
- --------- ----
7.10 Distribution Beginning After Death . . . . . . . . . . . . . . . . . . 15
7.11 Escheat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VIII
JOINT AND SURVIVOR ANNUITY
REQUIREMENTS
8.1 Applicability Of Provisions . . . . . . . . . . . . . . . . . . . . . . 16
8.2 Payment Of Qualified Joint And Survivor
Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.3 Payment of Qualified Pre-Retirement
Survivor Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.4 Qualified Election . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.5 Notice Requirements For Qualified Joint
And Survivor Annuity . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.6 Notice Requirements For Qualified
Pre-Retirement Survivor Annuity . . . . . . . . . . . . . . . . . . . . 16
8.7 Special Safe-Harbor Exception For
Certain Profit-Sharing Plans . . . . . . . . . . . . . . . . . . . . . 17
8.8 Transitional Joint And Survivor
Annuity Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.9 Automatic Joint And Survivor Annuity
And Early Survivor Annuity . . . . . . . . . . . . . . . . . . . . . . 17
8.10 Annuity Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IX
VESTING
9.1 Employee Contributions . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.2 Employer Contributions . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.3 Computation Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.4 Requalification Prior To Five Consecutive
One-Year Breaks In Service . . . . . . . . . . . . . . . . . . . . . . . 18
9.5 Requalification After Five Consecutive
One-Year Breaks In Service . . . . . . . . . . . . . . . . . . . . . . . 18
9.6 Calculating Vested Interest. . . . . . . . . . . . . . . . . . . . . . . 18
9.7 Forfeitures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.8 Amendment Of Vesting Schedule. . . . . . . . . . . . . . . . . . . . . . 18
9.9 Service With Controlled Groups . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE X
LIMITATIONS ON ALLOCATIONS
10.1 Participation In This Plan Only . . . . . . . . . . . . . . . . . . . 19
10.2 Disposition Of Excess Annual Additions . . . . . . . . . . . . . . . . 19
10.3 Participation In This Plan And Another
Prototype Defined Contribution Plan, Welfare
Benefit Fund, Individual Medical Account
Maintained By The Employer . . . . . . . . . . . . . . . . . . . . . . 19
10.4 Disposition Of Excess Annual Additions
Under Two Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE> 21
PARAGRAPH PAGE
- --------- ----
10.5 Participation In This Plan And Another
Defined Contribution Plan Which Is Not
A Master Or Prototype Plan . . . . . . . . . . . . . . . . . . . . . . 20
10.6 Participation In This Plan And A Defined
Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE XI
ADMINISTRATION
11.1 Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.2 Trustee/Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.3 Administrative Fees And Expenses . . . . . . . . . . . . . . . . . . . 21
11.4 Division Of Duties And Indemnification . . . . . . . . . . . . . . . . 21
ARTICLE XII
TRUST FUND/CUSTODIAL ACCOUNT
12.1 The Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.2 Control Of Plan Assets . . . . . . . . . . . . . . . . . . . . . . . . 21
12.3 Exclusive Benefit Rules . . . . . . . . . . . . . . . . . . . . . . . 22
12.4 Assignment And Alienation Of Benefits . . . . . . . . . . . . . . . . 22
12.5 Determination Of Qualified Domestic
Relations Order (QDRO) . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE XIII
INVESTMENTS
13.1 Fiduciary Standards . . . . . . . . . . . . . . . . . . . . . . . . . 22
13.2 Funding Arrangement . . . . . . . . . . . . . . . . . . . . . . . . . 22
13.3 Investment Alternatives Of The Trustee . . . . . . . . . . . . . . . . 22
13.4 Investment Alternatives Of The Custodian . . . . . . . . . . . . . . . 23
13.5 Participant Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13.6 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.7 Employer Investment Direction . . . . . . . . . . . . . . . . . . . . 25
13.8 Employee Investment Direction . . . . . . . . . . . . . . . . . . . . 25
ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 Applicability Of Rules . . . . . . . . . . . . . . . . . . . . . . . . 26
14.2 Minimum Contribution . . . . . . . . . . . . . . . . . . . . . . . . 26
14.3 Minimum Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
14.4 Limitations On Allocations . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XV
AMENDMENT AND TERMINATION
15.1 Amendment By Sponsor . . . . . . . . . . . . . . . . . . . . . . . . 27
15.2 Amendment By Employer . . . . . . . . . . . . . . . . . . . . . . . . 27
15.3 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.4 Qualification Of Employer's Plan . . . . . . . . . . . . . . . . . . 27
15.5 Mergers And Consolidations . . . . . . . . . . . . . . . . . . . . . 27
15.6 Resignation And Removal . . . . . . . . . . . . . . . . . . . . . . . 27
15.7 Qualification Of Prototype . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE XVI
GOVERNING LAW . . . . . . . . . . . . . . . 28
<PAGE> 22
INSTITUTIONAL TRUST & INVESTMENT MANAGEMENT
PROTOTYPE DEFINED CONTRIBUTION PIAN
AND TRUST/CUSTODIAL ACCOUNT
SPONSORED BY
COMERICA BANK
The Sponsor hereby establishes the following Prototype Retirement Plan and
Trust/Custodial Account for use by those of its customers who qualify and wish
to adopt a qualified retirement program. Any Plan and Trust/Custodial Account
established hereunder shall be administered for the exclusive benefit of
Participants and their beneficiaries under the following terms and conditions:
ARTICLE I
DEFINITIONS
1.1 ADOPTION AGREEMENT The document attached to this Plan by which an
Employer elects to establish a qualified retirement plan and trust/custodial
account under the terms of this Prototype Plan and Trust/Custodial Account.
1.2 ANNUAL ADDITIONS The sum of the following amounts credited to a
Participant's account for the Limitation Year:
(a) Employer Contributions,
(b) Employee Contributions (under Article IV),
(c) forfeitures,
(d) amounts allocated after March 31, 1984 to an individual medical
account, as defined in Code Section 415(1)(2), which is part of a
pension or annuity plan maintained by the Employer (these amounts are
treated as Annual Additions to a Defined Contribution Plan though they
arise under a Defined Benefit Plan), and
(e) amounts derived from contributions paid or accrued after 1985, in
taxable years ending after 1985, which are either attributable to
post-retirement medical benefits, allocated to the account of a Key
Employee, or a Welfare Benefit Fund maintained by the Employer are
also treated as Annual Additions to a Defined Contribution Plan. For
purposes of this paragraph, an Employee is a Key Employee if he or she
meets the requirements of paragraph 1.30 at any time during the Plan
Year or any preceding Plan Year. Welfare Benefit Fund is defined at
paragraph 1.72.
Excess amounts applied in a Limitation Year to reduce Employer contributions
will be considered Annual Additions for such Limitation Year, pursuant to the
provisions of Article X.
1.3 ANNUITY STARTING DATE The first day of the first period for which an
amount is paid as an annuity or any other form.
<PAGE> 23
1.4 APPLICABLE CALENDAR YEAR The First Distribution Calendar Year, and in
the event of the recalculation of life expectancy, each succeeding calendar
year. If payments commence in accordance with paragraph 7.4(e) before the
Required Beginning Date, the Applicable Calendar Year is the year such payments
commence. If distribution is in the form of an immediate annuity purchased
after the Participant's death with the Participant's remaining interest, the
Applicable Calendar Year is the year of purchase.
1.5 APPLICABLE LIFE EXPECTANCY Used in determining the required minimum
distribution. 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 first calculated. If life expectancy is being
recalculated, the Applicable Life Expectancy shall be the life expectancy as so
recalculated. The life expectancy of a non-Spouse Beneficiary may not be
recalculated.
1.6 BREAK IN SERVICE A 12-consecutive month period during which an
Employee fails to complete more than 500 Hours of Service.
1.7 CODE The Internal Revenue Code of 1986, including any amendments
thereto.
1.8 COMPENSATION The Employer may select one of the following three
safe-harbor definitions of compensation in the Adoption Agreement.
Compensation shall only include amounts earned while a Participant if Plan Year
is chosen as the applicable computation period.
(a) CODE SECTION 3401(a) WAGES. Compensation is defined as wages within
the meaning of Code Section 3401(a) for the purposes of Federal income
tax withholding at the source but determined without regard to any
rules 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) CODE SECTION 6041 AND 6051 WAGES. Compensation is defined as 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 Section 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)].
(c) CODE SECTION 415 COMPENSATION. For purposes of applying the
limitations of Article X and Top-Heavy Minimums, the definition of
Compensation shall be Code Section 415 Compensation as follows: a
Participant's Earned Income, wages, salaries, and fees for
professional services and other amounts received (without regard to
whether or not an amount is paid in cash) for personal services
actually rendered in the course of employment with the Employer
<PAGE> 24
maintaining the Plan to the extent that the amounts are includible in
gross income [including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a percentage of
profits, commissions on insurance premiums, tips, bonuses, fringe
benefits and reimbursements or other expense allowances under a
nonaccountable plan (as described in Regulation 1.62 2(c)], and
excluding the following:
1. Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for
the taxable year in which contributed, or Employer
contributions under a Simplified Employee Pension Plan or any
distributions from a plan of deferred compensation,
2. Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the
Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture,
3. Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option; and
4. other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of an annuity
contract described in Code Section 403(b) (whether or not the
contributions are actually excludible from the gross income of
the Employee).
For purposes of applying the limitations of Article X, Compensation for a
Limitation Year is the Compensation actually paid or made available during such
Limitation Year. Notwithstanding the preceding sentence, Compensation for a
Participant in a defined contribution plan who is permanently and totally
disabled [as defined in Code Section 22(e)(3)] is the Compensation such
Participant would have received for the Limitation Year if the Participant had
been paid at the rate of Compensation paid immediately before becoming
permanently and totally disabled. Such imputed Compensation for the disabled
Participant may be taken into account only if the participant is not a Highly
Compensated Employee [as defined in Code Section 414(q)] and contributions made
on behalf of such Participant are nonforfeitable when made.
If the Employer fails to pick the applicable period in the Adoption Agreement,
the Plan Year shall be used. Unless otherwise specified by the Employer in the
Adoption Agreement, Compensation shall be determined as provided in 1.8(c). In
Nonstandardized Adoption Agreements 003 and 004, the Employer may choose to
eliminate or exclude categories of Compensation which do not violate the
provisions of Code Sections 401(a)(4), 414(s) the regulations thereunder and
Revenue Procedure 89-65.
Beginning with 1989 Plan Years, the annual Compensation of each Participant
which may be taken into account for determining all benefits provided under the
Plan (including benefits under Article XIV) for any year shall not exceed
$200,000, as adjusted under Code Section 415(d). In determining the
Compensation of a Participant for purposes of this limitation, the rules
<PAGE> 25
of Code Section 414(q)(6) shall apply, except in applying such rules, the term
"family" shall include only the spouse of the Participant and any lineal
descendants of the Participant who have not attained age 19 before the end of
the Plan year. If, as a result of the application of such rules the adjusted
$200,000 limitation is exceeded, then (except for purposes of determining the
portion of Compensation up to the integration level if this Plan provides for
permitted disparity), the limitation shall be prorated among the affected
individuals in proportion to each such individual's Compensation as determined
under this section prior to the application of this limitation.
If a Plan has a Plan Year that contains fewer than 12 Calendar Months, then the
annual compensation limit for that period is an amount equal to the $200,000 as
adjusted for the calendar year in which the compensation period begins,
multiplied by a fraction the numerator of which is the number of full months in
the Short Plan Year and the denominator of which is 12. If compensation for
any prior plan year is taken into account in determining an employee's
contributions or benefits for the current year, the compensation for such prior
year is subject to the applicable annual compensation limit in effect for that
prior year. For this purpose, for years beginning before January 1, 1990, the
applicable annual compensation limit is $200,000.
Compensation shall not include deferred compensation other than contributions
through a salary reduction agreement to a cash or deferred plan under Code
Section 401 (k), a Simplified Employee Pension Plan under Code Section
402(h)(1)(B), a cafeteria plan under Code Section 125 or a tax-deferred annuity
under Code Section 403(b). Unless elected otherwise by the Employer in the
Adoption Agreement, these deferred amounts will be considered as Compensation
for Plan purposes. These deferred amounts are not counted as Compensation for
purposes of Articles X and XIV. When applicable to a Self-Employed Individual,
Compensation shall mean Earned Income.
1.9 CUSTODIAN The Sponsor of this Prototype Plan, or if applicable, an
affiliate or successor, shall serve as Custodian, if a Custodian is appointed
in the Adoption Agreement.
1.10 DEFINED BENEFIT PLAN A Plan under which a Participant's benefit is
determined by a formula contained in the Plan and no individual accounts are
maintained for Participants.
1.11 DEFINED BENEFIT (PLAN) FRACTION A fraction, the numerator of which is
the sum of the Participant's Projected Annual Benefits under all the Defined
Benefit Plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125 percent of the dollar limitation
determined for the Limitation Year under Code Sections 415(b) and (d) or 140
percent of the Highest Average Compensation, including any adjustments under
Code Section 415(b).
Transitional Rule: Notwithstanding the above, if the Participant was a
Participant as of the first day of the first Limitation Year beginning after
1986, in one or more Defined Benefit Plans maintained by the Employer which
were in existence on May 6, 1986, the denominator of this fraction will not be
less than 125 percent of the sum of the annual benefits under
<PAGE> 26
such plans which the Participant had accrued as of the close of the last
Limitation Year beginning before 1987, disregarding any changes in the terms
and conditions of the plan after May 5, 1986. The preceding sentence applies
only if the Defined Benefit Plans individually and in the aggregate satisfied
the requirements of Section 415 for all Limitation Years beginning before 1987.
1.12 DEFINED CONTRIBUTION DOLLAR LIMITATION Thirty thousand dollars
($30,000) or if greater, one-fourth of the defined benefit dollar limitation
set forth in Code Section 415(b)(1) as in effect for the Limitation Year.
1.13 DEFINED CONTRIBUTION PLAN A Plan under which individual accounts are
maintained for each Participant to which all contributions, forfeitures,
investment income and gains or losses, and expenses are credited or deducted.
A Participant's benefit under such Plan is based solely on the fair market
value of his or her account balance.
1.14 DEFINED CONTRIBUTION (PLAN) FRACTION A Fraction, the numerator of
which is the sum of the Annual Additions to the Participant's account under all
the Defined Contribution Plans (whether or not terminated) maintained by the
Employer for the current and all prior Limitation Years (including the Annual
Additions attributable to the Participant's nondeductible Employee
contributions to all Defined Benefit Plans, whether or not terminated,
maintained by the Employer, and the Annual Additions attributable to all
Welfare Benefit Funds, as defined in paragraph 1.72 and individual medical
accounts, as defined in Code Section 415(1)(2), maintained by the Employer),
and the denominator of which is the sum of the maximum aggregate amounts for
the current and all prior Limitation Years of Service with the Employer
(regardless of whether a Defined Contribution Plan was maintained by the
Employer). The maximum aggregate amount in the Limitation Year is the lesser
of 125 percent of the dollar limitation determined under Code Sections 415(b)
and (d) in effect under Code Section 415(c)(1)(A) or 35 percent of the
Participant's Compensation for such year.
Transitional Rule: If the Employee was a Participant as of the end of the first
day of the first Limitation Year beginning after 1986, in one or more Defined
Contribution Plans maintained by the Employer which were in existence on May 6,
1986, the numerator of this fraction will be adjusted if the sum of this
fraction and the Defined Benefit Fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the product of
(1) the excess of the sum of the fractions over 1.0 times (2) the denominator
of this fraction will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they would be
computed as of the end of the last Limitation Year beginning before 1987, and
disregarding any changes in the terms and conditions of the Plan made after May
6, 1986, but using the Section 415 limitation applicable to the first
Limitation Year beginning on or after January 1, 1987. The Annual Addition for
any Limitation Year beginning before 1987, shall not be re-computed to treat
all Employee Contributions as Annual Additions.
1.15 DESIGNATED BENEFICIARY The individual who is designated as the
beneficiary under the Plan in accordance with Code Section 401(a)(9) and the
regulations thereunder.
<PAGE> 27
1.16 DISABILITY An illness or injury of a potentially permanent nature,
expected to last for a continuous period of not less than 12 months, certified
by a physician selected by or satisfactory to the Employer which prevents the
Employee from engaging in any occupation for wage or profit for which the
Employee is reasonably fitted by training, education or experience.
1.17 DISTRIBUTION CALENDAR YEAR A calendar year for which a minimum
distribution is required.
1.18 EARLY RETIREMENT AGE The age set by the Employer in the Adoption
Agreement (but not less than 55), which is the earliest age at which a
Participant may retire and receive his or her benefits under the Plan.
1.19 EARNED INCOME Net earnings from self-employment in the trade or
business with respect to which the Plan is established, determined without
regard to items not included in gross income and the deductions allocable to
such items, provided that personal services of the individual are a material
income- producing factor. Earned income shall be reduced by contributions made
by an Employer to a qualified plan to the extent deductible under Code Section
404. For tax years beginning after 1989, net earnings shall be determined
taking into account the deduction for one-half of self-employment taxes allowed
to the Employer under Code Section 164(f) to the extent deductible.
1.20 EFFECTIVE DATE The date on which the Employer's retirement plan or
amendment to such Plan becomes effective.
1.21 ELECTION PERIOD The period which begins on the first day of the Plan
Year in which the Participant attains age 35 and ends on the date of the
Participant's death. If a Participant separates from Service prior to the
first day of the Plan Year in which age 35 is attained, the Election Period
shall begin on the date of separation, with respect to the account balance as
of the date of separation.
1.22 EMPLOYEE Any person employed by the Employer (including Self-Employed
Individuals and partners), all Employees of a member of an affiliated service
group [as defined in Code Section 414(m)], Employees of a controlled group of
corporations [as deemed in Section 414(b) of the Code], all Employees of any
incorporated or unincorporated trade or business which is under common control
[as defined in Section 414(c) of the Code], Leased Employees [as defined in
Code Section 414(n)] and any Employee required to be aggregated by Code Section
414(o). All such Employees shall be treated as employed by a single Employer.
1.23 EMPLOYER The Self-Employed Individual, partnership, corporation or
other organization which adopts this Plan including any firm that succeeds the
Employer and adopts this Plan. For purposes of Article X, Limitations on
Allocations, Employer shall mean the Employer that adopts this Plan, and all
members of a controlled group of corporations [as defined in Code Section
414(b) as modified by Section 415(h)], all commonly controlled trades or
businesses [as defined in Section 414(c) as modified by Section 415(h)] or
affiliated service groups [as defined in Section 414(m)] of which the adopting
Employer is a part, and other entity required to be
<PAGE> 28
aggregated with the Employer pursuant to regulations under Code Section 414(o).
1.24 ENTRY DATE The date on which an Employee commences participation in
the Plan as determined by the Employer in the Adoption Agreement. Unless the
Employer specifies otherwise in the Adoption Agreement, Entry into the Plan
shall be on the first day of the Plan Year or the first day of the seventh
month of the Plan Year coinciding with or following the date on which an
Employee meets the eligibility requirements.
