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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X[ Annual report pursuant Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1997 or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number ________________________
CHANNELL COMMERCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 95-2453261
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(State or other jurisdiction of incorporation) (IRS Employer Identification
No.)
26040 Ynez Road
Temecula, CA 92591-9022
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (909) 694-9160
Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Common Stock, $0.01 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
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 the 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.
On March 16, 1998, the Registrant had 9,237,000 shares of Common Stock
outstanding with a par value of $.01 per share. The aggregate market value of
the 3,312,173 shares held by non-affiliates of the Registrant was $36,434,000.
Shares of Common Stock held by each officer and director and by each person who
may be deemed to be an affiliate have been excluded.
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TABLE OF CONTENTS
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PART I
Item 1. BUSINESS......................................................... 1
Item 2. PROPERTIES....................................................... 8
Item 3. LEGAL PROCEEDINGS................................................ 8
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 8
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS.............................................. 9
Item 6. SELECTED FINANCIAL DATA.......................................... 10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................ 12
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 22
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE......................................... 22
PART III
Item 10. EXECUTIVE OFFICERS AND DIRECTORS................................. 23
Item 11. EXECUTIVE COMPENSATION........................................... 25
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 29
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 30
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.. 31
FINANCIAL STATEMENTS....................................................... F-1
GLOSSARY OF TERMS.......................................................... G-1
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PART I
ITEM 1. BUSINESS
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BACKGROUND
Channell Commercial Corporation (the "Company") was incorporated in Delaware
on April 23, 1996, as the successor to Channell Commercial Corporation, a
California corporation. The Company's executive offices are located at 26040
Ynez Road, Temecula, California 92591-9022, and its telephone number at that
address is (909) 694-9160.
GENERAL
The Company is a leading designer and manufacturer of precision-molded,
thermoplastic and metal fabricated enclosures supplied worldwide to
telecommunications network operators. The Company believes it was the first to
design, manufacture and market thermoplastic enclosure products for use in the
telecommunications industry on a wide scale, and the Company believes it
currently supplies a substantial portion of the enclosure product requirements
of a number of major community antenna TV ("CATV") and telephone operators. The
Company's products house, protect and provide access to advanced
telecommunications electronics and transmission media, including coaxial cable,
copper wire and optical fibers, used in the delivery of voice, video and data
services. The products are deployed within the portion of local signal delivery
network, commonly known as the "outside plant", that connects the network
provider's signal origination office with residences and businesses. As a
result of the acquisition of RMS Electronics, Inc. ("RMS"), the Company is a
supplier of passive RF electronics, which are typically used in conjunction with
enclosure products. The Company also supplies enclosures for the power utility
industry and markets a complete line of grade level boxes for buried and
underground network applications, in order to provide a full system solution to
meet its customer's outside plant requirements.
INDUSTRY
For a number of years, the communications industry has experienced rapid
expansion, both domestically and internationally, in response to a number of
factors, including developments in high-speed communications technologies, the
convergence occurring within the CATV and telecommunications industries,
consumer demand for enhanced communications services, and a changing regulatory
and competitive environment leading to the deregulation or privatization of
signal delivery operations in many markets. For numerous countries throughout
the world, the implementation or improvement of advanced communications systems
has become a national priority in order to enable such countries to participate
in the information-based global economy.
CATV and local telephone operators are responding to these changes in the
industry by expanding, rebuilding and upgrading their signal delivery networks
in order to deliver enhanced communications services to their customers. These
networks are designed to deliver video, voice and data transmissions and provide
internet access to individual residences and businesses. The networks employ a
variety of signal delivery technologies and architectures, including HFC, DLC,
FTTC and ADSL (see "Glossary of Terms"), which generally carry broadband and
narrowband signals over a combination of electronic hardware, coaxial cable,
copper wire and optical fibers. The outside plants of such networks include
various access devices, fiber optic trunks, nodes and feeders and other signal
transmission electronics. These devices are required to be housed in secure,
protective enclosures, such as those manufactured by the Company.
Enclosure products are critical components of the outside plants of CATV
operators and local telephone companies, providing protection against weather
and vandalism, access for technicians who maintain and manage the outside plant
and, in some cases, dissipation of heat created by active electronic hardware.
CATV operators and local telephone companies rely significantly on manufacturers
of protective enclosures because any material damage to the signal delivery
networks is likely to disrupt communication services.
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Demand for enclosures in the communications industry depends primarily on the
construction, rebuilding, upgrading and maintenance of signal delivery networks
by CATV operators and local telephone companies. In particular, technological
developments in the communications industry are resulting in significant
increases in system upgrades. For example, within the CATV segment of the
industry, networks are being upgraded to support new advanced two-way services,
including internet access via cable modems, telephony and PCS transport. Within
the local telephone company segment of the industry, local telephone operators
are employing new advanced technologies, such as HDSL and ADSL, which utilize
traditional copper wires for broadband services and which are expected to
increase the need for fully sealed outside plant facilities in order to improve
network reliability and longevity. In addition, as local telephone companies
build broadband networks for the delivery of integrated voice, video and data
services competitive with CATV, they are expected to require new enclosure
products designed for optical fiber-based networks. These and other
technological, regulatory and competitive factors are expected to result in
continued growth of the market for enclosure products designed for the
communications industry.
BUSINESS STRATEGY
The Company's strategy is to capitalize on opportunities in the global
communications industry by providing enclosures and complementary products to
meet the evolving needs of its customers' communications networks. The Company's
wide range of products, manufacturing expertise, application-based sales and
marketing approach and reputation for high quality products address key
requirements of its customers. Principal elements of the Company's strategy
include the following:
CONTINUE TO FOCUS ON CORE CATV BUSINESS. The Company will continue to seek to
capitalize on its position as a leading designer, manufacturer and marketer of
broadband enclosures for the CATV industry in the United States and Canada
through new product development for both domestic and international market
applications. The Company believes it currently supplies a substantial portion
of the enclosure product requirements of a number of major CATV and telephone
company operators. In addition to its core thermoplastic broadband enclosure
products, the Company has positioned itself to increase its participation in the
large scale CATV network construction and upgrade programs anticipated over the
next several years by attaining incremental sales opportunities through the
recently acquired RMS and Standby Electronics Corp. ("Standby Electronics"),
product lines which can be marketed as complementary product lines by the
Company. With the addition of these acquisitions, the Company is now able to
offer a more complete package of products used by CATV network orperators as
they upgrade their networks in order to provide additional services and expand
network capacity. These expansions and upgrades are expected to enable CATV
operators to accommodate increased consumer demand for internet access via cable
modem, telephone and enhanced video services. From 1993 to 1997, the Company's
net sales to the CATV industry increased from $20.4 million to $52.7 million.
INCREASE SALES TO LOCAL TELEPHONE COMPANIES. The Company seeks to leverage its
in-depth knowledge of, and expertise in, the broadband telecommunications and
telephone markets to provide innovative enclosure solutions for the telephone
industry. From 1993 to 1997, the Company's net sales to local telephone
companies increased from $3.3 million to $7.2 million. The Company intends to
continue to invest in the development of a broader range of products designed
specifically for telephone market applications. The Company has already achieved
significant success in marketing its traditional CATV/broadband products to
local telephone companies which have been designing and deploying broadband
networks to deliver competitive video and data services. The Company will
continue to target this market for growth, both directly with telephone network
operators and major system OEMs.
EXPAND INTERNATIONAL PRESENCE. Management believes international markets offer
significant opportunities for increased sales in both the CATV and telephone
segments. The Company's principal international markets currently consist of
Canada, Mexico, South America, the Pacific Rim, the Middle East and Europe. From
1993 to 1997, the Company's international net sales increased from $3.4 million
to $10.9 million. Trends expected to result in international growth
opportunities include the deregulation and privatization of telecommunications
in many international markets, the focus of numerous countries on building,
expanding and enhancing their communications systems in order to participate
fully in the information-based global economy, and multi-national expansion by
many U.S. based network carriers. The Company will concentrate on expansion in
international markets that are characterized by deregulation or privatization of
telecommunications and the availability of capital for the construction of
signal delivery networks.
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DEVELOP NEW PRODUCTS AND ENTER NEW BUSINESS SEGMENTS. The Company continues to
leverage its core capabilities by developing innovative products that meet the
changing needs of its customers. Examples of innovative products developed by
the Company include its low profile (i.e., close to the ground) enclosures that
permit 360 degree access and advanced heat dissipation enclosures and products
acquired through its acquisitions. Such features, in addition to other product
improvements developed by the Company over many years, received U.S. patent
protection and improve the performance and ease of use of the Company's products
in its customers' outside plant systems. The Company has a proven record in
designing, developing and manufacturing "next generation" products that provide
solutions for its customers and offer differential advantages over other
suppliers to the industry. In addition, the Company will seek to diversify its
customer base by developing new products for customers outside the
communications industry that require enclosure products, such as the utility
industry.
PRODUCTS
The Company manufactures precision-molded, highly engineered thermoplastic and
metal fabricated enclosures that are considered state-of-the-industry for many
applications, having received field testing and other approvals and
standardization certifications from major CATV and telephone company operators.
The majority of the Company's products are specifically designed for buried and
underground network architectures, including enclosures that provide technicians
with access to these networks for maintenance, upgrades and installation of new
services. These types of networks and enclosures are generally preferred by the
Company's customers due to increased network reliability, lower maintenance
requirements, improved security, utility right of way issues and aesthetic
appeal. Enclosure products for these networks must be secure, durable and
aesthetically pleasing and often provide advanced heat dissipation
characteristics required for active electronics. The Company also manufactures
products that are flush-to-grade and buried, requiring environmental sealing and
load-bearing capabilities. The majority of the Company's products are
constructed of thermoplastic and fitted with metal frameworks, fasteners and
locking mechanisms. The Company also designs and manufactures a series of
termination blocks, brackets and cable management devices that are mounted
inside its enclosure products. The Company is recognized for its differentiated
product designs and the functionality, field performance and service life of its
products as compared with alternative products.
To support its complete system approach in the "curb to home infrastructure"
portion of broadband telecommunications networks, the Company acquired RMS. RMS
is a designer and supplier of high performance RF passive electronic devices,
such as outdoor and indoor taps, signal splitters/combiners and power inserters,
all standard components deployed in CATV systems and broadband
telecommunications networks. The Company also acquired Standby Electronics, a
designer and supplier of metal fabricated enclosures to house advanced
electronics, fiber optic cable and power systems for broadband
telecommunications networks. The above electronic devices and enclosures are
components of the complete systems approach and are used in conjunction with the
Company's core enclosure products.
In order to position itself as a full-line product supplier, the Company also
offers a variety of complementary products, including grade level boxes and
cable-in-conduit. These products are typically purchased by customers as part of
a system package and are sold by the Company through marketing arrangements with
original equipment manufacturers ("OEMs"). The Company seeks strategic alliances
with these OEMs that generally include technical information exchanges that are
used by the Company in the development of new products and enhancements to
existing designs. The Company has established additional relationships with
system integrators and innovative end users.
The Company currently markets 50 enclosure product families, with numerous
options that result in several thousand product configurations.
The primary functions of the Company's products designed for the
telecommunications industry are cable routing and management, equipment access,
heat dissipation and security. The Company believes that it offers the broadest
line of enclosure products for use in the telecommunications industry. In
addition to being widely deployed by CATV operators, these products are also now
being approved for use by a number of telephone companies that are adding fiber
optic and broadband functionality to their networks. The Company anticipates
demands for the broadband product line to result from continued construction of
broadband networks and upgrades of existing CATV networks to accommodate
enhanced video services, internet access via cable modems and wireless PCS
transport.
The Company also specializes in the manufacture of products designed to meet
the needs of its local telephone company customers, including sealed plant
products. These products include a sealed chamber to provide environmental
protection for copper wires, coaxial cable and optical fibers that have been
exposed for purposes of splicing and termination. The Company's sealed plant
products feature a mechanical sealing system which, unlike many competitors'
products, does not require gels, compounds or heat shrink to create and maintain
the required seal. This system provides significant value to users in terms of
faster installations, repeat access and elimination of excessive components and
the need for special tools.
Historically, the Company's sealed plant products have been deployed in areas
characterized by severe flooding, moisture and corrosion problems. Recently,
some telephone companies have adopted a complete sealed plant strategy designed
to enhance the reliability of their networks, reduce maintenance costs and
extend the service life of their copper-based systems. In addition, management
expects that demand for sealed plant products may result from new transmission
technologies that enhance the capabilities and capacity of existing copper
networks, such as HDSL and ADSL, which support high-speed data, video and
internet access over existing copper wires. As a result of these technologies,
it is anticipated that network operators may seek to upgrade their copper wire
facilities in order to improve reliability and performance. The Company's active
electronic enclosures and sealed plant products are well suited for such
applications.
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The Company continues to review new products to complement its existing
product line and marketing strengths. New product development initiatives being
studied by the Company include additional products for the telecommunications
markets as well as new products for customers in industries outside of the
communications industry, such as the utility industry.
MARKETING AND SALES
The Company markets its products primarily through a direct sales force of 26
technically trained salespeople as of December 31, 1997. The Company's sales
force is based in North America and select international markets and is divided
into three groups covering domestic CATV customers, domestic telecommunications
customers and international customers. The Company employs an application-based,
system approach to marketing its products, offering the customer, where
appropriate, a complete, cost-effective system solution to meet its enclosure
and other outside plant requirements. All sales personnel have technical
expertise in the products they market and are assisted by the Company's
engineering and technical marketing specialists in designing these system
solutions.
The Company's direct sales force is supported by a sales/customer service
department that administers and schedules incoming orders, requests for product
enhancements and service inquiries. This department has locations in Temecula,
California, Canada and the United Kingdom, and maintains direct communications
with customers and the Company's field sales and operations personnel. As of
December 31, 1997, the Company employed eleven people in its sales/customer
service department.
The sales force receives additional support from the Company's technical and
product marketing department. The field technical service personnel within this
department work closely with the sales staff and customers to develop system
solutions and provide a full range of technical support, training and
certification for users of the Company's products. The product marketing
personnel within this department perform a variety of functions, including
product line management and general marketing services. These individuals also
provide the Company with strategic plans for product development, new market
access, acquisitions and strategic alliances and work closely with the Company's
sales, engineering and manufacturing departments to implement such strategic
plans. As of December 31, 1997, the Company employed eleven people in its
technical and product marketing department.
The marketing department also promotes and positions the Company both
domestically and internationally by performing functions relating to public
relations, product literature, market research and advertising. The Company
participates regularly in industry trade shows and exhibits for the
telecommunications markets.
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MANUFACTURING OPERATIONS
The Company's products are manufactured at its facility in Temecula,
California. The Company's vertically integrated and modern manufacturing
processes enable the Company to control each step in the manufacturing process,
including product design and engineering; design and development of its own
dies, tools and molds; and wiring, assembly and packaging. The Company's
manufacturing expertise enables it to tailor its products to satisfy customer
demands, rapidly and efficiently produce large volumes of products, control
expenses and ensure product quality. Management considers the Company's
manufacturing expertise a significant competitive advantage, providing it with
the ability to satisfy the requirements of major customers with relatively short
lead-times and reduce backlog by promptly booking and shipping orders.
The Company's Temecula facility contains approximately 352,000 square feet of
manufacturing, warehouse and office space designed and constructed specifically
to the Company's requirements, including an adjacent 92,000 square foot building
purchased in November 1997. The newly purchased building will house a
vertically integrated sheet metal fabrication and assembly cell, an expanded
tool and die production facility and a new research and development center. The
Company also has a 24,000 square foot manufacturing, warehouse and office
facility located in Mississauga, Ontario, Canada. In the second quarter of
1997, the Company was awarded ISO-9000 certification, a world-wide industry
standards certification, with respect to its Temecula manufacturing facility.
Management has followed a long-term capacity plan, adding the equipment,
facilities and trained personnel required to support anticipated growth of the
Company's business. As a result, management believes the Company's
manufacturing facilities are adequate to meet anticipated product demand for the
foreseeable future.
The Company owns its manufacturing equipment, which is generally state-of-the-
industry, and all manufacturing processes are performed by trained Company
personnel. The Company's broad range of manufacturing processes includes
injection molding, structural foam molding, rotational molding, metal
fabrication, rubber injection, transfer and compression molding, and termination
block fabrication. The Company has implemented several quality and process
assurance programs, including continuous monitoring of key processes and regular
product inspection and testing.
PRODUCT DEVELOPMENT AND ENGINEERING
The Company believes it was the first to design, manufacture and market
thermoplastic enclosure products for use in the communications industry on a
wide scale. Since the original introduction of its products, the Company has
continued to design all of its own products and develop core capabilities in
product engineering and development. As a result, in response to demands of the
communications industry for increasingly sophisticated enclosure products, the
Company has been able to develop a series of products with effective heat
dissipation qualities; a superior environmental sealing and protection system
that, unlike many competitors' products, does not require gels, compounds or
heat shrink to maintain the required seal; easy access for technicians through
circular covers that can be removed to fully expose the enclosed electronics;
compatibility with a variety of signal delivery network architectures; and
versatility to accommodate network growth through custom hardware and universal
mounting systems that adapt to a variety of new electronic hardware. Many of the
Company's thermoplastic enclosure products are now considered state-of-the-
industry, having received field testing and other approvals and standardization
certifications from major CATV and telephone company operators. With the
acquisitions of RMS and Standby Electronics, the Company is engaged in extensive
new product development programs in both RF passive electronics and metal
fabricated enclosures.
The Company's new product development philosophy is applications based and
customer driven, focusing on the complete design cycle from product concept
through tooling and high-volume manufacturing. A team comprised of engineering,
marketing, manufacturing and direct sales personnel work together to define,
develop and deliver complete system solutions to customers. The Company is
equipped to conduct many of its own product testing procedures for performance
qualification purposes, enabling it to accelerate the product development
process.
As of December 31, 1997, the Company employed 13 people in its product
development and engineering department. The Company spent approximately $0.5
million in 1994, 1995 and 1996, and $1.0 million in 1997 on research and
development.
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CUSTOMERS
The Company sells its products directly to CATV operators and telephone
companies throughout the United States, Canada and certain other international
markets, principally developed nations. During 1997, the Company shipped
products to more than 4,000 customer locations, and its five largest customers
accounted for 42.7% of total net sales. In 1997, the Company's five largest
customers (by sales volume) were, in the United States, Cox, Comcast, GTE, Media
One and Time Warner. In international markets, the Company's five largest
customers (by sales volume) were Rogers Communications (Canada), Shaw Cable
(Canada), Telonix (Canada), Union De Compas Canitec (Mexico), and Satel
(Poland). Two customers, Media One and Time Warner, accounted for 10.0% and
15.1%, respectively, of the Company's net sales in 1997.
The Company's customers generally do not enter into long-term supply contracts
providing for future purchase commitments for the Company's products. Further,
the Company believes that many of its customers periodically review their supply
relationships and alter buying patterns based upon their current assessment of
the products and pricing available in the marketplace. This periodic review can
and does result in significant changes from fiscal period to fiscal period in
the level of purchases of the Company's products by specific customers.
INTELLECTUAL PROPERTY
Following the consummation of its initial public offering (the "Initial Public
Offering") in 1996, the Company became the owner of all of the patents and other
technology employed by it in the manufacture and design of its products. The
Company's patents, which expire through the year 2010, cover various aspects of
the Company's products. In addition, the Company has certain trade secrets,
know-how and trademarks related to its technology and products. Management does
not believe any single patent or other intellectual property right is material
to the Company's success as a whole. The Company intends to maintain an
intellectual property protection program designed to preserve its intellectual
property assets.
COMPETITION
The industries in which the Company operates are highly competitive. The
Company believes, however, that several factors, including its ability to
service national and multi-national customers, its direct sales force, its focus
on enclosure products, its specialized engineering resources and vertically
integrated manufacturing operations provide the Company with a competitive
advantage. Management believes the principal competitive factors in the
communications equipment market are product availability, customer service,
product performance, new product capabilities and price. Competitive price
pressures are common in the industry. In the past, the Company has responded to
these pressures effectively with cost control through vertical integration
utilizing advanced manufacturing techniques, cost-effective product designs and
material selection and an aggressive procurement philosophy. In addition, in the
past, certain of the Company's telecommunications customers have required
relatively lengthy field testing of new products prior to purchasing such
products in quantity. In connection with the deregulation of the
telecommunications segment and the related convergence occurring within the CATV
and telecommunications industries, it is uncertain whether and the extent to
which such field testing will continue to be required. While field testing can
delay the introduction of new products, it can also act as a competitive
advantage in that it makes new product introduction and sales by competitors
more difficult.
RAW MATERIALS; AVAILABILITY OF COMPLEMENTARY PRODUCTS
The principal raw materials used by the Company are thermoplastic resins,
neoprene rubbers, hot and cold rolled steel, stainless steel and copper. The
Company also uses certain other raw materials, such as fasteners, packaging
materials and communications cable. Management believes the Company has adequate
sources of supply for the raw materials used in its manufacturing processes and
attempts to develop and maintain multiple sources of supply for raw materials in
order to help ensure the availability and competitive pricing of these
materials.
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Most plastic resins are purchased under annual and multi-year contracts to
help stabilize cost and improve supplier delivery performance. Neoprene rubbers
are manufactured by multiple custom compounders using the Company's proprietary
formulas. Metal products are supplied in standard stock shapes, coils and custom
rollforms. All hot and cold rolled steels are either hot dipped galvanized or
zinc or cadmium electro-plated. The coating operations are conducted by local
outside processors.
In addition, in order to position itself as a full-line product supplier, the
Company also relies on certain manufacturers to supply products that complement
the Company's own product line, such as grade level boxes and cable-in-conduit.
The Company believes there are multiple sources of supply for these products.
EMPLOYEES
As of December 31, 1997, the Company employed 296 people (including 33
temporary employees), of whom 45 were in sales, 224 were in manufacturing
operations (including the 33 temporary employees) and 27 were in finance and
administration. The Company considers its employee relations to be good, and it
recognizes that its ability to attract and retain qualified employees is an
important factor in its growth and development. None of the Company's employees
is subject to a collective bargaining agreement, and the Company has not
experienced any material business interruption as a result of labor disputes
within the past five years.
REGULATION
The communications industry is subject to regulations in the United States and
other countries. Federal and state regulatory agencies regulate most of the
Company's domestic customers. On February 1, 1996, the United States Congress
passed the Telecommunications Act, which the President signed into law on
February 8, 1996. The Telecommunications Act lifts certain restrictions on the
ability of companies, including RBOCs and other customers of the Company, to
compete with one another and generally reduces the regulation of the
communications industry.
The Company is also subject to a wide variety of federal, state and local
environmental laws and regulations. The Company utilizes, principally in
connection with its thermoplastic manufacturing processes, a limited number of
chemicals which are classified as hazardous or similar substances. It is
difficult to predict what impact these environmental laws and regulations may
have on the Company in the future. Restrictions on chemical uses or certain
manufacturing processes could restrict the ability of the Company to operate in
the manner that it currently operates or is permitted to operate. Management
believes that the Company's operations are in compliance in all material
respects with current environmental laws and regulations. Nevertheless, it is
possible that the Company may experience releases of certain chemicals to
environmental media which could constitute violations of environmental law (and
have an impact on its operations) or which could cause the incurrence of
material cleanup costs or other damages. For these reasons, the Company might
become involved in legal proceedings involving exposure to chemicals or the
remediation of environmental contamination from past or present operations.
Because certain environmental laws impose joint, several, strict and
retrospective liability upon current owners or operators of facilities from
which there have been releases of hazardous substances, the Company could be
held liable for remedial measures or other damages (such as liability for
personal injury actions) at properties it owns or utilizes in its operations,
even if the contamination was not caused by the Company's operations.
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ITEM 2. PROPERTIES
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The Company occupies approximately 260,000 square feet of space in Temecula,
California, of which approximately 54%, 38% and 8% is used for manufacturing,
warehouse and office space, respectively. These facilities are leased from
William H. Channell, Sr., the Company's Chairman of the Board and Chief
Executive Officer. The lease term for these facilities extends through 2005, and
the Company has two five-year renewal options to extend the term to 2015. Rental
expense for 1998 under the leases for the Company's existing facilities in
Temecula, California is expected to be $1.1 million. The Company also leases an
aggregate of approximately 70,000 square feet of warehouse and regional sales
office space in North Carolina, New Jersey, Canada and the United Kingdom. In
order to improve and consolidate operations, the Company will, in the first
quarter of 1998, relocate RMS from New Jersey to its North Carolina facility.
In November 1997, the Company acquired a 92,000 square foot building adjacent to
its existing facilities in Temecula, California which will be used for metal
fabrication, tool and die production and research and development. The Company
considers its current facilities to be adequate for its operations.
ITEM 3. LEGAL PROCEEDINGS
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The Company is from time to time involved in ordinary routine litigation
incidental to the conduct of its business. The Company regularly reviews all
pending litigation matters in which it is involved and establishes reserves
deemed appropriate for such litigation matters. Management believes that no
presently pending litigation matters will have a material adverse effect on its
business or on its results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
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The Company's Common Stock is listed and traded on the NASDAQ Stock Market
(National Market System) under the symbol CHNL. The following table sets forth,
for the periods indicated, the high and low sale prices for the Company's Common
Stock, as reported on the NASDAQ Stock Market (National Market System) for the
third and fourth quarters of 1996. There was no existing public market for the
Company's Common Stock prior to the third quarter of 1996.
High LOW
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YEAR ENDED DECEMBER 31, 1996:
Third Quarter $15.25 $11.00
Fourth Quarter 13.00 9.00
High LOW
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YEAR ENDED DECEMBER 31, 1997:
First Quarter $13.75 $10.00
Second Quarter 13.75 9.63
Third Quarter 16.50 13.00
Fourth Quarter 14.00 11.00
The Company has not declared any dividends since termination of the S
corporation election in connection with its Initial Public Offering in July
1996. During the years ended December 31, 1994, 1995 and 1996, while an S
corporation, the Company declared dividends on its common stock in the amounts
of $3.8 million, $5.4 million and $14.2 million, respectively.
The Company currently anticipates it will retain all available funds to
finance its future growth and business expansion. The Company does not
presently intend to pay cash dividends in the foreseeable future. Under the
terms of the Company's credit agreement, the Company has agreed, under certain
circumstances, not to pay any dividends during the term of this agreement.
As of December 31, 1997, the Company had 9,237,000 shares of its Common Stock
outstanding, held by approxmimately 822 shareholders of record (which does not
include shareholders whose shares are held in securities position listings).
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following table sets forth financial data of the Company. The summary
financial data in the table is derived from the consolidated financial
statements of the Company. Certain pro forma, net income per share and adjusted
financial data has not been presented for all periods because it is not
applicable to those periods. The data should be read in conjunction with the
financial statements, related notes and other financial information included
therein (in thousands, except per share data).
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.............................. $23,713 $34,504 $40,972 $47,282 $59,943
Cost of goods sold..................... 14,834 19,750 23,059 25,447 35,032
-------- -------- -------- --------- --------
Gross profit........................... 8,879 14,754 17,913 21,835 24,911
Commission income(1)................... 686 904 1,098 985 606
-------- -------- -------- --------- --------
9,565 15,658 19,011 22,820 25,517
Operating expenses
Selling............................. 3,767 4,952 5,600 6,559 7,251
General and administrative.......... 1,100 1,445 1,707 2,021 4,077
License fees(2)..................... 1,039 1,560 2,035 531 -
Research and development............ 486 518 498 531 1,009
-------- -------- -------- --------- --------
6,392 8,475 9,840 9,642 12,337
-------- -------- -------- --------- --------
Income from operations................. 3,173 7,183 9,171 13,178 13,180
Interest income (expense), net......... (166) (156) (339) 291 879
-------- -------- -------- --------- --------
Income before income taxes............. 3,007 7,027 8,832 13,469 14,059
Income taxes........................... 69 429 349 2,359 5,589
-------- -------- -------- --------- --------
Net income............................. $ 2,938 $ 6,598 $ 8,483 $11,110 $ 8,470
======== ======== ======== ========= ========
Pro forma net income(3)................ $ 1,816 $ 4,129 $ 5,377 $ 8,921
Pro forma net income per share(4)...... .70 1.06
Pro forma weighted average shares
outstanding(4).................... 7,695 8,403
NET INCOME PER SHARE:
Basic.................................. $ .92
Diluted................................ $ .91
OTHER DATA:
Gross margin(5)........................ 37.4% 42.8% 43.7% 46.2% 41.6%
Operating margin(6).................... 13.4 20.8 22.3 27.9 22.0
EBITDA(7).............................. $ 3,949 $ 8,255 $10,583 $14,729 $15,224
Capital expenditures................... 1,480 5,880 2,161 1,554 5,966
S Corporation dividends declared....... 1,048 3,764 5,427 14,157 -
Cash provided by (used in):
Operating activities................. 4,181 6,201 9,758 11,424 3,730
Investing activities................. (1,475) (5,880) (2,161) (12,960) (8,958)
Financing activities................. (3,101) 398 (7,019) 9,351 (122)
ADJUSTED FINANCIAL DATA(8):
Net sales (as historically reported)... $23,713 $34,504 $40,972 $47,282
Adjusted EBITDA(9)..................... 4,713 9,540 12,343 15,122
Adjusted income from operations........ 3,937 8,468 10,931 13,571
Adjusted operating margin(10).......... 16.6% 24.5% 26.7% 28.7%
Adjusted net income.................... $ 2,274 $ 4,899 $ 6,431 $ 8,179
Adjusted net income per share(11)...... .84 .97
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets...................... $ 5,068 $ 8,093 $ 8,502 $31,274 $33,252
Total assets........................ 10,189 17,951 19,103 42,658 50,625
Long-term obligations
(including current maturities)... 1,018 3,684 3,213 - 400
Stockholders' equity................ 6,881 9,417 12,473 37,422 45,892
</TABLE>
Notes to Selected Financial Data
(amounts in thousands, except per share data)
(1) Commission income represents the amount of commissions paid to the Company
by the manufacturer of certain cable-in-conduit products in connection with
the Company's sale of such products, which the Company offers to its
customers in order to complement its own product line.
(2) License fees represent the amounts paid by the Company to William H.
Channell, Sr., the Company's Chairman of the Board and Chief Executive
Officer, for the use of six patents ("Channell Patents") covering products
manufactured and sold by the Company. Prior to the consummation of the
Initial Public Offering, these patents were sold to the Company, the
license fee arrangements with Mr. Channell, Sr. were terminated and,
thereafter, the Company no longer paid any license fees with respect to the
Channell Patents.
(3) Prior to the Initial Public Offering, the Company was an S corporation for
federal and state income tax purposes. The pro forma presentation reflects
the income tax provision of the Company as recorded in its income statement
plus the additional tax on S Corporation income at C Corporation rates.
Such presentation does not reflect the adjustments set forth in note (8)
below. The effect of the Company's use of a portion of the net proceeds of
the Initial Public Offering to repay outstanding bank indebtedness has not
been reflected in pro forma net income or pro forma net income per share
because the impact is not material.
(4) Pro forma net income per share has been computed by dividing pro forma net
income by the pro forma weighted average shares outstanding. Pro forma
weighted average shares outstanding include 1,558 (779 for 1996) of the
shares offered by the Company at a price of $11.00 per share, the net
proceeds of which were used to fund the distributions in connection with
the termination of the Company's S corporation status.
(5) Gross margin is gross profit as a percentage of net sales.
(6) Operating margin is income from operations as a percentage of net sales.
(7) EBITDA represents income from operations before interest and income taxes,
plus depreciation and amortization expense. EBITDA is not intended to
represent cash flow, operating income or any other measure of performance
in accordance with generally accepted accounting principles, but is
included here because management believes that certain investors find it to
be a useful tool for measuring a company's ability to service its debt.
(8) The adjusted financial data reflects, (i) the elimination of the expense
for the license fees payable to Mr. Channell, Sr., which license fees were
terminated as part of the termination of the Company's S corporation
status, (ii) an increase in Mr. Channell, Sr.'s annual base salary from
$225 to $500 in connection with the Initial Public Offering, and (iii)
provision for income taxes as if the Company had always been a C
corporation at an assumed rate of 41%.
(9) Adjusted EBITDA represents adjusted income from operations before interest
and income taxes, plus depreciation and amortization expense. See note (7)
above.
(10) Adjusted operating margin is adjusted income from operations as a
percentage of net sales.
(11) Adjusted net income per share is adjusted net income divided by 7,695 pro
forma weighted average shares outstanding for 1995 an 8,403 pro forma
weighted average shares outstanding for 1996. The S corporation dividends
declared in 1996 include $11,665 of distributions made in connection with
the termination of the Company's S Corporation status.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
GENERAL
The Company is a leading designer, manufacturer and marketer of precision-
molded thermoplastic and metal fabricated enclosures supplied worldwide to
telecommunications network operators. The Company believes it currently supplies
a substantial portion of the enclosure product requirements of a number of major
CATV and telephone company operators. The Company was incorporated on April 23,
1996 as the successor to the Predecessor, which has been merged into the Company
in connection with the Initial Public Offering. All financial data contained
herein with respect to the Company include the financial data of the
Predecessor.
Since 1990, the Company was an S corporation for federal and state income tax
purposes. During 1996, due to the Company's Initial Public Offering, the Company
changed in form from an S corporation to a C corporation. As an S corporation,
the Company's income, whether or not distributed, was taxed at the stockholder
level for federal income tax purposes. For California franchise tax purposes, S
corporations were taxed at 2.5% of taxable income in 1993 and 1.5% of taxable
income in 1994, 1995 and the first six months of 1996. During 1996, the top
federal tax rate for C corporations was 35% and the corporate tax rate in
California was 9.3%. As a result, the change in form affected the earnings and
the cash flows of the Company by increasing the level of federal and state
income tax. The pro forma provision for income taxes in the accompanying
statements of income reflects the income tax provision of the Company as
recorded in its income statement plus the additional tax on S Corporation income
at C Corporation rates.
Prior to the Initial Public Offering, the Company had obtained the exclusive
rights to certain patents owned by Mr. Channell, Sr. and paid him license fees
based on the sale of the patented products. In connection with the Initial
Public Offering, the Company purchased the Channell Patents and, accordingly,
the license fee arrangement between the Company and Mr. Channell, Sr. with
respect to such patents was terminated and, thereafter, no license fees were
paid to Mr. Channell, Sr. or any other party with respect to the Channell
Patents. In addition, any patents obtained in the future with respect to new
technology developed by Mr. Channell, Sr. will be owned by the Company. Prior to
the termination, a 10% license fee on the sale of certain products utilizing the
Channell Patents was payable to Mr. Channell, Sr. (See Item 13.) During 1993,
1994, 1995 and the first quarter of 1996, the license fees payable to Mr.
Channell, Sr. were $1.0 million, $1.6 million, $2.0 million and $0.5 million,
respectively. In connection with the consummation of the Initial Public
Offering, no license fees were incurred with respect to product sales subsequent
to the first quarter of 1996.
In connection with the Initial Public Offering, the annual base salary of Mr.
Channell, Sr. was increased from $225,000 to $500,000, and the annual base
salary of William H. Channell, Jr., the Company's President, was increased from
$350,000 to $500,000, which amounts do not include any bonuses that may be
payable to such executive officers. Upon consummation of the Initial Public
Offering, Mr. Channell, Jr. received options to acquire 100,000 shares of Common
Stock with an exercise price equal to the Initial Public Offering price per
share, which options will become exercisable in three equal annual installments
beginning on the first anniversary of the date of issuance.
The Company's core business consists of enclosure product sales to the CATV
market, which comprised approximately 86% of the Company's total net sales
during 1995, 87% in 1996, and 88% during 1997, with two customers, Media One and
Time Warner, accounting for 10.0% and 15.1%, respectively, of the Company's
total net sales during 1997. The Company believes that many of its customers
periodically review their supply relationships, and the Company can experience
significant changes in buying patterns from specific customers between fiscal
periods. The Company has historically operated with a relatively small backlog,
and sales and operating results in any quarter are principally dependent upon
orders booked and products shipped in that quarter. Further, the Company's
customers generally do not enter into long-term supply contracts providing for
future purchase commitments for the Company's products. These factors, when
combined with the Company's operating leverage and the need to incur certain
capital expenditures and expenses in part based upon the expectation of future
sales, results in the Company's operating results being at risk to changing
customer buying patterns. If sales levels in a particular period do not meet the
Company's expectations, operating results for that period may be materially and
adversely affected.
12
<PAGE>
The Company uses numerous raw materials in its manufacturing processes.
Although management believes that the Company has adequate sources of supply for
such raw materials, increases in the market prices of the Company's raw
materials could significantly increase the Company's cost of goods sold and
materially adversely affect the Company's profitability. The Company's
profitability may also be materially adversely affected by decreases in its
sales volume because many of the costs associated with the Company's rent,
product development, engineering, tooling and other manufacturing processes are
fixed in nature and must be spread over its sales base in order to maintain
historic levels of profitability.
In addition to Company manufactured products, the Company markets
complementary products manufactured by third parties. With respect to sales of
cable-in-conduit products, the Company generally receives a commission upon the
sale of such products. Pursuant to the agreements under which the Company
markets such products, during the terms thereof and for a period of two years
thereafter, each of the Company and the manufacturer of such products is
prohibited from competing with the other in any product line that is, or within
the year prior to termination has been, represented, manufactured or sold by the
other within the specified markets covered by the agreements.
During the periods discussed under "Results of Operations" below, the
Company's sales increases resulted primarily from additional sales to the
Company's existing customers as they expanded, rebuilt and upgraded their signal
delivery networks in order to deliver enhanced communications services, as well
as additional sales to new customers, particularly telephone companies that have
recently entered the CATV market, international customers, and through the RMS
and Standby Electronics acquisitions.
RESULTS OF OPERATIONS
The following table sets forth the Company's operating results for the
periods indicated expressed as a percentage of sales.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1995 1996 1997
-------- ------ ------
<S> <C> <C> <C>
Net sales............................ 100.0% 100.0% 100.0%
Cost of goods sold................... 56.3 53.8 58.4
------ ----- -----
Gross profit......................... 43.7 46.2 41.6
Commission income.................... 2.7 2.1 1.0
------ ----- -----
46.4 48.3 42.6
Selling.............................. 13.7 13.9 12.1
General and administrative........... 4.2 4.3 6.8
License fees......................... 5.0 1.1 -
Research and development............. 1.2 1.1 1.7
------ ----- -----
Income from operations............... 22.3 27.9 22.0
Interest income (expense), net....... (0.8) 0.6 1.5
------ ----- -----
Income before income taxes........... 21.5 28.5 23.5
Pro forma income taxes(1)............ 8.4 9.6 9.4
------ ----- -----
Pro forma net income(1).............. 13.1% 18.9% 14.1%
====== ===== =====
Adjusted income from operations(2)... 26.7% 28.7%
</TABLE>
- ------
(1) Pro forma income taxes and pro forma net income have been determined giving
effect to the termination of the Company's S Corporation status in July
1996. Actual income tax expense has been reflected for the last six months
of 1996 and for all of 1997. See note (3) to "Selected Financial Data".
(2) Adjusted income from operations has been determined giving effect to the
transactions described in notes (3) and (8) to "Selected Financial Data".
Adjusted financial data is not applicable for 1997.
13
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS 128"), which superseded
APB Opinion No. 15. Income per share for all periods presented has been
restated to reflect the adoption of SFAS 128. SFAS 128 requires companies to
present basic income per share, and, if applicable diluted income per share,
instead of primary and fully diluted income per share. Basic income per share
is computed by dividing net income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
income per share reflects the potential dilution that could occur if options to
issue common stock were exercised into common stock.
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive
Income, which prescribes standards for reporting comprehensive income and its
components. Comprehensive income consists of net income or loss for the current
period and other comprehensive income (income, expenses, gains and losses that
currently bypass the income statement and are reported directly in a separate
component of equity). SFAS 130 requires that components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other financial statements. SFAS 130 is effective for financial statements
issued for periods beginning after December 15, 1997.
In 1997, the FASB issued Statement of Financial Accounting Standards No. 131
("SFAS 131"), Disclosures about Segments of an Enterprise and Related
Information, which applies only to publicly held business entities. A
reportable segment, referred to as an operating segment, is a component of an
entity about which separate financial information is produced internally, that
is evaluated by the chief operating decision-maker to assess performance and
allocate resources. SFAS 131 is effective for financial statements issued for
periods beginning after December 15, 1997. Management has not determined
whether adoption of SFAS 131 will have a significant impact on the disclosures
included in the consolidated financial statements.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 WITH THE YEAR ENDED DECEMBER 31,
1996
Net Sales. Net sales increased $12.6 million or 26.6% from $47.3 million in
1996 to $59.9 million in 1997. CATV net sales increased $11.6 million or 28.2%
from $41.1 million in 1996 to $52.7 million in 1997 as a result of the sales of
$8.9 million of RF passive electronic devices by RMS, $1.7 million of Channell
proprietary products due to moderate growth from system upgrade and new network
construction projects worldwide, and $1.0 million of Standby Electronics metal
enclosures. Telecommunications net sales increased $1.0 million or 16.1% from
$6.2 million in 1996 to $7.2 million in 1997, as a result of increased activity
in sealed plant products.
The Company has historically provided a breakdown of sales to the CATV and
telephone industries based on product sales, i.e., each product has been
traditionally purchased by one or the other industry. With the gradual
convergence of the two industries, an industry breakdown based on product sales
becomes less valid each year as telephone companies purchase equipment
heretofore purchased only by CATV companies and vice versa. Management believes
continuation of an industry sales breakdown based on product sales would be
misleading and has decided that all future reports and publications will combine
these two market segments under the title "Telecommunications".
Domestic net sales increased $7.3 million or 17.5% from $41.7 million in 1996
to $49.0 million in 1997. This increase was a result of the sales of $4.3
million of RF passive electronic devices and $3.0 million of Channell
proprietary products due to moderate system upgrade and new network construction
growth. International net sales increased $5.3 million or 94.6% from $5.6
million in 1996 to $10.9 million in 1997, primarily due to the sales of $4.6
million of RF passive electronic devices and $1.0 million of metal enclosures.
14
<PAGE>
Gross Profit. Gross profit increased $3.1 million or 14.2% from $21.8 million
in 1996 to $24.9 million in 1997. $2.4 million of this improvement is
attributable to the sales of RF passive devices, $0.5 million was attributable
to increased volume of Channell proprietary products, and $0.2 million was
attributable to the sales of metal enclosures. Gross margin decreased from
46.2% in 1996 to 41.6% in 1997 primarily due to a 26.5% and 21.3% margin
contribution from the sales of RF passive devices and metal enclosures,
respectively. Gross margin on Channell's proprietary products decreased from
46.2% to 44.7% during the comparable periods primarily due to increased
depreciation expense from capital expenditures in the comparative periods and
increased manufacturing staffing.
Commission Income. Commission income decreased $0.4 million or 40.0% from
$1.0 million in 1996 to $0.6 million in 1997, due to a decrease in sales of
cable-in-conduit products as a result of aggressive pricing by competition and
lower sales in the eastern part of the United States due to severe winter
weather conditions during the first quarter of 1997.
Selling. Selling expense increased $0.7 million or 10.6% from $6.6 million in
1996 to $7.3 million in 1997, primarily as a result of $1.0 million of increased
sales and marketing expenses related to the RMS and Standby Electronics
subsidiaries, and $0.4 million for increased payroll and related expenses in
connection with expanded staffing to support increased sales and marketing
activities worldwide. The increased selling expenses discussed above were
offset by the salary and expenses of an officer now being classified as general
and administrative expenses due to expanded responsibility. As a percentage of
net sales, selling expense decreased from 13.9% in 1996 to 12.1% in 1997.
General and Administrative. General and administrative expenses increased
$2.1 million or 105.0% from $2.0 million in 1996 to $4.1 million in 1997. Such
increase occurred primarily as a result of increased payroll and employee
benefits in the amount of $0.7 million due to increased staffing in the
administrative and information systems departments as a result of the RMS and
Standby Electronics acquisitions, as well as the reclassification of the salary
of an executive officer. Travel, legal, auditing and professional services
increased $0.6 million as a result of being a publicly traded company for a full
year in 1997 as compared to having such status for six months in 1996.
Depreciation, insurance and facilities expense increased $0.2 million as a
result of the RMS acquisition. Computer hardware and software expenses
increased $0.3 million as a result of the installation of a new MIS platform.
As a percentage of net sales, general and administrative expenses increased from
4.3% in 1996 to 6.8% in 1997.
License Fees. License fees decreased $0.5 million in 1997 as a result of the
termination of the Channell Patents during 1996.
Research and Development. Research and development expenses increased $0.5
million or 100.0% from $0.5 million in 1996 to $1.0 million in 1997, primarily
as a result of increased payroll and expenses associated with increased
staffing. As a percentage of net sales, research and development expenses
increased from 1.1% in 1996 to 1.7% in 1997.
Income from Operations. As a result of the items discussed above, income from
operations was $13.2 million in both 1996 and 1997, but declined as a percentage
of net sales from 27.9% in 1996 to 22.0% in 1997.
Income Taxes. Income taxes increased $3.2 million from $2.4 million in 1996
to $5.6 million in 1997. The increase is principally due to the termination of
the S Corporation status as a result of the Initial Public Offering, at which
time the Company recorded deferred tax assets on its balance sheet with a
corresponding credit to its income tax expense. Since the Initial Public
Offering, the Company pays federal and state income taxes as a C Corporation.
15
<PAGE>
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 WITH THE YEAR ENDED DECEMBER 31,
1995
Net Sales. Net sales increased $6.3 million or 15.4% from $41.0 million in
1995 to $47.3 million in 1996. CATV net sales increased $5.7 million or 16.1%
from $35.4 million in 1995 to $41.1 million in 1996 as a result of new account
development during the period and a continued moderate growth from rebuild and
new network construction projects. Telecommunications net sales increased $0.6
million or 10.7% from $5.6 million in 1995 to $6.2 million in 1996. This sales
increase was due to the introduction of new sealed products during the period
and an increased activity in conventional copper-based telephone products.
Domestic net sales increased $6.8 million or 19.5% from $34.9 million in 1995
to $41.7 million in 1996. This increase is a result of the items discussed
above, in the CATV and telecommunications sections. International net sales
decreased $0.5 million or 8.2% from $6.1 million in 1995 to $5.6 million in
1996, mainly due to a slowdown in broadband network construction by certain
Pacific Rim and European customers.
Gross Profit. Gross profit increased $3.9 million or 21.8% from $17.9 million
in 1995 to $21.8 million in 1996. Gross margin increased from 43.7% in 1995 to
46.2% in 1996. The improvement in gross profit and gross margin was primarily
due to an increase in the sales mix of products with a higher margin as well as
an overall increase in sales volume, which resulted in higher operating leverage
(i.e., a higher percentage of sales relative to fixed costs).
Commission Income. Commission income decreased $0.1 million or 9.1% from $1.1
million in 1995 to $1.0 million in 1996, due to lower sales volume of cable-in-
conduit products.
Selling. Selling expense increased $1.0 million or 17.9% from $5.6 million in
1995 to $6.6 million in 1996, primarily as a result of increased payroll and
related expense in the amount of $0.8 million in connection with expanded
staffing to support increased sales and marketing activities, and increased
outbound freight expense in the amount of $0.3 million resulting from higher net
sales during the 1996 period. As a percentage of net sales, selling expense
increased from 13.7% in 1995 to 13.9% in 1996.
General and Administrative. General and administrative expenses increased
$0.3 million or 17.7% from $1.7 million in 1995 to $2.0 million in 1996,
primarily as a result of increased payroll in the amount of $0.4 million due to
increased staffing in the administrative and information systems departments.
Legal, auditing and professional services increased $0.2 million as a result of
becoming a publicly traded company. As a percentage of net sales, general and
administrative expense was 4.3% during 1995 and 1996.
License Fees. License fees declined $1.5 million or 75.0% from $2.0 million
in 1995 to $0.5 million in 1996 as a result of the termination of the Channell
patents during 1996.
Research and Development. Research and development expenses were $0.5 million
in both 1995 and 1996, but declined as a percentage of net sales from 1.2% in
1995 to 1.1% in 1996. Research and development expense is expected to be higher
in the future in light of the Company's plans for new product development.
Income from Operations. As a result of the items discussed above, income from
operations increased $4.0 million or 43.5% from $9.2 million in 1995 to $13.2
million in 1996 and operating margin increased from 22.3% to 27.9%.
Income Taxes. Income taxes increased $2.1 million from $0.3 million in 1995
to $2.4 million in 1996 due to the termination of the S corporation status at
the time of the Initial Public Offering. After the Initial Public Offering, the
Company pays federal and state income taxes as a regular corporation, offset by
the recording of deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Upon the termination of the S corporation status and prior to the Initial
Public Offering in July 1996, the Company declared a dividend to its then
existing stockholders representing all of the Company's S corporation
"accumulated adjustment account" remaining at the time. The S corporation
distribution totalled $11.7 million and was paid out of the net proceeds of the
Initial Public Offering.
Prior to the Initial Public Offering, the Company's Chairman of the Board and
Chief Executive Officer owned six patents utilized by the Company in its
business (the "Channell Patents"), and was entitled to receive license fees
based upon the sale of certain products embodying the Channell Patents. Prior
to the Initial Public Offering, the Channell Patents were sold to the Company
for the aggregate consideration of $3.1 million, which was initially funded
through borrowings under the Company's bank line and then repaid from the net
proceeds of the Initial Public Offering.
Upon the closing of the Initial Public Offering, the Company used $2.7 million
from the net proceeds to repay the Company's bank indebtedness.
16
<PAGE>
Upon the closing of the Initial Public Offering in July 1996 and the exercise
of the underwriter's over-allotment in August 1996, the Company received net
proceeds from the issuance of stock of $30.6 million. As of December 31, 1996,
the Company has invested $20.2 million, which includes the remaining proceeds
from the Initial Public Offering, in marketable securities and cash equivalents.
Interest income earned on these securities for the year ended December 31, 1996
was $0.5 million and $1.0 million for the year ended December 31, 1997.
Net cash provided by operating activities was $11.4 million and $3.7 million
in 1996 and 1997, respectively. Net cash provided by financing activities was
$9.4 million in 1996 and net cash used in financing activities was $0.1 million
in 1997. Net cash used in investing activities was $12.9 million and $9.0
million in 1996 and 1997, respectively. The purchase of $11.4 and $7.3 million
(including $7.1 million of maturities) in short-term securities was included in
investing activities for the years ended December 31, 1996 and 1997,
respectively.
Accounts receivable increased from $6.7 million for the year ended December
31, 1996 to $9.2 million for the year ended December 31, 1997 as a result of
higher sales during the fourth quarter of 1997 as compared to the same period in
1996. Inventories increased from $2.9 million for the year ended December 31,
1996 to $7.3 for the year ended December 31, 1997 as a result of increased work-
in-process and finished goods inventories required for the increased sales
volume forecasted and the acquisitions of RMS and Standby Electronics.
The Company made capital expenditures of $1.6 million and $6.0 million in 1996
and 1997, respectively, and anticipates increased capital spending for
machinery, product tooling, test equipment and computer hardware and software as
it continues to implement its new product development plans. The Company's
material commitment consists of a capital lease for certain computer equipment
in connection with the Company's new management information system. Such lease
will require aggregate payments of approximately $0.6 million through December
2000. The Company also leases its manufacturing and warehouse facility in
Temecula, California consisting of two buildings totalling approximately 260,000
square feet which require annual lease payments of approximately $1.1 million.
The Company is heavily dependent upon complex computer systems for all phases
of its operations, which include production, sales and distribution. The
Company's computer software programs recognize only the last two digits of the
year in any date (e.g., "97" for "1997"), and therefore some software may
inaccurately process data in 1999 or 2000 if the software is not reprogrammed,
upgraded or replaced (the "Year 2000 Issue"). The Company has initiated a
program intended to timely mitigate and/or prevent on a timely basis the adverse
effects of the Year 2000 Issue, and to pursue compliance by suppliers. The
Company believes that many of its suppliers and customers may also have Year
2000 Issues which could affect the Company. At this time, it is not possible to
quantify the overall cost of this work, nor the financial effect of the Year
2000 Issue if it is not resolved on a timely basis. However, the Company
presently believes that the cost of fixing the Year 2000 Issue will not have a
material adverse impact on the Company's financial position and result of
operations.
The Company currently maintains a revolving credit facility (as amended to
date, the "Revolving Credit Facility") with the Bank of America National Trust
and Savings Association ("Bank of America"), consisting of (i) a $5.0 million
working capital revolving line of credit, which had no outstanding balance at
December 31, 1997, and (ii) a $5.0 million equipment revolving line of credit
and a standby letter of credit facility, which had no outstanding balance at
December 31, 1997. Loans under the working capital line bear interest at the
Bank of America's reference rate and mature on May 1, 1999, while loans under
the equipment line bear interest at the Bank of America's reference rate, plus
0.25% and are repayable in sixty equal monthly installments of principal and
interest commencing in the first month after issuance of each advance.
Availability of advances under the Revolving Credit Facility expires on May 1,
1999. The equipment line of credit is collateralized by the related equipment
financed by the Bank of America. The Revolving Credit Facility contains various
financial and operating covenants which, among other things, impose limitations
on the Company's ability to incur additional indebtedness, merge or consolidate,
sell its assets, make certain investments or, under certain circumstances, pay
dividends. The Company is also required to comply with covenants related to
tangible net worth and other financial ratios.
The Company believes that, in order to carry on its current operations, income
from operations, the remaining proceeds from the Initial Public Offering and the
Revolving Credit Facilities will be sufficient to fund its capital expenditures
and working capital requirements through 1998.
FORWARD-LOOKING STATEMENTS
This Report on Form 10-K contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are being provided pursuant to that legislation. In addition to the
other information contained in this Form 10-K, the following risk factors should
be carefully considered in evaluating the Company and its business. The
following is not intended as, and should not be considered, an exhaustive list
of relevant factors.
OBSOLESCENCE; UNCERTAINTY OF MARKET ACCEPTANCE OF NEW PRODUCTS
The communications industry is characterized by rapid technological change.
The introduction of products embodying new technologies or the emergence of new
industry standards can render existing products or products under development
obsolete or unmarketable. For example, satellite, wireless and other
communication technologies currently being deployed may represent a threat to
copper, coaxial and fiber optic-based systems by reducing the need for wire-line
networks. To date, however, the Company believes that these technologies have
not had a significant impact on the
17
<PAGE>
demand for traditional wire-line network based services, and management
anticipates that a number of factors, including network capacity requirements,
existing investments in wire-line networks, security and long-term cost
effectiveness, will result in continued growth of wire-line networks. However,
there can be no assurance that future advances or further development of these
or other new technologies will not have a material adverse effect on the
Company's business. Further, the Company's growth strategies are designed, in
part, to take advantage of opportunities that the Company believes are emerging
as a result of the development of enhanced voice, video and other transmission
networks and internet access in the telecommunications industry. There can be no
assurance that demand resulting from these emerging trends will develop rapidly
or that the Company's products will meet with market acceptance.
IMPORTANCE OF NEW PRODUCT DEVELOPMENT TO GROWTH
The Company's ability to anticipate changes in technology and industry
standards and to successfully develop and introduce new products on a timely
basis will be a significant factor in the Company's ability to grow and remain
competitive. New product development often requires long-term forecasting of
market trends, development and implementation of new designs and processes and a
substantial capital commitment. The trend toward consolidation of the
communications industry may require the Company to quickly adapt to rapidly
changing market conditions and customer requirements. Although the Company's
manufacturing and marketing expertise has enabled it to successfully develop and
market new products in the past, any failure by the Company to anticipate or
respond in a cost-effective and timely manner to technological developments or
changes in industry standards or customer requirements, or any significant
delays in product development or introduction, could have a material adverse
effect on the Company's business, operating results and financial condition.
CONCENTRATION OF CUSTOMERS; LIMITED BACKLOG
The Company's core business consists of enclosure product sales to the CATV
market. Such sales comprised approximately 86% of the Company's total net sales
during 1995. 87% in 1996, and 88% during 1997. The CATV industry is
concentrated, with relatively few cable operators accounting for a large
percentage of the Company's available market. Consequently, while the Company
shipped product to over 4,000 customer locations in 1997, its five largest
customers (by sales volume) accounted for 42.7% of the Company's total net sales
in 1997. Two customers, Media One and Time Warner, accounted for 10.0% and
15.1%, respectively, of the Company's total net sales during the period.
18
<PAGE>
The Company's customers typically require prompt shipment of the Company's
products. As a result, the Company has historically operated with a relatively
small backlog, and sales and operating results in any quarter are principally
dependent upon orders booked and products shipped in that quarter. Further, the
Company's customers generally do not enter into long-term supply contracts
providing for future purchase commitments for the Company's products. These
factors, when combined with the Company's operating leverage (see "Operating
Leverage" below) and the need to incur certain capital expenditures and expenses
in part based upon the expectation of future sales, results in the Company's
operating results being at risk to changing customer buying patterns. If sales
levels in a particular period do not meet the Company's expectations, operating
results for that period may be materially and adversely affected.
DEPENDENCE ON THE COMMUNICATIONS INDUSTRY
The Company's sales to the telecommunications industry represent substantially
all of the Company's historical sales and are expected to continue to do so for
the foreseeable future. Within that industry, approximately 88% of the
Company's total net sales in 1997 were derived from domestic and international
sales to the CATV segment, with 25.1% of total net sales for the year
attributable to two customers in that industry, Media One and Time Warner. The
Company expects that sales to the CATV industry will continue to represent a
substantial portion of its total sales. Demand for products to this segment
depends primarily on capital spending by cable operators for constructing,
rebuilding, maintaining or upgrading their systems. The amount of capital
spending and, therefore, the Company's sales and profitability are affected by a
variety of factors, including general economic conditions, access by cable
operators to financing, government regulation of cable operators, demand for
cable services and technological developments in the broadband communications
industry. The Company's remaining sales in 1997 were derived from the
telecommunications industry, primarily local telephone operators. Although
local telephone operators may have greater access to capital than many cable
operators, the same factors dictating the demand for products in the CATV
segment of the industry also apply to the local telephone segment. Thus, the
Company's success is dependent upon continued demand for products used in signal
transmission systems from the communications industry generally, including both
CATV and telephone, which may be affected by factors beyond the Company's
control, including the convergence of voice, data and video transmission systems
occurring within the CATV and telephone markets, continuing consolidation of
companies within those markets and the provision of internet access by cable
operators and local telephone companies.
PRICE FLUCTUATIONS OF RAW MATERIALS; AVAILABILITY OF COMPLEMENTARY PRODUCTS
The Company's cost of sales may be materially affected by increases in the
market prices of the raw materials used in the Company's manufacturing
processes, including resin. The Company does not engage in hedging transactions
for such materials, although it periodically enters into contracts for certain
raw materials for as much as one year or more. There can be no assurance that
price increases in raw materials can be passed on to the Company's customers
through increases in product prices. In addition, in order to position itself
as a full-line product supplier, the Company relies on certain manufacturers to
supply products that complement the Company's own product line, including grade
level boxes and cable-in-conduit. Although the Company believes there are
multiple sources of supply for these products, disruptions or delays in the
supply of such products could have a material adverse effect on sales of the
Company's own products.
ACQUISITIONS AND FAILURE TO INTEGRATE ACQUIRED BUSINESSES
One of the Company's principal strategies is to increase its revenues and the
markets it serves through the acquisition of complementary businesses. There
can be no assurance that the Company will be able to identify and acquire
attractive acquisition candidates, profitably manage such acquired businesses or
successfully integrate such acquired businesses into the Company without
substantial costs, delays or other problems. Acquisitions may involve a number
of special risks, including, but not limited to, adverse short-term effects on
the Company's reported financial condition or results of operations, diversion
of management's attention, dependence on retention, hiring and training of key
personnel, risks associated with unanticipated problems or liabilities and
amortization of acquired intangible assets, some or all of which could have a
material adverse effect on the Company's business, financial condition or
results or operations. In addition, there can be no assurance that businesses
acquired in the future will be profitable at the time of acquisition or that the
businesses recently acquired or acquired in the future will achieve sales and
profitability justifying the Company's investment therein or that the Company
will recognize the synergies expected from such acquisitions. The failure to
obtain any or all of the desired results from these acquisitions could have a
material adverse effect on the Company's business, financial condition or
results of operations.
IMPACT OF OPERATING LEVERAGE IN THE EVENT OF SALES DECLINE
Because of the relatively high percentage of fixed costs for rent, product
development, engineering, tooling and related fixed manufacturing costs as a
percentage of total costs, the Company's ability to maintain its historic
profitability is dependent on generating a sufficient volume of product sales,
thereby spreading fixed costs over the sales base. Due to this "operating
leverage", a reduction in sales or the rate of sales growth could have a
disproportionately adverse effect on the Company's financial results.
SEASONALITY AND FLUCTUATIONS IN OPERATING RESULTS
19
<PAGE>
The Company's business is somewhat seasonal in nature, with the first and
fourth quarters generally reflecting lower sales due to the impact of adverse
weather conditions on construction projects that may alter or postpone the needs
of customers for delivery of the Company's products. The Company's operating
results may also fluctuate significantly from quarter to quarter due to several
other factors, including the volume and timing of orders from, and shipments to,
major customers, the timing of new product announcements and the availability of
products by the Company or its competitors, the overall level of capital
expenditures by CATV operators and local telephone companies, market acceptance
of new and enhanced versions of the Company's products, variations in the mix of
products the Company sells, and the availability and cost of raw materials.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
International sales accounted for 14.4%, 11.7% and 18.2% of the Company's net
sales in 1995, 1996 and 1997, respectively, and the Company expects that
international sales may increase as a percentage of sales in the future. Due to
its international sales, the Company is subject to the risks of conducting
business internationally, including unexpected changes in, or impositions of,
legislative or regulatory requirements, fluctuations in the U.S. dollar which
could materially adversely affect U.S. dollar revenues or operating expenses,
tariffs and other barriers and restrictions, potentially longer collection
cycles, greater difficulty in accounts receivable collection, potentially
adverse taxes and the burdens of complying with a variety of international laws
and communications standards. The Company is also subject to general
geopolitical risks, such as political and economic instability and changes in
diplomatic and trade relationships, in connection with its international
operations. There can be no assurance that these risks of conducting business
internationally will not have a material adverse effect on the Company's
business.
COMPETITION
The industries in which the Company operates are highly competitive. Further,
in connection with the anticipated growth in the communications industry
generally and demand for products required in signal transmission networks in
particular, the level and intensity of competition may increase in the future.
In the telephone segment of the industry, the Company's competition includes a
company that has a significant market share. While the Company's net sales to
this segment have increased from $3.3 million in 1993 to $7.2 million in 1997,
and the Company's strategy, which includes continued focus on increasing sales
to this segment, there can be no assurance that the Company will be able to
compete successfully against that company or other competitors, many of which
may have access to greater financial resources than the Company.
DISRUPTIONS AT THE COMPANY'S MANUFACTURING FACILITY; LEASE WITH RELATED PARTY
All of the Company's manufacturing operations are currently located at the
Company's facility in Temecula, California, which also includes the Company's
principal warehouse and corporate offices. The Company's success depends in
large part on the orderly operation of this facility. Because the Company's
manufacturing operations and administrative departments are concentrated at this
facility, a fire, earthquake or other disaster at this facility could materially
and adversely affect its business and results of operations. The Company
maintains standard property and earthquake insurance on this facility as well as
business interruption insurance and back-up data systems.
The Company currently leases the Temecula facility from William H. Channell,
Sr., a principal stockholder and Chairman of the Board and Chief Executive
Officer of the Company. The Company believes the terms of these leases are no
less favorable than would be available from an unrelated third party after arm's
length negotiations. Although the Company has renewal options through the year
2015 under these leases, there can be no assurance that the Company and Mr.
Channell, Sr. will be able to agree on renewal options for the properties
currently leased by the Company. The failure of the Company to renew the leases
would require the Company to relocate its existing facilities which could have a
material adverse affect on the Company's business, financial condition or
results of operations.
DEPENDENCE ON KEY PERSONNEL
The future success of the Company depends in part on its ability to attract
and retain key executive, engineering, marketing and sales personnel. Key
personnel of the Company include William H. Channell, Sr., the Chairman of the
Board and Chief Executive Officer, William H. Channell, Jr., the President and
Chief Operating Officer, and the other executive officers of the Company.
Competition for qualified personnel in the communications industry is intense,
and the loss of certain key personnel could have a material adverse affect on
the Company. The Company has entered into employment contracts with Mr.
Channell, Sr. and Mr. Channell, Jr.
CHANGING REGULATORY ENVIRONMENT
The communications industry is subject to regulation in the United States and
other countries. Federal and state regulatory agencies regulate most of the
Company's domestic customers. On February 1, 1996, the United States Congress
passed the Telecommunications Act of 1996 (the "Telecommunications Act"), which
the President signed into law on February 8, 1996. The Telecommunications Act
lifts certain restrictions on the liability of companies, including RBOCs and
other customers of the Company, to compete with one another and liberally
reduces the regulation of the communications industry. While the Company
believes that the deregulation of the communications industry may increase the
Company's opportunities to provide solutions for its customers' signal
transmission network needs, the effect of the Telecommunications Act on the
market for the Company's
20
<PAGE>
products is difficult to predict at this time, and there can be no assurance
that competition in the Company's markets will not intensify as a result of such
deregulation. Changes in current or future laws or regulations, in the United
States or elsewhere, could materially adversely affect the Company's business.
