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As filed with the Securities and Exchange Commission on April 30, 1997
Registration No. 333-__________________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM S-8
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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FLAGSTAR BANCORP, INC.
(Exact name of Registrant as specified in its charter)
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Michigan 38-3150651
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2600 Telegraph Road
Bloomfield Hills, Michigan 48302-0953
(810) 338-7700
(Address of Principal Executive Office)
Flagstar Bank 401(k) Plan
(Full Title of the Plan)
Matthew G. Ash, Esquire
Edward B. Crosland, Jr., Esquire
Paul D. Borja, Esquire
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C.
601 Pennsylvania Avenue, N.W.
Suite 750, North Building
Washington, D.C. 20006
(Name and Address of Agent for Service)
(202) 393-3636
(Telephone Number, Including Area Code, of Agent for service)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Title of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered (1) Registered (2) Offering Price Per Share (3) Aggregate Offering Price (3) Registration Fee
====================================================================================================================================
<S> <C> <C> <C> <C>
Common Stock, par
value $.01 per share 350,000 $7.38 $2,583,000 $782.73
====================================================================================================================================
</TABLE>
(1) In addition, pursuant to Rule 416(c) under the Securities Act of 1933, as
amended, this Registration Statement also covers an indeterminate amount of
interests available pursuant to the Flagstar Bank 401(k) Plan (the "Plan")
described herein.
(2) Reflects estimate of the maximum number of shares of the Common Stock that
may be issued under the Plan, assuming that all employee contributions to
the Plan available for such discretionary investment are used to acquire
shares of the Common Stock. Also includes an indeterminate number of shares
that may be necessary to adjust the number of additional shares of Common
Stock reserved for issuance pursuant to the Plan and being registered
hereby, as a result of a stock split, stock dividend, reclassification,
recapitalization or similar adjustment.
(3) Pursuant to Rule 457(h) of the Securities Act of 1933, as amended,
solely for purposes of calculating the Registration Fee, and reflects the
book value per share of Common Stock as of March 31, 1997.
THIS REGISTRATION STATEMENT SHALL HEREAFTER BECOME EFFECTIVE AUTOMATICALLY
UPON THE DATE OF FILING, IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933, AS AMENDED.
<PAGE>
PART I
INFORMATION REQUIRED IN THE SECTION
10(a) PROSPECTUS
Item 1. Plan Information*
------
Item 2. Registrant Information and Employee Plan Annual Information*
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*This Registration Statement relates to the registration of 400,000
shares of Common Stock, par value $.01 per share, of Flagstar Bancorp, Inc.
(the "Company") to be sold under the Flagstar Bank 401(k) Plan (the
"Plan"). Documents containing the information required by Part I of this
Registration Statement will be sent or given to participants in the Plan as
specified by Rule 428(b)(1). Such documents are not filed with the
Securities and Exchange Commission (the "Commission") either as part of
this Registration Statement or as prospectuses or prospectus supplements
pursuant to Rule 424, in reliance on Rule 428.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Certain Documents by Reference
------
The Company became subject to the informational requirements of the
Securities Exchange Act of 1934 (the "1934 Act") pursuant to Section 15(d)
thereof on April 30, 1997 and, accordingly, will be filing periodic reports
and other information with the Commission. Reports, proxy statements and
other information concerning the Company filed with the Commission may be
inspected and copies may be obtained (at prescribed rates) at the
Commission's Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Company's Registration Statement on Form S-1,
filed February 12, 1997, as subsequently amended, (File No. 333-21621) is
incorporated herein by reference.
ALL DOCUMENTS FILED BY THE COMPANY AND THE PLAN PURSUANT TO SECTIONS
13(A), 13(C), 14, AND 15(D) OF THE 1934 ACT AFTER THE DATE HEREOF AND PRIOR
TO THE FILING OF A POST-EFFECTIVE AMENDMENT WHICH INDICATES THAT ALL
SECURITIES OFFERED HAVE BEEN SOLD OR WHICH DEREGISTERS ALL SECURITIES THEN
REMAINING UNSOLD SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THIS
REGISTRATION STATEMENT AND TO BE A PART HEREOF FROM THE DATE OF FILING OF
SUCH DOCUMENTS.
Item 4. Description of Securities
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General
The Company is authorized to issue 40,000,000 shares of the Common
Stock and 10,000,000 shares of serial preferred stock, par value $0.01 per
share. The capital stock of the Company will represent nonwithdrawable
capital, will not be an account of an insurable type, and will not be
insured by the FDIC.
Common Stock
Voting Rights. Each share of the Common Stock will have the same
relative rights and will be identical in all respects with every other
share of the Common Stock. The holders of the Common Stock will possess
exclusive voting rights in the Company, except to the extent that shares of
serial preferred stock issued in the future may have voting rights, if any.
Each holder of shares of the Common Stock will be entitled to one vote for
each share held of record on all matters submitted to a vote of holders of
shares of the Common Stock except to the extent voting rights may be
diminished as discussed in "Restrictions on Acquisition of the Company and
the Bank" below.
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Dividends. The Company may pay dividends on its capital stock if, as
and when declared by the Board of Directors, subject to compliance with
limitations imposed by law. The holders of Common Stock will be entitled
to receive and share equally in such dividends as may be declared by the
Board of Directors out of funds legally available therefor. If the Company
issues serial preferred stock, the holders thereof may have a priority over
the holders of the Common Stock with respect to the receipt of dividends.
Liquidation. In the event of any liquidation, dissolution or winding
up of the Company, each holder of its Common Stock would be entitled to
receive, after payment or provision for payment of all debts and
liabilities of the Company, a pro rata portion of all assets of the
Company. If any serial preferred stock is issued, the holders thereof may
have a priority over the holders of the Common Stock in the distribution of
the Company's assets in a liquidation or dissolution of the Company.
Restrictions on Acquisition of the Common Stock. See "Restrictions on
the Acquisition of the Company and the Bank" and "Certain Anti-Takeover
Provisions in the Restated Articles of Incorporation and Restated Bylaws,"
below, for discussions of the limitations on the acquisition of shares of
the Common Stock.
Other Characteristics. Holders of the Common Stock will not have
preemptive rights with respect to any additional shares of the Common Stock
which may be issued in the future. The Common Stock is not subject to call
for redemption. Upon payment of the public offering price for the Common
Stock, all such stock will be duly authorized, fully paid and non-
assessable.
Issuance of Additional Shares. Except as may be allowed or required
under the Company's stock benefit plans, the Company has no present plans,
proposals, arrangements or understandings to issue additional shares of
authorized Common Stock or serial preferred stock. In the future, the
authorized but unissued and unreserved shares of Common Stock will be
available for general corporate purposes, including but not limited to,
possible issuance as stock dividends, in connection with mergers or
acquisitions, under a cash dividend reinvestment or stock purchase plan, in
a public or private offering, or pursuant to future employee benefit plans.
Normally, no stockholder approval would be required for the issuance of
these additional shares, although certain transactions or employee benefit
plans may otherwise be required to be approved by the Company's
stockholders.
Serial Preferred Stock
The Board of Directors has no present plans, proposals, arrangements
or understandings to issue shares of serial preferred stock. The Board of
Directors of the Company is authorized to issue serial preferred stock and
to fix and state voting powers, designations, preferences or other special
rights of such shares and the qualification, limitations and restrictions
thereof, subject to no prior stockholder approval. If and when issued, the
serial preferred stock is likely to rank prior to the Common Stock as to
dividend rights, liquidation preferences or both, and may have full or
limited voting rights. The Board of Directors, without the approval of the
holders of the Common Stock, may issue serial preferred stock with voting
and other rights which could adversely affect the voting power of the
holders of the Common Stock.
RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE BANK
Change in Bank Control Act and Savings Institution Holding Company
Provisions of Home Owners' Loan Act
Federal laws and regulations contain a number of provisions which
affect the acquisition of insured institutions such as Flagstar Bank, FSB,
the wholly-owned subsidiary of the Company (the "Bank"), and a savings
institution holding company such as the Company. The Change in Bank
Control Act provides that no person, acting directly or indirectly or
through or in concert with one or more persons, may acquire control of a
savings association unless the Office of Thrift Supervision ("OTS") has
been given 60 days' prior written notice and the OTS does not issue a
notice disapproving the proposed acquisition. In addition, certain
provisions of the Home
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Owners' Loan Act ("HOLA") provide that no company may acquire control of a
savings institution holding company without the prior approval of the OTS.
Pursuant to applicable regulations, control of a savings association
or its holding company is conclusively deemed to have been acquired by,
among other things, the acquisition of more than 25% of any class of voting
stock of a savings association or its holding company or the ability to
control the election of a majority of the directors of either entity.
Moreover, control is presumed to have been acquired, subject to rebuttal,
upon the acquisition of more than 10% of any class of voting stock, or more
than 25% of any class of stock, of a savings association or its holding
company, where one or more enumerated "control factors" are also present in
the acquisition. The OTS may prohibit an acquisition of control if it
finds, among other things, that (i) the acquisition would result in a
monopoly or substantially lessen competition, (ii) the financial condition
of the acquiring person might jeopardize the financial stability of the
savings association, or (iii) the competence, experience, or integrity of
the acquiring person indicates that it would not be in the interest of the
depositors or the public to permit the acquisition of control by such
person.
Michigan Anti-Takeover Statutes
Michigan has enacted several statutes which impose restrictions on
acquisition of the Company, which has been incorporated under the laws of
Michigan. Chapter 7A of the MBCA is applicable to certain corporations
organized under the laws of Michigan including the Company. Subject to
certain exceptions, Chapter 7A provides that a corporation shall not engage
in any business combination with any "interested stockholder" unless an
advisory statement is given by the board of directors and the combination
is approved by a vote of at least 90% of the votes of each class of stock
entitled to vote, and at least two-thirds of the votes of each class of
stock entitled to vote other than the voting shares owned by the interested
stockholder. However, these statutory requirements do not apply if, prior
to the date that an interested stockholder first becomes an interested
stockholder, the board of directors by resolution approves or exempts such
business combinations generally or a particular combination from the
requirements of the MBCA. Furthermore, the voting requirement does not
apply to a business combination if: (a) specified fair price criteria are
met, as described below; (b) the consideration to be given to the
stockholders is in cash or in the form the interested stockholder paid for
shares of the same class or series; and (c) between the time the interested
stockholder becomes an interested stockholder and before the consummation
of a business combination the following conditions are met: (1) any
preferred stock dividends are declared and paid on their regular date; (2)
the annual dividend rate of stock other than preferred stock is not reduced
and is raised if necessary to reflect any transaction which reduces the
number of outstanding shares; (3) the interested stockholder does not
receive any financial assistance or tax advantage from the corporation
other than proportionally as a stockholder; (4) the interested stockholder
does not become the beneficial owner of any additional shares of the
corporation; and (5) at least five years have elapsed. An "interested
stockholder" is generally defined to mean any person that: (a) is the owner
of 10% or more of the outstanding voting stock of such corporation, or (b)
is an affiliate of a corporation and was the owner of 10% or more of the
outstanding voting stock of the corporation at any time within two years
immediately prior to the relevant date.
Chapter 7A's fair price criteria include the following: (a) the
aggregate amount of the cash and market value of the noncash consideration
to be received by the holders of common stock is at least as much as the
higher of (1) the highest price the interested stockholder paid for stock
of the same class or series within the two-year period immediately prior to
the announcement date of the combination proposal, and (2) the market value
of stock of the same class or series on the announcement date or on the
determination date; and (b) the aggregate amount of the cash and market
value of the noncash consideration to be received by holders of stock other
than common stock is at least as much as the highest of (1) the highest
price the interested stockholder paid for the same class or series within
the two-year period immediately prior to the announcement date of the
combination proposal, (2) the highest preferential amount per share to
which the holders of such stock are entitled in the event of any
liquidation, dissolution, or winding up of the corporation, and (3) the
market value of stock of the same class or series on the announcement date
or on the determination date.
Under certain circumstances, Chapter 7A may make it more difficult for
an "interested stockholder" to effect various business combinations with a
corporation for a five-year period, although the stockholders may elect
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that the Company not be governed by this section, upon the affirmative vote
of 90% of the outstanding voting shares and two thirds of the shares not
owned by the interested stockholder. The Company's stockholders have taken
no action to exclude the Company from restrictions imposed under Chapter 7A
of the MBCA and the Restated Articles of Incorporation include these
provisions by reference. It is anticipated that the provisions of Chapter
7A may encourage companies interested in acquiring the Company to negotiate
in advance with the Board of Directors.
Chapter 7B of the MBCA is also applicable to certain corporations
organized under the laws of Michigan including the Company. Subject to
certain exceptions, Chapter 7B provides that once a person proposes to make
or makes a "control share acquisition" and delivers an acquiring person
statement to the corporation, the stockholders must vote on whether the
control shares may exercise voting rights. Such rights are granted only by
resolution approved by both (a) a majority of the votes cast by holders
entitled to vote and a majority of any class entitled to vote, and (b) a
majority of the votes cast and a majority of any class entitled to vote
excluding the interested shares. "Control shares" means shares which, if
voted, would have voting power when added together with all other shares a
person either owns or directs the exercise, within the following ranges:
(a) at least 20% but less than 33 1/3% of all voting power; (b) at least 33
1/3% but less than a majority of all voting power; or (c) a majority of all
voting power. An acquisition of shares is not considered a control share
acquisition under certain circumstances, including where the acquisition is
part of a merger or share exchange if the corporation is a party to the
agreement of merger or share exchange.
If authorized by the corporation's articles of incorporation or bylaws
(i) control shares acquired in a control share acquisition with respect to
which no acquiring person statement has been filed may be redeemed by the
corporation at any time more than 60 days after the end of the control
share acquisition at "fair value;" and (ii) control shares acquired in a
control share acquisition which are not accorded full voting rights may be
redeemed by the corporation at "fair value." Unless provided otherwise in
the corporation's articles of incorporation or bylaws, in the event that
control shares acquired in a control share acquisition are accorded full
voting rights and the acquiring person has acquired a majority of all
voting power of the corporation, the shareholders of the corporation, other
than the acquiring person, have dissenters' rights.
Under certain circumstances, Chapter 7B may make it more difficult for
an "acquiring person" to exercise control over a corporation due to the
limitations placed on that person's ability to vote the control shares,
although the corporation may, before any such control share acquisition,
elect not to be governed by this chapter by adopting an amendment to the
corporation's articles of incorporation or bylaws. The Company's Restated
Articles of Incorporation and Restated Bylaws do not exclude the Company
from the provisions of Chapter 7B of the MBCA and the Restated Articles of
Incorporation incorporate its current provisions by reference. The
Company's Restated Articles of Incorporation also include provisions
authorizing a forced redemption of control shares under certain
circumstances as specified by Chapter 7B. It is anticipated that the
provisions of Chapter 7B may encourage acquiring persons interested in
obtaining control over the Company to negotiate in advance with the Board
of Directors.
Section 1368 of the MBCA, which is applicable to corporations
organized under the laws of Michigan including the Company, prohibits a
corporation from purchasing, either directly or indirectly, any of its
shares that are listed on a national securities exchange from any person
who holds at least 3% of its shares unless one of the following conditions
is met: (a) the corporation makes an equivalent offer to all other holders
of the same shares; (b) the purchase is authorized in advance by the
stockholders entitled to vote thereon; (c) the purchase meets the
requirements of the articles of incorporation for such a purchase; (d) the
shares are beneficially owned by the person for at least two years prior to
the purchase date; (e) the purchase is made on the open market; (f) the
purchase price is not more than the average market price of the shares
during the 30 business days prior to the purchase date; or (g) the purchase
is otherwise authorized by the MBCA. Under certain circumstances, Section
1368 prevents a stockholder from selling his shares back to the corporation
at a premium within two years of that stockholder's purchase of the shares
unless one of the other conditions is met. However, the stockholders may
approve such a purchase by the corporation or the corporation may include
in its articles of incorporation lesser requirements for such a
transaction. The Company's Restated Articles of Incorporation do not
contain any provisions exempting the Company from the provisions of Section
1368 of the MBCA. It is anticipated that the
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provisions of Section 368 may discourage persons from obtaining quantities
of the Company's stock for the sole purpose of eliciting a premium from the
Company in a resale of those shares.
CERTAIN ANTI-TAKEOVER PROVISIONS IN THE RESTATED
ARTICLES OF INCORPORATION AND BYLAWS
The following discussion is a general summary of certain provisions of
the Restated Articles of Incorporation ("Restated Articles") and Bylaws of
the Company which may be deemed to have an "anti-takeover" effect. The
description of these provisions is necessarily general and reference should
be made in each case to the Restated Articles and Bylaws of the Company,
which are incorporated herein by reference.
In addition to discouraging a takeover attempt which a majority of the
stockholders of the Company might determine to be in their best interest or
in which the stockholders of the Company might receive a premium over the
current market prices for their shares, the effect of these provisions may
render the removal of management more difficult. It is thus possible that
incumbent officers and directors might be able to retain their positions
(at least until their term of office expires) even though a majority of the
stockholders desire a change.
Classified Board of Directors
Article X of the Restated Articles provides that the Board of
Directors is to be divided into three classes which shall be as nearly
equal in number as possible. Under Article X, the directors in each class
serve for terms of three years and until their respective successors are
elected and qualified, with approximately one-third of the directors
elected each year. Article XI provides that a director may be removed only
by the affirmative vote of the holders of at least 80% of the outstanding
shares entitled to vote and only for cause.
A classified Board of Directors could make it more difficult for
stockholders to change a majority, whereas a majority of a non-classified
board could be changed in one year. In the absence of the provisions of
the Restated Articles classifying the Board, all of the directors would be
elected each year.
Management of the Company believes that the staggered election of
directors tends to promote continuity of management because only one-third
of the Board of Directors are subject to election each year. Staggered
terms help to ensure that, at any one time, approximately two-thirds of the
Board will be comprised of persons who have at least one year's experience
as directors of the Company. In addition, the use of staggered terms
moderates the pace of changes in the Board of Directors by extending the
minimum time required to elect a majority of directors from one to two
years.
Availability of Serial Preferred Stock
The Company's Restated Articles authorize the issuance of up to
10,000,000 shares of serial preferred stock, which may be issued with
rights and preferences that could impede an acquisition. This preferred
stock, none of which has yet been issued by the Company, together with
authorized but unissued shares of common stock (the Restated Articles
authorize the issuance of up to 40,000,000 shares of the Common Stock),
could also represent additional capital stock required to be purchased by
the acquirer.
Advance Notice Requirement for Nominations
Article VIII of the Company's Restated Articles provides that any
stockholder desiring to make a nomination for the election of directors or
a proposal for new business at a meeting of stockholders must submit
written notice to the Secretary of the Company not fewer than 30 or more
than 60 days in advance of the meeting. Management believes that it is in
the best interests of the Company and its stockholders to provide
sufficient time to enable management to disclose to stockholders
information about a dissident slate of nominations for directors. This
advance notice requirement may also give management time to solicit its own
proxies in an attempt to defeat any dissident slate of nominations should
management determine that doing so is in the best interest of
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stockholders generally. Similarly, adequate advance notice of stockholder
proposals will give management time to study such proposals and to
determine whether to recommend to the stockholders that such proposals be
adopted.
Size of Board of Directors; Filling of Vacancies
Article X of the Company's Restated Articles provide that the number
of directors of the Company (exclusive of directors, if any, to be elected
by the holders of any to-be-issued shares of preferred stock of the
Company) should not be fewer than 7 or more than 11 as shall be provided
from time to time in accordance with the Company's Bylaws. Additionally,
the power to determine the number of directors within these numerical
limitations and the power to fill vacancies, whether occurring by reason of
an increase in the number of directors or by resignation, is vested in the
Company's Board of Directors. The overall effect of such provisions may be
to prevent a person or entity from immediately acquiring control of the
Company through an increase in the number of the Company's directors and
election of his, or its nominees to fill the newly created vacancies.
Amendment of Bylaws
Article XVII of the Company's Restated Articles provides that the
Company's Bylaws may be amended by the affirmative vote of either two-
thirds of the Company's Board of Directors or the holders of at least 80%
of the outstanding shares of the Company's stock entitled to vote generally
in the election of directors. Absent this provision, Michigan law provides
that a corporation's bylaws may be amended by the holders of a majority of
the voting power of the corporation present and entitled to vote at a duly
held meeting. The Company's Restated Bylaws contain numerous provisions
concerning its governance, such as fixing the number of directors and
determining the number of directors constituting a quorum. By reducing the
ability of a potential corporate raider to make changes in the Company's
Bylaws and to reduce the authority of the Board or Directors or impede its
ability to manage the Company, this provision of the Restated Articles
could have the effect of discouraging a tender offer or other takeover
attempt where the ability to make fundamental changes through bylaw
amendments is an important element of the takeover strategy of the
acquirer.
Amendment of Articles
Article XVIII of the Company's Restated Articles provides that
specified provisions contained in the Restated Articles may not be repealed
or amended except by an affirmative vote of at least 80% of the outstanding
shares of the Company's stock entitled to vote generally in the election of
directors; provided, however, that such provisions may be repealed or
amended upon a majority of stockholder vote if first approved by a majority
of the continuing Directors, as defined in Article XVIII. This requirement
exceeds the majority vote of stockholders present and entitled to vote that
it would otherwise be required by Michigan law for the repeal or amendment
of a provision of the Restated Articles. The specific provisions for which
an 80% vote is required by Article XVIII are (i) Article VII providing for
cumulative voting in the election of directors; (ii) Article VIII requiring
written notice to the Company of nominations for the election of directors
and new business proposals, quorum requirements and the calling of special
meetings; (iii) Article IX eliminating the power of stockholders to act by
written consent without a meeting; (iv) Article X governing the number of
the Company's Board of Directors, the filling of vacancies on the Board of
Directors and classified terms of the Board of Directors; (v) Article XI
governing the removal of directors; (vi) Article XII providing for the
indemnification of directors, officers, employees and agents of the
Company; (vii) Article XIII pertaining to the elimination of the liability
of the directors to the Company and its stockholders for monetary damages,
with certain exceptions, for breach of fiduciary duty; (viii) Article XV
providing for the applicability to the Company of Section 7A of the MBCA,
which restricts business combinations involving the Company and "interested
stockholders;" (ix) Article XVI providing for the applicability to the
Company of Section 7B of the MBCA, which eliminates voting rights of
persons who hold 20%, 33-1/3% and a majority of all outstanding shares of
Common Stock unless stockholder approval is received at each such level;
and (x) Article XVII and Article XVIII governing the required stockholder
vote for amending the Bylaws and Restated Articles of the Company. See
"Restrictions on Acquisition of the Company and the Bank -- Michigan Anti-
Takeover Statutes," above.