1.25 EXCESS AMOUNT The excess of the Participant's Annual Additions for
the Limitation Year over the Maximum Permissible Amount.
1.26 FIRST DISTRIBUTION CALENDAR YEAR 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. 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 paragraph 7.10.
1.27 FUND All contributions received by the Trustee/Custodian under this
Plan and Trust/Custodial Account, investments thereof and earnings and
appreciation thereon.
1.28 HIGHEST AVERAGE COMPENSATION The average Compensation for the three
consecutive Years of Service with the Employer that produces the highest
average. A Year of Service with the Employer is the 12-consecutive month
period defined in the Adoption Agreement.
1.29 HOUR OF SERVICE
(a) Each hour for which an Employee is paid, or entitled to payment, for
the performance of duties for the Employer. These hours shall be
credited to the Employee for the computation period in which the
duties are performed; and
(b) Each hour for which an Employee is paid, or entitled to payment, by
the Employer on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence. No
more than 501 Hours of Service shall be credited under this paragraph
for any single continuous period (whether or not such period occurs in
a single computation period). Hours under this paragraph shall be
calculated and credited pursuant to Section 2530.2006-2 of the
Department of Labor Regulations which are incorporated herein by this
reference; and
(c) Each hour for which back pay, irrespective of mitigation of damages,
is either awarded or agreed to by the Employer. The same Hours of
Service shall not be credited both under paragraph (a) or paragraph
(b), as the case may be, and under this paragraph (c). These hours
shall be credited to the Employee for the computation period or
<PAGE> 29
periods to which the award or agreement pertains rather than the
computation period in which the award, agreement or payment is made.
(d) Hours of Service shall be credited for employment with the Employer
and with other members of an affiliated service group [as defined in
Code Section 414(m)], a controlled group of corporations [as defined
in Code Section 414(b)], or a group of trades or businesses under
common control [as defined in Code Section 414(c)] of which the
adopting Employer is a member, and any other entity required to be
aggregated with the Employer pursuant to Code Section 414(o) and the
regulations thereunder. Hours of Service shall also be credited for
any individual considered an Employee for purposes of this Plan under
Code Section 414(n) or Code Section 414(o) and the regulations
thereunder.
(e) Solely for purposes of determining whether a Break in Service, as
defined in paragraph 1.6, for participation and vesting purposes has
occurred in a computation period, an individual who is absent from
work for maternity or paternity reasons shall receive credit for the
Hours of Service which would otherwise have been credited to such
individual but for such absence, or in any case in which such hours
cannot be determined, 8 Hours of Service per day of such absence. For
purposes of this paragraph, an absence from work for maternity or
paternity reasons means an absence by reason of the pregnancy of the
individual, by reason of a birth of a child of the individual, by
reason of the placement of a child with the individual in connection
with the adoption of such child by such individual, or for purposes of
caring for such child for a period beginning immediately following
such birth or placement. The Hours of Service credited under this
paragraph shall be credited in the computation period in which the
absence begins if the crediting is necessary to prevent a Break in
Service in that period, or in all other cases, in the following
computation period. No more than 501 hours will be credited under
this paragraph.
(f) Unless specified otherwise in the Adoption Agreement, Hours of Service
shall be determined on the basis of the actual hours for which an
employee is paid or entitled to payment
1.30 KEY EMPLOYEE Any Employee or former Employee (and the beneficiaries of
such employee) who at any time during the determination period was an officer
of the Employer if such individual's annual compensation exceeds 50% of the
dollar limitation under Code Section 415(b)(1)(A) (the defined benefit maximum
annual benefit), an owner (or considered an owner under Code Section 318) of
one of the ten largest interests in the employer if such individual's
compensation exceeds 100% of the dollar limitation under Code Section
415(c)(1)(A), a 5% owner of the Employer, or a 1 % owner of the Employer who
has an annual compensation of more than $150,000. For purposes of determining
who is a Key Employee, annual compensation shall mean Compensation as defined
for Article X, but including amounts deferred through a salary reduction
agreement to a cash or deferred plan under Code Section 401(k), a Simplified
Employee Pension Plan under Code Section 402(h)(1)(B), a cafeteria plan under
Code Section 125 or a tax-deferred annuity under Code Section 403(b). The
determination period is the Plan Year containing the Determination Date and the
four preceding Plan Years.
<PAGE> 30
The determination of who is a Key Employee will be made in accordance with Code
Section 416(i)(1) and the regulations thereunder.
1.31 LEASED EMPLOYEE Any person (other than an Employee of the recipient)
who pursuant to an agreement between the recipient and any other person
("leasing organization") has performed services for the recipient [or for the
recipient and related persons determined in accordance with Code Section
414(n)(6)] on a substantially full-time basis for a period of at least one
year, and such services are of a type historically performed by Employees in
the business field of the recipient Employer.
1.32 LIMITATION YEAR The calendar year or such other 12- consecutive month
period designated by the Employer in the Adoption Agreement for purposes of
determining the maximum Annual Addition to a Participant's account. All
qualified plans maintained by the Employer must use the same Limitation Year.
If the Limitation Year is amended to a different 12-consecutive month period,
the new Limitation Year must begin on a date within the Limitation Year in
which the amendment is made.
1.33 MANDATORY CONTRIBUTION An Employee contribution which was not
tax-deductible when made and which was required for participation in the Plan.
These contributions may no longer be made to the Plan, for Plan Years beginning
after the Plan Year in which this Plan is adopted (or restated) by the
Employer.
1.34 MASTER OR PROTOTYPE PLAN A plan, the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
1.35 MAXIMUM PERMISSIBLE AMOUNT The maximum Annual Addition that may be
contributed or allocated to a Participant's account under the plan for any
Limitation Year shall not exceed the lesser of:
(a) the Defined Contribution Dollar Limitation, or
(b) 25% of the Participant's Compensation for the Limitation Year.
The compensation limitation referred to in (b) shall not apply to any
contribution for medical benefits [within the meaning of Code Section 401(h) or
Code Section 419A(f)(2)] which is otherwise treated as an Annual Addition under
Code Section 415(1)(1) or 419(d)(2). If a short Limitation Year is created
because of an amendment changing the Limitation Year to a different
12-consecutive month period, the Maximum Permissible Amount will not exceed the
Defined Contribution Dollar Limitation multiplied by the following fraction:
Number of months in the short Limitation Year divided by 12.
1.36 NET PROFIT The current and accumulated operating earnings of the
Employer before Federal and State income taxes, excluding nonrecurring or
unusual items of income, and before contributions to this and any other
qualified plan of the Employer. Alternatively, the Employer may fix another
definition in the Adoption Agreement.
1.37 NORMAL RETIREMENT AGE The age set by the Employer in the Adoption
Agreement at which a Participant may retire and receive his or her benefits
under the Plan.
<PAGE> 31
1.38 OWNER-EMPLOYEE A sole proprietor, or a partner owning more than 10% of
either the capital or profits interest of the partnership.
1.39 PAIRED PLANS Two or more Plans maintained by the Sponsor designed so
that a single or any combination of Plans adopted by an Employer will meet the
antidiscrimination rules, the contribution and benefit limitations, and the
Top-Heavy provisions of the Code.
1.40 PARTICIPANT Any Employee who has met the eligibility requirements and
is participating in the Plan.
1.41 PARTICIPANT'S BENEFIT 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. A special exception
exists for the second distribution Calendar Year. For purposes of this
paragraph, 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.
1.42 PERMISSIVE AGGREGATION GROUP Used for Top-Heavy testing purposes, it
is the Required Aggregation Group of plans plus any other plan or plans of the
Employer which, when considered as a group with the Required Aggregation Group,
would continue to satisfy the requirements of Code Sections 401(a)(4) and 410.
1.43 PLAN The Employer's retirement plan as embodied herein and in the
Adoption Agreement.
1.44 PLAN ADMINISTRATOR The Employer.
1.45 PLAN YEAR The 12-consecutive month period designated by the Employer
in the Adoption Agreement.
1.46 PRESENT VALUE When determining the Present Value of accrued benefits,
with respect to any Defined Benefit Plan maintained by the Employer for
Top-Heavy test and limitation on allocation purposes, interest and mortality
rates shall be determined in accordance with the provisions of the respective
plan. If applicable, interest and mortality assumptions will be specified in
Section 10 of Adoption Agreements 001 through 004 and Section 7 of Adoption
Agreements 005 and 006.
1.47 PROJECTED ANNUAL BENEFIT Used to test the maximum benefit which may
be obtained from a combination of retirement plans, it is the annual retirement
benefit (adjusted to an actuarial equivalent straight life annuity if such
benefit is expressed in a form other than a straight life annuity or Qualified
Joint and Survivor Annuity) to which the Participant would be entitled under
the terms of a Defined Benefit Plan or plans, assuming:
<PAGE> 32
(a) the Participant will continue employment until Normal Retirement Age
under the plan (or current age, if later), and
(b) the Participant's Compensation for the current Limitation Year and all
other relevant factors used to determine benefits under the plan will
remain constant for all future Limitation Years.
1.48 QUALIFIED DEFERRED COMPENSATION PLAN Any pension, profit-sharing,
stock bonus, or other plan which meets the requirements of Code Section 401 and
includes a trust exempt from tax under Code Section 501(a) and any annuity plan
described in Code Section 403(a).
An Eligible Retirement Plan is an individual retirement account (IRA) as
described in section 408(a) of the Code, an individual retirement annuity (IRA)
as described in section 408(b) of the Code, an annuity plan as described in
section 403(a) of the Code, or a qualified trust as described in section 401(a)
of the Code, which accepts Eligible Rollover Distributions. However, in the
case of an Eligible Rollover Distribution to a Surviving Spouse, an Eligible
Retirement Plan is an individual retirement account or individual retirement
annuity.
1.49 QUALIFIED DOMESTIC RELATIONS ORDER A QDRO is a signed Domestic
Relations Order issued by a State Court which creates, recognizes or assigns to
an alternate payee(s) the right to receive all or part of a Participant's Plan
benefit and which meets the requirements of Code Section 414(p). An alternate
payee is a Spouse, former Spouse, child, or other dependent who is treated as a
beneficiary under the Plan as a result of the QDRO.
1.50 QUALIFIED EARLY RETIREMENT AGE For purposes of paragraph 8.9,
Qualified Early Retirement Age is the latest of:
(a) the earliest date, under the Plan, on which the Participant may elect
to receive retirement benefits,
(b) the first day of the 120th month beginning before the Participant
reaches Normal Retirement Age, or
(c) the date the Participant begins participation.
1.51 QUALIFIED JOINT AND SURVIVOR ANNUITY An immediate annuity for the life
of the Participant with a survivor annuity for the life of the Participant's
Spouse which is at least 50% of but not more than the amount of the annuity
payable during the joint lives of the Participant and the Participant's Spouse.
The exact amount of the Survivor Annuity is to be specified by the Employer in
the Adoption Agreement. If not designated by the Employer, the Survivor
Annuity will be 50% of the amount paid to the Participant during his or her
lifetime. The Qualified Joint and Survivor Annuity will be the amount of
benefit which can be provided by the Participant's Vested Account Balance.
1.52 QUALIFIED VOLUNTARY CONTRIBUTION A tax-deductible voluntary Employee
contribution. These contributions may no longer be made to the Plan.
<PAGE> 33
1.53 REQUIRED AGGREGATION GROUP Used for Top-Heavy testing purposes, it
consists of:
(a) each qualified plan of the Employer in which at least one Key Employee
participates or participated at any time during the determination
period (regardless of whether the plan has terminated), and
(b) any other qualified plan of the Employer which enables a plan
described in (a) to meet the requirements of Code Sections 401(a)(4)
or 410.
1.54 REQUIRED BEGINNING DATE The date on which a Participant is required
to take his or her first minimum distribution under the Plan. The rules are
set forth at paragraph 7.5.
1.55 ROLLOVER CONTRIBUTION A contribution made by a Participant of an
amount distributed to such Participant from another Qualified Deferred
Compensation Plan in accordance with Code Sections 402(a)(5), (6), and (7).
An Eligible Rollover Distribution is any distribution of all or any portion of
the balance to the credit of the Participant except that an Eligible Rollover
Distribution does not include:
(a) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the
life (or life expectancy) of the Participant or the joint lives (or
joint life expectancies) of the Participant and the Participant's
Designated Beneficiary, or for a specified period of ten years or
more;
(b) any distribution to the extent such distribution is required under
section 401(a)(9) of the Code,
(c) the portion of any distribution that is not includible in gross
income( determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
A Direct Rollover is a payment by the plan to the Eligible Retirement Plan
specified by the Participant.
1.56 SELF-EMPLOYED INDIVIDUAL An individual who has Earned Income for the
taxable year from the trade or business for which the Plan is established
including an individual who would have had Earned Income but for the fact that
the trade or business had no Net Profits for the taxable year.
1.57 SERVICE The period of current or prior employment with the Employer.
If the Employer maintains a plan of a predecessor employer, Service for such
predecessor shall be treated as Service for the Employer.
1.58 SHAREHOLDER EMPLOYEE An Employee or Officer who owns [or is
considered as owning within the meaning of Code Section 318(a)(i)], on any day
during the taxable year of an electing small business (S Corporation)
corporation, more than 5% of such corporation's outstanding stock.
<PAGE> 34
1.59 SIMPLIFIED EMPLOYEE PENSION PLAN An individual retirement account
which meets the requirements of Code Section 408(k), and to which the Employer
makes contributions pursuant to a written formula. These plans are considered
for contribution limitation and Top-Heavy testing purposes.
1.60 SPONSOR Comerica Bank
1.61 SPOUSE (SURVIVING SPOUSE) The Spouse or Surviving Spouse of the
Participant, provided that a former Spouse will be treated as the Spouse or
Surviving Spouse and a current Spouse will not be treated as the Spouse or
Surviving Spouse to the extent provided under a Qualified Domestic Relations
Order as described in Section 414(p) of the Code.
1.62 SUPER TOP HEAVY PLAN A Plan described at paragraph 1.65 hereof under
which the Top-Heavy Ratio [as defined at paragraph 1.66] exceeds 90%.
1.63 TAXABLE WAGE BASE For plans with an allocation formula which takes
into account the Employer's contribution under the Federal Insurance
Contributions Act (FICA), the maximum amount of earnings which may be
considered wages for such Plan Year under the Social Security Act [Code Section
3121(a)(1)] or the amount selected by the Employer in the Adoption Agreement.
1.64 TOP-HEAVY DETERMINATION DATE For any Plan Year subsequent to the
first Plan Year, the last day of the preceding Plan Year. For the first Plan
Year, the last day of that year.
1.65 TOP-HEAVY PLAN For any Plan Year beginning after 1983, the Employer's
Plan is top-heavy if any of the following conditions exist:
(a) If the Top-Heavy Ratio for the Employer's Plan exceeds 60% and this
Plan is not part of any Required Aggregation Group or Permissive
Aggregation Group of Plans.
(b) If the Employer's plan is a part of a Required Aggregation Group of
plans but not part of a Permissive Aggregation Group and the Top-Heavy
Ratio for the group of plans exceeds 60%.
(c) If the Employer's plan is a part of a Required Aggregation Group and
part of a Permissive Aggregation Group of plans and the Top-Heavy
Ratio for the Permissive Aggregation Group exceeds 60%.
1.66 TOP-HEAVY RATIO
(a) If the Employer maintains one or more Defined Contribution plans
(including any Simplified Employee Pension Plan) and the Employer has
not maintained any Defined Benefit Plan which during the 5-year period
ending on the Determination Date(s) has or has had accrued benefits,
the Top-Heavy Ratio for this Plan alone, or for the Required or
Permissive Aggregation Group as appropriate, is a fraction,
(1) the numerator of which is the sum of the account balances of
all Key Employees as of the Determination Date(s) [including
any part of any account balance distributed in the 5-year
period ending on the Determination Date(s)], and
<PAGE> 35
(2) the denominator of which is the sum of all account balances
[including any part of any account balance distributed in the
5-year period ending on the Determination Date(s)], both
computed in accordance with Code Section 416 and the
regulations thereunder.
Both the numerator and denominator of the Top-Heavy Ratio are
increased to reflect any contribution not actually made as of the
Determination Date, but which is required to be taken into account on
that date under Code Section 416 and the regulations thereunder.
(b) If the Employer maintains one or more Defined Contribution Plans
(including any Simplified Employee Pension Plan) and the Employer
maintains or has maintained one or more Defined Benefit Plans which
during the 5-year period ending on the Determination Date(s) has or
has had any accrued benefits, the Top-Heavy Ratio for any Required or
Permissive Aggregation Group as appropriate is a fraction,
(1) the numerator of which is the sum of account balances under
the aggregated Defined Contribution Plan or Plans for all Key
Employees,determined in accordance with (a) above, and the
Present Value of accrued benefits under the aggregated Defined
Benefit Plan or Plans for all Key Employees as of the
Determination Date(s), and
(2) the denominator of which is the sum of the account balances
under the aggregated Defined Contribution Plan or Plans for
all Participants, determined in accordance with (a) above, and
the Present Value of accrued benefits under the Defined
Benefit Plan or Plans for all Participants as of the
Determination Date(s), all determined in accordance with Code
Section 416 and the regulations thereunder.
The accrued benefits under a Defined Benefit Plan in both the
numerator and denominator of the Top-Heavy Ratio are increased for any
distribution of an accrued benefit made in the 5-year period ending on
the Determination Date.
(c) For purposes of (a) and (b) above, the value of account balances and
the Present Value of accrued benefits will be determined as of the
most recent Valuation Date that falls within or ends with the 12-month
period ending on the Determination Date, except as provided in Code
Section 416 and the regulations thereunder for the first and second
plan years of a Defined Benefit Plan. The account balances and
accrued benefits of a Participant (1) who is not a Key Employee but
who was a Key Employee in a prior year, or (2) who has not been
credited with at least one Hour of Service with any Employer
maintaining the Plan at any time during the 5-year period ending on
the Determination Date, will be disregarded. The calculation of the
Top-Heavy Ratio, and the extent to which distributions, rollovers, and
transfers are taken into account, will be made in accordance with Code
Section 416 and the regulations thereunder. Qualified Voluntary
Employee Contributions will not be taken into account for purposes of
computing the Top-Heavy Ratio. When aggregating plans, the value of
account balances and accrued benefits will be calculated with
<PAGE> 36
reference to the Determination Dates that fall within the same
calendar year. The accrued benefit of a Participant other than a Key
Employee shall be determined under (1) the method, if any, that
uniformly applies for accrual purposes under all Defined Benefit Plans
maintained by the Employer, or (2) if there is no such method, as if
such benefit accrued not more rapidly than the slowest accrual rate
permitted under the fractional rule of Code Section 411(b)(1)(C).
1.67 TRANSFER CONTRIBUTION A non-taxable transfer of a Participant's
benefit directly from a Qualified Deferred Compensation Plan to this Plan
1.68 TRUSTEE The individual(s) or institution appointed by the Employer to
invest the Fund.