UNCERTAIN ABILITY TO MANAGE GROWTH; RISKS ASSOCIATED WITH IMPLEMENTATION OF NEW
MANAGEMENT INFORMATION SYSTEM
The growth in the Company's business has required, and is expected to continue
to require, significant Company resources in terms of personnel, management and
other infrastructure. The Company's ability to manage any future growth
effectively will require it to attract, train, motivate and manage new employees
successfully, to integrate new employees into its overall operations and to
continue to improve its operational, financial and management information
systems. In 1998, the Company intends to complete the implementation of a new
management information system ("MIS"). The Company believes the new MIS will
significantly affect many aspects of its business, including its accounting,
operations, purchasing, sales and marketing functions. The successful
implementation of this system will be important to the Company's provision of
services and to facilitate future growth. If the Company is not successful in
implementing its MIS or if the Company experiences difficulties in such
implementation, the Company could experience problems with delivery of its
products or an adverse impact on its ability to access financial and accounting
information on a timely basis.
ENVIRONMENTAL MATTERS
The Company is subject to a wide variety of federal, state and local
environmental laws and regulations and uses a limited number of chemicals that
are classified as hazardous or similar substances. Although management believes
that the Company's operations are in compliance in all material respects with
current environmental laws and regulations, the Company's failure to comply with
such laws and regulations could have a material adverse effect on the Company.
21
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
Set forth below is certain unaudited quarterly financial information. The
Company believes that all necessary adjustments, consisting only of normal
recurring adjustments, have been included in the amounts stated below to present
fairly, and in accordance with generally accepted accounting principles, the
selected quarterly information when read in conjunction with the Financial
Statements included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1997
------------------------------------------ --------------------------------
(amounts in thousands) (amounts in thousands)
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ---------- --------- ------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $10,279 $12,961 $11,954 $12,088 $12,804 $15,664 $15,353 $16,122
Gross profit............ 4,541 5,986 5,531 5,777 5,143 7,005 6,399 6,364
Income from operations.. 2,189 3,814 3,802 3,373 2,093 4,099 3,670 3,318
Income before income
taxes.................. 2,124 3,751 3,994 3,600 2,392 4,301 3,880 3,486
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Consolidated Financial Statements of Channell Commercial Corporation are as
follows:
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants................................................... F-1
Consolidated Balance Sheets as of December 31, 1996 and December 31, 1997............................ F-2
Consolidated Statements of Income for the years ended December 31, 1995, December 31, 1996,
and December 31, 1997......................................................................... F-3
Consolidated Statement of Stockholders' Equity for the years ended December 31, 1995,
December 31, 1996 and December 31, 1997....................................................... F-4
Consolidated Statement of Cash Flows for the years ended December 31, 1995, December 31, 1996,
and December 31, 1997......................................................................... F-5
Notes to Consolidated Financial Statements........................................................... F-7
</TABLE>
Financial statement schedules are as follows:
All schedules are omitted because they are not applicable, or the required
information is included in the financial statements or the notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
There has been no Form 8-K filed reporting a change of accountants or
reporting disagreements on any matter of accounting principle, practice,
financial statement disclosure or auditing scope or procedure.
22
<PAGE>
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS
--------------------------------
The following table sets forth information with respect to the Company's current
executive officers and directors and their ages as of December 31, 1997.
<TABLE>
<CAPTION>
Name Age Positions
- -------------------------- --- -----------------------------------
<S> <C> <C>
William H. Channell, Sr... 69 Chairman of the Board and
Chief Executive Officer
William H. Channell, Jr... 40 President, Chief Operating Officer
and Director
Gary W. Baker............. 54 Vice President, Finance and
Chief Financial Officer
Andrew M. Zogby........... 37 Vice President, Marketing
Edward J. Burke........... 42 Vice President, Engineering
Dale C. Wooding........... 47 Vice President, Manufacturing
John B. Kaiser............ 45 Vice President, Broadband Sales
Gary M. Napolitano........ 42 Vice President, General Manager RMS
Jacqueline M. Channell.... 66 Secretary and Director
Eugene R. Schutt, Jr...... 44 Director
Richard A. Cude........... 64 Director
</TABLE>
The directors of the Company are staggered into three classes, with the
directors in a single class elected at each annual meeting of stockholders to
serve for a term of three years or until their successors have been elected and
qualified. The authorized number of members of the Board of Directors is
currently seven. The executive officers of the Company serve at the pleasure of
the Board of Directors. The Company is currently evaluating other director
candidates and anticipates adding two directors to the Board.
William H. Channell, Sr., the son of the Company's founder, James W. Channell,
has been the Chairman of the Board and Chief Executive Officer since the Initial
Public Offering. Prior to this time, he had held the position of President and
Chief Executive Officer since 1966. Mr. Channell, Sr. is a co-trustee of the
Channell Family Trust, which is a principal stockholder of the Company, and is
the husband of Jacqueline M. Channell and the father of William H. Channell, Jr.
His initial term as a director expires in 1999.
William H. Channell, Jr. has been President and Chief Operating Officer of the
Company since the Initial Public Offering. He has been a Director of the Company
since 1984. Since joining the Company in 1979, Mr. Channell, Jr. has held the
positions of Executive Vice President, Director of Marketing and National Sales
Manager. Mr. Channell, Jr. is a principal stockholder of the Company and is the
son of William H. Channell, Sr. and Jacqueline M. Channell. His term as a
director expires in 2000.
Gary W. Baker has been the Company's Vice President, Finance since May 1996,
and the Chief Financial Officer since 1990. Mr. Baker was the Company's
Corporate Controller from 1985 to 1990. From 1983 to 1985, Mr. Baker was the
Corporate Controller of Symbolics, Inc., a publicly traded manufacturer of
computer products.
Andrew M. Zogby has been the Company's Vice President, Marketing since March
1996. Prior to joining the Company, Mr. Zogby was Director of Strategic
Marketing, Broadband Connectivity Group for ADC Telecommunications, a publicly
traded, telecommunications equipment supplier to both telephone and CATV network
providers worldwide. He had been with ADC Telecommunications since 1990. Mr.
Zogby has held various technical marketing positions in the telecommunications
equipment industry since 1984.
23
<PAGE>
Edward J. Burke has been the Company's Vice President, Engineering since May
1996 and has served in various similar capacities with the Company since 1984.
Mr. Burke has held various technical positions in the thermoplastic product
engineering and tooling design field since 1978.
Dale C. Wooding has been the Company's Vice President, Manufacturing since May
1996 and has served in various similar capacities with the Company since 1985.
Mr. Wooding has held various positions in the manufacturing management field
since 1976.
John B. Kaiser has been the Company's Vice President, Broadband Sales since
May 1996. He held the position of Director of Marketing for the Company from
1987 to 1991. Between 1991 and his return to the Company, Mr. Kaiser held the
position of District Manager, Southern California, for the General Polymers
Division of Ashland Chemical, a thermoplastics distributor, where his
responsibilities included general management of district operations, including
sales, warehousing, procurement and logistics.
Gary M. Napolitano joined the Company as Vice President and General Manager of
RMS, in January 1997, as a result of the acquisition of RMS. Mr. Napolitano had
been President of RMS since 1992 and was the Vice President of Finance prior to
becoming President.
Jacqueline M. Channell has been the Company's Secretary and a Director since
1966. She is a co-trustee of the Channell Family Trust, which is a principal
stockholder of the Company, and is the wife of William H. Channell, Sr. and the
mother of William H. Channell, Jr. Mrs. Channell's term as a director expires
in 1998.
Eugene R. Schutt, Jr. has been a Director of the Company since July 1996. Mr.
Schutt's initial term expires in 1999. Since January 1992, Mr. Schutt has been
the President of Avco International, a division of Avco Financial Services,
Inc., an international financial services company. From 1984 to 1992, he served
as President of Pratt Industries, Inc., a manufacturer of paper and related
products.
Richard A. Cude became a director of the Company during 1996. Mr. Cude has
been the General Manager of the Los Angeles Support Center for Courtaulds PLC
London, England since 1994 and has served in various capacities with Courtaulds
since 1988. Prior to that, Mr. Cude has been with various companies involved in
the marketing of products to the communications and telecommunications industry.
Mr. Cude's term as Director expires in 2000.
COMPENSATION OF DIRECTORS
Directors who are also officers of the Company (except as indicated below)
receive no additional compensation for their services as directors. The
Company's non-management directors receive compensation consisting of an annual
retainer fee of $15,000 plus $1,000 for attendance at any meeting of the Board
of Directors or any committee thereof, plus direct out-of-pocket costs related
to such attendance. Mrs. Channell also receives non-management director retainer
and attendance fees. Mrs. Channell does not receive separate compensation for
serving as the Company's Secretary. In addition, pursuant to the Company's 1996
Incentive Stock Plan (as described below), each non-management director
(including Mrs. Channell) received options to acquire 1,000 shares of the
Company's Common Stock with an exercise price equal to the Initial Public
Offering price, and on the date of each of the Company's annual stockholder
meetings after the Initial Public Offering, each non-management director
(including non-executive officers who serve as directors) serving on the Board
of Directors immediately following such meeting will receive options to acquire
an additional 1,000 shares of the Company's Common Stock with an exercise price
equal to the market value of the Common Stock on the date such options are
granted. These options will become exercisable at a rate of 33 1/3% per year
commencing on the first anniversary of the date of issuance and will have a term
of 10 years.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Information required by Item 405 of Regulation S-K is incorporated by
reference to the Company's Proxy Statement relating to its 1998 annual meeting
of stockholders.
24
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
----------------------
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation of the
Company's Chief Executive Officer and the four additional most highly
compensated executive officers for the year ended December 31, 1997
(collectively, the "Named Officers").
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------
Awards Payouts
------------------------ ---------
Securities
Other Annual Restricted Underlying All Other
Name and Positions Annual Compensation Compensation Stock Options/ LTIP Compensation
Held with the Company Salary($) $Bonus($)(3) ($)(1) Awards($) SARS(#) Payouts($) ($)(2)
- --------------------- -------- ----------- ---------- --------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William H. Channell, Sr......
Chairman of the Board and
Chief Executive Officer $520,000 $ - $ - $ - - $ - $ -
William H. Channell, Jr......
President and Chief
Operating Officer 520,000 130,000 - - 50,000 - 460
Gary W. Baker................
Vice President, Finance and
Chief Financial Officer 142,800 83,666 - - 6,000 - 478
Edward J. Burke..............
Vice President, Engineering 131,250 83,666 - - 6,000 - 984
Dale C. Wooding..............
Vice President,
Manufacturing 115,500 83,666 - - 6,000 - 906
</TABLE>
- --------------
(1) For each individual named, compensation excludes perquisites and other
personal benefits, that did not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus reported for such individual.
(2) Payments to the Company's 401K plan.
(3) As an incentive for continued services, the Company, in 1996, granted a cash
bonus of $200,000 to Mr. Baker, Mr. Burke, and Mr. Wooding, which is earned
and payable in three equal installments on each of December 31, 1997, 1998,
and 1999, provided each remains employed by the Company and subject to
continued payment in the event of death.
1996 INCENTIVE STOCK PLAN
The Company's 1996 Incentive Stock Plan (the "Stock Plan") currently permits
the granting to the Company's key employees, directors and other service
providers of (i) options to purchase shares of the Company's Common Stock and
(ii) shares of the Company's Common Stock that are subject to certain vesting
and other restrictions ("Restricted Stock"). A maximum of 750,000 shares of
Common Stock have been reserved for issuance under the Stock Plan. The Company
granted "non-qualified" options to acquire 512,700 shares of Common Stock to 92
of the Company's employees and directors (including 100,000 stock options being
issued to William H. Channell, Jr., the Company's President) at the time of the
Initial Public Offering in 1996 with an exercise price equal to the public
offering price. During 1997, the Company granted 164,700 "non-qualified" options
to 37 employees and directors (including 50,000 stock options issued to William
H. Channell, Jr., the Company's President). These options will vest at a rate
of 33 1/3% per year beginning on the first anniversary of the date of issuance
and will have a term of 10 years.
The Stock Plan is administered by the Compensation Committee of the Board of
Directors. The aggregate number of stock options or shares of Restricted Stock
that may be granted to any single participant under the Stock Plan during any
fiscal year of the Company is 100,000. The purpose of the Stock Plan is to
secure for the Company and its stockholders the benefits arising from stock
ownership by key employees, directors and other service providers selected by
the Compensation Committee.
25
<PAGE>
All options granted under the Stock Plan are non-transferable and exercisable
in installments determined by the Compensation Committee, except that each
option is to be exercisable in minimum annual installments of 20% commencing
with the first anniversary of the option's grant date. Each option granted has a
term specified in the option agreement, but all options expire no later than ten
years from the date of grant. Options under the Stock Plan may be designated as
"incentive stock options" for federal income tax purposes or as options which
are not qualified for such treatment, or "non-qualified stock options." In the
case of incentive stock options, the exercise price must be at least equal to
the fair market value of the stock on the date the option is granted. The
exercise price of a non-qualified option need not be equal to the fair market
value of the stock at the date of grant, but may be granted with any exercise
price which is not less than 85% of the fair market value at the time the option
is granted, as the Compensation Committee may determine. The aggregate fair
market value (determined at the time the options are granted) of the shares
covered by incentive stock options granted to any employee under the Stock Plan
(or any other plan of the Company) which may become exercisable for the first
time in any one calendar year may not exceed $100,000.
Upon exercise of any option, the purchase price must generally be paid in full
either in cash or by certified or cashier's check. However, in the discretion of
the Compensation Committee, the terms of a stock option grant may permit payment
of the purchase price by means of (i) cancellation of indebtedness owed by the
Company, (ii) delivery of shares of Common Stock already owned by the optionee
(valued at fair market value as of the date of exercise), (iii) delivery of a
promissory note secured by the shares issued, (iv) delivery of a portion of the
shares issuable upon exercise (i.e., exercise for the "spread" on the option
payable in shares), or (v) any combination of the foregoing or any other means
permitted by the Compensation Committee.
Any grants of Restricted Stock will be made pursuant to Restricted Stock
Agreements, which will provide for vesting of shares at a rate to be determined
by the Compensation Committee with respect to each grant of Restricted Stock.
Until vested, shares of Restricted Stock are generally non-transferable and are
forfeited upon termination of employment.
OPTIONS/SAR GRANTS TABLE
The following table sets forth the stock options granted to the named officers
for the year ended December 31, 1997.
<TABLE>
<CAPTION>
Potential
% of Total Realized
Number of Options/ Value at
Securities SARS Assumed Annual
Underlying Granted to Exercise Rates of Stock Price
Options/ Employees On Base Appreciation of
SARS in Fiscal Price Expiration Option Term
NAME Granted Year 1997 ($/SH) Date 5% 10%
---- ------- --------- ------ ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
William H. Channell, Sr. - - $ - - $ - $ -
William H. Channell, Jr. 50,000 30.4% $13.25 July 2007 416,500 1,056,000
Gary W. Baker 6,000 3.6% $13.25 July 2007 49,980 126,720
Edward J. Burke 6,000 3.6% $13.25 July 2007 49,980 126,720
Dale C. Wooding 6,000 3.6% $13.25 July 2007 49,980 126,720
</TABLE>
26
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND DECEMBER 31, 1997
OPTION/SAR VALUES
The following table sets forth the number and value of outstanding stock
options at December 31, 1997. No options have been exercised in 1997.
<TABLE>
<CAPTION>
Number of Shares
Shares Underlying Unexercised Value of Unexercised In-
Acquired Options/SARs the-Money Options/SARs
on Value at December 31, 1997 at December 31, 1997
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- -------- -------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
William H. Channell, Sr. - $ - - $ - /$ -
William H. Channell, Jr. - - 33,333/116,667 50,000/100,000
Gary W. Baker - - 6,000/18,000 9,000/18,000
Edward J. Burke - - 6,000/18,000 9,000/18,000
Dale C. Wooding - - 6,000/18,000 9,000/18,000
</TABLE>
PROFIT SHARING AND SAVINGS PLANS
As of September 30, 1997, the assets of the Company's prior defined
contribution profit sharing plan were merged into a plan established in 1993 in
accordance with Section 401(K) of the Internal Revenue Code. Under the terms of
this plan, eligible employees may make voluntary contributions to the extent
allowable by law. Employees of the Company are eligible to participate in the
plan after 90 days of employment. Matching contributions by the Company to this
plan are discretionary and will not exceed that allowable for Federal income tax
purposes. The Company's contributions are vested over five years in annual
increments.
EMPLOYMENT CONTRACTS
The Company has entered into employment agreements with each of William H.
Channell, Sr. and William H. Channell, Jr., engaging them as the Chairman of the
Board and Chief Executive Officer, and President and Chief Operating Officer of
the Company, respectively. For their service, each of Messrs. Channell, Sr. and
Channell, Jr., is entitled to receive an annual salary of $500,000, subject to
annual cost of living increases. After the cost of living adjustment, the base
salary for each during 1997 was $520,000. In addition, each executive is
entitled to participate in the Incentive Stock Plan, the 401(K) Plan and the
Incentive Compensation Plan. The employment agreements provide that each
executive is entitled to certain other benefits paid for by the Company,
including an automobile allowance, health insurance and sick leave, in
accordance with the Company's customary practices for senior executive officers.
In the case of Mr. Channell, Sr., such benefits also include (i) during the
term of the agreement, the payment of premiums for a term disability policy
providing for $250,000 in annual benefits in the case of his temporary or
permanent disability, (ii) during the lifetime of Mr. Channell, Sr. and his
wife, Jacqueline M. Channell, medical insurance for each of Mr. and Mrs.
Channell comparable to that provided to the Company's senior executive officers,
subject to a premium reimbursement obligation in the case of the medical
insurance provided to Mrs. Channell, and (iii) during Mr. Channell, Sr.'s
lifetime, a portion of the premiums on a life insurance policy owned by Mr.
Channell, Sr., under which Mrs. Channell is the beneficiary.
Each of the employment agreements has a term of five years. In the event
either executive is terminated without cause (as defined in the employment
agreements), he is entitled to receive, as a severance benefit, an amount equal
to three times his annual base salary, and any options or Restricted Stock
previously granted to such executive will become immediately vested.
27
<PAGE>
At the time of the Initial Public Offering, as an incentive for continued
services, the Company entered into a bonus agreement with Mr. Baker, Mr. Burke
and Mr. Wooding. This agreement grants to each of the three officers a bonus in
the amount of $200,000, which is earned and payable in three equal installments
on December 31, 1997, 1998 and 1999, provided each remains employed by the
Company. The bonus is subject to continued payment in the event of the death of
the employee.
INCENTIVE COMPENSATION PLAN
Effective beginning in the Company's 1996 fiscal year, the Board of Directors
adopted the Company's 1996 Performance-Based Annual Incentive Compensation Plan
(the "Incentive Plan"). Eligible participants consist of key employees of the
Company. The Incentive Plan is administered by the Compensation Committee of the
Board of Directors. The amount of awards granted under the Incentive Plan are
determined based on an objective computation of the actual performance of the
Company relative to pre-established performance goals. Measures of performance
may include level of sales, EBITDA, net income, income from operations, earnings
per share, return on sales, expense reductions, return on capital, stock
appreciation, return on equity, invention, design or development of proprietary
products or improvements thereto (patented or otherwise), or sales of such
proprietary products or improvements or profitability achieved from sales of
proprietary products or improvements. Awards under the Incentive Plan are
payable in cash or, at the election of the Compensation Committee, Common Stock
of the Company. The Compensation Committee may establish a bonus pool from which
all awards under the Incentive Plan may be granted as well as individual, non-
bonus pool awards. No participant in the Incentive Plan may receive awards under
such plan during any fiscal year of the Company in excess of $1,000,000 or
100,000 shares of Common Stock.
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. This committee is composed of
Mr. William H. Channell, Sr., an executive officer and employee of the Company,
Mr. Eugene R. Schutt, Jr. and Mr. Richard A. Cude. (See "Certain Relationships
and Related Transactions".) It is the responsibility of the Committee to review
and approve the Company's executive compensation plans and policies and to
monitor these compensation programs in relation to the performance of the
particular executive and the overall performance of the Company.
The following is a line graph presentation comparing the Company's cumulative
total return since the Initial Public Offering in July 1996 to December 31, 1997
with the performance of the NASDAQ market, the S & P Industrials and a similar
Industry Index for the same period.
CHANNELL COMMERCIAL CORPORATION
COMPARISON OF CUMULATIVE TOTAL RETURNS
(ASSUMES DIVIDENDS, IF ANY, ARE REINVESTED)
[GRAPHIC APPEARS HERE]
INDUSTRY INDEX IS A MARKET CAPITALIZATION WEIGHTED COMPOSITE THAT INCLUDES
AMPHENOL CORP., ANTEC CORP., OAK INDUSTRIES AND TII INDUSTRIES.
28
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth certain information concerning those persons
who are known by management of the Company to be beneficial owners of more than
5% of the Company's outstanding common stock (as provided to the Company by such
persons or the recordholder of such shares).
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
------------------------------------------
Name and Address No. of Shares Exercisable Percent
of Beneficial Owner Owned Options(1) Total of Class
- ---------------------- ------------- -------------- --------- ---------
<S> <C> <C> <C> <C>
William H. Channell Sr. and 3,420,830 - 3,420,830 36.4%
Jacqueline M. Channell, as co-trustees
of the Channell Family Trust
26040 Ynez Road
Temecula, CA 92591-9022
William H. Channell, Jr. 1,519,250 33,333 1,552,583 16.5%
26040 Ynez Road
Temecula, CA 92591-9022
Wellington Management Company, LLP 841,100 - 841,100 9.0%
75 State Street
Boston, MA 02109
Kern Capital Management, LLC 551,300 - 551,300 5.9%
114 West 47th Street, Suite 1926
New York, NY 10036
Carrie S. Rouveyrol 490,960 - 490,960 5.2%
P.O. Box 1080
Stinson Beach, CA 94970
The Taylor Family Trust 490,960 - 490,960 5.2%
1450 Ravenswood Lane
Riverside, CA 92506
</TABLE>
(1) Refers to the number of shares covered by options exercisable within 60
days of March 15, 1998.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information, as of March 16, 1998,
concerning the beneficial ownership of common stock by the Company's directors
and named executive officers, and all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
------------------------------------------
Name and Address No. of Shares Exercisable Percent
of Beneficial Owner Owned Options(1) Total of Class
- ------------------- ------------- -------------- --------- ---------
<S> <C> <C> <C> <C>
William H. Channell Sr. 3,420,830 - 3,420,830 36.4%
William H. Channell, Jr. 1,519,250 33,333 1,552,583 16.5%
Gary W. Baker 400 6,000 6,400 .1%
Edward J. Burke - 6,000 6,000 .1%
Dale C. Wooding 300 6,000 6,300 .1%
All present directors and executive
officers as a group (11 in number) 4,942,907 70,332 5,013,239 53.4%
</TABLE>
(1) Refers to the number of shares covered by options exercisable within 60
days of March 16, 1998.
29
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Company has two leases for approximately 260,000 square feet of
manufacturing, warehouse and office space in Temecula, California, with William
H. Channell, Sr., a principal stockholder and the Chairman of the Board and
Chief Executive Officer of the Company. The term of the first lease is through
December 31, 2005, with two five-year renewal options. The monthly rental
payment is $54,182, and the lease provides for annual cost of living increases.
For the 1993-1996 period, the lease was amended to waive the cost of living
increases. Additionally, an adjacent 100,000 square foot building was
constructed and completed in 1996. In 1996, the Company advanced $3.1 million
to Mr. Channell, Sr. for the construction of this building. The advances were
repaid in full as of December 31, 1996. Subsequent to December 31, 1996, the
Company guaranteed debt of Mr. Channell, Sr. of approximately $2.7 million
incurred in connection with construction of the building. This building is also
being leased from Mr. Channell, Sr. through 2005, with two five-year renewal
options, requiring monthly rental payments of $35,000. The Company believes that
the terms of these leases are no less favorable to the Company than could be
obtained from an independent third party.
Prior to the Initial Public Offering, Mr. Channell, Sr. received from the
Company a 10% license fee on the sale of certain products utilizing the Channell
Patents. For 1994, 1995 and 1996, the expense for these license fees was $1.6
million, $2.0 million and $0.5 million, respectively. Prior to the consummation
of the Initial Public Offering, the Channell Patents were sold to the Company,
the license fee arrangement between the Company and Mr. Channell, Sr. was
terminated in April 1996, and thereafter, no license fees are to be paid to Mr.
Channell, Sr. or any other person with respect to the Channell Patents.
Prior to the consummation of the Initial Public Offering, the Company
maintained and paid the premiums with respect to a $1.5 million whole life
insurance policy for Mr. Channell, Sr., under which the Company was named as the
beneficiary. In connection with the Initial Public Offering, this policy was
transferred to Mr. Channell, Sr. in consideration of the payment by Mr.
Channell, Sr. to the Company of an amount equal to the estimated $0.3 million
cash surrender value of this policy as of the closing of the Initial Public
Offering, and the beneficiary under this policy was redesignated as Mr.
Channell, Sr.'s wife, Jacqueline M. Channell. The Company continues to pay a
portion of the premiums with respect to this policy during Mr. Channell, Sr.'s
lifetime.
During 1994, Mr. Channell, Sr. made a non-interest bearing loan of $0.1
million to the Company, which loan was repaid in full as of March 31, 1996.
Mr. Channell, Sr. is a director and executive officer of the Company and also
serves as one of three members of the Compensation Committee of the Board of
Directors. This committee administers all of the executive compensation plans
of the Company.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) The following financial statements and schedules are filed as a part of
this report:
(1) Consolidated Financial Statements
See index included in Part II, Item 8.
(2) Consolidated Financial Statement Schedules
All schedules are omitted because they are not applicable, or the required
information is included in the financial statements or notes thereto.
(a)(3) and (c). The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------ -------------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company (1)
3.2 Bylaws of the Company (1)
4 Form of Common Stock Certificate (1)
10.1 Tax Agreement between the Company and the Existing Stockholders (1)
10.2 Channell Commercial Corporation 1996 Incentive Stock Plan (including
form of Stock Option Agreements and Restricted Stock Agreement) (1)
10.3 Business Loan Agreement dated as of May 13, 1997 between the Company
and Bank of America National Trust and Savings Association ("Bank of
America") (3)
10.5 The Company's Profit Sharing Plan (1)
10.6 Agreement dated as of September 30, 1982 between the Company and
Integral Corporation, as amended (1)
10.7 Telephone Sales Agreement dated as of January 23, 1991 between the
Company and Integral Corporation (1)
10.8 Employment Agreement between the Company and William H. Channell, Sr.
(1)
10.9 Employment Agreement between the Company and William H. Channell, Jr.
(1)
10.10 Channell Commercial Corporation 1996 Performance-Based Annual
Incentive Compensation Plan (1)
10.11 Lease dated December 22, 1989 between the Company and William H.
Channell, Sr., as amended (1)
10.12 Lease dated May 29, 1996 between the Company and the Channell Family
Trust (1)
10.13 Lease dated May 17, 1994 between the Company and the Z. Paul Akian and
Sonia Akian Family Trust (1)
10.14 Lease dated March 1, 1994 between the Company and Allstate Life
Insurance Company (1)
10.15 Lease dated November 2, 1989 between the Company and Meadowvale Court
Property Management Ltd., as amended (1)
10.16 Lease Agreement dated as of March 1, 1996 between Winthrop Resources
Corp. and the Company (1)
10.17 Form of Indemnity Agreement (1)
10.18 Form of Agreement Regarding Intellectual Property (1)
10.19 401(k) Plan of the Company (4)
10.20 Letter agreement regarding employment, Andrew M. Zogby (2)
10.21 Letter agreement regarding employment, John B. Kaiser (2)
11 Computation of Proforma Income per share (2)
27 Financial Data Schedule (4)
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1997.
_____________
(1) Incorporated by reference to the indicated exhibits filed in connection
with the Company's Registration Statement on Form S-1 (File No. 333-3621).
(2) Incorporated by reference to the indicated exhibits filed in connection
with the Company's Form 10-K on March 31, 1997.
(3) Incorporated by reference to the indicated exhibits filed in connection
with the Company's Form 10-Q on August 13, 1997.
(4) Filed herewith.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Channell Commercial Corporation
We have audited the consolidated balance sheets of Channell Commercial
Corporation as of December 31, 1996 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997.
31
<PAGE>
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Channell
Commercial Corporation as of December 31, 1996 and 1997, and the consolidated
results of its operations and its consolidated cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Los Angeles, California
February 13, 1998
F-1
<PAGE>
CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,190 $3,840
Investments 11,406 11,651
Accounts receivable 6,685 9,191
Inventories 2,908 7,269
Deferred income taxes 321 688
Prepaid expenses 764 613
------- ------
Total current assets 31,274 33,252
PROPERTY AND EQUIPMENT at cost, net 10,608 14,758
DEFERRED INCOME TAXES 559 664
INTANGIBLE ASSETS, net of amortization of $137 - 1,649
OTHER ASSETS 217 302
------- ------
$42,658 $50,625
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,048 $ 2,606
Current maturities of capital lease
obligations 135 226
Accrued expenses 1,167 791
Income taxes payable 1,548 390
------- -------
Total current liabilities 4,898 4,013
LONG-TERM OBLIGATIONS - 400
CAPITAL LEASE OBLIGATIONS 338 320
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share,
authorized--1,000 shares,
none issued and outstanding - -
Common stock, par value $.01 per share,
authorized--19,000 shares;
issued and outstanding--9,237 shares 92 92
Additional paid-in capital 27,991 27,991
Retained earnings 9,339 17,809
------- -------
Total stockholders' equity 37,422 45,892
------- -------
$42,658 $50,625
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996 1997
--------------- -------------- ---------------
<S> <C> <C> <C>
Net sales $40,972 $47,282 $59,943
Cost of goods sold 23,059 25,447 35,032
------- ------- -------
Gross profit 17,913 21,835 24,911
Commission income 1,098 985 606
------- ------- -------
19,011 22,820 25,517
------- ------- -------
Operating expenses
Selling 5,600 6,559 7,251
General and administrative 1,707 2,021 4,077
License fees--related party 2,035 531 -
Research and development 498 531 1,009
------- ------- -------
9,840 9,642 12,337
------- ------- -------
Income from operations 9,171 13,178 13,180
Interest income (expense), net (339) 291 879
------- ------- -------
Income before income
taxes 8,832 13,469 14,059
Income taxes 349 2,359 5,589
------- ------- -------
Net income $ 8,483 $11,110 $ 8,470
======= ======= =======
Net income per share
Basic $ .92
=======
Diluted $ .91
=======
Pro forma information (unaudited):
Historical income before taxes $ 8,832 $13,469
Pro forma income taxes 3,455 4,548
------- -------
Pro forma net income $ 5,377 $ 8,921
======= =======
Pro forma net income per
share--basic and diluted $ .70 $ 1.06
======= =======
Pro forma weighted average
shares outstanding 7,695 8,403
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Common stock Additional Total
-------------------------- paid-in Retained stockholders'
Shares Amount capital earnings equity
------------ ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 6,137 $61 $ 26 $ 9,330 $ 9,417
Net income for the year - - - 8,483 8,483
Dividends declared ($.88 per share) - - - (5,427) (5,427)
------------ ------------ -------------- ------------- -------------
Balance, December 31, 1995 6,137 61 26 12,386 12,473
Proceeds from initial public offering of common stock,
net of expenses 3,100 31 30,534 - 30,565
Reorganization distribution - - - (11,665) (11,665)
Dividends declared ($.41 per share) - - - (2,492) (2,492)
Acquisition of patents from stockholders - - (3,100) - (3,100)
Contribution of accrued license fees
previously owed to stockholder - - 531 - 531
Net income for the year - - - 11,110 11,110
------------ ------------ -------------- ------------- ------------
Balance, December 31, 1996 9,237 92 27,991 9,339 37,422
Net income for the year - - - 8,470 8,470
------------ ------------ -------------- ------------- ------------
Balance, December 31, 1997 9,237 $92 $27,991 $ 17,809 $ 45,892
============ ============ ============== ============= ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE>
CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,483 $ 11,110 $ 8,470
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,412 1,551 2,044
Deferred income taxes - (880) (472)
(Increase) decrease in assets:
Accounts receivable 236 (2,563) (1,197)
Inventories (4) (299) (2,716)
Prepaid expenses (63) (368) 201
Other 6 322 (19)
Increase (decrease) in liabilities:
Accounts payable (52) 797 (602)
Accrued expenses 3 255 (820)
Income taxes payable (263) 1,499 (1,159)
------------- -------------- -------------
Net cash provided by operating activities 9,758 11,424 3,730
------------- -------------- -------------
Cash flows from investing activities:
Acquisition of property and equipment (2,161) (1,554) (5,966)
Advances to stockholder for building construction - (3,119) -
Collection of advances to stockholder - 3,119 -
Acquisitions, net of cash acquired - - (2,747)
Purchases of investments - (11,406) (7,316)
Maturities of investments - - 7,071
------------- -------------- -------------
Net cash used in investing activities (2,161) (12,960) (8,958)
------------- -------------- -------------
Cash flows from financing activities:
Repayment of debt (877) (3,213) (195)
Repayment of obligations under capital lease - (70) 73
Proceeds from initial public offering - 30,565 -
Acquisition of patents from stockholders - (3,100) -
Dividends paid (6,547) (3,166) -
Reorganization distribution - (11,665) -
Proceeds from issuance of long-term debt 405 - -
------------- -------------- -------------
Net cash provided by (used in) financing activities (7,019) 9,351 (122)
------------- -------------- -------------
Increase (decrease) in cash and cash equivalents 578 7,815 (5,350)
Cash and cash equivalents, beginning of year 797 1,375 9,190
------------- -------------- -------------
Cash and cash equivalents, end of year $ 1,375 $ 9,190 $ 3,840
============= ============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------------ --------------- -------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 351 $ 185 $ 128
============ =============== =============
Income taxes $ 957 $1,967 $ 5,753
============ =============== =============
Noncash investing and financing activities:
Assets acquired under capital lease $ - $ 543 $ 214
============ =============== =============
Contribution of accrued license fees to paid-in capital $ - $ 531 $ -
============ =============== =============
Fair value of assets acquired, including goodwill $ - $ - $ 4,974
Note payable issued - - (400)
Cash paid - - (2,774)
------------ --------------- -------------
Liabilities assumed $ - $ - $ 1,800
============ =============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(amounts in thousands, except per share data)
NOTE A--DESCRIPTION OF BUSINESS
The Company is a designer, manufacturer and marketer of precision-molded
thermoplastic and metal-fabricated enclosures used by cable television operators
and local telephone companies. The Company's products house, protect and
provide access to advanced telecommunications electronics and transmission
media, including coaxial cable, copper wire and optical fibers, used in the
delivery of CATV and telephone services. The products are deployed within the
portion of the local signal delivery network, commonly known as the "outside
plant", that connects the network provider's signal origination office with
residences and businesses. The Company also designs and distributes high
performance radio frequency passive electronic devices which are typically used
in conjunction with the Company's enclosure products. The Company also markets
a variety of complementary products manufactured by third parties, including
grade level boxes and cable-in-conduit, in order to provide a full system
solution to meet its customer's outside plant requirements.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates--In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Consolidation--The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
transactions and balances have been eliminated.
Foreign Currency Translation--Assets and liabilities of certain foreign
operations are translated into U.S. dollars at current exchange rates. Income
and expenses are translated into U.S. dollars at average rates of exchange
prevailing during the period. Adjustments resulting from translating foreign
functional currency financial statements into U.S. dollars are not significant
to the consolidated financial statements.
Cash--For purposes of reporting cash flows, cash and its equivalents include
cash on hand, cash in banks and short-term investments with original maturities
of 90 days or less.
Investments--The Company has invested in certain U.S. Government issued debt
instruments and other taxable securities. These investments are classified as
available for sale. The investment in these securities is therefore recorded at
fair value with any differences between fair value and cost recorded as a
separate component of stockholder's equity. At December 31, 1997, there were no
material differences between the fair value and cost of these marketable
securities. Investments mature as follows: $11,379 in 1998, $132 in 1999 and
$140 in 2000. Interest income for the years ended December 31, 1996 and 1997
totaled $477 and $1,006, respectively; it has been reflected net of interest
expense in the accompanying statement of income. Interest income was not
significant in 1995.
Inventories--Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method of accounting.
F-7
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(amounts in thousands, except per share data)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Property and Equipment--Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Capital lease assets are amortized using the
straight-line method over the useful lives of the assets. Expenditures for all
maintenance and repairs are charged against income. Additions, major renewals
and replacements that increase the useful lives of assets are capitalized.
Amortization of leasehold improvements is computed using the straight-line
method over the shorter of the lease term or the estimated useful life of the
leasehold improvements.
Intangible Assets--The excess of cost over net assets acquired (goodwill) is
being amortized on a straight-line basis over 15 years. The Company reviews the
carrying value of goodwill for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. Other
acquired intangibles are being amortized on a straight-line basis over their
estimated useful lives of 3 years.
Revenue Recognition--The Company recognizes revenue from product sales and
commission income at the time of shipment.
Income taxes--Deferred income taxes reflect the impact of temporary
differences between the amounts of assets and liabilities recognized for
financial reporting purposes and the amounts recognized for income tax purposes.
These deferred income taxes are measured by applying currently enacted income
tax rates. A valuation allowance reduces deferred income tax assets when it is
more likely than not that some portion or all of the deferred income tax assets
will not be realized.
Income per share--In 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"), which
superseded APB Opinion No. 15. Income per share for all periods presented has
been restated to reflect the adoption of SFAS 128. SFAS 128 requires companies
to present basic income per share, and, if applicable diluted income per share,
instead of primary and fully diluted income per share. Basic income per share
is computed by dividing net income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
income per share reflects the potential dilution that could occur if options to
issue common stock were exercised into common stock.
The following is a reconciliation of the number of shares (denominator) used
in the basic and diluted income per share computations for 1997:
<TABLE>
<CAPTION>
Per Share
Shares Amount
----------- -------------
<S> <C> <C>
Basic income per share........................ 9,237 $ .92
Effect of dilutive stock options.............. 54 (.01)
----------- -------------
Diluted income per share...................... 9,291 $ .91
=========== =============
</TABLE>
F-8
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(amounts in thousands, except per share data)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Income per share--continued--The following options were not included in the
computation of diluted income per share in 1997 because the options' exercise
price was greater than the average market price of the common shares:
<TABLE>
<S> <C>
Options to purchase shares of common stock.... 140
Exercise price................................ $13.25
Expiration dates.............................. July 2007
</TABLE>
Pro forma financial information (unaudited)--Prior to the Company's initial
public offering of common stock in July 1996 (the "IPO"), it was an S
Corporation for federal and state income tax purposes. The pro forma provision
for income taxes reflects the income tax provision of the Company as recorded in
its income statement plus the additional tax on S Corporation income at C
Corporation rates.
Pro forma net income per share (basic and diluted) has been computed by
dividing pro forma net income by the pro forma weighted average shares
outstanding. Pro forma weighted average shares outstanding includes 1,558
shares for the year ended December 31, 1995, and 779 shares for the year ended
December 31, 1996, assumed to have been sold by the Company at a price of $11.00
per share, the net proceeds of which were used to fund the reorganization
distribution. The effect of the Company's use of a portion of the net proceeds
of the IPO to repay approximately $2.7 million of bank indebtedness outstanding
as of June 30, 1996, has not been reflected in pro forma net income or pro forma
net income per share because the impact is not material.
A reconciliation of pro forma income taxes to the Federal statutory rate is as
follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Federal statutory rate............................... 34% 34%
State income taxes, net of Federal tax benefit....... 6 6
Deferred income tax benefit recorded upon
termination of S Corporation status................ - (5)
Other................................................ (1) (1)
---------- ----------
39% 34%
========== ==========
</TABLE>
Fair value of financial instruments--The carrying amount of cash, accounts
receivable, accounts payable, accrued expenses and long-term obligations
approximates fair value because of the short maturity of these financial
instruments. The carrying amount of investments, which is the fair value, is
based upon values provided by external investment managers or quoted market
values.
Reclassifications--Certain reclassifications have been made to the 1996
financial statements to conform with the 1997 presentation.
F-9
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(amounts in thousands, except per share data)
NOTE C--INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Raw materials............................................. $1,508 $1,692
Work-in-process........................................... 549 1,240
Finished goods............................................ 851 4,337
------------- -------------
$2,908 $7,269
============= =============
</TABLE>
NOTE D--PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
ESTIMATED
1996 1997 USEFUL LIVES
--------------- ---------------- ----------------
<S> <C> <C> <C>
Machinery and equipment............................ $14,739 $ 16,802 3-10 years
Office furniture and equipment..................... 1,042 1,333 3- 7 years
Leasehold improvements............................. 2,196 2,285 15-20 years
Building........................................... - 3,150 30 years
Land............................................... - 600 --
Construction in progress........................... 891 755 --
--------------- ----------------
18,868 24,925
Less accumulated depreciation and amortization..... (8,260) (10,167)
--------------- ----------------
$10,608 $ 14,758
=============== ================
</TABLE>
Included in the $16,802 of machinery and equipment is $757 of computer
equipment acquired under capital lease. Accumulated amortization of assets
under capital lease totaled $185 at December 31, 1997. See Note I.
NOTE E--ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Accrued vacation............................................. $ 448 $ 477
Other........................................................ 719 314
----------- ------------
$1,167 $ 791
=========== ============
</TABLE>
F-10
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(amounts in thousands, except per share data)
NOTE F--LINES OF CREDIT
The Company has in place a $5,000 line of credit with a bank for working
capital purposes. This line of credit bears interest at the bank's reference
rate, payable monthly. In addition, the Company has a $5,000 equipment line of
credit. The equipment line of credit bears interest at the bank's reference
rate plus .25%. The lines of credit expire on May 1, 1999. The equipment line
of credit is collateralized by the related equipment financed by the bank, if
any. The lines of credit contain various financial and operating covenants
which, among other things, impose certain limitations on the Company's ability
to incur additional indebtedness, merge or consolidate, sell its assets, make
certain investments or, under certain circumstances, pay dividends. The Company
is also required to comply with covenants related to tangible net worth and
other financial ratios. The Company had both lines fully available at December
31, 1997.
NOTE G--LONG-TERM OBLIGATIONS
Long-term debt consists of a note payable issued in connection with the
acquisition of RMS Electronics, Inc. (Note K). Principal is payable in three
annual installments of $133 beginning January 1, 1999. Interest accrues at a
rate equal to the Company's investment yield (effective rate at December 31,
1997 of 5.85%) and is payable quarterly.
NOTE H--INCOME TAXES
The components of income taxes are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
<S> ------------ ------------ ------------
Current <C> <C> <C>
Federal.......................................... $ -- $2,104 $4,275
State............................................ 36 743 1,243
Foreign.......................................... 313 392 543
------------ ------------ ------------
349 3,239 6,061
------------ ------------ ------------
Deferred
Federal.......................................... -- (669) (416)
State............................................ -- (211) 14
Foreign.......................................... -- -- (70)
------------ ------------ ------------
-- (880) (472)
------------ ------------ ------------
$ 349 $2,359 $5,589
============ ============ ============
</TABLE>
A reconciliation from the U.S. Federal statutory income tax rate to the
effective income tax rate for the year ended December 31, 1997 is as follows:
<TABLE>
<S> <C> <C>
U.S. Federal statutory rate................... 34%
State income taxes, net of federal tax benefit 6
--------------
40%
==============
</TABLE>
F-11
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(amounts in thousands, except per share data)
NOTE H--INCOME TAXES--CONTINUED
Prior to July 1996, the Company was taxed as an S Corporation. Accordingly,
all Federal taxable earnings of the Company through July 1996 were taxed at the
individual stockholder level and the Company incurred no Federal income tax
liability. The Company was, however, subject to California's Corporation tax.
Income taxes for 1995 consist primarily of the state corporate franchise tax for
California and the Canadian tax imposed on the taxable income of the Company's
Canadian operations. In 1995, the actual state tax provision differs from the
expected statutory tax due to non-deductible entertainment expense and
officers'life insurance premiums.
In July 1996, the Company terminated its election to be taxed as an S
Corporation. As a result of this termination, the Company became liable for
income taxes. Accordingly, as required by generally accepted accounting
principles, the Company recorded deferred tax assets and liabilities on
temporary differences between the income tax basis and book basis of certain
assets and liabilities. The effect of recording these net deferred tax assets
upon the results of operations for the year ended December 31, 1996 was $1,063
($0.13 per share).
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Assets
Patents.................................................... $1,286 $1,162
Allowance for bad debts.................................... 32 41
Inventory capitalization................................... 59 146
Vacation pay............................................... 190 187
State taxes................................................ - 314
Net operating loss carryforward-foreign operations......... - 70
------------ ------------
1,567 1,920
------------ ------------
Liabilities
Accelerated depreciation................................... 615 568
State taxes................................................ 72 -
------------ ------------
687 568
------------ ------------
Net deferred tax asset.................................. $ 880 $1,352
============ ============
</TABLE>
The classification of the net deferred tax assets between current and non-
current is as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Current...................................................... $ 321 $ 688
Non-current.................................................. 559 664
------------ ------------
$ 880 $1,352
============ ============
</TABLE>
F-12
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(amounts in thousands, except per share data)
NOTE I--CAPITAL LEASE OBLIGATIONS
The Company leases certain computer equipment under various agreements which
are classified as capital leases. The equipment is under lease through August
2000. Future minimum payments, by year, are as follows:
<TABLE>
<S> <C>
1998 $291
1999 300
2000 52
----
643
Less amount representing
interest 97
----
546
Less current maturities 226
----
$320
====
</TABLE>
NOTE J--STOCKHOLDERS' EQUITY
In 1996, 3,100 shares of the Company's common stock were sold in a public
offering. Proceeds of approximately $30,565, net of issuance expenses, were
used to fund the distribution to stockholders, fund the acquisition of certain
patents from stockholders and to repay outstanding borrowings on the bank lines
of credit.
Effective June 14, 1996, as part of the initial public offering of the
Company's common stock, the Company was merged into a newly formed corporation,
with the newly formed corporation being the surviving entity while retaining the
same name as the predecessor. As part of the merger, the predecessor's existing
stockholders were issued 12.274 shares of the newly formed corporation's common
stock in exchange for each outstanding share of the predecessor's common stock.
This exchange has been accounted for as a reorganization and the number of
outstanding shares has been restated on a retroactive basis similar to a stock
split.
The Company had been an S Corporation for both federal and state tax income
tax purposes since 1990. As discussed in Note H, the Company terminated its S
Corporation status effective July 6, 1996 in connection with the initial public
offering of its common stock. Upon the termination of the S Corporation status
and prior to the initial public offering, the Company declared a dividend to its
then existing stockholders representing all of the Company's S Corporation
"accumulated adjustments account" remaining at the time. The S Corporation
distribution totaled $11,665 and was paid out of the net proceeds of the initial
public offering.
In July 1996, the Company adopted the 1996 Incentive Stock Plan, under which
it was authorized to issue non-qualified stock options and incentive stock
options to key employees, directors and consultants to purchase up to an
aggregate of 750 shares of the Company's common stock. The options have a term
of ten years and generally become fully vested by the end of the third year.
F-13
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(amounts in thousands, except per share data)
NOTE J--STOCKHOLDERS' EQUITY--CONTINUED
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation", encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value.
The Company has chosen to continue to account for stock-based compensation using
the intrinsic value method prescribed in previously issued standards.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock. Compensation costs has
not been significant.
Plan transactions are as follows:
<TABLE>
<CAPTION>
1996 1997
----------------------------------- ------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Options outstanding
January 1,................. -- $ -- 513 $11.00
Granted..................... 513 11.00 165 12.91
Exercised................... -- -- -- --
Canceled.................... -- -- (42) 11.00
------------- -------------
Options outstanding
December 31,............... 513 $11.00 636 $11.49
============= =============
Options available for
grant at December 31,...... 237 113
</TABLE>
Weighted average fair value of options granted during the year are as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Exercise price is below market price at date of grant -- $6.75
Exercise price equals market price at date of grant $5.47 $5.90
</TABLE>
The range of exercise prices of options outstanding at December 31, 1997 is
$11.00 to $13.25 and have a weighted average remaining contractual life of 9
years. At December 31, 1997, 171 of the 636 options outstanding are exercisable
by the optionee.
F-14
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(amounts in thousands, except per share data)
NOTE J--STOCKHOLDERS' EQUITY--CONTINUED
The fair value of options at date of grant was estimated using the Black-
Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Expected life (years)..................................... 5 years 5 years
Risk-free interest rate................................... 5.5% 6.25%
Volatility................................................ 50% 40%
Dividend yield............................................ -- --
</TABLE>
Had compensation cost for the plan been determined based on the fair value of
the options at the grant dates based on the above method, the Company's 1997 net
income and income per share would have been:
<TABLE>
<CAPTION>
Net income per share
------------------------------------
Net income Basic Diluted
--------------- --------------- ---------------
<S> <C> <C> <C>
As reported..................................... $8,470 $.92 $.91
Pro forma....................................... 7,812 .84 .83
</TABLE>
The Company's adjusted pro forma net income and adjusted pro forma net income
per share (basic and diluted) for 1996 would have been $8,351 and $.99,
respectively.
NOTE K--ACQUISITIONS
During 1997, the Company acquired the entities described below. The
acquisitions were accounted for by the purchase method of accounting:
RMS Electronics, Inc.--On January 2, 1997, the Company acquired substantially
all of the assets of RMS Electronics, Inc. and an affiliated company, RMS - UK
Limited (collectively referred to as "RMS") for $2,695, including acquisition
costs. The purchase price comprised $2,295 in cash and the remainder through the
issuance of a promissory note. RMS is a designer, importer and distributor of
passive electronic products and devices for various segments of the broadband
telecommunications industry. These devices are typically used in conjunction
with the Company's enclosure products. The excess of the purchase price over the
fair values of the net assets acquired was $1,134 and has been recorded as
goodwill, which is being amortized on a straight-line basis over 15 years. Other
intangible assets acquired in connection with the acquisition totaled $100 and
is being amortized over three years.
F-15
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1995, 1996 and 1997
(amounts in thousands, except per share data)
NOTE K--ACQUISITIONS - CONTINUED
Standby Electronics Corp.--On June 30, 1997, the Company acquired all of the
outstanding shares of Standby Electronics Corp. ("Standby"), a designer and
supplier of metal-fabricated enclosures to house advanced electronics fiber
optic cable and power systems for broadband telecommunications networks, for
$479. In addition, the purchase agreement provides for additional consideration
up to $300 to be paid over three years, contingent upon Standby achieving
specified revenue levels over the three year period. Accordingly, contingent
consideration has not been reflected as a liability as of December 31, 1997. The
excess of the purchase price (excluding the contingent consideration) over the
fair values of the net assets acquired was $552 and has been recorded as
goodwill, which is being amortized on a straight-line basis over 15 years.
The fair value of tangible assets acquired and liabilities assumed of both
entities was $3,188 and $1,800, respectively. The operating results of these
acquired businesses have been included in the consolidated statement of income
from the dates of acquisition. The following unaudited pro forma information
presents a summary of consolidated results of operations of the Company and the
acquired businesses as if the acquisitions had occurred January 1, 1996.
Consolidated pro forma results of operations for fiscal 1997 would not have been
materially different from the reported amounts.
<TABLE>
<CAPTION>
1996
------
<S> <C>
Net sales $56,020
Net income 9,113
Income per share (basic and diluted) $ 1.08
</TABLE>
The 1996 pro forma information assumes that the Company was taxed as a C
Corporation for the entire year. These unaudited pro forma results have been
presented for comparative purposes only and include certain adjustments, such as
additional amortization expense of goodwill and increased interest expense on
acquisition debt. They do not purport to be indicative of the results of
operations which actually would have resulted had the acquisitions been
effective January 1, 1996 or of future results of operations of the consolidated
entities.
NOTE L--RETIREMENT PLANS
As of September 30, 1997, the assets of the Company's prior defined
contribution profit-sharing plan were merged into a plan established in 1993 in
accordance with section 401(k) of the Internal Revenue Code. Under the terms of
this plan, eligible employees may make voluntary contributions to the extent
allowable by law. Employees of the Company are eligible after 90 days of
employment. Matching contributions by the Company to this plan are
discretionary and will not exceed that allowable for Federal income tax
purposes. The Company's contributions are vested over five years in equal
increments. The accompanying statements of income include expenses of $198,
$200 and $40 which have been incurred for the plans for the years ended December
31, 1995, 1996 and 1997, respectively.
F-16
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1995, 1996 AND 1997
(amounts in thousands, except per share data)
NOTE M--RELATED PARTY TRANSACTIONS
Prior to the initial public offering, the Company's Chairman of the Board and
Chief Executive Officer, William H. Channell, Sr. (Mr. Channell, Sr.) owned six
patents utilized by the Company in its business. Under the terms of exclusive
licensing agreements, the Company made payments to Mr. Channell, Sr. for the use
of these patents. These payments were based on the sale of products. Operations
have been charged with $2,035 and $531 for the years ended December 31, 1995 and
1996, respectively. In connection with the initial public offering of the
Company's common stock, the Company acquired these patents from Mr. Channell,
Sr. and certain members of the Channell family for $3,100. The aggregate
consideration of $3,100 has been reflected as a reduction of additional paid-in
capital in 1996. The licensing agreements with Mr. Channell, Sr. were
terminated in April 1996 and, accordingly, no license fee expense has been
reflected in the accompanying statement of income since March 31, 1996. In July
1996, Mr. Channell, Sr., contributed $531 of accrued license fees owed to him to
additional paid-in capital.
The Company leases its facilities in Temecula, California from Mr. Channell,
Sr. The leases provide for payments of insurance, repairs, and maintenance and
property taxes, and extend through 2005. The Company has two five-year renewal
options to extend the terms to 2015. Rent expense was $650, $755 and $1,081 for
the years ended December 31, 1995, 1996 and 1997, respectively. The following
is a schedule of future minimum rental payments, exclusive of property taxes and
insurance:
<TABLE>
<S> <C>
1998 $1,102
1999 1,125
2000 1,147
2001 1,169
2002 1,193
Thereafter 3,725
--------
$9,461
========
</TABLE>
In 1997, the Company guaranteed debt of Mr. Channell, Sr. of approximately
$2,700. The guaranteed debt was incurred in connection with construction of the
facilities leased to the Company and is expected to decline over a 20 year
period before expiring in 2016. It is not practicable to estimate the fair
value of the guarantee; however, the Company does not anticipate that it will
incur losses as a result of this guarantee.
NOTE N--CREDIT CONCENTRATIONS AND MAJOR CUSTOMERS
The Company maintains the majority of its cash balances in one financial
institution located in California which, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts and believes
it is not exposed to any significant credit risk on cash and cash equivalents.
In 1997, one customer made up 15.1% of sales and a second customer made up
10.0% of sales. In 1995 and 1996, a different customer made up 17.5% and 17.3%
of sales, respectively. Also in 1995 and 1996, a second customer made up 15.6%
and 14.9% of sales, respectively. Credit risk with respect to accounts
receivable is generally diversified due to the large number of entities
comprising the Company's base and their geographic dispersion. The Company
controls credit risk through credit approvals, credit limits and monitoring
procedures.
F-17
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1995, 1996 AND 1997
(amounts in thousands, except per share data)
NOTE O - SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment as a supplier of
telecommunications equipment. While the Company offers a wide range of items
for sale, many of them are marketed by a common sales force.
In 1995 and 1996, revenue generated by the Company's foreign operations from
sales to unrelated entities was less than 10 percent of consolidated revenue.
In addition, identifiable assets of the Company's foreign operations were less
than 10% of consolidated total assets as of December 31, 1995 and 1996. A
summary of the Company's operations by geographic area for 1997 is presented
below:
<TABLE>
<S> <C>
Revenue from unrelated entities
United States (1) $51,299
Canada 5,587
Europe 3,057
-----------
Consolidated $59,943
===========
Intercompany revenue between geographic areas
United States $ 1,932
===========
Income from operations
United States $12,074
Canada 1,055
Europe 51
-----------
Consolidated $13,180
===========
Identifiable assets
United States $31,283
Canada 2,953
Europe 1,809
Corporate assets and eliminations 14,580
-----------
Consolidated $50,625
===========
</TABLE>
(1) Included in United States revenue are export sales of $2,255.
F-18
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1995, 1996 AND 1997
(amounts in thousands, except per share data)
NOTE P--QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1997 follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1996
Net sales $10,279 $12,961 $11,954 $12,088
Gross profit 4,541 5,986 5,531 5,777
Net income 2,002 3,653 3,640 1,815
Income per share
Basic N/A N/A .41 .20
Diluted N/A N/A .40 .20
Pro forma net income 1,279 2,187 N/A N/A
Pro forma net income per share -
Basic and diluted .17 .28 N/A N/A
1997
Net sales $12,804 $15,664 $15,353 $16,122
Gross profit 5,143 7,005 6,399 6,364
Net income 1,387 2,538 2,289 2,256
Income per share
Basic .15 .27 .25 .24
Diluted .15 .27 .24 .24
</TABLE>
NOTE Q--NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive
Income, which prescribes standards for reporting comprehensive income and its
components. Comprehensive income consists of net income or loss for the current
period and other comprehensive income (income, expenses, gains and losses that
currently bypass the income statement and are reported directly in a separate
component of equity). SFAS 130 requires that components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other financial statements. SFAS 130 is effective for financial statements
issued for periods beginning after December 15, 1997.
In 1997, the FASB issued Statement of Financial Accounting Standards No. 131
("SFAS 131"), Disclosures about Segments of an Enterprise and Related
Information, which applies only to publicly held business entities. A reportable
segment, referred to as an operating segment, is a component of an entity about
which separate financial information is produced internally, that is evaluated
by the chief operating decision-maker to assess performance and allocate
resources. SFAS 131 is effective for financial statements issued for periods
beginning after December 15, 1997. Management has not determined whether
adoption of SFAS 131 will have a significant impact on the disclosures included
in the consolidated financial statements.
F-19
<PAGE>
GLOSSARY OF TERMS
ADSL (Asymmetric Digital Subscriber Line): A standard allowing digital
broadband signals and standard telephone service to be transmitted up to 12,000
feet over a twisted copper pair.
Broadband: Transmission rates in excess of 1.544 mega bits per second
typically deployed for delivery of high-speed data, video and voice services.
Cable Modem: Electronic transmission device placed on the CATV network,
located at end user locations, providing two-way, high-speed data service
capability, including internet access for subscribers.
CATV (Community Antenna TV, commonly called cable television): A system for
distributing television programming by a cable network rather than by
broadcasting electromagnetic radiation.
Coaxial Cable: The most commonly used means of transmitting cable television
signals. It consists of a cylindrical outer conductor (shield) surrounding a
center conductor held concentrically in place by an insulating material.
DLC (Digital Loop Carrier): Telecommunications transmission technology which
multiplexes multiple individual voice circuits onto copper or fiber cables.
Fiber Node: Refers to the equipment that terminates the fiber cables
originating from the host digital terminal. This network element converts the
optical signals to their coax electrical, RF equivalents. Synonymous with
optical network interface (ONI).
Fiber Optics: The process of transmitting infrared and visible light
frequencies through a low-loss glass fiber with a transmitting laser or LED and
a photo diode receiver.
FTTC (Fiber-To-The-Curb): In a long distance network consisting of fiber
optics, fiber-to-the-curb refers to the fiber optics running from the
distribution plant to the curb, at which point copper is used for the curb-to-
home connection.
HDSL (High bit rate Digital Subscriber Line): By using sophisticated coding
techniques, a large amount of information may be transmitted over copper. The
HDSL scheme uses such coding over four copper wires and is primarily intended
for high capacity bi-directional business services.
Headend: The primary transmission point in a cable system supplying the hubs
and trunk cables.
HFC (Hybrid Fiber Coax): A type of distribution plant that utilizes fiber
optics to carry service from a CO to the carrier serving area, then coaxial
cable within the CSA to or close to the individual residences.
ONU (Optical Network Unit): The curb mounted electronics device which
converts fiber optic signals to electrical for service delivery or copper wires.
PCS (Personal Communications Services): Any service offered on a personal
communications network. These include basic telephone, voice mail, paging and
others. Personal communications networks operate in the 1800-2000 mHz range,
utilizing low power cells compared to traditional cellular technology.
RBOC (Regional Bell Operating Company): A term for the seven regional holding
companies created when AT&T divested the Bell operating companies.
RF (Radio Frequency): An electromagnetic wave frequency intermediate between
audio frequencies and infrared frequencies used especially in wireless
telecommunication and CATV transmission.
Sealed Plant: An industry term referring to the environmental protection
devices built into access and termination products deployed in the outside plant
portion of the telecommunications network.
G-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-K Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Temecula,
State of California, on March 25, 1998.
CHANNELL COMMERCIAL CORPORATION
a Delaware corporation
By /s/ WILLIAM H. CHANNELL, SR.
-----------------------------------
William H. Channell, Sr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form
10-K Annual Report has been signed by the following persons in the capacities
indicated below as of March 25, 1998.
SIGNATURE CAPACITY IN WHICH SIGNED
--------- ------------------------
/s/ WILLIAM H. CHANNELL, SR. Chairman of the Board and
----------------------------
William H. Channell, Sr. Chief Executive Officer
(Principal Executive Officer)
/s/ WILLIAM H. CHANNELL, JR.
---------------------------- President, Chief Operating
William H. Channell, Jr. Officer and Director
/s/ Gary W. Baker
---------------------------- Vice President,
Gary W. Baker Finance and Chief Financial
Officer
/s/ JACQUELINE M. CHANNELL Secretary and Director
-----------------------------
Jacqueline M. Channell
/s/ EUGENE R. SCHUTT, JR. Director
---------------------------
Eugene R. Schutt, Jr.
/s/ RICHARD A. CUDE Director
---------------------------
Richard A. Cude
<PAGE>
EXHIBIT 10.19
Table of Contents
I. Employer Resolutions
A. Certificate of Corporate Resolution
B. Waiver of Notice of Special Meeting of the Board of Directors
C. Investment Policy
D. Schedule of Investments
E. Loan Program
II. Summary of Plan Provisions
III. Summary Plan Description
IV. Adoption Agreement and Opinion Letter issued on Prototype Plan
V. Prototype Plan Document - American Capital Marketing, Inc. Prototype
401(k) Profit Sharing Plan & Trust
VI. Amendment One to the Channell Commercial Corporation 401(k) Plan;
Amendment Number One to Prototype Plan Document and Opinion Letter issued
on Amendment Number One; Amendment Number Two to Prototype Plan Document
VII. Trustee Services Kit
<PAGE>
CERTIFICATE OF CORPORATE RESOLUTION
Channell Commercial Corporation
The undersigned Secretary of Channell Commercial Corporation (the "Corporation")
hereby certifies that the following resolutions were duly adopted by the board
of directors of the Corporation on 7-25-97, and that such resolutions have not
-------
been modified or rescinded as of the date hereof:
RESOLVED, that the form of amended and restated 401(k) Profit Sharing Plan and
Trust effective October 1, 1997 which has been presented to this meeting is
---------------
hereby approved and adopted to be known as the Channell Commercial Corporation
401(k) Plan (the "Plan"), and that the proper officers of the Corporation are
hereby authorized and directed to execute and deliver to the Trustee of the Plan
one or more counterparts of the Plan.
RESOLVED, that for purposes of the limitations on contributions and benefits
under the Plan, prescribed by Section 415 of the Internal Revenue Code, the
"limitation year" shall be the Plan Year.
RESOLVED, that not later than the due date (including extensions hereof) of the
Corporation's federal income tax return for each of its fiscal years hereafter,
the Corporation shall contribute to the Plan for each such fiscal year such
amount as shall be determined by the board of directors of the Corporation and
that the Treasurer of the corporation is authorized and directed to pay such
contribution to the Trustee of the Plan in cash or property and to designate to
the Trustee the year for which such contribution is made.
RESOLVED, that the proper officers of the Corporation shall act as soon as
possible to notify the employees of the Corporation of the adoption of the
restated Plan document by delivering to each employee a copy of the summary
description of the Plan in the form of the Summary Plan Description presented to
this meeting, which form is hereby approved.
FURTHER RESOLVED, that Van Kampen American Capital Trust Company be authorized
-----------------------------------------
to execute the Plan document and other documents as required on behalf of the
Company, and that Van Kampen American Capital Trust Company is/are hereby
-----------------------------------------
appointed Trustee(s) of the Plan and by signing this Resolution and the Plan
document consent to accept the appointment as Trustee(s).
FURTHER RESOLVED, that Amendment Number One to the American Capital Marketing,
Inc. 401(k) Plan & Trust be and hereby is adopted effective on October 1, 1997.
---------------
FURTHER RESOLVED, that the President and other officers of the Corporation be
authorized to take such other and further action as they deem appropriate to
effectuate the purposes of these resolutions.
The undersigned further certifies that attached hereto are true copies of the
Channell Commercial Corporation 401(k) Plan as amended and restated, Summary
Plan Description and Investment Policy approved and adopted in the forgoing
resolutions.