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Benefit Plans
In addition to the provisions of the Company's Restated Articles and
Bylaws described above, certain benefit plans of the Company and the Bank
contain provisions that also may discourage hostile takeover attempts which
the Boards of Directors of the Company and the Bank might conclude are not
in the best interests of the Company, the Bank or the Company's
stockholders.
The Purpose and Effect of the Anti-Takeover Provisions in the Company's
Restated Articles and Bylaws
The Boards of Directors of the Company and the Bank believe that the
provisions described above reduce the Company's vulnerability to takeover
attempts and certain other transactions which have not been negotiated with
and approved by its Board of Directors. These provisions also assist the
Company and the Bank in the orderly deployment of the net proceeds of the
Offering into productive assets during the initial period after the
Offering. The Boards of Directors of the Company and the Bank believe
these provisions are in the best interests of the Bank and of the Company
and its stockholders. In the judgment of the Boards of Directors of the
Company and the Bank, the Company's Board is in the best position to
consider all relevant factors and to negotiate for what is in the best
interests of the stockholders and the Company's other constituents.
Accordingly, the Boards of Directors of the Company and the Bank believe
that it is in the best interests of the Company and its stockholders to
encourage potential acquirers to negotiate directly with the Company's
Board of Directors and that these provisions encourage such negotiations
and discourage nonnegotiated takeover attempts. It is also the view of the
Board of Directors that these provisions should not discourage persons from
proposing a merger or other transaction at prices reflective of the true
value of the Company and which is in the best interests of all
stockholders.
Attempts to acquire control of financial institutions and their
holding companies have recently become increasingly common. Takeover
attempts which have not been negotiated with and approved by the Board of
Directors present to stockholders the risk of a takeover on terms which may
be less favorable than might otherwise be available. A transaction which
is negotiated and approved by the Board of Directors, on the other hand,
can be carefully planned and undertaken at an opportune time in order to
obtain maximum value for the Company and stockholders, with due
consideration given to matters such as the management and business of the
acquiring corporation and maximum strategic development of the Company's
assets.
An unsolicited takeover proposal can seriously disrupt the business
and management of a corporation and cause great expense. Although a tender
offer or other takeover attempt may be made at a price substantially above
then current market prices, such offers are sometimes made for less than
all the outstanding shares of a target company. As a result, stockholders
may be presented with the alternative of partially liquidating their
investment at a time that may be disadvantageous, or retaining their
investment in an enterprise which is under different management and whose
objectives may not be similar to those of the remaining stockholders. The
concentration of control that could result from a tender offer or other
takeover attempt could also deprive the Company's remaining stockholders of
the benefits of having the Common Stock quoted on the Nasdaq National
Market and of certain protective provisions of the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
Despite the belief of the Company as to the benefits to stockholders
of these provisions of the Company's Restated Articles and Bylaws, these
provisions may also have the effect of discouraging a future takeover
attempt which would not be approved by the Company's Board of Directors,
but pursuant to which the stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders
who might desire to participate in such a transaction may not have any
opportunity to do so. Such provisions will also render the removal of the
Company's Board of Directors and management more difficult and may tend to
stabilize the Company's stock price, thus limiting gains which might
otherwise be reflected in price increases due to a potential merger or
acquisition. The Board of Directors, however, has concluded that the
potential benefits of these provisions outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders, the Company may adopt additional provisions to its Restated
Articles regarding the acquisition of its equity securities that would be
permitted to a Michigan corporation. The Company does not presently intend
to propose the adoption of further restrictions on the acquisition of the
Company's equity securities.
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Item 5. Interests of Named Experts and Counsel
------
Not Applicable.
Item 6. Indemnification of Directors and Officers
------
The Company's Restated Articles of Incorporation contain a provision,
authorized by the MBCA, designed to eliminate in certain circumstances the
personal liability of directors for monetary damages to the Company or its
stockholders for breach of their fiduciary duty as directors. This
provision, however, does not limit the liability of any director who
breached his or her duty of loyalty to the Company or its stockholders,
failed to act in good faith, obtained an improper personal benefit or paid
a dividend or approved a stock repurchase or redemption that was prohibited
under Michigan law. This provision will not limit or eliminate the rights
of the Company or any stockholder to seek an injunction or any other
nonmonetary relief in the event of a breach of a director's duty of care.
In addition, this provision applies only to claims against a director
arising out of his or her role as a director and does not relieve a
director from liability unrelated to his or her fiduciary duty of care or
from a violation of statutory law such as certain liabilities imposed on a
director under the federal securities laws.
The Company's Restated Articles of Incorporation and Bylaws also
provide that the Company shall indemnify all directors and officers of the
Company to the full extent permitted by the MBCA. Under the provisions of
the MBCA, any director or officer who, in his or her capacity as such, is
made or threatened to be made a party to any suit or proceeding, may be
indemnified if the Board determines such director or officer acted in good
faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Company or its stockholders.
Officers and directors are covered within specified monetary limits by
insurance against certain losses arising from claims made by reason of
their being directors or officers of the Company or of the Company's
subsidiaries and the Company's officers and directors are indemnified
against such losses by reason of their being or having been directors or
officers of another corporation, partnership, joint venture, trust or other
enterprise at the Company's or its subsidiaries' request.
Item 7. Exemption from Registration Claimed
------
Not Applicable.
Item 8. Exhibits
------
The following is the list of Exhibits and also serves as the Exhibit
Index.
Exhibit Description
------- -----------
4.1 Form of Flagstar Bank 401(k) Plan
4.2 Summary Plan Description of Flagstar Bank 401(k)
Plan
5 Opinion of Reinhart, Boerner, Van Deuren, Norris &
Rieselbach, P.C., as to the legality of the
original issuance of shares of Common Stock being
registered.
23.1 Consent of Grant Thornton LLP
23.2 Consent of Reinhart, Boerner, Van Deuren, Norris &
Rieselbach, P.C. (contained in Exhibit 5)
9
<PAGE>
Further, the Registrant hereby undertakes to submit the Plan and any
amendment thereto to the Internal Revenue Service ("IRS") in a timely
manner and will make all changes required by the IRS to qualify the Plan.
Item 9. Undertakings
------
1. The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
---- ----
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
2. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
---- ----
offering thereof.
3. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Bloomfield Hills, Michigan, on April 29, 1997.
FLAGSTAR BANCORP, INC.
By: /s/ Thomas J. Hammond
-------------------------------------
Thomas J. Hammond
Chairman and Chief Executive Officer
(Duly Authorized Representative)
Each person whose signature appears below hereby appoints Thomas J.
Hammond his or her true and lawful attorney-in-fact, with power to act and
with full power of substitution in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
and file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agents, or their substitutes may lawfully cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ Thomas J. Hammond Chairman & Chief Executive Officer April 29, 1997
- ------------------------------ (Principal Executive Officer)
Thomas J. Hammond
/s/ Michael W. Carrie Executive Vice President and Treasurer April 29, 1997
- ------------------------------ (Principal Financial & Accounting Officer)
Michael W. Carrie
/s/ Mark T. Hammond Vice Chairman & President April 29, 1997
- ------------------------------
Mark T. Hammond
/s/ Joan H. Anderson Director & Executive Vice President April 29, 1997
- ------------------------------
Joan H. Anderson
/s/ Mary Kay McGuire Director, Senior Vice President & April 29, 1997
- ------------------------------ Secretary
Mary Kay McGuire
/s/ Ronald I. Nichols, Sr. Director April 29, 1997
- ------------------------------
Ronald I. Nichols, Sr.
/s/ James D. Coleman Director April 29, 1997
- ------------------------------
James D. Coleman
/s/ Charles Bazzy Director April 29, 1997
- ------------------------------
Charles Bazzy
/s/ Harry S. Ellman Director April 29, 1997
- ------------------------------
Harry S. Ellman
/s/ William B. Bortels Director April 29, 1997
- ------------------------------
William B. Bortels
</TABLE>
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the
undersigned trustee of the Flagstar Bank, FSB 401(k) Plan has duly caused this
Registration Statement to be signed in the City of Bloomfield Hills, State of
Michigan, on April 29, 1997.
By: /s/ Charles Bazzy
------------------------------------
Charles Bazzy, as Trustee of the
Flagstar Bank, FSB 401(k) Plan
<PAGE>
FLAGSTAR BANK 401(k) PLAN
Restated Effective January 1, 1997
Plan Year Ends December 31
-------------------------------------------
Copyright 1996
Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, s.c.
All Rights Reserved.
-------------------------------------------
<PAGE>
FLAGSTAR BANK 401(k) PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<C> <S> <C>
ARTICLE 1 THE PLAN, DEFINITIONS
AND CONSTRUCTION
1.1 The Plan 1-1
1.2 Definitions 1-1
1.3 Construction 1-9
ARTICLE 2 ELIGIBILITY AND PARTICIPATION
2.1 Eligible Class of Employees 2-1
2.2 Conditions of Eligibility 2-1
2.3 Commencement of Participation 2-1
2.4 Termination of Participation 2-1
2.5 Reemployment 2-1
2.6 Reinstatement of Participation 2-1
ARTICLE 3 CONTRIBUTIONS AND ALLOCATIONS
3.1 Contribution and Allocation Restrictions 3-1
3.2 Elective Contributions 3-1
3.3 Matching Contributions 3-3
3.4 Allocation of Forfeitures 3-4
3.5 Top-Heavy Contributions 3-4
3.6 Rollovers from Other Employee Benefit Plans 3-5
3.7 Participant After-Tax Contributions 3-5
3.8 Determination of Contributions 3-5
3.9 Time of Payment of Contributions 3-6
3.10 Return of Contributions 3-6
3.11 Transfer of Insurance 3-7
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 4 VALUATION
4.1 Account Value and Income Allocation 4-1
4.2 Valuation of Participant's Account 4-1
4.3 Valuation of Employer Stock 4-2
ARTICLE 5 CONTRIBUTION, ALLOCATION
AND TOP-HEAVY RESTRICTIONS
5.1 Maximum Limits on Allocations 5-1
5.2 Limitations for Defined Benefit and Defined Contr
Plans Covering the Same Employee 5-3
5.3 Top-Heavy Restrictions 5-4
5.4 Actual Deferral Percentage Test 5-4
5.5 Actual Contribution Percentage Test 5-8
5.6 Qualified Nonelective Contributions and Qualified
Matching Contributions 5-12
5.7 Highly Compensated Employee 5-12
ARTICLE 6 VESTING
6.1 Vesting 6-1
6.2 Top-Heavy Plan Years 6-2
6.3 Forfeitures 6-2
6.4 Reinstatement 6-2
ARTICLE 7 DISTRIBUTIONS
7.1 Commencement of Retirement Benefits 7-1
7.2 Method of Payment 7-2
7.3 Death Benefits 7-4
7.4 Required Lifetime Distributions 7-5
7.5 Qualified Domestic Relations Orders 7-7
7.6 Hardship Withdrawals Elective Contributions 7-8
7.7 Withdrawals At or After Age 59-1/2 7-9
7.8 Withdrawals from Accounts Invested in Company Stock 7-9
ARTICLE 8 ADMINISTRATION OF THE PLAN
8.1 Appointment of Separate Administrator 8-1
8.2 Powers and Duties 8-1
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
8.3 Records and Notices 8-2
8.4 Compensation and Expenses 8-3
8.5 Limitation of Authority 8-3
8.6 Voting of Employer Stock Shares 8-3
ARTICLE 9 ADMINISTRATION OF THE TRUST
9.1 Appointment of Trustee 9-1
9.2 Authorization for Trust Agreement 9-1
9.3 Participant Direction of Investment of Account 9-1
9.4 Funding Policy 9-2
ARTICLE 10 CLAIMS PROCEDURE
10.1 Application for Benefits 10-1
10.2 Notice of Denied Claim for Benefits 10-1
10.3 Review of Denied Claim 10-1
ARTICLE 11 AMENDMENT AND TERMINATION
11.1 Amendment or Restatement 11-1
11.2 Termination and Discontinuance of Contributions 11-1
11.3 Distribution Upon Termination 11-1
11.4 Merger, Consolidation or Transfer of Assets and Liabilities 11-2
11.5 Distribution Upon Disposition of Assets of Subsidiary 11-2
11.6 Successor Employer 11-2
ARTICLE 12 GENERAL PROVISIONS
12.1 Limitation on Liability 12-1
12.2 Indemnification 12-1
12.3 Compliance with Employee Retirement Income Security
Act of 1974 12-1
12.4 Nonalienation of Benefits 12-1
12.5 Employment Not Guaranteed by Plan 12-2
12.6 Form of Communication 12-2
12.7 Facility of Payment 12-2
12.8 Location of Participant or Beneficiary Unknown 12-2
</TABLE>
iii
<PAGE>
<TABLE>
<C> <S> <C>
12.9 Service in More Than One Fiduciary Capacity 12-3
12.10 Offset 12-3
</TABLE>
- --------------------------------------------------------------------------------
This document reflects the provisions of the Reinhart, Boerner, Van
Deuren, Norris & Rieselbach, s.c. Volume Submitter Master Document. The Master
Document has been reviewed in advance by the Internal Revenue Service (the
"IRS"). Use of the Volume Submitter Master Document results in (1) expedited
IRS review of the Company's plan and (2) lower IRS filing fees. Except for the
Company's own retirement plan purposes, this document is copyrighted and cannot
be reproduced, in whole or in part, without the express prior written permission
of Reinhart, Boerner, Van Deuren, Norris & Rieselbach, s.c.
- --------------------------------------------------------------------------------
iv
<PAGE>
ARTICLE 1
The Plan, Definitions and Construction
1.1 The Plan. Effective January 1, 1990, Flagstar Bank, FSB (the
--------
"Company") adopted a profit sharing plan to benefit certain of its employees by
facilitating the accumulation of funds for their retirement. As adopted, the
Plan incorporates a cash or deferred arrangement permitted by section 401(k) of
the Internal Revenue Code.
The Company amended and restated the Plan to comply with legislated
changes, and to provide for the offering of Employer Stock as an investment
option under the Plan. It is the intention of the Company that the amended and
restated Plan comply with sections 401(a) and 401(k) of the Internal Revenue
Code of 1986, as amended. The restatement of the Plan is effective January 1,
1997, except for those provisions which explicitly state otherwise. This
introduction and the following Articles, as amended from time to time, comprise
the restated Plan.
1.2 Definitions.
-----------
(a) Account. The record of each Participant's interest in the
-------
Trust Fund, divided into the following subaccounts.
. Elective Contribution Account
. Matching Contribution Account
. Rollover Account
(b) Administrator. The Company or individual(s) designated in
-------------
Article 8 who shall control and manage the operation and administration of the
Plan as the named fiduciary.
(c) Break in Service.
----------------
(1) Prior to January 1, 1996. Prior to January 1, 1996, a
------------------------
Break in Service means a computation period during which a Participant does not
complete at least 500 Hours of Service. The computation period for measuring
breaks in service shall be the Plan Year.
(2) January 1, 1996 Through December 31, 1996. A
-----------------------------------------
Participant will experience a Break in Service for this year only if he
1-1
<PAGE>
experiences a Break in Service satisfying both sections 1.2(c)(1) and (3) for
this year.
(3) On or After January 1, 1997. On or after
----------------------------
January 1, 1997, a Break in Service means a one-year Period of Severance.
(d) Code. The Internal Revenue Code of 1986, as amended from
----
time to time, and as interpreted by applicable regulations and rulings.
(e) Company. Flagstar Bank, FSB, the sponsoring employer, and
-------
any successor which adopts the Plan. Effective June 1, 1997, "Company" shall
mean Flagstar Bancorp, Inc. as the sponsoring employer. Flagstar Bank, FSB
shall be a sponsoring Employer as defined in subsection (h) below.
The board of directors of the Company, or such board members
authorized by the board of directors from time to time, shall act on behalf of
the Company for purposes of the Plan.
In no event shall a self-employed individual or owner-
employee (within the meaning of Code section 401(c)) be considered a "company"
eligible to adopt the provisions of the Plan.
(f) Compensation.
------------
(1) In General. Except as otherwise provided, Compensation
----------
shall mean an employee's wages from the Employer, which are required to be
reported on the employee's IRS Form W-2 for income tax withholding purposes (or
such other amount as required to be reported under Code sections 6041(d),
6051(a)(3) and 6052 as referenced in Treasury Regulation (S) 1.415-2(d)(11)(i))
excluding (even if includable in gross income) (A) reimbursements or other
expense allowances, (B) fringe benefits (cash and noncash), (C) moving expenses,
(D) deferred compensation and (E) welfare benefits.
(2) Inclusion of Elective Contributions. "Compensation"
-----------------------------------
includes elective contributions made by the Employer on behalf of the employee
that are not includable in income under a cafeteria plan (pursuant to Code
section 125), a Code section 401(k) arrangement (pursuant to Code section
402(a)(8)), a simplified employee pension (pursuant to Code section 402(h)) or a
tax-sheltered annuity or account (pursuant to Code section 403(b)); compensation
deferred under an eligible deferred compensation plan of a state or local
government or tax-exempt organization within the meaning
1-2
<PAGE>
of Code section 457(b) and employee contributions under governmental plans
described in Code section 414(h)(2).
(3) Additional Rules.
----------------
(A) Annual Compensation Limit. The annual
-------------------------
Compensation of each Participant in any Plan Year shall not exceed the annual
compensation limit pursuant to Code section 401(a)(17). The annual
compensation limit shall be adjusted annually for increases in the cost of
living by the Secretary of the Treasury or his delegate, except that the dollar
increase in effect on January 1 of any calendar year is effective for Plan
Years beginning in such calendar year. With respect to benefits allocated for
Plan Years beginning on or after January 1, 1994, the "annual compensation
limit" is $150,000, as indexed.
(B) Family Aggregation Rules. Effective for Plan
------------------------
Years beginning prior to January 1, 1997, the Compensation of a Participant
who, pursuant to Code section 414(q), is a 5% owner of the Employer or one of
the ten most highly compensated employees of the Employer shall include the
Compensation of the Participant's family group. A Participant's "family group"
shall be comprised of the Participant's spouse and the Participant's lineal
descendants who have not attained age 19 by the close of the Plan Year. If the
aggregate Compensation of the Participant's family group exceeds the annual
compensation limit, as indexed, then the limit shall be prorated among the
affected individuals in proportion to each such individual's Compensation
determined prior to the application of the limit.
(C) Received While a Plan Participant. For purposes
---------------------------------
of contributions pursuant to Article 3 and sections 5.4 and 5.5 (ADP and ACP
testing), the Administrator may uniformly limit the period for which
Compensation shall be taken into consideration to the portion of the Plan Year
in which the employee was a Participant in the Plan.
(g) Effective Date. January 1, 1990, the date as of which the
--------------
Plan first applies to the Company; as to each Employer, the date as of which
the Plan first applied to each Employer.
(h) Employer. The Company; Flagstar Bancorp, Inc., Flagstar
--------
Bank, FSB; Douglas Insurance Agency, Inc.; FSSB Real Estate Development
Corporation; First Security Investment Group, Inc.; Mortgage Affiliated
Services, Inc.; Mid-Michigan Service Corporation; and SSB Funding Corporation,
or any other entity which, consistent with authorization by the Company, has
adopted the Plan and any successor thereto. By its adoption of this Plan, an
Employer shall be deemed to appoint the Company, Administrator and Trustee its
exclusive agents to exercise on its behalf all of the power and authority
1-3
<PAGE>
conferred by this Plan upon the Employer. The authority of the Company,
Administrator and Trustee to act as such agent shall continue until this Plan
is terminated as to the adopting Employer and the relevant Trust Fund assets
have been distributed by the Trustee.
In no event shall a self-employed individual or owner-
employee (within the meaning of Code section 401(c)) be considered an
"employer" eligible to adopt the provisions of the Plan.
For each Plan Year, the Plan shall deem an individual an
employee of the Employer who employs the individual on the last day of the Plan
Year or the last day during the Plan Year for which the individual accrues an
Hour of Service.
(i) Employer Stock. Common stock of Flagstar Bancorp, Inc.
---------------
with a combination of voting power and dividend rights equal to the class of
common stock with the highest dividend rights and that class of common stock
with the greatest voting power or noncallable preferred stock of Flagstar
Bancorp, Inc. if convertible at any time into common stock as previously
described at a reasonable price.
(j) Employment. An individual's employment with the Employer.
----------
In the event an employee is transferred between participating Employers, such
employee shall not be deemed to have terminated his Employment.
(k) Employment Commencement Date. The date on which an
----------------------------
Employee first performs an Hour of Service for the Employer.
(l) Forfeiture. The portion, if any, of a Participant's Account
----------
which, pursuant to Article 6, the Participant is not entitled to receive
following the earlier of a distribution upon his termination of Employment or
the date he incurs five consecutive one-year Breaks in Service.
(m) Hour of Service.
---------------
(1) Each hour for which an employee is paid, or
entitled to payment, for the performance of service for the Employer;
(2) Each hour for which an employee is paid, or entitled
to payment by the Employer without the performance of service (regardless of
whether the employment relationship has terminated) due to vacation, holiday,
illness, incapacity (including disability), lay off, jury duty, military duty,
or leave of absence (pursuant to this paragraph (2), no more than
1-4
<PAGE>
501 Hours of Service will be credited for any single continuous period--whether
or not such period occurs in a single Plan Year or other computation
period--and 29 C.F.R. section 2530.200b-2 and 3 shall govern the determination
of an individual's Hours of Service); and
(3) Each hour for which back pay, regardless of any
mitigation of damages, is either awarded or agreed to by the Employer.
The same Hours of Service will not be credited pursuant to
paragraphs (1) or (2), as the case may be, and paragraph (3).
If the Employer does not maintain records of Hours of
Service with respect to an employee but maintains records and compensates the
employee in relation to other periods of service, that employee shall accrue
the following number of Hours of Service for the following units of time to
which his Compensation relates:
Units of Time Hours of Service
------------- ----------------
day 10 hours
week 45 hours
semi-monthly 95 hours
monthly 190 hours
Solely to avoid a Break in Service, an employee who is
absent from work for maternity or paternity reasons shall receive credit for
the Hours of Service which would otherwise have been credited to such employee
but for such absence. An absence from work for maternity or paternity reasons
means an absence due to (1) the pregnancy of the employee, (2) the birth of a
child of the employee, (3) the placement of a child with the employee for
adoption by the employee or (4) the caring for such child immediately after
birth or placement. The Plan shall credit Hours of Service pursuant to this
paragraph first to the Plan Year in which the absence begins to the extent
necessary to prevent a Break in Service in that Plan Year, then to the Plan
Year following the Plan Year in which the absence begins. No more than 501
hours will be credited under this paragraph. If the hours which would have
been credited but for an absence due to maternity or paternity reasons cannot
be determined, the Plan shall credit eight Hours of Service for each day of the
absence. The Plan shall not award Hours of Service pursuant to this paragraph
unless the employee involved provides the Administrator such information as the
Administrator reasonably requires to establish the purpose of the absence as
consistent with this paragraph and to establish the number of days in the
absence.
