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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 0-28582
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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 15, 1999, the Registrant had 9,099,377 shares of Common Stock
outstanding with a par value of $.01 per share. The aggregate market value of
the 3,204,250 shares held by non-affiliates of the Registrant was $28,937,582.
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
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Item 2. Properties............................................................................ 8
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Item 3. Legal Proceedings..................................................................... 8
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Item 4. Submission of Matters to a Vote of Security Holders................................... 8
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PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters................. 9
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Item 6. Selected Financial Data............................................................... 10
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 12
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Item 7a. Quantitative and Qualitative Disclosures about Market Risk............................ 23
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Item 8. Financial Statements and Supplementary Data........................................... 23
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . 23
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PART III
Item 10. Executive Officers and Directors...................................................... 24
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Item 11. Executive Compensation................................................................ 26
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Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 30
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Item 13. Certain Relationships and Related Transactions........................................ 31
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 32
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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 designer and manufacturer of telecommunications equipment
supplied to telephone, cable television and power utility network providers
worldwide. Major product lines include a complete line of thermoplastic and
metal fabricated enclosures, advanced copper termination and connectorization
products, fiber optic cable management systems, coaxial-based passive RF
electronics and heat shrink products. 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 television ("CATV") and telephone
operators. The Company's enclosure products house, protect and provide access
to advanced telecommunications hardware, including both radio frequency ("RF")
electronics and photonics, and transmission media, including coaxial cable,
copper wire and optical fibers, used in the delivery of voice, video and data
services. The enclosure products are deployed within the portion of a local
signal delivery network, commonly known as the "outside plant" or "local loop",
that connects the network provider's signal origination office with residences
and businesses.
As a result of the acquisitions of RMS Electronics, Inc. ("RMS") and Standby
Electronics Corp. ("Standby Electronics") in 1997, and A.C. Egerton (Holdings)
PLC ("Egerton") in 1998, the Company is also a supplier of passive RF
electronics and a manufacturer of metal fabricated enclosures in addition to
designing and manufacturing a full range of copper and fiber optic connectivity
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, thus offering network operators a full system solution to
their outside plant requirements.
Industry
The communications industry continues the accelerated expansion it has
experienced for a number of years, both domestically and worldwide.
Contributing to this growth is the increasing need for network signal
transmission bandwidth to accommodate new high-speed communications applications
deployed on upgraded existing networks and newly constructed broadband networks.
Major developments including the Internet and other high-speed data
communications technologies, on-going convergence between the CATV and
telecommunications industries, and demand for enhanced communications services,
have led to a changing regulatory and competitive environment in many markets.
Throughout the world, the deployment of new networks or improvements to existing
networks for advanced broadband applications is a national priority for many
countries, permitting them to participate and compete in the rapidly emerging
information-based global economy.
To meet today's demands and anticipating future demand, CATV, local telephone
operators and power utilities are building, rebuilding or upgrading signal
delivery networks around the world. These networks are designed to deliver
video, voice, data or power transmissions and provide Internet connectivity to
individual residences and businesses. Operators deploy a variety of network
technologies and architectures, such as HFC, FTTC, DLC and ADSL (see "Glossary
of Terms") to carry broadband and narrowband signals. These architectures are
constructed of electronic hardware connected via coaxial cables, copper wires
and/or optical fibers, including various access devices, amplifiers, nodes, hubs
and other signal transmission and powering electronics. Many of these devices
in the outside plant require housing in secure, protective enclosures and cable
management connectivity systems, such as those manufactured by the Company.
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As critical components of the outside plant, enclosure products provide
protection against weather and vandalism, ready access to devices for
technicians who maintain and manage the outside plant and, in some cases,
provide dissipation of heat generated by the active electronic hardware. CATV
and local telephone network operators place great reliance on manufacturers of
protective enclosures because any material damage to the signal delivery
networks is likely to disrupt communications services.
The primary drivers of demand for enclosures in the communications industry is
the construction, rebuilding, upgrading and maintenance of signal delivery
networks by CATV operators and local telephone companies. Particular
technological developments in the communications industry are resulting in
significant increases in system upgrades. For example, CATV networks are being
upgraded and prepared for advanced two-way services such as high-speed 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 a variety of digital
subscriber line ("DSL") technologies, which utilize installed copper wires for
broadband services. These "local loop" copper wire systems often require
significant upgrading and maintenance to provide the optimal throughput
necessary to carry high-speed broadband signals, increasing the need for fully
sealed outside plant facilities in order to sustain 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
and connectivity products designed for the communications industry.
Business Strategy
The Company's strategy has been, and remains, to capitalize on opportunities
in the global communications industry by providing enclosures, connectivity
products and other complementary components 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 Telecommunications Business. The Company will
continue to seek to capitalize on its position as a leading designer,
manufacturer and marketer of enclosures for the CATV and local telephone
industries 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 enclosure products for the CATV and
telephone industries, the Company has positioned itself to increase its
participation in the large scale broadband network construction and upgrade
programs anticipated over the next several years by attaining incremental sales
opportunities through the recently acquired RMS, Standby and Egerton product
lines, which are marketed as complementary product lines by the Company. With
these acquisitions, the Company is now able to offer a more complete package of
products used by all telecommunications network operators as they upgrade their
networks in order to provide additional services and expand network capacity.
These expansions and upgrades are expected to enable telecommunications network
operators to increase network bandwidth to accommodate increased demand for
faster and larger throughput of signal transmissions and greater reliability of
their infrastructure.
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 achieved significant success in marketing its traditional
CATV/broadband products to local telephone companies that 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, Asia, the Pacific Rim, the Middle East and Europe. Trends
expected to result in international growth opportunities include the on-going
deregulation and privatization of
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telecommunications in many national contexts around the world, 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 multinational expansion by many U.S. based network carriers. The Company
currently operates overseas manufacturing and sales operations in Australia,
Canada and the UK in order to focus directly on the unique requirements of each
major market. 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.
Develop New Products and Enter New Business Segments. The Company continues
to leverage its core capabilities in developing innovative products that meet
the evolving needs of its customers. Examples of innovative products offered by
the Company include its low profile (i. e., close to the ground) enclosures,
self-locking security system 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, have 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 advantages over
those offered by other suppliers to the industry. In addition, the Company
seeks 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 and application-
specific, thermoplastic and metal fabricated enclosures that are considered
state-of-the-industry for many applications, having been field tested and
received approvals and standardization certifications from major CATV and
telephone company operators. As a result of the Egerton acquisition, the
Company now designs and supplies a full range of copper and fiber optic
connectivity products. Most of the Company's products are designed for buried
and underground network applications. The Company's enclosure products provide
technicians access to these networks and equipment for maintenance, upgrades and
installation of new services. Buried and underground networks and enclosures
are generally preferred by CATV operators for increased network reliability,
lower maintenance, improved security, reduced utility right of way conflicts,
and aesthetic appeal. The enclosure products must provide advanced heat
dissipation characteristics as required for the protection of active electronics
in many network installations. The Company also designs and manufactures a
series of termination blocks, brackets and cable management devices for mounting
inside its enclosure products. The Company is recognized in the industry for
its differentiated product designs and the functionality, field performance and
service life of its products, as compared with alternative products.
To enhance its complete system approach in the "curb to the home
infrastructure" portion of broadband networks, the Company acquired RMS in 1997.
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 in
1997, a designer and supplier of metal fabricated enclosures to house advanced
electronics, fiber optic cable and power systems for broadband
telecommunications networks which are now branded as the Rhino Enclosures(TM).
These electronic devices and enclosures are complementary with the Company's
core broadband enclosure products and are now components of the Company's
complete systems approach.
In 1998, the Company acquired Egerton, a UK-based company, with an operation
in Australia, giving the Company expanded presence in the European, Southeast
Asian and other world telecommunications markets. Egerton, a designer and
manufacturer of innovative telephone connectorization devices, as well as fiber
optic and heat shrink products for CATV, provides high quality component
products to the Company's telecommunications networks product line. The
Company's Insulation Displacement Connector ("IDC") technology provides advanced
"tool-less" termination systems for copper wires, the predominant medium used
for telecommunications services worldwide. These proprietary IDC products
environmentally seal network termination points with a high level of
reliability.
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To position itself as a full-line product supplier, the Company also offers a
variety of complementary products, including thermoplastic and concrete grade
level boxes. These products are typically purchased by customers as part of a
system package and are marketed by the Company through its direct sales force to
its existing customer base.
Over the past several years, the Company has developed OEM marketing programs
through which other manufacturers incorporate the Company's products as
components of their systems. These OEM programs generally include exchanges of
technical information that the Company can use in developing new products and
improvements and enhancements to existing designs. The Company has established
additional relationships with systems integrators and innovative end users that
provide valuable product improvement information.
The Company currently markets over 50 product families, with several thousand
optional 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 one of the most complete lines of outside plant
infrastructure products in the telecommunications industry. The Company
anticipates the demand for its broadband product line to be sustained by the
continued construction of broadband networks, both CATV and telephone, and
upgrades of existing CATV networks to accommodate expanded video services, high-
speed Internet access via cable modems, and wireless PCS transport. Recent
announcements in the power utility market indicate additional growth
opportunities from this industry segment as well.
The Company also specializes in the manufacture of high performance products
designed to meet or exceed the requirements of local telephone company networks,
including sealed plant products. These products are designed with
environmentally sealed specifications to provide exceptional long-term
protection for copper wires, coaxial cable and optical fibers exposed for the
purposes of splicing and termination. The sealing systems of the Company's
sealed plant products are available in several styles and specifications which
can be configured to individual customer requirements. This provides
significant value to customers in terms of faster installations, re-entry and
access, and cost management.
Traditionally, the Company's sealed plant products have been deployed in
regions where the potential for damage from severe flooding, moisture and
corrosion is high. More recently, some telephone companies, to improve the
general reliability of their copper wire networks, reduce maintenance costs and
extend the service life of their infrastructure, have adopted a complete sealed
plant strategy. In addition, Company management expects that increased demand
for sealed plant products, both enclosures and IDC connector 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 these
critical applications are implemented, it is anticipated that network operators
may seek to upgrade their copper wire facilities to improve reliability and
performance. The Company's active electronic enclosures and sealed plant
products are well suited for such applications.
The Company continues to assess new product innovations to complement its
existing product line and marketing strengths. Additional products for the
telecommunications markets as well as new products for customers in industries
outside of the communications industry, such as the power utility industry, are
new product development initiatives being studied by the Company.
Marketing and Sales
The Company markets its products primarily through a direct sales force of
technically trained salespeople. The Company's sales force is deployed
worldwide and divided into major market groups as follows: US; Canada;
South/Central America; Australia/Asia; and Europe/Middle East. The Company
employs an application-specific, systems 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 supported
by the Company's engineering and technical marketing staff.
The Company's technical and product marketing department provides its sales
force with extensive support. The field technical service personnel within this
department work closely with the outside sales staff and customers to develop
system solutions and provide a full range of technical support, training and
certification for
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users of the Company's products. Product marketing personnel
perform a variety of functions, including product line management and general
marketing services. These individuals also provide strategic plans for product
development, new market entry, acquisitions and strategic alliances, and work
closely with the Company's sales, engineering and manufacturing departments to
implement such strategic plans.
An internal sales/customer service department that administers and schedules
incoming orders, handles requests for product enhancements and service
inquiries, also supports the Company's direct sales force. With locations in
California, North Carolina, Canada, the United Kingdom and Australia, this
department maintains direct communications with customers and the Company's
field sales and operations personnel.
By engaging in public relations activities, product literature development,
market research and advertising, the marketing department also promotes and
positions the Company, within both domestic and international markets. The
Company regularly attends, participates and exhibits its products at industry
trade shows and conferences within domestic and international telecommunications
markets throughout the year.
Manufacturing Operations
The Company's primary product manufacturing facilities are as follows:
Temecula, California; Mississauga, Ontario; Kent, UK; Sydney, Australia. The
Company's modern, vertically integrated 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 modify its product lines
to meet changing market demands, rapidly and efficiently produce large volumes
of products, control expenses and ensure product quality. Management considers
the Company's manufacturing expertise a distinct and significant competitive
advantage, providing it with the ability to satisfy the requirements of major
customers with relatively short lead-times by promptly booking and shipping
orders.
The Company owns a majority of its manufacturing equipment, which is generally
state-of-the-art, and all manufacturing processes are performed by trained
Company personnel. These manufacturing processes include injection molding,
structural foam molding, rotational molding, metal fabrication, rubber
injection, transfer and compression molding, and termination block fabrication.
The Company has implemented several comprehensive process and quality assurance
programs, including continuous monitoring of key processes, regular product
inspections and comprehensive testing. In the second quarter of 1997, the
Company's Temecula manufacturing facility was awarded ISO-9001 certification, a
worldwide industry standards certification.
The Company's facilities include approximately 352,000 square feet in
Temecula, California; 24,000 square feet in Mississauga, Ontario, Canada; 92,000
square feet in Orpington, Kent, UK; 39,000 square feet in Sydney, Australia; and
44,000 square feet in Charlotte, North Carolina.
Management has followed a long-term capacity plan, adding the equipment,
facilities and trained personnel as 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.
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. Continuous from its earliest introductions, the Company has
designed all of its own products and developed core competencies in product
engineering and development.
As a direct result, the Company has been able to develop a broad series of
superior products. Distinguishing characteristics of the Company's products
include:
. Effective heat dissipation qualities;
. Advanced copper IDC connectivity products;
. A superior environmental sealing and protection system that, unlike many
competitors' products, does not require gels, compounds or other methods
to maintain the required seal;
. Sub-surface network access systems;
. Product designs allowing technicians easy access through circular covers
that can be removed to
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fully expose the enclosed electronics;
. High performance passive RF electronics products;
. Compatibility with a variety of signal delivery network architectures;
. Modular metal fabricated enclosure product line covering multiple network
applications; and
. Versatility of design to accommodate network growth through custom
hardware and universal mounting systems that adapt to a variety of new
electronic hardware.
The Company's product development and engineering processes enable the Company
to respond to demands of the communications industry for increasingly
sophisticated enclosure products. Many of the Company's thermoplastic enclosure
products are now considered state-of-the-industry, having been field tested and
received approvals and standardization certifications from major CATV and
telephone company operators.
With the acquisitions of RMS, Standby Electronics and Egerton, the Company is
engaged in extensive new product development programs in RF passive electronics,
metal fabricated enclosures and telephone connectorization devices.
The acquisition of Egerton has expanded the Company's telecommunications
product line and extended its presence in the global marketplace. The Egerton
product line includes advanced IDC connectorization and cross-connect products
for the telephone industry, and fiber optic and heat shrink products that
complement the Company's CATV core enclosure products.
The Company's new product development approach is applications-based and
customer driven. A team comprised of engineering, marketing, manufacturing and
direct sales personnel work together to define, develop and deliver
comprehensive systems solutions to customers, focusing on the complete design
cycle from product concept through tooling and high-volume manufacturing. The
Company is equipped to conduct many of its own product testing regimens for
performance qualification purposes, enabling it to accelerate the product
development process. The Company spent approximately $0.5 million in 1994, 1995
and 1996, $1.0 million in 1997, and $1.9 million in 1998 on research and
development.
Customers
The Company sells its products directly to CATV operators and telephone
companies throughout the United States, Canada and certain other international
markets, principally within developed nations. During 1998, the Company shipped
products to more than 4,700 customer locations and its five largest customers
accounted for 42.8% of total net sales. In 1998, the Company's five largest
customers in the United States (by sales volume) were Cox, Comcast, Media One,
TCI and Time Warner. Two customers, Media One and Time Warner, accounted for
11.7% and 12.5%, respectively, of the Company's net sales in 1998.
In international markets, the Company's five largest customers (by sales
volume) were Telstra (Australia), Rogers Communications (Canada), Cable and
Wireless (UK), Techlink Services (UK) and British Telecom (UK).
The Company's customers generally do not enter into long-term supply contracts
providing for future purchase commitments of the Company's products. Rather,
the Company believes that many of its customers periodically review their supply
relationships and adjust buying patterns based upon their current assessment of
the products and pricing available in the marketplace. From fiscal period to
fiscal period, significant changes in the level of purchases of the Company's
products by specific customers can and do result from this periodic assessment.
Intellectual Property
Upon 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.
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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 core enclosure products and other compatible products, its specialized
engineering resources and vertically integrated manufacturing operations provide
the Company with significant competitive advantages.
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 effectively with cost control through vertical integration
utilizing advanced manufacturing techniques, cost-effective product designs and
material selection, and an aggressive procurement approach.
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. With the deregulation of the telecommunications
industry and the continuing convergence occurring within the CATV and
telecommunications industries, it is uncertain whether, and the extent to which,
such field testing may be required. While field testing can delay the
introduction of new products, it can also act as a competitive advantage for
those companies tested and approved, in that it creates a barrier to new product
introduction and sales by competitors.
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, and
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 it
attempts to develop and maintain multiple sources of supply in order to extend
the availability and encourage competitive pricing of these materials.
Most plastic resins are purchased under annual and multi-year contracts to
affect stabilization of 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 Company out-
sources to local processors to perform the coating operations.
Positioning itself as a full-line product supplier, the Company also relies on
certain other 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, 1998, the Company employed 713 people (including 41
temporary employees), of whom 78 were in sales, 541 were in manufacturing
operations (including the 41 temporary employees), 20 were in research and
development and 74 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 business
interruption as a result of labor disputes within the past five years.
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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 of 1996 that 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, or similar substances, that are classified as hazardous. 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 Company to incur
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 and 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 in
personal injury actions) at properties it owns or utilizes in its operations,
even if the contamination was not caused by the Company's operations.
Item 2. Properties
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The Company's facilities approximate 551,000 square feet, of which
approximately 56%, 32% and 12% is used for manufacturing, warehouse and office
space, respectively. In Temecula, California, 260,000 square feet of the total
352,000 square feet are leased from William H. Channell, Sr., the Company's
Chairman of the Board and Chief Executive Officer. (See Certain Relationships
and Related Transactions, Item 13.) The Company also leases an aggregate of
approximately 168,000 square feet of manufacturing, warehouse and office space
in Canada, Australia, United Kingdom and North Carolina. The Company owns
approximately 123,000 square feet of manufacturing, warehouse and office space
in Temecula, California and the United Kingdom. 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). There
was no existing public market for the Company's Common Stock prior to the third
quarter of 1996.
<TABLE>
<CAPTION>
High Low
-------------------- -------------------
<S> <C> <C>
Year Ended December 31, 1996:
Third Quarter $15.25 $11.00
Fourth Quarter 13.00 9.00
<CAPTION>
High Low
-------------------- -------------------
<S> <C> <C>
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
<CAPTION>
High Low
-------------------- -------------------
<S> <C> <C>
Year Ended December 31, 1998:
First Quarter $13.25 $ 9.63
Second Quarter 13.88 9.00
Third Quarter 11.50 7.25
Fourth Quarter 9.13 5.75
</TABLE>
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 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, 1998, the Company had 9,099,377 shares of its Common Stock
outstanding, held by approximately 650 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,
------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.............................. $ 34,504 $ 40,972 $ 47,282 $ 59,943 $ 92,710
Cost of goods sold..................... 19,750 23,059 25,447 35,032 56,578
-------- -------- --------- -------- ---------
Gross profit........................... 14,754 17,913 21,835 24,911 36,132
Commission income (1).................. 904 1,098 985 606 292
-------- -------- --------- -------- ---------
15,658 19,011 22,820 25,517 36,424
Operating expenses
Selling............................. 4,952 5,600 6,559 7,251 11,570
General and administrative.......... 1,445 1,707 2,021 4,077 8,057
License fees(2)..................... 1,560 2,035 531 - -
Research and development............ 518 498 531 1,009 1,863
-------- -------- --------- -------- ---------
8,475 9,840 9,642 12,337 21,490
-------- -------- --------- -------- ---------
Income from operations................. 7,183 9,171 13,178 13,180 14,934
Interest income (expense), net......... ( 156) ( 339) 291 879 ( 1,076)
-------- -------- --------- -------- ---------
Income before income taxes 7,027 8,832 13,469 14,059 13,858
Income taxes 429 349 2,359 5,589 5,749
-------- -------- --------- -------- ---------
Net income $ 6,598 $ 8,483 $ 11,110 $ 8,470 $ 8,109
======== ======== ========= ======== =========
Pro forma net income(3)................ $ 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 $.88
Diluted $.91 $.88
OTHER DATA:
Gross margin(5)........................ 42.8% 43.7% 46.2% 41.6% 39.0%
Operating margin(6).................... 20.8 22.3 27.9 22.0 16.1
EBITDA(7).............................. $ 8,255 $ 10,583 $ 14,729 $ 15,224 $ 18,994
Capital expenditures (excluding capital
leases).............................. 5,880 2,161 1,554 5,966 10,579
S Corporation dividends declared....... 3,764 5,427 14,157 - -
Cash provided by (used in):
Operating activities................. 6,201 9,758 11,424 3,730 6,606
Investing activities................. (5,880) (2,161) (12,960) (8,958) (22,308)
Financing activities................. 398 (7,019) 9,351 (122) 17,919
ADJUSTED FINANCIAL DATA(8):
Net sales (as historically reported)... $ 34,504 $ 40,972 $ 47,282
Adjusted EBITDA(9)..................... 9,540 12,343 15,122
Adjusted income from operations........ 8,468 10,931 13,571
Adjusted operating margin(10).......... 24.5% 26.7% 28.7%
Adjusted net income.................... $ 4,899 $ 6,431 $ 8,179
Adjusted net income per share(11)...... .84 .97
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets...................... $ 8,093 $ 8,502 $31,274 $33,252 $40,505
Total assets........................ 17,951 19,103 42,658 50,625 98,442
Long-term obligations
(including current maturities)... 3,684 3,213 473 946 35,911
Stockholders' equity................ 9,417 12,473 37,422 45,892 52,580
</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. See Footnote B to the
Financial Statements included elsewhere herein for weighted average shares
outstanding in 1997 and 1998.
(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 and 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 designer and manufacturer of telecommunications equipment
supplied to telephone, cable television and power utility network providers
worldwide. The Company sells its products directly to CATV operators and
telephone companies throughout the United States, Canada, Australia, United
Kingdom and certain other international markets, principally within developed
nations. 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 received a commission upon the
sale of such products. Pursuant to the agreement, which was terminated in 1998,
under which the Company marketed such products, during the terms thereof and for
a period of two years thereafter, both 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,
Standby Electronics and Egerton 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,
--------------------------
1996 1997 1998
------- ------- ------
<S> <C> <C> <C>
Net sales........................ 100.0% 100.0% 100.0%
Cost of goods sold............... 53.8 58.4 61.0
----- ----- -----
Gross profit..................... 46.2 41.6 39.0
Commission income................ 2.1 1.0 0.3
----- ----- -----
48.3 42.6 39.3
Selling.......................... 13.9 12.1 12.5
General and administrative....... 4.3 6.8 8.7
License fees..................... 1.1 - -
Research and development......... 1.1 1.7 2.0
----- ----- -----
Income from operations........... 27.9 22.0 16.1
Interest income (expense), net... 0.6 1.5 1.2
----- ----- -----
Income before income taxes....... 28.5 23.5 14.9
Pro forma income taxes(1)........ 9.6 9.4 6.2
----- ----- -----
Pro forma net income(1).......... 18.9% 14.1% 8.7%
===== ===== =====
Adjusted income from operations(2).. 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 and 1998. 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 and 1998.
13
<PAGE>
New Accounting Pronouncement
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative
Instruments and Hedging Activities, which is effective for 2000. SFAS 133 will
require the Company to record all derivatives on the balance sheet at fair
value. For derivatives that are hedges, changes in the fair value of
derivatives will be offset by the changes in the fair value of the hedged
assets, liabilities or firm commitments. The Company believes the impact of
adopting this standard will not be material to results of operations or equity.
Comparison of the Year Ended December 31, 1998 With Year Ended December 31, 1997
Net Sales. Net sales increased $32.8 million or 54.8% from $59.9 million in
1997 to $92.7 million in 1998, as a result of increased sales of
telecommunication enclosure and component products of $32.0 million (including
$20.1 million of Egerton products) and $0.8 million of other related equipment.
Domestic net sales increased $14.6 million or 29.8% from $49.0 million in 1997
to $63.6 million in 1998, primarily due to accelerated growth in both upgrade
and rebuild construction as a result of increased broadband requirements.
International net sales increased $18.2 million or 167.0% from $10.9 million in
1997 to $29.1 million in 1998, due to the sales of $20.1 million of Egerton
products while Channell's broadband sales decreased $1.9 million due to the
sluggish Asian economy.
Gross Profit. Gross profit increased $11.2 million or 45.0% from $24.9
million in 1997 to $36.1 million in 1998. Of this improvement, $6.8 million is
attributable to sales of Egerton products and $4.4 million was attributable to
increased sales volume of Channell's telecommunications enclosure and component
products. Gross margin decreased from 41.6% in 1997 to 39.0% in 1998, primarily
due to a 33.8% margin contribution from Egerton revenues, while margin on
Channell's telecommunications enclosure and component products decreased from
41.6% in 1997 to 40.4% in 1998 due to increased depreciation expenses from
capital expenditures in the comparative periods and increased manufacturing
staffing.
Commission Income. Commission income decreased $0.3 million or 50.0% from
$0.6 million in 1997 to $0.3 million in 1998. The decrease is a result of the
termination of a marketing agreement for the sale of cable-in-conduit products.
Selling. Selling expense increased $4.3 million or 58.9% from $7.3 million in
1997 to $11.6 million in 1998, as a result of $2.0 million for increased payroll
and related expenses in connection with expanded staffing to support increased
sales and marketing activities worldwide and $2.3 million of increased selling
expenses related to the Egerton operations. As a percentage of net sales,
selling expense increased from 12.1% in 1997 to 12.5% in 1998.
General and Administrative. General and administrative expenses increased $4.0
million or 97.8% from $4.1 million in 1997 to $8.1 million in 1998. Such
increase occurred as a result of increased payroll and related expenses due to
increased staffing requirements in the amount of $0.7 million and $0.5 million
of increased legal, auditing and professional services. General and
administrative expense increased $2.9 million as a result of the Egerton
operations including $0.5 million of goodwill amortization. As a
percentage of net sales, general and administrative expenses increased from 6.8%
in 1997 to 8.7% in 1998.
Research and Development. Research and development expenses increased $0.9
million or 90.0% from $1.0 million in 1997 to $1.9 million in 1998, as a result
of increased payroll and expenses in the amount of $0.7 million associated with
increased staffing and $0.3 million related to Egerton. As a percentage of net
sales, research and development expenses increased from 1.7% in 1997 to 2.0% in
1998.
Income from Operations. As a result of the items discussed above, income from
operations increased $1.7 million or 12.1% from $13.2 million in 1997 to $14.9
million in 1998, but declined as a percentage of net sales from 22.0% in 1997 to
16.1% in 1998.
14
<PAGE>
Interest Income (Expense). Interest income decreased from $1.0 million in 1997
to $0.3 million in 1998, a reduction of 73.6%. This decrease was caused by a
reduction in the amount of the Company's investments in 1998, as the Company
used approximately $10.2 million of its investments to fund the purchase of
Egerton. Interest expense increased from $0.1 million in 1997 to $1.3 million
in 1998 as a result of increased borrowings to fund the Egerton acquisition and
capital expenditures.
Income Taxes. Income taxes were $5.6 million in 1997 and $5.7 million in 1998,
with effective tax rates of 40.0% and 41.0%, respectively. The increase in the
effective tax rate is primarily due to the increase in the amount of non-
deductible amortization of goodwill.
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.
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.
15
<PAGE>
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 RMS and
Standby Electronics operations, 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 Management
Information System ("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.
Liquidity and Capital Resources
Net cash provided by operating activities was $3.7 million and $6.6 million in
1997 and 1998, respectively. Net cash used in investing activities was $9.0
million and $22.3 million in 1997 and 1998, respectively. The cost of
acquisitions, net of cash acquired, used in investing activities was $2.7
million and $24.0 million in 1997 and 1998, respectively. Net cash used in
financing activities was $0.1 million in 1997 and net cash provided by financing
activities was $17.9 million in 1998, including $24.7 million in proceeds from
the issuance of long-term debt.
Accounts receivable increased from $9.2 million for the year ended December
31, 1997 to $17.9 million for the year ended December 31, 1998, as a result of
higher sales during the fourth quarter of 1998 as compared to the same period of
1997 and $6.1 million attributable to Egerton operations. Inventories increased
from $7.3 million for the year ended December 31, 1997, to $15.0 million for the
year ended December 31, 1998, as a result of increased work-in-process and
finished goods inventories required for the increased sales volume forecasted
and $5.1 million attributable to Egerton operations.
The Company made capital expenditures (excluding capital leases) of $6.0
million and $10.6 million in 1997 and 1998, respectively, including $6.0 million
to acquire 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 acquired machinery and
equipment under capital leases totaling $0.2 million in 1997 and $6.2 million
in 1998.
The Board of Directors, on April 1, 1998, having determined such action to be
in the best interest of the Company, authorized a stock repurchase plan of up to
$2.0 million worth of Company stock. During the third and fourth quarters of
1998, the Company repurchased 137,623 shares of its Common Stock at a cost of
approximately $1.2 million.
16
<PAGE>
The Company on May 1, 1998, acquired 100% of the outstanding shares of Common
Stock of Egerton, a public limited company incorporated in England and Wales.
The purchase price, paid in cash, amounted to $27.9 million, including $1.3
million of acquisition costs. The fair value of assets acquired in excess of
liabilities assumed amounted to $13.8 million which resulted in goodwill in the
amount of $14.1 million. Goodwill is being amortized on the straight-line basis
over twenty years. The purchase price of the stock was paid from the proceeds
of bank borrowing and the liquidation of short-term investments.
In conjunction with the acquisition of Egerton, the Company entered into a new
Senior Revolving Loan Agreement ("Revolving Facility") with a bank to provide
funds for the Egerton acquisition as well as for working capital and equipment
acquisition purposes. The Revolving Facility is in the amount of $25.0 million
of which $16.4 million had been drawn down as of December 31, 1998. The
outstanding balance bears interest at a variable rate based on either the bank's
base rate or the applicable LIBOR rate depending on the nature of the
borrowings. At December 31, 1998, the weighted average interest rate was 6.0%.
The loan is collateralized by substantially all the Company's tangible and
intangible assets and up to 65% of the capital stock of the Company's
subsidiaries and is due April 30, 2003.
The Revolving Facility contains various financial and operating covenants
which, among other things, imposes limitations on the Company's ability to incur
additional indebtedness, merge or consolidate, sell assets except in the
ordinary course of business, make certain investments, enter into leases and pay
dividends. The Company is also required to comply with covenants related to
minimum net worth and other financial ratios.
The Company also has a credit facility available to the Egerton subsidiaries,
which includes an overdraft facility totaling approximately $5.0 million plus
the combined cash balances of those subsidiaries, which were approximately $4.2
million at December 31, 1998. The facility also includes approximately $2.0
million, to provide financing for international letters of credit, forward
exchange contracts and other items. The outstanding balance (net of cash
balances) bears interest at the bank's base rate, 6.25% at December 31, 1998,
plus a factor ranging from 1.25% to a maximum of 4.0% depending on the amount
borrowed. The facility is collateralized by the assets of the subsidiaries and
due for renewal in August 1999.
The Company believes that income from operations, coupled with borrowing under
its revolving credit facilities will be sufficient to fund the Company's capital
expenditure and working capital requirements through 1999.
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
Today's communications industry is in a state of rapid technological change.
The introduction of new technologies, network architectures or changes in
industry standards can render the Company's existing products or products under
development obsolete or unmarketable. For example, satellite, wireless and
other communication technologies under development or 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 demand
for traditional wire-line network based services. Further, 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. 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, data and other transmission
networks, and high-speed 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 be met with market
acceptance.
17
<PAGE>
Importance of New Product Development to Growth
A significant factor in the Company's ability to grow and remain competitive,
will be its ability to anticipate changes in technology and industry standards,
and to successfully develop and introduce new products on a timely basis. New
product development often requires long-term forecasting of market trends,
development and implementation of new designs and processes, and substantial
capital commitment. Trends toward consolidation of the communications industry
and convergence of technologies may require the Company to quickly adapt to
rapidly changing market conditions and customer requirements.
The Company's manufacturing and marketing expertise has enabled it to
successfully develop and market new products in the past. However, 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 telecommunications industry is concentrated, with relatively few operators
accounting for a large percentage of the Company's available market.
Consequently, while the Company shipped product to over 4,700 customer locations
in 1998, its five largest customers (by sales volume) accounted for 42.8% of the
Company's total net sales in 1998. Two customers, Media One and Time Warner,
accounted for 11.7% and 12.5%, respectively, of the Company's total net sales
during the period.
The Company's customers typically require prompt shipment of the Company's
products within a narrow timeframe. As a result, the Company has historically
operated with a relatively small backlog. 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,
may place the Company's operating results 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 expects that sales to the telecommunications industry will
continue to represent a substantial portion of its total sales. Demand for
products within this industry 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 technology.
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 customers. 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 video, voice, and data
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.
18
<PAGE>
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 resins. 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. 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,
earnings per share 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 realize 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 the related fixed costs for rent, product development, engineering,
tooling and manufacturing are a relatively high 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
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.
19
<PAGE>
Risks Associated with International Operations
International sales, including export sales from U.S. operations, accounted
for 11.7%, 18.2% and 31.4% of the Company's net sales in 1996, 1997, and 1998
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,
because of the anticipated growth in the telecommunications industry generally,
the demand for products required in signal transmission networks in particular,
the level and intensity of competition may increase in the future.
The Company's competition includes a company that has a significant market
share in the telephone segment of the industry. The Company's strategy includes
continued focus on increasing sales to this segment. While the Company's net
sales to this segment have increased, there can be no assurance that the Company
will be able to compete successfully against that company or other competitors,
many of whom may have access to greater financial resources than the Company.
Disruptions at the Company's Manufacturing Facility; Lease with Related Party
The majority of the Company's manufacturing operations is 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 a portion of its Temecula facilities 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.
Year 2000 Computer Systems Compliance
The Year 2000 problem concerns the inability of certain computers and computer
systems to process data beyond January 1, 2000. Many software programs refer to
years in terms of their final two digits only. These programs may interpret the
year 2000 as 1900 and may not recognize that the year 2000 is a leap year. (The
year 1900 was not a leap year.) If not corrected, these programs could shut
down or generate incorrect critical data.
The Company has developed a plan to deal with the Year 2000 issues that it
faces. The Company, independent of the Year 2000 issues has embarked on a
worldwide project to implement a new business information system throughout the
Company using i2 Rhythm Factory Planner, Oracle ERP software and associated
hardware. These new systems will make the Company's business information
systems approximately 85% Year 2000 compliant and are scheduled for completion
domestically in the second quarter of 1999 and internationally in the third
quarter of 1999. The Company is on schedule for implementation of these new
systems.
20
<PAGE>
In addition to business information systems, the Company's plan calls for the
analysis, correction and testing of embedded systems which might not operate or
might not operate properly after January 1, 2000. Those Systems include, but
are not limited to, telephone and voice mail systems, manufacturing and
production equipment, freight and shipping software, office machines, elevators
and building security systems. The Company has completed 60% of the in-house
testing and/or obtaining of manufacturer's certifications for the Year 2000
compatibility of these systems. Any items that cannot be determined to be
compliant or cannot be upgraded to be compliant are being replaced if they are
deemed to be critical to the operations of the Company.
The Company's plan also includes a procedure for analyzing the Year 2000
status of key outside suppliers, service providers and customers whose failure
to comply could have an adverse affect on the Company. These procedures include
a standard Year 2000 compliance agreement as well as a survey-type questionnaire
designed to help measure the vendor's progress in dealing with the Year 2000
issues. The Company has identified its key vendors and customers and has
completed 60% of the process of mailing the questionnaire and/or obtaining the
certification agreements. This phase of the plan is on-going, but is
anticipated to be complete in the third quarter of 1999.
The Company has contingency plans to deal with the failure of the above to
meet the Year 2000 issue with regard to the systems upgrade. The contract with
the suppliers includes a guarantee that the new Systems will be implemented and
tested timely, and that the systems will be Year 2000 compliant. In addition, in
the event that the business information system implementation (Oracle) does not
meet the project time line (5/1/99), the Company will install Y2K patches for
its existing Data General operating system along with the Apollo business
application software. This will ensure, on a short-term basis, that the Company
will continue in a production environment while meeting the Year 2000-compliance
situation. No contingency plan has been established to deal with the embedded
Systems issue in that any critical, non-compliant systems will be replaced or
corrected as they are discovered. Contingency plans to deal with outside
suppliers and customers will be developed as indicated by the on-going analysis
of these entities. Such contingency plans could include the building of
inventories, the search for alternative suppliers, or the request for advance
payments or deposits from customers, all as the case may indicate.
The total costs associated with becoming Year 2000 compliant are not expected
to be material to the Company's financial position or results of operations.
Total costs associated with the business information systems project are
expected to be $3.5 million, most of that attributable to the systems upgrade
that was being done independent of the Year 2000 problems. Approximately 50% of
the costs associated with the Systems upgrade have already been incurred.
Failure to anticipate and correct the Year 2000 problem could result in an
interruption in or a failure of certain normal business activities including,
but not limited to temporary plant closings, delays in the delivery of products,
delays in receipt of supplies, invoice and collection errors, delays in the
collection of receivables and inventory obsolescence. The Company believes that
with the implementation of the new business information systems and completion
of the other procedures contained in the Year 2000 plan (particularly the
analysis of third party vendor and customer Year 2000 compliance activities),
that any significant interruptions and negative impacts from Year 2000 problems
will be reduced.
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.
21
<PAGE>
Changing Regulatory Environment
The communications industry is subject to regulation in the United States and
other countries. Federal and state 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 for its customers' signal transmission network needs,
the effect of the Telecommunications Act on the market for the Company's
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 1999, 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.
Selected Quarterly Financial Data
Set forth below is certain unaudited quarterly financial information. (See
also Footnote P to the Financial Statements included elsewhere herein.) 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.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1998
------------------------------------------ -----------------------------------------
(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.............. $12,804 $15,664 $15,353 $16,122 $15,704 $23,108 $27,159 $26,739
Gross profit........... 5,143 7,005 6,399 6,364 6,414 9,621 10,609 9,488
Income from
operations............. 2,093 4,099 3,670 3,318 2,493 4,180 4,460 3,801
Income before income
taxes.................. 2,392 4,301 3,880 3,486 2,645 3,852 3,840 3,521
</TABLE>
22
<PAGE>
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
The market risk inherent in the Company's market risk sensitivity instruments
is the potential loss arising from adverse changes in interest rates and foreign
currency exchange rates. All financial instruments held by the Company and
described below are held for purposes other than trading.
Market Risk
The Company's revolving line of credit allows the outstanding balance to bear
interest at a variable rate based on either the bank's base rate or the
applicable LIBOR rate depending on the nature of the borrowings. The revolving
line of credit exposes earnings to changes in short-term interest rates since
the interest rates on the revolving line of credit are variable.
If the variable rates on the Company's revolving line of credit were to
increase by 1% from the rate at December 31, 1998, and the Company borrowed the
maximum amount available under its revolving line of credit ($25.0 million) for
all of fiscal 1999, the Company's interest expense would increase, and net
income would decrease by $0.1 million. If LIBOR were to increase 1% from the
rate at December 31, 1998, and the Company borrowed the maximum amount
available, the Company's interest expense would increase, and also net income
would decrease by $0.1 million. A marginal income tax rate of 41.0% was used.
This analysis does not consider the effects of the reduced level of overall
economic activity that could exist in such an environment. In the event of a 1%
change in interest rates, management would likely take actions to further
mitigate its exposure to the change.
Foreign Exchange Risk
The Company typically does not hedge its foreign currency exposure.
Management does not believe it currently has any material exposure to foreign
currency rate fluctuations.
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, 1997 and December 31, 1998.......................... F-2
Consolidated Statements of Income and Comprehensive Income for the years ended
December 31, 1996, December 31, 1997, and December 31, 1998................................... F-4
Consolidated Statement of Stockholders' Equity for the years ended December 31, 1996,
December 31, 1997 and December 31, 1998..................................................... F-6
Consolidated Statement of Cash Flows for the years ended December 31, 1996, December 31, 1997,
and December 31, 1998....................................................................... F-7
Notes to Consolidated Financial Statements....................................................... F-9
</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.
23
<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, 1998.
<TABLE>
<CAPTION>
Name Age Positions
- -------------------------- --- -------------------------------------
<S> <C> <C>
William H. Channell, Sr... 70 Chairman of the Board and
Chief Executive Officer
William H. Channell, Jr... 41 President, Chief Operating Officer
and Director
Gary W. Baker............. 55 Vice President, Finance and
Chief Financial Officer
Andrew M. Zogby........... 38 Vice President, Marketing
Edward J. Burke........... 43 Vice President, Engineering
Dale C. Wooding........... 48 Vice President, Manufacturing
John B. Kaiser............ 46 Vice President, Broadband Sales
Gary M. Napolitano........ 43 Vice President, International Finance
Jacqueline M. Channell.... 67 Secretary and Director
Eugene R. Schutt, Jr...... 45 Director
Richard A. Cude........... 65 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.
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.
24
<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. Since the fourth quarter 1998, Mr. Napolitano has been Vice
President, International Finance.
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 2001.
Eugene R. Schutt, Jr. has been a Director of the Company since July 1996. Mr.
Schutt's initial term expires in 1999. Mr. Schutt is currently serving as a
consultant to international and domestic businesses. From January 1992 to
February 1999, Mr. Schutt was 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 is currently retired. 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 are to 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 1999 annual meeting
of stockholders.
25
<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, 1998
(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 520,000 360,000 - - 25,000 - 4,257
Gary W. Baker................
Vice President, Finance and
Chief Financial Officer 160,660 81,666 - - 2,000 - 4,409
Edward J. Burke..............
Vice President, Engineering 136,063 81,666 - - 2,000 - 4,082
Dale C. Wooding..............
Vice President,
Manufacturing 119,735 81,666 - - 2,000 - 3,592
</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). During 1998, the Company granted
114,500 "non-qualified" options to 29 employees and directors (including 25,000
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.
26
<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 $100,000.
Upon exercise of any option, the purchase price must generally be paid in full
either in cash or by certified or cashier's check. However, in the discretion of
the Compensation Committee, the terms of a stock option grant may permit payment
of the purchase price by means of (i) cancellation of indebtedness owed by the
Company, (ii) delivery of shares of Common Stock already owned by the optionee
(valued at fair market value as of the date of exercise), (iii) delivery of a
promissory note secured by the shares issued, (iv) delivery of a portion of the
shares issuable upon exercise (i.e., exercise for the "spread" on the option
payable in shares), or (v) any combination of the foregoing or any other means
permitted by the Compensation Committee.
Any grants of Restricted Stock will be made pursuant to Restricted Stock
Agreements, which will provide for vesting of shares at a rate to be determined
by the Compensation Committee with respect to each grant of Restricted Stock.
Until vested, shares of Restricted Stock are generally non-transferable and are
forfeited upon termination of employment. The Company has not made any grants
of Restricted Stock.
Options/SAR Grants Table
The following table sets forth the stock options granted to the named officers
for the year ended December 31, 1998.
<TABLE>
<CAPTION>
% of Total Potential Realized
Number of Options/ Value at
Securities SARs Assumed Annual
Underlying Granted to Exercise Rates of Stock Price
Options/ Employees on Base Appreciation of
SARS in Fiscal Price Expiration Option Term
Name Granted Year 1998 ($/Sh) Date 5% 10%
---- ---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
William H. Channell, Sr. - - $ - - $ - $ -
William H. Channell, Jr. 25,000 21.8% $ 8.813 Aug 2008 138,500 351,175
Gary W. Baker 2,000 1.8% $11.500 Jan 2008 14,460 36,660
Edward J. Burke 2,000 1.8% $11.500 Jan 2008 14,460 36,660
Dale C. Wooding 2,000 1.8% $11.500 Jan 2008 14,460 36,660
</TABLE>
27
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and December 31, 1998
Option/SAR Values
The following table sets forth the number and value of outstanding stock
options at December 31, 1998. No options have been exercised in 1998.
<TABLE>
<CAPTION>
Number of Shares
Shares Underlying Unexercised Value of Unexercised In-
Acquired Options/SARs the-Money Options/SARs
on Value at December 31, 1998 at December 31, 1998
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
William H. Channell, Sr. - $ - - $ - /$ -
William H. Channell, Jr. - - 83,333/91,667 - /
Gary W. Baker - - 14,000/12,000 - /
Edward J. Burke - - 14,000/12,000 - /
Dale C. Wooding - - 14,000/12,000 - /
</TABLE>
Profit Sharing and Savings Plans
The Company maintains 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 and $520,000,
respectively. Mr. Channell, Sr.'s salary is subject to annual cost of living
increases. After the cost of living adjustment, the base salary for each during
1998 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.
28
<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. Mr. William H. Channell, Jr., the Company's President, receives
a bonus calculated using the factors above, but such bonus is earned and payable
based on continued service in subsequent years. 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, 1998
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)
COMPARISON OF FOUR-YEAR CUMULATIVE TOTAL RETURN
AMONG CHANNELL COMMERCIAL, S&P INDUSTRIAL,
NASDAQ COMPOSITE PEER GROUP INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period CHANNELL S&P NASDAQ PEER
(Fiscal Year Covered) COMMERCIAL CORP INDUSTRIAL COMPOSITE GROUP
- ------------------------ --------------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Measurement Pt- JUL-96 $100.00 $100.00 $100.00 $100.00
FYE DEC-96 $ 99.00 $109.92 $108.50 $ 75.91
FYE DEC-97 $100.00 $144.02 $132.52 $155.66
FYE DEC-98 $ 67.00 $192.56 $185.78 $141.48
</TABLE>
The Peer Group Index is a market capitalization weighted composite that includes
Amphenol Corp., Antec Corp., Oak Industries and TII Industries.
29
<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 36.2%
Jacqueline M. Channell, as co-trustees
of the Channell Family Trust
26040 Ynez Road
Temecula, CA 92591-9022
William H. Channell, Jr. 1,489,250 83,333 1,572,583 16.6%
26040 Ynez Road
Temecula, CA 92591-9022
Wellington Management Company, LLP 914,100 - 914,100 9.7%
75 State Street
Boston, MA 02109
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, 1999.
Security Ownership of Management
The following table sets forth certain information, as of March 15, 1999,
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 36.2%
William H. Channell, Jr. 1,489,250 83,333 1,572,583 16.6%
Gary W. Baker 700 14,000 14,700 .2%
Edward J. Burke - 14,000 14,000 .1%
Dale C. Wooding 300 14,000 14,300 .2%
All present directors and executive
officers as a group (11 in number) 4,913,207 131,337 5,044,544 53.3%
</TABLE>
(1) Refers to the number of shares covered by options exercisable within 60
days of March 15, 1999.
30
<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 lease provides for
annual cost of living increases; however, for 1996, 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. During 1998, the Company paid rents to
Mr. Channell, Sr. of $1.1 million on the two leases. 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.
31
<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:
Exhibit
Number Exhibit Title
------ -------------
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 Senior Revolving Loan Agreement dated as of May 1, 1998, between the
Company and Fleet National Bank (3)
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)
10.14 Lease dated September 24, 1997 between the Company and SCI North
Carolina Limited Partnership (4)
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 (5)
10.20 Letter Agreement regarding employment, Andrew M. Zogby (2)
10.21 Letter Agreement regarding employment, John B. Kaiser (2)
10.22 A.C. Egerton (Holdings) PLC Share Purchase Agreement (3)
10.23 Amendment to Employment Agreement, William H. Channell, Jr. dated
December 31, 1998 (5)
11 Computation of Proforma Income per Share (2)
27 Financial Data Schedule (5)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
_______
(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 8-K on May 18, 1998.
(4) Incorporated by reference to the indicated exhibits filed in connection with
the Company's Form 10-Q on May 6, 1998.
(5) Filed herewith.