Date: 9-22-97 /s/ Jacqueline M. Channell
---------------- -----------------------------------
Secretary
EMPLOYER
/s/ Channell Commercial Corporation
- -----------------------------------
TITLE: Gary W. Baker
Chief Financial Officer
- ----------------------------
<PAGE>
WAIVER OF NOTICE OF SPECIAL MEETING
OF THE
BOARD OF DIRECTORS
OF
CHANNELL COMMERCIAL CORPORATION
We, the undersigned, being all of the Directors of the Corporation, hereby
agree and consent that the special meeting of the Board of Directors of the
Corporation be held on the date and time, and at the place designated hereunder,
and do hereby waive all notice whatsoever of such meeting and of any adjournment
or adjournments thereof.
We do further agree and consent that any and all lawful business may be
transacted at such meeting, or at any adjournment or adjournments thereof, as
may be deemed advisable by the Directors present thereat. Any business
transacted at such meeting or at any adjournment or adjournment thereof, shall
be valid and legal and of the same force and effect as if such meeting or
adjourned meeting were held after notice.
Place of Meeting: 26040 Ynez Road
-----------------------
Temecula, CA. 92589
-----------------------
Date of Meeting: September 19, 1997
-----------------------
Time of Meeting: 10:00 o'clock am
William H. Channell Jr.
------------------------
Director
William H. Channell Sr.
------------------------
Director
Jacqueline M. Channell
------------------------
Director
<PAGE>
INVESTMENT POLICY SCHEDULE
===============================================================================
PLAN PURPOSE
- ------------
The purpose of this Plan will be to accumulate assets to provide for the
retirement and certain other needs of Plan Participants and their beneficiaries.
PARTICIPANT DIRECTION
- ---------------------
This Plan is intended to be a Participant Directed Plan. As such, Plan
Participants can give investment instructions as often as determined by the Plan
and the Summary of 401(k) Plan Provisions. Participants will always have the
right to exchange balances between existing investment options and to change the
investment of future contributions no less frequently than quarterly.
Plan Participants can give instructions by contacting the Plan Administrator at
the Employer's principal place of business during regular business hours and
obtaining the appropriate instruction form.
The Plan fiduciary responsible for executing all instruction forms is the Plan
Administrator or a designated agent chosen by the Plan Administrator.
INVESTMENT OPTIONS
- ------------------
Investment Selection Process - The Employer and Plan Trustee(s) have evaluated
the investment objectives and policies, performance and expenses, and company
history of each investment option offered to Participants. In addition, the
Employer and Plan Trustee(s) will reevaluate no less frequently than annually
each investment option offered to Participants to determine its continued
suitability in the Plan. Such reevaluation will include examining 1) historical
performance of each investment option offered by using standard publicized
performance data, and 2) current and projected market conditions.
DIVERSIFICATION
- ---------------
The Employer has chosen to provide the Plan Participant with a wide range of
investment options. Plan Participants will have the opportunity to diversify
their investment strategy among three or more different investment alternatives
with different risk/return characteristics.
PLAN RISK AND RETURN OBJECTIVES
- -------------------------------
The objective of establishing a Participant Directed Plan is to provide Plan
Participants with a wide range of investment options with differeng risk and
return objectives. This will allow each Plan Participant to select investments
with combined risk and return characteristics appropriate to the needs of that
Plan Participant.
INVESTMENT INFORMATION
- ----------------------
The Plan will provide prospectuses and annual reports for the investment
selections to Plan Participants annually or more frequently as received from the
issuer. All other information the Plan receives about the investment
alternatives is available for inspection by the Plan Participants at the
Employer's principal place of business during regular business hours.
ADMINISTRATIVE CHARACTERISTICS
- ------------------------------
Liquidity - The values of the available mutual fund investments are reported
daily in newspapers throughout the country. The frequency with which Plan
Participants may change investment elections or exchange between investments
shall be determined by the Plan.
LEGAL
- -----
The Employer will cause the Plan to be reviewed by legal counsel periodically to
assure its compliance with the Internal Revenue Code, ERISA and other governing
law.
IN WITNESS WHEREOF, the Employer and Trustee(s) hereby cause this Investment
Policy Schedule to be executed on this 11th day of September, 1997.
CHANNELL COMMERCIAL CORPORATION 401(k) PLAN
- -------------------------------------------
Plan Name
Employer:
- --------
CHANNELL COMMERCIAL CORPORATION
- -----------------------------------------
Employer Name
/s/ Gary W. Baker
By:--------------------------------------
Authorized Signature
Trustee(s):
- -----------
Van Kampen American Capital Trust Co.
- -----------------------------------------
Trustee Signature
By: Signature Illegible
- -----------------------------------------
Trustee Signature
- -----------------------------------------
Trustee Signature
- -----------------------------------------
Trustee Signature
<PAGE>
SCHEDULE OF INVESTMENTS
CHANNELL COMMERCIAL CORPORATION 401(k) PLAN
-------------------------------------------
1. The following investment options shall be available to all
participants in the Plan for ongoing contributions:
Basic Investments
-----------------
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Corporate Bond Fund
Morgan Stanley American Value Fund
Morgan Stanley International Magnum Fund
Morgan Stanley Stable Value Fund
Morgan Stanley Value Fund
2. The frequency of changes in participant investment elections shall be
as follows:
<TABLE>
<CAPTION>
Mutual Funds
<S> <C>
Allocation of future contributions Daily
Exchanges of existing balances Daily
</TABLE>
<PAGE>
CHANNELL COMMERCIAL CORPORATION 401(k) PLAN
-------------------------------------------
INVESTMENT OPTION SUMMARY
These are the investment options available to all participants in this 401(k)
plan:
CORE FUNDS
- ----------
Van Kampen American Capital Emerging Growth Fund (Fund #16)
Van Kampen American Capital Enterprise Fund (Fund #12)
Van Kampen American Capital Equity Income Fund (Fund #25)
Van Kampen American Capital Corporate Bond Fund (Fund #17)
Morgan Stanley Stable Value Fund (Fund #115)
Morgan Stanley American Value Fund (Fund #453)
Morgan Stanley International Magnum Fund (Fund #455)
Morgan Stanley Value Fund (Fund #467)
PLEASE NOTE:
FOR INFORMATION ON ANY OF THE FUNDS, PLEASE CALL 1-800-421-5666 FOR A
PROSPECTUS. THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING AN
EXPLANATION OF RISKS, CHARGES, AND EXPENSES. PLEASE READ THE PROSPECTUS
CAREFULLY BEFORE INVESTING. THE INVESTMENT RETURN AND NET ASSET VALUE OF MUTUAL
FUND SHARES WILL FLUCTUATE WITH CHANGES IN MARKET CONDITIONS. INVESTOR SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
<PAGE>
LOAN PROGRAM AND DISCLOSURE STATEMENT
The Plan has adopted a loan program to provide loans to plan participants and
beneficiaries who are also parties in interest. As described in more detail in
the following paragraphs, under the loan program loans are available to all
participants and beneficiaries on a reasonably equivalent basis, bear a
reasonable rate of interest and are adequately secured. This loan program and
disclosure statement, which forms a part of the Plan, sets forth-specific
provisions regarding such loans.
A. Availability and Eligibility
1. The maximum amount for which a loan may be made is the smaller of (i)
$50,000 reduced by the highest loan balance (principal and interest)
outstanding to the Participant during the preceding 12 months under the
Plan and all other plans maintained by the Employer, or (ii) 50% of the
Participant's vested account balance under the plan.
2. The minimum amount for which a loan may be made is $1,000. Thus, if a
Participant's vested account balance is less than $2,000, no loan would
be available.
3. No loan may be made to a Participant who either (A) has a loan
outstanding at the time of application for a new loan, or (B) has
received a loan within the 12 months preceding the application for the
new loan.
4. Loans to employees will be made only if the employee agrees to payroll
deductions sufficient to make all payments of principal and interest when
due under the terms of the promissory note.
5. Loans will be available to participants and beneficiaries who are not
active employees only to the extent required by applicable law and
regulation, as interpreted from time to time by the Plan Administrator.
6. A loan to a married participant requires the consent of the Participant's
spouse.
7. The Plan Administrator shall determine whether a Participant qualifies
for a loan, applying such criteria as a commercial lender of funds would
apply in like circumstances, including such criteria as the
creditworthiness of the Participant, his or her general ability to repay
the loan according to its terms, the period of time the participant has
been employed by the Employer and the type and amount of security or
collateral provided for the loan.
8. Loans will not be made available to highly compensated employees,
officers or shareholders in an amount greater than the amount made
available to other employees. All loan policies will be applied in a
uniform and non-discriminatory manner to all participants and
beneficiaries.
9. Loans will be granted or denied without regard to race, color, religion,
age (except where the minority of the applicant impairs the ability to
execute enforceable instruments), sex, national origin or life style of
the applicant.
B. Administration and Procedure
2. The initial payment on a Participant Loan shall be due on a payroll date
determined by the Plan
1. The loan program will be administered by the Plan Administrator. The Plan
Administrator may, but is not required to, appoint a specific person (by
name or title) to represent it on matters related to the loan program.
2. Application for a loan shall be made on forms approved and provided for
that purpose by the Plan Administrator. No application will be accepted
for processing unless it is signed by the Participant and accompanied by
a signed and notarized or duly witnessed spousal consent (or satisfactory
evidence that the Participant is unmarried.)
3. Promptly upon receipt of an application that is complete and in good
order, the Plan Administrator will determine whether the Participant is
eligible for the loan requested and, if so, the terms upon which the loan
will be made available.
4. If the application is accepted, the Plan Administrator will prepare
appropriate loan documentation including but not limited to a promissory
note, collateral assignment and payroll deduction authorization and
deliver the same to the Participant for signature. The Plan Administrator
may also cause the transfer of assets sufficient to fund the loan into a
non-interest-bearing account and cause a check to be prepared in
anticipation of receipt of duly executed loan documentation from the
Participant. If the Participant completes and returns the documentation
within one week, the Plan Administrator shall fund the loan and deliver
the proceeds to the Participant. If the Participant does not timely
complete and return the loan documentation, the Participant's loan
application shall be deemed to be withdrawn.
5. All loan payments received by the Plan, whether by payroll deduction or
otherwise, shall be applied first to payment of accrued interest, with
the balance applied in reduction of principal. Loan repayments will be
accepted and credited only as of a scheduled loan repayment date.
6. In the event the Employer changes the frequency of its payroll generally,
or in the event the Participant accepts a new position with a different
payroll frequency, the remaining balance on the loan will be reamortized
over the remainder of the original term of the loan and the participant
shall execute a revised Payroll Deduction Authorization.
C. Terms
1. The term of participant loans will generally be 5 years, except that
loans for the purpose of purchasing a principal residence may have a term
of 15 years.
<PAGE>
Administrator within 45 days from and after receipt of the duly
completed loan application. The term of the loan shall run from the
date of such initial payment.
3. The interest rate charged on Participant Loans shall be comparable to
the rate a commercial lender would charge under similar circumstances.
Interest rates will be based on periodic surveys performed by or on
behalf of the Plan Administrator.
2. Participant loan repayments in excess of payments otherwise due will
be accepted on any scheduled payment date. Any excess loan payment
shall be applied in reduction of the principal balance outstanding as
of the scheduled payment date.
4. All loans shall provide that principal and interest shall be amortized
by substantially equal payments over the term of the loan at intervals
no less frequent than monthly. The amortization period shall
correspond to scheduled payroll frequency.
5. Each loan shall be considered an asset of the Directed Account of the
Participant to whom the loan is made.
6. In the event of a distribution of all or a portion of the
Participant's vested interest under the Plan at any time when a loan
is outstanding, the Trustee may, in its discretion, declare the entire
outstanding balance of the note immediately due and payable and treat
the outstanding balance on the note as the first asset liquidated to
provide for the distribution.
D. SECURITY AND COLLATERAL
1. A loan will be considered to be adequately secured if the security
posted for such loan is something in addition to and supporting a
promise to pay, which is so pledged to the plan that it may be sold,
foreclosed upon or otherwise disposed of upon default of repayment of
the loan, the value and liquidity of which is such that it may
reasonably be anticipated that loss of principal or interest will not
result from the loan.
2. All Participant loans must be secured by the pledge of 50% of the
Participant's vested account balance in the Plan. The Plan will accept
no other collateral for a participant loan. The Plan will retain a
possessory lien in such pledged collateral.
E. DEFAULT
1. Any of the following shall constitute an event of default with respect
to a Participant Loan:
a. Failure of the borrower to pay the full amount of any payment when
due.
b. Termination of the borrower's status as an employee of the
Employer and as a party in interest of the Plan.
---
c. The borrower(a) files a petition in bankruptcy, or is the subject
of an involuntary petition in bankruptcy which is not discharged
within 60 days after filing, (b) is adjudicated bankrupt or
insolvent, or (c) becomes subject of any wage earner plan under
the federal Bankruptcy Code or any applicable state or federal
insolvency law.
d. Any required spousal consent is revoked or is determined to be or
become invalid or inoperative.
e. Any request or direction by a participant or beneficiary for a
distribution to which he or she is entitled under the terms of the
Plan.
f. The distribution (or reallocation to an alternate payee) of all or
a portion of the Participant's vested account pursuant to a
qualified domestic relations order.
2. In the event of default, the Trustee has the right to take any action,
which a prudent fiduciary in like circumstance would take in
connection with the protection or preservation of plan assets. Such
actions include, but are not limited to, the following:
a. Declaration of default, foreclosure on all or any part of the
security or collateral for the note, and offset of outstanding
balance;
b. Commencement and prosecution of any other claim or cause of action
arising out of the loan, the note, and any rights of the Plan with
respect thereto;
c. Granting the Participant a period within which to cure the default
and/or renegotiating the terms of the obligation, to the extent
consistent with practices followed by commercial lenders in like
circumstances and to the extent consistent with the requirements
of ERISA and the Internal Revenue Code;
d. Declaration of a "deemed distribution" and reporting the same to
the Internal Revenue Service in accordance with applicable
regulatory requirements; and/or
e. Deferral of offset until Participant is otherwise entitled to
distribution or such other time as may be deemed prudent in light
of regulatory guidance.
3. Deferal of action or waiver of an event of default shall not preclude
the trustee from any available remedy with respect to a subsequent
event of default, whether similar or dissimilar.
EMPLOYER/PLAN SPONSOR
Channell Commercial Corporation 401(k) Plan
- ------------------------------------------------
Plan Name
Channell Commercial Corporation
- ------------------------------------------------
Employer Name
By: /S/ Gary W. Baker
---------------------------------------------
Signature
Title: Chief Financial Officer
------------------------------------------
Date: 9-22-97
------------------------------------------
<PAGE>
CHANNELL COMMERCIAL CORPORATION 401(k) PLAN
===========================================
SUMMARY OF PLAN PROVISIONS
-------------------------------------------
Effective Date of Plan: February 1, 1986
Effective Date of
Amendment & Restatement: October 1, 1997
Plan Year: January 1 through December 31.
Trustees: Van Kampen American Capital Trust Company
Eligible Employees: All employees are eligible who satisfy the
eligibility requirements described below.
However, employees who governed under a
collective bargaining agreement or non-
resident aliens are not eligible.
Eligibility Requirements: 90 days of service and attainment of age 18.
Entry Dates: January 1st, April 1st, July 1st, and October
1st.
Employee Pre-Tax
Contributions: Up to 15% of compensation (subject to annual
legal dollar limit--$9500 for 1997). Changes
may be made to the deferral percentage election
each January 1st, April 1st, July 1st, and
October 1st.
Employer Matching
Contributions: Discretionary amount to be determined by the
Employer each Plan Year.
Employer Discretionary
Contributions: Discretionary amount to be determined by the
Employer each Plan Year.
Investment Options with
regard to Contributions: Employees may choose to invest contributions in
any funds listed on the Investment Options
Summary.
Investment Allocation Changes: Changes in investment allocations permitted
quarterly.
Exchanges: Fund excanges on existing account balances
permitted daily.
Loans: The maximum loan amount is the lesser of 50% of
vested account balance or $50,000. The minimum
loan amount is $1000.
Rollover Contributions: Rollover contributions are permitted.
Financial Hardship
Withdrawals: Hardship withdrawals are allowed to satisfy
"extreme financial emergencies" only from
accounts which are 100% vested.
Pre-Retirement Distributions: Pre-retirement distributions permitted upon
attaining age 59 1/2.
Vesting Schedule of Employer
Funded Accounts: 20% vesting for each year of service after 1
year of service (100% vested after 5 years of
service). All years of service are included in
determining a participant's vested percentage in
his or her employer contribution account(s).
Service prior to the age of 18 shall be
excluded.
3
<PAGE>
CHANNELL COMMERCIAL CORPORATION 401(k) PLAN
SUMMARY PLAN DESCRIPTION
1997 Edition
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION TO YOUR PLAN................................................. 1
GENERAL INFORMATION ABOUT YOUR PLAN....................................... 2
General Plan Information............................................. 2
Employer Information................................................. 2
Plan Administrator Information....................................... 2
Plan Trustee Information............................................. 3
Service of Legal Process............................................. 3
PARTICIPATION IN YOUR PLAN................................................ 3
Eligibility Requirements............................................. 3
Participation Requirements........................................... 3
Excluded Employees................................................... 4
CONTRIBUTIONS TO YOUR PLAN................................................ 4
Employer Contributions to the Plan................................... 4
Participant Salary Reduction Election................................ 5
Your Share of Employer Contributions................................. 6
Compensation......................................................... 6
Forfeitures.......................................................... 7
Transfers From Qualified Plans (Rollovers)........................... 7
Directed Investments................................................. 7
BENEFITS UNDER YOUR PLAN.................................................. 7
Distribution of Benefits Upon Retirement............................. 7
Normal Retirement............................................... 7
Late Retirement................................................. 8
Distribution of Benefits Upon Death.................................. 8
Distribution of Benefits Upon Disability............................. 9
Distribution of Benefits Upon Termination of Employment.............. 9
Vesting in Your Plan................................................. 9
Benefit Payments..................................................... 10
Treatment of Distributions From Your Plan............................ 10
Domestic Relations Order............................................. 11
Pension Benefit Guaranty Corporation................................. 11
Pre-Retirement Distribution of Benefits.............................. 11
Hardship Distribution of Benefits.................................... 11
YEAR OF SERVICE RULES..................................................... 12
Year of Service and Hour of Service.................................. 12
1-Year Break in Service.............................................. 13
</TABLE>
i
<PAGE>
YOUR PLAN'S "TOP HEAVY RULES" ....................................... 14
Explanation of "Top Heavy Rules" ............................... 14
CLAIMS BY PARTICIPANTS AND BENEFICIARIES ............................ 14
The Claims Review Procedure .................................... 15
STATEMENT OF ERISA RIGHTS ........................................... 16
Explanation of Your ERISA Rights ............................... 16
AMENDMENT AND TERMINATION OF YOUR PLAN .............................. 17
Amendment ...................................................... 17
Termination .................................................... 17
LOANS ............................................................... 17
Loan Requirements .............................................. 17
ii
<PAGE>
CHANNELL COMMERCIAL CORPORATION 401(k) PLAN
SUMMARY PLAN DESCRIPTION
I
INTRODUCTION TO YOUR PLAN
Your Employer, Channell Commercial Corporation, wishes to recognize the efforts
its employees have made to its success and to reward them by adopting a 401(k)
Profit Sharing Plan and Trust. This Plan will be for the exclusive benefit of
eligible employees and their beneficiaries.
Your Plan is a "salary reduction" plan. It is also called a "401(k) plan." Under
this type of plan, you may choose to reduce your compensation and have these
amounts contributed to this Plan on your behalf.
The purpose of this Plan is to reward eligible employees for long and loyal
service by providing them with retirement benefits. Between now and your
retirement, your Employer intends to make contributions for you and other
eligible employees. When you retire, you will be eligible to receive the value
of the amounts which have accumulated in your account.
Your Employer has the right to submit this Plan to the Internal Revenue Service
for approval. The Internal Revenue Service will issue a "determination letter"
to your Employer approving this Plan as a "qualified" retirement plan, if this
Plan meets specific legal requirements.
This Summary Plan Description is a brief description of your Plan and your
rights, obligations, and benefits under that Plan. Some of the statements made
in this Summary Plan Description are dependent upon this Plan being "qualified"
under the provisions of the Internal Revenue Code. This Summary Plan Description
is not meant to interpret, extend, or change the provisions of your Plan in any
way. The provisions of your Plan may only be determined accurately by reading
the actual Plan documents.
A copy of your Plan is on file at your Employer's office and may be read by you,
your beneficiaries, or your legal representatives at any reasonable time. If you
have any questions regarding either your Plan or this Summary Plan Description,
you should ask your Plan's Administrator. In the event of any discrepancy
between this Summary Plan Description and the actual provisions of the Plan, the
Plan will govern.
THIS SUMMARY PLAN DESCRIPTION SHALL REPLACE ANY SUMMARY PLAN DESCRIPTION(S)
PREVIOUSLY DISTRIBUTED.
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II
GENERAL INFORMATION ABOUT YOUR PLAN
There is certain general information which you may need to know about your Plan.
This information has been summarized for you in this section.
1. General Plan Information
Channell Commercial Corporation 401(k) Plan is the name of your Plan.
Your Employer has assigned Plan Number 001 to your Plan.
The provisions of your Plan became effective on February 1, 1986, which is
called the Effective Date of the Plan.
Your Plan's records are maintained on a twelve-month period of time. This
is known as the Plan Year. The Plan Year begins on January 1 and ends on
December 31.
Certain valuations are made on the Anniversary Date of your Plan. This date
is December 31.
The contributions made to your Plan will be held and invested by the
Trustee of your Plan.
Your Plan and Trust will be governed by the laws of the state of
California.
2. Employer Information
Your Employer's name, address and identification number are:
Channell Commercial Corporation
26040 Ynez Rd.
Temecula, CA 92591
95-2453261
3. Plan Administrator Information
The name, address and business telephone number of your Plan's
Administrator are:
Channell Commercial Corporation
26040 Ynez Rd.
Temecula, CA 92591
(909)694-9160
Your Plan's Administrator keeps the records for the Plan and is responsible
for the administration of the Plan. The Administrator has discretionary
authority to construe the terms of the Plan and make determinations on questions
which may affect your eligibility for benefits. Your Plan's Administrator will
also answer any questions you may have about your Plan.
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4. Plan Trustee Information
The name(s) of your Plan's Trustee(s) is/are:
Van Kampen American Capital Trust Company
The Trustee(s) shall collectively be referred to as Trustee throughout this
Summary Plan Description.
The principal place of business of your Plan's Trustee is:
2800 Post Oak Blvd.
Houston, TX 77056
Your Plan's Trustee has been designated to hold and invest Plan assets for
the benefit of you and other Plan participants. The trust fund established by
the Plan's Trustee will be the funding medium used for the accumulation of
assets from which benefits will be distributed.
5. Service of Legal Process
The name and address of your Plan's agent for service of legal process are:
Channell Commercial Corporation
26040 Ynez Rd.
Temecula, CA 92591
Service of legal process may also be made upon the Plan Administrator.
III
PARTICIPATION IN YOUR PLAN
Before you become a member or a participant in the Plan, there are certain
eligibility and participation rules which you must meet. These rules are
explained in this section.
1. Eligibility Requirements
You will be eligible to participate in the Plan if you have completed 90
--
Days of Service and have attained age 18.
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You will have completed 90 Days of Service if you are in the employ of your
--
Employer 90 days after your employment commencement date.
--
2. Participation Requirements
Once you have satisfied your Plan's eligibility requirements, your next
step will be to actually become a member or a "participant" in the Plan. You
will become a participant on a specified day of the Plan Year. This day is
called the Effective Date of Participation.
You will become a participant on the first day of the Plan Year quarter
coinciding with or next following the date you satisfy the eligibility
requirements.
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3. Excluded Employees
There are certain classes of employees of Channell Commercial Corporation
who will not be eligible to participate in your Plan. Those employees are:
. employees who are non-resident aliens.
. employees whose employment is governed by a collective bargaining
agreement under which retirement benefits were the subject of good
faith bargaining, unless such agreement expressly provides for
participation in this Plan.
IV
CONTRIBUTIONS TO YOUR PLAN
1. Employer Contributions to the Plan
Each year, your Employer will contribute to your Plan the following
amounts:
(a) The total amount of the salary reduction you elected to defer. (See
the Section in this Article entitled "Participant Salary Reduction Election".)
(b) A discretionary matching contribution equal to a percentage of the
amount of the salary reduction you elected to defer, which percentage will be
determined each year by the Employer.
You will be eligible to share in this contribution regardless of your
Hours of Service or employment status on the last day of the Plan Year.
(c) A discretionary amount determined each year by your Employer.
If you are actively employed on the last day of the Plan Year, you
will be eligible to share in this contribution regardless of your Hours of
Service. However, if you terminate employment and are not re-employed before the
last day of the Plan Year, you will be eligible to share in the contribution for
the year only if you complete more than 500 Hours of Service during the Plan
Year in which you terminate employment.
In determining your eligibility to share in contributions for the year,
there are special rules which apply if your employment terminates due to your
Retirement (Normal or Late), or Total and Permanent Disability or death.
In such cases, you will be eligible to share in the contributions made by
your Employer in accordance with the following:
If the reason your employment terminated is due to your Retirement
(Normal or Late), Total and Permanent Disability or death, then you will be
eligible to share in the contribution for the year without regard to whether you
satisfied the requirements explained above.
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2. Participant Salary Reduction Election
As a participant, you may elect to defer up to 15% of your compensation
---
each year instead of receiving that amount in cash. However, your total
deferrals in any taxable year may not exceed a dollar limit which is set by law.
The limit for 1997 is $9,500. This limit will be increased in future years for
cost of living changes.
The amount you elect to defer will be deducted from your pay in accordance
with a procedure established by your Employer and Administrator. The procedure
will require that you enter into a written salary reduction agreement after you
satisfy the Plan's eligibility requirements. You may elect to begin making
salary reduction contributions on each January 1st, April 1st, July 1st, or
October 1st. Changes to a salary reduction election are only permitted on
January 1st, April 1st, July 1st, and October 1st. You will not be permitted to
modify your election at any other time during the Plan year.
The amount you elect to defer, and any earnings on that amount, will not be
subject to income tax until it is actually distributed to you. This money will,
however, be subject to Social Security taxes at all times.
You should also be aware that the annual dollar limit is an aggregate limit
which applies to all deferrals you may make under this plan or other cash or
deferred arrangements (including tax-sheltered 403(b) annuity contracts,
simplified employee pensions or other 401(k) plans in which you may be
participating). Generally, if your total deferrals under all cash or deferred
arrangements for a calendar year exceed the annual dollar limit, the excess must
be included in your income for the year. For this reason, it is desirable to
request in writing that these excess deferrals be returned to you. If you fail
to request such a return, you may be taxed a second time when the excess
deferral is ultimately distributed from the Plan.
You must decide which plan or arrangement you would like to have return the
excess. If you decide that the excess should be distributed from this Plan, you
should communicate this in writing to the Administrator no later than the March
1st following the close of the calendar year in which such excess deferrals were
made. If the entire dollar limit is exceeded in this Plan or any other plan
maintained by the Employer, you will be deemed to have notified the
Administrator of the excess. The Administrator will then return the excess
deferral and any earnings to you by April 15th.
In the event you receive a hardship distribution from your deferrals to
this Plan or any other plan maintained by your Employer, you will not be allowed
to make additional salary reductions for a period of twelve (12) months after
you receive the distribution. Furthermore, the dollar limitation set by law with
respect to your taxable year following the year in which you received the
distribution, will be reduced by your salary reductions, if any, for the taxable
year of the distribution.
You will always be 100% vested in the amount you deferred. This means that
you will always be entitled to all of the deferred amount. This money will,
however, be affected by any investment gains or losses. If the Trustee invested
this money and there was a gain, the balance in your account would increase. Of
course, if there was a loss, the balance in your account would decrease. Your
interest in this account cannot be forfeited for any reason.
Distributions from your deferred account are not permitted before age 59
1/2 EXCEPT in the event of:
(a) death; or
(b) disability; or
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(c) termination of employment; or
(d) reasons of proven financial hardship (See the Section in this Article
entitled "Hardship Distribution of Benefits").
In addition, if you are a highly compensated employee (generally owners,
officers or individuals receiving wages in excess of certain amounts established
by law), a distribution from your deferred account of certain excess
contributions may be required to comply with the law. The Administrator will
notify you when a distribution is required.
3. Your Share of Employer Contributions
Your Employer will allocate the amount you elect to defer to an account
maintained by the Trustee on your behalf.
If you are eligible, your Employer will also allocate the matching
contribution to your account under the Plan. (See the Section in this Article
entitled "Employer Contributions to the Plan".)
Your Employer's discretionary contribution will be "allocated" or divided
among participants eligible to share in the contribution for the Plan Year. Your
share of the contribution will depend upon how much compensation you received
during the year and the compensation received by other eligible participants.
Your share of your Employer's discretionary contribution is determined
by the following fraction:
Employer's Your Compensation
Discretionary x ------------------------------
Contribution Total Compensation of All
Participants Eligible to Share
For example: Suppose the Employer's discretionary contribution for the
Plan Year is $20,000. Employee A's compensation for the Plan Year is $25,000.
The total compensation of all participants eligible to share, including Employee
A, is $250,000. Employee A's share will be:
$20,000 x $25,000 or $2000
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$250,000
In addition to the Employer's contributions made to your account, your
account will be credited periodically with a share of the investment earnings or
losses of the trust fund.
The law imposes certain limits on how much money may be allocated to your
account for a year. These limits are extremely complex but generally no more
than the lesser of $30,000 or 25% of your compensation may be allocated to you
(excluding earnings or losses) in any year. The Administrator will inform you if
these limits have affected you.
4. Compensation
For the purposes of your Plan, compensation has a special meaning.
Compensation is defined as your total compensation actually paid during the Plan
Year that is subject to income tax and is reflected on your W-2 form, but
. excluding overtime payments, bonuses, and commissions;
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. excluding reimbursements or other expense allowances, fringe benefits,
moving expenses, deferred compensation, and welfare benefits; and
. including your salary reduction contributions to any plan or
arrangement maintained by your Employer.
. excluding compensation in excess of the dollar limitation specified in
IRC 414(q)(1)(B,)(i). (For 1997, the limit is $80,000.)
For the first year of your participation in the Plan, your compensation
will be recognized for benefit purposes for the entire Plan Year. The Plan, by
law, cannot recognize compensation in excess of $160,000. This amount will be
adjusted in future years for cost of living increases. For any short Plan Year,
the adjusted $160,000 limit will be prorated based upon the number of full
months in the short Plan Year.
5. Forfeitures
Forfeitures are created when participants terminate employment before
becoming entitled to their full benefits under the Plan. Your account may grow
from the forfeitures of other participants. Forfeitures will be added to the
Employer's contribution under the Planr. However, a portion of forfeited amounts
will be used to reduce your Employer's contributions to the Plan.
6. Transfers From Qualified Plans (Rollovers)
At the discretion of the Administrator, you may be permitted to deposit
into your Plan distributions you have received from other plans. Such a deposit
is called a "rollover" and may result in tax savings to you. You should consult
qualified counsel to determine if a rollover is in your best interest.
Your rollover will be placed in a separate account called a "participants
rollover account." The Administrator may establish rules for investment.
You will always be 100% vested in your "rollover account." This means that
you will always be entitled to all of your rollover contributions. Rollover
contributions will be affected by any investment gains or losses. If the Trustee
invested this money and there was a gain, the balance in your account would
increase. Of course, if there were a loss from an investment, the balance in
your account would decrease.
7. Directed Investments
The Administrator may establish rules for investment of your account
balance. If the Administrator approves, you may direct the Trustee as to the
investment of your account balance.
V
BENEFITS UNDER YOUR PLAN
1. Distribution of Benefits Upon Retirement
Normal Retirement
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Your Normal Retirement Date is your Normal Retirement Age.
You will attain your Normal Retirement Age when you reach your 65th
birthday or the 5th anniversary of the first Plan Year in which participation in
the Plan commenced.
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At your Normal Retirement Age, you will be entitled to 100% of your account
balance. Payment of your benefits will, at your election, be made as soon as
practicable following your Normal Retirement Date. (See the Section called "Pre-
Retirement Distribution of Benefits" in this Article for information concerning
distributions while still employed by the Employer.)
Late Retirement
- ---------------
You may remain employed past your Plan's Normal Retirement Date and retire
instead on your Late Retirement Date. Your Late Retirement Date is the date you
choose to retire, after first having reached your Normal Retirement Date. On
your Late Retirement Date, you will be entitled to 100% of your account. Actual
benefit payments will be made as soon as practicable following your Late
Retirement Date.
2. Distribution of Benefits Upon Death
Your beneficiary will be entitled to 100% of your account balance upon your
death.
If you are married at the time of your death, your spouse will be the
beneficiary of the death benefit, you otherwise elect in writing on a form to be
furnished to you by the Administrator. If you wish to designate a beneficiary
other than your spouse, however, your spouse must irrevocably consent to waive
any right to the death benefit. Your spouse's consent must be in writing, be
witnessed by a notary or a plan representative and acknowledge the specific
nonspouse beneficiary.
If, however,
(a) your spouse has validly waived any right to the death benefit in the
manner outlined above,
(b) your spouse cannot be located; or
(c) you are not married at the time of your death,
then your death benefit will be paid to the beneficiary of your own choosing in
a single lump sum, as you may elect. You may designate the beneficiary on a form
to be supplied to you by the Administrator. If you change your designation, your
spouse must again consent to the change.
Regardless of the method of distribution selected, your entire death
benefit must generally be paid to your beneficiaries within five years after
your death (the "5-year rule"). However, if your designated beneficiary is a
person (instead of your estate or most trusts), then you or your beneficiary may
elect to have minimum distributions begin within one year of your death and it
may be paid over the designated beneficiary's life expectancy (the "1-year
rule"). if your spouse is the beneficiary, then under the "1-year rule", the
start of payments may be delayed until the year in which you would have attained
age 70 1/2. The election to have death benefits distributed under the "1-year
rule" instead of the "5-year rule" must be made no later than the time at which
minimum distributions must commence under the "1-year rule" (or, in the case of
a surviving spouse, the "5-year rule", if earlier).
Since your spouse has certain rights in the death benefit, you should
immediately report any change in your marital status to the Administrator.
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3. Distribution of Benefits Upon Disability
Under your Plan, disability is defined as a medically determinable physical
or mental condition which can be expected to result in death or which has lasted
(or is expected to last) for a continuous period of at least 12 months, and
which renders you incapable of continuing any gainful occupation. Your
disability, will be determined by a licensed physician chosen by the
Administrator. However, if the condition constitutes total disability under the
federal Social Security Acts, you will be considered disabled for purposes of
this Plan.
If you become disabled while a participant, you will be entitled to 100% of
your account balance. Payment of your disability benefits will be made to you as
if you had retired. (See the Section in this Article entitled "Benefit
Payments.")
4. Distribution of Benefits Upon Termination of Employment
Your Plan is designed to encourage you to stay with your Employer until
retirement. Payment of your account balance under your Plan is only available
upon your death, disability or retirement.
If your employment terminates for reasons other than those listed above,
you will be entitled to receive only your "vested percentage" of your account
balance and the remainder of your account will be forfeited. Only contributions
made by your Employer are subject to forfeiture. (See the Section in this
Article entitled "Vesting in Your Plan.")
If your vested benefit under the Plan at the time of any prior distribution
exceeded $3,500 or currently exceeds $3,500, you must give written consent
before the distribution may be made. Amounts of $3,500 or less will be
distributed without the need for consent.
5. Vesting in Your Plan
Your "vested percentage" in your account is determined under the following
schedule and is based on vesting Years of Service. You will always, however, be
100% vested upon your Normal Retirement Age. (See the Sections in this Article
entitled "Distribution of Benefits Upon Retirement.")
Vesting Schedule
----------------
Years of Service Percentage
1 20%
2 40%
3 60%
4 80%
5 100%
Regardless of this vesting schedule, you are always 100% vested in your
salary reduction amounts contributed to the Plan.
If you were a Participant in the Channell Commercial Corporation Profit
Sharing Plan prior to the merger of the plans, you will be 100% vested. if you
become a Participant in the Profit Sharing portion of the Plan under the amended
document, effective October 1, 1997, you will vest according to the schedule
stated above.
Years of Service prior to the time you reached age 18 will not be counted for
vesting purposes.
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Your vested benefit will normally be distributed to you or your beneficiary
upon your death, disability, or retirement. if you terminate employment before
any of these events, however, your unpaid vested benefit may be segregated in a
special account until it is actually distributed.
6. Benefit Payments
At the time you are entitled to receive a distribution under the Plan, the
Administrator will direct the Trustee to pay your benefits to you in one lump-
sum cash payment.
Generally, whenever a distribution is to be made to you on or as of an
anniversary date, it may be made on such date or as soon thereafter as is
practicable. However, unless you elect in voting to defer the receipt of
benefits, no distribution may begin later than the 60th day after the close of
the plan year in which the latest of the following events occurs:
(a) the date on which you reach the age of 65 or your Normal Retirement
Age;
(b) the 10th anniversary of the year in which you became a participant in
the Plan;
(c) the date you terminated employment with your Employer.
Regardless of whether you elect to delay the receipt of benefits, there are
other rules which generally require minimum payments to begin no later than the
April 1st following the year in which you reach age 70 1/2. You should see the
Administrator if you feel you may be affected by this rule.
7. Treatment of Distributions From Your Plan
Whenever you receive a distribution from your Plan, it will normally be
subject to income taxes. You may, however, reduce, or defer entirely, the tax
due on your distribution through use of one of the following methods:
(a) The rollover of all or a portion of the distribution to an individual
Retirement Account (IRA) or another qualified employer plan. This will result in
no tax being due until you begin withdrawing funds from the IRA or other
qualified employer plan. The rollover of the distribution, however, MUST be made
within strict time frames (normally, within 60 days after you receive your
distribution). Under certain circumstances all or a portion of a distribution
may not qualify for this rollover treatment. In addition, most distributions
will be subject to mandatory federal income tax withholding at a rate of 20%.
This will reduce the amount you actually receive. For this reason, if you wish
to rollover all or a portion of your distribution amount, the direct transfer
option described in paragraph (b) below may be the better choice.
(b) You may request for most distributions that a direct transfer of all
or a portion of your distribution amount be made to either an Individual
Retirement Account (IRA) or another qualified employer plan willing to accept
the transfer. A direct transfer will result in no tax being due until you
withdraw funds from the IRA or other qualified employer plan. Like the rollover,
under certain circumstances all or a portion of the amount to be distributed may
not qualify for this direct transfer. If you elect to actually receive the
distribution rather than a direct transfer, then in most cases 20% of the
distribution amount will be withheld for federal income tax purposes.
(c) The election of favorable income tax treatment under "10-year forward
averaging," "5-year forward averaging" or, if you qualify, "capital gains"
method of taxation.
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Whenever you receive a distribution, the administrator will deliver to you
a more detailed explanation of these options. However, the rules which determine
whether you qualify for favorable tax treatment are very complex. You should
consult with qualified tax counsel before making a choice.
8. Domestic Relations Order
As a general rule, your interest in your account, including your "vested
interest", may not be alienated. This means that your interest may not be sold,
used as collateral for a loan, given away or otherwise transferred. in addition,
your creditors may not attach, garnish or otherwise interfere with your account.
There is an exception, however, to this general rule. The Administrator may
be required by law to recognize obligations you incur as a result of court
ordered child support or alimony payments. The Administrator must honor a
"qualified domestic relations order." A "qualified domestic relations order" is
defined as a decree or order issued by a court that obligates you to pay child
support or alimony, or otherwise allocates a portion of your assets in the Plan
to your spouse, former spouse, child or other dependent. If a qualified domestic
relations order is received by the Administrator, all or a portion of your
benefits may be used to satisfy the obligation. The Administrator will determine
the validity of any domestic relations order received.
9. Pension Benefit Guaranty Corporation
Benefits provided by your Plan are NOT insured by the Pension Benefit
Guaranty Corporation (PBGC) under Title IV of the Employee Retirement Income
Security Act of 1974 because the insurance provisions under ERISA are not
applicable to your Plan.
10. Pre-Retirement Distribution of Benefits
You may be entitled to receive a pre-retirement distribution if you have
reached the age of 59 1/2 and are 100% vested in your account from which such
distribution is made. However, any distribution will reduce the value of the
benefits you will receive at retirement. This distribution is made at your
election.
Also, the law restricts any pre-retirement distribution from certain
accounts which are maintained for you under the Plan before you reach age 59
1/2. These accounts are generally the ones set up to receive your salary
reduction contributions and other Employer contributions which are used to
satisfy special rules for 401(k) Plans. Ask your Administrator if you need more
details.
11. HARDSHIP DISTRIBUTION OF BENEFITS
Upon your request, the Administrator may direct the Trustee to distribute
up to 100% of your account balance in the event of immediate and heavy financial
need. This hardship distribution is not in addition to your other benefits and
will therefore reduce the value of the benefits you will receive at retirement.
Distribution may only be made from a fully vested account balance.
Withdrawal will be authorized only if the distribution is to be used for
one of the following purposes:
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(a) The payment of expenses for medical care (described in Section 213(d)
of the Internal Revenue Code) previously incurred by you or your dependent or
necessary for you or your dependent to obtain medical care;
(b) The costs directly related to the purchase of your principal residence
(excluding mortgage payments);
(c) The payment of tuition and related educational fees for the next
twelve (12) months of post-secondary education for yourself, your spouse or
dependent;
(d) The payment necessary to prevent your eviction from your principal
residence or foreclosure on the mortgage of your principal residence.
A distribution will be made from your account, but only if you certify and
agree that all of the following conditions are satisfied:
(a) The distribution is not in excess of the amount of your immediate and
heavy financial need. The amount of your immediate and heavy financial need may
include any amounts necessary to pay any federal, state, or local income taxes
or penalties reasonably anticipated to result from the distribution;
(b) You have obtained all distributions, other than hardship
distributions, and all nontaxable (at the time of the loan) loans currently
available under all plans maintained by your Employer;
(c) Your elective contributions and employee contributions will be
suspended for at least twelve (12) months after your receipt of the hardship
distribution; and
(d) You will not make elective contributions for your taxable year
immediately following the taxable year of the hardship distribution, except to
the extent permitted by the Plan.
4 In addition to these rules, there are restrictions placed on hardship
distributions which are made from certain accounts. These accounts are generally
the accounts which receive your salary reduction contributions and other
Employer contributions which are used to satisfy special rules that apply to
401(k) plans. Any hardship distribution from these accounts will be limited, as
of the date of the distribution, to your total salary reduction contributions,
reduced by the amount of any previous distribution made to you from these
accounts. Ask your Administrator if you need further details.
VI
YEAR OF SERVICE RULES
1. YEAR OF SERVICE AND HOUR OF SERVICE
The term "Year of Service" is used throughout this Summary Plan Description
and throughout your Plan.
You will have completed a Year of Service for vesting purposes if you
are credited with 1000 Hours of Service during a Plan Year, even if you were not
employed on the first or last day of the Plan Year.
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For purposes of determining whether you have completed a Year of Service
where the computation period is based upon a short Plan Year, your Administrator
will notify you of the number of the Hours of Service that are required and the
method of calculating a Year of Service.
An "Hour of Service" has a special meaning for Plan purposes. You will be
credited with an Hour of Service for:
(a) each hour for which you are directly or indirectly compensated by your
Employer for the performance of duties during the Plan Year;
(b) each hour for which you are directly or indirectly compensated by your
Employer for reasons other than performance of duties (such as vacation,
holidays, sickness, disability, lay-off, military duty, jury duty or leave of
absence during the Plan Year); and
(c) each hour for back pay awarded or agreed to by your Employer.
You will not be credited for the same Hours of Service both under (a) or
(b), as the case may be, and under (c).
2. 1-Year Break in Service
A 1-Year Break in Service is a computation period during which you have not
completed more than 500 Hours of Service with your Employer.
A 1-Year Break in Service does NOT occur, however, in the computation
period in which you enter or leave the Plan for reasons of:
(a) an authorized leave of absence;
(b) certain maternity or paternity absences.
The Administrator will be required to credit you with Hours of Service for
a maternity or paternity absence. These are absences taken on account of
pregnancy, birth, or adoption of your child. No more than 501 Hours of Service
shall be credited for this purpose and these Hours of Service shall be credited
solely to avoid your incurring a 1-Year Break in Service. The Administrator may
require you to furnish proof that your absence qualifies as a maternity or
paternity absence.
These break in service rules may be illustrated by the following example:
Employee A works 300 hours in a Plan Year. At the end of the Plan Year,
Employee A will have a 1-Year Break in Service because he has worked less than
501 hours in a Plan Year. Employee B works 300 hours in a Plan Year and takes an
authorized leave of absence for which he is credited with an additional 250
hours. Employee B will NOT have a 1-Year Break in Service because he is credited
with more than 500 hours in a Plan Year.
If you are reemployed after a 1-Year Break in Service and were vested in
any portion of your account derived from Employer contributions, you will
receive credit for all Years of Service credited to you before your 1-Year Break
in Service. For example:
Suppose Employee A terminated employment with 4 Years of Service and was
vested in a portion of his account. Employee A was then reemployed after a 1-
Year Break in Service on January 1, 2002. Employee A will be credited with his 4
years of pre-break service upon reemployment.
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If you do not have a "vested interest" in the Employer contributions
allocated to your account when you terminate your employment, you will lose
credit for your pre-break Years of Service when your consecutive 1-Year Breaks
in Service equal or exceed the greater of 5 years, or your pre-break Years of
Service. For example:
Employee A terminated employment on January 1, 2000 with 2 Years of
Service. Employee A was not vested at the time of his employment. Employee A
returns to work on January 1, 2003. Employee A will be credited with his 2 pre-
break Years of Service because his period of termination (3 years) did not
exceed 5 years.
VII
YOUR PLAN'S "TOP HEAVY RULES"
Explanation of "Top Heavy Rules"
A 401(k) Profit Sharing Plan that primarily benefits "key employees" is
called a "top heavy plan." Key employees are certain owners or officers of your
Employer. A Plan is a top heavy plan when more than 60% of the contributions or
benefits have been allocated to key employees.
Each year, the Administrator is responsible for determining whether your
Plan is a "top heavy" plan.
If your Plan becomes top heavy in any Plan Year, then non-key employees
will be entitled to certain "top heavy minimum benefits", and other special
rules will apply. Among these top heavy rules are the following:
(a) Your Employer may be required to make a contribution equal to 3% of
your compensation to your account
(b) The vesting schedule outlined in the Article and Section in this
Summary entitled "BENEFITS UNDER YOUR PLAN: Vesting in Your Plan" will apply.
(c) if you are a participant in more than one plan, you may not be
entitled to minimum benefits under both Plans.
VIII
CLAIMS BY PARTICIPANTS AND BENEFICIARIES
Benefits will be paid to participants and their beneficiaries without the
necessity of formal claims. You or your beneficiaries, however, may make a
request for any Plan benefits to which you may be entitled. Any such request
must be made in writing, and it should be made to the Administrator. (See the
Article in this Summary entitled GENERAL INFORMATION ABOUT YOUR PLAN.)
Your request for Plan benefits shall be considered a claim for Plan
benefits, and it will be subject to a full and fair review. If your claim is
wholly or partially denied, the Administrator will furnish you with a written
notice of this denial. This written notice must be provided to you within a
reasonable period of time (generally 90 days) after the receipt of your claim by
the Administrator. The written notice must contain the following information:
(a) the specific reason or reasons for the denial;
14
<PAGE>
(b) specific reference to those Plan provisions on which the denial is
based;
(c) a description of any additional information or material necessary to
correct your claim and an explanation of why such material or information is
necessary; and
(d) appropriate information as to the steps to be taken if you or your
beneficiary wishes to submit your claim for review.
If notice of the denial of a claim is not furnished to you in accordance
with the above within a reasonable period of time, your claim will be deemed
denied. You will then be permitted to proceed to the review stage described in
the following paragraphs.
If your claim has been denied, and you wish to submit your claim for
review, you must follow the Claims Review Procedure.
The Claims Review Procedure
(a) Upon the denial of your claim for benefits, you may file your claim
for review, in writing, with the Administrator.
(b) YOU MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 60 DAYS AFTER YOU
HAVE RECEIVED WRITTEN NOTIFICATION OF THE DENIAL OF YOUR CLAIM FOR BENEFITS, OR
IF NO WRITTEN DENIAL OF YOUR CLAIM WAS PROVIDED, NO LATER THAN 60 DAYS AFTER THE
DEEMED DENIAL OR YOUR CLAIM.
(c) You may review all pertinent documents relating to the denial of your
claim and submit any issues and comments, in writing, to the Administrator.
(d) Your claim for review must be given a full and fair review. If your
claim is denied, the Administrator must provide you with written notice of this
denial within 60 days after the Administrator's receipt of your written claim
for review. There may be times when this 60 day period may be extended. This
extension may only be made, however, where there are special circumstances which
are communicated to you in writing within the 60 day period. If there is an
extension, a decision shall be made as soon as possible, but not later than 120
days after receipt by the Administrator of your claim for review.
(e) The Administrator's decision on your claim for review will be
communicated to you in writing and will include specific references to the
pertinent Plan provisions on which the decision was based.
(f) If the Administrator's decision on review is not furnished to you
within the time limitations described above, your claim will be deemed denied on
review.
(g) If benefits are provided or administered by an insurance company,
insurance service, or other similar organization which is subject to regulation
under the insurance laws, the claims procedure relating to these benefits may
provide for review. If so, that company, service, or organization will be the
entity to which claims are addressed. if you have any questions regarding the
proper person or entity to address claims, you should ask the Administrator.
15
<PAGE>
IX
STATEMENT OF ERISA RIGHTS
EXPLANATION OF YOUR ERISA RIGHTS
As a participant in this Plan you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974, also
called ERISA. ERISA provides that all Plan participants are entitled to:
(a) examine, without charge, all Plan documents, including:
(1) insurance contracts;
(2) collective bargaining agreements; and
(3) copies of all documents filed by the Plan with the U.S. Department
of Labor, such as detailed annual reports and Plan descriptions.
This examination may take place at the Administrator's office and at
other specified employment locations of the Employer. (See the Article in this
Summary entitled "GENERAL INFORMATION ABOUT YOUR PLAN");
(b) obtain copies of all Plan documents and other Plan information upon
written request to the Plan Administrator. The Administrator may make a
reasonable charge for the copies;
(c) receive a summary of the Plan's annual financial report. The
Administrator is required by law to furnish each participant with a copy of this
summary annual report;
(d) obtain a statement telling you whether you have a right to receive a
retirement benefit at Normal Retirement Age and, if so, what your benefits would
be at Normal Retirement Age if you stop working under the Plan now. If you do
not have a right to a retirement benefit, the statement will tell you how many
years you have to work to get a right to a retirement benefit. THIS STATEMENT
MUST BE REQUESTED IN WRITING AND IS NOT REQUIRED TO BE GIVEN MORE THAN ONCE A
YEAR. The Plan must provide the statement free of charge.
In addition to creating rights for Plan participants, ERISA imposes duties
upon the people who are responsible for the operation of the Plan. The people
who operate your Plan, called "fiduciaries" of the Plan, have a duty to do so
prudently and in the interest of you and other Plan participants and
beneficiaries. No one, including your Employer or any other person, may fire you
or otherwise discriminate against you in any way to prevent you from obtaining a
pension benefit or exercising your rights under ERISA.
If your claim for a retirement benefit is denied in whole or in part, you
must receive a written explanation of the reason for the denial. You have the
right to have the Administrator review and reconsider your claim. (See the
Article in this Summary entitled "CLAIMS BY PARTICIPANTS AND BENEFICIARIES.")
Under ERISA, there are steps you can take to enforce the above rights. For
instance, if you request materials from the Plan and do not receive them within
30 days, you may file suit in a federal court. In such a case, the court may
require the Administrator to provide the materials and pay you up to $100.00 a
day until you receive the materials, unless the materials were not sent because
of reasons beyond the control of the Administrator.
16
<PAGE>
If you have a claim for benefits which is denied or ignored, in whole or in
part, you may file suit in a state or federal court.
If the Plan's fiduciaries misuse the Plan's money, or if you are
discriminated against for asserting your rights, you may seek assistance from
the U.S. Department of Labor, or you may file suit in a federal court. The court
will decide who should pay court costs and legal fees. If you are successful,
the court may order the person you have sued to pay these costs and fees. If you
lose, the court may order you to pay these costs and fees if, for example, it
finds your claim is frivolous.
If you have any questions about this statement, or about your rights under
ERISA, you should contact the nearest Area Office of the U.S Labor-Management
Services Administration, Department of Labor.
X
AMENDMENT AND TERMINATION OF YOUR PLAN
1. AMENDMENT
Your Employer has the right to amend your Plan at any time. Any such
amendment shall be adopted by formal action of the Employer and executed by an
individual authorized to act on behalf of the Employer. In no event, however,
will any amendment:
(a) authorize or permit any part of the Plan assets to be used for
purposes other than the exclusive benefit of participants or their
beneficiaries; or
(b) cause any reduction in the amount credited to your account.
2. TERMINATION
Your Employer has the right to terminate the Plan at any time. Upon
termination, all amounts credited to your accounts will be 100% vested. A
complete discontinuance of contributions by your Employer will constitute a
termination.
XI
LOANS
You may apply to the Administrator for a loan from the Plan. Your
application must be in writing on forms which the Administrator will provide to
you. The Administrator may also request that you provide additional information,
such as financial statements, tax returns, and credit reports. After considering
your application, the Administrator may, in its discretion, determine that you
qualify for the loan. The Administrator will inform the Trustee that you
qualify. The Trustee may then review the Administrator's determination and make
a loan to you if it is a prudent investment for the Plan.
LOAN REQUIREMENTS
There are various rules and requirements that apply for any loan. These
rules are outlined in this section. In addition, your Employer has established
a written loan program which explains these requirements in more detail. You can
request a copy of the loan program from the Administrator. Generally, the rules
for loans include the following:
17
<PAGE>
(a) Loans must be made available to all participants and their
beneficiaries on a uniform and nondiscriminatory basis.
(b) All loans must be adequately secured. You may use up to one-half (1/2)
of your vested account balance under the Plan as security for the loan. The Plan
may also require that repayments on the loan obligation be by payroll reduction.
(c) All loans must bear a reasonable rate of interest. The interest rate
must be one a bank or other professional lender would charge for making a loan
in a similar circumstance.
(d) All loans must have a definite repayment period which provides for
payment to be made not less frequently than quarterly, and for the loan to be
amortized on a level basis over a reasonable period of time, not to exceed five
(5) years. However, if you use the loan to acquire your principal residence, you
may repay the loan over a reasonable period of time that may be longer than five
(5) years.
(e) All loans will be considered a directed investment from your account
under the Plan. All payments of principal and interest by you on a loan shall be
credited to your account.
(f) The amount the Plan may loan to you is limited by rules under the
Internal Revenue Code. All loans, when added to the outstanding balance of all
other loans from the Plan, will be limited to the lesser of:
(1) $50,000 reduced by the excess, if any, of your highest
outstanding balance of loans from the Plan during the one-year prior period to
the date of the loan over your current outstanding balance of loans; or
(2) 1/2 of your vested account balance.
The $50,000 limit stated in (1) above will not be reduced for loans made on
or before December 31, 1986.
Also, no loan in an amount less than $1,000 will be made.
(g) If you fail to make payments when they are due under the loan, you
will be considered to be "in default." The Trustee would then have authority to
take all reasonable actions to collect the balance owing on the loan. This could
include filing a lawsuit or foreclosing on the security for the loan. Under
certain circumstances, a loan that is in default may be considered a
distribution from the Plan, and could result in taxable income to you. In any
event, your failure to repay a loan will reduce the benefit you would otherwise
be entitled to from the Plan.
18
<PAGE>
ADOPTION AGREEMENT FOR
AMERICAN CAPITAL MARKETING, INC.
NON-STANDARDIZED 401(k) PROFIT SHARING
PLAN AND TRUST
The undersigned Employer adopts the American Capital Marketing, Inc.
Non-Standardized 401 (k) Profit Sharing Plan for those Employees who shall
qualify as Participants hereunder, to be known as the
A1 Channell Commercial Corporation 401(k) Plan
-------------------------------------------
(Enter Plan Name)
It shall be effective as of the date specified below. The Employer hereby
selects the following Plan specifications:
CAUTION: The failure to properly fill out this Adoption Agreement may result in
disqualification of the Plan.
EMPLOYER INFORMATION
- --------------------
B1 Name of Employer Channell Commercial Corporation
-------------------------------
B2 Address 26040 Ynez Rd.
--------------
Temecula, CA 92591
------------------
City, State Zip
Telephone (909)694-9160
-------------
B3 Employer Identification Number 95-2453261
----------
B4 Date Business Commenced 1966
----
B5 TYPE OF ENTITY
a. [_] S Corporation b. [_] Professional Service Corporation
c. [X] Corporation d. [_] Sole Proprietorship
e. [_] Partnership f. [_] Other ____________________
AND, is the Employer a member of....
g. a controlled group? [X] Yes [_] No
h. an affiliated service group? [_] Yes [X] No
B6 NAME(S) OF TRUSTEE(S)
a. Van Kampen American Capital Trust Company
--------------------------------------------
b. --------------------------------------------
c. --------------------------------------------
d. --------------------------------------------
B7 TRUSTEE'S ADDRESS
a. [_] Use Employer Address
b. [X] Address 2800 Post Oak Blvd.
--------------------------------
Street
Houston, TX 77056
--------------------------------
City State Zip
Copyright 1990-N American Capital Marketing, Inc.
<PAGE>
B8 LOCATION OF EMPLOYER'S PRINCIPAL OFFICE:
a. [X] state b. [_] commonwealth of c. California and this Plan and Trust
----------
shall be governed under the same.
B9 EMPLOYER FISCAL YEAR means the 12 consecutive month period: Commencing on
a. January 1 (e.g., January 1st) and ending on b. December 31.
--------- -----------
month day month day
PLAN INFORMATION
- ----------------
C1 EFFECTIVE DATE This Adoption Agreement of the American Capital Marketing,
Inc. Non-Standardized 401(k) Profit Sharing Plan and Trust shall:
a. [_] establish a new Plan and Trust effective as of ___ (hereinafter
called the "Effective Date").
b. [X] constitute an amendment and restatement in its entirety of a
previously established qualified Plan and Trust of the Employer
which was effective 2/1/86 (hereinafter called the "Effective
------
Date"). Except as specifically provided in the Plan, the
effective date of this amendment and restatement is 10/1/97 (For
-------
TRA '86 amendments, enter the first day of the first Plan Year
beginning in 1989).
C2 PLAN YEAR means the 12 consecutive month period: Commencing on a. January 1
---------
(e.g., January 1st) and ending on b. December 31.
-----------
IS THERE A SHORT PLAN YEAR? c. [X] No d. [_] Yes, beginning ________ and
ending ________.
C3 ANNIVERSARY DATE of Plan (Annual Valuation Date) a. December 31
-----------
month day
C4 PLAN NUMBER assigned by the Employer (select one)
a. [X] 001 b. [_] 002 c. [_] 003 d. [_] Other ____.
C5 NAME OF PLAN ADMINISTRATOR (Document provides for the Employer to appoint
an Administrator. If none is named, the Employer will become the
Administrator.)
a. [X] Employer (Use Employer Address)
b. [_] Name ________________________________________
Address ________________________________________
________________________________________
City State Zip
Telephone _______________ Administrator's I.D. Number _________
C6 PLAN'S AGENT FOR SERVICE OF LEGAL PROCESS
a. [X] Employer (Use Employer Address)
b. [_] Name ________________________________________
Address ________________________________________
________________________________________
City State Zip
2
<PAGE>
ELIGIBILITY, VESTING AND RETIREMENT AGE
- ---------------------------------------
D1 ELIGIBLE EMPLOYEES (Plan Section 1.15) shall mean:
a. [_] all Employees who have satisfied the eligibility requirements.
b. [X] all Employees who have satisfied the eligibility requirements
except those checked below:
1. [_] Employees paid by commission only.
2. [_] Employees hourly paid.
3. [_] Employees paid by salary.
4. [X] Employees whose employment is governed by a
collective bargaining agreement between the
Employer and "employee representatives" under
which retirement benefits were the subject of good
faith bargaining. For this purpose, the term
"employee representatives" does not include any
organization more than half of whose members are
employees who are owners, officers, or executives
of the Employer.
5. [_] Highly Compensated Employees.
6. [X] Employees who are nonresident aliens who received
no earned income (within the meaning of Code
Section 911(d)(2)) from the Employer which
constitutes income from sources within the United
States (within the meaning of Code Section
861(a)(3)).
7. [_] Other _________________________________________
NOTE: For purposes of this section, the term Employee shall include all
Employees of this Employer and any leased employees deemed to be
Employees under Code Section 414(n) or 414(o).
D2 EMPLOYEES OF AFFILIATED EMPLOYERS (Plan Section 1.16)
Employees of Affiliated Employers:
a. [X] will not or N/A
b. [_] will
be treated as Employees of the Employer adopting the Plan.
NOTE: If D2b is elected each Affiliated Employer should execute this
Adoption Agreement as a Participating Employer.
D3 HOURS OF SERVICE (Plan Section 1.31) will be determined on the basis of
the method selected below. Only one method may be selected. The method
selected will be applied to all Employees covered under the Plan.
a. [X] On the basis of actual hours for which an Employee is paid or
entitled to payment.
b. [_] On the basis of days worked. An Employee will be credited with
ten (10) Hours of Service if under the Plan such Employee
would be credited with at least one (1) Hour of Service
during the day.
c. [_] On the basis of weeks worked. An Employee will be credited
forty-five (45) Hours of Service if under the Plan such
Employee would be credited with at least one (1) Hour of
Service during the week.
d. [_] On the basis of semi-monthly payroll periods. An Employee will
be credited with ninety-five (95) Hours of Service if under
the Plan such Employee would be credited with at least one (1)
Hour of Service during the semi-monthly payroll period.
e. [_] On the basis of months worked. An Employee will be credited
with one hundred ninety (190) Hours of Service if under the
Plan such Employee would be credited with at least one (1)
Hour of Service during the month.
3
<PAGE>
D4 CONDITIONS OF ELIGIBILITY (Plan Section 3.1) (Check either a OR b and c,
and if applicable, d) Any Eligible Employee will be eligible to
participate in the Plan if such Eligible Employee has satisfied the
service and age requirements, if any, specified below:
a. [ ] NO AGE OR SERVICE REQUIRED.
b. [x] SERVICE REQUIREMENT. (may not exceed 1 year.)
1. [ ] None
2. [ ] 1/2 Year of Service
3. [ ] 1 Year of Service
4. [x] Other 90 Days of Service
------------------
Note: 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. If expressed in
Months of Service, an Employee will not be required to complete any
specified number of Hours of Service in a particular month.
c. [x] AGE REQUIREMENT (may not exceed 21)
1. [ ] N/A - No Age Requirement.
2. [ ] 20 1/2
3. [ ] 21
4. [x] Other 18
--
d. [ ] FOR NEW PLANS ONLY - Regardless of any of the above age or
service requirements, any Eligible Employee who was employed
on the Effective Date of the Plan shall be eligible to
participate hereunder and shall enter the Plan as of such
date.
D5 EFFECTIVE DATE OF PARTICIPATION (Plan Section 3.2) An Eligible Employee
shall become a Participant as of:
a. [ ] the first day of the Plan Year in which he met the
requirements
b. [ ] the first day of the Plan Year in which he met the
requirements, if he met the requirements in the first 6
months of the Plan Year, or as of the first day of the next
succeeding Plan Year if he met the requirements in the last
6 months of the Plan Year.
c. [ ] the earlier of the first day of the seventh month or the
first day of the Plan Year coinciding with or next following
the date on which he met the requirements.
d. [ ] the first day of the Plan Year next following the date on
which he met the requirements. (Eligibility must be 1/2 Year
of Service, or less or 1 1/2 Years of Service or less if 100%
immediate vesting is selected, and age 20 1/2 or less.)
e. [ ] the first day of the month coinciding with or next following
the date on which he met the requirements.
f. [x] Other: January 1st, April 1st, July 1st, October 1st
---------------------------------------------
coinciding with or next following meeting the requirements,
----------------------------------------------------------
provided that an Employee who has satisfied the maximum age
and service requirements that are permissible in Section D4
above and who is otherwise entitled to participate, shall
commence participation no later than the earlier of (a) 6
months after such requirements are satisfied, or (b) the
first day of the first Plan Year after such requirements are
satisfied, unless the Employee separates from service before
such participation date.
4
<PAGE>
D6 VESTING OF PARTICIPANT'S INTEREST (Plan Section 6.4(b)) the vesting
schedule, based on number of Years of Service, shall be as follows:
a. [ ] 100% upon entering Plan. (Required if eligibility
requirement is greater than one (1) Year of Service.)
b. [ ] 0-2 years 0% c. [ ] 0-4 years 0%
3 years 100% 5 years 100%
d. [ ] 0-1 years 0% e. [ ] 1 year 25%
2 years 20% 2 years 50%
3 years 40% 3 years 75%
4 years 60% 4 years 100%
5 years 80%
6 years 100%
* f. [x] 1 year 20% g. [ ] 0-2 years 0%
2 years 40% 3 years 20%
3 years 60% 4 years 40%
4 years 80% 5 years 60%
5 years 100% 6 years 80%
7 years 100%
h. [ ] Other - Must be at least as liberal as either c or g above.