1.69 VALUATION DATE The last day of the Plan Year or such other date as
agreed to by the Employer and the Trustee/Custodian on which Participant
accounts are revalued in accordance with Article V hereof. For Top-Heavy
purposes, the date selected by the Employer as of which the Top-Heavy Ratio is
calculated.
1.70 VESTED ACCOUNT BALANCE The aggregate value of the Participant's
vested account balances derived from Employer and Employee contributions
(including Rollovers), whether vested before or upon death, including the
proceeds of insurance contracts, if any, on the Participant's life. The
provisions of Article VIII shall apply to a Participant who is vested in
amounts attributable to Employer contributions, Employee contributions (or
both) at the time of death or distribution.
For purposes of paragraph 8.7, Vested Account Balance shall mean, in the case
of a money purchase pension plan, the Participant's separate account balance
attributable solely to Qualified Voluntary Contributions. For profit-sharing
plans the above definition shall apply.
1.71 VOLUNTARY CONTRIBUTION An Employee contribution which is not
tax-deductible and which is not required as a condition for participation in
the Plan. Such contributions are no longer permitted under this Prototype
Plan, for Plan Years beginning after the Plan Year in which this Plan is
adopted (or restated) by the Employer.
1.72 WELFARE BENEFIT FUND Any fund that is part of a plan of the Employer,
or has the effect of a plan, through which the Employer provides welfare
benefits to Employees or their beneficiaries. For these purposes, Welfare
Benefits means any benefit other than those with respect to which Code Section
83(h) (relating to transfers of property in connection with the performance of
services), Code Section 404 (relating to deductions for contributions to an
Employees' trust or annuity and Compensation under a deferred payment plan),
Code Section 404A (relating to certain foreign deferred compensation plans),
and the election under Code Section 463 (relating to the accrual of vacation
pay) apply. For purposes of this paragraph a "Fund" is any social club,
voluntary employee benefit association, supplemental unemployment benefit trust
or qualified group legal service organization described in Code Section
501(c)(7), (9), (17) or (20); any trust, corporation, or other organization not
exempt from income tax, or to the extent provided in regulations, any account
held for an Employer by any person.
<PAGE> 37
1.73 YEAR OF SERVICE A 12-consecutive month period during which an
Employee is credited with not less than 1,000 (or such lesser number as
specified by the Employer in the Adoption Agreement) Hours of Service.
ARTICLE II
ELIGIBILITY REQUIREMENTS
2.1 PARTICIPATION Employees who meet the eligibility requirements in the
Adoption Agreement on the Effective Date of the Plan shall become Participants
as of the Effective Date of the Plan. If so elected in the Adoption Agreement,
all Employees employed on the Effective Date of the Plan may participate, even
if they have not satisfied the Plan's specified eligibility requirements.
Other Employees shall become Participants on the Entry Date specified in the
Adoption Agreement. Depending on the Plan's eligibility requirements, the
entry date may actually be earlier than the date on which the Employee
satisfies the eligibility requirements. The Employee must satisfy the
eligibility requirements specified in the Adoption Agreement and be employed on
the Entry Date to become a Participant in the Plan. In the event an Employee
who is not a member of the eligible class of Employees becomes a member of the
eligible class, such Employee shall participate immediately if such Employee
has satisfied the minimum age and service requirements and would have
previously become a Participant had he or she been in the eligible class. A
former Participant shall again become a Participant upon returning to the
employ of the Employer as of the next Entry Date.
2.2 CHANGE IN CLASSIFICATION OF EMPLOYMENT In the event a Participant
becomes ineligible to participate because he or she is no longer a member of an
eligible class of Employees, such Employee shall participate upon his or her
return to an eligible class of Employees.
2.3 COMPUTATION PERIOD To determine Years of Service and Breaks in
Service for purposes of eligibility, the 12-consecutive month period shall
commence on the date on which an Employee first performs an Hour of Service for
the Employer and each anniversary thereof, such that the succeeding
12-consecutive month period commences with the employee's first anniversary of
employment and so on.
2.4 EMPLOYMENT RIGHTS Participation in the Plan shall not confer upon a
Participant any employment rights, nor shall it interfere with the Employer's
right to terminate the employment of any Employee at any time.
2.5 SERVICE WITH CONTROLLED GROUPS All Years of Service with other
members of a controlled group of corporations [as defined in Code Section
414(b)], trades or businesses under common control [as defined in Code Section
414(c)], or members of an affiliated service group [as defined in Code Section
414(m)] shall be credited for purposes of determining an Employee's eligibility
to participate.
2.6 OWNER-EMPLOYEES If this Plan provides contributions or benefits for
one or more Owner-Employees who control both the business for which this Plan
is established and one or more other trades or businesses, this Plan and the
Plan established for other trades or businesses must, when looked
<PAGE> 38
at as a single Plan, satisfy Code Sections 401(a) and (d) for the Employees of
this and all other trades or businesses.
If the Plan provides contributions or benefits for one or more Owner-Employees
who control one or more other trades or businesses, the Employees of the other
trades or businesses must be included in a Plan which satisfies Code Sections
401 (a) and (d) and which provides contributions and benefits not less
favorable than provided for Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of two or more
trades or businesses which are not controlled and the individual controls a
trade or business, then the contributions or benefits of the Employees under
the plan of the trades or businesses which are controlled must be as favorable
as those provided for him under the most favorable plan of the trade or
business which is not controlled.
For purposes of the preceding sentences, an Owner-Employee, or two or more
Owner-Employees, will be considered to control a trade or business if the
Owner-Employee, or two or more Owner-Employees together:
(a) own the entire interest in an unincorporated trade or business, or
(b) in the case of a partnership, own more than 50% of either the capital
interest or the profits interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more
Owner-Employees shall be treated as owning any interest in a partnership which
is owned, directly or indirectly, by a partnership which such Owner-Employee,
or such two or more Owner-Employees, are considered to control within the
meaning of the preceding sentence.
2.7 LEASED EMPLOYEES Any Leased Employee shall be treated as an Employee
of the recipient Employer, however, contributions or benefits provided by the
leasing organization which are attributable to services performed for the
recipient Employer shall be treated as provided by the recipient Employer. A
Leased Employee shall not be considered an Employee of the recipient if such
Employee is covered by a money purchase pension plan providing:
(a) a non-integrated Employer contribution rate of at least 10% of
Compensation, [as defined in Code Section 415(c)(3) but including
amounts, contributed by the Employer pursuant to a salary reduction
agreement, which are excludable from the Employee's gross income under
a cafeteria plan covered by Code Section 125, a cash or deferred
profit-sharing plan under Section 401 (k) of the Code, a Simplified
Employee Pension Plan under Code Section 402(h)(1)(B) and a tax-
sheltered annuity under Code Section 403(b)],
(b) immediate participation, and
(c) full and immediate vesting.
<PAGE> 39
This exclusion is only available if Leased Employees do not constitute more
than twenty percent (20%) of the recipient's non-highly compensated work force.
ARTICLE III
EMPLOYER CONTRIBUTIONS
3.1 AMOUNT The Employer intends to make periodic contributions to the
Plan in accordance with the formula or formulas selected in the Adoption
Agreement. However, the Employer's contribution for any Plan Year shall be
subject to the limitations on allocations contained in Article X.
3.2 EXPENSES AND FEES The Employer shall also be authorized to reimburse
the Fund for all expenses and fees incurred in the administration of the Plan
or Trust/Custodial Account and paid out of the assets of the Fund. Such expenses
shall include, but shall not be limited to, fees for professional services,
printing and postage. Brokerage Commissions may not be reimbursed.
3.3 RESPONSIBILITY FOR CONTRIBUTIONS Neither the Trustee/Custodian nor
the Sponsor shall be required to determine if the Employer has made a
contribution or if the amount contributed is in accordance with the Adoption
Agreement or the Code. The Employer shall have sole responsibility in this
regard. The Trustee/Custodian shall be accountable solely for contributions
actually received by it within the limits of Article XI.
3.4 RETURN OF CONTRIBUTIONS Contributions made to the Fund by the
Employer shall be irrevocable except as provided below:
(a) Any contribution forwarded to the Trustee/Custodian because of a
mistake of fact, provided that the contribution is returned to the
Employer within one year of the contribution.
(b) In the event that the Commissioner of Internal Revenue determines that
the Plan is not initially qualified under the Internal Revenue Code,
any contribution made incident to that initial qualification by the
Employer must be returned to the Employer within one year after the
date the initial qualification is denied, but only if the application
for the qualification is made by the time prescribed by law for filing
the Employer's return for the taxable year in which the Plan is
adopted, or such later date as the Secretary of the Treasury may
prescribe.
(c) Contributions forwarded to the Trustee/Custodian are presumed to be
deductible and are conditioned on their deductibility. Contributions
which are determined to not be deductible will be returned to the
Employer.
ARTICLE IV
EMPLOYEE CONTRIBUTIONS
<PAGE> 40
4.1 VOLUNTARY CONTRIBUTIONS An Employee may no longer make Voluntary
Contributions to the Plan established hereunder for Plan Years beginning after
the Plan Year in which this plan is adopted or restated by the Employer.
Employee Contributions for Plan Years beginning after 1986, together with any
matching contributions as defined in Code Section 401(m), will be limited so as
to meet the antidiscrimination test of Section 401(m). Voluntary and/or
Mandatory Contributions already made may stay in the Trust Fund/Custodial
Account.
4.2 QUALIFIED VOLUNTARY CONTRIBUTIONS A Participant may no longer make
Qualified Voluntary Contributions to the Plan. Amounts already contributed may
stay in the Trust Fund/Custodial Account until distributed to the Participant.
Such amounts will be maintained in a separate account which will be
nonforfeitable at all times. The account will share in the gains and losses of
the Trust in the same manner as described at paragraph 5.4 of the Plan. No
part of the Qualified Voluntary Contribution account will be used to purchase
life insurance. Subject to Article VIII, Joint and Survivor Annuity
Requirements (if applicable), the Participant may withdraw any part of the
Qualified Voluntary Contribution account by making a written application to the
Plan Administrator.
4.3 ROLLOVER CONTRIBUTION Unless provided otherwise in the Adoption
Agreement, a Participant may make a Rollover Contribution to any Defined
Contribution Plan established hereunder of all or any part of an amount
distributed or distributable to him or her from a Qualified Deferred
Compensation Plan provided:
(a) the amount distributed to the Participant is deposited to the Plan no
later than the sixtieth day after such distribution was received by
the Participant,
(b) the amount distributed is not one of a series of substantially equal
periodic payments made for the life (or life expectancy) of the
Participant or the joint lives (or joint life expectancies) of the
Participant and the Participant's Designated Beneficiary, or for a
specified period of ten years or more,
(c) the amount distributed is not required under section 401(a)(9) of the
Code,
(d) if the amount distributed included property such property is rolled
over, or if sold the proceeds of such property may be rolled over,
(e) the amount distributed is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
In addition, if the Adoption Agreement allows Rollover Contributions, the Plan
will also accept any Eligible Rollover Distribution (as defined at paragraph
1.55) directly to the Plan.
Rollover Contributions, which relate to distributions prior to January 1, 1993,
must be made in accordance with paragraphs (a) through (e) and additionally
meet the requirements of paragraph (f):
<PAGE> 41
(f) The distribution from the Qualified Deferred Compensation Plan
constituted the Participant's entire interest in such Plan and was
distributed within one taxable year to the Participant:
(1) on account of separation from Service, a Plan termination, or
in the case of a profit-sharing or stock bonus plan, a
complete discontinuance of contributions under such plan
within the meaning of Section 402(a)(6)(A) of the Code, or
(2) in one or more distributions which constitute a qualified lump
sum distribution within the meaning of Code Section
402(e)(4)(A), determined without reference to subparagraphs
(B) and (H).
Such Rollover Contribution may also be made through an Individual Retirement
Account qualified under Code Section 408 where the IRA was used as a conduit
from the Qualified Deferred Compensation Plan, the Rollover Contribution is
made in accordance with the rules provided under paragraphs (a) through (e) and
the Rollover Contribution does not include any regular IRA contributions, or
earnings thereon, which the Participant may have made to the IRA. Rollover
Contributions, which relate to distributions prior to January 1, 1993, may be
made through an IRA in accordance with paragraphs (a) through (f) and
additional requirements as provided in the previous sentence. The
Trustee/Custodian shall not be held responsible for determining the tax-free
status of any Rollover Contribution made under this Plan.
4.4 TRANSFER CONTRIBUTION Unless provided otherwise in the Adoption
Agreement, a Participant may, subject to the provisions of paragraph 4.5, also
arrange for the direct transfer of his or her benefit from a Qualified Deferred
Compensation Plan to this Plan. For accounting and record keeping purposes,
Transfer Contributions shall be treated in the same manner as Rollover
Contributions.
4.5 EMPLOYER APPROVAL OF TRANSFER CONTRIBUTIONS The Employer maintaining
a safe-harbor Profit-Sharing Plan in accordance with the provisions of
paragraph 8 7, acting in a nondiscriminatory manner, may in its sole discretion
refuse to allow Transfer Contributions to its profit-sharing plan, if such
contributions are directly or indirectly being transferred from a defined
benefit plan, a money purchase pension plan (including a target benefit plan),
a stock bonus plan, or another profit- sharing plan which would otherwise
provide for a life annuity form of payment to the Participant.
4.6 DIRECT ROLLOVER OF BENEFITS Notwithstanding any provision of the plan
to the contrary that would otherwise limit a Participant's election under this
Paragraph, for distributions made on or after January 1,1993, a Participant 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 shall be distributed to the Participant. For purposes
of this Paragraph, a Surviving Spouse or a spouse or former spouse who is an
alternate payee under a Qualified Domestic Relations Order as defined in
section 414(p) of the Code, will be permitted to elect to have any Eligible
Rollover Distribution paid directly
<PAGE> 42
to an individual retirement account (IRA) or an individual retirement annuity
(IRA).
The plan provisions otherwise applicable to distributions continue to apply to
Rollover and Transfer Contributions.
ARTICLE V
PARTICIPANT ACCOUNTS
5.1 SEPARATE ACCOUNTS The Employer shall establish a separate bookkeeping
account for each Participant showing the total value of his or her interest in
the Fund. Each Participant's account shall be separated for bookkeeping
purposes into the following sub-accounts:
(a) Employer contributions.
(b) Mandatory Contributions (if previously accepted).
(c) Voluntary Contributions (if previously accepted), and additional
amounts including, if applicable, either repayments of loans
previously defaulted on and treated as "deemed distributions" [on
which a tax report has been issued], and amounts paid out upon a
separation from service which have been included in income and which
are repaid after being re-hired by the Employer.
(d) Qualified Voluntary Contributions (if previously accepted).
(e) Rollover Contributions and Transfer Contributions.
5.2 ADJUSTMENTS TO PARTICIPANT ACCOUNTS As of each Valuation Date of the
Plan, the Employer shall add to each account:
(a) the Participant's share of the Employer's contribution and forfeitures
as determined in the Adoption Agreement,
(b) any Voluntary, Rollover or Transfer Contributions made by the
Participant,
(c) any repayment of amounts previously paid out to a Participant upon a
separation from Service and repaid by the Participant since the last
Valuation Date, and
(d) the Participant's proportionate share of any investment earnings and
increase in the fair market value of the Fund since the last Valuation
Date, as determined at paragraph 5.4.
The Employer shall deduct from each account:
(e) any withdrawals or payments made from the Participant's account since
the last Valuation Date, and
<PAGE> 43
(f) the Participant's proportionate share of any decrease in the fair
market value of the Fund since the last Valuation Date, as determined
at paragraph 5.4.
5.3 ALLOCATING EMPLOYER CONTRIBUTIONS The Employer's contribution shall
be allocated to Participants in accordance with the allocation formula selected
by the Employer in the Adoption Agreement, and the minimum contribution and
allocation requirements for Top-Heavy Plans. Beginning with the 1990 Plan Year
and thereafter, for plans on Standardized Adoption Agreements 001,002,005 and
006, Participants who are credited with more than 500 Hours of Service or are
employed on the last day of the Plan Year must receive a full allocation of
Employer contributions. In Nonstandardized Adoption Agreements 003 and 004,
Employer contributions shall be allocated to the accounts of Participants
employed by the Employer on the last day of the Plan Year. In the case of a
non-Top-Heavy, Nonstandardized Plan, Participants must also have completed a
Year of Service unless otherwise specified in the Adoption Agreement. For
Nonstandardized Adoption Agreements 003 and 004, the Employer may only apply
the last day of the Plan Year and Year of Service requirements if the Plan
satisfies the requirements of Code Sections 401(a)(26) and 410(b) and the
regulations thereunder. If when applying the last day and Year of Service
requirements the Plan fails to satisfy the aforementioned requirements,
additional Participants will be eligible to receive an allocation of Employer
Contributions until the requirements are satisfied. Participants who are
credited with a Year of Service, but not employed at Plan Year end are the
first category of additional Participants eligible to receive an allocation.
If the requirements are still not satisfied, Participants credited with more
than 500 Hours of Service and employed at Plan Year end are the next category
of Participants eligible to receive an allocation. Finally, if necessary to
satisfy the said requirements, any Participant credited with more than 500
Hours of Service will be eligible for an allocation of Employer Contributions.
5.4 ALLOCATING INVESTMENT EARNINGS AND LOSSES A Participant's share of
investment earnings and any increase or decrease in the fair market value of
the Fund shall be based on the proportionate value of all active accounts
(other than accounts with segregated investments) as of the last Valuation Date
minus withdrawals, minus fees, plus/minus transfers, and plus the average
balance, as defined by the Plan Administrator, of the current period's
contributions and loan payments except for Employer contributions made on an
annual basis after the end of the Plan Year since the last Valuation Date.
Account balances not yet forfeited shall receive an allocation of earnings
and/or losses. Accounts with segregated investments shall receive only the
income or loss on such segregated investments.
Alternatively, at the Plan Administrator's option, all financial activity will
be credited with an allocation of the actual investment earnings and gains and
losses from the actual date of deposit of each such activity until the end of
the period. Accounts with segregated investments shall receive only the income
or loss on such segregated investments. In no event shall the selection of a
method of allocating gains and losses be used to discriminate in favor of the
Highly Compensated Employees.
<PAGE> 44
5.5 PARTICIPANT STATEMENTS Upon completing the allocations described
above for the Valuation Date coinciding with the end of the Plan Year, the
Employer shall prepare a statement for each Participant showing the additions
to and subtractions from his or her account since the last such statement and
the fair market value of his or her account as of the current Valuation Date.
Employers so choosing may prepare Participant statements for each Valuation
Date.
ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 NORMAL RETIREMENT BENEFITS A Participant shall be entitled to receive
the balance held in his or her account from Employer contributions upon
reaching Normal Retirement Age or at such earlier dates as the provisions of
this Article VI may allow. If the Participant elects to continue working past
his or her Normal Retirement Age, he or she will continue as an active Plan
Participant. Unless the Employer elects otherwise in the Adoption Agreement,
distribution shall be made to such Participant at his or her request prior to
his or her actual retirement date. Settlement shall be made in the normal
form, or if elected, in one of the optional forms of payment provided below.