32
<PAGE>
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, 1997 and 1998, and the related consolidated
statements of income and comprehensive income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. 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, 1997 and 1998, and the consolidated
results of its operations and its consolidated cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Los Angeles, California
March 11, 1999
F-1
<PAGE>
CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS 1997 1998
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $3,840 $5,828
Investments 11,651 -
Accounts receivable 9,191 17,890
Inventories 7,269 14,992
Deferred income taxes 688 630
Prepaid expenses 613 1,165
--------- ---------
Total current assets 33,252 40,505
PROPERTY AND EQUIPMENT, net 14,758 42,081
DEFERRED INCOME TAXES 664 -
INTANGIBLE ASSETS, net of amortization of $137
and $741 in 1997 and 1998 1,649 15,100
OTHER ASSETS 302 756
--------- ---------
$50,625 $98,442
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS - CONTINUED
December 31,
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1998
--------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 2,606 $ 6,504
Short term debt (including current maturities of
long term debt) - 8,862
Current maturities of capital lease obligations 226 2,009
Accrued expenses 791 2,537
Income taxes payable 390 625
--------------- ---------------
Total current liabilities 4,013 20,537
LONG-TERM DEBT, less current maturities 400 20,855
CAPITAL LEASE OBLIGATIONS 320 4,185
DEFERRED INCOME TAXES - 285
COMMITMENTS AND CONTINGENCIES - -
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 - 9,237; outstanding - 9,237 shares in 1997
and 9,099 shares in 1998 92 92
Additional paid-in capital 27,991 27,991
Treasury stock - 138 shares in 1998 - (1,175)
Retained earnings 17,809 25,918
Accumulated other comprehensive income -
Foreign currency translation - (246)
--------------- ---------------
Total stockholders' equity 45,892 52,580
--------------- ---------------
$ 50,625 $ 98,442
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Year ended December 31,
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
Net sales $47,282 $59,943 $92,710
Cost of goods sold 25,447 35,032 56,578
--------- --------- ----------
Gross profit 21,835 24,911 36,132
Commission income 985 606 292
--------- --------- ----------
22,820 25,517 36,424
--------- --------- ----------
Operating expenses
Selling 6,559 7,251 11,570
General and administrative 2,021 4,077 8,057
License fees--related party 531 - -
Research and development 531 1,009 1,863
--------- --------- ----------
9,642 12,337 21,490
--------- --------- ----------
Income from operations 13,178 13,180 14,934
Interest income 477 1,006 266
Interest expense (186) (127) (1,342)
--------- --------- ----------
Income before income taxes 13,469 14,059 13,858
Income taxes 2,359 5,589 5,749
--------- --------- ----------
Net income $11,110 $ 8,470 $ 8,109
========= ========= ==========
Net income per share
Basic $ .92 $ .88
========= ==========
Diluted $ .91 $ .88
========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME -
CONTINUED
Year ended December 31,
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Pro forma information (unaudited):
Historical income before income taxes $ 13,469
Pro forma income taxes 4,548
----------
Pro forma net income $ 8,921
==========
Pro forma net income per share-basic and diluted $ 1.06
==========
Pro forma weighted average shares outstanding 8,403
==========
Net income $ 11,110 $ 8,470 $ 8,109
Other comprehensive income, net of tax
Foreign currency translation adjustments - - (246)
---------- ---------- ----------
Comprehensive net income $ 11,110 $ 8,470 $ 7,863
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated
Common stock Additional Treasury stock other Total
---------------- paid-in ---------------- Retained comprehensive stockholders'
Shares Amount capital Shares Amount earnings income equity
-------- ------ ------------ ------- ------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 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
Treasury stock acquired 138 (1,175) - (1,175)
Foreign currency translation - - - - - - (246) (246)
Net income for the year - - - - - 8,109 - 8,109
-------- ------ ------------ ------- ------- --------- ------- ------------
Balance, December 31, 1998 9,237 $ 92 $27,991 138 $(1,175) $ 25,918 $ (246) $ 52,580
======== ====== ============ ======= ======= ========= ======= ============
</TABLE>
The accompanying notes are an integral part of these statements
F-6
<PAGE>
CHANNELL COMMERICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $11,110 $8,470 $8,109
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,551 2,044 4,060
Deferred income taxes (880) (472) 486
Changes in assets and liabilities, net of effects
of acquisitions:
Accounts receivable (2,563) (1,197) (3,453)
Inventories (299) (2,716) (3,289)
Prepaid expenses (368) 201 (539)
Other assets 322 (19) (442)
Accounts payable 797 (602) 1,003
Accrued expenses 255 (820) 786
Income taxes payable 1,499 (1,159) (115)
------ ------- ------
Net cash provided by operating activities 11,424 3,730 6,606
------ ------ ------
Cash flows from investing activities:
Purchase of property and equipment (1,554) (5,966) (10,579)
Proceeds from sale of property and equipment - - 585
Advances to stockholder for building construction (3,119) - -
Collection of advances to stockholder 3,119 - -
Business acquisitions, net of cash acquired - (2,747) (23,965)
Purchases of investments (11,406) (7,316) -
Maturities of investments - 7,071 11,651
------ ------ -------
Net cash used in investing activities (12,960) (8,958) (22,308)
------ ------ -------
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended December 31,
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Repayment of debt $ (3,213) $ (195) $ (4,712)
Proceeds from issuance of long-term debt - - 24,661
Repayment of capital lease obligations (70) 73 (855)
Proceeds from initial public offering 30,565 - -
Acquisition of patents from stockholders (3,100) - -
Dividends paid (3,166) - -
Reorganization distribution (11,665) - -
Purchase of treasury stock - - (1,175)
------------ ------------ ------------
Net cash provided by (used in) financing activities 9,351 (122) 17,919
------------ ------------ ------------
Effect of exchange rates on cash - - (229)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 7,815 (5,350) 1,988
Cash and cash equivalents, beginning of year 1,375 9,190 3,840
------------ ------------ ------------
Cash and cash equivalents, end of year $ 9,190 $ 3,840 $ 5,828
============ ============ ============
Cash paid during the year for:
Interest (net of capitalized interest of $339 in 1998) $ 185 $ 128 $ 1,138
============ ============ ============
Income taxes $ 1,967 $ 5,753 $ 4,974
============ ============ ============
Noncash investing and financing activities:
Assets acquired under capital lease $ 543 $ 214 $ 6,248
============ ============ ============
Contribution of accrued license fees to paid-in capital $ 531 $ - $ -
============ ============ ============
Note received for property and equipment sold $ - $ - $ 166
============ ============ ============
Fair value of assets acquired, including goodwill $ - $ 4,974 $ 42,675
Note payable issued - (400) -
Cash paid - (2,774) (27,900)
------------ ------------ ------------
Liabilities assumed $ - $ 1,800 $ 14,775
============ ============ ============
</TABLE>
F-8
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE A--DESCRIPTION OF BUSINESS
The Company is a designer and manufacturer of telecommunications equipment
supplied to telephone, cable television and power utility network providers
worldwide. Major product lines include a complete line of thermoplastic and
metal fabricated enclosures, advanced copper termination and connectorization
products, fiber optic cable management systems, coaxial-based passive RF
electronics and heat shrink products. The Company's enclosure products house,
protect and provide access to advanced telecommunications hardware, including
both radio frequency electronics and photonics, and transmission media,
including coaxial cable, copper wire and optical fibers, used in the delivery of
voice, video and data services. The enclosure products are deployed within the
portion of a local signal delivery network, commonly known as the "outside
plant" or "local loop", that connects the network provider's signal origination
office with residences and businesses.
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. Foreign currency transaction gains and losses are
included in net income. Adjustments resulting from translating foreign
functional currency financial statements into U.S. dollars are included in other
comprehensive income.
Cash and Cash Equivalents--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.
F-9
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Investments--At December 31, 1997 the Company had invested in certain U.S.
Government issued debt instruments and other taxable securities. These
investments were classified as available for sale. The investment in these
securities were 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.
Inventories--Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method of accounting.
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 periods ranging from 15 to 20
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. Amortization
expense charged to income amounted to $137 and $603 in 1997 and 1998,
respectively.
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.
F-10
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Income per share--Basic income per share excludes dilution and 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 acquire common
stock were exercised.
The following is a reconciliation of the number of shares (denominator) used in
the basic and diluted income per share computations:
<TABLE>
<CAPTION>
1997 1998
--------------------- ----------------------
Per Share Per Share
Shares Amount Shares Amount
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Basic income per share 9,237 $ .92 9,199 $ .88
Effect of dilutive stock options 54 (.01) 31 -
------ ------ ------ ------
Diluted income per share 9,291 $ .91 9,230 $ .88
====== ====== ====== ======
</TABLE>
The following options were not included in the computation of diluted income per
share as a result of the options' exercise price exceeding the average market
price of the common shares:
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Options to purchase shares of common stock 140 626
Exercise prices $13.25 $11.00 - $13.25
Expiration dates July 2007 July 2007 -
October 2008
</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.
F-11
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
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 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 as the impact is not material.
A reconciliation of pro forma income taxes to the Federal statutory rate for the
year ended December 31, 1996 is as follows:
<TABLE>
<S> <C>
Federal statutory rate 34%
State income taxes, net of Federal tax benefit 6
Deferred income tax benefit recorded upon
termination of S Corporation status (5)
Other (1)
----
34%
====
</TABLE>
Fair value of financial instruments--The carrying amount of cash, accounts
receivable, accounts payable, accrued expenses and short-term borrowings
approximates fair value because of the short maturity of these financial
instruments. Long-term obligations are carried at amounts that approximate fair
value. The estimated fair value of the long-term obligations is based on
borrowing rates currently available to the Company for loans with similar terms
and maturities. 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 and
1997 financial statements to conform with the 1998 presentation.
F-12
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE C--INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1997 1998
-------------------
<S> <C> <C>
Raw materials $1,692 $ 4,686
Work-in-process 1,240 2,312
Finished goods 4,337 7,994
-------------------
$7,269 $14,992
===================
</TABLE>
NOTE D--PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1998 Estimated
Useful lives
---------------------------------------
<S> <C> <C> <C>
Machinery and equipment $ 16,802 $ 41,681 3-10 years
Office furniture and equipment 1,333 2,222 3- 7 years
Leasehold improvements 2,285 2,556 15-20 years
Building and building improvements 3,055 6,161 30 years
Land 695 1,646 --
Construction in progress 755 943 --
-----------------------
24,925 55,209
Less accumulated depreciation and amortization (10,167) (13,128)
-----------------------
$ 14,758 $ 42,081
=======================
</TABLE>
Included in machinery and equipment is $757 and $7,157 of equipment under
capital lease at December 31, 1997 and 1998, respectively. Accumulated
amortization of assets under capital lease totaled $185 and $653 at December 31,
1997 and 1998, respectively. See Note H.
F-13
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE E-- ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1997 1998
-----------------
<S> <C> <C>
Accrued vacation $ 477 $ 549
Other 314 1,988
-----------------
$ 791 $2,537
=================
</TABLE>
NOTE F-- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1998
------ -----
<S> <C> <C>
Senior revolving credit facility that provides
borrowings up to $25,000. The outstanding balance
bears interest, payable currently, at a variable rate
based on either the bank's base rate or the applicable
LIBOR rate, depending on the nature of the
borrowings. At December 31, 1998, the weighted
average interest rate on outstanding borrowings was
6%. The loan is collateralized by substantially all of
the Company's assets. The entire principal is payable $ - $16,361
on April 30, 2003.
Note payable to financial institution payable in
monthly principal and interest installments of $30
with the unpaid principal and interest due on
November 1, 2008. The note bears interest at 6.85%
and is collateralized by certain land and buildings. - 4,289
Note payable issued to an individual in connection
with the acquisition of RMS Electronics, Inc. (Note
J). 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 of 5.75% at December 31, 1997 and
1998) and is payable quarterly. 400 400
</TABLE>
F-14
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE F-- LONG-TERM DEBT--Continued
<TABLE>
<CAPTION>
1997 1998
------ -------
<S> <C> <C>
Egerton credit facility $ - $ 8,667
----- -------
400 29,717
Less current maturities - (8,862)
----- -------
$ 400 $20,855
===== =======
</TABLE>
The senior revolving credit facility contains various financial and operating
covenants which, among other things, imposes limitations on the company's
ability to incur additional indebtedness, merge or consolidate, sell assets
except in the ordinary course of business, make certain investments, enter into
leases and pay dividends. The Company is also required to comply with covenants
related to minimum net worth and other financial ratios.
The Company also has a credit facility available to the Egerton subsidiaries
that includes an overdraft facility totaling approximately $5,000 plus the
combined cash balances of those subsidiaries, which were approximately $4,200 at
December 31, 1998. Also included are facilities, totaling approximately $2,000,
to provide financing for international letters of credit, forward exchange
contracts, and other items. Outstanding borrowings (net of cash balances) bear
interest at the bank's base rate (6.25% at December 31, 1998) plus a factor
ranging from 1.25% to a maximum of 4% depending on the amount borrowed. The
facility is collateralized by the assets of the subsidiaries and is due for
renewal in August, 1999.
Long-term debt at December 31, 1998 matures as follows:
<TABLE>
<CAPTION>
Year Amount
-------- ----------
<S> <C>
1999 $ 8,862
2000 205
2001 212
2002 83
2003 16,450
Thereafter 3,905
-------
$29,717
=======
</TABLE>
F-15
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE G--INCOME TAXES
The components of income taxes are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------------------------
<S> <C> <C> <C>
Current
Federal $2,104 $4,275 $3,796
State 743 1,243 1,123
Foreign 392 543 344
---------------------------
3,239 6,061 5,263
---------------------------
Deferred
Federal (669) (416) 357
State (211) 14 78
Foreign -- (70) 51
---------------------------
(880) (472) 486
---------------------------
$2,359 $5,589 $5,749
===========================
</TABLE>
A reconciliation from the U.S. Federal statutory income tax rate to the
effective income tax rate for the year ended December 31, is as follows:
<TABLE>
<CAPTION>
1997 1998
--------------
<S> <C> <C>
U.S. Federal statutory rate 34% 34%
State income taxes, net of federal tax benefit 6 6
Amortization of intangibles - 1
-------------
40% 41%
=============
</TABLE>
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.
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).
F-16
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE G--INCOME TAXES--Continued
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
1997 1998
-------------------
<S> <C> <C>
Assets
Patents $1,162 $1,051
Allowance for bad debts 41 33
Inventory capitalization 146 125
Vacation pay 187 235
State taxes 314 237
Net operating loss carryforward-foreign operations 70 -
-------------------
1,920 1,681
-------------------
Liabilities
Accelerated depreciation 568 1,336
-------------------
568 1,336
-------------------
Net deferred tax asset $1,352 $ 345
===================
</TABLE>
The classification of the net deferred tax asset (liability) between current and
non-current is as follows:
<TABLE>
<CAPTION>
1997 1998
-----------------
<S> <C> <C>
Net current asset $ 688 $ 630
Net non-current (liability) asset 664 (285)
-----------------
Net deferred tax asset $1,352 $ 345
=================
</TABLE>
F-17
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE H--CAPITAL LEASE OBLIGATIONS
The Company leases certain machinery and equipment under various agreements,
which are classified as capital leases. The leases expire on various dates
through August 2003. Future minimum payments, by year, are as follows:
<TABLE>
<S> <C>
1999 $ 2,410
2000 1,978
2001 1,318
2002 791
2003 628
-------
7,125
Less amount representing interest 931
-------
6,194
Less current maturities 2009
-------
$4,185
=======
</TABLE>
NOTE I--STOCKHOLDERS' EQUITY
In 1996, 3,100 shares of the Company's common stock were sold in a public
offering resulting in proceeds of $30,565, net of issuance expenses. A portion
of the proceeds 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.
The Company had been an S Corporation for both federal and state tax income tax
purposes since 1990. As discussed in Note G, 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-18
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE I--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 cost has not been
significant.
Plan transactions are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------------- ------------------- ------------------
Weighted Weighted Weighted
average Average average
exercise Exercise exercise
Shares price Shares Price Shares price
------ ----- ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
January 1, -- -- 513 $11.00 636 $11.49
Granted 513 $11.00 165 12.91 114 9.83
Exercised -- -- -- -- -- --
Canceled -- -- (42) 11.00 (47) 11.33
----- ----- ----
Options outstanding
December 31, 513 $11.00 636 $11.49 703 $11.22
===== ==== =====
Options available for
grant at December 31, 237 114 47
</TABLE>
Weighted average fair value of options granted during the year are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------ ------
<S> <C> <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 $3.93
</TABLE>
The range of exercise prices of options outstanding at December 31, 1998 is
$8.81 to $13.25 and the options have a weighted average remaining contractual
life of 8 years. At December 31, 1998, 356 of the 703 options outstanding are
exercisable by the optionee.
F-19
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE I--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 1998
--------------------------------
<S> <C> <C> <C>
Expected life (years) 5 years 5 years 5 years
Risk-free interest rate 5.5% 6.25% 5.5%
Expected volatility 50% 40% 35%
Expected 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 net
income and income per share would have been:
<TABLE>
<CAPTION>
Net income per share
Net -----------------------
income Basic Diluted
------------------------------------------
<S> <C> <C> <C>
1997
As reported $8,470 $.92 $.91
Pro forma 7,812 .84 .83
</TABLE>
<TABLE>
<CAPTION>
Net income per share
Net -----------------------
income Basic Diluted
------------------------------------------
<S> <C> <C> <C>
1998
As reported $8,109 $.88 $.88
Pro forma 7,286 $.79 $.79
</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.
F-20
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE J--ACQUISITIONS
During 1997 and 1998, 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 consisted of $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
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 fifteen years.
Other intangible assets acquired in connection with the acquisition totaled $100
and are being amortized over three years.
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 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. Contingent consideration has not been
reflected as a liability as of December 31, 1997 or 1998. 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 fifteen years.
The fair value of tangible assets acquired and liabilities assumed of RMS and
Standby was $3,188 and $1,800, respectively.
A.C. Egerton (Holdings) PLC--On May 1, 1998, the Company acquired 100% of the
outstanding common stock of A.C. Egerton (Holdings) PLC ("Egerton"), a public
limited company incorporated in England and Wales. Egerton is a manufacturer of
outside plant splicing and terminating products for both optical fiber and
copper applications used in the telecommunications industry. The purchase
price, paid in cash, amounted to $27,900, including $1,325 of acquisition costs.
The fair value of tangible assets acquired in excess of liabilities assumed
amounted to $13,847, which resulted in goodwill in the amount of $14,053. The
final appraisal of the property and equipment acquired was completed in the
fourth quarter of 1998, resulting in adjustments to Egerton's property and
equipment and goodwill and the related depreciation and amortization. The
effect of recording these adjustments was to increase net income for the fourth
quarter of 1998 by $435 ($.05 per share). Goodwill is being amortized on the
straight-line basis over twenty years.
F-21
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE J--ACQUISITIONS--Continued
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 of
RMS and Standby had occurred January 1, 1996 and the acquisition of Egerton had
occurred January 1, 1997.
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------- --------
<S> <C> <C> <C>
Net sales $56,020 $94,088 $101,798
Net income 9,113 7,786 6,798
Income per share (basic and diluted) $ 1.08 $ .84 $ .74
</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 of RMS and
Standby been effective January 1, 1996 and the acquisition of Egerton been
effective January 1, 1997, or of future results of operations of the
consolidated entities.
NOTE K--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 ninety 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 $200, $40 and $174 which have been
incurred for the plans for the years ended December 31, 1996, 1997 and 1998,
respectively.
F-22
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE L--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 $531 for the year ended December 31, 1996. 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 a portion of 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 paid to Mr.
Channell, Sr. was $755, $1,081 and $1,103 for the years ended December 31, 1996,
1997 and 1998, respectively.
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 collateralized by said facilities. The
loan amount subject to the guarantee 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.
F-23
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE M--COMMITMENTS
The Company leases equipment and manufacturing and office space under several
operating leases expiring through 2005. Rent expense under all operating leases
amounted to $775, $1,081 and $1,777 for the years ended December 31, 1996, 1997
and 1998, respectively. Total future minimum rental payments under
noncancellable operating leases as of December 31, 1998, including the operating
lease with Mr. Channell, Sr. discussed in Note L, are as follows:
<TABLE>
<CAPTION>
Year Amount
---------- ---------
<S> <C>
1999 $1,628
2000 1,517
2001 1,292
2002 1,266
2003 1,232
Thereafter 2,486
------
$9,421
========
</TABLE>
In addition to these minimum rental commitments, certain of these operating
leases provide for payments of insurance, repairs and maintenance and property
taxes.
NOTE N--CREDIT CONCENTRATIONS AND MAJOR CUSTOMERS
The Company maintains cash balances in financial institutions located in the
United States, Canada, Australia and the United Kingdom. At December 31, 1997
and 1998, the amount of cash balances held in financial institutions outside of
the United States were $498 and $4,621, respectively. Cash balances held in
financial institutions located in the United States may, at times, 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 1998, one customer accounted for 12.5% of sales and a second customer
accounted for 11.7% of sales. In 1997, one customer accounted for 15.1% of sales
and a second customer made up 10.0% of sales. In 1996, a different customer
accounted for 17.3% of sales. Also in 1996, a second customer accounted for
14.9% of sales. 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 but does not generally
require collateral.
F-24
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE O--SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment as a manufacturer and supplier of
telecommunications equipment. In 1996, foreign operations were not significant.
Currently, the Company is organized into four geographic regions: the United
States, Europe/Middle East, Canada and Australia/Asia. The following tables
summarize segment information, for 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
Revenues from unrelated entities/(1)/:
United States/(2)/ $51,299 $65,314
Europe/Middle East 3,057 16,230
Canada 5,587 5,136
Australia/Asia - 6,030
------- -------
$59,943 $92,710
=================
Income from operations:
United States $12,074 $13,616
Europe/Middle East 51 408
Canada 1,055 80
Australia/Asia - 830
------- -------
$13,180 $14,934
=================
Interest income:
United States $ 1,006 $ 261
Europe/Middle East - 5
Canada - -
Australia/Asia - -
------- -------
$ 1,006 $ 266
=================
Interest expense:
United States $ 97 $ 875
Europe/Middle East 30 462
Canada - -
Australia/Asia - 5
------- -------
$ 127 $ 1,342
=================
</TABLE>
/(1)/Inter-geographic revenues were not significant.
/(2)/Includes export sales of approximately $2,300 and $1,700 in 1997 and
1998, respectively.
F-25
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE O--SEGMENT AND GEOGRAPHIC INFORMATION--Continued
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Income tax expense (benefit):
United States $ 5,116 $ 5,354
Europe/Middle East - (99)
Canada 473 44
Australia/Asia - 450
------- -------
$ 5,589 $ 5,749
=================
Identifiable assets:
United States $45,866 $50,992
Europe/Middle East 1,807 32,464
Canada 2,952 2,577
Australia/Asia - 12,409
------- -------
$50,625 $98,442
=================
Depreciation and
amortization expense:
United States $ 1,994 $ 2,560
Europe/Middle East 22 1,029
Canada 28 78
Australia/Asia - 393
------- -------
$ 2,044 $ 4,060
=================
Capital expenditures:
United States/(3)/ $ 5,785 $ 9,513
Europe/Middle East 50 684
Canada 131 90
Australia/Asia - 292
------- -------
$ 5,966 $10,579
=================
</TABLE>
/(3)/Excludes assets acquired under capital leases of $214 and $6,248 in
1997 and 1998, respectively.
F-26
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1996, 1997 and 1998
(amounts in thousands, except per share data)
NOTE P--QUARTERLY FINANCIAL DATA (Unaudited)
Summarized quarterly financial data for 1997 and 1998 follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------
<S> <C> <C> <C> <C>
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
1998
Net sales 15,704 23,108 27,159 26,739
Gross profit 6,414 9,621 10,609 9,488
Net income 1,547 2,293 2,335 1,934
Income per share
(basic and diluted) .17 .25 .25 .21
</TABLE>
NOTE Q--NEW ACCOUNTING PRONOUNCEMENT
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133 ("SFAS 133)", Accounting for Derivative Instruments
and Hedging Activities, which is effective for 2000. SFAS 133 will require the
Company to record all derivatives on the balance sheet at fair value. For
derivatives that are hedges, changes in the fair value of derivatives will be
offset by the changes in the fair value of the hedged assets, liabilities or
firm commitments. The Company believes the impact of adopting this standard will
not be material to results of operations or equity.
F-27
<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.
DSL (Digital Subscriber Line): Generic descriptor covering various versions
of DSL services delivered over copper wires. Included are HDSL and ADSL
services.
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 Communication 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.
G-1
<PAGE>
SIGNATURE
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 29, 1999.
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 29, 1999.
Signature Capacity in Which Signed
--------- ------------------------
/s/ William H. Channell, Sr. Chairman of the Board and
- ---------------------------- Chief Executive Officer
William H. Channell, Sr. (Principal Executive Officer)
/s/ William H. Channell, Jr. President, Chief Operating Officer
- ---------------------------- and Director
William H. Channell, Jr.
/s/ Gary W. Baker Vice President, Finance and
- ---------------------------- Chief Financial Officer
Gary W. Baker
/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
ADOPTION AGREEMENT #004
NONSTANDARDIZED CODE (S)401(k) PROFIT SHARING PLAN
The undersigned, Channell Commercial Corporation ("Employer"), by
-------------------------------
executing this Adoption Agreement, elects to become a participating
Employer in the California Central Trust Bank sponsored Defined
---------------------------------------
Contribution Master Plan (basic plan document #01) by adopting the
--
accompanying Plan and Trust in full as if the Employer were a signatory to
that Agreement. The Employer makes the following elections granted under
the provisions of the Master Plan.
ARTICLE I
DEFINITIONS
1.02 TRUSTEE. The Trustee executing this Adoption Agreement is:
-------
(Choose (a) or (b))
[ ] (a) A discretionary Trustee. See Section 10.03[A] of the Plan.
[x] (b) A nondiscretionary Trustee. See Section 10.03[B] of the Plan.
[Note: The Employer may not elect Option (b) if a Custodian executes
the Adoption Agreement.]
1.03 PLAN. The name of the Plan as adopted by the Employer is
----
Channell Commercial Corporation 401(k) Plan.
-------------------------------------------
1.07 EMPLOYEE. The following Employees are not eligible to
--------
participate in the Plan: (Choose (a) or at least one of (b) through (g))
[N/A] (a) No exclusions.
[x] (b) Collective bargaining employees (as defined in Section 1.07 of
the Plan). [Note: If the Employer excludes union employees from the
Plan, the Employer must be able to provide evidence that retirement
benefits were the subject of good faith bargaining.]
[x] (c) Nonresident aliens who do not receive any earned income (as
defined in Code (S)911(d)(2)) from the Employer which constitutes
United States source income (as defined in Code (S)861(a)(3)).
[N/A] (d) Commission Salesmen.
[N/A] (e) Any Employee compensated on a salaried basis.
[N/A] (f) Any Employee compensated on an hourly basis.
[N/A] (g) (Specify)_____________________________________________.
Leased Employees. Any Leased Employee treated as an Employee under Section
1.31 of the Plan, is: (Choose (h) or (i))
[x] (h) Not eligible to participate in the Plan.
[N/A] (i) Eligible to participate in the Plan, unless excluded by reason
of an exclusion classification elected under this Adoption Agreement
Section 1.07.
1
<PAGE>
Related Employers. If any member of the Employer's related group (as
defined in Section 1.30 of the Plan) executes a Participation Agreement to
this Adoption Agreement, such member's Employees are eligible to
participate in this Plan, unless excluded by reason of an exclusion
classification elected under this Adoption Agreement Section 1.07. In
addition: (Choose (j) or (k))
[x] (j) No other related group member's Employees are eligible to
participate in the Plan.
[ ] (k) The following nonparticipating related group member's Employees
are eligible to participate in the Plan unless excluded by reason of
an exclusion classification elected under this Adoption Agreement
Section 1.07: ________________________________________.
1.12 COMPENSATION.
------------
Treatment of elective contributions. (Choose (a) or (b))
[x] (a) "Compensation" includes elective contributions made by the
Employer on the Employee's behalf.
[N/A] (b) "Compensation" does not include elective contributions.
Modifications to Compensation definition. (Choose (c) or at least one of
(d) through (j))
[N/A] (c) No modifications other than as elected under Options (a) or (b).
[N/A] (d) The Plan excludes Compensation in excess of $_____________.
[x] (e) In lieu of the definition in Section 1.12 of the Plan,
Compensation means any earnings reportable as W-2 wages for Federal
income tax withholding purposes, subject to any other election under
this Adoption Agreement Section 1.12.
[x] (f) The Plan excludes bonuses.
[x] (g) The Plan excludes overtime.
[x] (h) The Plan excludes Commissions.
[N/A] (i) Compensation will not include Compensation from a related
employer (as defined in Section 1.30 of the Plan) that has not
executed a Participation Agreement in this Plan unless, pursuant to
Adoption Agreement Section 1.07, the Employees of that related
employer are eligible to participate in this Plan.
[x] (j) (Specify) excludes reimbursements or other expense allowances,
----------------------------------------------------
fringe benefits, moving expenses, deferred compensation and welfare
-------------------------------------------------------------------
benefits.
--------
If, for any Plan Year, the Plan uses permitted disparity in the
contribution or allocation formula elected under Article III, any election
of Options (f), (g), (h) or (j) is ineffective for such Plan Year with
respect to any Nonhighly Compensated Employee.
Special definition for matching contributions. "Compensation" for purposes
of any matching contribution formula under Article III means: (Choose (k)
or (l) only if applicable)
[x] (k) Compensation as defined in this Adoption Agreement Section 1.12.
[N/A] (l) (Specify) ____________________________________________.
2
<PAGE>
Special definition for salary reduction contributions. An Employee's
salary reduction agreement applies to his Compensation determined prior to
the reduction authorized by that salary reduction agreement, with the
following exceptions: (Choose (m) or at least one of (n) or (o), if
applicable)
[x] (m) No exceptions.
[N/A] (n) If the Employee makes elective contributions to another plan
maintained by the Employer, the Advisory Committee will determine
the amount of the Employee's salary reduction contribution for the
withholding period: (Choose (1) or (2))
[ ] (1) After the reduction for such period of elective
contributions to the other plan(s).
[ ] (2) Prior to the reduction for such period of elective
contributions to the other plan(s).
[ ] (o) (Specify) __________________________________________.
1.17 PLAN YEAR/LIMITATION YEAR.
-------------------------
Plan Year. Plan Year means: (Choose (a) or (b))
[X] (a) The 12 consecutive month period ending every December 31.
-----------
[N/A] (b) (Specify) __________________________________________.
Limitation Year. The Limitation Year is: (Choose (c) or (d))
[x] (c) The Plan Year.
[N/A] (d) The 12 consecutive month period ending every _____.
1.18 EFFECTIVE DATE.
--------------
New Plan. The "Effective Date" of the Plan is ____________________.
Restated Plan. The restated Effective Date is October 1, 1998.
---------------
This Plan is a substitution and amendment of an existing
retirement plan(s) originally established February 1, 1986. [Note: See
-----------------
the Effective Date Addendum.]
1.27 HOUR OF SERVICE. The crediting method for Hours of Service is:
---------------
(Choose (a) or (b))
[x] (a) The actual method.
[N/A] (b) The _ equivalency method, except:
[ ] (1) No exceptions.
[ ] (2) The actual method applies for purposes of: (Choose at
least one)
[ ] (i) Participation under Article II.
[ ] (ii) Vesting under Article V.
[ ] (iii) Accrual of benefits under Section 3.06.
3
<PAGE>
[Note: On the blank line, insert "daily," "weekly," "semi-monthly payroll
periods" or "monthly."]
1.29 SERVICE FOR PREDECESSOR EMPLOYER. In addition to the
--------------------------------
predecessor service the Plan must credit by reason of Section 1.29 of the
Plan, the Plan credits Service with the following predecessor employer(s):
N/A . Service with the designated predecessor employer(s) applies: (Choose
----
at least one of (a) or (b); (c) is available only in addition to (a) or
(b))
[ ] (a) For purposes of participation under Article II.
[ ] (b) For purposes of vesting under Article V.
[ ] (c) Except the following Service: ____________________________.
[Note: If the Plan does not credit any predecessor service under this
provision, insert "N/A" in the first blank line. The Employer may attach a
schedule to this Adoption Agreement, in the same format as this Section
1.29, designating additional predecessor employers and the applicable
service crediting elections.]
1.31 LEASED EMPLOYEES. If a Leased Employee is a Participant in the
----------------
Plan and also participates in a plan maintained by the leasing
organization: (Choose (a) or (b))
[N/A] (a) The Advisory Committee will determine the Leased Employee's
allocation of Employer contributions under Article III without
taking into account the Leased Employee's allocation, if any, under
the leasing organization's plan.
[x] (b) The Advisory Committee will reduce a Leased Employee's
allocation of Employer nonelective contributions (other than
designated qualified nonelective contributions) under this Plan by
the Leased Employee's allocation under the leasing organization's
plan, but only to the extent that allocation is attributable to the
Leased Employee's service provided to the Employer. The leasing
organization's plan:
[x] (1) Must be a money purchase plan which would satisfy the
definition under Section 1.31 of a safe harbor plan,
irrespective of whether the safe harbor exception applies.
[ ] (2) Must satisfy the features and, if a defined benefit plan,
the method of reduction described in an addendum to this
Adoption Agreement, numbered 1.31.
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY.
-----------
Eligibility conditions. To become a Participant in the Plan, an Employee
must satisfy the following eligibility conditions: (Choose (a) or (b) or
both; (c) is optional as an additional election)
[x] (a) Attainment of age 18 (specify age, not exceeding 21).
--
[x] (b) Service requirement. (Choose one of (1) through (3))
[ ] (1) One Year of Service.
[x] (2) 3 months (not exceeding 12) following the Employee's
-
Employment Commencement Date.
4
<PAGE>
[ ] (3) One Hour of Service.
[ ] (c) Special requirements for non-401(k) portion of plan. (Make
elections under (1) and under (2))
(1) The requirements of this Option (c) apply to participation in:
(Choose at least one of (i) through (iii))
[ ] (i) The allocation of Employer nonelective contributions
and Participant forfeitures.
[ ] (ii) The allocation of Employer matching contributions
(including forfeitures allocated as matching contributions).
[ ] (iii) The allocation of Employer qualified nonelective
contributions.
(2) For participation in the allocations described in (1), the
eligibility conditions are: (Choose at least one of (i)
through (iv))
[ ] (i) _ (one or two) Year(s) of Service, without an
intervening Break in Service (as described in Section
2.03(A) of the Plan) if the requirement is two Years of
Service.
[ ] (ii) __ months (not exceeding 24) following the Employee's
Employment Commencement Date.
[ ] (iii) One Hour of Service.
[ ] (iv) Attainment of age ______ (Specify age, not exceeding
21).
Plan Entry Date. "Plan Entry Date" means the Effective Date and: (Choose
(d), (e) or (f))
[N/A] (d) Semi-annual Entry Dates. The first day of the Plan Year and the
first day of the seventh month of the Plan Year.
[N/A] (e) The first day of the Plan Year.
[x] (f) (Specify entry dates) the first day of each Plan quarter.
----------------------------------
Time of Participation. An Employee will become a Participant (and, if
applicable, will participate in the allocations described in Option
(c)(1)), unless excluded under Adoption Agreement Section 1.07, on the Plan
Entry Date (if employed on that date): (Choose (g), (h) or (i))
[x] (g) immediately following
[N/A] (h) immediately preceding
[N/A] (i) nearest
the date the Employee completes the eligibility conditions described in
Options (a) and (b) (or in Option (c)(2) if applicable) of this Adoption
Agreement Section 2.01. [Note: The Employer must coordinate the selection
of (g), (h) or (i) with the "Plan Entry Date" selection in (d), (e) or (f).
Unless otherwise excluded under Section 1.07, the Employee must become a
Participant by the earlier of: (1) the first day of the Plan Year beginning
after the date the Employee completes the age and service requirements of
Code (S)410(a); or (2) 6 months after the date the Employee completes those
requirements.]
5
<PAGE>
Dual eligibility. The eligibility conditions of this Section 2.01 apply
to: (Choose (j) or (k))
[x] (j) All Employees of the Employer, except: (Choose (1) or (2))
[x] (1) No exceptions.
[ ] (2) Employees who are Participants in the Plan as of the
Effective Date.
[N/A] (k) Solely to an Employee employed by the Employer after
____________________. If the Employee was employed by the Employer
on or before the specified date, the Employee will become a
Participant: (Choose (1), (2) or (3))
[ ] (1) On the latest of the Effective Date, his Employment
Commencement Date or the date he attains age ______ (not to
exceed 21).
[ ] (2) Under the eligibility conditions in effect under the Plan
prior to the restated Effective Date. If the restated Plan
required more than one Year of Service to participate, the
eligibility condition under this Option (2) for participation
in the Code (S)401(k) arrangement under this Plan is one Year
of Service for Plan Years beginning after December 31, 1988.
[For restated plans only]
[ ] (3) (Specify) _______________________________________________
________________.
2.02 YEAR OF SERVICE - PARTICIPATION.
-------------------------------
Hours of Service. An Employee must complete: (Choose (a) or (b))
[N/A] (a) 1,000 Hours of Service
[N/A] (b) _____ Hours of Service
during an eligibility computation period to receive credit for a Year of
Service. [Note: The Hours of Service requirement may not exceed 1,000.]
Eligibility computation period. After the initial eligibility computation
period described in Section 2.02 of the Plan, the Plan measures the
eligibility computation period as: (Choose (c) or (d))
[N/A] (c) The 12 consecutive month period beginning with each anniversary
of an Employee's Employment Commencement Date.
[x] (d) The Plan Year, beginning with the Plan Year which includes the
first anniversary of the Employee's Employment Commencement Date.
2.03 BREAK IN SERVICE - PARTICIPATION. The Break in Service rule
--------------------------------
described in Section 2.03(B) of the Plan: (Choose (a) or (b))
[x] (a) Does not apply to the Employer's Plan.
[N/A] (b) Applies to the Employer's Plan.
2.06 ELECTION NOT TO PARTICIPATE. The Plan: (Choose (a) or (b))
---------------------------
[x] (a) Does not permit an eligible Employee or a Participant to elect
not to participate.
6
<PAGE>
[N/A] (b) Does permit an eligible Employee or a Participant to elect not
to participate in accordance with Section 2.06 and with the
following rules: (Complete (1), (2), (3) and (4))
(1) An election is effective for a Plan Year if filed no later than
________________________________________ .
(2) An election not to participate must be effective for at least __
Plan Year(s).
(3) Following a re-election to participate, the Employee or
Participant:
[ ] (i) May not again elect not to participate for any subsequent
Plan Year.
[ ] (ii) May again elect not to participate, but not earlier than
the __________ Plan Year following the Plan Year in which the
re-election first was effective.
(4) (Specify) ___________________________ [Insert "N/A" if no other
rules apply].
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
3.01 AMOUNT.
------
Part I. [Options (a) through (g)] Amount of Employer's contribution. The
Employer's annual contribution to the Trust will equal the total amount of
deferral contributions, matching contributions, qualified nonelective
contributions and nonelective contributions, as determined under this
Section 3.01. (Choose any combination of (a), (b), (c) and (d), or choose
(e))
[x] (a) Deferral contributions (Code (S)401(k) arrangement). (Choose
(1) or (2) or both)
[x] (1) Salary reduction arrangement. The Employer must
contribute the amount by which the Participants have reduced
their Compensation for the Plan Year, pursuant to their salary
reduction agreements on file with the Advisory Committee. A
reference in the Plan to salary reduction contributions is a
reference to these amounts.
[ ] (2) Cash or deferred arrangement. The Employer will
contribute on behalf of each Participant the portion of the
Participant's proportionate share of the cash or deferred
contribution which he has not elected to receive in cash. See
Section 14.02 of the Plan. The Employer's cash or deferred
contribution is the amount the Employer may from time to time
deem advisable which the Employer designates as a cash or
deferred contribution prior to making that contribution to the
Trust.
[x] (b) Matching contributions. The Employer will make matching
contributions in accordance with the formula(s) elected in Part II
of this Adoption Agreement Section 3.01.
[x] (c) Designated qualified nonelective contributions. The Employer,
in its sole discretion, may contribute an amount which it designates
as a qualified nonelective contribution.
[x] (d) Nonelective contributions. (Choose any combination of (1)
through (4))
[x] (1) Discretionary contribution. The amount (or additional
amount) the Employer may from time to time deem advisable.
7
<PAGE>
[ ] (2) The amount (or additional amount) the Employer may from
time to time deem advisable, separately determined for each of
the following classifications of Participants: (Choose (i) or
(ii))
[ ] (i) Nonhighly Compensated Employees and Highly
Compensated Employees.
[ ] (ii) (Specify classifications) ________________________.
Under this Option (2), the Advisory Committee will allocate
the amount contributed for each Participant classification in
accordance with Part II of Adoption Agreement Section 3.04, as
if the Participants in that classification were the only
Participants in the Plan.
[ ] (3) ______% of the Compensation of all Participants under the
Plan, determined for the Employer's taxable year for which it
makes the contribution. [Note: The percentage selected may not
exceed 15%.]
[ ] (4) ______% of Net Profits but not more than $_____________.
[ ] (e) Frozen Plan. This Plan is a frozen Plan effective ________. The
Employer will not contribute to the Plan with respect to any period
following the stated date.
Net Profits. The Employer: (Choose (f) or (g))
[x] (f) Need not have Net Profits to make its annual contribution under
this Plan.
[ ] (g) Must have current or accumulated Net Profits exceeding
$_________ to make the following contributions: (Choose at least
one)
[ ] (1) Cash or deferred contributions described in Option
(a)(2).
[ ] (2) Matching contributions described in Option (b), except:
_____________________.
[ ] (3) Qualified nonelective contributions described in Option
(c).
[ ] (4) Nonelective contributions described in Option (d).
The term "Net Profits" means the Employer's net income or profits for any
taxable year determined by the Employer upon the basis of its books of
account in accordance with generally accepted accounting practices
consistently applied without any deductions for Federal and state taxes
upon income or for contributions made by the Employer under this Plan or
under any other employee benefit plan the Employer maintains. The term "Net
Profits" specifically excludes
___________________________________________________________________________
______________________. [Note: Enter "N/A" if no exclusions apply.]
If the Employer requires Net Profits for matching contributions and the
Employer does not have sufficient Net Profits under Option (g), it will
reduce the matching contribution under a fixed formula on a prorata basis
for all Participants. A Participant's share of the reduced contribution
will bear the same ratio as the matching contribution the Participant would
have received if Net Profits were sufficient bears to the total matching
contribution all Participants would have received if Net Profits were
sufficient. If more than one member of a related group (as defined in
Section 1.30) execute this Adoption Agreement, each participating member
will determine Net Profits separately but will not apply this reduction
unless, after combining the separately determined Net Profits, the
aggregate Net Profits are insufficient to satisfy the matching contribution
liability. "Net Profits" includes both current and accumulated Net
Profits.
8
<PAGE>
Part II. [Options (h) through (j)] Matching contribution formula. [Note:
If the Employer elected Option (b), complete Options (h), (i) and (j).]
[x] (h) Amount of matching contributions. For each Plan Year, the
Employer's matching contribution is: (Choose any combination of (1),
(2), (3), (4) and (5))
[ ] (1) An amount equal to ______% of each Participant's eligible
contributions for the Plan Year.
[ ] (2) An amount equal to ______% of each Participant's first
tier of eligible contributions for the Plan Year, plus the
following matching percentage(s) for the following subsequent
tiers of eligible contributions for the Plan ________________
________________________.
[x] (3) Discretionary formula.
[x] (i) An amount (or additional amount) equal to a
matching percentage the Employer from time to time may
deem advisable of the Participant's eligible
contributions for the Plan Year.
[ ] (ii) An amount (or additional amount) equal to a
matching percentage the Employer from time to time may
deem advisable of each tier of the Participant's
eligible contributions for the Plan Year.
[ ] (4) An amount equal to the following percentage of each
Participant's eligible contributions for the Plan Year, based
on the Participant's Years of Service:
Number of Years of Service Matching Percentage
-------------------------- -------------------
----- -----
----- -----
----- -----
----- -----
The Advisory Committee will apply this formula by determining
Years of Service as follows: ______________________________.
[ ] (5) A Participant's matching contributions may not: (Choose
(i) or (ii))
[ ] (i) Exceed ______________________________________.
[ ] (ii) Be less than ________________________________.
Related Employers. If two or more related employers (as defined in
Section 1.30) contribute to this Plan, the related employers may
elect different matching contribution formulas by attaching to the
Adoption Agreement a separately completed copy of this Part II.
Note: Separate matching contribution formulas create separate
current benefit structures that must satisfy the minimum
participation test of Code (S)401(a)(26).]
[x] (i) Definition of eligible contributions. Subject to the
requirements of Option (j), the term "eligible contributions" means:
(Choose any combination of (1) through (3))
[x] (1) Salary reduction contributions.
9
<PAGE>
[ ] (2) Cash or deferred contributions (including any part of the
Participant's proportionate share of the cash or deferred
contribution which the Employer defers without the
Participant's election).
[ ] (3) Participant mandatory contributions, as designated in
Adoption Agreement Section 4.01. See Section 14.04 of the
Plan.
[x] (j) Amount of eligible contributions taken into account. When
determining a Participant's eligible contributions taken into
account under the matching contributions formula(s), the following
rules apply: (Choose any combination of (1) through (4))
[x] (1) The Advisory Committee will take into account all
eligible contributions credited for the Plan Year.
[ ] (2) The Advisory Committee will disregard eligible
contributions exceeding ________________________________.
[ ] (3) The Advisory Committee will treat as the first tier of
eligible contributions, an amount not exceeding: ____________
____________________.
The subsequent tiers of eligible contributions are: _________
_______________________________.
[ ] (4) (Specify) ______________________________________.
Part III. [Options (k) and (l)]. Special rules for Code (S)401(k)
Arrangement. (Choose (k) or (l), or both, as applicable)
[x] (k) Salary Reduction Agreements. The following rules and
restrictions apply to an Employee's salary reduction agreement:
(Make a selection under (1), (2), (3) and (4))
(1) Limitation on amount. The Employee's salary reduction
contributions: (Choose (i) or at least one of (ii) or (iii))
[ ] (i) No maximum limitation other than as provided in the
Plan.
[x] (ii) May not exceed 15% of Compensation for the Plan Year,
--
subject to the annual additions limitation described in Part
2 of Article III and the 402(g) limitation described in
Section 14.07 of the Plan.
[ ] (iii) Based on percentages of Compensation must equal at
least ______________________________________________.
(2) An Employee may revoke, on a prospective basis, a salary
reduction agreement: (Choose (i), (ii), (iii) or (iv))
[ ] (i) Once during any Plan Year but not later than
_______________________________________________________ of
the Plan Year.
[ ] (ii) As of any Plan Entry Date.
[ ] (iii) As of the first day of any month.
[x] (iv) (Specify, but must be at least once per Plan Year) any
---
time prior to a payroll period.
------------------------------
10
<PAGE>
(3) An Employee who revokes his salary reduction agreement may file
a new salary reduction agreement with an effective date: (Choose
(i), (ii), (iii) or (iv))
[ ] (i) No earlier than the first day of the next Plan Year.
[x] (ii) As of any subsequent Plan Entry Date.
[ ] (iii) As of the first day of any month subsequent to the
month in which he revoked an Agreement.
[ ] (iv) (Specify, but must be at least once per Plan Year
following the Plan Year of revocation) ____________________
____________.
(4) A Participant may increase or may decrease, on a prospective
basis, his salary reduction percentage or dollar amount: (Choose
(i), (ii), (iii) or (iv))
[ ] (i) As of the beginning of each payroll period.
[ ] (ii) As of the first day of each month.
[x] (iii) As of any Plan Entry Date.
[ ] (iv) (Specify, but must permit an increase or a decrease at
least once per Plan Year) ________________________________.
[N/A] (l) Cash or deferred contributions. For each Plan Year for which the
Employer makes a designated cash or deferred contribution, a
Participant may elect to receive directly in cash not more than the
following portion (or, if less, the 402(g) limitation described in
Section 14.07 of the Plan) of his proportionate share of that cash
or deferred contribution: (Choose (1) or (2))
[ ] (1) All or any portion.
[ ] (2) _______________________%.
3.04 CONTRIBUTION ALLOCATION. The Advisory Committee will allocate
-----------------------
deferral contributions, matching contributions, qualified nonelective
contributions and nonelective contributions in accordance with Section
14.06 and the elections under this Adoption Agreement Section 3.04.
Part I. [Options (a) through (d)]. Special Accounting Elections. (Choose
whichever elections are applicable to the Employer's Plan)
[x] (a) Matching Contributions Account. The Advisory Committee will
allocate matching contributions to a Participant's: (Choose (1) or
(2); (3) is available only in addition to (1))
[x] (1) Regular Matching Contributions Account.
[N/A] (2) Qualified Matching Contributions Account.
[N/A] (3) Except, matching contributions under Option(s) _ of
Adoption Agreement Section 3.01 are allocable to the Qualified
Matching Contributions Account.
11
<PAGE>
[ ] (b) Special Allocation Dates for Salary Reduction Contributions. The
Advisory Committee will allocate salary reduction contributions as
of the Accounting Date and as of the following additional allocation
dates: _____________________________________________________________
___________________________________________________________________.
[ ] (c) Special Allocation Dates for Matching Contributions. The
Advisory Committee will allocate matching contributions as of the
Accounting Date and as of the following additional allocation dates:
____________________________________________________________________
___________________________________________________________________.
[x] (d) Designated Qualified Nonelective Contributions - Definition of
Participant. For purposes of allocating the designated qualified
nonelective contribution, "Participant" means: (Choose (1), (2) or
(3))
[ ] (1) All Participants.
[x] (2) Participants who are Nonhighly Compensated Employees for
the Plan Year.
[ ] (3) (Specify) _______________________________________________
___________________.
Part II. Method of Allocation - Nonelective Contribution. Subject to any
restoration allocation required under Section 5.04, the Advisory Committee
will allocate and credit each annual nonelective contribution (and
Participant forfeitures treated as nonelective contributions) to the
Employer Contributions Account of each Participant who satisfies the
conditions of Section 3.06, in accordance with the allocation method
selected under this Section 3.04. If the Employer elects Option (e)(2),
Option (g)(2) or Option (h), for the first 3% of Compensation allocated to
all Participants, "Compensation" does not include any exclusions elected
under Adoption Agreement Section 1.12 (other than the exclusion of elective
contributions), and the Advisory Committee must take into account the
Participant's Compensation for the entire Plan Year. (Choose an allocation
method under (e), (f), (g) or (h); (i) is mandatory if the Employer elects
(f), (g) or (h); (j) is optional in addition to any other election.)
[x] (e) Nonintegrated Allocation Formula. (Choose (1) or (2))
[x] (1) The Advisory Committee will allocate the annual
nonelective contributions in the same ratio that each
Participant's Compensation for the Plan Year bears to the
total Compensation of all Participants for the Plan Year.
[ ] (2) The Advisory Committee will allocate the annual
nonelective contributions in the same ratio that each
Participant's Compensation for the Plan Year bears to the
total Compensation of all Participants for the Plan Year. For
purposes of this Option (2), "Participant" means, in addition
to a Participant who satisfies the requirements of Section
3.06 for the Plan Year, any other Participant entitled to a
top heavy minimum allocation under Section 3.04(B), but such
Participant's allocation will not exceed 3% of his
Compensation for the Plan Year.
[N/A] (f) Two-Tiered Integrated Allocation Formula - Maximum Disparity.
First, the Advisory Committee will allocate the annual Employer
nonelective contributions in the same ratio that each Participant's
Compensation plus Excess Compensation for the Plan Year bears to the
total Compensation plus Excess Compensation of all Participants for
the Plan Year. The allocation under this paragraph, as a percentage
of each Participant's Compensation plus Excess Compensation, must
not exceed the applicable percentage (5.7%, 5.4% or 4.3%) listed
under the Maximum Disparity Table following Option (i).
12
<PAGE>
The Advisory Committee then will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all
Participants for the Plan Year.
[N/A] (g) Three-Tiered Integrated Allocation Formula. First, the Advisory
Committee will allocate the annual Employer nonelective
contributions in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all
Participants for the Plan Year. The allocation under this paragraph,
as a percentage of each Participant's Compensation may not exceed
the applicable percentage (5.7%, 5.4% or 4.3%) listed under the
Maximum Disparity Table following Option (i). Solely for purposes of
the allocation in this first paragraph, "Participant" means, in
addition to a Participant who satisfies the requirements of Section
3.06 for the Plan Year: (Choose (1) or (2))
[ ] (1) No other Participant.
[ ] (2) Any other Participant entitled to a top heavy minimum
allocation under Section 3.04(B), but such Participant's
allocation under this Option (g) will not exceed 3% of his
Compensation for the Plan Year.
As a second tier allocation, the Advisory Committee will allocate
the nonelective contributions in the same ratio that each
Participant's Excess Compensation for the Plan Year bears to the
total Excess Compensation of all Participants for the Plan Year. The
allocation under this paragraph, as a percentage of each
Participant's Excess Compensation, may not exceed the allocation
percentage in the first paragraph.
Finally, the Advisory Committee will allocate any remaining
nonelective contributions in the same ratio that each Participant's
Compensation for the Plan Year bears to the total Compensation of
all Participants for the Plan Year.
[N/A] (h) Four-Tiered Integrated Allocation Formula. First, the Advisory
Committee will allocate the annual Employer nonelective
contributions in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all
Participants for the Plan Year, but not exceeding 3% of each
Participant's Compensation. Solely for purposes of this first tier
allocation, a "Participant" means, in addition to any Participant
who satisfies the requirements of Section 3.06 for the Plan Year,
any other Participant entitled to a top heavy minimum allocation
under Section 3.04(B) of the Plan.
As a second tier allocation, the Advisory Committee will allocate
the nonelective contributions in the same ratio that each
Participant's Excess Compensation for the Plan Year bears to the
total Excess Compensation of all Participants for the Plan Year, but
not exceeding 3% of each Participant's Excess Compensation.
As a third tier allocation, the Advisory Committee will allocate the
annual Employer contributions in the same ratio that each
Participant's Compensation plus Excess Compensation for the Plan
Year bears to the total Compensation plus Excess Compensation of all
Participants for the Plan Year. The allocation under this paragraph,
as a percentage of each Participant's Compensation plus Excess
Compensation, must not exceed the applicable percentage (2.7%, 2.4%
or 1.3%) listed under the Maximum Disparity Table following Option
(i).