Years of Service Percentage
------------------ -----------------
------------------ -----------------
------------------ -----------------
------------------ -----------------
------------------ -----------------
------------------ -----------------
------------------ -----------------
------------------ -----------------
D7 FOR AMENDED PLANS (Plan Section 6.4(f)) If the vesting schedule has been
amended to a less favorable schedule, enter the pre-amended schedule below:
** a. [X] Vesting schedule has not been amended or amended schedule is
more favorable in all years.
*** b. [X] Years of Service Percentage
2 Years 100%
------------------ -----------------
------------------ -----------------
------------------ -----------------
------------------ -----------------
------------------ -----------------
------------------ -----------------
*This vesting schedule will be effective as of October 1, 1997.
**For Channell Commercial Corporation 401(k) Savings Plan the 7-year vesting
schedule will apply through September 30, 1997 for Matching contributions, if
any.
***Prior to October 1, 1997, the Channell Commercial Corporation Profit Sharing
Plan vested all participants 100% upon entering the Plan in their Profit Sharing
contribution account and will continue to be 100% vested in their Profit Sharing
contribution account. Effective October 1, 1997, all employees who had not
previously become a participant in the Channell Commerical Corporation Profit
Sharing Plan will vest under the schedule chosen in D6f.
5
<PAGE>
D8 TOP HEAVY VESTING (Plan Section 6.4(c)) If this Plan becomes a Top Heavy
Plan, the following vesting schedule, based on number of Years of
Service, for such Plan Year and each succeeding Plan Year, whether or not
the Plan is a Top Heavy Plan, shall apply and shall be treated as a Plan
amendment pursuant to this Plan. Once effective, this schedule shall also
apply to any contributions made prior to the effective date of Code
Section 416 and/or before the Plan became a Top Heavy Plan.
a. [X] N/A (D6a, b, d, e or f was selected)
b. [_] 0-1 year 0% c. [_] 0-2 years 0%
2 years 20% 3 years 100%
3 years 40%
4 years 60%
5 years 80%
6 years 100%
NOTE: This section does not apply to the Account balances of any
Participant who does not have an Hour of Service after the Plan has
initially become top heavy. Such Participant's Account balance
attributable to Employer contributions and Forfeitures will be
determined without regard to this section.
D9 VESTING (Plan Section 6.4(h)) In determining Years of Service for vesting
purposes, Years of Service attributable to the following shall be
EXCLUDED:
a. [_] Service prior to the Effective Date of the Plan or a
predecessor plan.
b. [X] N/A
c. [X] Service prior to the time an Employee attained age 18.
d. [ ] N/A
D10 PLAN SHALL RECOGNIZE SERVICE WITH PREDECESSOR EMPLOYER
a. [X] No.
b. [_] Yes: Years of Service with ___________________________________
shall be recognized for the purpose of this Plan.
NOTE: If the predecessor Employer maintained this qualified Plan, then
Years of Service with such predecessor Employer shall be recognized
pursuant to Section 1.74 and b. must be marked.
D11 NORMAL RETIREMENT AGE ("NRA") (Plan Section 1.42) means:
a. [_] the date a Participant attains his _____ birthday. (not to
exceed 65th)
b. [X] the later of the date a Participant attains his 65th birthday
----
(not to exceed 65th) or the c. 5th (not to exceed 5th)
---
anniversary of the first day of the Plan Year in which
participation in the Plan commenced.
D12 NORMAL RETIREMENT DATE (Plan Section 1.43) shall commence:
a. [X] as of the Participant's "NRA".
OR (must select b. or c. AND 1. or 2.)
b. [_] as of the first day of the month...
c. [_] as of the Anniversary Date...
1. [_] coinciding with or next following the Participant's
"NRA".
2. [_] nearest the Participant's "NRA".
6
<PAGE>
D13 EARLY RETIREMENT DATE (Plan Section 1.12) means the:
a. [X] No Early Retirement provision provided.
b. [_] date on which a Participant...
c. [_] first day of the month coinciding with or next following the
date on which a Participant...
d. [_] Anniversary Date coinciding with or next following the date on
which a Participant...
AND, if b, c or d was selected...
1. [_] attains his ______ birthday and has
2. [_] completed at least ______ Years of Service.
CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS
- --------------------------------------------
E1 a. COMPENSATION (Plan Section 1.9) with respect to any Participant
means:
1. [_] "415 Compensation."
2. [X] Compensation reportable as wages on Form W-2.
b. COMPENSATION shall be
1. [X] actually paid (must be selected if Plan is integrated)
2. [_] accrued
c. HOWEVER, FOR NON-INTEGRATED PLANS, Compensation shall exclude
(select all that apply):
1. [_] N/A. No exclusions
2. [X] overtime
3. [X] bonuses
4. [X] commissions
5. [X] other Compensation in excess of the dollar limitation
-----------------------------------------------
specified in IRC 414(q)(1)(B)(i)
--------------------------------
d. FOR PURPOSES OF THIS SECTION E1, Compensation shall be based on:
1. [X] the Plan Year.
2. [_] the Fiscal Year coinciding with or ending within the
Plan Year.
3. [_] the Calendar Year coinciding with or ending within the
Plan Year.
NOTE: The Limitation Year shall be the same as the year on which
Compensation is based.
e. HOWEVER, for an Employee's first year of participation, Compensation
shall be recognized as of:
1. [X] the first day of the Plan Year.
2. [_] the date the Participant entered the Plan.
f. IN ADDITION, COMPENSATION and "414(s) Compensation"
1. [X] shall
2. [_] shall not
include compensation which is not currently includible in the
Participant's gross income by reason of the application of Code
Sections 125, 402)a)(8), 402(h)(1)(B), or 403(b).
7
<PAGE>
E2 SALARY REDUCTION ARRANGEMENT - ELECTIVE CONTRIBUTION (Plan Section 4.2)
Each Employee may elect to have his Compensation reduced by:
a. [ ] ______%
b. [x] up to 15%
--
c. [ ] from % to %
---- ----
d. [ ] up to the maximum percentage allowable not to exceed the
limits of Code Sections 401(k), 404 and 415.
AND...
e. [x] A Participant may elect to commence salary reductions as
of any January 1st, April 1st, July 1st, or October 1st
----------------------------------------------------
(ENTER AT LEAST ONE DATE OR PERIOD). A Participant may
modify the amount of salary reductions as of each January
------------
1st, April 1st, July 1st or October 1st (ENTER AT LEAST
---------------------------------------
ONE DATE OR PERIOD).
AND...
Shall cash bonuses paid within 2 1/2 months after the end of the Plan
Year be subject to the salary reduction election?
f. [ ] Yes
g. [x] No
E3 FORMULA FOR DETERMINING EMPLOYER'S MATCHING CONTRIBUTION (Plan Section
4.1(b))
a. [ ] N/A. There shall be no matching contributions.
b. [ ] The Employer shall make matching contributions equal to
_____% (e.g. 50%) of the Participant's salary reductions.
c. [x] The Employer may make matching contributions equal to a
discretionary percentage, to be determined by the
Employer, of the Participant's salary reductions.
d. [ ] The Employer shall make matching contributions equal to
the sum of ______% of the portion of the Participant's
salary reduction which does not exceed ______% of the
Participant's Compensation plus __% of the portion of the
Participant's salary reduction which exceeds __% of the
Participant's Compensation, but does not exceed ______% of
the Participant's Compensation.
e. [ ] The Employer shall make matching contributions equal to
the percentage determined under the following schedule:
Participant's Total Matching Percentage
Years of Service
----------------------- -----------------------
----------------------- -----------------------
----------------------- -----------------------
FOR PLANS WITH MATCHING CONTRIBUTIONS
- -------------------------------------
f. [x] Matching contributions g. [ ] shall h. [x] shall not be
used in satisfying the deferral percentage tests. (If
used, full vesting and restrictions on withdrawals will
apply and the match will be deemed to be an Elective
Contribution).
i [ ] Shall a Year of Service be required in order to share
in the matching contributions?
With respect to Plan Years beginning after 1989...
1. [ ] Yes (Could cause Plan to violate minimum
participation and coverage requirements under
Code Sections 401(a)(26) and 410)
2. [x] No
With respect to Plan Years beginning after 1990...
1. [x] N/A New Plan or same as years beginning after
1989.
2. [ ] Yes
3. [ ] No
j [ ] In determining matching contributions, only salary
reductions up to _______% of a Participant's Compensation
will be matched. k. [x] N/A
8
<PAGE>
l. [ ] The matching contribution made on behalf of a Participant for any
Plan Year shall not exceed $_____. m. [X] N/A
n. [X] Matching contributions shall be made on behalf of
1. [X] all Participants.
2. [ ] only Non-Highly Compensated Employees.
E4 WILL A DISCRETIONARY EMPLOYER CONTRIBUTION BE PROVIDED (OTHER THAN A
DISCRETIONARY MATCHING OR QUALIFIED NON-ELECTIVE CONTRIBUTION (Plan Section
4.1)?
a. [ ] No.
b. [ ] Yes, the Employer may make a discretionary contribution out of
its current or accumulated Net Profit.
c. [X] Yes, the Employer may make a discretionary contribution which is
not limited to its current or accumulated Net Profit.
IF YES (b. or c. is selected above), the Employer's discretionary
contribution shall be allocated as follows:
d. [X] FOR A NON-INTEGRATED PLAN: The Employer discretionary
contribution for the Plan Year shall be allocated in the same
ratio as each Participant's Compensation bears to the total of
such Compensation of all Participants.
e. [ ] FOR AN INTEGRATED PLAN: The Employer discretionary contribution
for the Plan Year shall be allocated in accordance with Plan
Section 4.4(b)(3) based on a Participant's Compensation in
excess of:
f. [ ] The Taxable Wage Base.
g. [ ] The greater of $10,000 or 20% of the Taxable Wage Base.
h. [ ] _____% of the Taxable Wage Base. (See Note below)
i. [ ] $___________. (see Note below)
NOTE: The integration percentage of 5.7% shall be reduced to:
1. 4.3% if h. or i. above is more than 20% and less than or equal to
80% of the Taxable Wage Base.
2. 5.4% if h. or i. above is less than 100% and more than 80% of the
Taxable Wage Base.
E5 QUALIFIED NON-ELECTIVE CONTRIBUTIONS (Plan Section 4.1)
a. [ ] N/A. There shall be no Qualified Non-Elective Contributions
except as provided in Section 4.6 and 4.8.
b. [ ] The Employer shall make a Qualified Non-Elective Contribution
equal to _____% of the total Compensation of all Participants
eligible to share in the allocations.
c. [X] The Employer may make a Qualified Non-Elective Contribution in an
amount to be determined by the Employer.
E6 FORFEITURES (Plan Section 4.4(e))
a. Forfeitures of contributions other than matching contributions shall
be...
1. [X] added to the Employer's contribution under the Plan.
2. [ ] allocated to all Participants eligible to share in the
allocations in the same proportion that each
Participant's Compensation for the year bears to the
Compensation of all Participants for such year.
b. Forfeitures of matching contributions shall be...
1. [ ] N/A. No matching contributions or match is fully
vested.
2. [X] used to reduce the Employer's matching contribution.
3. [ ] allocated to all Participant's eligible to share in the
allocations in proportion to each such Participant's
Compensation for the year.
4. [ ] allocated to all Non-Highly Compensated Employees
eligible to share in the allocations in proportion to
each such Participant's Compensation for the year.
9
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E7 ALLOCATIONS TO ACTIVE PARTICIPANTS (Plan Section 4.4) with respect to Plan
Years beginning after 1989, a participant...
a. [-] shall (Plan may become discriminatory)
[X] shall not
be required to complete a Year of Service in order to share in any Non-
Elective Contributions (other than matching contributions) or Qualified Non-
Elective Contributions. For Plan Years beginning before 1990, the Plan
provides that a Participant must complete a Year of Service to share in the
allocations.
E8 ALLOCATIONS TO TERMINATED PARTICIPANTS (Plan Section 4.4(1))
Any Participant who terminated employment during the Plan Year (i.e. not
actively employed on the last day of the Plan Year) for reasons other than
death, Total and Permanent Disability or retirement:
a. With respect to Employer Non-Elective Contributions (other than
matching), Qualified Non-Elective Contributions, and Forfeitures:
<TABLE>
<CAPTION>
1. For Plan Years beginning after 1989,
<S> <C> <C>
i. [_] N/A, Plan does not provide for such contributions.
ii. [X] shall share in the allocations provided such Participant completed more than 500 hours of Service.
iii. [_] shall share in such allocations provided such Participant completed a Year of Service.
iv. [_] shall not share in such allocations, regardless of Hours of Service.
2. For Plan Years beginning before 1990,
i. [X] N/A, new Plan, or same as for Plan Years beginning after 1989.
ii. [_] shall share in such allocations provided such Participant completed a Year of Service.
iii. [_] shall not share in such allocations, regardless of Hours of Service.
NOTE: If a.1.iii or iv is selected, the Plan could violate minimum participation and coverage requirements under Code Sections
401(a)(26) and 410.
b. With respect to the allocation of Employer Matching Contributions, a Participant:
1. For Plan Years beginning after 1989,
i. [_] N/A, Plan does not provide for matching contributions.
ii. [X] shall share in the allocations, regardless of Hours of Service.
iii. [_] shall share in the allocations provided such Participant completed more than 500 Hours of Service.
iv. [_] shall share in such allocations provided such Participant completed a Year of Service.
v. [_] shall not share in such allocations, regardless of Hours of Service.
2. For Plan Years beginning before 1990,
i. [X] N/A, new Plan, or same as years beginning after 1989.
ii. [_] shall share in the allocations, regardless of Hours of Service.
iii. [_] shall share in such allocations provided such participant completed a Year of Service.
iv. [_] shall not share in such allocations, regardless of Hours of Service.
NOTE: If b.1.iv or v is selected, the Plan could violate minimum participation and coverage requirements under Code Sections
401(a)(26) and 410.
</TABLE>
10
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E9 ALLOCATIONS OF EARNINGS (Plan Section 4.4(c))
Allocations of earnings with respect to amounts contributed to the Plan
after the previous Anniversary Date or other valuation date shall be
determined...
a. [X] by using a weighted average.
b. [ ] by treating one-half of all such contributions as being a part of
the Participant's nonsegregated account balance as of the
previous Anniversary Date or valuation date
c. [ ] by using the method specified in Section 4.4(c).
d. [ ] other _____________________________________________________
E10 LIMITATIONS OF ALLOCATIONS (Plan Section 4.9)
a. If any Participant is or was covered under another qualified defined
contribution plan maintained by the Employer, other than a Master or
Prototype Plan, or if the Employer maintains a welfare benefit fund,
as defined in Code Section 419(e), or an individual medical account,
as defined in Code Section 415(1)(2), under which amounts are treated
as Annual Additions with respect to any Participant in this Plan:
1. [X] N/A.
2. [ ] The provisions of Section 4.9(b) of the Plan will apply
as if the other plan were a Master or Prototype Plan.
3. [ ] Provide 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 any Participant is or ever has been a Participant in a defined
benefit plan maintained by the Employer:
1. [X] N/A.
2. [ ] In any Limitation Year, the Annual Additions credited
to the Participant under this Plan may not cause the
sum of the Defined Benefit Plan Fraction and the
Defined Contribution Fraction to exceed 1.0. If the
Employer's contribution that would otherwise be made on
the Participant's behalf during the limitation year
would cause the 1.0 limitation to be exceeded, the rate
of contribution under this Plan will be reduced so that
the sum of the fractions equals 1.0. If the 1.0
limitation is exceeded because of an Excess Amount,
such Excess Amount will be reduced in accordance with
Section 4.9(a)(4) of the Plan.
3. [ ] Provide the method under which the Plans involved will
satisfy the 1.0 limitation in a manner that precludes
Employer discretion.
___________________________________________________
___________________________________________________
E11 DISTRIBUTIONS UPON DEATH (Plan Section 6.6(h)) Distributions upon the death
of a Participant prior to receiving any benefits shall...
a. [X] be made pursuant to the election of the Participant or
beneficiary.
b. [ ] begin within 1 year of death for a designated beneficiary and be
payable over the life (or over a period not exceeding the life
expectancy) of such beneficiary, except that if the beneficiary
is the Participant's spouse, begin within the time the
Participant would have attained age 70 1/2.
c. [ ] be made within 5 years of death for all beneficiaries.
d. [ ] other ______________________________________________________
E12 LIFE EXPECTANCIES (Plan Section 6.5(f)) for minimum distributions required
pursuant to Code Section 401(a)(9) shall...
a. [ ] be recalculated at the Participant's election.
b. [ ] be recalculated.
c. [X] not be recalculated.
11
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E13 CONDITIONS FOR DISTRIBUTIONS UPON TERMINATION Distributions upon
termination of employment pursuant to Section 6.4(a) of the Plan shall not
be made unless the following conditions have been satisfied:
a. [X] N/A. Immediate distributions may be made at Participant's
election.
b. [_] The Participant has incurred __ 1-Year Break(s) in Service.
c. [_] The Participant has reached his or her Early or Normal Retirement
Age.
d. [_] Distributions may be made at the Participant's election on or
after the Anniversary Date following termination of employment.
e. [_] Other ________________________________________________________
E14 FORM OF DISTRIBUTIONS (Plan Sections 6.5 and 6.6) Distributions under the
Plan may be made...
a. 1. [X] in lump sums.
2. [_] in lump sums or installments.
b. AND, pursuant to Plan Section 6.13,
1. [X] no annuities are allowed (avoids Joint and Survivor
rules).
2. [_] annuities are allowed (Plan Section 6.13 shall not
apply).
NOTE: b.1. above may not be elected if this is an amendment to a plan which
permitted annuities as a form of distribution or if this Plan has accepted
a plan to plan transfer of assets from a plan which permitted annuities as
a form of distribution.
c. AND may be made in...
1. [X] cash only (except for insurance or annuity contracts).
2. [_] cash or property.
TOP HEAVY REQUIREMENTS
- ----------------------
F1 TOP HEAVY DUPLICATIONS (Plan Section 4.4(i)): When a Non-Key Employee is a
Participant in this Plan and a Defined Benefit Plan maintained by the
Employer, indicate which method shall be utilized to avoid duplication of
top heavy minimum benefits.
a. [X] The Employer does not maintain a Defined Benefit Plan.
b. [_] A minimum, non-integrated contribution of 5% of each Non-Key
Employee's total Compensation shall be provided in this Plan, as
specified in Section 4.4(i). (The Defined Benefit and Defined
Contribution Fractions will be computed using 100% if this choice
is selected.)
c. [_] A minimum, non-integrated contribution of 7 1/2% of each Non-Key
Employee's total Compensation shall be provided in this Plan, as
specified in Section 4.4(i). (If this choice is selected, the
Defined Benefit and Defined Contribution Fractions will be
computed using 125% for all Plan Years in which the Plan is Top
Heavy, but not Super Top Heavy.)
d. [_] Specify the method under which the Plans will provide top heavy
minimum benefits for Non-Key Employees that will preclude
Employer discretion and avoid inadvertent omissions, including
any adjustments required under Code Section 415(e).
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------.
F2 PRESENT VALUE OF ACCRUED BENEFIT (Plan Section 2.2) for Top Heavy purposes
where the Employer maintains a defined Benefit Plan in addition to this
Plan, shall be based on...
a. [X] N/A. The Employer does not maintain a defined benefit plan.
b. [_] Interest Rate: ____ Mortality Table: ____.
12
<PAGE>
F3 TOP HEAVY DUPLICATIONS: Employer maintaining two (2) or more Defined
Contribution Plans.
a. [X] N/A.
b. [ ] A minimum, non-integrated contribution of 3% of each Non-Key
Employee's total Compensation shall be provided in the Money
Purchase Plan (or other plan to Code Section 412), where the
Employer maintains two (2) or more non-paired Defined
Contribution Plans.
c. [ ] Specify the method under which the Plans will provide top heavy
minimum benefits for Non-Key Employees that will preclude
Employer discretion and avoid inadvertent omissions, including
any adjustments required under Code Section 415(e).
_________________________________________________________
_________________________________________________________
_________________________________________________________
MISCELLANEOUS
- -------------
G1 LOANS TO PARTICIPANTS (Plan Section 7.4)
a. [X] Yes, loans may be made up to 1/2 Vested interest.
b. [ ] No, loans may not be made.
If YES, (check all that apply)...
c. [X] loans shall be treated as a Directed Investment.
d. [ ] loans shall only be made for hardship or financial necessity.
e. [X] the minimum loan shall be $1,000.
NOTE: Department of Labor Regulations require the adoption of a separate
written loan program setting forth the requirements outlined in Plan
Section 7.4.
G2 DIRECTED INVESTMENT ACCOUNTS (Plan Section 4.13) are permitted for the
interest in any one or more accounts.
a. [X] Yes regardless of the Participant's Vested interest in the Plan.
b. [ ] Yes, but only with respect to the Participant's Vested interest
in the Plan.
c. [ ] Yes, but only with respect to those accounts which are 100%
Vested.
d. [ ] No directed investments are permitted.
G3 TRANSFERS FROM QUALIFIED PLANS (Plan Section 4.11)
a. [X] Yes, transfers from qualified plans (and rollovers) will be
allowed.
b. [ ] No, transfers from qualified plans (and rollovers) will not be
allowed.
AND, transfers shall be permitted...
c. [X] from any Employee, even if not a Participant.
d. [ ] from Participants only.
G4 EMPLOYEES' VOLUNTARY CONTRIBUTIONS (Plan Section 4.12)
a. [ ] Yes, Voluntary Contributions are allowed subject to the limits of
Section 4.7.
b. [X] No, Voluntary Contributions will not be allowed.
NOTE: TRA '86 subjects voluntary contributions to strict discrimination
rules.
13
<PAGE>
G5 HARDSHIP DISTRIBUTIONS (Plan Section 6.11)
a. [X] Yes, from any accounts which are 100% Vested.
b. [_] Yes, from Participant's Elective Account only.
c. [_] Yes, but limited to the Participant's Account only.
d. [_] No.
NOTE: Distributions from a Participant's Elective Account are limited to
the portion of such account attributable to such Participant's Deferred
Compensation and earnings attributable thereto up to December 31, 1988.
Also hardship distributions are not permitted from a Participant's
Qualified Non-Elective Account.
G6 PRE-RETIREMENT DISTRIBUTION (Plan Section 6.10)
a. [X] If a Participant has reached the age of 59 1/2, distributions
may be made, at the Participant's election, from any accounts
which are 100% Vested without requiring the Participant to
terminate employment.
b. [_] No pre-retirement distribution may be made.
NOTE: Distributions from a Participant's Elective Account and Qualified
Non-Elective Account are not permitted prior to age 59 1/2.
G7 TRUST INVESTMENTS: (Plan Section 7.2) Assets under this Plan shall be
invested as follows (select all that apply):
a. [_] Life Insurance Contracts (must also select b. and/or c.)
1. [_] shall be purchased at the option of the Administrator.
2. [_] shall be purchased at the option of the Participant.
AND (select all that apply)...
3. [_] Each initial Contract shall have a minimum face amount
of $__.
4. [_] Each additional life insurance contract shall have a
minimum face amount of $__.
5. [_] No initial or additional life insurance shall be
purchased for any Participant who is under age ___ on
the contract issue date.
6. [_] No life insurance shall be purcased until the
Participant has been credited with ___ Years of
Service.
7. [_] No life insurance shall be purchased until the
Participant has been credited with ___ Years of
Service while a Participant in the Plan.
8. [_] The maximum amount of all Contracts purchased on
behalf of a Participant shall not exceed $__.
9. [_] Waiver of premium is included on all life insurance
contracts and is paid with the Employer Contributions
allocated to the Participant's Accounts.
b. [_] Annuity Contracts (as permitted by the Insurer) shall be
purchased...
1. [_] at the option of the Administrator
2. [_] at the option of the Participant
c. [X] Investments may be made in any investments permitted pursuant to
Plan Sections 7.2 and 7.3 other than those permitted by a. or b.
above unless so elected.
14
<PAGE>
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.
This Adoption Agreement may be used only in conjunction with basic Plan document
#02. This Adoption Agreement and the basic Plan document shall together be
known as American Capital Marketing, Inc. Non-Standardized 401(k) Profit Sharing
Plan #02-001.
The adoption of this Plan, its qualification by the IRS, and the related tax
consequences are the responsibility of the Employer and its independent tax and
legal advisors.
This Plan may be used only in conjunction with a product purchased from American
Capital Marketing, Inc. or any of its affiliates or subsidiaries.
American Capital Marketing, Inc. will notify the Employer of any amendments made
to the Plan or of the discontinuance or abandonment of the Plan provided this
Plan has been acknowledged by American Capital Marketing, Inc. or its authorized
representative. Furthermore, in order to be eligible to receive such
notification, we agree to notify American Capital Marketing, Inc. of any change
in address.
IN WITNESS WHEREOF, the Employer and Trustee hereby cause this Plan to be
executed on this 22 day of September, 1997. Furthermore, this Plan may not be
used unless acknowledged by American Capital Marketing, Inc. or its authorized
representative.
<TABLE>
<S> <C>
EMPLOYER: CHANNELL COMMERCIAL CORPORATION VAN KAMPEN AMERICAN CAPITAL TRUST COMPANY
- ----------------------------------------- ------------------------------------------
(ENTER NAME) TRUSTEE
BY: /s/ Gary W. Baker BY: /s/ Perri Williams
- ----------------------------------------- ---------------------------------------
PARTICIPATING EMPLOYER: NONE
- ----------------------------------------- ------------------------------------------
(ENTER NAME) TRUSTEE
BY:
- ----------------------------------------- ------------------------------------------
TRUSTEE
</TABLE>
This Plan may not be used, and shall not be deemed to be a Prototype Plan,
unless an authorized representative of American Capital Marketing, Inc. has
acknowledged the use of the Plan. Such acknowledgment is for administerial
purposes only. It acknowledges that the Employer is using the Plan but does not
represent that this Plan, including the choices selected on the Adoption
Agreement, has been reviewed by a representative of the sponsor or constitutes a
qualified retirement plan.
American Capital Marketing, Inc.
BY: /s/ Terri L. Dunham
- ------------------------
With regard to any questions regarding the provisions of the Plan, adoption of
the Plan, or the effect of an opinion letter from the IRS, call or write (this
information must be completed by the sponsor of this Plan or its designated
representative):
Name American Capital Trust Company
------------------------------
Address 2800 Post Oak Blvd., 42nd Floor, Houston, Texas, 77056
------------------------------------------------------
Telephone (713) 993-0500
--------------
15
<PAGE>
<TABLE>
<S> <C>
Internal Revenue Service Department of the Treasury
Plan Description: Prototype Non-standardized Profit Sharing Plan with CODA
FFN: 50302820702-001 Case: 8906964 EIN: 74-1332781
BPD: 02 Plan: 001 Letter Serial No: D343205a Washington DC 20224
Person to Contact Ms. Arrington
American Capital Marketing Inc
Telephone Number (202) 566-4576
2800 Post Oak Road
P O Box 1411 Refer Reply to E:EP:Q:ICU
Houston, TX 77251
Date: 02/23/90
</TABLE>
Dear Applicant:
In our opinion, the form of the plan identified above is acceptable under
section 401 of the Internal Revenue Code for use by employers for the benefit of
their employees. This opinion relates only to the acceptability of the form of
the plan under the Internal Revenue Code. It is not an opinion of the effect
of other Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
Our opinion on the acceptability of the form of the plan is not a ruling or
determination as to whether an employer's plan qualifies under Code section
401(a). Therefore, an employer adopting the from of the plan should apply for a
determination letter by filing an application with the Key District Director of
Internal Revenue Service on Form 5307, Short Form Application for Determination
for Employee Benefit Plan.
If you, the plan sponsor, have any questions concerning the IRS processing of
this case, please call the above telephone number. This number is only for use
of the plan sponsor. Individual participants and/or adopting employers with
questions concerning the plan should contact the plan sponsor. The plan's
adoption agreement must include the sponsor's address and telephone number for
inquiries by adopting employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial
Number and file Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerely yours
Signature Illegible
Chief, Employee Plans Qualifications Branch
<PAGE>
VAN KAMPEN AMERICAN CAPITAL TRUST CO.
401(K) PLAN & TRUST
(C) 1990 Van Kampen American Capital Trust Co.
<PAGE>
TABLE OF CONTENTS
<TABLE>
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY PROVISIONS AND ADMINISTRATION
<S> <C>
2.1 TOP HEAVY PLAN REQUIREMENTS....................................... 11
2.2 DETERMINATION OF TOP HEAVY STATUS................................. 11
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER....................... 13
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY........................... 14
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES..................... 14
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR............................ 14
2.7 RECORDS AND REPORTS............................................... 15
2.8 APPOINTMENT OF ADVISERS........................................... 15
2.9 INFORMATION FROM EMPLOYER......................................... 15
2.10 PAYMENT OF EXPENSES............................................... 16
2.11 MAJORITY ACTIONS.................................................. 16
2.12 CLAIMS PROCEDURE.................................................. 16
2.13 CLAIMS REVIEW PROCEDURE........................................... 16
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY......................................... 17
3.2 EFFECTIVE DATE OF PARTICIPATION................................... 17
3.3 DETERMINATION OF ELIGIBILITY...................................... 17
3.4 TERMINATION OF ELIGIBILITY........................................ 17
3.5 OMISSION OF ELIGIBLE EMPLOYEE..................................... 17
3.6 INCLUSION OF INELIGIBLE EMPLOYEE.................................. 17
3.7 ELECTION NOT TO PARTICIPATE....................................... 18
3.8 CONTROL OF ENTITIES BY OWNER-EMPLOYEE............................. 18
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION................... 18
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION........................... 19
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION........................ 21
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS.............. 22
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS.................................. 26
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS.................... 28
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS.............................. 30
4.8 ADJUSTMENT TO
</TABLE>
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<TABLE>
<S> <C>
ACTUAL CONTRIBUTION PERCENTAGE TESTS.............................. 32
4.9 MAXIMUM ANNUAL ADDITIONS.......................................... 35
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS......................... 40
4.11 TRANSFERS FROM QUALIFIED PLANS.................................... 40
4.12 VOLUNTARY CONTRIBUTIONS........................................... 41
4.13 DIRECTED INVESTMENT ACCOUNT....................................... 41
4.14 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS........................ 42
4.15 INTEGRATION IN MORE THAN ONE PLAN................................. 42
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND....................................... 43
5.2 METHOD OF VALUATION............................................... 43
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT......................... 43
6.2 DETERMINATION OF BENEFITS UPON DEATH.............................. 43
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY.................. 44
6.4 DETERMINATION OF BENEFITS UPON TERMINATION........................ 44
6.5 DISTRIBUTION OF BENEFITS.......................................... 47
6.6 DISTRIBUTION OF BENEFITS UPON DEATH............................... 50
6.7 TIME OF SEGREGATION OR DISTRIBUTION............................... 53
6.8 DISTRIBUTION FOR MINOR BENEFICIARY................................ 53
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN.................... 53
6.10 PRE-RETIREMENT DISTRIBUTION....................................... 54
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP................................. 54
6.12 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS......................... 55
6.13 SPECIAL RULE FOR NON-ANNUITY PLANS................................ 55
ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE............................. 56
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE....................... 56
7.3 OTHER POWERS OF THE TRUSTEE....................................... 57
7.4 LOANS TO PARTICIPANTS............................................. 59
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS.......................... 61
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES..................... 61
7.7 ANNUAL REPORT OF THE TRUSTEE...................................... 61
7.8 AUDIT............................................................. 61
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE.................... 62
7.10 TRANSFER OF INTEREST.............................................. 62
7.11 TRUSTEE INDEMNIFICATION........................................... 63
7.12 EMPLOYER SECURITIES AND REAL PROPERTY............................. 63
</TABLE>
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<TABLE>
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ARTICLE VIII
AMENDMENT, TERMINATION, AND MERGERS
8.1 AMENDMENT......................................................... 63
8.2 TERMINATION....................................................... 64
8.3 MERGER OR CONSOLIDATION........................................... 64
ARTICLE IX
MISCELLANEOUS
9.1 EMPLOYER ADOPTIONS................................................ 64
9.2 PARTICIPANT'S RIGHTS.............................................. 64
9.3 ALIENATION........................................................ 65
9.4 CONSTRUCTION OF PLAN.............................................. 65
9.5 GENDER AND NUMBER................................................. 65
9.6 LEGAL ACTION...................................................... 65
9.7 PROHIBITION AGAINST DIVERSION OF FUNDS............................ 65
9.8 BONDING........................................................... 66
9.9 INSURER'S PROTECTIVE CLAUSE....................................... 66
9.10 RECEIPT AND RELEASE FOR PAYMENTS.................................. 66
9.11 ACTION BY THE EMPLOYER............................................ 66
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY................ 66
9.13 HEADINGS.......................................................... 67
9.14 APPROVAL BY INTERNAL REVENUE SERVICE.............................. 67
9.15 UNIFORMITY........................................................ 67
9.16 PAYMENT OF BENEFITS............................................... 67
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER....................... 68
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS........................... 68
10.3 DESIGNATION OF AGENT.............................................. 68
10.4 EMPLOYEE TRANSFERS................................................ 68
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES............. 68
10.6 AMENDMENT......................................................... 69
10.7 DISCONTINUANCE OF PARTICIPATION................................... 69
10.8 ADMINISTRATOR'S AUTHORITY......................................... 69
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE................. 69
</TABLE>
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- --------------------------------------------------------------------------------
ARTICLE I
DEFINITIONS
- --------------------------------------------------------------------------------
As used in this Plan, the following words and phrases shall have the
meanings set forth herein unless a different meaning is clearly required by the
context:
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it may
be amended from time to time.
1.2 "Administrator" means the person(s) or entity designated by the Employer
pursuant to Section 2.4 to administer the Plan on behalf of the Employer.
1.3 "Adoption Agreement" means the separate Agreement which is executed by the
Employer and accepted by the Trustee which sets forth the elective provisions of
this Plan and Trust as specified by the Employer.
1.4 "Affiliated Employer" means the Employer and any corporation which is a
member of a controlled group of corporations (as defined in Code Section 414(b))
which includes the Employer; any trade or business (whether or not incorporated)
which is under common control (as defined in Code Section 414(c)) with the
Employer; any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
1.5 "Aggregate Account" means with respect to each Participant, the value of
all accounts maintained on behalf of a Participant, whether attributable to
Employer or Employee contributions, subject to the provisions of Section 2.2.
1.6 "Anniversary Date" means the anniversary date specified in C3 of the
Adoption Agreement.
1.7 "Beneficiary" means the person to whom a share of a deceased Participant's
interest in the Plan is payable, subject to the restrictions of Sections 6.2 and
6.6.
1.8 "Code" means the Internal Revenue Code of 1986, as amended or replaced from
time to time.
1.9 "Compensation" with respect to any Participant means such Participant's
compensation as specified by the Employer in El of the Adoption Agreement that
is paid during the applicable period. Compensation for any Self-Employed
Individual shall be equal to his Earned Income.
In addition, if specified in the Adoption Agreement, Compensation for all
Plan purposes shall also include compensation which is not currently includible
in the Participant's gross income by reason of the application of Code Sections
125, 402(a)(8), 402(b)(1)(h), or 403(b).
Compensation in excess of $200,000 shall be disregarded. Such amount shall
be adjusted at the same time and in such manner as permitted under Code Section
415(d). In applying this limitation, the family group of a Highly Compensated
Participant who is subject to the Family Member aggregation rules of Code
Section 414(q)(6) because such Participant is either a "five percent owner" of
the Employer or one of the ten (10) Highly Compensated Employees paid the
greatest "415 Compensation" during the year, shall be treated as a single
Participant, except that for this purpose Family Members shall include only the
affected Participant's spouse and any lineal descendants who have not attained
age nineteen (19) before the close of the year. If, as a result of the
application of such rules, the adjusted $200,000 limitation is exceeded, then
(except for purposes of determining the portion of Compensation up to the
integration level if this plan is integrated), 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.
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For Plan Years beginning prior to January 1, 1989, the $200,000 limit
(without regard to Family Member aggregation) shall apply only for Top Heavy
Plan Years and shall not be adjusted.
1.10 "Contract" or "Policy" means any life insurance policy, retirement income
policy, or annuity contract (group or individual) issued by the Insurer. In the
event of any conflict between the terms of this Plan and the terms of any
insurance contract purchased hereunder, the Plan provisions shall control.
1.11 "Deferred Compensation" means that portion of a Participant's total
Compensation that such Participant has elected to defer for a Plan Year pursuant
to Section 4.2.
1.12 "Early Retirement Date" means the date specified in the Adoption Agreement
on which a Participant or Former Participant has satisfied the age and service
requirements specified in the Adoption Agreement (Early Retirement Age). A
Participant shall become fully Vested upon satisfying this requirement if still
employed at his Early Retirement Age.
A Former Participant who terminates employment after satisfying the service
requirement for Early Retirement and who thereafter reaches the age requirement
contained herein shall be entitled to receive his benefits under this Plan.
1.13 "Earned Income" means with respect to a Self-Employed Individual, the net
earnings from self-employment in the trade or business with respect to which the
Plan is established, for which the personal services of the individual are a
material income-producing factor. Net earnings will be determined without regard
to items not included in gross income and the deductions allocable to such
items. Net earnings are reduced by contributions by the Employer to a qualified
Plan to the extent deductible under Code Section 404. In addition, for Plan
Years beginning after December 31, 1989, net earnings shall be determined with
regard to the deduction allowed to the Employer by Code Section 164(f).
1.14 "Elective Contribution" means the Employer's contributions to the Plan
that are made pursuant to the Participant's deferral election pursuant to
Section 4.2. In addition, if selected in E3 of the Adoption Agreement, the
Employer's matching contribution made pursuant to Section 4.1(b) shall be
considered an Elective Contribution for purposes of the Plan. Elective
Contributions shall be subject to the requirements of Sections 4.2(b) and 4.2(c)
and shall further be required to satisfy the discrimination requirements of
Regulation 1.401(k)- 1(b)(3), the provisions of which are specifically
incorporated herein by reference.
1.15 "Eligible Employee" means any Employee specified in Dl of the Adoption
Agreement.
1.16 "Employee" means any person who is employed by the Employer, but excludes
any person who is employed as an independent contractor. The term Employee shall
also include Leased Employees as provided in Code Section 414(n) or (o).
Except as provided in the Non-Standardized Adoption Agreement, all Employees
of all entities which are an Affiliated Employer will be treated as employed by
a single employer.
1.17 "Employer" means the entity specified in the Adoption Agreement, any
Participating Employer (as defined in Section 10.1) which shall adopt this Plan,
any successor which shall maintain this Plan and any predecessor which has
maintained this Plan.
1.18 "Excess Compensation" means, with respect to a Plan that is integrated
with Social Security, a Participant's Compensation which is in excess of the
amount set forth in the Adoption Agreement.
1.19 "Excess Contributions" means, with respect to a Plan Year, the excess of
Elective Contributions and Qualified Non-Elective Contributions made on behalf
of Highly Compensated Participants for the Plan Year over the maximum amount of
such contributions permitted under Section 4.5(a).
1.20 "Excess Deferred Compensation" means, with respect to any taxable year of
a Participant, the excess of the aggregate amount of such Participant's Deferred
Compensation and the elective deferrals pursuant to Section
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4.2(f) actually made on behalf of such Participant for such taxable year, over
the dollar limitation provided for in Code Section 402(g), which is incorporated
herein by reference.
1.21 "Family Member" means, with respect to an affected Participant, such
Participant's spouse, and such Participant's lineal descendants and ascendants
and their spouses, all as described in Code Section 414(q)(6)(B).
1.22 "Fiduciary" means any person who (a) exercises any discretionary authority
or discretionary control respecting management of the Plan or exercises any
authority or control respecting management or disposition of its assets, (b)
renders investment advice for a fee or other compensation, direct or indirect,
with respect to any monies or other property of the Plan or has any authority or
responsibility to do so, or (c) has any discretionary authority or discretionary
responsibility in the administration of the Plan, including, but not limited to,
the Trustee, the Employer and its representative body, and the Administrator.
1.23 "Fiscal Year" means the Employer's accounting year as specified in the
Adoption Agreement.
1.24 "Forfeiture" means that portion of a Participant's Account that is not
Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a Participant's
Account, or
(b) the last day of the Plan Year in which the Participant incurs five (5)
consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a
Terminated Participant whose Vested benefit is zero, such Terminated Participant
shall be deemed to have received a distribution of his Vested benefit upon his
termination of employment. In addition, the term Forfeiture shall also include
amounts deemed to be Forfeitures pursuant to any other provision of this Plan.
1.25 "Former Participant" means a person who has been a Participant, but who
has ceased to be a Participant for any reason.
1.26 "414(s) Compensation" with respect to any Employee means his Compensation
as defined in Section 1.9. However, for purposes of this Section, Compensation
shall be Compensation paid and shall be determined by including, in the case of
a non-standardized Adoption Agreement, any items that are excluded from
Compensation pursuant to the Adoption Agreement. The amount of "414(s)
Compensation" with respect to any Employee shall include "414(s) Compensation"
during the entire twelve (12) month period ending on the last day of such Plan
Year, except that for Plan Years beginning prior to the later of January 1,
1992, or the date that is sixty (60) days after the date final Regulations are
issued, "414(s) Compensation" shall only be recognized as of an Employee's
effective date of participation.
In addition, if specified in the Adoption Agreement, "414(s) Compensation"
shall also include compensation which is not currently includible in the
Participant's gross income by reason of the application of Code Sections 125,
402(a)(8), 402(h)(l)(B), or 403(b), plus Elective Contributions attributable to
Deferred Compensation recharacterized as voluntary Employee contributions
pursuant to 4.6(a).
1.27 "415 Compensation" means compensation as defined in Section 4.9(f)(2).
1.28 "Highly Compensated Employee" means an Employee described in Code Section
414(q) and the regulations thereunder and generally means an Employee who
performed services for the Employer during the "determination year" and is in
one or more of the following groups:
(a) Employees who at any time during the "determination year" or "look-
back year" were "five percent owners" as defined in Section 1.35(c).
(b) Employees who received "415 Compensation" during the "look-back" year
from the Employer in excess of $75,000.
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(c) Employees who received "415 Compensation" during the "look-back year"
from the Employer in excess of $50,000 and were in the Top Paid Group of
Employees for the Plan Year.
(d) Employees who during the "look-back year" were officers of the
Employer (as that term is defined within the meaning of the Regulations
under Code Section 416) and received "415 Compensation" during the "look-
back year" from the Employer greater than 50 percent of the limit in effect
under Code Section 415(b)(1)(A) for any such Plan Year. The number of
officers shall be limited to the lesser of (i) 50 employees; or (ii) the
greater of 3 employees or 10 percent of all employees. If the Employer does
not have at least one officer whose annual "415 Compensation" is in excess
of 50 percent of the Code Section 415(b)(1)(A) limit, then the highest paid
officer of the Employer will be treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100 Employees paid
the greatest "415 Compensation" during the "determination year" and are also
described in (b), (c) or (d) above when these paragraphs are modified to
substitute "determination year" for "look-back year".
The "determination year" shall be the Plan Year for which testing is being
performed, and the "look-back year" shall be the immediately preceding twelve-
month period. However, if the Plan Year is a calendar year, or if another Plan
of the Employer so provides, then the "look-back year" shall be the calendar
year ending with or within the Plan Year for which testing is being performed,
and the "determination year" (if applicable) shall be the period of time, if
any, which extends beyond the "look-back year" and ends on the last day of the
Plan Year for which testing is being performed (the "lag period"). With respect
to this election, it shall be applied on a uniform and consistent basis to all
plans, entities, and arrangements of the Employer.
For purposes of this Section, the determination of "415 Compensation" shall
be made by including amounts that would otherwise be excluded from a
Participant's gross income by reason of the application of Code Sections 125,
402(a)(8), 402(h)(1)(B) and, in the case of Employer contributions made pursuant
to a salary reduction agreement, Code Section 403(b). Additionally, the dollar
threshold amounts specified in (b) and (c) above shall be adjusted at such time
and in such manner as is provided in Regulations. In the case of such an
adjustment, the dollar limits which shall be applied are those for the calendar
year in which the "determination year" or "look back year" begins.
In determining who is a Highly Compensated Employee, Employees who are non-
resident aliens and who received no earned income (within the meaning of Code
Section 911(d)) from the Employer constituting United States source income
within the meaning of Code Section 861(a)(3) shall not be treated as Employees.
Additionally, all Affiliated Employers shall be taken into account as a single
employer and Leased Employees within the meaning of Code Sections 414(n)(2) and
414(o)(2) shall be considered Employees unless such Leased Employees are covered
by a plan described in Code Section 414(n)(5) and are not covered in any
qualified plan maintained by the Employer. The exclusion of Leased Employees for
this purpose shall be applied on a uniform and consistent basis for all of the
Employer's retirement plans. In addition, Highly Compensated Former Employees
shall be treated as Highly Compensated Employees without regard to whether they
performed services during the "determination year".
1.29 "Highly Compensated Former Employee" means a former Employee who had a
separation year prior to the "determination year" and was a Highly Compensated
Employee in the year of separation from service or in any "determination year"
after attaining age 55. Notwithstanding the foregoing, an Employee who separated
from service prior to 1987 will be treated as a Highly Compensated Former
Employee only if during the separation year (or year preceding the separation
year) or any year after the Employee attains age 55 (or the last year ending
before the Employee's 55th birthday), the Employee either received "415
Compensation" in excess of $50,000 or was a "five percent owner". For purposes
of this Section, "determination year", "415 Compensation" and "five percent
owner" shall be determined in accordance with Section 1.28. Highly Compensated
Former Employees shall be treated as Highly Compensated Employees. The method
set forth in this Section for determining who is a "Highly Compensated Former
Employee" shall be applied on a uniform and consistent basis for all purposes
for which the Code Section 414(q) definition is applicable.
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1.30 "Highly Compensated Participant" means any Highly Compensated Employee who
is eligible to participate in the Plan.
1.31 "Hour of Service" means (1) each hour for which an Employee is directly or
indirectly compensated or entitled to compensation by the Employer for the
performance of duties during the applicable computation period; (2) each hour
for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period; (3) each hour for
which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages. The same Hours of Service shall not be credited both
under (1) or (2), as the case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made by or due
from the Employer regardless of whether such payment is made by or due from the
Employer directly, or indirectly through, among others, a trust fund, or
insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
An Hour of Service must be counted for the purpose of determining a Year of
Service, a year of participation for purposes of accrued benefits, a 1-Year
Break in Service, and employment commencement date (or reemployment commencement
date). The provisions of Department of Labor regulations 2530.200b-2(b) and (c)
are incorporated herein by reference.
Hours of Service will be credited for employment with all Affiliated
Employers and for any individual considered to be a Leased Employee pursuant to
Code Sections 414(n) or 414(o) and the Regulations thereunder.
Hours of Service will be determined on the basis of the method selected in
the Adoption Agreement.
1.32 "Insurer" means any legal reserve insurance company which shall issue one
or more policies under the Plan.
1.33 "Investment Manager" means an entity that (a) has the power to manage,
acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility
to the Plan in writing. Such entity must be a person, firm, or corporation
registered as an investment adviser under the Investment Advisers Act of 1940, a
bank, or an insurance company.
1.34 "Joint and Survivor Annuity" means an annuity for the life of a
Participant with a survivor annuity for the life of the Participant's spouse
which is not less than 1/2, nor greater than the amount of the annuity payable
during the joint lives of the Participant and the Participant's spouse. The
Joint and Survivor Annuity will be the amount of benefit which can be purchased
with the Participant's Vested interest in the Plan.
1.35 "Key Employee" means an Employee as defined in Code Section 416(i) and the
Regulations thereunder. Generally, any Employee or former Employee (as well as
each of his Beneficiaries) is considered a Key Employee if he, at any time
during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
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(a) an officer of the Employer (as that term is defined within the
meaning of the Regulations under Code Section 416) having annual "415
Compensation" greater than 50 percent of the amount in effect under Code
Section 415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees having annual "415 Compensation" from the
Employer for a Plan Year greater than the dollar limitation in effect under
Code Section 415(c)(1)(A) for the calendar year in which such Plan Year ends
and owning (or considered as owning within the meaning of Code Section 318)
both more than one-half percent interest and the largest interests in the
Employer.
(c) a "five percent owner" of the Employer. "Five percent owner" means
any person who owns (or is considered as owning within the meaning of Code
Section 318) more than five percent (5%) of the outstanding stock of the
Employer or stock possessing more than five percent (5%) of the total
combined voting power of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than five percent (5%) of
the capital or profits interest in the Employer. In determining percentage
ownership hereunder, employers that would otherwise be aggregated under Code
Sections 414(b), (c), (m) and (o) shall be treated as separate employers.
(d) a "one percent owner" of the Employer having an annual "415
Compensation" from the Employer of more than $150,000. "One percent owner"
means any person who owns (or is considered as owning within the meaning of
Code Section 318) more than one percent (1%) of the outstanding stock of the
Employer or stock possessing more than one percent (1%) of the total
combined voting power of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than one percent (1%) of
the capital or profits interest in the Employer. In determining percentage
ownership hereunder, employers that would otherwise be aggregated under Code
Sections 414(b), (c), (m) and (o) shall be treated as separate employers.
However, in determining whether an individual has "415 Compensation" of more
than $150,000, "415 Compensation" from each employer required to be
aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into
account.
For purposes of this Section, the determination of "415 Compensation" shall
be made by including amounts that would otherwise be excluded from a
Participant's gross income by reason of the application of Code Sections 125,
402(a)(8), 402(h)(1)(B) and, in the case of Employer contributions made pursuant
to a salary reduction agreement, Code Section 403(b).
1.36 "Late Retirement Date" means the date of; or the first day of the month or
the Anniversary Date coinciding with or next following, whichever corresponds to
the election made for the Normal Retirement Date, a Participant's actual
retirement after having reached his Normal Retirement Date.
1.37 "Leased Employee" means 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. Contributions or benefits provided a
leased employee 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:
(i) such employee is covered by a money purchase pension plan providing: (1) a
nonintegrated employer contribution rate of at least 10 percent of compensation,
as defined in Code Section 415(c)(3), but including amounts contributed pursuant
to a salary reduction agreement which are excludable from the employee's gross
income under Code Sections 125, 402(a)(8), 402(h) or 403(b), (2) immediate
participation, and (3) full and immediate vesting; and (ii) leased employees do
not constitute more than 20 percent of the recipient's nonhighly compensated
workforce.
1.38 "Net Profit" means with respect to any Fiscal Year the Employer's net
income or profit for such Fiscal Year determined upon the basis of the
Employer's books of account in accordance with generally accepted accounting
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principles, without any reduction for taxes based upon income, or for
contributions made by the Employer to this Plan and any other qualified plan.
1.39 "Non-Elective Contribution" means the Employer's contributions to the Plan
other than those made pursuant to the Participant's deferral election made
pursuant to Section 4.2 and any Qualified Non-Elective Contribution. In
addition, if selected in E3 of the Adoption Agreement, the Employer's Matching
Contribution made pursuant to Section 4.1(b) shall be considered a Non-Elective
Contribution for purposes of the Plan.
1.40 "Non-Highly Compensated Participant" means any Participant who is neither
a Highly Compensated Employee nor a Family Member.
1.41 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.42 "Normal Retirement Age" means the age specified in the Adoption Agreement
at which time a Participant shall become fully Vested in his Participant's
Account.
1.43 "Normal Retirement Date" means the date specified in the Adoption
Agreement on which a Participant shall become eligible to have his benefits
distributed to him.
1.44 "1-Year Break in Service" means the applicable computation period during
which an Employee has not completed more than 500 Hours of Service with the
Employer. Further, solely for the purpose of determining whether a Participant
has incurred a 1-Year Break in Service, Hours of Service shall be recognized for
"authorized leaves of absence" and "maternity and paternity leaves of absence."
"Authorized leave of absence" means an unpaid, temporary cessation from
active employment with the Employer pursuant to an established nondiscriminatory
policy, whether occasioned by illness, military service, or any other reason.
A "maternity or paternity leave of absence" means, for Plan Years beginning
after December 31, 1984, an absence from work for any period by reason of the
Employee's pregnancy, birth of the Employee's child, placement of a child with
the Employee in connection with the adoption of such child, or any absence for
the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of Service shall be credited for the
computation period in which the absence from work begins, only if credit
therefore is necessary to prevent the Employee from incurring a 1-Year Break in
Service, or, in any other case, in the immediately following computation period.
The Hours of Service credited for a "maternity or paternity leave of absence"
shall be those which would normally have been credited but for such absence, or,
in any case in which the Administrator is unable to determine such hours
normally credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for a "maternity or paternity leave of absence"
shall not exceed 501.
1.45 "Owner-Employee" means a sole proprietor who owns the entire interest in
the Employer or a partner who owns more than 10% of either the capital interest
or the profits interest in the Employer and who receives income for personal
services from the Employer.
1.46 "Participant" means any Eligible Employee who participates in the Plan as
provided in Section 3.2 and has not for any reason become ineligible to
participate further in the Plan.
1.47 "Participant's Account" means the account established and maintained by
the Administrator for each Participant with respect to his total interest under
the Plan resulting from the Employer's Non-Elective Contributions. A separate
accounting shall be maintained for matching contributions if they are deemed to
be Non-Elective Contributions.
1.48 "Participant's Combined Account" means the total aggregate amount of each
Participant's Elective Account, Qualified Non-Elective Account, and
Participant's Account.
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1.49 "Participant's Elective Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's Elective
Contributions. A separate accounting shall be maintained with respect to that
portion of the Participant's Elective Account attributable to Elective
Contributions made pursuant to Section 4.2, Employer matching contributions
if they are deemed to be Elective Contributions, and any Qualified Non-Elective
Contributions.
1.50 "Participant's Rollover Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from amounts transferred from another qualified
plan or "conduit" Individual Retirement Account in accordance with Section 4.11.
1.51 "Plan" means this instrument (hereinafter referred to as Van Kampen
American Capital Trust Co. 401(k) Plan & Trust Basic Plan Document #02)
including all amendments thereto, and the Adoption Agreement as adopted by the
Employer.
1.52 "Plan Year" means the Plan's accounting year as specified in C2 of the
Adoption Agreement.
1.53 "Pre-Retirement Survivor Annuity" means an immediate annuity for the life
of the Participant's spouse, the payments under which must be equal to the
actuarial equivalent of 50% of the Participant's Vested interest in the Plan as
of the date of death.
1.54 "Qualified Non-Elective Account" means the account established hereunder
to which Qualified Non-Elective Contributions are allocated.
1.55 "Qualified Non-Elective Contribution" means the Employer's contributions
to the Plan that are made pursuant to Section 4.1(d) and Section 4.6(b) which
are used to satisfy the "Actual Deferral Percentage" tests. Qualified Non-
Elective Contributions are nonforfeitable when made and are distributable only
as specified in Sections 4.2(c) and 6.11. In addition, the Employer's
contributions to the Plan that are made pursuant to Section 4.8(h) and which are
used to satisfy the "Actual Contribution Percentage" tests shall be considered
Qualified Non-Elective Contributions.
1.56 "Qualified Voluntary Employee Contribution Account" means the account
established and maintained by the Administrator for each Participant with
respect to his total interest under the Plan resulting from the Participant's
tax deductible qualified voluntary employee contributions made pursuant to
Section 4.14.
1.57 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
1.58 "Retired Participant" means a person who has been a Participant, but who
has become entitled to retirement benefits under the Plan.
1.59 "Retirement Date" means the date as of which a Participant retires for
reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date, Early or Late Retirement Date
(see Section 6.1).
1.60 "Self-Employed Individual" means an individual who has earned income for
the taxable year from the trade or business for which the Plan is established,
and, also, 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. A Self-Employed
Individual shall be treated as an Employee.
1.61 "Shareholder-Employee" means a Participant who owns more than five percent
(5%) of the Employer's outstanding capital stock during any year in which the
Employer elected to be taxed as a Small Business Corporation under the
applicable Code Section.
1.62 "Short Plan Year" means, if specified in the Adoption Agreement, that the
Plan Year shall be less than a 12 month period. If chosen, the following rules
shall apply in the administration of this Plan. In determining whether
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an Employee has completed a Year of Service for benefit accrual purposes in the
Short Plan Year, the number of the Hours of Service required shall be
proportionately reduced based on the number of days in the Short Plan Year. The
determination of whether an Employee has completed a Year of Service for vesting
and eligibility purposes shall be made in accordance with Department of Labor
Regulation 2530.203-2(c). In addition, if this Plan is integrated with Social
Security, the integration level shall also be proportionately reduced based on
the number of days in the Short Plan Year.
1.63 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
1.64 "Taxable Wage Base" means, with respect to any year, the maximum amount of
earnings which may be considered wages for such year under Code Section 312
1(a)(1).
1.65 "Terminated Participant" means a person who has been a Participant, but
whose employment has been terminated other than by death, Total and Permanent
Disability or retirement.
1.66 "Top Heavy Plan" means a plan described in Section 2.2(a).
1.67 "Top Heavy Plan Year" means a Plan Year commencing after December 31, 1983
during which the Plan is a Top Heavy Plan.
1.68 "Top Paid Group" shall be determined pursuant to Code Section 414(q) and
the Regulations thereunder and generally means the top 20 percent of Employees
who performed services for the Employer during the applicable year, ranked
according to the amount of "415 Compensation" (as determined pursuant to Section
1.28) received from the Employer during such year. All Affiliated Employers
shall be taken into account as a single employer, and Leased Employees shall be
treated as Employees pursuant to Code Section 414(n) or (o). Employees who are
non-resident aliens who received no earned income (within the meaning of Code
Section 91l(d)(2)) from the Employer constituting United States source income
within the meaning of Code Section 861(a)(3) shall not be treated as Employees.
Additionally, for the purpose of determining the number of active Employees in
any year, the following additional Employees shall also be excluded, however,
such Employees shall still be considered for the purpose of identifying the
particular Employees in the Top Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per week;
(c) Employees who normally work less than six (6) months during a year;
and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer are
covered under agreements the Secretary of Labor finds to be collective
bargaining agreements between Employee representatives and the Employer, and the
Plan covers only Employees who are not covered under such agreements, then
Employees covered by such agreements shall be excluded from both the total
number of active Employees as well as from the identification of particular
Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be applied on a
uniform and consistent basis for all purposes for which the Code Section 414(q)
definition is applicable.
1.69 "Total and Permanent Disability" means the inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than 12 months. The
disability of a Participant shall be determined by a licensed physician chosen
by the Administrator. However, if the condition constitutes total disability
under the federal Social Security Acts, the Administrator may rely upon such
determination that the Participant is Totally and Permanently Disabled for the
purposes of this Plan. The determination shall be applied uniformly to all
Participants.
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1.70 "Trustee" means the person or entity named in B6 of the Adoption Agreement
and any successors.
1.71 "Trust Fund" means the assets of the Plan and Trust as the same shall
exist from time to time.
1.72 "Vested" means the nonforfeitable portion of any account maintained on
behalf of a Participant.
1.73 "Voluntary Contribution Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from the Participant's nondeductible voluntary
contributions made pursuant to Section 4.12.
Amounts recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) shall remain subject to the limitations of Sections 4.2(b) and
4.2(c). Therefore, a separate accounting shall be maintained with respect to
that portion of the Voluntary Contribution Account attributable to voluntary
Employee contributions made pursuant to Section 4.12.
1.74 "Year of Service" means the computation period of twelve (12) consecutive
months, herein set forth, and during which an Employee has completed at least
1000 Hours of Service.
For purposes of eligibility for participation, the initial computation
period shall begin with the date on which the Employee first performs an Hour of
Service (employment commencement date). The computation period beginning after a
1-Year Break in Service shall be measured from the date on which an Employee
again performs an Hour of Service. The succeeding computation periods shall
begin with the first anniversary of the Employee's employment commencement date.
However, if one (1) Year of Service or less is required as a condition of
eligibility, then after the initial eligibility computation period, the
eligibility computation period shall shift to the current Plan Year which
includes the anniversary of the date on which the Employee first performed an
Hour of Service. An Employee who is credited with 1,000 Hours of Service in both
the initial eligibility computation period and the first Plan Year which
commences prior to the first anniversary of the Employee's initial eligibility
computation period will be credited with two Years of Service for purposes of
eligibility to participate.
For vesting purposes, and all other purposes not specifically addressed in
this Section, the computation period shall be the Plan Year, including periods
prior to the Effective Date of the Plan unless specifically excluded pursuant to
the Adoption Agreement.
Years of Service and breaks in service will be measured on the same
computation period.
Years of Service with any predecessor Employer which maintained this Plan
shall be recognized. Years of Service with any other predecessor Employer shall
be recognized as specified in the Adoption Agreement.
Years of Service with any Affiliated Employer shall be recognized.
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ARTICLE II
TOP HEAVY PROVISIONS AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special vesting
requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the
special minimum allocation requirements of Code Section 416(c) pursuant to
Section 4.4(i) of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year beginning
after December 31, 1983, in which, as of the Determination Date, (1) the
Present Value of Accrued Benefits of Key Employees and (2) the sum of the
Aggregate Accounts of Key Employees under this Plan and all plans of an
Aggregation Group, exceeds sixty percent (60%) of the Present Value of
Accrued Benefits and the Aggregate Accounts of all Key and Non-Key
Employees under this Plan and all plans of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year, but such
Participant was a Key Employee for any prior Plan Year, such Participant's
Present Value of Accrued Benefit and/or Aggregate Account balance shall not
be taken into account for purposes of determining whether this Plan is a
Top Heavy or Super Top Heavy Plan (or whether any Aggregation Group which
includes this Plan is a Top Heavy Group). In addition, if a Participant or
Former Participant has not performed any services for any Employer
maintaining the Plan at any time during the five year period ending on the
Determination Date, any accrued benefit for such Participant or Former
Participant shall not be taken into account for the purposes of determining
whether this Plan is a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan Year
beginning after December 31, 1983, in which, as of the Determination Date,
(1) the Present Value of Accrued Benefits of Key Employees and (2) the sum
of the Aggregate Accounts of Key Employees under this Plan and all plans of
an Aggregation Group, exceeds ninety percent (90%) of the Present Value of
Accrued Benefits and the Aggregate Accounts of all Key and Non-Key
Employees under this Plan and all plans of an Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate Account as of the
Determination Date is the sum of:
(1) his Participant's Combined Account balance as of the most recent
valuation occurring within a twelve (12) month period ending on the
Determination Date;
(2) an adjustment for any contributions due as of the Determination
Date. Such adjustment shall be the amount of any contributions actually
made after the valuation date but on or before the Determination Date,
except for the first Plan Year when such adjustment shall also reflect
the amount of any contributions made after the Determination Date that
are allocated as of a date in that first Plan Year;
(3) any Plan distributions made within the Plan Year that includes
the Determination Date or within the four (4) preceding Plan Years.
However, in the case of distributions made after the valuation date and
prior to the Determination Date, such distributions are not included as
distributions for top heavy purposes to the extent that such
distributions are already included in the Participant's Aggregate Account
balance as of the valuation date. Notwithstanding anything herein to the
contrary, all distributions, including distributions made prior to
January 1, 1984, and distributions under a terminated plan which if it
had not been terminated would have been required to be included in an
Aggregation Group, will be counted. Further, distributions from the Plan
(including the cash value of life insurance
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policies) of a Participant's account balance because of death shall be
treated as a distribution for the purposes of this paragraph.
(4) any Employee contributions, whether voluntary or mandatory. However,
amounts attributable to tax deductible qualified voluntary employee
contributions shall not be considered to be a part of the Participant's
Aggregate Account balance.
(5) with respect to unrelated rollovers and plan-to-plan transfers (ones
which are both initiated by the Employee and made from a plan maintained by
one employer to a plan maintained by another employer), if this Plan provides
the rollovers or plan-to-plan transfers, it shall always consider such
rollovers or plan-to-plan transfers as a distribution for the purposes of
this Section. If this Plan is the plan accepting such rollovers or plan-to-
plan transfers, it shall not consider such rollovers or plan-to-plan
transfers accepted after December 31, 1983 as part of the Participant's
Aggregate Account balance. However, rollovers or plan-to-plan transfers
accepted prior to January 1, 1984 shall be considered as part of the
Participant's Aggregate Account balance.
(6) with respect to related rollovers and plan-to-plan transfers (ones
either not initiated by the Employee or made to a plan maintained by the same
employer), if this Plan provides the rollover or plan-to-plan transfer, it
shall not be counted as a distribution for purposes of this Section. If this
Plan is the plan accepting such rollover or plan-to-plan transfer, it shall
consider such rollover or plan-to-plan transfer as part of the Participant's
Aggregate Account balance, irrespective of the date on which such rollover or
plan-to-plan transfer is accepted.
(7) For the purposes of determining whether two employers are to be
treated as the same employer in 2.2(c)(5) and 2.2(c)(6) above, all employers
aggregated under Code Section 414(b), (c), (m) and (o) are treated as the
same employer.