6.2 EARLY RETIREMENT BENEFITS If the Employer so provides in the Adoption
Agreement, an early retirement benefit will be available to individuals who
meet the age and Service requirements. An individual who meets the Early
Retirement Age requirements and separates from Service, will become fully
vested, regardless of any vesting schedule which otherwise might apply. If a
Participant separates from Service before satisfying the age requirement, but
after having satisfied the Service requirement, the Participant will be
entitled to elect an Early Retirement benefit upon satisfaction of the age
requirement.
6.3 BENEFITS ON TERMINATION OF EMPLOYMENT
(a) If a Participant terminates employment prior to Normal Retirement Age,
such Participant shall be entitled to receive the vested balance held
in his or her account payable at Normal Retirement Age in the normal
form, or if elected, in one of the optional forms of payment provided
hereunder. If applicable, the Early Retirement Benefit provisions may
be elected. Unless provided otherwise in the Adoption Agreement, a
former Participant may make application to the Employer requesting
early payment of any deferred vested and nonforfeitable benefit due.
(b) If a Participant terminates employment, and the value of that
Participant's vested account balance derived from Employer and
Employee contributions is not greater than $3,500, the Participant
will receive a lump sum distribution of the value of the entire vested
portion of such account balance and the unvested portion will be
treated as a forfeiture. For purposes of this Article, if the value
of a Participant's vested account balance is zero, the Participant
shall be deemed to have received a distribution of such vested account
balance. For Plan Years beginning prior to 1989, a Participant's
<PAGE> 45
Vested Account Balance shall not include Qualified Voluntary
Contributions. Notwithstanding the above, if the Employer maintains
or has maintained a policy of not distributing any amounts until the
Participant's Normal Retirement Age, the Employer can continue to
uniformly apply such policy.
(c) If a Participant terminates Service with a vested account balance
derived from Employer and Employee contributions in excess of $3,500,
and elects (with his or her Spouse's consent) to receive 100% of the
value of his or her vested account balance in a lump sum, the
non-vested portion will be treated as a forfeiture. Except as
provided at paragraph 6.4(c), the Participant (and his or her Spouse)
must consent to any distribution, when the vested account balance
described above exceeds $3,500 or if at the time of any prior
distribution it exceeded $3,500. For purposes of this paragraph, for
Plan Years beginning prior to 1989, a Participant's Vested Account
Balance shall not include Qualified Voluntary Contributions.
(d) Distribution of less than 100% of the Participant's vested account
balance shall only be permitted if the Participant is fully vested
upon termination of employment.
(e) If a Participant who is not 100% vested receives or is deemed to
receive a distribution pursuant to subsection (a), (b) or (c) of this
paragraph, and such Participant's non- vested benefit is forfeited
hereunder, and if such Participant resumes employment covered under
this Plan, the Participant shall have the right to repay to the Plan
the full amount of the distribution attributable to Employer
contributions on or before the earlier of the date that the
Participant incurs 5 consecutive 1-year Breaks in Service following
the date of distribution or five years after the first date on which
the Participant is subsequently reemployed. In such event, the
Participant's forfeiture shall be restored to his or her account as of
the Valuation Date at the end of the Plan Year following the date on
which repayment of the distribution is received. Restoration of the
forfeiture amount shall be accomplished in accordance with the
procedure selected by the Employer in the Adoption Agreement.
(f) A Participant shall also have the option, to postpone payment of his
or her Plan benefits until the first day of April following the
calendar year in which he or she attains age 70-1/2. Any balance of a
Participant's account resulting from his or her Employee contributions
not previously withdrawn, if any, may be withdrawn by the Participant
immediately following separation from Service.
(g) If a Participant ceases to be an active Employee as a result of a
disability as defined at paragraph 1.16, such Participant shall be
able to make an application for a disability retirement benefit
payment. The Participant's account balance will be deemed
"immediately distributable" as set forth in paragraph 6.4, and will be
fully vested pursuant to paragraph 9.2.
6.4 RESTRICTIONS ON IMMEDIATE DISTRIBUTIONS
<PAGE> 46
(a) An account balance is immediately distributable if any part of the
account balance could be distributed to the Participant (or Surviving
Spouse) before the Participant attains (or would have attained if not
deceased) the later of the Normal Retirement Age or age 62.
(b) If the value of a Participant's vested account balance derived from
Employer and Employee Contributions exceeds (or at the time of any
prior distribution exceeded) $3,500, and the account balance is
immediately distributable, the Participant and his or her Spouse (or
where either the Participant or the Spouse has died, the survivor)
must consent to any distribution of such account balance. The consent
of the Participant and the Spouse shall be obtained in writing within
the 90-day period ending on the annuity starting date, which is the
first day of the first period for which an amount is paid as an
annuity or any other form. The Plan Administrator shall notify the
Participant and the Participant's Spouse of the right to defer any
distribution until the later of the date on which the Participant
attains (or would have attained if not deceased) the Normal Retirement
Age or age 62. Such notification shall include a general description
of the material features, and an explanation of the relative values of
the optional forms of benefit available under the plan, in a manner
that would satisfy the notice requirements of Code Section 417(a)(3),
and shall be provided no less than 30 days and no more than 90 days
prior to the annuity starting date.
(c) Notwithstanding the foregoing, only the Participant need consent to
the commencement of a distribution in the form of a Qualified Joint
and Survivor Annuity while the account balance is immediately
distributable. Furthermore, if payment in the form of a Qualified
Joint and Survivor Annuity is not required with respect to the
Participant pursuant to paragraph 8.7 of the Plan, only the
Participant need consent to the distribution of an account balance
that is immediately distributable. Neither the consent of the
Participant nor the Participant's Spouse shall be required to the
extent that a distribution is required to satisfy Code Section
401(a)(9) or Code Section 415. In addition, upon termination of this
Plan, if the Plan does not offer an annuity option (purchased from a
commercial provider), the Participant's account balance may, without
the Participant's consent, be distributed to the Participant or
transferred to another Defined Contribution Plan [other than an
employee stock ownership plan as defined in Code Section 4975(e)(7)]
within the same controlled group.
(d) For purposes of determining the applicability of the foregoing consent
requirements to distributions made before the first day of the first
Plan Year beginning after 1988, the Participant's vested account
balance shall not include amounts attributable to Qualified Voluntary
Contributions.
6.5 NORMAL FORM OF PAYMENT The normal form of payment for a
profit-sharing plan satisfying the requirements of paragraph 8.7 hereof shall
be a lump sum with no option for annuity payments. For all other plans, the
normal form of payment hereunder shall be a Qualified Joint and Survivor
Annuity as provided under Article VIII. A Participant whose vested account
balance derived from Employer and Employee contributions
<PAGE> 47
exceed $3,500, or if at the time of any prior distribution it exceeded $3,500,
shall (with the consent of his or her Spouse) have the right to receive his or
her benefit in a lump sum or in monthly, quarterly, semi-annual or annual
payments from the Fund over any period not extending beyond the life expectancy
of the Participant and his or her Beneficiary. For purposes of this paragraph,
for Plan Years beginning prior to 1989, a Participant's Vested Account Balance
shall not include Qualified Voluntary Contributions. The normal form of
payment shall be automatic, unless the Participant files a written request with
the Employer prior to the date on which the benefit is automatically payable,
electing a lump sum or installment payment option. No amendment to the Plan may
eliminate one of the optional distribution forms listed above.
6.6 COMMENCEMENT OF BENEFITS
(a) Unless the Participant elects otherwise, distribution of benefits will
begin no later than the 60th day after the close of the Plan Year in
which the latest of the following events occurs:
(1) the Participant attains age 65 (or normal retirement age if
earlier),
(2) the 10th anniversary of the year in which the Participant
commenced participation in the Plan, or
(3) the Participant terminates Service with the Employer.
(b) Notwithstanding the foregoing, the failure of a Participant and Spouse
(if necessary) to consent to a distribution while a benefit is
immediately distributable, within the meaning of paragraph 6.4 hereof,
shall be deemed an election to defer commencement of payment of any
benefit sufficient to satisfy this paragraph.
(c) Unless the Employer provides otherwise in the Adoption Agreement,
distributions of benefits will be made within 60 days following the
close of the Plan Year during which a distribution is requested or
otherwise becomes payable.
6.7 CLAIMS PROCEDURES Upon retirement, death, or other severance of
employment, the Participant or his or her representative may make application
to the Employer requesting payment of benefits due and the manner of payment.
If no application for benefits is made, the Employer shall automatically pay
any vested benefit due hereunder in the normal form at the time prescribed at
paragraph 6.5. If an application for benefits is made, the Employer shall
accept, reject, or modify such request and shall notify the Participant in
writing setting forth the response of the Employer and in the case of a denial
or modification the Employer shall:
(a) state the specific reason or reasons for the denial,
(b) provide specific reference to pertinent Plan provisions on which the
denial is based,
(c) provide a description of any additional material or information
necessary for the Participant or his representative to perfect the
<PAGE> 48
claim and an explanation of why such material or information is
necessary, and
(d) explain the Plan's claim review procedure as contained in this
paragraph.
In the event the request is rejected or modified, the Participant or his or her
representative may within 60 days following receipt by the Participant or
representative of such rejection or modification, submit a written request for
review by the Employer of its initial decision. Within 60 days following such
request for review, the Employer shall render its final decision in writing to
the Participant or representative stating specific reasons for such decision.
If the Participant or representative is not satisfied with the Employer's final
decision, the Participant or representative can institute an action in a
federal court of competent jurisdiction; for this purpose, process would be
served on the Employer.
6.8 IN-SERVICE WITHDRAWALS An Employee may withdraw all or any part of
the fair market value of his or her Mandatory Contributions, Voluntary
Contributions, Qualified Voluntary Contributions or Rollover Contributions,
upon written request to the Employer. Transfer Contributions, which originate
from a Plan meeting the safe-harbor provisions of paragraph 8.7, may also be
withdrawn, by an Employee, upon written request to the Employer. Transfer
Contributions which originate from a Plan not meeting the safe-harbor
provisions may only be withdrawn upon retirement,death,disability, termination
or termination of the Plan, and will be subject to Spousal consent requirements
contained in Code Sections 411(a)(11) and 417. Such request shall include the
Participant's address, social security number birth date, and amount of the
withdrawal. If at the time a distribution of Qualified Voluntary Contributions
is received the Participant has not attained age 59-1/2 and is not disabled, as
defined at Code Section 22(e)(3), the Participant will be subject to a federal
income tax penalty, unless the distribution is rolled over to a qualified plan
or individual retirement plan within 60 days of the date of distribution. A
Participant may withdraw all or any part of the fair market value of his or her
pre- 1987 Voluntary Contributions with or without withdrawing the earnings
attributable thereto. Post-1986 Voluntary Contributions may only be withdrawn
along with a portion of the earnings thereon. The amount of the earnings to be
withdrawn is determined by using the formula: DA[1-(V / V + E)], where DA is
the distribution amount, V is the amount of Voluntary Contributions and V + E
is the amount of Voluntary Contributions plus the earnings attributable
thereto. A Participant withdrawing his or her other contributions prior to
attaining age 59-1/2, will be subject to a federal tax penalty to the extent
that the withdrawn amounts are includible in income. Unless the Employer
provides otherwise in the Adoption Agreement, any Participant in a
profit-sharing plan who is 100% fully vested in his or her Employer
contributions may withdraw all or any part of the fair market value of any of
such contributions that have been in the account at least two years, plus the
investment earnings thereon, without separation from Service. Such
distributions shall not be eligible for redeposit to the Fund. A withdrawal
under this paragraph shall not prohibit such Participant from sharing in any
future Employer Contribution he or she would otherwise be eligible to share in.
A request to withdraw amounts pursuant to this paragraph must if applicable, be
consented to by
<PAGE> 49
the Participant's Spouse. The consent shall comply with the requirements of
paragraph 6.4 relating to immediate distributions.
6.9 HARDSHIP WITHDRAWAL If permitted by the Trustee/Custodian and the
Employer in the Adoption Agreement, a Participant in a profit-sharing plan may
request a hardship withdrawal prior to attaining age 59-1/2. If the
Participant has not attained age 59-1/2, the Participant may be subject to a
federal income tax penalty. Such request shall be in writing to the Employer
who shall have sole authority to authorize a hardship withdrawal, pursuant to
the rules below. Hardship withdrawals are subject to the Spousal consent
requirements contained in Code Sections 411(a)(11) and 417. Only the following
reasons are valid to obtain hardship withdrawal:
(a) medical expenses [within the meaning of Code Section 213(d)] of the
Participant, his or her Spouse, children and other dependents,
(b) the purchase (excluding mortgage payments) of the principal residence
for the Participant,
(c) payment of tuition and related educational expenses for the next
twelve (12) months of post-secondary education for the Participant,
his or her Spouse, children or other dependents, or
(d) the need to prevent eviction of the Employee from or a foreclosure on
the mortgage of, the Employee's principal residence.
Furthermore, the distribution may not be in excess of the amount of the
immediate and heavy financial need [(a) through (d)] above. The Participant
must certify that other assets are not available to meet the hardship.
If a distribution is made at a time when a Participant has a nonforfeitable
right to less than 100% of the account balance derived from Employer
contributions and the Participant may, by virtue of continuing Service,
increase the nonforfeitable percentage in the account:
(a) a separate account will be established for the Participant's interest
in the Plan as of the time of the distribution, and
(b) at any relevant time the Participant's nonforfeitable portion of the
separate account will be equal to an amount ("X") determined by the
formula:
X = P [AB + (R X D)] - (R X D)
For purposes of applying the formula: "P" is the 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 distribution.
ARTICLE VII
DISTRIBUTION REQUIREMENTS
<PAGE> 50
7.1 JOINT AND SURVIVOR ANNUITY REQUIREMENTS All distributions made under
the terms of this Plan must comply with the provisions of Article VIII
including, if applicable, the safe harbor provisions thereunder.
7.2 MINIMUM DISTRIBUTION REQUIREMENTS All distributions required under
this Article shall be determined and made in accordance with the minimum
distribution requirements of Code Section 401 (a)(9) and the regulations
thereunder, including the minimum distribution incidental benefit rules found
at Section 1.401 (a)(9)-2 of the Regulations. The entire interest of a
Participant must be distributed, or begin to be distributed, no later than the
Participant's Required Beginning Date. Life expectancy and joint and last
survivor life expectancy are computed by using the expected return multiples
found in Tables V and VI of Section 1.72-9 of the Income Tax Regulations.
7.3 LIMITS ON DISTRIBUTION PERIODS As of the First Distribution Calendar
Year, distributions, if not made in a single-sum, may only be made over one of
the following periods (or a combination thereof):
(a) the life of the Participant,
(b) the life of the Participant and a Designated Beneficiary,
(c) a period certain not extending beyond the life expectancy of the
Participant, or
(d) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a Designated Beneficiary.
7.4 REQUIRED DISTRIBUTIONS ON OR AFTER THE REQUIRED BEGINNING DATE
(a) If a participant's account balance is to be distributed over (1) a
period not extending beyond the life expectancy of the Participant or
the joint life and last survivor expectancy of the Participant and the
Participant's Designated Beneficiary or (2) a period not extending
beyond the life expectancy of the Designated Beneficiary, the amount
required to be distributed for each calendar year, beginning with
distributions for the First Distribution Calendar Year, must at least
equal the quotient obtained by dividing the Participant's account
balance by the Applicable Life Expectancy.
(b) For calendar years beginning before 1989, if the Participant's Spouse
is not the Designated Beneficiary, the method of distribution selected
must have required that at least 50% of the Present Value of the
amount available for distribution was to be paid within the life
expectancy of the Participant.
(c) For calendar years beginning after 1988, the amount to be distributed
each year, beginning with distributions for the First Distribution
Calendar Year shall not be less than the quotient obtained by dividing
the Participant's benefit by the lesser of (1) the Applicable Life
Expectancy or (2) if the Participant's Spouse is not the Designated
Beneficiary, the applicable divisor determined from the table set
forth in Q&A-4 of Section 1.401(a)(9)-2 of the Income Tax Regulations.
Distributions after the death of the Participant shall be distributed
<PAGE> 51
using the Applicable Life Expectancy as the relevant divisor without
regard to Regulations Section 1.401 (a)(9)-2.
(d) The minimum distribution required for the Participant's First
Distribution Calendar Year must be made on or before the Participant's
Required Beginning Date. The minimum distribution for other calendar
years, including the minimum distribution for the Distribution
Calendar Year in which the Participant's Required Beginning Date
occurs, must be made on or before December 31 of that Distribution
Calendar Year.
(e) If the Participant's benefit is distributed in the form of an annuity
purchased from an insurance company, distributions thereunder shall be
made in accordance with the requirements of Code Section 401(a)(9) and
the Regulations thereunder.
(f) For purposes of determining the amount of the required distribution
for each Distribution Calendar Year, the account balance to be used is
the account balance determined as of the last valuation preceding the
Distribution Calendar Year. This balance will be increased by the
amount of any contributions or forfeitures allocated to the account
balance after the valuation date in such preceding calendar year.
Such balance will also be decreased by distributions made after the
Valuation Date in such preceding Calendar Year.
(g) For purposes of subparagraph 7.4(f), 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.
7.5 REQUIRED BEGINNING DATE
(a) General Rule. The Required Beginning Date of a Participant is the
first day of April of the calendar year following the calendar year in
which the Participant attains age 70-1/2.
(b) Transitional Rules. The Required Beginning Date of a Participant who
attained age 70-1/2 before 1988, shall be determined in accordance
with (1) or (2) below:
(1) Non-5-percent owners. The Required Beginning Date of a
Participant who is not a 5-percent owner is the first day of
April of the calendar year following the calendar year in
which the later of retirement or attainment of age 70-1/2
occurs. In the case of a Participant who is not a 5-percent
owner who attains age 70- 1/2 during 1988 and who has not
retired as of January 1, 1989, the Required Beginning Date is
April 1, 1990.
(2) 5-percent owners. The Required Beginning Date of a
Participant who is a 5-percent owner during any year beginning
after 1979, is the first day of April following the later of:
<PAGE> 52
(i) the calendar year in which the Participant attains age
70-1/2, or
(ii) the earlier of the calendar year with or within which
ends the plan year in which the Participant becomes a
5- percent owner, or the calendar year in which the
Participant retires.
(c) A Participant is treated as a 5-percent owner for purposes of this
Paragraph if such Participant is a 5-percent owner as defined in Code
Section 416(i) (determined in accordance with 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 such Owner
attains age 66-1/2 or any subsequent Plan Year.
(d) Once distributions have begun to a 5-percent owner under this
paragraph, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
7.6 TRANSITIONAL RULE
(a) Notwithstanding the other requirements of this Article and subject to
the requirements of Article VIII, Joint and Survivor Annuity
Requirements, distribution on behalf of any Employee, including a
5-percent owner, may be made in accordance with all of the following
requirements (regardless of when such distribution commences):
(i) The distribution by the Trust is one which would not
have disqualified such Trust under Code Section 401
(a)(9) as in effect prior to amendment by the Deficit
Reduction Act of 1984.