The Advisory Committee then will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all
Participants for the Plan Year.
13
<PAGE>
[N/A] (i) Excess Compensation. For purposes of Option (f), (g) or (h),
"Excess Compensation" means Compensation in excess of the following
Integration Level: (Choose (1) or (2))
[ ] (1) _____% (not exceeding 100%) of the taxable wage base, as
determined under Section 230 of the Social Security Act, in effect
on the first day of the Plan Year: (Choose any combination of (i)
and (ii) or choose (iii))
[ ] (i) Rounded to _________________________________________
(but not exceeding the taxable wage base).
[ ] (ii) But not greater than $_____.
[ ] (iii) Without any further adjustment or limitation.
[ ] (2) $____________ [Note: Not exceeding the taxable wage base for
the Plan Year in which this Adoption Agreement first is effective.]
Maximum Disparity Table. For purposes of Options (f), (g) and (h), the
applicable percentage is:
<TABLE>
<CAPTION>
Integration Level (as Applicable Percentages for Applicable Percentages
percentage of taxable wage base) Option (f) or Option (g) for Option (h)
-------------------------------- -------------------------- -----------------------
<S> <C> <C>
100% 5.7% 2.7%
More than 80% but less than 100% 5.4% 2.4%
More than 20% (but not less than $10,001)
and not more than 80% 4.3% 1.3%
20% (or $10,000, if greater) or less 5.7% 2.7%
</TABLE>
[ ] (j) Allocation offset. The Advisory Committee will reduce a
Participant's allocation otherwise made under Part II of this
Section 3.04 by the Participant's allocation under the following
qualified plan(s) maintained by the Employer: _____________________
_________________________.
The Advisory Committee will determine this allocation reduction:
(Choose (1) or (2))
[ ] (1) By treating the term "nonelective contribution" as
including all amounts paid or accrued by the Employer during
the Plan Year to the qualified plan(s) referenced under this
Option (j). If a Participant under this Plan also participates
in that other plan, the Advisory Committee will treat the
amount the Employer contributes for or during a Plan Year on
behalf of a particular Participant under such other plan as an
amount allocated under this Plan to that Participant's Account
for that Plan Year. The Advisory Committee will make the
computation of allocation required under the immediately
preceding sentence before making any allocation of nonelective
contributions under this Section 3.04.
[ ] (2) In accordance with the formula provided in an addendum to
this Adoption Agreement, numbered 3.04(j).
14
<PAGE>
Top Heavy Minimum Allocation - Method of Compliance. If a Participant's
allocation under this Section 3.04 is less than the top heavy minimum
allocation to which he is entitled under Section 3.04(B): (Choose (k) or
(l))
[x] (k) The Employer will make any necessary additional contribution to
the Participant's Account, as described in Section 3.04(B)(7)(a) of
the Plan.
[ ] (l) The Employer will satisfy the top heavy minimum allocation under
the following plan(s) it maintains: _______________________________
_____________________. However, the Employer will make any necessary
additional contribution to satisfy the top heavy minimum allocation
for an Employee covered only under this Plan and not under the other
plan(s) designated in this Option (l). See Section 3.04(B)(7)(b) of
the Plan.
If the Employer maintains another plan, the Employer may provide in an
addendum to this Adoption Agreement, numbered Section 3.04, any
modifications to the Plan necessary to satisfy the top heavy requirements
under Code (S)416.
Related employers. If two or more related employers (as defined in Section
1.30) contribute to this Plan, the Advisory Committee must allocate all
Employer nonelective contributions (and forfeitures treated as nonelective
contributions) to each Participant in the Plan, in accordance with the
elections in this Adoption Agreement Section 3.04: (Choose (m) or (n))
[N/A] (m) Without regard to which contributing related group member
employs the Participant.
[x] (n) Only to the Participants directly employed by the contributing
Employer. If a Participant receives Compensation from more than one
contributing Employer, the Advisory Committee will determine the
allocations under this Adoption Agreement Section 3.04 by prorating
among the participating Employers the Participant's Compensation
and, if applicable, the Participant's Integration Level under Option
(i).
3.05 FORFEITURE ALLOCATION. Subject to any restoration allocation
----------------------
required under Sections 5.04 or 9.14, the Advisory Committee will allocate
a Participant forfeiture in accordance with Section 3.04: (Choose (a) or
(b); (c) and (d) are optional in addition to (a) or (b))
[N/A] (a) As an Employer nonelective contribution for the Plan Year in
which the forfeiture occurs, as if the Participant forfeiture were
an additional nonelective contribution for that Plan Year.
[x] (b) To reduce the Employer matching contributions and nonelective
contributions for the Plan Year: (Choose (1) or (2))
[N/A] (1) in which the forfeiture occurs.
[x] (2) immediately following the Plan Year in which the
forfeiture occurs.
[x] (c) To the extent attributable to matching contributions: (Choose
(1), (2) or (3))
[N/A] (1) In the manner elected under Options (a) or (b).
[x] (2) First to reduce Employer matching contributions for the
Plan Year: (Choose (i) or (ii))
[N/A] (i) in which the forfeiture occurs,
15
<PAGE>
[x] (ii) immediately following the Plan Year in which the
forfeiture occurs,
then as elected in Options (a) or (b).
[ ] (3) As a discretionary matching contribution for the Plan
Year in which the forfeiture occurs, in lieu of the manner
elected under Options (a) or (b).
[N/A] (d) First to reduce the Plan's ordinary and necessary administrative
expenses for the Plan Year and then will allocate any remaining
forfeitures in the manner described in Options (a), (b) or (c),
whichever applies. If the Employer elects Option (c), the
forfeitures used to reduce Plan expenses: (Choose (1) or (2))
[ ] (1) relate proportionately to forfeitures described in Option
(c) and to forfeitures described in Options (a) or (b).
[ ] (2) relate first to forfeitures described in Option ____.
Allocation of forfeited excess aggregate contributions. The Advisory
Committee will allocate any forfeited excess aggregate contributions (as
described in Section 14.09): (Choose (e), (f) or (g))
[N/A] (e) To reduce Employer matching contributions for the Plan Year:
(Choose (1) or (2))
[ ] (1) in which the forfeiture occurs.
[ ] (2) immediately following the Plan Year in which the
forfeiture occurs.
[N/A] (f) As Employer discretionary matching contributions for the Plan
Year in which forfeited, except the Advisory Committee will not
allocate these forfeitures to the Highly Compensated Employees who
incurred the forfeitures.
[x] (g) In accordance with Options (a) through (d), whichever applies,
except the Advisory Committee will not allocate these forfeitures
under Option (a) or under Option (c)(3) to the Highly Compensated
Employees who incurred the forfeitures.
3.06 ACCRUAL OF BENEFIT.
------------------
Compensation taken into account. For the Plan Year in which the Employee
first becomes a Participant, the Advisory Committee will determine the
allocation of any cash or deferred contribution, designated qualified
nonelective contribution or nonelective contribution by taking into
account: (Choose (a) or (b))
[x] (a) The Employee's Compensation for the entire Plan Year.
[N/A] (b) The Employee's Compensation for the portion of the Plan Year in
which the Employee actually is a Participant in the Plan.
16
<PAGE>
Accrual Requirements. Subject to the suspension of accrual requirements of
Section 3.06(E) of the Plan, to receive an allocation of cash or deferred
contributions, matching contributions, designated qualified nonelective
contributions, nonelective contributions and Participant forfeitures, if
any, for the Plan Year, a Participant must satisfy the conditions described
in the following elections: (Choose (c) or at least one of (d) through (f))
[N/A] (c) Safe harbor rule. If the Participant is employed by the Employer
on the last day of the Plan Year, the Participant must complete at
least one Hour of Service for that Plan Year. If the Participant is
not employed by the Employer on the last day of the Plan Year, the
Participant must complete at least 501 Hours of Service during the
Plan Year.
[x] (d) Hours of Service condition. The Participant must complete the
following minimum number of Hours of Service during the Plan Year:
(Choose at least one of (1) through (5))
[ ] (1) 1,000 Hours of Service.
[ ] (2) (Specify, but the number of Hours of Service may not
exceed 1,000) _______________________________________.
[ ] (3) No Hour of Service requirement if the Participant
terminates employment during the Plan Year on account of:
(Choose (i), (ii) or (iii))
[ ] (i) Death.
[ ] (ii) Disability.
[ ] (iii) Attainment of Normal Retirement Age in the
current Plan Year or in a prior Plan Year.
[x] (4) 501 Hours of Service (not exceeding 1,000) if the
---
Participant terminates employment with the Employer during the
Plan Year, subject to any election in Option (3).
[x] (5) No Hour of Service requirement for an allocation of the
following contributions: Deferrals, and Qualified
------------------------
Nonelective and Matching contributions.
--------------------------------------
[N/A] (e) Employment condition. The Participant must be employed by the
Employer on the last day of the Plan Year, irrespective of whether
he satisfies any Hours of Service condition under Option (d), with
the following exceptions: (Choose (1) or at least one of (2) through
(5))
[N/A] (1) No exceptions.
[N/A] (2) Termination of employment because of death.
[N/A] (3) Termination of employment because of disability.
[N/A] (4) Termination of employment following attainment of Normal
Retirement Age.
[N/A] (5) No employment condition for the following contributions:
______________________________________________________________
____________________________________.
[N/A] (f) (Specify other conditions, if applicable): _____________________
_______________________.
17
<PAGE>
Suspension of Accrual Requirements. The suspension of accrual requirements
of Section 3.06(E) of the Plan: (Choose (g), (h) or (i))
[N/A] (g) Applies to the Employer's Plan.
[N/A] (h) Does not apply to the Employer's Plan.
[x] (i) Applies in modified form to the Employer's Plan, as described in
an addendum to this Adoption Agreement, numbered Section 3.06(E).
Special accrual requirements for matching contributions. If the Plan
allocates matching contributions on two or more allocation dates for a Plan
Year, the Advisory Committee, unless otherwise specified in Option (l),
will apply any Hours of Service condition by dividing the required Hours of
Service on a prorata basis to the allocation periods included in that Plan
Year. Furthermore, a Participant who satisfies the conditions described in
this Adoption Agreement Section 3.06 will receive an allocation of matching
contributions (and forfeitures treated as matching contributions) only if
the Participant satisfies the following additional condition(s): (Choose
(j) or at least one of (k) or (l))
[x] (j) No additional conditions.
[N/A] (k) The Participant is not a Highly Compensated Employee for the
Plan Year. This Option (k) applies to: (Choose (1) or (2))
[ ] (1) All matching contributions.
[ ] (2) Matching contributions described in Option(s)
_____________ of Adoption Agreement Section 3.01.
[N/A] (l) (Specify) _____________________________________________________
____________.
3.15 MORE THAN ONE PLAN LIMITATION. If the provisions of Section
-----------------------------
3.15 apply, the Excess Amount attributed to this Plan equals: (Choose (a),
(b) or (c))
[N/A] (a) The product of:
(i) the total Excess Amount allocated as of such date
(including any amount which the Advisory Committee would have
allocated but for the limitations of Code (S)415), times
(ii) the ratio of (1) the amount allocated to the Participant
as of such date under this Plan divided by (2) the total amount
allocated as of such date under all qualified defined
contribution plans (determined without regard to the
limitations of Code (S)415).
[x] (b) The total Excess Amount.
[N/A] (c) None of the Excess Amount.
3.18 DEFINED BENEFIT PLAN LIMITATION.
-------------------------------
Application of limitation. The limitation under Section 3.18 of the Plan:
(Choose (a) or (b))
[x] (a) Does not apply to the Employer's Plan because the Employer does
not maintain and never has maintained a defined benefit plan
covering any Participant in this Plan.
18
<PAGE>
[N/A] (b) Applies to the Employer's Plan. To the extent necessary to
satisfy the limitation under Section 3.18, the Employer will reduce:
(Choose (1) or (2))
[ ] (1) The Participant's projected annual benefit under the
defined benefit plan under which the Participant participates.
[ ] (2) Its contribution or allocation on behalf of the
Participant to the defined contribution plan under which the
Participant participates and then, if necessary, the
Participant's projected annual benefit under the defined
benefit plan under which the Participant participates.
[Note: If the Employer selects (a), the remaining options in this Section
3.18 do not apply to the Employer's Plan.]
Coordination with top heavy minimum allocation. The Advisory Committee
will apply the top heavy minimum allocation provisions of Section 3.04(B)
of the Plan with the following modifications: (Choose (c) or at least one
of (d) or (e))
[N/A] (c) No modifications.
[N/A] (d) For Non-Key Employees participating only in this Plan, the top
heavy minimum allocation is the minimum allocation described in
Section 3.04(B) determined by substituting ____% (not less than 4%)
for "3%," except: (Choose (i) or (ii))
[ ] (i) No exceptions.
[ ] (ii) Plan Years in which the top heavy ratio exceeds 90%.
[N/A] (e) For Non-Key Employees also participating in the defined benefit
plan, the top heavy minimum is: (Choose (1) or (2))
[ ] (1) 5% of Compensation (as determined under Section 3.04(B) or
the Plan) irrespective of the contribution rate of any Key
Employee, except: (Choose (i) or (ii))
[ ] (i) No exceptions.
[ ] (ii) Substituting "7 1/2%" for "5%" if the top heavy
ratio does not exceed 90%.
[ ] (2) 0%. [Note: The Employer may not select this Option (2)
unless the defined benefit plan satisfies the top heavy
minimum benefit requirements of Code (S)416 for these Non-Key
Employees.]
Actuarial Assumptions for Top Heavy Calculation. To determine the top
heavy ratio, the Advisory Committee will use the following interest rate
and mortality assumptions to value accrued benefits under a defined benefit
plan: _______________________________________.
If the elections under this Section 3.18 are not appropriate to satisfy the
limitations of Section 3.18, or the top heavy requirements under Code
(S)416, the Employer must provide the appropriate provisions in an addendum
to this Adoption Agreement.
19
<PAGE>
ARTICLE IV
PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. The Plan: (Choose (a)
---------------------------------------
or (b); (c) is available only with (b))
[x] (a) Does not permit Participant nondeductible contributions.
[N/A] (b) Permits Participant nondeductible contributions, pursuant to
Section 14.04 of the Plan.
[ ] (c) The following portion of the Participant's nondeductible
contributions for the Plan Year are mandatory contributions under
Option (i)(3) of Adoption Agreement Section 3.01: (Choose (1) or
(2))
[ ] (1) The amount which is not less than: ______________________
__________.
[ ] (2) The amount which is not greater than: ___________________
__________.
Allocation dates. The Advisory Committee will allocate nondeductible
contributions for each Plan Year as of the Accounting Date and the
following additional allocation dates: (Choose (d) or (e))
[N/A] (d) No other allocation dates.
[N/A] (e) (Specify) ___________________________________.
As of an allocation date, the Advisory Committee will credit all
nondeductible contributions made for the relevant allocation period.
Unless otherwise specified in (e), a nondeductible contribution relates to
an allocation period only if actually made to the Trust no later than 30
days after that allocation period ends.
4.05 PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION. Subject
---------------------------------------------------
to the restrictions of Article VI, the following distribution options apply
to a Participant's Mandatory Contributions Account, if any, prior to his
Separation from Service: (Choose (a) or at least one of (b) through (d))
[N/A] (a) No distribution options prior to Separation from Service.
[x] (b) The same distribution options applicable to the Deferral
Contributions Account prior to the Participant's Separation from
Service, as elected in Adoption Agreement Section 6.03.
[N/A] (c) Until he retires, the Participant has a continuing election to
receive all or any portion of his Mandatory Contributions Account
if: (Choose (1) or at least one of (2) through (4))
[ ] (1) No conditions.
[ ] (2) The mandatory contributions have accumulated for at least
__ Plan Years since the Plan Year for which contributed.
[ ] (3) The Participant suspends making nondeductible
contributions for a period of __ months.
[ ] (4) (Specify) ____________________________________.
[N/A] (d) (Specify) ___________________________________.
20
<PAGE>
ARTICLE V
TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 NORMAL RETIREMENT. Normal Retirement Age under the Plan is:
-----------------
(Choose (a) or (b))
[N/A] (a) ______ [State age, but may not exceed age 65].
[x] (b) The later of the date the Participant attains 65 years of age or
--
the 5 anniversary of the first day of the Plan Year in which the
-
Participant commenced participation in the Plan. [The age selected
may not exceed age 65 and the anniversary selected may not exceed
the 5th.]
5.02 PARTICIPANT DEATH OR DISABILITY. The 100% vesting rule under
-------------------------------
Section 5.02 of the Plan: (Choose (a) or choose one or both of (b) and (c))
[N/A] (a) Does not apply.
[x] (b) Applies to death.
[x] (c) Applies to disability.
5.03 VESTING SCHEDULE.
----------------
Deferral Contributions Account/Qualified Matching Contributions
Account/Qualified Nonelective Contributions Account/Mandatory Contributions
Account. A Participant has a 100% Nonforfeitable interest at all times in
his Deferral Contributions Account, his Qualified Matching Contributions
Account, his Qualified Nonelective Contributions Account and in his
Mandatory Contributions Account.
Regular Matching Contributions Account/Employer Contributions Account.
With respect to a Participant's Regular Matching Contributions Account and
Employer Contributions Account, the Employer elects the following vesting
schedule: (Choose (a) or (b); (c) and (d) are available only as additional
options)
[ ] (a) Immediate vesting. 100% Nonforfeitable at all times. [Note: The
Employer must elect Option (a) if the eligibility conditions under
Adoption Agreement Section 2.01(c) require 2 years of service or
more than 12 months of employment.]
[x] (b) Graduated Vesting Schedules.
<TABLE>
<CAPTION>
Top Heavy Schedule Non Top Heavy Schedule
(Mandatory) (Optional)
<S> <C> <C> <C>
Years of Nonforfeitable Years of Nonforfeitable
Service Percentage Service Percentage
----------- ---------------- ----------- -----------------
Less than 1 0% Less than 1 0%
1 20% 1 20%
2 40% 2 40%
3 60% 3 60%
4 80% 4 80%
5 100% 5 100%
6 or more 100% 6 100%
7 or more 100%
</TABLE>
21
<PAGE>
[N/A] (c) Special vesting election for Regular Matching Contributions
Account. In lieu of the election under Options (a) or (b), the
Employer elects the following vesting schedule for a Participant's
Regular Matching Contributions Account: (Choose (1) or (2))
[ ] (1) 100% Nonforfeitable at all times.
[ ] (2) In accordance with the vesting schedule described in the
addendum to this Adoption Agreement, numbered 5.03(c). [Note:
If the Employer elects this Option (c)(2), the addendum must
designate the applicable vesting schedule(s) using the same
format as used in Option (b).]
[Note: Under Options (b) and (c)(2), the Employer must complete a Top Heavy
Schedule which satisfies Code (S)416. The Employer, at its option, may
complete a Non Top Heavy Schedule. The Non Top Heavy Schedule must satisfy
Code (S)411(a)(2). Also see Section 7.05 of the Plan.]
[x] (d) The Top Heavy Schedule under Option (b) (and, if applicable,
under Option (c)(2)) applies: (Choose (1) or (2))
[N/A] (1) Only in a Plan Year for which the Plan is top heavy.
[x] (2) In the Plan Year for which the Plan first is top heavy
and then in all subsequent Plan Years. [Note: The Employer may
not elect Option (d) unless it has completed a Non Top Heavy
Schedule.]
Minimum vesting. (Choose (e) or (f))
[x] (e) The Plan does not apply a minimum vesting rule.
[N/A] (f) A Participant's Nonforfeitable Accrued Benefit will never be
less than the lesser of $______ or his entire Accrued Benefit, even
if the application of a graduated vesting schedule under Options (b)
or (c) would result in a smaller Nonforfeitable Accrued Benefit.
Life Insurance Investments. The Participant's Accrued Benefit attributable
to insurance contracts purchased on his behalf under Article XI is: (Choose
(g) or (h))
[x] (g) Subject to the vesting election under Options (a), (b) or (c).
[N/A] (h) 100% Nonforfeitable at all times, irrespective of the vesting
election under Options (b) or (c)(2).
5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/
--------------------------------------------------------
RESTORATION OF FORFEITED ACCRUED BENEFIT. The deemed cash-out rule
----------------------------------------
described in Section 5.04(C) of the Plan: (Choose (a) or (b))
[N/A] (a) Does not apply.
[x] (b) Will apply to determine the timing of forfeitures for 0% vested
Participants. A Participant is not a 0% vested Participant if he has
a Deferral Contributions Account.
22
<PAGE>
5.06 YEAR OF SERVICE - VESTING.
-------------------------
Vesting computation period. The Plan measures a Year of Service on the
basis of the following 12 consecutive month periods: (Choose (a) or (b))
[x] (a) Plan Years.
[N/A] (b) Employment Years. An Employment Year is the 12 consecutive month
period measured from the Employee's Employment Commencement Date and
each successive 12 consecutive month period measured from each
anniversary of that Employment Commencement Date.
Hours of Service. The minimum number of Hours of Service an Employee must
complete during a vesting computation period to receive credit for a Year
of Service is: (Choose (c) or (d))
[x] (c) 1,000 Hours of Service.
[N/A] (d) _____ Hours of Service. [Note: The Hours of Service
requirement may not exceed 1,000.]
5.08 INCLUDED YEARS OF SERVICE - VESTING. The Employer specifically
-----------------------------------
excludes the following Years of Service: (Choose (a) or at least one of (b)
through (e))
[N/A] (a) None other than as specified in Section 5.08(a) of the Plan.
[x] (b) Any Year of Service before the Participant attained the age of
18. Note: The age selected may not exceed age 18.]
--
[N/A] (c) Any Year of Service during the period the Employer did not
maintain this Plan or a predecessor plan.
[N/A] (d) Any Year of Service before a Break in Service if the number of
consecutive Breaks in Service equals or exceeds the greater of 5 or
the aggregate number of the Years of Service prior to the Break.
This exception applies only if the Participant is 0% vested in his
Accrued Benefit derived from Employer contributions at the time he
has a Break in Service. Furthermore, the aggregate number of Years
of Service before a Break in Service do not include any Years of
Service not required to be taken into account under this exception
by reason of any prior Break in Service.
[N/A] (e) Any Year of Service earned prior to the effective date of ERISA
if the Plan would have disregarded that Year of Service on account
of an Employee's Separation from Service under a Plan provision in
effect and adopted before January 1, 1974.
ARTICLE VI
TIME AND METHOD OF PAYMENTS OF BENEFITS
Code (S)411(d)(6) Protected Benefits. The elections under this Article VI
may not eliminate Code (S)411(d)(6) protected benefits. To the extent the
elections would eliminate a Code (S)411(d)(6) protected benefit, see
Section 13.02 of the Plan. Furthermore, if the elections liberalize the
optional forms of benefit under the Plan, the more liberal options apply on
the later of the adoption date or the Effective Date of this Adoption
Agreement.
23
<PAGE>
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT.
----------------------------------
Distribution date. A distribution date under the Plan means any day of the
--------------
Plan Year . [Note: The Employer must specify the appropriate date(s). The
----------
specified distribution dates primarily establish annuity starting dates and
the notice and consent periods prescribed by the Plan. The Plan allows the
Trustee an administratively practicable period of time to make the actual
distribution relating to a particular distribution date.]
Nonforfeitable Accrued Benefit Not Exceeding $3,500. Subject to the
limitations of Section 6.01(A)(1), the distribution date for distribution
of a Nonforfeitable Accrued Benefit not exceeding $3,500 is: (Choose (a),
(b), (c), (d) or (e))
[N/A] (a) ________________________________________________________________
of the_______________ Plan Year beginning after the Participant's
Separation from Service.
[x] (b) any distribution date following the Participant's Separation
--------------------- from Service.
[N/A] (c) _______________________________________________________________
of the Plan Year after the Participant incurs ____ Break(s) in
Service (as defined in Article V).
[N/A] (d) _____________________________________________________ following
the Participant's attainment of Normal Retirement Age, but not
earlier than _____________________ days following his Separation
from Service.
[N/A] (e) (Specify) ______________________________________________________
__________________________.
Nonforfeitable Accrued Benefit Exceeds $3,500. See the elections under
Section 6.03.
Disability. The distribution date, subject to Section 6.01(A)(3), is:
(Choose (f), (g) or (h))
[N/A] (f) _______________________________________________________________
after the Participant terminates employment because of disability.
[x] (g) The same as if the Participant had terminated employment without
disability.
[N/A] (h) (Specify) ______________________________________________________
________________.
Hardship. (Choose (i) or (j))
[x] (i) The Plan does not permit a hardship distribution to a
Participant who has separated from Service.
[N/A] (j) The Plan permits a hardship distribution to a Participant who
has separated from Service in accordance with the hardship
distribution policy stated in: (Choose (1), (2) or (3))
[ ] (1) Section 6.01(A)(4) of the Plan.
[ ] (2) Section 14.11 of the Plan.
[ ] (3) The addendum to this Adoption Agreement, numbered Section
6.01.
24
<PAGE>
Default on a Loan. If a Participant or Beneficiary defaults on a loan made
pursuant to a loan policy adopted by the Advisory Committee pursuant to
Section 9.04, the Plan: (Choose (k), (l) or (m))
[x] (k) Treats the default as a distributable event. The Trustee, at the
time of the default, will reduce the Participant's Nonforfeitable
Accrued Benefit by the lesser of the amount in default (plus accrued
interest) or the Plan's security interest in that Nonforfeitable
Accrued Benefit. To the extent the loan is attributable to the
Participant's Deferral Contributions Account, Qualified Matching
Contributions Account or Qualified Nonelective Contributions
Account, the Trustee will not reduce the Participant's
Nonforfeitable Accrued Benefit unless the Participant has separated
from Service or unless the Participant has attained age 59 1/2.
[N/A] (l) Does not treat the default as a distributable event. When an
otherwise distributable event first occurs pursuant to Section 6.01
or Section 6.03 of the Plan, the Trustee will reduce the
Participant's Nonforfeitable Accrued Benefit by the lesser of the
amount in default (plus accrued interest) or the Plan's security
interest in that Nonforfeitable Accrued Benefit.
[N/A] (m) (Specify) ______________________________________________________
________.
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. The Advisory Committee
------------------------------------
will apply Section 6.02 of the Plan with the following modifications:
(Choose (a) or at least one of (b), (c), (d) and (e))
[x] (a) No modifications.
[N/A] (b) Except as required under Section 6.01 of the Plan, a lump sum
distribution is not available: _____________________________________
_________________________________.
[N/A] (c) An installment distribution: (Choose (1) or at least one of (2)
or (3))
[ ] (1) Is not available under the Plan.
[ ] (2) May not exceed the lesser of _________ years or the
maximum period permitted under Section 6.02.
[ ] (3) (Specify) _______________________________________________
_________.
[N/A] (d) The Plan permits the following annuity options: ________________
_______________________________________________________.
Any Participant who elects a life annuity option is subject to the
requirements of Sections 6.04(A), (B), (C) and (D) of the Plan. See
Section 6.04(E). [Note: The Employer may specify additional annuity
options in an addendum to this Adoption Agreement, numbered
6.02(d).]
[N/A] (e) If the Plan invests in qualifying Employer securities, as
described in Section 10.03(F), a Participant eligible to elect
distribution under Section 6.03 may elect to receive that
distribution in Employer securities only in accordance with the
provisions of the addendum to this Adoption Agreement, numbered
6.02(e).
25
<PAGE>
6.03 BENEFIT PAYMENT ELECTIONS.
-------------------------
Participant Elections After Separation from Service. A Participant who is
eligible to make distribution elections under Section 6.03 of the Plan may
elect to commence distribution of his Nonforfeitable Accrued Benefit:
(Choose at least one of (a) through (c))
[N/A] (a) As of any distribution date, but not earlier than
___________________________________ of the _____________ Plan Year
beginning after the Participant's Separation from Service.
[x] (b) As of the following date(s): (Choose at least one of Options (1)
through (6))
[N/A] (1) Any distribution date after the close of the Plan Year in
which the Participant attains Normal Retirement Age.
[x] (2) Any distribution date following his Separation from
Service with the Employer.
[N/A] (3) Any distribution date in the ________________ Plan
Year(s) beginning after his Separation from Service.
[N/A] (4) Any distribution date in the Plan Year after the
Participant incurs ________________ Break(s) in Service (as
defined in Article V).
[N/A] (5) Any distribution date following attainment of age
_________ and completion of at least ____ Years of Service (as
defined in Article V).
[N/A] (6) (Specify) _______________________________________________
__________.
[N/A] (c) (Specify) ______________________________________________________
______________________________________________________________________
_________________.
The distribution events described in the election(s) made under
Options (a), (b) or (c) apply equally to all Accounts maintained for the
Participant unless otherwise specified in Option (c).
Participant Elections Prior to Separation from Service - Regular Matching
Contributions Account and Employer Contributions Account. Subject to the
restrictions of Article VI, the following distribution options apply to a
Participant's Regular Matching Contributions Account and Employer
Contributions Account prior to his Separation from Service: (Choose (d) or
at least one of (e) through (h))
[N/A] (d) No distribution options prior to Separation from Service.
[x] (e) Attainment of Specified Age. Until he retires, the Participant
has a continuing election to receive all or any portion of his
Nonforfeitable interest in these Accounts after he attains: (Choose
(1) or (2))
[x] (1) Normal Retirement Age.
[ ] (2) ______ years of age and is at least ______% vested in
these Accounts. [Note: If the percentage is less than 100%,
see the special vesting formula in Section 5.03.]
26
<PAGE>
[N/A] (f) After a Participant has participated in the Plan for a period of
not less than ______ years and he is 100% vested in these Accounts,
until he retires, the Participant has a continuing election to
receive all or any portion of the Accounts. [Note: The number in the
blank space may not be less than 5.]
[x] (g) Hardship. A Participant may elect a hardship distribution prior
to his Separation from Service in accordance with the hardship
distribution policy: (Choose (1), (2) or (3); (4) is available only
as an additional option)
[ ] (1) Under Section 6.01(A)(4) of the Plan.
[x] (2) Under Section 14.11 of the Plan.
[ ] (3) Provided in the addendum to this Adoption Agreement,
numbered Section 6.03.
[x] (4) In no event may a Participant receive a hardship
distribution before he is at least 100% vested in these
----
Accounts. [Note: If the percentage in the blank is less than
100%, see the special vesting formula in Section 5.03.]
[N/A] (h) (Specify) _____________________________________________________
________________.
[Note: The Employer may use an addendum, numbered 6.03, to provide
additional language authorized by Options (b)(6), (c), (g)(3) or (h) of
this Adoption Agreement Section 6.03.]
Participant Elections Prior to Separation from Service - Deferral
Contributions Account, Qualified Matching Contributions Account and
Qualified Nonelective Contributions Account. Subject to the restrictions
of Article VI, the following distribution options apply to a Participant's
Deferral Contributions Account, Qualified Matching Contributions Account
and Qualified Nonelective Contributions Account prior to his Separation
from Service: (Choose (i) or at least one of (j) through (l))
[N/A] (i) No distribution options prior to Separation from Service.
[x] (j) Until he retires, the Participant has a continuing election to
receive all or any portion of these Accounts after he attains:
(Choose (1) or (2))
[x] (1) The later of Normal Retirement Age or age 59 1/2.
[ ] (2) Age ______ (at least 59 1/2).
[x] (k) Hardship. A Participant, prior to this Separation from Service,
may elect a hardship distribution from his Deferral Contributions
Account in accordance with the hardship distribution policy under
Section 14.11 of the Plan.
[N/A] (l) (Specify) _____________________________________________________
______________. [Note: Option (l) may not permit in service
distributions prior to age 59 1/2 (other than hardship) and may not
modify the hardship policy described in Section 14.11.]
27
<PAGE>
Sale of trade or business/subsidiary. If the Employer sells substantially
all of the assets (within the meaning of Code (S)409(d)(2)) used in a trade
or business or sells a subsidiary (within the meaning of Code
(S)409(d)(3)), a Participant who continues employment with the acquiring
corporation is eligible for distribution from his Deferral Contributions
Account, Qualified Matching Contributions Account and Qualified Nonelective
Contributions Account: (Choose (m) or (n))
[x] (m) Only as described in this Adoption Agreement Section 6.03 for
distributions prior to Separation from Service.
[N/A] (n) As if he has a Separation from Service. After March 31, 1988, a
distribution authorized solely by reason of this Option (n) must
constitute a lump sum distribution, determined in a manner
consistent with Code (S)401(k)(10) and the applicable Treasury
regulations.
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES.
-----------------------------------------------------------
The annuity distribution requirements of Section 6.04: (Choose (a) or (b))
[x] (a) Apply only to a Participant described in Section 6.04(E) of the
Plan (relating to the profit sharing exception to the joint and
survivor requirements).
[N/A] (b) Apply to all Participants.
ARTICLE IX
ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS
9.10 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. If a distribution
--------------------------------------
(other than a distribution from a segregated Account and other than a
corrective distribution described in Sections 14.07, 14.08, 14.09 or 14.10
of the Plan) occurs more than 90 days after the most recent valuation date,
the distribution will include interest at: (Choose (a), (b) or (c))
[x] (a) 0% per annum. [Note: The percentage may equal 0%.]
-
[N/A] (b) The 90 day Treasury bill rate in effect at the beginning of the
current valuation period.
[N/A] (c) (Specify) __________________________________.
9.11 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS.
------------------------------------------------------
Pursuant to Section 14.12, to determine the allocation of net income, gain
or loss: (Complete only those items, if any, which are applicable to the
Employer's Plan)
[x] (a) For salary reduction contributions, the Advisory Committee will:
(Choose (1), (2), (3), (4) or (5))
[x] (1) Apply Section 9.11 without modification.
[ ] (2) Use the segregated account approach described in Section
14.12.
[ ] (3) Use the weighted average method described in
Section 14.12, based on a ____________________ weighting
period.
[ ] (4) Treat as part of the relevant Account at the beginning of
the valuation period ______% of the salary reduction
contributions: (Choose (i) or (ii))
[ ] (i) made during that valuation period.
28
<PAGE>
[ ] (ii) made by the following specified time:
__________________.
[ ] (5) Apply the allocation method described in the addendum to
this Adoption Agreement numbered 9.11(a).
[x] (b) For matching contributions, the Advisory Committee will: (Choose
(1), (2), (3) or (4))
[x] (1) Apply Section 9.11 without modification.
[ ] (2) Use the weighted average method described in
Section 14.12, based on a ____________________ weighting
period.
[ ] (3) Treat as part of the relevant Account at the beginning of
the valuation period ______% of the matching contributions
allocated during the valuation period.
[ ] (4) Apply the allocation method described in the addendum to
this Adoption Agreement numbered 9.11(b).
[N/A] (c) For Participant nondeductible contributions, the Advisory
Committee will: (Choose (1), (2), (3), (4) or (5))
[ ] (1) Apply Section 9.11 without modification.
[ ] (2) Use the segregated account approach described in Section
14.12.
[ ] (3) Use the weighted average method described in
Section 14.12, based on a ____________________ weighting
period.
[ ] (4) Treat as part of the relevant Account at the beginning of
the valuation period ______% of the Participant nondeductible
contributions: (Choose (i) or (ii))
[ ] (i) made during that valuation period.
[ ] (ii) made by the following specified time: ___________
______________.
[ ] (5) Apply the allocation method described in the addendum to
this Adoption Agreement numbered 9.11(c).
ARTICLE X
TRUSTEE AND CUSTODIAN, POWERS AND DUTIES
10.03 INVESTMENT POWERS. Pursuant to Section 10.03[F] of the Plan,
-----------------
the aggregate investments in qualifying Employer securities and in
qualifying Employer real property: (Choose (a) or (b))
[x] (a) May not exceed 10% of Plan assets.
[N/A] (b) May not exceed ______% of Plan assets. [Note: The percentage
may not exceed 100%.]
10.14 VALUATION OF TRUST. In addition to each Accounting Date, the
------------------
Trustee must value the Trust Fund on the following valuation date(s):
(Choose (a) or (b))
[N/A] (a) No other mandatory valuation dates.
[x] (b) (Specify) daily.
-----
29
<PAGE>
EFFECTIVE DATE ADDENDUM
(Restated Plans Only)
The Employer must complete this addendum only if the restated
Effective Date specified in Adoption Agreement Section 1.18 is different
than the restated effective date for at least one of the provisions listed
in this addendum. In lieu of the restated Effective Date in Adoption
Agreement Section 1.18, the following special effective dates apply:
(Choose whichever elections apply)
[N/A] (a) Compensation definition. The Compensation definition of Section
1.12 (other than the $200,000 limitation) is effective for Plan
Years beginning after ____________________. [Note: May not be
effective later than the first day of the first Plan Year beginning
after the Employer executes this Adoption Agreement to restate the
Plan for the Tax Reform Act of 1986, if applicable.]
[N/A] (b) Eligibility conditions. The eligibility conditions specified in
Adoption Agreement Section 2.01 are effective for Plan Years
beginning after ____________________.
[N/A] (c) Suspension of Years of Service. The suspension of Years of
Service rule elected under Adoption Agreement Section 2.03 is
effective for Plan Years beginning after ____________________.
[N/A] (d) Contribution/allocation formula. The contribution formula
elected under Adoption Agreement Section 3.01 and the method of
allocation elected under Adoption Agreement Section 3.04 is
effective for Plan Years beginning after ____________________.
[N/A] (e) Accrual requirements. The accrual requirements of Section 3.06
are effective for Plan Years beginning after ____________________.
[N/A] (f) Employment condition. The employment condition of Section 3.06
is effective for Plan Years beginning after ____________________.
[N/A] (g) Elimination of Net Profits. The requirement for the Employer not
to have net profits to contribute to this Plan is effective for Plan
Years beginning after ____________________. [Note: The date
specified may not be earlier than December 31, 1985.]
[N/A] (h) Vesting Schedule. The vesting schedule elected under Adoption
Agreement Section 5.03 is effective for Plan Years beginning after
____________________.
[N/A] (i) Allocation of Earnings. The special allocation provisions
elected under Adoption Agreement Section 9.11 are effective for Plan
Years beginning after ____________________.
[N/A] (j) (Specify) ______________________________________________________
___________________________________.
For Plan Years prior to the special Effective Date, the terms of the
Plan prior to its restatement under this Adoption Agreement will control
for purposes of the designated provisions. A special Effective Date may
not result in the delay of a Plan provision beyond the permissible
Effective Date under any applicable law requirements.
30
<PAGE>
Execution Page
The Trustee (and Custodian, if applicable), by executing this
Adoption Agreement, accepts its position and agrees to all of the
obligations, responsibilities and duties imposed upon the Trustee (or
Custodian) under the Master Plan and Trust. The Employer hereby agrees to
the provisions of this Plan and Trust, and in witness of its agreement,
the Employer by its duly authorized officers, has executed this Adoption
Agreement, and the Trustee (and Custodian, if applicable) signified its
acceptance, on this 29th day of September 1998.
------------ -------------------
Name and EIN of Employer: Channell Commercial Corporation 95-2453261
------------------------------------------
Signed: /s/ ^^
___________________________________________________________________________
Name(s) of Trustee: CNA TRUST, 3080 South Bristol Street, Costa Mesa, CA
------------------------------------------------------
92626-3093
------------
Signed: /s/ ^^
__________________________________________________________________
Name of Custodian:
________________________________________________________
Signed:
___________________________________________________________________
[Note: A Trustee is mandatory, but a Custodian is optional. See Section
10.03 of the Plan.]
Plan Number. The 3-digit plan number the Employer assigns to this Plan for
ERISA reporting purposes (Form 5500 Series) is: 001.
---
Use of Adoption Agreement. Failure to complete properly the elections in
this Adoption Agreement may result in disqualification of the Employer's
Plan. The 3-digit number assigned to this Adoption Agreement (see page 1)
is solely for the Master Plan Sponsor's recordkeeping purposes and does not
necessarily correspond to the plan number the Employer designated in the
prior paragraph.
Master Plan Sponsor. The Master Plan Sponsor identified on the first page
of the basic plan document will notify all adopting employers of any
amendment of this Master Plan or of any abandonment or discontinuance by
the Master Plan Sponsor of its maintenance of this Master Plan. For
inquiries regarding the adoption of the Master Plan, the Master Plan
Sponsor's intended meaning of any plan provisions or the effect of the
opinion letter issued to the Master Plan Sponsor, please contact the
Master Plan Sponsor at the following address and telephone number:
3080 South Bristol Street Costa Mesa, CA 92626 (714) 437-1012.
--------------------------------------------------------------
Reliance on Opinion Letter. The Employer may not rely on the Master Plan
Sponsor's opinion letter covering this Adoption Agreement. For reliance on
the Plan's qualification, the Employer must obtain a determination letter
from the applicable IRS Key District office.
31
<PAGE>
ADDITIONAL ELECTIONS
(a) Participant Loans. The Employer may elect to permit a Participant to borrow
-----------------
from his Account in the Plan, subject to limitations provided in the Plan or
otherwise under applicable law. The Employer elects that a Participant (must
elect one):
(1) [x] may, subject to the limitations set forth above,
(2) [ ] may not
borrow from his Account under the Plan.
(b) Investment of Accounts. The Employer elects that the Advisory Committee
----------------------
(must elect one):
(1) [x] may
(2) [ ] may not
allow a Participant to be a Directing Participant under the Plan.
(c) Trustee's Fee. The Employer elects that Trustee fees shall be:
-------------
(1) [ ] charged directly to the Trust Fund.
(2) [ ] charged to the Trust Fund and billed to the Employer
who may elect to reimburse the Trust Fund.
(3) [x] billed directly to the Employer, with the Trustee
reserving the right to charge the fees and expenses
directly to the Trust Fund if not paid promptly by
the Employer.
ACKNOWLEDGMENTS
1. Change of Elections. Employer understands that it may from time to time
-------------------
change elections made under this Adoption Agreement by taking appropriate
written action to amend this Adoption Agreement, but only to the extent that
such amendment does not reduce or eliminate an Employee's right to a
protected benefit or reduce an Employee's vested interest in his Account.
2. Deductibility of Employer Contributions. Employer understands that neither
---------------------------------------
the Trustee nor any of its affiliates make any warranty that the Employer
will qualify for all or any portion of the deduction allowed under Code
(S)404 or applicable provisions of state tax law.
3. Employer Responsibilities. Employer understands that neither the Trustee nor
-------------------------
any affiliate of the Trustee can render or has rendered advice as to legal,
accounting, tax, or financial matters pertaining to the adoption or
maintenance of the Plan or Trust, and that such advice must be obtained from
qualified independent professionals. Employer acknowledges that it has been
advised, and hereby is advised, to seek competent legal, accounting, tax and
financial advice from independent professionals of its own selection. The
Employer agrees to indemnify and hold harmless the Trustee and its affiliates
and representatives from any and all claims arising from the Employer's
failure to seek such advice.
4. Amendment, Discontinuance or Abandonment of Master Plan. Employment
-------------------------------------------------------
understands that California Central Trust Bank Corporation, as the sponsoring
organization of the Master Plan, has the right to amend the Master Plan at
any time (within the provision of applicable law) and shall inform the
Employer of any amendments made to the Master Plan or of the discontinuance
or abandonment of the Master Plan.
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Internal Revenue Service Department of the Treasury
lan Description: Prototype Non-standardized Profit Sharing Plan with CODA
FFN: S0334932201-084 Case: 9101748 EIN: 95-3162623
PD: 01 Plan: 004 Letter Serial No: D358313a Washington, DC 20224
Person to Contact: Mr. Welty
CALIFORNIA CENTRAL TRUST BANK CORP
Telephone Number: (202) 566-4111
15253 BAKE PARKWAY
Refer Reply to: E:EP:Q:2
IRVINE CA 92718
Date: 05/24/91
</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 form 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 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,
/s/ Illegible Signature
Chief, Employee Plans Qualifications Branch
<PAGE>
MODEL AMENDMENT FOR UCA
To The
Defined Contribution Master Prototype Plan and Trust Agreement
Basic Plan Document #01
as sponsored by
California Central Trust Bank
"Article 6.02(C)
Section (C)(1). This Article applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the plan to the contrary that
would otherwise limit a distributee's election under this Article, a distributee
may elect at the time and in the manner prescribed by the plan administrator, to
have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
Section (C)(2). Definitions.
Section (C)(2)(a). Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and the portion of
any distribution that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to employer
securities).
Section (C)(2)(b). Eligible retirement plan: An eligible retirement plan
is an individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code or a qualified trust
described in section 401(a) of the Code that accepts the distributee's eligible
rollover distribution. However, in the case of an eligible rollover distribution
to the surviving spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
Section (C)(2)(c). Distributee: A distributee includes an employee or
former employee. In addition, the employee's former employee's surviving spouse
and the employee's or former employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in
section 414(p) of the Code, are distributees with regard to the interest of the
spouse or former spouse.
Section (C)(2)(d). Direct rollover. A direct rollover is a payment by
the plan to the eligible retirement plan specified by the distributee."
7-1-93 /s/ ILLEGIBLE SIGNATURE
- ------------ ------------------------------
Date Plan sponsor
<PAGE>
APPENDIX 01
MODEL AMENDMENT FOR OBRA '93
To The
Defined Contribution Master Prototype Plan and Trust Agreement
Basic Plan Document #01
as sponsored by
California Central Trust Bank
This Appendix is necessary to comply with the Omnibus Budget
Reconciliation Act of 1993 (OBRA '93) and is an integral part of the basic plan
document. Section 12.08 applies to any modification or amendment of this
Appendix.
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 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
first plan year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
3-16-94 /s/ Illegible Signature
- ------------ ---------------------------------
Date Plan Sponsor
<PAGE>
Addendum #3.06(E)
-------
To The
Defined Contribution Master Plan and Trust Agreement
Basic Plan Document #01
as sponsored by
California Central Trust Bank
Article 3.06(E) of the Plan and Trust Agreement shall be amended and restated to
provide the follows:
Article 3.06(E) Suspension of Accrual Requirements Under Nonstandardized Plan.
--------------------------------------------------------------
If the Employer's plan is a Nonstandardized Plan, the Employer may
elect in its Adoption Agreement to suspend the accrual requirements elected
under Adoption Agreement Section 3.06 if, for any plan year beginning after
December 31, 1989, the plan fails to satisfy the Participation Test or the
Coverage Test. A plan satisfies the Participation Test if, on each day of the
plan year, the number of Employees who benefit under the plan is at least equal
to the lesser of 50 or 40% of the total number of Includible Employees as of
such day. A plan satisfies the Coverage Test if, on the last day of each quarter
of the plan year, the benefiting ratio of the Nonhighly Compensated Employees is
at least 70% of the benefiting ratio of the Highly Compensated Includible
Employees. The benefiting ratio of the Nonhighly Compensated Includible
Employees is the number of the Nonhighly Compensated Includible Employees
benefiting under the plan over the number of Includible Employees who are
Nonhighly Compensated Employees. The benefiting ratio of the Highly Compensated
Employees is the number of Highly Compensated Employees benefiting under the
plan over the number of Includible Employees who are Highly Compensated
Employees, treating family members aggregated under Section 1.09 of the Plan as
one Highly Compensated Employee. "Includible" Employees are all Employees other
than;(1) those Employees excluded from participating in the Plan for the entire
Plan Year by reason of the collective bargaining unit exclusion or the
nonresident alien exclusion under the Adoption Agreement Section 1.07 or by
reason of the participation requirements of Section 2.01 and 2.03; and (2) any
Employee who incurs separation from service during the plan year and fails to
complete at least 501 hours of service for the plan year. A "Nonhighly
Compensated Employee" is an employee who is not a highly compensated employee
and who is not a family member aggregated with a highly compensated employee
pursuant to Section 1.09 of the Plan.
For purposes of the Participation Test and the Coverage Test, an
employee is benefiting under the plan on a particular date if, under the
Adoption Agreement Section 3.04, he is entitled to an allocation for the plan
year. Under the Participation Test when determining whether an employee is
entitled to an allocation under Adoption Agreement Section 3.04, the Advisory
Committee will disregard any allocation required solely by
1
<PAGE>
reason of the top heavy minimum allocation, unless the top heavy minimum
allocation is the only allocation made under the plan for the plan year.
If this Section 3.06(E) applies for a plan year, the Advisory Committee
will suspend the accrual requirements for the includible employee(s) employed
with the employer on the last day of the plan year, then the includible
employee(s) who have the latest separation from service during the plan year,
and continuing to suspend in descending order the accrual requirements for each
includible employee who incurred an earlier separation from service from the
latest to the earliest separation from service date until the plan satisfies
both the Participation Test and the Coverage Test for the plan year. If two or
more includible employees have a separation from service on the same day, the
Advisory Committee will suspend the accrual requirements for all such includible
employees, irrespective of whether the plan can satisfy the Participation Test
and the Coverage Test by accruing benefits for fewer than all such includible
employees. If the plan suspends the accrual requirements for an includible
employee, that employee will share in the allocation of employer contributions
and participant forfeitures, if any, without regard to the number of hours of
service he has earned for the plan year and without regard to whether he is
employed by the employer on the last day of the plan year. If the Employer's
plan includes employer matching contributions subject to Code Section 401(m),
this suspension of accrual requirements applies separately to the Code Section
401(m) portion of the plan, and the Advisory Committee will treat an eligible
employee for purposes of the Code Section 401(m) nondiscrimination test.