(d) "Aggregation Group" means either a Required Aggregation Group or a
Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required Aggregation
Group hereunder, each qualified plan of the Employer, including any
Simplified Employee Pension Plan, in which a Key Employee is a participant in
the Plan Year containing the Determination Date or any of the four preceding
Plan Years, and each other qualified plan of the Employer which enables any
qualified plan in which a Key Employee participates to meet the requirements
of Code Sections 401(a)(4) or 410, will be required to be aggregated. Such
group shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the group will be
considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy
Group. No plan in the Required Aggregation Group will be considered a Top
Heavy Plan if the Required Aggregation Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also include any other
plan of the Employer, including any Simplified Employee Pension Plan, not
required to be included in the Required Aggregation Group, provided the
resulting group, taken as a whole, would continue to satisfy the provisions
of Code Sections 401(a)(4) and 410. Such group shall be known as a Permissive
Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan that is part of
the Required Aggregation Group will be considered a Top Heavy Plan if the
Permissive Aggregation Group is a Top Heavy Group. No plan in the Permissive
Aggregation Group will be considered a Top Heavy Plan if the Permissive
Aggregation Group is not a Top Heavy Group.
(3) Only those plans of the Employer in which the Determination Dates
fall within the same calendar year shall be aggregated in order to determine
whether such plans are Top Heavy Plans.
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(4) When aggregating plans, the value of Aggregate Accounts and
Accrued Benefits will be calculated with reference to the Determination
Dates that fall within the same calendar year.
(5) An Aggregation Group shall include any terminated plan of the
Employer if it was maintained within the last five (5) years ending on
the Determination Date.
(e) "Determination Date" means (a) the last day of the preceding Plan
Year, or (b) in the case of the first Plan Year, the last day of such Plan
Year.
(f) Present Value of Accrued Benefit: In the case of a defined benefit
plan, the Present Value of Accrued Benefit for a Participant other than a
Key Employee shall be as determined using the single accrual method used for
all plans of the Employer and Affiliated Employers, or if no such single
method exists, using a method which results in benefits accruing not more
rapidly than the slowest accrual rate permitted under Code Section 41
1(b)(1)(C). The determination of the Present Value of Accrued Benefit shall
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.
However, any such determination must include present value of accrued
benefit attributable to any Plan distributions referred to in Section
2.2(c)(3) above, any Employee contributions referred to in Section 2.2(c)(4)
above or any related or unrelated rollovers referred to in Sections
2.2(c)(5) and 2.2(c)(6) above.
(g) "Top Heavy Group" means an Aggregation Group in which, as of the
Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees under all
defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all defined
contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined for all
Participants.
(h) The Administrator shall determine whether this Plan is a Top Heavy
Plan on the Anniversary Date specified in the Adoption Agreement. Such
determination of the top heavy ratio shall be in accordance with Code
Section 416 and the Regulations thereunder.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove the Trustee and
the Administrator from time to time as it deems necessary for the proper
administration of the Plan to assure that the Plan is being operated for the
exclusive benefit of the Participants and their Beneficiaries in accordance
with the terms of the Plan, the Code, and the Act.
(b) The Employer shall establish a "funding policy and method", i.e., it
shall determine whether the Plan has a short run need for liquidity (e.g.,
to pay benefits) or whether liquidity is a long run goal and investment
growth (and stability of same) is a more current need, or shall appoint a
qualified person to do so. The Employer or its delegate shall communicate
such needs and goals to the Trustee, who shall coordinate such Plan needs
with its investment policy. The communication of such a "funding policy and
method" shall not, however, constitute a directive to the Trustee as to
investment of the Trust Funds. Such "funding policy and method" shall be
consistent with the objectives of this Plan and with the requirements of
Title I of the Act.
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(c) The Employer may, in its discretion, appoint an Investment Manager to
manage all or a designated portion of the assets of the Plan. In such event,
the Trustee shall follow the directive of the Investment Manager in
investing the assets of the Plan managed by the Investment Manager.
(d) The Employer shall periodically review the performance of any
Fiduciary or other person to whom duties have been delegated or allocated by
it under the provisions of this Plan or pursuant to procedures established
hereunder. This requirement may be satisfied by formal periodic review by
the Employer or by a qualified person specifically designated by the
Employer, through day-to-day conduct and evaluation, or through other
appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any person,
including, but not limited to, the Employees of the Employer, shall be eligible
to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or be removed by
the Employer by delivery of written notice of removal, to take effect at a date
specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an Administrator, shall
promptly designate in writing a successor to this position. If the Employer does
not appoint an Administrator, the Employer will function as the Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the responsibilities
of each Administrator may be specified by the Employer and accepted in writing
by each Administrator. In the event that no such delegation is made by the
Employer, the Administrators may allocate the responsibilities among themselves,
in which event the Administrators shall notify the Employer and the Trustee in
writing of such action and specify the responsibilities of each Administrator.
The Trustee thereafter shall accept and rely upon any documents executed by the
appropriate Administrator until such time as the Employer or the Administrators
file with the Trustee a written revocation of such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer the Plan
for the exclusive benefit of the Participants and their Beneficiaries, subject
to the specific terms of the Plan. The Administrator shall administer the Plan
in accordance with its terms and shall have the power and discretion to construe
the terms of the Plan and determine all questions arising in connection with the
administration, interpretation, and application of the Plan. Any such
determination by the Administrator shall be conclusive and binding upon all
persons. The Administrator may establish procedures, correct any defect, supply
any information, or reconcile any inconsistency in such manner and to such
extent as shall be deemed necessary or advisable to carry out the purpose of the
Plan; provided, however, that any procedure, discretionary act, interpretation
or construction shall be done in a nondiscriminatory manner based upon uniform
principles consistently applied and shall be consistent with the intent that the
Plan shall continue to be deemed a qualified plan under the terms of Code
Section 401(a), and shall comply with the terms of the Act and all regulations
issued pursuant thereto. The Administrator shall have all powers necessary or
appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to the eligibility
of Employees to participate or remain a Participant hereunder and to receive
benefits under the Plan;
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(b) to compute, certify, and direct the Trustee with respect to the
amount and the kind of benefits to which any Participant shall be entitled
hereunder;
(c) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the Trust Fund;
(d) to maintain all necessary records for the administration of the Plan;
(e) to interpret the provisions of the Plan and to make and publish such
rules for regulation of the Plan as are consistent with the terms hereof;
(f) to determine the size and type of any Contract to be purchased from
any Insurer, and to designate the Insurer from which such Contract shall be
purchased;
(g) to compute and certify to the Employer and to the Trustee from time
to time the sums of money necessary or desirable to be contributed to the
Trust Fund;
(h) to consult with the Employer and the Trustee regarding the short and
long-term liquidity needs of the Plan in order that the Trustee can exercise
any investment discretion in a manner designed to accomplish specific
objectives;
(i) to prepare and distribute to Employees a procedure for notifying
Participants and Beneficiaries of their rights to elect Joint and Survivor
Annuities and Pre-Retirement Survivor Annuities if required by the Code and
Regulations thereunder;
(j) to prepare and implement a procedure to notify Eligible Employees
that they may elect to have a portion of their Compensation deferred or paid
to them in cash;
(k) to assist any Participant regarding his rights, benefits, or
elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall keep
all other books of account, records, and other data that may be necessary for
proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the Administrator,
may appoint counsel, specialists, advisers, and other persons as the
Administrator or the Trustee deems necessary or desirable in connection with the
administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer shall
supply full and timely information to the Administrator on all matters relating
to the Compensation of all Participants, their Hours of Service, their Years of
Service, their retirement, death, disability, or termination of employment, and
such other pertinent facts as the Administrator may require; and the
Administrator shall advise the Trustee of such of the foregoing facts as may be
pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
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2.10 PAYMENT OF EXPENSE
All expenses of administration may be paid out of the Trust Fund unless
paid by the Employer. Such expenses shall include any expenses incident to the
functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses shall constitute a liability of
the Trust Fund. However, the Employer may reimburse the Trust Fund for any
administration expense incurred. Any administration expense paid to the Trust
Fund as a reimbursement shall not be considered an Employer contribution.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of administrative
authority pursuant to Section 2.5, if there shall be more than one
Administrator, they shall act by a majority of their number, but may authorize
one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the
Administrator. Written notice of the disposition of a claim shall be furnished
to the claimant within 90 days after the application is filed. In the event the
claim is denied, the reasons for the denial shall be specifically set forth in
the notice in language calculated to be understood by the claimant, pertinent
provisions of the Plan shall be cited, and, where appropriate, an explanation as
to how the claimant can perfect the claim will be provided. In addition, the
claimant shall be furnished with an explanation of the Plan's claims review
procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been
denied a benefit by a decision of the Administrator pursuant to Section 2.12
shall be entitled to request the Administrator to give further consideration to
his claim by filing with the Administrator a written request for a hearing. Such
request, together with a written statement of the reasons why the claimant
believes his claim should be allowed, shall be filed with the Administrator no
later than 60 days after receipt of the written notification provided for in
Section 2.12. The Administrator shall then conduct a hearing within the next 60
days, at which the claimant may be represented by an attorney or any other
representative of his choosing and expense and at which the claimant shall have
an opportunity to submit written and oral evidence and arguments in support of
his claim. At the hearing (or prior thereto upon 5 business days written notice
to the Administrator) the claimant or his representative shall have an
opportunity to review all documents in the possession of the Administrator which
are pertinent to the claim at issue and its disallowance. Either the claimant or
the Administrator may cause a court reporter to attend the hearing and record
the proceedings. In such event, a complete written transcript of the proceedings
shall be furnished to both parties by the court reporter. The full expense of
any such court reporter and such transcripts shall be borne by the party causing
the court reporter to attend the hearing. A final decision as to the allowance
of the claim shall be made by the Administrator within 60 days of receipt of the
appeal (unless there has been an extension of 60 days due to special
circumstances, provided the delay and the special circumstances occasioning it
are communicated to the claimant within the 60 day period). Such communication
shall be written in a manner calculated to be understood by the claimant and
shall include specific reasons for the decision and specific references to the
pertinent Plan provisions on which the decision is based.
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ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee shall be eligible to participate hereunder on the
date he has satisfied the requirements specified in the Adoption Agreement.
3.2 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee who has become eligible to be a Participant shall
become a Participant effective as of the day specified in the Adoption
Agreement.
In the event an Employee who has satisfied the Plan's eligibility
requirements and would otherwise have become a Participant shall go from a
classification of a noneligible Employee to an Eligible Employee, such Employee
shall become a Participant as of the date he becomes an Eligible Employee.
In the event an employee who has satisfied the Plan's eligibility
requirements and would otherwise become a Participant shall go from a
classification of an Eligible Employee to a noneligible Employee and becomes
ineligible to participate and has not incurred a 1-Year Break in Service, such
Employee shall participate in the Plan as of the date he returns to an eligible
class of Employees. If such Employee does incur a 1-Year Break in Service,
eligibility will be determined under the Break in Service rules of the Plan.
3.3 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer. Such
determination shall be conclusive and binding upon all persons, as long as the
same is made pursuant to the Plan and the Act. Such determination shall be
subject to review per Section 2.13.
3.4 TERMINATION OF ELIGIBILITY
In the event a Participant shall go from a classification of an Eligible
Employee to an ineligible Employee, such Former Participant shall continue to
vest in his interest in the Plan for each Year of Service completed while a
noneligible employee, until such time as his Participant's Account shall be
forfeited or distributed pursuant to the terms of the Plan. Additionally, his
interest in the Plan shall continue to share in the earnings of the Trust Fund.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a Participant
in the Plan is erroneously omitted and discovery of such omission is not made
until after a contribution by his Employer for the year has been made, the
Employer shall make a subsequent contribution, if necessary after the
application of Section 4.4(e), so that the omitted Employee receives a total
amount which the said Employee would have received had he not been omitted. Such
contribution shall be made regardless of whether or not it is deductible in
whole or in part in any taxable year under applicable provisions of the Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made, the
Employer shall not be entitled to recover the contribution made with respect to
the ineligible person regardless of whether or not a deduction is allowable with
respect to such contribution. In such event, the amount contributed with respect
to the ineligible person shall constitute a Forfeiture for the Plan Year in
which the discovery is made.
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3.7 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect voluntarily
not to participate in the Plan. The election not to participate must be
communicated to the Employer, in writing, at least thirty (30) days before the
beginning of a Plan Year. For Standardized Plans, a Participant or an Eligible
Employee may not elect not to participate. Furthermore, the foregoing election
not to participate shall not be available with respect to partners in a
partnership.
3.8 CONTROL OF ENTITIES BY OWNER-EMPLOYEE
(a) 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 entities, 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 entities.
(b) 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.
(c) 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 benefits or contributions 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.
(d) For purposes of the preceding paragraphs, an Owner-Employee, or two
or more Owner-Employees, will be considered to control an entity if the
Owner-Employee, or two or more Owner-Employees together:
(1) own the entire interest in an unincorporated entity, or
(2) in the case of a partnership, own more than 50 percent of either
the capital interest or the profits interest in the partnership.
(e) 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.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of all
Participants made pursuant to Section 4.2(a), which amount shall be deemed
an Employer's Elective Contribution, plus
(b) If specified in E3 of the Adoption Agreement, a matching
contribution equal to the percentage specified in the Adoption Agreement of
the Deferred Compensation of each Participant eligible to share in the
allocations of the matching contribution, which amount shall be deemed an
Employer's Non-Elective or Elective Contribution as selected in the Adoption
Agreement, plus
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(c) If specified in E4 of the Adoption Agreement, a discretionary amount,
if any, which shall be deemed an Employer's Non-Elective Contribution, plus
(d) If specified in E5 of the Adoption Agreement, a Qualified Non-
Elective Contribution.
(e) Notwithstanding the foregoing, however, the Employer's contributions
for any Fiscal Year shall not exceed the maximum amount allowable as a
deduction to the Employer under the provisions of Code Section 404. All
contributions by the Employer shall be made in cash or in such property as
is acceptable to the Trustee.
(f) Except, however, to the extent necessary to provide the top heavy
minimum allocations, the Employer shall make a contribution even if it
exceeds current or accumulated Net Profit or the amount which is deductible
under Code Section 404.
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer his Compensation which would have
been received in the Plan Year, but for the deferral election, subject to
the limitations of this Section and the Adoption Agreement. A deferral
election (or modification of an earlier election) may not be made with
respect to Compensation which is currently available on or before the date
the Participant executed such election, or if later, the latest of the date
the Employer adopts this cash or deferred arrangement, or the date such
arrangement first became effective. Any elections made pursuant to this
Section shall become effective as soon as is administratively feasible.
Additionally, if elected in the Adoption Agreement, each Participant may
elect to defer and have allocated for a Plan Year all or a portion of any
cash bonus attributable to services performed by the Participant for the
Employer during such Plan Year and which would have been received by the
Participant on or before two and one-half months following the end of the
Plan Year but for the deferral. A deferral election may not be made with
respect to cash bonuses which are currently available on or before the date
the Participant executed such election. Notwithstanding the foregoing, cash
bonuses attributable to services performed by the Participant during a Plan
Year but which are to be paid to the Participant later than two and one-half
months after the close of such Plan Year will be subjected to whatever
deferral election is in effect at the time such cash bonus would have
otherwise been received.
The amount by which Compensation and/or cash bonuses are reduced shall be
that Participant's Deferred Compensation and be treated as an Employer
Elective Contribution and allocated to that Participant's Elective Account.
Once made, a Participant's election to reduce Compensation shall remain
in effect until modified or terminated. Modifications may be made as
specified in the Adoption Agreement, and terminations may be made at any
time. Any modification or termination of an election will become effective
as soon as is administratively feasible.
(b) The balance in each Participant's Elective Account shall be fully
Vested at all times and shall not be subject to Forfeiture for any reason.
(c) Amounts held in the Participant's Elective Account and Qualified Non-
Elective Account may be distributable as permitted under the Plan, but in no
event prior to the earlier of:
(1) a Participant's termination of employment, Total and Permanent
Disability, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the proven financial hardship of a Participant, subject to the
limitations of Section 6.11;
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(4) the termination of the Plan without the existence at the time of Plan
termination of another defined contribution plan (other than an employee
stock ownership plan as defined in Code Section 4975(e)(7)) or the
establishment of a successor defined contribution plan (other than an
employee stock ownership plan as defined in Code Section 4975(e)(7)) by the
Employer or an Affiliated Employer within the period ending twelve months
after distribution of all assets from the Plan maintained by the Employer;
(5) the date of the sale by the Employer to an entity that is not an
Affiliated Employer of substantially all of the assets (within the meaning of
Code Section 409(d)(2)) with respect to a Participant who continues
employment with the corporation acquiring such assets; or
(6) the date of the sale by the Employer or an Affiliated Employer of its
interest in a subsidiary (within the meaning of Code Section 409(d)(3)) to an
entity that is not an Affiliated Employer with respect to a Participant who
continues employment with such subsidiary.
(d) In any Plan Year beginning after December 31, 1987, a Participant's
Deferred Compensation made under this Plan and all other plans, contracts or
arrangements of the Employer maintaining this Plan shall not exceed the
limitation imposed by Code Section 402(g), as in effect for the calendar year in
which such Plan Year began. This dollar limitation shall be adjusted annually
pursuant to the method provided in Code Section 415(d) in accordance with
Regulations.
(e) In the event a Participant has received a hardship distribution pursuant
to Regulation 1.401(k)-1(d)(2)(iii)(B) from any other plan maintained by the
Employer or from his Participant's Elective Account pursuant to Section 6.11(c),
then such Participant shall not be permitted to elect to have Deferred
Compensation contributed to the Plan on his behalf for a period of twelve (12)
months following the receipt of the distribution. Furthermore, the dollar
limitation under Code Section 402(g) shall be reduced, with respect to the
Participant's taxable year following the taxable year in which the hardship
distribution was made, by the amount of such Participant's Deferred
Compensation, if any, made pursuant to this Plan (and any other plan maintained
by the Employer) for the taxable year of the hardship distribution.
(f) If a Participant's Deferred Compensation under this Plan together with
any elective deferrals (as defined in Regulation 1.402(g)-1(b)) under another
qualified cash or deferred arrangement (as defined in Code Section 401(k)), a
simplified employee pension (as defined in Code Section 408(k)), a salary
reduction arrangement (within the meaning of Code Section 3121(a)(5)(D)), a
deferred compensation plan under Code Section 457, or a trust described in Code
Section 501(c)(18) cumulatively exceed the limitation imposed by Code Section
402(g) (as adjusted annually in accordance with the method provided in Code
Section 415(d) pursuant to Regulations) for such Participant's taxable year, the
Participant may, not later than March 1st following the close of his taxable
year, notify the Administrator in writing of such excess and request that his
Deferred Compensation under this Plan be reduced by an amount specified by the
Participant. In such event, the Administrator shall direct the Trustee to
distribute such excess amount (and any Income allocable to such excess amount)
to the Participant not later than the first April 15th following the close of
the Participant's taxable year. Distributions in accordance with this paragraph
may be made for any taxable year of the Participant which begins after December
31, 1986. Any distribution of less than the entire amount of Excess Deferred
Compensation and Income shall be treated as a pro rata distribution of Excess
Deferred Compensation and Income. The amount distributed shall not exceed the
Participant's Deferred Compensation under the Plan for the taxable year. Any
distribution on or before the last day of the Participant's taxable year must
satisfy each of the following conditions:
(1) the Participant shall designate the distribution as Excess Deferred
Compensation;
(2) the distribution must be made after the date on which the Plan
received the Excess Deferred Compensation; and
(3) the Plan must designate the distribution as a distribution of Excess
Deferred Compensation.
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For the purpose of this Section, "Income" means the amount of income or
loss allocable to a Participant's Excess Deferred Compensation and shall be
equal to the sum of the allocable gain or loss for the taxable year of the
Participant and the allocable gain or loss for the period between the end of
the taxable year of the Participant and the date of distribution ("gap
period"). The income or loss allocable to each such period is calculated
separately and is determined by multiplying the income or loss allocable to
the Participant's Deferred Compensation for the respective period by a
fraction. The numerator of the fraction is the Participant's Excess Deferred
Compensation for the taxable year of the Participant. The denominator is the
balance, as of the last day of the respective period, of the Participant's
Elective Account that is attributable to the Participant's Deferred
Compensation reduced by the gain allocable to such total amount for the
respective period and increased by the loss allocable to such total amount
for the respective period.
In lieu of the "fractional method" described above, a "safe harbor
method" may be used to calculate the allocable income or loss for the "gap
period". Under such "safe harbor method", allocable income or loss for the
"gap period" shall be deemed to equal ten percent (10%) of the income or
loss allocable to a Participant's Excess Deferred Compensation for the
taxable year of the Participant multiplied by the number calendar months in
the "gap period". For purposes of determining the number of calendar months
in the "gap period", a distribution occurring on or before the fifteenth day
of the month shall be treated as having been made on the last day of the
preceding month and a distribution occurring after such fifteenth day shall
be treated as having been made on the first day of the next subsequent
month.
Income or loss allocable to any distribution of Excess Deferred
Compensation on or before the last day of the taxable year of the
Participant shall be calculated from the first day of the taxable year of
the Participant to the date on which the distribution is made pursuant to
either the "fractional method" or the "safe harbor method".
Notwithstanding the above, for the 1987 calendar year, Income during the
"gap period" shall not be taken into account.
(g) Notwithstanding Section 4.2(f) above, a Participant's Excess Deferred
Compensation shall be reduced, but not below zero, by any distribution
and/or recharacterization of Excess Contributions pursuant to Section 4.6(a)
for the Plan Year beginning with or within the taxable year of the
Participant.
(h) At Normal Retirement Date, or such other date when the Participant
shall be entitled to receive benefits, the fair market value of the
Participant's Elective Account shall be used to provide benefits to the
Participant or his Beneficiary.
(i) Employer Elective Contributions made pursuant to this Section may be
segregated into a separate account for each Participant in a federally
insured savings account, certificate of deposit in a bank or savings and
loan association, money market certificate, or other short-term debt
security acceptable to the Trustee until such time as the allocations
pursuant to Section 4.4 have been made.
(j) The Employer and the Administrator shall adopt a procedure necessary
to implement the salary reduction elections provided for herein.
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall generally pay to the Trustee its contribution to the
Plan for each Plan Year within the time prescribed by law, including extensions
of time, for the filing of the Employer's federal income tax return for the
Fiscal Year.
However, Employer Elective Contributions accumulated through payroll
deductions shall be paid to the Trustee as of the earliest date on which such
contributions can reasonably be segregated from the Employer's general assets,
but in any event within ninety (90) days from the date on which such amounts
would otherwise have been payable to the Participant in cash. The provisions of
Department of Labor regulations 2510.3-102 are incorporated
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herein by reference. Furthermore, any additional Employer contributions which
are allocable to the Participant's Elective Account for a Plan Year shall be
paid to the Plan no later than the twelve-month period immediately following the
close of such Plan Year.
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an account in the name
of each Participant to which the Administrator shall credit as of each
Anniversary Date, or other valuation date, all amounts allocated to each
such Participant as set forth herein.
(b) The Employer shall provide the Administrator with all information
required by the Administrator to make a proper allocation of the Employer's
contributions for each Plan Year. Within a reasonable period of time after
the date of receipt by the Administrator of such information, the
Administrator shall allocate such contribution as follows:
(1) With respect to the Employer's Elective Contribution made pursuant
to Section 4.1(a), to each Participant's Elective Account in an amount
equal to each such Participant's Deferred Compensation for the year.
(2) With respect to the Employer's Matching Contribution made pursuant
to Section 4.1(b), to each Participant's Account, or Participant's
Elective Account as selected in E3 of the Adoption Agreement, in
accordance with Section 4.1(b).
Except, however, a Participant who is not credited with a Year of Service
during any Plan Year shall or shall not share in the Employer's Matching
Contribution for that year as provided in E3 of the Adoption Agreement.
However, for Plan Years beginning after 1989, if this is a standardized
Plan, a Participant shall share in the Employer's Matching Contribution
regardless of Hours of Service.
(3) With respect to the Employer's Non-Elective Contribution made
pursuant to Section 4.1(c), to each Participant's Account in accordance
with the provisions of E4 of the Adoption Agreement.
However, if an integrated allocation formula is selected at E4 of the
Adoption Agreement, then such contribution shall be allocated to each
Participant's Combined Account in a dollar amount equal to 5.7% of the
sum of each Participant's total Compensation plus Excess Compensation. If
the Employer does not contribute such amount for all Participants, each
Participant will be allocated a share of the contribution in the same
proportion that his total Compensation plus his total Excess Compensation
for the Plan Years bears to the total Compensation plus the total Excess
Compensation of all Participants for that year. The balance of the
contribution, if any, will be allocated in the same proportion that his
total Compensation bears to the total Compensation of all Participant's
eligible to share in the allocation.
Regardless of the preceding, 4.3% shall be substituted for 5.7% above if
Excess Compensation is based on more than 20% and less than or equal to
80% of the Taxable Wage Base. If Excess Compensation is based on less
than 100% and more than 80% of the Taxable Wage Base, then 5.4% shall be
substituted for 5.7% above.
(4) With respect to the Employer's Qualified Non-Elective
Contribution made pursuant to Section 4.1(d), to each Participant's
Qualified Non-Elective Contribution Account in the same proportion that
each such Participant's Compensation for the year bears to the total
Compensation of all Participants for such year.
(5) Regardless of the preceding, a Participant who is not credited
with a Year of Service during a Plan Year shall not share in the
allocation of the Employer's Non-Elective Contribution made pursuant to
Section 4.1(c) and the Employer's Qualified Non-Elective Contribution
made pursuant to Section 4.1(d), unless reduced pursuant to Section
4.4(h). However, for Plan Years beginning after 1989, for a
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<PAGE>
standardized plan, and if elected in the non-standardized Adoption
Agreement, a Participant shall share in the allocation of such
contributions regardless of whether Year of Service was completed during
the Plan Year.
(c) As of each Anniversary Date or other valuation date, before
allocation of Employer contributions and Forfeitures, any earnings or losses
(net appreciation or net depreciation) of the Trust Fund shall be allocated in
the same proportion that each Participant's and Former Participant's
nonsegregated accounts bear to the total of all Participants' and Former
Participants' nonsegregated accounts as of such date. If any nonsegregated
account of a Participant has been distributed prior to the Anniversary Date or
other valuation date subsequent to a Participant's termination of employment, no
earnings or losses shall be credited to such account.
Notwithstanding the above, with respect to contributions made to a 401(k)
Plan after the previous Anniversary Date or allocation date, the method
specified in the Adoption Agreement shall be used.
(d) Participants' Accounts shall be debited for any insurance or annuity
premiums paid, if any, and credited with any dividends or interest received on
insurance contracts.
(e) As of each Anniversary Date any amounts which became Forfeitures since
the last Anniversary Date shall first be made available to reinstate previously
forfeited account balances of Former Participants, if any, in accordance with
Section 6.4(g)(2) or be used to satisfy any contribution that may be required
pursuant to Section 3.5 and/or 6.9. The remaining Forfeitures, if any, shall be
treated in accordance with the Adoption Agreement. Provided, however, that in
the event the allocation of Forfeitures provided herein shall cause the "annual
addition" (as defined in Section 4.9) to any Participant's Account to exceed the
amount allowable by the Code, the excess shall be reallocated in accordance with
Section 4.10. Except, however, for any Plan Year beginning prior to January 1,
1990, and if elected in the non-standardized Adoption Agreement for any Plan
Year beginning on or after January 1, 1990, a Participant who performs less than
a Year of Service during any Plan Year shall not share in the Plan Forfeitures
for that year, unless there is a Short Plan Year or a contribution required
pursuant to Section 4.4(h).
(f) Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding
the foregoing, for any Top Heavy Plan Year, the sum of the Employer's
contributions and Forfeitures allocated to the Participant's Combined Account of
each Non-Key Employee shall be equal to at least three percent (3%) of such Non-
Key Employee's "415 Compensation" (reduced by contributions and forfeitures, if
any, allocated to each Non-Key Employee in any defined contribution plan
included with this plan in a Required Aggregation Group). However, if (i) the
sum of the Employer's contributions and Forfeitures allocated to the
Participant's Combined Account of each Key Employee for such Top Heavy Plan Year
is less than three percent (3%) of each Key Employee's "415 Compensation" and
(ii) this Plan is not required to be included in an Aggregation Group to enable
a defined benefit plan to meet the requirements of Code Section 401(a)(4) or
410, the sum of the Employer's contributions and Forfeitures allocated to the
Participant's Combined Account of each Non-Key Employee shall be equal to the
largest percentage allocated to the Participant's Combined Account of any Key
Employee. However, for Plan Years beginning after December 31, 1988, in
determining whether a Non-Key Employee has received the required minimum
allocation, such Non-Key Employee's Deferred Compensation and matching
contributions used to satisfy the "Actual Deferral Percentage" test pursuant to
Section 4.5(a) or the "Actual Contribution Percentage" test of Section 4.7(a)
shall not be taken into account.
If this is an integrated Plan, then for any Top Heavy Plan Year the
Employer's contribution shall be allocated as follows:
(1) An amount equal to 3% multiplied by each Participant's Compensation
for the Plan Year shall be allocated to each Participant's Account. If the
Employer does not contribute such amount for all Participants, the amount
shall be allocated to each Participant's Account in the same proportion that
his total Compensation for the Plan Year bears to the total Compensation of
all Participants for such year.
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(2) The balance of the Employer's contribution over the amount allocated
under subparagraph (1) hereof shall be allocated to each Participant's
Account in a dollar amount equal to 3% multiplied by a Participant's Excess
Compensation. If the Employer does not contribute such amount for all
Participants, each Participant will be allocated a share of the contribution
in the same proportion that his Excess Compensation bears to the total Excess
Compensation of all Participants for that year.
(3) The balance of the Employer's contribution over the amount allocated
under subparagraph (2) hereof shall be allocated to each Participant's
Account in a dollar amount equal to 2.7% multiplied by the sum of each
Participant's total Compensation plus Excess Compensation. If the Employer
does not contribute such amount for all Participants, each Participant will
be allocated a share of the contribution in the same proportion that his
total Compensation plus his total Excess Compensation for the Plan Year bears
to the total Compensation plus the total Excess Compensation of all
Participants for that year.
Regardless of the preceding, 1.3% shall be substituted for 2.7% above if
Excess Compensation is based on more than 20% and less than or equal to 80%
of the Taxable Wage Base. If Excess Compensation is based on less than 100%
and more than 80% of the Taxable Wage Base, then 2.4% shall be substituted
for 2.7% above.
(4) The balance of the Employer's contributions over the amount allocated
above, if any, shall be allocated to each Participant's Account in the same
proportion that his total Compensation for the Plan Year bears to the total
Compensation of all Participants for such year.
For each Non-Key Employee who is a Participant in this Plan and another non-
paired defined contribution plan maintained by the Employer, the minimum 3%
allocation specified above shall be provided as specified in F3 of the Adoption
Agreement.
(g) For purposes of the minimum allocations set forth above, the percentage
allocated to the Participant's Combined Account of any Key Employee shall be
equal to the ratio of the sum of the Employer's contributions and Forfeitures
allocated on behalf of such Key Employee divided by the "415 Compensation" for
such Key Employee.
(h) For any Top Heavy Plan Year, the minimum allocations set forth above
shall be allocated to the Participant's Combined Account of all Non-Key
Employees who are Participants and who are employed by the Employer on the last
day of the Plan Year, including Non-Key Employees who have (1) failed to
complete a Year of Service; or (2) declined to make mandatory contributions (if
required) or salary reduction contributions to the Plan.
(i) Notwithstanding anything herein to the contrary, in any Plan Year in
which the Employer maintains both this Plan and a defined benefit pension plan
included in a Required Aggregation Group which is top heavy, the Employer shall
not be required to provide a Non-Key Employee with both the full separate
minimum defined benefit plan benefit and the full separate defined contribution
plan allocations. Therefore, if the Employer maintains both a Defined Benefit
and a Defined Contribution Plan that are a Top Heavy Group, the top heavy
minimum benefits shall be provided as follows:
Applies if F1b of the Adoption Agreement is selected -
(1) The requirements of Section 2.1 shall apply except that each Non-Key
Employee who is a Participant in this Plan or a Money Purchase Plan and who
is also a Participant in the Defined Benefit Plan shall receive a minimum
allocation of five percent (5%) of such Participant's "415 Compensation" from
the applicable Defined Contribution Plan(s).
(2) For each Non-Key Employee who is a Participant only in the Defined
Benefit Plan, the Employer will provide a minimum non-integrated benefit in
the Defined Benefit Plan equal to 2% of
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<PAGE>
his highest five consecutive year average "415 Compensation" for each Year of
Service while a Participant in the Plan, in which the Plan is top heavy, not
to exceed ten.
(3) For each Non-Key Employee who is a Participant only in this Defined
Contribution Plan, the Employer will provide a contribution equal to 3% of
his "415 Compensation".
Applies if F1c of the Adoption Agreement is selected -
(4) The minimum allocation specified in Section 4.4(i)(1) shall be 7 1/2%
for years in which the Plan is Top Heavy, but not Super Top Heavy.
(5) The minimum benefit specified in Section 4.4(i)(2) shall be 3% for
years in which the Plan is Top Heavy, but not Super Top Heavy.
(6) The minimum allocation specified in Section 4.4(i)(3) shall be 4% for
years in which the Plan is Top Heavy, but not Super Top Heavy.
(j) For the purposes of this Section, "415 Compensation" shall be limited to
$200,000 (unless adjusted in such manner as permitted under Code Section
415(d)). However, for Plan Years beginning prior to January 1, 1989, the
$200,000 limit shall apply only for Top Heavy Plan Years and shall not be
adjusted.
(k) Notwithstanding anything herein to the contrary, participants who
terminated employment during the Plan Year shall share in the salary reduction
contributions made by the Employer for the year of termination without regard to
the Hours of Service credited.
(1) Notwithstanding anything herein to the contrary (other than Sections
4.4(k) and 6.6(h)(1)), any Participant who terminated employment during the Plan
Year for reasons other than death, Total and Permanent Disability, or retirement
shall or shall not share in the allocations of the Employer's Matching
Contribution made pursuant to Section 4.1(b), the Employer's Non-Elective
Contributions made pursuant to Section 4.1(c), the Employer's Qualified Non-
Elective Contribution made pursuant to Section 4.1(d), and Forfeitures as
provided in the Adoption Agreement. Notwithstanding the foregoing, for Plan
Years beginning after 1989, if this is a standardized Plan, any such terminated
Participant shall share in such allocations provided the terminated Participant
completed more than 500 Hours of Service.
(m) Notwithstanding anything herein to the contrary, Participants terminating
for reasons of death, Total and Permanent Disability, or retirement shall share
in the allocation of the Employer's Matching Contribution made pursuant to
Section 4.1(b), the Employer's Non-Elective Contributions made pursuant to
Section 4.1(c), the Employer's Qualified Non-Elective Contribution made pursuant
to Section 4.1(d), and Forfeitures as provided in this Section regardless of
whether they completed a Year of Service during the Plan Year.
(n) If a Former Participant is reemployed after five (5) consecutive 1-Year
Breaks in Service, then separate accounts shall be maintained as follows:
(1) one account for nonforfeitable benefits attributable to pre-break
service; and
(2) one account representing his status in the Plan attributable to post-
break service.
(o) Notwithstanding any election in the Adoption Agreement to the contrary,
if this is a non-standardized Plan that would otherwise fail to meet the
requirements of Code Sections 401(a)(26), 410(b)(1), or 4l0(b)(2)(A)(i) and
the Regulations thereunder because Employer matching Contributions made pursuant
to Section 4.1(b), Employer Non-Elective Contributions made pursuant to Section
4.1(c) or Employer Qualified Non-Elective Contributions made pursuant to Section
4.1(d) have not been allocated to a sufficient number or percentage of
Participants for a Plan Year, then the following rules shall apply:
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(1) Allocations of the respective contribution and Forfeitures shall
first be made to all active Participants who are employed on the last day
of the Plan Year, regardless of the number of Hours of Service completed;
and
(2) If after application of paragraph (1) above, the applicable test
is still not satisfied, then the group of Participants eligible to share
in the Employer's contribution and Forfeitures for the Plan Year shall be
further expanded to include the minimum number of Participants who are
not actively employed on the last day of the Plan Year as are necessary
to satisfy the applicable test. The specific Participants who shall
become eligible to share shall be those Participants, when compared to
similarly situated Participants, who have completed the greatest number
of Hours of Service in the Plan Year before terminating employment.
Nothing in this Section shall permit the reduction of a Participant's
accrued benefit. Therefore any amounts that have previously been allocated
to Participants may not be reallocated to satisfy these requirements. In
such event, the Employer shall make an additional contribution equal to the
amount such affected Participants would have received had they been included
in the allocations, even if it exceeds the amount which would be deductible
under Code Section 404. Any adjustment to the allocations pursuant to this
paragraph shall be considered a retroactive amendment adopted by the last
day of the Plan Year.
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year beginning after
December 31, 1986, the annual allocation derived from Employer Elective
Contributions and Qualified Non-Elective Contributions to a Participant's
Elective Account and Qualified Non-Elective Account shall satisfy one of the
following tests:
(1) The "Actual Deferral Percentage" for the Highly Compensated
Participant group shall not be more than the "Actual Deferral Percentage"
of the Non-Highly Compensated Participant group multiplied by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for the Highly
Compensated Participant group over the "Actual Deferral Percentage" for
the Non-Highly Compensated Participant group shall not be more than two
percentage points. Additionally, the "Actual Deferral Percentage" for the
Highly Compensated Participant group shall not exceed the "Actual
Deferral Percentage" for the Non-Highly Compensated Participant group
multiplied by 2. The provisions of Code Section 401(k)(3) and Regulation
1.401(k)-1(b) are incorporated herein by reference.
However, for Plan Years beginning after December 31, 1988, to prevent
the multiple use of the alternative method described in (2) above and
Code Section 401(m)(9)(A), any Highly Compensated Participant eligible to
make elective deferrals pursuant to Section 4.2 and to make Employee
contributions or to receive matching contributions under this Plan or
under any other plan maintained by the Employer or an Affiliated Employer
shall have his actual contribution ratio reduced pursuant to Regulation
l.4O1(m)-2, the provisions of which are incorporated herein by reference.
(b) For the purposes of this Section "Actual Deferral Percentage" means,
with respect to the Highly Compensated Participant group and Non-Highly
Compensated Participant group for a Plan Year, the average of the ratios,
calculated separately for each Participant in such group, of the amount of
Employer Elective Contributions and Qualified Non-Elective Contributions
allocated to each Participant's Elective Account and Qualified Non-Elective
Account for such Plan Year, to such Participant's "414(s) Compensation" for
such Plan Year. The actual deferral ratio for each Participant and the
"Actual Deferral Percentage" for each group, for Plan Years beginning after
December 31, 1988, shall be calculated to the nearest one-hundredth of one
percent of the Participant's "414(s) Compensation". Employer Elective
Contributions allocated to each Non-Highly Compensated Participant's
Elective Account shall be reduced by Excess Deferred Compensation to the
extent such excess amounts are made under this Plan or any other plan
maintained by the Employer.
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(c) For the purpose of determining the actual deferral ratio of a Highly
Compensated Participant who is subject to the Family Member aggregation
rules of Code Section 414(q)(6) because such Participant is either a "five
percent owner" of the Employer or one of the ten (10) Highly Compensated
Employees paid the greatest "415 Compensation" during the year, the
following shall apply:
(1) The combined actual deferral ratio for the family group (which
shall be treated as one Highly Compensated Participant) shall be the
greater of: (i) the ratio determined by aggregating Employer Elective
Contributions and "414(s) Compensation" of all eligible Family Members
who are Highly Compensated Participants without regard to family
aggregation; and (ii) the ratio determined by aggregating Employer
Elective Contributions and "414(s) Compensation" of all eligible Family
Members (including Highly Compensated Participants). However, in applying
the $200,000 limit to "414(s) Compensation" for Plan Years beginning
after December 31, 1988, Family Members shall include only the affected
Employee's spouse and any lineal descendants who have not attained age 19
before the close of the Plan Year.
(2) The Employer Elective Contributions and "414(s) Compensation" of
all Family Members shall be disregarded for purposes of determining the
"Actual Deferral Percentage" of the Non-Highly Compensated Participant
group except to the extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of more
than one family group in a plan, all Participants who are members of
those family groups that include the Participant are aggregated as one
family group in accordance with paragraphs (1) and (2) above.
(d) For the purposes of Sections 4.5(a) and 4.6, a Highly Compensated
Participant and a Non-Highly Compensated Participant shall include any
Employee eligible to make a deferral election pursuant to Section 4.2,
whether or not such deferral election was made or suspended pursuant to
Section 4.2.
(e) For the purposes of this Section and Code Sections 401(a)(4), 410(b)
and 401(k), if two or more plans which include cash or deferred arrangements
are considered one plan for the purposes of Code Section 401(a)(4) or
410(b) (other than Code Section 401(b)(2)(A)(ii) as in effect for Plan
Years beginning after December 31, 1988), the cash or deferred arrangements
included in such plans shall be treated as one arrangement. In addition, two
or more cash or deferred arrangements may be considered as a single
arrangement for purposes of determining whether or not such arrangements
satisfy Code Sections 401(a)(4), 410(b) and 401(k). In such a case, the
cash or deferred arrangements included in such plans and the plans including
such arrangements shall be treated as one arrangement and as one plan for
purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k).
For plan years beginning after December 31, 1989, plans may be aggregated
under this paragraph (e) only if they have the same plan year.
Notwithstanding the above, for Plan Years beginning after December 31,
1988, an employee stock ownership plan described in Code Section 4975(e)(7)
may not be combined with this Plan for purposes of determining whether the
employee stock ownership plan or this Plan satisfies this Section and Code
Sections 401(a)(4), 410(b) and 401(k).
(f) For the purposes of this Section, if a Highly Compensated Participant
is a Participant under two (2) or more cash or deferred arrangements (other
than a cash or deferred arrangement which is part of an employee stock
ownership plan as defined in Code Section 4975(e)(7) for Plan Years
beginning after December 31, 1988) of the Employer or an Affiliated
Employer, all such cash or deferred arrangements shall be treated as one
cash or deferred arrangement for the purpose of determining the actual
deferral ratio with respect to such Highly Compensated Participant. However,
for Plan Years beginning after December 31, 1988, if the cash or deferred
arrangements have different Plan Years, this paragraph shall be applied by
treating all cash or deferred arrangements ending with or within the same
calendar year as a single arrangement.
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
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In the event that the initial allocations of the Employer's Elective
Contributions and Qualified Non-Elective Contributions made pursuant to Section
4.4 do not satisfy one of the tests set forth in Section 4.5, for Plan Years
beginning after December 31, 1986, the Administrator shall adjust Excess
Contributions pursuant to the options set forth below:
(a) On or before the fifteenth day of the third month following the end
of each Plan Year, the Highly Compensated Participant having the highest
actual deferral ratio shall have his portion of Excess Contributions
distributed to him and/or at his election recharacterized as a voluntary
Employee contribution pursuant to Section 4.12 until one of the tests set
forth in Section 4.5 is satisfied, or until his actual deferral ratio equals
the actual deferral ratio of the Highly Compensated Participant having the
second highest actual deferral ratio. This process shall continue until one
of the tests set forth in Section 4.5 is satisfied. For each Highly
Compensated Participant, the amount of Excess Contributions is equal to the
Elective Contributions and Qualified Non-Elective Contributions made on
behalf of such Highly Compensated Participant (determined prior to the
application of this paragraph) minus the amount determined by multiplying
the Highly Compensated Participant's actual deferral ratio (determined after
application of this paragraph) by his "414(s) Compensation". However, in
determining the amount of Excess Contributions to be distributed and/or
recharacterized with respect to an affected Highly Compensated Participant
as determined herein, such amount shall be reduced by any Excess Deferred
Compensation previously distributed to such affected Highly Compensated
Participant for his taxable year ending with or within such Plan Year. Any
distribution and/or recharacterization of Excess Contributions shall be made
in accordance with the following:
(1) With respect to the distribution of Excess Contributions pursuant
to (a) above, such distribution:
(i) may be postponed but not later than the close of the Plan
Year following the Plan Year to which they are allocable;
(ii) shall be made first from unmatched Deferred Compensation and,
thereafter, simultaneously from Deferred Compensation which is matched
and matching contributions which relate to such Deferred Compensation.
However, any such matching contributions which are not Vested shall be
forfeited in lieu of being distributed;
(iii) shall be made from Qualified Non-Elective Contributions
only to the extent that Excess Contributions exceed the balance in the
Participant's Elective Account attributable to Deferred Compensation
and Employer matching contributions.
(iv) shall be adjusted for Income; and
(v) shall be designated by the Employer as a distribution of
Excess Contributions (and Income).
(2) With respect to the recharacterization of Excess Contributions
pursuant to (a) above, such recharacterized amounts:
(i) shall be deemed to have occurred on the date on which the
last of those Highly Compensated Participants with Excess
Contributions to be recharacterized is notified of the
recharacterization and the tax consequences of such
recharacterization;
(ii) for Plan Years ending on or before August 8, 1988, may be
postponed but not later than October 24, 1988;
(iii) shall not exceed the amount of Deferred Compensation on
behalf of any Highly Compensated Participant for any Plan Year;
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(iv) shall be treated as voluntary Employee contributions for
purposes of Code Section 40 1(a)(4) and Regulation 1.401(k)-1(b).
However, for purposes of Sections 2.2 and 4.4(f), recharacterized Excess
Contributions continue to be treated as Employer contributions that are
Deferred Compensation. For Plan Years beginning after December 31, 1988,
Excess Contributions recharacterized as voluntary Employee contributions
shall continue to be nonforfeitable and subject to the same distribution
rules provided for in Section 4.9(f);
(v) which relate to Plan Years ending on or before October 24, 1988,
may be treated as either Employer contributions or voluntary Employee
contributions and therefore shall not be subject to the restrictions of
Section 4.2(c);
(vi) are not permitted if the amount recharacterized plus voluntary
Employee contributions actually made by such Highly Compensated
Participant, exceed the maximum amount of voluntary Employee
contributions (determined prior to application of Section 4.7(a)) that
such Highly Compensated Participant is permitted to make under the Plan
in the absence of recharacterization;
(vii) shall be adjusted for Income.
(3) Any distribution and/or recharacterization of less than the entire
amount of Excess Contributions shall be treated as a pro rata distribution
and/or recharacterization of Excess Contributions and Income.
(4) The determination and correction of Excess Contributions of a Highly
Compensated Participant whose actual deferral ratio is determined under the
family aggregation rules shall be accomplished as follows:
(i) If the actual deferral ratio for the Highly Compensated
Participant is determined in accordance with Section 4.5(c)(1)(ii), then
the actual deferral ratio shall be reduced as required herein and the
Excess Contributions for the family unit shall be allocated among the
Family Members in proportion to the Elective Contributions of each Family
Member that were combined to determine the group actual deferral ratio.
(ii) If the actual deferral ratio for the Highly Compensated
Participant is determined under Section 4.5(c)(1)(i), then the actual
deferral ratio shall first be reduced as required herein, but not below
the actual deferral ratio of the group of Family Members who are not
Highly Compensated Participants without regard to family aggregation. The
Excess Contributions resulting from this initial reduction shall be
allocated (in proportion to Elective Contributions) among the Highly
Compensated Participants whose Elective Contributions were combined to
determine the actual deferral ratio. If further reduction is still
required, then Excess Contributions resulting from this further reduction
shall be determined by taking into account the contributions of all
Family Members and shall be allocated among them in proportion to their
respective Elective Contributions.
(b) Within twelve (12) months after the end of the Plan Year, the Employer
shall make a special Qualified Non-Elective Contribution on behalf of Non-Highly
Compensated Participants in an amount sufficient to satisfy one of the tests set
forth in Section 4.5(a). Such contribution shall be allocated to the
Participant's Qualified Non-Elective Account of each Non-Highly Compensated
Participant in the same proportion that each Non-Highly Compensated
Participant's Compensation for the year bears to the total Compensation of all
Non-Highly Compensated Participants.
(c) For purposes of this Section, "Income" means the income or loss
allocable to Excess Contributions which shall equal the sum of the allocable
gain or loss for the Plan Year and the allocable gain or loss for the period
between the end of the Plan Year and the date of distribution ("gap period").
The income or loss allocable to Excess Contributions for the Plan Year and the
"gap period" is calculated separately and is determined by multiplying the
income or loss for the Plan Year or the "gap period" by a fraction. The
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numerator of the fraction is the Excess Contributions for the Plan Year. The
denominator of the fraction is the total of the Participant's Elective
Account attributable to Elective Contributions and the Participant's
Qualified Non-Elective Account as of the end of the Plan Year or the "gap
period", reduced by the gain allocable to such total amount for the Plan
Year or the "gap period" and increased by the loss allocable to such total
amount for the Plan Year or the "gap period".
In lieu of the "fractional method" described above, a "safe harbor method"
may be used to calculate the allocable Income for the "gap period". Under
such "safe harbor method", allocable Income for the "gap period" shall be
deemed to equal ten percent (10%) of the Income allocable to Excess
Contributions for the Plan Year of the Participant multiplied by the number
of calendar months in the "gap period". For purposes of determining the
number of calendar months in the "gap period", a distribution occurring on
or before the fifteenth day of the month shall be treated as having been
made on the last day of the preceding month and a distribution occurring
after such fifteenth day shall be treated as having been made on the first
day of the next subsequent month.
Notwithstanding the above, for Plan Years which began in 1987, Income
during the "gap period" shall not be taken into account.
(d) Any amounts not distributed or recharacterized within 2 1/2 months
after the end of the Plan Year shall be subject to the 10% Employer excise
tax imposed by Code Section 4979.
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage", for Plan Years beginning after
the later of the Effective Date of this Plan or December 31, 1986, for the
Highly Compensated Participant group shall not exceed the greater of:
(1) 125 percent of such percentage for the Non-Highly Compensated
Participant group; or
(2) the lesser of 200 percent of such percentage for the Non-Highly
Compensated Participant Group, or such percentage for the Non-Highly
Compensated Participant group plus 2 percentage points. However, for Plan
Years beginning after December 31, 1988, to prevent the multiple use of
the alternative method described in this paragraph and Code Section
401(m)(9)(A), any Highly Compensated Participant eligible to make
elective deferrals pursuant to Section 4.2 or any other cash or deferred
arrangement maintained by the Employer or an Affiliated Employer and to
make Employee contributions or to receive matching contributions under
any plan maintained by the Employer or an Affiliated Employer shall have
his actual contribution ratio reduced pursuant to Regulation 1.401(m)-
2. The provisions of Code Section 401(m) and Regulations 1.401(m)-1(b)
and 1.401(m)-2 are incorporated herein by reference.
(b) For the purposes of this Section and Section 4.8, "Actual
Contribution Percentage" for a Plan Year means, with respect to the Highly
Compensated Participant group and Non-Highly Compensated Participant group,
the average of the ratios (calculated separately for each Participant in
each group) of:
(1) the sum of Employer matching contributions pursuant to Section
4.1(b) (to the extent such matching contributions are not used to satisfy
the tests set forth in Section 4.5), voluntary Employee contributions
made pursuant to Section 4.12 and Excess Contributions recharacterized as
voluntary Employee contributions pursuant to Section 4.6(a) contributed
under the Plan on behalf of each such Participant for such Plan Year; to
(2) the Participant's "414(s) Compensation" for such Plan Year.
(c) For purposes of determining the "Actual Contribution Percentage" and
the amount of Excess Aggregate Contributions pursuant to Section 4.8(e),
only Employer matching contributions contributed to the
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Plan prior to the end of the succeeding Plan Year shall be considered. In
addition, the Administrator may elect to take into account, with respect to
Employees eligible to have Employer matching contributions made pursuant to
Section 4.1(b) or voluntary Employee contributions made pursuant to Section 4.12
allocated to their accounts, elective deferrals (as defined in Regulation
1.402(g)-1(b)) and qualified non-elective contributions (as defined in Code
Section 401(m)(4)(C)) contributed to any plan maintained by the employer. Such
elective deferrals and qualified non-elective contributions shall be treated as
Employer matching contributions subject to Regulation 1.401(m)-I(b)(2) which is
incorporated herein by reference. However, for Plan Years beginning after
December 31, 1988, the Plan Year must be the same as the plan year of the plan
to which the elective deferrals and the qualified non-elective contributions are
made.
(d) For the purpose of determining the actual contribution ratio of a Highly
Compensated Employee who is subject to the Family Member aggregation rules of
Code Section 414(q)(6) because such Employee is either a "five percent owner" of
the Employer or one of the ten (10) Highly Compensated Employees paid the
greatest "415 Compensation" during the year, the following shall apply:
(1) The combined actual contribution ratio for the family group (which
shall be treated as one Highly Compensated Participant) shall be the greater
of: (i) the ratio determined by aggregating Employer matching contributions
made pursuant to Section 4.1(b) (to the extent such matching contributions
are not used to satisfy the tests set forth in Section 4.5), voluntary
Employee contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to Section
4.6(a) and "414(s) Compensation" of all eligible Family Members who are
Highly Compensated Participants without regard to family aggregation; and
(ii) the ratio determined by aggregating Employer matching contributions made
pursuant to Section 4.1(b) (to the extent such matching contributions are not
used to satisfy the tests set forth in Section 4.5), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to Section
4.6(a) and "414(s) Compensation" of all eligible Family Members (including
Highly Compensated Participants). However, in applying the $200,000 limit to
"414(s) Compensation" for Plan Years beginning after December 31, 1988,
Family Members shall include only the affected Employee's spouse and any
lineal descendants who have not attained age 19 before the close of the Plan
Year.
(2) The Employer matching contributions made pursuant to Section 4.1(b)
(to the extent such matching contributions are not used to satisfy the tests
set forth in Section 4.5), voluntary Employee contributions made pursuant to
Section 4.12, Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a) and "414(s) Compensation" of all
Family Members shall be disregarded for purposes of determining the "Actual
Contribution Percentage" of the Non-Highly Compensated Participant group
except to the extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of more
than one family group in a plan, all Participants who are members of those
family groups that include the Participant are aggregated as one family group
in accordance with paragraphs (1) and (2) above.
(e) For purposes of this Section and Code Sections 401(a)(4), 410(b) and
401(m), if two or more plans of the Employer to which matching contributions,
Employee contributions, or both, are made are treated as one plan for purchases
of Code Sections 401(a)(4) or 410(b) (other than the average benefits test
under Code Section 410(b)(2)(A)(ii) as in effect for Plan Years beginning after
December 31, 1988), such plans shall be treated as one plan. In addition, two or
more plans of the Employer to which matching contributions, Employee
contributions, or both, are made may be considered as a single plan for purposes
of determining whether or not such plans satisfy Code Sections 401(a)(4), 410(b)
and 401(m). In such a case, the aggregated plans must satisfy this Section and
Code Sections 401(a)(4), 410(b) and 401(m) as though such aggregated plans were
a single plan. For plan years beginning after December 31, 1989, plans may be
aggregated under this paragraph only if they have the same plan year.
Notwithstanding the above, for Plan Years beginning after December 31, 1988,
an employee stock ownership plan described in Code Section 4975(e)(7) may not be
aggregated with this Plan for purposes of
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determining whether the employee stock ownership plan or this Plan satisfies
this Section and Code Sections 401(a)(4), 410(b) and 401(m).
(f) If a Highly Compensated Participant is a Participant under two or
more plans (other than an employee stock ownership plan as defined in Code
Section 4975(e)(7) for Plan Years beginning after December 31, 1988) which
are maintained by the Employer or an Affiliated Employer to which matching
contributions, Employee contributions, or both, are made, all such
contributions on behalf of such Highly Compensated Participant shall be
aggregated for purposes of determining such Highly Compensated Participant's
actual contribution ratio. However, for Plan Years beginning after December
31, 1988, if the plans have different plan years, this paragraph shall be
applied by treating all plans ending with or within the same calendar year
as a single plan.
(g) For purposes of Section 4.7(a) and 4.8, a Highly Compensated
Participant and a Non-Highly Compensated Participant shall include any
Employee eligible to have matching contributions made pursuant to Section
4.1(b) (whether or not a deferred election was made or suspended pursuant to
Section 4.2(e)) allocated to his account for the Plan Year or to make salary
deferrals pursuant to Section 4.2 (if the Employer uses salary deferrals to
satisfy the provisions of this Section) or voluntary Employee contributions
pursuant to Section 4.12 (whether not voluntary Employee contributions are
made) allocated to his account for the Plan Year.
(h) For purposes of this Section, "Matching Contribution" shall mean an
Employee contribution made to the Plan, or to a contract described in Code
Section 403(b), on behalf of a Participant on account of an Employee
contribution made by such Participant, or on account of a participant's
deferred compensation, under a plan maintained by the Employer.
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that for Plan Years beginning after December 31, 1986,
the "Actual Contribution Percentage" for the Highly Compensated Participant
group exceeds the "Actual Contribution Percentage" for the Non-Highly
Compensated Participant group pursuant to Section 4.7(a), the Administrator
(on or before the fifteenth day of the third month following the end of the
Plan Year, but in no event later than the close of the following Plan Year)
shall direct the Trustee to distribute to the Highly Compensated Participant
having the highest actual contribution ratio, his portion of Excess
Aggregate Contributions (and Income allocable to such contributions) or, if
forfeitable, forfeit such non-Vested Excess Aggregate Contributions
attributable to Employer matching contributions (and Income allocable to
such Forfeitures) until either one of the tests set forth in Section 4.7(a)
is satisfied, or until his actual contribution ratio equals the actual
contribution ratio of the Highly Compensated Participant having the second
highest actual contribution ratio. This process shall continue until one of
the tests set forth in Section 4.7(a) is satisfied. The distribution and/or
Forfeiture of Excess Aggregate Contributions shall be made in the following
order:
(1) Employer matching contributions distributed and/or forfeited
pursuant to Section 4.6(a)(1);
(2) Voluntary Employee contributions including Excess Contributions
recharacterized as voluntary Employee contributions pursuant to Section
4.6(a)(2);
(3) Remaining Employer matching contributions.
(b) Any distribution or Forfeiture of less than the entire amount of
Excess Aggregate Contributions (and Income) shall be treated as a pro rata
distribution of Excess Aggregate Contributions and Income. Distribution of
Excess Aggregate Contributions shall be designated by the Employer as a
distribution of Excess Aggregate Contributions (and Income). Forfeitures of
Excess Aggregate Contributions shall be treated in accordance with Section
4.4 However, no such Forfeiture may be allocated to a Highly Compensated
Participant whose contributions are reduced pursuant to this Section.
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(c) Excess Aggregate Contributions attributable to amounts other than
voluntary Employee contributions, including forfeited matching contributions,
shall be treated as Employer contributions for purposes of Code Sections 404 and
415 even if distributed from the Plan.
(d) For the purposes of this Section and Section 4.7, "Excess Aggregate
Contributions" means, with respect to any Plan Year, the excess of:
(1) the aggregate amount of Employer matching contributions made pursuant
to Section 4.1(b) (to the extent such contributions are taken into account
pursuant to Section 4.7(b)), voluntary Employee contributions made pursuant
to Section 4.12, Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a) and any Qualified Non-Elective
Contributions or elective deferrals taken into account pursuant to Section
4.7(c) actually made on behalf of the Highly Compensated Participant group
for such Plan Year, over
(2) the maximum amount of such contributions permitted under the
limitations of Section 4.7(a).
(e) For each Highly Compensated Participant, the amount of Excess Aggregate
Contributions is equal to the total Employer matching contributions made
pursuant to Section 4.1(b) (to the extent taken into account pursuant to Section
4.7(b)), voluntary Employee contributions made pursuant to Section 4.12, Excess
Contributions recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and any Qualified Non-Elective Contributions or elective
deferrals taken into account pursuant to Section 4.7(c) on behalf of the Highly
Compensated Participant (determined prior to the application of this paragraph)
minus the amount determined by multiplying the Highly Compensated Participant's
actual contribution ratio (determined after application of this paragraph) by
his "414(s) Compensation". The actual contribution ratio must be rounded to the
nearest one-hundredth of one percent for Plan Years beginning after December 31,
1988. In no case shall the amount of Excess Aggregate Contribution with respect
to any Highly Compensated Participant exceed the amount of Employer matching
contributions made pursuant to Section 4.1(b) (to the extent taken into account
pursuant to Section 4.7(b)), voluntary Employee contributions made pursuant to
Section 4.12, Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a) and any Qualified Non-Elective
Contributions or elective deferrals taken into account pursuant to Section
4.7(c) on behalf of such Highly Compensated Participant for such Plan Year.
(f) The determination of the amount of Excess Aggregate Contributions with
respect to any Plan Year shall be made after first determining the Excess
Contributions, if any, to be treated as voluntary Employee contributions due to
recharacterization for the plan year of any other qualified cash or deferred
arrangement (as defined in Code Section 401(k)) maintained by the Employer that
ends with or within the Plan Year or which are treated as voluntary Employee
contributions due to recharacterization pursuant to Section 4.6(a).
(g) The determination and correction of Excess Aggregate Contributions of a
Highly Compensated Participant whose actual contribution ratio is determined
under the family aggregation rules shall be accomplished as follows:
(1) If the actual contribution ratio for the Highly Compensated
Participant is determined in accordance with Section 4.7(d)(1)(ii), then the
actual contribution ratio shall be reduced and the Excess Aggregate
Contributions for the family unit shall be allocated among the Family Members
in proportion to the sum of Employer matching contributions made pursuant to
Section 4.1(b) (to the extent taken into account pursuant to Section 4.7(b)),
voluntary Employee contributions made pursuant to Section 4.12, Excess
Contributions recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and any Qualified Non-Elective Contributions or elective
deferrals taken into account pursuant to Section 4.7(c) of each Family Member
that were combined to determine the group actual contribution ratio.
(2) If the actual contribution ratio for the Highly Compensated
Participant is determined under Section 4.7(d)(1)(i), then the actual
contribution ratio shall first be reduced, as required herein, but not below
the actual contribution ratio of the group of Family Members who are not
Highly Compensated Participants without regard to family aggregation. The
Excess Aggregate Contributions resulting from
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this initial reduction shall be allocated among the Highly Compensated
Participants whose Employer matching contributions made pursuant to
Section 4.1(b) (to the extent taken into account pursuant to Section
4.7(b)), voluntary Employee contributions made pursuant to Section 4.12,
Excess Contributions recharacterized as voluntary Employee contributions
pursuant to Section 4.6(a) and any Qualified Non-Elective Contributions or
elective deferrals taken into account pursuant to Section 4.7(c) were
combined to determine the actual contribution ratio. If further reduction
is still required, then Excess Aggregate Contributions resulting from this
further reduction shall be determined by taking into account the
contributions of all Family Members and shall be allocated among them in
proportion to their respective Employer matching contributions made
pursuant to Section 4.1(b) (to the extent taken into account pursuant to
Section 4.7(b)), voluntary Employee contributions made pursuant to Section
4.12, Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a) and any Qualified Non-Elective
Contributions or elective deferrals taken into account pursuant to Section
4.7(c).
(h) Notwithstanding the above, within twelve (12) months after the end
of the Plan Year, the Employer may make a special Qualified Non-Elective
Contribution on behalf of Non-Highly Compensated Participants in an amount
sufficient to satisfy one of the tests set forth in Section 4.7(a). Such
contribution shall be allocated to the Participant's Qualified Non-Elective
Account of each Non-Highly Compensated Participant in the same proportion
that each Non-Highly Compensated Participant's Compensation for the year
bears to the total Compensation of all Non-Highly Compensated Participants.
A separate accounting shall be maintained for the purpose of excluding such
contributions from the "Actual Deferral Percentage" tests pursuant to Code
Section 4.5(a).
(i) For purposes of this Section, "Income" means the income or loss
allocable to Excess Aggregate Contributions which shall equal the sum of the
allocable gain or loss for the Plan Year and the allocable gain or loss for
the period between the end of the Plan Year and the date of distribution
("gap period"). The income or loss allocable to Excess Aggregate
Contributions for the Plan Year and the "gap period" is calculated
separately and is determined by multiplying the income or loss for the Plan
Year or the "gap period" by a fraction. The numerator of the fraction is the
Excess Aggregate Contributions for the Plan Year. The denominator of the
fraction is the total Participant's Account and Voluntary Contribution
Account attributable to Employer matching contributions subject to Section
4.7, voluntary Employee contributions made pursuant to Section 4.12, and any
Qualified Non-Elective Contributions and elective deferrals taken into
account pursuant to Section 4.7(c) as of the end of the Plan Year or the
"gap period", reduced by the gain allocable to such total amount for the
Plan Year or the "gap period" and increased by the loss allocable to such
total amount for the Plan Year or the "gap period".
In lieu of the "fractional method" described above, a "safe harbor
method" may be used to calculate the allocable Income for the "gap period".
Under such "safe harbor method", allocable Income for the "gap period" shall
be deemed to equal ten percent (10%) of the Income allocable to Excess
Aggregate Contributions for the Plan Year of the Participant multiplied by
the number of calendar months in the "gap period". For purposes of
determining the number of calendar months in the "gap period", a distribution
occurring on or before the fifteenth day of the month shall be treated as
having been made on the last day of the preceding month and a distribution
occurring after such fifteenth day shall be treated as having been made on
the first day of the next subsequent month.