(ii) The distribution is in accordance with a method of
distribution designated by the Employee whose
interest in the Trust is being distributed or, if the
Employee is deceased, by a beneficiary of such
Employee.
(iii) Such designation was in writing, was signed by the
Employee or the beneficiary, and was made before 1984.
(iv) The Employee had accrued a benefit under the Plan as
of December 31, 1983.
(v) The method of distribution designated by the Employee
or the beneficiary specifies the time at which
distribution will commence, the period over which
distributions will be made, and in the case of any
distribution upon the Employee's death, the
beneficiaries of the Employee listed in order of
priority.
(b) A distribution upon death will not be covered by this transitional
rule unless the information in the designation contains the required
information described above with respect to the distributions to be
made upon the death of the Employee.
<PAGE> 53
(c) For any distribution which commences before 1984, but continues after
1983, the Employee, or the beneficiary, to whom such distribution is
being made, will be presumed to have designated the method of
distribution under which the distribution is being made if the method
of distribution was specified in writing and the distribution
satisfies the requirements in subparagraphs (a)(i) and (v) above.
(d) If a designation is revoked, any subsequent distribution must satisfy
the requirements of Code Section 401(a)(9) and the regulations
thereunder. If a designation is revoked subsequent to the date
distributions are required to begin, the Trust must distribute by the
end of the calendar year following the calendar year in which the
revocation occurs the total amount not yet distributed which would
have been required to have been distributed to satisfy Code Section
401(a)(9) and the regulations thereunder, but for the section
242(b)(2) election of the Tax Equity and Fiscal Responsibility Act of
1982. For calendar years beginning after 1988, such distributions
must meet the minimum distribution incidental benefit requirements in
section 1.401 (a)(9)-2 of the Income Tax Regulations. Any changes in
the designation will be considered to be a revocation of the
designation. However, the mere substitution or addition of another
beneficiary (one not named in the designation) under the designation
will not be considered to be a revocation of the designation, so long
as such substitution or addition does not alter the period over which
distributions are to be made under the designation, directly or
indirectly (for example, by altering the relevant measuring life). In
the case in which an amount is transferred or rolled over from one
plan to another plan, the rules in Q&A J-2 and Q&A J- 3 of the
regulations shall apply.
7.7 DESIGNATION OF BENEFICIARY FOR DEATH BENEFIT Each Participant shall
file a written designation of beneficiary with the Employer upon qualifying for
participation under this Plan. Such designation shall remain in force until
revoked by the Participant by filing a new beneficiary form with the Employer.
The Participant may elect to have a portion of his or her account balance
invested in an insurance contract. If an insurance contract is purchased under
the Plan the Trustee must be named as Beneficiary under the terms of the
contract. However, the Participant shall designate a Beneficiary to receive
the proceeds of the contract after settlement is received by the Trustee.
Under a profit-sharing plan satisfying the requirements of paragraph 8.7, the
Designated Beneficiary shall be the Participant's Surviving Spouse, if any,
unless such Spouse properly consents otherwise.
7.8 NONEXISTENCE OF BENEFICIARY Any portion of the amount payable
hereunder which is undisposed of because of the Participant's or former
Participant's failure to designate a Beneficiary, or because all of the
Designated Beneficiaries predeceased the Participant, shall be paid to his or
her Spouse. If the Participant has no Spouse at the time of death, payment
shall be made to the personal representative of his or her estate in a lump
sum.
7.9 DISTRIBUTION BEGINNING BEFORE DEATH If the Participant dies after
distribution of his or her interest has begun, the remaining portion of
<PAGE> 54
such interest will continue to be distributed at least as rapidly as under the
method of distribution being used prior to the Participant's death.
7.10 DISTRIBUTION BEGINNING AFTER DEATH If the Participant dies before
distribution of his or her interest begins, distribution of the Participant's
entire interest shall be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death except to the
extent that an election is made to receive distributions in accordance with (a)
or (b) below:
(a) if any portion of the Participant's interest is payable to a
Designated Beneficiary, distributions may be made 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 died;
(b) if the Designated Beneficiary is the Participant's surviving Spouse,
the date distributions are required to begin in accordance with (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 died or (2) December 31 of the calendar year in which the
Participant would have attained age 70-1/2.
If the Participant has not made an election pursuant to this paragraph 7.10 by
the time of his or her death, the Participant's Designated Beneficiary must
elect the method of distribution no later than the earlier of (1) December 31
of the calendar year in which distributions would be required to begin under
this section, or (2) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the participant. If the Participant has no
Designated Beneficiary, or if the Designated Beneficiary does not elect a
method of distribution, then distribution of the Participant's entire interest
must be completed by December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
For purposes of this paragraph, if the Surviving Spouse dies after the
Participant, but before payments to such Spouse begin, the provisions of this
paragraph with the exception of paragraph (b) herein, shall be applied as if
the Surviving Spouse were the Participant. For the purposes of this paragraph
and paragraph 7.9 distribution of a Participant's interest is considered to
begin on the Participant's Required Beginning Date (or, if the preceding
sentence is applicable, the date distribution is required to begin to the
Surviving Spouse). If distribution in the form of an annuity described in
paragraph 7.4(e) irrevocably commences to the Participant before the Required
Beginning Date, the date distribution is considered to begin is the date
distribution actually commences.
For purposes of paragraph 7.9 and this paragraph, any amount paid to a child of
the 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.
7.11 ESCHEAT In the event any vested account balance is unclaimed and the
Plan Administrator is unable to determine the whereabouts of the Participant,
beneficiary or any other person whose benefits from the Plan
<PAGE> 55
are due, within three years from the date such benefit would otherwise be
payable, such vested account balance shall be forfeited and revert to and
become part of the Trust upon written direction of the Plan Administrator;
provided, however, such unclaimed benefits shall be reinstated from earnings
and forfeitures, and Employer Contributions designated for that purpose if the
claimant to whom such benefit is due and owing subsequently makes written
application to the Plan Administrator. The Plan Administrator also reserves
the right, with the consent of the Trustee/Custodian, to direct the
Trustee/Custodian to dispose of any unclaimed benefits under the escheat
statutes of the applicable state law, as defined in Article XVI.
ARTICLE VIII
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
8.1 APPLICABILITY OF PROVISIONS The provisions of this Article shall
apply to any Participant who is credited with at least one Hour of Service with
the Employer on or after August 23,1984 and such other Participants as provided
in paragraph 8.8.
8.2 PAYMENT OF QUALIFIED JOINT AND SURVIVOR ANNUITY Unless an optional
form of benefit is selected pursuant to a Qualified Election within the 90 day
period ending on the Annuity Starting Date, a married Participant's Vested
Account Balance will be paid in the form of a Qualified Joint and Survivor
Annuity and an unmarried Participant's Vested Account Balance will be paid in
the form of a life annuity. The Participant may elect to have such annuity
distributed upon attainment of the Early Retirement Age under the Plan.
8.3 PAYMENT OF QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY Unless an
optional form of benefit has been selected within the Election Period pursuant
to a Qualified Election, if a Participant dies before benefits have commenced
then the Participant's vested account balance shall be paid to the Surviving
Spouse in the form of a life annuity. The Surviving Spouse may elect to have
such annuity distributed within a reasonable period after the Participant's
death.
A Participant who does not meet the age 35 requirement set forth in the
Election Period as of the end of any current Plan Year may make a special
qualified election to waive the qualified Pre-retirement Survivor Annuity for
the period beginning on the date of such election and ending on the first day
of the Plan Year in which the Participant will attain age 35. Such election
shall not be valid unless the Participant receives a written explanation of the
Qualified Pre-retirement Survivor Annuity in such terms as are comparable to
the explanation required under paragraph 8.4. Qualified Pre-retirement
Survivor Annuity coverage will be automatically reinstated as of the first day
of the Plan Year in which the Participant attains age 35. Any new waiver on or
after such date shall be subject to the full requirements of this Article.
8.4 QUALIFIED ELECTION A Qualified Election is an election to either
waive a Qualified Joint and Survivor Annuity or a qualified pre-retirement
survivor annuity. Any such election shall not be effective unless:
<PAGE> 56
(a) the Participant's Spouse consents in writing to the election;
(b) the election designates a specific Beneficiary, including any class of
beneficiaries or any contingent beneficiaries, which may not be
changed without spousal consent (or the Spouse expressly permits
designations by the Participant without any further spousal consent);
(c) the Spouse's consent acknowledges the effect of the election; and
(d) the Spouse's consent is witnessed by a Plan representative or notary
public.
Additionally, a Participant's waiver of the Qualified Joint and Survivor
Annuity shall not be effective unless the election designates a form of benefit
payment which may not be changed without spousal consent (or the Spouse
expressly permits designations by the Participant without any further spousal
consent). If it is established to the satisfaction of the Plan Administrator
that there is no Spouse or that the Spouse cannot be located, a waiver will be
deemed a Qualified Election. Any consent by a Spouse obtained under this
provision (or establishment that the consent of a Spouse may not be obtained)
shall be effective only with respect to such Spouse. A consent that permits
designations by the Participant without any requirement of further consent by
such Spouse must acknowledge that the Spouse has the right to limit consent to
a specific beneficiary, and a specific form of benefit where applicable, and
that the Spouse voluntarily elects to relinquish either or both of such rights.
A revocation of a prior waiver may be made by a Participant without the consent
of the Spouse at any time before the commencement of benefits. The number of
revocations shall not be limited. No consent obtained under this provision
shall be valid unless the Participant has received notice as provided in
paragraphs 8.5 and 8.6 below.
8.5 NOTICE REQUIREMENTS FOR QUALIFIED JOINT AND SURVIVOR ANNUITY The Plan
Administrator shall provide each Participant a written explanation of:
(a) the terms and conditions of a Qualified Joint and Survivor Annuity;
(b) the Participant's right to make and the effect of an election to waive
the Qualified Joint and Survivor Annuity form of benefit;
(c) the rights of a Participant's Spouse; and
(d) the right to make, and the effect of, a revocation of a previous
election to waive the Qualified Joint and Survivor Annuity.
Such notice shall be provided not less than 30 days and no more than 90 days
prior to the Annuity Starting date.
8.6 NOTICE REQUIREMENTS FOR QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY The
Plan Administrator shall provide each Participant a written explanation of the
qualified pre-retirement survivor annuity in such terms and in such manner as
would be comparable to the explanation provided for meeting the requirements of
paragraph 8.5 applicable to a Qualified Joint and Survivor Annuity. Such
explanation shall be provided within whichever of the following periods ends
last:
<PAGE> 57
(a) the period beginning with the first day of the Plan Year in which the
Participant attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age 35;
(b) a reasonable period ending after the individual becomes a Participant;
(c) a reasonable period ending after this Article first applies to the
Participant. Notwithstanding the foregoing, notice must be provided
within a reasonable period ending after separation from Service in the
case of a Participant who separates from Service before attaining age
35.
For purposes of applying the preceding paragraph, a reasonable period ending
after the events described in (b) and (c) is the end of the two-year period
beginning one-year prior to the date the applicable event occurs, and ending
one-year after that date. In the case of a Participant who separates from
Service before the Plan Year in which age 35 is attained, notice shall be
provided within the two-year period beginning one year prior to separation and
ending one year after separation. If such a Participant subsequently returns
to employment with the Employer, the applicable period for such Participant
shall be re-determined.
8.7 SPECIAL SAFE-HARBOR EXCEPTION FOR CERTAIN PROFIT-SHARING PLANS
(a) This paragraph shall apply to a Participant in a profit- sharing plan,
and to any distribution made on or after the first day of the first
plan year beginning after 1988, from or under a separate account
attributable solely to Qualified Voluntary contributions, as
maintained on behalf of a Participant in a money purchase pension
plan, (including a target benefit plan) if the following conditions
are satisfied:
(1) the Participant does not or cannot elect payments in the form
of a life annuity; and
(2) on the death of a Participant, the Participant's Vested
Account Balance will be paid to the Participant's Surviving
Spouse, but if there is no Surviving Spouse, or if the
Surviving Spouse has consented in a manner conforming to a
Qualified Election, then to the Participant's Designated
Beneficiary.
The Surviving Spouse may elect to have distribution of the Vested
Account Balance commence within the 90-day period following the date
of the Participant's death. The account balance shall be adjusted for
gains or losses occurring after the Participant's death in accordance
with the provisions of the Plan governing the adjustment of account
balances for other types of distributions. These safe-harbor rules
shall not be operative with respect to a Participant in a
profit-sharing plan if that plan is a direct or indirect transferee of
a Defined Benefit Plan, money purchase pension plan, a target benefit
plan, stock bonus plan, or profit-sharing plan which is subject to the
survivor annuity requirements of Code Section 401(a)(11) and Code
Section 417, and would therefore have a Qualified Joint and Survivor
Annuity as its normal form of benefit.
<PAGE> 58
(b) The Participant may waive the spousal death benefit described in this
paragraph at any time provided that no such waiver shall be effective
unless it satisfies the conditions (described in paragraph 8.4) that
would apply to the Participant's waiver of the qualified
pre-retirement survivor annuity.
(c) If this paragraph 8.7 is operative, then all other provisions of this
Article other than paragraph 8.8 are inoperative.
8.8 TRANSITIONAL JOINT AND SURVIVOR ANNUITY RULES Special transition
rules apply to Participants who are not receiving benefits on August 23, 1984.
(a) Any living Participant not receiving benefits on August 23, 1984, who
would otherwise not receive the benefits prescribed by the previous
paragraphs of this Article, must be given the opportunity to elect to
have the prior paragraphs of this Article apply if such Participant is
credited with at least one Hour of Service under this Plan or a
predecessor Plan in a Plan Year beginning on or after January 1, 1976
and such Participant had at least 10 Years of Service for vesting
purposes when he or she separated from Service.
(b) Any living Participant not receiving benefits on August 23, 1984, who
was credited with at least one Hour of Service under this Plan or a
predecessor Plan on or after September 2,1974, and who is not
otherwise credited with any Service in a Plan Year beginning on or
after January 1, 1976, must be given the opportunity to have his or
her benefits paid in accordance with paragraph 8.9.
(c) The respective opportunities to elect [as described in (a) and (b)
above] must be afforded to the appropriate Participants during the
period commencing on August 23, 1984 and ending on the date benefits
would otherwise commence to said Participants.
8.9 AUTOMATIC JOINT AND SURVIVOR ANNUITY AND EARLY SURVIVOR ANNUITY Any
Participant who has elected pursuant to paragraph 8.8(b) and any Participant
who does not elect under paragraph 8.8(a) or who meets the requirements of
paragraph 8.8(a), except that such Participant does not have at least 10 years
of vesting Service when he or she separates from Service, shall have his or her
benefits distributed in accordance with all of the following requirements if
benefits would have been payable in the form of a life annuity.
(a) Automatic Joint and Survivor Annuity. If benefits in the form of a
life annuity become payable to a married Participant who:
(1) begins to receive payments under the Plan on or after Normal
Retirement Age, or
(2) dies on or after Normal Retirement Age while still working for
the Employer, or
(3) begins to receive payments on or after the Qualified Early
Retirement Age, or
<PAGE> 59
(4) separates from Service on or after attaining Normal Retirement
(or the Qualified Early Retirement Age) and after satisfying
the eligibility requirements for the payment of benefits under
the Plan and thereafter dies before beginning to receive such
benefits, then such benefits will be received under this Plan
in the form of a Qualified Joint and Survivor Annuity, unless
the Participant has elected otherwise during the Election
Period. The Election Period must begin at least 6 months
before the Participant attains Qualified Early Retirement Age
and end not more than 90 days before the commencement of
benefits. Any election hereunder will be in writing and may
be changed by the Participant at any time.
(b) Election of Early Survivor Annuity. A Participant who is employed
after attaining the Qualified Early Retirement Age will be given the
opportunity to elect, during the Election Period, to have a survivor
annuity payable on death. If the Participant elects the survivor
annuity, payments under such annuity must not be less than the
payments which would have been made to the Spouse under the Qualified
Joint and Survivor Annuity if the Participant had retired on the day
before his or her death. Any election under this provision will be in
writing and may be changed by the Participant at any time. The
Election Period begins on the later of:
(1) the 90th day before the Participant attains the Qualified Early
Retirement Age, or
(2) the date on which participation begins, and ends on the date
the Participant terminates employment.
8.10 ANNUITY CONTRACTS Any annuity contract distributed herefrom must be
nontransferable. The terms of any annuity contract purchased and distributed
by the Plan to a Participant or Spouse shall comply with the requirements of
this Plan.
ARTICLE IX
VESTING
9.1 EMPLOYEE CONTRIBUTIONS A Participant shall always have a 100% vested
and nonforfeitable interest in his or her Mandatory Contributions, Voluntary
Contributions, Qualified Voluntary Contributions, Rollover Contributions, and
Transfer Contributions plus the earnings thereon. No forfeiture of Employer
related contributions (including any minimum contributions made under paragraph
14.2 hereof) will occur solely as a result of an Employee's withdrawal of any
Employee contributions.
9.2 EMPLOYER CONTRIBUTIONS A Participant shall acquire a vested and
nonforfeitable interest in his or her account attributable to Employer
contributions in accordance with the table selected in the Adoption Agreement,
provided that if a Participant is not already fully vested, he or she shall
become so upon attaining Normal Retirement Age, Early Retirement Age, on death
prior to normal retirement, on retirement due to Disability, or on termination
of the Plan.
<PAGE> 60
9.3 COMPUTATION PERIOD The computation period for purposes of determining
Years of Service and Breaks in Service for purposes of computing a
Participant's nonforfeitable right to his or her account balance derived from
Employer contributions shall be determined by the Employer in the Adoption
Agreement. If the Employer provides for other than full and immediate vesting
and does not designate otherwise, the computation period shall be the Plan
Year. In the event a former Participant with no vested interest in his or her
Employer contribution account requalifies for participation in the Plan after
incurring a Break in Service, such Participant shall be credited for vesting
with all pre-break and post-break Service.
9.4 REQUALIFICATION PRIOR TO FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE
The account balance of such Participant shall consist of any undistributed
amount in his or her account as of the date of re-employment plus any future
contributions added to such account plus the investment earnings on the
account. The vested account balance of such Participant shall be determined by
multiplying the Participant's account balance (adjusted to include any
distribution or redeposit made under paragraph 6.3 hereof) by such
Participant's vested percentage.
All Service of the Participant, both prior to and following the break, shall be
counted when computing the Participant's vested percentage.
9.5 REQUALIFICATION AFTER FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE If
such Participant is not fully vested upon re-employment, a new account shall be
established for such Participant to separate his or her deferred vested and
nonforfeitable account, if any, from the account to which new allocations will
be made. The Participant's deferred account to the extent remaining shall be
fully vested and shall continue to share in earnings and losses of the Fund.
When computing the Participant's vested portion of the new account, all
pre-break and post-break Service shall be counted. However, notwithstanding
this provision, no such former Participant who has had five consecutive
one-year Breaks in Service shall acquire a larger vested and nonforfeitable
interest in his or her prior account balance as a result of requalification
hereunder.