2
<PAGE>
California Central Trust Bank Sponsored
DEFINED CONTRIBUTION
MASTER PLAN
AND
TRUST AGREEMENT
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ALPHABETICAL LISTING OF DEFINITIONS.........................................v
ARTICLE I, DEFINITIONS
1.01 Employer.......................................... 1.01
1.02 Trustee........................................... 1.01
1.03 Plan.............................................. 1.01
1.04 Adoption Agreement................................ 1.01
1.05 Plan Administrator................................ 1.02
1.06 Advisory Committee................................ 1.02
1.07 Employee.......................................... 1.02
1.08 Self-Employed Individual/Owner-Employee........... 1.02
1.09 Highly Compensated Employee....................... 1.02
1.10 Participant....................................... 1.03
1.11 Beneficiary....................................... 1.03
1.12 Compensation...................................... 1.03
1.13 Earned Income..................................... 1.05
1.14 Account........................................... 1.05
1.15 Accrued Benefit................................... 1.05
1.16 Nonforfeitable.................................... 1.05
1.17 Plan Year/Limitation Year......................... 1.05
1.18 Effective Date.................................... 1.05
1.19 Plan Entry Date................................... 1.05
1.20 Accounting Date................................... 1.05
1.21 Trust............................................. 1.05
1.22 Trust Fund........................................ 1.05
1.23 Nontransferable Annuity........................... 1.05
1.24 ERISA............................................. 1.06
1.25 Code.............................................. 1.06
1.26 Service........................................... 1.06
1.27 Hour of Service................................... 1.06
1.28 Disability........................................ 1.07
1.29 Service for Predecessor Employer.................. 1.07
1.30 Related Employers................................. 1.07
1.31 Leased Employees.................................. 1.08
1.32 Special Rules for Owner-Employers................. 1.08
1.33 Determination of Top Heavy Status................. 1.09
1.34 Paired Plans...................................... 1.10
ARTICLE II, EMPLOYEE PARTICIPANTS
2.01 Eligibility....................................... 2.01
2.02 Year of Service - Participation................... 2.01
2.03 Break in Service - Participation.................. 2.01
2.04 Participation upon Re-employment.................. 2.02
2.05 Change in Employee Status......................... 2.02
2.06 Election Not to Participate....................... 2.02
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE III, EMPLOYER CONTRIBUTIONS AND FORFEITURES
3.01 Amount............................................ 3.01
3.02 Determination of Contribution..................... 3.01
3.03 Time of Payment of Contribution................... 3.01
3.04 Contribution Allocation........................... 3.01
3.05 Forfeiture Allocation............................. 3.03
3.06 Accrual of Benefit................................ 3.03
3.07 - 3.16 Limitations on Allocations........................ 3.05
3.17 Special Allocation Limitation..................... 3.07
3.18 Defined Benefit Plan Limitation................... 3.07
3.19 Definitions - Article III......................... 3.07
ARTICLE IV, PARTICIPANT CONTRIBUTIONS
4.01 Participant Nondeductible Contributions........... 4.01
4.02 Participant Deductible Contributions.............. 4.01
4.03 Participant Rollover Contributions................ 4.01
4.04 Participant Contribution - Forfeitability......... 4.02
4.05 Participant Contribution - Withdrawal/Distribution 4.02
4.06 Participant Contribution - Accrued Benefit........ 4.02
ARTICLE V, TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 Normal Retirement Age............................. 5.01
5.02 Participant Disability or Death................... 5.01
5.03 Vesting Schedule.................................. 5.01
5.04 Cash-Out Distributions to Partially-Vested
Participants/Restoration of Forfeited Accrued
Benefit........................................... 5.01
5.05 Segregated Account for Repaid Amount.............. 5.03
5.06 Year of Service - Vesting......................... 5.03
5.07 Break in Service - Vesting........................ 5.03
5.08 Included Years of Service - Vesting............... 5.03
5.09 Forfeiture Occurs................................. 5.03
ARTICLE VI, TIME AND METHOD OF PAYMENT OF BENEFITS
6.01 Time of Payment of Accrued Benefit................ 6.01
6.02 Method of Payment of Accrued Benefit.............. 6.03
6.03 Benefit Payment Elections......................... 6.05
6.04 Annuity Distributions to Participants and
Surviving Spouses................................. 6.06
6.05 Waiver Election - Qualified Joint and Survivor
Annuity........................................... 6.07
6.06 Waiver Election - Preretirement Survivor Annuity.. 6.08
6.07 Distributions Under Domestic Relations Orders..... 6.09
ARTICLE VII, EMPLOYER ADMINISTRATIVE PROVISIONS
7.01 Information to Committee.......................... 7.01
7.02 No Liability...................................... 7.01
7.03 Indemnity of Plan Administrator and Committee..... 7.01
7.04 Employer Direction of Investment.................. 7.01
7.05 Amendment to Vesting Schedule..................... 7.01
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VIII, PARTICIPANT ADMINISTRATIVE PROVISIONS
8.01 Beneficiary Designation........................... 8.01
8.02 No Beneficiary Designation/Death of Beneficiary... 8.01
8.03 Personal Data to Committee........................ 8.02
8.04 Address for Notification.......................... 8.02
8.05 Assignment or Alienation.......................... 8.02
8.06 Notice of Change in Terms......................... 8.02
8.07 Litigation Against the Trust...................... 8.02
8.08 Information Available............................. 8.02
8.09 Appeal Procedure for Denial of Benefits........... 8.02
8.10 Participant Direction of Investment............... 8.03
ARTICLE IX, ADVISORY COMMITTEE - DUTIES WITH RESPECT TO
PARTICIPANTS' ACCOUNTS
9.01 Members' Compensation, Expenses................... 9.01
9.02 Term.............................................. 9.01
9.03 Powers............................................ 9.01
9.04 General........................................... 9.01
9.05 Funding Policy.................................... 9.02
9.06 Manner of Action.................................. 9.02
9.07 Authorized Representative......................... 9.02
9.08 Interested Member................................. 9.02
9.09 Individual Accounts............................... 9.02
9.10 Value of Participant's Accrued Benefit............ 9.02
9.11 Allocation and Distribution of Net Income Gain or
Loss.............................................. 9.03
9.12 Individual Statement.............................. 9.03
9.13 Account Charged................................... 9.03
9.14 Unclaimed Account Procedure....................... 9.04
ARTICLE X, CUSTODIAN/TRUSTEE, POWERS AND DUTIES
10.01 Acceptance........................................ 10.01
10.02 Receipt of Contributions.......................... 10.01
10.03 Investment Powers................................. 10.01
10.04 Records and Statements............................ 10.05
10.05 Fees and Expenses from Fund....................... 10.06
10.06 Parties to Litigation............................. 10.06
10.07 Professional Agents............................... 10.06
10.08 Distribution of Cash or Property.................. 10.06
10.09 Distribution Directions........................... 10.06
10.10 Third Party/Multiple Trustees..................... 10.06
10.11 Resignation....................................... 10.06
10.12 Removal........................................... 10.07
10.13 Interim Duties and Successor Trustee.............. 10.07
10.14 Valuation of Trust................................ 10.07
10.15 Limitation on Liability - If Investment Manager,
Ancillary Trustee or Independent Fiduciary........ 10.07
10.16 Investment in Group Trust Fund.................... 10.07
10.17 Appointment of Ancillary Trustee or Independent
Fiduciary......................................... 10.08
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE XI, PROVISIONS RELATING TO INSURANCE AND INSURANCE COMPANY
11.01 Insurance Benefit................................. 11.01
11.02 Limitation on Life Insurance Protection........... 11.01
11.03 Definitions....................................... 11.02
11.04 Dividend Plan..................................... 11.02
11.05 Insurance Company Not a Party to Agreement........ 11.02
11.06 Insurance Company Not Responsible for Trustee's
Actions........................................... 11.03
11.07 Insurance Company Reliance on Trustee's Signature. 11.03
11.08 Acquittance....................................... 11.03
11.09 Duties of Insurance Company....................... 11.03
ARTICLE XII, MISCELLANEOUS
12.01 Evidence.......................................... 12.01
12.02 No Responsibility for Employer Action............. 12.01
12.03 Fiduciaries Not Insurers.......................... 12.01
12.04 Waiver of Notice.................................. 12.01
12.05 Successors........................................ 12.01
12.06 Word Usage........................................ 12.01
12.07 State Law......................................... 12.01
12.08 Employer's Right to Participate................... 12.01
12.09 Employment Not Guaranteed......................... 12.02
ARTICLE XIII, EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
13.01 Exclusive Benefit................................. 13.01
13.02 Amendment By Employer............................. 13.01
13.03 Amendment By Master Plan Sponsor.................. 13.02
13.04 Discontinuance.................................... 13.02
13.05 Full Vesting on Termination....................... 13.02
13.06 Merger/Direct Transfer............................ 13.02
13.07 Termination....................................... 13.03
ARTICLE XIV, CODE (S)401(k) ARRANGEMENTS
14.01 Application....................................... 14.01
14.02 Code (S) 401(k) Arrangement....................... 14.01
14.03 Definitions....................................... 14.02
14.04 Matching Contributions/Employee Contributions..... 14.03
14.05 Time of Payment of Contributions.................. 14.04
14.06 Special Allocation Provisions - Deferral Contributions,
Matching Contributions and Qualified Nonelective
Contributions..................................... 14.04
14.07 Annual Elective Deferral Limitation............... 14.05
14.08 Actual Deferral Percentage ("ADP") Test........... 14.06
14.09 Nondiscrimination Rules for Employer Matching
Contributions and Participant Nondeductible
Contributions..................................... 14.08
14.10 Multiple Use Limitation........................... 14.10
14.11 Distribution Restrictions......................... 14.11
14.12 Special Allocation Rules.......................... 14.12
ARTICLE A - APPENDIX TO BASIC PLAN DOCUMENT.......................... A-1
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE B - APPENDIX TO BASIC PLAN DOCUMENT.......................... B-1
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
ALPHABETICAL LISTING OF DEFINITIONS
Plan Definition Section Reference
(Page Number)
<S> <C>
100% Limitation ................................................. 3.19(l) (3.09)
Account ............................................................ 1.14 (1.05)
Accounting Date .................................................... 1.20 (1.05)
Accrued Benefit .................................................... 1.15 (1.05)
Actual Deferral Percentage ("ADP") Test .......................... 14.08 (14.06)
Adoption Agreement ................................................. 1.04 (1.01)
Advisory Committee ................................................. 1.06 (1.02)
Annual Addition ................................................. 3.19(a) (3.07)
Average Contribution Percentage Test ............................. 14.09 (14.08)
Beneficiary ........................................................ 1.11 (1.03)
Break in Service for Eligibility Purposes .......................... 2.03 (2.01)
Break in Service for Vesting Purposes .............................. 5.07 (5.03)
Cash-out Distribution .............................................. 5.04 (5.01)
Code ............................................................... 1.25 (1.06)
Code (S)411(d)(6) Protected Benefits ............................. 13.02 (13.01)
Compensation ....................................................... 1.12 (1.03)
Compensation for Code (S)401(k) Purposes ...................... 14.03(f) (14.02)
Compensation for Code (S)415 Purposes ........................... 3.19(b) (3.07)
Compensation for Top Heavy Purposes .......................... 1.33(B)(3) (1.10)
Contract(s) ................................................... 11.03(c) (11.02)
Custodian Designation ......................................... 10.03[B] (10.02)
Deemed Cash-out Rule ............................................ 5.04(C) (5.02)
Deferral Contributions ........................................ 14.03(g) (14.02)
Deferral Contributions Account ................................... 14.06 (14.04)
Defined Benefit Plan ............................................ 3.19(i) (3.08)
Defined Benefit Plan Fraction ................................... 3.19(j) (3.08)
Defined Contribution Plan ....................................... 3.19(h) (3.08)
Defined Contribution Plan Fraction .............................. 3.19(k) (3.09)
Determination Date ........................................... 1.33(B)(7) (1.10)
Disability ......................................................... 1.28 (1.07)
Distribution Date .................................................. 6.01 (6.01)
Distribution Restrictions ..................................... 14.03(m) (14.03)
Earned Income ...................................................... 1.13 (1.05)
Effective Date ..................................................... 1.18 (1.05)
Elective Deferrals ............................................ 14.03(h) (14.02)
Elective Transfer ............................................. 13.06(A) (13.02)
Eligible Employee ............................................. 14.03(c) (14.02)
Employee ........................................................... 1.07 (1.02)
Employee Contributions ........................................ 14.03(n) (14.03)
Employer ........................................................... 1.01 (1.01)
Employer Contribution Account .................................... 14.06 (14.04)
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Employer for Code (S)415 Purposes ............................... 3.19(c) (3.08)
Employer for Top Heavy Purposes .............................. 1.33(B)(6) (1.10)
Employment Commencement Date ....................................... 2.02 (2.01)
ERISA .............................................................. 1.24 (1.06)
Excess Aggregate Contributions ................................... 14.09 (14.09)
Excess Amount ................................................... 3.19(d) (3.08)
Excess Contributions ............................................. 14.08 (14.07)
Exempt Participant ................................................. 8.01 (8.01)
Forfeiture Break in Service ........................................ 5.08 (5.03)
Group Trust Fund ................................................. 10.16 (10.07)
Hardship ..................................................... 6.01(A)(4) (6.02)
Hardship for Code (S)401(k) Purposes ............................. 14.11 (14.11)
Highly Compensated Employee ........................................ 1.09 (1.02)
Highly Compensated Group ...................................... 14.03(d) (14.02)
Hour of Service .................................................... 1.27 (1.06)
Incidental Insurance Benefits .................................... 11.01 (11.01)
Insurable Participant ......................................... 11.03(d) (11.02)
Investment Manager .............................................. 9.04(i) (9.01)
Issuing Insurance Company ..................................... 11.03(b) (11.02)
Joint and Survivor Annuity ...................................... 6.04(A) (6.06)
Key Employee ................................................. 1.33(B)(1) (1.10)
Leased Employees ................................................... 1.31 (1.08)
Limitation Year ............................. 1.17 and 3.19(e) (1.05).and (3.08)
Loan Policy ..................................................... 9.04(A) (9.02)
Mandatory Contributions .......................................... 14.04 (14.04)
Mandatory Contributions Account .................................. 14.04 (14.04)
Master or Prototype Plan ........................................ 3.19(f) (3.08)
Matching Contributions ........................................ 14.03(i) (14.03)
Maximum Permissible Amount ...................................... 3.19(g) (3.08)
Minimum Distribution Incidental Benefit (MDIB) .................. 6.02(A) (6.03)
Multiple Use Limitation .......................................... 14.10 (14.10)
Named Fiduciary ............................................... 10.03[D] (10.04)
Nonelective Contributions ..................................... 14.03(j) (14.03)
Nonforfeitable ..................................................... 1.16 (1.05)
Nonhighly Compensated Employee ................................ 14.03(b) (14.02)
Nonhighly Compensated Group ................................... 14.03(e) (14.02)
Non-Key Employee ............................................. 1.33(B)(2) (1.10)
Nontransferable Annuity ............................................ 1.23 (1.05)
Normal Retirement Age .............................................. 5.01 (5.01)
Owner-Employee ..................................................... 1.08 (1.02)
Paired Plans ....................................................... 1.34 (1.10)
Participant ........................................................ 1.10 (1.03)
Participant Deductible Contributions ............................... 4.02 (4.01)
Participant Forfeiture ............................................. 3.05 (3.03)
Participant Loans ............................................. 10.03[E] (10.05)
Participant Nondeductible Contributions ............................ 4.01 (4.01)
Permissive Aggregation Group ................................. 1.33(B)(5) (1.10)
Plan ............................................................... 1.03 (1.01)
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Plan Administrator ................................................. 1.05 (1.02)
Plan Entry Date .................................................... 1.19 (1.05)
Plan Year .......................................................... 1.17 (1.05)
Policy ........................................................ 11.03(a) (11.02)
Predecessor Employer ............................................... 1.29 (1.07)
Preretirement Survivor Annuity .................................. 6.04(B) (6.06)
Qualified Domestic Relations Order ................................. 6.07 (6.09)
Qualified Matching Contributions .............................. 14.03(k) (14.03)
Qualified Nonelective Contributions ........................... 14.03(l) (14.03)
Qualifying Employer Real Property ............................. 10.03[F] (10.05)
Qualifying Employer Securities ................................ 10.03[F] (10.05)
Related Employers .................................................. 1.30 (1.07)
Required Aggregation Group ................................... 1.33(B)(4) (1.10)
Required Beginning Date ......................................... 6.01(B) (6.02)
Rollover Contributions ............................................. 4.03 (4.01)
Self-Employed Individual ........................................... 1.08 (1.02)
Service ............................................................ 1.26 (1.06)
Term Life Insurance Contract ..................................... 11.03 (11.02)
Top Heavy Minimum Allocation .................................... 3.04(B) (3.01)
Top Heavy Ratio .................................................... 1.33 (1.09)
Trust .............................................................. 1.21 (1.05)
Trustee ............................................................ 1.02 (1.01)
Trustee Designation ........................................... 10.03[A] (10.01)
Trust Fund ......................................................... 1.22 (1.05)
Weighted Average Allocation Method ............................... 14.12 (14.12)
Year of Service for Eligibility Purposes ........................... 2.02 (2.01)
Year of Service for Vesting Purposes ............................... 5.06 (5.03)
</TABLE>
viii
<PAGE>
California Central Trust Bank sponsored
---------------------------------------
DEFINED CONTRIBUTION MASTER PLAN AND TRUST AGREEMENT
BASIC PLAN DOCUMENT # 01
--
California Central Trust Bank sponsored, in its capacity as Master Plan
---------------------------------------
Sponsor, establishes this Master Plan intended to conform to and qualify under
(S)401 and (S)501 of the Internal Revenue Code of 1986, as amended. An Employer
establishes a Plan and Trust under this Master Plan by executing an Adoption
Agreement. If the Employer adopts this Plan as a restated Plan in substitution
for, and in amendment of, an existing plan, the provisions of this Plan, as a
restated Plan, apply solely to an Employee whose employment with the Employer
terminates on or after the restated Effective Date of the Employer's Plan. If an
Employee's employment with the Employer terminates prior to the restated
Effective Date, that Employee is entitled to benefits under the Plan as the Plan
existed on the date of the Employee's termination of employment.
ARTICLE I
DEFINITIONS
1.01 "Employer" means each employer who adopts this Plan by executing an
Adoption Agreement.
1.02 "Trustee" means the person or persons who as Trustee execute the
Employer's Adoption Agreement, or any successor in office who in writing accepts
the position of Trustee. The Employer must designate in its Adoption Agreement
whether the Trustee will administer the Trust as a discretionary Trustee or as a
nondiscretionary Trustee. If a person acts as a discretionary Trustee, the
Employer also may appoint a Custodian. See Article X. If the Master Plan Sponsor
is a bank, savings and loan, credit union or similar financial institution, a
person other than the Master Plan Sponsor (or its affiliate) may not serve as
Trustee or as Custodian of the Employer's Plan without the written consent of
the Master Plan Sponsor.
1.03 "Plan" means the retirement plan established or continued by the
Employer in the form of this Agreement, including the Adoption Agreement under
which the Employer has elected to participate in this Master Plan. The Employer
must designate the name of the Plan in its Adoption Agreement. An Employer may
execute more than one Adoption Agreement offered under this Master Plan, each of
which will constitute a separate Plan and Trust established or continued by that
Employer. The Plan and the Trust created by each adopting Employer is a separate
Plan and a separate Trust, independent from the plan and the trust of any other
employer adopting this Master Plan. All section references within the Plan are
Plan section references unless the context clearly indicates otherwise.
1.04 "Adoption Agreement" means the document executed by each Employer
adopting this Master Plan. The terms of this Master Plan as modified by the
terms of an adopting Employer's Adoption Agreement constitute a separate Plan
and Trust to be construed as a single Agreement. Each elective provision of the
Adoption Agreement corresponds by section reference to the section of the Plan
which grants the election. Each Adoption Agreement offered under this Master
Plan is either a Nonstandardized Plan or a Standardized Plan, as identified in
the preamble to that Adoption Agreement. The provisions of this Master Plan
apply equally to Nonstandardized Plans and to Standardized Plans unless
otherwise specified.
1.01
<PAGE>
1.05 "Plan Administrator" is the Employer unless the Employer designates
another person to hold the position of Plan Administrator. In addition to his
other duties, the Plan Administrator has full responsibility for compliance with
the reporting and disclosure rules under ERISA as respects this Agreement.
1.06 "Advisory Committee" means the Employer's Advisory Committee as from
time to time constituted.
1.07 "Employee" means any employee (including a Self-Employed Individual)
of the Employer. The Employer must specify in its Adoption Agreement any
Employee, or class of Employees, not eligible to participate in the Plan. If the
Employer elects to exclude collective bargaining employees, the exclusion
applies to any employee of the Employer included in a unit of employees covered
by an agreement which the Secretary of Labor finds to be a collective bargaining
agreement between employee representatives and one or more employers unless the
collective bargaining agreement requires the employee to be included within the
Plan. The term "employee representatives" does not include any organization more
than half the members of which are owners, officers, or executives of the
Employer.
1.08 "Self-Employed Individual/Owner-Employee." "Self-Employed Individual"
means an individual who has Earned Income (or who would have had Earned Income
but for the fact that the trade or business did not have net earnings) for the
taxable year from the trade or business for which the Plan is established.
"Owner-Employee" means a Self-Employed Individual who is the sole proprietor in
the case of a sole proprietorship. If the Employer is a partnership, "Owner-
Employee" means a Self-Employed Individual who is a partner and owns more than
10% of either the capital or profits interest of the partnership.
1.09 "Highly Compensated Employee" means an Employee who, during the Plan
Year or during the preceding 12-month period:
(a) is a more than 5% owner of the Employer (applying the constructive
ownership rules of Code (S)318, and applying the principles of Code (S)318,
for an unincorporated entity);
(b) has Compensation in excess of $75,000 (as adjusted by the Commissioner of
Internal Revenue for the relevant year);
(c) has Compensation in excess of $50,000 (as adjusted by the Commissioner of
Internal Revenue for the relevant year) and is part of the top-paid 20% group
of employees (based on Compensation for the relevant year); or
(d) has Compensation in excess of 50% of the dollar amount prescribed in Code
(S)415(b)(1)(A) (relating to defined benefit plans) and is an officer of the
Employer.
If the Employee satisfies the definition in clause (b), (c) or (d) in the Plan
Year but does not satisfy clause (b), (c) or (d) during the preceding 12-month
period and does not satisfy clause (a) in either period, the Employee is a
Highly Compensated Employee only if he is one of the 100 most highly compensated
Employees for the Plan Year. The number of officers taken into account under
clause (d) will not exceed the greater of 3 or 10% of the total number (after
application of the Code (S)414(q) exclusions) of Employees, but no more than 50
officers. If no Employee satisfies the Compensation requirement in clause (d)
for the relevant year, the Advisory Committee will treat the highest paid
officer as satisfying clause (d) for that year.
For purposes of this Section 1.09, "Compensation" means Compensation as
defined in Section 1.12, except any exclusions from Compensation elected in the
Employer's Adoption Agreement Section 1.12 do not apply, and Compensation must
include "elective contributions" (as defined in Section 1.12). The Advisory
Committee must make the determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of the top paid 20%
group, the top 100 paid Employees, the number of officers includible in clause
(d) and the relevant Compensation, consistent with Code (S)414(q) and
regulations issued under that Code section. The Employer may make a calendar
year election to
1.02
<PAGE>
determine the Highly Compensated Employees for the Plan Year, as prescribed by
Treasury regulations. A calendar year election must apply to all plans and
arrangements of the Employer. For purposes of applying any nondiscrimination
test required under the Plan or under the Code, in a manner consistent with
applicable Treasury regulations, the Advisory Committee will treat a Highly
Compensated Employee and all family members (a spouse, a lineal ascendant or
descendant, or a spouse of a lineal ascendant or descendant) as a single Highly
Compensated Employee, but only if the Highly Compensated Employee is a more than
5% owner or is one of the 10 Highly Compensated Employees with the greatest
Compensation for the Plan Year. This aggregation rule applies to a family member
even if that family member is a Highly Compensated Employee without family
aggregation.
The term "Highly Compensated Employee" also includes any former Employee who
separated from Service (or has a deemed Separation from Service, as determined
under Treasury regulations) prior to the Plan Year, performs no Service for the
Employer during the Plan Year, and was a Highly Compensated Employee either for
the separation year or any Plan Year ending on or after his 55th birthday. If
the former Employee's Separation from Service occurred prior to January 1, 1987,
he is a Highly Compensated Employee only if he satisfied clause (a) of this
Section 1.09 or received Compensation in excess of $50,000 during: (1) the year
of his Separation from Service (or the prior year); or (2) any year ending after
his 54th birthday.
1.10 "Participant" is an Employee who is eligible to be and becomes a
Participant in accordance with the provisions of Section 2.01.
1.11 "Beneficiary" is a person designated by a Participant who is or may
become entitled to a benefit under the Plan. A Beneficiary who becomes entitled
to a benefit under the Plan remains a Beneficiary under the Plan until the
Trustee has fully distributed his benefit to him. A Beneficiary's right to (and
the Plan Administrator's, the Advisory Committee's or a Trustee's duty to
provide to the Beneficiary) information or data concerning the Plan does not
arise until he first becomes entitled to receive a benefit under the Plan.
1.12 "Compensation" means, except as provided in the Employer's Adoption
Agreement, the Participant's Earned Income, wages, salaries, fees for
professional service 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). The Employer must elect in its Adoption Agreement
whether to include elective contributions in the definition of Compensation.
"Elective contributions" are amounts excludible from the Employee's gross income
under Code (S)(S)125, 402(a)(8), 402(h) or 403(b), and contributed by the
Employer, at the Employee's election, to a Code (S)401(k) arrangement, a
Simplified Employee Pension, cafeteria plan or tax-sheltered annuity. The term
"Compensation" does not include:
(a) Employer contributions (other than "elective contributions," if includible
in the definition of Compensation under Section 1.12 of the Employer's
Adoption Agreement) to a plan of deferred compensation to the extent the
contributions are not included in the gross income of the Employee for the
taxable year in which contributed, on behalf of an Employee to a Simplified
Employee Pension Plan to the extent such contributions are excludible from the
Employee's gross income, and any distributions from a plan of deferred
compensation, regardless of whether such amounts are includible in the gross
income of the Employee when distributed.
(b) Amounts realized from the exercise of a non-qualified stock option, or
when restricted stock (or property) held by an 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 stock option described in Part II, Subchapter D, Chapter 1 of
the Code.
1.03
<PAGE>
(d) Other amounts which receive special tax benefits, such as premiums for
group term life insurance (but only to the extent that the premiums are not
includible in the gross income of the Employee), or contributions made by an
Employer (whether or not under a salary reduction agreement) towards the
purchase of an annuity contract described in Code (S)403(b) (whether or not
the contributions are excludible from the gross income of the Employee), other
than "elective contributions," if elected in the Employer's Adoption
Agreement.
Any reference in this Plan to Compensation is a reference to the definition in
this Section 1.12, unless the Plan reference specifies a modification to this
definition. The Advisory Committee will take into account only Compensation
actually paid for the relevant period. A Compensation payment includes
Compensation by the Employer through another person under the common paymaster
provisions in Code (S)(S)3121 and 3306.
(A) Limitations on Compensation.
(1) Compensation dollar limitation. For any Plan Year beginning after December
31, 1988, the Advisory Committee must take into account only the first $200,000
(or beginning January 1, 1990, such larger amount as the Commissioner of
Internal Revenue may prescribe) of any Participant's Compensation. For any Plan
Year beginning prior to January 1, 1989, this $200,000 limitation (but not the
family aggregation requirement described in the next paragraph) applies only if
the Plan is top heavy for such Plan Year or operates as a deemed top heavy plan
for such Plan Year.
(2) Application of compensation limitation to certain family members. The
$200,000 Compensation limitation applies to the combined Compensation of the
Employee and of any family member aggregated with the Employee under Section
1.09 who is either (i) the Employee's spouse; or (ii) the Employee's lineal
descendant under the age of 19. If, for a Plan Year, the combined Compensation
of the Employee and such family members who are Participants entitled to an
allocation for that Plan Year exceeds the $200,000 (or adjusted) limitation,
"Compensation" for each such Participant, for purposes of the contribution and
allocation provisions of Article III, means his Adjusted Compensation. Adjusted
Compensation is the amount which bears the same ratio to the $200,000 (or
adjusted) limitation as the affected Participant's Compensation (without regard
to the $200,000 Compensation limitation) bears to the combined Compensation of
all the affected Participants in the family unit. If the Plan uses permitted
disparity, the Advisory Committee must determine the integration level of each
affected family member Participant prior to the proration of the $200,000
Compensation limitation, but the combined integration level of the affected
Participants may not exceed $200,000 (or the adjusted limitation). The combined
Excess Compensation of the affected Participants in the family unit may not
exceed $200,000 (or the adjusted limitation) minus the affected Participants'
combined integration level (as determined under the preceding sentence). If the
combined Excess Compensation exceeds this limitation, the Advisory Committee
will prorate the Excess Compensation limitation among the affected Participants
in the family unit in proportion to each such individual's Adjusted Compensation
minus his integration level. If the Employer's Plan is a Nonstandardized Plan,
the Employer may elect to use a different method in determining the Adjusted
Compensation of the affected Participants by specifying that method in an
addendum to the Adoption Agreement, numbered Section 1.12.
(B) Nondiscrimination. For purposes of determining whether the Plan
discriminates in favor of Highly Compensated Employees, Compensation means
Compensation as defined in this Section 1.12, except: (1) the Employer may elect
to include or to exclude elective contributions, irrespective of the Employer's
election in its Adoption Agreement regarding elective contributions; and (2) the
Employer will not give effect to any elections made in the "modifications to
Compensation definition" section of Adoption Agreement Section 1.12. The
Employer's election described in clause (1) must be consistent and uniform with
respect to all Employees and all plans of the Employer for any particular Plan
Year. If the Employer's Plan is a Nonstandardized Plan, the Employer,
irrespective of clause (2), may elect to exclude from this nondiscrimination
definition of Compensation any items of Compensation excludible under Code
(S)414(s) and the applicable Treasury regulations, provided such adjusted
definition conforms to the
1.04
<PAGE>
nondiscrimination requirements of those regulations.
1.13 "Earned Income" means net earnings from self-employment in the trade
or business with respect to which the Employer has established the Plan,
provided personal services of the individual are a material income producing
factor. The Advisory Committee will determine net earnings without regard to
items excluded from gross income and the deductions allocable to those items.
The Advisory Committee will determine net earnings after the deduction allowed
to the Self-Employed Individual for all contributions made by the Employer to a
qualified plan and, for Plan Years beginning after December 31, 1989, the
deduction allowed to the Self-Employed under Code (S)164(f) for self-employment
taxes.
1.14 "Account" means the separate account(s) which the Advisory Committee
or the Trustee maintains for a Participant under the Employer's Plan.
1.15 "Accrued Benefit" means the amount standing in a Participant's
Account(s) as of any date derived from both Employer contributions and Employee
contributions, if any.
1.16 "Nonforfeitable" means a Participant's or Beneficiary's unconditional
claim, legally enforceable against the Plan, to the Participant's Accrued
Benefit.
1.17 "Plan Year" means the fiscal year of the Plan, the consecutive month
period specified in the Employer's Adoption Agreement. The Employer's Adoption
Agreement also must specify the "Limitation Year" applicable to the limitations
on allocations described in Article III. If the Employer maintains Paired Plans,
each Plan must have the same Plan Year.
1.18 "Effective Date" of this Plan is the date specified in the Employer's
Adoption Agreement.
1.19 "Plan Entry Date" means the date(s) specified in Section 2.01 of the
Employer's Adoption Agreement.
1.20 "Accounting Date" is the last day of an Employer's Plan Year. Unless
otherwise specified in the Plan, the Advisory Committee will make all Plan
allocations for a particular Plan Year as of the Accounting Date of that Plan
Year.
1.21 "Trust" means the separate Trust created under the Employer's Plan.
1.22 "Trust Fund" means all property of every kind held or acquired by the
Employer's Plan, other than incidental benefit insurance contracts.
1.23 "Nontransferable Annuity" means an annuity which by its terms provides
that it may not be sold, assigned, discounted, pledged as collateral for a loan
or security for the performance of an obligation or for any purpose to any
person other than the insurance company. If the Plan distributes an annuity
contract, the contract must be a Nontransferable Annuity.
1.24 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.25 "Code" means the Internal Revenue Code of 1986, as amended.
1.26 "Service" means any period of time the Employee is in the employ of
the Employer, including any period the Employee is on an unpaid leave of absence
authorized by the Employer under a uniform, nondiscriminatory policy applicable
to all Employees. "Separation from Service" means the Employee no longer has an
employment relationship with the Employer maintaining this Plan.
1.05
<PAGE>
1.27 "Hour of Service" means:
(a) Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment, for the performance of duties. The Advisory Committee credits Hours
of Service under this paragraph (a) to the Employee for the computation period
in which the Employee performs the duties, irrespective of when paid;
(b) Each Hour of Service for back pay, irrespective of mitigation of damages,
to which the Employer has agreed or for which the Employee has received an
award. The Advisory Committee credits Hours of Service under this paragraph
(b) to the Employee for the computation period(s) to which the award or the
agreement pertains rather than for the computation period in which the award,
agreement or payment is made; and
(c) Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to payment
(irrespective of whether the employment relationship is terminated), for
reasons other than for the performance of duties during a computation period,
such as leave of absence, vacation, holiday, sick leave, illness, incapacity
(including disability), layoff, jury duty or military duty. The Advisory
Committee will credit no more than 501 Hours of Service under this paragraph
(c) to an Employee on account of any single continuous period during which the
Employee does not perform any duties (whether or not such period occurs during
a single computation period). The Advisory Committee credits Hours of Service
under this paragraph (c) in accordance with the rules of paragraphs (b) and
(c) of Labor Reg. (S)2530.200b-2, which the Plan, by this reference,
specifically incorporates in full within this paragraph (c).
The Advisory Committee will not credit an Hour of Service under more than one
of the above paragraphs. A computation period for purposes of this Section 1.27
is the Plan Year, Year of Service period, Break in Service period or other
period, as determined under the Plan provision for which the Advisory Committee
is measuring an Employee's Hours of Service. The Advisory Committee will resolve
any ambiguity with respect to the crediting of an Hour of Service in favor of
the Employee.
(A) Method of crediting Hours of Service. The Employer must elect in its
Adoption Agreement the method the Advisory Committee will use in crediting an
Employee with Hours of Service. For purposes of the Plan, "actual" method means
the determination of Hours of Service from records of hours worked and hours for
which the Employer makes payment or for which payment is due from the Employer.
If the Employer elects to apply an "equivalency" method, for each equivalency
period for which the Advisory Committee would credit the Employee with at least
one Hour of Service, the Advisory Committee will credit the Employee with: (i)
10 Hours of Service for a daily equivalency; (ii) 45 Hours of Service for a
weekly equivalency; (iii) 95 Hours of Service for a semimonthly payroll period
equivalency; and (iv) 190 Hours of Service for a monthly equivalency.
(B) Maternity/paternity leave. Solely for purposes of determining whether the
Employee incurs a Break in Service under any provision of this Plan, the
Advisory Committee must credit Hours of Service during an Employee's unpaid
absence period due to maternity or paternity leave. The Advisory Committee
considers an Employee on maternity or paternity leave if the Employee's absence
is due to the Employee's pregnancy, the birth of the Employee's child, the
placement with the Employee of an adopted child, or the care of the Employee's
child immediately following the child's birth or placement. The Advisory
Committee credits Hours of Service under this paragraph on the basis of the
number of Hours of Service the Employee would receive if he were paid during the
absence period or, if the Advisory Committee cannot determine the number of
Hours of Service the Employee would receive, on the basis of 8 hours per day
during the absence period. The Advisory Committee will credit only the number
(not exceeding 501) of Hours of Service necessary to prevent an Employee's Break
in Service. The Advisory Committee credits all Hours of Service described in
this paragraph to the computation period in which the absence period begins or,
if the Employee does not need these Hours of Service to prevent a Break in
Service in the computation period in which his absence period begins, the
Advisory Committee credits these Hours of Service to the
1.06
<PAGE>
immediately following computation period.
1.28 "Disability" means the Participant, because of a physical or mental
disability, will be unable to perform the duties of his customary position of
employment (or is unable to engage in any substantial gainful activity) for an
indefinite period which the Advisory Committee considers will be of long
continued duration. A Participant also is disabled if he incurs the permanent
loss or loss of use of a member or function of the body, or is permanently
disfigured, and incurs a Separation from Service. The Plan considers a
Participant disabled on the date the Advisory Committee determines the
Participant satisfies the definition of disability. The Advisory Committee may
require a Participant to submit to a physical examination in order to confirm
disability. The Advisory Committee will apply the provisions of this Section
1.28 in a nondiscriminatory, consistent and uniform manner. If the Employer's
Plan is a Nonstandardized Plan, the Employer may provide an alternate definition
of disability in an addendum to its Adoption Agreement, numbered Section 1.28.
1.29 SERVICE FOR PREDECESSOR EMPLOYER. If the Employer maintains the plan
--------------------------------
of a predecessor employer, the Plan treats service of the Employee with the
predecessor employer as service with the Employer. If the Employer does not
maintain the plan of a predecessor employer, the Plan does not credit service
with the predecessor employer, unless the Employer identifies the predecessor in
its Adoption Agreement and specifies the purposes for which the Plan will credit
service with that predecessor employer.
1.30 RELATED EMPLOYERS. A related group is a controlled group of corporations
-----------------
(as defined in Code (S)414(b)), trades or businesses (whether or not
incorporated) which are under common control (as defined in Code (S)414(c)) or
an affiliated service group (as defined in Code (S)414(m) or in Code (S)414(o)).
If the Employer is a member of a related group, the term "Employer" includes the
related group members for purposes of crediting Hours of Service, determining
Years of Service and Breaks in Service under Articles II and V, applying the
Participation Test and the Coverage Test under Section 3.06(E), applying the
limitations on allocations in Part 2 of Article III, applying the top heavy
rules and the minimum allocation requirements of Article III, the definitions of
Employee, Highly Compensated Employee, Compensation and Leased Employee, and for
any other purpose required by the applicable Code section or by a Plan
provision. However, an Employer may contribute to the Plan only by being a
signatory to the Execution Page of the Adoption Agreement or to a Participation
Agreement to the Employer's Adoption Agreement. If one or more of the Employer's
related group members become Participating Employers by executing a
Participation Agreement to the Employer's Adoption Agreement, the term
"Employer" includes the participating related group members for all purposes of
the Plan, and "Plan Administrator" means the Employer that is the signatory to
the Execution Page of the Adoption Agreement.
If the Employer's Plan is a Standardized Plan, all Employees of the Employer
or of any member of the Employer's related group, are eligible to participate in
the Plan, irrespective of whether the related group member directly employing
the Employee is a Participating Employer. If the Employer's Plan is a
Nonstandardized Plan, the Employer must specify in Section 1.07 of its Adoption
Agreement, whether the Employees of related group members that are not
Participating Employers are eligible to participate in the Plan. Under a
Nonstandardized Plan, the Employer may elect to exclude from the definition of
"Compensation" for allocation purposes any Compensation received from a related
employer that has not executed a Participation Agreement and whose Employees are
not eligible to participate in the Plan.
1.31 LEASED EMPLOYEES. The Plan treats a Leased Employee as an Employee of
----------------
the Employer. A Leased Employee is an individual (who otherwise is not an
Employee of the Employer) who, pursuant to a leasing agreement between the
Employer and any other person, has performed services for the Employer (or for
the Employer and any persons related to the Employer within the meaning of Code
(S)144(a)(3)) on a substantially full time basis for at least one year and who
performs services historically performed by employees in the Employer's business
field. If a Leased Employee is treated as an Employee by reason of this Section
1.31 of the Plan, "Compensation" includes Compensation from the leasing
organization which is attributable to services performed for the Employer.
1.07
<PAGE>
(A) Safe harbor plan exception. The Plan does not treat a Leased Employee as an
Employee if the leasing organization covers the employee in a safe harbor plan
and, prior to application of this safe harbor plan exception, 20% or less of the
Employer's Employees (other than Highly Compensated Employees) are Leased
Employees. A safe harbor plan is a money purchase pension plan providing
immediate participation, full and immediate vesting, and a nonintegrated
contribution formula equal to at least 10% of the employee's compensation
without regard to employment by the leasing organization on a specified date.
The safe harbor plan must determine the 10% contribution on the basis of
compensation as defined in Code (S)415(c)(3) plus elective contributions (as
defined in Section 1.12).
(B) Other requirements. The Advisory Committee must apply this Section 1.31 in a
manner consistent with Code (S)(S)414(n) and 414(o) and the regulations issued
under those Code sections. The Employer must specify in the Adoption Agreement
the manner in which the Plan will determine the allocation of Employer
contributions and Participant forfeitures on behalf of a Participant if the
Participant is a Leased Employee covered by a plan maintained by the leasing
organization.
1.32 SPECIAL RULES FOR OWNER-EMPLOYEES. The following special provisions and
---------------------------------
restrictions apply to Owner-Employees:
(a) If the Plan provides contributions or benefits for an Owner-Employee or
for a group of Owner-Employees who controls the trade or business with respect
to which this Plan is established and the Owner-Employee or Owner-Employees
also control as Owner-Employees one or more other trades or businesses, plans
must exist or be established with respect to all the controlled trades or
businesses so that when the plans are combined they form a single plan which
satisfies the requirements of Code (S)401(a) and Code (S)401(d) with respect
to the employees of the controlled trades or businesses.
(b) The Plan excludes an Owner-Employee or group of Owner-Employees if the
Owner-Employee or group of Owner-Employees controls any other trade or
business, unless the employees of the other controlled trade or business
participate in a plan which satisfies the requirements of Code (S)401(a) and
Code (S)401(d). The other qualified plan must provide contributions and
benefits which are not less favorable than the contributions and benefits
provided for the Owner-Employee or group of Owner-Employees under this Plan,
or if an Owner-Employee is covered under another qualified plan as an Owner-
Employee, then the plan established with respect to the trade or business he
does control must provide contributions or benefits as favorable as those
provided under the most favorable plan of the trade or business he does not
control. If the exclusion of this paragraph (b) applies and the Employer's
Plan is a Standardized Plan, the Employer may not participate or continue to
participate in this Master Plan and the Employer's Plan becomes an
individually-designed plan for purposes of qualification reliance.
(c) For purposes of paragraphs (a) and (b) of this Section 1.32, an Owner-
Employee or group of Owner-Employees controls a trade or business if the
Owner-Employee or Owner-Employees together (1) own the entire interest in an
unincorporated trade or business, or (2) in the case of a partnership, own
more than 50% of either the capital interest or the profits interest in the
partnership.
1.33 DETERMINATION OF TOP HEAVY STATUS. If this Plan is the only qualified
---------------------------------
plan maintained by the Employer, the Plan is top heavy for a Plan Year if the
top heavy ratio as of the Determination Date exceeds 60%. The top heavy ratio is
a fraction, the numerator of which is the sum of the present value of Accrued
Benefits of all Key Employees as of the Determination Date and the denominator
of which is a similar sum determined for all Employees. The Advisory Committee
must include in the top heavy ratio, as part of the present value of Accrued
Benefits, any contribution not made as of the Determination Date but includible
under Code (S)416 and the applicable Treasury regulations, and distributions
made within the Determination Period. The Advisory Committee must calculate the
top heavy ratio by disregarding the Accrued Benefit (and distributions, if any,
of the Accrued Benefit) of any Non-Key Employee who was formerly a Key Employee,
and by disregarding the Accrued Benefit (including distributions, if any, of the
Accrued Benefit) of an individual who has not received credit for at least one
Hour of Service with the
1.08
<PAGE>
Employer during the Determination Period. The Advisory Committee must calculate
the top heavy ratio, including the extent to which it must take into account
distributions, rollovers and transfers, in accordance with Code (S)416 and the
regulations under that Code section.
If the Employer maintains other qualified plans (including a simplified
employee pension plan), or maintained another such plan which now is terminated,
this Plan is top heavy only if it is part of the Required Aggregation Group, and
the top heavy ratio for the Required Aggregation Group and for the Permissive
Aggregation Group, if any, each exceeds 60%. The Advisory Committee will
calculate the top heavy ratio in the same manner as required by the first
paragraph of this Section 1.33, taking into account all plans within the
Aggregation Group. To the extent the Advisory Committee must take into account
distributions to a Participant, the Advisory Committee must include
distributions from a terminated plan which would have been part of the Required
Aggregation Group if it were in existence on the Determination Date. The
Advisory Committee will calculate the present value of accrued benefits under
defined benefit plans or simplified employee pension plans included within the
group in accordance with the terms of those plans, Code (S)416 and the
regulations under that Code section. If a Participant in a defined benefit plan
is a Non-Key Employee, the Advisory Committee will determine his accrued benefit
under the accrual method, if any, which is applicable uniformly to all defined
benefit plans maintained by the Employer or, if there is no uniform method, in
accordance with the slowest accrual rate permitted under the fractional rule
accrual method described in Code (S)411(b)(1)(C). If the Employer maintains a
defined benefit plan, the Employer must specify in Adoption Agreement Section
3.18 the actuarial assumptions (interest and mortality only) the Advisory
Committee will use to calculate the present value of benefits from a defined
benefit plan. If an aggregated plan does not have a valuation date coinciding
with the Determination Date, the Advisory Committee must value the Accrued
Benefits in the aggregated plan as of the most recent valuation date falling
within the twelve-month period ending on the Determination Date, except as Code
(S)416 and applicable Treasury regulations require for the first and second plan
year of a defined benefit plan. The Advisory Committee will calculate the top
heavy ratio with reference to the Determination Dates that fall within the same
calendar year.
(A) Standardized Plan. If the Employer's Plan is a Standardized Plan, the Plan
operates as a deemed top heavy plan in all Plan Years, except, if the
Standardized Plan includes a Code (S)401(k) arrangement, the Employer may elect
to apply the top heavy requirements only in Plan Years for which the Plan
actually is top heavy. Under a deemed top heavy plan, the Advisory Committee
need not determine whether the Plan actually is top heavy. However, if the
Employer, in Adoption Agreement Section 3.18, elects to override the 100%
limitation, the Advisory Committee will need to determine whether a deemed top
heavy Plan's top heavy ratio for a Plan Year exceeds 90%.
(B) Definitions. For purposes of applying the provisions of this Section 1.33:
(1) "Key Employee" means, as of any Determination Date, any Employee or former
Employee (or Beneficiary of such Employee) who, for any Plan Year in the
Determination Period: (i) has Compensation in excess of 50% of the dollar
amount prescribed in Code (S)415(b)(1)(A) (relating to defined benefit plans)
and is an officer of the Employer; (ii) has Compensation in excess of the
dollar amount prescribed in Code (S)415(c)(1)(A) (relating to defined
contribution plans) and is one of the Employees owning the ten largest
interests in the Employer; (iii) is a more than 5% owner of the Employer; or
(iv) is a more than 1% owner of the Employer and has Compensation of more than
$150,000. The constructive ownership rules of Code (S)318 (or the principles
of that section, in the case of an unincorporated Employer,) will apply to
determine ownership in the Employer. The number of officers taken into account
under clause (i) will not exceed the greater of 3 or 10% of the total number
(after application of the Code (S)414(q) exclusions) of Employees, but no more
than 50 officers. The Advisory Committee will make the determination of who is
a Key Employee in accordance with Code (S)416(i)(1) and the regulations under
that Code section.
(2) "Non-Key Employee" is an employee who does not meet the definition of Key
Employee.
1.09
<PAGE>
(3) "Compensation" means Compensation as determined under Section 1.09 for
purposes of identifying Highly Compensated Employees.
(4) "Required Aggregation Group" means: (i) each qualified plan of the
Employer in which at least one Key Employee participates at any time during
the Determination Period; and (ii) any other qualified plan of the Employer
which enables a plan described in clause (i) to meet the requirements of Code
(S)401(a)(4) or of Code (S)410.
(5) "Permissive Aggregation Group" is the Required Aggregation Group plus any
other qualified plans maintained by the Employer, but only if such group would
satisfy in the aggregate the requirements of Code (S)401(a)(4) and of Code
(S)410. The Advisory Committee will determine the Permissive Aggregation
Group.
(6) "Employer" means the Employer that adopts this Plan and any related
employers described in Section 1.30.
(7) "Determination Date" for any Plan Year is the Accounting Date of the
preceding Plan Year or, in the case of the first Plan Year of the Plan, the
Accounting Date of that Plan Year. The "Determination Period" is the 5 year
period ending on the Determination Date.
1.34 "Paired Plans" means the Employer has adopted two Standardized Plan
Adoption Agreements offered with this Master Plan, one Adoption Agreement being
a Paired Profit Sharing Plan and one Adoption Agreement being a Paired Pension
Plan. A Paired Profit Sharing Plan may include a Code (S)401(k) arrangement. A
Paired Pension Plan must be a money purchase pension plan or a target benefit
pension plan. Paired Plans must be the subject of a favorable opinion letter
issued by the National Office of the Internal Revenue Service. This Master Plan
does not pair any of its Standardized Plan Adoption Agreements with Standardized
Plan Adoption Agreements under a defined benefit master plan.
* * * * * * * * * * * * * * *
1.10
<PAGE>
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY. Each Employee becomes a Participant in the Plan in
-----------
accordance with the participation option selected by the Employer in its
Adoption Agreement. If this Plan is a restated Plan, each Employee who was a
Participant in the Plan on the day before the Effective Date continues as a
Participant in the Plan, irrespective of whether he satisfies the participation
conditions in the restated Plan, unless otherwise provided in the Employer's
Adoption Agreement.
2.02 YEAR OF SERVICE - PARTICIPATION. For purposes of an Employee's
-------------------------------
participation in the Plan under Adoption Agreement Section 2.01, the Plan takes
into account all of his Years of Service with the Employer, except as provided
in Section 2.03. "Year of Service" means an eligibility computation period
during which the Employee completes not less than the number of Hours of Service
specified in the Employer's Adoption Agreement. The initial eligibility
computation period is the first 12 consecutive month period measured from the
Employment Commencement Date. The Plan measures succeeding eligibility
computation periods in accordance with the option selected by the Employer in
its Adoption Agreement. If the Employer elects to measure subsequent periods on
a Plan Year basis, an Employee who receives credit for the required number of
Hours of Service during the initial eligibility computation period and during
the first applicable Plan Year will receive credit for two Years of Service
under Article II. "Employment Commencement Date" means the date on which the
Employee first performs an Hour of Service for the Employer. If the Employer
elects a service condition under Adoption Agreement Section 2.01 based on
months, the Plan does not apply any Hour of Service requirement after the
completion of the first Hour of Service.
2.03 BREAK IN SERVICE - PARTICIPATION. An Employee incurs a "Break in
----------------------------------
Service" if during any 12 consecutive month period he does not complete more
than 500 Hours of Service with the Employer. The "12 consecutive month period"
under this Section 2.03 is the same 12 consecutive month period for which the
Plan measures "Years of Service" under Section 2.02.
(A) 2-year Eligibility. If the Employer elects a 2 years of service condition
for eligibility purposes under Adoption Agreement Section 2.01, the Plan treats
an Employee who incurs a one year Break in Service and who has never become a
Participant as a new Employee on the date he first performs an Hour of Service
for the Employer after the Break in Service.
(B) Suspension of Years of Service. The Employer must elect in its Adoption
Agreement whether a Participant will incur a suspension of Years of Service
after incurring a one year Break in Service. If this rule applies under the
Employer's Plan, the Plan disregards a Participant's Years of Service (as
defined in Section 2.02) earned prior to a Break in Service until the
Participant completes another Year of Service and the Plan suspends the
Participant's participation in the Plan. If the Participant completes a Year of
Service following his Break in Service, the Plan restores that Participant's
pre-Break Years of Service (and the Participant resumes active participation in
the Plan) retroactively to the first day of the computation period in which the
Participant earns the first post-Break Year of Service. The initial computation
period under this Section 2.03(B) is the 12 consecutive month period measured
from the date the Participant first receives credit for an Hour of Service
following the one year Break in Service period. The Plan measures any subsequent
periods, if necessary, in a manner consistent with the computation period
selection in Adoption Agreement Section 2.02. This Section 2.03(B) does not
affect a Participant's vesting credit under Article V and, during a suspension
period, the Participant's Account continues to share fully in Trust Fund
allocations under Section 9.11. Furthermore, this Section 2.03(B) will not
result in the restoration of any Year of Service disregarded under the Break in
Service rule of Section 2.03(A).
2.01
<PAGE>
2.04 PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose employment with
--------------------------------
the Employer terminates will re-enter the Plan as a Participant on the date of
his re-employment, subject to the Break in Service rule, if applicable, under
Section 2.03(B). An Employee who satisfies the Plan's eligibility conditions but
who terminates employment with the Employer prior to becoming a Participant will
become a Participant on the later of the Plan Entry Date on which he would have
entered the Plan had he not terminated employment or the date of his re-
employment, subject to the Break in Service rule, if applicable, under Section
2.03(B). Any Employee who terminates employment prior to satisfying the Plan's
eligibility conditions becomes a Participant in accordance with Adoption
Agreement Section 2.01.