The Income allocable to Excess Aggregate Contributions resulting from
recharacterization of Elective Contributions shall be determined and
distributed as if such recharacterized Elective Contributions had been
distributed as Excess Contributions.
Notwithstanding the above, for Plan Years which began in 1987, Income
during the "gap period" shall not be taken into account.
4.9 MAXIMUM ANNUAL ADDITIONS
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(a) (1) If the Participant does not participate in, and has never participated
in another qualified plan maintained by the Employer, or a welfare benefit fund
(as defined in Code Section 419(e)), maintained by the Employer, or an
individual medical account (as defined in Code Section 415(l)(2)) maintained by
the Employer, which provides Annual Additions, the amount of Annual Additions
which may be credited to the Participant's accounts for any Limitation Year
shall 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 accounts 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.
(2) 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.
(3) As soon as is administratively feasible after the end of the Limitation
Year, the Maximum Permissible Amount for such Limitation Year shall be
determined on the basis of the Participant's actual compensation for such
Limitation Year.
(4) If pursuant to Section 4.9(a)(2) or as a result of the allocation of
Forfeitures, there is an Excess Amount, the excess will be disposed of as
follows:
(i) Any nondeductible Voluntary Employee Contributions, to the extent
they would reduce the Excess Amount, will be returned to the Participant;
(ii) If, after the application of subparagraph (i), 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;
(iii) If, after the application of subparagraph (i), an Excess Amount
still exists, and the Participant is not covered by the Plan at the end of a
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;
(iv) If a suspense account is in existence at any time during a
Limitation Year pursuant to this Section, 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) (1) This subsection applies if; in addition to this Plan, the Participant
is covered under another qualified Prototype defined contribution plan
maintained by the Employer, or a welfare benefit fund (as defined in Code
Section 419(e)) maintained by the Employer, or an individual medical account (as
defined in Code Section 415(l)(2)) maintained by the Employer, which provides
Annual Additions, during any Limitation Year. The Annual Additions which may be
credited to a Participant's accounts under this Plan for any such Limitation
Year shall not exceed the Maximum Permissible Amount reduced by the Annual
Additions credited to a Participant's accounts under the other plans and welfare
benefit funds 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
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allocated to the Participant's accounts 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 welfare benefit 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.
(2) 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 Section 4.9(a)(2).
(3) 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.
(4) If, pursuant to Section 4.9(b)(2) or as a result of the allocation
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 will be deemed to have been allocated
first regardless of the actual allocation date.
(5) 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;
(i) the total Excess Amount allocated as of such date, times
(ii) the ratio of (1) the Annual Additions allocated to the
Participant for the Limitation Year as of such date under this 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
defined contribution plans.
(6) Any Excess Amount attributed to this Plan will be disposed in the
manner described in Section 4.9(a)(4).
(c) If the Participant is covered under another qualified defined
contribution plan maintained by the Employer which is not a 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 Section 4.9(b),
unless the Employer provides other limitations in the Adoption Agreement.
(d) 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. 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 Limitation on Allocations Section of the Adoption
Agreement.
(e) For purposes of applying the limitations of Code Section 415, the
transfer of funds from one qualified plan to another is not an "annual
addition". In addition, the following are not Employee contributions for the
purposes of Section 4.9(f)(1)(2): (1) rollover contributions (as defined in Code
Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of loans
made to a Participant from the Plan; (3) repayments of distributions received by
an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (4) repayments
of distributions received by an Employee pursuant to Code Section 411(a)(3)(D)
(mandatory contributions); and (5) Employee contributions to a simplified
employee pension excludable from gross income under Code Section 408(k)(6).
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(f)For purposes of this Section, the following terms shall be defined as
follows:
(1) Annual Additions means the sum credited to a Participant's accounts for
any Limitation Year of(1) Employer contributions, (2) effective with respect to
"limitation years" beginning after December 31, 1986, Employee contributions,
(3) forfeitures, (4) amounts allocated, after March 31, 1984, to an individual
medical account, as defined in Code Section 41 5(l)(2), which is part of a
pension or annuity plan maintained by the Employer and (5) amounts derived from
contributions paid or accrued after December 31, 1985, in taxable years ending
after such date, which are attributable to post-retirement medical benefits
allocated to the separate account of a key employee (as defined in Code Section
419A(d)(3)) under a welfare benefit fund (as defined in Code Section 419(e))
maintained by the Employer. Except, however, the "415 Compensation" percentage
limitation referred to in paragraph (a)(2) above shall not apply to: (1) any
contribution for medical benefits (within the meaning of Code Section 419A
(f)(2)) after separation from service which is otherwise treated as an "annual
addition", or (2) any amount otherwise treated as an "annual addition" under
Code Section 415(l)(l). Notwithstanding the foregoing, for "limitation years"
beginning prior to January 1, 1987, only that portion of Employee contributions
equal to the lesser of Employee contributions in excess of six percent (6%) of
"415 Compensation" or one-half of Employee contributions shall be considered an
"annual addition". For this purpose, any Excess Amount applied under Sections
4.9(a)(4) and 4.9(b)(6) in the Limitation Year to reduce Employer contributions
shall be considered Annual Additions for such Limitation Year.
(2) Compensation means a Participant's earned income, wages, salaries, fees
for professional services and other amounts received for personal services
actually rendered in the course of employment with the Employer maintaining the
Plan (including, but not limited to, commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips, and bonuses) and excluding the following:
(i) 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 to the extent such contributions are excludable from the Employee's
gross income, or any distributions from a plan of deferred compensation;
(ii) contributions made by the Employer to a plan of deferred
compensation to the extent that all or a portion of such contributions are
recharacterized as a voluntary Employee contribution;
(iii) amounts realized from the exercise of a non-qualified stock option,
or when restricted stock (or property) held by an Employee becomes freely
transferable or is no longer subject to a substantial risk of forfeiture;
(iv) amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
(v) other amounts which received special tax benefits, or contributions
made by an 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 excludable from the gross income of the
Employee).
For purposes of applying the limitations of this Section 4.9, Compensation for
any Limitation Year is the Compensation actually paid or includible in gross
income during such year. Notwithstanding the preceding sentence, Compensation
for a Participant in a profit-sharing 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 and contributions made on behalf of such Participant are
nonforfeitable when made.
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(3) Defined Benefit Fraction means 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 his 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 December 31, 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 end of the close of the last Limitation Year beginning before
January 1, 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
Code Section 415 for all Limitation Years beginning before January 1, 1987.
Notwithstanding the foregoing, for any Top Heavy Plan Year, 100 shall be
substituted for 125 unless the extra minimum allocation is being made pursuant
to the Employer's election in Fl of the Adoption Agreement. However, for any
Plan Year in which this Plan is a Super Top Heavy Plan, 100 shall be substituted
for 125 in any event.
(4) Defined Contribution Dollar Limitation means $30,000, or, if greater,
one-fourth of the defined benefit dollar limitation set forth in Code Section
415(b)(l) as in effect for the Limitation Year.
(5) Defined Contribution Fraction means 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 voluntary employee
contributions to any defined benefit plans, whether or not terminated,
maintained by the Employer and the annual additions attributable to all welfare
benefit funds, as defined in Code Section 419(e), 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 of Service with the Employer (regardless
of whether a defined contribution plan was maintained by the Employer). The
maximum aggregate amount in any Limitation Year is the lesser of 125 percent of
the Defined Contribution Dollar Limitation or 35 percent of the Participant's
Compensation for such year. For Limitation Years beginning prior to January 1,
1987, the "annual addition" shall not be recomputed to treat all Employee
contributions as an Annual Addition.
If the Employee was a Participant as of the end of the first day of the first
Limitation Year beginning after December 31, 1986, in one or more defined
contribution plans maintained by the Employer which were in existence on May 5,
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 January 1,
1987, and disregarding any changes in the terms and conditions of the plan made
after May 5, 1986, but using the Code Section 415 limitation applicable to the
first Limitation Year beginning on or after January 1, 1987.
Notwithstanding the foregoing, for any Top Heavy Plan Year, 100 shall be
substituted for 125 unless the extra minimum allocation is being made pursuant
to the Employer's election in Fl of the Adoption Agreement. However, for any
Plan Year in which this Plan is a Super Top Heavy Plan, 100 shall be substituted
for 125 in any event.
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(6) Employer means the Employer that adopts this Plan and all Affiliated
Employers, except that for purposes of this Section, Affiliated Employers
shall be determined pursuant to the modification made by Code Section 415(b).
(7) Excess Amount means the excess of the Participant's Annual Additions
for the Limitation Year over the Maximum Permissible Amount.
(8) Highest Average Compensation means 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 Section El of the Adoption Agreement which is used to
determine Compensation under the Plan.
(9) Limitation Year means the Compensation Year (a 12 consecutive month
period) as elected by the Employer in the Adoption Agreement. 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.
(10) Master or Prototype Plan means a plan the form of which is the
subject of a favorable opinion letter from the Internal Revenue Service.
(11) Maximum Permissible Amount means the maximum Annual Addition that
may be contributed or allocated to a Participant's account under the plan for
any Limitation Year, which shall not exceed the lesser of:
(i) the Defined Contribution Dollar Limitation, or
(ii) 25 percent of the Participant's Compensation for the Limitation
Year.
The Compensation Limitation referred to in (ii) shall not apply to any
contribution for medical benefits (within the meaning of Code Sections
401(h) or 419A(f)(2)) which is otherwise treated as an annual addition
under Code Sections 415(l)(1) or 419A(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
Contribution multiplied by the following fraction:
number of months in the short Limitation Year
------------------------------------
12
(12) Projected Annual Benefit means the annual retirement benefit
(adjusted to an actuarially 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 the plan assuming:
(13) the Participant will continue employment until Normal Retirement Age
(or current age, if later), and
(14) 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.
(g) Notwithstanding anything contained in this Section to the contrary, the
limitations, adjustments and other requirements prescribed in this Section shall
at all times comply with the provisions of Code Section 415 and the Regulations
thereunder, the terms of which are specifically incorporated herein by
reference.
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4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If as a result of the allocation of Forfeitures, a reasonable error
in estimating a Participant's annual Compensation, or other facts and
circumstances to which Regulation 1.415-6(b)(6) shall be applicable, the
"annual additions" under this Plan would cause the maximum provided in
Section 4.9 to be exceeded, the Administrator shall treat the excess in
accordance with Section 4.9(a)(4).
4.11 TRANSFERS FROM QUALIFIED PLANS
(a) If specified in the Adoption Agreement and with the consent of the
Administrator, amounts may be transferred from other qualified plans,
provided that the trust from which such funds are transferred permits the
transfer to be made and the transfer will not jeopardize the tax exempt
status of the Plan or create adverse tax consequences for the Employer. The
amounts transferred shall be set up in a separate account herein referred to
as a "Participant's Rollover Account". Such account shall be fully Vested at
all times and shall not be subject to forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account shall be held by the
Trustee pursuant to the provisions of this Plan and may not be withdrawn by,
or distributed to the Participant, in whole or in part, except as provided in
Paragraphs (c) and (d) of this Section.
(c) Amounts attributable to elective contributions (as defined in
Regulation 1.401(k)-1(g)(4)), including amounts treated as elective
contributions, which are transferred from another qualified plan in a plan-
to-plan transfer shall be subject to the distribution limitations provided
for in Regulation 1.401(k)-1(d).
(d) At Normal Retirement Date, or such other date when the Participant or
his Beneficiary shall be entitled to receive benefits, the fair market value
of the Participant's Rollover Account shall be used to provide additional
benefits to the Participant or his Beneficiary. Any distributions of amounts
held in a Participant's Rollover Account shall be made in a manner which is
consistent with and satisfies the provisions of Section 6.5, including, but
not limited to, all notice and consent requirements of Code Sections 41
1(a)(11) and 417 and the Regulations thereunder. Furthermore, such amounts
shall be considered as part of a Participant's benefit in determining whether
an involuntary cash-out of benefits without Participant consent may be made.
(e) The Administrator may direct that employee transfers made after a
valuation date be segregated into a separate account for each Participant
until such time as the allocations pursuant to this Plan have been made, at
which time they may remain segregated or be invested as part of the general
Trust Fund, to be determined by the Administrator.
(f) For purposes of this Section, the term "qualified plan" shall mean
any tax qualified plan under Code Section 401(a). The term "amounts
transferred from other qualified plans" shall mean: (i) amounts transferred
to this Plan directly from another qualified plan; (ii) lump-sum
distributions received by an Employee from another qualified plan which are
eligible for tax free rollover to a qualified plan and which are transferred
by the Employee to this Plan within sixty (60) days following his receipt
thereof; (iii) amounts transferred to this Plan from a conduit individual
retirement account provided that the conduit individual retirement account
has no assets other than assets which (A) were previously distributed to the
Employee by another qualified plan as a lump-sum distribution (B) were
eligible for tax-free rollover to a qualified plan and (C) were deposited in
such conduit individual retirement account within sixty (60) days of receipt
thereof and other than earnings on said assets; and (iv) amounts distributed
to the Employee from a conduit individual retirement account meeting the
requirements of clause (iii) above, and transferred by the Employee to this
Plan within sixty (60) days of his receipt thereof from such conduit
individual retirement account.
(g) Prior to accepting any transfers to which this Section
applies, the Administrator may require the Employee to establish that the
amounts to be transferred to this Plan meet the requirements of this Section
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and may also require the Employee to provide an opinion of counsel
satisfactory to the Employer that the amounts to be transferred meet the
requirements of this Section.
(b) Notwithstanding anything herein to the contrary, a transfer directly
to this Plan from another qualified plan (or a transaction having the effect
of such a transfer) shall only be permitted if it will not result in the
elimination or reduction of any "Section 411(d)(6) protected benefit" as
described in Section 8.1.
4.12 VOLUNTARY CONTRIBUTIONS
(a) If elected in the Adoption Agreement, each Participant may, at the
discretion of the Administrator in a nondiscriminatory manner, elect to
voluntarily contribute a portion of his compensation earned while a
Participant under this Plan. Such contributions shall be paid to the Trustee
within a reasonable period of time but in no event later than 90 days after
the receipt of the contribution.
(b) The balance in each Participant's Voluntary Contribution Account
shall be fully Vested at all times and shall not be subject to Forfeiture
for any reason.
(c) A Participant may elect to withdraw his voluntary contributions from
his Voluntary Contribution Account and the actual earnings thereon in a
manner which is consistent with and satisfies the provisions of Section 6.5,
including, but not limited to, all notice and consent requirements of Code
Sections 411(a)(11) and 417 and the Regulations thereunder. If the
Administrator maintains sub-accounts with respect to voluntary contributions
(and earnings thereon) which were made on or before a specified date, a
Participant shall be permitted to designate which sub-account shall be the
source for his withdrawal. No Forfeitures shall occur solely as a result of
an Employee's withdrawal of Employee contributions.
In the event such a withdrawal is made, or in the event a Participant has
received a hardship distribution pursuant to Regulation 1.401(k)-l(d)(2)
(iii)(B) from any other plan maintained by the Employer or from his
Participant's Elective Account pursuant to Section 6.11, then such
Participant shall be barred from making any voluntary contributions to the
Trust Fund for a period of twelve (12) months after receipt of the
withdrawal or distribution.
(d) At Normal Retirement Date, or such other date when the Participant or
his Beneficiary shall be entitled to receive benefits, the fair market value
of the Voluntary Contribution Account shall be used to provide additional
benefits to the Participant or his Beneficiary.
(e) The Administrator may direct that voluntary contributions made after
a valuation date be segregated into a separate account until such time as
the allocations pursuant to this Plan have been made, at which time they may
remain segregated or be invested as part of the general Trust Fund, to be
determined by the Administrator.
4.13 DIRECTED INVESTMENT ACCOUNT
(a) If elected in the Adoption Agreement, all Participants may direct the
Trustee as to the investment of all or a portion of any one or more of their
individual account balances. Participants may direct the Trustee in writing
to invest their account in specific assets as permitted by the Administrator
provided such investments are in accordance with the Department of Labor
regulations and are permitted by the Plan. That portion of the account of
any Participant so directing will thereupon be considered a Directed
Investment Account.
(b) A separate Directed Investment Account shall be established for each
Participant who has directed an investment. Transfers between the
Participant's regular account and their Directed Investment Account shall be
charged and credited as the case may be to each account. The Directed
Investment Account shall not share in Trust Fund Earnings, but it shall be
charged or credited as appropriate with the net earnings, gains, losses
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and expenses as well as any appreciation or depreciation in market value
during each Plan Year attributable to such account.
(c) The Administrator shall establish a procedure, to be applied in a
uniform and nondiscriminatory manner, setting forth the permissible
investment options under this Section, how often changes between
investments may be made, and any other limitations that the Administrator
shall impose on a Participant's right to direct investments.
4.14 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS
(a) If this is an amendment to a Plan that previously permitted
deductible voluntary contributions, then each Participant who made a
"Qualified Voluntary Employee Contribution" within the meaning of Code
Section 219(e)(2) as it existed prior to the enactment of the Tax Reform
Act of 1986, shall have his contribution held in a separate Qualified
Voluntary Employee Contribution Account which shall be fully Vested at all
times. Such contributions, however, shall not be permitted if they are
attributable to taxable years beginning after December 31, 1986.
(b) A Participant may, upon written request delivered to the
Administrator, make withdrawals from his Qualified Voluntary Employee
Contribution Account. Any distribution shall be made in a manner which is
consistent with and satisfies the provisions of Section 6.5, including, but
not limited to, all notice and consent requirements of Code Sections 41l(a)
(11) and 417 and the Regulations thereunder.
(c) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive benefits, the
fair market value of the Qualified Voluntary Employee Contribution Account
shall be used to provide additional benefits to the Participant or his
Beneficiary.
(d) Unless the Administrator directs Qualified Voluntary Employee
Contributions made pursuant to this Section be segregated into a separate
account for each Participant, they shall be invested as part of the general
Trust Fund and share in earnings and losses.
4.15 INTEGRATION IN MORE THAN ONE PLAN
If the Employer and/or an Affiliated Employer maintain qualified retirement
plans integrated with Social Security such that any Participant in this Plan is
covered under more than one of such plans, then such plans will be considered to
be one plan and will be considered to be integrated if the extent of the
integration of all such plans does not exceed 100%. For purposes of the
preceding sentence, the extent of integration of a plan is the ratio, expressed
as a percentage, which the actual benefits, benefit rate, offset rate, or
employer contribution rate, whatever is applicable, under the Plan bears to the
limitation applicable to such Plan. If the Employer maintains two or more
standardized paired plans, only one plan may be integrated with Social Security.
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ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary Date, and
at such other date or dates deemed necessary by the Administrator, herein called
"valuation date", to determine the net worth of the assets comprising the Trust
Fund as it exists on the "valuation date". In determining such net worth, the
Trustee shall value the assets comprising the Trust Fund at their fair market
value as of the "valuation date" and shall deduct all expenses for which the
Trustee has not yet obtained reimbursement frqm the Employer or the Trust Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the Trust Fund
which are listed on a registered stock exchange, the Administrator shall direct
the Trustee to value the same at the prices they were last traded on such
exchange preceding the close of business on the "valuation date". If such
securities were not traded on the "valuation date", or if the exchange on which
they are traded was not open for business on the "valuation date", then the
securities shall be valued at the prices at which they were last traded prior to
the "valuation date". Any unlisted security held in the Trust Fund shall be
valued at its bid price next preceding the close of business on the "valuation
date", which bid price shall be obtained from a registered broker or an
investment banker. In determining the fair market value of assets other than
securities for which trading or bid prices can be obtained, the Trustee may
appraise such assets itself, or in its discretion, employ one or more appraisers
for that purpose and rely on the values established by such appraiser or
appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and retire
for the purposes hereof on or after his Normal Retirement Date or Early
Retirement Date. Upon such Normal Retirement Date or Early Retirement Date, all
amounts credited to such Participant's Combined Account shall become
distributable. However, a Participant may postpone the termination of his
employment with the Employer to a later date, in which event the participation
of such Participant in the Plan, including the right to receive allocations
pursuant to Section 4.4, shall continue until his Late Retirement Date. Upon a
Participant's Retirement Date, or as soon thereafter as is practicable, the
Administrator shall direct the distribution of all amounts credited to such
Participant's Combined Account in accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date or other
termination of his employment, all amounts credited to such Participant's
Combined Account shall become fully Vested. The Administrator shall direct,
in accordance with the provisions of Sections 6.6 and 6.7, the distribution
of the deceased Participant's accounts to the Participant's Beneficiary.
(b) Upon the death of a Former Participant, the Administrator shall
direct, in accordance with the provisions of Sections 6.6 and 6.7, the
distribution of any remaining amounts credited to the accounts of such
deceased Former Participant to such Former Participant's Beneficiary.
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive payment of the value of the
account of a deceased Participant or Former Participant as the
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Administrator may deem desirable. The Administrator's determination of
death and of the right of any person to receive payment shall be
conclusive.
(d) Unless otherwise elected in the manner prescribed in Section 6.6,
the Beneficiary of the Pre-Retirement Survivor Annuity shall be the
Participant's spouse. Except, however, the Participant may designate a
Beneficiary other than his spouse for the Pre-Retirement Survivor Annuity
if:
(1) the Participant and his spouse have validly waived the Pre-
Retirement Survivor Annuity in the manner prescribed in Section 6.6, and
the spouse has waived his or her right to be the Participant's
Beneficiary, or
(2) the Participant is legally separated or has been abandoned (within
the meaning of local law) and the Participant has a court order to such
effect (and there is no "qualified domestic relations order" as defined
in Code Section 414(p) which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made on a form
satisfactory to the Administrator. A Participant may at any time revoke his
designation of a Beneficiary or change his Beneficiary by filing written
notice of such revocation or change with the Administrator. However, the
Participant's spouse must again consent in writing to any change in
Beneficiary unless the original consent acknowledged that the spouse had the
right to limit consent only to a specific Beneficiary and that the spouse
voluntarily elected to relinquish such right. The Participant may, at any
time, designate a Beneficiary for death benefits payable under the Plan that
are in excess of the Pre-Retirement Survivor Annuity. In the event no valid
designation of Beneficiary exists at the time of the Participant's death,
the death benefit shall be payable to his estate.
(e) If the Plan provides an insured death benefit and a Participant dies
before any insurance coverage to which he is entitled under the Plan is
effected, his death benefit from such insurance coverage shall be limited to
the standard rated premium which was or should have been used for such
purpose.
(f) In the event of any conflict between the terms of this Plan and the
terms of any Contract issued hereunder, the Plan provisions shall control.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior to his
Retirement Date or other termination of his employment, all amounts credited to
such Participant's Combined Account shall become fully Vested. In the event of a
Participant's Total and Permanent Disability, the Administrator, in accordance
with the provisions of Sections 6.5 and 6.7, shall direct the distribution to
such Participant of all amounts credited to such Participant's Combined Account
as though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with or subsequent to
the termination of a Participant's employment for any reason other than
retirement, death, or Total and Permanent Disability, the Administrator may
direct the Trustee to segregate the amount of the Vested portion of such
Terminated Participant's Combined Account and invest the aggregate amount
thereof in a separate, federally insured savings account, certificate of
deposit, common or collective trust fund of a bank or a deferred annuity. In
the event the Vested portion of a Participant's Combined Account is not
segregated, the amount shall remain in a separate account for the Terminated
Participant and share in allocations pursuant to Section 4.4 until such time
as a distribution is made to the Terminated Participant. The amount of the
portion of the Participant's Combined Account which is not Vested may be
credited to a separate account (which will always share in
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gains and losses of the Trust) and at such time as the amount becomes a
Forfeiture shall be treated in accordance with the provisions of the Plan
regarding Forfeitures.
Regardless of whether distributions in kind are permitted, in the event that
the amount of the Vested portion of the Terminated Participant's Combined
Account equals or exceeds the fair market value of any insurance Contracts, the
Trustee, when so directed by the Administrator and agreed to by the Terminated
Participant, shall assign, transfer, and set over to such Terminated Participant
all Contracts on his life in such form or with such endorsements, so that the
settlement options and forms of payment are consistent with the provisions of
Section 6.5. In the event that the Terminated Participant's Vested portion does
not at least equal the fair market value of the Contracts, if any, the
Terminated Participant may pay over to the Trustee the sum needed to make the
distribution equal to the value of the Contracts being assigned or transferred,
or the Trustee, pursuant to the Participant's election, may borrow the cash
value of the Contracts from the Insurer so that the value of the Contracts is
equal to the Vested portion of the Terminated Participant's Combined Account and
then assign the Contracts to the Terminated Participant.
Distribution of the funds due to a Terminated Participant shall be made on
the occurrence of an event which would result in the distribution had the
Terminated Participant remained in the employ of the Employer (upon the
Participant's death, Total and Permanent Disability, Early or Normal
Retirement). However, at the election of the Participant, the Administrator
shall direct that the entire Vested portion of the Terminated Participant's
Combined Account to be payable to such Terminated Participant provided the
conditions, if any, set forth in the Adoption Agreement have been satisfied. Any
distribution under this paragraph shall be made in a manner which is consistent
with and satisfies the provisions of Section 6.5, including but not limited to,
all notice and consent requirements of Code Sections 411(a)(11) and 417 and
the Regulations thereunder.
Notwithstanding the above, if the value of a Terminated Participant's Vested
benefit derived from Employer and Employee contributions does not exceed, and at
the time of any prior distribution, has never exceeded $3,500, the Administrator
shall direct that the entire Vested benefit be paid to such Participant in a
single lump-sum without regard to the consent of the Participant or the
Participant's spouse. A Participant's Vested benefit shall not include Qualified
Voluntary Employee Contributions within the meaning of Code Section 72(o)(5)(B)
for Plan Years beginning prior to January 1, 1989.
(b) The Vested portion of any Participant's Account shall be a percentage of
such Participant's Account determined on the basis of the Participant's number
of Years of Service according to the vesting schedule specified in the Adoption
Agreement.
(c) For any Top Heavy Plan Year, one of the minimum top heavy vesting
schedules as elected by the Employer in the Adoption Agreement will
automatically apply to the Plan. The minimum top heavy vesting schedule applies
to all 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 decrease in a Participant's Vested percentage may occur
in the event the Plan's status as top heavy changes for any Plan Year. However,
this Section does not apply to the account balances of any Employee who does not
have an Hour of Service after the Plan has initially become top heavy and the
Vested percentage of such Employee's Participant's Account shall be determined
without regard to this Section 6.4(c).
If in any subsequent Plan Year, the Plan ceases to be a Top Heavy Plan, the
Administrator shall continue to use the vesting schedule in effect while the
Plan was a Top Heavy Plan for each Employee who had an Hour of Service during a
Plan Year when the Plan was Top Heavy.
(d) Notwithstanding the vesting schedule above, upon the complete
discontinuance of the Employer's contributions to the Plan or upon any full or
partial termination of the Plan, all amounts credited to the account of any
affected Participant shall become 100% Vested and shall not thereafter be
subject to Forfeiture.
(e) If this is an amended or restated Plan, then notwithstanding the vesting
schedule specified in the Adoption Agreement, the Vested percentage of a
Participant's Account shall not be less than the Vested
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percentage attained as of the later of the effective date or adoption date of
this amendment and restatement. The computation of a Participant's
nonforfeitable percentage of his interest in the Plan shall not be reduced as
the result of any direct or indirect amendment to this Article, or due to
changes in the Plan's status as a Top Heavy Plan.
(f) If the Plan's vesting schedule is amended, or if the Plan is amended in
any way that directly or indirectly affects the computation of the Participant's
nonforfeitable percentage or if the Plan is deemed amended by an automatic
change to a top heavy vesting schedule, then each Participant with at least 3
Years of Service as of the expiration date of the election period may elect to
have his nonforfeitable percentage computed under the Plan without regard to
such amendment or change. Notwithstanding the foregoing, for Plan Years
beginning before January 1, 1989, or with respect to Employees who fail to
complete at least one (1) Hour of Service in a Plan Year beginning after
December 31, 1988, five (5) shall be substituted for three (3) in the preceding
sentence. If a Participant fails to make such election, then such Participant
shall be subject to the new vesting schedule. The Participant's election period
shall commence on the adoption date of the amendment and shall end 60 days after
the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the amendment
from the Employer or Administrator.
(g) (1) If any Former Participant shall be reemployed by the Employer before
a 1-Year Break in Service occurs, he shall continue to participate in the
Plan in the same manner as if such termination had not occurred.
(2) If any Former Participant shall be reemployed by the Employer before
five (5) consecutive 1-Year Breaks in Service, and such Former Participant
had received a distribution of his entire Vested interest prior to his
reemployment, his forfeited account shall be reinstated only if he repays the
full amount distributed to him before the earlier of five (5) years after the
first date on which the Participant is subsequently reemployed by the
Employer or the close of the first period of 5 consecutive 1-Year Breaks in
Service commencing after the distribution. If a distribution occurs for any
reason other than a separation from service, the time for repayment may not
end earlier than five (5) years after the date of separation. In the event
the Former Participant does repay the full amount distributed to him, the
undistributed portion of the Participant's Account must be restored in full,
unadjusted by any gains or losses occurring subsequent to the Anniversary
Date or other valuation date preceding his termination. If an employee
receives a distribution pursuant to this section and the employee resumes
employment covered under this plan, the employee's employer-derived account
balance will be restored to the amount on the date of distribution if the
employee repays to the plan the full amount of the distribution attributable
to employer contributions before the earlier of 5 years after the first date
on which the participant is subsequently re-employed by the employer, or the
date the participant incurs 5 consecutive 1-year breaks in service following
the date of the distribution. If a non-Vested Former Participant was deemed
to have received a distribution and such Former Participant is reemployed by
the Employer before five (5) consecutive 1-Year Breaks in Service, then such
Participant will be deemed to have repaid the deemed distribution as of the
date of reemployment.
(3) If any Former Participant is reemployed after a 1-Year Break in
Service has occurred, Years of Service shall include Years of Service prior
to his 1-Year Break in Service subject to the following rules:
(i) Any Former Participant who under the Plan does not have a
nonforfeitable right to any interest in the Plan resulting from Employer
contributions shall lose credits if his consecutive 1-Year Breaks in
Service equal or exceed the greater of (A) five (5) or (B) the aggregate
number of his pre-break Years of Service;
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(ii) After five (5) consecutive 1-Year Breaks in Service, a Former
Participant's Vested Account balance attributable to pre-break service
shall not be increased as a result of post-break service;
(iii) A Former Participant who is reemployed and who has not had
his Years of Service before a 1-Year Break in Service disregarded
pursuant to (i) above, shall participate in the Plan as of his date of
reemployment;
(iv) If a Former Participant completes a Year of Service (a 1-Year
Break in Service previously occurred, but employment had not
terminated), he shall participate in the Plan retroactively from the
first day of the Plan Year during which he completes one (1) Year of
Service.
(h) In determining Years of Service for purposes of vesting under the
Plan, Years of Service shall be excluded as specified in the Adoption
Agreement.
6.5 DISTRIBUTION OF BENEFITS
(a) (1) Unless otherwise elected as provided below, a Participant who is
married on the "annuity starting date" and who does not die before the
"annuity starting date" shall receive the value of all of his benefits in
the form of a Joint and Survivor Annuity. The Joint and Survivor Annuity
is an annuity that commences immediately and shall be equal in value to a
single life annuity. Such joint and survivor benefits following the
Participant's death shall continue to the spouse during the spouse's
lifetime at a rate equal to 50% of the rate at which such benefits were
payable to the Participant. This Joint and Survivor Annuity shall be
considered the designated qualified Joint and Survivor Annuity and
automatic form of payment for the purposes of this Plan. However, the
Participant may elect to receive a smaller annuity benefit with
continuation of payments to the spouse at a rate of seventy-five percent
(75%) or one hundred percent (100%) of the rate payable to a Participant
during his lifetime which alternative Joint and Survivor Annuity shall be
equal in value to the automatic Joint and 50% Survivor Annuity. An
unmarried Participant shall receive the value of his benefit in the form
of a life annuity. Such unmarried Participant, however, may elect in
writing to waive the life annuity. The election must comply with the
provisions of this Section as if it were an election to waive the Joint
and Survivor Annuity by a married Participant, but without the spousal
consent requirement. The Participant may elect to have any annuity
provided for in this Section distributed upon the attainment of the
"earliest retirement age" under the Plan. The "earliest retirement age" is
the earliest date on which, under the Plan, the Participant could elect to
receive retirement benefits.
(2) Any election to waive the Joint and Survivor Annuity must be made
by the Participant in writing during the election period and be consented
to by the Participant's spouse. If the spouse is legally incompetent to
give consent, the spouse's legal guardian, even if such guardian is the
Participant, may give consent. Such election shall designate a
Beneficiary (or a form of benefits) that may not be changed without
spousal consent (unless the consent of the spouse expressly permits
designations by the Participant without the requirement of further
consent by the spouse). Such spouse's consent shall be irrevocable and
must acknowledge the effect of such election and be witnessed by a Plan
representative or a notary public. Such consent shall not be required if
it is established to the satisfaction of the Administrator that the
required consent cannot be obtained because there is no spouse, the
spouse cannot be located, or other circumstances that may be prescribed
by Regulations. The election made by the Participant and consented to by
his spouse may be revoked by the Participant in writing without the
consent of the spouse at any time during the election period. The number
of revocations shall not be limited. Any new election must comply with
the requirements of this paragraph. A former spouse's waiver shall not be
binding on a new spouse.
(3) The election period to waive the Joint and Survivor Annuity shall
be the 90 day period ending on the "annuity starting date."
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(4) For purposes of this Section and Section 6.6, the "annuity starting
date" means the first day of the first period for which an amount is paid as
an annuity, or, in the case of a benefit not payable in the form of an
annuity, the first day on which all events have occurred which entitles the
Participant to such benefit.
(5) With regard to the election, the Administrator shall provide to the
Participant no less than 30 days and no more than 90 days before the "annuity
starting date" a written explanation of:
(i) the terms and conditions of the Joint and Survivor Annuity, and
(ii) the Participant's right to make and the effect of an election to
waive the Joint and Survivor Annuity, and
(iii) the right of the Participant's spouse to consent to any election
to waive the Joint and Survivor Annuity, and
(iv) the right of the Participant to revoke such election, and the
effect of such revocation.
(b) In the event a married Participant duly elects pursuant to paragraph
(a)(2) above not to receive his benefit in the form of a Joint and Survivor
Annuity, or if such Participant is not married, in the form of a life annuity,
the Administrator, pursuant to the election of the Participant, shall direct the
distribution to a Participant or his Beneficiary any amount to which he is
entitled under the Plan in one or more of the following methods which are
permitted pursuant to the Adoption Agreement:
(1) One lump-sum payment in cash or in property;
(2) Payments over a period certain in monthly, quarterly, semiannual, or
annual cash installments. In order to provide such installment payments, the
Administrator may direct that the Participant's interest in the Plan be
segregated and invested separately, and that the funds in the segregated
account be used for the payment of the installments. The period over which
such payment is to be made shall not extend beyond the Participant's life
expectancy (or the life expectancy of the Participant and his designated
Beneficiary);
(3) Purchase of or providing an annuity. However, such annuity may not be
in any form that will provide for payments over a period extending beyond
either the life of the Participant (or the lives of the Participant and his
designated Beneficiary) or the life expectancy of the Participant (or the
life expectancy of the Participant and his designated Beneficiary).
(c) The present value of a Participant's Joint and Survivor Annuity derived
from Employer and Employee contributions may not be paid without his written
consent if the value exceeds, or has ever exceeded at the time of any prior
distribution, $3,500. Further, the spouse of a Participant must consent in
writing to any immediate distribution. If the value of the Participant's benefit
derived from Employer and Employee contributions does not exceed $3,500 and has
never exceeded $3,500 at the time of any prior distribution, the Administrator
may immediately distribute such benefit without such Participant's consent. No
distribution may be made under the preceding sentence after the "annuity
starting date" unless the Participant and his spouse consent in writing to such
distribution. Any written consent required under this paragraph must be obtained
not more than 90 days before commencement of the distribution and shall be made
in a manner consistent with Section 6.5(a)(2).
(d) Any distribution to a Participant who has a benefit which exceeds, or has
ever exceeded at the time of any prior distribution, $3,500 shall require such
Participant's consent if such distribution commences prior to the later of his
Normal Retirement Age or age 62. With regard to this required consent:
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(1) No consent shall be valid unless the Participant has received a
general description of the material features and an explanation of the
relative values of the optional forms of benefit available under the Plan
that would satisfy the notice requirements of Code Section 417.
(2) The Participant must be informed of his right to defer receipt of the
distribution. If a Participant fails to consent, it shall be deemed an
election to defer the commencement of payment df any benefit. However, any
election to defer the receipt of benefits shall not apply with respect to
distributions which are required under Section 6.5(e).
(3) Notice of the rights specified under this paragraph shall be provided
no less than 30 days and no more than 90 days before the "annuity starting
date".
(4) Written consent of the Participant to the distribution must not be
made before the Participant receives the notice and must not be made more
than 90 days before the "annuity starting date".
(5) No consent shall be valid if a significant detriment is imposed under
the Plan on any Participant who does not consent to the distribution.
(e) Notwithstanding any provision in the Plan to the contrary, the
distribution of a Participant's benefits, made on or after January 1, 1985,
whether under the Plan or through the purchase of an annuity Contract, shall be
made in accordance with the following requirements and shall otherwise comply
with Code Section 401(a)(9) and the Regulations thereunder (including
Regulation Section 1.40l(a)(9)-2), the provisions of which are incorporated
herein by reference:
(1) A Participant's benefits shall be distributed to him not later than
April 1st of the calendar year following the later of (i) the calendar year
in which the Participant attains age 70 1/2 or (ii) the calendar year in
which the Participant retires, provided, however, that this clause (ii) shall
not apply in the case of a Participant who is a "five (5) percent owner" at
any time during the five (5) Plan Year period ending in the calendar year in
which he attains age 70 1/2 or, in the case of a Participant who becomes a
"five (5) percent owner" during any subsequent Plan Year, clause (ii) shall
no longer apply and the required beginning date shall be the April 1st of the
calendar year following the calendar year in which such subsequent Plan Year
ends. Alternatively, distributions to a Participant must begin no later than
the applicable April 1st as determined under the preceding sentence and must
be made over the life of the Participant (or the lives of the Participant and
the Participant's designated Beneficiary) or, if benefits are paid in the
form of a Joint and Survivor Annuity, the life expectancy of the Participant
(or the life expectancies of the Participant and his designated Beneficiary)
in accordance with Regulations. For Plan Years beginning after December 31,
1988, clause (ii) above shall not apply to any Participant unless the
Participant had attained age 70 1/2 before January 1, 1988 and was not a
"five (5) percent owner" at any time during the Plan Year ending with or
within the calendar year in which the Participant attained age 66 1/2 or any
subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries shall only be
made in accordance with the incidental death benefit requirements of Code
Section 401(a)(9)(G) and the Regulations thereunder.
Additionally, for calendar years beginning before 1989, distributions may
also be made under an alternative method which provides that the then present
value of the payments to be made over the period of the Participant's life
expectancy exceeds fifty percent (50%) of the then present value of the total
payments to be made to the Participant and his Beneficiaries.
(f) For purposes of this Section, the life expectancy of a Participant and a
Participant's spouse (other than in the case of a life annuity) shall be
redetermined annually in accordance with Regulations if permitted pursuant to
the Adoption Agreement. If the Participant or the Participant's spouse may elect
whether recalculations will be made, then the election, once made, shall be
irrevocable. If no election is made by the time distributions must commence,
then the life expectancy of the Participant and the Participant's spouse
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shall not be subject to recalculation. Life expectancy and joint and last
survivor expectancy shall be computed using the return multiples in Tables V
and VI of Regulation 1.72-9.
(g) All annuity Contracts under this Plan shall be non-transferable when
distributed. Furthermore, the terms of any annuity Contract purchased and
distributed to a Participant or spouse shall comply with all of the
requirements of this Plan.
(b) Subject to the spouse's right of consent afforded under the Plan,
the restrictions imposed by this Section shall not apply if a Participant
has, prior to January 1, 1984, made a written designation to have his
retirement benefit paid in an alternative method acceptable under Code
Section 401(a) as in effect prior to the enactment of the Tax Equity and
Fiscal Responsibility Act of 1982.
(i) If a distribution is made at a time when a Participant who has not
terminated employment is not fully Vested in his Participant's Account and
the Participant may increase the Vested percentage in such account:
(1) A separate account shall be established for the Participant's
interest in the Plan as of the time of the distribution, and
(2) At any relevant time the Participant's Vested portion of the
separate account shall be equal to an amount ("X") determined by the
formula:
X equals P(AB plus (RxD)) - (R x D)
For purposes of applying the formula: P is the Vested percentage at
the relevant time, AB is the account balance at the relevant time, D is
the amount of distribution, and R is the ratio of the account balance at
the relevant time to the account balance after distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) Unless otherwise elected as provided below, a Vested Participant who
dies before the annuity starting date and who has a surviving spouse shall
have the Pre-Retirement Survivor Annuity paid to his surviving spouse. The
Participant's spouse may direct that payment of the Pre-Retirement Survivor
Annuity commence within a reasonable period after the Participant's death.
If the spouse does not so direct, payment of such benefit will commence at
the time the Participant would have attained the later of his Normal
Retirement Age or age 62. However, the spouse may elect a later commencement
date. Any distribution to the Participant's spouse shall be subject to the
rules specified in Section 6.6(h).
(b) Any election to waive the Pre-Retirement Survivor Annuity before the
Participant's death must be made by the Participant in writing during the
election period and shall require the spouse's irrevocable consent in the
same manner provided for in Section 6.5(a)(2). Further, the spouse's consent
must acknowledge the specific nonspouse Beneficiary. Notwithstanding the
foregoing, the nonspouse Beneficiary need not be acknowledged, provided the
consent of the spouse acknowledges that the spouse has the right to limit
consent only to a specific Beneficiary and that the spouse voluntarily
elects to relinquish such right.
(c) The election period to waive the Pre-Retirement Survivor Annuity
shall begin on the first day of the Plan Year in which the Participant
attains age 35 and end on the date of the Participant's death. An earlier
waiver (with spousal consent) may be made provided a written explanation of
the Pre-Retirement Survivor Annuity is given to the Participant and such
waiver becomes invalid at the beginning of the Plan Year in which the
Participant turns age 35. In the event a Vested Participant separates from
service prior to the beginning of the election period, the election period
shall begin on the date of such separation from service.
(d) With regard to the election, the Administrator shall provide each
Participant within the applicable period, with respect to such Participant
(and consistent with Regulations), a written explanation of the
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Pre-Retirement Survivor Annuity containing comparable information to that
required pursuant to Section 6.5(a)(5). For the purposes of this paragraph, the
term "applicable period" means, with respect to a Participant, whichever of the
following periods ends last:
(1) 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;
(2) A reasonable period after the individual becomes a Participant. For
this purpose, in the case of an individual who becomes a Participant after
age 32, the explanation must be provided by the end of the three-year period
beginning with the first day of the first Plan Year for which the individual
is a Participant;
(3) A reasonable period ending after the Plan no longer fully subsidizes
the cost of the Pre-Retirement Survivor Annuity with respect to the
Participant;
(4) A reasonable period ending after Code Section 401(a)(11) applies to
the Participant; or
(5) A reasonable period after separation from service in the case of a
Participant who separates before attaining age 35. For this purpose, the
Administrator must provide the explanation beginning one year before the
separation from service and ending one year after separation.
(e) The Pre-Retirement Survivor Annuity provided for in this Section shall
apply only to Participants who are credited with an Hour of Service on or after
August 23, 1984. Former Participants who are not credited with an Hour of
Service on or after August 23, 1984 shall be provided with rights to the Pre-
Retirement Survivor Annuity in accordance with Section 303(e)(2) of the
Retirement Equity Act of 1984.
(f) If the value of the Pre-Retirement Survivor Annuity derived from Employer
and Employee contributions does not exceed $3,500 and has never exceeded $3,500
at the time of any prior distribution, the Administrator shall direct the
immediate distribution of such amount to the Participant's spouse. No
distribution may be made under the preceding sentence after the annuity starting
date unless the spouse consents in writing. If the value exceeds, or has ever
exceeded at the time of any prior distribution, $3,500, an immediate
distribution of the entire amount may be made to the surviving spouse, provided
such surviving spouse consents in writing to such distribution. Any written
consent required under this paragraph must be obtained not more than 90 days
before commencement of the distribution and shall be made in a manner consistent
with Section 6.5(a)(2).
(g) (1) In the event there is an election to waive the Pre-Retirement
Survivor Annuity, and for death benefits in excess of the Pre-Retirement
Survivor Annuity, such death benefits shall be paid to the Participant's
Beneficiary by either of the following methods, as elected by the Participant
(or if no election has been made prior to the Participant's death, by his
Beneficiary) subject to the rules specified in Section 6.6(h) and the selections
made in the Adoption Agreement:
(i) One lump-sum payment in cash or in property;
(ii) Payment in monthly, quarterly, semi-annual, or annual cash
installments over a period to be determined by the Participant or his
Beneficiary. After periodic installments commence, the Beneficiary shall
have the right to reduce the period over which such periodic installments
shall be made, and the cash amount of such periodic installments shall be
adjusted accordingly.
(iii) If death benefits in excess of the Pre-Retirement Survivor
Annuity are to be paid to the surviving spouse, such benefits may be paid
pursuant to (i) or (ii) above, or used to purchase an annuity so as to
increase the payments made pursuant to the Pre-Retirement Survivor
Annuity;
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(2) In the event the death benefit payable pursuant to Section 6.2 is
payable in installments, then, upon the death of the Participant, the
Administrator may direct that the death benefit be segregated and invested
separately, and that the funds accumulated in the segregated account be used
for the payment of the installments.
(h) Notwithstanding any provision in the Plan to the contrary, distributions
upon the death of a Participant made on or after January 1, 1985, shall be made
in accordance with the following requirements and shall otherwise comply with
Code Section 401(a)(9) and the Regulations thereunder.
(1) If it is determined, pursuant to Regulations, that the distribution
of a Participant's interest has begun and the Participant dies before his
entire interest has been distributed to him, the remaining portion of such
interest shall be distributed at least as rapidly as under the method of
distribution selected pursuant to Section 6.5 as of his date of death.
(2) If a Participant dies before he has begun to receive any
distributions of his interest in the Plan or before distributions are deemed
to have begun pursuant to Regulations, then his death benefit shall be
distributed to his Beneficiaries in accordance with the following rules
subject to the selections made in the Adoption Agreement and Subsections
6.6(h)(3) and 6.6(i) below:
(i) The entire death benefit shall be distributed to the Participant's
Beneficiaries by December 31st of the calendar year in which the fifth
anniversary of the Participant's death occurs;
(ii) The 5-year distribution requirement of (i) above shall not apply
to any portion of the deceased Participant's interest which is payable to
or for the benefit of a designated Beneficiary. In such event, such
portion shall be distributed over the life of such designated Beneficiary
(or over a period not extending beyond the life expectancy of such
designated Beneficiary) provided such distribution begins not later than
December 31st of the calendar year immediately following the calendar
year in which the Participant died;
(iii) However, in the event the Participant's spouse (determined as of
the date of the Participant's death) is his designated Beneficiary, the
provisions of (ii) above shall apply except that the requirement that
distributions commence within one year of the Participant's death shall
not apply. In lieu thereof, distributions must commence on or before the
later of: (1) December 31st of the calendar year immediately following
the calendar year in which the Participant died; or (2) December 31st of
the calendar year in which the Participant would have attained age 70
1/2. If the surviving spouse dies before distributions to such spouse
begin, then the 5-year distribution requirement of this Section shall
apply as if the spouse was the Participant.
(3) Notwithstanding subparagraph (2) above, or any selections made in the
Adoption Agreement, if a Participant's death benefits are to be paid in the
form of a Pre-Retirement Survivor Annuity, then distributions to the
Participant's surviving spouse must commence on or before the later of: (1)
December 31st of the calendar year immediately following the calendar year in
which the Participant died; or (2) December 31st of the calendar year in
which the Participant would have attained age 70 1/2.
(i) For purposes of Section 6.6(h)(2), the election by a designated
Beneficiary to be excepted from the 5-year distribution requirement (if
permitted in the Adoption Agreement) must be made no later than December 31st of
the calendar year following the calendar year of the Participant's death.
Except, however, with respect to a designated Beneficiary who is the
Participant's surviving spouse, the election must be made by the earlier of: (1)
December 31st of the calendar year immediately following the calendar year in
which the Participant died or, if later, the calendar year in which the
Participant would have attained age 70 1/2; or (2) December 31st of the calendar
year which contains the fifth anniversary of the date of the Participant's
death. An election by a designated Beneficiary must be in writing and shall be
irrevocable as of the last day of the election period stated herein. In the
absence of an election by the Participant or a designated Beneficiary, the 5-
year distribution requirement shall apply.
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(j) For purposes of this Section, the life expectancy of a Participant
and a Participant's spouse (other than in the case of a life annuity) shall
or shall not be redetermined annually as provided in the Adoption Agreement
and in accordance with Regulations. If the Participant or the Participant's
spouse may elect, pursuant to the Adoption Agreement, to have life
expectancies recalculated, then the election, once made shall be
irrevocable. If no election is made by the time distributions must commence,
then the life expectancy of the Participant and the Participant's spouse
shall not be subject to recalculation. Life expectancy and joint and last
survivor expectancy shall be computed using the return multiples in Tables V
and VI of Regulation Section 1.72-9.
(k) In the event that less than 100% of a Participant's interest in the
Plan is distributed to such Participant's spouse, the portion of the
distribution attributable to the Participant's Voluntary Contribution
Account shall be in the same proportion that the Participant's Voluntary
Contribution Account bears to the Participant's total interest in the Plan.
(1) Subject to the spouse's right of consent afforded under the Plan, the
restrictions imposed by this Section shall not apply if a Participant has,
prior to January 1, 1984, made a written designation to have his death
benefits paid in an alternative method acceptable under Code Section 401(a)
as in effect prior to the enactment of the Tax Equity and Fiscal
Responsibility Act of 1982.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever a distribution is to be
made, or a series of payments are to commence, on or as of an Anniversary Date,
the distribution or series of payments may be made or begun on such date or as
soon thereafter as is practicable, but in no event later than 180 days after the
Anniversary Date. However, unless a Former Participant elects in writing to
defer the receipt of benefits (such election may not result in a death benefit
that is more than incidental), the payment of benefits shall begin not later
than the 60th day after the close of the Plan Year in which the latest of the
following events occurs: (a) the date on which the Participant attains the
earlier of age 65 or the Normal Retirement Age specified herein; (b) the 10th
anniversary of the year in which the Participant commenced participation in the
Plan; or (c) the date the Participant terminates his service with the Employer.
Notwithstanding the foregoing, the failure of a Participant and, if
applicable, the Participant's spouse, to consent to a distribution pursuant to
Section 6.5(d), shall be deemed to be an election to defer the commencement of
payment of any benefit sufficient to satisfy this Section.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the Administrator
may direct that such distribution be paid to the legal guardian, or if none, to
a parent of such Beneficiary or a responsible adult with whom the Beneficiary
maintains his residence, or to the custodian for such Beneficiary under the
Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted by the
laws of the state in which said Beneficiary resides. Such a payment to the legal
guardian, custodian or parent of a minor Beneficiary shall fully discharge the
Trustee, Employer, and Plan from further liability on account thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be treated as a Forfeiture
pursuant to the Plan. In the event a Participant or Beneficiary is located
subsequent to his benefit being reallocated, such benefit shall be restored,
first from Forfeitures, if any, and then from an additional Employer
contribution if necessary.
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6.10 PRE-RETIREMENT DISTRIBUTION
If elected in the Adoption Agreement, at such time as a Participant shall
have attained the age specified in the Adoption Agreement, the Administrator, at
the election of the Participant, shall direct the Trustee to distribute up to
the entire amount then credited to the accounts maintained on behalf of the
Participant. However, no such distribution may be made to any Participant unless
his Participant's Account has become fully Vested. In the event that the
Administrator makes such a distribution, the Participant shall continue to be
eligible to participate in the Plan on the same basis as any other Employee. Any
distribution made pursuant to this Section shall be made in a manner consistent
with Section 6.5, including but not limited to, all notice and consent
requirements required by Code Sections 411(a)(l1) and 417 and the Regulations
thereunder.
Notwithstanding the above, pre-retirement distributions from a Participant's
Elective Account and Qualified Non-Elective Account shall not be permitted prior
to the Participants attaining 59 1/2 except as otherwise permitted under the
terms of the Plan.
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the Participant, shall direct
the Trustee to distribute to any Participant in any one Plan Year up to the
lesser of (1) 100% of his accounts as specified in the Adoption Agreement
valued as of the last Anniversary Date or other valuation date or (2) the
amount necessary to satisfy the immediate and heavy financial need of the
Participant. Any distribution made pursuant to this Section shall be deemed
to be made as of the first day of the Plan Year or, if later, the valuation
date immediately preceding the date of distribution, and the account from
which the distribution is made shall be reduced accordingly. Withdrawal
under this Section shall be authorized only if the distribution is on
account of one of the following or any other items permitted by the Internal
Revenue Service:
(1) Medical expenses described in Code Section 213(d) incurred by the
Participant, his spouse, or any of his dependents (as defined in Code
Section 152);
(2) The purchase (excluding mortgage payments) of a principal
residence for the Participant;
(3) Funeral expenses for a member of the Participant's family;
(4) Payment of tuition for the next semester or quarter of post-
secondary education for the Participant, his spouse, children, or
dependents; or
(5) The need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the Participant's
principal residence.
(b) No such distribution shall be made from the Participant's Account
until such Account has become fully Vested.
(c) No distribution shall be made pursuant to this Section unless the
Administrator, based upon the Participant's representation and such other
facts as are known to the Administrator, determines that all of the
following conditions are satisfied:
(1) The distribution is not in excess of the amount of the immediate
and heavy financial need of the Participant;
(2) The Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans currently available
under all plans maintained by the Employer;
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(3) The Plan, and all other plans maintained by the Employer, provide
that the Participant's elective deferrals and voluntary Employee
contributions will be suspended for at least twelve (12) months after
receipt of the hardship distribution; and
(4) The Plan, and all other plans maintained by the Employer, provide
that the Participant may not make elective deferrals for the
Participant'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 next taxable year less the amount of such
Participant's elective deferrals for the taxable year of the hardship
distribution.
(d) Notwithstanding the above, distributions from the Participant's
Elective Account and Qualified Non-Elective Account pursuant to this Section
shall be limited solely to the Participant's Deferred Compensation and any
income attributable thereto credited to the Participant's Elective Account
as of December 31, 1988.
(e) Any distribution made pursuant to this Section shall be made in a
manner which is consistent with and satisfies the provisions of Section 6.5,
including, but not limited to, all notice and consent requirements of Code
Sections 41l(a)(11) and 417 and the Regulations thereunder.
6.12 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS
All rights and benefits, including elections, provided to a Participant in
this Plan shall be subject to the rights afforded to any "alternate payee" under
a "qualified domestic relations order." Furthermore, a distribution to an
"alternate payee" shall be permitted if such distribution is authorized by a
"qualified domestic relations order," even if the affected Participant has not
reached the "earliest retirement age" under the Plan. For the purposes of this
Section, "alternate payee," "qualified domestic relations order" and "earliest
retirement age" shall have the meaning set forth under Code Section 4l4(p).
6.13 SPECIAL RULE FOR NON-ANNUITY PLANS
If elected in the Adoption Agreement, the following 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 December 31, 1988, from or
under a separate account attributable solely to accumulated deductible employee
contributions, as defined in Code Section 72(o)(5)(B), and maintained on behalf
of a participant in a money purchase pension plan, (including a target benefit
plan):
(a) The Participant shall be prohibited from electing benefits in the
form of a life annuity;
(b) Upon the death of the Participant, the Participant's entire Vested
account balances will be paid to his or her surviving spouse, or, if there
is no surviving spouse or the surviving spouse has already consented to
waive his or her benefit, in accordance with Section 6.6, to his designated
Beneficiary; and
(c) Except to the extent otherwise provided in this Section and Section
6.5(h), the other provisions of Sections 6.2, 6.5 and 6.6 regarding spousal
consent and the forms of distributions shall be inoperative with respect to
this Plan.
This Section shall not apply to any Participant if it is determined that
this Plan is a direct or indirect transferee of a defined benefit plan or money
purchase plan, or a target benefit plan, stock bonus or profit sharing plan
which would otherwise provide for a life annuity form of payment to the
Participant.
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ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of responsibilities:
(a) Consistent with the "funding policy and method" determined by the
Employer to invest, manage, and control the Plan assets subject, however, to
the direction of an Investment Manager if the Employer should appoint such
manager as to all or a portion of the assets of the Plan;
(b) At the direction of the Administrator, to pay benefits required under
the Plan to be paid to Participants, or, in the event of their death, to
their Beneficiaries;
(c) To maintain records of receipts and disbursements and furnish to the
Employer and/or Administrator for each Plan Year a written annual report per
Section 7.7; and
(d) If there shall be more than one Trustee, they shall act by a majority
of their number, but may authorize one or more of them to sign papers on
their behalf.
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall, except as provided in the Adoption Agreement,
invest and reinvest the Trust Fund to keep the Trust Fund invested without
distinction between principal and income and in such securities or property,
real or personal, wherever situated, as the Trustee shall deem advisable,
including, but not limited to, stocks, common or preferred, bonds and other
evidences of indebtedness or ownership, and real estate or any interest
therein. The Trustee shall at all times in making investments of the Trust
Fund consider, among other factors, the short and long-term financial needs
of the Plan on the basis of information furnished by the Employer. In making
such investments, the Trustee shall not be restricted to securities or other
property of the character expressly authorized by the applicable law for
trust investments; however, the Trustee shall give due regard to any
limitations imposed by the Code or the Act so that at all times this Plan
may qualify as a qualified Plan and Trust.
(b) The Trustee may employ a bank or trust company pursuant to the terms
of its usual and customary bank agency agreement, under which the duties of
such bank or trust company shall be of a custodial, clerical and record-
keeping nature.
(c) Notwithstanding Section 7.2(a), the Employer, in writing to the
Trustee, may delegate investment responsibility to the Administrator. If the
Administrator has been delegated such authority, the Trustee shall invest
trust assets in accordance with the Administrator's direction, unless the
Trustee determines, in the exercise of its responsibility under ERISA as a
co-fiduciary of the Plan, that such investments are not permitted under the
terms of the Plan, Trust, or the Act. The Trustee shall not be liable or
responsible for losses or unfavorable results arising from the Trustee's
compliance with directions received from the Administrator.
(d) The Trustee may from time to time transfer to a common, collective,
or pooled trust fund maintained by any corporate Trustee hereunder pursuant
to Revenue Ruling 81-100, all or such part of the Trust Fund as the Trustee
may deem advisable, and such part or all of the Trust Fund so transferred
shall be subject to all the terms and provisions of the common, collective,
or pooled trust fund which contemplate the commingling for investment
purposes of such trust assets with trust assets of other trusts. The Trustee
may withdraw from such common, collective, or pooled trust fund all or such
part of the Trust Fund as the Trustee may deem advisable.
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(e) The Trustee, at the direction of the Administrator and pursuant to
instructions from the individual designated in the Adoption Agreement for
such purpose and subject to the conditions set forth in the Adoption
Agreement, shall ratably apply for, own, and pay all premiums on Contracts
on the lives of the Participants. Any initial or additional Contract
purchased on behalf of a Participant shall have a face amount of not less
than $1,000, the amount set forth in the Adoption Agreement, or the
limitation of the Insurer, whichever is greater. If a life insurance
Contract is to be purchased for a Participant, the aggregate premium for
ordinary life insurance for each Participant must be less than 50% of the
aggregate contributions and Forfeitures allocated to a Participant's
Combined Account. For purposes of this limitation, ordinary life insurance
Contracts are Contracts with both non-decreasing death benefits and non-
increasing premiums. If term insurance or universal life insurance is
purchased with such contributions, the aggregate premium must be 25% or less
of the aggregate contributions and Forfeitures allocated to a Participant's
Combined Account. If both term insurance and ordinary life insurance are
purchased with such contributions, the amount expended for term insurance
plus one-half of the premium for ordinary life insurance may not in the
aggregate exceed 25% of the aggregate Employer contributions and Forfeitures
allocated to a Participant's Combined Account. The Trustee must distribute
the Contracts to the Participant or convert the entire value of the
Contracts at or before retirement into cash or provide for a periodic income
so that no portion of such value may be used to continue life insurance
protection beyond retirement. Notwithstanding the above, the limitations
imposed herein with respect to the purchase of life insurance shall not
apply, in the case of a Profit Sharing Plan, to the portion of a
Participant's Account that has accumulated for at least two (2) Plan Years.
Notwithstanding anything hereinabove to the contrary, amounts credited to
a Participant's Qualified Voluntary Employee Contribution Account pursuant
to Section 4.14, shall not be applied to the purchase of life insurance
contracts.
(f) The Trustee will be the owner of any life insurance Contract
purchased under the terms of this Plan. The Contract must provide that the
proceeds will be payable to the Trustee; however, the Trustee shall be
required to pay over all proceeds of the Contract to the Participant's
designated Beneficiary in accordance with the distribution provisions of
Article VI. A Participant's spouse will be the designated Beneficiary
pursuant to Section 6.2, unless a qualified election has been made in
accordance with Sections 6.5 and 6.6 of the Plan, if applicable. Under no
circumstances shall the Trust retain any part of the proceeds. However, the
Trustee shall not pay the proceeds in a method that would violate the
requirements of the Retirement Equity Act, as stated in Article VI of the
Plan, or Code Section 401(a)(9) and the Regulations thereunder.
7.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under common law,
statutory authority, including the Act, and other provisions of this Plan, shall
have the following powers and authorities, except as provided in the Adoption
Agreement, to be exercised in the Trustee's sole discretion:
(a) To purchase, or subscribe for, any securities or other property and
to retain the same. In conjunction with the purchase of securities, margin
accounts may be opened and maintained;
(b) To sell, exchange, convey, transfer, grant options to purchase, or
otherwise dispose of any securities or other property held by the Trustee,
by private contract or at public auction. No person dealing with the Trustee
shall be bound to see to the application of the purchase money or to inquire
into the validity, expediency, or propriety of any such sale or other
disposition, with or without advertisement;
(c) To vote upon any stocks, bonds, or other securities; to give general
or special proxies or powers of attorney with or without power of
substitution; to exercise any conversion privileges, subscription rights or
other options, and to make any payments incidental thereto; to oppose, or to
consent to, or otherwise participate in, corporate reorganizations or other
changes affecting corporate securities, and to delegate discretionary
powers, and to pay any assessments or charges in connection therewith; and
generally to exercise any of the powers of an owner with respect to stocks,
bonds, securities, or other property. However, the Trustee shall not vote
proxies relating to securities for which it has not been assigned full
investment
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management responsibilities. In those cases where another party has such
investment authority or discretion, be it the Administrator or an outside
Investment Manager, the Trustee will deliver all proxies to said party who will
then have full responsibility for voting those proxies;
(d) To cause any securities or other property to be registered in the
Trustee's own name or in the name of one or more of the Trustee's nominees, and
to hold any investments in bearer form, but the books and records of the Trustee
shall at all times show that all such investments are part of the Trust Fund;
(e) To borrow or raise money for the purposes of the Plan in such amount, and
upon such terms and conditions, as the Trustee shall deem advisable; and for any
sum so borrowed, to issue a promissory note as Trustee, and to secure the
repayment thereof by pledging all, or any part, of the Trust Fund; and no person
lending money to the Trustee shall be bound to see to the application of the
money lent or to inquire into the validity, expediency, or propriety of any
borrowing;
(f) To keep such portion of the Trust Fund in cash or cash balances as the
Trustee may, from time to time, deem to be in the best interests of the Plan,
without liability for interest thereon;
(g) To accept and retain for such time as the Trustee may deem advisable any
securities or other property received or acquired as Trustee hereunder, whether
or not such securities or other property would normally be purchased as
investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be necessary
or appropriate to carry out the powers herein granted;
(i) To settle, compromise, or submit to arbitration any claims, debts, or
damages due or owing to or from the Plan, to commence or defend suits or legal
or administrative proceedings, and to represent the Plan in all suits and legal
and administrative proceedings;
(j) To employ suitable agents and counsel and to pay their reasonable
expenses and compensation, and such agent or counsel may or may not be agent or
counsel for the Employer;
(k) To apply for and procure from the Insurer as an investment of the Trust
Fund such annuity, or other Contracts (on the life of any Participant) as the
Administrator shall deem proper; to exercise, at any time or from time to time,
whatever rights and privileges may be granted under such annuity, or other
Contracts; to collect, receive, and settle for the proceeds of all such annuity,
or other Contracts as and when entitled to do so under the provisions thereof;
(l) To invest funds of the Trust in time deposits or savings accounts bearing
a reasonable rate of interest in the Trustee's bank;
(m) To invest in Treasury Bills and other forms of United States government
obligations;
(n) To sell, purchase and acquire put or call options if the options are
traded on and purchased through a national securities exchange registered under
the Securities Exchange Act of 1934, as amended, or, if the options are not
traded on a national securities exchange, are guaranteed by a member firm of the
New York Stock Exchange;
(o) To deposit monies in federally insured savings accounts or certificates
of deposit in banks or savings and loan associations;
(p) To pool all or any of the Trust Fund, from time to time, with assets
belonging to any other qualified employee pension benefit trust created by the
Employer or any Affiliated Employer, and to commingle such assets and make joint
or common investments and carry joint accounts on behalf of this Plan and such
other trust or trusts, allocating undivided shares or interests in such
investments or accounts or any pooled assets of the two or more trusts in
accordance with their respective interests;
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(q) To do all such acts and exercise all such rights and privileges,
although not specifically mentioned herein, as the Trustee may deem
necessary to carry out the purposes of the Plan.