1-5
<PAGE>
The Plan shall credit an Hour of Service to the Plan Year
or other computation period to which a payment, agreement or award relates
rather than the year or period in which the payment, agreement or award occurs.
Hours of Service shall be credited for employment with other members of an
affiliated service group (under Code section 414(m)), a controlled group of
corporations (under Code section 414(b)), a group of trades or businesses under
common control (under Code section 414(c)) of which the Employer is a member,
any other entity required to be aggregated with the Employer pursuant to Code
section 414(o) and as a Leased Employee, except as provided in section 1.2(n).
If this Plan is the continuation of a plan of a predecessor employer, service
with such predecessor employer shall be treated as service with the Employer.
(n) Income. The net gain or loss of the Trust Fund from
------
investments including, but not limited to, interest, dividends, rents, profits,
realized and unrealized gains and losses and expenses of the Plan or Trust Fund
paid from the Trust Fund. To determine the Income of the Trust Fund for any
period, the Trustee shall value the Trust Fund on the basis of its assets' fair
market value.
(o) Key Employee. Any employee, former employee or beneficiary
------------
who, pursuant to Code section 416(i), during the year involved or any of the
four immediately preceding years, is:
(1) An officer of the Employer receiving annual
Compensation exceeding 50% of $90,000 or the amount then applicable pursuant to
Code section 415(b)(1)(A) (as adjusted annually for increases in the cost of
living by the Secretary of the Treasury or his delegate);
(2) One of the ten employees of the Employer owning the
largest interests in an Employer and receiving annual Compensation greater than
$30,000 or the amount then applicable pursuant to Code section 415(c)(1)(A) (as
adjusted annually for increases in the cost of living by the Secretary of the
Treasury or his delegate);
(3) A five-percent owner of the Employer; or
(4) A one-percent owner of the Employer receiving annual
Compensation exceeding $150,000.
In determining whether an individual is a Key Employee, the
Administrator shall consider his Compensation as defined in Code section
414(q)(7).
(p) Leased Employee. Any person (other than an employee of the
---------------
Employer) who, pursuant to an agreement between the Employer
1-6
<PAGE>
and any other person (the "leasing organization"), has performed services for
the Employer (or for the Employer and related persons determined in accordance
with Code section 414(n)(6)) on a substantially full-time basis for a period of
at least one year, if such services are (1) of the type historically performed
by employees in the business field of the Employer (for periods prior to
January 1, 1997) or (2) are performed under the primary direction or control of
the Employer (for periods on and after January 1, 1997).
In no event shall a Leased Employee be considered an
employee of the Employer if: (1) the Leased Employee is covered by a money
purchase pension plan providing a nonintegrated employer contribution rate of
at least 10% of Compensation as defined in section 5.1(c) (including amounts
contributed pursuant to a salary reduction agreement under Code sections 125,
402(a)(8), 402(h) or 403(b)), immediate participation and full and immediate
vesting and (2) the Leased Employees equal no more than 20% of the Employer's
nonhighly compensated employees.
(q) Normal Retirement Age. A Participant's 65th birthday.
---------------------
(r) Participant. Any individual who has satisfied the
-----------
eligibility and participation requirements of the Plan as provided in Article
2. Where appropriate, the term "Participant" also includes former Participants
who are no longer eligible to participate under the provisions of Article 2, or
beneficiaries of a deceased Participant, or an alternate payee, as defined in
Code Section 414(p)(8), for whom an Account exists which has not been
distributed or forfeited in total.
(s) Period of Severance. The period of time commencing on the
--------------------
Severance from Service Date and ending on the date on which the Employee again
performs an Hour of Service.
(t) Plan. The Flagstar Bank 401(k) Plan, as stated herein
----
and as amended from time to time.
(u) Plan Year. The period beginning on the Effective Date and
---------
ending on December 31, and each 12-month period ending on each subsequent
December 31.
(v) Severance From Service Date. The earlier to occur of:
----------------------------
(1) the date on which an Employee quits, retires, is discharged or dies; or (2)
the first anniversary of the first date of a period in which an Employee
remains absent from service (with or without pay) with the Employer for any
reason other than quit, retirement, discharge or death. The Severance from
Service Date for an employee who is absent from work beyond the first
anniversary of the first day of
1-7
<PAGE>
absence for maternity or paternity reasons is the second anniversary of the
first day of absence. The period between the first and second anniversaries of
the first day of absence from service neither a Period of Severance nor a Year
of Service. For purposes of this paragraph, an absence from work for maternity
or paternity reasons means an absence due to (i) the pregnancy of the employee;
(ii) the birth of a child of the employee; (iii) the placement of a child with
the employee for adoption by the employee or (iv) the caring for such child
immediately after birth or placement.
(w) Trust Fund. The assets of the Plan held in trust by a
----------
Trustee and/or the assets of the Plan which consist of insurance contracts or
policies issued by an insurance company.
(x) Trustee. The person, persons or entity holding the assets of the
-------
Plan in trust or, in the case of a Trust Fund consisting solely of insurance
contracts, the insurer. The use of the term Trustee to refer to the insurer is
not intended to indicate that the insurer is a trustee within the meaning of
state or federal statutory or common law, but merely for convenience of
reference in the Plan.
(y) Valuation Date. The last day of the Plan Year and each business
--------------
day of the Plan Year. Effective April 1, 1997, the last day of the Plan Year
and the last day of each calendar quarter of the Plan Year or such other dates
as the Administrator determines for the purpose of valuing the Trust Fund
pursuant to Article 4.
(z) Year of Service.
---------------
(1) Prior to January 1, 1996. Prior to January 1, 1996,
------------------------
Year of Service means any Plan Year in which an Employee accumulates 1,000
Hours of Service.
(2) January 1, 1996 Through December 31, 1996.
-----------------------------------------
(a) Employees employed before July 1, 1996. Employees
--------------------------------------
who were employed by the employer before and after July 1, 1996, will receive
---
service for the period January 1, 1996, through December 31, 1996, equal to the
greater of (i) the period of service that would be credited to the Employee
under Section 1.2(z)(1) for his service during the period January 1, 1996 to
December 31, 1996 or (ii) the period of service that would be credited to the
Employee under Section 1.2(z)(3).
(b) Employees Who Were Hired On or After July 1, 1996.
-------------------------------------------------
For Employees who were hired on or after July 1, 1996, years of
1-8
<PAGE>
service will be determined in accordance with the provisions of paragraph (3)
below.
(3) On or After January 1, 1997. On or after January 1, 1997, Years
---------------------------
of Service means the number of whole years of the Employee's aggregate Periods
of Service. An Employee's "Period of Service" is the period of service
commencing on the Employee's Employment Commencement Date or reemployment
Commencement Date, and ending on the Severance from Service Date.
An Employee experiencing a Severance of Service Date by reason of a
quit, discharge or retirement who performs an Hour of Service within twelve
months of the Severance of Service Date shall have the entire Period of
Severance taken into account. An Employee experiencing a Severance of Service
Date by reason of a quit, discharge or retirement during an absence from service
of twelve months or less for any reason other than a quit, discharge, retirement
or death who performs an Hour of Service within twelve months of the date on
which he was first absent shall have the entire Period of Severance taken into
account.
For purposes of this paragraph 1.2(z) service shall include service in
the armed forces of the United States, provided an employee was employed by an
Employer immediately prior to such military service and, further, provided the
employee returned to Employment during the period his reemployment rights were
guaranteed by law.
1.3 Construction. Except to the extent preempted by the Employee
------------
Retirement Income Security Act of 1974, the laws of the State of Michigan, as
amended from time to time, shall govern the construction and application of the
Plan. Words used in the masculine gender shall include the feminine and words
in the singular shall include the plural, as appropriate. The words "hereof,"
"herein," "hereunder" and other similar compounds of the word "here" shall refer
to the entire Plan, not to a particular section. Any mention of "Articles,"
"sections" and subdivisions thereof, unless stated specifically to the contrary,
refers to Articles, sections or subdivisions thereof in the Plan. All
references to statutory sections shall include the section so identified, as
amended from time to time, or any other statute of similar import. If any
provisions of the Code or the Employee Retirement Income Security Act of 1974
render any provision of this Plan unenforceable, such provision shall be of no
force and effect only to the minimum extent required by such law.
1-9
<PAGE>
ARTICLE 2
Eligibility and Participation
2.1 Eligible Class of Employees. An employee eligible to participate
---------------------------
in the Plan is any employee of an Employer who is not:
---
(a) a Leased Employee, or
(b) a nonresident alien who receives no U.S. source earned
income.
2.2 Conditions of Eligibility. An employee who is eligible to
-------------------------
participate in the Plan, as defined in section 2.1 above, shall participate in
the Plan as of the commencement date described in section 2.3 below, after he
has attained age 21 and completed one year of eligibility service. A "year of
eligibility service" shall be the 12 consecutive month period commencing on the
date an employee first performs an Hour of Service, and each anniversary
thereof, during which the employee completes at least 1,000 Hours of Service.
2.3 Commencement of Participation. An employee who meets the
-----------------------------
eligibility requirements of sections 2.1 and 2.2 shall commence participation in
the Plan on the earlier of the first day of the Plan Year or the first day of
the seventh month in the Plan Year coincident with or immediately following the
date the employee satisfies such eligibility requirements.
2.4 Termination of Participation. On the date a Participant's
----------------------------
Employment terminates, the Participant shall be deemed a former Participant.
Status as a former Participant shall continue until the date the Plan has
satisfied all liabilities with respect to the former Participant.
2.5 Reemployment. If a Participant terminates Employment and
------------
subsequently resumes Employment, the rehired employee shall immediately resume
participation in the Plan.
2.6 Reinstatement of Participation. In the event an employee who is
------------------------------
not a member of an eligible class of employees becomes a member of an eligible
class of employees pursuant to section 2.1, such employee shall participate in
the Plan immediately if such employee has previously satisfied the eligibility
requirements of sections 2.2 and 2.3, or upon satisfying the eligibility
requirements of section 2.2 and 2.3 if he had not done so previously. If a
Participant ceases participating in the Plan because he no longer is a member of
an eligible class of employees pursuant to section 2.1, he shall resume
participation in the Plan immediately upon again becoming a member of an
eligible class of employees pursuant to section 2.1.
2-1
<PAGE>
ARTICLE 3
Contributions and Allocations
3.1 Contribution and Allocation Restrictions. All contributions and
----------------------------------------
allocations provided for in this Article 3 are subject to the limitations and
restrictions set forth in Article 5.
3.2 Elective Contributions.
----------------------
(a) Amount. For each Plan Year, a Participant may direct the Employer
------
to make "elective contributions" on his behalf directly to the Trust Fund. The
Employer shall make elective contributions on behalf of a Participant in lieu of
the Employer's payment of an equal amount to the Participant as direct
remuneration for the Plan Year; provided the Participant elects to defer such
amounts prior to the date such amounts become currently available to the
Participant. Such amounts may be contributed to the Plan only if such amounts
would have been received by the Participant, but for the Participant's election,
on or before 2-1/2 months following the end of the Plan Year. A Participant may
so elect only as to amounts becoming currently available after the cash or
deferred arrangement of this Plan is adopted and effective. A Participant's
elective contributions may not exceed the lesser of (1) 6% of the Participant's
Compensation for a Plan Year, or (2) for each calendar year, the $7,000 limit of
Code section 402(g) as adjusted annually for increases in the cost of living by
the Secretary of the Treasury or his delegate and as in effect for such calendar
year.
(b) Allocation. As of the last day of each Plan Year quarter, and
----------
following the allocation of Income pursuant to Article 4, the Administrator
shall allocate the elective contributions for the year to the Elective
Contribution Accounts of the Participants for whom such contributions were made.
(c) Enrollment. Participants may enroll to make elective
----------
contributions effective as of the first day of any Plan Year or as of the first
day of the seventh month of any Plan Year (or such other date or dates as the
Employer may establish).
A Participant shall enroll by filing with the Administrator a written
election (on a form acceptable to the Administrator) directing the Employer to
make elective contributions. The Participant must file the written election
with the Administrator within a reasonable time as determined by the
Administrator prior to the effective date.
3-1
<PAGE>
Once filed, a Participant's written election authorizing elective
contributions will remain in effect until amended or discontinued pursuant to
paragraphs (d) and (e) below.
(d) Discontinue Elective Contributions. Unless otherwise authorized
----------------------------------
pursuant to rules prescribed by the Administrator, a Participant may entirely
discontinue his elective contributions effective as of the first day of any pay
period by filing with the Administrator, within a reasonable time as determined
by the Administrator prior to the effective date, a revised written election
directing the Employer to discontinue his elective contributions. The
Participant's subsequent enrollment will be effective only as of the dates
provided and pursuant to the terms specified in paragraph (c) above. A
Participant who suspends elective contributions because of a hardship withdrawal
may again enroll as of the date the suspension expires.
(e) Increase or Decrease in Elective Contributions. Unless otherwise
----------------------------------------------
authorized pursuant to rules prescribed by the Administrator, a Participant may
increase or decrease the amount of his elective contributions effective as of
any enrollment date provided in paragraph (c) above by filing a revised written
election with the Administrator within a reasonable time, as determined by the
Administrator, prior to the effective date.
(f) Return of Excess Elective Contributions. If a Participant
---------------------------------------
notifies the Administrator in writing by the March 1 following the close of a
calendar year, or by the April 15 following such March 1 the Employer designates
on behalf of the Participant with respect to elective contributions under the
Plan and any other plans of the Employer, that the Participant has made excess
elective contributions for that year, the Administrator shall distribute to the
Participant the amount of the excess elective contributions allocable to the
Plan (plus, or minus any Income or loss allocable thereto up to the close of the
calendar year). Such distribution shall occur by the April 15 immediately
following the close of the calendar year in which the excess elective
contributions were contributed to the Plan. The amount of "excess elective
contributions" for any calendar year shall equal (1) the sum of amounts
contributed to the Plan as elective contributions on behalf of the Participant
plus amounts deferred by the Participant pursuant to other arrangements
described in Code sections 401(k), 408(k) and 403(b) (the "total elective
contributions") minus (2) the greater of the $7,000 limit of Code section
402(g), as adjusted annually for increases in the cost of living by the
Secretary of the Treasury or his delegate from time to time, or $9,500, which
alternate limit applies to only elective contributions added to deferrals made
pursuant to an arrangement described in Code section 403(b). The Participant's
written notification must contain a statement to the effect that, if such excess
elective contributions were not distributed, the Participant's total elective
3-2
<PAGE>
contributions would exceed the limit specified in Code section 402(g) for the
calendar year in which such elective contributions were made.
Income allocable to excess elective contributions shall be determined
(1) under any reasonable method used for allocating Income to all Participants'
Accounts as applied consistently to all Participants for the Plan Year or (2) by
multiplying Income allocable to the Participant's Elective Contribution Account
for the calendar year by a fraction, the numerator of which is such
Participant's excess elective contributions for the year and the denominator is
the Participant's Account balance attributable to elective contributions as of
the beginning of the calendar year plus the Participant's elective contributions
for the calendar year.
To the extent required by applicable nondiscrimination regulations,
any matching contribution relating to an excess elective contribution, which is
distributed in accordance with this paragraph (f), shall be declared a
Forfeiture as of the end of the Plan Year in which the excess elective
contribution is distributed (even if the Participant is vested in such matching
contributions) except to the extent that the matching contribution is an excess
aggregate contribution which is distributed to the highly compensated
Participant in accordance with section 5.5(c).
(g) Make-Up Contributions Permitted Under the Uniformed Services
------------------------------------------------------------
Employment and Reemployment Rights Act. Beginning December 12, 1994, if a
- --------------------------------------
Participant returns to employment after a military leave of absence, the
Participant may elect to make elective contributions to the Plan for the period
of such military leave of absence. Contribution limitations on such
contributions shall be applied with respect to the year to which the
contribution relates, rather than the year in which the contribution is made.
Compensation shall be imputed for the time the Participant is on military leave
of absence. Such contributions shall be deemed to satisfy the nondiscrimination
rules.
3.3 Matching Contributions.
----------------------
(a) Qualifying Participants. Each Participant's Account may be
-----------------------
eligible for an allocation of the matching contribution, if any, made to the
Trust Fund for the Plan Year quarter.
(b) Amount. The Employer intends to contribute a "matching
------
contribution" to the Trust Fund for each Plan Year. The matching contribution
shall equal 100% of the first 3% (when measured as a portion of his
Compensation) of each qualifying Participant's elective contributions for such
quarter.
3-3
<PAGE>
(c) Allocation. As of the last day of each Plan Year quarter, and
----------
following the allocation of Income pursuant to Article 4, the Administrator
shall allocate the matching contribution for the quarter to the Matching
Contribution Accounts of the qualifying Participants to match all or part of the
elective contributions made for such period by qualifying Participants.
(d) Suspension, Reduction or Elimination of Matching Contributions.
--------------------------------------------------------------
Notwithstanding any other provisions of the Plan, the Employer may act to
suspend, reduce or eliminate matching contributions to be made by the Employer
and may rescind such action at any time.
3.4 Allocation of Forfeitures. As of the last day of each Plan Year
-------------------------
and following the allocation of Income pursuant to Article 4, Forfeitures, if
any, shall be used to reduce the Employer matching contribution specified in
section 3.3.
3.5 Top-Heavy Contributions.
-----------------------
(a) Required Contribution. For each Plan Year the Plan is top-heavy
---------------------
within the meaning of section 5.3 below, the Employer shall contribute to the
Trust Fund such amount, if any, necessary for the allocation specified in
paragraph (b) below.
(b) Allocation.
----------
(1) Except as provided in paragraph (2) below, and as of the last day
of any Plan Year during which the Plan is top-heavy, the Employer contributions
and Forfeitures for a Plan Year allocated on behalf of any Participant who is
not a Key Employee, and who is employed by the Employer on the last day of such
Plan Year (without regard to the number of Hours of Service he accumulated
during such Plan Year), shall not be less than the top-heavy contribution. A
"top-heavy contribution" is an Employer contribution (not including elective
contributions or matching contributions) equaling (when combined with Employer
contributions on behalf of such Participant to this and other defined
contribution plans maintained by an Employer and qualified pursuant to Code
section 401(a)) the lesser of (1) 3% of the Participant's compensation or (2)
the same percentage of the Participant's compensation for such year as the
highest percentage of a Key Employee's compensation that the allocation of
Employer contributions and forfeitures (including allocations of elective
contributions and matching contributions) to that Key Employee's Account totals
for such year. Compensation for purposes of this section shall mean
"compensation" as defined in section 5.1(c) below, but without regard to Code
sections 125, 402(a)(8) and 402(h)(1)(B).
3-4
<PAGE>
(2) The provision in paragraph (1) above shall not apply to any
Participant who is covered under any other qualified plan(s) of the Employer,
and the minimum allocation or benefit requirement applicable to top-heavy plans
is met in the other plan(s). Unless the Employer directs to the contrary, the
top-heavy contribution on behalf of each Participant shall occur first to this
Plan.
(c) Matching Contributions. Notwithstanding section (b)(1) above, the
----------------------
Plan may utilize matching contributions to satisfy a required top-heavy
contribution, provided such matching contributions are not used to satisfy the
nondiscrimination tests of sections 5.4 and 5.5 and meet the nondiscrimination
requirements of Code section 401(a)(4) without regard to Code section 401(m).
3.6 Rollovers from Other Employee Benefit Plans. Any employee of the
-------------------------------------------
Employer who is a member of an eligible class of employees pursuant to section
2.1 above and who participated in another retirement plan and trust qualified
pursuant to Code sections 401(a) and 501(a) ("qualified plan") may deposit in
the Trust Fund any portion of an eligible rollover distribution paid from
another qualified plan in a direct rollover or which he received personally
(either directly from such plan or as a rollover from an individual retirement
account or annuity) provided that amounts not paid in a direct rollover must be
deposited in the Plan within 60 days following receipt of such amounts. Before
accepting such a rollover, the Administrator shall require such Participant's
consent (and spousal consent, if necessary) and may require such documentation
and information as it deems necessary. An employee who rolled over amounts
pursuant to this section, or on whose behalf such a rollover occurred, shall
always remain 100% vested in such rolled over amounts and the Income thereon.
Immediately upon receipt, the Administrator shall allocate amounts rolled over
by, or on behalf of, a Participant to his Rollover Account.
If an individual who rolled over amounts to the Trust Fund pursuant to
this section, or on whose behalf such a rollover occurred, does not otherwise
qualify to become a Participant, he shall, nonetheless, constitute a Participant
only in relation to such rolled over amounts and the Income thereon.
3.7 Participant After-Tax Contributions. The Plan neither requires
-----------------------------------
nor permits Participants to make after-tax contributions to it or the Trust
Fund.
3.8 Determination of Contributions. The Employer shall determine the
------------------------------
amount of any contribution made by it pursuant to this Plan. The Employer's
determination of such contribution shall bind all Participants, the
3-5
<PAGE>
Trustee and the Administrator. Such determination shall be final and conclusive
and shall not be subject to change as a result of a subsequent audit by the
Internal Revenue Service or as a result of any subsequent adjustment of the
Employer's records.
The Trustee shall have no right or duty to inquire into the amount of
the Employer's contribution or the method used in determining the amount of such
contribution. The Trustee shall be accountable for only funds it actually
receives.
3.9 Time of Payment of Contributions.
--------------------------------
(a) Prior to February 3, 1997. For periods prior to February 3, 1997,
-------------------------
the Employer shall pay its contribution for each of its fiscal years to the
Trustee within the time prescribed by law, including extensions, for the filing
of the Employer's federal income tax return for such year or within such other
period as provided in Code section 404(a)(6). The Employer shall pay elective
contributions made pursuant to a salary reduction agreement to the Trustee as of
the earliest date the Employer can reasonably segregate such contributions from
its general assets but not later than the earlier of (a) 90 days from the date
on which such amounts would otherwise have been payable to the Participant or
(b) the end of the 12-month period immediately following the Plan Year to which
the elective contributions relate.