2.05 CHANGE IN EMPLOYEE STATUS. If a Participant has not incurred a
-------------------------
Separation from Service but ceases to be eligible to participate in the Plan, by
reason of employment within an employment classification excluded by the
Employer under Adoption Agreement Section 1.07, the Advisory Committee must
treat the Participant as an Excluded Employee during the period such a
Participant is subject to the Adoption Agreement exclusion. The Advisory
Committee determines a Participant's sharing in the allocation of Employer
contributions and Participant forfeitures, if applicable, by disregarding his
Compensation paid by the Employer for services rendered in his capacity as an
Excluded Employee. However, during such period of exclusion, the Participant,
without regard to employment classification, continues to receive credit for
vesting under Article V for each included Year of Service and the Participant's
Account continues to share fully in Trust Fund allocations under Section 9.11.
If an Excluded Employee who is not a Participant becomes eligible to
participate in the Plan by reason of a change in employment classification, he
will participate in the Plan immediately if he has satisfied the eligibility
conditions of Section 2.01 and would have been a Participant had he not been an
Excluded Employee during his period of Service. Furthermore, the Plan takes into
account all of the Participant's included Years of Service with the Employer as
an Excluded Employee for purposes of vesting credit under Article V.
2.06 ELECTION NOT TO PARTICIPATE. If the Employer's Plan is a Standardized
---------------------------
Plan, the Plan does not permit an otherwise eligible Employee nor any
Participant to elect not to participate in the Plan. If the Employer's Plan is a
Nonstandardized Plan, the Employer must specify in its Adoption Agreement
whether an Employee eligible to participate, or any present Participant, may
elect not to participate in the Plan. For an election to be effective for a
particular Plan Year, the Employee or Participant must file the election in
writing with the Plan Administrator not later than the time specified in the
Employer's Adoption Agreement. The Employer may not make a contribution under
the Plan for the Employee or for the Participant for the Plan Year for which the
election is effective, nor for any succeeding Plan Year, unless the Employee or
Participant re-elects to participate in the Plan. After an Employee's or
Participant's election not to participate has been effective for at least the
minimum period prescribed by the Employer's Adoption Agreement, the Employee or
Participant may re-elect to participate in the Plan for any Plan Year and
subsequent Plan Years. An Employee or Participant may re-elect to participate in
the Plan by filing his election in writing with the Plan Administrator not later
than the time specified in the Employer's Adoption Agreement. An Employee or
Participant who re-elects to participate may again elect not to participate only
as permitted in the Employer's Adoption Agreement. If an Employee is a Self-
Employed Individual, the Employee's election (except as permitted by Treasury
regulations without creating a Code (S)401(k) arrangement with respect to that
Self-Employed Individual) must be effective no later than the date the Employee
first would become a Participant in the Plan and the election is irrevocable.
The Plan Administrator must furnish an Employee or a Participant any form
required for purposes of an election under this Section 2.06. An election timely
filed is effective for the entire Plan Year.
2.02
<PAGE>
A Participant who elects not to participate may not receive a distribution of
his Accrued Benefit attributable either to Employer or to Participant
contributions except as provided under Article IV or under Article VI. However,
for each Plan Year for which a Participant's election not to participate is
effective, the Participant's Account, if any, continues to share in Trust Fund
allocations under Article IX. Furthermore, the Employee or the Participant
receives vesting credit under Article V for each included Year of Service during
the period the election not to participate is effective.
* * * * * * * * * * * * * * *
2.03
<PAGE>
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
Part 1. Amount of Employer Contributions and Plan Allocations: Sections 3.01
--------------------------------------------------------------------
through 3.06
- ------------
3.01 AMOUNT. For each Plan Year, the Employer contributes to the Trust the
------
amount determined by application of the contribution option selected by the
Employer in its Adoption Agreement. The Employer may not make a contribution to
the Trust for any Plan Year to the extent the contribution would exceed the
Participants' Maximum Permissible Amounts.
The Employer contributes to this Plan on the condition its contribution is not
due to a mistake of fact and the Revenue Service will not disallow the deduction
for its contribution. The Trustee, upon written request from the Employer, must
return to the Employer the amount of the Employer's contribution made by the
Employer by mistake of fact or the amount of the Employer's contribution
disallowed as a deduction under Code (S)404. The Trustee will not return any
portion of the Employer's contribution under the provisions of this paragraph
more than one year after:
(a) The Employer made the contribution by mistake of fact; or
(b) The disallowance of the contribution as a deduction, and then, only to the
extent of the disallowance.
The Trustee will not increase the amount of the Employer contribution
returnable under this Section 3.01 for any earnings attributable to the
contribution, but the Trustee will decrease the Employer contribution returnable
for any losses attributable to it. The Trustee may require the Employer to
furnish it whatever evidence the Trustee deems necessary to enable the Trustee
to confirm the amount the Employer has requested be returned is properly
returnable under ERISA.
3.02 DETERMINATION OF CONTRIBUTION. The Employer, from its records,
-----------------------------
determines the amount of any contributions to be made by it to the Trust under
the terms of the Plan.
3.03 TIME OF PAYMENT OF CONTRIBUTION. The Employer may pay its contribution
-------------------------------
for each Plan Year in one or more installments without interest. The Employer
must make its contribution to the Plan within the time prescribed by the Code or
applicable Treasury regulations. Subject to the consent of the Trustee, the
Employer may make its contribution in property rather than in cash, provided the
contribution of property is not a prohibited transaction under the Code or under
ERISA.
3.04 CONTRIBUTION ALLOCATION.
-----------------------
(A) Method of Allocation. The Employer must specify in its Adoption Agreement
the manner of allocating each annual Employer contribution to this Trust.
(B) Top Heavy Minimum Allocation. The Plan must comply with the provisions of
this Section 3.04(B), subject to the elections in the Employer's Adoption
Agreement.
(1) Top Heavy Minimum Allocation Under Standardized Plan. Subject to the
Employer's election under Section 3.04(B)(3), the top heavy minimum allocation
requirement applies to a Standardized Plan for each Plan Year, irrespective of
whether the Plan is top heavy.
(a) Each Participant employed by the Employer on the last day of the Plan
Year will receive a top heavy minimum allocation for that Plan Year. The
Employer may elect in Section 3.04 of its Adoption Agreement to apply this
paragraph (a) only to a Participant who is a Non-Key Employee.
3.01
<PAGE>
(b) Subject to any overriding elections in Section 3.18 of the Employer's
Adoption Agreement, the top heavy minimum allocation is the lesser of 3% of
the Participant's Compensation for the Plan Year or the highest contribution
rate for the Plan Year made on behalf of any Participant for the Plan Year.
However, if the Employee participates in Paired Plans, the top heavy minimum
allocation is 3% of his Compensation. If, under Adoption Agreement Section
3.04, the Employer elects to apply paragraph (a) only to a Participant who
is a Non-Key Employee, the Advisory Committee will determine the "highest
contribution rate" described in the first sentence of this paragraph (b) by
reference only to the contribution rates of Participants who are Key
Employees for the Plan Year.
(2) Top Heavy Minimum Allocation Under Nonstandardized Plan. The top heavy
minimum allocation requirement applies to a Nonstandardized Plan only in Plan
Years for which the Plan is top heavy. Except as provided in the Employer's
Adoption Agreement, if the Plan is top heavy in any Plan Year:
(a) Each Non-Key Employee who is a Participant and is employed by the
Employer on the last day of the Plan Year will receive a top heavy minimum
allocation for that Plan Year, irrespective of whether he satisfies the
Hours of Service condition under Section 3.06 of the Employer's Adoption
Agreement; and
(b) The top heavy minimum allocation is the lesser of 3% of the Non-Key
Employee's Compensation for the Plan Year or the highest contribution rate
for the Plan Year made on behalf of any Key Employee. However, if a defined
benefit plan maintained by the Employer which benefits a Key Employee
depends on this Plan to satisfy the antidiscrimination rules of Code
(S)401(a)(4) or the coverage rules of Code (S)410 (or another plan
benefiting the Key Employee so depends on such defined benefit plan), the
top heavy minimum allocation is 3% of the Non-Key Employee's Compensation
regardless of the contribution rate for the Key Employees.
(3) Special Election for Standardized Code (S)401(k) Plan. If the Employer's
Plan is a Standardized Code (S)401(k) Plan, the Employer may elect in Adoption
Agreement Section 3.04 to apply the top heavy minimum allocation requirements of
Section 3.04(B)(1) only for Plan Years in which the Plan actually is a top heavy
plan.
(4) Special Definitions. For purposes of this Section 3.04(B), the term
"Participant" includes any Employee otherwise eligible to participate in the
Plan but who is not a Participant because of his Compensation level or because
of his failure to make elective deferrals under a Code (S)401(k) arrangement or
because of his failure to make mandatory contributions. For purposes of
subparagraph (1)(b) or (2)(b), "Compensation" means Compensation as defined in
Section 1.12, except Compensation does not include elective contributions,
irrespective of whether the Employer has elected to include these amounts in
Section 1.12 of its Adoption Agreement, any exclusion selected in Section 1.12
of the Adoption Agreement (other than the exclusion of elective contributions)
does not apply, and any modification to the definition of Compensation in
Section 3.06 does not apply.
(5) Determining Contribution Rates. For purposes of this Section 3.04(B), a
Participant's contribution rate is the sum of all Employer contributions (not
including Employer contributions to Social Security) and forfeitures allocated
to the Participant's Account for the Plan Year divided by his Compensation for
the entire Plan Year. However, for purposes of satisfying a Participant's top
heavy minimum allocation in Plan Years beginning after December 31, 1988, the
Participant's contribution rate does not include any elective contributions
under a Code (S)401(k) arrangement nor any Employer matching contributions
allocated on the basis of those elective contributions or on the basis of
employee contributions, except a Nonstandardized Plan may include in the
contribution rate any matching contributions not necessary to satisfy the
nondiscrimination requirements of Code (S)401(k) or of Code (S)401(m).
3.02
<PAGE>
If the Employee is a Participant in Paired Plans, the Advisory Committee will
consider the Paired Plans as a single Plan to determine a Participant's
contribution rate and to determine whether the Plans satisfy this top heavy
minimum allocation requirement. To determine a Participant's contribution rate
under a Nonstandardized Plan, the Advisory Committee must treat all qualified
top heavy defined contribution plans maintained by the Employer (or by any
related Employers described in Section 1.30) as a single plan.
(6) No Allocations. If, for a Plan Year, there are no allocations of Employer
contributions or forfeitures for any Participant (for purposes of Section 3.04
(B)(1)(b)) or for any Key Employee (for purposes of Section 3.04(B)(2)(b)), the
Plan does not require any top heavy minimum allocation for the Plan Year, unless
a top heavy minimum allocation applies because of the maintenance by the
Employer of more than one plan.
(7) Election of Method. The Employer must specify in its Adoption Agreement
the manner in which the Plan will satisfy the top heavy minimum allocation
requirement.
(a) If the Employer elects to make any necessary additional contribution to
this Plan, the Advisory Committee first will allocate the Employer
contributions (and Participant forfeitures, if any) for the Plan Year in
accordance with the provisions of Adoption Agreement Section 3.04. The
Employer then will contribute an additional amount for the Account of any
Participant entitled under this Section 3.04(B) to a top heavy minimum
allocation and whose contribution rate for the Plan Year, under this Plan and
any other plan aggregated under paragraph (5), is less than the top heavy
minimum allocation. The additional amount is the amount necessary to increase
the Participant's contribution rate to the top heavy minimum allocation. The
Advisory Committee will allocate the additional contribution to the Account of
the Participant on whose behalf the Employer makes the contribution.
(b) If the Employer elects to guarantee the top heavy minimum allocation under
another plan, this Plan does not provide the top heavy minimum allocation and
the Advisory Committee will allocate the annual Employer contributions (and
Participant forfeitures) under the Plan solely in accordance with the
allocation method selected under Adoption Agreement Section 3.04.
3.05 FORFEITURE ALLOCATION. The amount of a Participant's Accrued Benefit
---------------------
forfeited under the Plan is a Participant forfeiture. The Advisory Committee
will allocate Participant forfeitures in the manner specified by the Employer in
its Adoption Agreement. The Advisory Committee will continue to hold the
undistributed, non-vested portion of a terminated Participant's Accrued Benefit
in his Account solely for his benefit until a forfeiture occurs at the time
specified in Section 5.09 or if applicable, until the time specified in Section
9.14. Except as provided under Section 5.04, a Participant will not share in the
allocation of a forfeiture of any portion of his Accrued Benefit.
3.06 ACCRUAL OF BENEFIT. The Advisory Committee will determine the accrual
------------------
of benefit (Employer contributions and Participant forfeitures) on the basis of
the Plan Year in accordance with the Employer's elections in its Adoption
Agreement.
(A) Compensation Taken Into Account. The Employer must specify in its Adoption
Agreement the Compensation the Advisory Committee is to take into account in
allocating an Employer contribution to a Participant's Account for the Plan Year
in which the Employee first becomes a Participant. For all other Plan Years, the
Advisory Committee will take into account only the Compensation determined for
the portion of the Plan Year in which the Employee actually is a Participant.
The Advisory Committee must take into account the Employee's entire Compensation
for the Plan Year to determine whether the Plan satisfies the top heavy minimum
allocation requirement of Section 3.04(B). The Employer, in an addendum to its
Adoption Agreement numbered 3.06(A), may elect to measure Compensation for the
Plan Year for allocation purposes on the basis of a specified period other than
the Plan Year.
3.03
<PAGE>
(B) Hours of Service Requirement. Subject to the applicable minimum allocation
requirement of Section 3.04, the Advisory Committee will not allocate any
portion of an Employer contribution for a Plan Year to any Participant's Account
if the Participant does not complete the applicable minimum Hours of Service
requirement specified in the Employer's Adoption Agreement.
(C) Employment Requirement. If the Employer's Plan is a Standardized Plan, a
Participant who, during a particular Plan Year, completes the accrual
requirements of Adoption Agreement Section 3.06 will share in the allocation of
Employer contributions for that Plan Year without regard to whether he is
employed by the Employer on the Accounting Date of that Plan Year. If the
Employer's Plan is a Nonstandardized Plan, the Employer must specify in its
Adoption Agreement whether the Participant will accrue a benefit if he is not
employed by the Employer on the Accounting Date of the Plan Year. If the
Employer's Plan is a money purchase plan or a target benefit plan, whether
Nonstandardized or Standardized, the Plan conditions benefit accrual on
employment with the Employer on the last day of the Plan Year for the Plan Year
in which the Employer terminates the Plan.
(D) Other Requirements. If the Employer's Adoption Agreement includes options
for other requirements affecting the Participant's accrual of benefits under the
Plan, the Advisory Committee will apply this Section 3.06 in accordance with the
Employer's Adoption Agreement selections.
(E) Suspension of Accrual Requirements Under Nonstandardized Plan. If the
Employer's Plan is a Nonstandardized Plan, the Employer may elect in its
Adoption Agreement to suspend the accrual requirements elected under Adoption
Agreement Section 3.06 if, for any Plan Year beginning after December 31, 1989,
the Plan fails to satisfy the Participation Test or the Coverage Test. A Plan
satisfies the Participation Test if, on each day of the Plan Year, the number of
Employees who benefit under the Plan is at least equal to the lesser of 50 or
40% of the total number of Includible Employees as of such day. A Plan satisfies
the Coverage Test if, on the last day of each quarter of the Plan Year, the
number of Nonhighly Compensated Employees who benefit under the Plan is at least
equal to 70% of the total number of Includible Nonhighly Compensated Employees
as of such day. "Includible" Employees are all Employees other than: (1) those
Employees excluded from participating in the Plan for the entire Plan Year by
reason of the collective bargaining unit exclusion or the nonresident alien
exclusion under Adoption Agreement Section 1.07 or by reason of the
participation requirements of Sections 2.01 and 2.03; and (2) any Employee who
incurs a Separation from Service during the Plan Year and fails to complete at
least 501 Hours of Service for the Plan Year. A "Nonhighly Compensated Employee"
is an Employee who is not a Highly Compensated Employee and who is not a family
member aggregated with a Highly Compensated Employee pursuant to Section 1.09 of
the Plan.
For purposes of the Participation Test and the Coverage Test, an Employee is
benefiting under the Plan on a particular date if, under Adoption Agreement
Section 3.04, he is entitled to an allocation for the Plan Year. Under the
Participation Test, when determining whether an Employee is entitled to an
allocation under Adoption Agreement Section 3.04, the Advisory Committee will
disregard any allocation required solely by reason of the top heavy minimum
allocation, unless the top heavy minimum allocation is the only allocation made
under the Plan for the Plan Year.
If this Section 3.06(E) applies for a Plan Year, the Advisory Committee will
suspend the accrual requirements for the Includible Employees who are
Participants, beginning first with the Includible Employee(s) employed with the
Employer on the last day of the Plan Year, then the Includible Employee(s) who
have the latest Separation from Service during the Plan Year, and continuing to
suspend in descending order the accrual requirements for each Includible
Employee who incurred an earlier Separation from Service, from the latest to the
earliest Separation from Service date, until the Plan satisfies both the
Participation Test and the Coverage Test for the Plan Year. If two or more
Includible Employees have a Separation from Service on the same day, the
Advisory Committee will suspend the accrual requirements for all such Includible
Employees, irrespective of whether the Plan can satisfy the Participation Test
and the Coverage Test by accruing benefits for fewer than all such Includible
Employees. If the Plan suspends the accrual requirements for an Includible
Employee, that Employee will share in the allocation
3.04
<PAGE>
of Employer contributions and Participant forfeitures, if any, without regard to
the number of Hours of Service he has earned for the Plan Year and without
regard to whether he is employed by the Employer on the last day of the Plan
Year. If the Employer's Plan includes Employer matching contributions subject to
Code (S)401(m), this suspension of accrual requirements applies separately to
the Code (S)401(m) portion of the Plan, and the Advisory Committee will treat an
Employee as benefiting under that portion of the Plan if he is an Eligible
Employee for purposes of the Code (S)401(m) nondiscrimination test. The Employer
may modify the operation of this Section 3.06(E) by electing appropriate
modifications in Section 3.06 of its Adoption Agreement.
Part 2. Limitations On Allocations: Sections 3.07 through 3.19
------------------------------------------------------
[Note: Sections 3.07 through 3.10 apply only to Participants in this Plan who
do not participate, and who have never participated, in another qualified plan
or in a welfare benefit fund (as defined in Code (S)419(e)) maintained by the
Employer.]
3.07 The amount of Annual Additions which the Advisory Committee may allocate
under this Plan on a Participant's behalf for a Limitation Year may not exceed
the Maximum Permissible Amount. If the amount the Employer otherwise would
contribute to the Participant's Account would cause the Annual Additions for the
Limitation Year to exceed the Maximum Permissible Amount, the Employer will
reduce the amount of its contribution so the Annual Additions for the Limitation
Year will equal the Maximum Permissible Amount. If an allocation of Employer
contributions, pursuant to Section 3.04, would result in an Excess Amount (other
than an Excess Amount resulting from the circumstances described in Section
3.10) to the Participant's Account, the Advisory Committee will reallocate the
Excess Amount to the remaining Participants who are eligible for an allocation
of Employer contributions for the Plan Year in which the Limitation Year ends.
The Advisory Committee will make this reallocation on the basis of the
allocation method under the Plan as if the Participant whose Account otherwise
would receive the Excess Amount is not eligible for an allocation of Employer
contributions.
3.08 Prior to the determination of the Participant's actual Compensation
for a Limitation Year, the Advisory Committee may determine the Maximum
Permissible Amount on the basis of the Participant's estimated annual
Compensation for such Limitation Year. The Advisory Committee must make this
determination on a reasonable and uniform basis for all Participants similarly
situated. The Advisory Committee must reduce any Employer contributions
(including any allocation of forfeitures) based on estimated annual Compensation
by any Excess Amounts carried over from prior years.
3.09 As soon as is administratively feasible after the end of the
Limitation Year, the Advisory Committee will determine the Maximum Permissible
Amount for such Limitation Year on the basis of the Participant's actual
Compensation for such Limitation Year.
3.10 If, pursuant to Section 3.09, or because of the allocation of
forfeitures, there is an Excess Amount with respect to a Participant for a
Limitation Year, the Advisory Committee will dispose of such Excess Amount as
follows:
(a) The Advisory Committee will return any nondeductible voluntary Employee
contributions to the Participant to the extent the return would reduce the
Excess Amount.
(b) If, after the application of paragraph (a), an Excess Amount still exists,
and the Plan covers the Participant at the end of the Limitation Year, then
the Advisory Committee will use the Excess Amount(s) to reduce future Employer
contributions (including any allocation of forfeitures) under the Plan for the
next Limitation Year and for each succeeding Limitation Year, as is necessary,
for the Participant. If the Employer's Plan is a profit sharing plan, the
Participant may elect to limit his Compensation for allocation purposes to the
extent necessary to reduce his allocation for the Limitation Year to the
Maximum Permissible Amount and eliminate the Excess Amount.
3.05
<PAGE>
(c) If, after the application of paragraph (a), an Excess Amount still exists,
and the Plan does not cover the Participant at the end of the Limitation Year,
then the Advisory Committee will hold the Excess Amount unallocated in a
suspense account. The Advisory Committee will apply the suspense account to
reduce Employer Contributions (including allocation of forfeitures) for all
remaining Participants in the next Limitation Year, and in each succeeding
Limitation Year if necessary. Neither the Employer nor any Employee may
contribute to the Plan for any Limitation Year in which the Plan is unable to
allocate fully a suspense account maintained pursuant to this paragraph (c).
(d) The Advisory Committee will not distribute any Excess Amount(s) to
Participants or to former Participants.
[Note: Sections 3.11 through 3.16 apply only to Participants who, in addition
to this Plan, participate in one or more plans (including Paired Plans), all of
which are qualified Master or Prototype defined contribution plans or welfare
benefit funds (as defined in Code (S)419(e)) maintained by the Employer during
the Limitation Year.]
3.11 The amount of Annual Additions which the Advisory Committee may allocate
under this Plan on a Participant's behalf for a Limitation Year may not exceed
the Maximum Permissible Amount, reduced by the sum of any Annual Additions
allocated to the Participant's Accounts for the same Limitation Year under this
Plan and such other defined contribution plan. If the amount the Employer
otherwise would contribute to the Participant's Account under this Plan would
cause the Annual Additions for the Limitation Year to exceed this limitation,
the Employer will reduce the amount of its contribution so the Annual Additions
under all such plans for the Limitation Year will equal the Maximum Permissible
Amount. If an allocation of Employer contributions, pursuant to Section 3.04,
would result in an Excess Amount (other than an Excess Amount resulting from the
circumstances described in Section 3.10) to the Participant's Account, the
Advisory Committee will reallocate the Excess Amount to the remaining
Participants who are eligible for an allocation of Employer contributions for
the Plan Year in which the Limitation Year ends. The Advisory Committee will
make this reallocation on the basis of the allocation method under the Plan as
if the Participant whose Account otherwise would receive the Excess Amount is
not eligible for an allocation of Employer contributions.
3.12 Prior to the determination of the Participant's actual Compensation
for the Limitation Year, the Advisory Committee may determine the amounts
referred to in 3.11 above on the basis of the Participant's estimated annual
Compensation for such Limitation Year. The Advisory Committee will make this
determination on a reasonable and uniform basis for all Participants similarly
situated. The Advisory Committee must reduce any Employer contribution
(including allocation of forfeitures) based on estimated annual Compensation by
any Excess Amounts carried over from prior years.
3.13 As soon as is administratively feasible after the end of the
Limitation Year, the Advisory Committee will determine the amounts referred to
in 3.11 on the basis of the Participant's actual Compensation for such
Limitation Year.
3.14 If pursuant to Section 3.13, or because of the allocation of
forfeitures, a Participant's Annual Additions under this Plan and all such other
plans result in an Excess Amount, such Excess Amount will consist of the Amounts
last allocated. The Advisory Committee will determine the Amounts last allocated
by treating the Annual Additions attributable to a welfare benefit fund as
allocated first, irrespective of the actual allocation date under the welfare
benefit fund.
3.15 The Employer must specify in its Adoption Agreement the Excess Amount
attributed to this Plan, if the Advisory Committee allocates an Excess Amount to
a Participant on an allocation date of this Plan which coincides with an
allocation date of another plan.
3.16 The Advisory Committee will dispose of any Excess Amounts attributed
to this Plan as provided in Section 3.10.
3.06
<PAGE>
[Note: Section 3.17 applies only to Participants who, in addition to this
Plan, participate in one or more qualified plans which are qualified defined
contribution plans other than a Master or Prototype plan maintained by the
Employer during the Limitation Year.]
3.17 SPECIAL ALLOCATION LIMITATION. The amount of Annual Additions which
-----------------------------
the Advisory Committee may allocate under this Plan on behalf of any
Participant are limited in accordance with the provisions of Section 3.11
through 3.16, as though the other plan were a Master or Prototype plan, unless
the Employer provides other limitations in an addendum to the Adoption
Agreement, numbered Section 3.17.
3.18 DEFINED BENEFIT PLAN LIMITATION. If the Employer maintains a defined
-------------------------------
benefit plan, or has ever maintained a defined benefit plan which the Employer
has terminated, then the sum of the defined benefit plan fraction and the
defined contribution plan fraction for any Participant for any Limitation Year
must not exceed 1.0. The Employer must provide in Adoption Agreement Section
3.18 the manner in which the Plan will satisfy this limitation. The Employer
also must provide in its Adoption Agreement Section 3.18 the manner in which the
Plan will satisfy the top heavy requirements of Code (S)416 after taking into
account the existence (or prior maintenance) of the defined benefit plan.
3.19 DEFINITIONS - ARTICLE III. For purposes of Article III, the following
-------------------------
terms mean:
(a) "Annual Addition" - The sum of the following amounts allocated on behalf
of a Participant for a Limitation Year, of (i) all Employer contributions;
(ii) all forfeitures; and (iii) all Employee contributions. Except to the
extent provided in Treasury regulations, Annual Additions include excess
contributions described in Code (S)401(k), excess aggregate contributions
described in Code (S)401(m) and excess deferrals described in Code (S)402(g),
irrespective of whether the plan distributes or forfeits such excess amounts.
Annual Additions also include Excess Amounts reapplied to reduce Employer
contributions under Section 3.10. Amounts allocated after March 31, 1984, to
an individual medical account (as defined in Code (S)415(l)(2)) included as
part of a defined benefit plan maintained by the Employer are Annual
Additions. Furthermore, Annual Additions include contributions paid or accrued
after December 31, 1985, for taxable years ending after December 31, 1985,
attributable to post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code (S)419A(d)(3)) under a welfare
benefit fund (as defined in Code (S)419(e)) maintained by the Employer.
(b) "Compensation" - For purposes of applying the limitations of Part 2 of
this Article III, "Compensation" means Compensation as defined in Section
1.12, except Compensation does not include elective contributions,
irrespective of whether the Employer has elected to include these amounts as
Compensation under Section 1.12 of its Adoption Agreement, and any exclusion
selected in Section 1.12 of the Adoption Agreement (other than the exclusion
of elective contributions) does not apply.
(c) "Employer" - The Employer that adopts this Plan and any related employers
described in Section 1.30. Solely for purposes of applying the limitations of
Part 2 of this Article III, the Advisory Committee will determine related
employers described in Section 1.30 by modifying Code (S)(S)414(b) and (c) in
accordance with Code (S)415(h).
(d) "Excess Amount" - The excess of the Participant's Annual Additions for the
Limitation Year over the Maximum Permissible Amount.
(e) "Limitation Year" - The period selected by the Employer under Adoption
Agreement Section 1.17. All qualified plans of the Employer must use the same
Limitation Year. If the Employer amends the Limitation Year to a different 12
consecutive month period, the new Limitation Year must begin on a date within
the Limitation Year for which the Employer makes the amendment, creating a
short Limitation Year.
3.07
<PAGE>
(f) "Master or Prototype Plan" - A plan the form of which is the subject of a
favorable notification letter or a favorable opinion letter from the Internal
Revenue Service.
(g) "Maximum Permissible Amount" - The lesser of (i) $30,000 (or, if greater,
one-fourth of the defined benefit dollar limitation under Code
(S)415(b)(1)(A)), or (ii) 25% of the Participant's Compensation for the
Limitation Year. If there is a short Limitation Year because of a change in
Limitation Year, the Advisory Committee will multiply the $30,000 (or
adjusted) limitation by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
(h) "Defined contribution plan" - A retirement plan which provides for an
individual account for each participant and for benefits based solely on the
amount contributed to the participant's account, and any income, expenses,
gains and losses, and any forfeitures of accounts of other participants which
the plan may allocate to such participant's account. The Advisory Committee
must treat all defined contribution plans (whether or not terminated)
maintained by the Employer as a single plan. Solely for purposes of the
limitations of Part 2 of this Article III, the Advisory Committee will treat
employee contributions made to a defined benefit plan maintained by the
Employer as a separate defined contribution plan. The Advisory Committee also
will treat as a defined contribution plan an individual medical account (as
defined in Code (S)415(l)(2)) included as part of a defined benefit plan
maintained by the Employer and, for taxable years ending after December 31,
1985, a welfare benefit fund under Code (S)419(e) maintained by the Employer
to the extent there are post-retirement medical benefits allocated to the
separate account of a key employee (as defined in Code (S)419A(d)(3)).
(i) "Defined benefit plan" - A retirement plan which does not provide for
individual accounts for Employer contributions. The Advisory Committee must
treat all defined benefit plans (whether or not terminated) maintained by the
Employer as a single plan.
[Note: The definitions in paragraphs (j), (k) and (l) apply only if the
limitation described in Section 3.18 applies to the Employer's Plan.]
(j) "Defined benefit plan fraction" -
Projected annual benefit of the Participant under the defined benefit plan(s)
-----------------------------------------------------------------------------
The lesser of (i) 125% (subject to the "100% limitation" in paragraph (l)) of
the dollar limitation in effect under Code (S) 415(b)(1)(A) for the Limitation
Year, or (ii) 140% of the Participant's average Compensation for his high
three (3) consecutive Years of Service
To determine the denominator of this fraction, the Advisory Committee will
make any adjustment required under Code (S)415(b) and will determine a Year of
Service, unless otherwise provided in an addendum to Adoption Agreement
Section 3.18, as a Plan Year in which the Employee completed at least 1,000
Hours of Service. The "projected annual benefit" is the annual retirement
benefit (adjusted to an actuarially equivalent straight life annuity if the
plan expresses such benefit in a form other than a straight life annuity or
qualified joint and survivor annuity) of the Participant under the terms of
the defined benefit plan on the assumptions he continues employment until his
normal retirement age (or current age, if later) as stated in the defined
benefit plan, his compensation continues at the same rate as in effect in the
Limitation Year under consideration until the date of his normal retirement
age and all other relevant factors used to determine benefits under the
defined benefit plan remain constant as of the current Limitation Year for all
future Limitation Years.
3.08
<PAGE>
Current Accrued Benefit. If the Participant accrued benefits in one or
more defined benefit plans maintained by the Employer which were in existence
on May 6, 1986, the dollar limitation used in the denominator of this fraction
will not be less than the Participant's Current Accrued Benefit. A
Participant's Current Accrued Benefit is the sum of the annual benefits under
such defined benefit plans which the Participant had accrued as of the end of
the 1986 Limitation Year (the last Limitation Year beginning before January 1,
1987), determined without regard to any change in the terms or conditions of
the Plan made after May 5, 1986, and without regard to any cost of living
adjustment occurring after May 5, 1986. This Current Accrued Benefit rule
applies only if the defined benefit plans individually and in the aggregate
satisfied the requirements of Code (S)415 as in effect at the end of the 1986
Limitation Year.
(k) "Defined contribution plan fraction" -
The sum, as of the close of the Limitation Year, of the Annual Additions
to the Participant's Account under the defined contribution plan(s)
------------------------------------------------------------------------
The sum of the lesser of the following amounts determined
for the Limitation Year and for each prior Year of Service with the Employer:(i)
125% (subject to the "100% limitation" in paragraph (l)) of the dollar
limitation in effect under Code (S)415(c)(1)(A) for the Limitation Year
(determined without regard to the special dollar limitations for
employee stock ownership plans), or (ii) 35% of the Participant's
Compensation for the Limitation Year
For purposes of determining the defined contribution plan fraction, the
Advisory Committee will not recompute Annual Additions in Limitation Years
beginning prior to January 1, 1987, to treat all Employee contributions as
Annual Additions. If the Plan satisfied Code (S)415 for Limitation Years
beginning prior to January 1, 1987, the Advisory Committee will redetermine
the defined contribution plan fraction and the defined benefit plan fraction
as of the end of the 1986 Limitation Year, in accordance with this Section
3.19. If the sum of the redetermined fractions exceeds 1.0, the Advisory
Committee will subtract permanently from the numerator of the defined
contribution plan fraction an amount equal to the product of (1) the excess of
the sum of the fractions over 1.0, times (2) the denominator of the defined
contribution plan fraction. In making the adjustment, the Advisory Committee
must disregard any accrued benefit under the defined benefit plan which is in
excess of the Current Accrued Benefit. This Plan continues any transitional
rules applicable to the determination of the defined contribution plan
fraction under the Employer's Plan as of the end of the 1986 Limitation Year.
(l) "100% limitation." If the 100% limitation applies, the Advisory Committee
must determine the denominator of the defined benefit plan fraction and the
denominator of the defined contribution plan fraction by substituting 100% for
125%. If the Employer's Plan is a Standardized Plan, the 100% limitation
applies in all Limitation Years, subject to any override provisions under
Section 3.18 of the Employer's Adoption Agreement. If the Employer overrides
the 100% limitation under a Standardized Plan, the Employer must specify in
its Adoption Agreement the manner in which the Plan satisfies the extra
minimum benefit requirement of Code (S)416(h) and the 100% limitation must
continue to apply if the Plan's top heavy ratio exceeds 90%. If the Employer's
Plan is a Nonstandardized Plan, the 100% limitation applies only if: (i) the
Plan's top heavy ratio exceeds 90%; or (ii) the Plan's top heavy ratio is
greater than 60%, and the Employer does not elect in its Adoption Agreement
Section 3.18 to provide extra minimum benefits which satisfy Code
(S)416(h)(2).
* * * * * * * * * * * * * * *
3.09
<PAGE>
ARTICLE IV
PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. This Plan does not permit
---------------------------------------
Participant nondeductible contributions unless the Employer maintains its Plan
under a Code (S)401(k) Adoption Agreement. If the Employer does not maintain its
Plan under a Code (S)401(k) Adoption Agreement and, prior to the adoption of
this Master Plan, the Plan accepted Participant nondeductible contributions for
a Plan Year beginning after December 31, 1986, those contributions must satisfy
the requirements of Code (S)401(m). This Section 4.01 does not prohibit the
Plan's acceptance of Participant nondeductible contributions prior to the first
Plan Year commencing after the Plan Year in which the Employer adopts this
Master Plan.
4.02 PARTICIPANT DEDUCTIBLE CONTRIBUTIONS. A qualified Plan may not accept
------------------------------------
Participant deductible contributions after April 15, 1987. If the Employer's
Plan includes Participant deductible contributions ("DECs") made prior to April
16, 1987, the Advisory Committee must maintain a separate accounting for the
Participant's Accrued Benefit attributable to DECs, including DECs which are
part of a rollover contribution described in Section 4.03. The Advisory
Committee will treat the accumulated DECs as part of the Participant's Accrued
Benefit for all purposes of the Plan, except for purposes of determining the top
heavy ratio under Section 1.33. The Advisory Committee may not use DECs to
purchase life insurance on the Participant's behalf.
4.03 PARTICIPANT ROLLOVER CONTRIBUTIONS. Any Participant, with the Employer's
----------------------------------
written consent and after filing with the Trustee the form prescribed by the
Advisory Committee, may contribute cash or other property to the Trust other
than as a voluntary contribution if the contribution is a "rollover
contribution" which the Code permits an employee to transfer either directly or
indirectly from one qualified plan to another qualified plan. Before accepting a
rollover contribution, the Trustee may require an Employee to furnish
satisfactory evidence that the proposed transfer is in fact a "rollover
contribution" which the Code permits an employee to make to a qualified plan. A
rollover contribution is not an Annual Addition under Part 2 of Article III.
The Trustee will invest the rollover contribution in a segregated investment
Account for the Participant's sole benefit unless the Trustee (or the Named
Fiduciary, in the case of a nondiscretionary Trustee designation), in its sole
discretion, agrees to invest the rollover contribution as part of the Trust
Fund. The Trustee will not have any investment responsibility with respect to a
Participant's segregated rollover Account. The Participant, however, from time
to time, may direct the Trustee in writing as to the investment of his
segregated rollover Account in property, or property interests, of any kind,
real, personal or mixed; provided however, the Participant may not direct the
Trustee to make loans to his Employer. A Participant's segregated rollover
Account alone will bear any extraordinary expenses resulting from investments
made at the direction of the Participant. As of the Accounting Date (or other
valuation date) for each Plan Year, the Advisory Committee will allocate and
credit the net income (or net loss) from a Participant's segregated rollover
Account and the increase or decrease in the fair market value of the assets of a
segregated rollover Account solely to that Account. The Trustee is not liable
nor responsible for any loss resulting to any Beneficiary, nor to any
Participant, by reason of any sale or investment made or other action taken
pursuant to and in accordance with the direction of the Participant. In all
other respects, the Trustee will hold, administer and distribute a rollover
contribution in the same manner as any Employer contribution made to the Trust.
An eligible Employee, prior to satisfying the Plan's eligibility conditions,
may make a rollover contribution to the Trust to the same extent and in the same
manner as a Participant. If an Employee makes a rollover contribution to the
Trust prior to satisfying the Plan's eligibility conditions, the Advisory
Committee and Trustee must treat the Employee as a Participant for all purposes
of the Plan except the Employee is not a Participant for purposes of sharing in
Employer contributions or Participant forfeitures under the Plan until he
actually becomes a Participant in the Plan. If the Employee has a Separation
from
4.01
<PAGE>
Service prior to becoming a Participant, the Trustee will distribute his
rollover contribution Account to him as if it were an Employer contribution
Account.
4.04 PARTICIPANT CONTRIBUTION - FORFEITABILITY. A Participant's Accrued
-----------------------------------------
Benefit is, at all times, 100% Nonforfeitable to the extent the value of his
Accrued Benefit is derived from his Participant contributions described in this
Article IV.
4.05 PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION. A Participant, by
--------------------------------------------------
giving prior written notice to the Trustee, may withdraw all or any part of the
value of his Accrued Benefit derived from his Participant contributions
described in this Article IV. A distribution of Participant contributions must
comply with the joint and survivor requirements described in Article VI, if
those requirements apply to the Participant. A Participant may not exercise his
right to withdraw the value of his Accrued Benefit derived from his Participant
contributions more than once during any Plan Year. The Trustee, in accordance
with the direction of the Advisory Committee, will distribute a Participant's
unwithdrawn Accrued Benefit attributable to his Participant contributions in
accordance with the provisions of Article VI applicable to the distribution of
the Participant's Nonforfeitable Accrued Benefit.
4.06 PARTICIPANT CONTRIBUTION - ACCRUED BENEFIT. The Advisory Committee
------------------------------------------
must maintain a separate Account(s) in the name of each Participant to reflect
the Participant's Accrued Benefit under the Plan derived from his Participant
contributions. A Participant's Accrued Benefit derived from his Participant
contributions as of any applicable date is the balance of his separate
Participant contribution Account(s).
* * * * * * * * * * * * * * *
4.02
<PAGE>
ARTICLE V
TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 NORMAL RETIREMENT AGE. The Employer must define Normal Retirement Age
---------------------
in its Adoption Agreement. A Participant's Accrued Benefit derived from Employer
contributions is 100% Nonforfeitable upon and after his attaining Normal
Retirement Age (if employed by the Employer on or after that date).
5.02 PARTICIPANT DISABILITY OR DEATH. The Employer may elect in its
-------------------------------
Adoption Agreement to provide a Participant's Accrued Benefit derived from
Employer contributions will be 100% Nonforfeitable if the Participant's
Separation from Service is a result of his death or his disability.
5.03 VESTING SCHEDULE. Except as provided in Sections 5.01 and 5.02, for
----------------
each Year of Service, a Participant's Nonforfeitable percentage of his Accrued
Benefit derived from Employer contributions equals the percentage in the vesting
schedule completed by the Employer in its Adoption Agreement.
(A) Election of Special Vesting Formula. If the Trustee makes a distribution
(other than a cash-out distribution described in Section 5.04) to a partially-
vested Participant, and the Participant has not incurred a Forfeiture Break in
Service at the relevant time, the Advisory Committee will establish a separate
Account for the Participant's Accrued Benefit. At any relevant time following
the distribution, the Advisory Committee will determine the Participant's
Nonforfeitable Accrued Benefit derived from Employer contributions in
accordance with the following formula: P(AB + (R x D)) - (R x D).
To apply this formula, "P" is the Participant's current vesting percentage at
the relevant time, "AB" is the Participant's Employer-derived Accrued Benefit at
the relevant time, "R" is the ratio of "AB" to the Participant's Employer-
derived Accrued Benefit immediately following the earlier distribution and "D"
is the amount of the earlier distribution. If, under a restated Plan, the Plan
has made distribution to a partially-vested Participant prior to its restated
Effective Date and is unable to apply the cash-out provisions of Section 5.04 to
that prior distribution, this special vesting formula also applies to that
Participant's remaining Account. The Employer, in an addendum to its Adoption
Agreement, numbered Section 5.03, may elect to modify this formula to read as
follows: P(AB + D) - D.
5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/RESTORATION
--------------------------------------------------------------------
OF FORFEITED ACCRUED BENEFIT. If, pursuant to Article VI, a partially-vested
- ----------------------------
Participant receives a cash-out distribution before he incurs a Forfeiture Break
in Service (as defined in Section 5.08), the cash-out distribution will result
in an immediate forfeiture of the nonvested portion of the Participant's Accrued
Benefit derived from Employer contributions. See Section 5.09. A partially-
vested Participant is a Participant whose Nonforfeitable Percentage determined
under Section 5.03 is less than 100%. A cash-out distribution is a distribution
of the entire present value of the Participant's Nonforfeitable Accrued Benefit.
(A) Restoration and Conditions upon Restoration. A partially-vested Participant
who is re-employed by the Employer after receiving a cash-out distribution of
the Nonforfeitable percentage of his Accrued Benefit may repay the Trustee the
amount of the cash-out distribution attributable to Employer contributions,
unless the Participant no longer has a right to restoration by reason of the
conditions of this Section 5.04(A). If a partially-vested Participant makes the
cash-out distribution repayment, the Advisory Committee, subject to the
conditions of this Section 5.04(A), must restore his Accrued Benefit
attributable to Employer contributions to the same dollar amount as the dollar
amount of his Accrued Benefit on the Accounting Date, or other valuation date,
immediately preceding the date of the cash-out distribution, unadjusted for any
gains or losses occurring subsequent to that Accounting Date, or other valuation
date. Restoration of the Participant's Accrued Benefit includes restoration of
all Code (S)411(d)(6) protected benefits with respect to that restored Accrued
Benefit, in accordance with applicable Treasury regulations. The Advisory
Committee will not restore a re-employed Participant's Accrued Benefit under
this paragraph
5.01
<PAGE>
if:
(1) 5 years have elapsed since the Participant's first re-employment date with
the Employer following the cash-out distribution; or
(2) The Participant incurred a Forfeiture Break in Service (as defined in
Section 5.08). This condition also applies if the Participant makes repayment
within the Plan Year in which he incurs the Forfeiture Break in Service and
that Forfeiture Break in Service would result in a complete forfeiture of the
amount the Advisory Committee otherwise would restore.
(B) Time and Method of Restoration. If neither of the two conditions preventing
restoration of the Participant's Accrued Benefit applies, the Advisory Committee
will restore the Participant's Accrued Benefit as of the Plan Year Accounting
Date coincident with or immediately following the repayment. To restore the
Participant's Accrued Benefit, the Advisory Committee, to the extent necessary,
will allocate to the Participant's Account:
(1) First, the amount, if any, of Participant forfeitures the Advisory
Committee would otherwise allocate under Section 3.05;
(2) Second, the amount, if any, of the Trust Fund net income or gain for the
Plan Year; and
(3) Third, the Employer contribution for the Plan Year to the extent made
under a discretionary formula.
In an addendum to its Adoption Agreement numbered 5.04(B), the Employer may
eliminate as a means of restoration any of the amounts described in clauses (1),
(2) and (3) or may change the order of priority of these amounts. To the extent
the amounts described in clauses (1), (2) and (3) are insufficient to enable the
Advisory Committee to make the required restoration, the Employer must
contribute, without regard to any requirement or condition of Section 3.01, the
additional amount necessary to enable the Advisory Committee to make the
required restoration. If, for a particular Plan Year, the Advisory Committee
must restore the Accrued Benefit of more than one re-employed Participant, then
the Advisory Committee will make the restoration allocations to each such
Participant's Account in the same proportion that a Participant's restored
amount for the Plan Year bears to the restored amount for the Plan Year of all
re-employed Participants. The Advisory Committee will not take into account any
allocation under this Section 5.04 in applying the limitation on allocations
under Part 2 of Article III.
(C) 0% Vested Participant. The Employer must specify in its Adoption Agreement
whether the deemed cash-out rule applies to a 0% vested Participant. A 0% vested
Participant is a Participant whose Accrued Benefit derived from Employer
contributions is entirely forfeitable at the time of his Separation from
Service. If the Participant's Account is not entitled to an allocation of
Employer contributions for the Plan Year in which he has a Separation from
Service, the Advisory Committee will apply the deemed cash-out rule as if the 0%
vested Participant received a cash-out distribution on the date of the
Participant's Separation from Service. If the Participant's Account is entitled
to an allocation of Employer contributions or Participant forfeitures for the
Plan Year in which he has a Separation from Service, the Advisory Committee will
apply the deemed cash-out rule as if the 0% vested Participant received a cash-
out distribution on the first day of the first Plan Year beginning after his
Separation from Service. For purposes of applying the restoration provisions of
this Section 5.04, the Advisory Committee will treat the 0% vested Participant
as repaying his cash-out "distribution" on the first date of his re-employment
with the Employer. If the deemed cash-out rule does not apply to the Employer's
Plan, a 0% vested Participant will not incur a forfeiture until he incurs a
Forfeiture Break in Service.
5.02
<PAGE>
5.05 SEGREGATED ACCOUNT FOR REPAID AMOUNT. Until the Advisory Committee
------------------------------------
restores the Participant's Accrued Benefit, as described in Section 5.04, the
Trustee will invest the cash-out amount the Participant has repaid in a
segregated Account maintained solely for that Participant. The Trustee must
invest the amount in the Participant's segregated Account in Federally insured
interest bearing savings account(s) or time deposit(s) (or a combination of
both), or in other fixed income investments. Until commingled with the balance
of the Trust Fund on the date the Advisory Committee restores the Participant's
Accrued Benefit, the Participant's segregated Account remains a part of the
Trust, but it alone shares in any income it earns and it alone bears any expense
or loss it incurs. Unless the repayment qualifies as a rollover contribution,
the Advisory Committee will direct the Trustee to repay to the Participant as
soon as is administratively practicable the full amount of the Participant's
segregated Account if the Advisory Committee determines either of the conditions
of Section 5.04(A) prevents restoration as of the applicable Accounting Date,
notwithstanding the Participant's repayment.
5.06 YEAR OF SERVICE - VESTING. For purposes of vesting under Section 5.03,
-------------------------
Year of Service means any 12-consecutive month period designated in the
Employer's Adoption Agreement during which an Employee completes not less than
the number of Hours of Service (not exceeding 1,000) specified in the Employer's
Adoption Agreement. A Year of Service includes any Year of Service earned prior
to the Effective Date of the Plan, except as provided in Section 5.08.
5.07 BREAK IN SERVICE - VESTING. For purposes of this Article V, a
--------------------------
Participant incurs a "Break in Service" if during any vesting computation period
he does not complete more than 500 Hours of Service. If, pursuant to Section
5.06, the Plan does not require more than 500 Hours of Service to receive credit
for a Year of Service, a Participant incurs a Break in Service in a vesting
computation period in which he fails to complete a Year of Service.
5.08 INCLUDED YEARS OF SERVICE - VESTING. For purposes of determining
-----------------------------------
"Years of Service" under Section 5.06, the Plan takes into account all Years of
Service an Employee completes with the Employer except:
(a) For the sole purpose of determining a Participant's Nonforfeitable
percentage of his Accrued Benefit derived from Employer contributions which
accrued for his benefit prior to a Forfeiture Break in Service, the Plan
disregards any Year of Service after the Participant first incurs a Forfeiture
Break in Service. The Participant incurs a Forfeiture Break in Service when he
incurs 5 consecutive Breaks in Service.
(b) The Plan disregards any Year of Service excluded under the Employer's
Adoption Agreement.
The Plan does not apply the Break in Service rule under Code (S)411(a)(6)(B).
Therefore, an Employee need not complete a Year of Service after a Break in
Service before the Plan takes into account the Employee's otherwise includible
Years of Service under this Article V.
5.09 FORFEITURE OCCURS. A Participant's forfeiture, if any, of his Accrued
-----------------
Benefit derived from Employer contributions occurs under the Plan on the earlier
of:
(a) The last day of the vesting computation period in which the Participant
first incurs a Forfeiture Break in Service; or
(b) The date the Participant receives a cash-out distribution.
The Advisory Committee determines the percentage of a Participant's Accrued
Benefit forfeiture, if any, under this Section 5.09 solely by reference to the
vesting schedule of Section 5.03. A Participant does not forfeit any portion of
his Accrued Benefit for any other reason or cause except as expressly provided
by this Section 5.09 or as provided under Section 9.14.
* * * * * * * * * * * * * * *
5.03
<PAGE>
ARTICLE VI
TIME AND METHOD OF PAYMENT OF BENEFITS
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. Unless, pursuant to Section 6.03,
----------------------------------
the Participant or the Beneficiary elects in writing to a different time or
method of payment, the Advisory Committee will direct the Trustee to commence
distribution of a Participant's Nonforfeitable Accrued Benefit in accordance
with this Section 6.01. A Participant must consent, in writing, to any
distribution required under this Section 6.01 if the present value of the
Participant's Nonforfeitable Accrued Benefit, at the time of the distribution to
the Participant, exceeds $3,500 and the Participant has not attained the later
of Normal Retirement Age or age 62. Furthermore, the Participant's spouse also
must consent, in writing, to any distribution, for which Section 6.04 requires
the spouse's consent. For all purposes of this Article VI, the term "annuity
starting date" means the first day of the first period for which the Plan pays
an amount as an annuity or in any other form. A distribution date under this
Article VI, unless otherwise specified within the Plan, is the date or dates the
Employer specifies in the Adoption Agreement, or as soon as administratively
practicable following that distribution date. For purposes of the consent
requirements under this Article VI, if the present value of the Participant's
Nonforfeitable Accrued Benefit, at the time of any distribution, exceeds $3,500,
the Advisory Committee must treat that present value as exceeding $3,500 for
purposes of all subsequent Plan distributions to the Participant.
(A) Separation from Service For a Reason Other Than Death.