9.6 CALCULATING VESTED INTEREST A Participant's vested and nonforfeitable
interest shall be calculated by multiplying the fair market value of his or her
account attributable to Employer contributions on the Valuation Date preceding
distribution by the decimal equivalent of the vested percentage as of his or
her termination date. The amount attributable to Employer contributions for
purposes of the calculation includes amounts previously paid out pursuant to
paragraph 6.3 and not repaid. The Participant's vested and nonforfeitable
interest, once calculated above, shall be reduced to reflect those amounts
previously paid out and not repaid. The Participant's vested and
nonforfeitable interest so determined shall continue to share in the investment
earnings and any increase or decrease in the fair market value of the Fund up
to the Valuation Date preceding or coinciding with payment.
9.7 FORFEITURES Any balance in the account of a Participant who has
separated from Service to which he or she is not entitled under the foregoing
provisions, shall be forfeited and applied as provided in the Adoption
Agreement. If not specified otherwise in the Adoption Agreement,
<PAGE> 61
forfeitures will be allocated to Participants in the same manner as the
Employer's contribution. A forfeiture may only occur if the Participant has
received a distribution from the Plan or if the Participant has incurred five
consecutive l-year Breaks in Service. Forfeitures shall inure only to the
accounts of Participants of the adopting Employer's plan. If not specified
otherwise in the Adoption Agreement, forfeitures shall be allocated at the end
of the Plan Year during which the former Participant incurs five consecutive
one-year Breaks in Service.
9.8 AMENDMENT OF VESTING SCHEDULE No amendment to the Plan shall have the
effect of decreasing a Participant's vested interest determined without regard
to such amendment as of the later of the date such amendment is adopted or the
date it becomes effective. Further, if the vesting schedule of the Plan is
amended, or the Plan is amended in any way that directly or indirectly affects
the computation of any Participant's nonforfeitable percentage, or if the Plan
is deemed amended by an automatic change to or from a Top-Heavy vesting
schedule, each Participant with at least three Years of Service with the
Employer may elect, within a reasonable period after the adoption of the
amendment or change, to have his or her nonforfeitable percentage computed
under the Plan without regard to such amendment or change. For Participants
who do not have at least one hour of service in any Plan Year beginning after
1988, the preceding sentence shall be applied by substituting "Five Years of
Service" for "Three Years of Service" where such language appears. The period
during which the election may be made shall commence with the date the
amendment is adopted or deemed to be made and shall end on the later of:
(a) 60 days after the amendment is adopted;
(b) 60 days after the amendment becomes effective; or
(c) 60 days after the Participant is issued written notice of the
amendment by the Employer or the Trustee/Custodian. If the
Trustee/Custodian is asked to so notify, the Fund will be charged for
the costs thereof.
No amendment to the Plan shall be effective to the extent that it has the
effect of decreasing a Participant's accrued benefit. Notwithstanding the
preceding sentence, a Participant's account balance may be reduced to the
extent permitted under section 412(c)(8) of the Code (relating to financial
hardships). For purposes of this paragraph, a Plan amendment which has the
effect of decreasing a Participant's account balance or eliminating an optional
form of benefit, with respect to benefits attributable to service before the
amendment shall be treated as reducing an accrued benefit.
9.9 SERVICE WITH CONTROLLED GROUPS All Years of Service with other
members of a controlled group of corporations [as defined in Code Section
414(b)], trades or businesses under common control [as defined in Code Section
414(c)], or members of an affiliated service group [as defined in Code Section
414(m)] shall be considered for purposes of determining a Participant's
nonforfeitable percentage.
ARTICLE X
<PAGE> 62
LIMITATIONS ON ALLOCATIONS
10.1 PARTICIPATION IN THIS PLAN ONLY If the Participant does not
participate in, and has never participated in another qualified plan, a Welfare
Benefit Fund (as defined in paragraph 1.72) or an individual medical account,
as defined in Code Section 415(1)(2), maintained by the adopting Employer,
which provides an Annual Addition as defined in paragraph 1.2, the amount of
Annual Additions which may be credited to the Participant's account for any
Limitation Year will not exceed the lesser of the Maximum Permissible Amount or
any other limitation contained in this Plan. If the Employer contribution that
would otherwise be contributed or allocated to the Participant's account would
cause the Annual Additions for the Limitation Year to exceed the Maximum
Permissible Amount, the amount contributed or allocated will be reduced so that
the Annual Additions for the Limitation Year will equal the Maximum Permissible
Amount. Prior to determining the Participant's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible Amount for
a Participant on the basis of a reasonable estimation of the Participant's
Compensation for the Limitation Year, uniformly determined for all Participants
similarly situated. As soon as is administratively feasible after the end of
the Limitation Year, the Maximum Permissible Amount for the Limitation Year
will be determined on the basis of the Participant's actual Compensation for
the Limitation Year.
10.2 DISPOSITION OF EXCESS ANNUAL ADDITIONS If pursuant to paragraph 10.1
or as a result of the allocation of forfeitures. there is an Excess Amount,
the excess will be disposed of under one of the following methods as determined
in the Adoption Agreement. If no election is made in the Adoption Agreement
then method "(a)" below shall apply.
(a) Suspense Account Method
(1) Any nondeductible Employee Voluntary Contributions, to the
extent they would reduce the Excess Amount, will be returned
to the Participant;
(2) If after the application of paragraph (1) an Excess Amount
still exists, and the Participant is covered by the Plan at
the end of the Limitation Year, the Excess Amount in the
Participant's account will be used to reduce Employer
contributions (including any allocation of forfeitures) for
such Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary;
(3) If after the application of paragraph (1) an Excess Amount
still exists, and the Participant is not covered by the Plan
at the end of the Limitation Year, the Excess Amount will be
held unallocated in a suspense account. The suspense account
will be applied to reduce future Employer contributions
(including allocation of any forfeitures) for all remaining
Participants in the next Limitation Year, and each succeeding
Limitation Year if necessary;
<PAGE> 63
(4) If a suspense account is in existence at any time during the
Limitation Year pursuant to this paragraph, it will not
participate in the allocation of investment gains and losses.
If a suspense account is in existence at any time during a
particular Limitation Year, all amounts in the suspense
account must be allocated and reallocated to Participants'
accounts before any Employer contributions or any Voluntary
contributions may be made to the Plan for that Limitation
Year. Excess amounts may not be distributed to Participants
or former Participants.
(b) Spillover Method
(1) Any Excess Amount which would be allocated to the account of
an individual Participant under the Plan's allocation formula
will be reallocated to other Participants in the same manner
as other Employer contributions. No such reallocation shall
be made to the extent that it will result in an Excess Amount
being created in such Participant's own account.
(2) To the extent that amounts cannot be reallocated under (1)
above, the suspense account provisions of (a) above will
apply.
10.3 PARTICIPATION IN THIS PLAN AND ANOTHER MASTER AND PROTOTYPE DEFINED
CONTRIBUTION PLAN, WELFARE BENEFIT FUND OR INDIVIDUAL MEDICAL ACCOUNT
MAINTAINED BY THE EMPLOYER The Annual Additions which may be credited to a
Participant's account under this Plan for any Limitation Year will not exceed
the Maximum Permissible Amount reduced by the Annual Additions credited to a
Participant's account under the other Master or Prototype Defined Contribution
Plans, Welfare Benefit Funds, and individual medical accounts as defined in
Code Section 415(1)(2), maintained by the Employer, which provide an Annual
Addition as defined in paragraph 1.2, for the same Limitation Year. If the
Annual Additions, with respect to the Participant under other Defined
Contribution Plans and Welfare Benefit Funds maintained by the Employer, are
less than the Maximum Permissible Amount and the Employer contribution that
would otherwise be contributed or allocated to the Participant's account under
this Plan would cause the Annual Additions for the Limitation Year to exceed
this limitation, the amount contributed or allocated will be reduced so that
the Annual Additions under all such plans and funds for the Limitation Year
will equal the Maximum Permissible Amount. If the Annual Additions with
respect to the Participant under such other Defined Contribution Plans and
Welfare Benefit Funds in the aggregate are equal to or greater than the Maximum
Permissible Amount, no amount will be contributed or allocated to the
Participant's account under this Plan for the Limitation Year. Prior to
determining the Participant's actual Compensation for the Limitation Year, the
Employer may determine the Maximum Permissible Amount for a Participant in the
manner described in paragraph 10.1. As soon as administratively feasible after
the end of the Limitation Year, the Maximum Permissible Amount for the
Limitation Year will be determined on the basis of the Participant's actual
Compensation for the Limitation Year.
10.4 DISPOSITION OF EXCESS ANNUAL ADDITIONS UNDER TWO PLANS If, pursuant
to paragraph 10.3 or as a result of forfeitures a Participant's Annual
Additions under this Plan and such other plans would result in an Excess
<PAGE> 64
Amount for a Limitation Year, the Excess Amount will be deemed to consist of
the Annual Additions last allocated except that Annual Additions attributable
to a Welfare Benefit Fund or individual medical account as defined in Code
Section 415(1)(2) will be deemed to have been allocated first regardless of the
actual allocation date. If an Excess Amount was allocated to a Participant on
an allocation date of this Plan which coincides with an allocation date of
another plan, the Excess Amount attributed to this Plan will be the product of:
(a) the total Excess Amount allocated as of such date, times
(b) the ratio of:
(1) the Annual Additions allocated to the Participant for the
Limitation Year as of such date under the Plan, to
(2) the total Annual Additions allocated to the Participant for
the Limitation Year as of such date under this and all the
other qualified Master or Prototype Defined Contribution
Plans.
Any Excess Amount attributed to this Plan will be disposed of in the manner
described in paragraph 10.2.
10.5 PARTICIPATION IN THIS PLAN AND ANOTHER DEFINED CONTRIBUTION PLAN WHICH
IS NOT A MASTER OR PROTOTYPE PLAN If the Participant is covered under another
qualified Defined Contribution Plan maintained by the Employer which is not a
Master or Prototype Plan, Annual Additions which may be credited to the
Participant's account under this Plan for any Limitation Year will be limited
in accordance with paragraphs 10.3 and 10.4 as though the other plan was a
Master or Prototype Plan, unless the Employer provides other limitations in the
Adoption Agreement.
10.6 PARTICIPATION IN THIS PLAN AND A DEFINED BENEFIT PLAN If the Employer
maintains, or at any time maintained, a qualified Defined Benefit Plan (other
than Paired Plan #02001, #02002, #02003 or #02004) covering any Participant in
this Plan, the sum of the Participant 's Defined Benefit Plan Fraction and
Defined Contribution Plan Fraction will not exceed 1.0 in any Limitation Year.
For any Plan Year during which the Plan is Top-Heavy, the Defined Benefit and
Defined Contribution Plan Fractions shall be calculated in accordance with Code
Section 416(h). The Annual Additions which may be credited to the
Participant's account under this Plan for any Limitation Year will be limited
in accordance with the Adoption Agreement.
ARTICLE XI
ADMINISTRATION
11.1 PLAN ADMINISTRATOR The Employer shall be the named fiduciary and Plan
Administrator. These duties shall include:
(a) appointing the Plan's attorney, accountant, actuary, or any other
party needed to administer the Plan,
<PAGE> 65
(b) directing the Trustee/Custodian with respect to payments from the
Fund,
(c) communicating with Employees regarding their participation and
benefits under the Plan, including the administration of all claims
procedures,
(d) filing any returns and reports with the Internal Revenue Service,
Department of Labor, or any other governmental agency,
(e) reviewing and approving any financial reports, investment reviews, or
other reports prepared by any party appointed by the Employer under
paragraph (a),
(f) establishing a funding policy and investment objectives consistent
with the purposes of the Plan and the Employee Retirement Income
Security Act of 1974, and
(g) construing and resolving any question of Plan interpretation. The
Plan Administrator's interpretation of Plan provisions including
eligibility and benefits under the Plan is final, and unless it can be
shown to be arbitrary and capricious will not be subject to "de novo"
review.
11.2 TRUSTEE/CUSTODIAN The Trustee/Custodian shall be responsible for the
administration of investments held in the Fund. These duties shall include:
(a) receiving contributions under the terms of the Plan,
(b) making distributions from the Fund in accordance with written
instructions received from an authorized representative of the
Employer, and
(c) keeping accurate records reflecting its administration of the Fund and
making such records available to the Employer for review and audit.
Within 90 days after each Plan Year, and within 90 days after its
removal or resignation, the Trustee/Custodian shall file with the
Employer an accounting of its administration of the Fund during such
year or from the end of the preceding Plan Year to the date of removal
or resignation. Such accounting shall include a statement of cash
receipts and disbursements since the date of its last accounting and
shall contain an asset list showing the fair market value of
investments held in the Fund as of the end of the Plan Year. The
value of marketable investments shall be determined using the most
recent price quoted on a national securities exchange or over the
counter market. The value of non-marketable investments shall be
determined in the sole judgement of the Trustee/Custodian which
determination shall be binding and conclusive. The value of
investments in securities or obligations of the Employer in which
there is no market shall be determined in the sole judgement of the
Employer, and the Trustee/Custodian shall have no responsibility with
respect to the valuation of such assets. The Employer shall review
the Trustee/Custodian's accounting and notify the Trustee/Custodian in
the event of its disapproval of the report within 90 days,
<PAGE> 66
providing the Trustee/Custodian with a written description of the
items in question. The Trustee/Custodian shall have 60 days to
provide the Employer with a written explanation of the items in
question. If the Employer again disapproves, the Trustee/Custodian
may file its accounting in a court of competent jurisdiction for audit
and adjudication.
(d) employing such agents, including but not limited to an investment
advisor which may or may not be a subsidiary or an affiliate of the
Trustee, attorneys or other professionals as the Trustee may deem
necessary or advisable in the performance of its duties.
The Trustee's/Custodian's duties shall be limited to those described above.
The Employer shall be responsible for any other administrative duties required
under the Plan or by applicable law.
11.3 ADMINISTRATIVE FEES AND EXPENSES All reasonable costs, charges and
expenses incurred by the Trustee/Custodian in connection with the
administration of the Fund and all reasonable costs, charges and expenses
incurred by the Plan Administrator in connection with the administration of the
Plan (including fees for legal services rendered to the Trustee/Custodian or
Plan Administrator) may be paid by the Employer, but if not paid by the
Employer when due, shall be paid from the Fund. Such reasonable compensation
to the Trustee/Custodian as may be agreed upon from time to time between the
Employer and the Trustee/Custodian and such reasonable compensation to the Plan
Administrator as may be agreed upon from time to time between the Employer and
Plan Administrator may be paid by the Employer, but if not paid by the Employer
when due shall be paid by the Fund. The Trustee/Custodian shall have the right
to liquidate trust assets to cover its fees. Notwithstanding the foregoing, no
compensation other than reimbursement for expenses shall be paid to a Plan
Administrator or a Trustee/Custodian who is the Employer or a full-time
Employee of the Employer. In the event any part of the Trust/Custodial Account
becomes subject to tax, all taxes incurred will be paid from the Fund unless
the Plan Administrator advises the Trustee/Custodian not to pay such tax.
11.4 DIVISION OF DUNES AND INDEMNIFICATION
(a) The Trustee/Custodian shall have the authority and discretion to
manage and govern the Fund to the extent provided in this instrument,
but does not guarantee the Fund in any manner against investment loss
or depreciation in asset value, or guarantee the adequacy of the Fund
to meet and discharge all or any liabilities of the Plan.
(b) The Trustee/Custodian shall not be liable for the making, retention or
sale of any investment or reinvestment made by it, as herein provided,
or for any loss to, or diminution of the Fund, or for any other loss
or damage which may result from the discharge of its duties hereunder
except to the extent it is judicially determined that the
Trustee/Custodian has failed to exercise the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent
person acting in a like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and like aims.
<PAGE> 67
(c) The Employer warrants that all directions issued to the
Trustee/Custodian by it, the Plan Administrator, an investment manager
appointed pursuant to Section 13.7, or any other authorized person,
will be in accordance with the terms of the Plan and not contrary to
the provisions of the Employee Retirement Income Security Act of 1974
and regulations issued thereunder.
(d) The Trustee/Custodian shall not be answerable for any action taken
pursuant to any direction, consent, certificate, or other paper or
document on the belief that the same is genuine and signed by the
proper person. All directions by the Employer, Participant or the
Plan Administrator shall be in writing. The Employer shall deliver to
the Trustee/Custodian certificates evidencing the individual or
individuals authorized to act as set forth in the Adoption Agreement
or as the Employer may subsequently inform the Trustee/Custodian in
writing and shall deliver to the Trustee/Custodian specimens of their
signatures.
(e) The duties and obligations of the Trustee/Custodian shall be limited
to those expressly imposed upon it by this instrument or subsequently
agreed upon by the parties. Responsibility for administrative duties
required under the Plan or applicable law not expressly imposed upon
or agreed to by the Trustee/Custodian, shall rest solely with the
Employer.
(f) The Trustee/Custodian shall be indemnified and saved harmless by the
Employer from and against any and all liability to which the
Trustee/Custodian may be subjected, including all expenses reasonably
incurred in its defense, for any action or failure to act resulting
from compliance with the instructions of the Employer, the employees
or agents of the Employer, the Plan Administrator, or any other
fiduciary to the Plan, and for any liability arising from the actions
or non-actions of any predecessor Trustee/Custodian or fiduciary or
other fiduciaries of the Plan.
(g) The Trustee/Custodian shall not be responsible in any way for the
application of any payments it is directed to make or for the adequacy
of the Fund to meet and discharge any and all liabilities under the
Plan.
ARTICLE XII
TRUST FUND/CUSTODIAL ACCOUNT
12.1 THE FUND The Fund shall consist of all contributions made under
Article III and Article IV of the Plan and the investment thereof and earnings
thereon. All contributions and the earnings thereon less payments made under
the terms of the Plan, shall constitute the Fund. The Fund shall be
administered as provided herein.
12.2 CONTROL OF PLAN ASSETS The assets of the Fund or evidence of ownership
shall be held by the Trustee/Custodian under the terms of the Plan and
Trust/Custodial Account. If the assets represent amounts transferred from
another trustee/custodian under a former Plan, the
<PAGE> 68
Trustee/Custodian named hereunder shall not be responsible for any actions of
the prior fiduciary including the review of the propriety of any investment
under the former plan, said review to be the responsibility of the Employer.
12.3 EXCLUSIVE BENEFIT RULES No part of the Fund shall be used for, or
divened to, purposes other than for the exclusive benefit of Participants,
former Participants with a vested interest, and the Beneficiary or
Beneficiaries of deceased Participants having a vested interest in the Fund at
death.
12.4 ASSIGNMENT AND ALIENATION OF BENEFITS No right or claim to, or
interest in, any part of the Fund, or any payment therefrom, shall be
assignable, transferable, or subject to sale, mortgage, pledge, hypothecation,
commutation, anticipation, garnishment, attachment, execution, or levy of any
kind, and the Trustee/Custodian shall not recognize any attempt to assign,
transfer, sell, mortgage, pledge, hypothecate, commute, or anticipate the same,
except to the extent required by law. The preceding sentence shall also apply
to the creation, assignment, or recognition of a right to any benefit payable
with respect to a Participant pursuant to a domestic relations order, unless
such order is determined to be a Qualified Domestic Relations Order, as defined
in Code Section 414(p), or any domestic relations order entered before January
1, 1985 which the Plan attorney and Plan Administrator deem to be qualified.