(b) On or After February 3, 1997. For periods beginning on or after
----------------------------
February 3, 1997, the Employer shall pay its contribution for each of its fiscal
years to the Trustee in accordance with the provisions of paragraph (a) above.
The Employer shall pay elective contributions made pursuant to a salary
reduction agreement to the Trustee as of the earliest date on which such
contributions can reasonably be segregated from the Employer's general assets,
but no later than the 15th business day of the month following the month in
which the elective contributions would have been payable to the Participant in
cash.
3.10 Return of Contributions. The Trustee shall return Employer
-----------------------
contributions made to the Plan in the following circumstances:
(a) The Employer and the Plan hereby condition all Employer
contributions to the Plan upon the Employer obtaining a deduction pursuant to
Code section 404(a) in an equal amount for the Employer's taxable year ending
with or within the Plan Year for which the contribution is made. If all or any
portion of the Employer's contribution is not deductible for such year pursuant
to Code section 404(a), the Trustee shall return the nondeductible amount to the
Employer, without earnings, but reduced by any losses attributable thereto,
3-6
<PAGE>
within one year of the disallowance of the deduction by the Internal Revenue
Service.
(b) The Trustee, at the direction of the Employer, shall return to the
Employer, without earnings, but reduced by any losses attributable thereto, any
contribution made due to a mistake of fact provided the Administrator determines
that such mistake existed at the time of the contribution. The Trustee may only
return a contribution pursuant to this subsection (b) within 12 months of the
date the contribution was made.
(c) The Employer and the Plan condition all Employer contributions to
this Plan upon the initial qualification of the Plan pursuant to Code section
401(a). Within one year after the date the Internal Revenue Service determines
that the Plan fails to qualify pursuant to Code section 401(a), and provided
that the Plan's application for determination to the Internal Revenue Service is
made within the time prescribed by law, the Trustee shall return to the Employer
the entire assets of the Plan attributable to all amounts contributed during the
time the Plan failed to qualify.
The Employer shall return elective contributions and amounts rolled
over into the Plan, if any, and Income thereon to the Participant if such
contributions are returned to the Employer pursuant to this section.
3.11 Transfer of Insurance. The Employer, in its sole discretion,
---------------------
may purchase a Participant's personally-owned insurance contract as defined in
Article 9, at its cash surrender value for the purpose of transferring that
contract to the Trust Fund as all or part of the Employer's contribution for a
Plan Year. The Trustee shall allocate the cash surrender value of the insurance
contract at the time of transfer to the insured Participant's Account, making
appropriate adjustments in it and other Accounts if necessary.
Article 9 and the trust maintained as part of the Plan shall apply to
any existing insurance contract transferred to the Trust Fund the same as if the
Trustee purchased the insurance. The Trustee shall charge to the insured
Participant's Account the cost of maintaining any insurance contract transferred
to the Trust Fund. If the insured Participant's Employment terminates for any
reason other than death, the Trustee shall determine the value of the portion of
the Participant's Account represented by an insurance contract on such
Participant as the cash surrender value of such insurance contract at the end of
the insurance contract year in which termination occurs. If such Participant's
Employment terminates by his death, the Trustee shall distribute the portion of
his Account represented by the insurance contract by paying the proceeds of such
insurance contract pursuant to Article 7.
3-7
<PAGE>
For purposes of this section, no more than (a) an amount equal to less
than one-half of the aggregate Employer contributions allocated to any
Participant shall be used to purchase an ordinary life insurance contract; (b)
an amount equal to less than one-quarter of the aggregate Employer contributions
allocated to any Participant shall be used to purchase all insurance contracts
that are not ordinary life; and (c) the sum of one-half of the purchase price of
all ordinary life insurance contracts and all other life insurance contracts
shall not exceed one-quarter of the aggregate Employer contributions allocated
to any Participant.
3-8
<PAGE>
ARTICLE 4
Valuation
4.1 Account Value and Income Allocation.
-----------------------------------
(a) Preliminary Account Value. As of each Valuation Date, the
-------------------------
Administrator shall determine the preliminary value of a Participant's Account
as follows:
(1) The value of the Account as of the preceding Valuation Date;
(2) Plus, the elective contributions allocated to such Account for
such period;
(3) Minus, the amount of any distribution or withdrawal made from
such Account during such period;
(4) Minus, the amount, if any, which was declared a Forfeiture,
pursuant to section 6.3 "Forfeitures," from such Account during such period;
(5) Plus, the amount of any repayment of a previous distribution
and/or a previous Forfeiture which is required to be restored to such Account
during such period as provided in section 6.4, "Reinstatement."
(b) Income Allocation. As of each Valuation Date, the Trustee shall
-----------------
determine the Income earned by the Trust Fund since the preceding Valuation Date
in accordance with a method consistently followed and uniformly applied. The
Administrator shall then allocate to each Participant's Account Income for such
period in the same proportion that each Account's preliminary value bears to the
total of the preliminary values of all such Accounts.
(c) Contribution Allocation. The Administrator shall add to the value
-----------------------
of a Participant's Account, as determined in paragraph (b) above, any matching
contributions and Forfeitures allocated to such Account since the preceding
Valuation Date.
4.2 Valuation of Participant's Account. The Administrator shall
----------------------------------
determine the value of a Participant's Account for purposes of Articles 6 and 7
as of the Valuation Date immediately preceding the date the distribution occurs
or commences as if such Valuation Date were the last day of a Plan Year (except
for
4-1
<PAGE>
Employer Stock which shall be valued as of the most recent business day for
which a valuation is available), including in that valuation (a) the allocation
of contributions or Forfeitures, if any, for such year if the Account otherwise
qualifies for such allocation and the Valuation Date is actually the last day of
a Plan Year or if the Plan otherwise requires allocation of such amounts as of
such Valuation Date, and (b) elective contributions made to the Plan on behalf
of the Participant since the Valuation Date.
If the Administrator determines that valuing the Participant's Account
as of the immediately preceding Valuation Date would significantly jeopardize
the interests of the Plan and its Participants because, due to subsequent market
fluctuations or other developments, that valuation would inaccurately reflect
the value of the Participant's Account as of the date distribution occurs or
commences, the Administrator may, in its discretion, value the Participant's
Account as of a date closer to the date the distribution occurs or commences.
4.3 Valuation of Employer Stock. For purposes of this Article 4, the
---------------------------
value of Employer Stock held by the Plan shall be the closing price of such
stock as reported on the NASDAQ as of the applicable Valuation Date or the last
day Employer Stock was traded if Employer Stock is not traded on the Valuation
Date.
4-2
<PAGE>
ARTICLE 5
Contribution, Allocation and Top-Heavy Restrictions
5.1 Maximum Limits on Allocations. This section 5.1 shall limit
-----------------------------
contributions and allocations made pursuant to Article 3.
(a) The annual addition to a Participant's Account for any
limitation year shall not exceed the lesser of:
(1) The greater of $30,000 or 25% of the defined benefit
dollar limitation recited in Code section 415(b)(l)(A) for such year; or
(2) 25% of the compensation (as defined in section
5.1(c) below) paid or made available to the Participant in such year.
(b) The "annual addition" shall mean the sum allocated to a
Participant's Account for any year of contributions or Forfeitures, if any,
pursuant to this Plan and allocated to his benefit pursuant to all other defined
contribution plans maintained by the Employer for the limitation year, including
employee contributions. Contributions allocated to any individual accounts
which are part of a pension or annuity plan under Code sections 415(l) and
419A(d)(2) shall be treated as annual additions to a defined contribution plan.
However, section 5.1(a)(2) above shall not apply to any amounts treated as an
annual addition under the preceding sentence. The annual addition includes
elective contributions in excess of (1) the $7,000 limit of Code section 402(g)
(as adjusted annually for increases in the cost of living as specified by the
Secretary of the Treasury or his delegate) that are not distributed by the April
15 following the close of the Plan Year, or (2) the nondiscrimination tests
recited in this Article 5 even if corrected through distribution after the close
of the Plan Year. Effective for limitation years beginning after December 31,
1995, Income attributable to a Participant's elective contributions, which are
distributed pursuant to section 5.1(e)(1) below, shall be included as an annual
addition, unless also distributed pursuant to section 5.1(e)(1) below.
The annual addition shall not include the allocation to a
Participant's Account of Income pursuant to Article 4 and rollovers, if any,
pursuant to Article 3.
(c) "Compensation" for purposes of this section 5.1, unless otherwise
elected by the Administrator for a limitation year, shall mean an employee's
wages from the Employer received during the limitation year which is
5-1
<PAGE>
required to be reported on the employee's IRS Form W-2 for income tax
withholding purposes (or such other amount as required to be reported under Code
sections 6041(d), 6051(a)(3) and 6052 as referenced in Treasury regulation (S)
1.415-2(d)(11)(i)). Effective January 1, 1998, "Compensation" shall also include
a Participant's elective contributions.
(d) The "limitation year" shall be the Plan Year.
(e) The Administrator shall reallocate the excess of a Participant's
annual addition over the limits stated above, provided such excess is not
subject to refund or reversion pursuant to Article 3, in accordance with
subparagraph (1) below and any one of the other following subparagraphs:
(1) To the extent the excess arises from the Participant's elective
contributions, such excess and, if the Administrator determines, Income
attributable to such elective contributions, may be refunded to the Participant
as soon as administratively feasible.
(2) The excess amount shall be reallocated to the Accounts of the
Participants in the Plan who have not exceeded the limits stated above. If the
reallocation causes the limits stated above to be exceeded with respect to each
Participant for the limitation year, then these amounts shall be held
unallocated in a suspense account and reallocated to Participants' Accounts in
the next (or succeeding, if necessary) limitation year before the allocation of
Employer or employee contributions.
(3) The excess amount shall be used to reduce the Employer
contributions for the next (or succeeding, if necessary) limitation year for the
Participant who incurred the excess amounts provided the Participant is covered
by the Plan at the end of such limitation year. If the Participant is no longer
covered by the Plan as of the end of the limitation year, the excess amounts
shall be held unallocated in a suspense account and reallocated in the next
limitation year to all remaining Participants in the Plan as a reduction of such
Participants' Employer contributions. Excess amounts may not be distributed to
Participants or former Participants.
(4) The excess amount shall be held unallocated in a suspense account
for the limitation year and reallocated in the next (or succeeding, if
necessary) limitation year to all Participants in the Plan. The excess amount
must be used to reduce Employer contributions for the next (and succeeding, if
necessary) limitation years. Excess amounts may not be distributed to
Participants or former Participants.
5-2
<PAGE>
Any excess amount held in a suspense account shall not share in
Income. If the Plan terminates before the allocation of such excess, the excess
shall revert to the Employer, to the extent that it may not be allocated to any
Participant's Account.
5.2 Limitations for Defined Benefit and Defined Contribution Plans
--------------------------------------------------------------
Covering the Same Employee. This section 5.2 shall not apply to Plan Years
- --------------------------
beginning on or after January 1, 2000.
(a) Aggregate Limit. If an employee participates in both a defined
---------------
benefit plan and a defined contribution plan maintained by the Employer, the sum
of the defined benefit plan fraction and the defined contribution plan fraction
for each limitation year may not exceed 1.0.
(b) Defined Benefit Plan Fraction. For purposes of this section, the
-----------------------------
defined benefit plan fraction for each limitation year shall include a numerator
equaling the projected annual benefit of the employee pursuant to the plan
(determined as of the close of the year) and a denominator equaling the lesser
of (1) 125% of the dollar limitation imposed upon such benefits by the Code for
such year or (2) 140% of his average annual Compensation for the three
consecutive Plan Years during which he both participated in the Plan and
received the highest Compensation from the Employer.
(c) Defined Contribution Plan Fraction. For purposes of this section,
----------------------------------
the defined contribution plan fraction for each limitation year shall include a
numerator equaling the sum of the annual additions to the employee's account as
of the close of the year and a denominator equaling the sum of an amount
determined for such year and for each prior year of service with the Employer as
the lesser of (1) 125% of the limit determined pursuant to section 5.1(a)(1) or
(2) 140% of the limit determined pursuant to section 5.1(a)(2).
(d) Top-Heavy Limit. In any year during which the Plan is top-heavy,
---------------
the Administrator shall substitute "100%" for "125%" in clause (1) of paragraphs
(b) and (c) above, unless the Accounts of Key Employees do not exceed 90% of the
total value of Plan assets and the 3% minimum top-heavy allocation pursuant to
this Plan (or another defined contribution plan or this Plan and another defined
contribution plan maintained by the Employer) is increased to 4%, or the 2%
minimum top-heavy benefit accrual pursuant to a defined benefit plan (or plans)
maintained by the Employer is increased to the lesser of 3% times Years of
Service or 20% plus 1% (up to a maximum of 30%) for each year the Plan was top-
heavy.
5-3
<PAGE>
5.3 Top-Heavy Restrictions. Annually, as of each determination date,
----------------------
the Administrator shall apply the tests recited in Code section 416 to determine
if the Plan is top-heavy.
(a) General Rule. Generally, the Plan will be "top-heavy" for any
------------
Plan Year, if, as of the determination date, the Plan's accumulations in the
Accounts of Key Employees exceed 60% of its accumulations in the Accounts of all
Participants. To determine if the Plan is top-heavy, the Administrator shall
(1) include in each Participant's Account distributions made with respect to the
Participant during the Plan Year containing the determination date and the
preceding four Plan Years and (2) exclude from the calculation the Account and
accrued benefits of any Participant who (A) is not a Key Employee at any time
during the Plan Year containing the determination date but who was a Key
Employee in a prior Plan Year or (B) any individual who did not complete at
least one Hour of Service during the immediately preceding five-year period.
(b) Determination Date. For the first Plan Year, the "determination
------------------
date" is the last day of that Plan Year. For any other Plan Year, the
"determination date" is the last day of the immediately preceding Plan Year.
(c) Aggregating Plans. In determining whether the Plan is top-heavy,
-----------------
the Administrator shall aggregate the Plan with (1) each other plan of the
Employer in which a Key Employee participated during the plan year containing
the determination date or the four immediately preceding years (regardless of
whether the plan has terminated) and (2) each other plan of the Employer which
enables any plan in which a Key Employee participates to meet the requirements
of Code section 401(a)(4) or 410. The Administrator may, in making its
determination, aggregate the Plan with one or more other plans of the Employer
if such plans, as a group, would continue to meet the requirements of Code
sections 401(a)(4) and 410. In determining whether this Plan is top-heavy, the
Administrator shall consider the present value of accrued benefits and the sum
of account balances under all plans aggregated pursuant to Code section 416.
(d) Consequences. If the Plan is top-heavy for a year, the top-heavy
------------
contribution and allocation directions of Article 3, if any, and the top-heavy
vesting schedule of Article 6, if any, shall apply.
5.4 Actual Deferral Percentage Test.
-------------------------------
(a) Applying the Test.
-----------------
(1) Effective January 1, 1997. For Plan Years beginning on or after
-------------------------
January 1, 1997, the actual deferral percentage (the "ADP")
5-4
<PAGE>
for Participants who are highly compensated employees ("HCEs") may not exceed
the greater of:
(A) 1.25 times the ADP for all Participants who are not HCEs; or
(B) The lesser of (i) 2 times the ADP for the immediately preceding
Plan Year of Participants who are not HCEs or (ii) the ADP for the immediately
preceding Plan Year of Participants who are not HCEs plus 2 percentage points.
Notwithstanding the foregoing, when applying the test in section
5.4(a)(1), the Employer may elect to use the ADP for the Plan Year for which
testing is performed for those Participants who are not HCEs, provided, however,
that any such election can be changed subsequently only as permitted by
applicable Treasury Regulations.
The Administrator shall determine the Participants' deferral
percentages consistent with Code section 401(k)(3) and applicable Treasury
Regulations, which the Plan incorporates by reference. The Employer shall
maintain records sufficient to demonstrate satisfaction of the ADP test and the
amount of qualified nonelective contributions or qualified matching
contributions, if any, used in such test.
(2) Effective Prior to January 1, 1997. For Plan Years beginning on
----------------------------------
or after January 1, 1987 and prior to January 1, 1997, the actual deferral
percentage (the "ADP") for Participants who are highly compensated
employees("HCEs") may not exceed the greater of:
(A) 1.25 times the ADP for all Participants who are not HCEs; or
(B) The lesser of (i) 2 times the ADP of Participants who are not HCEs
or (ii) the ADP of Participants who are not HCEs plus 2 percentage points.
The Administrator shall determine the Participants' deferral
percentages consistent with Code section 401(k)(3) and applicable Treasury
Regulations, which the Plan incorporates by reference. The Employer shall
maintain records sufficient to demonstrate satisfaction of the ADP test and the
amount of qualified nonelective contributions or qualified matching
contributions, if any, used in such test.
5-5
<PAGE>
(b) ADP Defined. For each Plan Year, the Administrator shall
-----------
determine the "ADP" for the Participants who are HCEs and all other Participants
as follows:
(1) The ADP for a group of Participants shall equal the average of the
ratios, calculated separately for each Participant in the group, of (A) the
allocations of elective contributions and qualified nonelective contributions or
qualified matching contributions (to the extent not taken into account for
purposes of the actual contribution percentage test), not including Income,
which the Administrator determines for a Plan Year to (B) the Participant's
Compensation for that Plan Year. The ADP of a Participant who makes no elective
contributions is zero. Excess elective contributions of non-HCEs, determined
pursuant to section 3.2, are not taken into account for purposes of ADP testing.
(2) For Plan Years beginning prior to January 1, 1997, for purposes of
determining the ADP of a Participant who is a 5% owner pursuant to Code section
414(q) or one of the top-ten paid HCEs, the Compensation, elective contributions
(and qualified nonelective contributions or qualified matching contributions, if
any,) shall include the Compensation, elective contributions (and qualified
nonelective contributions and qualified matching contributions, if any) for the
Plan Year of family members as defined in Code section 414(q)(6). Family
members, with respect to such HCEs, shall be disregarded as separate employees
in determining the ADP both for Participants who are non-HCEs and for
Participants who are HCEs.
(3) The "ADP" for any Participant who is an HCE and eligible to have
elective contributions allocated to his account pursuant to two or more plans or
arrangements described in Code section 401(k) and maintained by an Employer
shall be determined as if all such contributions were made pursuant to a single
arrangement.
(c) Excess Contributions.
--------------------
(1) Effective On and After January 1, 1997. If, for any Plan Year,
--------------------------------------
the aggregate amount of contributions to the Accounts of Participants who are
HCEs exceeds the maximum amount permitted in paragraph (a) above, the
Administrator may distribute such excess amount plus or minus any Income or loss
allocable to such excess amount to some or all of the Participants who are HCEs
(determined by reducing contributions made on behalf of Participants who are
HCEs in order of the elective contributions beginning with the highest elective
contributions) during the period beginning on the first day following the close
of the Plan Year in which the excess contributions arose and ending on the date
that is 2-1/2 months from the close of such Plan Year, and in all
5-6
<PAGE>
events shall distribute such Amount no later than the close of the following
Plan Year. The Administrator shall calculate any excess pursuant to this
paragraph (c) after determining the amount of excess elective contributions
pursuant to Article 3.
(2) Effective Prior to January 1, 1997. If, for any Plan Year, the
----------------------------------
aggregate amount of contributions to the Accounts of Participants who are HCEs
exceeds the maximum amount permitted in paragraph (a) above, the Administrator
may distribute such excess amount plus or minus any Income or loss allocable to
such excess amount to some or all of the Participants who are HCEs (determined
by reducing contributions made on behalf of Participants who are HCEs in order
of the ADPs beginning with the highest of such percentages) during the period
beginning on the first day following the close of the Plan Year in which the
excess contributions arose and ending on the date that is 2-1/2 months from the
close of such Plan Year, and in all events shall distribute such Amount no later
than the close of the following Plan Year. In relation to a Participant who is
an HCE for whom the Administrator determines his ADP pursuant to the family
aggregation rules described in subsection (b)(3) above, the Administrator shall
allocate any such excess contributions--plus or minus any Income or loss--among
the family members in proportion to the elective contributions of each family
member combined to determine the Participant's ADP. The Administrator shall
calculate any excess pursuant to this paragraph (c) after determining the amount
of excess elective contributions pursuant to Article 3.
(d) Income on Excess Contributions. Income allocable to excess
------------------------------
contributions shall be determined (1) under any reasonable method used for
allocating Income to all Participants' Accounts as applied consistently to all
Participants for the Plan Year or (2) by multiplying Income allocable to the
Participant's elective contributions (and qualified nonelective contributions
and qualified matching contributions, if any) for the Plan Year by a fraction,
the numerator of which equals the Participant's excess contributions for the
year and the denominator of which equals the Participant's Account balance
attributable to elective contributions (and qualified nonelective contributions
and qualified matching contributions, if any) as of the beginning of the Plan
Year plus the Participant's elective contributions (and qualified nonelective
contributions and qualified matching contributions, if any) for the Plan Year.
The Plan may distribute excess contributions (and Income) without regard to
consent otherwise required for Plan distributions.
(e) Matching Contributions Relating to Excess Contributions. To the
-------------------------------------------------------
extent required by applicable nondiscrimination regulations, any matching
contribution relating to an HCE's excess elective contribution which the
Administrator distributes to the HCE in accordance with paragraph (c) above
shall be declared a Forfeiture as of the end of the Plan Year in which the
excess
5-7
<PAGE>
elective contribution is distributed (even if the Participant is vested in such
matching contribution) except to the extent that the matching contribution is an
excess aggregate contribution which is distributed to the Participant who is an
HCE in accordance with subsection 5.5(c).
(f) Order of Reduction of Excess Contributions.
------------------------------------------
(1) Effective January 1, 1997. Effective for Plan Years beginning on
-------------------------
or after January 1, 1997, the Administrator shall determine the HCEs who will
have reduced contributions under paragraph (c) above on the basis of the amount
of contributions made on behalf of, or by, each such HCE to the Plan for the
Plan Year, and shall do so by attributing such excess amount to Participants who
are HCEs in order of the dollar amount of contributions made by or on behalf of
such HCEs to the Plan for the Plan Year, beginning with the highest dollar
amount of contributions, until the total amount of such excess amount is
attributed.
(2) Effective Prior to January 1, 1997. The Administrator shall
----------------------------------
determine the HCEs who will have reduced contributions under paragraph (c) above
by reducing contributions made on behalf of Participants who are HCEs in order
of the ADPs, beginning with the highest of such percentages. In relation to a
Participant who is an HCE for whom the Administrator determines his ADP pursuant
to the family aggregation rules described in subsection (b)(2) above, the
Administrator shall allocate any such excess contributions--plus or minus any
Income or loss--among the family members in proportion to the elective
contributions of each family member combined to determine the Participant's ADP.