(r) Directed Investment Account. The powers granted to the Trustee shall
be exercised in the sole fiduciary discretion of the Trustee. However, if
elected in the Adoption Agreement, each Participant may direct the Trustee
to separate and keep separate all or a portion of his interest in the Plan;
and further each Participant is authorized and empowered, in his sole and
absolute discretion, to give directions to the Trustee in such form as the
Trustee may require concerning the investment of the Participant's Directed
Investment Account, which directions must be followed by the Trustee
subject, however, to restrictions on payment of life insurance premiums.
Neither the Trustee nor any other persons including the Administrator or
otherwise shall be under any duty to question any such direction of the
Participant or to review any securities or other property, real or personal,
or to make any suggestions to the Participant in connection therewith, and
the Trustee shall comply as promptly as practicable with directions given by
the Participant hereunder. Any such direction may be of a continuing nature
or otherwise and may be revoked by the Participant at any time in such form
as the Trustee may require. The Trustee may refuse to comply with any
direction from the Participant in the event the Trustee, in its sole and
absolute discretion, deems such directions improper by virtue of applicable
law, and in such event, the Trustee shall not be responsible or liable for
any loss or expense which may result. Any costs and expenses related to
compliance with the Participant's directions shall be borne by the
Participant's Directed Investment Account.
Notwithstanding anything hereinabove to the contrary, the Trustee shall
not, at any time after December 31, 1981, invest any portion of a Directed
Investment Account in "collectibles" within the meaning of that term as
employed in Code Section 408(m).
7.4 LOANS TO PARTICIPANTS
(a) If specified in the Adoption Agreement, the Trustee may, in the
Trustee's sole discretion, make loans to Participants or Beneficiaries under
the following circumstances: (1) loans shall be made available to all
Participants and Beneficiaries on a reasonably equivalent basis; (2) loans
shall not be made available to Highly Compensated Employees in an amount
greater than the amount made available to other Participants; (3) loans
shall bear a reasonable rate of interest; (4) loans shall be adequately
secured; and (5) shall provide for periodic repayment over a reasonable
period of time.
(b) Loans shall not be made to any Shareholder-Employee or Owner-Employee
unless an exemption for such loan is obtained pursuant to Act Section 408
and further provided that such loan would not be subject to tax pursuant to
Code Section 4975.
(c) Loans shall not be granted to any Participant that provide for a
repayment period extending beyond such Participant's Normal Retirement Date.
(d) Loans made pursuant to this Section (when added to the outstanding
balance of all other loans made by the Plan to the Participant) shall be
limited to the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest outstanding
balance of loans from the Plan to the Participant during the one year
period ending on the day before the date on which such loan is made, over
the outstanding balance of loans from the Plan to the Participant on the
date on which such loan was made, or
(2) one-half (1/2) of the present value of the non-forfeitable accrued
benefit of the Employee under the Plan.
For purposes of this limit, all plans of the Employer shall be considered
one plan. Additionally, with respect to any loan made prior to January 1,
1987, the $50,000 limit specified in (1) above shall be unreduced.
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(e) No Participant loan shall take into account the present value of such
Participant's Qualified Voluntary Employee Contribution Account.
(f) Loans shall provide for level amortization with payments to be made
not less frequently than quarterly over a period not to exceed five (5)
years. However, loans used to acquire any dwelling unit which, within a
reasonable time, is to be used (determined at the time the loan is made) as
a principal residence of the Participant shall provide for periodic
repayment over a reasonable period of time that may exceed five (5) years.
Notwithstanding the foregoing, loans made prior to January 1, 1987 which are
used to acquire, construct, reconstruct or substantially rehabilitate any
dwelling unit which, within a reasonable period of time is to be used
(determined at the time the loan is made) as a principal residence of the
Participant or a member of his family (within the meaning of Code Section
267(c)(4)) may provide for periodic repayment over a reasonable period of
time that may exceed five (5) years. Additionally, loans made prior to
January 1, 1987, may provide for periodic payments which are made less
frequently than quarterly and which do not necessarily result in level
amortization.
(g) An assignment or pledge of any portion of a Participant's interest in
the Plan and a loan, pledge, or assignment with respect to any insurance
Contract purchased under the Plan, shall be treated as a loan under this
Section.
(h) Any loan made pursuant to this Section after August 18, 1985 where
the Vested interest of the Participant is used to secure such loan shall
require the written consent of the Participant's spouse in a manner
consistent with Section 6.5(a) provided the spousal consent requirements of
such Section apply to the Plan. Such written consent must be obtained within
the 90-day period prior to the date the loan is made. Any security interest
held by the Plan by reason of an outstanding loan to the Participant shall
be taken into account in determining the amount of the death benefit or Pre-
Retirement Survivor Annuity. However, no spousal consent shall be required
under this paragraph if the total accrued benefit subject to the security is
not in excess of $3,500.
(i) With regard to any loans granted or renewed on or after the last day
of the first Plan Year beginning after December 31, 1988, a Participant loan
program shall be established which must include, but need not be limited to,
the following:
(1) the identity of the person or positions authorized to administer
the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and amounts of loans offered,
including what constitutes a hardship or financial need if selected in
the Adoption Agreement;
(5) the procedure under the program for determining a reasonable rate
of interest;
(6) the types of collateral which may secure a Participant loan; and
(7) the events constituting default and the steps that will be taken
to preserve plan assets.
Such Participant loan program shall be contained in a separate written
document which, when properly executed, is hereby incorporated by reference
and made a part of this plan. Furthermore, such Participant loan program may
be modified or amended in writing from time to time without the necessity of
amending this Section of the Plan.
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
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At the direction of the Administrator, the Trustee shall, from time to time,
in accordance with the terms of the Plan, make payments out of the Trust Fund.
The Trustee shall not be responsible in any way for the application of such
payments.
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as set forth in the
Trustee's fee schedule (if the Trustee has such a schedule) or as agreed upon in
writing by the Employer and the Trustee. An individual serving as Trustee who
already receives full-time pay from the Employer shall not receive compensation
from this Plan. In addition, the Trustee shall be reimbursed for any reasonable
expenses, including reasonable counsel fees incurred by it as Trustee. Such
compensation and expenses shall be paid from the Trust Fund unless paid or
advanced by the Employer. All taxes of any kind and all kinds whatsoever that
may be levied or assessed under existing or future laws upon, or in respect of,
the Trust Fund or the income thereof, shall be paid from the Trust Fund.
7.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the Anniversary Date
or receipt of the Employer's contribution for each Plan Year, the Trustee, or
its agent, shall furnish to the Employer and Administrator a written statement
of account with respect to the Plan Year for which such contribution was made
setting forth:
(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses, realized by the Trust Fund upon sales or other
disposition of the assets;
(c) the increase, or decrease, in the value of the Trust Fund;
(d) all payments and distributions made from the Trust Fund; and
(e) such further information as the Trustee and/or Administrator deems
appropriate. The Employer, forthwith upon its receipt of each such statement
of account, shall acknowledge receipt thereof in writing and advise the
Trustee and/or Administrator of its approval or disapproval thereof. Failure
by the Employer to disapprove any such statement of account within thirty
(30) days after its receipt thereof shall be deemed an approval thereof. The
approval by the Employer of any statement of account shall be binding as to
all matters embraced therein as between the Employer and the Trustee to the
same extent as if the account of the Trustee had been settled by judgment or
decree in an action for a judicial settlement of its account in a court of
competent jurisdiction in which the Trustee, the Employer and all persons
having or claiming an interest in the Plan were parties; provided, however,
that nothing herein contained shall deprive the Trustee of its right to have
its accounts judicially settled if the Trustee so desires.
7.8 AUDIT
(a) If an audit of the Plan's records shall be required by the Act and
the regulations thereunder for any Plan Year, the Administrator shall direct
the Trustee to engage on behalf of all Participants an independent qualified
public accountant for that purpose. Such accountant shall, after an audit of
the books and records of the Plan in accordance with generally accepted
auditing standards, within a reasonable period after the close of the Plan
Year, furnish to the Administrator and the Trustee a report of his audit
setting forth his opinion as to whether any statements, schedules or lists,
that are required by Act Section 103 or the Secretary of Labor to be filed
with the Plan's annual report, are presented fairly in conformity with
generally accepted accounting principles applied consistently.
(b) All auditing and accounting fees shall be an expense of and may, at
the election of the Administrator, be paid from the Trust Fund.
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(c) If some or all of the information necessary to enable the
Administrator to comply with Act Section 103 is maintained by a bank,
insurance company, or similar institution, regulated and supervised and
subject to periodic examination by a state or federal agency, it shall
transmit and certify the accuracy of that information to the Administrator
as provided in Act Section 103(b) within one hundred twenty (120) days after
the end of the Plan Year or such other date as may be prescribed under
regulations of the Secretary of Labor.
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the Employer, at
least thirty (30) days before its effective date, a written notice of his
resignation.
(b) The Employer may remove the Trustee by mailing by registered or
certified mail, addressed to such Trustee at his last known address, at
least thirty (30) days before its effective date, a written notice of his
removal.
(c) Upon the death, resignation, incapacity, or removal of any Trustee, a
successor may be appointed by the Employer; and such successor, upon
accepting such appointment in writing and delivering same to the Employer,
shall, without further act, become vested with all the estate, rights,
powers, discretions, and duties of his predecessor with like respect as if
he were originally named as a Trustee herein. Until such a successor is
appointed, the remaining Trustee or Trustees shall have full authority to
act under the terms of the Plan.
(d) The Employer may designate one or more successors prior to the death,
resignation, incapacity, or removal of a Trustee. In the event a successor
is so designated by the Employer and accepts such designation, the successor
shall, without further act, become vested with all the estate, rights,
powers, discretions, and duties of his predecessor with the like effect as
if he were originally named as Trustee herein immediately upon the death,
resignation, incapacity, or removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such, he shall
furnish to the Employer and Administrator a written statement of account
with respect to the portion of the Plan Year during which he served as
Trustee. This statement shall be either (i) included as part of the annual
statement of account for the Plan Year required under Section 7.7 or (ii)
set forth in a special statement. Any such special statement of account
should be rendered to the Employer no later than the due date of the annual
statement of account for the Plan Year. The procedures set forth in Section
7.7 for the approval by the Employer of annual statements of account shall
apply to any special statement of account rendered hereunder and approval by
the Employer of any such special statement in the manner provided in Section
7.7 shall have the same effect upon the statement as the Employer's approval
of an annual statement of account. No successor to the Trustee shall have
any duty or responsibility to investigate the acts or transactions of any
predecessor who has rendered all statements of account required by Section
7.7 and this subparagraph.
7.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the Trustee at
the direction of the Administrator shall transfer the Vested interest, if any,
of such Participant in his account to another trust forming part of a pension,
profit sharing, or stock bonus plan maintained by such Participant's new
employer and represented by said employer in writing as meeting the requirements
of Code Section 401(a), provided that the trust to which such transfers are made
permits the transfer to be made.
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7.11 TRUSTEE INDEMNIFICATION
The Employer agrees to indemnify and save harmless the Trustee against any
and all claims, losses, damages, expenses and liabilities the Trustee may incur
in the exercise and performance of the Trustee's powers and duties hereunder,
unless the same are determined to be due to gross negligence or willful
misconduct.
7.12 EMPLOYER SECURITIES AND REAL PROPERTY
The Trustee shall be empowered to acquire and hold "qualifying Employer
securities" and "qualifying Employer real property," as those terms are defined
in the Act. However, no more than 100% of the fair market value of all the
assets in the Trust Fund may be invested in "qualifying Employer securities" and
"qualifying Employer real property".
ARTICLE VIII
AMENDMENT, TERMINATION, AND MERGERS
8.1 AMENDMENT
(a) The Employer shall have the right at any time to amend this Plan
subject to the limitations of this Section. However, any amendment which
affects the rights, duties or responsibilities of the Trustee and
Administrator may only be made with the Trustee's and Administrator's
written consent. Any such amendment shall become effective as provided
therein upon its execution. The Trustee shall not be required to execute any
such amendment unless the amendment affects the duties of the Trustee
hereunder.
(b) The Employer may (1) change the choice of options in the Adoption
Agreement, (2) add overriding language in the Adoption Agreement when such
language is necessary to satisfy Code Sections 415 or 416 because of the
required aggregation of multiple plans, and (3) 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. An Employer that amends the Plan for any other reason,
including a waiver of the minimum funding requirement under Code Section
412(d), will no longer participate in this Prototype Plan and will be
considered to have an individually designed plan.
Furthermore, an Employer may not use this Plan and will be deemed to have
an individually designed plan if the Employer does not maintain a product of
the sponsor of the Plan or any of its affiliates or subsidiaries.
(c) The Employer expressly delegates authority to the sponsoring
organization of this Plan, the right to amend this Plan by submitting a copy
of the amendment to each Employer who has adopted this Plan after first
having received a ruling or favorable determination from the Internal
Revenue Service that the Plan as amended qualifies under Code Section 401(a)
and the Act. For purposes of this Section, the mass submitter shall be
recognized as the agent of the sponsoring organization. If the sponsoring
organization does not adopt the amendments made by the mass submitter, it
will no longer be identical to or a minor modifier of the mass submitter
plan.
(d) No amendment to the Plan shall be effective if it authorizes or
permits any part of the Trust Fund (other than such part as is required to
pay taxes and administration expenses) to be used for or diverted to any
purpose other than for the exclusive benefit of the Participants or their
Beneficiaries or estates; or causes any reduction in the amount credited to
the account of any Participant; or causes or permits any portion of the
Trust Fund to revert to or become property of the Employer.
(e) Except as permitted by Regulations (including Regulation 1.4l1(d)-
4), no Plan amendment or transaction having the effect of a Plan amendment
(such as a merger, plan transfer or similar transaction) shall be effective
if it eliminates or reduces any "Section 411(d)(6) protected benefit" or
adds or modifies
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conditions relating to "Section 411(d)(6) protected benefits" the result of
which is a further restriction on such benefit unless such protected
benefits are preserved with respect to benefits accrued as of the later of
the adoption date or effective date of the amendment. "Section 411(d)(6)
protected benefits" are benefits described in Code Section 411(d)(6)(A),
early retirement benefits and retirement-type subsidies, and optional forms
of benefit.
8.2 TERMINATION
(a) The Employer shall have the right at any time to terminate the Plan
by delivering to the Trustee and Administrator written notice of such
termination. Upon any full or partial termination all amounts credited to
the affected Participants' Combined Accounts shall become 100% Vested and
shall not thereafter be subject to forfeiture, and all unallocated amounts
shall be allocated to the accounts of all Participants in accordance with
the provisions hereof.
(b) Upon the full termination of the Plan, the Employer shall direct the
distribution of the assets to Participants in a manner which is consistent
with and satisfies the provisions of Section 6.5. Distributions to a
Participant shall be made in cash (or in property if permitted in the
Adoption Agreement) or through the purchase of irrevocable nontransferable
deferred commitments from the Insurer. Except as permitted by Regulations,
the termination of the Plan shall not result in the reduction of "Section
411(d)(6) protected benefits" as described in Section 8.1.
8.3 MERGER OR CONSOLIDATION
This Plan may be merged or consolidated with, or its assets and/or
liabilities may be transferred to any other plan only if the benefits which
would be received by a Participant of this Plan, in the event of a termination
of the plan immediately after such transfer, merger or consolidation, are at
least equal to the benefits the Participant would have received if the Plan had
terminated immediately before the transfer, merger or consolidation and such
merger or consolidation does not otherwise result in the elimination or
reduction of any "Section 411(d)(6) protected benefits" as described in Section
8.1(e).
ARTICLE IX
MISCELLANEOUS
9.1 EMPLOYER ADOPTIONS
(a) Any organization may become the Employer hereunder by executing the
Adoption Agreement in form satisfactory to the Trustee, and it shall provide
such additional information as the Trustee may require. The consent of the
Trustee to act as such shall be signified by its execution of the Adoption
Agreement.
(b) Except as otherwise provided in this Plan, the affiliation of the
Employer and the participation of its Participants shall be separate and
apart from that of any other employer and its participants hereunder.
9.2 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the Employer
and any Participant or to be a consideration or an inducement for the employment
of any Participant or Employee. Nothing contained in this Plan shall be deemed
to give any Participant or Employee the right to be retained in the service of
the Employer or to interfere with the right of the Employer to discharge any
Participant or Employee at any time regardless of the effect which such
discharge shall have upon him as a Participant of this Plan.
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9.3 ALIENATION
(a) Subject to the exceptions provided below, no benefit which shall be
payable to any person (including a Participant or his Beneficiary) shall be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge, and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber, or charge the same shall
be void; and no such benefit shall in any manner be liable for, or subject
to, the debts, contracts, liabilities, engagements, or torts of any such
person, nor shall it be subject to attachment or legal process for or
against such person, and the same shall not be recognized except to such
extent as may be required by law.
(b) This provision shall not apply to the extent a Participant or
Beneficiary is indebted to the Plan, for any reason, under any provision of
this Plan. At the time a distribution is to be made to or for a
Participant's or Beneficiary's benefit, such proportion of the amount to be
distributed as shall equal such indebtedness shall be paid to the Plan, to
apply against or discharge such indebtedness. Prior to making a payment,
however, the Participant or Beneficiary must be given written notice by the
Administrator that such indebtedness is to be so paid in whole or part from
his Participant's Combined Account. If the Participant or Beneficiary does
not agree that the indebtedness is a valid claim against his Vested
Participant's Combined Account, he shall be entitled to a review of the
validity of the claim in accordance with procedures provided in Sections
2.12 and 2.13.
(c) This provision shall not apply to a "qualified domestic relations
order" defined in Code Section 414(p), and those other domestic relations
orders permitted to be so treated by the Administrator under the provisions
of the Retirement Equity Act of 1984. The Administrator shall establish a
written procedure to determine the qualified status of domestic relations
orders and to administer distributions under such qualified orders. Further,
to the extent provided under a "qualified domestic relations order", a
former spouse of a Participant shall be treated as the spouse or surviving
spouse for all purposes under the Plan.
9.4 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the Act and
the laws of the State or Commonwealth in which the Employer's principal office
is located, other than its laws respecting choice of law, to the extent not pre-
empted by the Act.
9.5 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply, and whenever any words are used herein
in the singular or plural form, they shall be construed as though they were also
used in the other form in all cases where they would so apply.
9.6 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the Trust
and/or Plan established hereunder to which the Trustee or the Administrator may
be a party, and such claim, suit, or proceeding is resolved in favor of the
Trustee or Administrator, they shall be entitled to be reimbursed from the Trust
Fund for any and all costs, attorney's fees, and other expenses pertaining
thereto incurred by them for which they shall have become liable.
9.7 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically permitted by law,
it shall be impossible by operation of the Plan or of the Trust, by
termination of either, by power of revocation or amendment, by the happening
of any contingency, by collateral arrangement or by any other means, for any
part of the corpus or income of any Trust Fund maintained pursuant to the
Plan or any funds contributed thereto to be used for,
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or diverted to, purposes other than the exclusive benefit of Participants,
Retired Participants, or their Beneficiaries.
(b) In the event the Employer shall make a contribution under a mistake
of fact pursuant to Section 403(c)(2)(A) of the Act, the Employer may demand
repayment of such contribution at any time within one (1) year following the
time of payment and the Trustees shall return such amount to the Employer
within the one (1) year period. Earnings of the Plan attributable to the
contributions may not be returned to the Employer but any losses
attributable thereto must reduce the amount so returned.
9.8 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted by
the Act and regulations thereunder, shall be bonded in an amount not less than
10% of the amount of the funds such Fiduciary handles; provided, however, that
the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of
funds handled shall be determined at the beginning of each Plan Year by the
amount of funds handled by such person, group, or class to be covered and their
predecessors, if any, during the preceding Plan Year, or if there is no
preceding Plan Year, then by the amount of the funds to be handled during the
then current year. The bond shall provide protection to the Plan against any
loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in
connivance with others. The surety shall be a corporate surety company (as such
term is used in Act Section 412(a)(2)), and the bond shall be in a form
approved by the Secretary of Labor. Notwithstanding anything in the Plan to the
contrary, the cost of such bonds shall be an expense of and may, at the election
of the Administrator, be paid from the Trust Fund or by the Employer.
9.9 INSURER'S PROTECTIVE CLAUSE
The Insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The Insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the Insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the Insurer.
9.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary, or to
any guardian or committee appointed for such Participant or Beneficiary in
accordance with the provisions of this Plan, shall, to the extent thereof, be in
full satisfaction of all claims hereunder against the Trustee and the Employer.
9.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or required
to do or perform any act or matter or thing, it shall be done and performed by a
person duly authorized by its legally constituted authority.
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator, (3) the Trustee, and (4) any Investment Manager appointed
hereunder. The named Fiduciaries shall have only those specific powers, duties,
responsibilities, and obligations as are specifically given them under the Plan.
In general, the Employer shall have the sole responsibility for making the
contributions provided for under Section 4.1; and shall have the sole authority
to appoint and remove the Trustee and the Administrator; to formulate the Plan's
"funding policy and method"; and to amend the elective provisions of the
Adoption Agreement or terminate, in whole or in part, the Plan. The
Administrator shall have the sole responsibility for the administration of the
Plan, which responsibility is specifically described in the Plan. The Trustee
shall have the sole responsibility of management of the assets held under the
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Trust, except those assets, the management of which has been assigned to an
Investment Manager or Administrator, who shall be solely responsible for the
management of the assets assigned to it, all as specifically provided in the
Plan. Each named Fiduciary warrants that any directions given, information
furnished, or action taken by it shall be in accordance with the provisions of
the Plan, authorizing or providing for such direction, information or action.
Furthermore, each named Fiduciary may rely upon any such direction, information
or action of another named Fiduciary as being proper under the Plan, and is not
required under the Plan to inquire into the propriety of any such direction,
information or action. It is intended under the Plan that each named Fiduciary
shall be responsible for the proper exercise of its own powers, duties,
responsibilities and obligations under the Plan. No named Fiduciary shall
guarantee the Trust Fund in any manner against investment loss or depreciation
in asset value. Any person or group may serve in more than one Fiduciary
capacity.
9.13 HEADINGS
The headings and subheadings of this Plan have been inserted for convenience
of reference and are to be ignored in any construction of the provisions hereof.
9.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary, if, pursuant to a
timely application filed by or in behalf of the Plan, the Commissioner of
Internal Revenue Service or his delegate should determine that the Plan does
not initially qualify as a tax-exempt plan under Code Sections 401 and 501,
and such determination is not contested, or if contested, is finally upheld,
then if the Plan is a new plan, it shall be void ab initio and all amounts
contributed to the Plan, by the Employer, less expenses paid, shall be
returned within one year and the Plan shall terminate, and the Trustee shall
be discharged from all further obligations. If the disqualification relates
to an amended plan, then the Plan shall operate as if it had not been
amended and restated. In the event that a contribution is made to the Plan
conditioned upon qualification of the Plan as amended, such contribution
must be returned to Employer upon the determination that the amended Plan
fails to qualify under the Code.
(b) Notwithstanding any provisions to the contrary, except Sections 3.5,
3.6, and 4.1(f), any contribution by the Employer to the Trust Fund is
conditioned upon the deductibility of the contribution by the Employer under
the Code and, to the extent any such deduction is disallowed, the Employer
may within one (1) year following the disallowance of the deduction, demand
repayment of such disallowed contribution and the Trustee shall return such
contribution within one (1) year following the disallowance. Earnings of the
Plan attributable to the excess contribution may not be returned to the
Employer, but any losses attributable thereto must reduce the amount so
returned.
(c) If an Employer's Plan fails to attain or retain qualification, then
such Plan will no longer participate in this Prototype Plan and will be
considered an individually designed plan.
9.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a uniform,
nondiscriminatory manner.
9.16 PAYMENT OF BENEFITS
Benefits under this Plan shall be paid, subject to Section 6.10 and Section
6.11 only upon death, Total and Permanent Disability, normal or early
retirement, termination of employment, or upon Plan Termination.
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ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER
Notwithstanding anything herein to the contrary, with the consent of the
Employer and Trustee, any Affiliated Employer may adopt this Plan and all of the
provisions hereof, and participate herein and be known as a Participating
Employer, by a properly executed document evidencing said intent and will of
such Participating Employer.
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each Participating Employer shall be required to select the same
Adoption Agreement provisions as those selected by the Employer other than
the Plan Year, the Fiscal Year, and such other items that must, by
necessity, vary among employers.
(b) Each such Participating Employer shall be required to use the same
Trustee as provided in this Plan.
(c) The Trustee may, but shall not be required to, commingle, hold and
invest as one Trust Fund all contributions made by Participating Employers,
as well as all increments thereof.
(d) The transfer of any Participant from or to an Employer participating
in this Plan, whether he be an Employee of the Employer or a Participating
Employer, shall not affect such Participant's rights under the Plan, and all
amounts credited to such Participant's Combined Account as well as his
accumulated service time with the transferor or predecessor, and his length
of participation in the Plan, shall continue to his credit.
(e) Any expenses of the Plan which are to be paid by the Employer or
borne by the Trust Fund shall be paid by each Participating Employer in the
same proportion that the total amount standing to the credit of all
Participants employed by such Employer bears to the total standing to the
credit of all Participants.
10.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a part of this Plan;
provided, however, that with respect to all of its relations with the Trustee
and Administrator for the purpose of this Plan, each Participating Employer
shall be deemed to have designated irrevocably the Employer as its agent. Unless
the context of the Plan clearly indicates the contrary, the word "Employer"
shall be deemed to include each Participating Employer as related to its
adoption of the Plan.
10.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between Participating
Employers, and in the event of any such transfer, the Employee involved shall
carry with him his accumulated service and eligibility. No such transfer shall
effect a termination of employment hereunder, and the Participating Employer to
which the Employee is transferred shall thereupon become obligated hereunder
with respect to such Employee in the same manner as was the Participating
Employer from whom the Employee was transferred.
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES
Any contribution or Forfeiture subject to allocation during each Plan Year
shall be allocated among all Participants of all Participating Employers in
accordance with the provisions of this Plan. On the basis of the information
furnished by the Administrator, the Trustee shall keep separate books and
records concerning the affairs of each Participating Employer hereunder and as
to the accounts and credits of the Employees of each Participating Employer. The
Trustee may, but need not, register Contracts so as to evidence that a
particular Participating
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Employer is the interested Employer hereunder, but in the event of an Employee
transfer from one Participating Employer to another, the employing Employer
shall immediately notify the Trustee thereof.
10.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be a
Participating Employer hereunder shall only be by the written action of each and
every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of this Plan.
10.7 DISCONTINUANCE OF PARTICIPATION
Except in the case of a Standardized Plan, any Participating Employer shall
be permitted to discontinue or revoke its participation in the Plan at any time.
At the time of any such discontinuance or revocation, satisfactory evidence
thereof and of any applicable conditions imposed shall be delivered to the
Trustee. The Trustee shall thereafter transfer, deliver and assign Contracts and
other Trust Fund assets allocable to the Participants of such Participating
Employer to such new Trustee as shall have been designated by such Participating
Employer, in the event that it has established a separate pension plan for its
Employees provided, however, that no such transfer shall be made if the result
is the elimination or reduction of any "Section 411(d)(6) protected benefits"
in accordance with Section 8.1(e). If no successor is designated, the Trustee
shall retain such assets for the Employees of said Participating Employer
pursuant to the provisions of Article VII hereof. In no such event shall any
part of the corpus or income of the Trust Fund as it relates to such
Participating Employer be used for or diverted for purposes other than for the
exclusive benefit of the Employees of such Participating Employer.
10.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary rules
or regulations, binding upon all Participating Employers and all Participants,
to effectuate the purpose of this Article.
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE
If any Participating Employer is prevented in whole or in part from making a
contribution which it would otherwise have made under the Plan by reason of
having no current or accumulated earnings or profits, or because such earnings
or profits are less than the contribution which it would otherwise have made,
then, pursuant to Code Section 404(a)(3)(B), so much of the contribution which
such Participating Employer was so prevented from making may be made, for the
benefit of the participating employees of such Participating Employer, by other
Participating Employers who are members of the same affiliated group within the
meaning of Code Section 1504 to the extent of their current or accumulated
earnings or profits, except that such contribution by each such other
Participating Employer shall be limited to the proportion of its total current
and accumulated earnings or profits remaining after adjustment for its
contribution to the Plan made without regard to this paragraph which the total
prevented contribution bears to the total current and accumulated earnings or
profits of all the Participating Employers remaining after adjustment for all
contributions made to the Plan without regard to this paragraph.
A Participating Employer on behalf of whose employees a contribution is made
under this paragraph shall not be required to reimburse the contributing
Participating Employers.
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AMENDMENT ONE TO THE
CHANNELL COMMERCIAL CORPORATION 4O1(K) PLAN
AND MERGER WITH THE
CHANNELL COMMERCIAL CORPORATION 4O1(K) SAVINGS PLAN
This AGREEMENT made and entered into this 22nd day of September, 1997, by
and between Channell Commercial Corp. a California corporation (referred to as
the "Company"); and Van Kampen American Capital Trust Company (referred to as
the "Trustee" of the Company Plan),
WITNESSETH:
WHEREAS, the Company established the Channell Commercial Corporation Profit
Sharing Plan effective February 1, 1986, and later restated the Company Profit
Sharing Plan by adoption of an Adoption Agreement to the American Capital
Marketing, Inc. Prototype 4O1(k) Profit Sharing Plan & Trust effective October
1, 1997 (referred to as the "Company Profit Sharing Plan") for the benefit of
its eligible employees; and
WHEREAS, the Company established the Channell Commercial Corporation 4O1(k)
Savings Plan (referred to as the "Company 4O1(k) Savings Plan") effective
January 1, 1993 for the benefit of its eligible employees; and
WHEREAS, the Company desires to merge the Company 4O1(k) Savings Plan with
the Company Profit Sharing Plan, effective October 1, 1997, with the latter
being the survivor as of the effective date of merger and thereafter known as
the Channell Commercial Corporation 4O1(k) Plan.
NOW, THEREFORE, IT IS AGREED that the Company hereby merges the Company
Profit Sharing Plan and the Company 4O1(k) Savings Plan, effective October 1,
1997, with the surviving plan to be known as the Channell Commercial Corporation
4O1(k) Plan (the "Plan") and all assets and liabilities of the trust for the
Company 4O1(k) Savings Plan shall be transferred to the trust for the Company
Profit Sharing Plan as soon as administratively feasible thereafter, where they
shall be considered assets and liabilities of the trust for the Plan, and
FURTHER AGREED that the Company shall take whatever steps are necessary to
ensure that the sum of all account balances in each plan immediately before the
effective date of merger shall equal the fair market value of the assets in each
respective plan immediately before the merger; and
FURTHER AGREED that each participant in the Company Profit Sharing Plan and
each participant in the Company 4O1(k) Savings Plan shall have an account
balance immediately after the merger which is at least as great as all account
balances such participant had in the Company Profit Sharing Plan and/or the
Company 4O1(k) Savings Plan immediately before the merger; and
<PAGE>
The undersigned Company, being the plan sponsor of the Plan, hereby amends the
Plan, effective the date hereof, to include the following provision:
Except as otherwise provided in the Plan, the Trustee shall have the power
to take any action with respect to the Trust Fund which it deems necessary
or advisable to discharge its responsibilities under the Plan including but
not limited to the power to cause any part or all of the Trust Fund,
without limitation as to amount, to be commingled with the funds from other
trusts (including trusts for qualified employee benefit plans) by causing
such money to be invested as a part of any pooled, common, collective or
commingled trust fund heretofore or hereafter created by any Trustee (if
the Trustee is a bank); the instrument or instruments establishing such
trust fund or funds, as amended, being made part of this Plan and Trust so
long as any portion of the Trust Fund shall be invested through the medium
thereof.
IN WITNESS THEREOF, the undersigned have caused this amendment to be
executed by each party's duly authorized officer or representative on the date
set forth below.
Channell Commercial Corporation
(Employer Name)
By: /s/ Gary W. Baker Date: 9-22-97
------------------------------ ---------------
Title: Chief Financial Officer
---------------------------
Van Kampen American Capital Trust Company
(Trustee)
By: /s/ Perri Williams Date:_______________
------------------------------
Title: Assistant Vice President
---------------------------
2
<PAGE>
MORGAN STANLEY STABLE VALUE FUND
PARTICIPATION AGREEMENT
-----------------------
Name of Retirement Plan: Channell Commercial Corporation 401(k) Plan
--------------------------------------------------------
Tax Identification No.: 95-2453261
---------------------------------------------------------
Retirement Plan Trustee(s):
Name(s): Van Kampen American Capital Trust Company
-------------------------------------------------------------------
Address: 2800 Post Oak Blvd. Houston, TX 77056
-------------------------------------------------------------------
Telephone: (713) 993-0500
-----------------------------------------------------------------
Employer/Plan Sponsor:
Employer Name: Channell Commercial Corporation
-------------------------------------------------------------
Address: 26040 Ynez Road, P.O. Box 9022, Temecula, CA 92589-9022
-------------------------------------------------------------------
Telephone: (909) 694-9160
-----------------------------------------------------------------
Type of Plan: [X] 401(k)/Profit Sharing [ ] Money Purchase
Broker:
Firm Name: Smith Barney, Inc.
-----------------------------------------------------------------
Investment Representative Name and Number: Carry Palmer 204-110
--------------------------------
Van Kampen American Capital Dealer Number: 5050
---------------------------------
Branch Number: 204
-------------------------------------------------------------
Branch Office Address: Wells Fargo Center 52nd Floor 333 S. Grand Avenue
-----------------------------------------------------
Los Angeles, CA 90071
-----------------------------------------------------
Telephone: (303) 294-7775
-----------------------------------------------------------------
1. The undersigned is the trustee of the above-named plan (the "Plan") or the
fiduciary of the Plan with the authority to direct the trustee to establish
an account in the Morgan Stanley Stable Value Fund (the "FUND") pursuant to
this Participation Agreement (this "Agreement"). The FUND is not a mutual
fund, but is a collective trust fund, established and maintained by Van
Kampen American Capital Trust Company, a trust company organized and
operating under the laws of the state of Texas (the "Trustee"), within the
Van Kampen American Capital Trust Company Group Trust for Employee Benefit
Plans as amended and restated effective May 30, 1995 (the "Group Trust").
The Trustee is trustee and investment manager to the FUND, and upon
acceptance will be a fiduciary, within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), with respect
to those assets of the Plan that are invested in and commingled with the
other assets of the FUND. The undersigned are fiduciaries of the Plan
independent of the Trustee.
2. The Declaration of Trust for the Group Trust, as amended and restated
May 30, 1995, and the Fund Description and Disclosure Memorandum of the
Morgan Stanley Stable Value Fund, dated April 1, 1997, as each may be
amended from time to time (hereinafter referred to collectively as the
"Declaration of Trust"), are hereby adopted as part of the Plan and made a
part of this Agreement. The Plan agrees that, upon acceptance of this
Agreement by the Trustee, the Plan will abide by the requirements of the
Declaration of Trust and other requirements prescribed by the Trustee. The
Plan hereby acknowledges receipt of a copy of the Declaration of Trust.
3. The Plan hereby appoints the Trustee to serve as a subtrustee of the Plan
with respect to all money, securities and other assets deposited with it or
which it may acquire on behalf of the Plan in the future in connection with
the Plan's investment in the FUND (the "Account"). The Trustee may appoint
one or more Investment Advisers to assist it and to perform such duties as
set forth by the Trust Committee. The Trustee may accept, reject or modify
any recommendations of any Investment Adviser and shall retain and exercise
full, final and complete management authority over the FUND at all times.
The Plan may add funds to the Account or make withdrawals from the Account
subject to the terms and conditions of the Declaration of Trust. The Plan
acknowledges that the FUND is intended to be a vehicle for long-term
investment and that significant limitations on investment withdrawals are
applicable, as stated in the Declaration of Trust.
4. The Plan authorizes and directs the Trustee to cause assets of the Plan to
be commingled with assets of other qualified employee benefit plans by
causing such assets of the Account to be invested as a part of the assets
held in the FUND. Assets of the Account so added to such funds shall be
subject to all of the provisions of the Declaration of Trust.
The Plan authorizes and directs the Trustee to invest the assets of the
FUND in mutual funds that receive investment advice from affiliates of the
Trustee, specifically including Miller, Anderson & Sherrerd, LLP ("MAS").
The undersigned has received prospectuses for MAS Funds - Fixed Income
Portfolio, Intermediate Duration Portfolio and Cash Reserves Portfolio, as
well as the Fund Description and Disclosure Memorandum of the FUND and
understands the fees and expenses disclosed therein, including investment
management fees payable to MAS, administrative, recordkeeping and
distribution fees payable to the Trustee and its affiliates, and investment
advisory fees payable to any Investment Advisers. The undersigned fiduciary
of the Plan represents that it is independent of the Trustee and MAS and
that it has reviewed the foregoing document and approves of the investment
of Fund assets in the MAS Funds.
1
<PAGE>
The Plan authorizes and directs the Trustee to pay all fees and expenses of
the FUND as described in the Declaration of Trust and to enter into
Liquidity Agreements as described in the Declaration of Trust.
5. The Plan hereby represents and warrants that:
(a) the Plan has been authorized to exercise trust powers in the state in
which the Plan is located by the appropriate regulatory authority and
the Plan has or will obtain the proper authority to fulfill all of its
obligations under this Agreement;
(b) the Plan is a trust which is qualified under Section 401(a) and exempt
under Section 501(a) of the Internal Revenue Code of 1986, as amended
(the "Code");
(c) the governing document of the Plan includes or will be amended to
include a provision which authorizes investment in the FUND (or,
generally, in commingled, collective or common investment funds
established and maintained by banks) and if any amendment is necessary
to authorize investment in the FUND, such amendment will have been
duly adopted and will be in effect no later than the date Plan assets
are first transferred to the Trustee for investment in the FUND; and
(d) the Plan and its trustees or other fiduciaries have met all of the
requirements for eligibility to become a Participating Plan in the
FUND, as provided in the Declaration of Trust.
6. The Plan agrees to notify the Trustee in writing immediately of any action
or inaction by, or communication from, the Internal Revenue Service, or any
other party which in any way affects the continuing accuracy of any
representation or warranty set forth in this Agreement.
7. The Plan agrees to furnish to the Trustee upon written request: (i) a copy
of the most recent determination letter issued by the Internal Revenue
Service with regard to the Plan's tax qualified status, and (ii) either an
amendment, certified by its sponsor to have been validly adopted, or a
certified copy of the provision in the governing document which authorizes
investment in the FUND (or any commingled, collective or common investment
funds established and maintained by banks) and which adopts the FUND's
Declaration of Trust (or, generally, the governing document) as part of the
Plan's governing document.
8. The Plan undertakes to notify the Trustee promptly of any event that may
give rise to a withdrawal or series of withdrawals that would be considered
employer-initiated and non-benefit responsive. Such events would include,
without limitation, establishment of a new investment option for
participants, merger, consolidation, divestiture of a subsidiary, division
or other business unit, group termination or layoff, termination or partial
termination of the plan, or delivery of a participant communication
resulting in a reduction in Plan investments in the FUND.
9. The person(s) signing on behalf of the Plan certify that: (i) the terms of
the Plan or Plan Trust authorize the signer(s) to delegate the trustee's
fiduciary duties to the Trustee on behalf of the Plan; (ii) the terms
of this Agreement do not violate any obligation by which the Plan is bound,
whether arising by contract, operation of law or otherwise; (iii) this
Agreement has been duly authorized by appropriate action and is binding
upon the Plan and its trustee or other fiduciary in accordance with its
terms; and (iv) the Plan will deliver to the Trustee such evidence of such
authority as the Trustee may reasonably require.
10. The Trustee's responsibility for the safekeeping of Assets of the Account
shall not extend to matters beyond its control, including without
limitation acts of God, war, insurrection, riot, governmental actions or
acts of any corporate or other depository.
11. The Plan shall notify the Trustee in writing of the names of the persons
authorized to give directions to the Trustee and the Trustee shall be fully
protected in relying on directions from such persons; the Plan shall have
full responsibility for actions taken by the Trustee pursuant to such
directions.
12. All directions to the Trustee shall be in writing, but the Trustee in its
sole discretion may accept directions which it believes to be genuine from
the Plan or an authorized agent of the Plan, whether given orally in person
or by telephone, facsimile, electronically, or otherwise. Any such
instructions shall be at the sole risk of the Plan and the Trustee shall be
fully protected in relying on the correctness of the directions and their
authenticity. The Trustee may require written confirmation from the Plan
after the fact.
13. The sponsor of the Plan shall be liable for all losses, expenses, costs and
attorneys' fees which either of the Trustee (or any Investment Adviser
appointed by the Trust Committee) incurs by reason of claims against either
of them arising out of actions taken or omitted by them pursuant to
directions from such sponsor of the Plan.
14. Any notice or other communication required or which may be given hereunder
shall be in writing and either delivered personally to the addressee,
transmitted by facsimile transmission to the addressee, or telexed to the
addressee or mailed, certified, registered or express mail to the
addressee, postage pre-paid and shall be deemed given (i) immediately when
so delivered personally, transmitted, or telexed, (ii) five(5) days after
the date of certified or registered mailing, or (iii) if express mailed,
two (2) days after the date of mailing, as follows:
2
<PAGE>
(i) If to the Plan:
___________________________
___________________________
___________________________
___________________________
(ii) If to Van Kampen American Capital Trust Company:
Van Kampen American Capital Trust Company
2800 Post Oak Boulevard, 42nd Floor
Houston, TX 77056
Attention: Peter Harvey
Fax: (713)966-7455
15. This Agreement may be amended at any time by written agreement between the
parties. This Agreement is not assignable (within the meaning of the
Investment Advisers Act of 1940) by either party without the prior written
consent of the other. Subject to the provisions of this Agreement and the
Declaration of Trust, including the limitation on withdrawals set forth
therein, either party may terminate this Agreement by giving thirty (30)
days' notice to the other party in writing.
16. This Agreement (including the Declaration of Trust) contains the entire
understanding of the parties on the subject hereof and terminates and
supersedes all previous verbal and written agreements on such subject.
This Agreement does not and shall not be deemed to constitute a partnership
or joint venture between the parties and neither party nor any of its
directors, officers, employees or agents shall, by virtue of the
performance of their obligations under this Agreement, be deemed to be an
employee of the other.
17. In the event that any court having competent jurisdiction shall determine
that one or more of the provisions contained in this Agreement shall be
unenforceable in any respect, then such provision shall be deemed limited
and restricted to the extent that such court shall deem it to be
enforceable, and as so limited or restricted shall remain in full force and
effect. In the event that any such provision or provisions shall be deemed
wholly enforceable, the remaining provisions shall remain in full force and
effect.
18. The validity of this Agreement and the rights and liabilities of the
parties hereunder shall be determined in accordance with the laws of the
State of Texas, without regard to the choice of law principles thereof.
IN WITNESS WHEREOF, the Plan has caused this Participation Agreement to be
executed on its behalf by an authorized representative of the Plan as of the
date first set forth below.
Date: 9-22-97 Channell Commercial Corporation 401(k)
-------------------- ---------------------------------------
Type or Print Name of the Plan
By: /s/ Gary W. Baker
------------------------------------
Name: Gary W. Baker
----------------------------------
Title: Chief Financial Officer
---------------------------------
Accepted:
Van Kampen American Capital Trust Company
By: /s/ Perri Williams
--------------------------------------
Name: Perri Williams
------------------------------------
Title: Assistant Vice President
-----------------------------------
3
<PAGE>
MORGAN STANLEY STABLE VALUE FUND
FUND DESCRIPTION AND DISCLOSURE MEMORANDUM
APPENDIX B
FEE DISCLOSURE AND INVESTMENT INSTRUCTION
The Trustee will charge to the Fund an administration fee for recordkeeping
and for administrative and distribution services provided to the Fund. The
administration fee will be calculated at the annual rate of 0.40% of the Fund's
average daily net assets. The Trustee will provide, directly or through its
affiliates, accounting and valuation services for the Assets and Liquidity
Agreements held by the Fund, transfer agency and recordkeeping services
identifying the interests of Participating Plans in the Fund, distribution
services and other administrative services necessary or appropriate for the
operation of the Fund. In addition, the Trustee will pay, without additional
charge to the Fund, the fees of independent public accountants in connection
with the annual audit of the Fund's financial statements and other fees and
expenses incurred in connection with the Fund.
In addition to the administration fee, the Fund will pay investment advisory
fees to Dwight at the rate of 0.05% of the first $500 million of average daily
book value of the Stable Value Funds, 0.04% of the next $500 million and 0.03%
of assets in excess of $1 billion. Dwight's fees will be allocated ratably to
this Fund and Morgan Stanley Stable Value Fund II (together, the "Stable Value
Funds").
Distribution of units is implemented under an agreement with the Distributor
and sub-agreements between the Distributor and agents ("Selling Agreements")
that may provide for their customers or clients certain services or assistance.
The Trustee will transfer to the Distributor from the administration fee, and
the Distributor will pay agents, 0.15% per year of the average daily book value
for services rendered in the ongoing servicing and retention of investments in
the Fund introduced by that agent.
The table below shows estimated expenses to be incurred in providing these
services at various hypothetical asset levels.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
=======================================================================================================================
Fund Asset Level (millions) $ 12.5 $25 $62.5 $125 $187.5 $250
=======================================================================================================================
Affiliate expenses
Distribution fee 0.150% 0.150% 0.150% 0.150% 0.150% 0.150%
Fund accounting 0.100% .050% 0.020% 0.010% 0.007% 0.005%
Transfer agency 0.223% 0.223% 0.223% 0.223% 0.223% 0.223%
- -----------------------------------------------------------------------------------------------------------------------
Non-affiliate and out-of-pocket expenses
Investment advisor 0.050% 0.050% 0.050% 0.050% 0.047% 0.045%
Audit and miscellaneous 0.040% 0.020% 0.008% 0.004% 0.003% 0.002%
- -----------------------------------------------------------------------------------------------------------------------
Gross Expense 0.563% 0.493% 0.451% 0.437% 0.429% 0.425%
- -----------------------------------------------------------------------------------------------------------------------
Expense absorbed by Trustee 0.113% 0.043% 0.001% - - -
- -----------------------------------------------------------------------------------------------------------------------
Total Expense Paid by Fund 0.450% 0.450% 0.450% 0.437% 0.429% 0.425%
=======================================================================================================================
</TABLE>
The undersigned, a fiduciary of the Plan has reviewed the fees and
compensation payable to the Trustee and its affiliates and has determined such
fees to be reasonable and prudent and agrees that the Fund will pay to the
Trustee and investment adviser the fees described herein. The fees will be
accrued daily and paid from the Fund monthly by the Trustee. The Plan
acknowledges and agrees that affiliates of the Trustee may perform the services
described above. Any fees paid to an investment adviser appointed by the Trust
Committee will be at the stated rate, and the investment advisory fee may be
paid to an investment adviser other than Dwight.
4
<PAGE>
SIGNATURE AUTHORIZATION
The undersigned fiduciary of the Plan named below represents that the persons
identified below are all of the representatives or agents of the Plan and
related trust who are authorized to take action with respect to the Plan's
investment in the Morgan Stanley Stable Value Fund. Van Kampen American Capital
Trust Company, as trustee of the Fund, shall be entitled to rely upon any
document, information or instruction it reasonably believes to be executed
individually or jointly by any one or more of the listed persons:
<TABLE>
<CAPTION>
Name Title Signature
<S> <C> <C>
William H. Channell, Sr. Chief Executive Officer /s/ William H. Channell, Sr.
- -------------------------- --------------------------- -------------------------------
William H. Channell, Jr. President /s/ William H. Channell, Jr.
- -------------------------- --------------------------- -------------------------------
Gary W. Baker Chief Financial Officer /s/ Gary W. Baker
- -------------------------- --------------------------- -------------------------------
- -------------------------- --------------------------- -------------------------------
- -------------------------- --------------------------- -------------------------------
- -------------------------- --------------------------- -------------------------------
</TABLE>
Plan Name: Channell Commercial Corporation 401(k) Plan
-----------------------------------------------------
By: Gary W. Baker Date: 9-22-97
------------------ --------------------
(fiduciary)
Title: Chief Financial Officer
------------------------
<PAGE>
AMENDMENT NUMBER ONE TO
VAN KAMPEN AMERICAN CAPITAL TRUST CO.
4O1(k) PLAN & TRUST
Van Kampen American Capital Trust Co. 401(k) Plan & Trust is hereby amended as
follows:
1. Section 1.9 is amended by replacing the first paragraph with the following
paragraphs:
"Compensation" with respect to any Participant means one of the following
as elected in the Adoption Agreement. However, compensation for any Self-
Employed Individual shall be equal to his Earned Income.
i. Information required to be reported under sections 6041, 6051 and 6052
(Wages, Tips and Other Compensation Box on Form W-2). Compensation is
defined as wages as defined in 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 sections 6041(d) and
605l(a)(3) of the Code. Compensation must be determined without
regard to any rules under 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 section 3401(a)(2)).
ii. Section 3401(a) wages. Compensation is defined as wages within the
meaning of section 3401(a) for the purposes of 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 section 3401(a)(2)).
iii. 415 safe-harbor compensation. Compensation is defined as 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 nonaccountable plan (as described in 1.62-2(c)),
and excluding the following:
a. 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 to the extent such contributions
are deductible by the employee, or any distributions from a plan
of deferred compensation;
b. Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the
employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
c. Amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
d. Other amounts which received special tax benefits, or
contributions made by the employer (whether or not under a salary
reduction agreement) towards the purchase of an annuity contract
described in section 403(b) of the Code (whether or not the
contributions are actually excludable from the gross income of
the employee).
If, in connection with the adoption of this or any other amendment, the
definition of Compensation has been modified, then, for Plan Years prior to
the Plan Year which includes the adoption date of such amendment,
Compensation means compensation determined pursuant to the Plan then in
effect.
1
<PAGE>
2. Section 1.14 is amended in its entirety to read as follows:
"Elective Contribution" means the Employer's contributions to the Plan that
are made pursuant to the Participant's deferral election pursuant to Section
4.2, excluding any such amounts distributed as "excess annual additions"
pursuant to Section 4.4. In addition, if selected in E3 of the Adoption
Agreement, the Employer's matching contribution shall or shall not be considered
an Elective Contribution for purposes of the Plan, as provided in Section
4.1(b). Elective Contributions shall be subject to the requirements of Sections
4.2(b) and 4.2(c) and shall further be required to satisfy the discrimination
requirements of Regulation 1.401(k)-l(b)(3), the provisions of which are
specifically incorporated herein by reference.
3. Section 1.20 is amended in its entirety to read as follows:
"Excess Deferred Compensation" means, with respect to any taxable year of a
Participant, the excess of the aggregate amount of such Participant's Deferred
Compensation and the elective deferrals pursuant to Section 4.2(f) actually made
on behalf of such Participant for such taxable year, over the dollar limitation
provided for in Code Section 402(g), which is incorporated herein by reference.
Excess Deferred Compensation shall be treated as an "annual addition" pursuant
to Section 4.9 when contributed to the Plan unless distributed to the affected
Participant not later than the first April 15th following the close of the
Participant's taxable year.
4. Section 1.26 is amended in its entirety to read as follows:
"414(s) Compensation" with respect to any Employee means his Compensation
as defined in Section 1.9. However, for purposes of this Section, Compensation
shall be Compensation paid and, if selected in the Adoption Agreement, shall
only be recognized as of an Employee's effective date of participation. If, in
connection with the adoption of this or any other amendment, the definition of
"414(s) Compensation" has been modified, then, for Plan Years prior to the Plan
Year which includes the adoption date of such amendment, "414(s) Compensation"
means compensation determined pursuant to the Plan then in effect.
5. Section 1.27 ("415 Compensation") is amended by the addition of the
following paragraph:
If, in connection with the adoption of this or any other amendment, the
definition of "415 Compensation" has been modified, then, for Plan Years prior
the Plan Year which includes the adoption date of such amendment, "415
Compensation" means compensation determined pursuant to the Plan then in
effect.
6. Section 4.9(a)(4) and 4.9(a)(4)(i) are amended to read as follows:
(4) If there is an excess amount pursuant to Section 4.9(a)(2) or Section
4.10, the excess will be disposed of in one of the following manners,
as uniformly determined by the Plan Administrator for all Participants
similarly situated:
(i) Any Deferred Compensation or nondeductible Voluntary Employee
Contributions, to the extent they would reduce the Excess Amount
will be distributed to the Participant;
7. Section 4.9(f)(2) is amended in its entirety to read as follows:
Compensation means a Participant's Compensation as elected in the Adoption
Agreement. However, regardless of any selection made in the Adoption Agreement,
"415 Compensation" shall exclude compensation which is not currently includible
in the Participant's gross income by reason of the application of Code Sections
125, 402(a)(8), 402(h)(1)(B), or 403(b).
For limitation years beginning after December 31, 1991, for purposes of
applying the limitations of this article, 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
section 22(e)(3) of the Internal Revenue Code) is the compensation such
participant would have received for the limitation year if the participant had
been paid at the rate of compensation paid
2
<PAGE>
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 and contributions made on
behalf of such participant are nonforfeitable when made.
8. Section 4.10 is amended in its entirety to read as follows:
(a) If as a result of the allocation of Forfeitures, a reasonable error in
estimating a Participant's annual Compensation, a reasonable error in
determining the amount of elective deferrals (within the meaning of Code Section
402(g)(3)) that may be made with respect to any Participant under the limits of
Section 4.9, or other facts and circumstances to which Regulation 1.415-6(b)(6)
shall be applicable, the "annual additions" under this Plan would cause the
maximum provided in Section 4.9 to be exceeded, the Administrator shall treat
the excess in accordance with Section 4.9(a)(4).
9. Sections 6.11(a)(1) and (a)(4) are amended in their entirety to read as
follows:
(1) Medical expenses described in Code Section 213(d) incurred by the
Participant, his spouse, or any of his dependents (as defined in Code Section
152) or expenses necessary for these persons to obtain medical care;
(4) Payment of tuition and related educational fees for the next 12 months
of post-secondary education for the Participant, his spouse, children, or
dependents;
10. Section 7.10 is amended by the addition of the following paragraphs:
(a) Notwithstanding any provision of the plan to the contrary, with respect
to distributions made after December 31, 1992, a Participant shall be permitted
to elect to have any "eligible rollover distribution" transferred directly to an
"eligible retirement plan" specified by the Participant. The Plan provisions
otherwise applicable to distributions continue to apply to the direct transfer
option. The Participant shall, in the time and manner prescribed by the
Administrator, specify the amount to be directly transferred and the "eligible
retirement plan" to receive the transfer. Any portion of a distribution which is
not transferred shall be distributed to the Participant.
(b) For purposes of this Section, the term "eligible rollover distribution"
means any distribution other than a distribution of substantially equal periodic
payments over the life or life expectancy of the Participant (or joint life or
joint life expectancies of the Participant and the designated beneficiary) or a
distribution over a period certain of ten years or more. Amounts required to be
distributed under Code Section 401(a)(9) are not eligible rollover
distributions. The direct transfer option described in subsection (a) applies
only to eligible rollover distributions which would otherwise be includible in
gross income if not transferred.
(c) For purposes of this Section, the term "eligible retirement plan" means
an individual retirement account as described in Code Section 408(a), an
individual retirement annuity as described in Code Section 408(b), an annuity
plan as described in Code Section 403(a), or a defined contribution plan as
described in Code Section 401(a) which is exempt from tax under Code Section
501(a) and which accepts rollover distributions.
(d) The election described in subsection (a) also applies to the surviving
spouse after the Participant's death; however, distributions to the surviving
spouse may only be transferred to an individual retirement account or individual
retirement annuity. For purposes of subsection (a), a spouse or former spouse
who is the alternate payee under a qualified domestic relations order as defined
in Code Section 414(p) will be treated as the Participant.
11. Section 4.2(d) is amended in its entirety to read as follows:
(d) In any Plan Year beginning after December 31, 1986, a Participant's
Deferred Compensation made under this Plan and all other plans, contracts or
arrangements of the Employer maintaining this Plan shall not exceed the
limitation imposed by Code Section 402(g), as in effect for the calendar year in
which such Plan Year began. If such dollar limitation is exceeded solely from
elective deferrals made under this Plan or any other Plan maintained by the
Employer, a Participant will be deemed to have notified the Administrator of
such excess amount which shall be distributed in a manner consistent with
Section 4.2(f). This dollar limitation shall be adjusted annually pursuant to
the method provided in Code Section 415(d) in accordance with Regulations.
3
<PAGE>
12. Section 4.2(f) is amended by the addition of the following paragraph after
paragraph (f)(3) to read as follows:
Any distribution under this Section shall be made first from unmatched
Deferred Compensation and, thereafter, simultaneously from Deferred Compensation
which is matched and matching contributions which relate to such Deferred
Compensation. However, any such matching contributions which are not Vested
shall be forfeited in lieu of being distributed.
13. Section 4.2(f) is amended by the addition of the following paragraph as the
second to the last paragraph of such subsection:
Notwithstanding the above, for any distribution under this Section which is
made after August 15, 1991, such distribution shall not include any income for
the "gap period". Further provided, for any distribution under this Section
which is made after August 15, 1991, the amount of Income may be computed using
a reasonable method that is consistent with Section 4.3(c), provided such method
is used consistently for all Participants and for all such distributions for the
Plan Year.
14. Section 4.6(c) is amended by the addition of the following paragraph as the
second to the last paragraph of such subsection:
Notwithstanding the above, for any distribution under this Section which is
made after August 15, 1991, such distribution shall not include any income for
the "gap period". Further provided, for any distribution under this Section
which is made after August 15, 1991, the amount of Income may be computed using
a reasonable method that is consistent with Section 4.3(c), provided such method
is used consistently for all Participants and for all such distributions for the
Plan Year.
15. Section 4.7(c) is amended in its entirety to read as follows:
(c) For purposes of determining the "Actual Contribution Percentage" and
the amount of Excess Aggregate Contributions pursuant to Section 4.8(d), only
Employer matching contributions (excluding matching contributions forfeited or
distributed pursuant to Section 4.2(f), 4.6(a), or 4.8(a)) contributed to the
Plan prior to the end of the succeeding Plan Year shall be considered. In
addition, the Administrator may elect to take into account, with respect to
Employees eligible to have Employer matching contributions made pursuant to
Section 4.1(b) or voluntary Employee contributions made pursuant to Section 4.12
allocated to their accounts, elective deferrals (as defined in Regulation
1.402(g)-i(b)) and qualified non-elective contributions (as defined in Code
Section 401(m)(4)(C)) contributed to any plan maintained by the Employer. Such
elective deferrals and qualified non-elective contributions shall be treated as
Employer matching contributions subject to Regulation 1.401(m)-1(b)(2) which
is incorporated herein by reference. However, for Plan Years beginning after
December 31, 1988, the Plan Year must be the same as the plan year of the plan
to which the elective deferrals and the qualified non-elective contributions are
made.
16. Section 4.8(i) is amended by the addition of the following paragraph as the
second to the last paragraph of such subsection:
Notwithstanding the above, for any distribution under this Section which is
made after August 15, 1991, such distribution shall not include any Income for
the "gap period". Further provided, for any distribution under this Section
which is made after August 15, 1991, the amount of Income may be computed using
a reasonable method that is consistent with Section 4.3(c), provided such method
is used consistently for all Participants and for all such distributions for the
Plan Year.
17. Section 6.11(c)(1) is amended in its entirety to read as follows:
(1) The distribution is not in excess of the amount of the immediate and
heavy financial need of the Participant. The amount of the immediate and heavy
financial need may include any amounts necessary to pay any federal, state or
local income taxes or penalties reasonably anticipated to result from the
distribution.
4
<PAGE>
18. Article IV is amended by the addition of the following:
Notwithstanding anything in this Article to the contrary, effective as of
the Plan Year in which this amendment becomes effective, the Actual Deferral
Percentage Test and the Actual Contribution Percentage Test shall be applied
(and adjusted) by applying the Family Member aggregation rules of Code Section
414(q)(6).
19. Section Ela. of the Adoption Agreement is amended in its entirety to read
as follows:
Compensation with respect to any Participant means:
1. ( ) Wages, Tips and other Compensation (Box 10 on Form W-2).
2. (X) Section 3401(a) wages (wages for withholding purposes).
3. ( ) 415 Safe-harbor compensation.
AND Compensation
(X) shall
( ) shall not
exclude (even if includible in gross income) reimbursements or other
expense allowances, fringe benefits (cash or noncash), moving expenses,
deferred compensation, and welfare benefits.
20. Section E3 of the 401(k) Adoption Agreement(s) is amended by the addition
of the following:
(X) Notwithstanding anything in the Plan to the contrary, all matching
contributions which relate to distributions of Excess Deferred
Compensation, Excess Contributions and Excess Aggregate Contributions
shall be Forfeited. (Select this option only if it is applicable.)
NOTE: THIS AMENDMENT ONLY NEEDS TO BE EXECUTED BELOW BY THE EMPLOYER IF THE
PLAN IS BEING AMENDED TO UTILIZE THE MODIFICATIONS MADE TO SECTION El OR E3 OF
THE ADOPTION AGREEMENT.
IN WITNESS WHEREOF, the Employer hereby causes this amendment to be
executed on this day of 22 day of September, 1997.
EMPLOYER: PARTICIPATING EMPLOYER:
Channell Commercial Corporation None
- ---------------------------------- ---------------------------
(enter name) (enter name)
By: /s/ Gary W. Baker By:
------------------------------- ------------------------
5
<PAGE>
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
PLAN DESCRIPTION: PROTOTYPE NON-STANDARDIZED PROFIT SHARING PLAN WITH CODA
FFN: 50302820702-001 CASE: 9300080 EIN: 74-1832781
BPD: 02 PLAN: 001 LETTER SERIAL NO: D343205B WASHINGTON, DC 20224
PERSON TO CONTACT: MS. ARRINGTON
AMERICAN CAPITAL MARKETING INC
TELEPHONE NUMBER: (202) 622-8173
2800 POST OAK ROAD
P 0 BOX 944 Refer Reply to: E:EP:Q:ICU
HOUSTON TX 77251
Date: 01/21/93
Dear Applicant:
In our opinion, the amendment to the form of the plan identified above does
not in and of itself adversely affect the plan's acceptability under section
401 of the Internal Revenue Code. This opinion relates only to the amendment
to the form of the plan. It is not an opinion as to the acceptability of
any other amendment or of the form of the plan as a whole, or as to the
effect of other federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
An employer who adopts the amended form of the plan after the date of the
amendment should apply for a determination letter by filing an application
with the Key District Director of Internal Revenue on form 5307, Short Form
Application for Determination for Employee Benefit Plan.
This letter with respect to the amendment to the form of the plan does not
affect the applicability to the plan of the continued, interim and extended
reliance provisions of sections 13 and 17.03 of Rev. Proc. 89-9. 1989-1 C.B.
780. The applicability of such provisions may be determined by reference to
the initial opinion letter issued with respect to the plan.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number
is only for use of the sponsoring organization. Individual participants
and/or adopting employers with questions concerning the plan should contact
the sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by
adopting employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial
Number and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerely yours,
Signature Illegible
Chief, Employee Plans Qualification Branch
<PAGE>
AMENDMENT NUMBER TWO TO
VAN KAMPEN AMERICAN CAPITAL TRUST CO.
4O1(k) PLAN & TRUST
1. Section 1.9 is amended by the addition of the following:
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
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the determination period, and
the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in 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
plan year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
2. Section 6.13 is amended by the addition of the following:
If a distribution is one to which Section 40l(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.
3. Section 7.10 is amended by the addition of the following:
(a) Notwithstanding any provision of the plan to the contrary, with respect
to distributions made after December 31, 1992, a Participant shall be permitted
to elect to have any "eligible rollover distribution" transferred directly to an
"eligible retirement plan" specified by the Participant. The Plan provisions
otherwise applicable to distributions continue to apply to the direct transfer
option. The Participant shall, in the time and manner prescribed the
Administrator, specify the amount to be directly transferred and the "eligible
retirement plan" to receive the transfer. Any portion of a distribution which is
not transferred shall be distributed to the Participant.
(b) For purposes of this Section, the term "eligible rollover distribution"
means any distribution other than a distribution of substantially equal periodic
payments over the life or life expectancy of the Participant (or joint life or
joint life expectancies of the Participant and the designated beneficiary) or a
distribution over a period certain of ten years or more. Amounts required to be
distributed under Code Section 401(a)(9) are not eligible rollover
distributions. The direct transfer option described in subsection (a) applies
only to eligible rollover distributions which would otherwise be includible in
gross income if not transferred.