19.5 DETERMINATION OF QUALIFIED DOMESTIC RELATIONS ORDER (QDRO) A
Qualified Domestic Relations Order shall specifically state all of the
following in order to be deemed a QDRO:
(a) The name and last known mailing address (if any) of the Participant
and of each alternate payee covered by the Order. However, if the
QDRO does not specify the current mailing address of the alternate
payee, but the Plan Administrator has independent knowledge of that
address, the QDRO will still be valid.
(b) The dollar amount or percentage of the Participant's benefit to be
paid by the Plan to each alternate payee, or the manner in which the
amount or percentage will be determined.
(c) The number of payments or period for which the order applies.
(d) The specific plan (by name) to which the Order applies.
The Order shall not be deemed a QDRO if it requires the Plan to provide:
(e) any type or form of benefit, or any option not already provided for in
the Plan;
(f) increased benefits, or benefits in excess of the Participant's vested
rights;
(g) payment of a benefit earlier than allowed by the Plan's earliest
retirement provisions or in the case of a profit- sharing plan, prior
to the allowability of in-service withdrawals, or
<PAGE> 69
(h) payment of benefits to an alternate payee which are required to be
paid to another alternate payee under another QDRO.
Promptly, upon receipt of a Domestic Relations Order which may or may not be
"Qualified" the Plan Administrator shall notify the Participant and any
alternate payee(s) named in the Order of such receipt, and include a copy of
this paragraph 12.5. The Plan Administrator shall then forward the Order to
the Plan's legal counsel for an opinion as to whether or not the Order is in
fact "Qualified" as defined in Code Section 414(p). Within a reasonable time
after receipt of the Order, not to exceed 60 days, the Plan's legal counsel
shall make a determination as to its "Qualified" status and the Participant and
any alternate payee(s) shall be promptly notified in writing of the
determination.
If the "Qualified" status of the Order is in question, there will be a delay in
any payout to any payee including the Participant, until the status is
resolved. In such event, the Plan Administrator shall segregate the amount
that would have been payable to the alternate payee(s) if the Order had been
deemed a QDRO. If the Order is not Qualified, or the status is not resolved
(for example, it has been sent back to the Court for clarification or
modification) within 18 months beginning with the date the first payment would
have to be made under the Order, the Plan Administrator shall pay the
segregated amounts plus interest to the person(s) who would have been entitled
to the benefits had there been no Order. If a determination as to the
Qualified status of the Order is made after the 18-month period described
above, then the Order shall only be applied on a prospective basis. If the
Order is determined to be a QDRO, the Participant and alternate payee(s) shall
again be notified promptly after such determination. Once an Order is deemed a
QDRO, the Plan Administrator shall pay to the alternate payee(s) all the
amounts due under the QDRO, including segregated amounts plus interest which
may have accrued during a dispute as to the Order's qualification.
Unless specified otherwise in the Adoption Agreement, the earliest retirement
age with regard to the Participant against whom the order is entered shall be
the date the order is determined to be qualified. This will only allow payouts
to alternate payee(s) and not the Participant.
ARTICLE XIII
INVESTMENTS
13.1 FIDUCIARY STANDARDS The Trustee shall invest and reinvest income in
the same Fund in accordance with the investment objectives established by the
Employer, provided that:
(a) such investments are prudent under the Employee Retirement Income
Security Act of 1974 and the regulations promulgated thereunder,
(b) such investments are sufficiently diversified or otherwise insured or
guaranteed to minimize the risk of large losses, and
<PAGE> 70
(c) such investments are similar to those which would be purchased by
another professional money manager for a like plan with similar
investment objectives.
13.2 FUNDING ARRANGEMENT The Employer shall, in the Adoption Agreement,
appoint a Trustee to administer the Fund and/or a Custodian to have custody of
the Fund. The Trustee shall invest the Fund in any of the alternatives
available under paragraph 13.3. If a Custodian is appointed, the Fund shall be
invested as provided in paragraph 13.4.
13.3 INVESTMENT ALTERNATIVES OF THE TRUSTEE The Trustee shall implement an
investment program based on the Employer's investment objectives and the
Employee Retirement Income Security Act of 1974. In addition to powers given
by law, the Trustee may:
(a) invest the Fund in any form of property, including common and
preferred stocks, exchange traded put and call options, bonds, money
market instruments, mutual funds (including funds for which the
Trustee/Custodian or its subsidiaries or its affiliates serve as
investment advisor), savings accounts, certificates of deposit,
Treasury bills, insurance policies and contracts, or in any other
property, real or personal, having a ready market including securities
issued by the Trustee and/or affiliates of the Trustee. The Trustee
may also make loans to Plan Participants in accordance with paragraph
13.5 hereof. The Trustee may invest in its own deposits, and if
applicable those of affiliates, which bear a reasonable interest rate.
No portion of any Qualified Voluntary Contribution, or the earnings
thereon, may be invested in life insurance contracts or, as with any
Participant-directed investment, in tangible personal property
characterized by the IRS as a collectible,
(b) invest any assets of the Fund in a group or collective trust
established to permit the pooling of funds of separate pension and
profit-sharing trusts, provided such group or collective trust is
qualified under Code Section 401(a) and exempt under Code Section
501(a) (or the applicable corresponding provision of any other Revenue
Act) or to any other common, collective, or commingled trust fund
which has been or may hereafter be established and maintained by the
Trustee/Custodian and/or affiliates of the Trustee/Custodian. Such
commingling of assets of the Fund with assets of other qualified
trusts is specifically authorized, and to the extent of the investment
of the Fund in such a group or collective trust, the terms of the
instrument establishing the group or collective trust shall be a part
hereof as though set forth herein. The terms of said instrument(s)
may authorize the Trustee of the group or collective trust to engage
in securities lending transactions where fees may be deducted from the
group or collective trust's loan income,
(c) invest the Fund in the common stock, debt obligations, or any other
security issued by the Employer or by an affiliate of the Employer
within the limitations provided under Sections 406, 407, and 408 of
the Employee Retirement Income Security Act of 1974 and further
provided that such investment does not constitute a prohibited
transaction under Code Section 4975. Any such investment in Employer
<PAGE> 71
securities shall only be made upon written direction of the Employer
who shall be solely responsible for propriety of such investment,
(d) hold cash uninvested and deposit same with any banking or savings
institution, including iis own banking department or the banking
department of an affiliate,
(e) join in or oppose the reorganization, recapitalization, consolidation,
sale or merger of corporations or properties, including those in which
it is interested as Trustee, upon such terms as it deems wise,
(f) hold investments in nominee or bearer form,
(g) vote proxies and if appropriate pass them on to any investment manager
which may have directed the investment in the equity giving rise to
the proxy,
(h) exercise all ownership rights with respect to assets held in the Fund.
13.4 INVESTMENT ALTERNATIVES OF THE CUSTODIAN The Custodian shall be
depository of all or part of the Fund and shall, at the written direction of
the Trustee hold any assets received from the Trustee or its agents. The
Custodian may rely upon any order, certificate, notice, direction or other
written directive issued by the Trustee or its agents. The Custodian shall
receive and deliver assets as instructed by the Trustee or its agents, or an
investment manager appointed pursuant to Section 13.7 through written
direction. To the extent that the Custodian holds title to Plan assets and
such ownership requires action on the part of the registered owner, such action
will be taken by the Custodian only upon receipt of specific written
instructions from the Trustee or its agents or an investment manager. Proxies
shall be voted by or pursuant to the express direction of the Trustee or
authorized agent of the Trustee. The Custodian shall not give any investment
advice, including any opinion on the prudence of directed investments. The
Employer and Trustee and the agents thereof assume all responsibility for
adherence to fiduciary standards under the Employee Retirement Income Security
Act of 1974 (ERISA) and all amendments thereof, and regulations thereunder.
13.5 PARTICIPANT LOANS If agreed upon by the Trustee and permitted by the
Employer in the Adoption Agreement, a Plan Participant may make application to
the Employer requesting a loan from the Fund. The Employer shall have the sole
right to approve or disapprove a Participant's application provided that loans
shall be made available to all Participants on a reasonably equivalent basis.
Loans shall not be made available to highly compensated employees [as defined
in Code Section 414(q)] in an amount greater than the amount made available to
other Employees. Any loan granted hereunder shall be made subject to the
following rules:
(a) No loan granted hereunder shall exceed the lesser of (i) $50,000
reduced by the excess, if any, of the highest outstanding balance of
loans during the one year period ending on the day before the loan is
made, over the outstanding balance of loans from the Plan on the date
the loan is made or (ii) one-half of the fair market value of a
Participant's vested account balance built up from Employer
Contributions, Voluntary Contributions, and Rollover Contributions.
<PAGE> 72
If the Participant's vested account balance is $20,000 or less, the
maximum loan shall not exceed the lesser of $10,000 or 100% of the
Participant's vested account balance. For the purpose of the above
limitation, all loans from all plans of the Employer and other members
of a group of employers described in Code Sections 414(b), 414(c), and
414(m) are aggregated. An assignment or pledge of any portion of the
Participant's interest in the Plan and a loan, pledge, or assignment
with respect to any insurance contract purchased under the Plan, will
be treated as a loan under this paragraph.
(b) All applications must be made on forms provided by the Employer and
must be signed by the Participant.
(c) Any loan granted hereunder shall bear interest at a rate reasonable at
the time of application, considering the purpose of the loan and the
rate being charged by representative commercial banks in the local
area for a similar loan unless the Employer sets forth a different
method for determining loan interest rates in its loan procedures.
The loan agreement shall also provide that the payment of principal
and interest be amortized in level payments not less frequently than
quarterly.
(d) The term of such loan shall not exceed five years except in the case
of a loan for the purpose of acquiring any house, apartment,
condominium, or mobile home (not used on a transient basis) which is
used or is to be used within a reasonable time as the principal
residence of the Participant. The term of such loan shall be
determined by the Employer considering the maturity dates quoted by
representative commercial banks in the local area for a similar loan.
(e) The principal and interest paid by a Participant on his or her loan
shall be credited to the Fund in the same manner as for any other Plan
investment. If elected in the Adoption Agreement, loans may be
treated as segregated investments of the individual Participants.
This provision is not available if its election will result in
discrimination in operation of the Plan.
(f) If a Participant's loan application is approved by the Employer, such
Participant shall be required to sign a note, loan agreement, and
assignment of one-half of his or her interest in the Fund as
collateral for the loan. The Participant, except in the case of a
profit-sharing plan satisfying the requirements of paragraph 8.7, must
obtain the consent of his or her Spouse, if any, within the 90 day
period before the time his or her account balance is used as security
for the loan. A new consent is required if the account balance is
used for any renegotiation, extension, renewal or other revision of
the loan, including an increase in the amount thereof. The consent
must be written, must acknowledge the effect of the loan, and must be
witnessed by a plan representative or notary public. Such consent
shall thereafter be binding with respect to the consenting Spouse or
any subsequent Spouse.
(g) If a valid Spousal consent has been obtained, then, notwithstanding
any other provision of this Plan, the portion of the Participant's
vested account balance used as a security interest held by the Plan
<PAGE> 73
by reason of a loan outstanding to the Participant shall be taken into
account for purposes of determining the amount of the account balance
payable at the time of death or distribution, but only if the
reduction is used as repayment of the loan. If less than 100% of the
Participant's vested account balance (determined without regard to the
preceding sentence) is payable to the surviving Spouse, then the
account balance shall be adjusted by first reducing the vested account
balance by the amount of the security used as repayment of the loan,
and then determining the benefit payable to the Surviving Spouse.
(h) The Employer may also require additional collateral in order to
adequately secure the loan.
(i) A Participant's loan shall immediately become due and payable if such
Participant terminates employment for any reason or fails to make a
principal and/or interest payment as provided in the loan agreement.
If such Participant terminates employment, the Employer shall
immediately request payment of principal and interest on the loan. If
the Participant refuses payment following termination, the Employer
shall reduce the Participant's vested account balance by the remaining
principal and interest on his or her loan. If the Participant's
vested account balance is less than the amount due, the Employer shall
take whatever steps are necessary to collect the balance due directly
from the Participant. However, no foreclosure on the Participant's
note or attachment of the Participant's account balance will occur
until a distributable event occurs in the Plan.
(j) No loans will be made to Owner-Employees (as defined in paragraph
1.38) or Shareholder-Employees (as defined in paragraph 1.58), unless
an exemption from the prohibited transactions rules is first obtained
from the Department of Labor.
13.6 INSURANCE POLICIES If agreed upon by the Trustee and approved by the
Employer in the Adoption Agreement, Employees may elect the purchase of life
insurance policies under the Plan. If elected, the maximum annual premium for
a whole life policy shall not exceed 50% of the aggregate Employer
contributions allocated to the account of a Participant. For profit-sharing
plans the 50% test need only be applied against Employer contributions
allocated in the last two years. Whole life policies are policies with both
nondecreasing death benefits and nonincreasing premiums. The maximum annual
premium for term contracts or universal life policies and all other policies
which are not whole life shall not exceed 25% of aggregate Employer
contributions allocated to the account of a Participant. The two year rule for
profit-sharing plans again applies. The maximum annual premiums for a
Participant with both a whole life and a term contract or universal life
policies shall be limited to one-half of the whole life premiums plus the term
premium but shall not exceed 25 % of the aggregate Employer contributions
allocated to the account of a Participant, subject to the two year rule for
profit-sharing plans. Any policies purchased under this Plan shall be held
subject to the following rules:
(a) The Trustee shall be applicant and owner of any policies issued.
(b) All policies or contracts purchased shall be endorsed as
nontransferable, and must provide that proceeds will be payable to the
<PAGE> 74
Trustee; however, the Trustee shall be required to pay over all
proceeds of the contracts to the Participant's Designated Beneficiary
in accordance with the distribution provisions of this Plan. Under no
circumstances shall the Trust retain any part of the proceeds.
(c) Each Participant shall be entitled to designate a beneficiary under
the terms of any contract issued; however, such designation will be
given to the Trustee which must be the named beneficiary on any
policy. Such designation shall remain in force, until revoked by the
Participant, by filing a new beneficiary form with the Trustee. A
Participant's Spouse will be the Designated Beneficiary of the
proceeds in all circumstances unless a Qualified Election has been
made in accordance with paragraph 8.4. The beneficiary of a deceased
Participant shall receive, in addition to the proceeds of the
Participant's policy or policies, the amount credited to such
Participant's investment account.
(d) A Participant who is uninsurable or insurable at substandard rates,
may elect to receive a reduced amount of insurance, if available, or
may waive the purchase of any insurance.
(e) All dividends or other returns received on any policy purchased shall
be applied to reduce the next premium due on such policy, or if no
further premium is due, such amount shall be credited to the Fund as
part of the account of the Participant for whom the policy is held.
(f) If Employer contributions are inadequate to pay all premiums on all
insurance policies, the Trustee may, at the option of the Employer,
utilize other amounts remaining in each Participant's account to pay
the premiums on-his or her respective policy or policies, allow the
policies to lapse, reduce the policies to a level at which they may be
maintained, or borrow against the policies on a prorated basis,
provided that the borrowing does not discriminate in favor of the
policies on the lives of Officers, Shareholders, and highly
compensated Employees.
(g) On retirement or termination of employment of a Participant, the
Employer shall direct the Trustee to cash surrender the Participant's
policy and credit the proceeds to his or her account for distribution
under the terms of the Plan. However, before so doing, the Trustee
may first offer to transfer ownership of the policy to the Participant
in exchange for payment by the Participant of the cash value of the
policy at the time of transfer. Such payment shall be credited to the
Participant's account for distribution under the terms of the Plan.
All distributions resulting from the application of this paragraph
shall be subject to the Joint and Survivor Annuity Rules of Article
VIII, if applicable.
(h) The Employer shall be solely responsible to see that these insurance
provisions are administered properly and that if there is any conflict
between the provisions of this Plan and any insurance contracts issued
that the terms of this Plan will control.
13.7 EMPLOYER INVESTMENT DIRECTION If agreed upon by the Trustee and
approved by the Employer in the Adoption Agreement, the Employer shall have
<PAGE> 75
the right to direct the Trustee with respect to investments of the Fund, may
appoint an investment manager (registered as an investment advisor under the
Investment Advisors Act of 1940) to direct investments, or may give the Trustee
investment management responsibility. The Employer may purchase and sell
interests in a registered investment company (i.e., mutual funds) for which the
Sponsor, its parent, affiliates, subsidiaries, or successors may serve as
investment advisor and receive compensation from the registered investment
company for its services as investment advisor. The Employer shall advise the
Trustee in writing regarding the retention of investment powers, the
appointment of an investment manager, or the delegation of investment powers to
the Trustee. The Trustee may rely upon any order, certificate, notice,
direction or other written directive issued by the Employer, investment manager
or any other authorized party which the Trustee believes to be genuine. In the
absence of such written directive, the Trustee may invest the available cash in
its discretion in an appropriate interim investment until specific investment
directions are received and shall not be responsible for a resulting loss.
Such instructions regarding the delegation of investment responsibility shall
remain in force until revoked or amended in writing. The Employer must provide
the Trustee with written notice of the termination of the appointment of an
investment manager. The Trustee shall not be responsible for the propriety of
any directed investment made and shall not be required to consult with or
advise the Employer regarding the investment quality of any directed investment
held hereunder. The Trustee shall not be responsible for any loss resulting to
the Fund by reason of any sale or investment made pursuant to the direction of
the Employer or an investment manager. Notwithstanding anything in this Plan
to the contrary, the Trustee shall be indemnified and saved harmless by the
Employer from any and all personal liability to which the Trustee may be
subjected by carrying out any directions of the Employer or an investment
manager, including all expenses reasonably incurred in its defense in the event
the Employer fails to provide such; provided, however, the Trustee shall not be
so indemnified if it participates knowingly in, or knowingly undertakes to
conceal, an act or omission of an investment manager, having actual knowledge
that such is a breach of a fiduciary duty. The Trustee shall not be deemed to
have knowingly participated in or knowingly undertaken to conceal an act or
omission of an investment manager with knowledge that such act or omission was
a breach of fiduciary duty by merely complying with directions of an investment
manager, or for failure to act in the absence of directions of an investment
manager, or by reason of maintaining accounting records. If the Employer fails
to designate an investment manager, the Trustee shall have full investment
authority. If the Employer does not issue investment directions, the Trustee
shall have authority to invest the Fund in its sole discretion. While the
Employer may direct the Trustee with respect to Plan investments, the Employer
may not:
(a) borrow from the Fund or pledge any of the assets of the Fund as
security for a loan,
(b) buy property or assets from or sell property or assets to the Fund,
(c) charge any fee for services rendered to the Fund, or
(d) receive any services from the Fund on a preferential basis.