The Administrator shall calculate any excess pursuant to this paragraph (c)
after determining the amount of excess elective contributions pursuant to
Article 3.
5.5 Actual Contribution Percentage Test.
-----------------------------------
(a) Applying the Test.
-----------------
(1) Effective January 1, 1997. Effective for Plan Years beginning on
-------------------------
or after January 1, 1997, the actual contribution percentage (the "ACP") for
Participants who are HCEs may not exceed the greater of:
(A) 1.25 times the ACP for all Participants who are not HCEs; or
(B) The lesser of (i) 2 times the ACP for the immediately preceding
Plan Year of Participants who are not HCEs or (ii) the
5-8
<PAGE>
ACP for the immediately preceding Plan Year of Participants who are not HCEs
plus 2 percentage points.
Notwithstanding the foregoing, when applying the test in section
5.5(a)(1), the Employer may elect to use the ACP for the Plan Year for which
testing is performed for those Participants who are not HCEs, provided, however,
that any such election can be changed subsequently, only as permitted by
applicable Treasury Regulations.
(2) Effective Prior to January 1, 1997. Effective for Plan Years
----------------------------------
beginning prior to January 1, 1997, the ACP for Participants who are HCEs may
not exceed the greater of:
(A) 1.25 times the ACP for all Participants who are not HCEs; or
(B) The lesser of (i) 2 times the ACP of Participants who are not HCEs
or (ii) the ACP of Participants who are not HCEs plus 2 percentage points.
(3) Multiple Use. The Administrator shall adjust the limit described
------------
in (2)(B) above in accordance with section 1.401(m)-2 of the Treasury
Regulations to avoid multiple use of that limit for any Participant who is an
HCE in violation of Code section 401(m)(9). Multiple use does not occur if the
sum of the ADP and ACP for HCEs does not exceed the aggregate limit. The
aggregate limit is the greater of (A) or (B) below:
(A) The aggregate limit is:
(i) 1.25 times the greater of:
[a] The ADP for all Participants who are not HCEs; or
[b] The ACP for all Participants who are not HCEs;
Plus
(ii) The lesser of [a] or [b] above, plus 2% (provided this
number does not exceed two times the lesser of [a] or [b]).
5-9
<PAGE>
(B) The aggregate limit is:
(i) 1.25 times the lesser of:
[a] The ADP for non-HCEs; or
[b] The ACP for non-HCEs;
Plus
(B) The greater of [a] or [b] above, plus 2% (provided this number
does not exceed 2 times the greater of either [a] or [b]).
If multiple use occurs, such multiple use shall be corrected by
reducing the ADP, the ACP, or a combination of the ADP and the ACP of HCEs who
are eligible in both the cash or deferred arrangement and the Plan subject to
Code section 401(m) in accordance with section 5.4(c) above and section 5.5(c)
below.
The Administrator shall determine the Participants' contribution
percentages consistent with Code section 401(m)(3) and applicable Treasury
regulations, which the Plan incorporates by reference. The Employer shall
maintain records sufficient to demonstrate satisfaction of the ACP test and the
amount of qualified nonelective contributions and qualified matching
contributions, if any, used in such test.
(b) ACP Defined. For each Plan Year, the Administrator shall
-----------
determine the "ACP" for the Participants who are HCEs and all other Participants
as follows:
(1) The "ACP" for a group of Participants shall equal the average of
the ratios, calculated separately for each Participant in the group, of (A) the
allocations of matching contributions (to the extent not taken into account for
purposes of the ADP test) (not including Income) for a Plan Year to (B) the
Participant's Compensation for that Plan Year. Qualified nonelective
contributions or qualified matching contributions, if any, (to the extent not
taken into account for purposes of the ADP test) may be taken into account for
purposes of calculating the ACP for Participants.
(2) For Plan Years beginning prior to January 1, 1997, for purposes of
determining the ACP of a Participant who is a 5% owner pursuant to Code section
414(q) or one of the top-ten paid HCEs, the Compensation, and matching
contributions shall include the Compensation, and matching contributions for the
Plan Year of family members as defined in Code
5-10
<PAGE>
section 414(q)(6). Family members, with respect to such HCEs, shall be
disregarded as separate employees in determining the ACP both for Participants
who are non-HCEs and for Participants who are HCEs.
(3) The "ACP" for any highly compensated Participant who is an HCE and
eligible to have matching contributions, if any, allocated to his account
pursuant to two or more plans or arrangements described in Code section 401(m)
and maintained by an Employer shall be determined as if all such matching
contributions were made pursuant to a single arrangement.
(c) Excess Aggregate Contributions.
------------------------------
(1) Effective January 1, 1997. For Plan Years beginning on or after
-------------------------
January 1, 1997, the Administrator shall determine the portion of such excess
aggregate contributions attributable to some or all of the Participants who are
HCEs on the basis of the amount of contributions made on behalf of, or by, each
such HCE to the Plan for the Plan Year, and shall do so by attributing such
excess aggregate contributions to Participants who are HCEs in order of the
dollar amount of contributions made by or on behalf of such HCEs to the Plan for
the Plan Year, beginning with the highest dollar amount of contributions, until
the total amount of excess aggregate contributions is attributed.
(2) Effective Prior to January 1, 1997. If, for any Plan Year
----------------------------------
effective prior to January 1, 1997, the aggregate amount of contributions to the
Matching Contributions Accounts, if any, of Participants who are HCEs exceeds
the maximum amount permitted in paragraph (a) above ("excess aggregate
contributions"), the Administrator shall determine the amount of the excess
aggregate contributions attributable to the Participants who are HCEs by
reducing contributions made on behalf of Participants who are HCEs in order of
the ACPs, beginning with the highest of such percentages until the aggregate
amount of contributions no longer exceeds such maximum.
(3) Distributions. The Administrator shall distribute the vested
-------------
portion of such excess amount to each affected Participant plus or minus any
Income or loss allocable to the vested portion of such excess amount during the
period beginning on the first day following the close of the Plan Year in which
the excess contributions arose and ending on the date that is 2-1/2 months from
the close of the Plan Year and, in no event, later than the close of the
following Plan Year. The nonvested portion of such excess amount, plus or minus
any Income or loss allocable to such nonvested portion, shall be forfeited from
each affected Participant's Matching Contribution Account as of the last day of
the Plan Year in which the vested portion of such excess amount is distributed.
The Administrator shall calculate any excess pursuant to this paragraph (c)
after
5-11
<PAGE>
determining the amount of excess elective deferrals pursuant to Article 3
and the amount of contributions in excess of the ADP test pursuant to section
5.4.
(4) Income. Income allocable to excess aggregate contributions shall
------
be determined (1) under any reasonable method used for allocating Income to all
Participants' Accounts as applied consistently to all Participants for the Plan
Year or (2) by multiplying Income allocated to the Participant's matching
contributions for the Plan Year by a fraction, the numerator of which equals the
Participant's excess aggregate contributions for the year and the denominator of
which equals the Participant's Account balance attributable to matching
contributions (and qualified matching contributions, if any) as of the beginning
of the Plan Year and qualified matching contributions, if any, for the Plan
Year. The Plan may distribute excess aggregate contributions (and Income)
without regard to consent otherwise required for Plan distributions.
5.6 Qualified Nonelective Contributions and Qualified Matching
----------------------------------------------------------
Contributions. Pursuant to Treasury Regulations and in lieu of distributing
- -------------
excess contributions or excess aggregate contributions, the Employer may elect
to make qualified nonelective contributions or qualified matching contributions
to the Plan on behalf of Participants.
(a) Qualified Nonelective Contributions. "Qualified nonelective
-----------------------------------
contributions" means contributions (other than matching contributions) made by
the Employer and allocated to Participants' Accounts that the Participants may
not elect to receive in cash until distributed from the Plan; that are
nonforfeitable when made; and that are distributable only in accordance with the
distribution provisions applicable to elective contributions, all as pursuant to
Code sections 401(k)(2)(B) and (C). The Administrator shall allocate qualified
nonelective contributions to the Participants' Elective Contribution Accounts in
a manner that does not discriminate in favor of highly compensated employees.
(b) Qualified Matching Contributions. "Qualified matching
--------------------------------
contributions" means matching contributions made by the Employer that are
nonforfeitable when made and that are distributable only in accordance with the
distribution provisions applicable to elective contributions. The Administrator
shall allocate qualified matching contributions in a uniform, nondiscriminatory
manner to the Participants' Elective Contribution Accounts.
5.7 Highly Compensated Employee. For any Plan year, an Employer may
---------------------------
determine which employees are highly compensated employees ("HCEs") based on the
following rules:
(a) Effective January 1, 1997. For purposes of this Article 5 and for
-------------------------
Plan Years beginning on or after January 1, 1997, HCE shall
5-12
<PAGE>
have the meaning required by Code section 414(q) and applicable Treasury
Regulations.
(b) Effective Prior to January 1, 1997. For purposes of this Article
----------------------------------
5, and for Plan Years beginning prior to January 1, 1997, HCE shall have the
meaning required by Code section 414(q) and applicable Treasury Regulations to
the extent such meaning is not inconsistent with the simplified identification
method set forth below. For any Plan Year, an Employer may determine which
employees are HCEs in accordance with either subparagraph (1) or (4) below.
(1) Active Employees. An active employee is an HCE if, during the
----------------
Plan Year, the employee performs services for the Employer and:
(A) during the "look-back" year he:
(i) was a five-percent owner;
(ii) received Compensation from the Employer
exceeding $75,000 (as adjusted);
(iii) received Compensation from the Employer exceeding $50,000 (as
adjusted) and was a member of the top-paid group for such year; or
(iv) was an officer of the Employer and received Compensation during
such year greater than 150 percent of the dollar limitation then in effect
pursuant to Code section 415(c)(1)(A) (as adjusted).
The group of top-paid employees under (A)(iii) and the number of
officers under (A)(iv) above shall be determined without regard to the employees
described in Code section 414(q)(8). For the purposes of paragraph (A)(iv)
above, no more than 50 employees (or, if lesser, the greater of three employees
or ten percent of the employees of an Employer) shall be treated as officers
and, if no officer satisfies the compensation requirement of (A)(iv) above
during either a Plan Year or look-back year, the highest paid officer for such
year shall be an HCE. The dollar limitations provided above are adjusted for
increases in the cost of living by the Secretary of the Treasury or his delegate
pursuant to Code section 415(d).
(B) and during the Plan Year he:
5-13
<PAGE>
(i) meets the description in clauses (A)(i), (A)(ii) or (A)(iv) above
upon substituting Plan Year for "look-back year" and is among the 100 employees
who received the most Compensation from the Employer during the Plan Year; or
(ii) is a 5-percent owner at any time during the Plan Year.
(2) Former Employees. Generally, a former employee is an HCE if that
----------------
individual is an employee who separated from service with the Employer (or was
deemed to have separated) prior to the Plan Year, performs no service for an
Employer during the Plan Year and was an active HCE for either the year in which
separation occurred or any determination year ending on or after the
individual's 55th birthday.
(3) Look-Back Year. The "look-back year" shall be the twelve-month
--------------
period immediately preceding the Plan Year or, if the Employer so elects, the
calendar year ending with or within the applicable Plan Year provided (A) such
election is made with respect to all qualified plans maintained by the Employer-
- -except for any plan for which the Employer elects simplified identification of
HCEs--and (B) the Plan Year calculation is made on the basis of the period (if
any) by which the applicable Plan Year extends beyond such calendar year (i.e.,
----
the lag period). If the Employer is making the Plan Year calculation based on
the lag period, the dollar amounts applicable under subsection (1)(A) above
shall be adjusted by multiplying such dollar amounts by a fraction, the
numerator of which is the number of calendar months that are included in the lag
period and the denominator of which is 12.
(4) Simplified Identification Method. Under the simplified
--------------------------------
identification method, an Employer's HCEs include HCEs only as determined
pursuant to subparagraph (1)(A) above as applied based on the Plan Year without
reference to the look-back year, or, if elected by the Employer, as of a single
day within the Plan Year (the "Snapshot Day"). "Compensation," for purposes of
simplified identification, is compensation which reasonably approximates an
employee's Compensation. The following exceptions to subparagraph (1)(A) above
apply if an Employer elects to determine HCEs based on a Snapshot Day:
(A) Compensation. If the Snapshot Day is other than the last day of
------------
the applicable Plan Year, Compensation must be projected for the Plan Year under
a reasonable method established by the Employer.
5-14
<PAGE>
(B) Includible HCEs. The Employer must treat as an HCE, in addition
---------------
to employees who are determined to be HCEs on the Snapshot Day, any employee who
terminated Employment prior to the Snapshot Day or becomes employed by the
Employer subsequent to the Snapshot Day and (i) was an HCE in the prior Plan
Year; (ii) was, or is, a 5-percent owner; (iii) has Compensation for the Plan
Year greater than or equal to the projected Compensation of any employee who is
treated as an HCE on the Snapshot Day (except for employees who are HCE's solely
because they are 5-percent owners or officers); or (iv) was, or is, an officer
and has Compensation greater than or equal to the projected Compensation of any
other officer who is an HCE on the Snapshot Day solely because that person is an
officer.
(C) Determination of Snapshot Day. The Snapshot Day may be (i) the
-----------------------------
same Snapshot Day that the Employer is using for substantiating compliance with
nondiscrimination requirements; or (ii) any other single day during the Plan
Year, provided the day is reasonably representative of the Employer's workforce
and the Plan's coverage throughout the Plan Year. A Snapshot Day will not be
treated as failing to be reasonably representative solely because of a
significant change in the Employer's workforce caused by an extraordinary event,
such as a merger or acquisition. The Snapshot Day for the Plan generally must
be consistent from year to year.
(e) Family Members. If, during a Plan Year, an employee is a family
--------------
member of either a 5-percent owner or an HCE who is one of the 10 most highly
compensated employees ranked on the basis of Compensation paid by the Employer
during such year, the Plan shall aggregate the allocations of the family member
and the 5-percent owner or HCE. The Plan shall treat the family member and 5-
percent owner or HCE as a single employee receiving Compensation and allocations
or benefits equal to the sum of such Compensation and allocations or benefits of
the family member and 5-percent owner or HCE. For purposes of this section,
family member includes the spouse, lineal ascendants and descendants of the
employee or former employee and the spouses of such lineal ascendants and
descendants. If the Employer does not elect to determine HCEs under the
simplified identification method based on a Snapshot Day, the first sentence of
this paragraph shall also be applied based on the look-back year.
5-15
<PAGE>
ARTICLE 6
Vesting
6.1 Vesting.
-------
(a) Retirement. A Participant's interest in his Account shall be
----------
fully vested and nonforfeitable if his Employment terminates on or after his
Normal Retirement Age or his attainment of age 55 and ten years of Service (his
"Early Retirement Age").
(b) Death or Disability. A Participant's interest in his Account
-------------------
shall be fully vested and nonforfeitable if his Employment terminates due to his
death or disability. "Disability" means a physical or mental condition which,
in the judgment of the Administrator (based upon medical reports and other
evidence satisfactory to the Administrator) and pursuant to uniform principles
consistently applied, presumably permanently prevents an individual from
satisfactorily performing his duties for the Employer or the duties of such
other position or job which the Employer makes available to him and for which
the individual is qualified by reason of his training, education or experience.
(c) Termination of Employment Prior to Retirement, Disability or
------------------------------------------------------------
Death. A Participant's interest in his Elective Contribution and Rollover
Accounts shall be fully vested and nonforfeitable at all times. If a
Participant terminates Employment prior to his Early Retirement Age, Normal
Retirement Age, disability or death, his interest in his Matching Contribution
Account shall vest, and be nonforfeitable, in relation to his Years of Service
as follows:
Years of Service Vested Percentage
---------------- -----------------
Fewer than 3 0%
3 20%
4 40%
5 60%
6 80%
7 or more 100%
(d) Attainment of Normal Retirement Age. Notwithstanding the above
-----------------------------------
vesting provisions, a Participant's interest in his Account shall be fully
vested and nonforfeitable if the Participant attains his Normal Retirement Age
while employed by the Employer.
6-1
<PAGE>
(e) Change in Vesting Schedule. In no event shall a change in the
--------------------------
Plan's vesting schedule reduce a Participant's vested and nonforfeitable
interest in his Account. Upon a change in the Plan's vesting schedule, a
Participant who has accumulated at least three Years of Service may elect to
determine the vested interest in his Account pursuant to either the revised
vesting schedule or the vesting schedule without regard to such change. Such
election shall be made during an election period which shall commence with the
date the amendment is adopted or deemed to be made and shall end 60 days after
the latest of the date the amendment is adopted, becomes effective, or the date
the Participant is issued written notice of the amendment by the Company or the
Administrator.
6.2 Top-Heavy Plan Years. If the Plan is top-heavy for any Plan
--------------------
Year, the following vesting schedule shall replace the vesting schedule of
section 6.1:
Years of Service Vested Percentage
---------------- -----------------
Fewer than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
6.3 Forfeitures. The nonvested portion of a Participant's Account
-----------
shall constitute a Forfeiture (be "forfeited") as of the earlier of the date the
Participant receives a distribution from his Account following the termination
of his Employment or the date the Participant incurs five consecutive one-year
Breaks in Service. The Administrator shall reallocate a Forfeiture pursuant to
Article 3 as of the end of the Plan Year in which the Forfeiture occurs.
6.4 Reinstatement.
-------------
(a) Five or More Consecutive One-Year Breaks in Service. If a former
---------------------------------------------------
Participant resumes participation in the Plan after experiencing at least five
consecutive one-year Breaks in Service, such Participant shall retain no right
to any previously forfeited portion of his Account. Such employee's Years of
Service prior to his Breaks in Service shall affect the vesting of his Account
accruing after reinstatement only if his Account was at least partially vested
at the time he incurred a Break in Service or, upon his reinstatement, the
number of his Years of Service prior to the Break equals or exceeds the number
of his consecutive one-year Breaks in Service. Such Participant's Years of
Service after his Breaks in Service shall be disregarded for the purpose of
vesting his Account
6-2
<PAGE>
balance that accrued prior to such Breaks in Service. Separate Accounts shall be
maintained for the Participant's pre-break Account balance and post-break
Account balance.
(b) Before Five Consecutive One-Year Breaks in Service. If a former
--------------------------------------------------
Participant resumes participation in the Plan before experiencing five
consecutive one-year Breaks in Service, the Administrator shall aggregate the
Participant's Years of Service completed prior to his Break in Service with his
Years of Service completed following his reinstatement to determine his vested
interest in both allocations made to his Account after reinstatement and any
portion of his Account originating prior to such Break in Service. The
Administrator shall restore any previously forfeited portion of such a
reinstated Participant's Account only if the Participant repays to the Plan the
full amount of the distribution. The Participant must repay the full amount of
the distribution prior to the end of the five-year period commencing on the
Participant's date of reinstatement. Any amount so restored shall not
constitute an annual addition pursuant to section 5.1.
(c) Disregarded Years of Service. For purpose of this section, the
----------------------------
Years of Service the Participant completed prior to his Break in Service shall
not include any Years of Service disregarded pursuant to this subsection by
reason of prior Breaks in Service.
6-3
<PAGE>
ARTICLE 7
Distributions
7.1 Commencement of Retirement Benefits. This section 7.1 shall not
-----------------------------------
apply to distributions payable on account of a Participant's death.
(a) Earliest Payment Date. As to any Participant, distribution shall
---------------------
occur no earlier than the termination of the Participant's Employment, unless
specifically authorized elsewhere in the Plan.
(b) Payment Due To Termination of Employment.
----------------------------------------
(1) Before Normal Retirement Age. If a Participant's Employment
----------------------------
terminates prior to his Normal Retirement Age, the distribution of his Account
shall commence as follows:
(A) Accounts of $3,500 or Less. The Administrator shall mandate
--------------------------
distribution in a single lump sum of any Participant's vested Account that
equals $3,500 or less prior to the commencement of distributions or at the time
of any prior distribution. If a Participant's vested Account equals zero, the
Participant shall be deemed to have received a mandatory distribution of such
vested Account. Mandatory distributions shall commence as soon as
administratively feasible following termination of a Participant's Employment.
(B) Accounts of More Than $3,500. Subject to the requirements set
----------------------------
forth below, the Administrator shall commence distribution of a Participant's
Account which exceeds $3,500 prior to the commencement of distributions, or at
the time of any prior distribution, as soon as administratively feasible
following the date the Participant elects in writing to commence distribution.
Such distribution may not commence prior to the Participant's Normal Retirement
Age unless the Participant consents, in writing, on a form approved by and filed
with the Administrator, to the earlier distribution of his vested Account. Such
Participant consent shall not be valid unless the Administrator provides the
Participant with notice of his right to defer distribution no less than 30 days
and no more than 90 days before the date of distribution.
Notwithstanding the above, distribution may commence less than 30 days
after such notice is provided if (i) the notice clearly informs the Participant
that the Participant has a right to a period of at least 30 days after receiving
the notice to consider the decision of whether or not to
7-1
<PAGE>
elect a distribution, and (ii) the Participant, after receiving such notice,
affirmatively elects a distribution.
Distribution shall commence no later than the 60th day after the close
of the Plan Year (1) in which the Participant attains his Normal Retirement Age,
or, if later, (2) in which occurs the 10th anniversary of his commencement of
participation in the Plan.
(2) On or After Normal Retirement Age. The distribution of the
---------------------------------
Account of a Participant who terminates Employment on or after the Participant's
Normal Retirement Age and before attainment of age 70-1/2 shall commence as soon
as administratively feasible following the date the Participant's Employment
terminates but no later than 60 days after the close of the Plan Year in which
the Participant's Employment terminates.
(c) Latest Payment Date. Even if a Participant's Employment has not
-------------------
terminated, distribution shall commence no later than the April 1 following the
calendar year in which the Participant attains age 70-1/2 (or later required
beginning date as defined in section 7.4 below).
7.2 Method of Payment.
-----------------
(a) Form of Benefits. Distribution from a Participant's Account shall
----------------
occur in one of the following methods as elected by the Participant in writing
on forms approved by, and filed with, the Administrator:
(1) A single lump sum; or
(2) Equal monthly, quarterly, semi-annual or annual installments, as
adjusted to reflect Income allocated to the Participant's Account subsequent to
the commencement of payments.
(b) Mandatory Payments. The Administrator shall direct distribution
------------------
in a single lump sum of any Participant's vested Account that does not exceed
$3,500 prior to the commencement of distributions or at the time of any prior
distribution if such Participant fails to direct a rollover within 30 days of
being notified of his right to a direct rollover.