(1) Participant's Nonforfeitable Accrued Benefit Not Exceeding $3,500. If the
Participant's Separation from Service is for any reason other than death, the
Advisory Committee will direct the Trustee to distribute the Participant's
Nonforfeitable Accrued Benefit in a lump sum, on the distribution date the
Employer specifies in the Adoption Agreement, but in no event later than the
60th day following the close of the Plan Year in which the Participant attains
Normal Retirement Age. If the Participant has attained Normal Retirement Age at
the time of his Separation from Service, the distribution under this paragraph
will occur no later than the 60th day following the close of the Plan Year in
which the Participant's Separation from Service occurs.
(2) Participant's Nonforfeitable Accrued Benefit Exceeds $3,500. If the
Participant's Separation from Service is for any reason other than death, the
Advisory Committee will direct the Trustee to commence distribution of the
Participant's Nonforfeitable Accrued Benefit in a form and at the time elected
by the Participant, pursuant to Section 6.03. In the absence of an election by
the Participant, the Advisory Committee will direct the Trustee to distribute
the Participant's Nonforfeitable Accrued Benefit in a lump sum (or, if
applicable, the normal annuity form of distribution required under Section
6.04), on the 60th day following the close of the Plan Year in which the latest
of the following events occurs: (a) the Participant attains Normal Retirement
Age; (b) the Participant attains age 62; or (c) the Participant's Separation
from Service.
(3) Disability. If the Participant's Separation from Service is because of his
disability, the Advisory Committee will direct the Trustee to pay the
Participant's Nonforfeitable Accrued Benefit in lump sum, on the distribution
date the Employer specifies in the Adoption Agreement, subject to the notice and
consent requirements of this Article VI and subject to the applicable mandatory
commencement dates described in Paragraphs (1) and (2).
(4) Hardship. Prior to the time at which the Participant may receive
distribution under Paragraphs (1), (2) or (3), the Participant may request a
distribution from his Nonforfeitable Accrued Benefit in an amount necessary to
satisfy a hardship, if the Employer elects in the Adoption Agreement to permit
hardship distributions. Unless the Employer elects otherwise in the Adoption
Agreement, a hardship distribution must be on account of any of the following:
(a) medical expenses; (b) the purchase (excluding mortgage payments) of the
Participant's principal residence; (c) post-secondary education tuition, for the
next semester or quarter, for the Participant or for the Participant's spouse,
children or dependents; (d) to
6.01
<PAGE>
prevent the eviction of the Participant from his principal residence or the
foreclosure on the mortgage of the Participant's principal residence; (e)
funeral expenses of the Participant's family member; or (f) the Participant's
disability. A partially-vested Participant may not receive a hardship
distribution described in this Paragraph (A)(4) prior to incurring a Forfeiture
Break in Service, unless the hardship distribution is a cash-out distribution
(as defined in Article V). The Advisory Committee will direct the Trustee to
make the hardship distribution as soon as administratively practicable after the
Participant makes a valid request for the hardship distribution.
(B) Required Beginning Date. If any distribution commencement date described
under Paragraph (A) of this Section 6.01, either by Plan provision or by
Participant election (or nonelection), is later than the Participant's Required
Beginning Date, the Advisory Committee instead must direct the Trustee to make
distribution on the Participant's Required Beginning Date, subject to the
transitional election, if applicable, under Section 6.03(D). A Participant's
Required Beginning Date is the April 1 following the close of the calendar year
in which the Participant attains age 70 1/2. However, if the Participant, prior
to incurring a Separation from Service, attained age 70 1/2 by January 1, 1988,
and, for the five Plan Year period ending in the calendar year in which he
attained age 70 1/2 and for all subsequent years, the Participant was not a more
than 5% owner, the Required Beginning Date is the April 1 following the close of
the calendar year in which the Participant separates from Service or, if
earlier, the April 1 following the close of the calendar year in which the
Participant becomes a more than 5% owner. Furthermore, if a Participant who was
not a more than 5% owner attained age 70 1/2 during 1988 and did not incur a
Separation from Service prior to January 1, 1989, his Required Beginning Date is
April 1, 1990. A mandatory distribution at the Participant's Required Beginning
Date will be in lump sum (or, if applicable, the normal annuity form of
distribution required under Section 6.04) unless the Participant, pursuant to
the provisions of this Article VI, makes a valid election to receive an
alternative form of payment.
(C) Death of the Participant. The Advisory Committee will direct the Trustee, in
accordance with this Section 6.01(C), to distribute to the Participant's
Beneficiary the Participant's Nonforfeitable Accrued Benefit remaining in the
Trust at the time of the Participant's death. Subject to the requirements of
Section 6.04, the Advisory Committee will determine the death benefit by
reducing the Participant's Nonforfeitable Accrued Benefit by any security
interest the Plan has against that Nonforfeitable Accrued Benefit by reason of
an outstanding Participant loan.
(1) Deceased Participant's Nonforfeitable Accrued Benefit Does Not Exceed
$3,500. The Advisory Committee, subject to the requirements of Section 6.04,
must direct the Trustee to distribute the deceased Participant's Nonforfeitable
Accrued Benefit in a single sum, as soon as administratively practicable
following the Participant's death or, if later, the date on which the Advisory
Committee receives notification of or otherwise confirms the Participant's
death.
(2) Deceased Participant's Nonforfeitable Accrued Benefit Exceeds $3,500. The
Advisory Committee will direct the Trustee to distribute the deceased
Participant's Nonforfeitable Accrued Benefit at the time and in the form elected
by the Participant or, if applicable by the Beneficiary, as permitted under this
Article VI. In the absence of an election, subject to the requirements of
Section 6.04, the Advisory Committee will direct the Trustee to distribute the
Participant's undistributed Nonforfeitable Accrued Benefit in a lump sum on the
first distribution date following the close of the Plan Year in which the
Participant's death occurs or, if later, the first distribution date following
the date the Advisory Committee receives notification of or otherwise confirms
the Participant's death.
If the death benefit is payable in full to the Participant's surviving spouse,
the surviving spouse, in addition to the distribution options provided in this
Section 6.01(C), may elect distribution at any time or in any form (other than a
joint and survivor annuity) this Article VI would permit for a Participant.
6.02
<PAGE>
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. Subject to the annuity
------------------------------------
distribution requirements, if any, prescribed by Section 6.04, and any
restrictions prescribed by Section 6.03, a Participant or Beneficiary may elect
distribution under one, or any combination, of the following methods: (a) by
payment in a lump sum; or (b) by payment in monthly, quarterly or annual
installments over a fixed reasonable period of time, not exceeding the life
expectancy of the Participant, or the joint life and last survivor expectancy of
the Participant and his Beneficiary. The Employer may elect in its Adoption
Agreement to modify the methods of payment available under this Section 6.02.
The distribution options permitted under this Section 6.02 are available only
if the present value of the Participant Nonforfeitable Accrued Benefit, at the
time of the distribution to the Participant, exceeds $3,500. To facilitate
installment payments under this Article VI, the Advisory Committee may direct
the Trustee to segregate all or any part of the Participant's Accrued Benefit in
a separate Account. The Trustee will invest the Participant's segregated Account
in Federally insured interest bearing savings account(s) or time deposit(s) (or
a combination of both), or in other fixed income investments. A segregated
Account remains a part of the Trust, but it alone shares in any income it earns,
and it alone bears any expense or loss it incurs. A Participant or Beneficiary
may elect to receive an installment distribution in the form of a
Nontransferable Annuity Contract. Under an installment distribution, the
Participant or Beneficiary, at any time, may elect to accelerate the payment of
all, or any portion, of the Participant's unpaid Nonforfeitable Accrued Benefit,
subject to the requirements of Section 6.04.
(A) Minimum Distribution Requirements for Participants. The Advisory Committee
may not direct the Trustee to distribute the Participant's Nonforfeitable
Accrued Benefit, nor may the Participant elect to have the Trustee distribute
his Nonforfeitable Accrued Benefit, under a method of payment which, as of the
Required Beginning Date, does not satisfy the minimum distribution requirements
under Code (S)401(a)(9) and the applicable Treasury regulations. The minimum
distribution for a calendar year equals the Participant's Nonforfeitable Accrued
Benefit as of the latest valuation date preceding the beginning of the calendar
year divided by the Participant's life expectancy or, if applicable, the joint
and last survivor expectancy of the Participant and his designated Beneficiary
(as determined under Article VIII, subject to the requirements of the Code
(S)401(a)(9) regulations). The Advisory Committee will increase the
Participant's Nonforfeitable Accrued Benefit, as determined on the relevant
valuation date, for contributions or forfeitures allocated after the valuation
date and by December 31 of the valuation calendar year, and will decrease the
valuation by distributions made after the valuation date and by December 31 of
the valuation calendar year. For purposes of this valuation, the Advisory
Committee will treat any portion of the minimum distribution for the first
distribution calendar year made after the close of that year as a distribution
occurring in that first distribution calendar year. In computing a minimum
distribution, the Advisory Committee must use the unisex life expectancy
multiples under Treas. Reg. (S)1.72-9. The Advisory Committee, only upon the
Participant's written request, will compute the minimum distribution for a
calendar year subsequent to the first calendar year for which the Plan requires
a minimum distribution by redetermining the applicable life expectancy. However,
the Advisory Committee may not redetermine the joint life and last survivor
expectancy of the Participant and a nonspouse designated Beneficiary in a manner
which takes into account any adjustment to a life expectancy other than the
Participant's life expectancy.
If the Participant's spouse is not his designated Beneficiary, a method of
payment to the Participant (whether by Participant election or by Advisory
Committee direction) may not provide more than incidental benefits to the
Beneficiary. For Plan Years beginning after December 31, 1988, the Plan must
satisfy the minimum distribution incidental benefit ("MDIB") requirement in the
Treasury regulations issued under Code (S)401(a)(9) for distributions made on or
after the Participant's Required Beginning Date and before the Participant's
death. To satisfy the MDIB requirement, the Advisory Committee will compute the
minimum distribution required by this Section 6.02(A) by substituting the
applicable MDIB divisor for the applicable life expectancy factor, if the MDIB
divisor is a lesser number. Following the Participant's death, the Advisory
Committee will compute the minimum distribution required by this Section 6.02(A)
solely on the basis of the applicable life expectancy factor and will disregard
the MDIB factor. For Plan Years beginning prior to January 1, 1989, the Plan
satisfies the incidental benefits requirement if the distributions to the
Participant satisfied the MDIB requirement or if the present value of the
retirement benefits payable
6.03
<PAGE>
solely to the Participant is greater than 50% of the present value of the total
benefits payable to the Participant and his Beneficiaries. The Advisory
Committee must determine whether benefits to the Beneficiary are incidental as
of the date the Trustee is to commence payment of the retirement benefits to the
Participant, or as of any date the Trustee redetermines the payment period to
the Participant.
The minimum distribution for the first distribution calendar year is due by
the Participant's Required Beginning Date. The minimum distribution for each
subsequent distribution calendar year, including the calendar year in which the
Participant's Required Beginning Date occurs, is due by December 31 of that
year. If the Participant receives distribution in the form of a Nontransferable
Annuity Contract, the distribution satisfies this Section 6.02(A) if the
contract complies with the requirements of Code (S)401(a)(9) and the applicable
Treasury regulations.
(B) Minimum Distribution Requirements for Beneficiaries. The method of
distribution to the Participant's Beneficiary must satisfy Code (S)401(a)(9) and
the applicable Treasury regulations. If the Participant's death occurs after his
Required Beginning Date or, if earlier, the date the Participant commences an
irrevocable annuity pursuant to Section 6.04, the method of payment to the
Beneficiary must provide for completion of payment over a period which does not
exceed the payment period which had commenced for the Participant. If the
Participant's death occurs prior to his Required Beginning Date, and the
Participant had not commenced an irrevocable annuity pursuant to Section 6.04,
the method of payment to the Beneficiary, subject to Section 6.04, must provide
for completion of payment to the Beneficiary over a period not exceeding: (i) 5
years after the date of the Participant's death; or (ii) if the Beneficiary is a
designated Beneficiary, the designated Beneficiary's life expectancy. The
Advisory Committee may not direct payment of the Participant's Nonforfeitable
Accrued Benefit over a period described in clause (ii) unless the Trustee will
commence payment to the designated Beneficiary no later than the December 31
following the close of the calendar year in which the Participant's death
occurred or, if later, and the designated Beneficiary is the Participant's
surviving spouse, December 31 of the calendar year in which the Participant
would have attained age 70 1/2. If the Trustee will make distribution in
accordance with clause (ii), the minimum distribution for a calendar year equals
the Participant's Nonforfeitable Accrued Benefit as of the latest valuation date
preceding the beginning of the calendar year divided by the designated
Beneficiary's life expectancy. The Advisory Committee must use the unisex life
expectancy multiples under Treas. Reg. (S)1.72-9 for purposes of applying this
paragraph. The Advisory Committee, only upon the written request of the
Participant or of the Participant's surviving spouse, will recalculate the life
expectancy of the Participant's surviving spouse not more frequently than
annually, but may not recalculate the life expectancy of a nonspouse designated
Beneficiary after the Trustee commences payment to the designated Beneficiary.
The Advisory Committee will apply this paragraph by treating any amount paid to
the Participant's child, which becomes payable to the Participant's surviving
spouse upon the child's attaining the age of majority, as paid to the
Participant's surviving spouse. Upon the Beneficiary's written request, the
Advisory Committee must direct the Trustee to accelerate payment of all, or any
portion, of the Participant's unpaid Accrued Benefit, as soon as
administratively practicable following the effective date of that request.
6.03 BENEFIT PAYMENT ELECTIONS. Not earlier than 90 days, but not later
-------------------------
than 30 days, before the Participant's annuity starting date, the Advisory
Committee must provide a benefit notice to a Participant who is eligible to make
an election under this Section 6.03. The benefit notice must explain the
optional forms of benefit in the Plan, including the material features and
relative values of those options, and the Participant's right to defer
distribution until he attains the later of Normal Retirement Age or age 62.
If a Participant or Beneficiary makes an election prescribed by this Section
6.03, the Advisory Committee will direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with that election.
Any election under this Section 6.03 is subject to the requirements of Section
6.02 and of Section 6.04. The Participant or Beneficiary must make an election
under this Section 6.03 by filing his election with the Advisory Committee at
any time before the Trustee otherwise would commence to pay a Participant's
Accrued Benefit in accordance with the requirements of Article VI.
6.04
<PAGE>
(A) Participant Elections After Separation from Service. If the present value of
a Participant's Nonforfeitable Accrued Benefit exceeds $3,500, he may elect to
have the Trustee commence distribution as of any distribution date permitted
under the Employer's Adoption Agreement Section 6.03. The Participant may
reconsider an election at any time prior to the annuity starting date and elect
to commence distribution as of any other distribution date permitted under the
Employer's Adoption Agreement Section 6.03. If the Participant is partially-
vested in his Accrued Benefit, an election under this Paragraph (A) to
distribute prior to the Participant's incurring a Forfeiture Break in Service
(as defined in Section 5.08), must be in the form of a cash-out distribution (as
defined in Article V). A Participant may not receive a cash-out distribution if,
prior to the time the Trustee actually makes the cash-out distribution, the
Participant returns to employment with the Employer. Following his attainment of
Normal Retirement Age, a Participant who has separated from Service may elect
distribution as of any distribution date, irrespective of the elections under
Adoption Agreement Section 6.03.
(B) Participant Elections Prior to Separation from Service. The Employer must
specify in its Adoption Agreement the distribution election rights, if any, a
Participant has prior to his Separation from Service. A Participant must make an
election under this Section 6.03(B) on a form prescribed by the Advisory
Committee at any time during the Plan Year for which his election is to be
effective. In his written election, the Participant must specify the percentage
or dollar amount he wishes the Trustee to distribute to him. The Participant's
election relates solely to the percentage or dollar amount specified in his
election form and his right to elect to receive an amount, if any, for a
particular Plan Year greater than the dollar amount or percentage specified in
his election form terminates on the Accounting Date. The Trustee must make a
distribution to a Participant in accordance with his election under this Section
6.03(B) within the 90 day period (or as soon as administratively practicable)
after the Participant files his written election with the Trustee. The Trustee
will distribute the balance of the Participant's Accrued Benefit not distributed
pursuant to his election(s) in accordance with the other distribution provisions
of this Plan.
(C) Death Benefit Elections. If the present value of the deceased Participant's
Nonforfeitable Accrued Benefit exceeds $3,500, the Participant's Beneficiary may
elect to have the Trustee distribute the Participant's Nonforfeitable Accrued
Benefit in a form and within a period permitted under Section 6.02. The
Beneficiary's election is subject to any restrictions designated in writing by
the Participant and not revoked as of his date of death.
(D) Transitional Elections. Notwithstanding the provisions of Sections 6.01 and
6.02, if the Participant (or Beneficiary) signed a written distribution
designation prior to January 1, 1984, the Advisory Committee must distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with that
designation, subject however, to the survivor requirements, if applicable, of
Sections 6.04, 6.05 and 6.06. This Section 6.03(D) does not apply to a pre-1984
distribution designation, and the Advisory Committee will not comply with that
designation, if any of the following applies: (1) the method of distribution
would have disqualified the Plan under Code (S)401(a)(9) as in effect on
December 31, 1983; (2) the Participant did not have an Accrued Benefit as of
December 31, 1983; (3) the distribution designation does not specify the timing
and form of the distribution and the death Beneficiaries (in order of priority);
(4) the substitution of a Beneficiary modifies the payment period of the
distribution; or, (5) the Participant (or Beneficiary) modifies or revokes the
distribution designation. In the event of a revocation, the Plan must
distribute, no later than December 31 of the calendar year following the year of
revocation, the amount which the Participant would have received under Section
6.02(A) if the distribution designation had not been in effect or, if the
Beneficiary revokes the distribution designation, the amount which the
Beneficiary would have received under Section 6.02(B) if the distribution
designation had not been in effect. The Advisory Committee will apply this
Section 6.03(D) to rollovers and transfers in accordance with Part J of the Code
(S)401(a)(9) Treasury regulations.
6.05
<PAGE>
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES.
-----------------------------------------------------------------
(A) Joint and Survivor Annuity. The Advisory Committee must direct the
Trustee to distribute a married or unmarried Participant's Nonforfeitable
Accrued Benefit in the form of a qualified joint and survivor annuity, unless
the Participant makes a valid waiver election (described in Section 6.05) within
the 90 day period ending on the annuity starting date. If, as of the annuity
starting date, the Participant is married, a qualified joint and survivor
annuity is an immediate annuity which is purchasable with the Participant's
Nonforfeitable Accrued Benefit and which provides a life annuity for the
Participant and a survivor annuity payable for the remaining life of the
Participant's surviving spouse equal to 50% of the amount of the annuity payable
during the life of the Participant. If, as of the annuity starting date, the
Participant is not married, a qualified joint and survivor annuity is an
immediate life annuity for the Participant which is purchasable with the
Participant's Nonforfeitable Accrued Benefit. On or before the annuity starting
date, the Advisory Committee, without Participant or spousal consent, must
direct the Trustee to pay the Participant's Nonforfeitable Accrued Benefit in a
lump sum, in lieu of a qualified joint and survivor annuity, in accordance with
Section 6.01, if the Participant's Nonforfeitable Accrued Benefit is not greater
than $3,500. This Section 6.04(A) applies only to a Participant who has
completed at least one Hour of Service with the Employer after August 22, 1984.
(B) Preretirement Survivor Annuity. If a married Participant dies prior to his
annuity starting date, the Advisory Committee will direct the Trustee to
distribute a portion of the Participant's Nonforfeitable Accrued Benefit to the
Participant's surviving spouse in the form of a preretirement survivor annuity,
unless the Participant has a valid waiver election (as described in Section
6.06) in effect, or unless the Participant and his spouse were not married
throughout the one year period ending on the date of his death. A preretirement
survivor annuity is an annuity which is purchasable with 50% of the
Participant's Nonforfeitable Accrued Benefit (determined as of the date of the
Participant's death) and which is payable for the life of the Participant's
surviving spouse. The value of the preretirement survivor annuity is
attributable to Employer contributions and to Employee contributions in the same
proportion as the Participant's Nonforfeitable Accrued Benefit is attributable
to those contributions. The portion of the Participant's Nonforfeitable Accrued
Benefit not payable under this paragraph is payable to the Participant's
Beneficiary, in accordance with the other provisions of this Article VI. If the
present value of the preretirement survivor annuity does not exceed $3,500, the
Advisory Committee, on or before the annuity starting date, must direct the
Trustee to make a lump sum distribution to the Participant's surviving spouse,
in lieu of a preretirement survivor annuity. This Section 6.04(B) applies only
to a Participant who dies after August 22, 1984, and either (i) completes at
least one Hour of Service with the Employer after August 22, 1984, or (ii)
separated from Service with at least 10 Years of Service (as defined in Section
5.06) and completed at least one Hour of Service with the Employer in a Plan
Year beginning after December 31, 1975.
(C) Surviving Spouse Elections. If the present value of the preretirement
survivor annuity exceeds $3,500, the Participant's surviving spouse may elect to
have the Trustee commence payment of the preretirement survivor annuity at any
time following the date of the Participant's death, but not later than the
mandatory distribution periods described in Section 6.02, and may elect any of
the forms of payment described in Section 6.02, in lieu of the preretirement
survivor annuity. In the absence of an election by the surviving spouse, the
Advisory Committee must direct the Trustee to distribute the preretirement
survivor annuity on the first distribution date following the close of the Plan
Year in which the latest of the following events occurs: (i) the Participant's
death; (ii) the date the Advisory Committee receives notification of or
otherwise confirms the Participant's death; (iii) the date the Participant would
have attained Normal Retirement Age; or (iv) the date the Participant would have
attained age 62.
6.06
<PAGE>
(D) Special Rules. If the Participant has in effect a valid waiver election
regarding the qualified joint and survivor annuity or the preretirement survivor
annuity, the Advisory Committee must direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with Sections 6.01,
6.02 and 6.03. The Advisory Committee will reduce the Participant's
Nonforfeitable Accrued Benefit by any security interest (pursuant to any offset
rights authorized by Section 10.03[E]) held by the Plan by reason of a
Participant loan to determine the value of the Participant's Nonforfeitable
Accrued Benefit distributable in the form of a qualified joint and survivor
annuity or preretirement survivor annuity, provided any post-August 18, 1985,
loan satisfied the spousal consent requirement described in Section 10.03[E] of
the Plan. For purposes of applying this Article VI, the Advisory Committee
treats a former spouse as the Participant's spouse or surviving spouse to the
extent provided under a qualified domestic relations order described in Section
6.07. The provisions of this Section 6.04, and of Sections 6.05 and 6.06, apply
separately to the portion of the Participant's Nonforfeitable Accrued Benefit
subject to the qualified domestic relations order and to the portion of the
Participant's Nonforfeitable Accrued Benefit not subject to that order.
(E) Profit Sharing Plan Election. If this Plan is a profit sharing plan, the
Employer must elect the extent to which the preceding provisions of Section 6.04
apply. If the Employer elects to apply this Section 6.04 only to a Participant
described in this Section 6.04(E), the preceding provisions of this Section 6.04
apply only to the following Participants: (1) a Participant as respects whom the
Plan is a direct or indirect transferee from a plan subject to the Code (S)417
requirements and the Plan received the transfer after December 31, 1984, unless
the transfer is an elective transfer described in Section 13.06; (2) a
Participant who elects a life annuity distribution (if Section 6.02 or Section
13.02 of the Plan requires the Plan to provide a life annuity distribution
option); and (3) a Participant whose benefits under a defined benefit plan
maintained by the Employer are offset by benefits provided under this Plan. If
the Employer elects to apply this Section 6.04 to all Participants, the
preceding provisions of this Section 6.04 apply to all Participants described in
the first two paragraphs of this Section 6.04, without regard to the limitations
of this Section 6.04(E). Sections 6.05 and 6.06 only apply to Participants to
whom the preceding provisions of this Section 6.04 apply.
6.05 WAIVER ELECTION - QUALIFIED JOINT AND SURVIVOR ANNUITY. Not earlier
------------------------------------------------------
than 90 days, but not later than 30 days, before the Participant's annuity
starting date, the Advisory Committee must provide the Participant a written
explanation of the terms and conditions of the qualified joint and survivor
annuity, the Participant's right to make, and the effect of, an election to
waive the joint and survivor form of benefit, the rights of the Participant's
spouse regarding the waiver election and the Participant's right to make, and
the effect of, a revocation of a waiver election. The Plan does not limit the
number of times the Participant may revoke a waiver of the qualified joint and
survivor annuity or make a new waiver during the election period.
A married Participant's waiver election is not valid unless (a) the
Participant's spouse (to whom the survivor annuity is payable under the
qualified joint and survivor annuity), after the Participant has received the
written explanation described in this Section 6.05, has consented in writing to
the waiver election, the spouse's consent acknowledges the effect of the
election, and a notary public or the Plan Administrator (or his representative)
witnesses the spouse's consent, (b) the spouse consents to the alternate form of
payment designated by the Participant or to any change in that designated form
of payment, and (c) unless the spouse is the Participant's sole primary
Beneficiary, the spouse consents to the Participant's Beneficiary designation or
to any change in the Participant's Beneficiary designation. The spouse's consent
to a waiver of the qualified joint and survivor annuity is irrevocable, unless
the Participant revokes the waiver election. The spouse may execute a blanket
consent to any form of payment designation or to any Beneficiary designation
made by the Participant, if the spouse acknowledges the right to limit that
consent to a specific designation but, in writing, waives that right. The
consent requirements of this Section 6.05 apply to a former spouse of the
Participant, to the extent required under a qualified domestic relations order
described in Section 6.07.
6.07
<PAGE>
The Advisory Committee will accept as valid a waiver election which does not
satisfy the spousal consent requirements if the Advisory Committee establishes
the Participant does not have a spouse, the Advisory Committee is not able to
locate the Participant's spouse, the Participant is legally separated or has
been abandoned (within the meaning of State law) and the Participant has a court
order to that effect, or other circumstances exist under which the Secretary of
the Treasury will excuse the consent requirement. If the Participant's spouse is
legally incompetent to give consent, the spouse's legal guardian (even if the
guardian is the Participant) may give consent.
6.06 WAIVER ELECTION - PRERETIREMENT SURVIVOR ANNUITY. The Advisory
-----------------------------------------------------
Committee must provide a written explanation of the preretirement survivor
annuity to each married Participant, within the following period which ends
last: (1) the period beginning on the first day of the Plan Year in which the
Participant attains age 32 and ending on the last day of the Plan Year in which
the Participant attains age 34; (2) a reasonable period after an Employee
becomes a Participant; (3) a reasonable period after the joint and survivor
rules become applicable to the Participant; or (4) a reasonable period after a
fully subsidized preretirement survivor annuity no longer satisfies the
requirements for a fully subsidized benefit. A reasonable period described in
clauses (2), (3) and (4) is the period beginning one year before and ending one
year after the applicable event. If the Participant separates from Service
before attaining age 35, clauses (1), (2), (3) and (4) do not apply and the
Advisory Committee must provide the written explanation within the period
beginning one year before and ending one year after the Separation from Service.
The written explanation must describe, in a manner consistent with Treasury
regulations, the terms and conditions of the preretirement survivor annuity
comparable to the explanation of the qualified joint and survivor annuity
required under Section 6.05. The Plan does not limit the number of times the
Participant may revoke a waiver of the preretirement survivor annuity or make a
new waiver during the election period.
A Participant's waiver election of the preretirement survivor annuity is not
valid unless (a) the Participant makes the waiver election no earlier than the
first day of the Plan Year in which he attains age 35 and (b) the Participant's
spouse (to whom the preretirement survivor annuity is payable) satisfies the
consent requirements described in Section 6.05, except the spouse need not
consent to the form of benefit payable to the designated Beneficiary. The
spouse's consent to the waiver of the preretirement survivor annuity is
irrevocable, unless the Participant revokes the waiver election. Irrespective of
the time of election requirement described in clause (a), if the Participant
separates from Service prior to the first day of the Plan Year in which he
attains age 35, the Advisory Committee will accept a waiver election as respects
the Participant's Accrued Benefit attributable to his Service prior to his
Separation from Service. Furthermore, if a Participant who has not separated
from Service makes a valid waiver election, except for the timing requirement of
clause (a), the Advisory Committee will accept that election as valid, but only
until the first day of the Plan Year in which the Participant attains age 35. A
waiver election described in this paragraph is not valid unless made after the
Participant has received the written explanation described in this Section 6.06.
6.07 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing contained in
---------------------------------------------
this Plan prevents the Trustee, in accordance with the direction of the Advisory
Committee, from complying with the provisions of a qualified domestic relations
order (as defined in Code (S)414(p)). This Plan specifically permits
distribution to an alternate payee under a qualified domestic relations order at
any time, irrespective of whether the Participant has attained his earliest
retirement age (as defined under Code (S)414(p)) under the Plan. A distribution
to an alternate payee prior to the Participant's attainment of earliest
retirement age is available only if: (1) the order specifies distribution at
that time or permits an agreement between the Plan and the alternate payee to
authorize an earlier distribution; and (2) if the present value of the alternate
payee's benefits under the Plan exceeds $3,500, and the order requires, the
alternate payee consents to any distribution occurring prior to the
Participant's attainment of earliest retirement age. The Employer, in an
addendum to its Adoption Agreement numbered 6.07, may elect to limit
distribution to an alternate payee only when the Participant has attained his
earliest retirement age under the Plan. Nothing in this Section 6.07 gives a
Participant a right to receive distribution at a time otherwise not permitted
under the Plan nor does it permit the alternate payee to receive a form of
payment
6.08
<PAGE>
not otherwise permitted under the Plan.
The Advisory Committee must establish reasonable procedures to determine the
qualified status of a domestic relations order. Upon receiving a domestic
relations order, the Advisory Committee promptly will notify the Participant and
any alternate payee named in the order, in writing, of the receipt of the order
and the Plan's procedures for determining the qualified status of the order.
Within a reasonable period of time after receiving the domestic relations order,
the Advisory Committee must determine the qualified status of the order and must
notify the Participant and each alternate payee, in writing, of its
determination. The Advisory Committee must provide notice under this paragraph
by mailing to the individual's address specified in the domestic relations
order, or in a manner consistent with Department of Labor regulations.
If any portion of the Participant's Nonforfeitable Accrued Benefit is payable
during the period the Advisory Committee is making its determination of the
qualified status of the domestic relations order, the Advisory Committee must
make a separate accounting of the amounts payable. If the Advisory Committee
determines the order is a qualified domestic relations order within 18 months of
the date amounts first are payable following receipt of the order, the Advisory
Committee will direct the Trustee to distribute the payable amounts in
accordance with the order. If the Advisory Committee does not make its
determination of the qualified status of the order within the 18-month
determination period, the Advisory Committee will direct the Trustee to
distribute the payable amounts in the manner the Plan would distribute if the
order did not exist and will apply the order prospectively if the Advisory
Committee later determines the order is a qualified domestic relations order.
To the extent it is not inconsistent with the provisions of the qualified
domestic relations order, the Advisory Committee may direct the Trustee to
invest any partitioned amount in a segregated subaccount or separate account and
to invest the account in Federally insured, interest-bearing savings account(s)
or time deposit(s) (or a combination of both), or in other fixed income
investments. A segregated subaccount remains a part of the Trust, but it alone
shares in any income it earns, and it alone bears any expense or loss it incurs.
The Trustee will make any payments or distributions required under this Section
6.07 by separate benefit checks or other separate distribution to the alternate
payee(s).
* * * * * * * * * * * * * * *
6.09
<PAGE>
ARTICLE VII
EMPLOYER ADMINISTRATIVE PROVISIONS
7.01 INFORMATION TO COMMITTEE. The Employer must supply current
--------------------------
information to the Advisory Committee as to the name, date of birth, date of
employment, annual compensation, leaves of absence, Years of Service and date of
termination of employment of each Employee who is, or who will be eligible to
become, a Participant under the Plan, together with any other information which
the Advisory Committee considers necessary. The Employer's records as to the
current information the Employer furnishes to the Advisory Committee are
conclusive as to all persons.
7.02 NO LIABILITY. The Employer assumes no obligation or responsibility to
------------
any of its Employees, Participants or Beneficiaries for any act of, or failure
to act, on the part of its Advisory Committee (unless the Employer is the
Advisory Committee), the Trustee, the Custodian, if any, or the Plan
Administrator (unless the Employer is the Plan Administrator).
7.03 INDEMNITY OF CERTAIN FIDUCIARIES. The Employer indemnifies and saves
--------------------------------
harmless the Plan Administrator and the members of the Advisory Committee, and
each of them, from and against any and all loss resulting from liability to
which the Plan Administrator and the Advisory Committee, or the members of the
Advisory Committee, may be subjected by reason of any act or conduct (except
willful misconduct or gross negligence) in their official capacities in the
administration of this Trust or Plan or both, including all expenses reasonably
incurred in their defense, in case the Employer fails to provide such defense.
The indemnification provisions of this Section 7.03 do not relieve the Plan
Administrator or any Advisory Committee member from any liability he may have
under ERISA for breach of a fiduciary duty. Furthermore, the Plan Administrator
and the Advisory Committee members and the Employer may execute a letter
agreement further delineating the indemnification agreement of this Section
7.03, provided the letter agreement must be consistent with and does not violate
ERISA. The indemnification provisions of this Section 7.03 extend to the Trustee
(or to a Custodian, if any) solely to the extent provided by a letter agreement
executed by the Trustee (or Custodian) and the Employer.
7.04 EMPLOYER DIRECTION OF INVESTMENT. The Employer has the right to
--------------------------------
direct the Trustee with respect to the investment and re-investment of assets
comprising the Trust Fund only if the Trustee consents in writing to permit such
direction. If the Trustee consents to Employer direction of investment, the
Trustee and the Employer must execute a letter agreement as a part of this Plan
containing such conditions, limitations and other provisions they deem
appropriate before the Trustee will follow any Employer direction as respects
the investment or re-investment of any part of the Trust Fund.
7.05 AMENDMENT TO VESTING SCHEDULE. Though the Employer reserves the right
-----------------------------
to amend the vesting schedule at any time, the Advisory Committee will not
apply the amended vesting schedule to reduce the Nonforfeitable percentage of
any Participant's Accrued Benefit derived from Employer contributions
(determined as of the later of the date the Employer adopts the amendment, or
the date the amendment becomes effective) to a percentage less than the
Nonforfeitable percentage computed under the Plan without regard to the
amendment. An amended vesting schedule will apply to a Participant only if the
Participant receives credit for at least one Hour of Service after the new
schedule becomes effective.
If the Employer makes a permissible amendment to the vesting schedule, each
Participant having at least 3 Years of Service with the Employer may elect to
have the percentage of his Nonforfeitable Accrued Benefit computed under the
Plan without regard to the amendment. For Plan Years beginning prior to January
1, 1989, the election described in the preceding sentence applies only to
Participants having at least 5 Years of Service with the Employer. The
Participant must file his election with the Advisory Committee within 60 days of
the latest of (a) the Employer's adoption of the amendment; (b) the effective
date of the amendment; or (c) his receipt of a copy of the amendment. The
Advisory Committee, as soon as practicable, must forward a true copy of any
amendment to the vesting schedule to each affected
7.01
<PAGE>
Participant, together with an explanation of the effect of the amendment, the
appropriate form upon which the Participant may make an election to remain under
the vesting schedule provided under the Plan prior to the amendment and notice
of the time within which the Participant must make an election to remain under
the prior vesting schedule. The election described in this Section 7.05 does not
apply to a Participant if the amended vesting schedule provides for vesting at
least as rapid at all times as the vesting schedule in effect prior to the
amendment. For purposes of this Section 7.05, an amendment to the vesting
schedule includes any Plan amendment which directly or indirectly affects the
computation of the Nonforfeitable percentage of an Employee's rights to his
Employer derived Accrued Benefit. Furthermore, the Advisory Committee must treat
any shift in the vesting schedule, due to a change in the Plan's top heavy
status, as an amendment to the vesting schedule for purposes of this Section
7.05.
* * * * * * * * * * * * * * *
7.02
<PAGE>
ARTICLE VIII
PARTICIPANT ADMINISTRATIVE PROVISIONS
8.01 BENEFICIARY DESIGNATION. Any Participant may from time to time
-----------------------
designate, in writing, any person or persons, contingently or successively, to
whom the Trustee will pay his Nonforfeitable Accrued Benefit (including any life
insurance proceeds payable to the Participant's Account) in the event of his
death and the Participant may designate the form and method of payment. The
Advisory Committee will prescribe the form for the written designation of
Beneficiary and, upon the Participant's filing the form with the Advisory
Committee, the form effectively revokes all designations filed prior to that
date by the same Participant.
(A) Coordination with survivor requirements. If the joint and survivor
requirements of Article VI apply to the Participant, this Section 8.01 does not
impose any special spousal consent requirements on the Participant's Beneficiary
designation. However, in the absence of spousal consent (as required by Article
VI) to the Participant's Beneficiary designation: (1) any waiver of the joint
and survivor annuity or of the preretirement survivor annuity is not valid; and
(2) if the Participant dies prior to his annuity starting date, the
Participant's Beneficiary designation will apply only to the portion of the
death benefit which is not payable as a preretirement survivor annuity.
Regarding clause (2), if the Participant's surviving spouse is a primary
Beneficiary under the Participant's Beneficiary designation, the Trustee will
satisfy the spouse's interest in the Participant's death benefit first from the
portion which is payable as a preretirement survivor annuity.
(B) Profit sharing plan exception. If the Plan is a profit sharing plan, the
Beneficiary designation of a married Exempt Participant is not valid unless the
Participant's spouse consents (in a manner described in Section 6.05) to the
Beneficiary designation. An "Exempt Participant" is a Participant who is not
subject to the joint and survivor requirements of Article VI. The spousal
consent requirement in this paragraph does not apply if the Exempt Participant
and his spouse are not married throughout the one year period ending on the date
of the Participant's death, or if the Participant's spouse is the Participant's
sole primary Beneficiary.
8.02 NO BENEFICIARY DESIGNATION/DEATH OF BENEFICIARY. If a Participant
-----------------------------------------------
fails to name a Beneficiary in accordance with Section 8.01, or if the
Beneficiary named by a Participant predeceases him, then the Trustee will pay
the Participant's Nonforfeitable Accrued Benefit in accordance with Section 6.02
in the following order of priority, unless the Employer specifies a different
order of priority in an addendum to its Adoption Agreement, to:
(a) The Participant's surviving spouse;
(b) The Participant's surviving children, including adopted children, in equal
shares;
(c) The Participant's surviving parents, in equal shares; or
(d) The Participant's estate.
If the Beneficiary does not predecease the Participant, but dies prior to
distribution of the Participant's entire Nonforfeitable Accrued Benefit, the
Trustee will pay the remaining Nonforfeitable Accrued Benefit to the
Beneficiary's estate unless the Participant's Beneficiary designation provides
otherwise or unless the Employer provides otherwise in its Adoption Agreement.
If the Plan is a profit sharing plan, and the Plan includes Exempt Participants,
the Employer may not specify a different order of priority in the Adoption
Agreement unless the Participant's surviving spouse will be first in the
different order of priority. The Advisory Committee will direct the Trustee as
to the method and to whom the Trustee will make payment under this Section 8.02.
8.01
<PAGE>
8.03 PERSONAL DATA TO COMMITTEE. Each Participant and each Beneficiary of
--------------------------
a deceased Participant must furnish to the Advisory Committee such evidence,
data or information as the Advisory Committee considers necessary or desirable
for the purpose of administering the Plan. The provisions of this Plan are
effective for the benefit of each Participant upon the condition precedent that
each Participant will furnish promptly full, true and complete evidence, data
and information when requested by the Advisory Committee, provided the Advisory
Committee advises each Participant of the effect of his failure to comply with
its request.
8.04 ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary of a
------------------------
deceased Participant must file with the Advisory Committee from time to time, in
writing, his post office address and any change of post office address. Any
communication, statement or notice addressed to a Participant, or Beneficiary,
at his last post office address filed with the Advisory Committee, or as shown
on the records of the Employer, binds the Participant, or Beneficiary, for all
purposes of this Plan.
8.05 ASSIGNMENT OR ALIENATION. Subject to Code (S)414(p) relating to
------------------------
qualified domestic relations orders, neither a Participant nor a Beneficiary may
anticipate, assign or alienate (either at law or in equity) any benefit provided
under the Plan, and the Trustee will not recognize any such anticipation,
assignment or alienation. Furthermore, a benefit under the Plan is not subject
to attachment, garnishment, levy, execution or other legal or equitable process.
8.06 NOTICE OF CHANGE IN TERMS. The Plan Administrator, within the time
-------------------------
prescribed by ERISA and the applicable regulations, must furnish all
Participants and Beneficiaries a summary description of any material amendment
to the Plan or notice of discontinuance of the Plan and all other information
required by ERISA to be furnished without charge.
8.07 LITIGATION AGAINST THE TRUST. A court of competent jurisdiction may
----------------------------
authorize any appropriate equitable relief to redress violations of ERISA or to
enforce any provisions of ERISA or the terms of the Plan. A fiduciary may
receive reimbursement of expenses properly and actually incurred in the
performance of his duties with the Plan.
8.08 INFORMATION AVAILABLE. Any Participant in the Plan or any Beneficiary
---------------------
may examine copies of the Plan description, latest annual report, any
bargaining agreement, this Plan and Trust, contract or any other instrument
under which the Plan was established or is operated. The Plan Administrator will
maintain all of the items listed in this Section 8.08 in his office, or in such
other place or places as he may designate from time to time in order to comply
with the regulations issued under ERISA, for examination during reasonable
business hours. Upon the written request of a Participant or Beneficiary the
Plan Administrator must furnish him with a copy of any item listed in this
Section 8.08. The Plan Administrator may make a reasonable charge to the
requesting person for the copy so furnished.
8.09 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. A Participant or a Beneficiary
---------------------------------------
("Claimant") may file with the Advisory Committee a written claim for benefits,
if the Participant or Beneficiary determines the distribution procedures of the
Plan have not provided him his proper Nonforfeitable Accrued Benefit. The
Advisory Committee must render a decision on the claim within 60 days of the
Claimant's written claim for benefits. The Plan Administrator must provide
adequate notice in writing to the Claimant whose claim for benefits under the
Plan the Advisory Committee has denied. The Plan Administrator's notice to the
Claimant must set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which the Advisory
Committee based its denial;
(c) A description of any additional material and information needed for the
Claimant to perfect his claim and an explanation of why the material or
information is needed; and
8.02
<PAGE>
(d) That any appeal the Claimant wishes to make of the adverse determination
must be in writing to the Advisory Committee within 75 days after receipt of
the Plan Administrator's notice of denial of benefits. The Plan
Administrator's notice must further advise the Claimant that his failure to
appeal the action to the Advisory Committee in writing within the 75-day
period will render the Advisory Committee's determination final, binding and
conclusive.
If the Claimant should appeal to the Advisory Committee, he, or his duly
authorized representative, may submit, in writing, whatever issues and comments
he, or his duly authorized representative, feels are pertinent. The Claimant, or
his duly authorized representative, may review pertinent Plan documents. The
Advisory Committee will re-examine all facts related to the appeal and make a
final determination as to whether the denial of benefits is justified under the
circumstances. The Advisory Committee must advise the Claimant of its decision
within 60 days of the Claimant's written request for review, unless special
circumstances (such as a hearing) would make the rendering of a decision within
the 60-day limit unfeasible, but in no event may the Advisory Committee render a
decision respecting a denial for a claim for benefits later than 120 days after
its receipt of a request for review.
The Plan Administrator's notice of denial of benefits must identify the name
of each member of the Advisory Committee and the name and address of the
Advisory Committee member to whom the Claimant may forward his appeal.
8.10 PARTICIPANT DIRECTION OF INVESTMENT. A Participant has the right to
-----------------------------------
direct the Trustee with respect to the investment or re-investment of the assets
comprising the Participant's individual Account only if the Trustee consents in
writing to permit such direction. If the Trustee consents to Participant
direction of investment, the Trustee will accept direction from each Participant
on a written election form (or other written agreement), as a part of this Plan,
containing such conditions, limitations and other provisions the parties deem
appropriate. The Trustee or, with the Trustee's consent, the Advisory Committee,
may establish written procedures, incorporated specifically as part of this
Plan, relating to Participant direction of investment under this Section 8.10.
The Trustee will maintain a segregated investment Account to the extent a
Participant's Account is subject to Participant self-direction. The Trustee is
not liable for any loss, nor is the Trustee liable for any breach, resulting
from a Participant's direction of the investment of any part of his directed
Account.
The Advisory Committee, to the extent provided in a written loan policy
adopted under Section 9.04, will treat a loan made to a Participant as a
Participant direction of investment under this Section 8.10. To the extent of
the loan outstanding at any time, the borrowing Participant's Account alone
shares in any interest paid on the loan, and it alone bears any expense or loss
it incurs in connection with the loan. The Trustee may retain any principal or
interest paid on the borrowing Participant's loan in an interest bearing
segregated Account on behalf of the borrowing Participant until the Trustee (or
the Named Fiduciary, in the case of a nondiscretionary Trustee) deems it
appropriate to add the amount paid to the Participant's separate Account under
the Plan.
If the Trustee consents to Participant direction of investment of his Account,
the Plan treats any post-December 31, 1981, investment by a Participant's
directed Account in collectibles (as defined by Code (S)408(m)) as a deemed
distribution to the Participant for Federal income tax purposes.
* * * * * * * * * * * * * * *
8.03
<PAGE>
ARTICLE IX
ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS
9.01 MEMBERS' COMPENSATION, EXPENSES. The Employer must appoint an Advisory
-------------------------------
Committee to administer the Plan, the members of which may or may not be
Participants in the Plan, or which may be the Plan Administrator acting alone.
In the absence of an Advisory Committee appointment, the Plan Administrator
assumes the powers, duties and responsibilities of the Advisory Committee. The
members of the Advisory Committee will serve without compensation for services
as such, but the Employer will pay all expenses of the Advisory Committee,
except to the extent the Trust properly pays for such expenses, pursuant to
Article X.
9.02 TERM. Each member of the Advisory Committee serves until the
----
appointment of his successor.
9.03 POWERS. In case of a vacancy in the membership of the Advisory
------
Committee, the remaining members of the Advisory Committee may exercise any and
all of the powers, authority, duties and discretion conferred upon the Advisory
Committee pending the filling of the vacancy.
9.04 GENERAL. The Advisory Committee has the following powers and duties:
-------
(a) To select a Secretary, who need not be a member of the Advisory Committee;
(b) To determine the rights of eligibility of an Employee to participate in
the Plan, the value of a Participant's Accrued Benefit and the Nonforfeitable
percentage of each Participant's Accrued Benefit;
(c) To adopt rules of procedure and regulations necessary for the proper and
efficient administration of the Plan provided the rules are not inconsistent
with the terms of this Agreement;
(d) To construe and enforce the terms of the Plan and the rules and
regulations it adopts, including interpretation of the Plan documents and
documents related to the Plan's operation;
(e) To direct the Trustee as respects the crediting and distribution of the
Trust;
(f) To review and render decisions respecting a claim for (or denial of a
claim for) a benefit under the Plan;
(g) To furnish the Employer with information which the Employer may require
for tax or other purposes;
(h) To engage the service of agents whom it may deem advisable to assist it
with the performance of its duties;
(i) To engage the services of an Investment Manager or Managers (as defined in
ERISA (S)3(38)), each of whom will have full power and authority to manage,
acquire or dispose (or direct the Trustee with respect to acquisition or
disposition) of any Plan asset under its control;
(j) To establish, in its sole discretion, a nondiscriminatory policy (see
Section 9.04(A)) which the Trustee must observe in making loans, if any, to
Participants and Beneficiaries; and
(k) To establish and maintain a funding standard account and to make credits
and charges to the account to the extent required by and in accordance with
the provisions of the Code.
The Advisory Committee must exercise all of its powers, duties and discretion
under the Plan in a uniform and nondiscriminatory manner.
9.01
<PAGE>
(A) Loan Policy. If the Advisory Committee adopts a loan policy, pursuant to
paragraph (j), the loan policy must be a written document and must include: (1)
the identity of the person or positions authorized to administer the participant
loan program; (2) a procedure for applying for the loan; (3) the criteria for
approving or denying a loan; (4) the limitations, if any, on the types and
amounts of loans available; (5) the procedure for determining a reasonable rate
of interest; (6) the types of collateral which may secure the loan; and (7) the
events constituting default and the steps the Plan will take to preserve plan
assets in the event of default. This Section 9.04 specifically incorporates a
written loan policy as part of the Employer's Plan.
9.05 FUNDING POLICY. The Advisory Committee will review, not less often
--------------
than annually, all pertinent Employee information and Plan data in order to
establish the funding policy of the Plan and to determine the appropriate
methods of carrying out the Plan's objectives. The Advisory Committee must
communicate periodically, as it deems appropriate, to the Trustee and to any
Plan Investment Manager the Plan's short-term and long-term financial needs so
investment policy can be coordinated with Plan financial requirements.
9.06 MANNER OF ACTION. The decision of a majority of the members appointed
----------------
and qualified controls.
9.07 AUTHORIZED REPRESENTATIVE. The Advisory Committee may authorize
--------------------------
any one of its members, or its Secretary, to sign on its behalf any notices,
directions, applications, certificates, consents, approvals, waivers, letters or
other documents. The Advisory Committee must evidence this authority by an
instrument signed by all members and filed with the Trustee.
9.08 INTERESTED MEMBER. No member of the Advisory Committee may decide or
------------------
determine any matter concerning the distribution, nature or method of settlement
of his own benefits under the Plan, except in exercising an election available
to that member in his capacity as a Participant, unless the Plan Administrator
is acting alone in the capacity of the Advisory Committee.
9.09 INDIVIDUAL ACCOUNTS. The Advisory Committee will maintain, or direct
--------------------
the Trustee to maintain, a separate Account, or multiple Accounts, in the name
of each Participant to reflect the Participant's Accrued Benefit under the Plan.
If a Participant re-enters the Plan subsequent to his having a Forfeiture Break
in Service, the Advisory Committee, or the Trustee, must maintain a separate
Account for the Participant's pre-Forfeiture Break in Service Accrued Benefit
and a separate Account for his post-Forfeiture Break in Service Accrued Benefit,
unless the Participant's entire Accrued Benefit under the Plan is 100%
Nonforfeitable.
The Advisory Committee will make its allocations, or request the Trustee to
make its allocations, to the Accounts of the Participants in accordance with the
provisions of Section 9.11. The Advisory Committee may direct the Trustee to
maintain a temporary segregated investment Account in the name of a Participant
to prevent a distortion of income, gain or loss allocations under Section 9.11.
The Advisory Committee must maintain records of its activities.
9.10 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. The value of each
--------------------------------------
Participant's Accrued Benefit consists of that proportion of the net worth (at
fair market value) of the Employer's Trust Fund which the net credit balance in
his Account (exclusive of the cash value of incidental benefit insurance
contracts) bears to the total net credit balance in the Accounts (exclusive of
the cash value of the incidental benefit insurance contracts) of all
Participants plus the cash surrender value of any incidental benefit insurance
contracts held by the Trustee on the Participant's life.