<PAGE> 76
13.8 EMPLOYEE INVESTMENT DIRECTION If agreed to by the Trustee and
approved by the Employer in the Adoption Agreement, Participants shall be given
the option to direct the investment of their personal contributions and their
share of the Employer's contribution among alternative investment funds
established as part of the overall Fund. Unless otherwise specified by the
Employer in the Adoption Agreement, such investment funds shall be restricted
to funds offered by the Trustee/Custodian. If investments outside the
Trustee/Custodian's control are allowed, Participants may not direct that
investments be made in collectibles, other than U.S. Government or State
issued gold and silver coins. In this connection, a Participant's right to
direct the investment of any contribution shall apply only to selection of the
desired fund. The following rules shall apply to the administration of such
funds.
(a) At the time an Employee becomes eligible for the Plan, he or she shall
complete an investment designation form stating the percentage of his
or her contributions to be invested in the available funds.
(b) A Participant may change his or her election with respect to future
contributions by filing a new investment designation form with the
Employer in accordance with the procedures established by the Plan
Administrator.
(c) A Participant may elect to transfer all or part of his or her balance
from one investment fund to another by filing an investment
designation form with the Employer in accordance with the procedures
established by the Plan Administrator.
(d) The Employer shall be responsible when transmitting Employee and
Employer contributions to show the dollar amount to be credited to
each investment fund for each Employee.
(e) Except as otherwise provided in the Plan, neither the Trustee, nor the
Custodian, nor the Employer, nor any fiduciary of the Plan shall be
liable to the Participant or any of his or her beneficiaries for any
loss resulting from action taken at the direction of the Participant
and shall be indemnified and held harmless.
ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 APPLICABILITY OF RULES If the Plan is or becomes Top- Heavy in any
Plan Year beginning after 1983, the provisions of this Article will supersede
any conflicting provisions in the Plan or Adoption Agreement.
14.2 MINIMUM CONTRIBUTION Notwithstanding any other provision in the
Employer's Plan, for any Plan Year in which the Plan is Top-Heavy, the
aggregate Employer contributions and forfeitures allocated on behalf of any
Participant (without regard to any Social Security contribution) under this
Plan and any other Defined Contribution Plan of the Employer shall be
determined as follows:
<PAGE> 77
(a) When the Employer maintains one Plan or a combination of Paired or
non-paired Defined Contribution Plans and no Defined Benefit Plans
which are Top-Heavy or Super Top- Heavy, the Employer will contribute
the lesser of 3% of such Participant's Compensation or the largest
percentage of Employer contributions and forfeitures, as a percentage
of the first $200,000 of the Key Employee's Compensation, allocated on
behalf of any Key Employee for that year.
(b) Minimum Top-Heavy Contributions for Paired Defined Contribution and
Defined Benefit Plans where the Plans are not Super Top-Heavy:
(1) If an Employee participates in Paired Defined Contribution
Plan #04001 or #04002 and also participates in Paired Defined
Benefit Plan #02001, #02002, #02003 or #02004, the Employer
shall provide a minimum non- integrated benefit of 3% of the
highest 5-consecutive year average Compensation for each
non-Key Employee who participates in such Defined Benefit
Plan, not to exceed a cumulative accrued benefit of 30%.
(2) If an Employee participates in Paired Defined Contribution
Plan #04001 or #04002, but does not participate in Paired
Defined Benefit Plan #02001, #02002, #02003 or #02004, the
Employer shall make a minimum non-integrated allocation of
Employer contributions and forfeitures (in the aggregate under
all Defined Contribution Plans) of 4% of each eligible
Participant's Top-Heavy Compensation.
(c) Minimum Top-Heavy Contributions for Paired Defined Contribution and
Defined Benefit Plans where the Plans are Super Top-Heavy:
(1) If an Employee participates in Defined Contribution Plan
#04001 or #04002 and in Paired Defined Benefit Plan #02001,
#02002, #02003 or #02004, the Employer shall provide a minimum
non-integrated benefit of 2% of the highest 5-consecutive year
average Compensation for each non-Key Employee who
participates in such Defined Benefit Plan, not to exceed a
cumulative accrued benefit of 20%.
(2) If an Employee participates in Defined Contribution Plan
#04001 or #04002, but does not participate in Paired Defined
Benefit Plan #02001, #02002, #02003 or #02004, the minimum
contribution requirements at paragraph 14.2(b)(2) shall apply
except that the minimum non- integrated allocation percentage
shall be 3% instead of 4%.
(d) If the Employer maintains or maintained a Defined Benefit Plan which is
not paired, the provisions of the "Limitations on Allocations" section
of the Adoption Agreement shall apply.
Each Participant who is employed by the Employer on the last day of the Plan
Year shall be entitled to receive an allocation of the Employer's minimum
contribution for such Plan Year. The minimum allocation applies even though
under other Plan provisions the Participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation for the year
because the Participant fails to make Mandatory
<PAGE> 78
Contributions to the Plan, the Participant's Compensation is less than a stated
amount, or the Participant fails to complete 1,000 Hours of Service (or such
lesser number designated by the Employer in the Adoption Agreement during the
Plan Year.) A Paired profit-sharing plan designated to provide the minimum
Top-Heavy contribution must do so regardless of profits. Unless the Employer
specifies otherwise in the Adoption Agreement, the minimum Top-Heavy
contribution will be allocated to the accounts of all eligible Participants,
even if they are Key Employees.
For purposes of computing the minimum allocation, Compensation shall mean
Compensation as defined in the second paragraph of paragraph 1.8 of the Plan.
The Top-Heavy minimum contribution does not apply to any Participant to the
extent the Participant is covered under any other plan(s) of the Employer and
the Employer has provided in the Adoption Agreement that the minimum allocation
or benefit requirements applicable to Top-Heavy Plans will be met in the other
plan(s).
14.3 MINIMUM VESTING For any Plan Year in which this Plan is Top-Heavy,
the minimum vesting schedule elected by the Employer in the Adoption Agreement
will automatically apply to the Plan. If the vesting schedule selected by the
Employer in the Adoption Agreement is less liberal than the allowable schedule,
the schedule will automatically be modified. If the vesting schedule under the
Employer's Plan shifts in or out of the Top-Heavy schedule for any Plan Year,
such shift is an amendment to the vesting schedule and the election in
paragraph 9.8 of the Plan applies. The minimum vesting schedule applies to all
benefits within the meaning of Section 411(a)(7) of the Code except those
attributable to Employee contributions, including benefits accrued before the
effective date of Section 416 of the Code and benefits accrued before the Plan
became Top-Heavy. Further, no reduction in vested benefits may occur in the
event the Plan's status as Top-Heavy changes for any Plan Year. However, this
paragraph does not apply to the account balances of any Employee who does not
have an Hour of Service after the Plan initially becomes Top-Heavy and such
Employee's account balance attributable to Employer contributions and
forfeitures will be determined without regard to this paragraph.
14.4 LIMITATIONS ON ALLOCATIONS In any Plan Year in which the Top-Heavy
Ratio exceeds 90% (i.e., the Plan becomes Super Top-Heavy), the denominators of
the Defined Benefit Fraction (as defined in paragraph 1.11) and Defined
Contribution Fraction (as defined in paragraph 1.14) shall be computed using
100% of the dollar limitation instead of 125%.
ARTICLE XV
AMENDMENT AND TERMINATION
15.1 AMENDMENT BY SPONSOR The Sponsor may amend any or all provisions of
this Plan and Trust/Custodial Account at any time without obtaining the
approval or consent of any Employer which has adopted this Plan and
Trust/Custodial Account provided that no amendment shall authorize or permit
any part of the corpus or income of the Fund to be used for or
<PAGE> 79
diverted to purposes other than for the exclusive benefit of Participants and
their beneficiaries, or eliminate an optional form of distribution. In the
case of a mass-submitted plan, the mass- submitter shall amend the Plan on
behalf of the Sponsor.
15.2 AMENDMENT BY EMPLOYER The Employer may amend any option in the
Adoption Agreement, and may include language as permitted in the Adoption
Agreement,
(a) to satisfy Code Section 415, or
(b) to avoid duplication of minimums under Section 416 of the Code,
because of the required aggregation of multiple plans.
The Employer may add certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause the Plan
to be treated as individually designed.
If the Employer amends the Plan and Trust/Custodial Account other than as
provided above, including providing for a waiver of minimum funding under Code
Section 412(d), the Employer's Plan shall no longer participate in this
Prototype Plan and will be considered an individually designed plan for which
the Employer must obtain a separate determination letter.
15.3 TERMINATION The Employer shall have the right to terminate the Plan
upon 60 days notice in writing to the Trustee/Custodian. If the Plan is
terminated, partially terminated, or if there is a complete discontinuance of
contributions under a profit-sharing plan maintained by the Employer, all
amounts credited to the accounts of Participants shall vest and become
nonforfeitable. In the event of a partial termination, only those who separate
from Service shall be fully vested. In the event of termination, the Employer
shall direct the Trustee/Custodian with respect to the distribution of accounts
to or for the exclusive benefit of Participants or their beneficiaries. The
Trustee/Custodian shall dispose of the Fund in accordance with the written
directions of the Plan Administrator, provided that no liquidation of assets
and payment of benefits, (or provision therefor), shall actually be made by the
Trustee/Custodian until after it is established by the Employer in a manner
satisfactory to the Trustee/Custodian, that the applicable requirements, if
any, of the Employee Retirement Income Security Act of 1974 and the Internal
Revenue Code governing the termination of employee benefit plans, have been or
are being, complied with, or that appropriate authorizations, waivers,
exemptions, or variances have been, or are being obtained. The
Trustee/Custodian shall not be obliged to distribute the Fund until it receives
notice of a favorable ruling from the Internal Revenue Service upon the
Employer's application for determination as to the effect of termination.
15.4 QUALIFICATION OF EMPLOYER'S PLAN If the adopting Employer fails to
attain or retain Internal Revenue Service qualification, such Employer's Plan
shall no longer participate in this Prototype Plan and will be considered an
individually designed plan.
15.5 MERGERS AND CONSOLIDATIONS
<PAGE> 80
(a) In the case of any merger or consolidation of the Employer's Plan
with, or transfer of assets or liabilities of the Employer's Plan to,
any other plan, Participants in the Employer's Plan shall be entitled
to receive benefits immediately after the merger, consolidation, or
transfer which are equal to or greater than the benefits they would
have been entitled to receive immediately before the merger,
consolidation, or transfer if the Plan had then terminated.
(b) Any corporation into which the Trustee/Custodian or any successor
trustee/custodian may be merged or with which it may be consolidated,
or any corporation resulting from any merger or consolidation to which
the Trustee/Custodian or any successor trustee/custodian may be a
party, or any corporation to which all or substantially all the trust
business of the Trustee/Custodian or any successor trustee/custodian
may be transferred, shall be the successor of such Trustee/Custodian
without the filing of any instrument or performance of any further
act, before any court.
15.6 RESIGNATION AND REMOVAL The Trustee/Custodian may resign by written
notice to the Employer which shall be effective 60 days after delivery. The
Employer may discontinue its participation in this Prototype Plan and
Trust/Custodial Account effective upon 60 days written notice to the Sponsor.
In such event the Employer shall, prior to the effective date thereof, amend
the Plan to eliminate any reference to this Prototype Plan and Trust/Custodial
Account and appoint a successor trustee or custodian or arrange for another
funding agent. The Trustee/Custodian shall deliver the Fund to its successor
on the effective date of the resignation or removal, or as soon thereafter as
practicable, provided that this shall not waive any lien the Trustee/Custodian
may have upon the Fund for its compensation or expenses. If the Employer fails
to amend the Plan and appoint a successor trustee, custodian, or other funding
agent within the said 60 days, or such longer period as the Trustee/Custodian
may specify in writing, the Plan shall be deemed individually designed and the
Employer deemed the successor trustee/custodian. The Employer must then obtain
its own determination letter.
15.7 QUALIFICATION OF PROTOTYPE The Sponsor intends that this Prototype
Plan will meet the requirements of the Code as a qualified Prototype Retirement
Plan and Trust/Custodial Account. Should the Commissioner of Internal Revenue
or any delegate of the Commissioner at any time determine that the Plan and
Trust/Custodial Account fails to meet the requirements of the Code, the Sponsor
will amend the Plan and Trust/Custodial Account to maintain its qualified
status.
ARTICLE XVI
GOVERNING LAW
Construction, validity and administration of the Prototype Plan and
Trust/Custodial Account, and any Employer Plan and Trust/Custodial Account as
embodied in the Prototype document and accompanying Adoption Agreement, shall
be governed by Federal law to the extent applicable and to the extent not
applicable by the laws of the State/Commonwealth in which the principal
<PAGE> 81
office of the Sponsor or its affiliate which is designated as Trustee or
Custodian in the Adoption Agreement, is located.
<PAGE> 82
MODEL PLAN AMENDMENT
REVENUE PROCEDURE 93-47
(This model amendment allows Participants receiving distributions from
safe-harbored profit sharing plans to waive the 30-day period required under
the Unemployment Compensation Act of 1992. Non-safe harbored plans must still
provide notice not less than 30 days and not more than 90 days prior to the
distribution.)
If a distribution is one to which Sections 401(a)(11) and 417 of the Internal
Revenue Code do not apply, such distribution may commence less than 30 days
after the notice required under Section 1.411(a)-11(c) of the Income Tax
Regulations is given, provided that:
(1) the plan administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days
after receiving the notice to consider the decision of whether
or not to elect a distribution (and, if applicable, a
particular distribution option), and
(2) the Participant, after receiving the notice, affirmatively
elects a distribution.
MODEL PLAN AMENDMENT
CODE SECTION 401(a)(17) LIMITATION
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA'93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of- living
in effect for a calendar year applies to any period, not exceeding 12 months,
over which Compensation is determined (determination period) beginning in such
calendar year. If a determination period consists of fewer than 12 months, the
OBRA '93 annual compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination period, and the
denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into account in
determining an Employee's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
<PAGE> 1
EXHIBIT(21)
SUBSIDIARIES OF PROFESSIONALS INSURANCE
COMPANY MANAGEMENT GROUP
PICOM Insurance Company, a stock, property and casualty insurer incorporated
under the laws of the State of Michigan in 1980.
PICOM Insurance Agency, Inc., an inactive Michigan insurance agency
incorporated under the laws of the State of Michigan on March 31, 1981.
PICOM Financial Services Corporation, an inactive business corporation
incorporated under the laws of the State of Michigan on May 29, 1986.
American Insurance Management Corporation, a business corporation incorporated
under the laws of the State of Indiana that serves as the attorney-in-fact for
American Medical Insurance Exchange, an Indiana interinsurance reciprocal
exchange.
SUBSIDIARIES OF PICOM INSURANCE COMPANY
PICOM Claims Services Corporation, a business corporation incorporated under
the laws of the State of Michigan on December 10, 1985.
PICOM Insurance Company of Illinois, a stock, property and casualty insurer
incorporated under the laws of the State of Illinois on December 5, 1994.
<PAGE> 1
EXHIBIT 24
PROFESSIONALS INSURANCE COMPANY MANAGEMENT GROUP
KNOW ALL MEN by these presents that each of the undersigned hereby make,
constitute and appoint W. Peter McCabe, M.D., Victor T. Adamo, R. Kevin Clinton
and Annette E. Flood, and each of them, the true and lawful attorney-in-fact of
the undersigned, with full power of substitution and revocation, for and in the
name, place and stead of the undersigned, to execute, deliver and file (with the
Securities and Exchange Commission or any other appropriate governmental
authority) the Annual Report on Form 10-K of Professionals Insurance Company
Management Group for the year ended December 31, 1996, and any and all
amendments thereto and any Proxy Statement for the 1997 Annual Meeting of
shareholders and any and all amendments thereto; such Form 10-K and each such
amendment, and such Proxy Statement and each such amendment, to be in such form
and to contain such terms and provisions as said attorney or substitute shall
deem necessary or desirable; giving and granting unto said attorney, or to such
person or persons as in any case may be appointed pursuant to the power of
substitution herein given, full power and authority to do and perform any and
every act and thing whatsoever requisite, necessary or, in the opinion of said
attorney or substitute, able to be done in and about the premises as fully and
to all intents and purposes as the undersigned might or could do if personally
present, hereby ratifying and confirming all that said attorney for such
substitute shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has duly executed this
instrument as of the 26th day of February, 1997.
/s/ Victor T. Adamo /s/ W. Peter McCabe
- ------------------------------ ------------------------------
Victor T. Adamo W. Peter McCabe
/s/ Jerry D. Campbell /s/ John F. McCaffery
- ------------------------------ ------------------------------
Jerry D. Campbell John F. McCaffery
/s/ R. Kevin Clinton /s/ Isaac J. Powell
- ------------------------------ ------------------------------
R. Kevin Clinton Isaac J. Powell
/s/ John F. Dodge, Jr. /s/ Ann F. Putallaz
- ------------------------------ ------------------------------
John F. Dodge, Jr. Ann F. Putallaz
/s/ H. Harvey Gass /s/ Donald S. Young
- ------------------------------ ------------------------------
H. Harvey Gass Donald S. Young
/s/ William H. Woodhams
------------------------------
William H. Woodhams
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF PROFESSIONALS INSURANCE COMPANY MANAGEMENT
GROUP AS OF DECEMBER 31, 1996 AND 1995, AND FOR THE THREE YEAR PERIOD THEN
ENDED.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<DEBT-HELD-FOR-SALE> 286,274 259,979
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 2,692 2,641
<MORTGAGE> 0 0
<REAL-ESTATE> 455 475
<TOTAL-INVEST> 300,132 280,607
<CASH> 2,023 1,279
<RECOVER-REINSURE> 41 48
<DEFERRED-ACQUISITION> 998 1,092
<TOTAL-ASSETS> 357,382 330,712
<POLICY-LOSSES> 219,919 199,605
<UNEARNED-PREMIUMS> 21,945 23,122
<POLICY-OTHER> 14,795 14,082
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
<COMMON> 0 0
0 0
3,506 3,239
<OTHER-SE> 84,452 75,172
<TOTAL-LIABILITY-AND-EQUITY> 357,382 330,712
56,687 55,684
<INVESTMENT-INCOME> 15,741 14,729
<INVESTMENT-GAINS> (473) (6)
<OTHER-INCOME> 287 165
<BENEFITS> 49,081 36,902
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 11,138 9,328
<INCOME-PRETAX> 12,023 24,342
<INCOME-TAX> 2,438 8,276
<INCOME-CONTINUING> 9,585 16,066
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 (8,125)
<NET-INCOME> 9,585 7,941
<EPS-PRIMARY> 2.75 2.31
<EPS-DILUTED> 2.75 2.31
<RESERVE-OPEN> 199,605 188,544
<PROVISION-CURRENT> 65,986 63,027
<PROVISION-PRIOR> (17,618) (27,469)
<PAYMENTS-CURRENT> 4,352 3,053
<PAYMENTS-PRIOR> 32,841 44,180
<RESERVE-CLOSE> 219,919 199,605
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