(c) Election Period for Optional Benefit Form. A Participant may
-----------------------------------------
elect to receive an optional form of benefit and may revoke any such election at
any time within the 90-day period immediately preceding the date his Account
becomes payable. Such election shall be in writing on forms approved by, and
filed with, the Administrator.
7-2
<PAGE>
(d) Benefit Information. Not less than 30 days and not more than 90
-------------------
days prior to the date a Participant's Account becomes payable, the
Administrator shall furnish the Participant with a general description of the
material features, relative values of and direct rollover rights relating to the
optional forms of benefit available under the Plan.
(e) Direct Rollovers.
----------------
(1) This section 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 section, a distributee may
elect, at the time and in the manner prescribed by the 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; provided,
however, that if a Participant elects a direct rollover as to only a portion of
his distributable Account, the amount to be paid in a direct rollover must equal
at least $500.
(2) Eligible rollover distribution: An eligible rollover distribution
------------------------------
is any distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and the portion of
any distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to employer
securities).
(3) 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.
(4) Distributee: A distributee includes an employee or former
-----------
employee. In addition, the employee's or former employee's surviving spouse and
the employee's or former employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in section 414(p)
of the Code, are distributees with regard to the interest of the spouse or
former spouse.
7-3
<PAGE>
(5) Direct rollover: A direct rollover is a payment by the Plan to
---------------
the eligible retirement plan specified by the distributee.
(f) Changes in Payments. After he has begun to receive payment from
-------------------
his Account, a Participant may change the form of payment no more frequently
than once each Plan Year.
(g) Payments in Employer Stock. Distribution of a Participant's
--------------------------
Account, to the extent invested in Flagstar Bancorp, Inc. stock, may be made,
pursuant to the Participant's written election, in whole shares of Employer
Stock with cash paid for fractional shares.
7.3 Death Benefits.
--------------
(a) Distribution to a Beneficiary. The Plan shall distribute the
-----------------------------
Account of a deceased Participant to the beneficiary identified in the
beneficiary designation in effect at the time of his death or, if no such
designation exists, to the Participant's surviving spouse or, if none, to his
issue per stirpes or, if none, to his next of kin determined pursuant to the
--- -------
laws of the state in which the Company's principal place of business is located
as if the Participant had died unmarried and intestate within a reasonable time
after the Participant's death. Each Participant may designate, in writing, on
forms approved by and filed with the Administrator, one or more beneficiaries to
receive payment of his Account and may, in addition, name a contingent
beneficiary.
The beneficiary as to 100% of the Account of a Participant married at
the time of his death shall be his surviving spouse, unless his spouse consents
to the designation of an alternative beneficiary or the spouse cannot be
located. Spousal consent shall be in writing, acknowledging the effect of such
election and witnessed by a Plan representative or notary public. Any change
in, or revocation of, a Participant's designated beneficiary shall again require
spousal consent unless the earlier consent of the spouse expressly permitted
subsequent designations by the Participant without further spousal consent. The
death benefit shall be made available to the beneficiary within a reasonable
time after the Participant's death and in no event later than the earliest date
benefits would be payable to the Participant if his Employment terminated on the
date of his death for a reason other than death.
(b) Form of Benefit. A Participant's beneficiary may request, in
---------------
writing, on forms approved by, and filed with, the Administrator, payment in any
optional benefit form available under the Plan.
(c) Death On or Before Required Beginning Date. The Plan shall
------------------------------------------
distribute as follows the Account of a Participant who dies on or before his
required beginning date, as defined in section 7.4 below:
7-4
<PAGE>
(1) General. Distributions shall extend no longer than the end of the
-------
calendar year that contains the fifth anniversary of the Participant's death,
except to the extent that paragraph (2) or (3) below applies. For either
paragraph (2) or (3) to apply, the Participant must have so elected before his
death or his designated beneficiary must have so elected no later than the
earlier of December 31 of the calendar year in which distributions otherwise
must commence or December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
(2) Nonspouse Beneficiary. If any portion of the Participant's
---------------------
Account is payable to a designated beneficiary other than the surviving spouse,
distribution shall commence no later than December 31 of the calendar year
following the date of the Participant's death and shall extend over a period no
longer than the life of such beneficiary or over a period certain not extending
beyond the life expectancy of such beneficiary determined using the attained age
(or ages) in the calendar year distributions must commence and as reduced by one
during each subsequent year.
(3) Spouse as Beneficiary. If any portion of a Participant's Account
---------------------
is payable to the Participant's surviving spouse, distributions to such spouse
shall commence no later than December 31 of the calendar year in which the
Participant would have attained age 70-1/2 and shall extend over a period no
longer than the life of such spouse or over a period certain not extending
beyond the life expectancy of such spouse as determined using the spouse's
attained age in the first distribution calendar year and reduced by one in each
year thereafter.
The Participant's surviving spouse may elect instead to recalculate
life expectancy, provided the election is irrevocable and made prior to the
initial distribution date. If the Participant's spouse dies before the
commencement of distributions, the Administrator shall apply this section as if
the spouse were the Participant.
(d) Death After Required Beginning Date. If a Participant dies on or
-----------------------------------
after the date distributions have commenced following his required beginning
date pursuant to section 7.4, any remaining portion of his vested Account shall
be distributed at least as rapidly as required by the method of distribution in
effect on his date of death.
7.4 Required Lifetime Distributions. Notwithstanding the other
-------------------------------
provisions of this Article 7, the Plan shall distribute each Participant's
Account consistent with Code section 401(a)(9) and applicable regulations, which
the Plan hereby incorporates by reference.
7-5
<PAGE>
(a) Required Beginning Date.
-----------------------
(1) Effective on and after January 1, 1997.
--------------------------------------
(A) Non-Five Percent Owner. A Participant's, other than a 5% owner,
----------------------
required beginning date is the April 1 following the later of (i) the calendar
year in which he attains age 70-1/2 or (ii) the year in which the Participant
terminates employment.
(B) Five Percent Owner. The required beginning date of a Participant
------------------
who is a 5-percent owner is the April 1 following the later of (i) the calendar
year in which the Participant attains age 70-1/2 or (ii) the earlier of [a] the
calendar year with or within which ends the Plan Year during which the
Participant becomes a 5-percent owner or [b] the calendar year in which the
Participant's Employment terminates.
(2) Effective prior to January 1, 1997. A Participant's required
----------------------------------
beginning date is the April 1 following the calendar year in which he attains
age 70-1/2.
For purposes of this section, a Participant is a "5-percent owner,"
within the meaning of Code section 416(i), if the Participant is a 5-percent
owner at any time during the Plan Year ending with or within the calendar year
in which he attains age 66-1/2 or any subsequent Plan Year. Once distributions
for the Plan have begun to a 5-percent owner, such distributions shall continue,
even if the Participant ceases to be a 5-percent owner in a subsequent year.
(b) Limits on Distribution Periods. Installment payments of a
------------------------------
Participant's Account shall occur over a period of time calculated as of the
calendar year immediately preceding the calendar year which contains the
Participant's required beginning date (the "first distribution calendar year").
The time period for payment of installments shall be no longer than:
(1) The Participant's life or life expectancy determined using the
Participant's attained age as of the first distribution calendar year, if the
Participant has not designated a beneficiary; or
(2) If the Participant has designated a beneficiary, the life or joint
and last survivor expectancy of the Participant and the designated beneficiary
determined using the attained ages of the Participant and the designated
beneficiary as of the first distribution calendar year.
(c) Amount Required to be Distributed. The required distribution paid
---------------------------------
each calendar year beginning with the first distribution calendar
7-6
<PAGE>
year shall not equal less than the quotient obtained upon dividing the
Participant's Account by the lesser of (1) the applicable life expectancy, or
(2) if the beneficiary is not the Participant's spouse, the applicable minimum
distribution incidental benefit divisor determined from the table recited in
Q&A-4 of proposed regulation section 1.401(a)(9)-2. The "applicable life
expectancy" is the life expectancy (or joint and last survivor expectancy)
calculated using the attained age of the Participant (or designated beneficiary)
as of the Participant's (or designated beneficiary's) birthday in the first
distribution calendar year reduced by one in each year thereafter. If the
Participant's benefit is distributed in the form of an annuity purchased from an
insurance company, distributions thereunder shall be made in accordance with the
requirements of Code section 401(a)(9). The Participant may elect to recalculate
his life expectancy and/or that of his spouse, provided such election is
irrevocable and is made prior to the Participant's required distribution date.
A Participant's Account is determined as of the last Valuation Date in
the calendar year immediately preceding the calendar year for which a
distribution is required, adjusted as follows: Increased by the amount of any
contributions or Forfeitures, if any, allocated to the Account as of dates in
such calendar year after the Valuation Date and decreased by distributions made
in such calendar year after the Valuation Date.
7.5 Qualified Domestic Relations Orders. Upon receipt of a domestic
-----------------------------------
relations order issued by a court of competent jurisdiction with respect to a
Participant's interest in the Plan, the Administrator shall determine whether
such domestic relations order constitutes a qualified domestic relations order
(as defined in Code section 414(p)(1), a "QDRO"). The Administrator shall
establish reasonable procedures to determine the qualified status of a domestic
relations order and to administer distributions mandated by a QDRO.
If the Administrator determines that the domestic relations order is a
QDRO, an alternate payee as defined in Code section 414(p)(8) may receive
distributions in a single lump sum, or direct rollover if the alternate payee is
the Participant's former spouse, commencing as if the Participant experienced a
termination of Employment as of the date of the order as described in section
7.1. Distributions made pursuant to this section may occur without regard to
the age or the employment status of the Participant. Except as provided by this
section, a distribution pursuant to a QDRO shall not include any type of benefit
or payment option not otherwise payable by the Plan. If the Administrator has
notice that a QDRO is being or may be sought but has not received the QDRO, the
Administrator shall not, unless requested in
7-7
<PAGE>
writing by the Participant, delay payment of a benefit to a Participant which
would otherwise be due. If the Administrator has determined that an order is not
a QDRO and all comment and appeal periods have expired, the Administrator shall
not, unless requested in writing by the Participant, delay payment to a
Participant which otherwise would be due even if the Administrator has notice
that the party claiming to be an alternate payee or the Participant is
attempting to correct any deficiencies in the order.
7.6 Hardship Withdrawals Elective Contributions. A Participant may
-------------------------------------------
withdraw a minimum of $1,000 from his Elective Contributions Account
attributable to elective contributions upon appropriate notice to the
Administrator if the withdrawal results from a "hardship." A withdrawal will be
deemed to result from a "hardship" if the distribution:
(a) Is for the purpose of:
(1) The payment of medical expenses described in Code section 213(d)
incurred by the Participant, his spouse or dependents or necessary for these
persons to obtain medical care described in Code section 213(d);
(2) Costs directly related to the purchase (excluding mortgage
payments) of a principal residence for the Participant;
(3) The payment of tuition, related educational fees, and room and
board expenses for the next 12 months of post-secondary education for the
Participant, his spouse or dependents;
(4) The need to prevent the eviction from, or mortgage foreclosure
of, the Participant's principal residence; or
(5) Any other purpose specified by the Internal Revenue Service as a
deemed immediate and heavy financial need.
(b) Satisfies all of the following:
(1) The distribution does not exceed the amount of the financial need,
including any amount necessary to pay taxes or penalties reasonably anticipated
to result from the distribution;
(2) The Participant has obtained all distributions (other than
hardship withdrawals) and all nontaxable loans currently available pursuant to
this Plan or any other plan maintained by the Employer;
(3) The Participant cannot make elective contributions and employee
after-tax contributions pursuant to this Plan or any other qualified or
nonqualified plan of deferred compensation (excluding health or welfare plans)
maintained by the Employer for at least 12 months after receipt of the withdrawn
amount; and
7-8
<PAGE>
(4) The Participant's elective contributions made in the calendar year
immediately following the calendar year in which the withdrawal is received do
not exceed the $7,000 limit of Code section 402(g) (as adjusted) in effect for
such calendar year, less the Participant's elective contributions made in the
calendar year in which the withdrawal was received.
7.7 Withdrawals At or After Age 59-1/2. On or after attaining age
----------------------------------
59-1/2, a Participant may withdraw all or any portion of his Elective
Contribution Account upon written notice to the Administrator.
7.8 Withdrawals from Accounts Invested in Employer Stock. If a
----------------------------------------------------
withdrawal is made pursuant to sections 7.6 or 7.7, the Participant may, to the
extent the Account is invested in Employer Stock, elect to receive whole shares
of Employer Stock with cash for fractional shares.
7-9
<PAGE>
ARTICLE 8
Administration of the Plan
8.1 Appointment of Separate Administrator. The Company may appoint a
-------------------------------------
separate Administrator. Any person, including, but not limited to, employees of
the Employer, shall be eligible to serve as Administrator. Two or more persons
may form a committee to serve as Administrator. Persons serving as
Administrator may resign by written notice to the Company and the Company may
appoint or remove such persons. An Administrator consisting of more than one
person shall act by a majority of its members at the time in office, either by
vote at a meeting or in writing without a meeting. An Administrator consisting
of more than one person may authorize any one or more of its members to execute
any document or documents on behalf of the Administrator, in which event the
Administrator shall notify the Trustee of the member or members so designated.
The Trustee shall accept and rely upon any document executed by such member or
members as representing action by the Administrator until the Administrator
shall file with the Trustee a written revocation of such designation. No person
serving as Administrator shall vote or decide upon any matter relating solely to
himself or solely to any of his rights or benefits pursuant to the Plan. If the
Company fails to name such person or persons, the Company shall be the
Administrator.
8.2 Powers and Duties. The Administrator shall administer the Plan
-----------------
in accordance with its terms and shall discharge its duties with the care,
skill, prudence and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such matters would use
in the conduct of an enterprise of a like character and with like aims. The
Administrator shall have full and complete authority and control with respect to
Plan operations and administration unless the Administrator allocates and
delegates such authority or control pursuant to the procedures stated in
subsection (b) or (c) below. Any decisions of the Administrator or its delegate
shall be final and binding upon all persons dealing with the Plan or claiming
any benefit under the Plan. The Administrator shall have all powers which are
necessary to manage and control Plan operations and administration including,
but not limited to, the following:
(a) To employ such accountants, counsel or other persons as it deems
necessary or desirable in connection with Plan administration. The Trust Fund
shall bear the costs of such services and other administrative expenses, unless
paid by the Company or Employer.
(b) To designate in writing persons other than the Administrator to
perform any of its powers and duties hereunder including, but not
8-1
<PAGE>
limited to, Plan fiduciary responsibilities (other than any responsibility to
manage or control the Plan assets).
(c) To allocate in writing any of its powers and duties hereunder,
including but not limited to fiduciary responsibilities (other than any
responsibility to manage or control the plan assets) to those persons who have
been designated to perform Plan fiduciary responsibilities.
(d) To construe and interpret the Plan in a discretionary manner,
including the power to construe disputed provisions.
(e) Subject to Article 10, to resolve all questions arising in the
administration, interpretation and application of the Plan, including, but not
limited to, questions as to the eligibility or the right of any person to a
benefit.
(f) To adopt such by-laws, rules, regulations, forms and procedures
from time to time as it deems advisable and appropriate in the proper
administration of the Plan.
(g) To receive from the Company or from Participants such information
as shall be necessary for the proper administration of the Plan.
(h) To furnish, upon request, such annual reports with respect to the
administration of the Plan as are reasonable and appropriate.
(i) To receive from the Trustee and review reports of the financial
condition and receipts and disbursements of the Trust Fund.
(j) To prescribe procedures to be followed by any person in applying
for distributions pursuant to the Plan and to designate the forms or documents,
evidence and such other information as the Administrator may reasonably deem
necessary, desirable or convenient to support an application for such
distribution.
(k) To issue directions to the Trustee, and thereby bind the Trustee,
concerning all benefits to be paid pursuant to the Plan.
(l) To apply consistently and uniformly the Committee rules,
regulations and determinations to all Participants and beneficiaries in similar
circumstances.
8.3 Records and Notices. The Administrator shall keep a record of
-------------------
all its proceedings and acts and shall maintain all such books of accounts,
records and other data as may be necessary for proper plan administration. The
Administrator shall notify the Trustee of any action taken by the Administrator
8-2
<PAGE>
which affects the Trustee's Plan obligations or rights and, when required, shall
notify any other interested parties.
8.4 Compensation and Expenses. The expenses incurred by the
-------------------------
Administrator in the proper administration of the Plan shall be paid from the
Trust Fund. The Employer may elect to pay such expenses directly. An
Administrator who is an employee of the Employer shall not receive any fee or
compensation for services rendered.
8.5 Limitation of Authority. The Administrator shall not add to,
-----------------------
subtract from or modify any of the terms of the Plan, change or add to any
benefits prescribed by the Plan, or waive or fail to apply any Plan requirement
for benefit eligibility.
8.6 Voting of Employer Stock Shares. The Administrator shall furnish
-------------------------------
to each Participant who has Employer Stock allocated to his Account, notice of
the date and purpose of each meeting of the stockholders of the Employer at
which Employer Stock are entitled to be voted. The Administrator shall request
from each such Participant instructions as to the voting at that meeting of
Employer Stock allocated to his Account. If the Participant furnishes such
instructions within the time specified in the notification given to him, the
Trustee shall vote such Employer Stock in accordance with the Participant's
instructions, provided such Participant has not been improperly influenced so as
to affect his instructions. All Employer Stock allocated to Accounts as to
which the Trustee does not receive voting instructions as specified above and
all unallocated Employer Stock shares held by the Trustee shall be voted by the
Trustee in its discretion and in accordance with its fiduciary duties under
ERISA; however, the Trustee, in the exercise of its fiduciary duties under
ERISA, may determine that it should vote the Employer Stock in some other
manner.
Similarly, the Administrator shall furnish to each Participant who has
Employer Stock allocated to his Account notice of any tender offer for, or a
request or invitation for tenders of, Employer Stock made to the Trustee. The
Administrator shall request from each such Participant instructions as to the
tendering of Employer Stock allocated to his Account, and for this purpose, the
Participants shall be provided with a reasonable period of time in which they
may consider any such tender offer for, or request or invitation for tenders of,
Employer Stock. The Trustee shall tender the Employer Stock as to which the
Trustee has received instructions to tender from Participants within the time
specified, provided such Participants have not been improperly influenced so as
to affect their instructions. As to all Employer Stock allocated to Accounts as
to which the Trustee has not received instructions from Participants and as to
all unallocated Employer shares held by the Trustee, the Trustee may tender the
same
8-3
<PAGE>
proportion thereof as the Employer Stock as to which the Trustee has received
instructions from Participants to tender bear to all Employer Stock with respect
to which the Trustee has received instructions from Participants to tender and
not to tender, however the Trustee in the exercise of its fiduciary duties under
ERISA, may determine it must act otherwise.
The Administrator shall, along with each notice of the date and
purpose of each meeting and each notice of any tender offer for, or a request or
invitation for tenders of, Employer Stock made to the Trustee, cause to be
furnished to each Participant a copy of the proxy solicitation material, copies
of all materials distributed to stockholders of the Employer in connection with
any tender or exchange offer, and any other information which would reasonably
be necessary to enable each Participant to make an informed voting or tender
decision.
8-4
<PAGE>
ARTICLE 9
Administration of the Trust
9.1 Appointment of Trustee. The Company shall appoint one or more
----------------------
Trustees to receive and hold in trust all contributions, and Income, paid into
the Trust Fund. The Company may remove the Trustee or the Trustee may resign
and a successor trustee shall be appointed all pursuant to the requirements and
procedure recited in the Trust Agreement.
9.2 Authorization for Trust Agreement. The Company shall enter into
---------------------------------
an agreement with the Trustee to provide for the administration of the Trust
Fund. In accordance with the provisions of the agreement, the Company shall
have the right at any time, and from time to time, to amend the agreement.
9.3 Participant Direction of Investment of Account.
----------------------------------------------
(a) Investment of Funds.
-------------------
(1) Mutual Funds. The Company, upon written request of a Participant
------------
and in accordance with its uniform and nondiscriminatory rules, may authorize
Participants to direct the investment of all or part of their Account in such
funds as the Company may select. The Participants' directions shall bind the
Trustee unless and until the Company amends or revokes the authorization for
investment direction by Participants.
(2) Employer Stock. The Company, upon written request of a
--------------
Participant and in accordance with its uniform and nondiscriminatory rules, may
authorize Participants to direct the investment of all or part of their Account
in Employer Stock. The Participant's directions shall bind the Trustee unless
and until the Company amends or revokes the authorization for investment
direction by Participants. Subject to Participant direction, the Trustee may
invest up to 100% of the assets of the Plan in "qualifying employer securities"
and/or "qualifying employer real property" as those terms are defined in ERISA.
If the Trustee acts at the direction of a Participant, the Employer,
its board of directors, officers and employees, the Administrator and the
Trustee shall not be liable or responsible for any loss resulting to the Trust
Fund or to any Account or for any breach of fiduciary responsibility by reason
of any act done pursuant to the direction of the Participant.
9-1
<PAGE>
(b) Investment Elections.
--------------------
(1) Participants may choose to invest their Account among the
available investment vehicles in any whole percentage. Elections shall be made
in a manner prescribed by the Administrator and verified in writing or as
otherwise approved by the Administrator. Once filed, a Participant's verified
election will remain in effect until amended or discontinued pursuant to this
paragraph. If a Participant fails to direct the investment of all or any
portion of his Account, such amount shall be invested in the fund(s) uniformly
designated by the Administrator on behalf of the Participant.
(2) A Participant may change his investment election as to further
contributions and Income therein pursuant to rules prescribed by the
Administrator. A Participant may change his investment election as to his
existing Account pursuant to rules prescribed by the Administrator.
9.4 Funding Policy. The funding policy for the Plan hereby requires
--------------
the Trustee to invest and reinvest the Trust Fund for the exclusive benefit of
Plan Participants and their beneficiaries in any combination of corporate
stocks, including stock of the Company (if otherwise allowed), bonds,
instruments of indebtedness, insurance contracts (if otherwise allowed),
government securities, loans to Participants (if otherwise allowed), bank
deposits and the Trustee's common trust funds or pooled investment funds, if
any, as the Trustee deems appropriate for the Plan and consistent with
applicable law.
9-2
<PAGE>
ARTICLE 10
Claims Procedure
10.1 Application for Benefits. Any person entitled to benefits must
------------------------
file a written claim with the Administrator on forms provided by the
Administrator. Such application shall include all information and evidence the
Administrator deems necessary to properly evaluate the merit of and to make any
necessary determinations on a claim for benefits. Unless special circumstances
exist, a Participant shall be informed of the decision on his claim within 90
days of the date all the information and evidence necessary to process the claim
is received. Within such 90-day period, he shall receive a notice of the
decision or a notice that explains the special circumstances requiring a delay
in the decision and sets a date, no later than 180 days after all the
information and evidence necessary to process his claim have been received, by
which he can expect to receive a decision.