<PAGE>
(c) For purposes of this Section, the term "eligible retirement plan" means
an individual retirement account as described in Code Section 408(a), an
individual retirement annuity as described in Code Section 408(b), an annuity
plan as described in Code Section 403(a), or a defined contribution plan as
described in Code Section 401(a) which is exempt from tax under Code Section
501(a) and which accepts rollover distributions.
(d) The election described in subsection (a) also applies to the surviving
spouse after the Participant's death; however, distributions to the surviving
spouse may only be transferred to an individual retirement account or individual
retirement annuity. For purposes of subsection (a), a spouse or former spouse
who is the alternate payee under a qualified domestic relations order as defined
in Code Section 414(p) will be treated as the Participant.
2
<PAGE>
TRUSTEE SERVICES KIT
TABLE OF CONTENTS
I. Trust Acceptance Policy
II. Trustee Services and Fees
III. Recordkeeping & Services Agreement (Trusteed Plans)
IV. Trustee Services Agreement (including directed investment policy)
V. Schedule of Investments
VI. Plan Sponsor Representation
VII. Signatures of Authority
<PAGE>
TRUST ACCEPTANCE POLICY
- --------------------------------------------------------------------------------
Upon acceptance of the trust by the trustee, the trustee is under a duty to the
beneficiary to administer the trust. A trustee is also a "fiduciary" under the
terms of ERISA. Hence, due diligence concerning the trust existing,
qualification, good standing, assets, etc., must be performed prior to
acceptance of the trust by Van Kampen American Capital Trust Company (VKACTC).
The decision to accept trusteeship of any plan can only be made by the VKACTC
Board of Directors (the "Board") except that, in some cases where the plan meets
certain specifically defined criteria, the Board has delegated to the VKACTC
Trust Acceptance Committee authority to accept trusteeship on its behalf.
Therefore, VKACTC will not become trustee of any plan until the Board (or
Acceptance Committee) has authorized the acceptance of trusteeship and an
officer has signed the Trustee Services Agreement and Adoption Agreement (or
Amendment) on behalf of VKACTC.
Procedures for acceptance of a new trust account include a review/examination of
the existing plan and trust to determine that it meets VKACTC criteria for
trusteeship, a written report to the Board recommending authorization to enter
into the trusteeship relationship, and specific documentation requirements. A
follow-up review and report of all trust assets marshalled will be presented to
the Trust Administrative Committee approximately 60 days after trusteeship is
accepted. No officer or EMPLOYEE has the authority to modify these procedures
without approval by the Board.
This policy shall be communicated in writing to any broker, plan sponsor, or
trustee requesting information about VKACTC trusteeship.
- -as adopted by the Board of Directors of Van Kampen American Capital Trust
Company
<PAGE>
TRUSTEE SERVICES AND FEES
- --------------------------------------------------------------------------------
Van Kampen American Capital Trust Company offers sponsors of qualified
retirement plans comprehensive and timely trust accounting and reporting. Upon
review and approval by the Van Kampen American Capital Trust Company Board of
Directors, nondiscretionary trustee services are provided to plans that meet
certain requirements. These services are in addition to and separate from the
participant recordkeeping services offered by the Company. Trustee services and
fees are:
Trustee Services:
- ----------------
. Serve as a fiduciary of the Plan
. Maintain custody of the plan assets
. Implement proper instructions of participants and confiduciaries
concerning plan assets.
Trustees Fees:
- -------------
Annual Fee: $600
Factors Considered in Trust Acceptance Review
---------------------------------------------
In reviewing a plan presented for trusteeship by Van Kampen American Capital
Trust Company, factors considered by the Board of Directors may include:
. The plan is a participant directed 401(k) plan, profit-sharing plan or
other like plan, generally having assets in excess of $500,000 and/or
generally having 500 employees
. The plan's investments are entirely participant directed, and the
trustee has no discretion regarding investment voting or tender of plan
assets
. The plan does not include assets other than VKAC mutual funds
. The employer does not currently maintain any other defined contribution
plans
. The employer does not maintain, and has not previously maintained, a
defined benefit plan
. The employer is not a member of a controlled group or the plan is
--
adopted by all employers that are members of the controlled group
. English is the primary language of substantially all employees of the
employer
. The plan is governed by a prototype document sponsored by VKACTC and is
not required to provide any benefits, rights or features not expressly
provided for in the prototype
. For existing plans, the plan has a current IRS determination letter
and/or opinion letter as applicable
<PAGE>
401(k) RECORDKEEPING AND SERVICES AGREEMENT
- --------------------------------------------------------------------------------
The plan named on the signature page hereof (the "Plan") and adopted by the
Employer named on the signature page hereof (the "Employer") uses a prototype
401(k) Profit Sharing Plan sponsored by Van Kampen American Capital Trust
Company (the "Recordkeeper"). The Employer serves as Plan Administrator for the
Plan. As Plan Administrator, the Employer hereby hires and retains the
Recordkeeper to perform recordkeeping and administrative services required by
the Plan as provided herein. This contract describes the obligations of the
Recordkeeper and the Employer in connection with these recordkeeping and
administrative services. It is understood and agreed that the services performed
by the Recordkeeper shall be performed at the direction of the Employer and that
the Recordkeeper shall not have discretion over Plan assets or Plan
administration.
- --------------------------------------------------------------------------------
I. OBLIGATIONS OF RECORDKEEPER AND EMPLOYER
A. PLAN DESIGN AND INSTALLATION
1. Duties of the Recordkeeper:
Based upon information provided and elections made by the Employer,
the Recordkeeper will:
a. Provide sample resolution for adoption by the Employer's board of
directors.
b. Provide Adoption Agreement and prototype 401(k) Profit Sharing
Plan & Trust Document ("VKACTC Prototype Plan") based upon design
checklist submitted by the Employer.
c. Draft Summary Plan Description ("SPD") based upon VKACTC
Prototype Plan.
d. Review predecessor plan documents provided by Employer to
coordinate benefits, rights and features in design of VKACTC
Prototype Plan.
e. Provide Forms and Procedures Manual to Employer.
f. For plans requiring submission for IRS determination letter
(e.g., non-standardized plans),
. draft IRS forms required by IRS Rev. Proc. 93-39 (or any
amending or superseding procedure) for determination letter
submission, and
. after review and approval by the Employer, submit
determination letter request and all required forms to IRS.
. provide sample Notice to Interested Parties.
g. Draft, print, assemble and provide to Employer one employee
communication enrollment package for each eligible employee.
2. Duties of Employer:
To facilitate design and installation of the Plan, the Employer
will:
a. Accurately reflect plan design elections on plan design
checklist.
b. Identify benefits, rights or features of predecessor plan that
are not specified in prototype 401(k) Profit Sharing Plan & Trust
Document.
c. Provide complete, accurate and timely employee census data to the
Recordkeeper covering all employees within controlled group or
affiliated service group.
d. Provide complete, accurate and timely data on affiliated
companies comprising controlled group or affiliated service
group. (The Employer is responsible for determining, with
appropriate legal advice, the existence of a controlled group or
an affiliated service group and the identity of its members.)
e. Obtain legal review of Plan Document, Adoption Agreement, SPD and
applicable forms.
f. Cause Board of Directors timely to adopt plan and trust.
g. Adopt appropriate policies and procedures (e.g. investment
policy, loan policy) to govern plan operation.
h. Distribute employee communication enrollment package to each
eligible employee.
i. Obtain surety bond required by ERISA.
j. For plans requiring submission for an IRS determination letter as
identified above, cause the submission prepared by the
Recordkeeper to be promptly reviewed, executed and returned to
Recordkeeper for filing, and perform all actions required by IRS
to obtain determination letter.
<PAGE>
401(k) RECORDKEEPING AND SERVICES AGREEMENT page 2
- --------------------------------------------------------------------------------
B. OPERATION OF PLAN
1. Duties of the Recordkeeper
Based upon census, payroll and other data provided by the Employer,
the Recordkeeper will:
a. Assist the Employer in monitoring eligibility of employees.
b. Allocate amounts received among participants in accordance with
the provisions of the Plan and among investments as directed by
participants, maintaining a separate Directed Investment Account
for each participant and subaccounts for each investment.
. Post contributions and loan repayments.
. Allocate dividends and capital gains.
. Process exchanges among investment funds.
. Calculate and process all distribution requests.
. Calculate maximum loan amount available and loan amortization
schedule and process loan withdrawal and repayments.
c. Maintain accurate cash basis share accounting records showing,
for each participant, investments and disbursements; income,
gains, and losses; and vesting and forfeitures.
d. Mail quarterly participant statements to each participant or to
the Employer, as directed by the Employer.
e. Prepare periodic reports to Employer showing all account
activity, reconciliation of asset/participant/employer data and a
calculation of all plan assets.
f. Make any required federal income tax withholding from plan
distributions.
2. Duties of Employer:
To assure the creation and maintenance of accurate and timely
records of the Plan, Employer will:
a. Provide complete and accurate employee census to the Recordkeeper
covering all employees in controlled group, or affiliated service
group upon request by the Recordkeeper.
b. Determine employee eligibility according to plan rules.
c. Notify newly eligible employees of eligibility.
d. Solicit employee participation and completion of employee
enrollment forms.
e. Provide employee enrollment forms to the Recordkeeper.
f. Timely provide to the Recordkeeper any changes in employee
elections under the Plan or in employee census data.
g. Provide accurate payroll data and remittance promptly following
close of each payroll period.
h. Distribute participant statement to each employee promptly upon
receipt from the Recordkeeper.
i. Advise the Recordkeeper of the occurrence of an event that
entitles a participant or beneficiary to a distribution.
j. Approve amount and timing of distributions to be made to
participants and beneficiaries.
k. Process benefit claims, loan requests and other participant
communications in strict conformity with the terms of the Plan;
accord uniform treatment to persons similarly situated and
maintain detailed and accurate records of determinations made.
l. Provide timely notice to Recordkeeper of any event that affects
the membership of any "controlled group" or "affiliated service
group" that includes the Employer.
<PAGE>
401(k) RECORDKEEPING AND SERVICES AGREEMENT page 3
- --------------------------------------------------------------------------------
C. Testing and Reporting
1. Duties of the Recordkeeper
Based upon information provided by the Employer, the Recordkeeper
will:
a. Perform the following tests on a quarterly basis based upon
information provided by the Employer:
. Actual deferral percentage as required by Section 40l(k).
. Actual contribution percentage as required by Section 40l(m).
b. Perform tests, as appropriate for the Plan, following the close
of each Plan Year, to assist the Employer in monitoring
compliance with applicable requirements of the Internal Revenue
Code:
. Minimum coverage as required by Section 410(b)(l).
. Minimum participation as required by Section 40l(a)(26).
. Top-heavy status under Section 416.
. Excess deferrals under Section 402(g).
. Excess annual additions under Section 415. (The Recordkeeper
does not perform combined testing under Section 415(e) for any
defined benefit plan operated at any time by Employer.)
c. Prepare appropriate IRS 5500 Series Return/Report of Employee
Benefit Plan annually for review, signature and filing by
Employer.
d. Pay and report federal income tax withholding amounts to IRS as
required by applicable IRS regulations.
e. Prepare and distribute IRS Forms 1099R to report any
distributions to participants or beneficiaries.
2. Duties of the Employer:
a. Provide timely information as requested by Recordkeeper to serve
as a basis for testing.
b. Secure annual opinion of independent accountant if Plan has at
least 100 participants.
c. Review, sign and file with IRS annual series 5500 report.
d. Effect actions and remit any payments necessary to comply with
IRS-mandated tests or to correct non-compliance.
3. Additional Services Available
Testing and reporting services to be provided by the Recordkeeper in
consideration of the Annual recordkeeping and Reporting Fees
provided for in this agreement DO NOT INCLUDE any testing that
requires or takes into account contributions to or balances in any
other plan, qualified or non-qualified.
If requested by Employer or required by plan design, Recordkeeper in
its discretion may perform additional tests (e.g., 401(a)(4),
410(b)(2), 414(s)), or more frequent tests, or tests requiring or
taking into account contributions to or balances in other plans.
Recordkeeper may also, in its discretion, provide consulting and
additional testing when the testing performed under paragraph C.l
indicates that corrective action is necessary or desirable. Such
additional testing and consulting will be billed at the rates for
Additional Services set forth in the Fee Schedule or at such other
rates or upon such other terms as may be agreed between the Employer
and the Recordkeeper.
<PAGE>
401(K) RECORDKEEPING AND SERVICES AGREEMENT page 4
- --------------------------------------------------------------------------------
D. Plan Amendment
1. Duties of the Recordkeeper
a. Prepare restatement(s)/amendment(s) of Plan Document to comply
with legal or regulatory changes.
b. Modify SPD to reflect amendments.
c. After review and approval by Employer, resubmit amended plan and
required supporting schedules and demonstrations for
determination letter when appropriate.
2. Duties of the Employer
a. Notify the Recordkeeper of any plan revisions proposed or adopted
by the Employer.
b. Cause board of directors to adopt plan amendments to comply with
legal or regulatory changes.
c. Notify participants and beneficiaries of plan amendments.
d. For plans required submission for an IRS determination letter as
identified above, cause the submission prepared by the
Recordkeeper to be promptly reviewed, executed and returned to
Recordkeeper for filing.
e. Post Notice to Interested Parties, if applicable.
3. Additional Services Available
If requested by the Employer, Recordkeeper may prepare documentation
of amendments to change elections on the adoption agreement or make
other changes in plan provisions. Such additional services will be
provided at the rates for Additional Services set forth in the Fee
Schedule.
E. PLAN TERMINATION
1. Duties of the Recordkeeper
a. Provide form of resolution for adoption by board of directors.
b. Calculate benefits for all participants and beneficiaries for
review and approval by Employer.
c. If requested by Employer
. draft IRS forms required by IRS Rev.Proc 93-39 (or amending or
supersending procedure) for determination letter covering
plan termination.
. Provide form of Notice to Interested Parties.
d. Provide Final Form 5500 (Annual Return) to Employer for review.
e. Make required federal income tax withholding from distributions
and deposit with IRS.
f. Prepare and distribute IRS Forms 1099R for all distributees.
2. Duties of the Employer
a. Obtain legal review, sign and submit determination letter
request and all required forms to IRS.
b. Obtain legal review, sign and file final Form 5500.
<PAGE>
4O1(K) RECORDKEEPING AND SERVICES AGREEMENT page 5
- --------------------------------------------------------------------------------
F. Fees
Employer and Trustees jointly and severally agree to pay to the
Recordkeeper the fees set forth in Part III to this contract. All fees
are due and payable within 30 days after the invoice date, except that,
in the event of termination of this Agreement, all fees are due and
payable prior to the date on which plan assets are to be distributed to
participants or transferred to a successor recordkeeper. IN THE EVENT
PAYMENT OF FEES IS NOT RECEIVED BY THE RECORDKEEPER WITHIN 60 DAYS AFTER
INVOICE DATE, THE TRUSTEE(S) AND THE EMPLOYER HEREBY AUTHORIZE THE
RECORDKEEPER TO REDEEM OR SELL ANY ASSETS OWNED BY THE TRUST AND HEREBY
APPOINT THE RECORDKEEPER AS AGENT TO LIQUIDATE SUCH ASSETS AS THE
RECORDKEEPER DEEMS NECESSARY OR APPROPRIATE TO PAY SUCH FEES. The
Recordkeeper shall not be liable to the Plan or its participants or
beneficiaries for any loss occasioned by such action including but not
limited to, the selection of the date of sale redemption or the asset to
be sold or redeemed. The Recordkeeper reserves the right to modify the
fees set forth in Part III on written notice given to the Employer not
less than 60 days prior to the expiration of any Plan year. The fee
schedule in Part III will be continued through at least one Plan year
end valuation (following the Plan year in which this contract is
effective).
G. Failure to Perform Obligations/Termination
If Employer should fail to perform its duties as set forth herein, and
such failure shall continue for 30 days after notice to the Employer and
the Trustees from the Recordkeeper, the Recordkeeper shall be entitled
to terminate this agreement and, after such termination, the
Recordkeeper shall have no further obligations hereunder.
If the Recordkeeper should fail to perform its duties as set forth
herein, and such failure shall continue for 30 days after notice to the
Recordkeeper from the Employer, the Employer shall be entitled to
terminate this agreement and, after such termination, the Employer shall
have no further obligations hereunder except for payment of unpaid fees
as set forth in Part III.
IN THE EVENT PAYMENT OF FEES IS NOT RECEIVED BY THE RECORDKEEPER PRIOR
TO THE DATE OF ANY TERMINATION PURSUANT TO THIS SECTION I.G., THE
TRUSTEE(S) AND THE EMPLOYER HEREBY AUTHORIZE THE RECORDKEEPER TO REDEEM
OR SELL ANY ASSETS OWNED BY THE TRUST AND HEREBY APPOINT THE
RECORDKEEPER AS AGENT TO LIQUIDATE SUCH ASSETS AS THE RECORDKEEPER DEEMS
NECESSARY OR APPROPRIATE TO PAY SUCH FEES. The Recordkeeper shall not be
liable to the Plan or its participants or beneficiaries for any loss
occasioned by such action including, but not limited to, the selection
of the date of sale redemption or the asset to be sold or redeemed.
II. Additional Conditions/Terms of This Service Contract
A. Uniformity
The Employer agrees that all calculations made under this service
contract shall be performed under uniform rules and methods applicable
to all qualified retirement plans serviced by the Recordkeeper, and the
Employer hereby adopts such rules on behalf of the Plan.
B. Appointment of the Recordkeeper as Paying Agent
The Employer hereby appoints the Recordkeeper as Paying Agent of the
Plan for purposes of making benefit payments. Such payments are to be
made at the direction of the Employer.
<PAGE>
4O1(K) RECORDKEEPING AND SERVICES AGREEMENT page 6
- --------------------------------------------------------------------------------
C. Acceptance
The service contract shall be effective only upon acceptance by the
Recordkeeper, as evidenced by the Recordkeeper's execution of this
contract.
D. Notices
All notices or communications required or permitted by this contract
shall be in writing and addressed as follows (or to such other address
as the party to be notified has therefore specified in writing):
1. If to the Employer, to the Employer's address as set forth on the
signature page.
2. if to the Recordkeeper, to the Recordkeeper's address as set forth
on the signature page.
E. Telephone Exchanges
The Employer hereby authorizes the Recordkeeper, with respect to the
Plan account of any participant, to accept and act conclusively upon
telephone instructions from such participant, anyone other than such
participant representing himself to be such participant, or any person
purporting to represent such participant in effecting exchanges of the
interest of such participant in one or more Funds for which such
exchange is available. The Recordkeeper and its affiliates (including
ACCESS) employ procedures considered by them to be reasonable to confirm
that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to
acting upon telephone instructions and tape recording telephone
communications. If reasonable procedures are employed, neither the
Recordkeeper nor its affiliates shall be liable for following telephone
instructions that they reasonably believe to be genuine. The
Recordkeeper or its affiliates may be liable for any losses due to
unauthorized instructions if reasonable procedures are not followed. The
Employer agrees to indemnify and hold harmless the Recordkeeper and its
affiliates from any liability (including attorney fees) arising directly
or indirectly from any act or omission to act hereunder not occasioned
by their gross negligence or willful misconduct.
The Employer agrees that the telephone exchange privilege is subject to
the terms and conditions set forth in the prospectuses of the respective
mutual funds and such other terms and conditions as may, from time to
time, be published by the Recordkeeper. In addition, the Employer agrees
and acknowledges that the telephone exchange privilege may be canceled,
modified or restricted at any time indiscriminately at the sole
discretion of the Recordkeeper or the Funds.
F. Definitions
Except as otherwise defined herein, terms used in this contract shall
have the same meaning as provided by the Plan.
G. Period Of agreement
This contract shall continue in effect for a period ending on the last
day of the current Plan year and from year to year thereafter unless
terminated by the Recordkeeper or the Employer by written notice of not
less than 30 days prior to the expiration of any Plan year or unless
terminated for cause as provided in Paragraph I.G. Upon termination of
this agreement, the Plan will cease to be a prototype plan and the
Employer will have the obligation to maintain the Plan as an
individually designed plan.
H. Prior Agreements
This instrument contains the entire agreement between the parties and
may be modified or amended only by the written agreement of the parties
hereto, and no representation or statement not expressly set forth
herein shall be binding on any party. This contract supersedes any prior
recordkeeping or servicing agreement between the parties.
<PAGE>
401(K) RECORDKEEPING AND SERVICES AGREEMENT page 7
- --------------------------------------------------------------------------------
I. Subcontracting of Services
The Recordkeeper reserves the right to contract with another service
agency for performance of any or all services subject to this contract.
J. Jurisdiction
This contract shall be construed according to the laws of the United
States and the State of Texas where it is made and where it shall be
enforced.
K. Consultation with Attorney
THE EMPLOYER ACKNOWLEDGES THAT IT IS AWARE THAT THE ADOPTION (OR
AMENDMENT OF THE PLAN AND TRUST HAS IMPORTANT LEGAL CONSEQUENCES TO THE
EMPLOYER AND HAS CONSULTED WITH AN ATTORNEY CONCERNING THE ADOPTION (OR
AMENDMENT OF THE PLAN AND TRUST. Except for representations, if any, in
this Agreement concerning the prototype status of the form of the Plan
and the issuance by the IRS of an opinion letter thereon, Recordkeeper
has made NO REPRESENTATION OR WARRANTY OF ANY KIND, express or implied,
including warranties of MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, nor is any opinion, express or implied, rendered by
Recordkeeper, its attorneys, agents or employees as to the legal effect,
sufficiency or tax qualification of any document provided by
Recordkeeper or any document provided to Recordkeeper in connection with
the Plan or any other plan maintained by the Employer.
L. The Recordkeeper Not a Party to the Plan
The Recordkeeper shall not, either in its capacity as the sponsor of the
prototype Plan or in its capacity as recordkeeper be deemed to be a
party to the Plan and Trust. The Recordkeeper represents and warrants
that the form of each of the Prototype Non-standardized Profit Sharing
Plan with CODA covered by IRS opinion letter number D363391a and the
Prototype Standardized Profit Sharing Plan with CODA covered by IRS
opinion letter D363391b meets the requirement of section 401 of the
Internal Revenue Code, and the Recordkeeper undertakes to take such
action as may be necessary or appropriate to assure that the forms of
such determination continue to meet the requirement of section 401 for
the duration of this agreement. However, because the due and timely
adoption and qualification of the Plan, the deductibility of
contributions thereto and the tax treatment of deferrals, loans and
distributions are dependent on facts and actions outside its knowledge
and control, the Recordkeeper shall not be responsible for the validity
of the Plan and Trust or any federal or state liability which may be
imposed upon the Employer, Plan Administrator, participant or
beneficiary of the Plan and Trust.
M. Contributions to the Plan
The Recordkeeper shall have no duty to determine or collect
contributions under the Plan, and shall be responsible only for keeping
and maintaining participant records as to those contributions actually
made by the Employer and communicated to the Recordkeeper. The Employer
shall have the sole duty and responsibility for the determination of the
accuracy or sufficiency of the contribution to be made under any of its
plans, the transmittal of contributions to the trust created by the
Plan, and compliance with any statute, regulation or rule applicable to
contributions.
N. Prior Administration
The Recordkeeper shall have no accountability for actions taken or
omitted with respect to the Plan or any predecessor plan by the Trustee
or by the Plan Administrator, its officers, directors, employees or
agents, prior to the date Recordkeeper was retained hereunder, nor shall
the Recordkeeper have any duty to inquire into the prior administration
of the Plan.
<PAGE>
401(K) RECORDKEEPING AND SERVICES AGREEMENT page 8
- --------------------------------------------------------------------------------
O. Indemnification
The Employer will hold harmless and indemnify the Recordkeeper, its
affiliated companies and their officers, directors and employees from
and against any loss, damage, liability, claims, cost and expense,
including legal fees, which may be incurred by reason of this agreement
or the failure of the Employer to perform its duties hereunder or by
reason of any action or inaction with respect to the Plan or any
predecessor plan prior to the date Recordkeeper was retained to provide
recordkeeping services with respect to the Plan, unless said claims are
a result of the gross negligence or wilful misconduct on the part of the
Recordkeeper.
P. Participant Directed Plan
As an inducement to Recordkeeper to enter into this Agreement, the
Employer, Plan Administrator and Trustee(s) represent and warrant that
the Plan shall be a participant directed plan as to all sources of plan
assets, and that all plan assets owned by the plan and all investment
selections available under the Plan shall be investment company shares
issued by an affiliated company of Recordkeeper. The Employer, Plan
Administrator and Trustee(s) agree that, in the event any asset source
should become subject to direction other than by participants or they
should choose to acquire or permit any investment other than as set
forth herein, this agreement shall be amended and restated in a form
acceptable to Recordkeeper and that, until such amended and restated
agreement is adopted by the Employer/Plan Administrator and accepted by
the Recordkeeper, all services provided with respect to outside assets
or non-participant directed accounts shall be subject to the hourly fee
for Additional Services set forth in this Agreement.
<PAGE>
401(K) RECORDKEEPING AND SERVICES AGREEMENT page 9
- --------------------------------------------------------------------------------
III. Signatures and Authorization
This Recordkeeping and Service Contract between the Recordkeeper and the
Employer shall be effective for plan year ending December 31, 1997.
----------- --
Plan Name: Channell Commercial Corporation 401(k) Plan
----------------------------------------------------------------------
IN WITNESS WHEREOF, this contract has been executed by the Recordkeeper, the
Employer/Plan Administrator and the Trustees.
EMPLOYER/PLAN ADMINISTRATOR
Channell Commercial Corporation
- -------------------------------------------
By: /s/ Gary W. Baker 9-11-97
----------------------------------------
Authorized Signature Date
Title: Chief Financial Officer
-------------------------------------
ADDRESS FOR NOTICE
26040 YNEZ Road, PO Box 9022
- -------------------------------------------
Employer's address
Temecula, CA 92589-9022
- -------------------------------------------
City, State, Zip
Attention: Gary W. Baker
---------------------------------
ACCEPTED BY
VAN KAMPEN AMERICAN CAPITAL TRUST COMPANY
2800 Post Oak Blvd., 42nd Floor
Houston, TX 77056
By: /s/ Perri Williams 9-30-97
----------------------------------------
Authorized Signature Date
Title: Assistant Vice President
-------------------------------------
<PAGE>
VAN KAMPEN AMERICAN CAPITAL
401(k) FEE SCHEDULE
Plan Installation Fees
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Plan Installation Fees
- ---------------------------------------------------------------------------------------------------------------------------------
Plan Design & Installation Fee: $750
- ---------------------------------------------------------------------------------------------------------------------------------
Document Fees:
- ---------------------------------------------------------------------------------------------------------------------------------
Basic Document Fee (includes prototype) $500
VKAC Individually Designed Document (addition to basic) Written Quote
IRS Filing Fee (plus User Fee payable to IRS) $400
- ---------------------------------------------------------------------------------------------------------------------------------
Takeover Fees:
- ---------------------------------------------------------------------------------------------------------------------------------
1-100 Eligible Employees $1,000
101-250 Eligible Employees $1,000 plus $5 per eligible over 100
Over 250 Eligible Employees $1,750 plus $4 per eligible over 250
Distribution/Loans during takeover conversion period $100 per loan or distribution
- ---------------------------------------------------------------------------------------------------------------------------------
Setup of Non VKAC Asset Fees:
- ---------------------------------------------------------------------------------------------------------------------------------
GIC's $750
Employer Stock $1,500
Other Outside Assets Written Quote
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Administrative Fees:
- ---------------------------------------------------------------------------------------------------------------------------------
Annual Recordkeeping Fee:
- ---------------------------------------------------------------------------------------------------------------------------------
1-100 Eligible Employees $2,000
101-250 Eligible Employees $2,000 plus $20 per eligible over 100
251-500 Eligible Employees $5,000 plus $16 per eligible over 250
Over 500 Eligible Employees $9,000 plus $12 per eligible over 500
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Reduction in Annual Recordkeeping Fees
(Requires VKAC prototype)
Average Account Balance per Fewer than 100 100 or More
Eligible Employee Eligible Employee Eligible Employee
<S> <C> <C>
$5,001-10,000 0 25%
$l0,001-15,000 25% 35%
$15,001-20,000 35% 70%
Over $20,000 50% 100%
- ---------------------------------------------------------------------------------------------------------------------------------
Annual 5500 Preparation:
- ---------------------------------------------------------------------------------------------------------------------------------
Form 5500 C/R $300
Form 5500 $400
- ---------------------------------------------------------------------------------------------------------------------------------
Annual Compliance Testing
- ---------------------------------------------------------------------------------------------------------------------------------
Basic Testing (includes first 3 ADP/ACP tests, Top Heavy, $500
Minimum Coverage Ratio Percentage test, Minimum Participation test,
Excess Deferrals, Excess Annual Additions)
Additional Testing $250 per test
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
VAN KAMPEN AMERICAN CAPITAL
4O1(K) FEE SCHEDULE (CONT.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Administrative Fees:
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Annual Document Fee
- ---------------------------------------------------------------------------------------------------------------------------------
VKAC Prototype Plan No Charge
VKAC Individually Designed Plan $350
- ---------------------------------------------------------------------------------------------------------------------------------
Annual Non VKAC Asset Fees:
- ---------------------------------------------------------------------------------------------------------------------------------
Frozen GIC's $5 per participant (minimum $1,500)
Employer Stock Annual fee of .20% of the value of Employer
Stock (Minimum $4,000 per plan year)
Other Outside Assets Written Quote
- ---------------------------------------------------------------------------------------------------------------------------------
Additional Fees:
- ---------------------------------------------------------------------------------------------------------------------------------
Payroll Data Transmissions:
- ---------------------------------------------------------------------------------------------------------------------------------
First 26 transmissions No charge
Each Transmissions over 26 (hardcopy) $200
Each Transmission over 26 (electronic file) $100
- ---------------------------------------------------------------------------------------------------------------------------------
Plan Document Fees:
- ---------------------------------------------------------------------------------------------------------------------------------
Prototype Amendment (No SPD required) $150
Prototype Amendment (SPD required) $150 plus $1 per participant
Plan Restatement:
Standardized $500
Nonstandardized $750
Individually Designed Plan Written Quote
- ---------------------------------------------------------------------------------------------------------------------------------
Plan Termination
- ---------------------------------------------------------------------------------------------------------------------------------
Base Fee (includes preparation of final 5500) $1,000
Preparation of IRS filing (plus user fee payable to IRS) $400
- ---------------------------------------------------------------------------------------------------------------------------------
Plan Merger
- ---------------------------------------------------------------------------------------------------------------------------------
411 (d)(6) Analysis $1,500
5310-A Filing $300
- ---------------------------------------------------------------------------------------------------------------------------------
Additional Services
- ---------------------------------------------------------------------------------------------------------------------------------
Interim Valuation Written Quote
Other Additional Services Written Quote
- ---------------------------------------------------------------------------------------------------------------------------------
Trustee Services
- ---------------------------------------------------------------------------------------------------------------------------------
- Trustee Services are available subject to plans that meet certain requirements and have received written acceptance
from the VKACTC.
Base Fee $600
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TRUSTEE SERVICES AGREEMENT
- --------------------------------------------------------------------------------
THIS AGREEMENT is entered into by and between Channell Commercial Corporation
----------------------------------
("Employer") and Van Kampen American Capital Trust Company ("Trustee"),
effective as of the 1st day of October, 1997.
--- ------- ----
WHEREAS, the Employer has created the Channell Commercial Corporation 401(k)
----------------------------------------
Plan ("Plan") by adoption of the Prototype 401(k) Profit Sharing Plan and Trust
- ----
sponsored by Trustee and has named the Trustee as trustee of the trust created
thereby, and
WHEREAS, the Plan identifies and describes the functions of the named
Fiduciaries under the Plan as follows:
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator, (3) the Trustee, and (4) any Investment Manager
appointed hereunder. The named Fiduciaries shall have only those
specific powers, duties, responsibilities and obligations as are
specifically given them under the Plan. In general, the Employer shall
have the sole responsibility for making the contributions provided for
under Section 4.1; and shall have the sole authority to appoint and
remove the Trustee and the Administrator; to formulate the Plan's
"funding policy and method"; and to amend the elective provisions of
the Adoption Agreement or terminate, in whole or in part, the Plan.
The Administrator shall have the sole responsibility for the
administration of the Plan, which responsibility is specifically
described in the Plan. The Trustee shall have the sole responsibility
of management of the assets held under the Trust, except those assets,
the management of which has been assigned to an Investment Manager or
Administrator, who shall be solely responsible for the management of
the assets assigned to it, all as specifically provided in the Plan.
Each named Fiduciary warrants that any directions given, information
furnished, or action taken by it shall be in accordance with the
provisions of the Plan, authorizing or providing for such direction,
information or action. Furthermore, each named Fiduciary may rely upon
any such direction, information or action of another named Fiduciary
as being proper under the Plan, and is not required under the Plan to
inquire into the propriety of any such direction, information or
action. It is intended under the Plan that each named Fiduciary shall
be responsible for the proper exercise of its own powers, duties,
responsibilities and obligations under the Plan. No named Fiduciary
shall guarantee the Trust Fund in any manner against investment loss
or depreciation in asset value. Any person or group may serve in more
than one Fiduciary capacity.
and
WHEREAS, the Employer and Trustee desire further to define and clarify the
duties, responsibilities and liabilities of the named fiduciaries under the
Plan, as permitted by Section 405(c) of the Employee Retirement Income Security
Act of 1974 ("ERISA");
NOW, THEREFORE, IT IS AGREED, BY AND BETWEEN THE PARTIES HERETO
1. By execution of this agreement, Employer appoints Trustee, and Trustee
accepts appointment, as trustee of the Plan, as of the effective date of
this agreement.
<PAGE>
TRUSTEE SERVICES AGREEMENT page 2
- --------------------------------------------------------------------------------
2. The Employer has designed the Plan as a participant directed plan, so that
all assets of the Plan are held in Directed Investment Accounts pursuant to
Section 4.13 of the Plan. The Employer has adopted Directed Investment
Account Procedures under Section 4.13 of the Plan, a copy of which is
attached hereto as Exhibit I. Section 7.3(r) of the Plan requires that the
Trustee must follow participant directions regarding the Directed
Investment Accounts, and that the Trustee has no responsibility for the
investment results of following those instructions.
3. In the event there should be in the Plan and Trust at any time any assets
as to which investment instructions have not been given by a participant,
the Employer delegates investment responsibility over those assets to the
Plan Administrator pursuant to Section 7.2(c) of the Plan.
4. Notwithstanding the foregoing, the Trustee shall decline to implement
participant or beneficiary instructions which it knows or reasonably
believes:
a. Would not be in accordance with the documents and instruments
governing the Plan;
b. Would cause the indicia of ownership of any assets of the plan to be
maintained outside the jurisdiction of the district courts of the
United States;
c. Would jeopardize the Plan's tax qualified status under the Internal
Revenue Code ("Code");
d. Could result in a loss in excess of a participant's or beneficiary's
account balance;
e. Would result in a prohibited transaction described in ERISA section
406 or Code section 4975; or
f. Would generate income taxable to the Plan.
5. The Employer has established the following funding policy for the Plan:
The Employer shall pay to the Trustee its contribution to the Plan for each
Plan Year within the time prescribed by law, including extensions of time,
for the filing of the Employer's federal income tax return for the year.
Elective contributions made pursuant to participants' deferral elections or
accumulated through payroll deductions shall be paid to the Trustee as of
the earliest date on which such contributions can be reasonably segregated
from the Employer's general assets, but in any event within 90 days after
the date on which such amounts would otherwise have been payable to
participants in cash.
6. The Employer has appointed itself Plan Administrator and will continue to
serve as Plan Administrator until it appoints a successor and notifies
Trustee of such appointment.
The Plan Administrator has the sole responsibility for the administration
of the Plan. Accordingly, the Trustee shall not be responsible or liable to
establish or maintain a record or account in the name of any individual
participant. The Trustee shall not be required to establish the value of
any participant's individual interest in the trust or any account
established thereunder. Should the trustee and the Plan Administrator agree
that the Trustee shall maintain individual account records, such agreement
shall be separate and apart from the terms of this trustee services
agreement, and any such agreement shall not be construed to impose or imply
any duty upon the Trustee hereunder, even though the Trustee shall have the
right, power and duty to issue instructions or directions as to the
disposition or distribution of any assets held in the Trust.
<PAGE>
TRUSTEE SERVICES AGREEMENT page 3
================================================================================
7. The Employer has selected the investment options available to participants
in the Plan and is responsible for monitoring those investments on an
ongoing basis to assure that they remain prudent investment choices that
provide participants an opportunity to choose from a broad range of
diversified investment alternatives.
In addition, if the Employer has selected as an investment option any
security other than investment company securities of Van Kampen American
Capital Funds, Employer agrees to obtain and provide to the Trustee,
within 45 days prior to the end of each Plan Year, an analysis of the
security from a registered investment adviser that substantiates the
Employer's continuing determination that the security is a prudent
investment for the Plan. Both the registered investment adviser and the
form and content of the analysis must be reasonably acceptable to the
Trustee.
8. The Employer and the Trustee shall each discharge their duties with
respect to the Plan solely in the interest of the participants and
beneficiaries, for the exclusive purpose of providing benefits to
participants and their beneficiaries and defraying reasonable expenses of
administering the Plan; with 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 like character and with like aims; by diversifying the
investments of the Plan so as to minimize the risk of large losses unless
under the circumstances it is clearly prudent not to do so; and in
accordance with the documents and instruments governing the Plan insofar
as such documents and instruments are consistent with governing law.
9. The Employer, as Plan Administrator, consents irrevocably to the retention
by Trustee of such counsel or other advisors as the Trustee may deem
reasonably necessary in connection with its responsibilities under the
Plan.
10. The Employer has retained Van Kampen American Capital Trust Company to
provide recordkeeping and administrative services for the Plan. Such
services are to be provided by Van Kampen American Capital Trust Company
as agent for Employer and not as a fiduciary of the Plan.
11. The Trustee shall have no duty to determine or collect contributions under
the Plan, and shall be solely accountable for monies or properties
actually received by it. The Employer shall have the sole duty and
responsibility for the determination of the accuracy or sufficiency of the
contribution to be made under any of its plans, the transmittal of
contributions to the trust created by the Plan, and compliance with any
statute, regulation or rule applicable to contributions.
12. The Trustee shall have no accountability for actions taken or omitted with
respect to the Plan or any predecessor plan by the Trustee or by the
Employer or Plan Administrator, their officers, directors, employees or
agents, nor shall the Trustee have any duty to inquire into the prior
administration of the Plan.
13. The Trustee's Compensation and Expenses are provided for in Section 7.6 of
the 401(k) Profit Sharing Plan and Trust. The Trustee's current fee
schedule is attached as Schedule A; Trustee reserves the right to modify
its fee schedule at any time upon 90 days' notice to Employer. The
Employer agrees to pay the Trustee's fees and expenses within 30 days
after the invoice date. In the event payment of such invoice has not been
received within 60 days of the date thereof, Trustee may deduct the amount
thereof from the Trust Fund without further notice.
<PAGE>
TRUSTEE SERVICES AGREEMENT PAGE 4
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals.
EMPLOYER: TRUSTEE:
Channell Commercial Corporation Van Kampen American Capital Trust Company
- -------------------------------
Employer Name
by /s/Gary W. Baker by /s/ Perri Williams
---------------- ------------------
Corporate Officer
Print Name Gary W. Baker its Assistant Vice President
------------- ------------------------
Title
Print Title Chief Financial Officer
-----------------------
Date: 9-11-97 Date: 9-30-97
--------- ---------
[Corporate Seal] [Corporate Seal]
<PAGE>
TRUSTEE SERVICES AGREEMENT page 5
- --------------------------------------------------------------------------------
SCHEDULE A
VAN KAMPEN AMERICAN CAPITAL TRUST COMPANY
TRUSTEE FEES
Annual fee for Qualified Trusts with All
Assets Invested in Van Kampen American
Capital Funds (and participant loans)................................ $600.
<PAGE>
TRUSTEE SERVICES AGREEMENT page 6
- --------------------------------------------------------------------------------
EXHIBIT 1
Channell Commercial Corporation 401(k) Plan (the "Plan")
--------------------------------------------------------
Directed Investment Account Procedure
(pursuant to Section 4.13 of Plan)
The Plan Administrator has adopted the following procedures governing Directed
Investment Accounts as provided in Section 4.13 of the Plan:
1. All assets contributed to or held in the Plan shall be held in Directed
Investment Accounts as provided in Section 4.13 of the Plan.
2. All Participants shall direct the Trustee as to the investment of all
assets held in or contributed to their participant account or accounts
within the Plan.
3. The permissible investment options for Directed Investment Accounts under
the Plan shall be as on the attached Schedule of Investment Elections.
4. Participants shall give investment instructions at the time of enrollment
in the Plan, and thereafter may change those instructions with the
frequency provided in the attached Schedule of Investment Elections. All
participant instructions shall be given on forms provided for the purpose
by the Plan Administrator, delivered to the Plan Administrator, and
provided to the Trustee within a reasonable time after receipt by the Plan
Administrator; provided, however, that to the extent the Plan permits a
telephone exchange privilege to participants, participant instructions
shall include telephone instructions given in accordance with the terms and
conditions governing such telephone exchange privilege.
5. As provided in Section 7.3(r) of the Plan, the Trustee shall follow
participant instructions given in accordance with these procedures, and the
Trustee shall have no responsibility for the investment results of
following these instructions.
6. As part of the exercise of investment discretion over their Directed
Investment Accounts, all participants shall have voting rights attributable
to the shares held in their Directed Investment Accounts, including rights
exercisable at shareholder meetings and rights exercisable in connection
with tender offers. The Plan Administrator shall cause proxy, tender, or
other solicitation materials to be delivered promptly to participants in
such manner and at such time as to permit participants fully to exercise
such rights with respect to the shares held in their Directed Investment
Accounts.
7. These procedures will not be altered or amended to change the
responsibilities of the Trustee or the Recordkeeper without the express
written consent of the Trustee or the Recordkeeper, as the case may be.
PLAN ADMINISTRATOR
By: /s/ Gary W. Baker Date: 9-11-97
---------------------------- --------------------------
Gary W. Baker
<PAGE>
PLAN SPONSOR REPRESENTATIONS
===============================================================================
The undersigned Employer is or will be Plan Sponsor and fiduciary of the Plan
and Trust named below, and has asked Van Kampen American Capital Trust Company
("VKACTC") to serve as Trustee. In connection with this request, the
Employer/Plan Sponsor makes the following representations:
1. The Plan will cover at least 100 eligible employees OR will have plan assets
in excess of $500,000 invested in Van Kampen American Capital Mutual Funds.
Agree [X] Disagree [_]
2. The Employer will adopt VKACTC-approved prototype plan trust documents. The
Employer/Plan Sponsor will adopt procedures (including those contained in
the Trustee Services Agreement and the Directed Investment Procedure)
providing that:
. All accounts in the Plan will be participant directed, and that any
assets as to which participant directions are not received will be
invested as directed by the Plan Administrator as Named Fiduciary.
. All proxy or tender voting will be passed through participants. Any
proxies or tender offers not subject to participant direction will
vote as directed by the Plan Administrator as Named Fiduciary.
Agree [X] Disagree [_]
3. The Plan Sponsor has reviewed and will adopted the Schedule of Investments
to be offered under the Plan, having determined that the investments listed
therein are pudent and appropriate in the light of the purposes and policies
of the Plan. All plan assets will be invested in mutual funds for which
ACCESS Investor Services, Inc. serves as transfer agent (i.e. funds in the
Van Kampen American Capital family of funds). If this is an existing plan,
all assets (except non-delinquent participant notes) will be liquidated and
transferred to VKACTC in cash.
Agree [X] Disagree [_]
4. The Plan Administrator will retain VKACTC or its affiliate to serve as
Recordkeeper in accordance with the terms of its standard Recordkeeping
and Services Agreement (Trusteed Plan).
Agree [X] Disagree [_]
5. The Employer does not maintain any other defined contribution plans, and
has never maintained a defined benefit plan.
Agree [_] Disagree [_]
6. The Plan will cover, on the same basis, employees of all companies that
are members of the same controlled group or affiliated service group as
the Employer. The Employer has disclosed to VKACTC the composition of the
controlled group or affiliated service group, if any.
Agree [X] Disagree [_]
7. English is the primary language of substantially all employees of the
Employer and all members of the controlled group or affiliated service
group.
Agree [X] Disagree [_]
8. If this is an existing plan and trust, the Plan Sponsor/Plan Administrator
has accurately disclosed to VKACTC all assets, liabilities, commitments
and contingencies, if any, of the Plan and Trust prior to the retention of
VKACTC.
Agree [X] Disagree [_]
9. The Employer/Plan Sponsor undertakes to cause the Plan and Trust to be
operated in full compliance with the requirements of ERISA and the Internal
Revenue Code and, for existing plans, represents this it has no knowledge of
any facts or circumstances or transactions that would cause the Plan to fail
to qualify under Section 401 of the Internal Revenue Code or would cause the
Plan to be in violation of any provision of the Code or ERISA or any other
applicable law or regulation.
Agree [X] Disagree [_]
Please explain the reason for any items for which the Employer has indicated
"Disagree" in a separate signed addendum.
The undersigned Employer, by its duly authorized officer, certifies and
represents that the information contained herein, including any separate
addendum, is true, and complete and correct. The Employer understands that its
representations have important legal consequences for the Plan and Trust, and
agrees to indemnify and hold harmless Van Kampen American Capital Trust Company,
its officer, directors, employees and affiliates from any expense, loss, claim
or liability occasioned as a result of reliance upon the information provided
herein.
Plan Name: CHANNELL COMMERCIAL CORPORATION 401(k) PLAN
--------------------------------------------------------------------
Employer Name: CHANNELL COMMERCIAL CORPORATION By: /s/ Gary W. Baker
------------------------------- ---------------------------
Date: 9-11-97 Gary W. Baker
---------------------------------------- ------------------------------
CHIEF FINANCIAL OFFICER
------------------------------
<PAGE>
AUTHORIZED SIGNATURES
- --------------------------------------------------------------------------------
The undersigned Employer with respect to the referenced plan hereby authorizes
and directs Van Kampen American Capital Trust Company, as recordkeeper for the
plan, to honor written instructions that it reasonably believes to be provided
by any one of the following persons:
NAME TITLE SPECIMEN SIGNATURE
GARY W. BAKER Chief Financial Officer /s/ Gary W. Baker
- ------------------- ------------------------------- --------------------------
- ------------------- ------------------------------- --------------------------
- ------------------- ------------------------------- --------------------------
- ------------------- ------------------------------- --------------------------
- ------------------- ------------------------------- --------------------------
- ------------------- ------------------------------- --------------------------
- ------------------- ------------------------------- --------------------------
- ------------------- ------------------------------- --------------------------
The foregoing authorization is limited to those instructions that are given by
or on behalf of the Employer/Plan Administrator. Those documents that require
signature by the plan trustees or by an individual plan participant will
continue to be signed by the trustees or participants as the document requires.
EMPLOYER CERTIFICATION
- ----------------------
The Employer below hereby certifies that the information completed in this
document is true and correct to the best of its knowledge. The Employer
understands that this decision has important legal consequences regarding the
qualification of the Plan and indemnify Van Kampen American Capital from any
liability, cost or expense incurred as a result of relying on this information.
Channell Commercial Corporation 401(k) Plan
- --------------------------------------------------
Plan Name
Channell Commercial Corporation
- --------------------------------------------------
Employer Name
By: /s/ Gary W. Baker 9-11-97
-----------------------------------------------
Authorized Signature Date
Title: Chief Financial Officer
--------------------------------------------
<PAGE>
Plan Conversion Agreement
- --------------------------------------------------------------------------------
WHEREAS, the Plan Administrator of the Plan (the "Plan") named below has hired
and retained Van Kampen American Capital Trust Recordkeeping Services, Inc.
(VKAC) to provide recordkeeping services for the Plan, and have changed the
investment elections available to participants in the Plan to selected mutual
funds in the Van Kampen American Capital family of funds ("VKAC Mutual Funds")
or other assets as designated by the Plan Administrator;
AND, the Plan Administrator, as Named Fiduciary of the Plan, wishes to liquidate
the existing Plan assets and to cause the proceeds to be invested in the VKAC
Mutual Funds in accordance with participant instructions;
AND, the Plan Administrator understands that VKAC requires the following
information ("Plan Information") before the assets can be accurately reinvested
in accordance with participant directions:
. The most recent plan valuation showing participant balances as of the
date the existing plan assets were liquidated; and
. A reconciliation of the amount of assets transferred to the participant
balances; and
. Enrollment and election forms for all participants, including terminated
participants who have remaining account balances; and
. All outstanding loan documentation, including current loan balances;
promissory notes, and amortization schedules; and
. Such other information as may be reasonably required by VKAC to identify
and process accurately and completely the assets transferred to the VKAC
Mutual Funds.
NOW THEREFORE, the Plan Administrator, as Named Fiduciary in the Plan, directs
VKAC as follows:
. To establish a "blackout period" beginning on the date Plan assets are
transferred to VKAC and ending on the date that all balances have been
converted onto the VKAC recordkeeping system and invested in VKAC Mutual
Funds or such other instruments authorized in the Plan; and
. To invest all Plan assets during the blackout period in Van Kampen
American Capital Reserve Fund, Inc. ("Reserve Fund"), a money market
mutual fund; and
. To invest employee deferrals and employer matching contributions received
during the blackout period in accordance with participants' investment
elections indicated on individual enrollment forms as delivered to VKAC;
in the event a participant's election has not been received, the Plan
Administrator instructs VKAC to invest all contributions in the Reserve
Fund; and
. At the conclusion of the blackout period, to invest all participant
balances' plus all earnings earned after the transfer of Plan assets to
VKAC into the VKAC Mutual Funds or other investments in accordance with
participants' elections.
<PAGE>
PLAN CONVERSION AGREEMENT PAGE 2
- --------------------------------------------------------------------------------
AND, the Plan Administrator understands that:
. During the blackout period, VKAC will process NO ACTIVITY such as
exchanges, distributions to terminated employees, hardship distributions
or new loans.
. The length of the blackout period depends on the following three (3)
critical items:
1) The time it takes the prior recordkeeper to deliver a valuation of
participant balances to VKAC; and
2) The format of the information provided by the prior recordkeeper
(i.e hard copy, tape or diskette); and
3) Whether or not the participant balances contained in the valuation
in total reconcile to the dollar amounts transferred to VKAC; and
4) The time it takes VKAC to load participant balances on VKAC's
recordkeeping system. VKAC's standard turnaround time is fifteen
(15) business days after receipt and reconciliation of the Plan
Information contained in Exhibit A.
NOTE: It is to the benefit of all interested parties including VKAC to
minimize this blackout period. VKAC will provide as much support as
possible to ensure this period is minimized but ultimately, this period
will depend largely on the timeliness and accuracy of data provided by
the prior recordkeeper.
. Additional takeover fees over and above those stated in our Recordkeeping
and Services Agreement may result if:
1) The balances provided by the prior Recordkeeper do not reconcile
with the amount of assets transferred thereby necessitating
additional reconciliation services from VKAC; or
2) VKAC is asked to perform recordkeeping services prior to the
transfer of plan assets to VKAC; or
3) The Plan Administrator requests that VKAC process any activity that
otherwise would be frozen during the blackout period (i.e.
distributions, loans, etc).
The additional fees for services as a result of these conditions are as
follows:
1) $75 per hour for additional reconciliation services. NOTE: VKAC
will not bill for reasonable reconciliation services that are a part
of any conversion.
2) $500 plus $10 per participant for each quarter that VKAC is asked to
provide recordkeeping services prior to the transfer of assets to
VKAC. Minimum one quarter fee (i.e. if VKAC is being asked to begin
recordkeeping services beginning January 1, and assets are
transferred on January 15th, and additional takeover fee of $500
plus $10 per participant would result.)
3) $100 per distribution including loan withdrawals during the blackout
period.
<PAGE>
PLAN CONVERSION AGREEMENT Page 3
================================================================================
IN WITNESS WHEREOF, the Plan Administrator has executed this instrument this
22 day of September, 1997.
Plan Name: CHANNELL COMMERCIAL CORPORATION 401(k)
PLAN ADMINISTRATOR: TRUSTEES:
Company Name
- ---------------------------------- --------------------
Trustee Signature Date
By: /S/ Gary W. Baker --------------------------------
------------------------------- Trustee Signature Date
Authorized Signature
Title: Chief Financial Officer --------------------------------
Trustee Signature Date
ACCEPTED:
Van Kampen American Capital Recordkeeping Services, Inc.
By: /S/ Perri Williams 9-30-97
----------------------- ----------------
Date
Title: Assistant Vice President
------------------------
<PAGE>
QUALIFIED DOMESTIC RELATIONS ORDER PROCEDURE
================================================================================
Employer/Plan Administrator Certification
Channell Commercial Corporation 401(k) Plan
- --------------------------------------------------------------------------------
Plan Name
Channell Commercial Corporation
- --------------------------------------------------------------------------------
Employer Name
The undersigned Plan Administrator of the aforementioned Plan hereby adopts the
QDRO Procedure, which governs the Plan's processing of domestic relations orders
submitted to the plan.
/s/ Gary W. Baker
- ----------------------------------
Signature of Plan Administrator
Chief Financial Officer
- ----------------------------------
Title
1-26-98
- ----------------------------------
Date
<PAGE>
QUALIFIED DOMESTIC RELATIONS ORDER PROCEDURE
- --------------------------------------------------------------------------------
Page 2
If a Participant in the Plan is seeking a divorce, and there is the possibility
that the spouse will seek a Domestic Relations Order (DRO) laying claim to a
portion of the Participant's account balance in the Plan, the Participant may
want to complete the "Participant Authorization" form in this procedure allowing
the Plan Administrator to provide to the Participant's spouse and representative
counsel information regarding the Plan and the Participant's amount of Plan
benefits.
In the case of any Domestic Relations Order (DRO) received by the Plan, its
status under ERISA and the Internal Revenue Code shall be determined under the
following procedure:
- --------------------------------------------------------------------------------
STEP 1
- ------
Promptly upon receiving a DRO, the Employer, acting as Plan Administrator, will
refer the DRO, issued by State Court, to the Plan Sponsor's legal counsel to
render an opinion within sixty days (or such earlier period as shall be provided
by Treasury Regulations) whether the DRO is a "qualified domestic relations
order" (QDRO) as defined by ERISA (S)206(d)(3)(B) and Internal Revenue Code
(S)414(p) as amended.
- --------------------------------------------------------------------------------
STEP 2
- ------
The Plan Administrator will send the "Domestic Relations Order Notice" to the
following:
. The concerned Participant;
. Any named alternate payee;
. Each representative designated by the Participant and
alternate payee; and
. Your VKAC Pension Analyst.
- --------------------------------------------------------------------------------
<PAGE>
QUALIFIED DOMESTIC RELATIONS ORDER PROCEDURE
================================================================================
Page 3
STEP 3
- ------
As soon as practicable, the Plan Administrator, in consultation with your VKAC
Pension Analyst, will ascertain the amount to be paid or credited to each
alternate payee pursuant to any QDRO. While any issue is pending regarding
whether a DRO is a "qualified order", the Plan Administrator will defer payment
of any benefits in dispute. A participant with plan rights to direct
investments will retain such rights until a determination is made as to the
qualified status of the DRO. If the order is determined to be qualified, it
will be applied to assets in accounts as of the date such determination is made.
================================================================================
STEP 4
- ------
Upon receiving legal counsel's opinion regarding whether the DRO is a QDRO, and
reviewing the clarity and sufficiency of the instructions with the VKAC Pension
Analyst, the Plan Administrator will issue its determination whether the DRO is
a QDRO. Prior to issuing a determination, the Plan Administrator may (but is
not required-to) consult with the Participant and/or the alternate payee to
secure amendments necessary to meet the QDRO requirements.
================================================================================
STEP 5
- ------
The Trustee(s) of the Plan will review the Plan Administrator's determination
and legal counsel's opinion to assure that the documentation is in good order to
support the determination.
================================================================================
<PAGE>
QUALIFIED DOMESTIC RELATIONS ORDER PROCEDURE
================================================================================
Page 4
STEP 6
- ------
When the decision is made concerning the qualified status of the DRO, the Plan
Administrator will promptly notify in writing the Participant and any alternate
payees named in the DRO, as well as any representative designated in writing by
such persons. These parties must be sent one of the following notifications
making them aware that a tentative determination has been made to the qualified
status of the DRO:
. "QDRO Approval Notice"; or
. "QDRO Disapproval Notice".
================================================================================
STEP 7
- ------
If neither the Participant nor putative alternate payee disputes the
determination within 60 days after the mailing of the "QDRO Approval Notice",
then the determination shall be final and the Plan Administrator shall implement
the order as described.
If the Participant or a putative alternate payee disputes the order within 60
days after the mailing of the notice, then the Plan Administrator will refer the
dispute to legal counsel for further advice concerning resolution of the
dispute.
================================================================================
<PAGE>
QUALIFIED DOMESTIC RELATIONS ORDER PROCEDURE
================================================================================
Page 5
STEP 8
- ------
If the DRO is determined to be a QDRO within eighteen months after initial
receipt of the order, the Plan Administrator will allocate to a separate account
in the name of each alternate payee the amount awarded to such alternate payee,
and will thereafter make payments from such account as directed by the QDRO or
alternate payee as provided in the QDRO.
Your VKAC Pension Analyst must receive a copy of the "QDRO Approval Notice" in
which the account adjustment instructions are given by the Plan Administrator.
In order for your VKAC Pension Analyst to make a QDRO distribution to an
alternate payee, the alternate payee will need to complete the "Distribution
Information Booklet". A copy of this booklet is located in the appendix to this
guide. The Plan Administrator will need to sign this form authorizing the
distribution.
================================================================================
<PAGE>
QUALIFIED DOMESTIC RELATIONS ORDER PROCEDURE
- --------------------------------------------------------------------------------
Page 6
STEP 9
- ------
If the Plan Administrator decides the DRO is not qualified or, after eighteen
months have expired, has not resolved the issue of whether the DRO is qualified,
the Plan Administrator will reallocate the amounts accounted for (including
earnings or losses, if applicable) to the Participant's account from which they
came.
If the Plan or Trust is made a defendant in any kind of domestic relations case
before an order is given, the Plan Administrator will use legal counsel to:
. file a proper pleading;
. send copies of this procedure to legal counsel for the
plaintiff; and
. seek to have any order in a domestic relations case
which affects the Plan or Trust to be a "qualified"
domestic relations order.
- --------------------------------------------------------------------------------
On the following pages, you will find example letters to be used in this
process. The form letters are for illustrative use only. Be sure to contact
your Plan's legal counsel about any QDRO.
<PAGE>
QUALIFIED DOMESTIC RELATIONS ORDER PROCEDURE
================================================================================
Page 7
Participant's Authorization
(This form is for illustrative use only.)
----
[Date]
[Plan Sponsor's Name and Address]
In connection with my divorce from [Name of Spouse or Former Spouse],
---------------------------------
and the resulting division of my benefits in the [Name of Plan], (the
--------------
"Plan"), I, [Name of Participant] hereby authorize the Plan
---------------------
Administrator of the Plan to provide to [Name of Spouse or Former
-------------------------
Spouse], and/or [his or her], attorneys information regarding the amount
------- ------------
of my Plan benefits and to comment to them on whether any draft Order
which purports to be a qualified domestic relations order ("QDRO") is
indeed a QDRO and, if not, why not.
------------------------------------
Signature of Participant
------------------------------------
Date
<PAGE>
QUALIFIED DOMESTIC RELATIONS ORDER PROCEDURE
================================================================================
Page 8
Domestic Relations Order Notice
(THIS FORM IS FOR ILLUSTRATIVE USE ONLY. BE SURE TO CONTACT THE PLAN'S LEGAL
----
COUNSEL ABOUT ANY QDRO. SEND TO PARTICIPANT, ALTERNATE PAYEE, AND THEIR LEGAL
---
COUNSEL.)
[Date]
[Participant's Name and Address]
[Alternate Payee's Name and Address]
As a Participant (or current or potential alternate payee of a Participant's
benefit) under this plan, you should know the following:
The Participant has received a Domestic Relations Order from a state
court that may affect the benefits you are entitled to receive from this
Plan. The Domestic Relations Order has been referred to the Plan's legal
counsel for an opinion as to whether it is a "qualified domestic
relations order" as defined by section 414(p) of the Internal Revenue
Code of 1986, as amended, and ERISA Sec.206 .
Upon receipt of counsel's opinion, the Plan Administrator will make a
determination whether the order is a "qualified domestic relations
order". You will be notified of the Plan Administrator's decision and the
effect it will have on your benefits under this plan. Adjustment of
accounts and benefits as required by a QDRO may be made beginning 60 days
after the date the Plan Administrator mails the notice of the decision.
No distribution will be made from the Participant's account in the Plan
from the time a Domestic Relations Order is received by the Plan until
the Plan Administrator's determination as to a qualified status has
become final after notice to the affected parties. Until that time, the
Participant will retain any right to direct the investment of the account
that he/she held when the order was entered.
If the order is not found to be a Qualified Domestic Relations Order
within 18 months, the amounts being held (and interest or earnings
thereon, if any) will be treated as if the order was never received by
this Plan. If the order is found to be a Qualified Domestic Relations
Order within 18 months, the account will be divided or adjusted as
required by the order.
If you have any questions about your rights under the Plan or with respect
to this notice, please contact the Plan Administrator at this office.
cc: [Participant's representative, as named in this order]
[Alternate Payee's representative, as named in order]
VKAC, Recordkeeper for plan
<PAGE>
QUALIFIED DOMESTIC RELATIONS ORDER PROCEDURE
================================================================================
Page 9
QDRO Approval Notice
(This form is for illustrative use only. Be sure to contact the Plan's legal
----
counsel about any QDRO. Send to the Participant, Alternate Payee, and their
---
Legal Counsel.)
[Date]
[Participant's Name and Address]
[Alternate Payee's Name and Address]
As a Participant (or alternate payee) in this Plan, your benefits are
affected by a Domestic Relations Order received by the Plan. You were
advised, by letter dated _____________, that the Plan Administrator was
reviewing a court order affecting the benefits of [Participant's Name] .
----------------------
The Plan Administrator has now determined the order is a Qualified Domestic
Relations Order, and will have the following effect on you:
[Describe account adjustment required by QDRO here]
You have the right to appeal this action by written request to the Plan
Administrator within 60 days of receiving this notice. Send your written
appeal to the Plan Administrator at this address:
[Address of Plan Administrator/Plan Sponsor]
cc: [Participant's representative, as named in this order]
[Alternate Payee's representative, as named in order]
VKAC, Recordkeeper for plan
<PAGE>
QUALIFIED DOMESTIC RELATIONS ORDER PROCEDURE
================================================================================
Page 10
QDRO Disapproval Notice
(This form is for illustrative use only. Be sure to contact the Plan's legal
----
counsel about any QDRO. Send to the Participant, Alternate Payee, and their
---
Legal Counsel.)
[Date]
[Participant's Name and Address]
[Alternate Payee's Name and Address]
As a Participant (or alternate payee) in this Plan, your benefits are
affected by a Domestic Relations Order received by the Plan. You were
advised, by letter dated ___________, that the Plan Administrator was
reviewing a court order affecting the benefits of [Participant's Name] .
----------------------
The Plan Administrator has now determined the order is not a Qualified
Domestic Relations Order.
The reasons for this determination are as follows: [usually by legal
counsel]
You have the right to appeal this action by written request to the Plan
Administrator within 60 days of receiving this notice. Send your written
appeal to the Plan Administrator at this address:
[Address of Plan Administrator/Plan Sponsor]
cc: [Participant's representative, as named in this order]
[Alternate Payee's representative, as named in order]
VKAC, Recordkeeper for plan
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS AND NOTES THERETO CONTAINED IN THE COMPANY'S ANNUAL REPORT ON FORM
10-K FILED ON MARCH ___, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 3,840 9,190
<SECURITIES> 11,651 11,406
<RECEIVABLES> 9,191 6,685
<ALLOWANCES> 0 0
<INVENTORY> 7,269 2,908
<CURRENT-ASSETS> 33,252 31,274
<PP&E> 24,925 18,868
<DEPRECIATION> (10,167) (8,260)
<TOTAL-ASSETS> 50,625 42,658
<CURRENT-LIABILITIES> 4,013 4,898
<BONDS> 0 0
0 0
0 0
<COMMON> 92 92
<OTHER-SE> 45,800 37,330
<TOTAL-LIABILITY-AND-EQUITY> 50,625 42,658
<SALES> 59,943 47,282
<TOTAL-REVENUES> 0 0
<CGS> 35,032 25,447
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 12,337 9,642
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (879) (291)
<INCOME-PRETAX> 14,059 13,469
<INCOME-TAX> 5,589 2,359
<INCOME-CONTINUING> 8,470 11,110
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,470 11,110
<EPS-PRIMARY> .92 1.06
<EPS-DILUTED> .91 1.06
</TABLE>