9.02
<PAGE>
For purposes of a distribution under the Plan, the value of a Participant's
Accrued Benefit is its value as of the valuation date immediately preceding the
date of the distribution. Any distribution (other than a distribution from a
segregated Account) made to a Participant (or to his Beneficiary) more than 90
days after the most recent valuation date may include interest on the amount of
the distribution as an expense of the Trust Fund. The interest, if any, accrues
from such valuation date to the date of the distribution at the rate established
in the Employer's Adoption Agreement.
9.11 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. A "valuation
------------------------------------------------------
date" under this Plan is each Accounting Date and each interim valuation date
determined under Section 10.14. As of each valuation date the Advisory Committee
must adjust Accounts to reflect net income, gain or loss since the last
valuation date. The valuation period is the period beginning the day after the
last valuation date and ending on the current valuation date.
(A) Trust Fund Accounts. The allocation provisions of this paragraph apply to
all Participant Accounts other than segregated investment Accounts. The Advisory
Committee first will adjust the Participant Accounts, as those Accounts stood at
the beginning of the current valuation period, by reducing the Accounts for any
forfeitures arising under Section 5.09 or under Section 9.14, for amounts
charged during the valuation period to the Accounts in accordance with Section
9.13 (relating to distributions) and Section 11.01 (relating to insurance
premiums), and for the cash value of incidental benefit insurance contracts. The
Advisory Committee then, subject to the restoration allocation requirements of
Section 5.04 or of Section 9.14, will allocate the net income, gain or loss pro
rata to the adjusted Participant Accounts. The allocable net income, gain or
loss is the net income (or net loss), including the increase or decrease in the
fair market value of assets, since the last valuation date.
(B) Segregated investment Accounts. A segregated investment Account receives all
income it earns and bears all expense or loss it incurs. The Advisory Committee
will adopt uniform and nondiscriminatory procedures for determining income or
loss of a segregated investment Account in a manner which reasonably reflects
investment directions relating to pooled investments and investment directions
occurring during a valuation period. As of the valuation date, the Advisory
Committee must reduce a segregated Account for any forfeiture arising under
Section 5.09 after the Advisory Committee has made all other allocations,
changes or adjustments to the Account for the Plan Year.
(C) Additional rules. An Excess Amount or suspense account described in Part 2
of Article III does not share in the allocation of net income, gain or loss
described in this Section 9.11. If the Employer maintains its Plan under a Code
(S)401(k) Adoption Agreement, the Employer may specify in its Adoption Agreement
alternate valuation provisions authorized by that Adoption Agreement. This
Section 9.11 applies solely to the allocation of net income, gain or loss of the
Trust. The Advisory Committee will allocate the Employer contributions and
Participant forfeitures, if any, in accordance with Article III.
9.12 INDIVIDUAL STATEMENT. As soon as practicable after the Accounting Date
--------------------
of each Plan Year, but within the time prescribed by ERISA and the regulations
under ERISA, the Plan Administrator will deliver to each Participant (and to
each Beneficiary) a statement reflecting the condition of his Accrued Benefit in
the Trust as of that date and such other information ERISA requires be furnished
the Participant or Beneficiary. No Participant, except a member of the Advisory
Committee, has the right to inspect the records reflecting the Account of any
other Participant.
9.13 ACCOUNT CHARGED. The Advisory Committee will charge a Participant's
---------------
Account for all distributions made from that Account to the Participant, to his
Beneficiary or to an alternate payee. The Advisory Committee also will charge a
Participant's Account for any administrative expenses incurred by the Plan
directly related to that Account.
9.14 UNCLAIMED ACCOUNT PROCEDURE. The Plan does not require either
-----------------------------
the Trustee or the Advisory Committee to search for, or to ascertain the
whereabouts of, any Participant or Beneficiary. At the time the Participant's or
Beneficiary's benefit becomes distributable under Article VI, the Advisory
9.03
<PAGE>
Committee, by certified or registered mail addressed to his last known address
of record with the Advisory Committee or the Employer, must notify any
Participant, or Beneficiary, that he is entitled to a distribution under this
Plan. The notice must quote the provisions of this Section 9.14 and otherwise
must comply with the notice requirements of Article VI. If the Participant, or
Beneficiary, fails to claim his distributive share or make his whereabouts known
in writing to the Advisory Committee within 6 months from the date of mailing of
the notice, the Advisory Committee will treat the Participant's or Beneficiary's
unclaimed payable Accrued Benefit as forfeited and will reallocate the unclaimed
payable Accrued Benefit in accordance with Section 3.05. A forfeiture under this
paragraph will occur at the end of the notice period or, if later, the earliest
date applicable Treasury regulations would permit the forfeiture. Pending
forfeiture, the Advisory Committee, following the expiration of the notice
period, may direct the Trustee to segregate the Nonforfeitable Accrued Benefit
in a segregated Account and to invest that segregated Account in Federally
insured interest bearing savings accounts or time deposits (or in a combination
of both), or in other fixed income investments.
If a Participant or Beneficiary who has incurred a forfeiture of his Accrued
Benefit under the provisions of the first paragraph of this Section 9.14 makes a
claim, at any time, for his forfeited Accrued Benefit, the Advisory Committee
must restore the Participant's or Beneficiary's forfeited Accrued Benefit to the
same dollar amount as the dollar amount of the Accrued Benefit forfeited,
unadjusted for any gains or losses occurring subsequent to the date of the
forfeiture. The Advisory Committee will make the restoration during the Plan
Year in which the Participant or Beneficiary makes the claim, first from the
amount, if any, of Participant forfeitures the Advisory Committee otherwise
would allocate for the Plan Year, then from the amount, if any, of the Trust
Fund net income or gain for the Plan Year and then from the amount, or
additional amount, the Employer contributes to enable the Advisory Committee to
make the required restoration. The Advisory Committee must direct the Trustee to
distribute the Participant's or Beneficiary's restored Accrued Benefit to him
not later than 60 days after the close of the Plan Year in which the Advisory
Committee restores the forfeited Accrued Benefit. The forfeiture provisions of
this Section 9.14 apply solely to the Participant's or to the Beneficiary's
Accrued Benefit derived from Employer contributions.
* * * * * * * * * * * * * * *
9.04
<PAGE>
ARTICLE X
CUSTODIAN/TRUSTEE, POWERS AND DUTIES
10.01 ACCEPTANCE. The Trustee accepts the Trust created under the Plan and
----------
agrees to perform the obligations imposed. The Trustee must provide bond for the
faithful performance of its duties under the Trust to the extent required by
ERISA.
10.02 RECEIPT OF CONTRIBUTIONS. The Trustee is accountable to the Employer
------------------------
for the funds contributed to it by the Employer, but does not have any duty to
see that the contributions received comply with the provisions of the Plan. The
Trustee is not obliged to collect any contributions from the Employer, nor is
obliged to see that funds deposited with it are deposited according to the
provisions of the Plan.
10.03 INVESTMENT POWERS.
-----------------
[A] Discretionary Trustee Designation. If the Employer, in Adoption Agreement
Section 1.02, designates the Trustee to administer the Trust as a discretionary
Trustee, then the Trustee has full discretion and authority with regard to the
investment of the Trust Fund, except with respect to a Plan asset under the
control or direction of a properly appointed Investment Manager or with respect
to a Plan asset properly subject to Employer, Participant or Advisory Committee
direction of investment. The Trustee must coordinate its investment policy with
Plan financial needs as communicated to it by the Advisory Committee. The
Trustee is authorized and empowered, but not by way of limitation, with the
following powers, rights and duties:
(a) To invest any part or all of the Trust Fund in any common or preferred
stocks, open-end or closed-end mutual funds, put and call options traded on a
national exchange, United States retirement plan bonds, corporate bonds,
debentures, convertible debentures, commercial paper, U.S. Treasury bills,
U.S. Treasury notes and other direct or indirect obligations of the United
States Government or its agencies, improved or unimproved real estate situated
in the United States, limited partnerships, insurance contracts of any type,
mortgages, notes or other property of any kind, real or personal, to buy or
sell options on common stock on a nationally recognized exchange with or
without holding the underlying common stock, to buy and sell commodities,
commodity options and contracts for the future delivery of commodities, and to
make any other investments the Trustee deems appropriate, as a prudent man
would do under like circumstances with due regard for the purposes of this
Plan. Any investment made or retained by the Trustee in good faith is proper
but must be of a kind constituting a diversification considered by law
suitable for trust investments.
(b) To retain in cash so much of the Trust Fund as it may deem advisable to
satisfy liquidity needs of the Plan and to deposit any cash held in the Trust
Fund in a bank account at reasonable interest.
(c) To invest, if the Trustee is a bank or similar financial institution
supervised by the United States or by a State, in any type of deposit of the
Trustee (or of a bank related to the Trustee within the meaning of Code
(S)414(b)) at a reasonable rate of interest or in a common trust fund, as
described in Code (S)584, or in a collective investment fund, the provisions
of which govern the investment of such assets and which the Plan incorporates
by this reference, which the Trustee (or its affiliate, as defined in Code
(S)1504) maintains exclusively for the collective investment of money
contributed by the bank (or the affiliate) in its capacity as trustee and
which conforms to the rules of the Comptroller of the Currency.
(d) To manage, sell, contract to sell, grant options to purchase, convey,
exchange, transfer, abandon, improve, repair, insure, lease for any term even
though commencing in the future or extending beyond the term of the Trust, and
otherwise deal with all property, real or personal, in such manner, for such
considerations and on such terms and conditions as the Trustee decides.
10.01
<PAGE>
(e) To credit and distribute the Trust as directed by the Advisory Committee.
The Trustee is not obliged to inquire as to whether any payee or distributee
is entitled to any payment or whether the distribution is proper or within the
terms of the Plan, or as to the manner of making any payment or distribution.
The Trustee is accountable only to the Advisory Committee for any payment or
distribution made by it in good faith on the order or direction of the
Advisory Committee.
(f) To borrow money, to assume indebtedness, extend mortgages and encumber by
mortgage or pledge.
(g) To compromise, contest, arbitrate or abandon claims and demands, in its
discretion.
(h) To have with respect to the Trust all of the rights of an individual
owner, including the power to give proxies, to participate in any voting
trusts, mergers, consolidations or liquidations, and to exercise or sell stock
subscriptions or conversion rights.
(i) To lease for oil, gas and other mineral purposes and to create mineral
severances by grant or reservation; to pool or unitize interests in oil, gas
and other minerals; and to enter into operating agreements and to execute
division and transfer orders.
(j) To hold any securities or other property in the name of the Trustee or its
nominee, with depositories or agent depositories or in another form as it may
deem best, with or without disclosing the trust relationship.
(k) To perform any and all other acts in its judgment necessary or appropriate
for the proper and advantageous management, investment and distribution of the
Trust.
(l) To retain any funds or property subject to any dispute without liability
for the payment of interest, and to decline to make payment or delivery of the
funds or property until final adjudication is made by a court of competent
jurisdiction.
(m) To file all tax returns required of the Trustee.
(n) To furnish to the Employer, the Plan Administrator and the Advisory
Committee an annual statement of account showing the condition of the Trust
Fund and all investments, receipts, disbursements and other transactions
effected by the Trustee during the Plan Year covered by the statement and also
stating the assets of the Trust held at the end of the Plan Year, which
accounts are conclusive on all persons, including the Employer, the Plan
Administrator and the Advisory Committee, except as to any act or transaction
concerning which the Employer, the Plan Administrator or the Advisory
Committee files with the Trustee written exceptions or objections within 90
days after the receipt of the accounts or for which ERISA authorizes a longer
period within which to object.
(o) To begin, maintain or defend any litigation necessary in connection with
the administration of the Plan, except that the Trustee is not obliged or
required to do so unless indemnified to its satisfaction.
[B] Nondiscretionary Trustee Designation/Appointment of Custodian. If the
Employer, in its Adoption Agreement Section 1.02, designates the Trustee to
administer the Trust as a nondiscretionary Trustee, then the Trustee will not
have any discretion or authority with regard to the investment of the Trust
Fund, but must act solely as a directed trustee of the funds contributed to it.
A nondiscretionary Trustee, as directed trustee of the funds held by it under
the Employer's Plan, is authorized and empowered, by way of limitation, with the
following powers, rights and duties, each of which the nondiscretionary Trustee
exercises solely as directed trustee in accordance with the written direction of
the Named Fiduciary (except to the extent a Plan asset is subject to the control
and management of a properly appointed Investment Manager or subject to Advisory
Committee or Participant direction of investment):
(a) To invest any part or all of the Trust Fund in any common or preferred
stocks, open-end or
10.02
<PAGE>
closed-end mutual funds, put and call options traded on a national exchange,
United States retirement plan bonds, corporate bonds, debentures, convertible
debentures, commercial paper, U.S. Treasury bills, U.S. Treasury notes and
other direct or indirect obligations of the United States Government or its
agencies, improved or unimproved real estate situated in the United States,
limited partnerships, insurance contracts of any type, mortgages, notes or
other property of any kind, real or personal, to buy or sell options on common
stock on a nationally recognized options exchange with or without holding the
underlying common stock, to buy and sell commodities, commodity options and
contracts for the future delivery of commodities, and to make any other
investments the Named Fiduciary deems appropriate.
(b) To retain in cash so much of the Trust Fund as the Named Fiduciary may
direct in writing to satisfy liquidity needs of the Plan and to deposit any
cash held in the Trust Fund in a bank account at reasonable interest,
including, specific authority to invest in any type of deposit of the Trustee
(or of a bank related to the Trustee within the meaning of Code (S)414(b)) at
a reasonable rate of interest.
(c) To sell, contract to sell, grant options to purchase, convey, exchange,
transfer, abandon, improve, repair, insure, lease for any term even though
commencing in the future or extending beyond the term of the Trust, and
otherwise deal with all property, real or personal, in such manner, for such
considerations and on such terms and conditions as the Named Fiduciary directs
in writing.
(d) To credit and distribute the Trust as directed by the Advisory Committee.
The Trustee is not obliged to inquire as to whether any payee or distributee
is entitled to any payment or whether the distribution is proper or within the
terms of the Plan, or as to the manner of making any payment or distribution.
The Trustee is accountable only to the Advisory Committee for any payment or
distribution made by it in good faith on the order or direction of the
Advisory Committee.
(e) To borrow money, to assume indebtedness, extend mortgages and encumber by
mortgage or pledge.
(f) To have with respect to the Trust all of the rights of an individual
owner, including the power to give proxies, to participate in any voting
trusts, mergers, consolidations or liquidations, and to exercise or sell stock
subscriptions or conversion rights, provided the exercise of any such powers
is in accordance with and at the written direction of the Named Fiduciary.
(g) To lease for oil, gas and other mineral purposes and to create mineral
severances by grant or reservation; to pool or unitize interests in oil, gas
and other minerals; and to enter into operating agreements and to execute
division and transfer orders, provided the exercise of any such powers is in
accordance with and at the written direction of the Named Fiduciary.
(h) To hold any securities or other property in the name of the
nondiscretionary Trustee or its nominee, with depositories or agent
depositories or in another form as the Named Fiduciary may deem best, with or
without disclosing the custodial relationship.
(i) To retain any funds or property subject to any dispute without liability
for the payment of interest, and to decline to make payment or delivery of the
funds or property until a court of competent jurisdiction makes final
adjudication.
(j) To file all tax returns required of the Trustee.
10.03
<PAGE>
(k) To furnish to the Named Fiduciary, the Employer, the Plan Administrator
and the Advisory Committee an annual statement of account showing the
condition of the Trust Fund and all investments, receipts, disbursements and
other transactions effected by the nondiscretionary Trustee during the Plan
Year covered by the statement and also stating the assets of the Trust held at
the end of the Plan Year, which accounts are conclusive on all persons,
including the Named Fiduciary, the Employer, the Plan Administrator and the
Advisory Committee, except as to any act or transaction concerning which the
Named Fiduciary, the Employer, the Plan Administrator or the Advisory
Committee files with the nondiscretionary Trustee written exceptions or
objections within 90 days after the receipt of the accounts or for which ERISA
authorizes a longer period within which to object.
(l) To begin, maintain or defend any litigation necessary in connection with
the administration of the Plan, except that the Trustee is not obliged or
required to do so unless indemnified to its satisfaction.
Appointment of Custodian. The Employer may appoint a Custodian under the Plan,
the acceptance by the Custodian indicated on the execution page of the
Employer's Adoption Agreement. If the Employer appoints a Custodian, the
Employer's Plan must have a discretionary Trustee, as described in Section
10.03[A]. A Custodian has the same powers, rights and duties as a
nondiscretionary Trustee, as described in this Section 10.03[B]. The Custodian
accepts the terms of the Plan and Trust by executing the Employer's Adoption
Agreement. Any reference in the Plan to a Trustee also is a reference to a
Custodian where the context of the Plan dictates. A limitation of the Trustee's
liability by Plan provision also acts as a limitation of the Custodian's
liability. Any action taken by the Custodian at the discretionary Trustee's
direction satisfies any provision in the Plan referring to the Trustee's taking
that action.
Modification of Powers/Limited Responsibility. The Employer and the Custodian
or nondiscretionary Trustee, by letter agreement, may limit the powers of the
Custodian or nondiscretionary Trustee to any combination of powers listed within
this Section 10.03[B]. If there is a Custodian or a nondiscretionary Trustee
under the Employer's Plan, then the Employer, in adopting this Plan acknowledges
the Custodian or nondiscretionary Trustee has no discretion with respect to the
investment or re-investment of the Trust Fund and that the Custodian or
nondiscretionary Trustee is acting solely as custodian or as directed trustee
with respect to the assets comprising the Trust Fund.
[C] Limitation of Powers of Certain Custodians. If a Custodian is a bank which,
under its governing state law, does not possess trust powers, then paragraphs
(a), (c), (e), (f), (g) of Section 10.03[B], Section 10.16 and Article XI do not
apply to that bank and that bank only has the power and authority to exercise
the remaining powers, rights and duties under Section 10.03[B].
[D] Named Fiduciary/Limitation of Liability of Nondiscretionary Trustee or
Custodian. Under a nondiscretionary Trustee designation, the Named Fiduciary
under the Employer's Plan has the sole responsibility for the management and
control of the Employer's Trust Fund, except with respect to a Plan asset under
the control or direction of a properly appointed Investment Manager or with
respect to a Plan asset properly subject to Participant or Advisory Committee
direction of investment. If the Employer appoints a Custodian, the Named
Fiduciary is the discretionary Trustee. Under a nondiscretionary Trustee
designation, unless the Employer designates in writing another person or persons
to serve as Named Fiduciary, the Named Fiduciary under the Plan is the president
of a corporate Employer, the managing partner of a partnership Employer or the
sole proprietor, as appropriate. The Named Fiduciary will exercise its
management and control of the Trust Fund through its written direction to the
nondiscretionary Trustee or to the Custodian, whichever applies to the
Employer's Plan.
10.04
<PAGE>
The nondiscretionary Trustee or Custodian has no duty to review or to make
recommendations regarding investments made at the written direction of the Named
Fiduciary. The nondiscretionary Trustee or Custodian must retain any investment
obtained at the written direction of the Named Fiduciary until further directed
in writing by the Named Fiduciary to dispose of such investment. The
nondiscretionary Trustee or Custodian is not liable in any manner or for any
reason for making, retaining or disposing of any investment pursuant to any
written direction described in this paragraph. Furthermore, the Employer agrees
to indemnify and to hold the nondiscretionary Trustee or Custodian harmless from
any damages, costs or expenses, including reasonable counsel fees, which the
nondiscretionary Trustee or Custodian may incur as a result of any claim
asserted against the nondiscretionary Trustee, the Custodian or the Trust
arising out of the nondiscretionary Trustee's or Custodian's compliance with any
written direction described in this paragraph.
[E] Participant Loans. This Section 10.03[E] specifically authorizes the Trustee
to make loans on a nondiscriminatory basis to a Participant or to a Beneficiary
in accordance with the loan policy established by the Advisory Committee,
provided: (1) the loan policy satisfies the requirements of Section 9.04; (2)
loans are available to all Participants and Beneficiaries on a reasonably
equivalent basis and are not available in a greater amount for Highly
Compensated Employees than for other Employees; (3) any loan is adequately
secured and bears a reasonable rate of interest; (4) the loan provides for
repayment within a specified time; (5) the default provisions of the note
prohibit offset of the Participant's Nonforfeitable Accrued Benefit prior to the
time the Trustee otherwise would distribute the Participant's Nonforfeitable
Accrued Benefit; (6) the amount of the loan does not exceed (at the time the
Plan extends the loan) the present value of the Participant's Nonforfeitable
Accrued Benefit; and (7) the loan otherwise conforms to the exemption provided
by Code (S)4975(d)(1). If the joint and survivor requirements of Article VI
apply to the Participant, the Participant may not pledge any portion of his
Accrued Benefit as security for a loan made after August 18, 1985, unless,
within the 90 day period ending on the date the pledge becomes effective, the
Participant's spouse, if any, consents (in a manner described in Section 6.05
other than the requirement relating to the consent of a subsequent spouse) to
the security or, by separate consent, to an increase in the amount of security.
If the Employer is an unincorporated trade or business, a Participant who is an
Owner-Employee may not receive a loan from the Plan, unless he has obtained a
prohibited transaction exemption from the Department of Labor. If the Employer
is an "S Corporation," a Participant who is a shareholder-employee (an employee
or an officer) who, at any time during the Employer's taxable year, owns more
than 5%, either directly or by attribution under Code (S)318(a)(1), of the
Employer's outstanding stock may not receive a loan from the Plan, unless he has
obtained a prohibited transaction exemption from the Department of Labor. If the
Employer is not an unincorporated trade or business nor an "S Corporation," this
Section 10.03[E] does not impose any restrictions on the class of Participants
eligible for a loan from the Plan.
[F] Investment in qualifying Employer securities and qualifying Employer real
property. The investment options in this Section 10.03[F] include the ability to
invest in qualifying Employer securities or qualifying Employer real property,
as defined in and as limited by ERISA. If the Employer's Plan is a
Nonstandardized profit sharing plan, it may elect in its Adoption Agreement to
permit the aggregate investments in qualifying Employer securities and in
qualifying Employer real property to exceed 10% of the value of Plan assets.
10.04 RECORDS AND STATEMENTS. The records of the Trustee pertaining to the
----------------------
Plan must be open to the inspection of the Plan Administrator, the Advisory
Committee and the Employer at all reasonable times and may be audited from time
to time by any person or persons as the Employer, Plan Administrator or Advisory
Committee may specify in writing. The Trustee must furnish the Plan
Administrator or Advisory Committee with whatever information relating to the
Trust Fund the Plan Administrator or Advisory Committee considers necessary.
10.05
<PAGE>
10.05 FEES AND EXPENSES FROM FUND. A Trustee or Custodian will receive
---------------------------
reasonable annual compensation as may be agreed upon from time to time between
the Employer and the Trustee or Custodian. No person who is receiving full pay
from the Employer may receive compensation for services as Trustee or as
Custodian. The Trustee will pay from the Trust Fund all fees and expenses
reasonably incurred by the Plan, to the extent such fees and expenses are for
the ordinary and necessary administration and operation of the Plan, unless the
Employer pays such fees and expenses. Any fee or expense paid, directly or
indirectly, by the Employer is not an Employer contribution to the Plan,
provided the fee or expense relates to the ordinary and necessary administration
of the Fund.
10.06 PARTIES TO LITIGATION. Except as otherwise provided by ERISA, no
---------------------
Participant or Beneficiary is a necessary party or is required to receive notice
of process in any court proceeding involving the Plan, the Trust Fund or any
fiduciary of the Plan. Any final judgment entered in any proceeding will be
conclusive upon the Employer, the Plan Administrator, the Advisory Committee,
the Trustee, Custodian, Participants and Beneficiaries.
10.07 PROFESSIONAL AGENTS. The Trustee may employ and pay from the Trust
-------------------
Fund reasonable compensation to agents, attorneys, accountants and other persons
to advise the Trustee as in its opinion may be necessary. The Trustee may
delegate to any agent, attorney, accountant or other person selected by it any
non-Trustee power or duty vested in it by the Plan, and the Trustee may act or
refrain from acting on the advice or opinion of any agent, attorney, accountant
or other person so selected.
10.08 DISTRIBUTION OF CASH OR PROPERTY. The Trustee may make distribution
--------------------------------
under the Plan in cash or property, or partly in each, at its fair market value
as determined by the Trustee. For purposes of a distribution to a Participant or
to a Participant's designated Beneficiary or surviving spouse, "property"
includes a Nontransferable Annuity Contract, provided the contract satisfies the
requirements of this Plan.
10.09 DISTRIBUTION DIRECTIONS. If no one claims a payment or distribution
-----------------------
made from the Trust, the Trustee must promptly notify the Advisory Committee
and then dispose of the payment in accordance with the subsequent direction of
the Advisory Committee.
10.10 THIRD PARTY/MULTIPLE TRUSTEES. No person dealing with the Trustee is
-----------------------------
obligated to see to the proper application of any money paid or property
delivered to the Trustee, or to inquire whether the Trustee has acted pursuant
to any of the terms of the Plan. Each person dealing with the Trustee may act
upon any notice, request or representation in writing by the Trustee, or by the
Trustee's duly authorized agent, and is not liable to any person in so acting.
The certificate of the Trustee that it is acting in accordance with the Plan
will be conclusive in favor of any person relying on the certificate. If more
than two persons act as Trustee, a decision of the majority of such persons
controls with respect to any decision regarding the administration or investment
of the Trust Fund or of any portion of the Trust Fund with respect to which such
persons act as Trustee. However, the signature of only one Trustee is necessary
to effect any transaction on behalf of the Trust.
10.11 RESIGNATION. The Trustee or Custodian may resign its position at any
-----------
time by giving 30 days' written notice in advance to the Employer and to the
Advisory Committee. If the Employer fails to appoint a successor Trustee within
60 days of its receipt of the Trustee's written notice of resignation, the
Trustee will treat the Employer as having appointed itself as Trustee and as
having filed its acceptance of appointment with the former Trustee. The
Employer, in its sole discretion, may replace a Custodian. If the Employer does
not replace a Custodian, the discretionary Trustee will assume possession of
Plan assets held by the former Custodian.
10.06
<PAGE>
10.12 REMOVAL. The Employer, by giving 30 days' written notice in advance to
-------
the Trustee, may remove any Trustee or Custodian. In the event of the
resignation or removal of a Trustee, the Employer must appoint a successor
Trustee if it intends to continue the Plan. If two or more persons hold the
position of Trustee, in the event of the removal of one such person, during any
period the selection of a replacement is pending, or during any period such
person is unable to serve for any reason, the remaining person or persons will
act as the Trustee.
10.13 INTERIM DUTIES AND SUCCESSOR TRUSTEE. Each successor Trustee succeeds
------------------------------------
to the title to the Trust vested in his predecessor by accepting in writing his
appointment as successor Trustee and by filing the acceptance with the former
Trustee and the Advisory Committee without the signing or filing of any further
statement. The resigning or removed Trustee, upon receipt of acceptance in
writing of the Trust by the successor Trustee, must execute all documents and do
all acts necessary to vest the title of record in any successor Trustee. Each
successor Trustee has and enjoys all of the powers, both discretionary and
ministerial, conferred under this Agreement upon his predecessor. A successor
Trustee is not personally liable for any act or failure to act of any
predecessor Trustee, except as required under ERISA. With the approval of the
Employer and the Advisory Committee, a successor Trustee, with respect to the
Plan, may accept the account rendered and the property delivered to it by a
predecessor Trustee without incurring any liability or responsibility for so
doing.
10.14 VALUATION OF TRUST. The Trustee must value the Trust Fund as of each
------------------
Accounting Date to determine the fair market value of each Participant's Accrued
Benefit in the Trust. The Trustee also must value the Trust Fund on such other
valuation dates as directed in writing by the Advisory Committee or as required
by the Employer's Adoption Agreement.
10.15 LIMITATION ON LIABILITY - IF INVESTMENT MANAGER, ANCILLARY TRUSTEE OR
---------------------------------------------------------------------
INDEPENDENT FIDUCIARY APPOINTED. The Trustee is not liable for the acts or
- -------------------------------
omissions of any Investment Manager the Advisory Committee may appoint, nor is
the Trustee under any obligation to invest or otherwise manage any asset of the
Plan which is subject to the management of a properly appointed Investment
Manager. The Advisory Committee, the Trustee and any properly appointed
Investment Manager may execute a letter agreement as a part of this Plan
delineating the duties, responsibilities and liabilities of the Investment
Manager with respect to any part of the Trust Fund under the control of the
Investment Manager.
The limitation on liability described in this Section 10.15 also applies to
the acts or omissions of any ancillary trustee or independent fiduciary properly
appointed under Section 10.17 of the Plan. However, if a discretionary Trustee,
pursuant to the delegation described in Section 10.17 of the Plan, appoints an
ancillary trustee, the discretionary Trustee is responsible for the periodic
review of the ancillary trustee's actions and must exercise its delegated
authority in accordance with the terms of the Plan and in a manner consistent
with ERISA. The Employer, the discretionary Trustee and an ancillary trustee may
execute a letter agreement as a part of this Plan delineating any
indemnification agreement between the parties.
10.16 INVESTMENT IN GROUP TRUST FUND. The Employer, by adopting this Plan,
------------------------------
specifically authorizes the Trustee to invest all or any portion of the assets
comprising the Trust Fund in any group trust fund which at the time of the
investment provides for the pooling of the assets of plans qualified under Code
(S)401(a). This authorization applies solely to a group trust fund exempt from
taxation under Code (S)501(a) and the trust agreement of which satisfies the
requirements of Revenue Ruling 81-100. The provisions of the group trust fund
agreement, as amended from time to time, are by this reference incorporated
within this Plan and Trust. The provisions of the group trust fund will govern
any investment of Plan assets in that fund. The Employer must specify in an
attachment to its adoption agreement the group trust fund(s) to which this
authorization applies. If the Trustee is acting as a nondiscretionary Trustee,
the investment in the group trust fund is available only in accordance with a
proper direction, by the Named Fiduciary, in accordance with Section 10.03[B].
Pursuant to paragraph (c) of Section 10.03[A] of the Plan, a Trustee has the
authority to invest in certain common trust funds and collective investment
funds without the need for the authorizing addendum described in this Section
10.16.
10.07
<PAGE>
Furthermore, at the Employer's direction, the Trustee, for collective
investment purposes, may combine into one trust fund the Trust created under
this Plan with the Trust created under any other qualified retirement plan the
Employer maintains. However, the Trustee must maintain separate records of
account for the assets of each Trust in order to reflect properly each
Participant's Accrued Benefit under the plan(s) in which he is a Participant.
10.17 APPOINTMENT OF ANCILLARY TRUSTEE OR INDEPENDENT FIDUCIARY. The
---------------------------------------------------------
Employer, in writing, may appoint any person in any State to act as ancillary
trustee with respect to a designated portion of the Trust Fund, subject to the
consent required under Section 1.02 if the Master Plan Sponsor is a financial
institution. An ancillary trustee must acknowledge in writing its acceptance of
the terms and conditions of its appointment as ancillary trustee and its
fiduciary status under ERISA. The ancillary trustee has the rights, powers,
duties and discretion as the Employer may delegate, subject to any limitations
or directions specified in the instrument evidencing appointment of the
ancillary trustee and to the terms of the Plan or of ERISA. The investment
powers delegated to the ancillary trustee may include any investment powers
available under Section 10.03 of the Plan including the right to invest any
portion of the assets of the Trust Fund in a common trust fund, as described in
Code (S)584, or in any collective investment fund, the provisions of which
govern the investment of such assets and which the Plan incorporates by this
reference, but only if the ancillary trustee is a bank or similar financial
institution supervised by the United States or by a State and the ancillary
trustee (or its affiliate, as defined in Code (S)1504) maintains the common
trust fund or collective investment fund exclusively for the collective
investment of money contributed by the ancillary trustee (or its affiliate) in a
trustee capacity and which conforms to the rules of the Comptroller of the
Currency. The Employer also may appoint as an ancillary trustee, the trustee of
any group trust fund designated for investment pursuant to the provisions of
Section 10.16 of the Plan.
The ancillary trustee may resign its position at any time by providing at
least 30 days' advance written notice to the Employer, unless the Employer
waives this notice requirement. The Employer, in writing, may remove an
ancillary trustee at any time. In the event of resignation or removal, the
Employer may appoint another ancillary trustee, return the assets to the control
and management of the Trustee or receive such assets in the capacity of
ancillary trustee. The Employer may delegate its responsibilities under this
Section 10.17 to a discretionary Trustee under the Plan, but not to a
nondiscretionary Trustee or to a Custodian, subject to the acceptance by the
discretionary Trustee of that delegation.
If the U.S. Department of Labor ("the Department") requires engagement of an
independent fiduciary to have control or management of all or a portion of the
Trust Fund, the Employer will appoint such independent fiduciary, as directed by
the Department. The independent fiduciary will have the duties, responsibilities
and powers prescribed by the Department and will exercise those duties,
responsibilities and powers in accordance with the terms, restrictions and
conditions established by the Department and, to the extent not inconsistent
with ERISA, the terms of the Plan. The independent fiduciary must accept its
appointment in writing and must acknowledge its status as a fiduciary of the
Plan.
* * * * * * * * * * * * * * *
10.08
<PAGE>
ARTICLE XI
PROVISIONS RELATING TO INSURANCE AND INSURANCE COMPANY
11.01 INSURANCE BENEFIT. The Employer may elect to provide incidental life
-----------------
insurance benefits for insurable Participants who consent to life insurance
benefits by signing the appropriate insurance company application form. The
Trustee will not purchase any incidental life insurance benefit for any
Participant prior to an allocation to the Participant's Account. At an insured
Participant's written direction, the Trustee will use all or any portion of the
Participant's nondeductible voluntary contributions, if any, to pay insurance
premiums covering the Participant's life. This Section 11.01 also authorizes the
purchase of life insurance, for the benefit of the Participant, on the life of a
family member of the Participant or on any person in whom the Participant has an
insurable interest. However, if the policy is on the joint lives of the
Participant and another person, the Trustee may not maintain that policy if that
other person predeceases the Participant.
The Employer will direct the Trustee as to the insurance company and insurance
agent through which the Trustee is to purchase the insurance contracts, the
amount of the coverage and the applicable dividend plan. Each application for a
policy, and the policies themselves, must designate the Trustee as sole owner,
with the right reserved to the Trustee to exercise any right or option contained
in the policies, subject to the terms and provisions of this Agreement. The
Trustee must be the named beneficiary for the Account of the insured
Participant. Proceeds of insurance contracts paid to the Participant's Account
under this Article XI are subject to the distribution requirements of Article V
and of Article VI. The Trustee will not retain any such proceeds for the benefit
of the Trust.
The Trustee will charge the premiums on any incidental benefit insurance
contract covering the life of a Participant against the Account of that
Participant. The Trustee will hold all incidental benefit insurance contracts
issued under the Plan as assets of the Trust created under the Plan.
(A) Incidental insurance benefits. The aggregate of life insurance premiums paid
for the benefit of a Participant, at all times, may not exceed the following
percentages of the aggregate of the Employer's contributions allocated to any
Participant's Account: (i) 49% in the case of the purchase of ordinary life
insurance contracts; or (ii) 25% in the case of the purchase of term life
insurance or universal life insurance contracts. If the Trustee purchases a
combination of ordinary life insurance contract(s) and term life insurance or
universal life insurance contract(s), then the sum of one-half of the premiums
paid for the ordinary life insurance contract(s) and the premiums paid for the
term life insurance or universal life insurance contract(s) may not exceed 25%
of the Employer contributions allocated to any Participant's Account.
(B) Exception for certain profit sharing plans. If the Employer's Plan is a
profit sharing plan, the incidental insurance benefits requirement does not
apply to the Plan if the Plan purchases life insurance benefits only from
Employer contributions accumulated in the Participant's Account for at least two
years (measured from the allocation date).
11.02 LIMITATION ON LIFE INSURANCE PROTECTION. The Trustee will not
-------------------------------------------
continue any life insurance protection for any Participant beyond his annuity
starting date (as defined in Article VI). If the Trustee holds any incidental
benefit insurance contract(s) for the benefit of a Participant when he
terminates his employment (other than by reason of death), the Trustee must
proceed as follows:
(a) If the entire cash value of the contract(s) is vested in the terminating
Participant, or if the contract(s) will have no cash value at the end of the
policy year in which termination of employment occurs, the Trustee will
transfer the contract(s) to the Participant endorsed so as to vest in the
transferee all right, title and interest to the contract(s), free and clear of
the Trust; subject however, to restrictions as to surrender or payment of
benefits as the issuing insurance company may permit and as the Advisory
Committee directs;
11.01
<PAGE>
(b) If only part of the cash value of the contract(s) is vested in the
terminating Participant, the Trustee, to the extent the Participant's interest
in the cash value of the contract(s) is not vested, may adjust the
Participant's interest in the value of his Account attributable to Trust
assets other than incidental benefit insurance contracts and proceed as in
(a), or the Trustee must effect a loan from the issuing insurance company on
the sole security of the contract(s) for an amount equal to the difference
between the cash value of the contract(s) at the end of the policy year in
which termination of employment occurs and the amount of the cash value that
is vested in the terminating Participant, and the Trustee must transfer the
contract(s) endorsed so as to vest in the transferee all right, title and
interest to the contract(s), free and clear of the Trust; subject however, to
the restrictions as to surrender or payment of benefits as the issuing
insurance company may permit and the Advisory Committee directs;
(c) If no part of the cash value of the contract(s) is vested in the
terminating Participant, the Trustee must surrender the contract(s) for cash
proceeds as may be available.
In accordance with the written direction of the Advisory Committee, the
Trustee will make any transfer of contract(s) under this Section 11.02 on the
Participant's annuity starting date (or as soon as administratively practicable
after that date). The Trustee may not transfer any contract under this Section
11.02 which contains a method of payment not specifically authorized by Article
VI or which fails to comply with the joint and survivor annuity requirements, if
applicable, of Article VI. In this regard, the Trustee either must convert such
a contract to cash and distribute the cash instead of the contract, or before
making the transfer, require the issuing company to delete the unauthorized
method of payment option from the contract.
11.03 DEFINITIONS. For purposes of this Article XI:
-----------
(a) "Policy" means an ordinary life insurance contract or a term life
insurance contract issued by an insurer on the life of a Participant.
(b) "Issuing insurance company" is any life insurance company which has issued
a policy upon application by the Trustee under the terms of this Agreement.
(c) "Contract" or "Contracts" means a policy of insurance. In the event of any
conflict between the provisions of this Plan and the terms of any contract or
policy of insurance issued in accordance with this Article XI, the provisions
of the Plan control.
(d) "Insurable Participant" means a Participant to whom an insurance company,
upon an application being submitted in accordance with the Plan, will issue
insurance coverage, either as a standard risk or as a risk in an extra
mortality classification.
11.04 DIVIDEND PLAN. The dividend plan is premium reduction unless the
-------------
Advisory Committee directs the Trustee to the contrary. The Trustee must use all
dividends for a contract to purchase insurance benefits or additional insurance
benefits for the Participant on whose life the insurance company has issued the
contract. Furthermore, the Trustee must arrange, where possible, for all
policies issued on the lives of Participants under the Plan to have the same
premium due date and all ordinary life insurance contracts to contain guaranteed
cash values with as uniform basic options as are possible to obtain. The term
"dividends" includes policy dividends, refunds of premiums and other credits.
11.05 INSURANCE COMPANY NOT A PARTY TO AGREEMENT. No insurance company,
------------------------------------------
solely in its capacity as an issuing insurance company, is a party to this
Agreement nor is the company responsible for its validity.
11.06 INSURANCE COMPANY NOT RESPONSIBLE FOR TRUSTEE'S ACTIONS. No insurance
-------------------------------------------------------
company, solely in its capacity as an issuing insurance company, need examine
the terms of this Agreement nor is responsible for any action taken by the
Trustee.
11.02
<PAGE>
11.07 INSURANCE COMPANY RELIANCE ON TRUSTEE'S SIGNATURE. For the purpose of
-------------------------------------------------
making application to an insurance company and in the exercise of any right or
option contained in any policy, the insurance company may rely upon the
signature of the Trustee and is saved harmless and completely discharged in
acting at the direction and authorization of the Trustee.
11.08 ACQUITTANCE. An insurance company is discharged from all liability for
-----------
any amount paid to the Trustee or paid in accordance with the direction of the
Trustee, and is not obliged to see to the distribution or further application of
any moneys it so pays.
11.09 DUTIES OF INSURANCE COMPANY. Each insurance company must keep such
---------------------------
records, make such identification of contracts, funds and accounts within funds,
and supply such information as may be necessary for the proper administration of
the Plan under which it is carrying insurance benefits.
Note: The provisions of this Article XI are not applicable, and the Plan may
not invest in insurance contracts, if a Custodian signatory to the Adoption
Agreement is a bank which has not acquired trust powers from its governing state
banking authority.
* * * * * * * * * * * * * * *
11.03
<PAGE>
ARTICLE XII
MISCELLANEOUS
12.01 EVIDENCE. Anyone required to give evidence under the terms of the Plan
--------
may do so by certificate, affidavit, document or other information which the
person to act in reliance may consider pertinent, reliable and genuine, and to
have been signed, made or presented by the proper party or parties. The Advisory
Committee and the Trustee are fully protected in acting and relying upon any
evidence described under the immediately preceding sentence.
12.02 NO RESPONSIBILITY FOR EMPLOYER ACTION. Neither the Trustee nor the
-------------------------------------
Advisory Committee has any obligation or responsibility with respect to any
action required by the Plan to be taken by the Employer, any Participant or
eligible Employee, or for the failure of any of the above persons to act or make
any payment or contribution, or to otherwise provide any benefit contemplated
under this Plan. Furthermore, the Plan does not require the Trustee or the
Advisory Committee to collect any contribution required under the Plan, or to
determine the correctness of the amount of any Employer contribution. Neither
the Trustee nor the Advisory Committee need inquire into or be responsible for
any action or failure to act on the part of the others, or on the part of any
other person who has any responsibility regarding the management, administration
or operation of the Plan, whether by the express terms of the Plan or by a
separate agreement authorized by the Plan or by the applicable provisions of
ERISA. Any action required of a corporate Employer must be by its Board of
Directors or its designate.
12.03 FIDUCIARIES NOT INSURERS. The Trustee, the Advisory Committee, the
------------------------
Plan Administrator and the Employer in no way guarantee the Trust Fund from loss
or depreciation. The Employer does not guarantee the payment of any money which
may be or becomes due to any person from the Trust Fund. The liability of the
Advisory Committee and the Trustee to make any payment from the Trust Fund at
any time and all times is limited to the then available assets of the Trust.
12.04 WAIVER OF NOTICE. Any person entitled to notice under the Plan may
----------------
waive the notice, unless the Code or Treasury regulations prescribe the notice
or ERISA specifically or impliedly prohibits such a waiver.
12.05 SUCCESSORS. The Plan is binding upon all persons entitled to benefits
----------
under the Plan, their respective heirs and legal representatives, upon the
Employer, its successors and assigns, and upon the Trustee, the Advisory
Committee, the Plan Administrator and their successors.
12.06 WORD USAGE. Words used in the masculine also apply to the feminine
----------
where applicable, and wherever the context of the Employer's Plan dictates, the
plural includes the singular and the singular includes the plural.
12.07 STATE LAW. The law of the state of the Employer's principal place of
---------
business (unless otherwise designated in an addendum to the Employer's Adoption
Agreement) will determine all questions arising with respect to the provisions
of this Agreement except to the extent superseded by Federal law.
12.08 EMPLOYER'S RIGHT TO PARTICIPATE. If the Employer's Plan fails to
-------------------------------
qualify or to maintain qualification or if the Employer makes any amendment or
modification to a provision of this Plan (other than a proper completion of an
elective provision under the Adoption Agreement or the attachment of an addendum
authorized by the Plan or by the Adoption Agreement), the Employer may no longer
participate under this Master Plan. The Employer also may not participate (or
continue to participate) in this Master Plan if the Trustee or Custodian (or a
change in the Trustee or Custodian) does not satisfy the requirements of Section
1.02 of the Plan. If the Employer is not entitled to participate under this
Master Plan, the Employer's Plan is an individually-designed plan and the
reliance procedures specified in the applicable Adoption Agreement no longer
will apply.
12.01
<PAGE>
12.09 EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan, or with
-------------------------
respect to the establishment of the Trust, or any modification or amendment to
the Plan or Trust, or in the creation of any Account, or the payment of any
benefit, gives any Employee, Employee-Participant or any Beneficiary any right
to continue employment, any legal or equitable right against the Employer, or
Employee of the Employer, or against the Trustee, or its agents or employees, or
against the Plan Administrator, except as expressly provided by the Plan, the
Trust, ERISA or by a separate agreement.
* * * * * * * * * * * * * * *
12.02
<PAGE>
ARTICLE XIII
EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
13.01 EXCLUSIVE BENEFIT. Except as provided under Article III, the Employer
-----------------
has no beneficial interest in any asset of the Trust and no part of any asset in
the Trust may ever revert to or be repaid to an Employer, either directly or
indirectly; nor, prior to the satisfaction of all liabilities with respect to
the Participants and their Beneficiaries under the Plan, may any part of the
corpus or income of the Trust Fund, or any asset of the Trust, be (at any time)
used for, or diverted to, purposes other than the exclusive benefit of the
Participants or their Beneficiaries. However, if the Commissioner of Internal
Revenue, upon the Employer's request for initial approval of this Plan,
determines the Trust created under the Plan is not a qualified trust exempt from
Federal income tax, then (and only then) the Trustee, upon written notice from
the Employer, will return the Employer's contributions (and increment
attributable to the contributions) to the Employer. The Trustee must make the
return of the Employer contribution under this Section 13.01 within one year of
a final disposition of the Employer's request for initial approval of the Plan.
The Employer's Plan and Trust will terminate upon the Trustee's return of the
Employer's contributions.
13.02 AMENDMENT BY EMPLOYER. The Employer has the right at any time and
-----------------------
from time to time:
(a) To amend the elective provisions of the Adoption Agreement in any manner
it deems necessary or advisable in order to qualify (or maintain qualification
of) this Plan and the Trust created under it under the provisions of Code
(S)401(a);
(b) To amend the Plan to allow the Plan to operate under a waiver of the
minimum funding requirement; and
(c) To amend this Agreement in any other manner.
No amendment may authorize or permit any of the Trust Fund (other than the
part which is required to pay taxes and administration expenses) to be used for
or diverted to purposes other than for the exclusive benefit of the Participants
or their Beneficiaries or estates. No amendment may cause or permit any portion
of the Trust Fund to revert to or become a property of the Employer. The
Employer also may not make any amendment which affects the rights, duties or
responsibilities of the Trustee, the Plan Administrator or the Advisory
Committee without the written consent of the affected Trustee, the Plan
Administrator or the affected member of the Advisory Committee. The Employer
must make all amendments in writing. Each amendment must state the date to which
it is either retroactively or prospectively effective. See Section 12.08 for the
effect of certain amendments adopted by the Employer.
(A) Code (S)411(d)(6) protected benefits. An amendment (including the adoption
of this Plan as a restatement of an existing plan) may not decrease a
Participant's Accrued Benefit, except to the extent permitted under Code
(S)412(c)(8), and may not reduce or eliminate Code (S)411(d)(6) protected
benefits determined immediately prior to the adoption date (or, if later, the
effective date) of the amendment. An amendment reduces or eliminates Code
(S)411(d)(6) protected benefits if the amendment has the effect of either (1)
eliminating or reducing an early retirement benefit or a retirement-type subsidy
(as defined in Treasury regulations), or (2) except as provided by Treasury
regulations, eliminating an optional form of benefit. The Advisory Committee
must disregard an amendment to the extent application of the amendment would
fail to satisfy this paragraph. If the Advisory Committee must disregard an
amendment because the amendment would violate clause (1) or clause (2), the
Advisory Committee must maintain a schedule of the early retirement option or
other optional forms of benefit the Plan must continue for the affected
Participants.
13.01
<PAGE>
13.03 AMENDMENT BY MASTER PLAN SPONSOR. The Master Plan Sponsor (or PPD, as
--------------------------------
agent of the Master Plan Sponsor), without the Employer's consent, may amend the
Plan and Trust, from time to time, in order to conform the Plan and Trust to any
requirement for qualification of the Plan and Trust under the Internal Revenue
Code. The Master Plan Sponsor may not amend the Plan in any manner which would
modify any election made by the Employer under the Plan without the Employer's
written consent. Furthermore, the Master Plan Sponsor may not amend the Plan in
any manner which would violate the proscription of Section 13.02. A Trustee does
not have the power to amend the Plan or Trust.
13.04 DISCONTINUANCE. The Employer has the right, at any time, to suspend or
--------------
discontinue its contributions under the Plan, and to terminate, at any time,
this Plan and the Trust created under this Agreement. The Plan will terminate
upon the first to occur of the following:
(a) The date terminated by action of the Employer;
(b) The dissolution or merger of the Employer, unless the successor makes
provision to continue the Plan, in which event the successor must substitute
itself as the Employer under this Plan. Any termination of the Plan resulting
from this paragraph (b) is not effective until compliance with any applicable
notice requirements under ERISA.
13.05 FULL VESTING ON TERMINATION. Upon either full or partial termination
---------------------------
of the Plan, or, if applicable, upon complete discontinuance of profit sharing
plan contributions to the Plan, an affected Participant's right to his Accrued
Benefit is 100% Nonforfeitable, irrespective of the Nonforfeitable percentage
which otherwise would apply under Article V.
13.06 MERGER/DIRECT TRANSFER. The Trustee may not consent to, or be a party
----------------------
to, any merger or consolidation with another plan, or to a transfer of assets or
liabilities to another plan, unless immediately after the merger, consolidation
or transfer, the surviving Plan provides each Participant a benefit equal to or
greater than the benefit each Participant would have received had the Plan
terminated immediately before the merger or consolidation or transfer. The
Trustee possesses the specific authority to enter into merger agreements or
direct transfer of assets agreements with the trustees of other retirement plans
described in Code (S)401(a), including an elective transfer, and to accept the
direct transfer of plan assets, or to transfer plan assets, as a party to any
such agreement.
The Trustee may accept a direct transfer of plan assets on behalf of an
Employee prior to the date the Employee satisfies the Plan's eligibility
conditions. If the Trustee accepts such a direct transfer of plan assets, the
Advisory Committee and Trustee must treat the Employee as a Participant for all
purposes of the Plan except the Employee is not a Participant for purposes of
sharing in Employer contributions or Participant forfeitures under the Plan
until he actually becomes a Participant in the Plan.
(A) Elective transfers. The Trustee, after August 9, 1988, may not consent to,
or be a party to a merger, consolidation or transfer of assets with a defined
benefit plan, except with respect to an elective transfer, or unless the
transferred benefits are in the form of paid-up individual annuity contracts
guaranteeing the payment of the transferred benefits in accordance with the
terms of the transferor plan and in a manner consistent with the Code and with
ERISA. The Trustee will hold, administer and distribute the transferred assets
as a part of the Trust Fund and the Trustee must maintain a separate Employer
contribution Account for the benefit of the Employee on whose behalf the Trustee
accepted the transfer in order to reflect the value of the transferred assets.