The claimant may assume that the claim has been denied and may proceed
to appeal the denial if the claimant does not receive any notice from the
Administrator within the 90-day period, or a notice of a delayed decision within
such 90 day period.
10.2 Notice of Denied Claim for Benefits. If a claim for benefits is
-----------------------------------
partially or wholly denied, the claimant will receive a notice that: states the
specific reason or reasons for denial; refers to provisions of the Plan
documents on which the denial is based; describes and explains the need for any
additional material or information that the claimant must supply in order to
make his claim valid; and explains the steps that must be taken to submit his
claim for review.
10.3 Review of Denied Claim. A claimant may file a written appeal of
----------------------
a denied claim with the Administrator within 60 days after receiving notice that
his claim has been denied, including any comments, statements or documents he
may wish to provide. The claimant may review all pertinent Plan documents upon
reasonable request to the Administrator. Within 60 days after the submission of
the written appeal, the Administrator shall render a determination on the appeal
of the claim in a written statement. The written decision shall contain the
reason or reasons for the decision and refer to specific Plan provisions on
which the decision is based. If special circumstances require a delay in the
decision, the Administrator shall notify the claimant of the reasons for the
delay within the 60-day period. A delayed decision shall be issued no later
than 120 days after the date the Administrator receives a request for review.
The determination rendered by the Administrator shall be binding upon all
parties.
10-1
<PAGE>
ARTICLE 11
Amendment and Termination
11.1 Amendment or Restatement. The Company may amend or restate the
------------------------
Plan at any time and from time to time. No amendment or restatement shall
authorize any part of the Trust Fund, other than amounts which are necessary 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 or restatement shall be construed to: (a) Reduce a
Participant's Account balance determined as of the date immediately preceding
the effective date of the amendment or restatement; (b) Reduce or eliminate any
benefit protected by Code section 411(d)(6); or (c) Cause or permit any portion
of the Trust Fund to revert to, or become property of, the Company. No
amendment which affects the rights, duties or responsibilities of the Trustee
shall be effective without the Trustee's written consent. The provisions of the
Plan as in effect at the time of a Participant's termination of Employment shall
control as to that Participant, unless otherwise specified in the Plan. If the
Company amends the Plan to no longer reflect the provisions of the volume
submitter master document, the Plan may be considered an individually designed
plan.
11.2 Termination and Discontinuance of Contributions. The Company
-----------------------------------------------
reserves the right to terminate the Plan at any time with respect to any or all
Participants. Any participating Employer shall be permitted to discontinue or
revoke its participation in the Plan. Upon discontinuance of Plan contributions
or full or partial termination of the Plan, the Account of each affected
Participant shall become fully vested and nonforfeitable. The Company shall
provide the Trustee with written notification of the full or partial termination
of the Plan. In the event of full or partial termination, the Employer's
liability to pay plan benefits shall be strictly limited to assets of the Trust
Fund. No one shall have any claim against the Company to provide any or all of
the plan benefits regardless of the sufficiency of the Trust Fund, except as
otherwise required by law. The termination of the Plan shall not result in the
reduction of any benefit protected by Code section 411(d)(6), except to the
extent permitted by applicable Treasury regulations.
11.3 Distribution Upon Termination. If the Plan terminates pursuant
-----------------------------
to section 11.2, and the Company does not merge the assets of the Plan with
another qualified plan or continue the Plan as a "wasting trust" by satisfying
all ongoing plan qualification rules, the Company shall distribute each
Participant's Account in a lump sum; provided, however, if the Employer (or any
member of a controlled group within the meaning of Code sections 414(b), (c),
(m) and (o)
11-1
<PAGE>
which the Employer is a member) establishes or maintains at any time within the
24-month period beginning 12 months before the time of termination another
defined contribution plan, other than an employee stock ownership plan or
simplified employee pension (as defined in Code section 408(k)) which covers 2%
or more of the employees covered under the Plan at the time of termination, each
Participant's Account shall be transferred to such other defined contribution
plan. Participant consent to such a transfer shall be required only if transfer
of the Participant's Account results in an elimination or reduction of Code
section 411(d)(6) protected benefits. Participant consent shall not be required
if Participants' Accounts are to be paid in a lump sum. If the Company freezes
the Plan as a result of a sale of all of the Company's assets or terminates the
Plan pursuant to section 11.2 above, no distributions shall be made to
Participants who continue employment with the successor employer that purchased
the assets until the Plan receives a favorable determination letter from the
Internal Revenue Service with respect to the termination.
11.4 Merger, Consolidation or Transfer of Assets and Liabilities.
-----------------------------------------------------------
Upon any merger or consolidation with, or a transfer of assets or liabilities to
another plan, each Participant is entitled to receive a benefit immediately
after such event which is equal to or greater than the benefit he would have
been entitled to receive if the Plan had terminated immediately prior to such
event. Any such transfer, merger or consolidation must not otherwise result in
the elimination of any benefit protected by Code section 411(d)(6).
11.5 Distribution Upon Disposition of Assets of Subsidiary.
-----------------------------------------------------
Notwithstanding the distribution rules of Article 7, a Participant's Account may
be distributed in a lump sum in the event of the disposition of at least 85% of
the assets of the Employer (within the meaning of Code section 409(d)(2)), or,
if the Employer is a subsidiary of the Company, the disposition by the Company
of its interests in the Employer (within the meaning of Code section 409(d)(3))
to an unrelated entity provided (a) the Company or Employer continues to
maintain the Plan, and (b) the Participant continues employment with the
corporation acquiring such assets or such subsidiary.
11.6 Successor Employer. Any successor to the business of the
------------------
Employer may, with the written consent of the Company, continue the Plan and
Trust. Such successor shall succeed to all the rights, powers and duties of the
Employer. The Employment of any employee of the Employer who continues in the
employ of the successor shall not be deemed to have been terminated or severed
for any purpose of the Plan.
11-2
<PAGE>
ARTICLE 12
General Provisions
12.1 Limitation on Liability. In no event shall the Company,
-----------------------
Employer, Administrator or any employee, officer or director of the Company or
Employer incur any liability for any act or failure to act unless such act or
failure to act constitutes a lack of good faith, willful misconduct or gross
negligence with respect to the Plan or Trust Fund.
12.2 Indemnification. The Trust Fund shall indemnify the
---------------
Administrator and any employee, officer or director of the Employer against all
liabilities arising by reason of any act or failure to act unless such act or
failure to act is due to such person's own gross negligence or willful
misconduct or lack of good faith in the performance of his duties to the Plan or
Trust Fund. Such indemnification shall include, but not be limited to, expenses
reasonably incurred in the defense of any claim, including attorney and legal
fees, and amounts paid in any settlement or compromise; provided, however, that
indemnification shall not occur to the extent that it is not permitted by
applicable law. If Trust Fund assets are insufficient or indemnification is not
permitted by applicable law, the Employer shall indemnify such person.
Indemnification shall not be deemed the exclusive remedy of any person entitled
to indemnification pursuant to this section. The indemnification provided
hereunder shall continue as to a person who has ceased acting as a director,
officer, member, agent or employee of the Administrator or as an officer,
director or employee of the Employer, and such person's rights shall inure to
the benefit of his heirs and representatives.
12.3 Compliance with Employee Retirement Income Security Act of 1974.
---------------------------------------------------------------
Notwithstanding any other provisions of this Plan, a fiduciary or other person
shall not be relieved of any responsibility or liability for any responsibility,
obligation or duty imposed upon such person pursuant to the Employee Retirement
Income Security Act of 1974, as amended from time to time.
12.4 Nonalienation of Benefits. Except with respect to any
-------------------------
indebtedness owing to the Trust Fund, payments required pursuant to a qualified
domestic relations order as defined by the Code, or as otherwise permitted by
law, benefits payable by the Plan shall not be subject to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, charge,
garnishment, execution or levy, either voluntary or involuntary. Any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or
otherwise dispose of any right to Plan benefits shall be void.
12-1
<PAGE>
12.5 Employment Not Guaranteed by Plan. The establishment of this
---------------------------------
Plan, its amendments and the granting of a benefit pursuant to the Plan shall
not give any Participant the right to continued Employment with the Employer, or
limit the right of the Employer to dismiss or impose penalties upon the
Participant or modify the terms of Employment of any Participant.
12.6 Form of Communication. Any election, application, claim, notice
---------------------
or other communication required or permitted to be made by or to a Participant,
the Administrator or Company shall be made in such form as the Administrator or
Company shall prescribe. A communication shall be effective upon mailing if
sent first class, postage prepaid and addressed to the Administrator or Company
at the principal office of the Administrator or Company or to the Participant at
his last known address.
12.7 Facility of Payment. If a Participant's duly qualified guardian
-------------------
or legal representative makes claim for any amount owing to the Participant, the
Trustee shall pay the amount to which the Participant is entitled to such
guardian or legal representative. In the event a distribution is to be made to
a minor, the Administrator may direct that such distribution be paid to the
legal guardian, or if none, to a parent of such minor or an adult with whom the
beneficiary maintains his residence, or to the custodian for such beneficiary
under the Uniform Gift to Minors Act if permitted by the laws of the state in
which the beneficiary resides. Any payment made pursuant to this section in
good faith shall be a payment for the Account of the Participant and shall be a
complete discharge from any liability of the Fund or the Trustee.
12.8 Location of Participant or Beneficiary Unknown. If the
----------------------------------------------
Administrator is unable to pay benefits from the Plan to any Participant or
beneficiary due to the Administrator's inability to locate such Participant or
beneficiary, after forwarding a registered letter, return receipt requested, to
the last known address of such Participant or beneficiary and after further
diligent effort, the amount to be distributed shall be treated as a Forfeiture.
If the Participant or beneficiary is located subsequent to the allocation of the
Forfeiture, the forfeited amount should be restored, first from Forfeitures, if
any, then Income and, last, as an additional Employer contribution. In the
event a Participant or beneficiary cannot be located upon termination of the
Plan, any amount payable to such Participant or beneficiary shall be transferred
at the earliest possible date to the state of the Participant's or beneficiary's
last known address pursuant to the terms of that State's abandoned property law.
Upon such transfer, the Employer, Administrator and Trustee shall have no
further liability for the amount so transferred.
12-2
<PAGE>
12.9 Service in More Than One Fiduciary Capacity. Any individual,
-------------------------------------------
entity or group of persons may serve in more than one fiduciary capacity with
respect to the Plan and Trust Fund.
12.10 Offset. In the event any payment is made by the Trustee to any
------
individual who is not entitled to such payment, the Trustee shall have the right
to reduce future payments due to such individual by the amount of any such
erroneous payment. This right of offset, however, shall not limit the rights of
the Trustee to recover such overpayments in any other manner.
<PAGE>
Summary Plan Description
Flagstar Bank 401(k) Plan
<PAGE>
Flagstar Bank 401(k) Plan
<TABLE>
<CAPTION>
<S> <C>
I. Basic Plan Information...................... 2
A. Account............................... 2
B. Employer.............................. 2
C. Participant........................... 2
D. Plan Administrator.................... 2
E. Plan Number........................... 2
F. Plan Qualification.................... 2
G. Plan Year............................. 2
H. Service of Process.................... 2
I. Trust Fund............................ 3
J. Trustee............................... 3
II. Participation.............................. 4
A. Eligibility Requirements.............. 4
B. Service............................... 4
III. Contributions............................. 5
A. Employee Pretax Contributions......... 5
B. Employer Matching Contributions....... 5
C. Limit on Contributions................ 5
D. Rollover Contributions................ 6
IV. Investments................................ 7
A. Investments........................... 7
B. Statement of Account.................. 8
V. Vesting..................................... 9
A. Forfeiture and Re-employment.......... 9
VI. Hardship Withdrawals....................... 11
VII. In-Service Withdrawals.................... 12
A. Withdrawals After Age 59 1/2.......... 12
VIII. Total Distribution of Benefits........... 13
A. Benefit on Termination of Employment.. 13
B. Death Benefit......................... 13
C. Disability Retirement Benefit......... 13
D. Retirement Benefit.................... 13
E. Payment and Form of Benefits.......... 13
IX. Miscellaneous Information.................. 16
A. Benefits Not Insured by PBGC.......... 16
B. Nontransferable Account............... 16
C. Plan Amendment........................ 16
D. Plan Termination...................... 16
E. Interpretation of Plan................ 16
</TABLE>
<PAGE>
<TABLE>
<S> <C>
X. Internal Revenue Service Tests.............. 17
A. Non-Discrimination Tests.............. 17
B. Top Heavy Test........................ 17
XI. Participant Rights......................... 18
A. Claims................................ 18
B. Statement of ERISA Rights............. 18
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Summary Plan Description
Flagstar Bank 401(k) Plan
- --------------------------------------------------------------------------------
The Flagstar Bank 401(k) Plan (the 'Plan') of Flagstar Bank (the 'Employer')
has been amended as of January 1, 1997 (the 'Effective Date'). This Plan is
intended to be a qualified retirement plan under the Internal Revenue Code.
The purpose of the Plan is to enable eligible Employees to save for retirement.
It may also provide certain benefits in the event of death, disability, or other
termination of employment. The Plan is for the exclusive benefit of eligible
Employees and their beneficiaries.
This booklet is called a Summary Plan Description (SPD) and it contains a
summary in understandable language of your rights and benefits under the Plan.
If you have difficulty understanding any part of this SPD, you should contact
the Plan Administrator identified on page two during normal business hours for
assistance.
This SPD is a brief description of the Plan and Trust Agreement (Plan Document).
It is not meant to interpret, extend or change the Plan Document in any way. A
copy of the Plan Document is on file with the Plan Administrator and may be read
by any Employee at any reasonable time. The Plan Document shall govern in the
event of any discrepancy between this SPD and the actual provisions of the Plan.
<PAGE>
- --------------------------------------------------------------------------------
I. Basic Plan Information
- --------------------------------------------------------------------------------
A. Account
This is an Account established by the Trustee for the purpose of recording
contributions made on your behalf and any income, expenses, gains or losses
thereon. It may also be referred to as 'Account' balance.
B. Employer
The name, address and business telephone number of the Employer is:
Flagstar Bank
2600 Telegraph Rd.
Bloomfield Hills, MI 48302-0953
(810) 338-7700
The Employer's Identification Number is 38-2734984.
C. Participant
A participant is an eligible Employee who has satisfied the eligibility and
entry date requirements and is eligible to participate in the Plan.
D. Plan Administrator
The Plan Administrator is responsible for the administration of the Plan. The
Plan Administrator's duties are specifically identified in the Plan Document.
The name, address and business telephone number of the Plan Administrator is:
Flagstar Bank
2600 Telegraph Rd.
Bloomfield Hills, MI 48302-0953
(810) 338-7700
E. Plan Number
The Plan number is 001.
F. Plan Qualification
The Employer intends to request an individual Determination Letter from the
Internal Revenue Service or the qualification of the Plan.
G. Plan Year
The Plan Year is the twelve-month period ending on the last day of December.
H. Service of Process
The Plan's agent for service of legal process is the Plan Administrator.
<PAGE>
I. Trust Fund
The Plan is administered under a trust fund arrangement. There is a written
Plan and Trust Agreement entered into between the Trustee and the Employer.
J. Trustee
The Flagstar Bank 401(k) Trust has been established to receive the Employer's
contributions to the Plan. The Trustee will hold the assets of the Plan in
trust for the exclusive benefit of the participants. The trustee is Charles
Bazzy. You may contact the Trustee at the Employer's address and phone number.
<PAGE>
- --------------------------------------------------------------------------------
II. Participation
- --------------------------------------------------------------------------------
A. Eligibility Requirements
You are eligible to participate in the Plan if you are an Employee of the
Employer and meet the requirements identified in this paragraph. The Plan
requires you to complete one year of service with the Employer and attain the
age of 21. Upon satisfying these requirements you will become eligible to
participate in the Plan on the following January 1 or July 1.
B. Service
You will be credited with a year of service for eligibility purposes for each
twelve-month period during which you have completed 1,000 hours. Your date of
hire and each anniversary of your date of hire will be the starting point for
measuring the number of hours you worked during each twelve-month period.
<PAGE>
- --------------------------------------------------------------------------------
III. Contributions
- --------------------------------------------------------------------------------
For purposes of computing contributions under the Plan, as listed below, your
Employer must first define 'compensation'. Eligible compensation generally
means the taxable compensation for a Plan Year reportable by your Employer on
your IRS Form W-2 for a Plan Year. Your compensation will also include any
Employee pretax contributions you made under the Plan and any salary reductions
you made under your Employer's cafeteria plan, 401(k) plan or other similar
plan, if any. Compensation does not include any taxable fringe benefits or
taxable Employee moving and other expense reimbursements reportable on your
annual IRS Form W-2. Compensation for your first year of eligible Plan
participation will be measured only for that portion of your initial Plan Year
that you are eligible. Tax laws limit the amount of compensation that may be
taken into account each Plan Year and the maximum amount for the 1997 Plan Year
is $160,000 (this amount is subject to adjustment each year).
A. Employee Pretax Contributions
You may elect to contribute a percentage of your eligible compensation into the
Plan after you satisfy the Plan's eligibility requirements. The percentage of
your compensation you elect will be withheld from each payroll by the percentage
you have elected on a pretax basis and contributed to the Plan on your behalf.
You may defer, in whole percentages, up to an annual maximum of the lesser of 6%
of eligible compensation or $9,500 in a calendar year (in 1997 and thereafter as
adjusted by the Secretary of the Treasury). Your Employee pretax contributions
belong to you and cannot be forfeited for any reason. However, there are
special Internal Revenue Code rules which must be satisfied and may require that
the amount of your contributions be reduced. If a reduction in your
contribution is necessary, you will be notified by the Plan Administrator. You
may increase or decrease the amount you contribute as of each January 1 or July
1. You may completely suspend your contributions with sufficient notice to the
Plan Administrator. Thereafter, if you want to resume your Employee pretax
contributions as of each January 1 or July 1, you must complete a new election
form.
B. Employer Matching Contributions
The Employer will make matching contributions in an amount equal to 100% of your
Employee pretax contributions. In applying this matching percentage, however,
only salary contributions up to 3% of your compensation on a per pay basis will
be considered. You become eligible for the matching contribution only if you
make a pretax Employee contribution.
C. Limit on Contributions
Federal law requires that amounts contributed by you and on your behalf by your
---
Employer for a given limitation year generally may not exceed the lesser of:
. $30,000 (or such amount as may be prescribed by the Secretary of the
Treasury); or
. 25% of your annual compensation excluding any salary reductions to an
employer sponsored cafeteria plan a 401(k) plan, a simplified employee
pension or a tax-deferred annuity.
Contributions under this Plan may not exceed the above limits. If this does
occur then excess contributions in your Account may be forfeited or refunded to
you. Income tax consequences may apply to you on any refund. You will be
notified by the Plan Administrator if you will be subject to reduced
contributions on your behalf.
The limitation year for purposes of applying the above limits is the twelve-
month period ending December 31. Rollover contributions are not included in the
limits on Employee and Employer contributions.
<PAGE>
D. Rollover Contributions
You can rollover part or all of an 'eligible rollover distribution' you received
from a prior employer's qualified plan, if allowed by the Plan Administrator.
(The Plan Administrator reserves the right to refuse to accept any rollover
contribution.) Alternatively, you may rollover a distribution you received from
a rollover Individual Retirement Account (IRA) which consisted solely of an
eligible rollover distribution and earnings thereon. If the rollover to the
Plan is not a direct rollover (i.e. you received a cash distribution from your
prior employer's plan or from your rollover IRA), then it must be received by
the Trustee within 60 days of your receipt of the distribution.
You may make a rollover contribution to the Plan before becoming a Participant.
However, you will not become a Participant entitled to make Employee pretax
contributions until you have met the Plan's eligibility and entry date
requirements. Your rollover contribution Account will be subject to the terms
of this Plan and will always be fully vested and nonforfeitable.
<PAGE>
- --------------------------------------------------------------------------------
IV. Investments
- --------------------------------------------------------------------------------
A. Investments
The Employee Retirement Income Security Act of 1974 (ERISA) imposes certain
duties on the parties who are responsible for the operation of the plan. These
parties, called fiduciaries, have a duty to invest plan assets in a prudent
manner. However, an exception exists for plans which comply with ERISA Section
404(c) and permit a participant to exercise control over the assets in his/her
Account and choose from a broad range of investment alternatives. This Plan is
intended to be a Section 404(c) plan. This means that you and not the Plan
fiduciaries are responsible for the investment decisions relating to the assets
in your individual Account under the Plan.
You will have the opportunity to direct the investments of your Account among
the following Fidelity Investments Funds (the Fidelity Fund Number assigned to
each fund is identified in parentheses):
1. Fidelity Retirement Government Money Market Portfolio (0631)
Objective: Seeks a high current income, preservation of capital, and
liquidity from money market instruments issued by the US.
Government or its agencies.
2. Fidelity Ginnie Mae Portfolio (0015)
Objective: Seeks a high current income by investing primarily in mortgage-
related securities issued by the Government National Mortgage
Association and other obligations guaranteed as to principal
and interest by the U.S. Government.
3. Fidelity Equity Income Fund (0023)
Objective: Seeks income from a portfolio of equity securities that
exceeds the composite yield as represented by the Standard and
Poor's 500 Index. Capital appreciation is also a consideration.
4. Fidelity Growth & Income Portfolio (0027)
Objective: Seeks long-term capital growth, current income and growth of
income, consistent with reasonable investment risk.
5. Fidelity Contrafund (0022)
Objective: Seeks high capital appreciation.
6. Fidelity Magellan Fund (0021)
Objective: Seeks growth of capital through investments in common stocks
or securities convertible into common stocks.
7. Fidelity Diversified International Fund (0325)
Objective: Seeks capital growth by investing mainly in countries which
are included in the Morgan Stanley EAFE Index; focuses on
companies with market capitalizations of $100,000,000 or more;
seeks a rate of return which exceeds that of the GDP-Weighted
EAFE Index.
<PAGE>
8. Company Stock Fund
Objective: Seeks income and growth returns resulting from investing
primarily in the common stock of Flagstar Bancorp, Inc.