Unless a transfer of assets to this Plan is an elective transfer, the Plan will
preserve all Code (S)411(d)(6) protected benefits with respect to those
transferred assets, in the manner described in Section 13.02. A transfer is an
elective transfer if: (1) the transfer satisfies the first paragraph of this
Section 13.06; (2) the transfer is voluntary, under a fully informed election by
the Participant; (3) the Participant has an alternative that retains his Code
(S)411(d)(6) protected benefits (including an option to leave his benefit in the
transferor plan, if that plan is not terminating); (4) the transfer satisfies
the applicable spousal consent requirements of the Code; (5) the transferor plan
satisfies the joint and survivor notice requirements of the Code, if the
Participant's transferred benefit is subject to those requirements;
13.02
<PAGE>
(6) the Participant has a right to immediate distribution from the transferor
plan, in lieu of the elective transfer; (7) the transferred benefit is at least
the greater of the single sum distribution provided by the transferor plan for
which the Participant is eligible or the present value of the Participant's
accrued benefit under the transferor plan payable at that plan's normal
retirement age; (8) the Participant has a 100% Nonforfeitable interest in the
transferred benefit; and (9) the transfer otherwise satisfies applicable
Treasury regulations. An elective transfer may occur between qualified plans of
any type. Any direct transfer of assets from a defined benefit plan after August
9, 1988, which does not satisfy the requirements of this paragraph will render
the Employer's Plan individually-designed. See Section 12.08.
(B) Distribution restrictions under Code (S)401(k). If the Plan receives a
direct transfer (by merger or otherwise) of elective contributions (or amounts
treated as elective contributions) under a Plan with a Code (S)401(k)
arrangement, the distribution restrictions of Code (S)(S)401(k)(2) and (10)
continue to apply to those transferred elective contributions.
13.07 TERMINATION.
-----------
(A) Procedure. Upon termination of the Plan, the distribution provisions of
Article VI remain operative, with the following exceptions:
(1) if the present value of the Participant's Nonforfeitable Accrued Benefit
does not exceed $3,500, the Advisory Committee will direct the Trustee to
distribute the Participant's Nonforfeitable Accrued Benefit to him in lump sum
as soon as administratively practicable after the Plan terminates; and
(2) if the present value of the Participant's Nonforfeitable Accrued Benefit
exceeds $3,500, the Participant or the Beneficiary, in addition to the
distribution events permitted under Article VI, may elect to have the Trustee
commence distribution of his Nonforfeitable Accrued Benefit as soon as
administratively practicable after the Plan terminates.
To liquidate the Trust, the Advisory Committee will purchase a deferred
annuity contract for each Participant which protects the Participant's
distribution rights under the Plan, if the Participant's Nonforfeitable Accrued
Benefit exceeds $3,500 and the Participant does not elect an immediate
distribution pursuant to Paragraph (2).
If the Employer's Plan is a profit sharing plan, in lieu of the preceding
provisions of this Section 13.07 and the distribution provisions of Article VI,
the Advisory Committee will direct the Trustee to distribute each Participant's
Nonforfeitable Accrued Benefit, in lump sum, as soon as administratively
practicable after the termination of the Plan, irrespective of the present value
of the Participant's Nonforfeitable Accrued Benefit and whether the Participant
consents to that distribution. This paragraph does not apply if: (1) the Plan
provides an annuity option; or (2) as of the period between the Plan termination
date and the final distribution of assets, the Employer maintains any other
defined contribution plan (other than an ESOP). The Employer, in an addendum to
its Adoption Agreement numbered 13.07, may elect not to have this paragraph
apply.
The Trust will continue until the Trustee in accordance with the direction of
the Advisory Committee has distributed all of the benefits under the Plan. On
each valuation date, the Advisory Committee will credit any part of a
Participant's Accrued Benefit retained in the Trust with its proportionate share
of the Trust's income, expenses, gains and losses, both realized and unrealized.
Upon termination of the Plan, the amount, if any, in a suspense account under
Article III will revert to the Employer, subject to the conditions of the
Treasury regulations permitting such a reversion. A resolution or amendment to
freeze all future benefit accrual but otherwise to continue maintenance of this
Plan, is not a termination for purposes of this Section 13.07.
13.03
<PAGE>
(B) Distribution restrictions under Code (S)401(k). If the Employer's Plan
includes a Code (S)401(k) arrangement or if transferred assets described in
Section 13.06 are subject to the distribution restrictions of Code
(S)(S)401(k)(2) and (10), the special distribution provisions of this Section
13.07 are subject to the restrictions of this paragraph. The portion of the
Participant's Nonforfeitable Accrued Benefit attributable to elective
contributions (or to amounts treated under the Code (S)401(k) arrangement as
elective contributions) is not distributable on account of Plan termination, as
described in this Section 13.07, unless: (a) the Participant otherwise is
entitled under the Plan to a distribution of that portion of his Nonforfeitable
Accrued Benefit; or (b) the Plan termination occurs without the establishment of
a successor plan. A successor plan under clause (b) is a defined contribution
plan (other than an ESOP) maintained by the Employer (or by a related employer)
at the time of the termination of the Plan or within the period ending twelve
months after the final distribution of assets. A distribution made after March
31, 1988, pursuant to clause (b), must be part of a lump sum distribution to the
Participant of his Nonforfeitable Accrued Benefit.
* * * * * * * * * * * * * * *
13.04
<PAGE>
ARTICLE XIV
CODE (S)401(k) ARRANGEMENTS
14.01 APPLICATION. This Article XIV applies to an Employer's Plan only if
-----------
the Employer is maintaining its Plan under a Code (S)401(k) Adoption Agreement.
14.02 CODE (S)401(k) ARRANGEMENT. The Employer will elect in Section 3.01 of
--------------------------
its Adoption Agreement the terms of the Code (S)401(k) arrangement, if any,
under the Plan. If the Employer's Plan is a Standardized Plan, the Code
(S)401(k) arrangement must be a salary reduction arrangement. If the Employer's
Plan is a Nonstandardized Plan, the Code (S)401(k) arrangement may be a salary
reduction arrangement or a cash or deferred arrangement.
(A) Salary Reduction Arrangement. If the Employer elects a salary reduction
arrangement, any Employee eligible to participate in the Plan may file a salary
reduction agreement with the Advisory Committee. The salary reduction agreement
may not be effective earlier than the following date which occurs last: (i) the
Employee's Plan Entry Date (or, in the case of a reemployed Employee, his
reparticipation date under Article II); (ii) the execution date of the
Employee's salary reduction agreement; (iii) the date the Employer adopts the
Code (S)401(k) arrangement by executing the Adoption Agreement; or (iv) the
effective date of the Code (S)401(k) arrangement, as specified in the Employer's
Adoption Agreement. Regarding clause (i), an Employee subject to the Break in
Service rule of Section 2.03(B) of the Plan may not enter into a salary
reduction agreement until the Employee has completed a sufficient number of
Hours of Service to receive credit for a Year of Service (as defined in Section
2.02) following his reemployment commencement date. A salary reduction agreement
must specify the amount of Compensation (as defined in Section 1.12) or
percentage of Compensation the Employee wishes to defer. The salary reduction
agreement will apply only to Compensation which becomes currently available to
the Employee after the effective date of the salary reduction agreement. The
Employer will apply a reduction election to all Compensation (and to increases
in such Compensation) unless the Employee specifies in his salary reduction
agreement to limit the election to certain Compensation. The Employer will
specify in Adoption Agreement Section 3.01 the rules and restrictions applicable
to the Employees salary reduction agreements.
(B) Cash or deferred arrangement. If the Employer elects a cash or deferred
arrangement, a Participant may elect to make a cash election against his
proportionate share of the Employer's Cash or Deferred Contribution, in
accordance with the Employer's elections in Adoption Agreement Section 3.01. A
Participant's proportionate share of the Employer's Cash or Deferred
Contribution is the percentage of the total Cash or Deferred Contribution which
bears the same ratio that the Participant's Compensation for the Plan Year bears
to the total Compensation of all Participants for the Plan Year. For purposes of
determining each Participant's proportionate share of the Cash or Deferred
Contribution, a Participant's Compensation is his Compensation as determined
under Section 1.12 of the Plan (as modified by Section 3.06 for allocation
purposes), excluding any effect the proportionate share may have on the
Participant's Compensation for the Plan Year. The Advisory Committee will
determine the proportionate share prior to the Employer's actual contribution to
the Trust, to provide the Participants the opportunity to file cash elections.
The Employer will pay directly to the Participant the portion of his
proportionate share the Participant has elected to receive in cash.
(C) Election not to participate. A Participant's or Employee's election not to
participate, pursuant to Section 2.06, includes his right to enter into a salary
reduction agreement or to share in the allocation of a Cash or Deferred
Contribution, unless the Participant or Employee limits the effect of the
election to the non-401(k) portions of the Plan.
14.01
<PAGE>
14.03 DEFINITIONS. For purposes of this Article XIV:
-----------
(a) "Highly Compensated Employee" means an Eligible Employee who satisfies the
definition in Section 1.09 of the Plan. Family members aggregated as a single
Employee under Section 1.09 constitute a single Highly Compensated Employee,
whether a particular family member is a Highly Compensated Employee or a
Nonhighly Compensated Employee without the application of family aggregation.
(b) "Nonhighly Compensated Employee" means an Eligible Employee who is not a
Highly Compensated Employee and who is not a family member treated as a Highly
Compensated Employee.
(c) "Eligible Employee" means, for purposes of the ADP test described in
Section 14.08, an Employee who is eligible to enter into a salary reduction
agreement for the Plan Year, irrespective of whether he actually enters into
such an agreement, and a Participant who is eligible for an allocation of the
Employer's Cash or Deferred Contribution for the Plan Year. For purposes of
the ACP test described in Section 14.09, an "Eligible Employee" means a
Participant who is eligible to receive an allocation of matching contributions
(or would be eligible if he made the type of contributions necessary to
receive an allocation of matching contributions) and a Participant who is
eligible to make nondeductible contributions, irrespective of whether he
actually makes nondeductible contributions. An Employee continues to be an
Eligible Employee during a period the Plan suspends the Employee's right to
make elective deferrals or nondeductible contributions following a hardship
distribution.
(d) "Highly Compensated Group" means the group of Eligible Employees who are
Highly Compensated Employees for the Plan Year.
(e) "Nonhighly Compensated Group" means the group of Eligible Employees who
are Nonhighly Compensated Employees for the Plan Year.
(f) "Compensation" means, except as specifically provided in this Article XIV,
Compensation as defined for nondiscrimination purposes in Section 1.12(B) of
the Plan. For Plan Years beginning prior to the later of January 1, 1992, or
60 days after the Treasury issues final regulations under Code (S)(S)401(k)
and 401(m), the Plan may limit Compensation taken into account to Compensation
received only for the portion of the Plan Year in which the Employee was an
Eligible Employee and only for the portion of the Plan Year in which the Plan
or the Code (S)401(k) arrangement was in effect. For subsequent Plan Years,
Compensation must include Compensation for the entire Plan Year, irrespective
of whether the Plan or the Code (S)401(k) arrangement was in effect for the
entire Plan Year or whether the Employee begins, resumes or ceases to be an
Eligible Employee during the Plan Year.
(g) "Deferral contributions" are Salary Reduction Contributions and Cash or
Deferred Contributions the Employer contributes to the Trust on behalf of an
Eligible Employee, irrespective of whether, in the case of Cash or Deferred
Contributions, the contribution is at the election of the Employee.
(h) "Elective deferrals" are all Salary Reduction Contributions and that
portion of any Cash or Deferred Contribution which the Employer contributes to
the Trust at the election of an Eligible Employee. Any portion of a Cash or
Deferred Contribution contributed to the Trust because of the Employee's
failure to make a cash election is an elective deferral. However, any portion
of a Cash or Deferred Contribution over which the Employee does not have a
cash election is not an elective deferral. Elective deferrals do not include
amounts which have become currently available to the Employee prior to the
election nor amounts designated as nondeductible contributions at the time of
deferral or contribution.
(i) "Matching contributions" are contributions made by the Employer on account
of elective deferrals under a Code (S)401(k) arrangement or on account of
employee contributions. Matching contributions also include Participant
forfeitures allocated on account of such elective deferrals or employee
contributions.
14.02
<PAGE>
(j) "Nonelective contributions" are contributions made by the Employer which
are not subject to a deferral election by an Employee and which are not
matching contributions.
(k) "Qualified matching contributions" are matching contributions which are
100% Nonforfeitable at all times and which are subject to the distribution
restrictions described in paragraph (m). Matching contributions are not 100%
Nonforfeitable at all times if the Employee has a 100% Nonforfeitable interest
because of his Years of Service taken into account under a vesting schedule.
Any matching contributions allocated to a Participant's Qualified Matching
Contributions Account under the Plan automatically satisfy the definition of
qualified matching contributions.
(l) "Qualified nonelective contributions" are nonelective contributions which
are 100% Nonforfeitable at all times and which are subject to the distribution
restrictions described in paragraph (m). Nonelective contributions are not
100% Nonforfeitable at all times if the Employee has a 100% Nonforfeitable
interest because of his Years of Service taken into account under a vesting
schedule. Any nonelective contributions allocated to a Participant's Qualified
Nonelective Contributions Account under the Plan automatically satisfy the
definition of qualified nonelective contributions.
(m) "Distribution restrictions" means the Employee may not receive a
distribution of the specified contributions (nor earnings on those
contributions) except in the event of (1) the Participant's death, disability,
termination of employment or attainment of age 59 1/2, (2) financial hardship
satisfying the requirements of Code (S)401(k) and the applicable Treasury
regulations, (3) a plan termination, without establishment of a successor
defined contribution plan (other than an ESOP), (4) a sale of substantially
all of the assets (within the meaning of Code (S)409(d)(2)) used in a trade or
business, but only to an employee who continues employment with the
corporation acquiring those assets, or (5) a sale by a corporation of its
interest in a subsidiary (within the meaning of Code (S)409(d)(3)), but only
to an employee who continues employment with the subsidiary. For Plan Years
beginning after December 31, 1988, a distribution on account of financial
hardship, as described in clause (2), may not include earnings on elective
deferrals credited as of a date later than December 31, 1988, and may not
include qualified matching contributions and qualified nonelective
contributions, nor any earnings on such contributions, irrespective of when
credited. A distribution described in clauses (3), (4) or (5), if made after
March 31, 1988, must be a lump sum distribution, as required under Code
(S)401(k)(10).
(n) "Employee contributions" are contributions made by a Participant on an
after-tax basis, whether voluntary or mandatory, and designated, at the time
of contribution, as an employee (or nondeductible) contribution. Elective
deferrals and deferral contributions are not employee contributions.
Participant nondeductible contributions, made pursuant to Section 4.01 of the
Plan, are employee contributions.
14.04 MATCHING CONTRIBUTIONS/EMPLOYEE CONTRIBUTIONS. The Employer may elect
---------------------------------------------
in Adoption Agreement Section 3.01 to provide matching contributions. The
Employer also may elect in Adoption Agreement Section 4.01 to permit or to
require a Participant to make nondeductible contributions.
(A) Mandatory contributions. Any Participant nondeductible contributions
eligible for matching contributions are mandatory contributions. The Advisory
Committee will maintain a separate accounting, pursuant to Section 4.06 of the
Plan, to reflect the Participant's Accrued Benefit derived from his mandatory
contributions. The Employer, under Adoption Agreement Section 4.05, may
prescribe special distribution restrictions which will apply to the Mandatory
Contributions Account prior to the Participant's Separation from Service.
Following his Separation from Service, the general distribution provisions of
Article VI apply to the distribution of the Participant's Mandatory
Contributions Account.
14.03
<PAGE>
14.05 TIME OF PAYMENT OF CONTRIBUTIONS. The Employer must make Salary
--------------------------------
Reduction Contributions to the Trust within an administratively reasonable
period of time after withholding the corresponding Compensation from the
Participant. Furthermore, the Employer must make Salary Reduction Contributions,
Cash or Deferred Contributions, Employer matching contributions (including
qualified Employer matching contributions) and qualified Employer nonelective
contributions no later than the time prescribed by the Code or by applicable
Treasury regulations. Salary Reduction Contributions and Cash or Deferred
Contributions are Employer contributions for all purposes under this Plan,
except to the extent the Code or Treasury regulations prohibit the use of these
contributions to satisfy the qualification requirements of the Code.
14.06 SPECIAL ALLOCATION PROVISIONS - DEFERRAL CONTRIBUTIONS, MATCHING
----------------------------------------------------------------
CONTRIBUTIONS AND QUALIFIED NONELECTIVE CONTRIBUTIONS. To make allocations under
- -----------------------------------------------------
the Plan, the Advisory Committee must establish a Deferral Contributions
Account, a Qualified Matching Contributions Account, a Regular Matching
Contributions Account, a Qualified Nonelective Contributions Account and an
Employer Contributions Account for each Participant.
(A) Deferral contributions. The Advisory Committee will allocate to each
Participant's Deferral Contributions Account the amount of Deferral
Contributions the Employer makes to the Trust on behalf of the Participant. The
Advisory Committee will make this allocation as of the last day of each Plan
Year unless, in Adoption Agreement Section 3.04, the Employer elects more
frequent allocation dates for salary reduction contributions.
(B) Matching contributions. The Employer must specify in its Adoption Agreement
whether the Advisory Committee will allocate matching contributions to the
Qualified Matching Contributions Account or to the Regular Matching
Contributions Account of each Participant. The Advisory Committee will make this
allocation as of the last day of each Plan Year unless, in Adoption Agreement
Section 3.04, the Employer elects more frequent allocation dates for matching
contributions.
(1) To the extent the Employer makes matching contributions under a fixed
matching contribution formula, the Advisory Committee will allocate the
matching contribution to the Account of the Participant on whose behalf the
Employer makes that contribution. A fixed matching contribution formula is a
formula under which the Employer contributes a certain percentage or dollar
amount on behalf of a Participant based on that Participant's deferral
contributions or nondeductible contributions eligible for a match, as
specified in Section 3.01 of the Employer's Adoption Agreement. The Employer
may contribute on a Participant's behalf under a specific matching
contribution formula only if the Participant satisfies the accrual
requirements for matching contributions specified in Section 3.06 of the
Employer's Adoption Agreement and only to the extent the matching contribution
does not exceed the Participant's annual additions limitation in Part 2 of
Article III.
(2) To the extent the Employer makes matching contributions under a
discretionary formula, the Advisory Committee will allocate the discretionary
matching contributions to the Account of each Participant who satisfies the
accrual requirements for matching contributions specified in Section 3.06 of
the Employer's Adoption Agreement. The allocation of discretionary matching
contributions to a Participant's Account is in the same proportion that each
Participant's eligible contributions bear to the total eligible contributions
of all Participants. If the discretionary formula is a tiered formula, the
Advisory Committee will make this allocation separately with respect to each
tier of eligible contributions, allocating in such manner the amount of the
matching contributions made with respect to that tier. "Eligible
contributions" are the Participant's deferral contributions or nondeductible
contributions eligible for an allocation of matching contributions, as
specified in Section 3.01 of the Employer's Adoption Agreement.
14.04
<PAGE>
If the matching contribution formula applies both to deferral contributions
and to Participant nondeductible contributions, the matching contributions apply
first to deferral contributions. Furthermore, the matching contribution formula
does not apply to deferral contributions that are excess deferrals under Section
14.07. For this purpose: (a) excess deferrals relate first to deferral
contributions for the Plan Year not otherwise eligible for a matching
contribution; and (2) if the Plan Year is not a calendar year, the excess
deferrals for a Plan Year are the last elective deferrals made for a calendar
year.
(C) Qualified nonelective contributions. If the Employer, at the time of
contribution, designates a contribution to be a qualified nonelective
contribution for the Plan Year, the Advisory Committee will allocate that
qualified nonelective contribution to the Qualified Nonelective Contributions
Account of each Participant eligible for an allocation of that designated
contribution, as specified in Section 3.04 of the Employer's Adoption Agreement.
The Advisory Committee will make the allocation to each eligible Participant's
Account in the same ratio that the Participant's Compensation for the Plan Year
bears to the total Compensation of all eligible Participants for the Plan Year.
The Advisory Committee will determine a Participant's Compensation in accordance
with the general definition of Compensation under Section 1.12 of the Plan, as
modified by the Employer in Sections 1.12 and 3.06 of its Adoption Agreement.
(D) Nonelective contributions. To the extent the Employer makes nonelective
contributions for the Plan Year which, at the time of contribution, it does not
designate as qualified nonelective contributions, the Advisory Committee will
allocate those contributions in accordance with the elections under Section 3.04
of the Employer's Adoption Agreement. For purposes of the special
nondiscrimination tests described in Sections 14.08 and 14.09, the Advisory
Committee may treat nonelective contributions allocated under this paragraph as
qualified nonelective contributions, if the contributions otherwise satisfy the
definition of qualified nonelective contributions.
14.07 ANNUAL ELECTIVE DEFERRAL LIMITATION.
-----------------------------------
(A) Annual Elective Deferral Limitation. An Employee's elective deferrals for a
calendar year beginning after December 31, 1986, may not exceed the 402(g)
limitation. The 402(g) limitation is the greater of $7,000 or the adjusted
amount determined by the Secretary of the Treasury. If, pursuant to a salary
reduction agreement or pursuant to a cash or deferral election, the Employer
determines the Employee's elective deferrals to the Plan for a calendar year
would exceed the 402(g) limitation, the Employer will suspend the Employee's
salary reduction agreement, if any, until the following January 1 and pay in
cash the portion of a cash or deferral election which would result in the
Employee's elective deferrals for the calendar year exceeding the 402(g)
limitation. If the Advisory Committee determines an Employee's elective
deferrals already contributed to the Plan for a calendar year exceed the 402(g)
limitation, the Advisory Committee will distribute the amount in excess of the
402(g) limitation (the "excess deferral"), as adjusted for allocable income, no
later than April 15 of the following calendar year. If the Advisory Committee
distributes the excess deferral by the appropriate April 15, it may make the
distribution irrespective of any other provision under this Plan or under the
Code. The Advisory Committee will reduce the amount of excess deferrals for a
calendar year distributable to the Employee by the amount of excess
contributions (as determined in Section 14.08), if any, previously distributed
to the Employee for the Plan Year beginning in that calendar year.
If an Employee participates in another plan under which he makes elective
deferrals pursuant to a Code (S)401(k) arrangement, elective deferrals under a
Simplified Employee Pension, or salary reduction contributions to a tax-
sheltered annuity, irrespective of whether the Employer maintains the other
plan, he may provide the Advisory Committee a written claim for excess deferrals
made for a calendar year. The Employee must submit the claim no later than the
March 1 following the close of the particular calendar year and the claim must
specify the amount of the Employee's elective deferrals under this Plan which
are excess deferrals. If the Advisory Committee receives a timely claim, it will
distribute the excess deferral (as adjusted for allocable income) the Employee
has assigned to this Plan, in accordance with the distribution procedure
described in the immediately preceding paragraph.
14.05
<PAGE>
(B) Allocable income. For purposes of making a distribution of excess deferrals
pursuant to this Section 14.07, allocable income means net income or net loss
allocable to the excess deferrals for the calendar year in which the Employee
made the excess deferral and for the "gap period" measured from the beginning of
the next calendar year to the date of the distribution. If the distribution of
the excess deferral occurs during the calendar year in which the Employee made
the excess deferral, the Advisory Committee will treat as a "gap period" the
period from the first day of that calendar year to the date of the distribution.
The Advisory Committee will determine allocable income in the same manner as
described in Section 14.08(F) for excess contributions, except the numerator of
the allocation fraction will be the amount of the Employee's excess deferrals
and the denominator of the allocation fraction will be the Employee's Accrued
Benefit attributable to his elective deferrals.
14.08 ACTUAL DEFERRAL PERCENTAGE ("ADP") TEST. For each Plan Year, the
---------------------------------------
Advisory Committee must determine whether the Plan's Code (S)401(k) arrangement
satisfies either of the following ADP tests:
(i) The average ADP for the Highly Compensated Group does not exceed 1.25
times the average ADP of the Nonhighly Compensated Group; or
(ii) The average ADP for the Highly Compensated Group does not exceed the
average ADP for the Nonhighly Compensated Group by more than two percentage
points (or the lesser percentage permitted by the multiple use limitation in
Section 14.10) and the average ADP for the Highly Compensated Group is not
more than twice the average ADP for the Nonhighly Compensated Group.
(A) Calculation of ADP. The average ADP for a group is the average of the
separate ADPs calculated for each Eligible Employee who is a member of that
group. An Eligible Employee's ADP for a Plan Year is the ratio of the Eligible
Employee's deferral contributions for the Plan Year to the Employee's
Compensation for the Plan Year. For aggregated family members treated as a
single Highly Compensated Employee, the ADP of the family unit is the greater
of: (i) the ADP determined by combining the deferral contributions and
Compensation of the family members who are Highly Compensated Employees without
family aggregation; or (ii) the ADP determined by combining the deferral
contributions and Compensation of all aggregated family members. A Nonhighly
Compensated Employee's ADP does not include elective deferrals made to this Plan
or to any other Plan maintained by the Employer, to the extent such elective
deferrals exceed the 402(g) limitation described in Section 14.07(A).
The Advisory Committee may determine (in a manner consistent with Treasury
regulations) the ADPs of the Eligible Employees by taking into account qualified
nonelective contributions or qualified matching contributions, or both, made to
this Plan or to any other qualified Plan maintained by the Employer. The
Advisory Committee may not include qualified nonelective contributions in the
ADP test unless the allocation of nonelective contributions is nondiscriminatory
when the Advisory Committee takes into account all nonelective contributions
(including the qualified nonelective contributions) and also when the Advisory
Committee takes into account only the nonelective contributions not used in
either the ADP test described in this Section 14.08 or the ACP test described in
Section 14.09. For Plan Years beginning after December 31, 1989, the Advisory
Committee may not include in the ADP test any qualified nonelective
contributions or qualified matching contributions under another qualified plan
unless that plan has the same plan year as this Plan. The Advisory Committee
must maintain records to demonstrate compliance with the ADP test, including the
extent to which the Plan used qualified nonelective contributions or qualified
matching contributions to satisfy the test.
(B) Special aggregation rule for Highly Compensated Employees. To determine the
ADP of any Highly Compensated Employee, the deferral contributions taken into
account must include any elective deferrals made by the Highly Compensated
Employee under any other Code (S)401(k) arrangement maintained by the Employer,
unless the elective deferrals are to an ESOP. If the plans containing the Code
(S)401(k) arrangements have different plan years, the Advisory Committee will
determine the combined deferral contributions on the basis of the plan years
ending in the same calendar year.
14.06
<PAGE>
(C) Aggregation of certain Code (S)401(k) arrangements. If the Employer treats
two plans as a unit for coverage or nondiscrimination purposes, the Employer
must combine the Code (S)401(k) arrangements under such plans to determine
whether either plan satisfies the ADP test. This aggregation rule applies to the
ADP determination for all Eligible Employees, irrespective of whether an
Eligible Employee is a Highly Compensated Employee or a Nonhighly Compensated
Employee. The Advisory Committee also may elect to aggregate the Code (S)401(k)
arrangements under plans which the Employer does not treat as a unit for
coverage or nondiscrimination purposes. For Plan Years beginning after December
31, 1989, an aggregation of Code (S)401(k) arrangements under this paragraph
does not apply to plans which have different plan years and, for Plan Years
beginning after December 31, 1988, the Advisory Committee may not aggregate an
ESOP (or the ESOP portion of a plan) with a non-ESOP plan (or non-ESOP portion
of a plan).
(D) Characterization of excess contributions. If, pursuant to this Section
14.08, the Advisory Committee has elected to include qualified matching
contributions in the average ADP, the Advisory Committee will treat excess
contributions as attributable proportionately to deferral contributions and to
qualified matching contributions allocated on the basis of those deferral
contributions. If the total amount of a Highly Compensated Employee's excess
contributions for the Plan Year exceeds his deferral contributions or qualified
matching contributions for the Plan Year, the Advisory Committee will treat the
remaining portion of his excess contributions as attributable to qualified
nonelective contributions. The Advisory Committee will reduce the amount of
excess contributions for a Plan Year distributable to a Highly Compensated
Employee by the amount of excess deferrals (as determined in Section 14.07), if
any, previously distributed to that Employee for the Employee's taxable year
ending in that Plan Year.
(E) Distribution of excess contributions. If the Advisory Committee determines
the Plan fails to satisfy the ADP test for a Plan Year, it must distribute the
excess contributions, as adjusted for allocable income, during the next Plan
Year. However, the Employer will incur an excise tax equal to 10% of the amount
of excess contributions for a Plan Year not distributed to the appropriate
Highly Compensated Employees during the first 2 1/2 months of that next Plan
Year. The excess contributions are the amount of deferral contributions made by
the Highly Compensated Employees which causes the Plan to fail to satisfy the
ADP test. The Advisory Committee will distribute to each Highly Compensated
Employee his respective share of the excess contributions. The Advisory
Committee will determine the respective shares of excess contributions by
starting with the Highly Compensated Employee(s) who has the greatest ADP,
reducing his ADP to the next highest ADP, then, if necessary, reducing the ADP
of the Highly Compensated Employee(s) at the next highest ADP level (including
the ADP of the Highly Compensated Employee(s) whose ADP the Advisory Committee
already has reduced), and continuing in this manner until the average ADP for
the Highly Compensated Group satisfies the ADP test. If the Highly Compensated
Employee is part of an aggregated family group, the Advisory Committee, in
accordance with the applicable Treasury regulations, will determine each
aggregated family member's allocable share of the excess contributions assigned
to the family unit.
(F) Allocable income. To determine the amount of the corrective distribution
required under this Section 14.08, the Advisory Committee must calculate the
allocable income for the Plan Year in which the excess contributions arose and
for the "gap period" measured from the beginning of the next Plan Year to the
date of the distribution. "Allocable income" means net income or net loss. To
calculate allocable income for the Plan Year, the Advisory Committee: (1) first
will determine the net income or net loss for the Plan Year on the Highly
Compensated Employee's Accrued Benefit attributable to deferral contributions;
and (2) then will multiply this net income or net loss by the following
fraction:
14.07
<PAGE>
Amount of the Highly Compensated Employee's excess contributions
--------------------------------------------------------------------
Accrued Benefit attributable to deferral contributions
The Accrued Benefit attributable to deferral contributions includes the Accrued
Benefit attributable to qualified matching contributions and qualified
nonelective contributions taken into account in the ADP test for the Plan Year
or for any prior Plan Year. For purposes of the denominator of the fraction, the
Advisory Committee will calculate the Accrued Benefit attributable to deferral
contributions as of the last day of the Plan Year (without regard to the net
income or net loss for the Plan Year on that Accrued Benefit).
To calculate allocable income for the "gap period," the Advisory Committee
will perform the same calculation as described in the preceding paragraph,
except in clause (1) the Advisory Committee will determine, as of the last day
of the month preceding the date of distribution, the net income or net loss for
the "gap period" and in clause (2) will calculate the Accrued Benefit
attributable to deferral contributions as of the day before the distribution. If
the Plan does not perform a valuation on the last day of the month preceding the
date of distribution, the Advisory Committee, in lieu of the calculation
described in this paragraph, will calculate allocable income for each month in
the "gap period" as equal to 10% of the allocable income for the Plan Year.
Under this alternate calculation, the Advisory Committee will disregard the
month in which the distribution occurs, if the Plan makes the distribution no
later than the 15th day of that month.
14.09 NONDISCRIMINATION RULES FOR EMPLOYER MATCHING
---------------------------------------------
CONTRIBUTIONS/PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. For Plan Years beginning
- -----------------------------------------------------
after December 31, 1986, the Advisory Committee must determine whether the
annual Employer matching contributions (other than qualified matching
contributions used in the ADP under Section 14.08), if any, and the Employee
contributions, if any, satisfy either of the following average contribution
percentage ("ACP") tests:
(i) The ACP for the Highly Compensated Group does not exceed 1.25 times the
ACP of the Nonhighly Compensated Group; or
(ii) The ACP for the Highly Compensated Group does not exceed the ACP for the
Nonhighly Compensated Group by more than two percentage points (or the lesser
percentage permitted by the multiple use limitation in Section 14.10) and the
ACP for the Highly Compensated Group is not more than twice the ACP for the
Nonhighly Compensated Group.
(A) Calculation of ACP. The average contribution percentage for a group is the
average of the separate contribution percentages calculated for each Eligible
Employee who is a member of that group. An Eligible Employee's contribution
percentage for a Plan Year is the ratio of the Eligible Employee's aggregate
contributions for the Plan Year to the Employee's Compensation for the Plan
Year. "Aggregate contributions" are Employer matching contributions (other than
qualified matching contributions used in the ADP test under Section 14.08) and
employee contributions (as defined in Section 14.03). For aggregated family
members treated as a single Highly Compensated Employee, the contribution
percentage of the family unit is the greater of: (i) the contribution percentage
determined by combining the aggregate contributions and Compensation of the
family members who are Highly Compensated Employees without family aggregation;
or (ii) the contribution percentage determined by combining the aggregate
contributions and Compensation of all aggregated family members.
14.08
<PAGE>
The Advisory Committee, in a manner consistent with Treasury regulations, may
determine the contribution percentages of the Eligible Employees by taking into
account qualified nonelective contributions (other than qualified nonelective
contributions used in the ADP test under Section 14.08) or elective deferrals,
or both, made to this Plan or to any other qualified Plan maintained by the
Employer. The Advisory Committee may not include qualified nonelective
contributions in the ACP test unless the allocation of nonelective contributions
is nondiscriminatory when the Advisory Committee takes into account all
nonelective contributions (including the qualified nonelective contributions)
and also when the Advisory Committee takes into account only the nonelective
contributions not used in either the ADP test described in Section 14.08 or the
ACP test described in this Section 14.09. The Advisory Committee may not include
elective deferrals in the ACP test, unless the Plan which includes the elective
deferrals satisfies the ADP test both with and without the elective deferrals
included in this ACP test. For Plan Years beginning after December 31, 1989, the
Advisory Committee may not include in the ACP test any qualified nonelective
contributions or elective deferrals under another qualified plan unless that
plan has the same plan year as this Plan. The Advisory Committee must maintain
records to demonstrate compliance with the ACP test, including the extent to
which the Plan used qualified nonelective contributions or elective deferrals to
satisfy the test.
(B) Special aggregation rule for Highly Compensated Employees. To determine the
contribution percentage of any Highly Compensated Employee, the aggregate
contributions taken into account must include any matching contributions (other
than qualified matching contributions used in the ADP test) and any Employee
contributions made on his behalf to any other plan maintained by the Employer,
unless the other plan is an ESOP. If the plans have different plan years, the
Advisory Committee will determine the combined aggregate contributions on the
basis of the plan years ending in the same calendar year.
(C) Aggregation of certain plans. If the Employer treats two plans as a unit for
coverage or nondiscrimination purposes, the Employer must combine the plans to
determine whether either plan satisfies the ACP test. This aggregation rule
applies to the contribution percentage determination for all Eligible Employees,
irrespective of whether an Eligible Employee is a Highly Compensated Employee or
a Nonhighly Compensated Employee. The Advisory Committee also may elect to
aggregate plans which the Employer does not treat as a unit for coverage or
nondiscrimination purposes. For Plan Years beginning after December 31, 1989, an
aggregation of plans under this paragraph does not apply to plans which have
different plan years and, for Plan Years beginning after December 31, 1988, the
Advisory Committee may not aggregate an ESOP (or the ESOP portion of a plan)
with a non-ESOP plan (or non-ESOP portion of a plan).
(D) Distribution of excess aggregate contributions. The Advisory Committee will
determine excess aggregate contributions after determining excess deferrals
under Section 14.07 and excess contributions under Section 14.08. If the
Advisory Committee determines the Plan fails to satisfy the ACP test for a Plan
Year, it must distribute the excess aggregate contributions, as adjusted for
allocable income, during the next Plan Year. However, the Employer will incur an
excise tax equal to 10% of the amount of excess aggregate contributions for a
Plan Year not distributed to the appropriate Highly Compensated Employees during
the first 2 1/2 months of that next Plan Year. The excess aggregate
contributions are the amount of aggregate contributions allocated on behalf of
the Highly Compensated Employees which causes the Plan to fail to satisfy the
ACP test. The Advisory Committee will distribute to each Highly Compensated
Employee his respective share of the excess aggregate contributions. The
Advisory Committee will determine the respective shares of excess aggregate
contributions by starting with the Highly Compensated Employee(s) who has the
greatest contribution percentage, reducing his contribution percentage to the
next highest contribution percentage, then, if necessary, reducing the
contribution percentage of the Highly Compensated Employee(s) at the next
highest contribution percentage level (including the contribution percentage of
the Highly Compensated Employee(s) whose contribution percentage the Advisory
Committee already has reduced), and continuing in this manner until the ACP for
the Highly Compensated Group satisfies the ACP test. If the Highly Compensated
Employee is part of an aggregated family group, the Advisory Committee, in
accordance with the applicable Treasury regulations, will determine each
aggregated family member's allocable share of the excess aggregate contributions
assigned to the family unit.
14.09
<PAGE>
(E) Allocable income. To determine the amount of the corrective distribution
required under this Section 14.09, the Advisory Committee must calculate the
allocable income for the Plan Year in which the excess aggregate contributions
arose and for the "gap period" measured from the beginning of the next Plan Year
to the date of the distribution. "Allocable income" means net income or net
loss. The Advisory Committee will determine allocable income in the same manner
as described in Section 14.08(F) for excess contributions, except the numerator
of the allocation fraction will be the Highly Compensated Employee's excess
aggregate contributions and the denominator of the allocation fraction will be
the Employee's Accrued Benefit attributable to aggregate contributions and, if
applicable, to qualified nonelective contributions and elective deferrals
included in the ACP test for the Plan Year or for any prior Plan Year.
(F) Characterization of excess aggregate contributions. The Advisory Committee
will treat a Highly Compensated Employee's allocable share of excess aggregate
contributions in the following priority: (1) first as attributable to his
Employee contributions which are voluntary contributions, if any; (2) then as
matching contributions allocable with respect to excess contributions determined
under the ADP test described in Section 14.08; (3) then on a pro rata basis to
matching contributions and to the deferral contributions relating to those
matching contributions which the Advisory Committee has included in the ACP
test; (4) then on a pro rata basis to Employee contributions which are mandatory
contributions, if any, and to the matching contributions allocated on the basis
of those mandatory contributions; and (5) last to qualified nonelective
contributions used in the ACP test. To the extent the Highly Compensated
Employee's excess aggregate contributions are attributable to matching
contributions, and he is not 100% vested in his Accrued Benefit attributable to
matching contributions, the Advisory Committee will distribute only the vested
portion and forfeit the nonvested portion. The vested portion of the Highly
Compensated Employee's excess aggregate contributions attributable to Employer
matching contributions is the total amount of such excess aggregate
contributions (as adjusted for allocable income) multiplied by his vested
percentage (determined as of the last day of the Plan Year for which the
Employer made the matching contribution). The Employer will specify in Adoption
Agreement Section 3.05 the manner in which the Plan will allocate forfeited
excess aggregate contributions.
14.10 MULTIPLE USE LIMITATION. For Plan Years beginning after December 31,
-----------------------
1988, if at least one Highly Compensated Employee is includible in the ADP test
under Section 14.08 and in the ACP test under Section 14.09, the sum of the
Highly Compensated Group's ADP and ACP may not exceed the multiple use
limitation.
The multiple use limitation is the sum of (i) and (ii):
(i) 125% of the greater of: (a) the ADP of the Nonhighly Compensated Group
under the Code (S)401(k) arrangement; or (b) the ACP of the Nonhighly
Compensated Group for the Plan Year beginning with or within the Plan Year of
the Code (S)401(k) arrangement.
(ii) 2% plus the lesser of (i)(a) or (i)(b), but no more than twice the lesser
of (i)(a) or (i)(b).
For Plan Years beginning prior to the later of January 1, 1992, or 60 days
after the Treasury issues final regulations under Code (S)401(m), the Advisory
Committee, in lieu of determining the multiple use limitation as the sum of (i)
and (ii), may elect to determine the multiple use limitation as the sum of (iii)
and (iv):
(iii) 125% of the lesser of: (a) the ADP of the Nonhighly Compensated Group
under the Code (S)401(k) arrangement; or (b) the ACP of the Nonhighly
Compensated Group for the Plan Year beginning with or within the Plan Year of
the Code (S)401(k) arrangement.
(iv) 2% plus the greater of (iii)(a) or (iii)(b), but no more than twice the
greater of (iii)(a) or (iii)(b).
14.10
<PAGE>
The Advisory Committee will determine whether the Plan satisfies the multiple
use limitation after applying the ADP test under Section 14.08 and the ACP test
under Section 14.09 and after making any corrective distributions required by
those Sections. If, after applying this Section 14.10, the Advisory Committee
determines the Plan has failed to satisfy the multiple use limitation, the
Advisory Committee will correct the failure by treating the excess amount as
excess aggregate contributions under Section 14.09. This Section 14.10 does not
apply unless, prior to application of the multiple use limitation, the ADP and
the ACP of the Highly Compensated Group each exceeds 125% of the respective
percentages for the Nonhighly Compensated Group.
14.11 DISTRIBUTION RESTRICTIONS. The Employer must elect in Section 6.03 the
-------------------------
Adoption Agreement the distribution events permitted under the Plan. The
distribution events applicable to the Participant's Deferral Contributions
Account, Qualified Nonelective Contributions Account and Qualified Matching
Contributions Account must satisfy the distribution restrictions described in
paragraph (m) of Section 14.03.
(A) Hardship distributions from Deferral Contributions Account. The Employer
must elect in Adoption Agreement Section 6.03 whether a Participant may receive
hardship distributions from his Deferral Contributions Account prior to the
Participant's Separation from Service. Hardship distributions from the Deferral
Contributions Account must satisfy the requirements of this Section 14.11. A
hardship distribution option may not apply to the Participant's Qualified
Nonelective Contributions Account or Qualified Matching Contributions Account.
(1) Definition of hardship. A hardship distribution under this Section 14.11
must be on account of one or more of the following immediate and heavy financial
needs: (1) medical expenses described in Code (S)213(d) incurred by the
Participant, by the Participant's spouse, or by any of the Participant's
dependents; (2) the purchase (excluding mortgage payments) of a principal
residence for the Participant; (3) the payment of post-secondary education
tuition, for the next semester or for the next quarter, for the Participant, for
the Participant's spouse, or for any of the Participant's dependents; or (4) to
prevent the eviction of the Participant from his principal residence or the
foreclosure on the mortgage of the Participant's principal residence.
(2) Restrictions. The following restrictions apply to a Participant who
receives a hardship distribution: (a) the Participant may not make elective
deferrals or employee contributions to the Plan for the 12-month period
following the date of his hardship distribution; (b) the distribution is not in
excess of the amount of the immediate and heavy financial need; (c) the
Participant must have obtained all distributions, other than hardship
distributions, and all nontaxable loans currently available under this Plan and
all other qualified plans maintained by the Employer; and (d) the Participant
agrees to limit elective deferrals under this Plan and under any other qualified
Plan maintained by the Employer, for the Participant's taxable year immediately
following the taxable year of the hardship distribution, to the 402(g)
limitation (as described in Section 14.07), reduced by the amount of the
Participant's elective deferrals made in the taxable year of the hardship
distribution. The suspension of elective deferrals and employee contributions
described in clause (a) also must apply to all other qualified plans and to all
nonqualified plans of deferred compensation maintained by the Employer, other
than any mandatory employee contribution portion of a defined benefit plan,
including stock option, stock purchase and other similar plans, but not
including health or welfare benefit plans (other than the cash or deferred
arrangement portion of a cafeteria plan).
(3) Earnings. For Plan Years beginning after December 31, 1988, a hardship
distribution under this Section 14.11 may not include earnings on an Employee's
elective deferrals credited after December 31, 1988, and may not include
qualified matching contributions and qualified nonelective contributions, nor
any earnings on such contributions, irrespective of when credited.
(B) Distributions after Separation from Service. Following the Participant's
Separation from Service, the distribution events applicable to the Participant
apply equally to all of the Participant's Accounts, except as elected in Section
6.03 of the Employer's Adoption Agreement.
14.11
<PAGE>
14.12 SPECIAL ALLOCATION RULES. If the Code (S)401(k) arrangement provides
------------------------
for salary reduction contributions, if the Plan accepts Employee contributions,
pursuant to Adoption Agreement Section 4.01, or if the Plan allocates matching
contributions as of any date other than the last day of the Plan Year, the
Employer must elect in Adoption Agreement 9.11 whether any special allocation
provisions will apply under Section 9.11 of the Plan. For purposes of the
elections:
(a) A "segregated Account" direction means the Advisory Committee will
establish a segregated Account for the applicable contributions made on the
Participant's behalf during the Plan Year. The Trustee must invest the
segregated Account in Federally insured interest bearing savings account(s) or
time deposits, or a combination of both, or in any other fixed income
investments, unless otherwise specified in the Employer's Adoption Agreement.
As of the last day of each Plan Year (or, if earlier, an allocation date
coinciding with a valuation date described in Section 9.11), the Advisory
Committee will reallocate the segregated Account to the Participant's
appropriate Account, in accordance with Section 3.04 or Section 4.06,
whichever applies to the contributions.
(b) A "weighted average allocation" method will treat a weighted portion of
the applicable contributions as if includible in the Participant's Account as
of the beginning of the valuation period. The weighted portion is a fraction,
the numerator of which is the number of months in the valuation period,
excluding each month in the valuation period which begins prior to the
contribution date of the applicable contributions, and the denominator of
which is the number of months in the valuation period. The Employer may elect
in its Adoption Agreement to substitute a weighting period other than months
for purposes of this weighted average allocation.
* * * * * * * * * * * * * * *
14.12
<PAGE>
ARTICLE A
APPENDIX TO PLAN AND TRUST AGREEMENT
This Article is necessary to comply with the Unemployment Compensation
Amendments Act of 1992 and is an integral part of the basic plan document.
Section 12.08 applies to any modification or amendment of this Article.
A-1. APPLICATIONS. This Article applies to distributions made on or after
------------
January 1, 1993. Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Article, a distributee
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
A-2. DEFINITIONS.
-----------
(a) "Eligible rollover distribution." An eligible rollover distribution is any
distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated beneficiary, or for a specified
period of ten years or more; any distribution to the extent such distribution is
required under Code (S)401(a)(9); and the portion of any distribution that is
not includible in gross income (determined without regard to the exclusion of
net unrealized appreciation with respect to employer securities).
(b) "Eligible retirement plan." An eligible retirement plan is an individual
retirement account described in Code (S)408(a), an individual retirement annuity
described in Code (S)408(b), an annuity plan described in Code (S)403(a), or a
qualified trust described in Code (S)401(a), that accepts the distributee's
eligible rollover distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement annuity.
(c) "Distributee." A distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code (S)414(p),
are distributees with regard to the interest of the spouse or former spouse.
(d) "Direct rollover." A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
A-1
<PAGE>
ARTICLE B
APPENDIX TO BASIC PLAN DOCUMENT
This Article is necessary to comply with the Omnibus Budget Reconciliation Act
of 1993 (OBRA '93) and is an integral part of the basic plan document. Section
12.08 applies to any modification or amendment of this Article.
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 period beginning before the first day of the
first plan year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
A-1
<PAGE>
ARTICLE C
APPENDIX TO BASIC PLAN DOCUMENT
Rev. Rul. 94-76 Model Amendment
This amendment is effective on the first day of the first Plan Year beginning
on or after December 12, 1994, or, if later, March 12, 1995.
Notwithstanding any provision of this Plan to the contrary, to the extent that
any optional form of benefit under this Plan permits a distribution prior to the
Employee's retirement, death, disability, or severance from employment, and
prior to plan termination, the optional form of benefits is not available with
respect to benefits attributable to assets (including the post-transfer earnings
thereon) and liabilities that are transferred, within the meaning of Code
(S)414(l), to this Plan from a money purchase pension plan qualified under Code
(S)401(a) (other than any portion of those assets and liabilities attributable
to voluntary Employee contributions).
ARTICLE D
APPENDIX TO BASIC PLAN DOCUMENT
USERRA Model Amendment
This amendment is effective as of December 12, 1994.
Notwithstanding any provision of this Plan to the contrary, contributions,
benefits and service credit with respect to qualified military service will be
provided in accordance with Code (S)414(u). Loan repayments will be suspended
under this Plan as permitted under Code (S)414(u)(4).
A-1
<PAGE>
EXHIBIT 10.23
AMENDMENT TO EMPLOYMENT AGREEMENT
This AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made as of
December 31, 1998, between Channell Commercial Corporation, a Delaware
corporation (the "Company"), and William H. Channell, Jr. ("Executive"), with
reference to the Employment Agreement between the parties dated as of July 8,
1996 (the "Employment Agreement"). Except as otherwise defined in this
Amendment, capitalized terms used herein have the same meanings given in the
Employment Agreement.
NOW, THEREFORE, based on the mutual covenants contained herein and in the
Employment Agreement, the parties agree as follows:
1. Amendment to Employment Agreement. Section 3.2 of the Employment
---------------------------------
Agreement is hereby amended to add to the end of such Section the following:
"Notwithstanding anything to the contrary in any annual cash bonus program
of the Company (whether pursuant to the 1996 Performance Based Annual
Incentive Compensation Plan or otherwise), Executive shall be entitled to
receive payment of the annual cash bonus amount computed with respect to
each Term Year only if Executive continues to provide full-time services to
the Company as follows (it being the intention that the annual bonus
computed with respect to each Term Year be earned and paid only if such
continued service requirement is satisfied): if full-time employment
continues through March 31 of the year following the Term Year, 30% of
payment to be made; if full-time employment continues through June 30 of
the year following the Term Year, 30% of payment to be made; if full-time
employment continues through September 30 of the year following the Term
Year, 20% of the payment to be made; and if full-time employment continues
through December 31 of the year following the Term Year, 20% of the payment
to be made."
2. No Other Changes. Except as expressly provided in this Amendment, the
----------------
Employment Agreement shall remain in full force and effect in accordance with
its terms.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
first date set forth above.
CHANNELL COMMERCIAL
CORPORATION
/s/ Willliam H. Channell, Jr. /s/ Gary W. Baker
- ----------------------------- ------------------------------
William H. Channell, Jr. By: Gary W. Baker
Its: C.F.O.
<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 OF FORM
10-K FILED ON MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 5,828 3,840
<SECURITIES> 0 11,651
<RECEIVABLES> 17,890 9,191
<ALLOWANCES> 0 0
<INVENTORY> 14,992 7,269
<CURRENT-ASSETS> 40,505 33,252
<PP&E> 55,209 24,925
<DEPRECIATION> (13,128) (10,167)
<TOTAL-ASSETS> 98,442 50,625
<CURRENT-LIABILITIES> 20,537 4,013
<BONDS> 0 0
0 0
0 0
<COMMON> 92 92
<OTHER-SE> 52,488 45,800
<TOTAL-LIABILITY-AND-EQUITY> 98,442 50,625
<SALES> 92,710 59,943
<TOTAL-REVENUES> 0 0
<CGS> 56,578 35,032
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 21,490 12,337
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,342 (879)
<INCOME-PRETAX> 13,858 14,059
<INCOME-TAX> 5,749 5,589
<INCOME-CONTINUING> 8,109 8,470
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,109 8,470
<EPS-PRIMARY> .88 .92
<EPS-DILUTED> .88 .91
</TABLE>