You may obtain a prospectus or financial report for each of the above funds by
calling the Plan Administrator. The Company Stock Fund is subject to a special
rule for dispositions (see below); all investments in other Funds may be
exchanged only as of the end of each calendar quarter, effective on January 1,
April 1, July 1 and October 1 of each year. Requests for exchanges may be made
on any business day by calling Benefit Consultants, Inc. A toll-free number
will be provided to you in a separate communication for your use in making
requests. Requests made before 5:00 p.m. Eastern time on the 25th date of the
last month of the quarter (March 25, June 25, September 25 or December 25), or
the next business day if the 25th of the month is a holiday or a Saturday or
Sunday, will be effective as of the first day of the next month. You may
request exchanges more than once in a quarter, but only the last one made prior
to the 5:00 p.m. deadline on the 25th day of the last day of the quarter will be
acted upon.
Special rule for the Company Stock Fund: Any Company Stock purchased upon its
initial public offering may be sold by directions given by you on any business
day. Such requests will be acted upon at the earliest practicable time, usually
the next business day. The proceeds from the sale will be held in a money
market account until the end of the month and then invested in accordance with
your current instructions for pre-tax employee contributions to your Account.
Future additions to the Company Stock Fund are not permitted.
B. Statement of Account
Your Account will be updated each calendar quarter to reflect any investment
earnings or losses and activity on each fund. A quarterly statement disclosing
the value of your Account will be mailed to you after each of the following
dates: March 31, June 30, September 30 and December 31.
<PAGE>
- --------------------------------------------------------------------------------
V. Vesting
- --------------------------------------------------------------------------------
The term 'vesting' refers to your nonforfeitable right to the money in your
Account. You receive vesting credit for the number of year(s) that you have
worked for the Employer and any other legally related Employer. Years of
service that you worked prior to January 1, 1990, the effective date of the
Plan, will not be considered when determing your vesting credit. If you
terminate your employment with the Employer, then you may be able to receive a
portion or all of your Account based on your vested percentage. You are always
100% vested in your own Employee pretax Account, rollover Account and earnings
thereon.
Employer matching contributions and earnings will be vested in accordance with
the following schedule:
<TABLE>
<CAPTION>
Years of Service for Vesting Percentage
<S> <C>
less than 3 0
3 20
4 40
5 60
6 80
7 100
</TABLE>
The Plan has changed the methodology used to determine your years of service.
Previously you received vesting credit for a year of service under the 'general
method' if you worked more than 1,000 hours in a Plan Year. Vesting under the
Plan is now based upon the 'elapsed time' method. Hours under this method are
not counted but rather 'periods of service' are computed. A period of service
is determined by the time you work for your Employer. Only your whole years of
service with the Employer will be counted to compute your years of service for
vesting purposes. For example, if you work three years and ten months then for
vesting purposes you will receive credit for three years of service.
If you were a participant in the plan before July 1, 1996, then you will receive
vesting credit for your years of service with the Employer based upon the
following:
<TABLE>
<CAPTION>
Applicable Years Method Measurement Period
- -----------------------------------------------------------------------
<S> <C> <C> <C>
1. Year(s) before 1996 General Jan. 1 to Dec. 31
- -----------------------------------------------------------------------
2. 1996 General or Elapsed Time* Jan. 1 to Dec. 31
- -----------------------------------------------------------------------
3. Year(s) after 1996 Elapsed Time Jan. 1 to Dec. 31
- -----------------------------------------------------------------------
</TABLE>
* You will receive credit for this year based upon whichever method is more
favorable to you.
If you became a participant on or after July 1, 1996, then you will receive
vesting credit for your years of service with the Employer based only on the
'elapsed time' method. In this case, your measurement period for determining
your years of service will generally be based upon your date of employment with
the Employer.
A. Forfeiture and Re-employment
If you terminate your employment with your Employer and are less than 100%
vested in your Employer Account then you may forfeit the non-vested portion of
your Employer Account. A forfeiture will occur in the Plan Year that you
receive a distribution of your entire vested Account or if you do not receive a
distribution after five consecutive one year breaks in service. Forfeitures are
retained in the Plan and used to reduce future Employer contributions.
<PAGE>
Example: (This example is for illustration purposes only.) You terminate your
- -------
employment in 1996 with the following Account:
<TABLE>
<CAPTION>
Source Amount Vested Percentage Vested Amount
- ------------ ------ ------------------ -------------
<S> <C> <C> <C>
Employee $2,000 100% + $2,000
Employer $1,000 80.0% $ 800
------ ------
Total $3,000 $2,800
</TABLE>
You received a $2,800 distribution in 1996 from the Plan. This represented a
complete distribution of your Account. A $200 ($3,000 - $2,800) forfeiture
will occur in 1996.
+You are always 100% vested in your own employee pretax contributions and
earnings in the Plan.
A one-year break in service occurs when you work less than one hour in a twelve
consecutive month period. A break in service starts with the date you stop
working for your Employer. If you are absent from work due to maternity or
paternity reasons, then the break period will not start until after the first
anniversary year of your absence.
If you were a participant when you terminated your employment and are re-
employed by your Employer, then you will again become a participant on the date
you complete one hour of service. Your period of employment before you were
rehired is referred to as your pre-break service. Your period of employment
after you were rehired is referred to as your post-break service. If you are
re-employed after incurring five consecutive one-year breaks in service then
your post-break service will not count in determining your vesting percentage in
your pre-break Account balance. Your post-break service will count in
determining your vesting percentage in your pre-break Account balance and any
---
forfeited amounts will be restored to your Account if:
(1) You are re-employed by the Employer before you incur five consecutive
one-year breaks in service, and
(2) If you received distribution of your vested Account, you repay the full
amount of the distribution before the end of the five-year period that
begins on the date you are re-employed
Example: Assume you terminate employment with your Employer in 1996
-------
with an Account balance of $10,000, of which $6,000 is vested. You
elect to receive a lump sum distribution of your vested Account balance.
The remainder, or $4,000, is forfeited in 1996. If you are rehired on
January 1, 1998 and repay the $6,000 distribution prior to January 1,
2003, the $4,000 previously forfeited will be restored to your Account.
Additionally, your service after January 1, 1998 is counted towards
vesting your pre-break Account balance of $10,000.
You should check with the Plan Administrator for further details.
<PAGE>
- --------------------------------------------------------------------------------
VI. Hardship Withdrawals
- --------------------------------------------------------------------------------
If approved by the Plan Administrator, you may withdraw your Employee pretax
contributions, and rollover contributions if applicable, to satisfy any of the
following immediate and heavy financial needs: (1) unreimbursed medical
expenses for you, your spouse, children or dependents; (2) the purchase of your
principal residence; (3) to prevent your eviction from or foreclosure on your
principal residence; (4) to pay for post-secondary education expenses for you,
your spouse, children or dependents for the next twelve months; or (5) any other
purpose specified by the Internal Revenue Service as a deemed immediate and
heavy financial need.
In accordance with Internal Revenue Service regulations you must first exhaust
all other assets available to you prior to obtaining a hardship withdrawal.
This includes obtaining a loan from any other qualified plan maintained by your
Employer. Your Employee pretax contributions to this Plan and any other
Employer-sponsored qualified or non-qualified plan will be suspended for twelve
months after your receipt of the hardship withdrawal. The minimum hardship
withdrawal is $1,000.
The Plan Administrator will provide you with the appropriate form upon request.
Hardship withdrawals will be withdrawn from available investment options in the
order established by the Trustee. Consult your Plan Administrator for more
information.
You will be taxed on the amount of any hardship withdrawal under Internal
Revenue Code rules and a 10% IRS premature distribution penalty tax may also be
imposed on your withdrawal. Your hardship withdrawal will also be subject to
the mandatory 20% Federal income tax withholding. You should refer to the
'Total Distribution of Benefits' section of this SPD.
<PAGE>
- --------------------------------------------------------------------------------
VII. In-Service Withdrawals
- --------------------------------------------------------------------------------
A. Withdrawals After Age 59 1/2.
If you have reached age 59 1/2 then you may elect to withdraw all or a portion
of your Employee pretax contributions Account while you are still employed by
your Employer. The Plan Administrator will provide you with the appropriate
form upon request
<PAGE>
- --------------------------------------------------------------------------------
VIII. Total Distribution of Benefits
- --------------------------------------------------------------------------------
A. Benefit on Termination of Employment
If you terminate your employment with your Employer, then you may elect to
receive a distribution of your vested Account balance from the Plan. You should
contact the Plan Administrator to obtain the appropriate form to complete to
request a distribution.
B. Death Benefit
If you die while a Participant in the Plan or before any or all benefits are
paid to you, then your beneficiary or beneficiaries will be entitled to receive
your Account balance. You will automatically become 100% vested in your Account
balance upon your death. You may designate a beneficiary or beneficiaries on a
designation form. The completed beneficiary designation form must be filed with
the Plan Administrator. If you are married and want to designate someone other
than your spouse as your primary beneficiary, then your spouse must consent to
this designation by signing the form. His/her signature must be witnessed by a
Plan representative or a Notary Public. You should contact the Plan
Administrator to obtain a beneficiary designation form.
C. Disability Retirement Benefit
If you become totally and permanently disabled while you are employed by the
Employer, so that you are determined disabled in accordance with the terms of
the Plan, the full value of your Account balance may be distributed to you upon
request. You will automatically become 100% vested in your Account balance.
D. Retirement Benefit
You do not have to terminate your employment with your Employer just because you
reached the retirement age under the Plan. When you attain your early
retirement age of 55 and complete 10 years of service or you attain your normal
retirement age of 65 you will automatically become 100% vested in your Account
balance.
E. Payment and Form of Benefits
The Plan is designed to provide you with benefits at the time of your
retirement. However, if your employment with your Employer is terminated
because of death, disability, retirement, or for any other reason, then you may
request a distribution of your vested Account balance upon proper written
direction delivered to the Plan Administrator. You should contact the Plan
Administrator to obtain the appropriate form to request a distribution and a
copy of the 'Special Tax Notice Regarding Plan Payments'. Even if your
employment with the Employer has not terminated, the Plan Administrator will
direct the Trustee to begin distributions to you no later than April 1 of the
calendar year after you attain the age of 70 1/2.
The Plan Administrator will direct the Trustee to make a lump sum distribution
to you if you terminate your employment and your vested Account balance is less
than $3,500 regardless of whether you request the distribution. Your written
consent will be required for any distribution before age 65 if your vested
Account balance is greater than $3,500. Properly authorized distribution
requests will be processed by the Trustee on a quarterly basis. The following
forms of benefits are available under the Plan:
. Lump sum distributions
----------------------
Your entire vested Account balance will be paid to you within one
calendar year.
<PAGE>
. Installment distributions
-------------------------
Your vested Account balance will be paid to you in periodic payments if
your Account balance is greater than $3,500.
Lump sum distributions and in certain situations installment distributions will
be subject to the following rules:
(1). Cash Distribution
-----------------
Any taxable distribution paid by the Trustee directly to you will be
subject to mandatory Federal income tax withholding of 20% of the
requested distribution. You will receive 80% of the taxable distribution
and the other 20% will be sent to the IRS as Federal income tax
withholding for that year. You cannot elect out of this tax withholding.
This withholding is not a penalty but rather a prepayment of your Federal
income taxes.
You may rollover the taxable distribution you receive to an IRA or your
new employer's qualified Plan, if it accepts rollover contributions.
However, you must rollover this distribution within 60 days after
receipt. You will not be taxed on any amounts rolled over directly into
the IRA or your new employer's qualified Plan until those amounts are
later distributed to you.
(2). Direct Rollover Distribution
----------------------------
As an alternative to a cash distribution, you may request that your
entire distribution be rolled directly into an IRA or to your new
employer's qualified plan if it accepts rollover contributions. Federal
income taxes will not be withheld on any direct rollover distribution.
(a). Rollover to an IRA - You must complete a Payout form and indicate
------------------
the name and address of the custodian or trustee, and Account number
for your IRA. After authorizing your distribution, the Plan
Administrator will forward this material to the Trustee. A check
will be issued by the Trustee payable to the IRA custodian or
trustee for your benefit. The check will contain the notation
'Direct Rollover' and it will be mailed directly to you. You will
be responsible for forwarding it on to the custodian or trustee.
You must provide the Plan Administrator with complete information to
facilitate your direct rollover distribution.
(b). Rollover to your New Employer's Qualified Plan - You should check
----------------------------------------------
with your new employer to determine if its plan will accept rollover
contributions. If allowed, then you must complete a Payout form and
indicate the name, address and plan number of your new employer's
qualified plan. After authorizing your distribution, the Plan
Administrator will forward the form to the Trustee. A check will be
issued by the Trustee payable to the trustee of your new employer's
qualified plan. The check will contain the notation 'Direct
Rollover' and it will be mailed directly to you. You will be
responsible for forwarding it on to the new trustee. You must
provide the Plan Administrator with complete information to
facilitate your direct rollover distribution.
<PAGE>
(3). Combination Cash Distribution and Direct Rollover Distribution
--------------------------------------------------------------
You may request that part of your distribution be paid directly to you
and the balance to be rolled into an IRA or your new employer's qualified
Plan. Any cash distribution you receive will be subject to the Federal
income tax withholding rules referred to in (1). Any direct rollover
distribution will be made in accordance with (2).
You will pay income tax on the amount of any taxable distribution you
receive from the Plan unless it is rolled into an IRA or your new
employer's qualified Plan. A 10% IRS premature distribution penalty tax
may also apply to your taxable distribution unless it is rolled into an
IRA or another qualified plan. The 20% Federal income tax withheld under
this section may not cover your entire income tax liability. Consult
with your tax advisor for further details.
<PAGE>
- --------------------------------------------------------------------------------
IX. Miscellaneous Information
- --------------------------------------------------------------------------------
A. Benefits Not Insured by PBGC
Benefits provided by the Plan are not insured or guaranteed by the Pension
Benefit Guaranty Corporation (PBGC) under Title IV of the Employee Retirement
Income Security Act of 1974 (ERISA) because the insurance provisions under ERISA
are not applicable to this particular Plan. You will only be entitled to the
vested benefits in your Account based upon the provisions of the Plan.
B. Nontransferable Account
Your Account may not be transferred, assigned or used as collateral for a loan
except to the extent required by law. Creditors may not attach, garnish or
otherwise interfere with your Account balance except in the case of a Qualified
Domestic Relations Order (QDRO). A QDRO is a special order issued by the court
in a divorce, child support or similar proceeding. In this situation, your
spouse (or former spouse) or someone other than you or your beneficiary, may be
entitled to a portion or all of your Account balance.
C. Plan Amendment
Certain provisions of the Plan are subject to amendment by the Employer that may
directly or indirectly modify certain Plan rights and benefits. Any amendment
changing the vesting schedule cannot reduce the existing vested percentage of
your Account balance derived from Employer contributions. If you have three or
more years of service with the Employer and the vesting schedule is amended then
you will be given a choice to have the vested percentage of future Employer
contributions made to your Account computed under the new or the old vesting
schedule. The Plan Administrator will provide you with the appropriate
information to make an informed decision if the Plan's vesting schedule is
amended.
D. Plan Termination
The Employer has no legal or contractual obligation to make annual contributions
to or to continue the Plan. With the approval of the Board of Directors, the
Employer may at any time reduce or suspend its contributions, if applicable. In
the event the Plan should terminate, the Plan Administrator will facilitate the
distribution of Account balances under the provisions of the Plan and Trust
Agreement until all assets have been distributed by the Trustee. Each
participant in the Plan upon Plan termination will automatically become 100%
vested in your Account balance. While the Employer intends to continue the
Plan, it reserves the right to change or terminate the Plan at any time as
circumstances may dictate.
E. Interpretation of Plan
The Plan Administrator has the power and discretionary authority to construe the
terms of the Plan and to determine all questions that arise under it. Such
power and authority include, for example, the administrative discretion
necessary to resolve issues with respect to an Employee's eligibility for
benefits, credited services, disability, and retirement, or to interpret any
other term contained in Plan documents. The Plan Administrator's
interpretations and determinations are binding on all participants, employees,
former employees, and their beneficiaries.
<PAGE>
- --------------------------------------------------------------------------------
X. Internal Revenue Service Tests
- --------------------------------------------------------------------------------
A. Non-Discrimination Tests
Your Plan is intended to qualify under Sections 401(k) and 401(m), of the
Internal Revenue Code. The Internal Revenue Service requires the Plan to meet
special non-discrimination tests as of the last day of each Plan Year. These
tests are intended to ensure that there is a fair level of participation by all
eligible participants.
In order to meet the tests, the Employer encourages participation from all
eligible Employees. Depending upon the results of the tests, the Plan
Administrator may have to refund Employee pretax contributions contributed to
the Plan and vested matching contributions to certain highly compensated
employees, as determined under Internal Revenue Service regulations. Employee
pretax or Employer matching contributions will be refunded on a prorata basis
from each investment option. You will be notified by the Plan Administrator if
any of your contributions will be refunded to you.
B. Top Heavy Test
The Plan is subject to strict Internal Revenue Service rules. One of these
rules involves a 'Top-Heavy' test. Each Plan Year, the Plan Administrator tests
this Plan together with all other Employer-sponsored qualified plans to male
sure that no more than 60% of the benefits are for 'Key' Employees. If this
Plan is Top-Heavy, then the Employer may be required to make minimum annual
contributions to this Plan for you if you are employed as of Plan Year-end.
<PAGE>
- --------------------------------------------------------------------------------
XI. Participant Rights
- --------------------------------------------------------------------------------
A. Claims
(1). Claim Procedure
---------------
You or your Beneficiary should make a request to obtain any benefits you
are entitled to under the Plan in the event of your termination of
employment. The Plan Administrator will provide you with a request form
to complete. Your request will be considered a claim and will be subject
to a full and fair review by the Plan Administrator. If your claim is
wholly or partially denied by the Plan Administrator then you may appeal
it in accordance with the claim review procedure.
(2). Claim Review Procedure
----------------------
You or your Beneficiary may file a claim for benefits under the Plan with
the Plan Administrator on a form supplied by the Employer. The Plan
Administrator will provide you with written notice of the disposition of
your claim within 90 days after it has been filed (or, in certain
circumstances, within 180 days). In the event the claim is denied then
the reasons shall be disclosed and/or provisions of the Plan shall be
cited as appropriate.
You or your Beneficiary upon request to the Plan Administrator may appeal
the denial of your claim. If you wish further consideration of your
position then you must provide the Plan Administrator with a written
request for a hearing. You must also provide a detailed written
statement of your position for your claim and file it with the Plan
Administrator no later than 60 days after requesting a hearing. The Plan
Administrator shall make a decision on your claim and it will be
communicated to you in writing within 60 days (or, in certain
circumstances within 120 days). It will advise you if you have any right
to appeal the decision.
B. Statement of ERISA Rights
As a participant in this Plan you are entitled to certain rights and protections
under ERISA that provides that all Plan Participants shall be entitled to the
following:
. Examine, without charge, at the Plan Administrator's office and at other
specified locations such as work sites and union halls, all Plan Documents,
including insurance contracts, collective bargaining agreements and copies
of all documents filed by the Plan with the U.S. Department of Labor, such
as detailed annual reports and Plan descriptions.
. Obtain copies of all Plan Documents and other Plan information upon written
request to the Plan Administrator, the Plan Administrator may make a
reasonable charge for the copies.
. Receive a summary of the Plan's annual financial report. The Plan
Administrator is required by law to furnish you with a copy of this summary
annual report.
. Obtain a statement of your Account under the Plan. You must direct this
request in writing to the Plan Administrator. You may request a statement
only once a year and the Plan must provide the statement free of charge.
In addition to creating rights for Plan Participants, ERISA imposes duties upon
the people who are responsible for the operation of the employee benefit plan.
The people who operate your Plan, called 'fiduciaries' of the Plan, have a duty
to do so prudently and in the interest of you and other Plan Participants and
beneficiaries. No one, including your Employer, your union, or any other
person, may fire you or otherwise discriminate against you in any way to prevent
you from obtaining a pension benefit or exercising your rights under ERISA.
<PAGE>
If your claim for a benefit is denied, in whole or in part, you must receive a
written explanation of the reason for the denial. You have the right to have
the Plan Administrator review and reconsider your claim. Under ERISA, there are
steps you can take to enforce the above rights. For instance, if you request
materials from the Plan and do not receive them within 30 days, you may file
suit in a federal court. In such a case, the court may require the Plan
Administrator to provide the materials and pay you up to $100 a day until you
receive the materials, unless the materials were not sent for reasons beyond the
control of the Plan Administrator.
If you have a claim for benefits which is denied or ignored, in whole or in
part, you may file suit in a state or federal court. If it should happen that
Plan fiduciaries misuse the Plan's money, or if you are discriminated against
for asserting your rights, you may seek assistance from the U.S. Department of
Labor, or you may file suit in a federal court. If you are successful, the
court may order the person you have sued to pay these costs and fees. If you
lose, the court may order you to pay these costs and fees; for example, if it
finds your claim frivolous. If you have any questions about your Plan, you
should contact the Plan Administrator. If you have any questions about your
rights under ERISA, you should contact the nearest area office of the U.S.
Labor-Management Services Administration, Department of Labor.
<PAGE>
April 29, 1997
Board of Directors
Flagstar Bancorp, Inc.
2600 Telegraph Road
Bloomfield Hills, Michigan 48302-0968
Re: Registration Statement on Form S-8
Flagstar Bank 401(k) Plan
Gentlemen:
We have acted as special counsel to Flagstar Bancorp, Inc., a Michigan
Corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-8 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
relating to shares of common stock, par value $.01 per share (the "Common
Stock") of the Company, and related participation interests therein, which may
be sold to participants in the Flagstar Bank 401(k) Plan, all as more fully
described in the Registration Statement. You have requested the opinion of this
firm with respect to certain legal aspects of the proposed offering.
We note that approximately 44 percent of the Common Stock to be sold in
the Company's proposed public offering is original issue, with the balance being
issued and outstanding shares. Our opinion herein is limited to the original
issue Common Stock.
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion and based thereon, we are of the
opinion that the Common Stock to be originally issued will, when issued, be duly
and validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-8 and to references to our firm included under
the caption "Legal Opinion" in the Prospectus which is part of the Registration
Statement.
Very truly yours,
Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, P.C.
By: /s/ Matthew G. Ash
------------------
Matthew G. Ash
<PAGE>
We have issued our report dated March 3, 1997, accompanying the consolidated
financial statements included in the Registration Statement of Flagstar Bancorp,
Inc. on Form S-1 (File No. 333-21621, dated April 30, 1997). We hereby consent
to the incorporation by reference of said report in the Registration Statement
on Form S-8.
Grant Thornton LLP
Detroit, Michigan
April 30, 1997
